Itau Unibanco (ITUB) Q3 Earnings Impress On Lower Provisions
Zacks Investment Research | Oct 30, 2017 10:26PM ET
Itau Unibanco Holding S.A. (NYSE:ITUB) posted recurring earnings of R$6.3 billion ($2.0 billion) in third-quarter 2017, up 12.5% year over year. Including non-recurring items, net income came in at R$6.1 billion ($1.9 billion), up 13% year over year.
Results displayed lower provisions, decreased expenses and a solid balance-sheet position. Lower revenues and managerial financial margin were headwinds.
Revenues Down, Costs & Provisions Fall, Capital Position Solid
Operating revenues came in at R$27 billion ($8.5 billion) in the reported quarter, down 3.4% on a year-over-year basis.
Managerial financial margin moved down 7.1% year over year to R$16.8 billion ($5.3 billion). However, commissions and fees were up 6.8% year over year to R$8.4 billion ($2.7 billion).
Non-interest expenses came in at R$11.8 billion ($3.7 billion), down 4.5% on a year-over-year basis. Moreover, expenses for provision for loan and lease losses plunged 30.6% on a year-over-year basis to R$4.3 billion ($1.4 billion).
In the quarter under review, the efficiency ratio was 47.3%, reflecting contraction of 70 basis points (bps) from the year-earlier quarter. A decrease in the efficiency ratio indicates increased profitability.
The non-performing loan ratio (loan transactions more than 90 days overdue) was 3.2% in the reported quarter, contracting 70 bps year over year. Itau Unibanco’s credit portfolio, including endorsement, private securities and sureties, reached R$539.1 billion ($169.7 billion) as of Sep 30, 2017, down 5% year over year.
As of Sep 30, 2017, Itau Unibanco’s total assets amounted to R$1.47 trillion ($0.46 trillion), up 5% from the end of the year-ago quarter. Assets under administration were R$938.5 billion ($295.5 billion), up 15% year over year.
Annualized recurring return on average equity climbed to 21.6% in the reported quarter from 19.9% recorded in the year-earlier quarter. As of Sep 30, 2017, estimated BIS III ratio came in at 14.6%, expanding 100 bps year over year.
Outlook
For 2017, the company expects loan losses and impairment in the range of R$15.5-R$18 billion. Also, non-interest expenses are anticipated to escalate in the range of 1.5-4.5%.
In addition, the total credit portfolio is projected in the range of 0.0-4.0%, while commissions and fees are likely to climb 0.5-4.5%. Managerial financial margin with clients is estimated in the range between -4.2% and -0.8%.
Our Viewpoint
Results of Itau Unibanco highlight an encouraging quarter. Furthermore, the company’s future prospects look encouraging as it remains focused on building strategies to expand inorganically. In addition to this, the merger with CorpBanca has fortified its footprint in Latin America. Nevertheless, heightening competition, reduced revenues and stressed conditions in the Brazilian economy pose significant risks.
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