Banco Bradesco S.A. (NYSE:BBD) Q4 2023 Earnings Call Transcript

Banco Bradesco S.A. (NYSE:BBD) Q4 2023 Earnings Call Transcript February 7, 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: Good morning, I am Marcelo Noronha, and I’m here live speaking from Cidade de Deus, it’s 10:32 AM to present the numbers for the full year of 2023 and of Q4 2023. After that, we will have a second topic. Our guidance for 2024. You probably read our book in our guidance for 2024. To us, 2023 was a challenging year. It’s not the result we would have loved to deliver to you. And the guidance of 2024 falls short a bit. But to us, 2024 will be a year of transition of transformation at Bradesco. And lastly, the third topic is our strategic plan, of course, here bringing the executive summary of the plan that we put together in the last 60 days. I will present that to all of you. And then we’ll be able to debate that during the Q&A.

And I will be available to all investors for us to talk later. We already have some meetings scheduled for buy-side and sell-side investors so we can speak about our clients for the next five years in more detail from 2024 to 2028. So now I have the challenge of presenting at the same time that we present an income statement of Q4 ’23 to speak about full-year results, the guidance, and the strategic plan in an executive summary, as I mentioned. So I’ll try to do this as quickly as possible so we can have our Q&A. Let’s start with our numbers. Our results. As you can see, we have an additional number in lighter color was the end of the quarter with KRW4.3 billion. Here, we had an ALL enforcement for two cases in the wholesale bank. We were a little more conservative in these two cases.

We reduced the ratings, that’s why our recurring net income was KRW2.9 billion. In addition, we had two major nonrecurring events. As you can see here in this last topic here on the right of the screen. The provision for the restructuring that we had and the contingent liabilities. I think you should comment on some positive aspects of our income statement. Wholesale ALL was forced in the two cases that I mentioned, and this is relevant. We have a comfortable coverage level for the wholesale bank for this year with the reduction of ALL in mass retail. Just that we’re going to show a reduction in all delinquency ratio. We cannot show the higher delinquency that we had for SMEs and mass retail. Credit stats accelerating. I will show you that this happened for individuals and SMEs. We had market NII recovering, total NPL dropping 50, and here, there’s another positive point which differentiates with this in a position.

We are growth that has a bank business and also the largest insurance login Latin America. Our insurance group with a higher level with an ROAE close to 25% in 2023. Our operating expenses were within the guidance, and I will detail more on our expenses. So moving forward, like I said, we had an inflection of the curve for both individuals and SMEs in the vital going 1.3% despite a reduction we had in our appetite for risk in 2022, 2023 and also a change of level for SMEs, posting a 1.5% growth quarter-on-quarter. We had the write-off of a well-known case, which happened in the end of 2022 in Q4 of 2022 to call your attention to our average daily production. In the second half [indiscernible] increased because we changed our credit models and to policy for individuals, which became more restrictive than in the past.

Yes, it’s true. But we’ve had new controlled vintages, the singles for SMEs. We tested modules in April, we implemented the new models as of September, and restarted to grow again in the segment of small and midsized companies, again, with more control and credit policies. So we won’t have any issues in the new vintages, which are performing really well. As I mentioned, the delinquency ratio. We can see all curves of NPLs dropping, some for the second to second. So we have this portfolio under control. Our coverage ratio grew to 165% and NPL creation decreased. I mentioned these two cases, we had in the wholesale bank with total provisions of BRL10.5 billion in Q4 and three before, this is our net interest income, NII. We reduced rose capital, as I mentioned, in the end of 2022 and throughout 2023.

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Q&A Session

And of course, we stopped having new productions for a while. We resume that towards the end of the year and continue to grow. We will definitely grow, but step by step with good vintages, both in mass retail and in SMEs. In terms of personal credit, working capital, and other lines that we’ve been growing. And our market NII is a highlight, posting growth in Q4, BRL0.7 billion, seeing good expectations for [indiscernible].Fee and commission INCOME. We know that this is a line item that is under pressure. I think the whole market is talking about that, particularly in card income. We posted 3.4% growth quarter-on-quarter. However, we know that animal payments boepd over time were compromised because we had a structural change here on the brake with free cars.

So that impacted current income, but our loan operations grew quite well in Q4 because of this resumption that I mentioned. We grew in consortium eminent and in checking account. We have challenges because of payment accounts, but we continue to work on that to offer better pace, we have a good expectation for capital markets for [indiscernible], as for our operating expenses, I think I should make three comments here. Number one. In 22, looking at the line item, other operating expenses… Also a reduction in 2022. So that’s a baseline for comparison in 2023 — lower base volume. Therefore, we have a greater valuation. And we balanced this line item of other operating expenses in 2024, bringing them back to the levels of 2019, 2020. So there’s some fluctuation in these ratios.

And personal exposes, looking at the last indicator, we see a 6.4% increase despite the collective bargaining agreement, which meant a 7% salary increase and administrative expenses, we grew 2.5% inflation. We had a reduction in customers at this point as you can see on this slide. You can see this on the screen in our earnings. Let’s talk about the insurance growth. And I think that this is a big highlight in our results. We had exceptional results along 2023, growing about 21%, 21.1%, 2023 over 2022. Net income growing significantly, almost 25% ROE with revenues greater than BRL100 million. Insurance group went to a whole new level. So regarding our IUC, we declared 11.3 as you can see in the graph and our vessel Tier 1 grew 81 bps compared to Q4 2022, reaching 13.2% as you can see.

So done with that, let’s move to the [indiscernible]. The comment is that we have an expected growth for our loan portfolio of 7% to 11%. In the middle point, we’re talking about 9%, slightly above what the market should expect. Yes, the expectation is around 8%. Why is that the NII does not follow the loan book because of the average portfolio effect will grow month by month step by step. And not really, we will have total NII, depending on the mix, we should also improve our mix, but above the average portfolio, and we are going to see improvements in 2025. Fee income 2% to 6%, suffering some pressure, as I mentioned, operating expenses. That’s not the best ratio. We have an effect of other revenues and expenses. But I think that we are doing quite well regarding personnel and administrative expenses.

We’ll speak about our goal in terms of operating efficiency targets. So the expected growth is 5% to 9%. Regarding the insurance group, we expect growth from 4% to 8%. The natural question for new is why only 4% to 8%, but there are three phenomena to mention here. First, the reduction in interest rates that should reach 9.5% in 2024 December 2024. And then we have the variation of the indices GPM and we can see also the variation of insurance core and growth of 4% to 8% in 2024 means that if we go back to 2022, what do we see in the insurance growth to 25% and 30% in two years for the insurance group is large the largest on America. And lastly, our expanded ALL, BRL35 million to BRL39 billion. This is reducing. But we’re not reducing more because of the increasing loan book and the mix we want to have, which requires more provisions for expected loss.

If the portfolio were more stable, we would have an expanded A provision or — so now, ladies and gentlemen, I’m going to move to our strategic plan mentioning our expectations. Our expectation is that 2014 will be a year of position and transformation. Then I would like to make a comment such a strategic plan, such as the one we have adopted would naturally take about six months for us to execute, but [indiscernible] challenge of doing it in 60 days. We’re going to do it where the renowned consulting firm — it’s waken. I can tell them in looking supported by other cool firms so that we can have safe and monitors that we can execute perfectly. So what we’ve done was to follow academia by the book with the market diagnosis for Bradesco, then developing a plan.

And now moving on towards the execution here to have the entire market diagnosis as we developed. It wasn’t only the involvement of Brazil’s consulting team, but from different ventures in the world who came to support us in this diagnosis of the market with benchmarking technology, credit and so on. In addition to — well, after the diagnosis, we developed this plan that’s actually a set of initiatives. We had ongoing initiatives in the bank. And what we did was to revalidate those initiatives, measuring everything we had determined to make sure the initiative was valid, sound, and whether or not we should continue with them. We maintain some others we identified that we had to change the way of getting it done and the perspectives that we have.

And then there are others that were not part of our plan, and we’ve included them in the set of initiatives to develop our plan. And then we move into the execution phase. We do know the consulting, the company’s work, and the stage of execution. What we do is take the initiative, break it down at greater detail levels to conform the economic intervals that we determine, the timeline for the development, what type of investments we need to make. In some cases, we are already making progress. We’re already entering the execution and detailing phase. Others are just starting this stage should on this process to further detail and execute the plan. But what happens when we develop the plan? We started with a new structure based on that strategic plan, and now we have [indiscernible] and a framework for us to pursue over the next five years.