Banco Do Brasil Sa S/Adr

Welcome to Banco do Brasil's public meeting and earnings release conference. As usual, our event will be in Portuguese with simultaneous translation into English. To choose the language, click the button on the right corner of the homepage to select the language of your choice. Here with us, we have our CFO, Giovanni Tobias, the Vice President of Internal Controls and Risk Management, Felipe Princip, and the Director of Strategy and Organization, Tiago Borsatti. We would like to remind analysts that they will only be able to ask questions through the webcast link. I'll turn the floor over to Giovanni to begin our presentation. Thank you, Janaína. Good morning, everyone. It's a pleasure to welcome you to our third quarter 2023 earnings live stream. I don't know if everyone knows, but Darciana, our CEO, is not here, unfortunately, because she underwent a surgical procedure earlier this week, and she's following the recovery period recommended by the doctors. She's doing well, and she'll be back in a few days. Meanwhile, Felipe Prince, our chief risk officer, is acting as interim president of BB. Our conference call will be a little bit different from our usual calls because now we are also registering our public meeting with analysts and investors. We also have the participation here with us of Ms. Lucy Souza, the president of APIMAC, a longtime partner in our public meetings. This is the 30th public meeting held by Banco do Brasil with the market and investors. So, for 30 years, every year, we hold this meeting. So we are here to talk more about our robust delivery of results, reflecting the dedication and professionalism of Banco do Brasil's employees. From day one, this administration has sought to execute a proposal to build sustainable results. In this sense, when we look at the first nine months of 2023, it is clear how much our commitment to consistent results and growing results is already present in the figures we're going to discuss. We are on track to deliver the highest annual net income in Banco do Brasil's history. At the same time, we are acting as inducers of sustainable practices and we continue to lead the movement of digital transformation and technology innovation in the financial industry, always with the aim of delivering a personalized Banco do Brasil experience to each one of our customers. Finally, I would also like to just mention that in September of this year, we concluded the periodic cycle to review our corporate strategy for the period from 2024 to 2028. Through this, we reinforce our purpose of being close and relevant in people's lives at all times, and our commitment to generating value for all our stakeholders. To talk a little bit more about this topic, we also invited our director of strategy and organization, Tiago Borsari. But before I turn the floor over to him, I'd like to call on a video where Tarsi left a message to you. She'll talk a little bit about our values that have been improved in the review set of our corporate strategy. So let's watch. looking towards the future and thinking what bank we want to be. How do we want to act and position in the market? What's our essence? To contribute to the development of our country, to be close and relevant in people's lives at all times, and delivering sustainable results to our shareholders are big challenges. And big challenges require transformation. So in this transformation journey, what guides us are our values. They are what determine our behaviors. They define our identity and make us unique, the bank of Brazil. And this is built with proximity. We are present, proactive and empathetic to delight people. We want to be next close to our relationship stakeholders, supporting their choices and helping them realize their dreams. Our complete portfolio and the search to offer people the best experience are a reflection of our potential to innovate. We innovate to simplify solutions and make people's lives easier. We combine our tradition of more than 200 years with results that go through generations. True scope and constant innovation in all fronts, and that's how we generate value to our clients and society. growing and sustainable results, the outstanding position in the market and the soundness of our company are acquired with efficiency. We use the resources available to create value to our relationship publics and investment in digital solutions to build a safer, more efficient company that is accessible to all. Banco do Brasil's activity is marked by integrity. We worked based on respect, trust, ethics and transparency. We are committed to do what's right always. We take care of the quality of our relationships and are aware of our responsibility towards people. We contribute to the development of our country because we are committed to society. We consider collective interests when making our decisions. we remain a reference in sustainable practices and businesses, working very strongly in the social transformation of our country. The greatest Banco do Brasil in the galaxy is made of diversity. We promote diversity, equity, and inclusion to build sustainable relationships and results. We believe in a fair and equal world. Our efforts are based in the creation of plural, representative, and engaged teams. Our strength resides in the people working together to have one Banco do Brasil for each employee and each customer. That's our way of being BB. you So this is our way of being in Banco do Brasil, right, Tiago? Tiago, I'd like to invite you now to talk a little bit about this process to develop our strategy for 2024 to 2028. Great, good morning, everyone. First, it's a pleasure to be here with you today, such an important day disclosing or releasing our earnings. And as Giovanni said in Tarsiana's video, we're also at a special moment because we have just reviewed our corporate strategy. what we called CBB is what we lay out as a trajectory for the next five years. We've been doing this in a robust participating process. And every year we take the step to look at the trajectory because the market changes. We need to do specific adjustments, but it is a robust strategy that guarantees the sustainability of our company to be able to achieve increasingly sustainable results. So I'd like to share with you today two images that really represent this process. Banco do Brasil, as I said, has been following an increasingly integrated process with the participation of more people. And we had this exercise now with 7,000 people participating, colleagues in the frontline at branches, partners, specialists, debate panels to build what we're going to show you of our ambition and where we want to be in the coming years, starting in 2024. In the process, we consider different pillars, the traditional pillars that we put together collaboratively, our strong SWOT matrix, where we look at our weaknesses and strengths and opportunities, where we can get in the future, where we can drive or leverage more. considering the movement that the financial market is going through. We also prioritize mega trends when we look at the future and see what's already impacting our business, what we need to leverage, and each perspective that I'll talk in a minute. Another important point is looking at the macroeconomic scenario with our macroeconomy department. We look at what is challenging us in the market. then we do this fully considering the added value to shareholders, what we need to have as an ambition in our company. Also looking at the performance of our peers, the new entrants in the transforming market. Also considering the markets where Banco do Brasil acts at each customer segment, how we're going to work, and considering the impact of that on society and public policies and each of our stakeholders. So as I said, it's a robust process that we go through with research and market trends. We also hold lives using technology to be able to reach all of our employees in Brazil and around the world to be able to actively hear what we need to adjust in our strategy to generate better results. We have discussions and technical analysis of specific topics with experts and that are reviewed by market experts. And finally, the approval of our CBB, BB's corporate strategy, and a very robust process. We go through the board and the executive directors. We have a hands-on meeting to design the strategy. We go through all of the advisory committees in the board and the board itself approves it considering the view of the different shareholders so that we can put this forward from one year to the next and then on day on the first or second of january each unit of banco do brasil each branch each colleague knows the challenge that will unfold from the strategy for the coming year And then on the next slide, I wanted to show you because we have one slide showing or summarizing our corporate strategy from 24 to 28. So it includes our long term components. That's our purpose of being close and relevant in people's lives at all times. And we follow this very strongly in our purpose. We have our values. very well explained in Tarciana's videos with our colleagues from the branches expressing and explaining our six values and how to beat Banco do Brasil in everything we do. We have a very careful eye to each one of these values. And here in blue is what we revisited, which guides our decision-making and our actions. So when I said that we unfold this for each unit, for each employee, These objectives and drivers are what we look at. We break it down into five perspectives. That's our BSC, how we break it down. And each perspective feeds back into the other. And I'd like to point each one. And first, it's customers. Our goal is to provide the best customer experience at all times. And we have four drivers. The first is what we call engagement, so that our customers have Banco do Brasil as their main bank. Our channel, our operation, our products should be relevant in their lives in every financial and non-financial thing. The second point is integrated solutions. We know that each type of product, financial or non-financial products, we need to be part of the customer journey. So we will invest heavily in our platform moving towards the third item. That's the omni channel platform. So very robust investments for us to be able to personalize or customize the customer journey so that we can customize the offer to the clients so that they can begin or conclude their journey either in the physical or the digital environment. And we'll follow. the client's behavior, making our service channels stronger, as well as new customer generation. We have a robust customer base and it is being engaged, but we need to expand this basis. We have new generations coming in, new product portfolios, so that we can have a customer base that is bigger working with Banco do Brasil. And the financial perspective, the first highlight is our objective of creating value and generating sustainable results. That's the ground, the basis for our earnings. And we have some drivers, the first one being the diversification of results. That's a constant challenge where we look at our portfolio, look at the challenging markets, and we do need to diversify the source of earnings. Risk mitigation is always very strong in Banco do Brasil's activities, the portfolio mix and how to protect our portfolio for sustainable growth. Operational efficiency. We do know that a bank that is undergoing transformation and the trends that I mentioned, using data, analytics, AI that I'll talk about in a minute, we have the opportunity to do better and faster, delivering more value to the customer. Profitability. Again, new business models, working in ecosystems, financial products, non-financial products, new sources of income is a very strong model. action for Banco do Brasil and working in value chains. Banco do Brasil is present around the whole country and the world. We work at the wholesale banking business, agribusiness, retail banking, and how these markets complement in the value chain for our clients. The next point of perspective that I'd like to highlight that was very strong in our corporate strategy is ESG, with the objective of being a protagonist in sustainability and in the promotion of business and ESG practices. I highlight practices because we have the ability to deliver very fast a lot of ESG practices with some drivers, the first being sustainable credits. I think we've already mentioned this as a long-term ambition to have a healthy, sustainable portfolio for the country and the world. Decarbonization also is closely related to the previous driver, looking at greenhouse gas emissions in all of our financed portfolio. And the third, diversity, equity, and inclusion, where we have our human resources policies, but we have suppliers, shareholders, clients. We want to be the inclusive brand in the world and in Brazil to be able to generate the inclusion movement that is so needed in society. The fourth perspective, digital transformation and processes, very strong investments in changing the way we work to accelerate delivery, to have agile delivery in the first waves of technology integrated businesses and deliver autonomy and value to the client. And we have some drivers here that include analytical intelligence. So with this Huge amount of data and digital transformation increasing. We have the ability to know our customers better and use data to the benefit of our clients so that we can have these offers and deliveries. Digital maturity. So we're going to continue looking at each one of our products in the app. For example, Bakuto Brasil's app today is a reference in the market. And we put it more and more as a reference by looking at the entire customer journey, that it can be digital, but it's also integrated to whatever channel they choose. It can be physical at a branch or ATM or through our app. Efficiency in processes. We have the implementation of automation, the robotization of our processes, the speed and improvement of the processes and journeys to deliver value to customers. And the final point is the agile operating model. As I mentioned, we started with the first lines of agile operation and we'll learn a lot with them to be able to turn the key and have Banco do Brasil working more and more integrated so that we break down silos and work to the benefit of the client. The final perspective is people and culture. We have the objective of having people engaged with BB's values and promoting collaboration, respect, and inclusion. That's why it's so important to always stress our long-term component with our values, the way of being Banco do Brasil, where we have the drivers of leadership. We have incredible leaders that deliver these values to all of our customers and will continue to invest in training and action. engagement. So having an engaged staff makes the difference. We look at the customer, we look at the employee experience, bringing the third driver here that we do need to have our employees promoting the brand. And we're proud to say that the pride of belonging to Banco do Brasil's brand is a strong factor of our culture and will make this even stronger. And finally, psychological safety. If we want to have a favorable environment for discussion, autonomy, innovation, we will invest. more and more in order to have inclusive discussion environments where people can speak up freely, build things together in collaboration as we did our corporate strategy. So this is a summary of what we have as the drivers for Banco do Brasil for us to continue on track to deliver sustainable results from here on 24, 25, 26 and 200 years into the future. So it's a pleasure to be here with you. I turn back to Giovanni to talk a little bit about the numbers and how we make this happen with discipline and strategy to deliver the numbers. Thank you, Tiago. As you can see, this is the roadmap. And from this roadmap, we set forth all of our targets. We define our budget. We disseminate this to all of our networks with the purpose of delivering sustainable growing results. We'll have the opportunity to talk a little bit about how we're seeing 2024. Officially, we're going to release the guidance for next year, and I already would like to invite you all to participate in February, right after the earnings release. We will hold our Banco do Brasil Day, where we'll have all of our board of directors, our executives discussing these drivers and what we'll actually be doing to deliver results in 2024 and the coming years. So, let's now get into the results before we open to questions. Here on slide five, we bring our adjusted net income and profitability. In the nine months of 23, Banco do Brasil posted 26.1 billion BRLs of adjusted net income, which is equivalent to an ROE of 21% and a growth of 14% compared to the same period in 22. In the quarter, income was 8.8 billion BRLs, an increase that is practically stable when compared to the previous quarter. with a growth of 4.5% compared to the same period of last year, equivalent to an ROE of 21.3%. The income in the third quarter was impacted by reinforcement in the provisions that we made for a specific case. even though to the delay on the judicial recovery, if it was not for that, our income would have been of around 9 billion BRLs in line with the bottom line of the average estimates of the market. Now on slide six, talking about our loan portfolio, we have grown our loan portfolio consistently. In the expanded view, we had an increase of 2% in the quarter. and 10% in 12 months, exceeding 1 trillion BRLs And one third of this portfolio corresponds to what we refer to as sustainable businesses. I'd like to highlight here in the performance of this portfolio, the individual's portfolio, the evolution of 7.9% in 12 months, with a highlight to payroll deductible loans that increased 8.9%, helping increase the levels of the portfolio. Payroll deductible loans are more than 120 billion BRLs, that's 40% of this portfolio. In the company's portfolio, the highlight was without a doubt the SME segment, which grew 14.2% in the year. The agribusiness portfolio grew almost 19% in one year, mainly driven by the lines of costing and investment, as well as by family agriculture. All of them grew in line with what we presented. 45% of the agribusiness portfolio is what we consider sustainable agriculture. It is part of our strategic drivers to increase even further in sustainable business in the ESG perspective. The government portfolio grew 9%. in the quarter comparison. And I'd like to note here that these operations are mostly guaranteed by the National Treasury. But I'd like to highlight disbursement. We've already contracted almost 16 billion BRLs with the segments that will be disbursed during the coming year. The modest performance of the corporate portfolios reflected liquidations and, in particular, the strategy of having a higher turnover of this portfolio favoring profitability in the generation of the benchers and so on. We ended up favoring the distribution to our private portfolios rather than retaining those papers in our balance sheet. Next, let's move to the next slide, slide number seven, where we'll talk a little bit about credit risk. The A-triple-L expanded view totaled 7.5 billion BRLs in the third quarter of 23 and 20.5 billion in the nine months of this year. This quarter's flow was impacted by the worsening of that same specific case of a company in the large corporate segment, which filed for judicial reorganization, but that so far has not been able to disclose or release their balance sheet. So we decided to increase provisions in over 500 million BRLs due to this delay. in this judicial reorganization solution. It's important to note that unlike other banks, I mean, other banks have already gone ahead and done 100% of the provisions for these specific operations in the results of last year's. Banco do Brasil reinforced only 50% of the provisions for last year's results, and there's 50% remaining for this year. The operations of these companies were already classified as risk G. In the previous quarter, we had 20% provision, so it was at 70% provisioned. We were confident that we would see an acceleration in the recovery or the reorganization process, but since that was not the case, we decided this quarter to reassign it to risk H, covering 100% of this operation with provisions.

So now on slide eight, I would like to draw your attention to the quality of our loan portfolio. NPL plus 90 days reached 2.81% below the industry's average, which was 3.5%. And the coverage ratio ended at 199%. As a reminder, Total portfolio NPL was affected by the operations balance and the corporate segment that I just mentioned that we had that delay of 90 days. If it were not by that, NPL plus 90 would have been 2.63%. Now to the top right part of the slide, individual portfolio NPL dropped again. clearly showing an improvement in the quality of the loan portfolio for individuals reaching 5%. The top of the NPL in this portfolio happened in December of 2022. Corporate portfolio indicator reached 3.04% here, considering the aforementioned situation, which is affecting the NPL for this portfolio. And not considering that effect, it would have been at 2.49%. And the agro portfolio closed NPF 0.7%, the lowest for all NPL portfolios in Banco do Brasil. And the new NPL went up to 8.32 billion reals here, also affected by that specific case, which added 800 million reals in this case, and also reflecting the volume of write-offs. for operation losses a year overdue. Nevertheless, provisions in the quarter were enough to cover for that increment in the NPL and reached 110.15%. On slide nine, we'll see the breakdown of our NII both for the new managerial view, including clients and markets NII. And if we go into the details, we have here the different lines in the accounting view with details for loan operations, funding expenses, and treasury lines. NII reached 67.7 billion rounds in the nine months of 23, a significant increase of 30.4%. Also here we have an impact margin from Patagonia, approximately... If it were not by the Patagonia effect, we would have posted expansion of 27%, which is a very robust growth. If we look at Brazil's operation itself, but Patagonia represents around 7% of our NII. And now, looking at the quarter, we reached 23.7 billion rials, an expansion of 3.5%. Annual growth of 17% in client NII was driven by the credit portfolio increase, as I mentioned, also because of a higher spread in all portfolios and higher liability margins stemming from greater funding. with our clients. I would like to give a special focus here on the loan operations income increase thanks to a higher loan portfolio and also the SELIC average rate effect in the period. Margin NII growth or market NII growth can be explained by the average SELEC rate increase effect on the securities portfolio and also by higher Patagonia Bank NII. Treasury results reflected SELEC's behavior and securities portfolio average balance increase and spread with clients ended The quarter at 9% and NIM global spread was stable in 4.9% in the spite of a slow movement of reduction of our interest rates. On slide number 10, fees and expenses. In the nine months of 2023, fees income was up 5% thanks to insurance pension plans and premium bonds lines and also consortiums. The first ones increased 8.3% and consortiums were up 29.6%. In the same period, administrative expenses increased 8% falling into the corporate projections estimate. reflecting inflation and also adjustments in the category. Specifically talking about category adjustments, personal expenses were up 7.3% in line with pay rises, while other administrative expenses posted 9.4 growth which reflects mainly investments in BB digital transformation. As Tiago mentioned, we are changing our process so that we can become more and more an agile company, innovating our tech capacity and also increasing our data processing capacity. Therefore, in this quarter, we reached an efficiency rate of 28%, our all-time best And of course that all these sound and consistent results ended up improving our capital position. We maintained a sound CET1 thanks to strong sustainable results generation. Our CET1 reached 12.49%. And here we have organic capital increased by retained profits. of around 53 BPS. That's how much we increased our capital base, thanks to profits. In July, we announced the payment of one billion RELs of the hybrid instrument, which reduced capital in 11 BPS. RWA also increased and accounted for a drop of 54 BPS. in our main capital index explained basically by the loan portfolio increase. And finally, I would like to highlight the fact of resolution 229, which added 60 BPS to our CET1. Before we open to our Q&A, I would like to comment on our guidance. In general, we expect to see convergence with the intervals that we have disclosed. We continue seeing positive trends for the long portfolio growth, especially driven by the agribusiness segment. For individual segments, payroll loans still deserve a highlight. For the corporate segment, we posted relevant growth in SMEs higher than our guidance. And considering wholesale performance and all the movements I mentioned before, we expect growth, total growth for the year will be pointing towards the lower end of our guidance. NII Dynamics stands positive, and we should close between the average and the top of our guidance. especially because of a higher flows of a triple well for individuals in non payroll loans and considering deterioration in companies and therefore the portfolio growth. We believe that provisions expenses should point towards the top of the guidance when we look at the results for the year as a whole. Fee income post performance in line with the guidance, which was adjusted in the second quarter results, basically because a disruption that is happening and the payments, means of payment market, which also reflects in the growth of our fee income. And administrative expenses, of course, we also believe that they will be in line with our guidance. Thus, we are very well positioned, and that's what we believe, to deliver record results this year with a profitability rate that is consistent with our business generation capacity. We already have 26.1 billion rials, of profits in nine months, and our guidance points an interval between 33 and 37 billion RELs. We believe that we will be able to deliver close to the average of this range and maybe towards the top of our guidance if we look at the results of the fourth quarter of 2023. So now I end my presentation with the figures, and I would like to turn the floor to the Q&A session. Thank you. Janaína, the floor is yours. Thank you, Giovanni. So before we start our Q&A session, I would like to welcome Lucie Souza. She is APMEC's president. For 29 years, Banco do Brasil holds public meetings, and APMEC is an important partner of the bank. So good morning, Lucie. Welcome. Lucy, we cannot hear you. Are you muted? I'm sorry, Lucy, we cannot hear you. It is a pleasure to be here with you, Tiago Filippi, Marco Giovanni. Yeah, this is a long-term partnership, right? We have been together for almost 30 years. These are 29 years of meetings that allow you to have the MRL seal. I would like to add, that this partnership is the second longest one for AppyMac. You are part of our own history. We started back in 1970, and now we are Epimac Brazil. We had a large restructuring process. We followed the market changes. We are very happy to be here, and I would like to greet all investment analysts, and they are the origin of our association. Thank you very much, Lucy. It is a pleasure to be back here at Banco do Brasil as a CFO and to be able to hear with you for another public meeting. Thank you very much. Yes, and I would like to stress the invitation. We will have our BB Day 2024 on February Please save the date so that you can get to know a little bit more about our process. So now we are going to start our Q&A session. Questions can be asked in English or in Portuguese. I would like to ask participants to ask only one question at a time so that we can interact. Our next question and first question actually comes from Danielle Vass from SAFRA. Good morning, Danielle.

Good morning, Jana. Good morning, everyone. Giovanni, Felipe, thank you for the opportunity to ask the question. I think looking at it, there's a graph of Safra in your implementation that is very interesting. And then we have an important trajectory change in the 2023 curve. I think you have it indicating, making an important inflate there. I think it's very much in line with what is expected after a de-risking of the system as a whole and you. I think we see the NPLs falling in terms of physical people. So looking at the new NPLs and the need for provision for next year, how do you see the trajectory of our needs for provision for next year?