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BANKING

Banco do Brasil set to outperform

Investors have misconceptions about the scale of its retrenchment; growth and asset quality recovery likely to increase through 2018.

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Bearing fruit: Banco do Brasil

Banco do Brasil’s turnaround story continues to impress, but equity analysts that cover the bank say investors tend to have a misconception about the bank’s risk fundamentals.

As a state bank, it is perhaps unsurprising that Banco do Brasil sold off more than the other Brazilian banks during recent bouts of political volatility.

However, with the Brazilian economy improving and the bank’s management continuing to execute on its plan to place profitability at the heart of the bank’s strategy, some analysts believe it now offers a leveraged play on the country’s anticipated economic recovery.

UBS and JPMorgan both upgraded their expectations to Buy in the past week – or overweight in JPMorgan’s case – to join Deutsche Bank, which has Banco do Brasil as one of its top financial picks in Latin America.

Turnaround

New CEO Paulo Rogerio Caffarelli, who assumed control in May 2016, is widely acknowledged to be doing an effective job in cutting and rebuilding the bank’s capital base, seeking to sell its Argentine asset Banco Patagonia.

“Management’s focus has switched to improving efficiency and profitability, as illustrated by the completion of its 55-branch rationalization programme earlier this year, as well as by the recovery in ROE from 8.8%