The sale of the shares of Petrobras and other listed companies in the first quarter of 2019 led the Brazilian Development Bank (BNDES) to register a net income of R$ 11.1 billion in the first quarter of 2019, a 436.7% growth compared to the R$ 2.1 billion registered in the first quarter of the previous year.
In addition to the expressive profit, the data for the first quarter of the year show the estimate of R$ 5.2 billion in taxes in the concept of competence, and R$ 7.1 billion in the concept of cash, thus substantially contributing to the federal government’s fiscal result in 2019.
BNDES’s result with shares in other companies was 725.5% higher than in the same period of 2018 (+ R$ 11.0 billion). The income registered also reflected the R$ 1.1 billion increase in the product with financial intermediation (45% higher than in the first quarter of 2018), as a result of the reduction of the debt with the National Treasury during 2018, a process that was resumed in 2019.
Shares in other companies – The positive performance of the BNDES System (including BNDESPAR) in the first quarter of 2019, of R$ 12.5 billion, reflected the R$ 9.3 billion (1.081.0%) increase in the result with the sale of investments, especially the sale of the shares of Fibria, Petrobras, Vale and Rede.
At the end of March, the BNDES System’s share in Petrobras corresponded to 13.90%, compared to 15.0% in December 2018. All of Rede Energia’s shares were sold, so BNDESPAR no longer participates in this company’s capital. In the case of the sale of Fibria’s share, 75% of the amount was received in cash, and the remainder in shares of the Suzano company.
The equity accounting result also contributed to the profit, having been R$ 1.1 billion in the first quarter of 2019, compared to R$ 123 million in the first quarter of 2018. This result was mainly due to gains obtained by companies invested in the protein sector.
The value of the portfolio of shares in other companies (shares in affiliated and nonaffiliated companies and in variable income investment funds), net of provision for losses, reached R$ 108.3 billion in March 2019, a R$ 11.9 billion (12.3%) increase compared to December 2018.
This gain is mainly explained by the appreciation of the portfolio of shares in nonaffiliated companies, especially of the investments in Petrobras, Suzano and Eletrobras. This appreciation was positively reflected in the bank’s net equity.
Provision – There was a reversal of R$ 1.1 billion of expenses with provision for credit risk in the first quarter of 2019, compared to the reversal of R$ 361 million of expenses with provision in the first quarter of 2018.
Intermediation – There was a reduction in the revenue with credit operations and transfers, due to the decrease in this portfolio’s volume, but the revenue with security titles and values associated with the bank’s liquidity and with the assets of numerous funds under the institution’s management was maintained.
The anticipation of the repayment of funds to the Treasury, on the other hand, significantly reduced the costs with fund raising, resulting in a R$ 1.1 billion increase in the gross financial intermediation result of the institution.
Assets – The BNDES System’s assets totaled R$ 835.1 billion at the end of the first quarter of 2019, a R$ 32.6 billion (4.1%) increase compared to December 2018, despite the reduction in the credit operations and transfers portfolio. This was due, once again, to the appreciation of the portfolio of shares in other companies, despite the sales made.
The credit operations and transfers portfolio, net of provision, represented 58.6% of the total assets in the period, and registered a R$ 7.3 billion decrease (1.5%) in comparison to December 2018, basically due to the volume of settlements, which surpassed that of disbursements by R$ 16.8 billion, attenuated by the foreign exchange effect and allocation of interest and monetary adjustment in the period.
The good quality of the portfolio was maintained, with 95.0% of operations concentrated between risk levels AA and C, considered low, a percentage that is higher than the 90.7% average of the National Financial System (NFS), disclosed in December/18 by BACEN. Nonetheless, credits related to the export of services decreased by R$ 2.5 billion, already fully provisioned in 2018.
Defaults – Defaults over 90 days decreased in the last period, from 2.95% in December 2018 to 2.61% in March 2019. Disregarding the operations that are guaranteed by the Union, BNDES’s default rate would be 1.32%, lower than SFN’s average (2.90% in February.)
The renegotiation rate, which comprises the credit operations renegotiated in the last 12 months, increased from 4.4% in December/18 to 4.5% in March/19.
Funding – On March 31, 2019, the National Treasury and FAT/PIS-PASEP accounted for 36.6% and 35.3%, respectively, of BNDES’s funding sources. Due to the R$ 2.9 billion payment made to the Treasury during the quarter, the debt with the NT decreased 0.4%, and ended the period at R$ 305.9 billion. FAT’s balance totaled R$ 273.7 billion in March, a 0.8% increase in the quarter, highlighting the R$ 4.7 billion inflow of funds.
Shareholders’ Equity – The BNDES System’s Shareholders’ Equity totaled R$ 95.1 billion at the end of March/19. The R$ 15.5 billion (19.5%) increase in relation to the end of 2018 reflects the appreciation of shares in other companies, expressed in the equity valuation’s adjustment, with a positive R$ 4.5 billion impact on Net Equity and a R$ 11.1 billion impact on the net income in the period.
Prudential Limits – The basis for the estimation of the prudential limits established by the Central Bank, the Reference Equity reached R$ 181.8 billion at the end of March/19 (R$ 166.8 billion in December 2018). The prudential limits of BNDES remained above the minimum required by BACEN, showing an improvement in the Basel Index compared to December 2018.
The Basel index rose from 29.0% at the end of December/18 to 32.0% in March/19. This index, now well above the 10.5% demanded by the Central Bank, may decline in the period ahead, despite the expectation of a reduction in the bank’s loan stock in the coming years.
The decline projected is largely due to the Central Bank’s decision to exclude FAT resources from the capital of reference in the coming years, as well as to the payment of taxes in future share sales (the deferred tax associated with possible share sales amounts to approximately R$ 20 billion).
Financial perspectives – The credit earmarked by BNDES has shown a significant decline in recent years, in contrast to the credit earmarked by other banks. This decline, almost 4 percentage points of the Brazilian GDP, has allowed the advance repayment of R$ 309 billion to the National Treasury since 2015. The earmarked credit offered by other banks has remained close to rates between 14 and 15%.
Earmarked credit as % of the GDP
The recent decision of BNDES’s Board of Directors to anticipate the repayment of R$ 30 billion (0.5% of the Brazilian GDP) to the National Treasury in May indicates that in the first five months of 2019, BNDES will need to send R$ 48 billion to its shareholder in net amounts, in the form of taxes (R$ 8 billion), dividends (R$ 1.6 billion) and interest to be paid to the Treasury, the Merchant Marine Fund (FMM) and the Workers’ Assistance Fund (FAT), among other payments.
|BNDES' Cash Flow to the Federal Government - until May 2019 (1)|
|1) Received from the Union||10,797|
|- Constitutional FAT
- Equalization of interests
|2) Paid to the Union||58,715|
|- Constitutional FAT
- FAT Special Deposits
- Debts with the National Treasury
|3) Received from the National Treasury||0|
|4) Net payments to the National Treasury||47,918|
The payment of dividends, expected to be R$ 1.6 billion, corresponds to 25% of the net income for 2018, following the more recent practice of limiting this payment to the legal minimum, to avoid the decapitalization of public banks, which is sometimes used to increase the Union’s primary result.
For several years, starting in 2009, BNDES distributed 100% of its net income, a practice that was discontinued in 2015 and institutionally reformed in the last two years, to address the bank’s noncompliance with the concentration of certain exposures, such as that of Petrobras.
This process has been facilitated by the advance repayment of a substantial part of the company’s debt with BNDES, and by the reduction in the number of this company’s shares in the BNDES system’s portfolio. It should be noted that large, well-capitalized private banks have historically distributed approximately 1/3 of their net income in the most profitable years.
|Dividends paid by federal banks – R$ million (current) and distributed percentage|
|Dividends paid (R$ million)||Dividends paid over profit available (%)||Dividends paid (R$ million)||Dividends paid over profit available (%)||Dividends paid (R$ million)||Dividends paid over profit available (%)|
|Total or mean||56.9||75.3%||46||39.5%||32.3||63.0%|
The total dividends paid by BNDES in the last 10 years (R$ 57 billion) were substantially higher than the value received by the Union from other federal banks, and well above the ad hoc capitalization made by the Government with the Principal Capital-Eligible Instruments – IECP (R$ 35 billion), also known as hybrid capital, which had the peculiarity of not impacting the Union’s primary result when injected in public banks.
|Balance of Capital-Eligible Debts with the NT and Payment of Dividends to the Union|
|IECP balance – billion R$||35.5||43.2||8.2|
|Paid dividends received by the Union (2009/18) – billion R$||56.9||32.3||25.2|
The consolidated intermediary financial statements of BNDES and the financial statements of BNDESPAR for the period ended on 03.31.2019 are available on BNDES’s Investors Relations site.