Banco Pan SA

BOVESPA:BPAN4

Earnings Call Transcript 2022-Q3

[Operator]

Good afternoon, ladies and gentlemen, and welcome to Banco Pan's conference call to discuss the third quarter of 2022 results. This event is also being broadcasted simultaneously on the Internet, both audio and slide show, which can be accessed on the company's IR website, www.bancopan.com.br/ir and the 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 Eduardo Guimaraes, Banco Pan's CEO; and Mr. Inácio Caminha, Head of Investor Relations and Funding.

Now I'll turn the conference over to Inácio Caminha, who will begin the presentation. Please, Inácio, you may begin your conference.

[Inácio Caminha, executive]

Thank you all for joining our earnings call for the third Q. Beginning on Slide 2, we have the main highlights here, the main messages that we want to -- always wanted to state. First of all, results. Regarding net income, total portfolio and delinquency remained stable in this quarter, even considering the challenging scenario that we have been dealing with. Our credit strategy also has been successful since third Q '21 when we started to anticipate the credit cycle that we are living that when we foresaw some deterioration on the horizon and capped a conservative origination. And also diversification is something key in our strategy. So we have been diversified not only products, channels, but also risk. And in this quarter, we also deepened Mosaico's and Mobiauto's integration, strengthening our platform and thus improving our business model and multiplying our revenue lines.

On Slide 3, we have the main figures. So we reached 22.2 million clients. The credit portfolio stood at BRL 36.2 billion. Transactions volume totaled BRL 22.1 billion. The adjusted net income was BRL 193 million with an adjusted ROE of 11.7%. So very robust figures.

And when you look at for the outlook for '23 on Slide 4, we have some views here that we would like to share. So regarding portfolio, we do envision a stronger portfolio growth given the -- an improvement on macroeconomic conditions that we expect to happen, optimizing this way capital and leverage. As for delinquency, we also expect some improvement as a consequence of the scenario that should improve for next year. Also in addition to our risk management approach that we have been doing since third Q '21. As for margins, this movement in delinquency, margins after provisions, right? This movement in delinquency also supported by an increase on new collateralized products with higher margins and also the repricing of our products in the new vintages, also, we will promote an improvement in these margins.

As for efficiency, we do see space to improve, given that expenses should run under control and getting more revenues out of the engagement with the existing and new clients. And diversification will keep key on our strategy, and this will be reflected mainly through higher engagement with the clients, bringing more recurrence in the clients and also clients referring to new clients, strengthening revenue lines and integrating all the changes that we have.

So going for the update on the banking unit, we have scaled up to 22.2 million clients, as I mentioned, in total, in the bank, increasing 47%. When you look at the specific banking clients on Slide 7, they reached 17 million in this third Q with a stable CAC of BRL 34. So we have been able to increase the client base with a very adjusted and very efficient acquisition cost.

Some engagement metrics that we have on Slide 8 also show the improvements that we've made. Active clients reached 52% and cross-sell index 2.5%. We do believe that these two figures will have more space to improve next year with all the products and services that we have been adding to our platform. When we look at PIX key's, we already have 7 million accounts with these registers and transaction volume totaled BRL 22.1 billion in this quarter.

Another way to look at engagement is through insurance. So on Slide 9, we see that the banking clients now represents 870,000 insurance policies within the 2 million of total clients that we have with insurance in the bank. This increase was mainly driven by the FGTS insurance that was made available in the -- in our app by the end of second Q and on third Q, the impact happened in the 3 -- 4, 3 months. So we do expect this to keep running and increasing over time.

And not only these services have been added, but when you look at Slide 10, we have been increasing also the number of collateralized products that helps engagement to keep improving in these challenging times. Also, we do have like the unsecured products, but these haven't been the focus for our operations currently. And we do have 6.4 million clients with credit already in the banking unit, so increasing 40% in 12 months.

Also another interesting thing that we launched recently was the -- our marketplace inside our app. So now we have the full Buscapé experience inside our banking app, where the client can source and search for products and do the purchase already backed by credit provided by us. So the Buy Now Pay Later is already available to our existing clients. And on fourth Q, this will be available not only to our current customers, but to anyone that accesses Mosaico's platform.

So as you can see on Slide 12, we also have already integrated the credit experience to Mosaico's clients or Mosaico users on a monthly basis. So whoever wants to buy a product given to credit approval, they will be able to experience that and have our products. Some Mosaico figures that we see on Slide 13 is very interesting. The change that we've made not targeting just GMV increase, but mainly driving results through an improving intake rate. So we have been driving up these take rate ratios naturally driving up revenues. And besides that, we have already the credit integrated with a Buy Now Pay Later. And another interesting thing that we have been observing with Mosaico's client flow is that they bring in customers with higher income. And this allows us to offer more products, more services and they, in a way, complement the client base that we have preexisting at Banco Pan.

Talking about margins and credit on Slide 15. We do see an improvement in the net interest margin after credit costs in this quarter, reaching 12.6% for next year and already starting on fourth Q. We do see space for this to keep improving, not only as credit costs improves in time, but also with the addition of new products with more margins as we have seen, for instance, in the third Q, the new payroll credit card, and we have new products coming on fourth Q on.

Delinquency rates on Slide 16. We do see them flattish on this quarter. The portfolio mix also helps. So having 12% unsecured credit, but 88% secured is something that is really important for us to manage risk during these more challenging times. The over 90 days NPL reached 6.8%, relatively stable to the last quarters. Keeping the statement that we've made in the past, saying that we didn't expect any deterioration in these figures, this is what we have been observing. And for next year, there should be improvement. And also on 15 to 90 days also keeping a steady level at 8.4%.

Talking a little bit about general financial highlights on Slide 18. We do see net interest margin at 17.9%, totaling almost BRL 2 billion in the quarter. Net provisions expenses totaled BRL 488 million, 5.4% related to the portfolio. And this also very in line with the movement that we have seen on delinquency ratios and should improve next year, given the macro scenario conditions. Expenses, they have been quite stable, and we do not expect them to keep increasing at a faster pace. It's much more about getting more efficiency, operational efficiency as revenues increase at a faster pace. And as for profitability, we delivered BRL 193 million adjusted net income in this quarter, very in line with the previous quarters and 11.7% on adjusted return on equity.

Talking about originations on Slide 19. We do see a very important change in levels when we added the banking unit back then in the beginning of 2020. In this quarter, we had a very strong origination boosted not only by a recovery in FGTS loans, but also vehicle financing expanding and the payroll of the products helped. But specifically, the credit card was the one that's really improved given the new products of -- with the social security program that was launched in September. So we were able to take advantage on that and deliver very sound levels of origination.

The credit portfolio itself on Slide 20 remained relatively stable at BRL 36.2 billion, 44% comprised by vehicle loans, 43% payroll plus FGTS and only 12% unsecured credits, whereas credit cards reduced a little bit to 30 -- to BRL 3.8 billion from BRL 3.9 billion that we have seen last quarter in June. So 88% of the portfolio is collateralized, and only 1.1% is renegotiated, indicating the way that we drive the strategy of collection here at the bank with very low levels of renegotiation.

Some details on payroll, credit cards, loans and FGTS on Slide 21. So in the upper right chart, we do see the increase in the payroll credit card, the darker blue series from 2.3% to 3.4%. This was a product that was relatively stable and changed levels in this quarter. The FGTS loan, as I mentioned, recovered. So in the upper -- in the lower left table, we see that FGTS loans went up to BRL 340 million per month coming from the BRL 230 million that we have seen last quarter, and payroll credit cards reached BRL 1.2 billion in total in this quarter, and the loans were relatively stable, given that second quarter was very strong given the margin increase. And when you look at all the codes that we operate, the federal ones still remain very, very relevant at 94% of everything that we originate.

Vehicles financing on Slide 22 also evolved. So we have seen Mobiauto contributing to our loans, already representing 7% of all the loans originated coming from this platform. And the number of dealerships plugged into Mobiauto's platform tripled in the last 12 months. So we see a lot of potential to improve engagement, not only with the dealerships, but also with the final clients here. Origination levels improved in this quarter to BRL 800 million per month, and the portfolio closed the quarter at BRL 16 billion.

Credit cards on Slide 23. We still see a very conservative approach. So we only issued 173,000 new credit cards in this quarter, allowing the portfolio to reduce a little bit given the scenario, whereas TPV stood at BRL 5 billion with relatively stable revenues, around BRL 80 million in this quarter.

Insurance on Slide 24. We see a very interesting evolution, especially from second Q to third Q. The addition of FGTS insurance inside the app was very important for us to deliver or to reach these 2 million clients with active insurance. And we do see space to keep improving as we add more and more products in time.

As for funding on Slide 25, we keep evolving the funding base that we have, not only diversifying its sources, but also reducing the funding cost as we have been for more than a year now, AAA rated by S&P and Moody's, supported naturally by the consolidation in BTG's balance sheet. And we do see very interesting upsides and opportunities with the client profile coming from Mosaico. As I mentioned, they have higher income. So they are more keen to leave demand deposits or time deposits and in that way, improve our funding base.

Our capital ratio stood at 16.6% in the end of third Q, still very strong levels, also supported by internal capital generation. And this supports our growth strategy, especially for next year when we envision a better economic environment to allow the portfolio to grow faster.

And when we look at the ESG agenda that we have here at the bank, it has been 2 years that we have been working on this front. So as for transparency in governance, we already have 2 annual reports published, showing the way that we present ourselves in this agenda and how we have been involved any time. We have had some interesting awards and recognitions, namely the Great Place to Work, top 5 institutions, financial institutions that we just -- were nominated in September. So we are very proud of this achievement. And when you look at [indiscernible] impacts and products, we already considered carbon neutral. We have issued or launched our preventive health program called Saúde PAN last year. And we also raised money with Inter-American Development Bank to allow and to foster banking, financing to our clients, namely microentrepreneurs.

So with that, we close the first part and open the line for questions.

[Operator]

Thank you. Ladies and gentlemen, we will now begin the Q&A session. [Operator Instructions] Our first question comes from Rafael Frade with Citi.

[Rafael Berger Frade, analyst]

I have 2 questions. The first one related to how are you looking for [ credit growth ], right? So I understand that you are accelerating mostly because you are being more conservative in credit origination. On the other side, we are seeing origination, in fact, picking up a lot. So I would like to understand in a moment that you see that you're more comfortable to reaccelerate. What will happen [indiscernible] increase a lot of the origination from where you are right now, given that the level of origination stops supporting stronger growth in the portfolio? So I'd like to understand better the reconciliation between origination and the credit portfolio.

And the second question would be related to the payroll cards. So you mentioned that there was a strong origination, mostly coming from September. I would like to understand if it's kind of one-off, maybe because there were some special demand for these new products? Or this could be something that will continue for the coming months? So what would be the reasonable level of origination for this product?

[Inácio Caminha, executive]

Thank you, Rafael, for the questions. I'll start with the last one. So basically, what happened was that there was this new margin available -- made available in September. So naturally, as it usually happens in payroll, whenever there is these margins increase, there is a one-off opportunity for volumes to become much bigger, then in the following months, it goes back to a normal level of origination. So we do not see this [ BRL 1 billion ] that we originated in September being repeated in the coming months. It would go back to previous levels, not only for us, but for the entire market.

And when we look at the dynamics for origination and growth, indeed, we have been originating very sound levels of credit, namely concentrated in secured loans. So this has been allowing us to keep all the [indiscernible] and having a better or improving origination through all our channels. We haven't seen this reflected in our credit portfolio growth because of the current scenario, we rather keep a lower leverage and higher capital ratios. But whenever we have more comfort in credit scenario, we may hold more of these credits and thus deliver higher portfolio growth.

[Operator]

Ladies and gentlemen, please hold while I wait for questions. Since there are no more questions, I would like to turn the floor over to Inácio Caminha for his final remarks.

[Inácio Caminha, executive]

Thank you all for joining us. I hope we have a great day, and see you next quarter.

[Operator]

Thank you. This does conclude Banco Pan's conference call for today. You may disconnect your lines, and have a good day.