Banco Pan SA

BOVESPA:BPAN4

Earnings Call Transcript 2024-Q1

[Operator]

Good morning, ladies and gentlemen. Welcome to the conference call of Banco Pan to discuss the results relating to Q1 2024. The audio and slides of this conference call are being broadcast simultaneously on the Internet from the company's IR site and from the webcast platform. You will also be able to download the presentation. [Operator Instructions]

We inform you that any forecasts relating to future events are subject to risks and uncertainties. Therefore, such expectations may not materialize or results may be different from those expected. These forecasts are based on opinions at the time they are made, and the company undertakes no obligation to update them.

Together with us are Mr. Carlos Eduardo Guimaraes, CEO; and Mr. Inácio Caminha, Head of IR and Funding.

I now turn the floor over to Mr. Guimaraes to begin his presentation.

[Carlos Pereira Guimaraes, executive]

Good morning to all and welcome to this presentation to disclose the results of Banco Pan. First of all, I would like to apologize for the delay. We had some technical issues.

On Page 2, you see the highlights of the quarter. We had an increase in the credit highlights because of a reduction in credit assignments. Delinquency was also lower, and we have a conservative stance in relation to credit. Our margins are robust and the B2C origination continues to grow. We are continuing to evolve to provide the best possible experience to our clients.

Now moving on to Page 3. At the end of the quarter, we had 29 million customers, half of which also our part of our credit portfolio. Our portfolio is BRL 46.1 million (sic) [ billion ], a 17% growth in this quarter. We had a net income of BRL 217 million, 11% vis-a-vis Q4 2023, and our ROE was 12.2%.

Now I turn the floor over to Inácio.

[Inácio Caminha, executive]

On Slide 5, we are going to talk a little bit about engagement. On the left-hand side, 29 million clients, and engagement is our major objective, our top objective for 2024 and 2025, as this will allow us to improve our indicators. We will have more primary customers and we will continue to grow whilst remaining profitable.

Cards are extremely important for this. We have the build-your-credit strategy. So customers can have more and more credit with us as they perform well. And this is a strategy that we are going to continue in Q2. Our app also has evolved. We have launched some products, moto equity. We also have the INSS accounting and we have more options for fixed income and CDBs to increase our deposit base.

In terms of activation, they have remained more or less flat. We expect this to improve in terms of PIX keys. There has been a slight increase, and in terms of transaction volume, we have seen a stronger increase.

On the next slide, in terms of origination, we saw record origination in terms of vehicles and payroll loans. In terms of vehicles, we are the leaders. For motorcycles, whether new or used, our market share is 35%. In light used vehicles, we are close to 10% in terms of market share. And both portfolios have a very good profitability and delinquency is very controlled. We had BRL 4.8 billion in the quarter.

In terms of payroll loans, there was a readjustment in the minimum wage. And seasonally, in Q1, we see greater volumes. We are working with a bit of a squeeze profitability. This is because of the curve of futures for 2 years. And in terms -- we have also increased B2C, especially with self-service on the application or WhatsApp, this is evolving quite well. We had BRL 3.600 billion in terms of origination of payroll loans in addition to the BRL 700 million we bought from other banks.

In terms of FGTS, we originated BRL 1 billion with a good profitability, and we are seeing growth there, BRL 100 million in Q4 and we made BRL 300 million this quarter. This is a very important line for us to create more [ primarity ] and to increase the profitability of the bank. In total, we totaled BRL 10.400 billion in terms of origination this quarter.

In terms of the credit portfolio, BRL 46.1 billion, a very strong growth, 10% in the quarter, 18% in the year. And this was driven by the origination, which was record. And our new assignment strategy, we have been talking about it and by -- in 2024, we are going to assign less credit relative to last year. In Q4, we had assigned BRL 3.3 billion. And in Q1, we reduced that to BRL 2.3 billion.

So vehicles, BRL 24.5 billion, nearly 40% growth in the year. Payroll and FGTS, BRL 19 billion, a 10% growth in the quarter. The credit card portfolio hasn't increased that much but it should improve. And the personal loans is beginning to improve.

And speaking about delinquency, we see a stability in terms of the mix of the portfolio. There was an improvement in delinquency rates. It's now 6.9% as we expected. And this includes all the vintages of cards and vehicles. We were able to control the delinquency and also the portfolio has grown. When we look at 15% to 90%, in this ratio, we see an increase in Q1. There is a seasonality there. But then we went back to the ratios of December. We are very confident in the pricing of these vintages.

In terms of clients with credit, this is extremely important in terms of monetization and engagement. We have 15 million clients, and we also want to increase not only the number of clients but the share of wallet as well. This is as of today, 16%, but we have plenty of opportunity to expand the credit portfolio, the cross-selling and the upselling even without growing the client base, although we do want to grow the client base as a whole.

In terms of services, the fees are extremely important for our results. Credit is the main one, the main driver of revenues, but also services contribute a lot. And we continue to grow the contribution of services. We expected less from marketplace. In Q4, we had Black Friday, but the other lines have increased their share. Credit and insurance have to do with the origination of vehicles, there is a very strong correlation. They track the origination of vehicles. And in cards also, we want an increase going forward as clients begin to use cards more, and we are charging fees from certain cards.

And then in terms of cards on Slide 11. We started very conservatively, but we see the figure of 200,000 cards issued in the quarter, whereas the revenue is not growing so much, remains more or less flat, but the revenues are growing. Extremely important product for engagement, and we have been improving the experience of clients, and we are going to be able to bring in more clients to use our cards.

In terms of insurance, it tracks the origination of vehicles, BRL 245 million premium, with 3.6 million clients with policies.

And in terms of financial results, our NIM was smaller because of the smaller assignment this quarter. But if we exclude the assignments and we consider the cost of credit and the discounts, we see an improvement in the margin, which is the dark blue line here. It went from 8.7% in Q4 2023 to 9% in Q1 2024.

When we look at the quarterly results, we see that the financial margin was BRL 2 billion. We have a new breakdown here, and we have the cost -- the carrying of the portfolio has been growing, not only in percentage but also nominally. And we also see the contribution of the assignments, which has been contributing in this quarter as well. And this is in line with our new strategy of assignments.

In terms of net expenses of PDD, when we combine it with the discounts, this remained flat in the quarter. It's much more a way for us to deal with customers and any discounts we may give to receive the credits that we are owed.

In terms of expenses, we see the impact of our efficiency agenda, especially in general, administrative and personnel expenses. And we have been able to manage our costs very actively.

And finally, on the right-hand side, in terms of profit, BRL 217 million, with an ROE of 12.2%. There is the impact of PIS and COFINS, BRL 88 million, and we have adhered to self-regulation. We believe this is a very good option for us. In the next few quarters, there's going to be less assignment of credits, and we expect a better result than we had in 2023, and this should be sustained throughout 2024.

And then equity and capital, because the portfolio grew in a more accelerated manner, our Basel ratio is 14.6%, a bit lower than in Q4 2023.

And now we are going to open for the Q&A session.

[Operator]

[Operator Instructions] Our first question comes from Mr. Pedro Leduc from Itau BBA.

[Pedro Leduc, analyst]

Congratulations for the results. The question has to do with the evolution of EBITDA. You also have payroll loans, and I would like to understand the profitability in the origination. And also you are more efficient in terms of origination, what is the net profitability of the payroll loans?

[Carlos Pereira Guimaraes, executive]

Thank you for your questions. First, having to do with the portfolio, there was no seasonality. We were expecting this kind of growth, and we expect this growth to continue throughout the years. This has to do with the strong origination and a decrease in the assignments. We made BRL 700 million and we bought payroll loans at the state level. We made this purchase, and we should continue to make these purchases in the next few quarters. So there's nothing new in this quarter relative to what we expect for the next few quarters in terms of origination, probably a bit less in terms of assigning credit portfolios.

And then the payroll loan is a very important operation for us. It has always been a very important product, but it has a lower profitability now because of the ceiling of the cap, more than 80% of our origination comes from the INSS department. And there has been a reduction in the ceiling for this product. And additionally, the curve of future interest for 2 years, and that's what allows us to price our payroll loans operations. This curve has been increasing. So the profitability of the payroll loans have been decreasing.

We have been trying to be more efficient in terms of squeezing the -- of this squeeze in the margins, especially through managing costs. In B2B, by managing the commissions, and in B2C, by using less people and more self-contracting on the part of customers and by optimizing marketing and performance expenses so that we can originate these operations at a lower cost.

[Operator]

Our next question comes from Mr. Olavo Arthuzo from UBS.

[Olavo Arthuzo Duarte, analyst]

This is actually a follow up that has to do with the growth in the portfolio. In terms of PIX financing. I would like to understand the share of PIX. How do you see PIX financing within the bank, and then could you tell us what the share is for B2B, B2C origination? And finally, about your projections for 2026.

[Carlos Pereira Guimaraes, executive]

Thank you, Olavo, for your questions. First, with PIX -- in relation to PIX, our share of PIX according to our controls is 1.5%. And as Inácio said before, one of the major challenges for us in the next 12 to 24 months is to increase engagement with our clients, and this is to increase transactionality but also the penetration of products. We want to grow from 1.5% in the next few months.

In terms of PIX financing and credit products, relating to transactionality, within the checking account and within 2 products that are very transactional in nature, we also have adjacent products such as installments for credit cards, installments for PIX, personal loan, with and without collateral. We have a personal loan collateralized with motor bikes, and we have a great share in that segment. It's above 35%. So in terms of transactionality, the card is extremely important, but we also have other products, which help us better serve our clients and PIX finance is one of them. We recently launched this product, and we want to escalate that.

The second question, the share of payroll loans in terms of B2B and B2C. So B2B is 35% and 40%, and we want to -- actually, B2C is 35% to 40%, and we want to grow the values without necessarily hurting the B2B. We want to increase the share of B2C and by increasing B2C rather than reducing the share of B2B. And in terms of ROI, we give no guidance for the future in terms of ROI, but what we expect is a substantial growth in the next few years.

[Operator]

Mr. Yoshida from Bank of America.

[Flavio Yoshida, analyst]

I have 2 actually. One is about revenue and growth. When we look at the industry, we see that in credit cards it's necessary not only to increase the client base but also to increase the engagement. How do you think about growth in credit cards, especially if we compare that to the beginning of 2023, I see you are emitting, you're issuing more cards, but the card portfolio is going down.

And the other question has to do with operational expenses. How important do you think these expenses are -- important for profitability? Are the expenses continuing to grow or are they under control? Can you give us a little bit more color about that?

[Carlos Pereira Guimaraes, executive]

Thank you so much, Flavio. As regards to the card, we totally agree with you. It's an important tool to engage with clients and to attract clients' principality. But in the last few years, in terms of delinquency and defaulting, we suffered a bit. So what we are doing is we are starting new models, new products to allow us to grow again in 2024.

So if we look back 6 months, 1 year, we have been reducing the portfolio slightly. But going forward, we think it's a very important tool to increase engagement. And this is one of our objectives. We are going, therefore, to increase our product portfolio, but in a cautious manner. And we want to increase the profitability and the return. So we have been studying this matter very carefully.

As regards to the expenses, what we expect for this year is expenses that are reasonably flat in comparison to last year's. And it's a large portfolio. We always look at expenses very carefully. We make investments as necessary to deliver on our targets. But for this year, we should see figures that are close to the figures of last year, maybe like with an adjustment for inflation.

[Operator]

Our next question comes from Mr. Ito from Bradesco BBI.

[Eric Ito, analyst]

I have 2 actually. First, OpEx. We saw an improvement this quarter. But I have a question about one line, origination expenses, which dropped 10% quarter-on-quarter despite the increase in origination. So what are the main components of this line? Specifically on origination, the portfolio has grown so how has that happened. And then what can we expect in terms of provisions for this year, you're going to grow more strongly, you have a greater share of vehicles? What can we expect in terms of NPL, maybe your growth in the base could mitigate against this effect? And what would it mean in terms of PDD?

[Carlos Pereira Guimaraes, executive]

Thank you for your questions, Eric. In terms of origination, when we compare Q1 to Q4 last year, Q4 last year, was relatively inflated, because in Q3, we had a large operation and expenses dropped in Q4. So when we compare Q1 with Q4, it's -- we are not comparing 2 things on the same basis.

But as I said before, payroll loans have a reasonable origination cost. But when the ceiling drops, one of the tools for us to make adjustments in terms of B2B origination is to reduce commissions. So going forward, the commissions for payroll loans are going to be reduced. They are going down already. And this is going to have an impact on our origination costs. So going forward, I think origination costs tend to go down because of the squeezed margins on payroll loans and the commission is reasonably high, but this is going to go down. The ceiling has gone down, future interest rates have gone up. So this is how we adjust for that.

And then in terms of NPL. We believe that the NPL will go down marginally throughout the next few quarters. And this is in a relative manner. In absolute numbers, the portfolio has grown and will continue to grow substantially. So this affects the absolute value of PDD. But in relative terms, I think we are going to see the same levels, maybe with a small reduction.

[Operator]

The next question is from Mr. Pedro Leduc from Itau BBA.

[Pedro Leduc, analyst]

In relation to funding deposits, we see a difference between credit at site and futures. So how do you see what is happening in the deposit base and the cost in terms of percentage of the CDI?

[Carlos Pereira Guimaraes, executive]

Thank you, Leduc. In terms of funding and in connection with what we said before in the presentation, our main challenge for the next 12 to 24 months is to increase engagement with our clients. Site deposits and funding in the app is something that we want to increase very substantially in the near future. Today, these are reasonably small amounts, BRL 1.5 billion for time deposits and site deposits in the retail branch, but this is a very important investment for us to move to a higher level in the next few quarters. And this is in terms of funding for retail.

But for funding for the bank as a whole, we are increasingly integrated to BTG. Oftentimes, BTG provides funding to the bank, and therefore, the spread for funding is smaller. BTG has a franchise in terms of funding at good prices. And oftentimes, we take money from -- within the group, and we avoid paying spread to the market. So this is funding for wholesale. But the trend is that the cost of funding, the spread over CDI should go down. It has been going down, and it will go down even more because we are going to grow in terms of funding at the retail level and BTG is going to continue to develop its ability to fund and to fund and source funds at better prices.

[Operator]

[Operator Instructions] Since there are no further questions, I would like to pass the floor over to Mr. Carlos Eduardo for his final remarks.

[Carlos Pereira Guimaraes, executive]

Thank you very much for attending. Once again, we apologize for the delay, and we expect to see you in our next conference call. Thank you very much, and have a lovely afternoon.

[Operator]

Banco Pan's conference call is now ended. Thank you all for participating, and have a nice day.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]