Itaú Unibanco Holding SA, an important banking group in Brazil is prepared to face a lot of losses in the form of bad debts, or loans that can not be repaid. A slow economy is responsible for a slow loan book growth. The number of defaulters is huge.
The bank proposes to hike the provision for bad loans in the current financial year. Surprisingly, market shares came tumbling down soon after the announcement.
Itaú Chief Executive Officer Roberto Setubal voted for a slicing down of expenses of the bank to counter the problem of bad loans. Profits made by the bank ought to be reserved to cover bad loans in the future. The present poor condition of economy in Brazil is responsible for the need of tuning of different courses of action as per the trends of the economy.
Efforts are on by the bank to slash its expenses in an attempt to get over losses posed by bad loans. It also intends to mark a portion of the profits it makes to get over the problem. Brazil faces the problem of a shrinking economy largely due to mismanagement of resources. It is believed to be tumbling at the fastest speed it ever did since 1992.
The bank maintains a reserve for bad debts. This is Itau's coverage ratio. This was boosted to 200 per cent in the first quarter of the financial year, a move that raised concerns for more sensible risk management. A small amount of strictness in this end brought down bad debts tumbling to 3 per cent.