1Q17 Earnings Conference Call May 12th, 2017

Transcription

1 Rule 12g3 2(b) Exemption # Free English Translation 1Q17 Earnings Conference Call May 12th, 2017 OPERATOR: Good morning everyone and thank you for waiting. Welcome to Banco do Brasil s 1Q2017 earnings conference call. This event is being recorded and all participants will be in a listen-only mode during the company s presentation. After this there will be a Q&A session, at the 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 broadcasted live via webcast into Banco do Brasil s website at 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 estimates in this presentation. With us today we have Mr. Alberto Monteiro de Queiroz Netto, CFO, and Mr. Bernardo Rothe, Head of Investor Relations. Mr. Bernardo, you may now begin. BERNARDO ROTHE Good morning everyone. Thank you for participating in our conference call. I would like to start on slide 4, where we have the highlights, a comparison between the 1Q2017 and 1Q2016. Fee income grew by 12.3%. Net interest income grew by 0.8%. This net interest income is without the recovery of bad loans. Administrative expenses declined 0.4% in the comparison in the period, meaning that we are keeping our expenses

2 totally under control. Cost to income ratio reached 39.3% at the end of this quarter. In page 5 we are showing the net income. We grew 95.6% in comparison to 1Q2016, reaching R$ 2.5 billion in the adjusted net income. The accounting net income grew 3.6% to R$ 2.4 billion. Profitability ratios, the market ROE, the way the market calculate ROE, reached 12.4% at the end of this quarter. Moving to page 6 we have the earnings breakdown. NII 14.5, gross provisions of R$ 6.7 billion. Fee income at R$ 6.1 billion. Total administrative expenses at R$ 7.8 billion. Other items like taxes and so on -3.6, reaching 2.5 in the adjusted net income. One-off items reached 0.1 and net income at 2.4. Slide 7 we have the market ratios, earnings per share. Adjusted earnings per share was 2.57 in 2016, dividend yield Price earnings 12 months, 11.6 and price-book value at Funding, we had a decrease in the total funding to R$ billion, decrease of 8.5% in relation to March The funding expenses as a percentage of SELIC reached 64.0% and the adjusted net loan portfolio to commercial funding is 87.2%, improving through the period. In page 9 we have loan portfolio in the broad concept, a decrease of 11.4%, and as you can see we have a change in the mix of the portfolio where loans to companies reduced from almost 45.0% to 40.8%, almost 41.0%, while individuals grew to 26.9% and agribusiness to 26.1%. Slide 10 we have the individuals portfolio, highlighting the lower risk lines of credit. So mortgage increased by 6.6%, being 10.9% in mortgages to individuals, a market share of 7.9%, and the delinquency ratio was 2.09%. Payroll loans was stable, reaching R$ 62.4 billion, market share of 21.5%. Some reduction on the market share that we had in the past, and delinquency

3 ratio at 1.45%. Salary loans increased 2.9% in the period reaching 19.7 billion, and delinquency ratio of 3.05%. Auto loan at 1.2% delinquency. Even with a big drop in terms of balance, of almost 27.0%, reaching R$ 5.8 billion. Slide 11, we have the loans to companies in a broad concept, a reduction of 19.4% to R$ billion, most of this coming from very small and small companies portfolio, companies that have annual revenues up to R$ 25.0 million, that decreased 28.5%. And the rest of the companies portfolio decreased by 16.5%. Moving to slide 12, agribusiness. We had a growth of 0.3%, mostly because of a sharp decrease in agroindustrial, pretty much in line with the performance of the companies portfolio, while the rural loans grew 5.7%. This 5.7% considers also rural product bills, kind of a way of financing agribusiness in Brazil, that had a decrease. Without that, it would be over 6.0% the growth in rural loans. And for working capital we are still using a lot of mitigators. So 63.6% of our portfolio in working capital is insured. Moving to page 13 we have delinquency ratio, at the end of this quarter, we reached 3.47%, if we exclude a specific case that we had in this quarter. A case that involved a company in Chapter 11, recuperação judicial as we call it in Brazil. Also if we consider stability in the portfolio that ratio would be 3.39%, increase of only 10 bps in the 4Q last year. Moving to page 14, delinquency ratio by segments, as you can see, companies was impacted by that particular case. Without that, the ratio would be 5.7%, below the ratio in December Also if we take out the impact of the decrease in portfolio, that ratio would go down to 5.47%, below what we had in the 4Q. Individuals reached 3.09% and agribusiness 1.28%.

4 Moving to slide 15, coverage ratio. Without this specific case that we mentioned, the coverage ratio was pretty much stable at 164.0%. The total provision was R$ 36,414.0 million, being R$ 1.0 billion, almost R$ 1.7 billion in supplementary provision, an increase of R$ million in this quarter. Slide 16, we have the cover ratio by segments, foreign branches at 153.0%, individuals at 183%, agribusiness at 181% and companies, without the impact of the specific case, 153%, a little bit more than what we had in the 4Q. Average risk in loan portfolio by risk level, average risk reached 5.70& and 90.4% of the transactions that we have are concentrated in levels AA to C. Slide 18, the provision flow to the loan portfolio by segments in the quarter the total was 1.05%, a little bit below what we had in the 4Q, but higher than what we had in the 3Q. The total provisions was provisioned at R$ 6.7 billion, being 600 million in agribusiness, R$ 4,370.0 million in companies and R$ 1.6 billion in individuals. Moving to page 19, NPL formation, it reached 1.08%, without the impact of the particular case that we mentioned, a little bit higher than in the 4Q and the coverage of the new NPL was 94.93%. If included past due loans renegotiated in the quarter, that were past due over 90 days, the NPL formation would grow to 1.19%, a little bit more than what we had in the 4Q. And the coverage ratio would be 86.43%. In slide 20, we have the breakdown of the NPL formation by segments, where individuals is at 1.0%, agribusiness grew to 0.57%, pretty much in line with what happened the 1Q last year at 0.56%. Again, these two indicators were impacted by some climate effects in certain productions in agribusiness. I think that is seasonal and should be adressed during the year. In companies if you look at the NPL formation, without the specific case, we ll see a reduction from 1.73% to 1.5%.

5 In page 21, we have the renegotiated overdue loan portfolio. Main highlight here is a growth of almost 100.0% in the amortization net of interest less capitalized interest in the period. So almost 100.0% growth in comparison to the 1Q. And the total amount received in cash was close to R$ 1.4 billion in this quarter. NPL stood at 27% and the coverage ratio of the portfolio grew to 166%. Also it is worth mentioning that the balance of this portfolio decreased a little bit, we can say it s stable in this quarter. One other thing that is important to highlight is that we have been renegotiating loans past due, most of this came from loans past due from 0 to 14 days at 47.0%, and over 90 days was only 14.8%. Also written-off transactions that we recovered in the period in instalments represent 9.5% of what we contracted in this quarter. Net interest income, in page 22, it reached R$ 13.5 billion, a growth of 0.8% in comparison to the 1Q2016. In page 23 we show the spreads by segment and the NIM. One thing that I would like to make clear, spreads in fixed interest rate type of loans are fixed at the time of the disbursement, so there is no impact in that spread from any change in SELIC rate, so, the SELIC rate decrease is not impacting these spreads, unless they are floating. Individuals, what you see here in terms of reduction is pretty much in line with the reduction in interest rate for credit cards more than any impact from SELIC. But in companies, there is a big portion of what we do with big companies that are floating rates linked to CDI, that follow SELIC rates and that spread was impacted by the reduction in SELIC rates. NIM end up the quarter at 4.82%, but that decrease from 5.06% had more to do with seasonal aspects and temporary impacts coming from different calendar days and business days. In page 24, we have the fee income, a growth of 12.3% in comparison to the 1Q2016, reaching R$ 6.1 billion, coming pretty much from account fees, a growth of 11.3%, asset management fees, a growth of 29.0%, also for several

6 quarters we haven t been showing a growth in terms of loan fees and in this we posted an increase of 14.5%, and credit cards grew also at a good pace at 13.3%. Slide 25, we shift to administrative expenses and cost to income ratio. The ratio went down from 40.9% to 39.3%. Total expenses in comparison to the 1Q2016 decreased by 0.4%. In the right side, we are showing the total employees, branches and points of services in the annual comparison, a decrease of almost 10,000 employees in one year. We decreased branches and increased points of service, in line with what we announced of our reorganization. Also just an information, the cost of the strategic reorganization brought an impact R$ 67 million in administrative expenses in this quarter. Excluding these expenses, the decrease against the 1Q2016 would be 1.4%, and not 0.4%. In page 26 we move to capital ratios. Total capital ratio 18.16%, a decrease from the last quarter, pretty much impacted by another phase in of Basel III, grows another 20.0% deduction in capital, that explains the decrease. The common equity Tier 1 reached 9.2%. In page 27 we have the full application of Basel III rules so the total ratio would go from 18.15% to 18.16%, considering the use of tax credit. Same behavior in Tier 1 going from 12.41% to 12.42% and also in core equity Tier 1 going from 9.2% to 9.21%. Moving to page 28 we have our guidance for In the adjusted net income, our performance was R$ 2.5 billion. NII 0.8%, inside the guidance. Credit balance we are missing in terms of guidance. So the total portfolio decreased by 9.2%. Individuals in 1.6%, below the guidance, companies a decrease of 19.6%, also below the guidance and rural loans at 5.7%, very close to the bottom of the guidance. Allowance for loan losses expenses net of

7 recovery of write-offs, R$ -5.8 billion and fee income 12.3%, over the guidance. Administrative expenses at -0.4, below the guidance. Now we can go to the Q&A. Thank you. OPERATOR Ladies and gentlemen, we will now begin the Q&A session. If you have a question, please dial *1 on your touch tone phone now. We request all the participants to ask only one question at a time, in each round of questions. As a reminder if you would like to pose a question, please dial *1. One more time, in order to ask a question, please dial *1. Our first question comes from Nicolas Riva from Citibank. NICOLAS RIVA Thanks Bernardo for taking my question. I have just one question on Banco Patagonia. I remember that in the past you have mentioned your assets outside Brazil were consider non-core and have mentioned you re analyzing what to do, a secondary offer of the bank, which you probably can control. Bloomberg released that there are some banks interested in buying this bank, they mentioned three banks, Itaú, Macro and Frances. My question is: have you change your mind of doing a secondary offering? Would you consider offers from other banks? And then, just one more question: what would be the impact in your common equity Tier 1 if you were to sell the bank at a market price. Thanks. BERNARDO ROTHE - Thank you, Nicolas. Patagonia. We issued an communication to the market in March where we are saying that we are moving on with the idea of doing a follow on, right? Or as some people like to say a re-ipo. For our assets outside of Brazil, we are open to see alternatives, but in the case of Patagonia, as we mentioned, what we have going on is what we have in the communication to the market, that is a follow on. Pretty much a

8 follow on. And as we don t have the the case in our hands, you know, we prefer not to mention on, you know, something that is not really happening now. If there is anything in the future in relation to the follow on, more details and so on, we can come and give you more information of potential impact, whatever we do in our capital. Ok? NICOLAS SIVA - Ok. Thanks, Bernardo. OPERATOR - Ladies and gentlemen, as a reminder if you would like to pose a question, please dial *1. One more time, in order to pose a question, please dial *1. This concludes today s Q&A session. I would like to invite Mr. Bernardo Rothe to proceed with his closing remarks. Please go ahead, sir. BERNARDO ROTHE I just want to thank everyone for participating in our conference call and to, you know, remind you that all the team of investor relations of Banco do Brasil is at your disposal, if you have any question in the future. Thank you very much. Have a nice day. 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.