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Wednesday January 25, 2012
The best way to bank on Brazil
by Yiannis Mostrous, editor Global Investment Strategist  One of Brazil’s most favorable characteristics is a strong banking system, a sector that should benefit as investment flows return to the country. Banco Bradesco (BBD) is our favorite bank to gain exposure to this sector. Banco Bradesco is Brazil’s second-largest private bank, with over 40 million customers and more than 4,000 braches. The lender controls around 15 percent of the market in term of assets. Banco Bradesco also boasts sizeable leasing, insurance, private pension funds, and asset management business lines. The bank is famous for its superior asset quality and its conservative loan policies. As a result, its non-performing loan (NPL) ratio remains below 4 percent, and although this figure has been rising recently, the NPL ratio should continue to hover at this level. Banco Bradesco’s insurance business (30 percent of earnings) is one of the best run in the country. Additionally, this unit has shown resilience throughout the economic cycle and could offset a lackluster performance in the bank’s other units as the global economy slows. The bank’s insurance business controls 50 percent of the country’s health insurance market, 28 percent of Brazil’s life insurance market, 21 percent of the country’s market for pension plans and 10 percent of the auto insurance market. Rising incomes and the strength of Banco Bradesco’s brand should drive customers to its insurance offerings. Insurance premiums represent only 3.4 percent of Brazil’s gross domestic product, compared to about 7 percent to 8 percent in developed countries, leaving ample room for growth. The lender has pursued an organic growth model in recent years that has raised operational expenses while offering a more stable growth pattern. This trend should continue in 2012. The stock trades at 10.3 times trailing earnings and 2 times book value while offering a 22 percent return on equity. Investors will also receive a 3.5 percent dividend yield that should cushion their portfolio during times of economic distress. A new addition to the Long-Term Holdings Portfolio, Banco Bradesco is a buy up to USD20. Learn more about this financial newsletter at Yiannis Mostrous' Global Investment Strategist. 
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