Santander Brasil beats net profit forecasts but raises loan-loss provisions

(Recasts with share reaction, analyst comments)

By Gabriel Araujo

SAO PAULO, July 28 (Reuters) - Banco Santander Brasil SA SANB11.SA on Thursday beat second-quarter net income market expectations but its loan-loss provisions rose against a challenging macroeconomic backdrop, sending its shares almost 3% lower.

Net profit rose 2% from the previous quarter to a better-than-expected 4.08 billion reais ($778.08 million), as analysts polled by Refinitiv had forecast the Brazilian unit of Spain's Banco Santander SA SAN.MC would post net income of 3.88 billion.

However, Santander Brasil said that loan-loss provisions - an indicator of how much cash the bank has set aside to cover loans that are unlikely to be fully repaid - hit 5.75 billion reais, up 24.6% on the quarter.

Units in Santander Brasil were down by as much as 2.9% at 27.04 reais early on Thursday until they pared losses to trade around flat. Brazil's Bovespa stock index .BVSP rose 0.3%.

"Cost of credit was the main detractor, with provisions rising impressively," analysts at Genial Investimentos said in a note. They added they expected a challenging second half, even with provisions seen slowing in the fourth quarter.

Ahead of the earnings report, investors surveyed by Bank of America had said the company was likely to deliver the weakest quarterly figures among banks with large market capitalisation in Brazil, with provision charges among their main concerns.

Brazil's third-largest private bank, Banco Santander Brasil competes with players including Itau Unibanco ITUB4.SA , Bradesco BBDC4.SA and state-run Banco do Brasil BBAS3.SA .

Analysts at Credit Suisse and JPMorgan said Santander's results may have a negative read-through for Bradesco on cost of risk and negative trading figures respectively.

In a statement, Santander Brasil's finance chief, Angel Santodomingo, said: "Despite a still-challenging macroeconomic environment, loan portfolio quality indicators were stable over the period."

The lender's loan book rose 2.9% on the quarter to 468.54 billion reais.

Brazil is the Spanish lender's largest customer base and accounts for almost a third of underlying group profit. ($1=5.2437 reais)
Reporting by Gabriel Araujo; Editing by David Goodman, Clarence Fernandez and Barbara Lewis

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