Bradesco optimistic about asset quality, loan growth despite economic doldrums

Banco Bradesco SA expects its asset quality to remain manageable despite doubts that current economic conditions could lead to further deterioration in its ratios, executives of the bank said during a conference call discussing its fourth-quarter 2021 results.

Significant provisions made by the bank in the past two years should cushion asset quality "at a very comfortable level," according to Leandro de Miranda Araujo, executive director at the bank. "We ourselves believe that we should be getting back to 2019 pre-pandemic levels. But the quality of the harvests have been so good so far that we're driven to believe that we shall be even below our historical levels," Miranda Araujo said.

The bank is also not worried with its level of delinquency despite seeing an increase in its nonperforming loan ratio of 20 basis points. "We do not see clients requesting any sort of additional renegotiations that significantly impact our books, so we guess the quality is very good," according to Miranda Araujo, who added that NPLs are still lower than their historical levels.

Bradesco's cost of risk guidance should also be "pretty realistic," according to Carlos Firetti, markets relations director at the bank, adding that they were able to overdeliver on their guidance in 2021 despite doubts from the market.

The bank placed its loan growth forecast for 2022 at between 10% and 14%, despite concerns of a decelerating economy. Miranda Araujo said the bank does not expect to see growth to reach 18% as it did last year but is positive that it could hit the middle or even the upper range of its guidance especially given that the bank has "always been growing ahead of the market."

Cost-cutting

Bradesco's operating expense growth forecast of between 3% and 7% balances the bank's efforts to improve efficiency by reducing its branch network and accelerating digitalization with increases in salaries of about 11% and inflation pressures. "With all these cost-cutting initiatives, we think we may have the ability of keeping costs running only close to the inflation increase," Firetti said.

Any continued reduction in the physical branch presence of the bank will also depend on the pace of clients' continued use of digital channels and business units, Miranda Araujo said. "So as long as it makes sense, we will not do it. But it's very hard to say that it's going to [be the case] every year, and that's the reason why we put an extraordinary provision [of 441 million reais] for that," he added.

Other projections

The bank plans to continue having a 40% payout, Miranda Araujo said. "Of course, it will pretty much depend on the year we have had, the economic conditions, opportunities, how we use our capital.

"We believe that 35% of that will come from interest on capital, which is pretty much the maximum we can pay and is the most efficient for our shareholders. The difference will be through dividends."

The bank is also transferring to the market for higher coupons, which should lead to "very good gains ahead for us" and positively impact its net interest income, the executive director said. The bank also expects increased spreads in its individual and SME loan segments, off-setting a "reduction in large corporate names," which have been accessing the capital markets instead of resorting to bank financing.

No interest in Citibanamex

The bank will not bid for the sale of Citigroup Inc.'s Mexican retail operations and instead will focus on boosting its financial offerings in the country, in which it only offers credit cards, Nasdaq reported, citing CEO Octavio de Lazari. Although Mexico is a very interesting market, the deal is too expensive for Bradesco, Lazari added.

Bradesco posted recurring net income of 6.61 billion reais in the fourth quarter, down 2.8% from a year earlier. For 2021, the bank's net income grew 34.7% yearly to 26.22 billion reais.

As of Feb. 8, US$1 was equivalent to 5.27 Brazilian reais.