The financial crisis at Brazil’s embattled
EBX Group will not have a major impact on the
country’s banking sector even in the "worst case"
of a default, Itaú-Unibano CEO Roberto Setúbal
In an interview with LatinFinance, Setúbal
also confirmed speculation
that regional expansion was on the cards for
Brazil’s largest private sector lender.
Setúbal said that there was "no need" for his
bank to increase provisions in the event of losses from
exposure to the industrial conglomerate, as expectations grow
that EBX will have to restructure its debt.
"Given the level of exposure of banks in Brazil to EBX
group, it is not really a problem at all in terms of systemic
risk," he said.
"In the worst case scenario [of a default] we would not
change our guidance in terms of provisions or losses. Even in
the worst case scenario, we would stay inside the range we have
given, so it’s not really a problem," Setúbal
Itaú expects to post provisions between
19 billion reais ($9.2 billion) and 22 billion
reais ($10.7 billion) for loan losses in
Setúbal did not elaborate on his
bank’s exposure to the group, although the sector
as a whole has lent some $6 billion to companies controlled by
EBX, according to S&P. Other analysts put that sum as high
as $11 billion.
But he said he was nevertheless confident that the EBX,
run by beleaguered businessman Eike Batista, would meet its
obligations to its lenders. "We believe that they will over
time sell their holdings and pay the banks. They are in the
process of doing it."
He added that Brazilian banks had "little to no"
exposure to EBX’s OGX, the oil company at the
center of group’s decline. "Basically that
company has big debt that is on the heads of bondholders," he
said. "We have no exposure to OGX and banks in Brazil in
general have very low or zero exposure to that
Setúbal acknowledged that the dramatic
collapse of the EBX Group had taken its toll on investor
perceptions of Brazil. "Eike Batista was pretty much associated
with an image of a new Brazil as a very high growth country
with a lot of potential where things could happen quite fast.
And the failure of Eike [Batista’s company]
definitely goes against this perception," he said. "This is
definitely not good for Brazil."
Setúbal’s comments followed the
release last week of Itaú’s second quarter earnings
report, in which the firm’s profits of 3.62 billon
reais beat analysts’ expectations for the
The veteran banker confirmed that his bank would make an
acquisition of a "top five" bank in a strategic market in Latin
America as a key core part of its medium-term
"In order to keep on growing we need to go abroad
because we cannot really acquire many things in the Brazilian
market and the banking sector in Brazil is pretty much
consolidated anyway," he said. "We are still looking for
opportunities to acquire banks across the region and we believe
this should be possible in the coming years."
Setúbal ruled out buying investment banking
franchises in the region, but said that expansion into
"Mercosur makes a lot of sense, given the Brazilian
relationships in those countries." He acknowledged the bank was
looking at options in Chile, Uruguay, Paraguay and Argentina as
well as Colombia and Peru. "Mexico is also something that
interests us," he said. "We would like something that is at
least top five in order for it to be interesting."
He said his bank was "not really looking at the US
market at this point" although it remained
Setúbal said that Itaú’s improved performance did
not mean the lender was ready to take on more risk. "We are not
really considering at all changing our risk policy at this
point," he said. "Two years ago we announced that we were
changing our risk appetite, that we would move out of higher
risk segments and that the benefits of this strategy would be
down the road. In this quarter we delivered the
A sharp slowdown in Latin America’s largest
economy has taken its toll on the domestic credit market, with
a surge in loan delinquencies over the past two years. But
Setúbal said the banking sector had now
turned the corner on bad debt. "The worst of the problem is
behind us, we are moving to a better and more controlled level
of delinquency in general, so this is not a problem any more,"
’s delinquency rate declined to 4.2% in the second
quarter from 4.5% in the first quarter and 5.2% a year
The full interview with Itaú-Unibanco CEO Roberto Setúbal will
be published this month in LatinFinance’s