BMG is a privately owned financial institution controlled by Mr. Flávio Pentagna Guimarães and his family. Being part of a wider group of companies, or the BMG Group, which is also controlled by the Guimarães family, BMG is a corporation (sociedade anônima) incorporated on March 25, 1965 under Brazilian Corporate Law. BMG Group has investments in real estate, agriculture, service and food processing sectors, among other industrial activities, and the financial division, represented by BMG and its subsidiaries, which account for more than half of the BMG Group‘s stockholders‘ equity. BMG is Guimarães family‘s current primary focus and is managed independently from all other Guimarães family businesses. The Guimarães family has been involved in the Brazilian financial industry since 1930, when it established Banco de Crédito Predial S.A. (later renamed Banco de Minas Gerais S.A.), a bank with a retail branch network in the state of Minas Gerais. This institution was sold in 1973, but the Guimarães family remained active in the financial industry through a leasing company, a savings and loan institution, a brokerage operation, and a consumer finance company.
In March 1985, the consumer finance company then called BMG Financeira S.A. – Crédito, Financiamento e Investimento, acquired 61.83% of the capital of a commercial bank named Brasilinvest Banco Comercial S.A., which was renamed to BMG Banco Comercial S.A. In December 1988, BMG Financeira S.A. – Crédito, Financiamento e Investimento became a multiple services bank and, in April 1989, its name was changed to Banco BMG S.A. In July 1991, BMG increased its participation in BMG Banco Comercial S.A. to 99.65% of its common shares and 98.73% of its preferred shares. In 1993, BMG Banco Comercial S.A. was merged with Banco BMG S.A.
Until March 14, 1994, BMG was registered with the CVM as a publicly held bank and its shares were traded on the Brazilian stock exchanges. In October 1993, the stockholders approved the delisting of BMG‘s capital and, as required by Brazilian law, an offer was made by the Guimarães family to all minority stockholders to purchase shares in BMG at a price based upon on BMG‘s net asset value as of January 30, 1994, indexed to the Taxa de Referência. The offer terminated in February 1996.
Until 1993, BMG and the leasing company, BMG Leasing, were separate institutions that shared common management. In August of that year, BMG acquired 99.94% of the common stock of BMG Leasing from members of the Guimarães family. The activities of BMG were further consolidated in February 1994 when BMG acquired 95.66% (increased to 96.96% in the second half of 1994) of the total capital of BMG Corretora, a stock brokerage house, and in February 1995 when BMG acquired 99% of the quotas of BMG Factoring. Both companies had been owned and controlled by members of the Guimarães family. BMG Factoring ceased to be held by BMG on April 1,2009.
Until the mid to late 1990s, BMG‘s core business was wholesale and consumer financing related to the transportation industry. Together with its subsidiaries, which were managed and operated on an integrated basis with the bank, BMG offered commercial leasing and lending services, primarily to companies engaged in the transportation industry, and provided loan and lease financing to individuals for the purchase of new and used automobiles. Due to unfavorable market dynamics in the wholesale and individual vehicle financing and after the economic and financial crises in Asia in 1997 and the currency crises in Russia in 1998, BMG decided to significantly reduce its exposure to this business. In 1999, the bank began to focus on providing paycheck deductible loans to public sector employees.
BMG bank is recognized as one of the leading providers of consumer credit in the country. Its main business is to provide consumer loans with repayments made through automatic payroll deductions, or paycheck deductible loans, to current employees of public sector entities in Brazil (comprising federal, state and municipal government entities) and to retirees who receive their pensions from the INSS. BMG also provide commercial loans to small- and medium-sized companies, including suppliers and service providers to the Brazilian public sector, other types of consumer loans and paycheck deductible loans to employees of private companies. Prior to December 2008, BMG provided paycheck deductible loans to employees of Brazil’s private companies, consumer loan and lease financing for the purchase of vehicles. Although BMG no longer originate such loans, they remain part of the current credit portfolio.
BMG was one of the first banks in Brazil to offer paycheck deductible loans to public and private sector employees and retirees who receive their pensions from the INSS, or INSS retirees. Having consumers had historically limited access to credit in Brazil, paycheck deductible loan segment has grown out of a need for alternative sources of consumer financing. Consumers have been able to use paycheck deductible credit to replace more traditional and more expensive credit lines such as bank overdrafts and credit card financing. Payments on paycheck deductible loans are deducted directly from the employees’ or retirees‘ paychecks pursuant to an irrevocable deduction authorization as provided for under Brazilian law. BMG’s default experience on paycheck deductible loans has been relatively low as credit exposure is essentially transferred from the consumers to their employers or the INSS. The largest employers from which the banks accept paycheck deductions in support of banks loans are principally Brazilian Government entities, including the federal government.
To manage the strong growth of BMG’s credit portfolio, over the past seven years the bank have engaged in assignments of loans, or credit assignments, to other financial institutions and to FIDCs. Under most of those credit assignment arrangements, BMG commits to repurchasing from the assignees defaulted installments, or the entire amount, of any non-performing assigned loans. Credit assignments allow BMG to realize in cash the value of the assigned loans and to focus resources on originating new loans. Credit assignments play an important role in the bank’s funding strategy by providing liquidity, beside its considerable impact on income statement.
Focus on paycheck deductible lending has allowed BMG to develop an in-depth knowledge of the product and to position itself as a leader in this specific segment of the Brazilian consumer credit market. This focus has allowed BMG to benefit from the strong growth in the paycheck deductible loan market, while improving its financial performance and returns.