Banco Bradesco Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
October 31, 2024

There are 5 speakers on the call.

Operator

Good day, everyone. I'm Marcela Moroina, CEO of Bradesco. I am here to present the earnings of the Q3 of 2024. I'm speaking at Sidagee Gideaus. It's a little over 10:30, 10:31.

Operator

It's a pleasure to be with you again. Thank you for joining us. And we'll speak about the balance sheet of the 3rd quarter, and then I'll sit with my colleagues to answer some of the questions from our colleagues of the sell side. I'll start with the earnings of Q3 'twenty four, which we received. We had a recurring net income of 5,200,000,000 barrels growing almost 11% compared to the 2nd quarter 24.

Operator

In the past quarter, as a reminder, we grew more than 12% quarter on quarter. So we have been delivering what we committed to do. We don't promise things, we deliver things. And we are growing step by step consistently.

Speaker 1

And here,

Operator

we have a snapshot of everything we are going to present to you today during this video

Speaker 1

conference call.

Operator

Our profitability is growing. It's a solid and safe profitability growth. Our NII driven by client NII and reduction of loan loss provision expense. We'll speak more about that. Productivity gains with rising revenues, risk risk of our credit risk are controlled and the footprint adjustment, balanced credit portfolio growth and we have improving delinquency ratios, operating in Cielo as a result of the tender offer we had and with the closing in the month of September.

Operator

So moving forward, let's speak about total revenue in the quarter, €30,600,000,000 And I'm always comparing quarter on quarter more than year on year, so 3.7% quarter on quarter. And we wanted to break it down for you. Fee and commission income. So we have 3 blocks here. Topol net interest income growing 2.7% quarter on quarter, fee and commission income growing 2.8 percent, the insurance group 8.7% growth.

Operator

And we have this performance of growth comparing quarter on quarter, So increasing 3.7% in terms of total revenue. Oil loan book almost 944,000,000,000 yen again growing 3.5% quarter

Speaker 1

on quarter. We've given

Operator

you some data of average daily origination, loan granting through digital channels. But what matters is to show you the whole set. We're growing in all segments of clients, in of 0.7% and small and medium sized enterprises up almost 17%. And I'll speak more about that momentarily when we speak about the loan SMEs. But let's look at the whole macro picture because it gives us a lot of information.

Operator

1st, on individuals, growing 3.9% quarter on quarter. Now let's look at the mix. Payroll deductible loans. I think that the Brazilian Central Bank communicated their September statistics. We grew little bit above the market.

Operator

But please note, we grew 0.25% more than the market. So we are growing in line with the market, perhaps with a little more traction. But let's see where we are growing. Payroll loans, we have an important portfolio collateralized portfolio. The same goes to vehicle, 4%, real estate finance, which brings a lot of client disability and long term relationship, up 3.3% and 11.2% year on year.

Operator

And this applies to rural loans with 16.5% growth. So when we look at the whole mix, we are talking about growing loans to individuals but in very safe lines of credit with collaterals.

Speaker 1

In the

Operator

case of credit card, quarter on quarter, we grew 2.2%. However, when we break down the portfolio and look at high net worth clients, we're growing 4.5%. When we speak about NII, it will note that in the case of credit card, it's losing share in our NII because the lower income clients, their statements fully every month. So we gain based on interchange fees and not based on intermediation. When I look at consumer credit growing 5.9% quarter on quarter.

Operator

When we look at this accounting line item, that's growth of personal loans but very high margins. But what I mean to say is that we are doing our homework, so we can have a good quality of assets. What we are originating here is half of personal loans we're originating is with collaterals, guarantees. Secondly, the other half of this is personal loans to high net worth individuals and only the small card is going to lower income individuals with a slightly higher margin and it requires more provisions. But overall, it is not going to change our curve of losses and delinquency.

Operator

What does this mean? It means by working with smaller spreads. When I look at payroll deductible loans, the INS alone, the spread we're working with is 30% lower than the spread we used to work with the So we have a much safer portfolio requiring much less provisions and with an NII growing, we're growing steadily because we're working with better quality. With companies, we are growing 3.2% quarter on quarter. When we speak about micro and SMEs, we'll talk about a 5% increase.

Operator

Please note that our big growth comes from the middle market with companies earning more than BRL50 1,000,000 per annum. They are the ones growing

Speaker 1

more, but

Operator

in the other sectors. In retail, the SMEs making between 3,000,000 to 50,000,000 barrels. They're also growing. We're growing all of them,

Speaker 1

but we're growing even more in the middle market.

Operator

Now let's look at the portfolio. Real Estate, 5.5% with collaterals guarantees. In foreign trade finance, we have a lot of traction with large companies and with the middle market. With the cost of risk, that is very good. And the same applies to CDC and vehicle leasing, growing to 33%.

Operator

When we break down working capital, you will see in the full income statement that we have securities with the ventures and working capital. So net of the large companies and if we focus on the little market and small businesses, these two segments, up to €3,000,000 and €3,000,000,000 to €50,000,000 What do we find? For your information, number 1, in some segments, our whole origination or 80% of origination is collateralized. Real guarantees or we can ensure good quality receivables or we work with government programs such as Pro, CRED, Pro NEP and FGI. Depending on these, we go to 4,800,000 turnover a year in the case of FGI with companies of up to 300,000,000.

Operator

So we're growing quite well here. So what is the decision? What was our decision in the beginning with all of the modeling? Our guiding star for decision making regarding risk appetite and growth, it's called RAR, risk adjusted return. We ran a lot of simulations in terms of growing working capital for small businesses.

Operator

And we realized that even with a much higher rate, we had an RAR much higher, a 60% when we operate with FGI and ProNow. This is what is guiding us. NII is lower, but the level of cost of risk and provisions is much lower and this gives us more stability with this portfolio mix and this gives us a with Promap or FGI, the margin is 5%, 5.5%, perhaps one line with a slightly higher. But this is more geared to high middle and large companies than for SMEs. On the other

Speaker 1

hand, losses

Operator

are almost 0 here. So we have good modeling, good models, good traction. This is what we've been doing. And I can tell you that this was one of the leads

Speaker 1

So we

Operator

continue with a very good balance in our vintages, over 30 months growing production based on those modalities I mentioned. Origination was very good in Q3, but always looking at the mix in the rating of clients. I remember that in the prior quarter, I mentioned this. In the case of individuals, in 2019, we had 50%, 51% individuals with a rating between A and B, 74%, 75% in addition to having this mix. And that's why delinquency has dropped vain.

Operator

And we obviously need provisions for these vintages and this is what we're seeing in our cost efforts. Now looking at mass market companies, I'm looking at SMEs, same base, 100, 20 19 average. We have very good vintages. Individuals are growing, real income growing more than 6%. Level of unemployment in Brazil is 6.7%.

Operator

But companies are different. And we want to operate safely with our portfolio mix. It used to have a share in the past a year ago, 8% dropping to 7.5%. That's what I mean. I'm working with the transactors with a better risk.

Operator

Market NII. We have been talking about this with our Investor Relations team and our focus is on the NII net of provision based on risk adjusted return growing 6 mitigates to growing consistently. What we need to look at here and NII constant growth in our NII? That's when we look at RAR for our decision making. And I can tell you, in payroll deductible loans, the level of RAR is good, it's high, attraction.

Operator

But in the case of INAS loans, the spread is 30% lower compared to what we are originating now compared to what used to be originated before the prices were controlled. RAR in working capital, again, it is a high RAR, sometimes 60% of the programs with guarantees. Then we get to credit indicators. All loan indicators dropping more. Delinquency, of course, will start dropping at a lower pace, but we have stable coverage ratios and NPL creation as well.

Operator

And we have the portfolio mix and of course improved efficiency not only with modeling with our credit policies, portfolio management and also improved efficiency in collection And now speaking about fee and commission income, I'll speak about Cielo. Here, we have the normalization of this consolidation. We closed the tender offer of CLN in September. Our fee and commissions income, excluding this was 2.8%, excluding the free stake in CLN, and 4.3% had a negative consolidation of Cielo. And I'm speaking directly about current income.

Operator

During the growth net of Cielo would be 0.3% quarter on quarter. But we have an important comparison when we look at home income, 15% against 1.5% year on year. I talked about the transactors of this growth that is moving us. €55,000,000,000 at Gram brand. Entevio will have an AUM close to €1,000,000,000 of BRL, and this is reflected in an increase in fee income of 11% for asset management.

Operator

For this co asset, we won very important awards in the second.

Speaker 1

Next, looking at operating expenses, the same thing I said about Cielo. When we normalize the consolidation of Cielo, we're talking about a 2% growth quarter on quarter and into 9 months, which is what goes into the guidance, 9.1%. But look at the red box. If we look at personnel plus administrative expenses, our growth in the organization is 0.6% quarter on quarter and in 9 months, 4.6%. So perfectly

Operator

controlled. When we have

Speaker 1

a trend upwards in this indicator, we may have takes expenses, labor expenses without

Operator

considering

Speaker 1

the consolidation of Cielo, the card business. However, we have been investing in Allo, Livalo and the growth of operating expenses there has been a high 2 digit. And even Cielo is now investing in their transformation. But if we exclude that, if we look at the banking business plus the insurance group, then the growth would not have been 8 point 4, would have been 7.2 percent in line with our plan, even with the investment we've made. Now it's also important to look at our footprint revision, another 4 transactions.

Speaker 1

So we come to the 3rd quarter with a change in 1041 points of sale. We had an expectation of 1,000 points of sale, 250 transformations. The number we delivered is higher, but we're still accelerating now in the Q4 of 2020 4, although our client base has grown now additional 1,800,000 clients.

Operator

If we

Speaker 1

look at the insurance group, we had a great performance in premium revenue with a net income of $2,400,000,000 and ROE of 23.7 percent, growth of 8.1% quarter on quarter. And if we look at insurance operations, we had 8.7% quarter on quarter and 4.2% compared to the same period last year, the 9 months. And look at the combined ratio also coming down to 86.6%. You will have all of these figures in our presentation. Our Tier 1 Basel ratio, growing 0.1 full quarter on quarter, now 12.7 percent, stable capital.

Speaker 1

This is what we're showing coming to our guidance. We've had the normalization of Cielo in the mid column. And when we look at the expanded loan portfolio, we've announced earlier this year that we were in line with the guidance, and that's it. We're delivering excellent. When we look

Operator

at net interest income and

Speaker 1

previous quarter. It was excluded from the guidance, but it is now included and we will deliver the guidance as planned. Now a few topics about the change the bank. This is a balance of what we delivered this quarter. We now have a new IT colleague.

Speaker 1

We have made progress in our culture. We have hired not only IT professionals. And of course, that increases operating and of course, that increases operating expenses, but we've hired senior professionals who have joined our team at the bank. We invested in our business unit for credit also in middle market with 8 units, 8 new branches last quarter. Units, 8 new branches last quarter.

Speaker 1

We've also invested in fixed income so that we have more resources to be able to meet the demand. We are also continuing our efforts in footprint adjustments to intergaminant hike. And so here, I told you, we have completed Cielo tender offer, and that did not really impact our result. I mean, it had a slight negative impact. Our result could have been a little better.

Speaker 1

And the John Deere bank acquisition had an approval by CADE. We are expecting the Brazilian Central Bank approval to close the deal this year. So 8 months after we launched the plan, we are now launching a new segment of clients for high net worth individuals, and I'll speak more about that. That is our expectation for the last quarter, more investment in digital channels. We will have more hires in technology.

Speaker 1

We will continue to review our footprint. We will also expand SMEs that segment between £3,000,000,000 $50,000,000 a year. We are also accelerating our gains in cash management. As I mentioned last quarter about Bradesco Espresso, we delivered 2 platforms. We were going to do the rollout until the end of November, but yesterday, we concluded the branch rollout, bringing a better experience to our service centers and also to all users of Bradesco espresso.

Speaker 1

And in the next quarter, I'll bring more news about this. Now coming to the

Operator

conclusion, we have been able

Speaker 1

to grow profitability with a solid and safe position. Our top line is growing. We have traction in all segments and products but focusing on the risk adjusted return, the RAR, because that will determine our net income. We have a new segmentation for individuals. We will talk about that.

Speaker 1

In our transformation efforts, we are accelerating the execution of our plan. And now that's the reason accelerating the execution of our plan. And now that's the reason why we're all wearing the red vest. This is Bradesco's color, but it's a brand new tone because we now have a new segment for high net worth individuals. It is here under the wealth management vertical with a different value proposition for our high net worth individual clients.

Speaker 1

I will now show you a video. It's a 3 minute video because we could not give you a longer presentation, but this video will be talking about the new segment. And the video is presented by the project leader, the person in charge of implementing the new segment, Andre Saabuji. So let us now watch the video, and I will come here for the Q and A session we will have immediately after the video. We also have our colleagues to talk to you, to talk to the buy side and to the sell side.

Speaker 1

So let's watch the video, and then we will be here with Cassiano and Andre to answer your questions. Thank you for being with us. Let us now look at our new segment. Thank you. Listening to our clients has made us build 8 decades of a solid one of the largest financial groups in the

Operator

world and

Speaker 1

one of the best market wealth managers. This close relationship with clients has inspired us to launch a new segment, a new proposal in our strategy of wealth management, considering different surveys internationally, extends data analysis and technology advance. We now have expended these resources to the whole organization. With all of these information, we build a new value proposition with a new concept of service closer to clients. Exclusive credit card, international full banking connecting the excellence of our functions also in the United States, in addition to a unique experience and benefits to value our clients.

Speaker 1

This segment sets high relevance for Redesco and now we want to improve our relationship and gain principalities among these lines, improving also our profitability, customer satisfaction, and the NPS. So now I will invite you to come and learn more about this new concept, new solutions in a unique experience. Come and see our new segment for high net worth individuals. Red is the color of sophistication. Some other believe red is the color of emotion.

Speaker 1

However, we know for certain that red has a highlight. It is different. It brings focus to what is principle. Welcome to Bradesco Principle, the new Bradesco segment.

Operator

If we must have time,

Speaker 1

you can count on your relationship officer and our new offices that provide services in extended working hours. If you're looking for performance, you now have the excellence of the best bank to invest, aligned to the expertise of our brokerage, coming well planning to offer you a unique experience in a single place. If we want to be international, you now have a full experience also in the United States with your current accounts, US issued credit cards and many more benefits. Fast pass in Brazilian airports. This is the new segment, Bradesco principle, the same Bradesco you already know, but at a higher level of sophistication you cannot even imagine.

Speaker 1

So this was the summary of our new segment we saw on the video.

Operator

I must

Speaker 1

tell you we feel great pride in this team that worked to launch the new segment. We have 3 flagships, which you could actually see on the luxury. 1 will be here on between 450,050,000 clients in the new segment, which we will continue to expand until 2026. We will also have geographical expansion throughout Brazil in the main locations that have been selected for this new segment for high net worth individuals with a new value proposition for these clients. And I believe we will have more opportunity to talk about that in the future with you.

Speaker 1

And now I'll try over to you. Thank you, Marcelo. Thank you, Cassiano. It's a pleasure to be here with you. Good morning, everyone.

Speaker 1

I'd like to tell you that Iva Gontichaud, CEO of our insurance group, is here with us not only in corporate but also in payroll deducted loans. Yves Ben Nordea spoke about that in his presentation. So I'd like to hear from you about growth and the prospect of growth. And what is your number one concern? If inflation, unemployment were maybe the price, you would have to be more prudent with that.

Speaker 1

I'd like to understand the speed of this recovery. Thank you, Rusman, for the question. It is a deep question, and it certainly relates back to what I said. Yes, we are conducting this movement based on data. We want to have the right mix and the right ratings.

Speaker 1

Because let's think about it. Think about an individual who went through financial stress in the last 3 years. As they recovered completely, they may have a So we do not want to play the game of financial stress. We want to have a safe portfolio with a great risk adjusted return because that has an impact

Operator

on the bottom line.

Speaker 1

However, as we build this new business unit and with the integrated block we are conducting, what have we seen? Well, we realized that if we could use FGI and pronoun more, we would have a much better risk to us

Operator

in the future. Because although

Speaker 1

the NII can be lower, you need less provisions that

Operator

say that is a more

Speaker 1

art because that's the name of the game. We may not have a quick growth of NII, but we have seen a significant

Operator

growth of

Speaker 1

our net income. Of our net income. Don't be surprised. Our provisions are now lower than in the past. Why?

Speaker 1

Oh well, the quality of risk is much better. And also, the mix has a much better quality. And when we look at the current economic scenario,

Operator

to be

Speaker 1

more, grow faster. This would be a more stressed scenario, but I don't really believe in it. Let's wait for the new measures to be taken by the Finance Minister, Minister Haddad, because yesterday we had important statements that we will have more expenses, which means that we will need

Operator

more expense

Speaker 1

control. And we believe this is good news. However, what do I view as the most probable scenario? Interest rates growing up to 13%, maybe closing the year at 11.75 percent. Unenployment in Brazil is currently 6.7%.

Speaker 1

However, there are regional variations. For example, Sao Paulo has a higher unemployment and also Central West that has 5.2 unemployment rate. You see, so we have regional differences in Brazil. And the GDP will be growing 3% this year, inflation about this scenario towards the future,

Operator

Rusman, what will we see? I mean,

Speaker 1

I'm sharing more information with you using your question, Rusman. You will see the GDP will probably grow slower,

Operator

income? It

Speaker 1

may grow between 2% and 2.5% next year. So look here, the market for individuals will possibly be good. We have great traction. That's what we want because this is risk we consider good. We actively participated in the auction of the INSF because we want to have a clear strategy to operate in the slide of business, so we will continue to monitor this area.

Speaker 1

If we had a financial stress, we feel safe because of our current mix. Now for individuals, but what we are truly looking at is the risk adjusted return. This is what really moves the needle. Now looking at about what we've been doing. And we're growing in cross sell.

Speaker 1

We are attracting new clients. We are attracting companies payroll. So my answer to that journalist was, what is the scenario? Will it But for us, here, we are very much aware of the current scenario. We see a good correlation in terms of interest rate increase.

Speaker 1

We continue to monitor our risk models and also NPL. However,

Operator

we have 2

Speaker 1

important variables here, especially one which is when the population loses income. And how may that happen? Well, if you have a very high inflation, if you look at the current deviation, that would be the price of beef today. But the other prices seem to be under control. And the other issue would be if the unemployment rate would soar because that would end up reducing individuals' income.

Speaker 1

But this is what we project. I believe we will have a controlled expected loss and lower provisions for the new vintages and a growing NII. We will be growing

Operator

in fee

Speaker 1

and commission income. We will be also growing in the insurance group. That's where we place our expectations. So sorry for such a long answer. I just wanted to add more information about the current economic scenario.

Operator

Thank you, Marcelo and Rosman. Positive macro scenario, portfolio growth is the change in bank strategy depending on this acceleration? And will you have to review the plans for next year? Thank you for the question. But let me clarify.

Operator

Perhaps I was not clear. We are not decelerating pronap, pronap ranking. You will see which bank is ranking 1st or second in distribution to SMEs. Companies making us money in the client base. So we have profitability.

Operator

We're leaders in small businesses. Fighting for the number one position with us. So we have

Speaker 1

clients already. We are growing.

Operator

We are growing with clients with a good a number

Speaker 1

of better initiatives for

Operator

our organization which will make our organization more competitive. One of them is the new segment, the principal segment that we were calling the affluent one. And the Credit BU, which is super important for us, with a number of quick wins. Remarkably our penetration and quality of risk. Our portfolio management colleagues improved.

Operator

People remember that in the credit business unit, we created a new unit of portfolio management. They have delivered to us in the portfolio management here in granting loans to clients in our time frame for approval of loans in the wholesale bank dropped by 40% for our own. So we have good traction in large corporates, middle market, SMEs and also individuals. But I want to be together with my team to grant high quality credit and deliver perennial deliveries. And I don't want to have a good margin and then have a trough or picking a trough.

Operator

And also cost management is under control. We are reducing the footprint, and we are managing our personnel and administrative expenses, which are very much under control. And our cost to serve is under control for the whole organization, also in terms of internal processes. Another interesting element to mention is ProCred program was launched, providing collateral for micro companies, micro enterprises in the top end. Very few banks started operating with this.

Operator

Bradesco was the first one. And you can do it all via our app. So we have good traction, but

Speaker 1

we are

Operator

now going to deliver an NII that will go double peak and then get to a trough. And let me add to that, Marcello. There are 2 slides in the presentation that Marcelo just made showing the new credit frontages. The first slide shows our origination in mass retail individuals and then mass market for companies. And we show significant growth in both in Q3 against Q2, even stronger performance in mass market individuals.

Operator

So we don't see any difficulties in growing these two segments, but we're growing carefully because we will look at the longer run. We want to continue to grow quarter after quarter. Thank you very much. Next question by Yuri Fernandes with JPMorgan. Thank you for the question.

Operator

You always mentioned that that's our mission. And regardless of the cost of capital being a little higher, And with the reduction in footprint, we had a reduction in our headcount. But we also hired for the credit business unit and for technology, people with greater seniority and we have to pay them 4 or 5 times more. And that will hit the operating expenses. But still, that's where we are going.

Operator

We will pursue this balance. Of our balance sheet, one of continuity. And this shows that we're very serious about 2025 and in the future to continue to change the bank and the transformation process led by Marcello and under my responsibility.

Speaker 2

Thank you,

Operator

Yuri. Thank you, Yuri.

Speaker 1

The next question comes from Thiago Bautista from B. S. Thiago, please. Hello. Hello, everyone.

Speaker 1

Good morning. My question is about investment in technology. It seems like the bank is investing more in technology to close the gap compared to peers. What would be the impact if the basic interest rate really confirms at this level? What would be the impact in a few years?

Speaker 1

Oh, well, thank you, Thiago, for participating. Thank you for your question. Shows we have an opportunity to increase significantly our productivity because we have more third parties than our own employees that changes our productivity. We also want to have a more senior team. And then we want to roll out this initiative to the whole organization using our enterprise agility, But the fact is that artificial intelligence has

Operator

been with us for

Speaker 1

some time now. BIA has evolved. It's now moving into Gen AI, but BIA has

Operator

in our business units, but we're using that

Speaker 1

very strongly also in our pricing efforts regardless of the value proposition we have in each business unit. So we do have a lot of use of artificial intelligence even in pricing so that we can price in micro clusters even at coming down to the client level. And that will support our digital channels, which we call business experience. So we continue to work hard on this and also on other

Operator

fronts. If you

Speaker 1

think about technology development using Gen AI, we are also using that in our daily work, and that will expand even further. However, we want to translate that into a better experience for

Operator

clients and

Speaker 1

operating efficiency gains. About the interest rate, maybe you'd like to answer. Well, I believe the interest rate curve is still under stress. We'll have to wait and see. However, at first sight, I believe the effect is neutral.

Speaker 1

I mean, from our point of view and looking at 2025, there will be higher floating gains, but then I will have perhaps a lower result in asset and liability management. So even if it is at this level of 13%, I do not see a rate impact. But of course, there will be other consequences. I mean, if we have such a high interest rate, the inflation will be different, and then we will have a different scenario altogether. Yes, let us wait for the U.

Speaker 1

S. Elections, which will also have an influence on this, on the foreign exchange rate and other variables on the Brazilian market. Thank you, Thiago, for the question. Thank you, Thiago. Anil Vas from Safra, do you have a question?

Operator

Thank you,

Speaker 1

Andre. Good morning, Noroja. Good morning, how was the result of the testing you did in the last few months? What was the return you had in the vintages that you tried and then you stepped back? And now you are advancing and collateralized lines.

Speaker 1

Because if we think about fintechs, many of them are providing clean loans without lateral loans. So can you tell us more about this market where you played or did not play in the last 3 to 6 months? Thank you, Daniel, for the question.

Operator

I can

Speaker 1

tell you that we always look at the risk adjusted returns, even

Operator

at the

Speaker 1

wholesale bank. If you talk to any one of our regional managers, they will say, I have a dynamic curve of the risk adjusted return for every client. In that Somnichannel, the officers can have that information on the mobile phone, on the tablet, And they also have a risk adjusted return simulator so you can work on the margin only if you have the right level of risk adjusted return because that is the target that our officers have to meet. And if we look at small businesses, individuals and even I'm not worth individuals, when we do pricing, when we look at the price of risk, when we always consider that in every opportunity we have, in SMEs, we may have an RAR as high as 60%. But when we had clean loans, you could never reach such a IRAR.

Speaker 1

We were at the lower quartile. However, yes, we do have we do provide clean loans in some selected clusters. Remember, we are a large payroll payer for 4 companies. And so I know our clients'

Operator

cash flow. We also

Speaker 1

provide payroll deductible loans, and then you can have other types of relationship that come out of these transactions. So we do have clean loans, but only for very good credit rating clients. And obviously, we always work within a certain range of expected losses compared to the price that is the margin provided by each client. And when we provide clean loans, that is the case. However, we have to be realistic, Daniel.

Speaker 1

Individuals of lower income who had delinquency issues in the past, have they fully recovered? Have they been able to repay all of their liabilities? Do they have a higher risk? I mean, we conduct a battery of tests. We are testing all the time.

Speaker 1

And I'll tell you, Brazil is a blue ocean. There is risk everywhere you look, so you have to take care of your own portfolio. Of course, I respect the strategy of other players, but we feel very confident about what we've been doing to deliver results that can be sustainable. We do provide pain loans. However, that cannot hurt our results.

Speaker 1

I mean, unless you have a specific situation, a very large company, but it's not the case. And thank you for the question, Daniel. And please continue to observe we work case by case.

Operator

Next question from Mario Pierry with Bank of America. Thank you, Marcelo. I'd like to thank Mario with Bank of America for the question. So here's your answer. This is In the combined ratios, we can see substantial improvement in this quarter in all line items in all countries.

Operator

In terms of the claims ratio, CorSo that gives us events related to the South of Brazil. Those events were observed in the balance sheet of Q2 with copper. And now in Q3, without these events in the South, And this Tribune at the bank is very strong also for the insurance business. Thank you, Mario. Thank you, Ivan.

Operator

Next question from Pedro Leduc the first stage of ROE recovery came from loss provision. You got that and then growing the portfolio, getting there too. The next would be NII and that's starting. And NIM will grow depending on the scenario that we mentioned, the portfolio mix. But you can promise, I don't like to promise.

Operator

I like to deliver. So this is the promise that we continue to have and our expectation is to grow our

Speaker 1

NII over time

Operator

and deliver a more consistent ROE system. We should not We'll have the right trained and this will allow us to take the next stride along 2025. Thank you for the question, Pedro. Why the aim is to ask

Speaker 1

We do not have more hedging, but we're monitoring the risk. If the rates go up, you have an opportunity to have gains on the liability side. Good morning. Thanks for this opportunity. Good morning.

Speaker 1

Good morning. And today, I'd like to go back to this conversation about the transformation plan. Yes. We have conducted a number of changes. I would like to hear from you about where you stand in the new compensation plan, both for executives and also at the branch level.

Speaker 1

Loan loss provisions. As I said, we are attracting better ratings, a safer mix. And so we will continue to see delinquency coming down. This is something we believe we will be able to control, unless, I mean, we have a surprise coming from large corporations, which we don't really expect. So I believe it may go back to the previous levels.

Speaker 1

Now about compensation, this is the first 6

Operator

months when

Speaker 1

our compensation is based on individual evaluation. Of course, we have different weights. The level of responsibility of each executive is considered, all client segments and we will see that at year end. Our compensation plan at

Operator

all

Speaker 1

levels, both at ranges and years for executives, each person is being evaluated according to the deliveries. I will now hand it over to Andrei and Graciano because they will speak about our footprint. Now about digital banking,

Operator

I can come back to

Speaker 1

provide an answer to you because we have been working with Tullio. Tullio

Operator

has just joined the company. He

Speaker 1

came from the market. He will be responsible for a few products in the digital mass segment. So we have been working. We will soon be able to provide more information. I will begin talking about our branches.

Operator

Oh, yes, I'd like to add,

Speaker 1

I mean, although they may have a different size, they're still business units.

Operator

Yes. We

Speaker 1

are now at the level of 5,000 points of sale or points of service.

Operator

We did

Speaker 1

see an evolution in the costs to serve. 1041 points of sale is a big number. But we have not only a qualitative and quantitative analysis, but we also look at the behavior of clients. We also have our ears at the breach level to look at the behavior of clients to see if we have any kind of attrition and how our Bradesco espresso is serving

Operator

clients in each region. We anonymized

Speaker 1

all of these points. Actually, for us to participate in the INSS to make to improve our cost to serve in the mass market. So I believe we are in a comfortable position to attract the best profitability for the mass market. Would you like to speak about the loan loss provision? Well, when we look at our points of sale, we are advancing at a quick speed, and we have actually anticipated future adjustments in 2024

Operator

and 2025.

Speaker 1

We have adjustments in 2024 2025. We have temporary expenses to conduct the adjustments. However, this will not be present in our operating expenses, so the impact will be seen as of 2026. Right. We are still in a vicious circle because the Virtua circle will begin in

Operator

2026, right, when we

Speaker 1

will have our efficiency level closer to the target, efficiency level closer to the target, 30%. What it's interesting to say that our plan is being executed. May do we have perfect numbers? Not yet, but we will see a great impact as of 2026. Now about loan loss provisions, we're always based on credit risk.

Speaker 1

As Marcelo said, we now have

Operator

a vintage

Speaker 1

higher quality, so we have lower needs for loan loss provisions. Every time we have a new portfolio, we calculate a new loan loss provision. The credit risk has come down to 3% now, which is very close to what we consider normal. It may even go up slightly but still controlled. So we see a portfolio expansion with controlled credit risk so that we will have a better NII.

Speaker 1

And that is what truly moves the needle at the bottom. And this is what Marcelo said. Thank you, Michio, for your questions. Thank you, Michio, for your questions.

Speaker 2

Thanks for your question comes from Tito Labarta from Goldman Sachs. Tito, the floor is yours.

Speaker 3

Okay. Good morning, everyone. Thank you for the call and taking my question. I have two brief questions, hopefully, if I can. Just first on your deposit growth, we saw a nice pickup on your demand deposits, but savings and time were down a bit on the quarter and still haven't really grown much on a year over year basis.

Speaker 3

Just to understand the drivers of the deposit growth and the demand savings and time, is competition impacting that at all? Or what's the driver behind that in the somewhat muted growth overall? And then the second question was on your fee income because we saw good growth in Asset Management, up 11% in the quarter even though the investment funds and managed portfolios didn't grow as fast. And also the loan fees were up 9% on the quarter. Loan growth was good but didn't grow that fast.

Speaker 3

So just to understand the drivers of those 2 fee income lines, if you can. Thank you.

Speaker 1

[SPEAKER

Operator

UNIDENTIFIED COMPANY REPRESENTATIVE:]

Speaker 1

Now Andrea Tito was asking about its demand deposit has grown, but we can look at it in different combinations now because with some clients, we

Operator

even pay

Speaker 1

I mean because it's good for us to have these demand deposits. So this number is growing. We can provide further information to you after the call. We can provide more details on this, but we are growing in demand deposit. We have a good level of traction in terms of our relationship with these clients.

Speaker 1

Now savings accounts, I mean, it is only natural. This is something very Brazilian, and it is, in fact, a challenge for the real estate market. So but we feel very comfortable vis a vis the competition. We have shown we are competitive. Otherwise, we would not be growing on these lines.

Speaker 1

But yes, we have things coming out of one line and into another line. But we are looking at all of this, trying to do better every day, delivering a non friction experience to clients, be That's clear. Looking for attracting clients using FGC, brokerage firms and investment companies are also doing that. And there's a high demand for CDP, certificates of deposits. But I can talk to you, Tito, about our demand deposits.

Speaker 1

So demand deposits and savings account, although they are growing slightly, that is always connected to the principality of the relationship. When we open an account, we continue to grow 1,800,000 accounts even though we have adjusted our footprint. And the other element is improving our cash. The insertion, the introduction of our cash management, we now have we see this migration and a higher demand for certificates of deposit. Abram has received a number of awards as a wealth manager.

Speaker 1

Abram has received a number of awards and $55,000,000,000 in assets under management. That's also an important number. Yes, about asset management, we said that we have a $33,000,000,000 increase in AUM, now €55,000,000,000 And now we have a performance fee because we had a great performance in some of our funds. So assets under management have been growing quarter after quarter. That's helping us a lot.

Speaker 1

In terms of loans and services, that is something I mean, in

Speaker 2

a number of lines,

Speaker 1

we may have a a lower spread in a few credit lines, but we are having more cross selling, and we have developed skills to work with that. That's why when you look at the top line, you were adding the revenues coming from insurance, fee and commissions and also NII. And if you look at company clients, we

Operator

charge fees

Speaker 1

every we have

Operator

a monthly fee.

Speaker 1

And also, he asked about the capital market. You know that variable income, the equity market is at a standstill right now in Brazil, and that's a pity for the market. However, fixed income is certainly growing. That is why we have more colleagues. We've expanded the team because we see a lot of opportunity here, and we are adding value.

Speaker 1

We believe we will grow this quarter and also next year. This is the expectation we have in the Investment Bank. Perfect. Thank you. Thank you, Thiago.

Speaker 2

Now I'll turn it to Carlos Gomizlappis from HSBC. Carlos, please. Hello.

Operator

Hi, Carlos. How are you?

Speaker 4

Very well. Thank you. So two questions on other segments. You mentioned the investments that you are doing in credit cards. You mentioned the investments that you are doing with Elo and Elo, the investment in debit cards.

Speaker 4

Does it make sense to continue to push the debit cards when perhaps they're going to be replaced by peaks? How do you see that market evolving? And the second would be on your new segment, Principal. How does it relate with Prime? Thank you.

Operator

Okay. Thank you. Casiano, you can speak about this dynamic of debit cards because there's an initiative in the Change Bank regarding that. Work so that we won't have any cannibalization and so that we can have a direct effective digital channel for our clients of last week. But Carlos, let me say something.

Operator

This cannibalization by PIX is natural, but the volume captured through debit cards is still significant. We see this in the bank, in the market and we see that at hello. To us, this is an economically better business. Now with the interchange being said, aimed with this obvious cannibalization, it does make sense to send out to be distributed to clients. So as long as we can maintain that as long as clients want to use them, fine.

Operator

And of course, we'll be prepared for a natural evolution of that regard with PIX They want to open checking accounts with us. That's great. We are inviting our own clients. But as of January, Carlos, you are invited to visit our new business office. And of course, new clients will be very, very welcome.

Operator

But we already have the clients. They are with Prime. They're being worked on. The managers will be sitting side by side so clients will have no discontinuity when they migrate to the new affluent segment. And we have been working with a remodeling and we are working on the value proposition of crime.

Speaker 1

And that

Operator

means working with different account loads for the manufacturers of crime and with a much more objective value proposition for most of the prime clients. Clients want to have self-service The new segment is above the prime and a superior quartile 300,000 investments up to 10,000,000 bureaus. It is between prime and private. It is a qualified high net worth individuals. And it is to maintain both?

Operator

Yes, we'll maintain both, prime for our category up to 25 BRLs less market. And then prime, principal and private. That's all for individuals. Okay.

Speaker 2

Thank you very much. Next

Operator

question from Bernardo Gutmann with XP. Good morning, everyone. Thank you for taking my question. I have one specific question about the behavior Thank you, Bernardo.

Speaker 1

Well, actually,

Operator

this was the only company's portfolio that showed a drop for the unemployment because we had some settlements and some companies closing and some companies closing down, bigger companies that went to the formal market given the offering with good cost today. And since we have a good penetration in individuals and they're kind of mixed with legal companies in agribusiness, so we have a lot of collateralized the have our distribution across the agribusiness belt of Brazil. We have our support team reinforcing. We have agronomists in different segments. We have year posting with that.

Operator

So that's kind of the phenomenon that explains the difference between the two portfolios, but we also have a very good quality of risk.

Speaker 1

So my question is about the future. You have already shed light about the Q4. You will continue to have accelerated growth. But what about 20 20 7? You will look at client NII net of provisions.

Speaker 1

Looking at 2025, I know the guidance will come only closer to the rest, but how much growth is based on Bradesco recovery market share? Market share that has always been worse in terms of Principality, continue to have your previous share of wallet and how much of that depends on gaining market share in the competition with other players. You know, just so that we have an idea about 2025. Thank you, Navao, for the question, and thank you for your comments. Thanks for being with us.

Speaker 1

I will tell you that I feel extremely confident. We are growing client base and mass individuals. I am Onshore, we have also been gaining market share. Our value proposition has become increasingly more robust, and we now have the new principality in line with our fair market share.

Operator

If we did not have

Speaker 1

that, we would not have such a high level of traction. I mean, our portfolios are growing and the portfolios that we want to see growing, delivering what we want to deliver to clients.

Operator

So we are executing

Speaker 1

in fee and commissioning. I showed you how our credit cardholders are

Operator

transactors, and this segment of

Speaker 1

transactors is growing. So we want to gain market share. We of the market share. We have gained a little bit, but not much. I mean, we gained share in this quarter, and we will certainly be well positioned.

Speaker 1

This is our expectation. But with the right portfolio, also in insurance, I believe we have great traction. We have been reviewing our footprint and growing the client base.

Operator

Of course,

Speaker 1

many of these new clients are payroll deductible to all clients, but we also do cross selling with these clients. So we see that we have a great penetration

Operator

in the

Speaker 1

client base. And with our fair share, we have everything needed for 2025 to be even better than 2024. As I said, we have a lot of traction. That's

Operator

why I feel

Speaker 1

so confident in all client segments and verticals. I mean, when we have monoline, for example, auto loans. But if you

Operator

look at heavy

Speaker 1

vehicle loans, trucks and heavy vehicles, we have a very significant share, which we will further accelerate now with our business with John Deere. So we have a great penetration in all business lines where we operate. The insurance group is a fun venture. I mean, and even I told you, we have a lot of traction also in the insurance group. I mean, look at our penetration.

Speaker 1

Look at our share. Our risk appetite has decreased

Operator

a little

Speaker 1

bit, but we are now pursuing the right quality. This is our expectation, and we expect to deliver a higher top line and have a credit cost under control in 2025. Looking at client NII, there are 3 main drivers. First, portfolio growth. Marcelo and Casiano were clear telling you that we continue to grow this portfolio.

Speaker 1

Loan loss provisions. We're always looking at the AR, so these drivers will help us. The first two will certainly help us and the third one, too. So thank you, Navajo, for your question. Now the last question with Brian Flores from Citi.

Speaker 1

It's a brief question about the impact of the interest rate. Thinking about the market NII, I think we are now closer to 2,000,000,000 in 2024. And looking at the scenario you described with a higher basic interest rate, do you believe that in 2025, could we dream of having an NII similar to this one, similar to the one in 24? Obviously, we're not talking about but we do have important action that make our liability management more a neutral. For 2025, we still don't have a clear view of what will happen to the market, so I prefer to talk about that when we publish our guidance.

Speaker 1

But I believe we have a more neutral position now for this new higher interest rate cycle. Thank you.

Operator

Well, we are closing the question and answer session. Those questions we were not able to answer here will be answered by our Investor Relations team.

Speaker 1

I'd like

Operator

to turn the floor

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Earnings Conference Call
Banco Bradesco Q3 2024
00:00 / 00:00