Banco Bradesco S.A.
Q1 2019 Earnings Call Transcript

Published: 28 Apr 2019

[Operator:]

Good morning, ladies and gentlemen, and thank you for waiting. We would like to welcome everyone to Bradesco's First Quarter 2019 Earnings Results Conference Call. This call is being broadcasted simultaneously through the Internet in the website, banco.bradesco/ir-en. In that address, you can also find the presentation available for download. [Operator Instructions] Before proceeding, let me mention that forward-looking statements are based on the beliefs and assumptions of Banco Bradesco's management and on information currently available to the company. They involve risks, uncertainties and assumptions because they relate to the future events and therefore depend on circumstances that may or may not occur in the future. Investors should understand that general economic conditions, industry conditions and other operating factors could also affect the future results of Banco Bradesco and could cause results to differ materially from those expressed in such forward-looking statements. Now, I will turn the conference over to Carlos Firetti, Market Relations Department Director.

[Carlos Wagner Firetti:]

Good afternoon, everyone. Welcome to our conference call for discussing our earnings results for the first quarter 2019. We have today with us participating in the call our CEO, Octavio de Lazari Jr.; our Executive Vice President and CFO, André Rodrigues Cano; the CEO of Bradesco Seguros, Vinicius Albernaz; and our Executive Director and Investor Relations Officer, Nianda Miranda. Now, I return the floor to Nianda for starting the call.

[Nianda Miranda:]

Hello, everyone. Thank you so much for joining our first quarter 2019 earnings review conference call. We start this presentation with a sense of pride, about our bank and about our almost 100,000 employees. It's remarkable how much we have accomplished in terms of financial performance so far and we see there are lots of room to grow as we continue to accelerate investments in our people, diversity in all of our levels, products, services and technology. The first quarter was another strong quarter for Bradesco with the firm generating record revenue and record net income as well as a growing ROAE. Despite the increased confidence level noticed in the end of 2018 and the beginning of 2019, the Brazilian economy has not shown the expected strength in growth yet. As a result, we have revised our 2019 GDP growth expectation to 1.9%. We believe the recovery of that momentum as the pension reform is approved and the economic agenda moves forward. But we foresee a gradual but steady growth with responses for inflation control and the maintenance of low interest rates. Despite this scenario, we are very pleased with our results, which we strongly believe were due to our [sophisticated] [ph] position, growing client focus, and this is very important in our strategy, [effort simplification] [ph] of our teams and the strategy bank has pretty much adjusted in the [bank growth] [ph]. We remain flexible to face volatile market conditions and we believe that in case the pension reform get approved, that the market where we shall face. But we are going to be investing continuously in our people and technology; and very focused on serving the needs of our clients. The first quarter was very strong for us. As you can see on Page 3, we earned R$6.2 billion in net income, up 22.3% year-on-year, reflecting a strong underlying performance across all of our businesses. Keeping with growth trends of the previous quarters, our annualized ROAE reached 20.5% and growing. We are confident to keep this level. The expanded credit portfolio accelerated growth phase and reached more than R$548 billion or 12.7% year-on-year. In this sense, we'd like to highlight the balance of astounding growth that we achieved in the main lines of our [credit product stringent features] [ph]. We're going to get in some more details afterwards. Credit quality improved again this quarter, and the 90 days delinquency ratio was down 24 bps in the quarter. Finally, in highlight, a further increase of 70 bps in our Tier I Capital, reaching the 14.4%. In Page 4, we highlight some of the several important initiatives we had in this quarter, such as the net number of checking accounts growing approximately 360,000 in Bradesco, the our mature platform and approximately 300,000 in Next, showing that both our platforms grow and benefit from our technological and client focus strategy as well. The healthy growth performance on individual loan portfolio reached almost R$200 billion, up to 12.8% year-on-year. And our outlook for that remains very positive. The creation of an incentive program that reward outstanding performance of our managers, enabling almost 30,000 people toward performance bonus from now on is something new and something that is pretty much in our driving our sales force and giving us all the elements to believe that we shall grow steadily this year. So within - or last in this stage I would like to highlight that the strong growth in the net income of our insurance business that reached R$1.8 billion, up 16.1% year-on-year. Moving to Page 5, we quickly present our strategy of technology or technology that is comprised pretty much of three pillars. The first one is the transformation and the validation of our traditional bank through the growing focus on client and intensive use of technology. We aim to delight our customers in every single market that we play. BIA, that is Bradesco Artificial Intelligence, is a more and more important component of business strategy, as it acts across all of our projects, across all of our services, department and even in different environments here. The second pillar is our digital bank, Next, our fintech. Next is readily becoming an independent fully digital bank, providing a more complete [fine] [ph], innovative and convenient experience to clients than any other fintechs that's in Brazil. And the last, but not the least pillar, is preparing the bank to run in the open bank world taking advantage of our platform's flexibility to distribute not only Bradesco's products and services, through several fintechs and others. As we already doing now a new portal, as we already [inaugurated] [ph] for instance. We believe that these three pillars put us in a very flexible and broad position, so that's the several different scenarios, and combined our tradition and safety, with innovation and client focus. We wanted to say that, in 2019 we expect to get more than R$6 billion in technology, one-third of which is innovation, it's huge. Moving to Page 6 represent BIA, one of our transformation initiatives of the bank, which puts in the bank wars on cutting-edge position in the use of artificial intelligence, in the financial markets not only in Brazil but worldwide. We are pioneers in launching such a tool to clients. And we continue to expand it fast due to the use of its artificial intelligence. BIA is a multiplatform, as it means IBM-WATSON, Google Assistant, Amazon Alexa, Microsoft Cortana. And it has been recognized by IBM, as the largest IBM-WATSON bank implementation in the whole world. BIA allows us to cut costs, but it is mainly a tool to improve our customer experience, in this sense to expand revenue. We have recently achieved the level of 100 million interactions of clients with BIA with 96% accuracy. Then on Page 7, we explore a little bit more this digital world, we are providing factors. We highlight Next, we'd achieve 800,000 clients by the end of this quarter. We are opening about 7,000 accounts daily. And we expect to reach 1.5 million clients by the end of the year. 75% of these clients who joins Next were not Bradesco's clients, and the churn is very low, only 2%. In the first quarter, Next credit portfolio grew 38% and deposits 35%, and 28% of Next clients has the approved credit lines. And we are increasing this number every week. BIA customers' interactions through WhatsApp had significant evolution, reaching more than 30 million transactions in the quarter. The volume of loans delivered through mobile and Internet increased steadily. The figure was up 90% year-on-year for individuals and 159% year-on-year for companies. Regarding to SMEs, we can move to Page 8, just to give you a flavor. And there you're going to see that we continue to extend our offerings to SMEs and migrate towards in the best looking banking concepts. What is pretty much aligned with what with the Central Bank has released yesterday. We sold away 314,000 sales POS through our channels and our micro entrepreneurs portal reached more than 854,000 users. Moving to individual credit loans on Page 9, you're going to see that one of the main highlights is our strong growth within individuals. It's really impressive. The main factors that contribute to this good performance are

[Operator:]

Thank you. [Operator Instructions] Our first question comes from Mr. Thiago Batista with Itau BBA. You may proceed.

[Thiago Batista:]

Hi, guys. Thanks for the opportunity. I have two questions. The first one about the open banking, if you can give a view about the possible impact of the guided lines what was mentioned related to yesterday, Central Bank. So I know that you had mentioned it a little in your initial speech. But if you can give a little bit more view about the possible impact? The second one is about payout ratio. Do you believe it's possible to assume that payout ratio should increase next year? Or is it soon to expect this possible increase to payout ratio?

[Nianda Miranda:]

Thank you, Thiago. This is Nianda speaking. Pretty much, we are totally aligned with what the Central Bank has released yesterday. This is something that we were expecting. We have already our main portal that aligns that. As we have for sometime also releasing press, talk through to investors, open bank is our third pillar in technology. So this is something that we do not see as a threat. We see it as an opportunity. We are ahead of our competitors, in terms of open bank. And we are going to try to collaborate the more we can, because we are very interested in this platform that will be for sure benefit for the bank as a whole. Regarding to payout ratio, I mean, we also expect that our net income shall continue to grow and perform according to our guidance. And in this sense, this is something that we shall evolve in terms of internal discussions and address this matter related to the market that that's high, the opportunity that we shall have. It's very difficult to say today what we shall have to do in a market that we still have not seen the reforms approved, the market reaction and all the opportunity that we have. So depending on this scenario this is something that we shall consider.

[Thiago Batista:]

Okay. Perfect. Thanks for the answer.

[Operator:]

Our next question comes from [Ms. Myra Isabel] [ph] with Wells Fargo. You may proceed.

[Unidentified Analyst:]

Hi, thank you for the opportunity. My question is regarding the income from credit recoveries which was about twice the amount that you recorded for 4Q 2018 and now before the first quarter 2019. If you can provide a bit more color on what caused this higher income through credit recovery and also what is your expectation for [AOL] [ph] expenses quarter on quarter for the rest of the year. Thank you.

[Carlos Wagner Firetti:]

Okay. Thank you, [Myra] [ph], this is Carlos Firetti. Basically, first, the increase in credit recovery in the quarter mostly didn't have impact in earnings. As we put in our release, basically, where we have above R$1.8 billion in credit recovery related to mostly two companies. One of this is - this company is much larger. That would were off balance, basically they were important recovery and this process finished. With that, with the restructuring of the credits, we had the price recovered. That's the way we have accounted. This loans is R$1.8 billion, went back to the loan book in credit rating page, so we made 100% provisions on this loan. So basically, the credit recovered directly through your [press release] [ph] related to this large corporate restructuring related to the end of quarter recovery process for two large corporates without impacting on earnings on a net basis, considering the recovery versus the provision, and also without impacting NPLs. In terms of expectations for provision expenses, we believe we will throughout the year converge to the center of our guidance for provision expenses for this year, that is the guidance range goes from R$11.5 billion to R$14.5 billion. We are pretty much comfortable with that.

[Unidentified Analyst:]

All right, thank you.

[Operator:]

[Operator Instructions] Excuse me, ladies and gentlemen. It seems there are no further questions. I would like to invite the speakers for any closing remarks.

[Nianda Miranda:]

Well, this is Nianda Miranda speaking. Thank you all for making the time to be with us. After this call, we're also going to be available for any part of discussion, clarification of matter that you may wish. And we remain here [in office with the coming up over the weekend] [ph]. Thank you. Have a great day.

[Operator:]

That does conclude Banco Bradesco's conference call for today. Thank you very much for your participation. Have a good day.