BDORY - Banco do Brasil S.A. (BDORY) Q4 2022 Earnings Call Transcript
Banco do Brasil S.A. (BDORY)
Q4 2022 Results Earnings Conference Call
February 14, 2023, 09:00 AM ET
Company Participants
Janaína Storti - General Manager, Investor Relations
Tarciana Paula Gomes Medeiros - Chief Executive Officer
Ricardo Forni - Chief Financial Officer
Felipe Guimarães Geissler Prince - Chief Internal Controls and Risk Management Officer
Daniel Maria - Director of Finance and Investor Relations
Conference Call Participants
Pedro Leduc - Itaú Securities
Gustavo Schroden - Bradesco Corretora
Daniel Vaz - Credit Suisse
Mario Pierry - Bank of America Merrill Lynch
Rafael Frade - Citigroup
Renato Meloni - Autonomous Research
Tito Labarta - Goldman Sachs
Nicolas Riva - Bank of America
Natalia Corfield - J.P.Morgan
Presentation
Janaína Storti
Good morning, everyone. Welcome to our live to discuss the Earnings of the Fourth Quarter of 2022. Our event will be carried out in Portuguese with simultaneous translation into English. [Technical Difficulty] Ricardo Forni will present our performance, and we will later have a questions and answer session. We'd like to remind our analysts that it will only be possible to ask questions through the webcast link.
We also have here with us Felipe Prince, Vice President of Internal Controls and Risk Management, our CRO, and Daniel Maria, Director of Finance and Investor Relations.
I turn the floor to our CEO, Tarciana, first to begin.
Tarciana Paula Gomes Medeiros
Good morning, everyone. I'd like to thank our analysts and shareholders for attending our earnings live. It's with great pleasure that we're here to talk about our performance in 2022 and to also talk about the direction of our institution going forward.
Now, let's start the presentation with our organization's performance last year. Our income is the exact measure of the benefits we delivered to our clients and to society. The earnings of BRL 9 billion that we achieved in the fourth quarter of 2022 proves unequivocally that we are disciplined in the execution of our strategic planning. This profit materializes the success of a corporate strategy that has been followed by successive managements of the company.
The level of profitability we achieved in the last quarter of 23% was built after a long journey, which was based on increasing results consistently. The rigor with which we implement our guidelines does not prevent us from being flexible when necessary. We know how to make adjustments to adapt to the demands of the market and the economy.
But regardless of the scenario, our company's strategy does not give up balanced capital management, strict monitoring of the loan portfolio's quality and adequate return to our shareholders.
We closed 2022 with an income of almost BRL 32 billion. And this amount is consistent with the size of our loan portfolio which closed the year totaling BRL 1 trillion. That's right. BRL 1 trillion. And a third of it is considered sustainable.
We have one of the largest loan portfolios in the market destined to various sectors of the economy, which demonstrates how we reconcile our commercial objectives with our public performance.
In addition, the level of the annual earnings represents how much our decisions have been aligned with the needs and the realities of our various client segments. I consider the level of profitability that we present appropriate to the company's business potential. This will be an equation that we will always seek to balance.
Banco do Brasil's profit level will be based on its capital, the soundness of its portfolio, obtaining revenues from financial intermediation and new businesses, and the proper management of expenses and adequate return to shareholders. The financial return we seek will always target the long term relationship. This is the best path for the sustainability of our company. We will always be mindful of the perpetuity of our business, closely watching the management of our capital. And in that part, we're comfortable.
Our Common Equity Tier 1 reached 12%, among the best in the market, which allows us to sustain the growth of our loan portfolio between 8% and 12% in 2023. Granting credit is in the DNA of Banco do Brasil employees. And in this area, we have a special competitive advantage. The experience of our colleagues is a differential on the relationship and the proximity to our clients. Our analysis models for granting credit are recognized for their quality.
We also stand out for our risk management assessments, which are increasingly based on data and analytical intelligence. All of this allows us to have one of the lowest NPL levels of the market, 2.5% in operations above 90 days, an index that is lower than the market average. The level of growth of our loan portfolio follow the segments of the economy that presented the best performance.
Our corporate portfolio increased 13% in 12 months. And specifically, speaking of small companies, our performance was even more relevant. We released BRL 12 billion for Pronampe, benefiting more than 128,000 companies, of which 41% are led by women.
Our performance at Pronampe was essential to preserve more than 1,100,000 jobs. In the individuals market, year after year, we seek a credit mix with increased participation in better risk adjusted return lines. We also operate strongly on lines that favor the resilience of our portfolio.
The law that approved payroll credit was published in 2003. And since then, there's been 20 years operating on this credit line. During this period, we achieved the first place in the market with constant growth and resilience. Our payroll loan portfolio reached BRL 115 billion, strengthening our leadership in this type of credit.
In agribusiness, once again, the bank's network had a prominent performance, contributing to the balance of our portfolio to reach almost BRL 310 billion, a growth of 25% in one year. Our goal will always be to support the entire sector, whether inside or outside the gate, from small farmers to cooperatives and large companies.
For all of its support to credit, wide range of products and services and popularity, Banco do Brasil is one of the Brazilian companies with greater presence and proximity in people's lives. Because of this, we are committed to generating value to society in a way intrinsic to our performance.
The value added by BB to Brazilian society grew 36% compared to 2021, totaling BRL 80 billion in the form of interest on equity, dividends, taxes, payroll and payments to suppliers.
Banco do Brasil begins 2023 with a new team. All of our predecessors throughout history have brought the company this far with competence and dedication. Now, it is up to us to take over this legacy and from it move even further, finding solutions and business models that prepare Banco do Brasil for the changes that are transforming the financial system and our country.
The digital age has revolutionized consumer patterns. In the financial system, these changes have taken on an even greater speed. In this sense, I believe that the name of the game is the intelligence and the knowledge of customer behavior. We were working more and more to know what to offer clients and when.
And we go further. Our models will continue to evolve even more to meet and understand the patterns of people's behaviors. We'll understand how they behave, even those who are not in our customer base. Proof of this commitment is our leading position in receiving data from open finance.
Our main objective is to act with greater intensity from the gigantic database that we have. We are already a reference in the market for the best use of this information. As we have 82 million clients, Brazil goes through our bank. And this is an asset that only BB has. It's an immense competitive advantage, and we've come a long way in this goal.
Today, we work with more than 2 billion pieces of data in our analytical models, giving us nearly 480 million combinations of product and service offerings, suitable for each customer profile. It's a lot.
But we want to make even more progress in the hyper personalization of our business, delivering the right product or the right service at a fair price, and at the time it meets the needs of our customers. To have a bank for each client, this is a mantra, a mantra that this management will repeat every day for as long as we're here. It is a goal that I will always have in mind and that will guide our management. To advance on this challenge, we need employees prepared for this reality. We will promote an organizational culture that is the basis of our digital transformation. And to do so, we will invest in technology.
We understand that we must go beyond offering digital channels and solutions to our clients. In fact, we need the digital attributes and behaviors materialized in agility, creativity and innovation to continue permeating the entire organization. For that, we will take effective measures that will make us more able to utilize our internal talents.
It is from this idea that we initiate a change in our organizational model. The areas responsible for our strategies and for the development of solutions and products and services will have flexible integrated teams, which might create a variety of skills. With this, we want a more entrepreneurial, resilient, more efficient and even more customer centered Banco do Brasil.
We'll bring together a mix our colleagues to form innovation ecosystems. For example, a technology employee will join with customer strategy and risk management professionals in teams focused on delivering solutions, multiplying knowledge. We want to gain agility, promoting more horizontal decisions, as was the case of the BB Cash project that, as of today, starts to contemplate the opening of accounts for children starting at the age of 10. So it's a symbiosis. To handle complexity, there's nothing better than teams that are diverse in their background. So there's a reason the market has been valuing companies that stimulate diversity distributed across all hierarchical levels.
At this time, we have a competition open with specific positions in the area of technology. Up to 3,000 colleagues will be hired. These measures will add to the partnerships we have with startups in our venture capital program. It will take a coordinated movement from the entire conglomerate, making digital culture an attribute increasingly more present in the day to day of the organization. Today's decisions will be key to the competitiveness of each bank in the near future.
And given this complexity, I believe that the diversity of people with different professional experiences and unique life stories is fundamental to find increasingly intelligent, simple and accessible financial solutions. All of this strategic alignment that I announced will be linked to our performance in ESG agenda.
We understand that our role is to create a positive spiral, so that our clients, suppliers and other relationship audiences remain with us on the path towards building a more inclusive and green society. At the same time, we reinforce our actions, so that we are increasingly sustainable.
I will make a brief summary that talks about the breadth of this concept. In the social sphere, we will strengthen the work of our Banco do Brasil foundation in supporting those who need it most. We will implement structuring actions that actually transform the situations of risk of these communities. The Banco do Brasil foundation will always have our guideline to run initiatives aimed at underprivileged populations.
Our return to society also extends to culture. For more than 30 years, Banco do Brasil has sponsored the sector. Banco do Brasil's cultural centers are national and global references. Recently, we launched our public notice for sponsorship of cultural projects, giving opportunity to the development of various artists and cultural manifestations.
In sports, BB supports athletes, teams and social projects, court and beach volleyball, surfing, skateboarding, the Banco do Brasil running circuit are examples of how BB is one of the companies that sponsors the sport the most in this country.
In the environment, we have a sustainable portfolio of BRL 327 billion. And the goal is to offer loons based on strict criteria, adapt to the new environmental requirements.
As the largest partner of Brazilian agribusiness, we will foster the increasing use of technologies in addition to advising farmers, especially family farmers and women in the field. With a diversity of crops and low impact techniques, this is a segment that has great potential to contribute to the transition to a low carbon economy.
In corporate governance, we are a reference to the financial system being the only Brazilian bank to participate in B3's Novo Mercado, a level of excellence among publicly traded companies, and we will always act to strengthen our governance.
I would like to point out that all decisions here at Banco do Brasil are taken in a collegiate manner in statutory committees that also have the participation of representatives of minority shareholders. Our decisions are technical, and always consider the best capital allocation and value generation.
We live in a world of great transformation. We believe 2023 will be a very challenging year, but also with a lot of achievements. I am confident in the country. And I believe that we are laying the foundations of a promising future.
But, for that, everyone needs to do their part. I have no doubt that we will generate increasingly more sustainable and consistent results. As Banco do Brasil, we will seek to do what we do best, being Banco do Brasil in assets, putting our diversity of business, capacity for performance and generation of wealth to the benefit of the whole society, for our clients in all segments, employees, suppliers and shareholders. I understand that, in this way, we will contribute to foster a business environment that grows sustainably.
I conclude and turn the floor to our CFO, Ricardo Forni, who will talk in more detail about the figures I just mentioned. And after that, I will be available to take your questions along with Forni and Felipe Prince. Thank you.
Ricardo Forni
Good morning, everyone. Thank you, CEO Tarciana. I would like to start the presentation with the 2022 earnings highlights. We had record earnings of BRL 31.8 billion, annual growth of 51.3%, representing an ROE of 21.1%, the best among major banks. The added value, which includes payment of taxes, salaries, dividends, and other components, exceeded BRL 80 billion, growing 35.9%.
The loan portfolio advanced 14.8% and reached, for the first time, the expressive mark of BRL 1 trillion. The bank's total assets exceeded BRL 2 trillion and net interest margin grew 23.8% in the year. Common Equity Tier 1 ended the period at 12%.
Now we will detail these items along the presentation. Our fourth quarter earnings climbed to BRL 9 billion, up 52.4% in relation to 4Q 2021. We achieved an ROE of 23% in this period.
This result was impacted by a subsequent event that required provisioning for a large corporation that filed for corporate reorganization in January of this year. In a custom analysis of this case to which our credit methodology was applied, a provision of BRL 788 million was generated, corresponding to 50% of the exposure to the asset.
Consequences of this case are being actively monitored and the provision volume will be adjusted as negotiations develop. The 2023 guidance already includes the potential deterioration of this risk.
Excluding this particular case, our adjusted net income in the quarter would have been BRL 90.4 billion, with ROE of 23.4%. Although our models and credit and analysis do not indicate zero return on allocated capital, we carried out an exercise. If we provision 100% of the exposure to the asset, the hypothetical scenario would show an adjusted net income of BRL 8.6 billion on the quarter with ROE equivalent to 21.8%.
The expanded credit portfolio surpassed the expressive mark of BRL 1 trillion for the first time in our history, an increase of 15% compared to 2021 and 4% in the quarter. The sustainable business portfolio, which comprises credit operations with positive social environmental impacts, reached BRL 327 billion, representing 33% of the total expanded portfolio. Sustainable agriculture stand outs with annual growth of 23%, driven by low carbon agriculture, which expanded 42% and Pronampe costing that increased 40%.
In the next slide, we highlighted individuals portfolio reaching a balance of BRL 289.6 billion in 2022, quarterly growth of 2.7% and annual growth of 9%. The payroll loan portfolio exceeded BRL 115 billion, corresponding to 40% of the individual portfolio with a market share of 20%.
At the same time, we have advanced the strategy of diversifying into non-payroll credit lines. We also call out our attention to the annual growth of 18% in consumer finance and 14.5% in credit cards.
The agriculture portfolio reached BRL 309.7 billion, a quarterly evolution of 8% and an annual increase of almost 25%. Financing for sustainable agriculture accounted for approximately half of this portfolio.
In 2022, we disbursed almost BRL 180 billion for all segments of agriculture, hiking 21% compared to the previous year. This growth reflects our knowledge and specialized service to the agricultural segment, with capillarity, consulting, sustainability and innovation as our trademarks.
On the next slide, we show the corporate portfolio which grew 12.8% in 12 months. The SMB portfolio reached BRL 118 billion, an increase of 21% in 12 month, influenced by the release of Pronampe's third tranche.
Loans for large companies reached BRL 194 billion, growing 15.7% annually. And it's important to highlight that we distributed to the market more than BRL 8.7 billion in securities originated by our private securities portfolio, a growth of more than 330% in one year. We are also providing funding and service of excellence to large companies, and in the meantime, expanding our investment options for our customers.
We have a specialized network of more than 215 exclusive SME branches and 91 exclusive wholesale branchings, fostering close relationships and marketing a wide range of products and services.
ALLL, broadly understood, showed an increase of 44.7% in the quarterly comparison and 72% compared to the same period in the previous year. Credit risk increased quarterly by 29.3%, impacted by the building of a provision for the case mentioned previously. The highlight goes also to recovery of write-offs over the mark of BRL 2 billion in the last quarters.
On the next slide, we discuss non-performing loans above 90 days at 2.51%. This number is under control and below the levels in the national financial system. The rate of increase in non-performing loans in corporate was reduced with some volatility as agriculture closed the year at 0.52%.
Although the new NPL of the total portfolio remained stable compared to the last quarter, in relative terms, it remained at 0.80% of the portfolio, a level consistent with the historical average. It is also worth mentioning that, for the first time since 3Q 2020, we could observe a drop in the new NPL in the individual portfolio. This confirms our expectations that NPL will accommodate in this portfolio throughout 1S53 [ph]. Also, our coverage ended – at the new NPL was 117% and the coverage index ended the year at 227%.
In 4Q 2022, NII totaled BRL 21.5 billion, growth of 9.7% in the quarterly comparison and 45% in the last 12 months in 2022. NII growth was almost 24%.
Margin behavior explained by the combined effect of three factors. The first is the increase in loan revenues that were favored by the increase in the portfolio and the better mix and repricing The second factor is the increase in Treasury results that mainly reflects the remuneration of our excess liquidity, where 84% of the securities portfolio is positioned in post fixed assets, which are positively impacted by the increase in Selic. And the third factor is the greater efficiency and control in funding costs.
Fee income totaled BRL 32 billion in 2022, a 10% increase compared to the previous year. This was influenced mainly by the commercial performance in the lines of fund management, pensions credit operations, and consortium.
As for consortia, we had a change in the accounting standard that changed the form of revenue recognition, which compromises the comparison with 2021. However, the 45% growth in the volume of consortia reflects the robustness of this operation. In the quarter, the small reduction reflects the seasonality of the period.
The BB Store, which centralizes the offer of non-financial products and services, such as gift cards, ecommerce and mobile charges, obtained more than BRL 1 billion from the sale of non-financial products and services.
Administrative expenses in the year-to-date view grew 5.6% in the year, within the range of guidance and below inflation in the period. This reflects our discipline in cost control. The cost to income ratio reached 29.4%, the best in the historical series.
On the next slide, we present Common Equity Tier 1 which ended the period at 12%. The quarterly increase was mainly influenced by earnings withholding and growth in the loan portfolio.
As we announced to the market this morning, Banco do Brasil will exercise the option of repurchase the perpetual debt instrument whose call date is April 15, 2023. The amount is BRL 1.28 billion and a fixed rate of return of 9.25% per year. The complementary capital level 1 of 14.74% position of 31 December, 2022 will suffer a reduction of around 60 basis points in the exercise date, remaining at a level much higher than the regulatory level.
To conclude, we present the figures referring to the guidance delivered in 2022 and what we're committed to deliver in 2023. In 2022, the loan portfolio reached the high end of projections, influenced by corporate and agribusiness exceeding estimates, while the individuals portfolio was below guidance due to disbursements smaller than initially forecast. In particular, due to the recalibration of risk models on non-payroll credit lines and credit card for non-account holders.
NII ended the year above projections influenced by strong growth in credit revenues and treasury results.
The indicators for ALLL fee income, administrative expenses and adjusted earnings closed the year as per our projection, even with the posting of the subsequent event I mentioned at the beginning of the presentation.
2023 will be another year of robust deliveries. According to our corporate projection, we estimate growth of the loan portfolio between 8% and 12% being 7% to 11% for individuals and the same rage for corporate and 11% to 15% for agriculture.
With positive carryover from 2022, net interest margin is expected to grow between 17% and 21%. We estimate an expanded ALLL between BRL 19 billion and BRL 23 billion, in line with the size and profile of the credit portfolio.
Revenues from service provision are expected to grow between 7% and 11%, driven by business diversification.
After seven years of consistently growing administrative expenses below inflation, in 2023, we will see them growth between 7% and 11%, just above inflation. This reflects the decision we make to continue investing in BB's digital acceleration, directing resources to people training and IT structure, digital solutions security and cyber.
BB's commitment to efficiency remains unwavering, and even with the additional investment in digital, our projections indicate improved cost to income in the year. With this performance in the income forming variables, we expect to reach between BRL 33 billion and BRL 37 billion of adjusted net income in 2023.
I thank you all for participating. We can now start the Q&A.
Question-and-Answer Session
A -Janaína Storti
Our first question is from Pedro Leduc, Itaú.
Pedro Leduc
Congratulations for the year. Quite quickly, as for loan quality, we start to see some stability in your individuals portfolio. Credit cards almost didn't grow. The payroll account and the other lines are controlled. So, can you explain about this normalization if origination is tighter or if it's seasonality, or what have been the lessons learned, especially on the CDC salary lines that seems to be pulling individual portfolio up? And within this growth of the individual portfolio for 2023, if these types will be adjusted or if there's any lessons learned that you can talk about?
Ricardo Forni
I will start and then Felipe Prince can complement. But looking at 2022 that has been closed, we came with a strategy of a mix to add a faster growth for the lines with the greatest risk adjusted return. So in the first half of 2022, we started to realize in the credit card line an on non-payroll, the CDC Salário, a route that is above what we expected initially. So we've been diversifying with our modeling team, our credit recovery, write-offs teams to position these portfolios in line to our expectation. So this work is bringing results. We had an expectation that, in this last quarter of 2022, it would come even slightly lower. It hasn't reverted yet. But as you mentioned, the delinquency of credit cards already has a residual growth. But we already have the indications for the new crops with a much better performance.
So, looking at individuals as a whole, the new NPL is already slightly below and it is the best since the third quarter of 2020. So our active management strategy for the loan portfolio is bringing results.
Felipe Prince can talk more about what's been done to improve the models. But we are seeing the results of the strategy that, as we've been talking to you about, and I expect stability of NPL on individual portfolio in the first half of 2023.
Felipe Guimarães Geissler Prince
Just to add, of course, there are lessons that have been learned. We've learned and calibrated the models throughout 2022. The response has been quite positive. Of course, there is a carryover of the portfolios. So for that to inflect the NPL curve, it takes some time. But as was said, new NPL has already responded. And we expect that combined with the investments we've made in the underwriting of new clients, especially digital, we're at the final steps of implementation for this tool. So of course, underwrite with better quality. I have more assertive data for the adaptation of models, and that makes me more accurate in the granting.
So, our ideal is to have a very qualified granting of loans as we proposed in the individuals growth in our guidance. And of course, having a proper risk management for us to be able to stabilize the 90-day NPL indicators that have already occurred for cards. And throughout this first half of the year, we will certainly stabilize the non-payroll loans.
Now it's important to make an observation that non-payroll learns, despite the NPL indicators, it's still aligned with a lot of risk adjusted returns. And we're also taking this into account when we make our adjustments.
Janaína Storti
I'd like to call Gustavo Schroden, Bradesco BBI.
Gustavo Schroden
Congratulations on the results. Congratulations on an excellent year. I'd also like to congratulate CEO Tarciana for her appointment to the position. And I'd like to ask her about the bank's directions. Taking over the bank, maybe with the highest returns in the system, the most deleveraged bank, a very privileged position. I think the indicators are amongst the best in the history of Banco do Brasil. So, my question to the CEO is, what is the legacy that you intend to deliver in the direction of the bank? There's an intense aspect in terms of maintenance of cost reductions, maintaining efficiency, and at the same time, there are challenges on the side of income generation, of increasingly faster competition, allocation of the types of loans that the bank will focus on. So I'd like to hear from the CEO about the legacy and the objective of this new management that is taking office at the bank thinking about the return and the bank's actual growth and credit line allocations and efficiency.
Tarciana Paula Gomes Medeiros
I usually say that more than or beyond developing a robust strategy, I believe in discipline implementing the strategy. So the bank's corporate strategy has been built – or it's a long term strategy developed collaboratively. So, as we are extremely disciplined in the performance of a strategy, and I can answer you that, in this sense, we will maintain what we've been doing best so far. So in a way, that already guarantees some directions of results for 2023.
But we're also flexible to adapt to market conditions, to economic conditions. So, I would say, that the main legacy that we plan to take forward actually refers to these obsession or the constant search to deliver one bank for each client. So this obsession that we'll have during our term in office to deliver an agile organization focused on meeting the needs of the client.
And then, there are many points that I would like to highlight. So, it's going to be this attention to the client in all of our decisions to deliver solutions. And for that, we'll work very strongly in the evolution of the analytical models to know the client.
BB will be present where the client wants us to be and where they need us to be. We will simplify what we offer and how we offer it. We'll develop journeys to contract products and services that will be increasingly simpler. And we understand that when we simplify, we are able to expand.
We'll promote the financial inclusion of people. I think today it's beyond digital inclusion. It's the financial inclusion of people with effective financial education. So, the bank already has a model for product offering that delivers when the client seeks to buy our product, the bank already delivers the best product, the best offer available for that client profile. So the acceleration of digital transformation at BB is one of the pillars for us to actually deliver one bank for each customer, generating proximity and relevance in people's lives. So I believe it is to meet our purpose to be close and relevant in people's lives at every step of the way.
Another front that we're going to work on is sustainability. And here, I can tell you that the ESG agenda will be a priority, a permanent priority in our management in all aspects. And the environment, social responsibility, governance, we want the bank to be consolidated as a world reference in the ESG agenda. So I would say that these three pillars, major pillars combined to our discipline and the execution of the corporate strategy that's already determined will be the guiding stars for this management.
Gustavo Schroden
Continuity then.
Janaína Storti
I would like to have Mr. Daniel Vaz from Credit Suisse.
Daniel Vaz
Congratulations on the results and also Tarciana for your appointment. I would like to talk about the partnership with BB pensions and also because of your background in BB Seguridade, how do you envision this partnership from now on or even from 2032 onwards because we always discuss a possible extension of the agreement and what could happen after this, considering this is a very precious asset for the bank. So what is your vision? Is it any different from what has been done so far with BB Seguridade and is there any visibility in the renegotiation or extension of this agreement that will expire by 2032?
Tarciana Paula Gomes Medeiros
I'll try to have Mr. Forni, our CFO, to answer your question.
Ricardo Forni
Well, the agreement with BB Seguridade is something that we have mentioned for some time to the market. First of all, Banco do Brasil is still very optimistic in relation to the potential of growth in bancassurance. That's the name of this segment. So we are extremely optimistic and we have been working in a very positive way. BB Seguridade has been making a very relevant contribution to the bank's earnings.
And in relation to the expiration of the agreement, what we want is continuity. So, the agreement will be extended in a timely way. And I think that, for the market, maybe they are a little bit anxious, they would like to see this agreement extended as soon as possible, and we have been working on it internally.
But looking to the future, a few things could be done to improve the agreement, so that the bank and BB Seguridade can explore this business in an even more profitable way. But no changes should be expected in the terms or more privilege being given to one side in detriment to the other. We have, of course, to consider both sides. And the business will continue after 2032. That's certain. And when needed, we'll discuss the extension of the agreement in the most transparent way possible.
Janaína Storti
Our next question is from Mario Pierry, Bank of America.
Mario Pierry
First of all, congratulations for the results. Well, you've mentioned profitability and the current moment of growth and also the CET1. I would like to understand the macroeconomic premises based on the guidance you gave us, thinking of interest and also GDP growth. Something that caught our attention is that the guidance for growth of your portfolio is a little above the private. So, I would like to know if part of this guidance is optimistic because you're optimistic in relation to the economy or if we could interpret that we could have more participation in credit assets in the bank.
Ricardo Forni
Well, in relation to the premises, our budgetary process and also the definition of the guidance was concluded in the fourth quarter – in January. Recently, therefore. So, the environment shows relative stability in interest rates. And also, we believe that, as of the third or fourth quarter, well, the more recent discussion was not incorporated into the guidance. The guidance discussion predated.
But our vision of the interest rate it is that they will start declining after the first semester in 2021. GDP variation will be smaller. So in terms of premises, there are no major differences in premises we have been using in our market discussions.
As for the growth of our portfolio, it's slightly above in relation to what has been announced by private banks, not in corporate and individuals. If you look at this, it's growth between 7% and 11%. Very close to other banks, and our growth projections are similar as well. So I wouldn't say that there is a striking difference.
Now what is different is agriculture. Our market share in agriculture is differentiated. And agriculture has been growing at a rate of 25% a year for two years. So we came from a very high baseline, and we believe that this will continue throughout 2023. But our growth in the portfolio will be slightly smaller because the portfolio itself is large. And even in relation to agriculture funding, we believe that this will be a hurdle that we'll have to overcome and also considering the participation of the government in the new harvest plan that will be announced from July 23 to June 24. So, our portfolio is slightly larger. But it was not really a macroeconomic condition or premise that is any different from our peers. And I don't see a difference in relation to optimism or pessimism.
The fact is that agriculture is growing or outpacing the growth of other segments in the Brazilian market.
Janaína Storti
Our next question, Rafael Frade from Citi.
Rafael Frade
Congratulations on the earnings. My question is about the NII guidance. When we look at the results of the fourth quarter and annualize it, we're speaking of a growth of about 17% year-on-year, if I'm not mistaken. And I understand that there's still a process to reprice the portfolio. When we look, for example, at payroll loans, the average rate is 1.43%. And you're lending at 1.81%. So, I understand there's still a positive effect of repricing the portfolio. So it seems to be somewhat conservative, this NII growth. So I'd like you to talk a little bit more about how you imagine the evolution of NII during the year.
Ricardo Forni
I think you brought a very real context about this. We see the NII growth a lot due to the carryover of the positive factors that were built throughout 2022. And this projection of 17% to 21% is what we see as adequate.
Similarly to how during 2022, we were directing towards a higher NII and ended up having other contributions in the Selic scenario, the Treasury results that also come from contribution from the Patagonia Bank and other factors, we were able to overcome that during the year. So we see this projection as adequate.
And there is a potential to exceed it, as you said, but we may also have a market event that can put pressure downwards. So that was a technical discussion. But we understand it as the best projection, but there's potential to exceed it a little.
Daniel Maria
Frade, just to point out something, the guidance is developed to compare a full year to another full year and there's some dynamics and differences between quarters and half years. So, it's very likely that we will have a stronger NII in the first quarters converging towards our guidance during the year, precisely due to the repricing of the portfolios, those that are already repriced and those that will be.
And we add another bit of information. We showed all of our assets and how much we have contracted in each of the harvests. Today, we have basically 40% of our loan portfolio already contracted in 2022. So it's a specific environment in interest rates. So you're right, there is an effect of repricing. It's an initial effect. It tends to be stronger in the beginning, but it converges towards the guidance throughout the year.
Janaína Storti
Next question, Renato Meloni, Autonomous.
Renato Meloni
Congratulations on the results. In the fourth quarter, there was a revenue of BRL 700 million that came from a qualification of cards. Is this going to be a recurring revenue? Or when does this happen? If you can give us more details, please.
Ricardo Forni
This is a bonus effect, bonus of cards, and the performance we're having with cards and negotiations with the different brands. And throughout the year, we had some revenue in this field. And in the fourth quarter, we had a significant amount. This is not that predictable. So, it's not something that we expect to be recurrent or with a known frequency. This depends on negotiations, on how it's connected to the contracts. Our team, as we gain clarity, and we can provide more subsidies about it, but this effect in the fourth quarter is the result of a specific bonus negotiation.
And if I may, this is a result of the increase in the card, the credit card business. When we look at revenue, it's been increasing throughout the year. And the mix has also been improving between credit and debit cards. So all of this commercial volume reflects in the brand's performance bonus.
Janaína Storti
Our next question is from Tito Labarta, Goldman Sachs.
Tito Labarta
My question, a bit of a follow-up, I guess, to Gustavo's question earlier. We have your guidance. Just to think about the sustainable ROE of the bank, you're delivering ROEs better than private sector banks. The guidance implies this year also likely be ahead of the private sector banks. And just thinking in the context of the current macro and political environment, hearing just talks coming from the government about changing inflation targets, reducing rates, also potentially using public sector banks to support growth, renegotiation programs. How do you think about the long term sustainable ROE of the bank beyond this year, just given that environment and also given the competitive environment? We've seen some of your peers suffering a bit in some segments. Your asset quality holding up a lot better. If you can give some color on how you think about that and how that will influence how you run the bank.
Ricardo Forni
I'll try to answer in two times. Well, there was a question about the sustainability of results and the expected ROE for 2023. And I think that the guidance is a compelling answer in relation to the sustainability of the results that we've shown from 2021, 2022, 2023 with ROE around 20%.
Now, looking forward, looking to the future, I think that a chunk of this ROE has connection with the interest rates in the economy. So the future, of course, points to the reduction of interest rates after the second half of 2023. And this will eventually affect the ROE for 2024, 2025 and onwards. So, the level of ROE after 2023 will depend on the macroeconomic conditions and the interest rate. But I think that the industry can operate with ROEs between 18% and 15% or even 20% depending of the credit decisions we make in the period and also depending on ALLL management that is befitting this interest rate environment.
So I see ROEs declining a bit in relation to the current levels. But I also see a sustainability in the long term. But this is a game of strategy. It's a game of good origination of loans. This, in my view, is the factor that has been affecting ROE of all market participants more harshly. So, if you can grant credit with good conditions, you preserve your high ROE.
Janaína Storti
Our next question is from Nicolas Riva, Bank of America.
Nicolas Riva
I have two questions. The first one on the exposure to Americanas, I know it's quite smaller than some of your private sector peers, like Itaú, Bradesco, but I wanted to ask, why did you provision just 50% of the exposure in the fourth quarter instead of provisioning the full exposure and having any impact on earnings or capital in 2023? That's my first question.
The second question on your capital position and your perp. So, you, of course, announced today you're going to be calling the 9.25% in April. At this time, you're not issuing a new perp. So, there was a negative impact on capital of about 60 basis points. I wanted to ask, using your guidance for loan growth, the 8% to 12% for net profit and the 40% dividend payout, I estimate you would be generating roughly 70 basis points of organic capital in 2023. So kind of offsetting the negative impact from calling in a quarter. If you can confirm that's right, so organic generation of about 70 basis points in CET1 in 2023.
Finally, also, you have two more perps outstanding, the 6.25% and the 9s which are callable first half in 2024. I wanted to ask if calling the 6.25% is really dependent on getting some capital replacement and issuing a new perp to replace the 6.25%.
Ricardo Forni
I will start with the specific case. The bank adopt some [indiscernible] methodology in which we access write-off recovery processes even when there is corporate reorganization involved. This model is submitted to a custom assessment. That is, our credit analyst in full knowledge with the measures adopted by the bank expresses the qualitative and quantitative view of the assets. So the methodology runs and we have the assessment. And this is the driver that we use when making provisions. So the provision is always technical in nature based on our models. And it's monitored very actively, very closely in relation to the progress of the case.
So, we're sitting at the negotiations table. We have our legal team defending our credits in the reorganization. And as this process advances, we'll have new variables in the model. And then the model will determine whether the provisioning is enough or if it should be adjusted. But the fact is that we joined this negotiation and the legal defense, feeling certain that we'll be able to recover at least part of our credits. So we are going to work very hard to get the write-off recovery.
Nicolas, going to the second part of the question about capital, specifically. Well, we always express – in this semester, our generation was 50 bps, so slightly above your exercise of 70 bps. This is an aspect of organic generation of capital for CET1.
We also optimize our capital between CET1 and AT1. So, there is a window for optimizing our capital. With the exercise of these calls, we have been looking into the best way of having a combination of costs, tapping into different markets. One of the bank's characteristics is always to move ahead, so that we can find better options, better solutions.
The decision that we'll make in relation to this paper is something we cannot say right now because things will still unfold. But the best answer, I believe, is to show you how we manage this. We always optimize capital for the bank. We always look at value generation for our shareholders and the interests of our debenture holders. And we see that there is a great opportunity to optimize. If we see this, then we won't have the same amount of hybrid instruments. Today, we have a little over BRL 4 billion in the market. And for us, the optimal point would be below that. So what you can expect in relation to our management is that we will always move ahead, we'll always optimize and we'll always act as fairly as possible.
Nicolas Riva
AT1 capital, you would like to run with, for example, Itaú typically says we want to have 150 basis points of AT1. Is there an optimal level that you would like to have of AT1?
Ricardo Forni
Today, we have 275 basis points. I think that the optimal level would be two-thirds of that. This is only obvious because you need to have pockets or buffers, but two-thirds of what we have would be very close to the optimal capital level – of additional capital AT1.
Janaína Storti
I would like to call Natalia Corfield from J.P. Morgan.
Natalia Corfield
My question is along the lines of Tito's question about the possibility of interference at Banco do Brasil. We know that in past governments or terms of the PT government in office, there was interference that led to a drop of profitability of public banks in general. Based on everything that you talked about in this conference call and the guidance that you're giving us, it does not seem to be the case now. But I'd like to hear from you, your vision about this, especially from our new CEO, please.
Tarciana Paula Gomes Medeiros
We are a bank with a very strong corporate governance. And we're constantly evolving. So over the past few years, our governance made quite a lot of progress. And we are an open corporation with our own bylaws. And it's even more broad scoping than the legislation in place. Our decision making process is done in a collegiate level with the control of risks, costs and capital management levels, and we have 1 million shareholders. So as far as protection against interference, I believe that we are very comfortable.
Janaína Storti
Well, thank you, everyone. We will close this question-and-answer session at this time. I would like to turn the floor to the CEO, Tarciana Medeiros, for her final remarks.
Tarciana Paula Gomes Medeiros
Thank you, Janaína. I'd like to thank all of our analysts and investors who are watching our conference call once again. And I'd like to thank our shareholders for their trust in Banco do Brasil and tell you that we will work very carefully to return the fair return of your investment and confidence in our company. So thank you very much and we will remain available to continued conversations.
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Banco do Brasil S.A. (BDORY) Q4 2022 Earnings Call Transcript