Banco ABC Brasil S.A. (ABCB4) Earnings Call Transcript

Thank you, Mara. My pleasure. Thank you all.

And now we are going to hand the floor for corporate credit in Brazil, and then we are going to talk about the third quarter results.

Thank you, Ricardo. Good morning, everyone. We are going to share now a little bit about our vision about the corporate credit market. And here, this page translates pretty well what is this market. It is divided in three instruments, loans that represent 2/3 of the entire portfolio, private securities. And last but not least, guarantees issued that represent the rest -- well, around BRL 500 billion. And as this portfolio had an evolution in the last years, we can see that loan represents the lowest growth ratio, 8% per year from 2020 up to the last data we have available. Well, guarantees issued growing 13%, similar to the total of the expanded portfolio and also securities with a higher growth ratio of 27%. And those are the ones that are making securities more attractive in the total of the corporate credit portfolio. In 2020, it represented less than 14% and as time went by, it represents something around 24%.

When we see a zooming in the loan portfolio?

We can see some dynamics. Here in this page, we have the monthly growing ratio in which we compare the growth of one month versus the other, and we have a ratio with the gross originations plus interest accrual divided by the due dates. And whenever it overcomes 100%, we have a growth of one month in relation to the previous year, below 100%, so we have a decrease in the portfolio. Some effects we are able to analyze throughout years. The first month of each quarter seems to be a weaker month, just like the last month is always the strongest one. The second half of the year is more dynamic than the first one. When we observe 2025, this seasonality stays. But however, we have seen a deceleration of this growth. Out of the nine months we have data available, seven represented a growing ratio that is below the average that was in 2021.

And how is the growth throughout time?

Here, you can see a longer series that we have growth in 12 months since 2022. This is a portfolio that had grown 17%. And then in 2023, it goes through a deceleration on this growth rhythm. Finishing 2023 with more -- a little bit more than 2% of growth. And in 2024, it recovers, and it finishes the year in around 10%. And now in 2025, we see a new deceleration based on the last data available from the Central Bank, an elevation of 4% in relation to the same period of the previous year. When we observe this dynamic by instrument, by product line, we are able to bring some new conclusions. For instance, the discount of receivables, it's been losing space. It has been a product line that represents an increment that was meaningful in years like 2022. It lost some room due to some changes in the taxation. And now in 2025, it will become a problem to the corporate credit portfolio growth. Another important line that we can see how it behaved is the working capital. It represents the greatest source of resources inside the expanded credit portfolio for companies. Historically, also, there were some deltas. Important was for growth. And in 2023, it was no longer good, and in 2024, it came back to the growth rhythm. 2025, it is decelerating. And the foreign market, another line that contributed to this increase in our portfolio, and it lost its relevance in the last 2025 -- months of 2025. In our point of view, this deceleration of the growth ratio of the expanded portfolio, it relates to the high level of the interest ratio that has increased the debt of companies. Based on the estimations from the Central Bank and [ Fibra BAM ] at the beginning of the year, in February 2024, we had an expectation of in 2024, grow the portfolio of around 8% to 9%. And after many cuts in the projections, today, we have this expectation closer to 5%, 6% based on the last available data. For 2026, the reading is pretty similar. The expectation is that it to grow a little bit more than 6%. And here, as a result of Selic index in relation to a level that will keep on generating this behavior in the portfolio.

And how default has been working?

We divided data in two different profiles of clients, major companies that we present here. They have had an overdue of more than 30 years, that is 30 days that is more comfortable. And we compare data from 2024 with September 2025, we can see only a small increase in the rhythm of delay, and that is mainly because of the access to capital markets that the companies have available. On the other hand, small and middle-sized companies, well, they don't have the same access and they are the ones that once they depend on the banking balance sheet, they have more default rates when we compare 2024 with 2025. In the nine first months of 2025, there was an increase in the overdue of more than 130 bps. And that's real when we observe Stage 3 of the portfolio and also with the size of companies, small and middle-sized companies, they had an increment of the Stage 3 level from the portfolio. And keep in mind that this is a new metric that just started to work with the Resolution 4966. That's why we have data available from 2025 on. For major companies, they are in a stable level. They are in Stage 3 according to the portfolio and the effect of the total portfolio is still well stable in relation to the beginning of the year. Another movement that it's pretty important for corporate credit was the repricing of spread. Spreads that were in 2024 aligned with a lower perspective and throughout 2025, they are being given a new price. And that happens due to repricing by the banks and also some new adequation of the relationship risk benefit and that inspire us to be more careful due to market agents. And banks have shown a better discipline when allocating capital and also a better relationship of risk and return when compared to capital market.

In a scenario in which we have decreasing spreads, mainly in the AAA rating, what goes against or faces the other credit mechanisms or credit ratings?

Here, we have a concentration under a few names that have a shortening of the spreads. And those are spreads that in a way or another, they now below the reference ratio for Selic and also any other taxation like [ NT ENV ].

And what about volumes?

Well, they have historically high levels. And in the first nine months of 2025, we have a very similar level to the one observed in 2024, and that was a record year of issuing fixed income titles, and that is due to the entrance of resources for fixed revenue that since 2023 have accumulated a positive flow, and that goes against the exit of resources from equity funds and multi-market funds that will add in the last three years withdrawals of around BRL 630 billion. And this flow is benefit for fixed revenue funds related to the level of the basic interest rate and what fosters this migration.

With that, I close the panel about the corporate credit market. And now we are going to continue with ABCB going for the third quarter of 2025. Thank you very much.

Thank you, Thiago. Now let's present our highlights from the third quarter. Our net profit was BRL 257 million, a growth in relation to BRL 244 million of the previous quarter. ROI, 15.5% compared to 15% of the previous period, a growth also. Our portfolio has a coverage ratio that is very interesting and the balance of total provisions divided by overdue more than 90 days, almost 400% and the total provisions divided by Stage 3 operations, around 90%, a very comfortable ratio. And then the financial margin reached BRL 652 million. It was a record, and it grew three major aspects. Margin with clients, margin with the market, and the CDI compensated state. So we have reached the recovery, reaching 4.4%. And in relation to expenditures, work that we have been very rigid, a growth of 3%, nominal number versus 2024 with an efficiency ratio of 38.8%. Here, we have the growth of our expanded portfolio, considering the resegmentation that was followed and explained previously by Daniel as well as by Rodrigo. We see a portfolio that is growing 0.4% in half of the year and in a year versus year 4.6%. As we have been saying here, this is a year we have privileged way more margin and quality of the portfolio instead of growth. So we only grow as it's possible to grow with proper margin and the portfolio quality that is adequate. So the growth was a little bit below what we had expected in the beginning of the year, and that will take us to review the guidance, and that will be shown soon. When we look segment by segment, here, it's impacted by the resegmentation. So operations in the middle, I already considered companies with BRL 500 million and all other companies from agro and real estate segments that were in segments, they are concentrated in corporate segment. So it has presented 7% per year. In relation to the sectorial exposition, we still have an exposition that is quite diverse, all major activities for the Brazilian economy. And here, it's pretty clear why we have made special VPs. Agribusiness is the major segment for nonurban. So in civil construction, 8%, the third largest one. So these two, they have a segment or a service that is specialized and the energy segment is quite relevant, almost 14%. So in practice, it had a dedicated service as we have people in relationship as well as in the analysis part that are specialized in such scenario. So, we have almost half of our portfolio that will be served by specialized teams in their business line. So here, we have revenue with clients in today’s ABCB. So, we want to show you a bigger perspective. In 2019, we have two dimensions. One, from total revenue that come from BRL 900 million, reaches BRL 1.9 billion. So, a growth that is a little bit more than 100% in the period and the proportion, the ones with high capital consumption and low capital consumption starting with 32%. It reaches 45% in 2024. And in 2025, it capped this level. This is something pretty strong that we have been doing, and it shows not only the quality of products, and they are pretty accepted by clients, but also our capacity to have revenue that consume little or no capital and they add to the return of the bank. The financial margin, the net interest margin, it went from BRL 373 million to BRL 393 million and the interest rate shows this reaction, but we have been quite conservative when exposing to market risk and the maintenance that is pretty high. And the numeral part of CDI is high. And when we see the local comparison, we have growth annually into revenues, as it was mentioned. And this revenue will go back to evolve in the last quarters. And here, we have the net income margin, as I've mentioned in the highlights. Here, the first quarter and then it's recovering and it reaches a level that we are quite pleased with. The revenue with services, they had a similar point, BRL 130 million in the previous semester versus BRL 107 million now. And when we look at nine months that I believe it's more relevant in a scenario like that, we see more positive results in the guarantees that were granted or granted guarantees. The investment bank has a very pleasant performance. And in 2024, the volume of transactions continued proper and the papers placed in the market also at the end, they are a little bit below. It's something in the industry. So today, we have numbers that are lower than the previous year. Probably we will keep on with this trending. And what about other tariffs and brokerage -- insurance brokerage? This will be uptake as soon as possible with the growth of our portfolio. The credit portfolio is quite positive, and I can show here considering a challenging credit scenario, we believe it's important to be more conservative when provisioning and the provision comes from the floor and the level of provisions to have in the cycle is 1% to 2%. So, it was half considering the credit scenario that is a little bit more challenging, we managed to bring that to the core of the thing. It's going to be 0.7%, something that will continue in the next semester. So, the provision provisions goes to up to BRL 90 million, and the balance is quite proper. The bank as a role as a whole has 2.4% of provisions despite the overdue is complicated. Corporate has 1.9%, large corporate 0.9%. And the operations overdue more than 90 years, they are going down, reinforcing what I've mentioned, a provision that is a little bit more preventive. So operations overdue more than 90 days goes from 0.9% to 0.7%, a new drop to 0.6% now with a good behavior, mainly in the middle market that can improve their due dates in more than 120 days for 3.3%. The Stage 3 and 2 operations, another ratio we are getting used to, they represented 5.5% of the entire portfolio in the first quarter. It increased 5.8% and now 6%. And the growth of Stage 3 -- sorry, Stage 2 is a little bit more intermediate and they call our attention more than Stage 3 because I have increases. And in relation to provisions, the coverage ratio, 390% per year and also new indexes that is 90% and we have the addition of different scenarios like two and three with BRL 39 million. So, the companies are behaving pretty well. So, expenditures grew just like 3%, and we had only 4% if we consider 9% below the guidance, and we still have three months to finish the year. So, another guidance that will be reviewed, and it will show at the end of our presentation. Well, revenue have been behaving in a very flat way, almost the same level of revenue mainly due to smaller companies and lower revenues in the market, and that makes us efficiency ratio despite everything will be 38.8% above the guidance, the proposal we had at the beginning of the year. So, the third guidance that will be reviewed, and we will show you. We have the funding that is pretty constant and solid, and it's important to have that. We have 36% coming from institutional investors in a good deadline, 19% of individuals, 12% of our own fund corporates, and this is important, BNDES with 8%. The entire issue of the bank is comprised by all that and also lines of trade, finance and multilateral agencies. We closed the Basel line in 16.7% coming from 17%. And the main impact is the reduction in 0.5%. And we said that we were going to retire some of these securities. So, we can expect that of 30x in this ratio. It's pretty comfortable. We have shown to you the capital level 1 that goes from 11.6%, 11.9%. Now despite the high payout we have had, showing that the bank has the possibility to generate results that will have a good compensation to shareholders and also allow the bank to grow their activities as planned. And then the recurrent net income in a way or another is constant, BRL 256.8 million versus BRL 255.3 million last year. And things are clear here. There is an improvement of the client margin and also a drop in the market margin due to the issues I've mentioned. Here, we see smaller things, provisions or taxation, and you see that it goes all the way from capital to CDI. We've reached the review of our guidance. And in relation to the growth of the expanded portfolio, we had 7% to 12%. As I've mentioned, and I will restate, when we think about the three pillars of our commercial activity that are, first, what is the margin that you get with clients? What is the quality of your portfolio? And third, how much you can grow? This year, we are planning both things to have a proper levels of return upon the risk and to have a healthy portfolio. The reviewed guidance of growth to 1% to 4% represents a growth in the last quarter of 3% to 6%. So we know that the last quarter has a positive movement. We do hope this will happen this year. And we also say that if we go from 3% to 6% in the last quarter, we will reach that number that is 1% to 4%. In relation to expenditures, we grew nine months versus nine months, it was 4.3%. Our guidance was 6% to 11%. And we can see our expenditures and the efficiency level, as I've mentioned, despite we will have the revenues that went down, as we imagine at the end of the year, and we are keep on searching for this improvement in efficiency. That's what I had to share with you. Now with Borejo and Voro, we are going to go to our Q&A session.

Thank you, Sergio, for showing the overview of the third quarter of 2025. I also thank you who are following the broadcast today. As Sergio mentioned, we are here with Sergio Borejo and Borejo, welcome.

Thank you, Ricardo. Hello, everyone, who's watching. I hope you enjoyed the broadcast, and it's a great pleasure to be here once again at our conference of results in such an important moment to all of us. Now we also have you all who are in the broadcast resume. [Operator Instructions] First question we have is from Brian Flores from Citi. Brian, thank you for your participation. Please, the floor is yours.

Congratulations for the initiatives. Well, I would like to ask two questions. First one, you've mentioned about more difficult conditions for growth, and you are foreseeing a return over growth. And what about the capital ratio? It's quite solid. And Lulia, you've showed it has grown consistently, considering also some optimization you had in perpetuals. And you've done a lot of things, but the ratio is pretty strong. Do you see room to optimize that even more considering the growth of portfolio that is going to be a little bit weaker considering the guidance you just proposed? And if you want, I can ask my second question later.

Good morning, Brian, thank you for your question. In fact, we have worked with this capital optimization. Since last year, when we issued the instruments, the perpetual Level 1 instruments, we saw this retirement of the titles that were issued in 2019, 2020. This year, this was done. We finished that in the fourth quarter. It is around 13.5 bps. And besides that, I see that the major work, well, it's done. We are a bank, and we enjoy working with a certain solid capitalization level. We don't know when this economic scenario will relax to allow us to speed up a little bit more. So we enjoy having a good capital to have everything. So whenever we have this possibility, we will serve the wave. And historically speaking, since 2012, the bank has a policy that whenever you realize a growth, a possibility of growth that is a little bit larger. We pay dividends, the payout is good, but we offer to investors the possibility of reinvestment. So this alternative is still worth we will be always evaluating. And when we think it's proper, we suggest to the Board.

Very clear. Just to remind the appetite in relation to the ROA ratio, 11%, right?

Yes, it's our parameter that, of course, can vary according to the economic scenario. But a parameter we have is to have a Tier 1 that is 13% and a core actions around 11%.

And well, a question about the short-term. In the last quarters, we've talked about crossing that goal of BRL 1 billion in relation to earnings for the year. So do you think it is more difficult, more complicated? It seems that the last quarter had to be very strong in order to achieve that. Are you optimistic or do you think that target can be moved to the future of ABC?

Well, of course, this BRL 1 billion is a round number, a symbolic number. But in relation to the economic relevance, well, it's small. I enjoy seeing the bank in a long-term trajectory. So for instance, when I mentioned about the revenue with clients, the bank more than doubled this number. The number of clients almost doubled. The number of transactions grew 4x. And what happens is that in the credit activity, that is our main activity. You see the cycle, you need to respect the economic cycle calendar and not the Gregorian calendar. Sometimes one thing does not match the other. So having said that, the fourth quarter is not over, we have services that are very important for the bank's result. So this game is underway, but we have a level of activity that seems to be stronger. September was a very strong month. So, well, we had July that was weak, improved in August and a strong September. In the fourth quarter, it's going to be stronger. BRL 1 billion, I cannot answer you now. That's why we haven't defined so far.

Next question Antonio Ruette from Bank of America.

Good morning. Thank you for your time and for the Investor Day. A subject that was mentioned in many points at the Investor Day is the difficulty of the economic scenario. The macro is not certain and then policies that are a little bit restrictive. You've mentioned 6%, 7% for the industry. Well, always in relation to guidance for next year, but what does that mean to you?

We see now the credit growing in a level that is below the industry level of what we are seeing now. And we as well, will we have that next year. Portfolio growth that is below the industry and also the spreads, it's been a while that we have been a little bit relieved, but maybe that's what we are going to see next year.

And provisions, well, I would like to ask you. One is the credit growth and the other one provisioning. You prefer -- and you said that you prefer not to go in this to. And so should that be the most probable scenario for next year? Thank you.

Thank you for your question. It's a very good question. I may say that we have many aspects. We didn't bring the draft, but throughout cycles, we speed up more than the industry average when we believe that the market is good, but we also take a step back faster than the industry when we feel the environment is not good. And when you think about consistent return on the long-term, this is what we should do. The credit scenario since the beginning of the year, we have talked about that, there's no secret. The Selic that is 15%, representing a real interest at 10%. If you consider the spreads, this real interest rate is even higher with an economy that had a resilience in growth above what we expected but as Daniel mentioned here, showing signs of cooling down. We don't see any deterioration in our portfolio but if the past is a good indicator, the system can leave with a higher level of losses. That made our provision to increase. Well, historically speaking, our bank goes to 0.5:1 in the pandemic, 1.1, 1.2 or during the Lava Jato, the car wash operation. But it goes to 0.7. It's in the middle. And it's the moment in which you say, look, I have a good portfolio, there's no -- well, there's no default. And you can see some companies that have their spreadsheets being presented, but they are a little bit more complicated. When you have public data, the secondary market of securities, they have an opening ratio that is a little bit higher in risk. So we should be careful. We need to pay attention to the spreads. And if we wanted to grow, we could, but the risk-return relationship wouldn't be correct. We will follow. And whenever we believe that the economy is getting better, and we are going to feel it at the beginning of next year, or when the risk-return relationship is adequate. So if there is a new pricing of operations that will result in a risk-return ratio that is good, we will be prepared to grow, but we are not prepared there yet.

Now, the next question, Pedro Leduc, Itau de Valores, welcome.

Congratulations on the day and the trajectory during this year. I would like to take a look at the cyclic part. And in the last years, you found several revenue diversification that allowed you to grow with profitability, well, guarantees. So insurance, and with this portfolio, that is not that accelerated. This other division they gain importance to generate value. So I would like to hear from you how these verticals are? How are you planning growth if you are going to dive deeper into clients, product arrangements, geography? So thinking outside credit, in other verticals, so how they can contribute?

Thank you, Leduc, for your question. Well, just keep in mind that not only the verticals that are highlighted in the results, like the investment bank and the insurance part, but inside the family of products that we have in our financial margin, we have a larger diversification in relation to cash management, exchange ratio, derivatives, that inside the financial margin has more relevance than before. And they are products that are less related to this credit cycle. And even the mean you have better stability. We are getting deeper on that. And the resegmentation we just did. Well, first, taking the middle to from BRL 300 million to BRL 500 million that brings us an opportunity to have a more adequate offer of products with a better price for that range of clients that were in low corporate. So now they are in BRL 500 million. So that will allow us to serve these clients better as well as those two verticals, agro business and real estate. Those are specializations that will add in relation to risk analysis, as well as the commercial presence and the understanding of the value chain. So the idea is to work in both segments in the entire value chain, and then we have an opportunity for cross-selling of other products, and not credit. And in credit, you have more security because you are offering that. And besides the verticals, we are always checking other alternatives, credit recovery. We have Vision. It's a company that's been here for 2.5 years, and it has a ramp-up that is careful and slow. And this is important because this is one of the metrics of stressed portfolios, and in relation to what the market practices are not that good. So up to 2026, this may represent a part of our results. And we are going to look to other fronts. We are a bank that enjoys credit. We want to be present in credit. Credit is a product that companies need, but the idea is to become less and less dependent on credit.

Next question, Carlos Gomez-Lopez from HSBC.

One is, in the previous call, I remember, I think it was Borejo, who told us that the spreads have started to recover versus where they were last year? And he thought at that point that maybe they had recovered like 1/3 of where they should be. So, where would you say the corporate spreads are today, given the risk that you perceive where you think that they should be? And second, if you could comment a little bit more on the agricultural side.

In the last call for results, we said that there was a spread recovery, and it had recovered in 1/3 of the points. And the question would be about this recovery. And the second one is related to how we see the agro business sector. Thank you, Carlos. We have seen in spreads after the recovery we had, and you've mentioned, in the last months, we have been stable. More recently, yes. And just going back, in my interpretation, one of the reasons Thiago showed that when he talked about the credit market is that despite the banks repricing operations in the capital market that is more and more relevant for companies, the major possibility of getting resources for fixed revenue funds made the capital market reduced the spreads. So there is a certain tension there between the banking world and the capital market world. In the last week, there was a repricing in the operations of the capital market. So we see operations in the secondary market. The spreads are going up in the capital market as well as in the primary market. Some operations coordinated mainly by major banks, they are postponed or liquidated. But the banks keep the position, a position that is related to the balance sheet, and it shows that this concern about risk and return has reached the capital market. If that happens, this spread recovery will process, will be present. Otherwise, we will always have those two sides fighting. In relation to the agro sector, well, it's a very broad name, and Daniel brought that this morning. So we have the entire industry. And it's by type of crop. So we have sugarcane that doesn't relate to soy crushing, not related to animal protein. That has an entire supply chain. We have a geographic differentiation that is huge, with climate problems here, improvements there. You have commodity prices that are behaving in an uncoordinated way. Some are high, others are down. And it's a matter of the specialty to understand each culture, each region. If it is a rural farmer, a major cooperative, a fertilizer company, or agricultural resale. If it is an international trading. And you should be careful because, besides all the diversification, commodities are lower. And in general, we had an increase in input prices, and that made for good crops. Well, the margin of farmers, mainly grain farms, they are more compressed. And that's where we have good opportunities to have good guarantees, to have good spreads. So it's a segment that is pretty important to Brazil. It's pretty important to the bank. Brazil is pretty competitive, and we are not only paying attention, but we are working hard with that.

Our next question, Eric Ito from Bradesco.

Well, following that in relation to the spread you've mentioned, Lulia, I believe that at the end, the spread of the capital market has gone up a little bit up. And I want to see if you see at the end, we have the entire October, a week of November. Do you see any migration to the banking credit market? Or is it too early? And could you comment on pricing? How do you see the market competition at the end for spreads? Do you have something there? Or is it too early to think about?

Well, thank you, Eric, for your question. In relation to the banking market, I haven't noticed any. So our front line is reporting banks being more careful. The situation we have competing with one another without being rational in pricing operations. We haven't seen that. There is a consensus among banks that the scenario is a little bit tighter, and we should be more careful. It's not a crisis, okay? It's just some adjustments, fine-tuning between the risk appetite and the proper returns. The capital market issue is recent, a couple of days ago, the flow is interesting. And that’s when I, well – I think that we have the capital market operations that will be adjusted or are going through those hubs in which the market sets a new price, and the sovereign flow comes with the cash, and we will have to wait a little bit more.

Thank you, Eric. We are reaching the end of our Q&A session. I would like to thank you all, those who have sent questions and have offered this exchange moment. Thank you, Borejo, for your participation.

I thank you. It's always a great pleasure to be here, and it's amazing to be part of that. ABCB from 2025 is over. I would like to hand the floor to lulia for his final remarks.

Well, I would like to thank you all for the audience and the participation. And I would like to thank you for being here, for sharing our strategies and the results. And we are pretty confident with the new segments, the new commercial dynamics, and also changes of how we treat the segments with Rodrigo Cordeiro, which were planned to generate results closer and more prosperous, and offer more to our clients. Thank you very much. We are available and hope to see you soon.

Thank you, Sergio. This was our ABCB for 2025. Thank you very much for your audience and the results that were presented here, and all other materials are presented on the website. And thank you very much, and see you soon.