Business Context and Reporting Period
This Form 6-K filing by Banco Bradesco S.A. (Bradesco) discloses a Fitch Ratings report dated October 13, 2011. The report analyzes the bank's financial performance and creditworthiness as of June 30, 2011, with comparative data for the full year ended December 31, 2010. Bradesco is a leading Brazilian financial institution with a diversified franchise in banking, insurance, and investment funds, operating a vast network of branches and banking correspondents.
Key Financial Metrics
| Metric | Period | Value (BRLm) | Value (USDm) |
|---|---|---|---|
| Total Assets | June 30, 2011 | 689,307 | 441,779 |
| Total Assets | Dec 31, 2010 | 637,485 | - |
| Equity | June 30, 2011 | 53,442 | 34,251 |
| Net Income | 6 Months Ended June 30, 2011 | 5,585 | 3,580 |
| Net Income | Full Year 2010 | 10,144 | - |
| Return on Average Equity (ROAE) | 6 Months Ended June 30, 2011 | 22.1% | - |
| Return on Average Assets (ROAA) | 6 Months Ended June 30, 2011 | 1.7% | - |
| Total Regulatory Capital Ratio | June 30, 2011 | 14.7% | - |
| Fitch Core Capital Ratio | June 30, 2011 | 7.76% | - |
| Impaired Loans / Gross Loans | June 30, 2011 | 7.7% | - |
| Reserve Coverage (Impaired Loans) | June 30, 2011 | 89.8% | - |
| Customer Deposits | June 30, 2011 | 213,233 | 136,661 |
Material Changes vs. Prior Period
- Asset Growth: Total assets increased by approximately 8.1% year-over-year to BRL 689.3 billion as of June 30, 2011, compared to BRL 637.5 billion at year-end 2010.
- Profitability: Net income for the first half of 2011 was BRL 5.6 billion. While pre-impairment operating income remained relatively stable compared to the prior year due to higher operating expenses, operating profit in 2010 had seen significant growth driven by a sharp decrease in loan loss provisions.
- Loan Loss Provisions: Provisions for the first half of 2011 were BRL 3.9 billion, an increase from the significantly lower levels seen in 2010 (BRL 6.4 billion for the full year), reflecting the seasoning of the loan portfolio booked in 2010.
- Asset Quality: Impaired loans (overdue >60 days) rose slightly to 7.7% of gross loans in 1H11 from 7.5% in 4Q10. However, reserve coverage remained robust at approximately 90%.
- Capitalization: The Total Regulatory Capital Ratio remained stable at 14.7% between December 2010 and June 2011. The Fitch Core Capital ratio improved slightly to 7.76% in 1H11 from 7.51% in 2010.
Guidance, Outlook, and Risks
Guidance and Outlook: Bradesco projects a loan portfolio growth of 15%–19% for 2011, a more conservative target than the 23% expansion achieved in 2010, reflecting expected economic slowdown and macroprudential measures. The bank anticipates net interest income growth of 18%–22% and fee income growth of 9%–13%. Fitch maintains a "Stable" outlook on Bradesco's ratings, citing the bank's strong operating scale, diversified revenue base, and conservative management.
Risks and Contingencies:
- Country Ceiling: Bradesco's foreign currency ratings are constrained by Brazil's sovereign ceiling (BBB+). A downgrade of Brazil's rating could impact Bradesco's foreign currency IDR.
- Asset Quality: While asset quality remains better than peers, there is a risk of deterioration as the 2010 loan portfolio seasons and higher interest rates affect borrowers.
- Competition: The bank faces aggressive competition from public sector banks and private competitors, which may pressure spreads and funding costs.
- Operational Changes: The bank's 10-year partnership with the post office system (Banco Postal) ended in January 2012, though the bank expects to retain a portion of the customer base gained through this channel.
Investor Verification Checklist
- Verify the impact of the ending "Banco Postal" contract on customer retention and deposit stability.
- Monitor the trend of loan loss provisions in upcoming quarters as the 2010 loan portfolio continues to season.
- Assess the sustainability of the 15%–19% loan growth target given the macroeconomic tightening in Brazil.
- Review the composition of the loan portfolio, specifically the exposure to payroll deductible loans and credit cards, which carry different risk profiles.
- Confirm the stability of the funding mix, particularly the reliance on customer deposits versus open market funding.