By Mike Caggeso
Associate Editor
With incomes rising all over Brazil, Banco Bradesco SA (ADR: BBD), the country's largest private bank, plans to add 350 new offices throughout the country in the next year and a half.
In an interview with Bloomberg, Banco Bradesco Chief Executive Marcio Cypriano said the retail expansion is a bid to sustain the bank's staggering 30% annual profit growth.
"It's possible to maintain the profit growth as long as we can boost our client base," Cypriano said. "We need to grow our network to reach these people that are earning more."
As of now, the bank has 3,160 branches, 21% fewer than Brazil's largest bank, state-owned Banco do Brasil SA, Bloomberg reported.
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Banco Bradesco's mortgage lending nearly doubled between 2006 and 2007, from $1.32 billion (2.12 billion reals) to $2.5 billion (4.09 billion reals), and Cyriano said he expects $3.7 billion (6 billion reals) in mortgages this year.
Other income streams will be generated from expanding marketing efforts of its other business, such as insurance, brokerages and credit cards, Bloomberg reported.
Of course, each bank's growth prospects wouldn't be possible without Brazil's overall economic performance and potential. Recently, the country posted a blistering 5.8% first quarter growth, its 18th consecutive quarterly gain and fastest rate of growth since 1995.
That doesn't mean it will be easy for Banco Bradesco to keep profit growing at the same 30% pace it has been.
Walking the line between curbing inflation and promoting growth is tough for every emerging economy. Central banks often fight inflation by raising interest rates, but that pinches commercial banks because real estate is one of the first market that contracts in the face of steeper lending policy.
All things considered, Cypriano is optimistic.
"It's difficult to say what's the trend for return looking forward but I would say it's more likely to remain stable," he said.
Safe From U.S. Woes
Investors shouldn't worry because, if anything, controlling growth is a good problem to have.
Secondly, Brazil is far enough removed from the sagging U.S. economy because South America as a whole has strong energy, mining, financial and agriculture industries, making them less reliant on U.S. imports.
Last year, Brazil's main stock market index, Bovespa Holding SA, rose 71% - even faster than India's.
And on Feb. 20, Brazil displaced China to become the world's biggest emerging market, according to a key index – the Morgan Stanley Capital International Global Emerging Markets (MSCI GEM).
That shift will likely attract billions in new money to Brazilian stocks, especially from money managers who benchmark their portfolios against the MSCI GEM index.
The bottom line: Expect money to flood Brazilian shares, says Keith Fitz-Gerald, Investment Director for Money Morning.
"Anytime a country moves to the top of that index there's a strong re-indexing effect," Fitz-Gerald said. "And that will lead to billions of dollars of institutional money being shifted as those professional investors rebalance their portfolios. They're going to move substantial amounts of money into Brazilian stocks."
News and Related Story Links:
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Bloomberg:
Bradesco Bets on Retail to Assure Profit Growth Rises Above 30%
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Money Morning:
Brazil Economy Expanded 5.8% in 1Q; Central Bank Likely to Raise Rates Again