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
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
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
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 quarter.
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 results."
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," he said.
'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 25-Year