Banco Bradesco S.A. — FY2021 Form 20-F
Reporting period: Year ended December 31, 2021; this is an annual report, not a standalone fourth-quarter earnings filing. Consolidated financial statements are prepared under IFRS as issued by the IASB. Amounts below are Brazilian reais (R$).
Business context and performance
Bradesco is a Brazilian financial services group with banking and insurance, pension-plan and capitalization-bond businesses. Its operations are predominantly in Brazil. The 2021 comparison reflects economic reopening and higher interest rates, following pandemic disruption and elevated credit-loss provisions in 2020.
Key financial metrics
| Metric | FY2021 | FY2020 | Change / context |
|---|---|---|---|
| Net interest income | R$83.1bn | R$71.2bn | Up 16.8% |
| Fee and commission income | R$26.0bn | R$24.9bn | Up 4.4% |
| Gross profit from insurance and pension plans | R$6.1bn | R$7.6bn | Down 19.9% |
| Expected credit losses on loans and advances | R$9.4bn expense | R$18.7bn expense | Expense down 50.0% |
| Consolidated net income | R$23.4bn | R$16.0bn | Up 45.8% |
| Net income attributable to parent shareholders | R$23.2bn | R$15.8bn | Up 46.3% |
| Net interest margin | 5.9% | 5.5% | Up 0.4 percentage points |
| Total assets | R$1,675.6bn | R$1,604.7bn | Up 4.4% |
| Loans and advances to customers, gross | R$613.8bn | R$513.2bn | Up 19.6% |
| Customer deposits | R$569.7bn | R$545.3bn | Up 4.5% |
| Basel ratio | 15.8% | 15.8% | Above the stated 10.25% required at year-end |
| LCR / NSFR | 138.1% / 117.1% | 178.4% / 120.1% | Both remained above 100%; ratios declined |
Net interest income benefited from higher average earning-asset volumes and the SELIC rate increase; the rate was 9.25% at year-end, versus 2.0% a year earlier. The filing reports a 5.9% net interest margin. The banking segment reported net income of R$16.7bn, up 45.4%; the insurance, pension and capitalization segment reported R$5.3bn, up 6.3%.
Cash flow and liquidity: Net cash used in operating activities was R$102.0bn, versus R$142.4bn provided in 2020. The filing attributes the 2021 use mainly to increased lending and financial-asset investment and reduced funding from clients and financial institutions. Investing activities used R$19.3bn, compared with R$20.5bn provided in 2020; financing activities used R$1.6bn. Cash and cash equivalents ended the year at R$71.4bn, down from R$190.8bn. These cash-flow movements should be interpreted in the context of bank balance-sheet activity and the filing’s liquidity measures.
Funding and debt: Year-end balances included R$222.6bn of repurchase-agreement funding, R$166.2bn of securities issued and R$54.5bn of subordinated debt. Total deposits were R$575.9bn, including deposits from banks. The filing reports R$88bn of compulsory deposits with the Central Bank as of year-end.
Credit quality: The over-90-day delinquency ratio rose to 2.8% from 2.2%. Expected credit losses were R$40.8bn, or 6.6% of gross loans, versus R$39.6bn, or 7.7%, in 2020; the ratio of expected losses to loans averaged 2.8%, versus 5.1%. Coverage of loans overdue more than 60 days was 220.0%, down from 313.5%. The filing says delinquency increased partly as pandemic-era client support measures ended.
Material changes and unusual items
- Gross loans grew 19.6%, with growth in both corporate and individual lending; individual loans rose 24.9% and corporate loans 14.3%.
- Insurance and pension gross profit fell 19.9%; the claims ratio increased to 81.6% from 73.6%, despite higher premiums issued.
- Fair-value losses on financial assets and liabilities through profit or loss narrowed to R$11.3bn from R$18.6bn. Within that total, fixed-income securities recorded a R$10.0bn loss in 2021, while derivative results improved materially from 2020.
- Other comprehensive income was negative R$9.1bn, mainly reflecting unrealized losses on financial assets at fair value through other comprehensive income. This reduced total comprehensive income to R$14.3bn despite higher net income.
- Income tax and social contribution were an expense of R$9.5bn in 2021, compared with a benefit of R$12.0bn in 2020. The filing attributes the change in part to higher pre-tax income and a much smaller favorable exchange-variation effect on foreign investments in 2021.
- Bradesco completed the acquisition of the remaining 49.99% of Banco Digio in February 2022 for R$645m, after year-end; it held 100% of Digio thereafter. It also announced a US$500m sustainable senior-debt issuance in January 2022.
Outlook, risks and contingencies
The filing gives no specific earnings or revenue guidance. Management describes uncertainty around Brazil’s fiscal outlook, inflation, monetary tightening, the 2022 elections and the pace of economic growth. It expected inflation and fiscal uncertainty to lead to further SELIC increases in 2022; the report states SELIC was 11.75% as of its filing date. Management also identifies pandemic developments and geopolitical events, including the Russia–Ukraine conflict, as sources of uncertainty.
Key risks include credit deterioration and higher delinquencies, interest-rate and currency movements, changes in Brazilian government-securities values, funding and liquidity access, competition from fintechs and technology companies, cyber and operational disruption, regulation and taxation, climate and socio-environmental exposures, and insurance-claim experience. The filing says no relevant cybersecurity incident was experienced in 2021 through the report date.
At December 31, 2021, provisions for litigation and related matters totaled R$23.98bn: 38.2% civil, 33.7% tax and social-security, and 28.1% labor. Possible-loss contingencies included R$37.56bn of tax and social-security claims and R$7.98bn of civil claims. The report also describes pending Supreme Court matters concerning historical savings-account inflation adjustments and the Operation Zealots proceedings; Bradesco is not a party to the criminal case involving former executives, and management reported finding no evidence of improper conduct by its former representatives.
KPMG issued unqualified opinions on the IFRS consolidated financial statements and internal control over financial reporting. The auditor identified critical audit matters involving expected credit losses, litigation provisions and contingencies, deferred-tax-asset recoverability, impairment testing, and insurance and pension technical provisions.
Important facts for investors to verify
- Confirm the reported IFRS net-income improvement against the large 2020 tax benefit, fair-value movements and other period-specific effects; distinguish consolidated net income from parent-attributable income.
- Track whether loan growth is accompanied by further deterioration in over-90-day delinquency, provisioning coverage and renegotiated-loan performance.
- Reconcile the sharp decline in cash and cash equivalents with operating cash use, liquidity ratios, deposit trends and the bank’s broader liquidity disclosures.
- Review the R$9.1bn negative other comprehensive income and the sensitivity of capital and earnings to Brazilian rates, government-bond valuations and foreign exchange.
- Assess the trajectory of insurance claims and technical provisions, and monitor the resolution and potential financial impact of significant tax, civil and savings-plan litigation.
- Note that operating-segment results use management reporting prepared on a different basis from consolidated IFRS figures; avoid treating them as directly interchangeable.