Banco Bradesco S.A. (NYSE:BBD) Q1 2024 Earnings Call Transcript

Banco Bradesco S.A. (NYSE:BBD) Q1 2024 Earnings Call Transcript May 3, 2024

Banco Bradesco S.A.  isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Marcelo Noronha: Hello. Good morning, everyone. I am Marcelo Noronha. I’m here to present the results for the First Quarter of 2024 of Bradesco. I’m here live speaking from Cidade De Deus, the City of God. It’s 10:31 AM. It’s a great pleasure to be with you once again. And before we start the presentation, I would like to say that unlike what we did in February when I started presenting the strategy in lengthier way. The idea here is not to present a strategy in so many details again, but we will summarize everything, and then we will revisit some of the topics as the questions pop-up. And so, I will talk throughout the presentation about what we delivered in addition to the numbers related to the first quarter. And I’m sure I think you have the opportunity to take a look at the members since we published we posted the presentations and the release after 6:00 AM.

Our net income, recurring net income was BRL4.2 billion. It was flat in relation to the previous quarter, but 46% better than the last quarter of ’23. And there are some points of attention here that are highlights of our balance sheet. Some are challenging and some other topics relate to good deliveries that we’ve been doing. First, the improvement in ALL for both retail and wholesale. That also leads to an improvement of our NPL that is improving in all segments. We also increased loan in all segments. I think there is a colleague from the sales side the last quarter asked me a question. He said, do you think you would resume traction? And you will see through another charge that I’m about to show you that there is an inflection in that total loan portfolio and that’s what we will show you.

We will show you growth in all loan segments with traction, and this is just to answer that question from the previous quarter. Well, the challenge is the gross client NII, but there is a justification for that and that justification is in our guidance. First, we have the loan book and then the margin follows suit and I will talk a little bit more about it when I talk about the loan book and the guidance. Another topic which is very satisfactory is the control of operating expenses, which grew 4.4%, as we will see, and a very sound performance of the Bradesco Insurance business. In all lines, we had a solid performance. So, the results for the first quarter was BRL4.2 billion, very much in line with what we intend to deliver this year. And as I said before, step-by-step we will gradually grow.

And I know that my clients on the sales-side, in particular, those that have been analyzing as they, they can look at the presentation from the last quarter 2023 and then take a look at everything I’m about to tell you and run a comparison with what we talked about the previous quarter. Therefore, our loan portfolio reached almost BRL890 billion. We grew 1.2% year-on-year. And looking at the quarter alone and the quarter says that we are growing steadily, we grew 1.4% quarter-on-quarter, the inflection of the curve, saying that in the last two quarters, the portfolio was coming down, but now it was declining. Now we are resuming growth. If we look at the free portfolio, if we were to look at the presentation from the previous quarter, you will see that traction now is much better based on the KPIs that we showed you in the previous quarter.

Looking at individual’s portfolio, we grew year-on-year 2% and 1.9% quarter-on-quarter, but this growth is well spread. Some portfolios give us a pretty good balance and there are other portfolios where we have to grow products with higher margins, but we are getting there. Payroll loans grew 4%, 2.1% growth quarter-on-quarter. Mortgage loan or real estate, I think we are probably the largest private bank to deliver growth 5.8% year-on-year and 1.8% quarter-on-quarter, credit card, we didn’t grow. The risk was higher, but where is it that we are not growing? We are not growing in non-account holders. When we look at prime banking, we posted 12, almost 12% growth when we look at the credit card in the high-income segment. Personal loan, 10.1% growth quarter-on-quarter and 1.8% year-on-year.

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Q&A Session

Vehicles, also in rural credit, the lines that are more secured, these are lines that are long-term lines, but at the same time, they carry smaller margins. Now looking at SMEs or companies, in wholesale bank, large companies, we grew 1.6% and SME, micro, small and midsize companies. We are beginning to see more traction. So, we grew 2.3% quarter-on-quarter. But I will elaborate further on SMEs later on. Something new that I am now bringing to you is an example of the vintages. Vintages for mass individuals or individuals’ mass market. So, we started with 100 back in 2019 and look at the second quarter of 2022. The vintages that we have been acquiring, that’s still blue line starting with the base of a hundred, but the bar in way, means origination for 2019.

So, origination for individuals’ mass market and this is again answering the question that you asked back in the third quarter. What about the mass market? This is proof of our principality, meaning that we are increasingly bringing better ratings even in mass market and this is proof of what we are saying. I’m talking about vintages over 30, et cetera. With time, we are not going to see vintages being right here. There will be slightly above, because we will get into products that carry did more risk, but they also lead to better margins. Here we have to the right payroll loans, installments, finance. Cards alone is the only line that is not growing. And I already explained and that was due to non-account holders, clients that come from OpenSea and from the digital segment.

But delinquency is coming down, and this is due to the quality of the collection service we are now providing. And now let’s look at SMEs. I am exclusively talking about SMEs, starting with the ways of hundred. Now look at the quality of the vintages. In terms of SMEs, so companies, the borrowers have not yet reached the levels of 2019, because we’re being more conservative. Now I would like to highlight a few lines of growth, but there are some lines that we are not growing as much because of the risk involved. This today is a segment that presents the highest credit risk, but nonetheless, we continue to grow and this certainly explains why we haven’t yet increased in the total NII. Now you see delinquency levels falling. And soon I will talk about the net margin.

So, this is NII. You already look at the KPIs, and this is a snapshot of our portfolio. When you look at this column that is available for you to look at, you look at how much we grow in terms of portfolios that are safer within our portfolio. And now we also leverage credit to these other two lines here. So, the loan portfolio comes first and then that’s followed by the margin. According to our expectation, this is what we expect to see throughout the year that the market NII goes down. So, client NII is coming down. But when we look at the net client NII, look at the relative numbers, where we were and where we stand today. So, risk appetite is different. Therefore, we have new credit models. We have new credit policy. We are using a lot of machine learning in our credit segment and with our team.

Therefore, with the quality of the risk is being monitored very closely starting with FPD to control all of our portfolios. We are very much grounded and then you could see that we gained market share in February when compared to the Central Bank portfolio. It’s not the expanded portfolio because the Central Bank does not disclose that. But I can tell you with a very good degree of certainty that we gained shared in March alone as well. So, we grew more in February, March when compared to January what we produced in January, there was just one month when we increased our NII. And whatever was produced in March, this will be reflected in April. So, our overnight loan portfolio, everything is in the control in all lines, NPL, 100% of provisions.

And our coverage ratio very flat and stable when compared to the previous quarter. Expanded ALL also brings important figures. I’m not going to look at the previous quarter, but we had almost 18% growth year-on-year. I mean, in terms of mass retail, there was a drop, but the quality of what we are bringing is much better. We are much more effective in terms of our collection in credit recovery. Whenever we talk about ALL, I mean this provision indicator versus the annualized portfolio, this is an index that we haven’t seen for quite some time. Therefore, the numbers are very important because it goes towards the NII that we presented in the previous quarter. Now speaking about fees and commission income, this is very much leverage on payment because of exchange and the companies that we have.

So, it’s natural that it falls. I mean, this type of revenue is the lowest in terms of all the previous quarters. And the second quarter is better because we have Mother’s Day. And the last quarter, you know, you have Children’s Day, Black Friday and all of the holidays, the Christmas holidays. So, 1.3% a year growth is an indication that growth will be according to our guidance. So, it’s within our expectations. And in all of the other lines, I would like to highlight for Sao Paulo with this level of growth that you see. I mean, loan operations can present. That means that we are well on track. And checking account, we had been losing ground with checking account, but now we resume growth because of some of the intelligent packages that we are delivering and it’s capturing value.

I think the most difficult part is equities and capital markets and expectation is low for this year. And all of the reasons are well known to all of you. But we are very pleased to see the level of growth in terms of fee and commissions income. When it comes for Bradesco to run comparisons, I mean, other incumbents say that within the fee and commission’s income, they also include insurance revenues. But in our case, that’s separate because that is included in the insurance operations, our operating expenses. For me, that is a highlight. That’s our goal, we talk about 4.4% year-on-year growth. We are delivering things with lot of seriousness and the optimization of our footprint with about 300 movements in the first quarter of 2024. Now when you look at the book, you will see a chart that shows branches and points of service.

Within that point of service, we have what we call PA. We have small PAs and large PAs, which are points of service. This is another name used by the central bank, but it is a mini branch. In some municipalities, we shut down some of these PAs or points of service. But I will, later on, talk about the company segment. This is something that we’ve referred to at the beginning of the year. We said that we would do another segmentation with very specific service with specific branches to cater to companies and that’s what we did. So here you see a larger number of branches serving companies. In fact, there was a reduction significant reduction or maybe at a bigger pace than what was previously announced. And now later on, I will talk about this new — branches for companies and Bradesco Expresso.