After a year as president of Brazil’s second-largest bank, Marcelo Noronha says he is restructuring Bradesco with more than just profits in mind.
“We are changing a lot of things at once, and it’s not just to increase profitability,” said Noronha in an interview at Bloomberg headquarters in New York. At the top of the list: making the bank more competitive amid rising Brazilian interest rates and greater competition from fintechs.
Noronha, 59, took office shortly after Bradesco’s default rates and loan loss provision expenses peaked in 2022 and 2023. Brazil’s biggest banks and fintechs have greatly expanded their credit card offerings during the pandemic and soon after began to fight against late payments. To make matters worse, large companies have filed for judicial recovery, with retailer Americanas and energy concessionaire Light leading the group last year.
Noronha began by reducing weaknesses in Bradesco’s credit portfolio, making major changes at the top and closing around 1,000 branches. The third quarter results showed positive signs of transformation: recurring net profit increased 13%, to R$5.23 billion, compared to the same period of the previous year, exceeding analysts’ estimates.
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And the bank’s average return on capital, an indicator of profitability, rose to 12.4% in the quarter, from 11.3% a year ago. But it still lags behind competitors such as Itaú, with 22.7%, and BTG Pactual, with 23.5%.
“A prolonged period of capital returns below the cost of capital – which has been rising in Brazil – will continue to be a reason for investor resistance,” said JPMorgan analysts. Even so, they said, “we recognize the value of the Bradesco franchise”.
Shareholders aren’t particularly excited yet, either. Preferred shares in Bradesco – the country’s second-largest non-government bank by market value – have fallen 19% this year, more than the 4.5% drop in Brazil’s benchmark stock index, the Ibovespa, and than Itaú’s 1.9% increase.
Noronha, who joined Bradesco in 2003, was chosen to be president with the aim of changing the bank’s direction. He had previously been responsible for several of Bradesco’s many businesses, including retail, wholesale and credit cards. Before joining Bradesco, based in Osasco, Noronha was an executive at the local unit of the Spanish Banco Bilbao Vizcaya Argentaria, which Bradesco bought in 2003.
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These experiences will be useful now, as the challenges grow again. Brazil’s Central Bank is expected to continue raising interest rates, forcing local banks to adopt a more careful stance to avoid a new wave of bad loans. This means a more modest expansion of its credit portfolios and an emphasis on lower-risk customers, such as the richest, and on safer segments, such as payroll loans or credit to small businesses with government guarantees.
But competition for these customers is fierce and credit risk premiums are lower, reducing profitability.
“We continue working with a 9% expansion in our credit portfolio, but we have a much safer portfolio, which gives us peace of mind to slow down the pace of growth a little in a scenario of greater stress,” said Noronha.
Bradesco’s financial margin fell to 8.4% in the last quarter, from 9.1% in the third quarter of 2023, and was “the biggest frustration in Bradesco’s results in the third quarter”, according to Pedro Leduc, an analyst at Itaú BBA.
“There is no date, day or time” for Bradesco’s return on capital to exceed its cost of capital again, said Noronha, but investors should expect an improvement in the fourth quarter and subsequent quarters.
“We are working to deliver increasingly better ROEs,” he said. “We are growing, but we have our feet on the ground.”
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Expenses increased due to the closure of agencies, the need to hire more specialized talent and greater investments in technology – including artificial intelligence. But the spending should help increase the bank’s competitiveness in the long term, according to Noronha.
Bradesco also spent on creating a joint venture with Deere & Co.’s unit in Brazil, Banco John Deere, to expand in agribusiness. And the bank completed the acquisition of shares in the stock exchange of the credit card company Cielo together with its partner, Banco do Brasil. These two transactions should help increase Bradesco’s profitability in the future, said Noronha.
Eduardo Rosman, analyst at BTG Pactual, praised Bradesco’s post-provision financial margin in the third quarter, which was better than expected. But the greater challenge for the growth of the financial margin given the higher Selic and the narrowing of credit premiums “may disappoint those expecting a faster recovery in ROE”, he said.
Noronha is in no hurry.
“We didn’t change our pace,” he said. “We have a plan and we will follow it: it will be step by step.”
