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Strategic Management

Strategic Planning for the period 2011-2015

With the object of strengthening its leadership in asset terms in Latin America, and in its role as a fundamental partner for the sustainable development of the country, in its corporate strategy Banco do Brasil prioritises raising profitability, increasing the satisfaction of its clients, its partnership in the promotion of the development of Brazil, and expanding its operations in international markets, so that its main strategic themes for the period 2011-2015 are always in tune with the concern for the generation of sustainable results. In general terms:

• Raising profitability will be achieved, among other ways, by increasing the volume of profitable business, always observing a satisfactory risk return ratio, the offering of solutions appropriate to the needs of its clients, by improving efficiency, as well as the perfecting of its processes and business models;

• Increasing client satisfaction will take place, among other ways, by improving its client relationships and providing them with a better service;

• The partnership for the promotion of the development of the country will be empowered by placing emphasis on support for activities that generate jobs and income;

• International expansion will be based on three key factors: the existence of Brazilian communities in other countries, the wave of internationalization by Brazilian companies, and the expansion of Brazil's trade relationship for the rest of the world.

The projects prioritised for making these choices possible will be responsible for increasing business and the rationalization of processes, as well as empowering the results of the Bank.

In order to achieve its strategic planning objectives, Banco do Brasil acts on various corporate management fronts. Good Corporate Governance practices, relationship with the market, internal processes, external ombudsman service, as well as the governance of technology information, staff, logistics and socio-environmental responsibility, are all fundamental in successful planning.


Performance in 2010 Confirmed Guidance

Founded on defined operational strategies BB's performance in 2010 confirmed the majority of estimates published in the 2009 Annual Report , as shown in the summary of indicators in the table below:

Indicators 2010 estimates Achieved in 2010
Recurring ROE  21% – 24% 24.6%
Net Interest Income  6.5% –  7.0% 6.3%
Total Deposits  12% –  16% 11.6%
Domestic Loan Portfolio  18% –  23% 19.2%
Individuals  27% –  32% 23.2%
Corporates  16% –  21% 19.5%
Agribusiness  4% –  9% 12.9%
Allowance for Loan losses  3.7% –  3.9% 3.3%
Fee Income(1)  7% –  10% 12.6%
Administrative Expenses(1)  10% –  12% 10.3%
Tax Rate  31% –  34% 32.9%


(1) The accounts in BB's consolidated results only include the effect of the acquisition of Banco Nossa Caixa only from 2Q09, and the acquisition of Banco Votorantim only from 4Q09.  Therefore, for comparison purposes, a pro-forma basis has been drawn up, which simulates the consolidation of these banks throughout 2009.


Banco do Brasil's performance in 2010 was in line with most of the estimates published in the market in 2009. Below we present the reasons why certain cases produced actual results different from those originally projected:

Net Interest Margin – the performance seen in 2010 is explained by the intensification of competition in the credit market. Even so, the Bank registered an increase of 18.5% in its financial margin compared to the previous year;

Loan Portfolio for Individuals – despite the good performance seen in the vehicle financing segment, which reported an increase of 32.1% on the year, and exceeded the average growth rate of the individual portfolio segment, payroll lending operations, which account for the largest tranche of lending in this segment, fell short of that originally estimated;

Agribusiness Loan Portfolio – increase in the participation of agro-industry in the portfolio;

Alowance for Loan Losses – improvement in the quality of the loan portfolio due to a change in lending mix, with emphasis on operations with a better credit risk, together with a more favourable macro-economic environment; and

Fee Income – diversification in revenue sources and an increase in services provided, with the aim of increasing customer base loyalty.


For 2011, Estimates Confirm BB's Confidence in Business Expansion

In light of the economic scenario and Banco do Brasil's main strategies, below we set out our guidance for 2011:

Indicators  Estimates for 2011
 Recurring ROE   21% – 24% 
 Net Interest Income(1)   16% – 20% 
 Total Deposits   14% – 18% 
 Domestic Loan Portfolio   17% – 20% 
 Individuals   19% – 23% 
 Corporates   17% – 20% 
 Agribusiness   5% – 8% 
 Allowance for Loan losses   3.3% – 3.7% 
 Fee Income     12% – 17% 
 Administrative Expenses    10% – 13% 
 Tax Rate   31% – 34% 

(1) the Net Interest Margin indicator has been replaced by expansion in Net Interest Income.


Accountability

The table below shows the targets and objectives contained in the 2009 Annual Report, and provides a statement on the status and degree of achievement of the targets established. You will also find a statement with respect to the socio-environmental challenges proposed in 2009:

To become a benchmark in Performance and sustainable businesses. The Bank ended the year reporting Net Income of R$11.7 billion, up 15.3% YoY, with a Return on Equity of 27%. In the constant drive to be a benchmark in sustainable performance, in 2010 BB carried out a workshop for its executives that updated BB’s sustainability action plan, Agenda 21 Banco do Brasil 2011-2013.  You can find the the main actions for Agenda 21 for 2011 in the end of this chapter.
Expanding share of the lending market. BB's loan portfolio amounted to R$358.4 billion, up 19.1% on the year, representing a market share of 19.8%.  This market share showed a slight drop compared 2009's figure of 20.1%. Taking the broader concept, which includes pledges and guarantees provided, the loan portfolio totalled R$388.2 billion.
Increasing participation in capital markets. BB strengthened its capital market area and was well positioned in Anbima ranking terms in issues of fixed income securities, with a 19.3% market share, being the leader in the securities segment.  In the equity market, considering distribution criteria, BB-BI reached 1st position in the ranking of Anbima, with a 60.5% share of this market.
Expanding distribution capacity for products and services. The customer service network of the bank amounted to a total of 48,344 points of service, including its own network, shared network and bank agents.  In 2009 the number of points of service was 39,588. In 2010, BB inaugurated 190 new branches and invested in technology to expand and improve its various virtual channels, among them being the Internet, ATM and mobile phone access.
Improving the management of clients and distribution channels. In 2010 the Bank initiated the implementation of a new customer relationship model. In addition to this, it introduced various innovations in its service channels, both physical and virtual, developing solutions for the Internet and mobile phone applications.
Strengthening operations in the value chain, for trade cooperatives and associations. As of  December 2010 BB provided support for 192 Local Production Arrangements – APL, with 19,900 businesses served.  A total of R$2 billion was paid out, with R$1.6 billion in working capital. In 2009, BB supported 184 APLs, with 16,400 businesses served, and R$1.4 billion paid out.
The Sustainable Regional Development Strategy catered to more than 3,843 municipalities, with more than 1 million beneficiaries.
Expanding international operations. Banco do Brasil has a physical presence in 23 countries and through a network of more than 1,000 representative banks, covers 140 countries, being the Brazilian bank to have the largest owned service network outside the country.
In 2010 BB achieved the status of Financial Holding Company to operate in the US retail banking market, and acquired 51% of the total capital of Banco Patagonia in Argentina, and began negotiations with Banco Espírito Santo of Portugal and Bradesco to increase the level of business in Africa. These initiatives show the progress that BB has made in its internationalization strategy.
Developing and improving the management of employees' knowledge and skills. A constant challenge at Banco do Brasil, is the development of its employees skills through classroom-training and self instruction.  By the end of December 2010, there were a total of 3,967 student grants and a further 5.356 postgraduate grants in place.
Joining the Dow Jones sustainability index. This continues to be a challenge. Despite not having yet joined the index, the Bank has considerably improved its ranking performance. Since 2009, BB has already been positioned among the top 15 of financial organizations with the best score in the world, which has become an international reference of sustainability in  “The Sustainability Yearbook 2010” published by SAM – Sustainable Asset Management.
Expanding and strengthening operations in insurance, pensions, saving bonds, consortia and cards. In 2010, BB concluded the restructuring process in its insurance division, increasing the earnings from this segment by 36% compared to 2009 reporting a total of R$1.4 billion. New partnerships have been signed and a new segment of operation, the dental plan segment, became part of the range of products offered.
In the payment means segment, BB increased its participation in the capital of Cielo and in Companhia Brasileira de Soluções e Serviços (CBSS) by acquiring a stake from Banco Santander. In addition to this, it established a new partnership with the telecommunications company Oi for the creation of Paggo Soluções. Of particular note was the partnership formed with Banco Bradesco and Caixa Econômica Federal for the duration of the first national card brand in Brazil, Elo.
Expanding the use of strategic, business and operational partnerships within Brazil and abroad. This year, the strategic partnership with Banco Votorantim produced some positive synergies, consolidating its position.
Many partnerships were signed in the areas of insurance, cards and ATM sharing, as presented above.



Socio-environmental challenges published in the 2009 Annual Report


Socio-environmental challenges for 2010 Implementation
To develop new education and communication campaign programs, which cover socio-environmental aspects for internal and external public audiences. In 2010, BB launched the Programa Água Brasil (Brazil Water Program) in a partnership involving the Banco do Brasil Foundation – FBB, The National Water Agency – ANA and WWF-Brazil. Among the various initiatives that form part of Brazil Water, the program has a particular aspect which focuses on working on community initiatives and the engagement of society in defence of the Water Cause. Through awareness initiatives, BB is proposing to bring about changes in the attitude of the public audiences with which it relates.
Improve and expand BB's Eco-Efficiency Program, so as to guarantee better management in the consumption of natural resources by the company . In 2010 a schedule was defined for the expansion of the eco-efficiency program, with the commitment of the intervening areas, formalised in Agenda 21 2011-2013, for the conclusion of the process of the introduction of selective waste disposal in the premises of BB, located in the municipalities that practice segregated garbage collection, or garbage collection associations/cooperatives, by the end of December 2012.
Improve the process of corporate ethical management at BB. In 2010, with the objective of improving and making progress in ethics management, BB approved the creation of 28 Ethics Committees, a Supervisory Committee and 27 state committees. It is their task to analyse and pass judgment on deviations from ethical conduct by employees. The State committees have employee representatives, chosen by election. (More information on this can be found in Chapter 8 –Connection–Employees–Ethics Management).
Improve the methodology for the evaluation of socio-environmental risk in the granting of credit, and in other internal processes. With the creation of the Brazil Water Program a multi-disciplinary work fund was set up focus on the perfecting of the criteria used in Banco do Brasil's financing and investment processes, contributing to a reduction in socio-environmental risks and impacts.
Develop new products and services with a focus on socio-environmental questions, with particular emphasis on combating of climate change. BB's sustainable development unit (SDU) intervenes in the process of creation and updating of all of the Bank's products and services.  In 2010 alone, SDU issued 45 reports with respect to the adherence of BB's products and services to the Company's socio-environmental directives. The Brazil Water Program, created in 2010, is also committed to the development of new products and services with a focus on socio-environmental questions, defining a special focus for dealing with this theme: New Businesses.
To revitalise the Voluntary Work Program among the employees and outsourced workers at BB and consolidate support initiatives among the communities. The revitalization of the Bank's Volunteer Program will continue in 2011, with the aim of expanding the proposed initiatives.

In 2010 the following initiatives were implemented:

- increasing resources available for the support of social projects developed by institutions in the third-age segment, which have the participation of volunteers from the Bank – Projeto Voluntários BB;

- training of representatives on the citizenship committees consisting of BB's employees throughout the country, as users and multipliers of the Portal of Covenants and System of Covenants of the Federal Government;

- inclusion of the volunteer category Prêmio Valores do Brasil, with awards given to the five best projects presented by volunteers from BB realised by the entities in which they carry out their activities.

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