Banco do Estado do Rio Grande do Sul S.A. (BRSR6) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to the video conference of Banrisul to discuss fourth quarter results in the year of 2022. This video conference is being recorded and replay may be accessed in the company website, ri.banrisul.com.br/en. The presentation will also be available for download from chat. [Operator Instructions] Before moving on, we would like to reinforce that forward-looking statements presented here are based on assumptions and beliefs of the company's management. These statements may involve risks, uncertainties and assumptions as they relate to future events and, therefore, depend on circumstances that may or may not occur. Investors, analysts and journalists should be aware that events related to the macroeconomic environment, industry and other factors could cause results to differ materially from those expressed in the respective forward-looking statements. Today are present in this video conference, Mr. Claudio Coutinho Mendes, CEO, Mr. Irany Sant’Anna, Deputy COO, Risk Officer; Mr. Marcus Staffen, CFO and IRO; and Mr. Osvaldo Lobo Credit Officer. I would like to call Mr. Claudio Coutinho Mendes, CEO of Banrisul, who will start the presentation. Please, Mr. Coutinho, the floor is yours.

Good morning, everyone. Thank you very much for joining this call to discuss results of the fourth quarter of 2022 in the year's results. So before I start, let me tell you that 2022 brought profound and deep changes in the bank. It incorporated changes that have been done in the past 4 years, especially the change of our logo that brings new concepts and new branding for this bank. This bank is a more inclusive bank, a more technological and more sustainable bank now. So this brand that was launched in 2022 is for all of our stakeholders, collaborators, employees and clients. It shows that Banrisul is tuned in with our time. In ESG, let me [Technical Difficulty] in our ROAE of [ 11 to 15% ]. The expected net interest income had to do with reclassification of payroll portfolio based on credit. They are being considered [indiscernible] next year. [indiscernible] 20% in the loan portfolio and net interest income [indiscernible] 2022. [indiscernible] smart has been growing gradually. So [indiscernible] this period. The interest income grew 9% is comparing the -- 11%, I'm sorry, if comparing to previous quarters. This has to do with the [indiscernible] stable Selic fee. It diversified in low cost. Our cost of CDBs is [ 25 ]% of CDI and the total capture is 77%, all fully competitive. And basically it's diversified and it comes from individuals. The spending comes from individuals based on our bank branches. We continue very disciplined in terms of containing risk. If you really look at total risks, they grew 6.7% year-to-year. But if you exclude expenses regarding variable costs. then we have other administrative expenses, which grew 5.9% and basically had to do with the inflationary period and 6.8% had to do with staff expenses. Also connected our voluntary [ remuneration ] program under the expected further costs or expenses in the bank. We'll have the [indiscernible] around [ 70% ], very comfortable levels with the [indiscernible] we believe in continuing to grow the bank, and we will be able to maintain the payout that's been practiced so far. In 2022, we affirmed our strong stance in terms of loan portfolio, we made it grow leverage by Agro business. We all [indiscernible] administrative adjustments which lands to savings and also modification regarding the [indiscernible] marking for [indiscernible] customers greater sales of mixing services. We'll continue on portfolio repricing with the main [indiscernible] being the margin growth. We will maintain cost structure under control and the even with an addition in staff. Gradual recovery of profitability is expected, with sequential improvements. Now I would like to close this presentation of our results for the fourth quarter of 2022, and we open our Q&A. Thank you.

[Operator Instructions] So our first question comes from Flavio Yoshida from Bank of America.

I would like to understand here 2 points. The first has to do with the payroll loan portfolio. This has had reduced growth in the fourth quarter. Which was the reason for that? And what can we expect for 2023 in this field? Now my second question has to do with the guidance, guidance for margin and cost of risk, cost of credit? And what is implicit in this guidance, especially it has to do with taxes and service fees?

Thank you, Flavio, for your questions. Our CFO, Marcus, will answer them, right? Marcus, the floor is yours.

Flavio, thank you for your questions. Well, in terms of the payroll loan, in the last quarter, we had an adjustment in our commercial strategy with our correspondence that in the main, this acceleration comes from that. And we had a boom in the first 3 quarters of that year. In the last quarter, we decided to focus on working on our portfolio, our existing portfolio with them, with this correspondence. So it was more of a reaction in trying to work with the basis to try and improve the margin in this portfolio. And then we break -- I mean, if you break down in terms of credit underwriting, it goes down in this correspondent, especially to work and gain in stock rate. When you look to 2023, we have our own credit underwriting network in the same magnitude for our guidance for individuals 2 digits lower. It has a potential, especially when it comes to INSS because more margin will be released from January on, and then we'll be able to better work with this client. Maybe the main take-home message when you look at the payroll loan is that the driver -- is that the more we have pricing projects, we can have more income, more revenue. Now regarding the guidance on service ready new and taxes [indiscernible]. Service has to do what has been done in this year above the inflation. This is a good -- this is a parameter. And in terms of taxes, I would say we can expect to have a specific number guidance, but nothing so different, maybe 18% to 23%. This figure is reasonable, I guess, for us to work with.

Now we have [indiscernible] investments.

I have 2 questions regarding credit loan. Rural credit has become more and more representative in the general bank portfolio. This will lead to one of the main growth moving forward. So which is the average rural credit rate the bank has provided in the past few quarters? Do we believe the Phase 2 increased this rate? Or is this a credit line that is more competitive with major or higher pressures?

Thank you. Now Marcus will answer this question.

Well, I believe that rural credit performance is, in fact, outstanding. We can work in this line with a growth above 60% in that year. This growth can be explained by costing areas. We have already looked towards ceiling related to that. And more than the rural credit base, I would say we could work with spread, which is not so different from what we do with real estate credit spread, 4%, 5%, depending on the deadline or the type of line or the R&D of funding. So if we're going to focus or to try and understand, I would work with this figure. There are pressure -- we suffer pressure, but the bank has been growing its market share very importantly during these past periods. And so I don't know, would you like to add something?

I think our -- another part of our strategy is to focus on family agriculture, small producers, small growers and average sized farmers, help them grow. And during this period, you can work with client loyalty by providing them with solutions in a supplementary chain. We need to understand their demands and be able to provide to them our supplementary products and have a lasting relationship with this type of clients.

Our next question comes from John Paolo from [indiscernible].

How the bank sees the efficiency rate can help you improve your performance in this field?

Thank you, John Paolo. Marcus will answer your question.

Well, I believe we can see the efficiency rate taking it to size in terms of cost, the behavior of the bank was to maintain control expenses. Our expenses are under control in terms of staff and other administrative expenses. We are clearly aligned with inflation. And moreover, when you look at staff expenses, they are -- we have been following the guidance. And we had a change in standards in terms of costs. We wouldn't see a substantial change to compose the efficiency rate. Now considering the net interest income, as demonstrated in the previous quarter, we had 11% growth. Somehow, you were -- we could have achieved that before, but some aspects of the loan -- of the payroll loan have put -- have decelerated this when we look at the payroll loan portfolio taking into account the picture of the last quarter of the year. Roughly 50% of them, 50% of this portfolio is already [ reprecified ], so we can work on that. And another important figure, just for you to understand its magnitude and to understand that this is a movement that is not done all at once, is that when you look at our payroll loan inventory, it shows an interesting potential to keep on adding value. So the guidance in terms of net interest income is 19% to 23%, robust growth as compared to 2022 but bringing a more clear rationale to the market. When you look at the last quarter, the net interest income, if we annualize this, this would account for 10% of growth if compared to 2022. And moreover, if you look at the month of December, which was the last month of the quarter, for BRL 150 million run in the net interest income, this figure would provide us 15% growth over the basis of 2022. So this number alone -- so this is very solid, and there is a potential to grow this margin a robust potential for 2023. And this is the main driver when we consider the growth in return, the growth of results in the results for Banrisul.

Our next question comes from Eric Ito from Bradesco BBI.

I have 2 quick questions. Now regarding the net interest income, you've just discussed, just let me link this with Selic interest rate in Brazil. The marketing general from the third quarter on had a drop. If you can remind us of this, which would be the sensitivity? Does it grow? Does it -- I mean, does it fall faster or slower? And my second question is, how do you see the NPL dynamics for this year. Do you have -- do you expect a growth in corporate clients. But I mean, if you think we have a series of company, they are facing difficulties, maybe bankruptcy [indiscernible] NPL.

We can start talking about the flow, and then later, I'll talk about the margin, the net interest income, okay? Okay. Before I talk about NPL, the portfolio has been growing. We monitor this and have several parameters to follow crops, for example, I mentioned our portfolio as a whole, including the Agro business portfolio has diversified carrier. In Agro, we are very focused to [indiscernible] family grower, family business and medium-sized farmers. So we expect a drop but a small drop for the next period. Regarding NPL, standards of guarantees and operations. It's important to highlight, as our CEO said, we haven't changed or gotten rid of our philosophy. -- which is to structure operations and have good and solid guarantees. Our strategy to diversify for industry type of company, economic group and focusing on having a diversified portfolio has protected us. And we have managed to achieve this default rates, which are good. And we fight we struggle to maintain them or even improve them, get them better. But better than making the portfolio grow is to make it grow with safety. And this is what our results reflect. We are very at ease regarding this issue. Sorry. I think we're safe. The bank has been doing its homework, really concerned with these topics and working pretty conservatively. Ours is a defensive portfolio. As our CEO said, the payroll portfolio is a defensive strategy by nature as well as in the work with the agricultural sector. We focus a lot on the rural portfolio. Last year, when we had drought, a strong drought, there was no problem regarding a rise in default. We have -- in terms of corporate clients, we mostly work with medium-sized and small companies. with guarantees. So we believe we are safe, even if there is a storm out there in the market. We believe we are sailing in a safe place, in a tranquil area. Just let me add that we keep on our discipline. We do not work large corporate clients that could lead to a big default -- so we have our risk pulverize, let's say, it's a diversified risk based on our guaranteed loan platform. So we believe we'll be safe. Just the first part of the question regarding the net interest income, this growth, as I mentioned before, it has to do with [ represifying ] in the growth of our portfolio. When we consider this line, and we think of up to 23%, there is a projection on our estimate of a final Selic interest rate that is going to go down. We work with a figure of 12.5%. So NII will be impacted in around 1%. So almost the totality of this comes from the growth and from the business with our portfolio.

Now we have questions from Antonio Murais Luis [indiscernible] .

Congratulations on your results. Which would be the payout you're planning for 2023? I'd like to see if the dividend policies will be the same in 2023. I would like to understand more about the announcement of dividends. And if you can follow the policy of Banco Brasil, which announced the agenda for payments here, the schedule of payments for the year.

Well, our payout hasn't been approved yet, but we believe it's going to be maintained the policy, and the levels of remuneration will be maintained, the levels the bank has been working with historically. I don't see any substantial changes on the horizon, even because if we consider the capitalization basis of the bank, it's pretty solid and pretty safe to keep on growing at the same pace. Regarding a payment schedule, we will take this idea to be discussed, and we will discuss a defined schedule. So the market knows about previous scheduled and the date when these dividends will be distributed throughout the year.

[Operator Instructions] So we have a question by Eduardo Belmont from Compound.

Congratulations on the results. According to the release, the balance from work-related provisions went from 27% to -- from December '21 to December '22 with an important rise of BRL 345 million. How do you see this trajectory for the next quarters?

Well, we [ reprecified ] the -- and made the estimates for work-related and labor-related regarding collective wage agreements. And we completed this by the end of '22. So we measured the provisions of the individual lawsuits. And now also, we've done the same for the collective one. So we hope we won't have this impact in 2023. We expect to have -- coming back to -- we expect to come back to the normal period. [indiscernible] this amount, which was high in 2022, which was accumulated. We believe that this amount will not be the same, will not be reproduced in 2023 because we have already made the provision of losses for 2022. I believe we made -- we [ reprecified ] the liabilities. It was included in the balance regarding individual and collective lawsuits and it has to do with the loan loss provisions that we made. And now it's up to us to treat this stock, to treat this inventory. We made important agreements last year. We can reduce some lawsuits which were mature. And probably, this will be the major work of this year to reduce the stock to reduce these values, these amounts that can impact our balance. The pathway will also be positive, I believe.

If any question has not been answered at this event, Banrisul's Investor Relations team will answer the questions received as soon as possible. Banrisul's video conference has now ended. We appreciate everyone's participation, and we hope you have a good day.