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PRESENTATION
CONFERENCE CALL
4Q19
1
MANDATE
2
Implement the PHYGITAL Strategy
• Leverage the entire network of correspondents and franchisees with a high degree of knowledge of the low-digital audience
• Combine physical stores and digital channels to start relationships
• Add scale and efficiency by embedding this audience with broader offers via digital media
Manage costsobsessively
• Achieve maximum efficiency through the application of Zero Base Budget
• Increase control mechanisms and proactive performance in the main cost offenders
• Evolve corporate governance to best in class for publicly traded companies
Accelerate theBank modernization
• Evolve organizational culture to quickly incorporate major market changes
• Evolving agile work model in all areas of the organization
• Accelerate upskilling of the current team, always reinforcing a more competitive human capital in the market
A B C
Physical channel helps the onboarding
of the digital bank
PHYGITAL STRATEGY
Client’s PHYGITAL Journey
Client goes to the physical channel
Client acquires new products and benefits
Meritocratic alignment
Maintains maximum profitability Optimizes service capacity
Client hires credit
products
Client renews credit
products
PHYSICAL DIGITAL
SCALE GAIN
GREATER LOYALTY
HIGHER CROSS SELL
HIGHER MARGIN
LOWER CAC
PHYGITAL
3
A
3.5 3.6 3.8 3.94.1
4Q18 1Q19 2Q19 3Q19 4Q19
Client Lifecycle
CLIENT CENTRICITY IS THE BASIS OF PHYGITAL
+15%
Evolution of active clients(million)
4Qx4Q
OF PAYROLLCREDIT CARDS
+4 million +830 KACCOUNTSOPPENED
1.75xCROSS-SELLING
INDEX
4
Client
DirectDebit Loan
Payroll CreditCard
Investments
Payroll Loan
Credit Card
Insurance
Save For Me
COSTS MANAGEMENT
Main actions being carried out for a new cost management culture at BMG
Unprecedented granularity
Redirection for investments
Reinforcement ofcontrol mechanisms
Best-in-class governance
Incorporation into culture
5
B
Scrutiny of all bank costs through a zero-based budget, attacking every opportunity
Redirection of part for investments and strengthening of technology, with aggressive search for efficiency on all fronts
Implementation of mechanisms for strict and constant control of the main cost offenders. Implementation of alignment of incentives and of mass civil claims end-to-end process for cost reduction
Evolution of the bank's decision-making process to have a reference governance model among publicly-held companies
Impression of the cost management obsession in the bank's DNA, as well as in the way all employees act
1McKinsey Organizational Health Research (OHI) ²Spencer Stuart Leadership and Organizational Culture Assessment
BANK MODERNIZATION
6
C
Engagement of professionals within of the top 10% of the market1
89 years as a Bank with constant reinventions in the way it operates
Strengths of the Bank’s Current Culture
High Engagement
Entrepreneurship
Adaptability
Executive profile closer to start-ups than traditional banks2
More agile work model, counting with 40 squads on the main value fronts
Evolve culture to offer differentiated journey for both clients and talents
Agility
Technology
Differentiation
Strengthen the technological and process backbone to sustain growth
Enhanced through ....
2019 HIGHLIGHTS
NIM
22.5%
+3.5p.p.
RECURRING NET INCOME
R$ 344 million+33.4%
802 help! stores
+69.9%
RETAIL LOAN PORTFOLIO
R$ 9.7 billion+22.9%
BASEL RATIO
22.5%
+10.1p.p.
4Q19 AccountingExchange
Var. &Overhedge
Securitization
Goodwill
CSLL & Provision
Sale % BMG
SegurosManagerial
(R$ Million)Income from financial intermediation 912 18 930
Expenses on financial intermediation (242) (23) (2) (267)
Net provision for impairment of credits (138) (138)
Gross profit from financial intermediation 532 (5) (2) 525
Other operating income (expenses) (742) 1 2 36 313 (26) (416)
Non-operating results (1) (1)
Profit before taxes and profit sharing (210) (4) 0 36 313 (26) 108
Income tax, social contribution andparticipation 373 4 (15) (121) 278
Increase in the social contribution rate (276) (276)
Net Income 163 0 0 22 (84) (26) 74
NIM EFFECTS RESULTS EFFECTS
MANAGERIAL INCOME STATEMENT
8
Net interest margin before and after cost of credit
1 - interest income + interest income / average profitable assets2 - interest financial margin after expenses with net provision for recovery and expenses with agent fees + revenue from services rendered / average profitable assets 9
CONSTANT MARGIN EVOLUTION
22.3% 22.8% 23.2% 25.1% 26.6%
15.2% 14.9% 14.1% 15.5% 16.5%
4Q18 1Q19 2Q19 3Q19 4Q19
NIM NIM adjusted to the cost of credit
+4.3 p.p.
+1.3 p.p.
4Qx4Q
1 2
INVESTMENTS
Operational efficiency 1
1 - (Personnel Expenses + Other Administrative Expenses (does not include amortization) + Other Operating Expenses, Net of Revenue) / (Result of Financial Intermediation before PDD + Income from Services Rendered + Tax Expenses) 10
+12.2 p.p.
4Qx4Q
57.2%51.7% 51.2% 53.7%
59.5%
4Q18 1Q19 2Q19 3Q19 4Q19
BMG provision policy
R$ 16 million
R$ 81 million
R$ 474 million
R$ 571 million
Strategic Massified ~77%
All actions are classified based on the likelihood of loss:
• Likely: provisioned in the balance sheet
• Possible: disclosed in the Financial Statement notes
• Remote: does not require provision or disclosure
• Upon entry, 100% of lawsuits are provisioned
• Provision: by product and region, according to the average ticket of the closing of lawsuits in the last 12 months
OPERATING PROVISIONS
11
Tax Labor Civil Total Provision
FRONTS OF ACTION
Mitigate the filing of new lawsuits:• Consent form
• Strengthening the quality of origination in the sales channel
with meritocratic alignment
Specific projects involving legal matters:
• Periodic and systematic visits to the Judiciary
• Use of artificial intelligence to monitor processes and the
performance of aggressor lawyers
• Strengthen legal theses related to products
• Securities trading policies based on predictive models
7,120 7,316 7,553 7,754 7,993
3.4% 3.4% 3.4% 3.4% 3.4%
4Q18 1Q19 2Q19 3Q19 4Q19
credit portfolio % interest rate p.m.
3.1% 3.0% 3.2% 3.1% 3.3%
3.2% 3.2% 3.4% 3.4% 3.6%
4Q18 1Q19 2Q19 3Q19 4Q19
Accounting Simulation without insurance
BEST CREDIT CARD FOR THE CLIENT
Credit Portfolio
of penetration of mass insurance in the portfolio39%
R$ Million
1 2
1 - Methodology: E-H portfolio / total portfolio | 2 - Management view without mass insurance
Payroll credit card
+12,3%
growth of interchange fees (19x18)29,5%
12
NPL – over 90 days
32.9% 30.0% 27.4% 28.5% 28.8%
4Q18 1Q19 2Q19 3Q19 4Q19
Accounting
447 532 612 685778
20.7% 20.5% 20.4% 20.3% 20.4%
4Q18 1Q19 2Q19 3Q19 4Q19credit portfolio interest rate %p.m.
+74,0%
1
RISK BASED PRICING
53% 60%
13
Direct Debit Loan
1 - Methodology: E-H portfolio / total portfolio
Credit Portfolio R$ Million
NPL – over 90 days
of portfolio of origination receive the INSS benefit at BMGvs. 32% in 2018 vs. 45% in 2018
1 – Credit assignment without retention of risks and benefits
Payroll Loan
RESUMPTION OF PAYROLL LOAN
14
Origination 4Q19
SecuritizationCompany
DataPrev
service
Assignment Limit Value
R$ 1.5 bn
Securitization partnership
INSS
Volume: R$ 391 million
Agreement: Social Security (INSS)
Average Ticket: R$ 5,000
Average Interest: 1.8% p.m.
Term: 72 months
Assignment 4Q19
Volume: R$ 179 million
Result: R$ 2 million
0.29% p.m.
1
15
Issued premiums evolution Sources of Income
R$ 82 mn in revenue in 2019(vs. R$ 54 million in 2018)
+ +
+23,4%R$ Million
PERENNIAL REVENUE AND GROWTH IN THE SALE OF PREMIUMS
Mass Insurance
48 47
57 5459
4Q18 1Q19 2Q19 3Q19 4Q19
R$ 37 million
in servicerevenue
R$ 20 million in profit
share
R$ 25 millionreduction in
provisionexpenses
Evolution of funding
+6 months
OPPORTUNITY TO REDUCE THE AVERAGE FUNDING COST AND THE ALM STRUCTURE
DurationPositive Gap
16
Asset and liability management
R$ Million
76% 77% 77% 76% 82%
13% 13% 13% 13% 6%3% 2% 4%
5%5%
12,354 12,234 12,723 13,246 12,409
4Q18 1Q19 2Q19 3Q19 4Q19
Deposits External FundingFinancial Bills Credit AssignmentsOther
Assets Funding
17months
23 months
In Nov/19, USD 243 million from BMG19 matured with cost of dollar + 9.95% p.a.
In Ago/20, USD 165 million from BMG20 will mature with cost of dollar + 8.875% p.a.
Throughout 2020, ~R$ 1 billion in fixed-rate deposits will mature.
GUIDANCE 2020
1. Includes revenue from credit operations + funding expenses and derivatives + revenue from services rendered2. Includes credit provision net of recovery + agent commission3. Includes personnel + administrative + operating expenses
17
2020
Total Credit Portfolio 30% 40%
Interest Margin 3,800 4,100
Cost of Credit 1,400 1,550
Non-interest expenses 1,600 1,700
Income tax and social contribution rate 25% 35%
Goodwill amortization net of taxes 80
2
3
1
R$ Million