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

Is being recorded and will be available on our IR website. After the presentation, we will initiate a Q&A session. Questions should be asked through the webcast platform. Please note that the presentation material is already available for download on our website in the Results certain tab. Before proceeding, I would like to clarify that statements made during this video conference regarding the business prospects of the bank should be seen as forecasts. Investors and analysts should understand that general conditions, sector conditions and other operational factors can affect the Bank's future results and may lead to results that differ from those expressed in such future conditions. Now I would like to hand it over to Felix so he can start the presentation. Felix, you have the floor.

Good morning to everyone. I hope you enjoy our presentation. Here, I would like to start thanking all of you and strengthening, which are our main priorities throughout 2024. Number one, it would be to simplify and improve our customers' journey. Number two, more products per client, three, growing production and obviously, our market share and an efficient cost management. We are focused on this to provide a sustainable result of the Bank with a higher ROE. As a consequence before I begin the presentation, I would like to mention that these drivers have helped us to grow. And I would also before had thank all the Bank employees that have helped us throughout this entire journey. So let's go to our next slide now. Here, as you can see, the first quarter strengthens our strategy of sustainable generation of results with strong capital management discipline, cost management, we've increased our origination here when we compare to Q1 of 2023. Our net profit is 4x higher. It is important to highlight that during Q4, we felt the effect of the JCP. If we would exclude this, our result would be BRL 100 million and ROE of 10.6%. What is important to note here, Basel continues sound. Our results have demonstrated a consistent trend, and this shows that the Bank is evolving in its results and are balanced and as a consequence, greater reassurance to our investors. Now our next slide. Here, I would like to highlight, as we have committed ourselves, we are recovering origination market share. Here we have the pay loan. Here, we had payroll credit card. We were below 1% last year. And perhaps you remember, deliberately, we decided not to grow in during the 3 main quarters of the year because we were reviewing journey credit processes in order to originate safely to have a sounder portfolio with less delinquency and less risks. So we have been able to achieve this, through sustainable way. Our customer base. Currently, we're amongst the 10 greatest banks that have credit or payroll credits, and there is a great potential to improve this. We are focusing not only to improve the journey. As I mentioned beforehand, Here, it is worthwhile to highlight that we have an app. This is a digital bank, that is simple with a number of functionalities that help our customers, and this is a lever that we are using currently. We are increasing our production, as I mentioned. We are already the top 10 banks with credit. The complaints are dropping our interactions with the call center are dropping, and we are using the entire structure of the digital Banco, especially our app to have loyal customers at a low cost. And as we're bringing profitable banks or CAC is 0. So this is a sustainable business model with payroll products with low cost and acquisition cost low. The level of complaints dropping. And as a consequence, we will have a better result and we will have more satisfied customers. Now on our next slide. Here, you can see how we are focused on our expense management discipline. We have to control our scale unit cost. We constantly have to verify and see where opportunities exist in order to improve our processes, digitalize a number of them have better controls and always trying to reduce operational risk. So when you analyze our expenses with personnel, administrative and operational areas, were operating below first quarter of 2023. And now we are at the same level of the average of 2022. So we understand that in the market with tight margins with -- in a highly competitive market, the more operational efficiency, the better. So this is the mantra that we follow in the Banks. I believe we've been following this mantra for 1 year. The team understands that this is extremely important and strategic, and we are reaping the results. Our next point that I would like to highlight is the new officer to lead our BNG Seguridade. Marcelo Picanco is an executive with over 20 years of experience in the insurance market. I was VP Vertical Insurance from Porta.This is an executive with vast experience, sound academic experience. He joined the BMG Group and the Executive Committee in the beginning of April. And our intention is to allow simple access to families and people. What are strategic objectives in the short and in the mid-run, we want to strengthen synergy with bancassurance, where we do understand that there are many opportunities. We want to be one of the leaders in the insurance inclusion focus on insurance for Classes C&D that is practically in an explored market in Brazil. And as we are aware, our entire franchise network exists to service these customers. We have a customer base of 10 million customers with this profile. We have a brokerage house. We have insurance company. We have all the elements to materialize this ambition. And of course, we want to accelerate the growth in premiums underwritten because -- the insurance business has a lower capital demand than credit. So we are reassured with 2024, and we will also focus and we will optimize our current operations, review products, journeys, et cetera. And then we want to understand the needs of our customers. We're carrying out a number of surveys to be assertive through adjustments in our portfolio and to offer more products to our customers because this is a major opportunity, and we believe that the bank can lead this process. And with this slide, I hand it over to Flavio that will continue with the rest of the presentation.

Thank you, Felix. Good morning. We will talk about products and businesses starting on Page 9, where we present our portfolio, our portfolio persistent a conservative profile and 73% of the portfolio is made up of secured loans. These are a well payroll products, retail benefit payroll cards in addition to the FGTF, and we're talking about 73% with a conservative profile. It has grown when we compare it to last quarter, our growth was 4.4% from one quarter to another. This growth could have been higher, but we are using credit assignments that has benefited the Bank's balance and it's a trend that will continue throughout this year. Joao in his presentation will give you more color, and we'll talk about each one of these payroll or products. On Slide 10, you can see the quality of our portfolio. If you see our NPL over 90, it presents a slight high as it was expected. If you remember, during last quarter, we mentioned that we had assigned a portfolio and this lowered their figures. But we believe that it would be lower, and this is what happened. So a slight increase to 4.7%. On the other hand, we highlight what is the running bank indicator. We -- this consider, we also discontinue our -- discontinued profile -- and this is something that we would obtain to our retails. And we want the Bank convergence to go this way. Regardless of all of this, our port portfolio of high quality continues as a high level above 90%. This is an indicator of 91.2%. And here, we break this out by segments with no major highlights. Now on Page 11, I will like our products, and I will talk about our vertical that is not credit, that is the insurance vertical. During this quarter and from here on, we have changed how we present this in our balance in the past. Everything was done through equity equivalents. Now we break out the company's here they are broken out by the different entries of the balance. The only one that comes to equity equivalents is the insurance brokerage out here, we have BRL 10 million. Now BMG Seguridade that works with mass insurance, retail insurance and BMG Seguros that deals with large large risk insurance, more corporate risks, they are consolidated in our balance, and the revenues would be of around BRL 47 million. When we add the operations, when we analyze our portfolio, we have 4.7 customers insured and the prospect is for this operation to continue growing and gaining relevance within the revenues and results of the Bank. Now Joao will continue about our payroll products.

On Page 12, it is worthwhile to underscore what fell estated in the beginning of the presentation when we highlighted our growth in origination, especially on payroll loan. When we started adjusting our processes, when we started focusing more on origination, we started growing as of quarter 3, 2023. And we will continue growing resuming our 2 position in the market. At a given moment, we occupied a position that we traditionally would have and we are accelerating this process. So if we verify this, this is highly connected to our credit assignment process. The more accelerated origination allows us to carry out credit assignment with profitability, when fees are convenient and the operation makes sense. We perform payroll assignment, and this helps our balance. And this means that we have a more relevant market share in the market and the credit portfolio is of ex quality, and it has grown as we perform these assignments. And part of this is retained in our balance. Now when we go to Page 13, we will see the evolution of the payroll credit card and benefit paycard, we are leaders in this product. And we have been adjusting are card processes and how we offer these products to our customers. And from here on, we will see a more accelerated evolution in our cards. Obviously, this is a recurring product where the customer remains with us for a long period of time. And here, we do not have a credit card assignment strategy and our payroll for the folio grows because this is a highly recurrent product. The -- once the client has this card, he uses it for purchases for the withdrawal of money. On Page 14, now retail and individuals. We're talking about FGTS anticipation, traditional credit card, direct debit loan. Here, we have repositioned our operation, the FGTS anticipation. And during the beginning it evolved a lot, we continue originating, which is -- this is a very interesting product for the bank. But obviously, during the beginning, you always have a greater origination capacity because of greater balances. And now -- but we have recurring customers with this now direct debit loan, no. We -- [indiscernible] is on a portfolio that generates revenues. We are learning how to work more and more with customers that pay timely and generate results. And this is a portfolio that evolves as the number of costumers increase. And it is highly connected to the evolution regarding with the relationship that we have with our customers, be it with payroll card or traditional card now open CCAR. This is a portfolio that right now, well, we are not focusing on the traditional credit card. It is worthwhile to say that the current environment is challenging. In terms of spreads and fees, especially when we think about consignable products where spreads have been tighter because of the cap rates. And this is why we are being more efficient. We are pursuing efficiency and critical mass to maintain a revenue regardless of what we see in terms of cap rates. If we go to Page 15. Here, we can talk about wholesale. And here, wholesale is broken out. into segments. Here #1 would be companies. This is a corporate portfolio and the small portfolio in the middle. We focus on customers that we know. These are sound and safe customers. These are customers that have a more intense relationship with our Bank and harnessing the opportunities that we have with the capital markets in Aragones. Here, we have marketable securities for portfolio and noncredit revenue generated by this portfolio were Aragones, together with the bank origination has been extremely efficient when it comes to generating operations that go to the market. On the bottom, this would be structured operations with correspondence and franchises and soccer clubs. This is a maintenance portfolio. And this is a result from other segments, and these are customers that are with us, be it in the origination of the role loan connected to soccer clubs. This is a safe portfolio. Now I will hand it over to Danilo that will talk about our financial results.

Thank you, Joao. Now on Slide 17, before we see the results. I would like to highlight the changes within our Bank. Here, you can see the companies that are consolidated BMG Seguradora, [indiscernible] BMG Seguros to provide more transparency to the non-payroll revenues. On the right-hand side, you see the changes. These are more visible in our valid Here, we have interim income from financial intermediation, credit and leasing operation. And now it is more obvious the expenses with financial operations BMG Seguradora is clear. And the result of equity equivalents that was strong, as you can see in this quarter, and we start diluting this within the bank operations. Now in equity equivalents, companies that are recognized here, we're talking about our insurance company, and we have the investees that are the start-ups, Granito, [indiscernible]. On the left, we have the nominal growth driven by the recurring revenue of the products Joao mentioned, the importance of credit assignments to reposition the bank. This assignment mitigates the effects of the drop of the payroll rates and the margin after credit costs slightly dropped during this quarter. Now on Slide 19. After a number of reviews, I would like to strengthen the cost of the first quarter on average cost, very similar to what we saw in 2023, even with superior origination and the growth of the portfolio, 4.4%. We have an efficiency rate -- here, we have an efficiency rate. This shows you this is an improvement when we compare it to the past quarters. Now here, we have net operating provision and expenses. Here, it's BRL 124 million, and this is an improvement in processes for mediation. Now to Slide 20. Here, you can see how the bank is better and more profitable. This is a positive trend in operational results, the quality of the result. This is the third quarter that we're running above BRL 100 million, and we will continue this way in the upcoming quarters. On Page 21, talking about here funding, we -- there are a number of levers and how these liquidity levers are being used for funding. Here, we are diminishing our exposure -- our exposure. We issued a financial bill, but we are also using our debenture structures of BRL 1 billion. This is a senior debenture back by Anne payroll cards and benefit payroll cards via securitation companies. Now our total cash is extremely high. And here, you could see the evolution of the year without wavering liquidity and the matching of assets and liabilities and the short-term liquidity, the bank will lower its cash position in the upcoming quarter, providing more efficiency to the operation. Just one point here as the recent maturity and maintaining the LME structures. On Page 22, the capital structure, I would like to strengthen credit assignment without retention of risk and benefits in addition to funding provides us the benefit of diminishing DWA. We have -- here, we have MTM government securities. Now 53% of the accrual is -- it goes to the capital base of the bank, and we will be able to evolve our operations in this year. As I said, we have structures of hybrid structures. Here we have subordinated government securities as we saw in the past. And here, we will start our Q&A session.

Questions can be sent through the platform. chat. And our first question is from Olavo from UBS.

Olavo Arturo. Thank you for your question. I would like to better understand the fish line. I understand the impact of the reclassification with the subsidiaries considering on the past disclosure, the fees drop over 40%. So the biggest portfolio reflects a higher fees. What happened and what can we expect in the future?

Flavio, would you like to start answering.

First, thank you for your question, Olavo. There was a drop in the fish revenue. When we analyze the new model of balance that we have, this is around 15% and not 40%, and the drop was because of the runoff of the retail operations. If you remember, this is a credit card operating that generated the annuity fee of the credit card and also the interchange, they were to line. And this operation was discontinued, although it generated positive fees when we analyze the bottom line, it would be negative because when we have credit risks that are relevant. So this result was consumed by the net provision expenses. And this is why you see this drop. On the other side, we've grown in other operations. I would like to highlight especially our wholesale operations we've gone to the capital markets in order to issue bonds and to provide advisers to customers together with Aragones. We are also consolidating the results of Aragones, and this provides a positive result in our fish line.

Our next question from [indiscernible] from Genial.

Congratulations for your results. I have 2 questions. What can we expect for payroll costs for the upcoming quarters? And second question to Felix, could you give us more color regarding the measures that you have adopted since you entered in the company? And what are the next steps in terms of management.

Felix, this question is geared toward you.

Well, thank you for the question, Wagner. We are being very diligent because we want to have a sounder portfolio. I believe we already carried out excellent actions during 2023 because we have a new team that understands -- to understand the bank. Now we have new dynamics. Now our new mission is is to improve continuously the quality of our portfolio. This is something that we have to do. Currently, we have safer products with guarantee. There is still a run-up from the most risky portfolios like retailers. We will have this for 2 drimesters. We also have the traditional portfolio. We're carrying out the runoff of these portfolios. Now within the portfolios that are priorities, we are also continuously improving in the formalization process and the collection process, our relationships with our counterparts. Therefore, the intention is to see a continuous improvement that we've seen in the past quarters, and this is a trend. Your next question about the measures that we have adopted after I entered then the next management steps. I would say that 2023, as I always highlighted since my arrival was a year where we had to reverse a negative operational result that we reported during the first semester. Now the Bank is in a different level, as Danilo stated. Now what we need is a continuous improvement. This is a retail bank. We have to pay attention to unit cost. We have a good dash follow-up cash for to properly manage our costs in all of the lines. We -- our credit in our collection process, which is extremely efficient and healthy. And with this, we can tackle civil lasso which have slightly improved. This is something in the long term, but the origination of each month is extremely important to reap fruits in the future. We have focused on our technological platform that is extremely important. The Bank has to improve the technological platforms we are migrating towards the cloud. And with this, we will be able to focus more on my growth services. Our response time to the needs of our customers, the quality of our products and the development of these products will be better, quicker. And with this, we will improve significantly. Now, we are working with Marcelo Picanco on Seguridade and [indiscernible] that works with products. How can we work with synergy when we deal with these products? How can we meet the needs of our customers better. And as a consequence, how can we have a higher average revenue per customer. And lastly, called management culture, entrepreneurial culture. Our team is engaged, focused. These results clearly demonstrate how our team is engaged to better service our customer and focused on sueeds of not only customers but shareholders, community invstainable results. And thus, to meet the nestors, we are constantly training our team. We are focusing on the customer and the quality of the execution team work and so forth. This is continous improvement where there are a number of fronts, but we still have a lot of opportunity. We have solid capital. This is a robust bank. Our shareholders support us and help us in this journey. The future prospects for me are excellent. Nonetheless, there are no shortcuts. This is a retail bank. We have to put brick over break. We have to be consistent, regular and to see our results evolving in a continuous fashion.