Banco Pan SA

BOVESPA:BPAN4

Earnings Call Transcript 2022-Q2

[Operator]

Good day, ladies and gentlemen, and welcome to Banco PAN's conference call to discuss the second quarter of 2022 results. This event is being broadcasted simultaneously on the Internet, both audio and slide show, which can be accessed to the company's IR website, www.bancopan.com.br/ir, and webcast platform with the respective presentation. [Operator Instructions]

Forward-looking statements are subject to known and unknown risks and uncertainties that could cause the company's actual results to differ from those in the forward-looking statements. Such statements speak only as of the date they are made, and the company is under no obligation to update them in light of future developments. With us here today, we have Mr. Carlos Guimaraes, Banco PAN's CEO; and Mr. Inácio Caminha, Head of Investor Relations and Funding.

Now I will turn the conference over to Mr. Carlos Eduardo, who will begin the presentation. Edu, you may begin your conference.

[Carlos Pereira Guimaraes, executive]

Good morning, everyone. Welcome to our earnings release call. This quarter, I will make a brief introduction with our key messages and strategic vision. After that, I will hand over to Inácio to give you more color on this quarter figures. We are very pleased with the evolution that we have been posting every quarter since 2020, when we launched our digital account. We are constantly seeking to build a bank with diversification of products and channels, addressing the needs of our customers and thus, increasing engagement. And the value of diversification is more evident now as we are experiencing high interest rates and inflation.

Now let's go to Slide 2, our origination capacity and net interest margin remained robust due to this diversification strategy. Since September 21, we have been more conservative in the origination of products with credit risk, such as credit cards, personal loans and vehicle financing. Thus, allowing a slight reduction in our delinquency indicators when compared to the first quarter numbers. In addition, we have 88% of collateralized portfolio, which cautions the effects of a more volatile scenario, such as the one we are experiencing now.

Finally, this quarter, we made all the products available in our app, which will allow a better experience for our customers and improvement in cross-sell. Recently, we acquired [ Mosaico and Mobile Auto ] are both channels and products that reinforce our strategy in addition to bringing new customers and information for a more assertive origination. We remain conservative in terms of credit, and we expect delinquency to remain at the same levels throughout the second half of the year, with better results for the next year. In addition, we will continue to significantly evolve our platform with new products in a better UX.

Now I will hand over to Inacio, who will give into detail about the quarter.

[Inácio Caminha, executive]

Thank you. Good morning to everyone. Moving on to Slide 3. We see that we have achieved some important advances in this quarter, consistently with our strategy. So total clients, we reached 20.9 million in this quarter, growing 70% in 12 months. Our overall credit portfolio stood at BRL 36 billion, increasing 11% also in 12 months. When you look at transaction volumes, we see BRL 21.5 billion, increasing almost 200% compared to the second Q of 21. And then we have the adjusted net income stable at BRL 194 million and ROE at 11.9%, both considering or disregarding the amortization of goodwill that we have over the acquired companies and also the goodwill inside our equity.

Moving on to Slide 4. We see that we have been keeping the client base growth, generating more scale to our business in line with our strategy, so totaling 21 million clients, 70% more in 12 months. Moving on to a quick update on the banking unit, we see on Slide 6, that our agenda of keep engaging more of our clients and having every time more a stronger presence of our digital channels is key to our success.

So to help that, we have been delivering several improvements in our app focused on credit products with ongoing credit penetration through our app, especially in the existing products, but also coming with new ones shortly. So our app, we have a better view of the statements and the new menu, already implemented. We also have fixed installments, which is a new thing coming out next month. We also delivered AutoCam, which is our car equity product in the app, and we will launch a new feature to make the process even more agile, where we can consult the cars plate to have a better assessment of the property's value to land the clients with a lean on that.

As for Mosaico, we have increased the client flow and we have been observing a client with a higher income and also we have an increase in the take rate on the sales that we promote through those channels. Moving to Slide 7, we see that the banking clients increased to 16.1 million customers and our focus continues to be on efficiency, so we achieved those levels, but also having a very low levels of CAC, so reaching BRL 35 in this quarter per new client.

Looking at Slide 8. We have more engagement metrics, and we see a lot of different figures here. So for active clients, we have seen a slight reduction, and this is mostly related to being more strict on credit cards, but we are confident that with diversification of products and also with the improving macro scenario looking forward, will help to bring this figure upward. Even so when we look at cross-sell index, we stood at 2.6 products per active client. And then talking about PICs and transaction volumes, we see interesting evolutions. So we reached 6.6 million [ fixed keys ] already being used by our clients with BRL 21.5 billion transacted in our app, in checking accounts, and credit and debit card. Insurance, as we see on Slide 9, is another very interesting tool to leverage engagement and results. We have been expanding the product offer to our clients. We already have 1.6 million clients with outstanding insurance policies.

Out of those, 624,000 clients are within the banking unit. So having a checking account or having a credit card, and this figure has increased by 90% over the last 12 months. And this quarter, we launched 2 new insurance types, one life insurance and another insurance connected to the FGTS loans. So this is a very interesting way for us to keep adding more service fees to the bank as we deliver and deploy our full strategy. When you look at credits on Slide 10, first of all, we have 6.2 million clients with active loans on our client base. We do believe that credit is the most efficient for monetization, so we always are pursuing to have a complete offer, and we already have this available in our app so the clients can access and request different types of products. As you can see on the samples here, the client may choose, for instance, between several products, just add the amount of the loan that he wants, we run the credit modeling on the analysis with a very simple experience to grant a loan in the end if that's the case.

Also, the credit penetration is still very solid in 40% of the total portfolio already being represented by clients with the checking account or the credit card. And when we look at the BRL 14 billion that these clients have, the diversification is also very interesting because we see that we have like a balanced flow between payroll loans and FGTS, also with vehicle financing and also with credit cards. So this shows how our platform is complete and how the clients we benefit from different products. With Mosaico on Slide 12, we made a relevant move in terms of increasing relationship and client engagement in our base, unlocking actually very interesting tools for adding value to our business and we see that all these tools have been already delivering interesting features. So the acquisition funnel is very powerful, we saw 2.4 million co-branded credit card applications since its launch and we also have been observing higher income in the clients flow, a more differentiated client.

And another interesting aspect, when you look at the combination of these 2 businesses is how we can improve the use of information, not only the flow, but also the use, adding more opportunities and bringing more products for us to offer to our clients in a more contextualized way, all that because we may know better the clients with additional information. And still talking about Mosaico, our aim here is to have more efficiency. So we have been experiencing a higher take rate in the GMV that we observed in the platform. So this is the key to address monetization. We have been prioritizing better take rates, leading to BRL 55 million in fees in this quarter. Moving on to margins and credit, on Slide 15, we see that all the credit metrics are stable, and we have more assertive not only in the origination but also in collection. We are always aware to act very fast in a preventive manner whenever we see a more challenging scenario building up forward and we have 2 key messages here.

One is that our net interest margin already after credit cost is very strong in solid levels and delinquency when we talk about over 90 days NPL, we have a stable outlook ahead. So on Slide 16, we see the evolution of the net interest margin after credit costs. We ended the quarter at 12.3%, a slight increase on a quarter base, but still leveling with the 3 quarters that we observed in the chart with BRL 36 billion portfolio. Delinquency and credit quality, we see on Slide 17, so the mix of the portfolio hasn't changed since the end of last year, so we currently landed 12% of unsecured loans in our portfolio. And this stabilization reflects all the measures that we started in back there in September '21, when we added more conservatism, especially in the credits or in the loans that are more credit-related risk and also increasing the collection force that we have been implementing with our clients. So with that, we already saw a reduction in the 15 to 90 days NPL to 8.4% and also a slight reduction to 6.7% in the over 90 days NPL.

So looking forward, we still have a stable outlook as we have mentioned last quarter, and this is how we expect it to keep going. Moving on to financial highlights on Slide 19, our net interest margin stood at a very strong level, 17.8%. Even if we look at the net interest margin, excluding the credit assignments, we have 14.1% and the decline that we see in the chart is basically because of the interest rate increase, which affects new loans origination. We don't have any exposure or any effect in the existing portfolio as it is fully hedged whenever we originate it. Looking at provision expenses, we run at 5.2% in this quarter as a consequence of all the adopted measures that I mentioned. Overall expenses totaled BRL 1.1 billion, mainly pushed by payer loans origination as we saw an increase in volumes in this quarter because of the increase in the deductible margin, we'll comment on that in a bit.

And also, when you look at administrative expenses, we increased because not only we intensified vehicle foreclosure, for instance, in our collection strategy, but also because of the full consolidation of Mosaico's structure, all that led us to our net income of BRL 194 million in the quarter, in the adjusted metrics with the 11.9% ROE. Looking at the origination on Slide 20, again we state how important diversification is, not only through channels, but also products. This is fundamental in our strategy and we brought here a longer period just to exemplify how the change of adding the checking accounts started to change the way that the levels of origination that we have been delivering over the quarters since the beginning of 2020. So before that, we used to originate BRL 4.2 billion on average on each quarter and we increased the 4.2 billion to 6.4 billion as we added more products and as we added more channels. This is very interesting and key on our strategy. On Slide 21, we have the overall portfolio.

So we stood at BRL 36 billion, flat on a quarterly basis but growing 11% compared to last year, June 21. Payroll loan plus FGTS totaled almost BRL 16 billion, vehicles 15.4 billion, credit card flattish in BRL 4 billion and personal loans with BRL 500 million. It's very interesting to highlight that 88% of the portfolio has collateral as Edu mentioned in the beginning, and renegotiated loans are very small in our books, representing only 0.6% of the overall credit portfolio. Moving on to the product highlights, we started with payroll loans and FGTS.

In this quarter, we had the increase in the payroll loan margin that happened back there in March 30, so second Q was already fully impacted by that movement. We originated BRL 1.1 billion on a monthly basis. And on the other hand, FGTS loans suffered some operational constraints that affected all the banks operating in this market. And we originated an average of a little bit more than BRL 200 million per month, but we expect this to increase over the course of the third Q.

The portfolio stood flattish at around BRL 16 billion with different movements associated with origination and credit assignments. And when we look at the origination breakdown, we still see a very solid 96% of federal codes, giving more robustness to our portfolio. Vehicle loans on Slide 23, we keep a conservative approach, and we have been launching some very interesting and innovative tools to help not only our clients but also the dealerships to work with us.

So now the client can quote alone with only 3 pieces of information, the tax ID number, the mobile number and also the monthly income. This gives us a lot of agility with assertiveness and we also added a significant amount of cars in Mobiauto’s platform. We currently have 210,000 cars in the platform, 72% more than what's than the existing figure on September 21 when we acquired the company. So this is very important for not only engaging the dealerships, but also the clients. In credit cards, we keep our conservative approach, not only in new credit card issuances, but also managing the credit card limits for our clients. We issued 224,000 new cards in this quarter, below what we have seen in fourth Q 21 and first Q 22.

Nonetheless, we still see an increase in transaction volumes and also consequently in the interchange revenues that we have, totaling BRL 80 million. As a consequence of this conservative approach, the portfolio stood flattish at BRL 3.9 billion in this quarter. Insurance on Slide 25, posted some improvements. We totaled BRL 143 million in new premiums in this quarter, reaching 1.6 million clients with outstanding insurance policy. We already have a broad portfolio of products, and we launched 2 more, as I mentioned in the beginning and we still have a pipeline to keep expanding this product offer, and this will help us to improve cross-sell within our clients.

As for funding on Slide 26, we reached BRL 37.5 billion, increasing diversification among our funding sources, increasing 24% in 12 months. We concluded in the second Q, in April, to be more precise, our third public bank note offer when we raised BRL 161 million for 2 and 3 years tenor, and we will expand the offer of investment products in our app, improving the experience for our clients. And as for capital on the last slide 27, we see a very sound 17% full CET1 level with a very strong internal capital generation based on our results. So with that, we conclude the presentation and open the line for questions.

[Operator]

[Operator Instructions] The first question comes from Pedro Leduc with Itau BBA.

[Pedro Leduc, analyst]

I would like to dig in a little bit deeper on to the 6.8% flattish NPL figure that you reported. Of course, that picture at the end of the quarter, one that's a lot of different pieces. If you can then break it down a little bit at least directionally rise between the credit lines that you have, vehicles, payrolls, and then the clean credit products.

And then as a follow-up or a second piece of the question, we did note a much higher run rate of write-offs in the quarter, about almost twice as much as in the last. So that's also part of the reason, I would say, that helps NPLs stay a little more around flattish. We see NPL formation is still going up a little bit. So your lights there for us to see, I mean, the 6.8% between the each credit products and then how you're seeing that translate into NPL formation going through the write-off.

[Carlos Pereira Guimaraes, executive]

Thank you for your question, Leduc. First of all, the NPL figure keeps stable, basically on 3 different things. First of all, we've been, as Inacio said, we've been more conservative in terms of origination, mainly in the credit card and vehicle loans. The second point is we've been more conservative as well in terms of our portfolio. So in the credit card portfolio, we can reduce the limit of the clients even for those clients, who have been paying well based on some information that we have from the market. So we've been doing this very actively.

And the third part is collection. We've been more intense in terms of our collection policy. So when we add these 3 parts, it has been helping a lot these NPLs being stable. The second point is a write-off is a function of the last quarters, NPL. And our write-off presented a higher volumes due to the greater amount of NPL portfolio. As you can see, basically comparing the last year numbers of delinquency, numbers of provisions, you can see that it has been increased. So consequently, our write-off increases as well.

[Pedro Leduc, analyst]

Can you tell us just at least in terms of direction, each of the credit products, the NPLs within them.

[Carlos Pereira Guimaraes, executive]

Looking forward, we believe that for the second semester, the NPL numbers will keep at the same level, improving for the next year. This is NPL. And in terms of coverage ratio, we've been at between 80% and 90%. But it's very important to highlight that the credit renegotiated in our portfolio is very, very low and on top of that, 88% of our portfolio is collateralizing. So and another point, we have 17% of this ratio of that core equity Tier 1. So we've been keeping these figures at the same level since, I would say, 2015 and 2016. So very comfortable to address this more volatile scenario and for the growth that we believe that we will deliver next year.

[Operator]

[Operator Instructions] Our next question comes from Gustavo Schroden, Bradesco BBI.

[Gustavo Schroden, analyst]

My question is regarding the credit or finance that you did. So we saw a relevant increase in the quarter. But my question is, can you tell us what was the rating, of course, on average, but what was the rating of these credits sold. My question is related to if they’re rated [ B to A ] or A or B or C in terms of ratings. If you can tell us, on average, the rating of the credit sold would be great.

[Carlos Pereira Guimaraes, executive]

Thank you for your question, Gustavo. Basically, we sell credits with A and AA ratings, coming from payroll loans and FGTS loans.

As we have been saying since the beginning, it's part of our business, we do good transactions in terms of price, selling these portfolios, and it helps us to manage funding and capital.

[Operator]

Again, if you have a question, please press star 1. Since there seems to be no further questions, I would like to turn the floor over to Mr. Carlos Guimaraes for his final remarks.

[Carlos Pereira Guimaraes, executive]

Thank you very much for the participation and see you next quarter. Okay. Thank you very much.

[Operator]

This concludes Banco PAN's conference call. You may now disconnect, and have a good day.