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Banco do Brasil turning into a digital player

Bnamericas Published: Thursday, August 08, 2019
Banco do Brasil turning into a digital player

State-run Banco do Brasil, one of Latin America’s largest financial groups in terms of assets, is directing its Brazil business more toward digitization.

With a strategy of boosting its services offered through digital platforms and partnerships with tech companies, the bank is rapidly expanding its client base in the digital area.

In the second quarter, Banco do Brasil reached 3.3mn clients via its digital bank, a rise of 11.9% from a year ago. An executive requesting anonymity told BNamericas he expects the bank will be serving 5mn clients through digital channels by year-end.

“We are a traditional bank, with branches across the nation, but we are really aware about the competition from digital banks. Looking at this scenario, at this point, it is already possible to say that Banco do Brasil is one of the largest digital banks in the country, in terms of clients, maybe, we are already the largest one,” CEO Rubem Novaes said during a press conference.

According to Novaes, 84% of the clients in its digital bank unit are younger than 40. “We are renewing, also in terms of age, our client base.”

During the first half of this year, 79% of all transactions by Banco do Brasil clients were made via digital channels.

With the growing use of mobile phones and internet for everyday banking operations, banks in Brazil are increasing their investments in digital platforms while reducing the number of branches.

DOWNWARD REVISION OF LOANS

Banco do Brasil is less optimistic regarding new loans for this year and admits the possibility of a contraction, due to low demand from companies. 

In its loan portfolio guidance the bank expects anything from a 2% contraction to a 1% increase for this year.

Previously, the bank was estimating a loan book expansion of 3-6%.
 
This downward revision results from an expected 13% contraction of new company loans, instead of the 3% expansion expected earlier. 
 
But the bank nudged up the estimates for new loans for individuals, to up to 11% from 10%. 
 
In the first half, the bank’s loan portfolio contracted 0.4%, totaling around 687bn reais (US$173bn). Loans for individuals increased 7.8%, while farm loans expanded 0.7%. On the other hand, loans for companies contracted 7.8% in the same period. 
 
LOW DEMAND 
 
Demand from companies for new loans is generally falling in Brazil as most firms are tapping  capital markets to finance their operations. They prefer to issue local bonds as even equities carry less costs than commercial bank loans. 
 
In addition, the sustained  weak economic performance prevents companies from investing.  
 
"In order to compensate less demand for loans from companies, we are closing our ties with companies to work with them as advisers in bonds and equities operations. While on one side we lost revenues with loans operations, we increased on the other our fees acting as advisers," said Marcio Hamilton, the bank's vice-president of wholesale operations. 
 
H1 RESULTS 
 
Banco do Brasil posted a net profit of 8.2bn reais in the first half of the year, up 39.6% from the year-ago period.
 
The increase is due to a drop of nearly 115% in provisions charges to 6.68bn reais and a rise in revenues from tariffs, which picked up 6.7% to 14.2bn reais. 
 
The non-performing loan rate was 3.25%, down from 3.32% a year ago. 
 
INSURANCE UNIT 
 
On the other hand, Banco do Brasil’s pension and insurance controlled company BB Seguridade Participações reviewed upward its 2019 profit estimate after a positive performance in the first half.
 
BB Seguridade now expects a 13% profit increase over 2018, up from the previous projection of up to 10%. 
 
Written insurance premiums will grow 15% this year, not 12% as previously expected. 
 
First-half profit was 2.09bn reais, up 15.1%. Written insurance premiums totaled 4.37bn reais, up from 3.87bn reais a year ago.
 
First half investment gains rose to 466mn reais up from 348mn reais.
 

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