Banco Bradesco S.A. — FY2020 Form 20-F
Reporting period: Year ended December 31, 2020; the filing is an annual report, not a standalone 2020 Q4 earnings release. Financial statements are consolidated and prepared under IFRS as issued by the IASB. Amounts below are in Brazilian reais (R$), generally rounded to billions.
Business context and reporting period
Bradesco operates primarily in Brazil across banking and insurance, pension and capitalization businesses. It completed the acquisition of BAC Florida Bank on October 30, 2020. The year was heavily affected by Covid-19, sharp interest-rate reductions, economic contraction and real depreciation.
Key financial metrics
| Metric | 2020 | 2019 |
|---|---|---|
| Total assets | R$1,604.7bn | R$1,378.5bn |
| Net interest income | R$71.2bn | R$65.8bn |
| Net income | R$16.0bn | R$21.2bn |
| Net income attributable to parent shareholders | R$15.8bn | R$21.0bn |
| Net interest margin | 5.5% | 5.8% |
| Net cash from operating activities | R$142.4bn | (R$19.5bn) |
| Net increase/(decrease) in cash and cash equivalents | R$126.5bn | (R$49.1bn) |
| Cash and cash equivalents at year-end | R$190.8bn | R$61.9bn |
| Total equity | R$146.1bn | R$135.5bn |
| Basel ratio / common equity ratio | 15.8% / 12.7% | 16.5% / 12.0% |
| LCR / NSFR | 178.4% / 120.3% | 143.8% / 115.2% |
Customer deposits were R$545.3bn at year-end (2019: R$366.2bn); total deposits including bank deposits were R$547.7bn. Repurchase-agreement obligations were R$217.1bn, securities issued R$144.9bn and subordinated debt R$53.2bn. The filing reports no single total-revenue measure that is directly comparable across its presentations.
Material changes versus the prior comparable period
- Net interest income rose 8.2% as funding costs fell faster than asset yields; interest income declined 3.8%, while interest expense declined 17.1%. Average interest-earning assets grew 13.0%, but average asset yield fell from 10.9% to 9.3%.
- Net income fell 24.3%; parent-attributable income declined 24.7%. The reported income-tax line was a benefit of R$12.0bn, up from R$7.8bn, largely reflecting non-taxable foreign-exchange effects on overseas investments. Pretax income fell to R$4.1bn from R$13.4bn.
- Expected credit loss expense in the IFRS income statement rose 49.3% to R$18.7bn. The company’s segment presentation reports R$25.3bn of credit-risk loss expense; the measures differ because of accounting and classification adjustments.
- Gross customer loans grew 12.2% to R$513.2bn. The portfolio expanded in both corporate and individual lending. The IFRS allowance for customer loans was R$39.6bn, up from R$33.9bn.
- Fees and commissions declined 1.6%; insurance and pension net profit declined 8.2%. Reported fair-value losses were unusually large: R$18.6bn on financial assets and liabilities at fair value through profit or loss, primarily associated with derivatives and foreign-currency hedging results.
- Operating cash flow swung to positive R$142.4bn, mainly alongside higher customer and financial-institution funding and lower compulsory reserves. This is a bank cash-flow measure and should not be read as ordinary industrial-company free cash flow.
Outlook, commentary, risks and unusual items
- Management’s 2021 commentary anticipated faster growth in family lending and slower growth in corporate lending. It gave no quantified earnings, margin or credit-cost guidance in the supplied filing text.
- Management said delinquency indicators remained relatively low after renegotiations, but warned that the pandemic’s duration and effects were uncertain. It reported R$25.8bn of 2020 provision expenses in its risk discussion, including R$9.1bn attributed to the adverse Covid-19 scenario.
- Credit quality requires careful interpretation: the Brazil-GAAP ratio for loans overdue more than 90 days was 2.2% at year-end, while the IFRS disclosure for customer loans overdue more than 60 days was 2.8%. The company said renegotiations and loan extensions contributed to lower arrears measures; it also noted a return toward historical levels of loans overdue 15–90 days from December 2020.
- Brazil’s real depreciated 28.9% against the U.S. dollar in 2020; GDP contracted 4.5%, and the SELIC rate ended the year at 2.0%. Management discussed renewed pandemic risks, fiscal uncertainty, inflation and interest-rate normalization as important 2021 factors.
- Provisioned legal exposures totaled R$24.3bn at year-end. Possible-loss contingencies included R$35.8bn of tax and social-security matters and R$7.2bn of civil claims. These are distinct from amounts already provisioned.
- On Operation Zealots, the company stated that it was not a party to the criminal proceeding involving two former executives; an administrative inquiry found insufficient evidence that Bradesco had offered an improper advantage. A related U.S. class action was settled for US$14.5m in 2019.
- The auditor issued an unqualified opinion on the IFRS financial statements and concluded internal control over financial reporting was effective. Critical audit matters included expected credit losses, legal provisions, deferred-tax-asset recoverability, goodwill and insurance technical provisions.
- Other notable items: the 2020 real depreciation contributed to the tax benefit; the 10% bonus share issue increased shares outstanding but did not itself raise cash; and a temporary 2021 increase in the social-contribution tax rate was under assessment.
Most important facts for investors to verify
- Reconcile IFRS credit-loss expense, segment credit-risk expense and the R$25.8bn provision figure in the risk discussion; confirm what each measure includes.
- Assess whether low reported delinquency reflects durable borrower performance or the effects and timing of loan renegotiations, extensions and government support.
- Review the composition and valuation effects of derivatives and fair-value instruments, including the large 2020 trading loss and foreign-exchange hedges.
- Evaluate the sustainability of the R$12.0bn income-tax benefit, the R$86.1bn deferred-tax assets reported in the notes, and the assumptions supporting their recovery.
- Monitor capital and liquidity headroom as regulatory conservation buffers are restored, and verify how funding mix, loan growth and potential credit losses affect those ratios.
- Track the R$24.3bn provisioned legal balance and possible tax and civil contingencies, including developments in savings-plan inflation-adjustment cases.
- Check post-year-end developments and audited statements for final BAC Florida purchase accounting, 2021 tax changes, dividends and capital actions; the filing describes some purchase-price allocation as provisional.