Business Context and Reporting Period
This Form 6-K filing by Banco Bradesco S.A. (Bradesco) reports on the period ending September 30, 2010, though the primary financial data and rating analysis provided cover the full fiscal year ended December 31, 2009. Bradesco is Brazil's second-largest private bank by total assets. On April 16, 2010, the rating agency Austin Rating affirmed Bradesco's long-term credit rating of AAA (stable) and short-term rating of A-1, citing exceptional intrinsic financial strength, diversified assets, and conservative risk management.
Key Financial Metrics (Year Ended Dec 31, 2009)
- Revenue: Total revenues reached R$ 26.3 billion, a 13.8% increase from 2008. Gross income from financial intermediation rose 29.2% to R$ 20.4 billion.
- Profit: Net income increased 5.1% to R$ 8.012 billion. Return on Shareholders' Equity (ROE) was 19.2%, and Return on Assets (ROA) was 1.58%.
- Assets and Loans: Total assets grew 11.4% to R$ 506.2 billion. The loan portfolio totaled R$ 190.9 billion, representing a 6.1% increase from 2008.
- Capitalization: Shareholders' equity rose 21.9% to R$ 41.8 billion. The Basel capital adequacy ratio increased to 17.8% (16.9% excluding specific additional provisions).
- Asset Quality: Non-performing loans (NPLs) fell to 8.9% of total loans in December 2009 (down from 9.5% in September 2009). The allowance for loan losses covered 132.6% of high-risk NPLs (rated D through H).
- Liquidity: Cash and due from banks totaled R$ 82.7 billion. Assets due within 30 days covered 108.6% of liabilities due in the same period.
- Efficiency: The efficiency index improved to 50.8% from 52.4% in 2008.
Material Changes Versus Prior Period
- Asset Growth Slowdown: Asset growth of 11.4% in 2009 was significantly below the 24.8% average of the previous four years, driven by the global financial crisis.
- Provisioning Increase: Provisions for loan losses surged from R$ 7.9 billion in 2008 to R$ 12.9 billion in 2009 due to conservative policies and economic weakness, particularly in the first half of the year.
- Margin Expansion: Despite higher provisions, the financial margin improved from 27.4% in 2008 to 32.4% in 2009, supported by higher treasury gains and fee income growth of 6.9%.
- Capital Strength: The Basel ratio improved from 16.1% to 17.8% as equity growth outpaced loan growth, providing a larger buffer for future expansion.
Guidance, Outlook, and Risks
- 2010 Outlook: Management expects lending business to grow by 21% to 25% in 2010. Growth is projected to be stronger in the corporate segment (25-29%) than the personal segment (16-20%).
- Strategic Initiatives: The bank plans to open 270 new branches and acquire 2 million new account holders in 2010, focusing on cross-selling and expanding into social classes C and D.
- Rating Perspective: Austin Rating maintains a "Stable" outlook, expecting credit quality to improve gradually throughout 2010. The bank is viewed as capable of absorbing higher provisions while maintaining earnings.
- Risks and Contingencies:
- Market Risk: Value at Risk (VaR) decreased significantly in 2009 due to lower volatility, ending the year at 0.05% of shareholders' equity.
- Regulatory/Exogenous: The Central Bank of Brazil began withdrawing stimulus measures in early 2010, which may lead to slightly higher deposit costs for the bank.
- Asset Quality: While improving, the NPL ratio remains elevated compared to pre-crisis levels, requiring continued conservative provisioning.
Investor Verification Checklist
- Verify the sustainability of the 32.4% financial margin in 2010 as interest rate environments shift.
- Monitor the trajectory of non-performing loans (currently 8.9%) to ensure the downward trend continues as projected.
- Assess the impact of the Central Bank's withdrawal of stimulus measures on the bank's cost of funding.
- Confirm the execution of the 2010 branch expansion plan (270 new branches) and its effect on the efficiency index.
- Review the composition of the loan portfolio to ensure the projected 21-25% growth aligns with risk appetite.