Banco do Brasil SA

BOVESPA:BBAS3

Earnings Call Transcript 2021-Q3

[Operator]

It's now morning for us. With us today, we have Ricardo Forni, CFO; and Daniel Maria, Head of Investor Relations. The CEO, Mr. Fausto De Ribeiro will not be able to join us today. But he has a message for this conference call opening. [Operator Instructions]

[Fausto De Ribeiro, executive]

Good morning, everyone. It's a pleasure to be with you today to discuss the third quarter of 2021 results. When I became CEO of Banco do Brasil, I set 10 structural initiatives in line with the strategic planning. These 10 initiatives are summarizing 3 pillars: proximity, digital impact and profitability that enabled the main deliveries of the last 9 months.

When I talk about proximity, I'm talking about being always available with a specialized relationship that understands the customers' moments of life, their needs and their preferences. We offer specialized sales to micro and small companies which can count on 7,000 dedicated professionals. Also, I'd like to highlight our specialized sales for rural producers, both in retail and wholesale. And finally, our private offices which provide high qualified advice.

We made robust investments in analytics that allowed us to extend management service to more than 7 million people escalating the services with efficiency. With the best customer knowledge technologies, we personalize experiences. An example of this is our adviser robot which recommends investment considering our customers' goals.

At Banco do Brasil, customers can be served throughout Brazil digitally or in one of the physical points of contact. We are changing our service structure to lighter and more efficient models, increasing the number of banking correspondents. Banco do Brasil has nearly 22 million active customers in digital channels. Our app has a qualified audience with a daily peak of almost 9 million people. This is our biggest showcase.

Digitally, the customer can renegotiate that through WhatsApp which also preapproved loans. Through our changed platform, we offer a fully credit cycle. If the customers wants it's possible to start a low operation on a particular channel such as a cellphone and pair it in another one, such as a branch in an omni-channel view.

The purchase of credit follows the customer desire in a fluid and a safe manner. All of these results in a full experience in channels ensuring the best convenience for our customers. We see continuous and consistent growth in the succession of our customers with an annual increase of 8 points in our general NPS.

Every interaction carried out by our employees is followed by a FERC evaluation. In September, we will be paying 4.8 rate in individual sales and 4.86 rate in company sales on a scale between 1 and 5. Our app ranks among the highest-rated in the financial industry, that's what we pursue every day, our customers succession through a closed, personalized and increasingly digital experience.

For us, being digital experience means advancing every day, bringing benefits and improving customer loyalty. At Loja BB, our store in our App, we centralized in one place non-financial solutions such as gift card, recharge prepaid phones and the benefits and promotions of Vantagens Banco do Brasil program. We are launching a new business model and affiliate marketplace which generates cashbacks for customers and fee for Banco do Brasil, diversifying our revenue sources.

And for the launch, we made an agreement with Amazon do Brasil that is available to our customers. So we will bring the new brands, adding more value to our customers, making Banco do Brasil more relevant and present in their lives. Issue on business diversification, I would like to highlight Broto, our agri-business, virtual platform built together with BB Seguros. The platform reached BRL 1 billion in views since its launch. A PIX a digital initiative that have put virtually together, SME sellers and buyers with effectful solution.

Other initiatives that are part of the constant improvement of solutions for our customers are the product benefits with rewards on products and services and the Ponto pra Voce program with cashback in account. Now I would like to talk about sustainability. This is the reason why I'm hearing Glasgow in the next few days participating in our panels and debates at the United Nations Conference of Climate Change.

In last September, our sustainable business portfolio surpassed BRL 282 billion, growth of 80.9% in 12 months. Banco do Brasil is working to engage clients to invest in sustainable assets, offering a portfolio that combines profitability, corporate governance and social and environmental responsibility. As an example, the recent launched LCE Verde reached BRL 158.4 million raised. As a result of our position in the EFT agenda, we are ranked as the most sustainable bank in the world by Global 100. And recently, we were elected as the most sustainable bank in South America by CFI Magazine, the convergence of proximity, digital and print and profitability guidelines are reflected in our performance over 9 months of 2021.

For the third consecutive quarter, Banco do Brasil posted record results. Adjusted net income reached at the highest level in the historical series, BRL 15 billion in this year, an annual growth of 48%. We also show growing credit with a portfolio exceeding BRL 814 billion and NPLs reduced to 1.82% in September below the financial industry.

Our CET1 reached 13.17% organically. To end my speech, I'd like to reinforce our commitment to profitability and to the consortium of increasingly and sustainable results. Now I will hand the floor to our CFO, Ricardo Forni, who will detail our results with you. Thank you very much.

[José Ricardo Forni, executive]

Good morning, everyone. I will start the presentation on Slide 10. The adjusted net income grew 47.6% compared to the third quarter '20 and 2% compared to the second quarter '21, reaching BRL 5.1 billion in the third quarter with an ROE of 14.3%. Compared to the second quarter '21, the result was driven by the positive performances both in the NII and fee income and the solid cost control, partially offset by the 36.7% increase in the allowance for loan losses in the expanded view.

The 9-month accumulated net income was BRL 15.1 billion, an increase of 48.1% compared to the same period of the previous year, driven by the reduction in the allowance for loan losses. Throughout 2020, we constituted pre-emptive credit provisions to strengthen our balance sheet in face of potential impact from the pandemic. Likewise, the good performance on the income side and the control in administrative expenses driven the result on the 9 months accumulated and the ROE ended at 15%.

On Slide 11, we show the net interest income breakdown with growth of 11.9% compared to the third quarter '20 and 9% in the quarter. In the accumulated 9-month view, NII grew 5.3% totaling BRL 44.6 billion. The income from loans increased driven by the credit growth of a better mix. Also, the positive performance on treasury helped the NII. These movements more than compensated the growth in funding expenses due to a higher selic rate in the period.

On Slide 12, we have the loan portfolio in the expanded view which grew 11.4% year-on-year and 6.2% compared to June '21, totaling BRL 814.2 billion, mainly on individuals and agribusiness portfolios. The individuals portfolio grew 5.7% compared to June '21 and 14.2% compared to September '20. Highlights for the positive performance on payroll loans, consumer finance and credit cards as a result of our strategy of changing the mix. The agribusiness portfolio grew 9.7% compared to June '21. Agribusiness securities also had a positive performance.

The SME segment which includes companies with annual revenues of up to BRL 200 million grew 10% in the quarterly comparison influenced by disbursements announced. The corporate and government portfolio grew 1.1% year-on-year and 2% quarter-on-quarter. We highlight the growth of transactions with companies with annual revenues between BRL 200 million and BRL 800 million contributing positively to the portfolio mix.

On the next slide, we have the agribusiness portfolio breakdown. We reached the historic mark of BRL 225.8 billion, 18.5% up from September last year. Besides the traditional loans, I would like to highlight the 483% increase in the agri-business loan right certificates, commonly referred the CDCAs that constitutes a new form of agribusiness funding. In addition to the high demand, the strong performance is driven by Banco do Brasil's historical protagonist in the segment with a specialized service, dedicated professionals, technical knowledge and national capillarity.

In addition, we start from a robust strategy to strengthen our presence in the agribusiness with actions that improve businesses, bring modality and technology to the relationship with the entire agribusiness chain. As a result, we had another record of disbursements in the first quarter of the 2021-2022 harvest plan with a growth of 6% compared to the same period of the previous harvest with operations in 4,715 Brazilian municipalities.

On Slide 14, we bring the highlights of the company's portfolio which grew 4.3% compared to last June. As I mentioned, the highlight in the period was the growth of the SMEs portfolio, favored by disbursements of BRL 8.1 billion in the Pronampe lines only in the last quarter. We are investing in an important strategy called Elos Productivos, which brings a closer relationship with the supply chain of wholesale, agribusiness and government companies. In the first 9 months of 2021, we disbursed BRL 15.4 billion in credit to micro, small and medium-sized companies under this movement that integrates BB's service network.

On Slide 15, we see the schedule for the resumption of payments for the operations of the forbearance portfolio. Payments are being made according to plan as shown on both by the reduction in the balance of this portfolio and the reduction in the balance in grace period, which totaled BRL 3.6 billion in September '21. From the amounting risk period, half are expected to resume payments in the fourth quarter of '21 as shown in the graph on the right-hand side. The NPL over 90 days of the forbearance portfolio increased in relation to the previous quarter as expected and remains under control at 2.29%.

On Slide 16, we show the evolution of the allowance for loan losses in the expanded view which ended the quarter at BRL 3.9 billion, a reduction of 28.8% compared to the third quarter '20 and an increase of 36.7% compared to the second quarter '21. The increase in the quarter is mainly due to the higher credit provisions in line with the loan portfolio growth. The good performance of the recovery of write-offs also helped the allowance for loan losses. In the 9 months accumulated, the allowance for lower losses and expanded used totaled BRL 9.3 billion, a reduction of 44.4% compared to 9 months '20 due to creative provisions made throughout 2020 in the amount of BRL 8.1 billion. The cost of credit ended the third quarter at 2.8%.

On Slide 17, we have the credit quality which proved to be resilient. The NPL over 90 days showed a reduction in relation to June '21, reaching 1.82% in September '21. The portfolio coverage ratio ended the quarter at 323.3%, a slight reduction compared to June '21. The new NPL on the portfolio reached 0.69% and the coverage of the new NPL reached 113.4%.

On the next slide, we present the fee income and administrative expenses dynamics. Fee income reached BRL 7.4 billion in the quarter, an increase of 2.2% compared to the third quarter '20 and 3.2% in the quarterly comparison. The growth was mainly driven by the positive annual performance in the lines of insurance, pension plans and premium bonds, consortium and asset management. In the 9 months '21, fee income grew 1%, converging to the guidance. Administrative expenses remain under strict control, almost flat in the annual comparison totaling BRL 7.9 billion. Even considering the salary readjustment of 10.97% as of September '21, administrative expenses grew only 0.7% in the quarter. The cost-to-income ratio accumulated in 12 months ended the period at 35.9%.

On Slide 19, we show it's BB's capital ratio highlighting the Common Equity Tier 1, which ended September at 13.17%. Finally, on Slide 20, we bring the performance regarding the guidance. BB reviewed its corporate projections to better represent management's expectations. The range for the loan portfolio was changed upwards to 14% to 16%. This reflects the good performance on the retail line and also the good perspective for the agribusiness sector. Those segments also had the estimate changed upwards.

The wholesale portfolio which considers corporates with annual revenues greater than BRL 200 million was impacted by early redemptions and higher demand for alternatives in the capital markets which drove the revision of design downwards. For the NII, the performance above expectations, both in the low portfolio and in the treasury led to an increase in the growth range to 4% to 6%. Estimates for fee income, administrative expense and allowance for loan losses were maintained.

Finally, adjusted net income was revised upwards to reflect changes in all other lines. With that, I conclude the presentation of the results of the third quarter 2021 of Banco do Brasil. We can now begin the Q&A session.

[Operator]

[Operator Instructions] Our first question comes from Mr. Jason Mollin from Scotiabank.

[Jason Mollin, analyst]

I was wondering if we could get an update on Banco do Brasil's strategy to sell noncore businesses and an update on potential JVs in certain businesses and also perhaps now that you've reached 1 year, the 1-year mark on your JV and investment banking, if you could provide some color on how that is going in like you've done according to release a lot of transactions.

[José Ricardo Forni, executive]

So let's start on the divestments that we are working on. I believe that we delivered the first divestment in this quarter, it's subject to approval by the Central Bank and the Competition Authority in Brazil. We sold half of our-- half of the bank called dig that we have in partnership with Aberco. And this was good that this was originally incumbent bank or a bank from a financing that was during the last years invested to be a digital bank.

But for us, it's not a synergy in our digital strategy. So we -- and the road to be digital, it will require a lot of investments and we decided to sell and this as our the partner over there, he had a preference. So they bought this equity from us. And we are just waiting for approval from the Central Bank and the Competition Authority to finalize the transaction. So this is first one that we are on the trying to keep with the core. This is one of the first ones that we have believed.

In terms of other ones, I believe that the market always talk about Cielo. We are not interested in South Cielo. We are working together with our partners over there because we believe it's a core business. We have the bite as well not on investments, but partnership discussion. We are still studying. We don't have any new or evolution in terms of this discussion. We're still looking forward for a partner that can improve our competencies and move forward and knowing that the Banco do Brasil is a leader in the Brazilian market.

So this is something that we are looking forward for a joint venture that could keep our position as a leader in the asset management market. We have also sometimes discussion about Banco Votorantim. Banco Votorantim is a very good bank. They are delivering results. We are working together with our partners over there. We worked in a potential IPO in the beginning of this year. The market was not welcoming in terms of pricing at that time. And together with partners, we decide to hold and stay on the partnership and the work together.

So we're looking forward in the future an exit with a good price for our stake. And but at going, I think it's another one that is in the potential list of divestments. But the market in Argentina are not very liquid or welcoming for a transaction. So we are holding and waiting to see how the market evolves. Meanwhile, Bank Patagonia is a very good and profitable asset. So we are not -- it is not against us holding the position because the asset is profitable, okay.

[Jason Mollin, analyst]

Update on UBS.

[José Ricardo Forni, executive]

Update on UBS. We just made 1 year of the joint venture of working. We are performing better than we expected considering the pandemic scenario. We are -- we have very good transactions. We are working in the market in the fixed income in Brazil is going well and the competence of a global player like UBS and the local leader like Banco do Brasil is working well on this equity. We are working well as well but the market is a bit more sensitive for equity transactions. And we are advancing our competencies in the measures and acquisitions. So I think this is something that has a more longer-term for this pipeline to come up. But we are very happy with the joint venture with UBS.

[Jason Mollin, analyst]

Maybe just in a separate way if you could just comment on the competitive environment, perhaps from newer entrants for digital banks, we've seen the price range for new bank the midpoint, I think, is over 3x the market cap of Banco do Brasil, how do you think that's impacting your business? Are you seeing that on a day-to-day business? And what do you think of that disadvantage on the valuation front?

[José Ricardo Forni, executive]

I believe that Banco do Brasil as an increment bank and we are working hard on our digital strategy. And I believe that during the presentation, I believe that the material that of our CEO presented about what we are doing in terms of delivering and developing new business models and to have this -- the marketplace we have this in the agribusiness we have this gift cards and now marketplace in partnership with Amazon that is just starting. So and keeping our app as the best or one of the best in the Brazilian financial system is something that we are working hard and we are trying to accelerate our digital initiatives. We have been very active in the open banking initiative in Brazil right now, altogether supporting the central banking initiatives as peak in the open banking. So the digital banks are niche players and I believe that we have -- we are building and delivering a core digital proposition for our clients. So that's what we are working and mainly in that way, for example, DSO was not something that would be a synergy for our business plan.

[Daniel Maria, executive]

And just to add some numbers to what Forni said, I think that's quite important related to our strategy. First of all, we have a good number of people using our app. We have a good flow type of innovation, more than 22 people using at least 1/2 or a 20 million people using once a month. And we have, on average, 6.7 billion people using every day, including we have peak more than 8 million people in one day.

And these actually shows the value that the bank has as the platform and not only to generate business in the banking business but also to generate other flow for non-banking business.

For that reason, it's important to see the developments that we have in terms of platform, for instance, Broto, that's a platform we are collating this to monetize. Yes, you see also the movement that we are doing in the gift cards and now bringing to this marketplace with amazon.com.br. And certainly, this is a new way of generating to monetize the customer base. Then this is a give representation of this strategy for the bank. Since you have a large market, so there are more eyes looking at the market but we have the instruments you compete with doesn't matter who is in the market.

[Operator]

[Operator Instructions] And there are no questions. I would like to turn the floor over to Mr. Ricardo Forni for his closing remarks. Please go ahead, sir.

[José Ricardo Forni, executive]

Okay. So thanks for everyone who is attending this conference. I believe that we are very happy to deliver very good results that is consistent with our targetory and the work with our employees to deliver good results. And I believe that we are working not only towards to keep the profitability going up and closing the gap with our peers but working on the efficiency agenda and working on the new business models and digital transformation that is very important in a way and our strategy that as our CEO said before that he set in the beginning of his administration, these 10 lines of work that we are trying to deliver.

And I believe that we are very happy in what we reached so far and working hard on the end of the fourth quarter to deliver the complete 2021 results in good pound and the prepare the floor for next year that will be a challenging year in terms of the market scenario but in competition as well. But we are confident that we have all the conditions to keep improving in delivering profitability, evolving in the efficiency agenda. And most important of all to in change our clients. So better what everything that we do at Banco do Brasil is to deliver into benefit for our clients. Thank you for attending us today.

[Operator]

That does conclude Banco do Brasil's conference call for today. As a reminder, the material used in this conference call is available on Banco do Brasil's Investor Relations website. Thank you very much for your participation, and have a nice day. You may disconnect now.