Banco BMG S.A. (BMGB4.SA) Earnings Call Transcript & Summary

Good morning, everyone. Welcome to Banco BMG's First Quarter (sic) [ Second Quarter ] of 2025 Earnings Conference Call. My name is Danilo Herculano, and I'm responsible for the Investor Relations, M&A and Institutional Distribution areas. Today, we are joined by Felix Cardamone, CEO; and Vice President, Flavio Neto and Joao Consiglio. We would like to inform you that this video conference is being recorded and will be made available on our IR website. [Operator Instructions] Please note that the presentation materials in both Portuguese and English are already available for download on our website under the Results Center tab. Before proceeding, I would like to clarify that any statements made during this video conference call regarding the bank's business outlook should be treated as forward-looking statements. Investors and analysts should understand that general conditions, industry conditions and other operational factors may affect the bank's future results and may lead to results that differ from those expressed in such forward-looking statements. I would like to turn it over to Felix to begin the presentation. Please, Felix?

Thank you, Danilo, and thanks to all that are with us today. We are starting the presentation, and let's go to our first slide. And on the first slide, I would like to strengthen the consistencies in our results. I would like to also highlight on the ROI that was 14.3%. Another point that I would like to highlight is that regarding the same period last year, our result increased 19%. Now on our next slide. Here, we have important points to highlight. Number one is that the structured tools limit of portfolios have increased and NPL of over 90 increased in our portfolio. This reflects how we are operating and how careful we are. Point number two, on the upper right-hand side, lower risk premiums that already reflect how the market sees us regarding our strategy and market consistencies. We've had fundings with lower rates. Another point that I would like to highlight that within our strategy that was announced, we continue reducing our payroll portfolio in the United States. The pace is very interesting. And after implementing the Resolution 466, we have capital strengthening, and I would like to highlight the capitalization of JCP because our shareholders want us to have a sound bank and Fitch that reaffirmed the rating and now it's positive, which is extremely important for us. This means we are in the direction with more consistent results, better balance and better ratings. Now going to our next slide. I believe that it's worthwhile to highlight that our financial margin continues growing despite we have a challenging scenario. And here, we're increasing the profitability of the bank. The bank is working with fair margins, a tight spread, small tickets, high volume. Therefore, the operational efficiency is the name of the game, and we're capturing these efficiencies through automation investments, AI investments. We're improving our operational size, technology process, digitalization, this entire framework. Everything that we've invested in the past years are showing a better -- more efficiency in the bank. Now on our next slide. What should we highlight here? Number one, that we maintain the level of origination, although with the INSS changes, we have the same level of the origination in comparison to the first semester of 2024. And the market was an extremely challenging market, but the strength of our brand, the partnership with our correspondents, our franchisee network that is extremely sound has helped us not only to maintain our level of origination and to gain more market share. Another point, which is extremely important to highlight on the right-hand side that is origination through self-contracting. It is growing, and this shows an investment that we have because we want a more fluid process for a customer. We want to have a relationship bank. We are close providing services, experiences that are more adequate for this public that our public 50-plus CD, which is our niche. We are investing a lot in WhatsApp communication. We are improving our app. And with this, we can see how it is better used and there is a greater business volume here. And at last, we grew by 9%, the base of customers with insurance as we are working close to the customer with cross-sell offering the right products to our customer, reviewing our array of products, be it in insurance loans to meet the needs of these customers, 50-plus CD is extremely efficient, and this is why our public consumes more products. Now our next slide. I believe that here, this shows exactly what I just mentioned. Number one, we want to increase our addressable market. Now we are working in a more consistent fashion. We are more focused on public consignment, we are growing accelerated. This is a promising and great market, which we didn't focus in the past, but now this is part of our core business. So we are growing significantly with new partnerships, improving our processes. So we do believe that there is a major potential of growth. Now we have a private -- public payroll loan origination. The process is improving, but there are risks. So we're being very cautious here. And we want to understand this product, this process step by step, so we can calibrate properly our credit tools. So little by little, we will grow, but always being very conservative and being very cautious, so we don't run into negative surprises. So we do believe in a product with great potential. But yes, we will be very conservative. On the upper right-hand side, I would like to highlight the expansion of our franchisee stores, 67-plus stores vis-a-vis the last period. So we can see the strength of our brand. The partnership that we have with our franchisees, we received 2 awards, 5 stars of franchises of SMEs and also the stamp of excellency by [indiscernible] although this has been a market within turmoil, this is a sound and profitable market for us. And 2 points, one of them is that we have been making processes in our civil lawsuits, which is an important point. This also demonstrates how we are focused in improving our operational efficiencies -- and there are 40 AI initiatives in the bank focused on efficiency, safety, productivity, automation processes so that we can have a bank and a stable, scalable and low-cost platform. So we are holding a number of initiatives in addition to a very robust training session for our team so that they know how to properly use these tools in the proper rights to resolve the problems in the right fashion. At last, the evolution of our products per customer cross-selling index that grew 15% and thanks on how we're focused on the customer, the hiring process is more efficient, more fluid. Therefore, our customer has access to better products and our sales force can sell these products in a fluid fashion. Our next slide, I would like to highlight with a lot of pride that this week, we received 3 awards from Great Place to Work. Number one, we were top 3 of the Brazilian bank Best to Work in Brazil. Number 2, a small insurance company and another highlight that we were the only bank this year that received the highlight for mental health. We want to grow with sustainable results. We want to be closer to our customers. We want to stand out in this market through a differentiated way of dealing with our customers. But we can only do this with an engaged client and encouraged client, extremely trained. And this award clearly demonstrates that we're on the right path. The bank just celebrated 95 years, and this was a very special award for the bank, for our history. That clearly shows us that we're on the right path, and we will continue evolving in the training and the development of our team and how we are focused on the customer and our results. And now I will hand it over to Flavio.

Thank you, Felix. Good morning, once again. It's a pleasure once again to talk to you about the BMG results on 9. Here, we have our credit portfolio. The main highlight would be that more and more we are growing in our core products, the products that for us are the most profitable products as we also reduce the share in less profitable portfolios and less strategic for us. We will talk about payroll products or in credit in cards, we are constantly growing as you have seen throughout the past quarters. Now in payroll loan, we -- you have to remember that during the first quarter, we did not want to assign. We started assigning the assignment. Now there was a slight growth in the portfolio. The assignments had a lower evolution than the first semester last year. Now regarding retail individuals, personal credit, this is a portfolio that we have been expanding because of the situation of the INSS and the challenge regarding consignment. Personal credit absorbs this result that is not attended by the INSS consigned. Well, the core product, the only one that dropped was FGTS. Now other products that are credit cards. We continue reducing the portfolio now a bit slower and the payroll portfolio in the U.S., which is not as strategic for the bank, which we were going to run off. This runoff is taking place. We have dropped it since the beginning of the year. This was also driven by a partial sale of the portfolio. Now when we go to Slide 10. Here, you can see the quality of credit portfolio. And the highlight is that our over 90 indicator is 3.8%. This is the lowest figure since our IPO. And this -- it is possible because of 2 actions, one of the portfolio remix that helps us and another fact that would be that we improved each one of our products, and we have invested in the credit and dunning processes. And we -- they are more efficient with lower losses. Now our NPL Stage 3 dropped BRL 1.5 million and maintained at 6%, which is an interesting indicator because we had a significant assignment of FGTS, the quality -- the credit quality of the FGTS is extremely positive and the NPL is also excellent. Now the coverage ratio superior. This shows the quality of our balance and our provisions expenses net of recovery at a very comfortable level, 4.6%. And this indicator has -- is benefiting from the number of improvements in the credit and collecting areas and also a more timid origination when we compare it to the past quarter. And this is there are less expense provisions. Now when we go to our next slide, 11. Here, we have our insurance operation. We're strongly focused on protecting those that don't have protection. And as we do this, we also strengthen the business front that is the main pillar of our noncredit strategy. This insurance operation is highly relevant within the bank's results, and it contributes with the net profit. We're talking about BRL 22 million and the result of Bmg Seguradora hasn't been 100% captured. We announced the purchase of the 40% that we didn't have from Bmg Seguradora, but we're still waiting for it to be approved by SUSEP. And once it's approved, we will capture 100% of the result. And I would also like to talk about 2 highlights. One, the policies. We are very close to 10 million policies, insurance policies. Therefore, our insurance operation is amongst the best operations in the country in terms of volumes and customer volumes and we launched a telemedicine product that is Bmg Med that has been accepted by our network and also by the distribution network by our customer, which is almost 1 million policies. So this demonstrates how people are accepting our products and how we are meeting the goals to meet the needs of our customers. Now I would like to hand it over to Joao that will talk about the rest of our products.

Thank you very much, Flavio. Now talking -- now we're on Slide 12. We will talk about payroll products. The dynamic in the operational prices changed by INSS well impacted the origination during Q2. This origination within the market dropped approximately 50% during the quarter, while our origination only dropped 37% and this shows a market share gain for BMG. We are already seeing a recovery of the market, are focused in proximity and partnership with our partners. And with the origination channels and the facility of the digital channels have allowed us to recovery. Now 185 ceiling rate, it's still not proper, but we are working within this reality, and we want better operational efficiency, and we want to offer other products so that we can provide more profitability to the bank. We also we would like to grow [indiscernible] product and public agreements, not only INSS. And here, our share -- our market share is not compatible with the size of the bank. And therefore, this is an important path of growth. Now with the improvement with the curves, we have been able to resume our assignments that wasn't done during the first quarter because new opportunities emerged for these new assignments. Now also payroll loan is an important portfolio, and it's a profitable way of attracting new customers to the bank that have been profitable from the beginning. On Page 13, you can see the payroll credit cards where the bank has a relevant share. In payroll credit card and benefit payroll card, the origination dropped less than origination on payroll loan. Now the benefit payroll card is growing year-on-year, and this is a product that has possibilities of growing in customers that didn't have access to this product. And both the payroll card and the benefit payroll card can be used by the customers in their accounts as a payment mean. So they can make the best of the use of the card as a way of payment and also they can also pay in installments using the INSS margins. Here, there is an important possibility to grow in public agreements where our share is still lower than what we would like to have. And there are great possibilities of growing because this only represents 11% of our portfolio. If we go now to Page 14, now we will elaborate on the retail individuals portfolio where our strategy is diversification. This includes personal credit, FGTS anticipation and credit card. As we did last year, the FGTS anticipation presented a great opportunity. There was a major assignment during the second quarter. And it is a portfolio with lower potential because the ticket is lower and refinancing will not necessarily takes place at the pace we wish. So it was an important opportunity. So we did an assignment during the second quarter. And to continue servicing this customer profile, we're working. We are working with credit to workers. We're being cautious, and we understand that operational process for this type of credit will provide benefits for the operation as a whole. Now during this quarter, we can talk about the volume of origination and personal credit. This is growing, and it is one of the products where we want to continue growing because it is subdivisions in terms of the bank and our share in this market can be greater than what it is today because all the credit process collecting processes have been adjusted, and there is a relevant growth capacity here. Now when we go to Page 15, we will talk about our wholesale world. Now the whole sale structure as an investment bank with the support of Araújo Fontes, our investee, strengthens our strategy to perform in this market. Increasing our return, thanks to the capital markets operations and operations that don't exactly use capital. We have the opportunity of growing with safety. Noncredit revenue also grew. We're participating in 16 offers of coordinations, 12 as leaders as well and 5 MA operations. And this has increased our noncredit operation. Now regarding credit capture, this is a portfolio covered with guarantees. Here you have -- here you have 91% of the loan portfolio covered by collateral. And now I will hand it over to Danilo.

Thank you, Joao. On Slide 17, regarding the financial margin, which has been positively impacted by the recurrent revenue by the core products. The nominal margin went sideways, while the percental margin was impacted because the ceiling rate of the consignment because the high of the interest rates our margin still continues at a good level, although the margin after cost of credit grew 15% during this quarter, driven by the improvement on credit quality. Flavio highlighted this point, and we are focusing more with a sounder portfolio, and this is important to -- for our financial market -- margin. Now when we go to Slide 18, -- it's important to highlight that we want a more cost-efficient operation, which is rooted in our culture. And here, we have operational efficiency, cost efficiencies. This is where we have the cost indicator to serve, which encompasses all the expenses of the back operational personnel commission. This indicator is under control despite the inflation pressure in the last periods. And when we compare this to 2024, this is a result of the modernization of the operational and technological platform. And to avoid unnecessary costs, we have eliminated active customers in our base. So the average cost -- the average base of customer is proper. Here, we have a growth of our quarter due to the net propositional expenses when we compare it to Q4. We would like to remind you that Q1 presents a lower seasonability of shares, and we had problems with INSS, as we mentioned. But I would like to strengthen that they diminished in the last month, and there is a new dynamic for the next month. And with this, Felix highlighted this, what we've done internally, we're increasing our efficiency index, we achieved 74%. Now on Slide 19, Here, we have the diversification of funding and conservative liquidity management. We continue with the liquidity manage with an LCR with a conservative level, although it's not mandatory for these banks, we are launching NSFR at a level compared to the major banks of the market. Here, you have the reference of top tiers and our cash flow is matched with the rollouts. Now we continue broadening our relationship with institutional shareholders improving in the capital markets. This grew 70% in the last months. And it's 1/3 of our total funding. The growth of institutional is -- we have not only improved our risk premium, but we also reduced the burdens on cost, and we have the cost of compulsory deposit and our value reference of FGC has been dropping since 2023, and we totaled 51.2% during this quarter. And on Slide 20, I would like to highlight the risk premium reduction during the 2 last public issuance of debenture backed by payroll cards, we increased from BRL 1 billion to BRL 1.5 billion when reduced the CDI plus 1% and the last public issuance of financial bills, a level of BRL 300 million, and then we reached CDI plus 1.45% plus 2 years. These are the 2 best risk premium reductions. Now on Slide 21. We will talk about our capital structure. We improved 5 percentage points during the last quarter. And the same capital levers, we have internal capital generation that has grown with greater profits. Now the consumption of tax credit regarding tax losses, also assignment, and we have the runoff that Flavio presented of noncore products and also new recapitalizations, ISE recapitalizations. Two months ago, we increased our capital. This means that the controlling shareholders have strengthened their commitment with the bank. And now we will initiate our Q&A session.

Questions can be sent through the Q&A icon on the bottom part of the tool and you just have to announce your name and the name of the company. Our first question comes from Olavo Arthuzo from UBS. I would like you to elaborate about the marketplace for INSS, try to understand your perception regard pricing and how and if this can affect the bank channel -- the bank correspondent channel. Could you tell us when the system would be fully in operation?

We have been preparing ourselves for the INSS marketplace. We believe that it will become operational as of September. This is an additional origination channel. We believe that it can be extremely powerful, and it is aligned with the fact that we want to offer the products wherever the customer wants to buy them. Regarding pricing and what may take place with correspondents, well, we do believe that the customer will be serviced business as usual by the correspondents, by the marketplace or wherever they feel it's more adequate. So the role of the correspondent is very important and will continue being important because depending on how the customer hires these products, sometimes they need personal help. So the marketplace is an additional channel of origination and the correspondent will continue originating and our partnership continues.

Thank you, Joao. Our next question from Marcus [indiscernible]. Manager by private consignment -- private payroll. How do you see this? What to expect of this line within the BMG? Felix, could you give us color?

Thank you, Marcus, for your question. Well, we do understand that the private consignment has a major potential. It's an excellent product that was recently launched, and we are investing to grow in this product. We are working with it, but our operations are extremely conservative because we want to understand the liquidation, the hiring flow because we want to adjust our models in order to understand what is the best niche for the bank profile. And absolutely, we're going to grow. What is important is that within our priorities, public payroll growth of core products, the private payroll product is a priority, but it's a new product for us, not only for us, but for the entire market. So within a conservative view, we are working cautious with modeling, and it will be a successful product in the short term.