Brazil Banks’ Lower Provisions Seen Masking Credit-Quality Woes

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Itau Unibanco Holding SA, Banco Bradesco SA and Brazil’s other major banks are expected to post their first quarter-over-quarter decline in bad-loan provisions in at least a year when they report results in coming days. The good news will probably be short-lived.

Provisions jumped in the first quarter as banks took into account the looming failure of Sete Brasil Participacoes SA, the oil-rig supplier that filed for bankruptcy protection in April with 18 billion reais ($5.5 billion) in liabilities. Itau, Bradesco and Banco do Brasil SA missed analysts’ earnings estimates because of higher-than-expected set-asides.

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