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

Good morning, everyone, and welcome to Banco BMG Fourth Quarter 2022 earnings videoconference. I am Danilo Herculano, responsible for Investor Relations, M&A and new business. Today with us we have Ana Karina, our CEO, and Flavio Neto, our Vice President. Please Note that this video conference is being recorded and will be available on our IR website. [Operator Instructions] Our presentation material is already available for download on our website in our Results Center tab. Before proceeding, I would like to clarify that forward-looking statements made during this videoconference concerning the outlook for the Banco's businesses should be treated as forecast. Investors and analysts should understand that general conditions, industry conditions and other operating factors may affect the bank's future results and could lead to results that differ from those expressed in such future conditions. I would now like to turn it over to Ana, who will start the presentation. Ana, you have the floor.

Good morning to everyone. Thank you very much. Welcome to our conference call with the results of Q4 2022. I would like start on Page 2 with our endpoint highlights. Here, we have 12.3 million customers. This is a growth of 35% year-on-year with a portfolio of BRL 23.9 billion. This is 49% growth year-on-year and credit operation BRL 1.7 billion growth of [Indiscernible] net income of BRL 73 million. This is a growth of 51%. And some important highlights in our business is, we signed a coinsurance agreement between Bmg Seguradora and Generali, strengthening the insurance business. This is our longtime partner. It's our [Indiscernible] specialized in banking as a service, which provides complete and customized digital structure [Indiscernible] In our ESG, [Indiscernible] we're very proud of this institute and also the addition to new ESG commitment like Ethos Institute and also [Indiscernible] very important for our ESG strategy. On our next page, we are strengthening [indiscernible] when we talk about our strategy of the [indiscernible] and our feedback. This is a retail [Indiscernible] we have a positive [indiscernible] customer with the same customer in [indiscernible] connected well and as we announced in our last week. We talked about [Indiscernible] retail insurance and [Indiscernible] we are always focusing on [Indiscernible]. Now we are embarking strongly in the middle market and working with M&A and corporate. Now on Page 4, we -- our entire ecosystem is strengthened by our investees, we have Raro Labs that has 30%; iCertus, O2OBots, and QGX that has been announced BRL 1.8 million equity equivalence [indiscernible] our network of franchises that is very important for the PHYGITAL strategy; Granito, an acquirer with 45%; and CBFácil our own stores, which is BRL 53.3 million in equity equivalence. This ecosystem completes our strategy as a complete bank. On our next page you can see are solid growth in our client base, but this is a highly sustainable growth, and we maintain a growth of customers with loan products. We have 57% of clients that have products of credit. We grow on our customer base and our percentage is aligned with 57% and 58% of customers with credit products. Now on our next page, we're talking about our PHYGITAL strategy and is excellent to materialize it where the customer can contact or we can contact the customer anytime, anywhere through any device through our digital banker. We have 8.2 million accounts. Our help! stores -- our franchise with 827 stores. Our partnership with retailers going up to 568 stores, our call center, 22 banking agencies, our solid partnership with our banking correspondents. And it's interesting to highlight we have 5.5 million customers registered through WhatsApp to have direct relationship. This complete view of our PHYGITAL strategy strengthens the value proposition for our customers. They can contact us -- with us anytime, anywhere, whenever it's convenient. And speaking of customers, we have our personalized communication in our last presentation, Sandoval, our VP talked about our strategy. And now I have to strengthen our market strategy where we have a customized communication through a proprietary big data to capture behavior and interaction, the use of CDP with a view of each customer. The life cycle view, we have to remember PHYGITAL relationship and analytics, customized relationship with a customer that has PHYGITAL bank and there are many ways of contacting the customer. And on Page 8, well, this turns into strengthening engagement and relationships with customers. There is a 30% growth in digital account, the transactional volume on cards here of 12.6 -- BRL 2.6 billion, 102%. Now the transaction volume on accounts, we have a 69% growth that is BRL 11.3 billion. This is the same growth with transformation, our PHYGITAL strategy of a complete bank. Well, this is more and more true. Now Flavio Neto has the floor.

Thank you, Ana. Well, good morning. It's a pleasure to be here with you. We're going to start on Slide #10. I would like to show the evolution of our portfolio throughout the past quarters. Here, you can see that this has been a sound quarter of growth, going up to 49% year-on-year. Now this growth mainly was driven by personal loan as well as benefit cards in terms of portfolio quality. It's a portfolio that presents a highly satisfactory quality. As of now, we have excellent indicators. We -- our indicator is over 90 and now it used to be NPL E-H. Now this indicator over 90. Well, the indicator has been benefited in the past quarter become [Indiscernible] portfolio, especially because of FGTS, also payroll card. And the benefit of payroll card, which now is converting at the expected level because of the growth of the personal loan products. Now when we go to Page 11, here, you can see -- here you have our payroll credit card. Now we have a recognition of almost BRL 650 million during Q4 2022 to [Indiscernible] BRL 8.8 billion [Indiscernible]. Here, we have a high amount of payroll credit cards in our portfolio with low NPL. On Page 12 here, we have payroll loan. Now this product during the quarter had lower origination of BRL 166 million, we have prioritized profits in detriment of growth [Indiscernible] product has had lower margins because of the interest rate [Indiscernible] in terms of portfolio, I would like to highlight that as we mentioned in our past conference calls, we can read out the first authorization and this is something that we will do in terms of capital management. Now when we go to Page 13, this is one of the portfolios that present a rate of growth during the quarter, and we believe that it will continue growing throughout the year. This is the benefit payroll card which is a recent product that was launched at the end of Q2 2022, and it has gained momentum. And this in Q3 of 2022, we don't expect that the level of origination of Q3 to be repeated again [Indiscernible]. In this is a portfolio that surpasses BRL 1 billion in a short period of time. Now on Page 14, we are going to talk about our personal loan. And here, we have a makeup of 3 product, the anticipation of FGTS, traditional credit card and direct debit loan. All these lines have been growing [Indiscernible] and satisfactory and [Indiscernible] more attention from a credit point of view, and we are in momentum. And we are very conservative because of the challenges of the market on this portfolio is growing [Indiscernible] a portfolio. This represents more than BRL 3.5 million. Now on Page 15, we are going to talk about our insurance operation. Well this, consolidate [indiscernible]. One, Bmg Corretora de Seguros which is accountable for our that has another strong origination of BRL 207 million in premiums issued is lower than the last quarter because this was the quarter [Indiscernible] we allow to harm to -- I would like to mention a consortium of real estate cars and motorcycles [Indiscernible] million, this is a wholesale operation, it is more volatile in terms of premiums. And Bmg Seguradora which is in our retail. There is coinsurance agreement with Generali, and [Indiscernible] our product portfolio, and we can distribute it to our channel. Now on Page 16. Here, we have a portrait of our wholesale portfolio. This is our portfolio with very low NPL [Indiscernible]. We break it out in the number of portfolios that or structured operations that they have receivable guarantees of around BRL 1.6 million. We have a credit portfolio that is a classic for portfolio that is around BRL 713 million and part of our [Indiscernible] because these are corporate bonds as debentures [Indiscernible] BRL 430 million. And we have operations with balance hedges, then there is a noncredit -- from [Indiscernible] or together with a potent that has been working on helping us in the wholesale front. And now I will hand it back over to Neto so he can continue with presentation [indiscernible]

On Page 18, as Flavio mentioned the growth of our portfolio, [Indiscernible] the left has seen an increase. Here we have the main growth of portfolios where we pay loan credit card, we had low NPL. Now as we saw, they are high volumes of regions that will be rolled out according to the resolution of [Indiscernible]. And now here, we have the adjustment of the cost of credit, as you can see on the right-hand side. Here [indiscernible] the increase of revenue impacting our efficiency index, the bank continues with its process to pursue efficiency and continuous improvement in all of activities and the result of this is when we work on the [Indiscernible] volume or expense is regarding operating provisions have been dropping. Last year, we have increased. But now we have an indicator that show the efficiency as the portfolio, customers and the revenue includes the expenses of operating provisions on credit provisioning represent a drop that goes from 9.2% in Q4 of 2021 going to 7.5% in Q4 of 2022. And this is clear demonstration of what happens when you focus on the root cause in terms of performance and how the bank [Indiscernible] carry out better the activities day by day. Now on Slide 20, I would like to highlight our cash flow all the macroeconomic events have ended in a high and a total cash evolution of BRL 5 billion and is one of [Indiscernible] in vision of [2020 financial bills]. This is the number of insurances of the bank and there was a slight drop of the risk premium establishing our main target that was to create a [Indiscernible] with this curve to be able to present efficiency and [Indiscernible] due to the constant relation should because of the great origination and assets of the bank, there was a private issue of BRL 500 million [Indiscernible] with the securitization company. Here you can see [indiscernible], we see the different funding with a bank. And the bank [Indiscernible] these instruments in order to reduce the risk premiums we act as the institutional market on Q4, also funding [Indiscernible] corporate and distributors in the beginning of the year. This is a diversification [indiscernible]. And this is why we ended with a balance of BRL 29.3 million in market funding. Now year '21. Here, we have the Basel ratio of 16%. We ended the year with 13.5% the MtM government is securities 2.5%. These are a number of bonds that affect the reference [Indiscernible] the approval of this mark-to-market -- well, this will occur by the end of 2023. There are 2 highlights [Indiscernible] we are frequent issuer. Last year, we carried out subordinated financial bills. And this is BRL 550 million, it's subordinated financial bills at BRL 111 million in perpetual financial bills. And now credit assignment without retention and risk and benefit. Here, we assigned BRL 41 million on Q4 of 2022 more than [Indiscernible] accessed and to be able to build this access to subordinated loans and benefits as this is to balance the profit throughout 2023. Now for 2022, we are strong with our [indiscernible] inmates reflecting strong dividend here. [Indiscernible] Q4 will be paid on February 16. This is equivalent to BRL 0.13 per ordinary preferred share. This is a gross value. [Indiscernible] 2023. This is a subject that was highly discussed and [Indiscernible] questions last year, and as of 2023 according to the [Indiscernible] will pay on a quarterly basis. The deliberations will take place in March, June, September and December, [Indiscernible] [April, June, October, December]. Now on 2023, this is a subject that was highly discussed and our IR received lots of questions last year. [Indiscernible] dates will be approved in the Board meeting and announced to the market at the end of each quarter. I end my presentation. And before we continue with our Q&A session, I would like to hand it back over to Ana, so she can talk about our succession process that we recently announced.

Thank you, Danilo. As we have already announced in January, I decided that this took a lot of soul searching, and this is something personal to initiate my transition, and I'm very proud of the transformation of how we work together with a managed portfolio. It was [Indiscernible] to take this decision, but we have to think about all the elements in line. [indiscernible] , the Board has strongly focused on this. Of course, I had to talk about this decision during this conference call. I am very proud of being part of the leadership, of being part of a strong transformation of a bank [Indiscernible]. Now we can go to our Q&A session.

Thank you [indiscernible] And now Q&A doing sessions for your questions can be posted through our chat or through our webcast platform. And we will start with Silvio Froncis.

Can you talk about the impact from the [STF] on the [CFO].

Thank you. As you have seen in the high [STF] decided [Indiscernible] decisions approved in the past that have already come through judgment, the noncollection of social contribution. This impacts a nonoperational company that would [Indiscernible], it was conceived [indiscernible]. What is the impact? This company decided [indiscernible] and it did need to [Indiscernible] social contrition and [Indiscernible]. They will have to carry our payments regarding 2008, 2013, 2014 that are still dealt as possible losses. And this is a possible loss. We have disclosed this in an explanation. Now if you see on the explanation of #18, you can find all the details. In summary, this is an impact of BRL 180 million. This includes the principal value. The includes interest rates of the period also [indiscernible] value is [Indiscernible] because interest reminded of this value group should be discounted. So we should see it, but here we see a maximum growth impact of BRL 118 million. And it is important to highlight this and this is an effect connected to the past, we don't expect any future impact. This is a one-off. This is something where we have operations on the future impact would be minimum for us.

Next question from Lucas Rodrigues. What about the co-insurance agreement between BMG Seguros and Generali. How is this coinsurance agreement?

Well, Generali has been a part for a long time of the Bank and recently celebrated an agreement with that [Indiscernible] operation. We are in [indiscernible] all the churn from the retail side now there is co-insurance where we have our own insurance company that has 40% of the result. And Generali is [Indiscernible] 60% and the advantages that now we can go beyond the product portfolio. And Generali has available, which was restricted to us in the past. So this is excellent for us in terms of the number of products that we can offer.

Our next question from Marilia Souza. She is an individual [Indiscernible] why did you increase the financial margin of Q4?

I think I can start answering as I presented this slide, the bank grows strongly throughout the year, and we expect 15%-20% of the loan portfolio, the portfolio grows 50% year-on-year because of the 3 effects, the benefit payroll card was an unexpected product that was developed in 2022, the margin of credit [Indiscernible] public. These are 3 products that are mainly kind of captive customer base. We have lots of expertise and therefore, we have been able to grow above the expectations. As a result of this growth, there is an improvement of financial margin. The average portfolio was built and with this [Indiscernible] increase of the revenues and the decrease of financial margins, something that we saw on the left-hand side of our chart.

Well, our next question from Carlos Herrera from Condor Insider.

I would like to approach 3 issues that seem concerned when [indiscernible] continued growing [Indiscernible] coverage. Index was 9%. If you know last year you were...

I'm going to guide this answer, and I will start talking about NPL, and then I will hand it over to Flavio. I read the NPL increase [Indiscernible] that we mentioned in our call, [Indiscernible] has a low portfolio, there we can have a curve of 10, 15 years of payroll [indiscernible]. You can see that our NPL is payable and foreseeable and it is safe and it is steady. And with -- there is a growth of the portfolio among Q2 and the rollout of this portfolio can affect the NPL. This is something that we could expect. And personal [Indiscernible], the bank is reviewing and analyzing the type of risks that can come out of each product. And just within EPO annualize our NPL, it has increased, and we have talked about this. Basically, we are highly exposed insane payroll product. So the bank decided to medicinal risk in portfolios that our portfolio is a slightly higher NPL level. Now the bank has to go after margin, although the payroll product is [Indiscernible] the benefit of low NPL. Well, we also know that they have very low margins. And regarding our guidance, we believe [Indiscernible] guidance as well as the portfolio. So we see that -- this is a portfolio that ended the year with a growth of 50% vis-a-vis last year it is natural to carry a [Indiscernible] slightly higher.

Continue you with this question from Carlos Herrera, will you comment on the 3 points. I would like to understand, what we see for this year trends regarding [Indiscernible] and NPLs. Is this why you discontinued your guidance for [Indiscernible] test proper visibility of what will [indiscernible] naturally, there will be a [Indiscernible] of 2023. [Indiscernible] We are aware of the macroeconomic challenge. [Indiscernible] on payroll. We do expect [Indiscernible] to continue going up throughout 2023. And now regarding our guidance, now this how [indiscernible] the macro scenario. There are certain uncertainties of macro and economic point of view. There is no clarity regarding the [Indiscernible] and how this is going to impact. And this can have even positive impacts, but the effects of these actions are not very tangible. We are expecting to see more visibility before providing guidance to the market.

Question from [indiscernible]. I'm going to answer it. [Indiscernible] discontinuity of the guidance will we have a more challenging macro scenario which are these challenges and how can they affect the lines of BMG Banco through 2023. Flavio, I think you've mentioned this.

Yes. [Indiscernible] list a number of things, we have Selic is unforeseeable foreseeable. It's unpredictable. You believe that it will continue stable, [Indiscernible] drop and especially regarding the interest rate, there are 2 points that I mentioned regarding products that [indiscernible] well, the rates are lower and [Indiscernible] they do something about FGTS, the government has [Indiscernible]. Our decisions once we know what is going to happen, we will be able to announce the guidance to our market.