Bradesco, the second-largest private bank in Brazil, released its first-quarter results on Tuesday. The institution’s net income increased by 73.6% in the first quarter’s net profit, exceeding market expectations. Nevertheless, there was a slowdown in credit – a direct effect of the financial crisis – and the bank is also beginning to feel PIX and digital competition weighing on its checking account income, which fell 1.9% compared to the first quarter of last year, and 6.2% over the previous quarter.
In a conference with investors on the same day and in an interview with journalists this Wednesday, bank executives said that this impact was already expected and that the solution is to grow in the number of customers and invest in diversification and digitalization, including the other purely digital business units of the institution: Ágora (investment platform), Bitz (digital wallet) and Next (digital bank).
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The bank’s recurring net income rose to BRL 6.515 billion, exceeding the analysts’ average estimate of BRL 6.019 billion, according to data from Refinitiv. The net income was driven by a 41.8% drop in provisions for credit losses. Chief Executive, Octavio de Lazari Jr., said in February that 2021 would be a “year of recovery”. In 2020, the bank set aside BRL 9.1 billion in addition to the normal provisioning to deal with the potential losses of the pandemic.
Bradesco also controlled its costs. Operating expenses fell 4.7% compared to the previous year, as the bank closed 1,088 branches and reduced the number of employees by more than 8,500 people. Its return on recurring equity (ROE), an indicator of profitability, rose to 18.7%, 7 percentage points above the previous year.
Bradesco’s credit portfolio grew 2.6% over 2020’s fourth quarter, while the 90-day default rate rose from 2.2% to 2.5%.
Remedy for PIX and competition lies in diversification and digitization
This Wednesday, according to the Valor Econômico newspaper, Lazari Jr. told reporters that the drop in part of revenues due to PIX and other digital solutions was already expected. PIX, Brazil‘s instant payment system, was launched in November last year and reached more than BRL 238 billion in transactions in March. On Tuesday night, it was WhatsApp’s turn to relaunch its payments service, WhatsApp Pay. Gradually, the service will become available to more than 120 million users in the country. For now, only transfers between individuals are allowed.
The executive told reporters that the way to compensate for the impact of these new services is to increase the number of bank customers, which grew 3.5 million between the fourth quarter of 2020 and the first quarter of 2021. He also spoke of the bank’s fintechs as another path to diversification and growth.
Bradesco’s purely digital units all grew in the first months of the year. Ágora saw its customer base grow by 15.4%, to over 632,000, and the volume under its custody increased by 1.4%, to BRL 63.3 billion. Next closed March with 4.4 million customers and expects to reach 7 million by the end of 2021. And Bitz, launched in the third quarter of 2020, accumulates more than 853,000 downloads and 591,600 accounts