By Brazil Stock Guide – Bradesco (B3: BBDC4; NYSE: BBD) said a proposed capital increase of up to R$10 billion will give the bank greater flexibility to step up its transformation program, expand its businesses and protect the balance sheet as Brazil’s credit environment becomes more challenging.
The initiative came from Bradesco’s controlling shareholders, who have made a firm commitment to subscribe for at least R$8 billion. That is roughly twice the R$4 billion they would contribute based on the controlling group’s approximately 40% ownership stake.
Management explained the transaction in two rounds of discussions on Thursday: first at a press conference and later during an earnings call with analysts.
CEO Marcelo Noronha said the controlling shareholders identified an opportunity to strengthen the franchise, rather than simply purchase additional shares. Their commitment, he said, represents a vote of confidence in the bank, its management and the initiatives implemented since the transformation program began.
“We are in the midst of a major transformation, with the potential to take bigger steps in that process and deliver more,” Noronha said.
The program began with 10 broad workstreams that were subsequently expanded into more than 800 initiatives. The funds are not earmarked for any single project, but will increase Bradesco’s ability to invest in technology, artificial intelligence, distribution channels, customer segmentation and new lending platforms.
“This gives us greater flexibility to grow,” the CEO said. The additional capital will also allow Bradesco to pursue strategic moves if opportunities arise that meet the bank’s return requirements.
Capital raise will directly strengthen tangible equity
Noronha defended the decision to maintain a high Common Equity Tier 1, or CET1, ratio. “A bank can never have too much strong capital,” he said, responding to investor skepticism about the need to raise fresh equity even after the Bradsaúde reorganization.
CFO Cassiano Scarpelli said the R$10 billion would go “straight into tangible capital” — the portion of shareholders’ equity effectively available to support assets, extend credit and generate earnings.
According to Scarpelli, the capital increase will allow Bradesco to use its own capital more efficiently, expand its capacity to leverage the balance sheet during more favorable economic cycles and reduce the relative weight of deferred tax assets, or DTAs, in its capital structure.
The CFO said Bradesco does not have a specific target for tangible equity. Its objective is to maintain a robust capital structure, with more resources available to generate earnings and support the next growth cycle.
The capital raise is expected to add approximately 0.9 percentage point to Bradesco’s CET1 ratio, which stood at 11.3% at the end of June. Including an additional 1.4-percentage-point benefit from the Bradsaúde reorganization, still subject to regulatory approval, CET1 would reach 13.6% on a pro forma basis.
Noronha said the delay in recognizing the full capital benefit from Bradsaúde is procedural. The required financial statements were recently submitted, and the bank is awaiting clearance from the relevant regulators.
The capital increase will also prepare Bradesco for the gradual tightening of regulatory capital requirements through 2028. As the loan book expands and risk-weighted assets increase, the bank must hold more equity to support its operations.
Bradesco will continue paying the maximum allowable JCP
Bradesco intends to continue paying the maximum allowable amount of interest on equity, or JCP, even after the capital increase, Noronha said. JCP is a tax-advantaged form of shareholder distribution commonly used by Brazilian companies. The bank currently has no plans for another capital raise beyond the transaction already proposed.
To make it easier for minority shareholders to participate, Bradesco brought forward to September two JCP payments previously scheduled for October and January. Long-term investors may therefore use the proceeds to subscribe for their share of the capital increase.
Management also announced the capital raise before releasing its quarterly results because another JCP payment was scheduled for July 31. Noronha said some shareholders might otherwise have reinvested that cash in other securities before learning about the subscription opportunity.
Shareholders who do not participate in proportion to their holdings will be diluted. According to the CEO, the transaction is equivalent to slightly more than 5% of the bank’s shareholders’ equity.
Larger capital base raises the bar for ROE
The stronger capital position comes with a trade-off: the larger the equity base, the more profit Bradesco must generate to preserve or increase its return on equity.
Noronha acknowledged that the transaction raises the profitability challenge. “When we raise capital, we set a higher bar for ourselves on ROE, because the capital base increases and we have to generate a greater return,” he said.
Bradesco ended the second quarter with an annualized return on average equity of 16.2%, up from 15.8% in the first quarter and 14.6% a year earlier. Noronha estimated the bank’s cost of equity at around 14.5%, suggesting profitability has moved back above the return required by shareholders.
Despite the larger capital base, the CEO expects ROE to continue rising. Management also reaffirmed its commitment to increase profit quarter after quarter, supported by the transformation program, productivity gains and revenue growth.
Recurring net income reached R$7.05 billion in the second quarter, up 16.2% from a year earlier and 3.5% from the previous quarter. It was Bradesco’s 10th consecutive quarter of earnings growth.
For 2026 as a whole, the bank expects the profit implied by its five guidance ranges to land between the midpoint and the upper end of expectations. Fee income is expected to finish close to the top of its range, while operating expenses should come in near the lower end.
Credit environment is becoming more challenging
Noronha acknowledged that Brazil’s credit environment has become more difficult and that the pressure could extend into 2027. Household debt-service burdens have increased, while interest rates remaining high for longer are squeezing companies with thinner margins.
Bradesco argues, however, that its risk profile has changed. Unsecured personal loans fell from slightly more than 15% of its individual loan portfolio in 2023 to approximately 12%, while growth has shifted toward secured products and higher-quality borrowers.
Of the R$37 billion increase in lending to small and medium-sized companies over the past 12 months, R$31 billion came from loans guaranteed by FGI and FGO, two government-backed credit guarantee funds. Bradesco’s combined portfolio under those programs is approaching R$80 billion.
Although these loans carry public guarantees, they can temporarily increase reported nonperforming loans and provisions. During the interval between a borrower’s missed payment and reimbursement by the guarantee fund, an exposure may migrate into Stage 2 or Stage 3 under expected-credit-loss accounting and require additional provisions.
Noronha said the cost of credit could edge higher because of loan growth, the expansion of FGI and FGO financing and specific rural exposures. Even so, the bank does not expect additional material stress in 2026 beyond what is already incorporated into its forecasts.
Bradesco’s expanded loan portfolio reached R$1.14 trillion at the end of June, up 11.6% from a year earlier and above its 8.5% to 10.5% growth guidance for 2026. The bank maintained the forecast and expects growth to converge toward the range, partly as wholesale exposures are sold into the secondary market under its originate-to-distribute strategy.
The capital increase therefore serves two purposes. It gives Bradesco additional resources to move faster on its transformation and pursue growth, while also providing an extra buffer against a more difficult credit cycle without compromising execution or its ability to return capital to shareholders.
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