Business Context and Reporting Period
This Form 6-K filing by Banco Bradesco S.A. (Bradesco) covers the economic and financial analysis for the period ended September 30, 2015 (Third Quarter and Nine Months). Bradesco is a Brazilian universal bank operating through a diversified organization that includes banking, insurance, pension plans, and capitalization bonds. The reporting period was characterized by a challenging Brazilian economic environment, including currency devaluation and economic deceleration, which impacted credit quality and provisioning levels.
Key Financial Metrics
| Metric | Value (R$) | Period |
|---|---|---|
| Adjusted Net Income | 13.311 billion | 9 Months 2015 |
| Book Net Income | 12.837 billion | 9 Months 2015 |
| Total Assets | 1.051 trillion | Sept 30, 2015 |
| Shareholders' Equity | 86.233 billion | Sept 30, 2015 |
| Expanded Loan Portfolio | 474.488 billion | Sept 30, 2015 |
| Assets Under Management | 1.453 trillion | Sept 30, 2015 |
| Return on Average Adjusted Equity (ROAE) | 21.2% | Annualized 9M 2015 |
| Return on Average Assets (ROAA) | 1.7% | Annualized 9M 2015 |
| Basel III Total Ratio | 14.5% | Sept 30, 2015 |
| Delinquency Ratio (>90 days) | 3.8% | Sept 30, 2015 |
| Operating Efficiency Ratio | 37.9% | 12 Months ended Sept 2015 |
Material Changes vs. Prior Period
- Profitability Growth: Adjusted Net Income for the first nine months of 2015 increased by 18.6% compared to the same period in 2014 (R$11.227 billion), driven by higher interest earning portions and fee income, partially offset by increased provisions and operating expenses.
- Asset Expansion: Total Assets grew 6.4% year-over-year to R$1.051 trillion. The Expanded Loan Portfolio increased 6.8% to R$474.5 billion, with corporate operations growing 7.5% and individual operations growing 5.2%.
- Credit Quality Deterioration: The delinquency ratio for loans over 90 days rose to 3.8% from 3.6% in September 2014. Consequently, the Allowance for Loan Losses (ALL) expense increased by 17.5% year-over-year to R$10.982 billion.
- Capital Adequacy: The Basel III Total Ratio decreased from 16.0% in June 2015 to 14.5% in September 2015, primarily due to an increase in risk-weighted assets and prudential adjustments related to tax credits.
- Insurance Segment: Insurance, pension, and capitalization bond income grew 18.6% year-over-year, contributing R$3.883 billion to the Adjusted Net Income.
Guidance, Outlook, and Risks
- Strategic Acquisition: In August 2015, Bradesco signed an agreement to acquire 100% of HSBC Bank Brasil for US$5.2 billion. The transaction is subject to regulatory approval and is expected to strengthen Bradesco's market presence and efficiency.
- Management Guidance (2015 Full Year):
- Loan Portfolio Growth: 5% to 9%
- Net Interest Income (Interest Earning Portion): 10% to 14% growth
- Fee and Commission Income: 8% to 12% growth
- Operating Expenses: 5% to 7% growth
- Insurance Premiums: 12% to 15% growth
- Risks and Contingencies:
- Economic Environment: Continued deceleration of the Brazilian economy and high inflation pose risks to credit quality and loan growth.
- Currency Volatility: Significant depreciation of the Brazilian Real against the US Dollar has increased the value of foreign currency-denominated debt and impacted the valuation of foreign assets.
- Legal and Tax Provisions: The bank maintains significant provisions for tax risks (R$8.57 billion) and civil/labor claims (R$7.16 billion) related to ongoing litigation.
- Regulatory Changes: Implementation of Basel III and changes in social contribution tax rates (Law No. 13,169/15) impact capital calculations and tax provisions.
Key Facts for Investor Verification
- HSBC Acquisition Status: Verify the regulatory approval status and expected closing date of the US$5.2 billion HSBC Bank Brasil acquisition.
- Credit Quality Trends: Monitor the trajectory of the delinquency ratio (>90 days) and the adequacy of the Allowance for Loan Losses (ALL) coverage ratio (currently 205.7% for >90 days) given the economic downturn.
- Capital Ratios: Track the Basel III ratio to ensure it remains comfortably above the regulatory minimum of 11%, especially as risk-weighted assets increase.
- Shareholder Returns: Confirm the payout ratio; R$4.358 billion was paid/provisioned for shareholders in the first nine months, representing approximately 35.4% of net profit.
- Non-Recurring Items: Review the reconciliation between Book Net Income and Adjusted Net Income, noting the R$2.222 billion impact from the ALL Surplus/Deficit Rating in Q3 2015.