Bradesco to cull 300 more branches in 2021, double down on cost cutting

Banco Bradesco SA is planning to cull at least 300 more branches in 2021 after reducing its physical footprint by as much as 25% in the past year, executives said in a Feb. 4 earnings call to discuss quarterly results.

The bank expects to deliver further cuts in operating expenses of between 1% and 5% this year, after having posted a 5.2% reduction in the whole of 2020. Executives noted that branch reductions would be a major driver to that end, along with cutting travel expenses and revisiting contracts with suppliers.

The move by the Brazilian heavyweight lender is backed by a surge in its digital channel usage and a 63% yearly fall in teller transactions at the branches. According to Leandro Miranda, head of investor relations, branches will be reduced "as much as technology allows."

Miranda said the bank was "in advanced studies" to determine the future size of the branch network. Bradesco has already shut down or transformed roughly 1,100 branches in 2020, bringing the total number of branches to slightly under 3,400.

According to the executives, the majority of the savings would come from lower security costs. "We do not need three security guards or money transportation services. Branches should become more and more business offices than anything else," he said.

Although analysts expressed skepticism regarding its 1% to 5% guidance for operating expense reductions in 2021, executives were confident that such measures could be achieved. "We do not think that [guidance] is challenging," Miranda said. The bank is confident that the sharp 7% reduction in headcount during the last quarter of the year will contribute to that end.

Greater risk appetite in loan portfolio

Bradesco executives also showed somewhat optimistic expectations for both the economy in Brazil and the performance of the loan portfolio. With an outstanding balance of 48 billion Brazilian reais in renegotiated loans, the bank was confident that the vast majority of those loans showed great chances of re-collection success.

In that regard, CEO Octavio de Lazari said in a previous call with journalists that "Bradesco enters 2021 with a greater risk appetite for credit," anticipating changes in the portfolio mix throughout this year that might lead to margin recomposition.

According to Miranda, perfected credit models throughout 2020 pave the way for origination of loans "without significant increased risk" during this year.

Bradesco booked a 2.3% year-over-year rise in its fourth-quarter 2020 profit as the group recorded higher net interest income and lower loan-loss allowances, offsetting a downtick in fees and commissions and other revenue sources.

The Brazilian banking giant posted a recurring net income of 6.80 billion reais, up from 6.65 billion reais in the year-ago period. Compared to the linked quarter, the result was up 35.2%.

As of Feb. 3, US$1 was equivalent to 5.36 Brazilian reais.