Post on 07-Jun-2020
Rule 12g3 – 2(b) Exemption #82-35186
Free English Translation
3Q16 Earnings Conference Call
November 11th, 2016
OPERATOR: Good morning, everyone and thank you for waiting. Welcome to
Banco do Brasil 3Q2016 earnings conference call. This event is being
recorded and all participants will be in listen-only mode during the Company
presentation. After this, there will be a Q&A session. At that time further
instructions will be given. Should any participant need assistance during this
call, please dial *0 to reach the operator. This conference call is also being
broadcast live via webcast into Banco do Brasil website at www.bb.com.br/ir,
where the presentation is also available. Participants may view the slides in
any order they wish. Before proceeding let me mention that this presentation
may include references and statements, planned synergies, estimates,
projections and forward-looking strategies concerning Banco do Brasil, its
associated and affiliated companies and subsidiaries. These expectations are
highly dependent on market conditions and on the performance of domestic
and international markets, the Brazilian economy and banking system. Banco
do Brasil is not responsible for updating any estimate in this presentation. With
us today we have Mr. José Maurício Pereira Coelho, CFO, and Mr. Bernardo
Rothe, Head of Investor Relations. Mr. Bernardo, you may now begin.
BERNARDO ROTHE – Good morning. Thank you for participating in our
3Q2016 earnings release.
I would like to start the presentation in slide number 3, where we have the
highlights of the 9M2016. Our pre-tax, pre-provision earnings increased by
9.8%. NII grew by 15.0%. Fee income grew by 7.0%. Administrative expenses
growth was 4,2%, totally under control and below the inflation of the period.
Cost-income ratio improved to 39.4%.
Slide number 4, we have the net income of the period and we compare with
the main impacts comparing to the 9M2015. So the main positive impacts
come from the increase in NII R$ 5.7 billion and the main negative impact is
allowance for loan losses at R$ 7.3 billion, reaching R$ 5.4 billion in 9M, an
ROE of R$ 7.6 and the accounting net income R$ 7.0 billion in the 9M, ROE of
10.0%. In this slide we have the ROE the way that the market calculates our
ROE, so in their view that ROE in the quarter would be 12.0% against 9.9%
the way that BB calculates it and in 9M that would be 9.1%.
Slide number 5 we have the pre-tax and pre-provision earnings that grew 8.0%
in the comparison with the 3Q2015 reaching R$ 10.8 billion and the
accumulated 9M increased 9.8% reaching R$ 31.9 billion.
Slide number 6 we have the market ratios. Earnings per share R$ 0.89 for
adjusted earnings per share. Dividend yield reached 4.86%, already reflecting
the decrease in the payout ratio; price earnings 12 months reached 6.63%.
And price book value R$ 0.74.
Slide number 7 we have the funding. You can see that we had a decrease in
total funding of the bank, mostly because is alligned with the needs in our
credit portfolio. As you can see the adjusted net loan portfolio for commercial
funding 89.5% so we have a decrease in comparison to the previous quarters.
The cost of funding to SELIC rate reached 77.3% and I would like to point out
that savings portfolio we have a small decrease of 0.7% in the comparison to
3Q2015 and the agribusiness letters of credits and mortgage bonds had a
decrease of 1.6%, in the same comparison.
Slide number 8, we have other sources of funding. Starting with asset
management we are still number one with 21.5% market share reaching R$
674.7 billion of assets under management. In BrasilPrev our pension plan
company is the leader with 46.2% marketshare reaching 5.5 net inflow, R$ 5.5
billion net inflow in the 3Q.
Loan portfolio in a broad concept. Slide number 9. As you can see you have a
reduction of 6.9% in a comparison to september 2015 but we grew in
agribusiness 4.5% and this portfolio now represents 24.5% over the total
portfolio coming, growing from 21.2%. And individuals grew 3.6% reaching
25.4% of total portfolio coming from 23.3%. And companies now represent
43.2%, a decrease from 45.6%.
In slide number 10 we have the loan portfolio by contract period and as you
can see 44.8% of our loan portfolio was contracted after 2015. After the end of
2014. So we still have half of our portfolio to reprice and we still have room to
do repricing in our portfolio positive impact in NII looking forward.
Slide number 11 we have the indivuiduals portfolio with lines that lower risk
lines and that represents 77,0% of our portfolio. So mortgages grew 13.2% in
12 months both coming from individuals [ ] and growth and the delinquency
ratio of this portfolio is 1.42. On the right side we have the payroll, 1.7% growth
reaching R$ 62.8, most of it came from retirees and pensioners and the
delinquency ratio is 1.3% and we still have the lead of market share 22.3%.
Salary loans grew 4.8% and delinquency ratio is 2.42. Autoloans we had
decrease of 23.2% and mostly because lack of demand and delinquency ratio
in this portfolio is 1.03%.
Slide 12 we have loans to companies in a broad concept. That portfolio
decreased by 10.8% comparison with September last year, most of that
decrease comes from very small, small Companies portfolio, decrease of
18.3% while the rest of the companies portfolio had a decrease of -8.2%.
Slide 13. Agribusiness. We have the breakdown by type of loans. Rural loans
grew 10.9% in comparison with September 2015 while agroindustry decreased
17.8, getting to 4.5% growth for the total portfolio. We still have leadership in
this market with 61.3 marketshare. 79.4% of the working capital for the harvest
2016-2017 has insurance. And another important mention as well is that if you
add what we did already in this 16-17 harvest add the free working capital that
we did in the beginning of the year to finance this harvest and compare that
with what we did last year in terms of free working capital plus finance of this
harvest we have a growth of 22.2% reaching R$ 25.9 billion R$ 21.2 billion.
Slide 14 we have done to provide the provisions made for this portfolio so
september 2016 we have R$ 18.0 billion in guarantees provided and almost
R$ 400.0 million in provisions made.
Slide 15. We start talking about asset quality and delinquency ratios. Our
delinquency ratios over 90 days reached 3.51% in the end of September 2016
and if you adjust that for that specific case in oil and gas, a big case in oil and
gas, the delinquency ratio would be 3.07%. Delinquency ratio by type of
portfolio: agribusiness still very low at 0.96; individuals, 2.58%; companies
reached 5.26%. I was mentioning that in the NPL+15 days of the bank 36.0%
of all these NPL is a 100.0% provided meaning they are risk H already.
Moving to slide 16 we have cover ratios and the provisions balance. Starting
with cover ratio, we reached 159.0% at the end of this quarter, adjusting for
this oil and gas case 100.0% provision place that cover ratio would be 167.81.
The adjustments that we are making in this particular case from denominator
and denominator at the same time. The total provisions reached R$ 37.5 bilion
at the end of September 2016.
Slide 17 we have more detail on cover ratio by segments and as you can see
for the portfolio abroad adjusted by this particular case booked in a foreign
branch just to give you the right idea in terms of cover ratio it reached almost
350.0%. The agribusiness portfolio almost 300.0%; individuals, 190%; and
companies the cover ratio is almost 141.0%. This is pretty stable if you look at
the whole time frame that we provide you here the lowest level for the cover
ratio that we had was in September 2014 before the increase in the economic
downturn in Brazil when we had 136.0%. Below we have the provisions by
segment. We had a decrease in the flow of provisions in 19.7% in this quarter,
mostly coming from the company’s portfolio most of it because of the decrease
in the portfolio as a whole, as the total of provision comes from very small,
small companies with big decrease in balance, they are also decreasing the
need of provisions so it’s really flat in our figures here. You can see that
individuals we have small increase in the quarter and agribusiness as well.
Slide 18, we have the provision flow and the average risk. So provision flow
divided by loan portfolio in the quarter the total ratio came to 0.92 is the
highest that we have in the whole period, growing since 2Q2015. In companies
we had a peak of indicator in the 2Q, we still have the second highest level in
the 3Q, meaning that we are doing provisions that we need to do for the risk
that we have in our portfolio, average risk reached 5.59% and adjusting that
for that particular case in oil and gas that figure would be 5.15%.
Slide 19, we have NPL formation. As you can see we reached 1.03 as an
indicator in this quarter quite similar to what we have in the 1Q2016, little
higher than what we had in the 2Q this year, adjusted by this particular case
in oil and gas. If we include the past due negotiated loan portfolio that was
renegotiated after 90 days we have this adjustments here that we moved from
1.10 in 1Q2016 to 1.09 in 2Q, as back to 1.09 this quarter. Important to
mention that in the 3Q2016 only 15.5% of the total renegotiated loan portfolio
was past due 90 days when we renegotiated it.
Moving to page 20 we have more details in the renegotiated overdue loan
portfolio. We had new contracts, new renegotiations of R$ 2,758 million in this
quarter, we have payments principal plus interest less capitalized interest of
R$ 744.0 million in this quarter. Delinquency ratio portfolio reached 24.8% and
we have improvement in quality of the portfolio if you compare September
2016 and September 2015 where AA-C transactions in this portfolio increased
from 27.3 to 32.1. NPL formation for this particular portfolio reached 8.37
reduction in relation to what we have seen since September 2015.
Slide 21, we move to NII and NIM. As I mentioned before, the growth was
15.0% net interest income most of it coming from the growth in loan operations
income, 10.2, and small growth in the cost of funding. Global spread reached
4.9, risk adjusted NIM 2.7 and spread by segment individuals 16.5, the total
portfolio reached 7.9, companies 6.1 and agribusiness 5.0% and improvement
in all these metrics.
Page 22. We bring to you the fee income. With a growth of 7.0% in 9M2016
compared to 9M2015, reaching R$ 7,600 million mostly coming from account
fees that grew 31.0%, asset management fees that grew 10.0%, also it’s good
to mention the consortium that had an increase of 25.6%. We also provide you
with what would be the performance of credit cards if we take out impacs of
Cateno last year. The growth of 9M would be 6.1% without the impact of
Cateno.
Moving to page 23, our service channels we have more than 64 million clients
and more 66.0 points of services present in 997 Brazilian municipalities. I
would like to point out that we are just launching what we call BB Conta Facil,
it’s a digital checking account where the client can open it 100.0 through the
mobile and once it’s open it’s ready to use, so there’s no need to go th a
branch to make it work. It’s working after only 3 minutes. Also talking about the
segmentation that we have moving to digital type of service, all of our Stylo
Clients the segmentation that consider clients that make more than R$ 8.0
thousand per month. So, all of these clients they are being served in 232
branches a 100.0% of them digital. We have now 1.1 million clients as Stylo.
Exclusivo and Personalizado, the segmentation that considers the clients that
make from R$ 4-8,0 thousand per month. We have 3.3 million clients, we have
already 12 digital exclusive branches, in fact they are offices, they are not
really branches and more 32 offices by the end of 2016 will be open. Our goals
is to reach 5.0 million high network clients until the end of the year, we are
almost there. Automated service channels by percentage of transactions.
Mobile now represents already 40.0% of all transactions made by our clients
and only 2.0% of the banking transactions are made in person in branches.
The growth of mobile transactions is 49.0% when compares to 3Q2015, still
growing at a very good pace.
Page 24, administrative expenses and cost-income ratio. We reached cost-
income ratio of 29.7.0% in a quarter view. R$ 5.3 billion in expenses with
personal. R$ 3.1 other expenses, small growth in comparison to what we did in
the 3Q2015 and if you look at the accumulated base 9M our cost-income ratio
is 39.4 and we had a bonus granted during the negotiations with the unions in
September, so this bonus was paid once we considered that in the adjusted
results, we didn’t consider that as a extraordinary item, but if we hadn’t done
that the personal expenses would be R$ 4.9 billion, lower than the 2Q2016
and the total in 9M would be R$ 14.6 billion only R$ 300.0 million more than
9M last year.
Slide 25, we bring you the BIS ratio. We reached 17.59 the total Basel ratio
and core equity Tier I capital is 9.07%.
Slide 26, we bring you the impacts of full application of Basel III rules and also
the use of tax credits, so the total ratio grow to 17.59 to 17.31 after the full
application of Basel III rules and Tier I would move from 12.18 to 11.84. Same
behavior you should expect in the Core Equity Tier I.
On page 27 we have the guidance and how we performed. So adjusted ROE
will reach 7.6 consider the 9M of this year, so guidance is 9-12.0%. We
decided to revise it and reduce the range to 8-10.0%. NII came inside the
guidance, 11-15. we reached 15.0% in the performance, no change for this
guidance. The net loan portfolio in a broad concept, the guidance was -2
to1.0% we had a decrease of 3.4% and we decided to revise the guidance to -
9 to -6%. Moving all the guidance for other items for the domestic loan
portfolio, individuals 1-4%, performance of 3.6; companies guidance -19 to -
16.0% and we had a -10.8 performance. Agribusiness, the new guidance 4-
7.0% and we delivered this quarter 4.5%. Allowance for loan losses we came
with 4.4% and we are not changing the guidance that stays at 4-4.4%. Fee
income, 7-11.0% the guidance and we delivered 7%. Administrative expenses
grew 4.2%, the guidance was 5-8.0%, we decided to change to 4-6.0%. With
that we finish our presentation and we can go to Q&A. Thank you very much.
OPERATOR – Ladies and gentlemen, we will now being the Q&A session. If
you have a question, please dial *1 on your touch tone phone now. Our first
question comes from Mr. Tito Labarta from Deutsch Bank.
TITO LABARTA – Hi. Good morning. Thank you for the call. A couple of
questions. Well, I am just trying to get a sense, you know, now we saw your
provisions come down in the quarter although you didn’t do your ROE
guidance. How do you expect this to evolve, going forward in terms of your
cost of risk in the next year? I appreciate you don’t have a guidance yet for
2017 but, just given what you are seeing in terms of asset quality. Do you
think provisions can continue to come down and, in the back of that, what do
you think is more of a sustainable level of ROE, as you go into 2017 and
2018. Or, you know, where would you feel comfortable, in terms of, or expect
ROE to improve too? And then my second question is also a big increase in
the tax rates this quarter. I just want to understand that a little better. What do
you expect for the tax rates going forward? Thank you.
BERNARDO ROTHE – Good morning, Tito. Thank you for your question.
Starting with the provisions. We expect the provisions to improve gradually as
economy improves as well. So that is what, you know, we don’t have
guidance for 2017, as you mentined, but we expect this year inside the
guidance next year, it should be provision behaving in line with the economy,
improving gradually. Ok? ROE, our expectation is to be inside the guidance
for this year. Next year we don’t have guidance but improvement in ROE for
the banks is going to come gradually as well, in line with, you know, the
behaviour of our, you know, cost-income ratio, NII and the provisions as well.
I cannot give you a long term view but we should see things improving
gradually over time. For the tax rates, as I mentioned before, we had these
tax rates before, the [ 26:20] income should look at the range of 25-30.0% for
the year, that would be the appropriate one. We are inside that range if
considered the 9M, and because we had a low tax rate in the beginning of the
year, given the adjustments we did for the additional provision that was
reverted that doesn’t impact the adjusted net income and so on. So you
should expect, without the [26:45] income in the earnings before taxes to
have a range from 25-30.0%.
TITO LABARTA – Thanx, Bernardo. That is helpful. Just one follow-up in
terms of the cost of risk. I understand you are not giving guidance for next
year but if I look at the cost of risk, say, back in the last 5 years, in 2010, an
average was around 3.0%. I don’t expect it to get to that level next year but,
you know, once you get through the cycle, once things kind of normalise, is
that 3.0% cost of risk an achievable cost of risk, in a more of a longer term
perspective? Given where the loan portfolio is today. Or should we be a bit
more in terms of [27:30] maybe 3.5, like what we saw last year? Just want to
get a sense of what kind of a longer term, you know, based on the loan
portfolio you have today and once you get through that, the quality [27:41] in
which you would expect.
BERNARDO ROTHE – Well, you can expect in the long run to get to that
level that you mentioned, for several reasons. Even one of the reasons, the
mix of the portfolio that is growing in line with our less risky. So we should get
there over time.
TITO LABARTA – Ok. Thank you.
OPERATOR – Our next question comes from Mr. Nicolas Riva from Citibank.
NICOLAS RIVA – Yeah. Thanks, Bernardo, for taking my questions. The first
question is on asset quality. I look at your 90-day NPL ratio and we saw an
increase of 20 bps quarter on quarter. It was increases in companies, 40
basis points. In consumers, 20 basis points. Yet, the provisions were below
the level of NPL formation and after your coverage drop to 159.0%. So can
you talk about why you provision below the level of NPL formation this
quarter? And also, how comfortable do you feel with your carriage of NPL of
1.6 times? And then a second question, specifically on the early delinquency
ratio, which I increased 88 bps quarter on quarter. So when did you know this
increase in the early delinquency was concentrated in a few specific
corporate clients, which sectors? And also, if you would expect this early
delinquency to roll over to 90 days overdue? And how will it cover [ 27:54]
with longer [ 28:00]. Thank you.
BERNARDO ROTHE - Ok. Thank you Nicolas. Starting with the coverage,
you know, coverage of NPL formation, coverage of delinquency and so on is
the end result of the application of our [ 28:18], credit policies and the
regulation. That is not a goal, that is the end result. What you are seeing is
provisions are going down because of several reasons, the change in the
[28:34] of the portfolio. We are decreasing a lot of small companies that
require more provisions in general. Then where we are growing. So, you
know, we have less provisions coming from the banks, the decrease of the
portfolio is a part of the reason why the provisions flow is going down as well.
So several things put together give the level of provision that we have to
make and the cover ratio is the end result of all that. That is why, you know, in
the slides, I forgot the number of the slides, but slide 17, we brought to you
the cover ratio by segment to show that the cover ratio of the companies
portfolio has been pretty stable, increase, you know, from the lowest level in
September, given that we make provisions beforehand, before the [ 29:43]
and then it decreased a little bit over time as delinquency appears. So, that is
the how, you know, cover ratio should behave as nothing, anything different
or we are not doing less provision than what we are supposed to do. So that
explains coverage and delinquency ratio increase is something that is totally
under control. We believe that the level of delinquency in the portfolio is
totally in line with the impact of the times and the intensity of the recession
that we are living in Brazil. And even if you compare that what we had is the
high delinquency since 2008, we are still lower than that level after, you know,
2009 you have 7, 9 months of recession, not more than 2 years of recession.
So the behavior of delinquency is pretty much under control and behaving
much better than what we expect even the intensity of the recession that we
are living in right now. The other delinquency in Banco do Brasil is very [
31:06], I would say. So there is no correlation to the +90-days delinquency.
Sometimes you have things that comes to more than 15 days, that we will
recover pretty soon. If you look at the level of the credit that becomes
delinquent. How fast we resolved this issue is still pretty high, over 80.0% is
resolved before 90 days. So it is not going down even during this period that
we are living in. So we expect things to still stay under control. There is no,
you know, I wouldn’t say and couldn’t explain in any particular case explain
that delinquency. What you can expect is that things are being dealt with and
delinquency should still grow as, I believe, we have been mentioning. The
peak of delinquency should be next year and then we are going to see
stability, pretty much happening in line with the improvement in the economy,
that we should see in the future.
NICOLAS RIVA – Thanks, Bernardo.
OPERATOR – Our next question comes from Mr. Thiago Batista from Itaú
BBA.
THIAGO BATISTA – Hi, Bernardo. Thanks for the opportunity. I have two
questions. The first one is related to your risk-weighted assets. When I look to
the evolution, the last 2 years, your risk-weighted assets went down by 6.0%,
more or less, while your [33:05] went up by 2.0%. So could you comment on
your strategy of your risk-weighted assets control? And how do you believe it
will expand versus the loan growth? The second question is regarding your
margins. Do you see further expansion in your margins? How the potential
low SELIC rates will affect your [ 33:29]?
BERNADO ROTHE – Ok. Thank you, Thiago. Starting with the RWAs. We
are going to keep managing growth of RWAs moving forward, you know,
doing, concentrated in shifting the line of assets that consume more capital to
assets that consume less capital. We are going to keep doing that apart of
the decrease, also had to do the decrease in the loan portfolio. So when you
shift from a loan to liquidity invest in the market, you know, you release all the
capital. So there are several things that we are doing, you know, managing,
you know, exposure to market risk as well and so on. So we expect that with,
you know, more [34:33] earnings and so on to keep moving our [34:36] 1 to
9.5 by 2019, as we have been saying for a while. In terms of margins,
NIMs,spread by segment, you should see improvement in these spreads over
time because we still have room to reprice our portfolio as I showed you in
the slide in the presentation. 44.8% of all portfolio was contracted after the
end of 2014, so we have more than half of the portfolio that can still be
repriced. It is going to be reprice over time, because we have a longer
duration on the portfolio, but we still have room to do that. So spread should
keep going up for a while, even though there are impacts coming from the
mix. For example, in the companies portfolio, small companies, the portfolio
that should reduce the most is the portfolio that has the highest spread in
companies, against the big companies, right? So, even with the mix, we
should see some improvement moving forward in spreads.
THIAGO BATISTA – Ok. Thank you.
OPERATOR – Our next question from Mr. Marcelo Telles from Credit Suisse.
MARCELO TELLES – Hello gentlemen. Thanks for the opportunity. My
question is in a more [36:37] question. I know we are still seeing some of the
recent economic indicators, actually are coming a little bit weaker than
expected. So what is the scenario that you are working for next year, in the
case, you know, GDP disappoints? I mean, do you think that it would
jeopardise your ability to improve provisions next year? And my second
question is on the [ 37:21] expense front, you know, we have seen some
news in the press talking about, you know, potential early retirement [ 37:29]
and so on. What should I think about, you know, your cost evolution entering
next year? You know, could that be like a potential for [37:30] surprise for you
guys? Thank you.
BERNARDO ROTHE – Thank you, Telles, for your questions. In terms of
what we expect for the economy as we mentioned, a gradual improvement in
the economy next year. So that is what we are considering but for anything,
you know, you have upside rates and downside rates. And we positioned
ourselves to be prepared for anything that comes that way, in the good side
and the bad side as well. In relation to any program, you know, retirement
program and so on, if there is any decision, you should see a material fact
come to the market with the details, as soon as we have a decision like what
we did last year, when we had, you know, the early retirement program that
we did in the 3Q2015. So there is no decision in that, as soon as we have
something, all the market is going to get all the material facts. Ok?
MARCELO TELLES – Thank you. Just one final question if I may. How
should I think about, you know, your market share, you know, in the years to
come? Do you think you, you know, compared to the system, it should gain or
is able to keep, or lose market share? You know, how should I think about
that? I know you have, you know, you are trying to build up capital, you know,
over time? So how should you reconcile that with your market position with
the rest of your competitors? Thank you.
BERNARDO ROTHE – Well, market share is not a goal for Banco do Brasil,
so we are more focused on profitability than market share but you can
consider that we want to serve our clients when they need. So the demand
that we see from our clients are going to be attended, but market share is not
a goal. We have been keeping market share very stable over time. So it
depends on demand coming from our clients that is how the market share is
going to behave. But again, the focus is not market share, it is profitability.
MARCELO TELLES – Thank you.
OPERATOR – Our next question comes from Mr. Jason Mollin from
Scotiabank.
JASON MOLLIN – Hello everyone. My question is the top down question on
loan demand. You have just mentioned that you are going to focus on where
the demand is, to assess where you should be in profitability. But can you
give us a sense of where you are seeing the strongest loan demand now and
the weakest? Is it really reflected in mortgages growing faster? I guess we
would have to measure the origination vs the amortisation of loans. But what
are you seeing in terms of loan demands today by segment? And where do
you think the demand can pick up first?
BERNARDO ROTHE – Thank you, Jason, for your question and good
morning. Our loan demand, as you can see, we have been growing in
agribusiness through, you know, the rural credit that finance the harvest and
so on, at a very good pace, 10.0% growth. So we are attending the demand
that we have in agribusiness and we should see that moving on. Agribusiness
is still performing well, could be a problem not as well as in previous years
but, if you look forward, that segment in Brazil is going to recover faster than
anyone else. So, demand comes from needson working capital, in production
and so on. We see that happening next year and for the harvest as well. So,
you know, there will be demand for agro and we are going to serve our clients
with all they need. For individuals, if you look at the organic portfolio of Banco
do Brasil, we grew 6% against last year. So the organic portfolio is growing
through mortgages and salary loans and payroll loans and so on. Payroll
loans a little bit less now than we had in the past but we are, again, we are
serving our clients in demand. The individuals portfolio for next year still sees
room for some growth coming from demand from our clients. And these two
portfolios, agribusiness and individuals to increase participation in the total
loan portfolio of the bank over time, because they are the ones that we have
demand.
JASON MOLLIN – And then I am guessing the company and small SME
segment, the demand seems muted.
BERNARDO ROTHE – That is it. We don’t have demand that explains a big
drop that we had in the portfolio. And that demand should come over time
with improvement of the economy. Right?
JASON MOLLIN – Great. Thank you.
OPERATOR – Our next question comes from Mr. George Curry from Morgan
Stanley.
GEORGE CURRY – Hi. Good morning everyone. I wanted to ask a more of a
big picture question. So there is a new government more focused on orthodox
economic measures. There is a new chairman of the bank. There is a new
management. What is it that you guys are trying to do? How are you going to
turn the bank around? Because the profitability of the bank has fallen
significantly over the last 6, 7 years. Beyond the reasons that have to do with
this sort of like 2-year cycle we have seen, right? I mean, you guys were
doing 1.5% RoA and that has gone down to 0.5%. So I wanted to understand
what the plan is. I mean, how do you plan to, you know, turn around the
operations, you know? Go back to being you know, as profitable as some of
your private sector peers? You certainly have the skill to be that way. So can
you give us some specifics of what the turnaround plan is? What the goals
are? What are you following in terms of metrics to gauge whether or not you
are moving in the right direction? Thank you.
BERNARDO ROTHE – Thank you, Curry, for your question. It was a good
one but I would say we have been doing this turnaround already. If you look
at pre-provision pre-tax earnings, the improvement that we have been
delivering over time is, you know, quite good one. You know, if you compare
2015 to 2014, it was almost 15% growth. Again, we were growing at a 15
pace at this time. Now we are at 10%, right? That is if you take out lumpsum
payment that we had that we consider in the recurring net income, that figure
would be higher, even in a very difficult scenario. So we have being
addressing, you know, margins, improvement in margins, improvement in
fees collectors, growing, expenses below inflation for several years now and
we want to keep doing that moving forward. So, you know, efficiency is the
name of the game, that is what we are pursuing and we are going to be more
efficient over time. With all that together, with the improvement in terms of the
environment and so on, you know, with loan provisions coming over time that
are going to allow all these improvements in efficiency. You know, cost
income ratio going from 42.5 to 39.7 and so on. Keep improving with that, we
are going to see that flowing to the bottom line and improving our ROE and
our ROE’s. You know, the shift in the mix of the portfolio that we are doing as
well in the last 2 years explains what we are doing, how we are going to
reach our goal. That is over time, to reach the same level of profitability as
our peers, as our CEO already mentioned in the release in the 2Q in the
press conference that he had in August. So we are going to keep doing what
we are doing and that should reflect in improvement of profitability over time,
reaching our goal to be in the same level as our peers.
GEORGE CURRY – Ok. I mean I was really talking more about beyond this
five-goal, which obviously has the profitability from high provisions but even if
we just sit back and adjust your numbers through the cycle provision level,
you return on asset is way below what it used to be 6, 7 years ago. And it’s
obviously way, way below what your peers are doing. So I was just more
about, you know, bigger picture in terms of things that are going to help you
over the long term increase level of profitability. Otherwise, other than the
provisions just coming down because is just not going to cut it. Or maybe if
you want to be more specific, you know, what is it that level of profitability that
you think you are going to achieve? And, you know, maybe that makes a
difference. Maybe it’s not 1.5% ROE, maybe you are happy with 1. I don’t
know, I mean, I guess that also would help.
BERNARDO ROTHE – You know, if we keep doing what we are doing, you
know, improving margins, improving fees and keeping cost under control,
return on assets are going to improve, naturally. Right? So we are doing that
and we are going to keep doing that over time. I am not going to give you a
figure but the goal is to have the same level of profitability as our main peers,
you know. We are talking about Bradesco and Itaú. So they are going to get
there. How? Keeping costs under control, improving margins in our portfolio
and improving fees that we collect from our clients. That is how return on
assets are going to improve.
GEORGE CURRY – Alright. Thank you.
OPERATOR – Ladies and gentlemen, as a reminder, if you would to pose a
question, please dial *1. Our next question comes from Mr. Henrique Navarro
from Santander.
HENRIQUE NAVARRO – Hi gentlemen. Thanks for taking the question. My
question is on NII. Your NII has been growing strongly, 15.0% [49:03]. I
believe great part of that is because of the repricing on your loan portfolio. It
seems that Banco do Brasil is on a late cycle in terms of repricing, which is
[49:15]. So my question is, for how long you believe you can keep pushing
this NII? I mean, how long can you keep repricing loans and when this post
cycle ends? Thank you.
BERNARDO ROTHE – Hi Navarro. Thank you for your question. You know,
the repricing efforts are going to continue through next year. Because, again,
we have more than 50% of our portfolio that has room to be repriced and we
have, you know, different ratio in the portfolio so we have things that are
going to be repriced slowly than others. So we have room to keep doing that
over time, so repricing spreads over time. 2017 we should see happening.
We may see something happening also in 2018, depends on how effective
we are to reprice things that are going to mature in other years beforehand.
So if we can do that we can have more impact on NII sooner rather than later.
But I don’t have a guidance for you for next year yet. But I can tell you that
repricing efforts are going to continue.
HENRIQUE NAVARRO – Ok. Thank you.
OPERATOR – Our next question comes from Mr. Anibal Valdez from
Barclays.
ANIBAL VALDEZ – Hi. Good morning, Bernardo. A question on the evolution
of the early delinquency loans [ 51:05]. For individuals we saw a 30.0%
increase quarter on quarter, R$ 2.5 billion increase in the NPL’s over 15 days
for the individuals portfolio. Now I want to have a little bit more color on that
trend, in terms of, what is up with clients, products and, perhaps, geographic
areas of Brazil kind of explain that movement? The second question is on the
revision of the guidance for loan growth, particularly, corporate portfolio. If I
take the new guidance growth for the domestic and corporate portfolio growth
of -15 to 19% [51:52]] I still get for the 4Q a contraction of 5.0% in that
portfolio. So, the question that is that what is driving the [ 51:59] in the loan
portfolio? Is it you guys, or no, deciding to renew loan to certain customers?
Or is that customers are not really demanded for credit and on the back of
this, there is a lower demand for credit? I want to understand better what type
of clients are not demanding credit, because I understand that most of that
portfolio is working capital, so also I would like to have to some more colour
on the back of that. And related to that, on the revision of the growth for loan
portfolio, from that you can, of course, deduct that assets will continue to drop
in the 4Q, even the reduction in credit risk. So, that said, where do you guys
estimate common equity Tier I will close the year for Banco do Brasil? Thank
you.
BERNARDO ROTHE – Ok. I will start with the last question. We have our
goal of 9.5 core equity Tier I beginning of 2019. We don’t have anything in
goal that we will release to the market. So 9.5 is where we are going to get at
the beginning of 2019. Early delinquency individuals, early delinquency in our
case is very volatile and has very low correlation to our 90-days delinquency
ratio. So that does not indicate a problem in the portfolio and we have not
seen that happening and we still have a very high level of recovery of
anything that becomes delinquent after one day, that before 90 days more
than 80%. So even during all this default cycle that we are living prove this
level of recovery is still pretty high. So we are not with any problems in
individuals portfolio and, in fact, we even seen riskier attacks of credit, like
credit cards having delinquency 90-days delinquency going down. In terms of
loan growth in the corporate portfolio, it´s pretty much demand that drives the
performance of the portfolio. Of course, there is demand that can meet our
internal guidance line for underwriting and with the impact of the economic
scenario you may see companies that were able to, you know, borrow money
from us two years ago, not being able to borrow anymore. But demand is the
main driver of the drop in the portfolio. Ok?
ANIBAL VALDEZ - Excuse me, Bernardo. Sorry. Yes, but in individual I can
understand volatility but what is driving that volatility. It is a [56:02] increase. It
is not just a marginal change. It is 30.0% more last quarter, so way behind. I
understand all that you said about if not translating to 90 days or NPL’s for
90-days but, I mean, we look at the numbers, I mean, I just have to believe
you that it is just volatility and that is going to normalize, because if you take
historical, even this year’s [56:05] in 90-days, what I estimate is that NPL’s
will continue to grow in to next year, as you mentioned. So how do I get [
56:19] this is volatility? And if it is volatility, I mean, doesn’t it concern what is
behind this? I mean, are you trying to understand? You have quarter on
quarter individuals portfolio, which is supposed to be relatively low risk
portfolio, given the products that you guys have in that portfolio. And you
have a 30.0% increase in the 3Q, it is R$2,5 billion. Please, could you [ 56:37]
some detail on that movement? Because it is material, it’s not just like simple
volatility.
BERNARDO ROTHE – Ok. You know, if you look at page 15 in our
presentation, you can see that 15-days and you compare to the 90-days ratio
afterwards like we went from 426 in December to 416 in March. In June, the
delinquency ratio went down, not up. Even the early delinquency went down
as well. Then it went up, then delinquency stayed stable and then it went
down, then it went up, then delinquency stayed stable and then it went up and
down again. And now it went up again. What I am telling you the correlation is
pretty low. We are able to recover, in fact, to give the right number it is 87.8%
of everything that becomes delinquent after one day. So we are pretty
effective at putting things back in place and one thing that we have this
September that we didn’t have last year was the strike in Brazil for banks,
right? So there is some impact coming from that, that doesn’t mean that the
client is not going to be, you know, ok again in October. In fact, we have seen
things that happened in September being resolved in October already. So,
you know, again not a good indicator of what is going to happen in our
delinquency moving forward.
ANIBAL VALDEZ – Ok. Thank you, Bernardo.
OPERATOR – Our next question comes from Mr. Carlos Gomes from HSBC.
CARLOS GOMES– Hello. Good morning and thank you for taking the call.
Two questions. On Banco Postal can you give us an update as to when do
you have a contract? When do you expect the auction to take place? And if
you were to no longer hold Banco Postal, is there any type of immediate
action or activity that it was undertaken [ 1:00:19] with Bradesco lost its
contract, they opened as many as 1,000 branches. You probably don’t need
that much, but would you invest in infrastructure if you are no longer able to
use the Banco Postal offices? And second question in on the tax rate. You
mentioned in the call, can you repeat what you expect for this year and tell us
what you expect for the coming two years in terms of tax? Thank you.
BERNARDO ROTHE – Ok. Banco Postal. Thank you, by the way, Carlos, for
your question. And thank you for participating in the call. Banco Postal,
whoever is interested in assuming the Banco Postal, you know, services has
to deliver the bid today. And the proposal…
CARLOS GOMES – Today as in today, the 11th?
BERNARDO ROTHE – Yes. The proposals are going to be open on Monday.
So, on Monday we are going to see who is going to participate in the bid. I
cannot anticipate to you if we are going to send the proposal or not. In terms
of impact, there is no need to open branches for Banco do Brasil. We have
more 8,000, you know, correspondents in Brazil and several ways of serving
the clients that were served through the Banco Postal. So there is no impact
in terms of cost for Banco do Brasil if we are not going to keep that with us.
CARLOS GOMES – How many clients do you have in Banco Postal, if I may
ask?
BERNARDO ROTHE – How many clients? I don’t know by heart but I can
give you later, if you don’t mind. Ok?
CARLOS GOMES – Thank you.
BERNARDO ROTHE – The second question was in relation to tax rate, right?
CARLOS GOMES – Yes.
BERNARDO ROTHE – I didn’t mention any tax rate for the next year and
next 2 years. I only mentioned the tax rate for this year, if you don’t mind I
would prefer to leave that for when we have the guidance for next year. So
we can talk about tax rate for 2017 as well.
CARLOS GOMES – [1:02:07] special besides the well-known factor of [
1:02:09] capital that would modify your tax rate and I mention that because
your return on tax assets are quite high, 57.0% of equity. So [1:02:14] at what
point you want to bring that?
BERNARDO ROTHE – In fact, we are working to bring that down but,
anytime we do provisions we create new tax credits. So it’s a profit. Right?
We use it and we create it all the time. With provisions going down, you know,
the creation of tax credits are going to go down as well. And you may see
stabilisation in terms of balance but no guidance there. Ok?
CARLOS GOMES - Ok. Thank you very much.
OPERATOR – This concludes today’s Q&A session. I would like to invite Mr.
Bernardo Rothe to proceed with his closing statements. Please, go ahead sir.
BERNARDO ROTHE – I just want to thank you all for participating in our
conference call and to, you know, put our team in the IR division at your
disposal, to clarify anything that you need to be clarified afterwards. Be free to
contact us any time you want. Thank you very much again for participating
and good morning.
OPERATOR – That does conclude Banco do Brasil conference call for today.
As a reminder, the material used in this conference call is available on Banco
do Brasil Investor Relations website. Thank you very much for your
participation and have a nice day. You may now disconnect.