Banco Bradesco S.A. saw its U.S.-listed shares decline on Friday, even as the Brazilian private lender reported its second consecutive quarter of profit growth. The market focused on escalating credit costs and mounting pressure on the country's banking sector. The American depositary shares ended at $3.455, down $0.115 from Thursday's close.
The timing of the report is critical. Bradesco is working to demonstrate that its turnaround story remains intact despite Brazil's persistently high interest rates. The Selic benchmark rate currently stands at 14.50%, trimmed only slightly following two quarter-point cuts. The central bank, while weighing external risks and inflationary pressures, has left future policy moves uncertain.
Broader market sentiment toward Brazilian banks has tightened after state-run Banco do Brasil reported a 54% plunge in adjusted net profit for the first quarter and reduced its 2026 guidance. Political headlines, including the collapse of Banco Master and news surrounding presidential contender Flavio Bolsonaro, have further dampened investor confidence in Brazilian equities.
Bradesco's headline numbers appeared solid at first glance. Recurring net income, which excludes one-time items, reached R$6.81 billion, a 16.1% increase from the same period last year. Total revenue rose 14.0% to R$36.88 billion, while net interest income—the crucial difference between lending earnings and funding costs—advanced 16.4%.
However, the expense side painted a more concerning picture. Loan-loss provisions, the funds set aside to cover potentially bad loans, jumped 26.5% year-over-year to R$9.67 billion. Loans overdue by more than 90 days edged up to 4.2%, compared with 4.1% in the prior-year period.
Chief Executive Marcelo Noronha told investors that Bradesco has adopted a "more conservative stance," but emphasized this does not signal a pullback in loan growth. He identified a specific wholesale exposure and aging rural-credit portfolios as the primary drivers behind the increased risk cost.
The performance gap between Bradesco and its peers remains wide. According to Jefferies data, Bradesco delivered just 26% of Itaú Unibanco's banking profits, down sharply from roughly 80% in the first quarter of 2022. Jefferies also estimated Bradesco's adjusted pre-tax return on risk-weighted assets at about 1.4%, well below Itaú's 4% and Santander Brasil's 2.4%.
Rate-cut optimism still provides some cushion. On Polymarket, traders assign a 75.5% implied probability that the central bank will cut the Selic in June, with a 25.1% chance of no change. For lenders, lower rates could relieve borrowers and potentially boost credit demand, but the risk remains that lending spreads may shrink if funding costs do not decline in tandem.
Insurance provided a bright spot for the quarter. Income from Bradesco's insurance, pension, and capitalization operations grew 20.4% year-over-year, with the insurance division contributing R$2.8 billion in recurring net income. Noronha highlighted the Bradsaúde healthcare consolidation effort as a strategic move to enhance capital efficiency and shareholder value.
The key risk moving forward is whether credit jitters remain contained. If rural loans, small-business working capital, or large corporate exposures deteriorate further, provisions could begin to erode the net interest income Bradesco is counting on. A stall in rate cuts or an escalation of political tensions—weakening the real and stoking inflation—would further complicate the outlook. Bradesco's profit has rebounded for now, but investors are still seeking firmer evidence that the gains can persist without being offset by rising loan losses.