Business context and reporting period
Banco Bradesco S.A. is a Brazilian banking and financial-services group, with banking and insurance, pension and capitalization businesses. This Form 20-F reports audited consolidated results under IFRS for the year ended December 31, 2019, with 2018 comparatives. It is an annual filing, not a standalone fourth-quarter report; separate Q4 results are not clearly provided in the filing text.
Comparability is affected by IFRS 9, adopted in 2018, and IFRS 16, adopted in 2019. The filing states that IFRS 16 makes certain 2019 figures not comparable with prior periods. Segment results are prepared on a different basis from consolidated IFRS results.
Key financial metrics
Amounts below are consolidated IFRS unless otherwise noted; R$ figures are rounded to billions.
| Metric | 2019 | 2018 | Change |
|---|---|---|---|
| Net interest income | R$65.8bn | R$66.8bn | -1.5% |
| Fee and commission income | R$25.3bn | R$23.8bn | +6.3% |
| Gross profit from insurance and pension plans | R$8.3bn | R$7.7bn | +7.8% |
| Income before income tax | R$13.4bn | R$19.4bn | -31.2% |
| Net income | R$21.2bn | R$16.7bn | +26.4% |
| Net income attributable to parent shareholders | R$21.0bn | R$16.6bn | +26.8% |
| Net interest margin | 5.8% | 6.2% | -0.4 percentage points |
| Assets | R$1,378.5bn | R$1,305.5bn | +5.6% |
| Gross customer loan portfolio | R$457.4bn | R$411.5bn | +11.2% |
| Customer deposits | R$366.2bn | R$340.7bn | +7.5% |
| Total equity | R$135.5bn | R$124.7bn | +8.7% |
The filing does not present a single consolidated total-revenue figure in the conventional format. Interest income was R$124.4bn, while interest expense was R$58.6bn. The average interest rate earned on interest-earning assets was 10.9%, versus 11.4% in 2018; the average rate paid on interest-bearing liabilities was 5.7% in both years.
Cash flow was negative across operating, investing and financing activities: operating cash flow was -R$19.5bn (2018: -R$6.5bn), investing cash flow -R$15.3bn (2018: -R$34.5bn), and financing cash flow -R$14.3bn (2018: -R$5.6bn). Cash and cash equivalents fell R$49.1bn to R$61.9bn at year-end.
At December 31, the Basel ratio was 16.5% (2018: 17.8%), Tier 1 capital ratio 13.3% (13.7%), and common equity ratio 12.0% (12.3%). Liquidity coverage ratio was 143.8% and net stable funding ratio 115.2%, both above the stated 100% minimum.
Material changes versus the prior comparable period
- Net income rose despite lower net interest income and a sharp fall in pre-tax income. The result included an income-tax and social-contribution benefit of R$7.8bn, compared with an expense of R$2.7bn in 2018; the reported effective tax rate was 58.2%. Management cited, among other items, a R$6.4bn effect associated with the increase in the social contribution rate on banks’ net income.
- Expected credit loss expense on loans and advances declined to R$12.5bn from R$15.1bn. The year-end expected credit loss allowance for customer loans was R$33.9bn, or 7.4% of gross loans, compared with R$31.1bn, or 7.6%, in 2018.
- Loans grew faster than deposits, with growth concentrated in individuals: the segment portfolio rose 19.7%, including personal loans, payroll-deductible loans, vehicle finance and housing finance. Corporate loans grew 3.7%.
- Consolidated personnel expense increased 30.0%. The filing cites a voluntary severance program with 3,418 participants and R$1.8bn in cost, as well as additional labor-provision charges associated with methodology refinements.
- Other operating expenses rose 84.5%; the filing identifies impairment charges, higher provisions for financial guarantees and increased provisions for civil claims as contributors.
- The group paid R$8.0bn in extraordinary dividends in October 2019. Total dividends and interest on equity per share increased substantially versus 2018.
Outlook, commentary, risks and unusual items
Management reported that the COVID-19 pandemic, which emerged after year-end, had created significant uncertainty and that its financial impact could not be reasonably estimated when the statements were approved. The filing describes expected pressure on loan arrears, collateral recovery, securities valuations, funding costs, deferred-tax-asset recoverability, insurance claims and pension redemptions. The bank said operations remained fully functional and described continuity measures, including remote working and emergency credit offerings.
The filing provides no quantified earnings or loan-growth guidance. Management expected 2020–2021 capital expenditure not to be substantially above historical levels and anticipated funding it from internal resources. Acquisition of BAC Florida remained subject to U.S. regulatory approvals. The Chain call-center business sale closed in January 2020.
Legal and contingency exposures merit attention. Provisions for civil, tax/social-security and labor matters totaled R$24.4bn at year-end. Possible-loss matters included R$33.5bn of tax and social-security claims and R$6.3bn of civil claims. The company also disclosed a US$14.5m settlement of a U.S. class action related to Operation Zealots, without admission of guilt or liability. The filing notes ongoing proceedings and uncertainty around savings-account inflation-adjustment claims.
Other material risks include Brazil’s macroeconomic and political conditions, interest and exchange-rate movements, government securities exposure, credit deterioration, funding and liquidity, competition from fintechs and other providers, cybersecurity and operational disruptions, regulation and tax changes, and the potential effects of the pandemic. Bradesco reported no material weakness in internal control over financial reporting; its independent auditor issued an unqualified opinion on the financial statements and internal control.
Most important facts for investors to verify
- Review the tax reconciliation and sustainability of the R$7.8bn tax benefit that drove reported net income higher despite lower pre-tax income.
- Check credit quality as the loan portfolio expands, including delinquencies, expected-loss assumptions, recoveries and the effects of pandemic-related restructurings.
- Reconcile cash-flow movements and year-end cash and cash equivalents with liquidity disclosures and funding maturities.
- Assess capital-ratio changes, required buffers and dividend restrictions; pandemic-era Brazilian rules restricted distributions above the statutory minimum after the reporting date.
- Review the R$24.4bn provisioned legal exposure, possible tax and civil claims, and the assumptions behind labor and civil provisions.
- Confirm the accounting and comparability effects of IFRS 9 and IFRS 16, and distinguish annual results from any separately reported fourth-quarter figures.