BMG reaffirms the strategy to focus on maintaining the growth of paycheck deductible credit portfolio, market position in the paycheck deductible lending segment and the efficiency of operations and building on competitive strengths in order to maintain the financial performance. The principal components of BMG’s strategy are discussed below.
Focus on public sector paycheck deductible loan products and markets. BMG believes that there are significant opportunities for leveraging market position in the paycheck deductible lending segment in order to grow the bank’s customer base and expand the products and services offered in this segment. To further this strategy, the bank intend to:
- strengthen existing relationships with most successful bank correspondents;
- establish agreements with new public sector entities to provide loans to their employees;
- strengthen existing relationships with public sector entities and the INSS to increase paycheck deductible loan penetration;
- continue to pioneer the development of new paycheck deductible loan products; and
- establish joint ventures with other financial institutions to develop new paycheck deductible loan products.
Maintain asset quality and adequate funding: The continued success of business and the capacity to take advantage of growth opportunities depend on BMG’s ability to maintain asset quality and adequate funding. BMG intend to continue to grow credit portfolio under current guarantee, credit risk assessment procedures and guidelines, which have been a key factor behind the relatively low historic loan loss experience. As part of the bank’s funding strategy and to support the growth of credit portfolio, BMG will continue to engage in credit assignments to a number of other financial institutions and FIDCs. In particular, the bank has entered into credit assignment agreements with Banco do Brasil, Caixa Econômica Federal, and Bradesco.
Continue to diversify funding sources. BMG will continue to diversify funding sources by accessing the international capital markets, through the use of short-, medium- and long-term financing, as well as credit assignments to other financial institutions and FIDCs. BMG intend to use the net proceeds of the issuance of the notes to provide additional on-balance funding to support the continuing growth of consumer credit business and to increase the amount of reference capital.
Maintain and improve efficiency ratio: BMG intend to maintain simple and lean corporate structure. The scalable bank correspondent network allows BGM to grow lending business without significant investments in additional facilities, systems or personnel. Through the use of new software systems, including BMG Consig, BMG have been able to facilitate and expedite the interaction and communication process between bank and sales force network. BMG intend to continue to focus on maintaining low expense ratios and improving the efficiency of operations through the use of technology, while taking advantage of operational gains resulting from economies of scale.
BMG attributes one of the leading position in the Brazilian consumer credit market to the following competitive strengths:
Leading position in core markets: BMGis one of the leading banks in the Brazilian consumer credit market, which includes personal credit, credit card financing and in-store financing. The bank believes that is the market leader due to strong brand recognition in paycheck deductible lending, a segment of the personal credit market.
Solid and resilient industry and product fundamentals: The growth of the Brazilian banking industry, and the consumer credit market in particular, is a fundamentally solid and resilient trend given the low levels of credit penetration in Brazil and the historical lack of access of the Brazilian population to banking services and products. Paycheck deductible lending is one of the fastest growing segments within the consumer credit market, and is often one of the most attractive sources of financing for public sector employees and INSS retirees. As such, BMG believes that this segment will continue to grow steadily and that, as one of the first banks to focus on this segment, with considerable expertise and nationwide distribution channels, it is well positioned to continue benefiting from such growth.
Strong origination platform: The BMG paycheck deductible loan origination is primarily conducted through a sales force network comprised of third-party service providers, mainly bank correspondents who have long-standing relationships with BMG. Each of BMG’s bank correspondents are supported by a team of agents, providing a strong sales network in almost all major cities in Brazil. The force network targets INSS retirees and employees of public sector entities with which BMG have agreements to provide paycheck deductible loans. The structure of this sales force network provides BMG with flexibility, focus and access to a strong origination pipeline from government entities, while aligning banks’ interests with those of bank correspondents. BMG do not operate a retail branch network because this sales force network provides a broad sales coverage in Brazil in a more cost effective manner and allows BMG to reach a portion of the Brazilian population that cannot easily access the traditional banking system.
Conservative risk profile: BMG believes that paycheck deductible loans have a lower credit default risk than consumer loans made without the paycheck deduction mechanism. Because 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, the banks’ default experience on this kind of loans has been relatively low as credit exposure is essentially transferred from the consumers to their employers or the INSS. Currently, the largest employers from which BMG’s accepts paycheck deductions in support of loans are principally Brazilian government entities, including the federal government. Under Brazilian law, the federal, state and municipal government entities are required to give priority to wage and social security payments, from which deductions are made to repay the paycheck deductible loans that BMG provides, over amounts owed to their unsecured creditors.
Efficient Operations: BMG believes that is one of the most cost-efficient banks operating in Brazil. The efficiency reflects bank cost-conscious culture, historical and ongoing efforts to reduce costs and the benefit of having an outsourced and scalable origination platform through banks’ correspondents.
Unique proprietary technological platform: BMG has software systems, which are continually updated, that enhance the bank ability to manage large volumes of loan origination and centralize management information systems, including administrative, accounting, customer management, budget preparation, and control systems. In particular, the BMG bank have a proprietary platform interface - BMG Consig - which allows public sector paycheck deductible borrowers and their employers to request, approve or manage paycheck deductible loans over the internet, intranet or PC-based software. Due to the sophistication of software systems, BMG invests significant amounts in maintaining and updating them. BMG believes that BMG Consig is one of the most sophisticated interfaces currently available in the Brazilian market that allows electronic exchange of information between bank, borrowers, employers‘ human resource departments and employers‘ payroll systems. The paycheck deductible loan process is completely automated, from the origination of the transaction until the granting of the loan, which reduces the amount of commissions that BMG pays for bank correspondents. BMG Consig is a key differential for entities when selecting a bank to provide paycheck deductible loans to their employees.
Entrepreneurial culture and ability to adjust to changing market conditions: BMG believes that the bank entrepreneurial culture is one of the major competitive advantages. BMG were one of the first financial institutions to offer paycheck deductible loans to public sector employees in 1999 and to INSS retirees in 2004. In 2003, BMG was one of the first banks to structure and establish a securitization program through the use of FIDCs, and, in 2004, were one of the first banks to establish and enter into sizeable credit assignment agreements with other financial institutions.
BMG is also pioneered paycheck deductible loans for the purchase of durable household goods in 2006, establishing direct relationships with manufacturers of durable household goods for the provision of these loans, and the development of products such as the BMG credit card, a credit card with paycheck deductible payments in 2008.
Besides that, focused management enables the bank to remain flexible and to adjust quickly to changing market conditions. Strategy of focusing on core product of paycheck deductible loans constitutes an important competitive advantage that gives BMG the ability to anticipate market movements, identify opportunities, develop new products and quickly adjust the bank strategy to take advantage of market opportunities or reduce exposure to unfavorable conditions.