Latin America's best bank transformation 2019: Banco do Brasil

Awards for Excellence 2019

Banco do Brasil wins the award for the region’s best bank transformation. 

While its transformation began with the appointment of Paulo Caffarelli in May 2016, it is in the past 12 months under the leadership of his successor, Rubem de Freitas Novaes, that the results have matched the strategy.

Banco do Brasil was severely weakened under former president Dilma Rousseff, who tried to use the public-sector banks as a macro-prudential tool to spur growth and force the private banks to lower interest rates; as a result the bank’s financials were on the floor. 

Caffarelli focused on moving Banco do Brasil towards private-sector levels of profitability. He also moved to improve the banks common equity tier-1 (CET1), pursuing non-core sales to boost capital and lowering costs through a redundancy programme. 

Rubem Novaes_160x186
Rubem de Freitas

The bank also reconfigured senior management compensation to align performance to its new profitability goals and moved to improve the use of technology to make the bank more efficient. 

The bank improved but slowly; the end of 2016 saw a return on equity of 8%. However, there were signs that improvement was coming and analysts were slowly beginning to think that management’s claims that they were aiming for profitability rather than market share were credible. 

In February 2017 the bank announced it was aiming to close 402 branches. The stabilization of the economy minimized losses and provisions in the bank’s corporate book – good news as the bank’s attempt to sell its share of Banco Patagonia to shore up CET1 ran aground in a dispute with minority shareholders (the bank still plans to sell its stakes in Banco Votorantim and Neoenergia to boost capital).

Today the bank has fully recovered. Thanks to Caffarelli’s start and the continued focus of Novaes, in the first quarter of 2019 net income grew by 40.3% year on year and by 10.3% from the fourth quarter of 2018. Return on equity grew by 426 basis points to reach 16.8% and the bank’s efficiency was the best it has ever recorded, at 36.9%. 

Last year was the moment the bank delivered on its transformation to private-sector levels of profitability. If the economy gets back on track, then the bank’s broader exposure to all Brazilian states and industries could give it an advantage to outpace peers in terms of growth. 

Bank analysts are certainly impressed: Credit Suisse predicts the bank will achieve a return on equity of 18% this year. A UBS report says the bank is “the best leverage play for the cyclical upturn”.

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