UPDATE 2-Banco do Brasil sets more aggressive targets for 2019

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(Updates with new CEO challenges)

By Carolina Mandl

SAO PAULO, Feb 14 (Reuters) – Banco do Brasil SA beat fourth-quarter profit estimates and set more aggressive targets for 2019 to be met by new Chief Executive Rubem Novaes, a securities filing showed on Thursday.

The state-controlled lender reported recurring net income of 3.845 billion reais ($1.02 billion), 6.5 percent above average analysts’ consensus by Refinitiv, and up 20.6 percent year on year. Loan-loss provisions fell and fee income rose, offsetting sluggish loan book growth.

Its return on equity came in at 16.3 percent, up 2 percentage points in the period.

Banco do Brasil said it sees a rosier performance in 2019, as net interest income and fees should also grow at a faster pace while loan-loss provisions are likely to keep their downward trend.

The bank forecast its 2019 recurring net income at 14.5 billion to 17.5 billion reais meaning growth of up to 30 percent.

Still, non-interest expenses are likely to grow between 2 percent and 5 percent, accelerating from the 0.6 percent expansion in 2018.

It estimated its domestic loan book would grow by 3-6, helped mainly by loans to individuals. It grew 3 percent in 2018.

The new targets underscore the challenges ahead for 73-year-old CEO Novae.

Part of the team of orthodox economists assembled by Economy Minister Paulo Guedes, he is a fellow alumni of the University of Chicago’s free market school of economics.

Although he served a three-year stint as a director of Brazil’s development bank BNDES, Novaes worked most of his career as an academic and consultant.

Novaes experience is in sharp contrast to former Banco do Brasil CEO Paulo Caffarelli, who started working in the bank as a teenager and gradually climbed the corporate ladder over a 30-year period. Caffarelli left Banco do Brasil in November to become card processor Cielo’s CEO.

Novaes’ biggest challenge will be improving the bank’s profitability while addressing far-right President Jair Bolsonaro mandate to privatize and cut government loan subsidies.

Banco do Brasil’s return on equity is closing the gap with the country’s largest private lenders, but is still behind banks such as Itaú Unibanco Holding SA and Banco Bradesco SA.

The country’s privatization secretary Salim Mattar said last month that Bolsonaro’s government wants to sell some Banco do Brasil’s subsidiaries, such as its investment banking, asset management and debt collector units.

Since Novaes took the reins of Banco do Brasil, he has made few changes in the management. In a filing, the bank said it forecast the maintainance of its current business model.

Later on Thursday, Novaes will host a press conference to discuss Banco do Brasil’s fourth-quarter results and goals for 2019. ($1 = 3.7543 reais) (Reporting by Carolina Mandl editing by Keith Weir)

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