By Jeffrey T. Lewis

SÃO PAULO--Banco do Brasil SA's profit declined in the fourth quarter from a year earlier to prepare for a potential increase in the number of clients with difficulties repaying loans amid the coronavirus pandemic.

The state-controlled bank reported net income of 3.2 billion reais, the equivalent of $596 million, in the period, a drop of 43.8% from the fourth quarter of 2019, while adjusted net income fell 20.1% to 3.7 billion reais. Net interest income fell 0.7% to 14.2 billion reais.

Banco do Brasil and other Brazilian banks increased provisions for bad loans in 2020 because of the drop in economic activity in the year amid the Covid-19 healthcare crisis. The economy contracted sharply in March and April, at the height of social distancing restrictions, then recovered in following months, with growth slowing in the final months of last year.

Banco do Brasil provisioned 5.2 billion reais for allowances for loan and lease losses in the fourth quarter, an increase of 46.3% from the same period a year earlier, though down 6.4% from the third quarter of 2020.

The bank is also working to cut costs by closing branches and reducing staff, with total operating expenses declining 2.7% in the fourth quarter from a year earlier to 14.1 billion reais. Personnel costs fell 8.5% to 5.1 billion reais in the period.

Write to Jeffrey T. Lewis at jeffrey.lewis@wsj.com

(END) Dow Jones Newswires

02-11-21 1738ET