Banco Bradesco Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
February 7, 2024

There are 6 speakers on the call.

Operator

And I'm here Live speaking from Sidoti Didios. It's 10:30 2 a. M. To present the numbers For the full year of 2023 and of Q4 2023. After

Speaker 1

that, We

Operator

will have a second topic, our guidance for 2024. You probably read our book and our guidance for 2024. To us, 2023 was a challenging year. It's not the result we would have loved to deliver to you. And the guidance of 2024 falls short a bit.

Operator

But to us, 2024 will be a year of transition, And lastly, the 3rd topic is our strategic plan. Of course, here I'm bringing the Executive summary of the plan that we put together in the last 60 days. I will present that to all of you and then we'll be able to And I will be available to all investors for us to talk later. We already have some meetings scheduled for buy side and sell side investors, so we can speak about our plans for the next 5 years in more detail from 2024 to 2028. So now I have the challenge of presenting in the same Time that we present our income statement of Q4 'twenty three to speak about full year results, the guidance and the strategic plan in an executive summary as I mentioned.

Operator

So I'll try to do this as quickly as possible so we can have our Q and A. Let's start with our numbers. Our results, as you can see, we have an additional number in a lighter color. This was the end of the quarter with BRL 4,300,000,000. Here, we had an ALL enforcement for 2 cases in the whole We were a little more conservative in these two cases.

Operator

We registered ratings That's why our recurring net income was RMB 2,900,000,000. In addition, The 2 major nonrecurring events as you can see here in this last topic here on the right of the screen. The provision for the restructuring that we had and the contingent liabilities. I think you should comment on some positive aspects of our income statement. Wholesale ALL was reinforced in the two cases that I mentioned.

Operator

This is relevant. We have a comfortable coverage level for the wholesale bank Just like we're going to show you a reduction in all delinquency ratios. We control the higher delinquency that we had for SMEs And lastly, credit, credit is accelerating. I will show you that this happened for individuals and SMEs. We had market NII recovering, total NPL dropping 50 bps.

Operator

And here, there's another positive point which differentiates Bradesco in our positioning. We are a group that has a bank business and also the largest insurance group in Latin America. Our insurance groups Our operating expenses were within the guidance, and I'll detail more on our expenses. So moving forward, like I said, we had Despite a reduction we have in our appetite for risk in 2022, 2023 and also a change of level for SMEs posting a 1.5% growth quarter on quarter. And we have the write off of a well known case, which happened in the end of 2022 in Q4 of 2022.

Operator

Our credit models and credit policy for individuals, which became more restrictive than in the past. Yes, it's true, but we've had new Controlled vintages, the same goes for SMEs. We tested models in April. We implemented the new models as of September and we started So we won't have any issues in the new vintages, which are performing really well. As I mentioned, delinquency ratio.

Operator

We can see all Curves of NPLs dropping some for the 2nd consecutive quarter. So we have this portfolio under control. Our coverage ratio grew 265 percent and NPL creation decreasing. I mentioned these two cases we had in the wholesale bank with total provisions of 10,500,000,000 in Q4 'twenty three. Moving forward, this is our net interest income NII.

Operator

We reduced our risk appetite, as I mentioned, in the end of 2022 and Throughout 2023, and of course, we stopped having new productions for a while. We resumed that well towards the end of the year and continued And our market NII is a highlight. Posting growth in Q4, 0.7 We note that this is a line item that is under pressure. I think the whole market is talking about that, particularly in card Income, we posted 3.4% growth quarter on quarter. However, we know That annual payments for card over time were compromised because we had a structural change here in the market and with free cards.

Operator

So that impacted card income, but our loan operations grew quite well as you can see in Q4 Because of this resumption that I mentioned, we grew in consortia management and in checking account. We have challenges because of payment accounts, But we continue to work on that to offer better packages. We have a good expectation for capital markets Looking at the line item, other operating expenses, we posted a reduction in 2020 So that's a baseline for comparison in 22 meters. It's a lower baseline. Therefore, we have a greater variation, and we balanced This line item of other operating expenses in 2024, bringing them back to the levels of 2019, 2020.

Operator

So there's Some fluctuation in these ratios and personnel expenses. Looking at the last indicator, we see a 6.4 Increased despite the collective bargaining agreement, which meant a 7% salary increase and administrative expenses We grew 2.5% below inflation. We had a reduction in customer service points as you can see on this slide. You can see this on the screen in our earnings release. I spoke about the insurance group, and I think that this is a big highlight in our results.

Operator

We exceptional results along 2023, growing about 21.1 percent, 2023 over 2022. Net income growing significantly, almost 25% ROAE with revenues greater So regarding our IOC, we declared the 11.3. As you can see in the graph, in our Basel Tier 1 grew 81 bps compared to Q4 2022 reaching 13.2% as you can see.

Speaker 1

Growth

Operator

for our loan portfolio of 7% to 11% in the middle point, we're talking about 9%, Slightly above what the market should expect. Yes, the expectation is around 8%. Why is it the NII does not follow the Because of the average portfolio effect, we'll grow month by month, step by step. And naturally, we will have Total NII, depending on the mix, we should also improve our mix, but above the average portfolio. And we are going to see improvements in 2025.

Operator

Fee income, 2% to 6%, Suffering some pressure, as I mentioned, operating expenses, that's not the best ratio. We have an effect of other revenues and expenses, But I think that we are doing quite well regarding personnel and administrative expenses. We'll speak about our goal in terms of operating So the expected growth is 5% to 9%. Regarding the Insurance Group, we're expecting growth From 4% to 8%, the natural question from you is why only 4% to 8%? There are 3 phenomena to mention here.

Operator

First, the reduction of interest rates that should reach 9 point in 2024, December 2024. And then we have the variation of the indices, 30% in 2 years for the insurance group is large, the largest in Latin America. And lastly, I'll expand it ALL €35,000,000,000 to €39,000,000,000 this is reducing. But why not reducing more? Again, because of that increasing A loan book in the mix we want to have, which requires more provisions for expected loss.

Operator

If the portfolio were More stable, we would have an expanded AOL provision a lot lower. So now, ladies and gentlemen, I'm going to move to our strategic Mentioning our expectations. Our expectation is that 2024 will be a year of position and transformation. And I'd like to make a comment. Such a strategic plan, such as the one we have adopted, would naturally take about 6 months for us Difficult challenge of doing it in 60 days.

Operator

We're going to do it with a renowned consulting firm. It's McKinsey. I can tell their name. And we're being supported by other consulting firms so that we can have Safety and monitoring so that we can execute perfectly.

Speaker 2

So what we've done was to Followed by the academia by the

Speaker 1

book with

Speaker 2

a market diagnosis for Bradesco then developing a plan. And now moving on towards the execution. Here, of course, to have the entire market diagnosis as we developed, There wasn't only the involvement of Brazil's consulting team, but from different countries in the world who came to support us In this diagnosis of the market with benchmarking technology, credit and so on. In addition to well, after the diagnosis, We developed this plan that's actually a set of initiatives. We had ongoing initiatives in the bank And what we did was to revalidate those initiatives, measuring everything we had determined to make sure the initiative was The way of getting it done and the perspectives that we have.

Speaker 2

And then there are others that were not part of our plan, and we included them in the set of And then we move into the execution phase. If you know the consulting, the company's work In the stage of execution, what we do is take the initiative, break it down at greater detail levels to confirm the economic intervals that we determine the time line for the development, what type of investments we need to make. In some cases, we are already making We're already entering the execution and detailing phase. Others are just starting this stage. But what happens when we develop the plan?

Speaker 2

We started with a new structure based on that strategic line, and now we have a north And a framework for us to pursue over the next 5 years. Of course, that when you develop a strategic plan, Your plan is not static that you stick to it and do only that. No, the initiatives are reviewed. We may include new initiatives over time And also adjust whatever is may not be working out as expected. So we entered into this execution process, which is the toughest, but it's decisive for us to be able to deliver what we expect to deliver in our structure and I'll detail this execution process.

Speaker 2

Allow me to say that the plan is dense. It's ambitious. And of course, we can't in one screenshot To talk about the entire Brazilian market, I have here overall lines to discuss with you because this is the basis for what we're doing. You're going to see our starting point. So first, the Brazilian market, I don't have to tell you, it's one of the most resilient profitable markets the world with good returns.

Speaker 2

The second point, the market represented, according to our measures, dollars 1.3 1,000,000,000,000 in post risk revenues in 2023, with approximately 30% to 40% of this revenue coming from As retail where we have extensive penetration, but of course, the main challenge of mass retail is the cost to serve. And here, There is still some medium income share. SMEs represented nearly 15% Of Brazilian market total revenues and our expectation for this segment is that it should double in value In 5 years, Bradesco maintaining its leadership position with 1,700,000 clients and the Largest loan portfolio with approximately EUR 100,000,000,000 in revenue. And if we get this according to the Central Bank classification, And Bradesco has one of the largest portfolio of affluent clients, prime clients and close to private clients. And we have 1,700,000 clients.

Speaker 2

Of course, here, there's an opportunity 1st, to expand our share of wallet, why am I bringing this customer base to you? I think it was never disclosed To the market, but it's simple. We've received many questions. How are you going to compete in high income if you're not in high income? How are you going to penetrate and bring these clients in?

Speaker 2

We're not going to bring the clients in. They're already here. What we have

Operator

to do

Speaker 2

is To improve our value proposition and our share of wallet, credit is the anchor for profitability as well. So of course, I'm going to give you some very important figures during this presentation. And what we've seen in this diagnosis, of course, the FinFacts are beginning to grow, but they don't have the opportunity to improve our credit structure. That's what we've been doing as well as improve our modeling using more transactional data that we have. We have plenty of data in Bradesco as well as generative AI.

Speaker 2

In the organizational Sure. I'm going to talk a little bit more about this because this is very important to us. Here, we've already changed. Bradesco's organizational structure in our diagnosis was complex with excessive layers, unbalanced span. We need to admit it, right, what we had to improve.

Speaker 2

And that increases decision making time and, of course, also Makes clients orientation difficult. We've already changed, and I will talk about this organizational structure in a minute. Investments in technology. Here with this diagnosis, we saw that we clearly invest the same amount the other incumbent banks invest in However, we've been working on an IT transformation, migrating to the cloud, but we could. And actually, we can accelerate this migration to the cloud before that deadline that we had expected.

Speaker 2

And we can also gain in our time to market. That's what we saw. And I really looked at this Diagnosis with our IT team and the consulting company because I had doubts about this increase in productivity that could be a driver for time to market. And what we have to do is to effectively transform outsourced personnel into bank employees so that we can gain productivity. And that's what we're going to do, Hiring 2 or 4000 employees in the technology department, but replacing with 3rd party.

Speaker 2

So it's not a matter of cost. That's the way of

Operator

doing it. And finally, we

Speaker 2

have a series of strengths with more than 71,000,000 customers, and we are top 3 or leader in all customer segments as we're going to see. This snapshot tells you a little bit about our ambitions without getting into too many details. You can read it later, but we are either leaders or top 3 in all major finance segments. So our ambition is to get from that market share that you see of 14% for loans, I'm talking about The expanded portfolio here in Brazil to a share between 15% 19% within 5 years 2018. Increase our SME client base, going from 1,700,000 to this figure here on the screen, reducing Our operating efficiency ratio, around 8% in up to 5 years.

Speaker 2

That's the goal that we have set for this plan. Just to mention briefly this box here at the bottom, Maybe one of the main objectives of this plan, it is actually the main objective of this plan, is to increase profitability, returns deliver more ROE, but not in the next quarter, not only in 2028, but throughout this period, during these 5 years quarter after quarter, step by step. That's our objective here. And to summarize, Where are we starting from? That was the beginning of a very important debate for us.

Speaker 2

We're not building a new bank. There's no silver bullet here. We are reorganizing our bank to make it more competitive. But look, The starting point for Bradesco is high. Whatever way you look at it, we had NPL problems, we Are we going to pay for this?

Speaker 2

We are. We're paying. It's fine. We're going to pay. We're going to turn it around, and we're going to increase profitability over time.

Speaker 2

So we are leaders in me, as I said, top 2 corporate and middle, top 2 private banking in Brazil, top 2 in the affluent market, as I mentioned. We're one of the leaders in retail with more than 60,000,000 clients, almost 30,000,000 account holders in this mass retail base. We have the largest bank correspondent in Brazil, Predisco Espresso. We had important deliveries in the end of the year, combining 8 platforms, more than 38 points, 1,000 points, and that's the key for our turnaround in the service model, the reduction of the cost to serve and the penetration of this Retail segment, we have completeness of offers connected to payments. What I mean here in partnership with Banco DO Brasil with more than $1,200,000,000,000 of total GPV in the year.

Speaker 2

Just reminding you, these companies here that have no leverage, removing yellow that has another partner has effectively EUR 10,000,000,000 in cash. And we're calling this of that responds a little bit to our strategic plan, and we're doing it here because we are highly able to invest with all of that 40% ROE every year. There's no need to say this, that we're leaders in the insurance group. It's the largest insurance group in Latin America with more than BRL100 BRL 1,000,000,000 in revenue in 2023, it's a very important starting point for Bradesco. And one of the qualitative points that I Consider important here.

Speaker 2

It's the 1st bank to use AI in the clients' day to day life with our BIA. We're Top of mind for 18% of Brazilians, humanized customer service that extremely valued by our clients. This point here of our culture that I think is a value, that high sense of belonging that our employees have and that sound brand And then I move to this mandala image with 10 initiatives, 5 business initiatives and 5 enabling factors, Mentioning very quickly, we want to revolutionize our model for retail. We'll create a new affluent segment. Prime it was the top of the prime segment.

Speaker 2

We're going to talk more about this detail. We're not Gonna say exactly how this segment is, but this is an ongoing initiative. We're going to adjust our Customer service model to the SMEs with a new network of platforms. We're already doing this, delivering 122 platforms to transcribing €350,000,000 of revenue and improve our value proposition with remote digital service for those up to 3,000,000 BRLs that are part of as well as micro companies as well. Payment model for us here, It is to redefine our action.

Speaker 2

And one of the items that goes through that public offering that we mentioned about We are a lot more competitive with SMEs and larger companies together with our acquired and other businesses. Credit cycle. What we did was create a credit business unit that responds directly to me and parts that were fragmented in the bank, analysis, decision, portfolio management, collection, credit recovery and now a portfolio management unit, everything combined. And we're going to increase all of that using generative AI and a lot more data for us to increase the efficiency of our model, Operating efficiency to ensure competitiveness and returns, this is our organization, we have a series of initiatives that will be developed for us to evolve in operating efficiency, including a good review of our footprint that is ongoing. Culture model, organizational structure, I will talk to you about in a minute.

Speaker 2

It's very important that we're already working on this. We've done this already. For technology, the idea is to accelerate technology In Intra Group Synergies and Innovation, we have a lot of detailed initiatives, but I will not get into the details in this presentation. How do we guarantee A safe, efficient execution of our strategic plan, separating teams into Run the bank and change the bank. Change the bank, we're creating the CTO figured as Chief which is the Vice President.

Speaker 2

He is from the company because he knows exactly which keys open the doors. Every initiative As a senior team led by a director, a superintendent from the bank with a dedicated team, The transformation office should provide support to the CTO and for us to be able to deliver this execution at a fast online in real time. And we're going to execute all of the different points at once. That's why execution is crucial at our business. This year is our new structure.

Speaker 2

There's 6 business units, 4 support units plus a chief of staff. We created wealth. We had the spin off from retail, creating the business unit for digital businesses that's going to focus on mass retail customers. I detail everything right now. We can talk about it later.

Operator

The CREDEVU responding directly to me or reporting directly to me, Treasury CDO is our CFO with separate structures. He will dedicate most of the time and most of his time to be CDO, CRM and the Chief of Staff, which naturally has new strategic initiatives and the whole inorganic growth It is important to observe the bottom part. What we have already Done during this period with that diagnosis about the structure that I mentioned. We increased the average spend by 50% In that group that reports to the CEO with a number of around 6, but we changed the span of control Throughout the organization, we reduced significantly the layers of the leadership N1, 23. N1 is the request process and only 40% of this number of executives We're between N1 and N3.

Operator

Now 100% of them are in these levels, N1 to N3, which means we significantly reduced our leadership group of Vice Presidents all the way to Executive Superintendents, eliminating Some positions, I don't need to mention them individually here, but it is a fact that we had some colleagues leaving Since last

Speaker 1

year and

Operator

more recently, we also had some colleagues who helped us in the past leaving the company and the fact is we have been changing. He would be replaced as Head of Corporate. And of course, that other job position Was filled by somebody and Andy, he would go to the 4th floor. So this is now the Executive Officer will be in the front line. It To prepare for my future succession and the succession of the Vice President.

Operator

So he will continue to run that business unit. We didn't replenish Those empty seats, we did have some promotions of Vice Presidents and Executive Officers, but with no replacements. So that At the end of the day, reduces our management cost and it leads to a simplification of our structure. As an example to the organization, we created this executive committee and these 2 blue boxes, Digital Business, not bringing you details now. We're in the process of hiring 1 Vice President In the market, for the first time, we'll bring in a C level, C suite officer from the officer from the market.

Operator

And here, we have the C level of human resources with the human resources structure to help us in the transformation process and in the process of partly Changing our culture to a culture of transformation. This is a practical example of what we've done. And very soon, we'll be announcing the names of these colleagues and other colleagues who will complete our executive management. I'm moving towards the end. I bring you some initiatives here with some of our ambitions.

Operator

In the case of retail, this is our ambition to grow This is our ambition to grow the customer base, to maintain customer centricity, But the fact is we have high penetration with 60% of the Principality in this retail customer base. 2nd, we have ambitions. We have a strength on the screen. But in this case, We are delivering this new segment of the new affluent segment. I have a colleague leading this With her own team and with the support of the consulting firm, she mapped 105 opportunities in this affluent segment.

Operator

We will be improving our value proposition in high net worth clients in SMEs, as I mentioned, implementation of new branches And the change in our way to manage and in our value proposition. I'd like to remind you, we hold 20% market share. We did have high delinquency. That is true, but we have changed the models. So we will compete to remain in the leading position in this market With our ambitions on the stream, I spoke about credit.

Operator

Our ambition is to grow our market share from 15% to 19% In a 5 year timeframe, we know what this means. We will know what this means in our final conclusion. I'm not going to be mentioning each one of them. I'll just say that our conclusions The group has strengths that will be leveraged. The starting point of Bradesco is 4th, we're making great strides towards delivering ambition initiatives, realigning Our organizational structure, particularly in the last 30 days, we will have a new human resources plan.

Operator

This new board structure connecting all of the levels of evaluation, compensation and performance for the executive groups. We have these goals here. On this topic, I talked about the efficacy ratio and we will find For the leadership in the most profitable pockets, there's no reason why we shouldn't be fighting for these retail For retail clients, it's not binary. They're not physical or digital. They're both.

Operator

We are mapping all that, and we will compete By reducing the cost to serve, improving our value proposition with solid credit modeling and Some data for you. What does credit growth mean? Credit is the big anchor of results and revenue in the Brazilian market. It is still dominated by the incumbent banks with some share of the FinTechs, as I mentioned. But if the market grows, as our team has forecasted together with the consulting firms, 8% bigger Until 2028, this means that in 2028, we are going to have an expanded Additional expanded loan book of BRL 3,300,000,000,000.

Operator

So if we grow our share, there's potential substantial growth here. And the big ambition, our biggest goal is to increase our profitability and return over the next years, transforming the organization In executing the plan with discipline, we will be periodically showing you everything we are doing and everything we intend to deliver. Thank you for your attention. We'll start the Q and A. I am here with my colleagues.

Operator

I said, I'm speaking to you live. We continue to be live. I have my colleague, Castiano, CFO and now our CEO our IRO, Carlos Ireti sitting on my left and Andre Carvalho, who is going to be The new IR Officer in the Erika, Bailu, has been working with us for 7 years now. Andre has a good background. Recently, he was the Chief of Equity Strategy In the global markets of BBI, he works really well with the buy side.

Operator

So he'll be starting in a new role. Ferretti, we'll have a transition period with Andre and then our colleague Ferretti will take over a new role at the bank Together with us in Bradesco. Ferretti, I hear they have spoken too much. That's why we have 4 people here So that we can all speak in a bit. Thank you, Marcelo.

Operator

Before anything, I would like to welcome Andreka As Marcelo said, we're going to have a transition. So I'll be interacting with you for a while still. So welcome, Andre, good luck. Thank you. Thank you for the opportunity.

Operator

It will be a pleasure to work with you closer to Marcelo Cassiano, The whole management, we'd like to thank Ferreri for the support during the transition period. It will be a pleasure to take on this new role. Thank

Speaker 3

you.

Operator

All right. So now we will begin the Q and A session for analysts and investors. We have Ivan Gonciccu, SIU of the Insurance Group also joining us online. He will be participating in the Q and A. Questions can be asked in Portuguese or English.

Operator

We will answer the questions always in Portuguese facilitate the process. You can choose to hear the translation or Hello, good morning. Can you hear me? Yes. Narayan, Andre, Good luck in your new roles.

Operator

I have two questions. First, in your strategic plan, You indicated 8 percentage points. That would be an ROAE of about 4 100. If this is only, the OAE will not go to be the cost of capital. It will be close to the cost of capital.

Operator

People use between 14% and 15%. So you just want to go back to the cost of capital or could we expect an ROE above the cost of capital? That's number 1. 2nd question regarding lower income segment. We in the market have the perception that this segment is having negative returns.

Operator

How are you addressing this point in your strategic plan? Thiago, thank you for the question. It is a pleasure to be speaking with you. Our ambition is not to deliver just the cost of capital. This is an indication of ER.

Operator

So we have a number of indicators, ambitious indicators, Some things we haven't spoken about here, we are not going to be talking about to the market, but we want to deliver. Our main goal is to deliver Superior profitability and return. And we want to grow step by Quarter after quarter, but in that time year in a 5 year time frame, we want to be in a different game level. I don't want to promise. I prefer to surprise you rather than promise and not deliver.

Operator

One expectation we have is that naturally, We have a high ambition regarding operating efficiency, and we will make this happen. We have room particularly reevaluating our footprint. To me, operating efficiency is cross cutting. It is In our strategic plan, perhaps this is the biggest lever for operating efficiency gain. As for retail, What we have seen with the consulting firm and I'm not going to get into too many details is that we have clusters.

Operator

In some clusters, we are profitable. We have a significant share of wallet. We spoke about our municipality. The secret here lies in the cost to serve. That's why we want to review our footprint.

Operator

We tend to reduce it, but it's not binary, 100% physical, 100% digital. No, of course, we'll migrate to digital. I have to know in which channel to operate. Please remember, in Bradesco Expresso, We have one department which is B2B2C. And I said we implemented a new system With tablets to our merchants, they serve clients by doing business, providing customer credit, Selling cards, opening checking accounts and having transactions as well.

Operator

So they have the ability to serve clients. So we do enjoy some advantages that I don't see in other competitors. They have other advantages that we might not have. I respect competition a lot. I think we have very competent people in Brazil, both in the incumbent banks and in the newcomers insurgents.

Operator

But we have the largest correspondent banking system in Brazil with more than 38,000 points of service and we can compete very well in the low income segment. In addition to the cost to serve, we have the credit risk. We are monitoring this closely with good credit modeling to capture what is necessary and to be profitable In most of these clusters, there might be a cluster here and there that we don't want to work with. Okay, Thiago, that's the rationale. But we can compete.

Operator

This is what we proved in our own internal diagnosis. It's really important that we mentioned this. And over time, we will be delivering

Speaker 2

Thank you, Ferreci. Good morning. Wish Norreja's SaaS is the new CEO of the bank coming in with a good challenge of putting the strategic plan into place. Good luck, Freddie and Andre in your new departments. I'd like to explore the culture and targets for the High levels, C suite for the bank.

Speaker 2

I know there's greater spend of control, more agile, More efficient and we see experiences outside of Brazil or throughout Brazil that this target for sea level is essential. So if you can talk about the Changes that you're working on or outlining for this? Thank you. Thank you, Daniel. During the presentation, I said that We've been working on a new plan for human resources that will be discussed in February and delivered in March.

Speaker 2

That takes into account this new structure precisely. And I talked to all of the Bank's leadership team showing the new plan. Those who work directly with us at every step of the way had already seen it that we are going to deliver a new Performance assessment methodology, depending on the level, the weights are different, and we are going to recognize and Compensate that team that's in the Run the Bank and the team that's on the Change the Bank as well. We're taking excellent people to change the bank because that's crucial We are going to deliver a new payment scheme for the executives of the We have that already in many departments, and we're going to replicate it to the entire organization with a greater flexibility For some positions that somehow were kind of tiff, socialized when we were to Income and we're changing all of that. This is all well based.

Speaker 2

We are going to make progress and you will be able to see that over time. But our expectation is to approve this quarter so that we can implement it after that with our team. Moving on to the next question, Renato Meloni, Autonomous. About the credit quality. NPL is dropping, but that's based a lot on write offs.

Speaker 2

So starting 2024, how do you see the credit quality of the new vintages? And how is that translating into originations, especially for no income? And second, it's more strategic. What are you thinking about in terms of the team you want to attract For this stage, the space for the company, I know it's the perspective, what you think will help you succeed. Thank you,

Operator

Renato. Great question.

Speaker 2

First, we are monitoring very closely all of the new vintages. We're working with much better ratings both for individual loans and for SMEs as well. So all of the VPs are involved. We didn't focus only on the credit people and the segment people, but everybody is involved, And we are monitoring this very closely. We're seeing good vintages.

Speaker 2

We still need to improve some lines to improve Our mix and help us in this growth of NII, client NII, it's step by step, but it is going to happen.

Operator

You can

Speaker 2

be certain. In this last quarter, I saw the inflection point of this curve both for individuals and micro small and midsized companies, and we are Working on during the year, we'll maintain traction to grow during 2024 with controlled vintages. So I think that here, We also have an important quick win in this new credit structure that we can capture value for other initiatives that we're implementing as well. Now the team that we want to attract and we

Speaker 1

We have

Speaker 2

a headhunter doing the selection for us and discussing, debating. We had an assessment process in our teams since Starting in December, so we've been working creating development plans for our leadership colleagues who will remain with us either on change our own brand. So, Renato, we will attract people with different skills from what we already have, People with flexibility, with an easy relationship and person that can deliver Digital skills with our colleagues at Next, Bradesco and Digio as well and who can also bring more knowledge. And in Human Resources, we also want to change our paradigms to be more aligned with the market, having growing ambitions for our organizational development. I can also tell you another concern that we had since you talked about the team, and I think it's very important.

Speaker 2

We are giving recognition without increasing the operating cost. As I said, we're actually reducing this cost, And this is also an example for the organization. We were only able to set aside a team for change and a team for run because we reduced the layers and change the spend. Otherwise, how were we going to do that with departures and taking people or change the bank? It was difficult to run this business with the directors leading.

Speaker 2

So of all subordinates, 5 of them are old enough To replace me to be in the succession plan as well as the Vice President. And those who have been recognized, new executive officers who will continue Thank you, Renato. Next question, Bernardo from Syspe, XP.

Operator

Good morning. Thank you for the opportunity to ask questions. Marshall and Leroy, I wish you a lot of success in your new role. Building on the prior question on incentives, can I just ask a question, but in a broader way regarding the transformation process of Radiscio? Although you've been in this role for little time, Noronia, you've had different positions at the bank and in the presentation, it's clear that you have a wide diagnosis of the necessary changes to be made, but I'd like to focus on one specifically.

Operator

Bradesco has a very traditional culture that has been very well worked on over the years in terms of robustness and cost, But the new environment is quite competitive, and the moment that the bank is dealing with brings about a different sense of urgency. You need to have different agility to react and to change a few things. How has this initiative been received In the bank regarding the adjustments that need to be made. In what paradigms do you still have to break? Because that will give me an idea of the priorities of your agenda of transformation.

Operator

Thank you for the question. This is a big question, What I can tell you is, number 1, I think that we have to learn from the past. We did have some convictions. And when we sit and we deeply debate Each topic, it's almost like you open up your kimono and you see what you need to do. So without beating around the bush, The Board of Directors gave me autonomy and has been supporting me in 100% of the changes Or else I wouldn't have changed the Oryx structure.

Operator

I wouldn't be telling you that I'm in the process of hiring a C level for HR in a C level for digital and in other levels of the org structure as well. We are in the process of hiring a lot of people. So I have the support of the Board of Directors, 100% support. And this has been really nice, The kind of debate we are having, the Board of Directors is aware and we put everything on the table. We were very pragmatic.

Operator

It's no use being a philosopher. There's a sense of urgency. We have to change. We have to do it. And that's kind of my style and the style of some colleagues here For the executive management, we go straight to the point, Bernardo.

Operator

Little philosophy, a lot of pragmatism. I think we were able to break down the main paradigms. The other paradigm is the compensation that we are delivering now. There was no time. It's been just 60 days since I took over.

Operator

And in order to do all that, we just didn't work during Christmas night, Christmas Eve and New Year's Eve. Other than

Speaker 4

that,

Operator

everyone, including the consulting firms, have been working long hours On Sundays, I've been working on Sundays with my colleagues to deliver this urgently with this level of depth Because if you look at the whole thing we're doing, it's not little. And we're already Because that's crucial. It's no use having a beautiful book and promising things are not doing that, but we are doing it Our next question comes from Mario Piahi with Bank of America. I have a question about cost and efficiency. Not only you talked about improving the efficiency ratio.

Operator

But when I look here, your provision is BRL578,000,000 this quarter to restructure Branches. So I'd like to understand what that means in the short term. And what are you thinking to get to this efficiency ratio target? How do you think about your headcount number of branches? Because You see, when we look at the bank today, the bank has about 86,000 employees with about 2,700 branches, 32 employees per branch, it seems to be very high, a high number.

Operator

How are you thinking about this metric? So let me answer it. I'll ask you to recalculate your metrics because you can see 2,700 bps, but in practice, We have 7,000 points of sale, 7,000 even with the reduction, 7,000. We have traditional branches. We have points of service, which is like mini branches.

Operator

And so we have even smaller than mini branches. So we have set of branches with different characteristics. So you would have to divide the number of employees by 7,000 and not by 2,700. Having said that, we are reviewing our footprint and We'll deliver some papers. We've had an expectation and now with the new client, we changed our expectation.

Operator

We are being more ambitious, more strict. And I want to mention 2 things. The idea is not to reduce the sales force, but rather To gain efficiency. The second thing I told you, we are going to be hiring 3000 to 4000 people in technology. So we are exchanging expense lines.

Operator

Personnel lines would grow, but we would reduce operating expenses with hiring of third parties. So perhaps that's the main point in terms of efficiency gain, but this is a cross cutting initiative in the organization. We are discussing some areas. We are discussing the existence of the points of sale, the scale. We will automate the processes and execute this much faster.

Operator

It's all mapped out. The whole operating efficiency project is divided into several initiatives, not just one. The one I mentioned here is the largest. But periodically, we will be updating you, showing our evolution and our performance quarter after quarter, quarter by quarter. So Towards the end of the year, beginning of next year, we will be seeing some important changes in the organization.

Operator

Asim, did you want to add? Well, in addition to everything you mentioned, Marcelo, we should not forget the restructuring of the affluent segment. A lot of the sales force will be allocated to improve our account loading and the way we will manage such important clients for the bank. It has to do with operating synergies among the different departments of the bank. So under this big framework, there will be reallocation of people and that is fundamental for us to have change initiatives and the run initiatives working continuously and going in the same direction.

Operator

Let me add to what Cassiano said, Mario. Must retail and this would not make sense. The senior manager could be managing SMEs. So we will be reallocating the It's all mapped out and we are now refining it so that we can start executing. Okay.

Speaker 2

Next question Tito Labata, Goldman Sachs. Chito, go ahead.

Speaker 3

Hi, good morning everybody. Thank you for the call and taking my question.

Speaker 2

A couple of questions

Speaker 3

on the strategic plan from just looking at Slide

Operator

Some of

Speaker 3

the comments you made, right, that the market represented $1,300,000,000,000 in post risk revenues, 30% to 40% In retail, and that the biggest challenge is the cost to serve and you mentioned for the entire market. I mean, just Could argue that that's really the biggest challenge for the incumbent banks, right, for the fintechs, have a much lower cost to serve, right, don't have the branch network, don't have the employee base that you have Employee base that you have. So what can you do to get your cost to serve down? Does it mean You will need to invest quite a bit in the business first, right? If we look at your expense guidance above inflation, I mean, do you think that continues for some time before you're able to bring down the cost to serve?

Speaker 3

And then somewhat related on that same slide, a couple of bullet points later, you mentioned that Credit is the primary anchor and challenge for Fintechs, which represent less than 3% of the markets. But you can argue they're also Gaining share, at least 1% or 2% are gaining share very rapidly. So just to understand your ambition to get to that 15% to 19%, Given that you could argue that the market has gotten more competitive the last few years, what can you do to really capture that market share Given that other competitors are also growing very fast.

Speaker 2

So Tito, thank you for your question. We're going to answer in Portuguese this time. Fereci Determined it, okay? Next time, we won't. But what we have here to compete in this market, as you asked, The revenue I mentioned, you mentioned it again.

Speaker 2

And then you said about this Fair of retail, 30 percent, 40 percent of total revenue. How can we compete with the cost of fintechs? It's a fact that our main challenge is the cost to serve. Of course, that the right credit model for that, but cost to serve is key. And as I said, we assessed evaluated clusters, and we found out that in some clusters, we are able to compete and we have a significant

Operator

share of wallet, but we are going to have to reduce the

Speaker 2

cost to serve. We are going to have to reduce the cost to serve, and we identified exactly where we have to get to, And now we're detailing this. But let me tell you some other things that are worth mentioning. 1st, Bradesco has high penetration in this segment. Not all incumbents have that.

Speaker 2

Bradesco's Principality, as I said, is again around 60%. Not all incumbents have that. Bradesco has in its DNA the relationship with this type of customer. We need to change the cost to serve. We have Bradesco espresso as a very important competitive lever, not only as a channel, but I also told you we can Serve those customers with a variable cost instead of having fixed costs in some points of sale around throughout Brazil.

Speaker 2

So we have different competitive levers that can allow us to compete in this market. But look, We have a market of 30% to 40% of the total revenue of banking business in Brazil. And it's a market that can be divided With 3 or 4 banks or fintechs and everybody can hold 20% of share And we're big. That's another important thing here, to have scale. We have scale to serve this market and to be able to compete in this market.

Speaker 2

That's how I see it. There is room for those who will serve in a certain way, and there is space for those Who will serve in a more connected way, that's what I think for Bradesco over time, and we're going to show you that. And then I think you asked about the credit, how we're going to grow. We are going to grow effectively with good models. We have the capacity to do that with good credit models, a good From the retail bank to the wholesale bank, how we're going to operate capital allocation, that's all obvious, but we have distribution capacity.

Speaker 2

So I believe that today, competition is a lot more among the incumbent banks rather than fintechs. They still have a small share. Of course, they have opportunity, and they will grow a little bit more. But we have the levers, and we have the capacity to distribute and grow Depending on our models, that's what I showed in the last quarter, we had that inflection point for the curve, both for individuals and SMEs. Thank you.

Speaker 2

Thank you, Tito. Our next question

Speaker 4

is

Speaker 2

Jorge Curi, Morgan Stanley. Hi.

Speaker 4

Yes. Hi. Good morning, everyone. Thanks for taking the time to do this and congrats Marcelo on the new role and best of luck. I wanted to ask about the return on equity that's embedded in your plan and your ambition.

Speaker 4

Your Return on equity based on the 2024 guidance is going to end up roughly at 10% to 11%. That's Half of what the guidance for Itau, which is your biggest peer is, I wonder how long do you think it's going to take you to Close the gap visavis your best in class peers. 5 years out, if you Execute your transformation program, where should the ROE be? That's my first question. And first question, I'll ask my second one later.

Speaker 4

Thanks. Okay.

Speaker 2

Jorge, thank you for your question. As I mentioned, our ambition, our main target is to grow our profitability Over the next 5 years, quarter by quarter, we have an opportunity to show better ROE maybe at Some quarter during 2026, as I mentioned, I believe, in the first question that was asked, that's when we probably will be able to exceed that cost of capital. And the idea is for us to grow during these 5 years, Delivering compatible returns with our shareholders' expectations and compatible with our expectations. That's our ambition. There's no date and time.

Speaker 2

There's no deadline, specific date for this delivery. Thank you, Georgi, for your question. But this is what we pursue as The main goal of our strategic plan. Thank you.

Speaker 4

Thank you, Marcelo. And my second question is about The C level compensation package and particularly your compensation package, what type of targets is it linked to? Is it return on equity? Is it market share? Is it stock price?

Speaker 4

Can you walk us through how the success of the bank and your success are tied together?

Speaker 2

Okay. So look, we are reviewing This plan, we're preparing, as I said, a new human resources plan to be implemented by the end of this quarter, we'll discuss it during the month of February, and the idea is to approve it in March in order to implement it. And then the sea level will be connected to this total compensation that we're going to determine. Of course, we already Have references and benchmarks in the bank. We are still working with the previous policy, but I believe that we are competitive enough To bring C level individuals to our organization with competitive compensations.

Speaker 2

And we'll compensate both People who are on the Run the Bank and those on Change the Bank recognizing their respective roles here. And then look, You talked about the indicators. Jorge, the indicators will depend on each of the departments, right, Where they are, we have indicators related to the plan, and we're going to have indicators department by department for digital, for physical, to effectively implement this new human resources plan. Of course, the higher The level of the executive more linked to the whole they are, the higher the hierarchy, More relationship it has with what they effectively do and deliver. Thank you.

Operator

Next question from Eduardo Nishi with Zhengyao Investimentos. Nishi? Hello. Good morning, everyone. Thank you for the opportunity.

Operator

I wish you a lot of success in the new strategic plan, Noronha. My question is more related to the cycle and how this should change with the new strategic plan. In this past Cycle, in my own assessment, you had 3 big challenges, if we can call them that: treasury, Market NII, that was way below the peers. ALL, particularly in the low income segment, which Negatively impacted the results of the bank and your digital strategy, which was then restructured And now it's under the bank. So if you could speak about these three points, What will they be like with the new strategy?

Operator

I know you have very few days, just 60 days since you took over, but Do you see any structural change in these three pillars? Thank you, Nishio for the question. I will divide the answer with my colleagues, so I won't be the only one speaking here. I'll ask my colleagues to begin And I will add to their themes. Casiano and then Ferretio, feel free to contribute.

Operator

Nishio, thank you. The market NII, as you said, suffered in 2022, 2023. 2023 recovered almost 1,700,000,000 Compared to 2022, and it became positive. In 2024, in our guidance, it's basically The natural levels that we had in prior years. So that's a phase that is behind The whole loan book originated in the prefixed area, did well in our trading desk and client desk working strongly.

Operator

So for the treasury, we believe that we now are handing the baton From the difficult period to a more normalized period to 2024 onwards. As for ALL, Masaru mentioned, we had ability to pay, particularly low income cards and SMEs. And as Marcelo mentioned, in our numbers, we see the important news that all delinquency curves are reducing, which is very good. All our testing in the new cohorts puts us in a very good position regarding additional ALL, allowance for loan losses. This also poses a reduction in mass retail.

Operator

This has been happening in the growth given the growth of the loan book, the nature of the loan portfolio with different types of clients. With more Risky clients, we need more provisioning. So this year, that's when we will be paying the bill, This past bill and starting in 2025, we will have a more natural cycle in terms of the allowance for loan losses. As for the ALL, as Marcelo showed, we recognize that we have adjustments to make not only in ALL, but in the whole credit cycle, which is reflected in our credit business unit. They will look at credit in an integrated way.

Operator

The loan book, quality of credit, approval. So these structures In a review, we'll give a lot more effectiveness to credit management. We will also be making adjustments in terms of credit modeling. I think that modeling has always been a strength in this bank, but there's always room to evolve and to constant improvement. So we do acknowledge the need for adjustments in this part of the strategic plan.

Operator

And Michel Lemieux, digital, Strategic paths are not limited to 1. You can choose different paths and through different paths, Different organizations, you can achieve common goals with both initiatives being successful. We decided in the past to better next, Diageo. Then we saw that the values, the prices of the business changed in the market with a different approach. So now we brought this closer to Bradesco because it's a core business for us.

Operator

But there are a lot of lessons learned in value here embedded in DPO and NEXT. Our client base continues to grow. We continue to do things differently. I've said that Digio is an important laboratory for us, Also in our strategy for VSCO Digital. So everything is closer to Whether we're going to integrate the platforms or not, well, we're seeing so many interesting things with the new diagnosis that Perhaps we'll integrate next to keep the bread, but we have Beyond Bank, our marketplace.

Operator

We brought it from NEXX. We just delivered it for friends and families here at Bradesco. So we are testing this in Bradesco with Bradesco But also connected to Next, we have another part of Beyond Bank, which is agribusiness, another marketplace. So we do some business for us to move around. So this goes to Serve mass retail low and middle income clients that can potentialize our business with multi brand.

Operator

This is not totally defined yet. We can take one path or a different path. Secondly, regarding market NII, they've talked about this. We have expectation of all normalization along 2024. Thirdly, ALL allows for loan losses.

Operator

You're going to have a higher cost in 2024, which I consider to be a transition year because we have a substantial growth of the loan portfolio Due to expected loss, this is called ALL. If we were flatten growth, we would have less ALL, But we are putting efforts to have client NII with adequate losses in the new cohorts or vintages. Next question from Rafael Fradi with Citi. Fradi, go ahead. Good morning to all.

Operator

We have a lot of discussions in the market in terms of how a low profitability of Bradesco in the last 2 years was linked to a structural issue or related to the Issue or related to the context. This has more exposure to smaller companies and lower income segments. I think there's also a market element, but you're also saying that you have a lot of opportunities to improve your operation. You We spoke a lot about lower income segments. I'd like to understand more about SMEs.

Operator

Marcelo, at the beginning, you said that is a leader in the S and E segment. It is an important part of your profitability. It's a part that had an important portion of the NPL formation in 2023. So what have you identified in your diagnostics that could be quickly improved, something that could be deficient? Perhaps could you elaborate on the diagnosis for this segment of SMEs?

Operator

Thank you, Frannie. It's good to see you again. All right. SMEs. We are leaders in the SMEs segment.

Operator

We have a significant share, but Freddie, we have to admit. I think that we had a credit policy which was perhaps a little more open. Perhaps we misread, perhaps we stopped printing credits a little later than we should have. I have to admit these things. But Bradesco is part of the Brazilian social pyramid in lower income and SMEs, but very present in these segments.

Operator

So when there's a delinquency issue, we tend to suffer more proportionally or in absolute trends than peers, Regardless of having a higher leverage, we should have stopped before earlier. That's a given. This bill is being paid. But when I look at the segment, it has the right size. It is profitable.

Operator

And I'll tell you, most Clients in SMEs are paying their loans. They are not delinquent. Most of Some are okay. They have been paying off their loans and they have been making doing business with us. So we are leaders.

Operator

We have new credit policies. These credit policies, are they more restrictive, somewhat more restrictive than in the past? Yes. We are a little more conservative in that regard, less conservative in the transformation of the bank, but more conservative in managing Credit risks based on the new modeling, but we have a huge opportunity of quickly reversing that because NPL is dropping, delinquency is dropping. That's under control.

Operator

We went back to growing. Like I said, we had an inflection point in Q4. So the number is under control. Yes. What are we doing in this segment?

Operator

We are creating 122 platforms in Brazil, as I mentioned during the presentation. We have delivered some in the end of the year. We'll deliver 122 platforms in 2024 as quickly as possible with a team only dedicated to this target of clients Tier 1 between €3,000,000,000 per year in the main cities. But you see, We started working with some radius, but we are increasing this segmentation, distributing this client base When we have a complete network of platforms for the target from 0 to 3,000,000, we improved the whole work on remote service, Also for micro entrepreneurs, in terms of digital physical service and remote Online service, so we increased the force of sales, more sales scores in the segment of SMX. And why?

Operator

Because we see this opportunity. Besides, in order to get more traction and more safety, we brought in some credit analysts to work more physically close to these platforms. We have been doing some good testing with them. This will ensure to us more speed because out of this credit rating is judgmental. And we have a different management model, different than what we have implemented in our client management.

Operator

We started with that segment of 3 The €50,000,000 with a different way of managing the portfolio. Now we are starting to educate and train our managers. We'll have to be monitoring this in a centralized fashion so that we can do full time management and monitoring of the So we can make decisions regarding risk management regardless of a centralized portfolio management. These are operational details. So I do risk assessment, the contracts and how do I monitor?

Operator

Because if you get there first, you enjoy benefits. So we have models and indicators to manage this just like we do in other segments. So here, we are improving this management model. So we can be a lot more competitive In terms of delivering goods, customer service and experience and in terms of managing our credit risk Regardless of other people and other tools managing the portfolio. Added to that, we have the public acquisition offering of Cielo, what we call OPAN.

Operator

We want to bring payments and other synergies with this SME segment, which

Speaker 2

Welcome to this position. My question is more related to 2024 to talk about your guidance. You gave an expectation of the increase in the loan portfolio, but I'd like to understand where this growth is coming from, if it's more individuals, more Companies and also about the rate for 2024, I think it changes the perspective that the analysts have for the year. I can answer it. And in terms of growth, I believe I can Say that we're going to be growing in our main lines very closely.

Speaker 2

As we've been saying, we're accelerating credit Origination in retail, this origination has been significantly growing. It's still not Overflowing to lead to portfolio growth, that's the portfolio hasn't responded yet, but the main driver for growth includes Growth in all lines on wholesale, retail and small and midsized companies where we Also accelerating. This growth will accelerate during the year as the guidance includes 7% to 11%. We have significant growth in line or above the market. Of course, that the average portfolio grows less, and that's what translates into the margin guidance that's slightly lower.

Speaker 2

In terms of the rates, you can consider between 2018 as a reference, the tax rate. Yes. And the idea is to grow The entire portfolio with the expanded portfolio, as Viretti mentioned. Thank you, Arnon. Next question, Yuri Fernandes, JPMorgan.

Speaker 2

Good morning. Good luck with the management of the company and the plan. My first question is about The bank's capital generation, I believe Bradesco has good capital, €2,700,000,000 It's not a matter of But when we think about ROE, as you mentioned, Noronha, maybe in 2026, it will exceed the cost of capital. When we look at the 2024 guidance, it should be Rate of 10%, 11% may be slightly higher, but with the portfolio accelerating, as Ferreccio mentioned. And in the past years, we're looking at you Maximizing the benefits of IOC, the bank has been paying relatively good dividends, but that implies a smaller capital growth.

Speaker 2

My doubt is how to think about this choice between growth and capital and how to fund growth. Considering it may take until 2026 to improve profitability a little bit, the capital cost may be broad in this plan for you to get to that 15% to 19% market share. So if you can talk a little bit more about how to think about the payout and this dilemma Between investment growth and capital would be my first question. And the second, very quickly, Noronia, about Cielo. If you can give us more details about the strategy behind it, if there's any discussion and about this public acquisition, if there's any Discussion about the select rate around the price of the software.

Speaker 2

Dividends was very clear. You have relevant focus on Cielo, but there is no It's not clear whether there's a correction for the CELIG rate.

Operator

Thank you

Speaker 2

for the question. Casiano, I believe you could begin, and I'll add And talk about Cielo. Thank you, Yuri. It's a pleasure to see you here again.

Operator

On the

Speaker 2

capital side, we understand here that Our projections are all considering sufficient capital to maintain the credit growth. Of course, in our strategic plan And even for the new approach for the Central Bank's operating risk that we've been discussing in some of the fronts, and we can talk about it in person, So the strategy, as Marcelo said, our transformation pattern is to seek growth of our profitability, growth in our net income that are also a significant part of our capital composition. And we See it as natural to continue to work the basic benefit of IOC for as long as it exists, and this year is no different. For the moment, from everything we're seeing with our business cases and the planning and the budget process, We understand that at least over the few next few years, we will be comfortable in terms of capital to support the transformation process and the bank's growth. Yes, Yuri, that's what Cassiano said.

Speaker 2

We ran all projections With the expected growth levels, and we have sufficient capital to do it, and we're comfortable with that. In terms of Cielo now, You asked 2 questions, right? So first, whether there's going to be a correction. That's not The information we have, that's not what we have in mind for the time being. We don't have that perspective about this correction factor.

Speaker 2

And the second is about There's no discussion about separation from Cateno at this time. We are offering these Stocks to the markets, the public acquisition offering because there's some important strategic points that I mentioned in our plan. And on Banco DO Brasil's Besides, they also have good penetration on legal entities. And for both of them, the strategic aspect is essential because then that gives us greater strategic freedom to review our value proposition here for SMEs and even for larger companies since Cielo can Also penetrate larger companies in their acquiring business. And Banco DO Brasil, we won't get into their strategic Decisions that they don't get into ours, but we'll have the liberty to do that.

Speaker 2

There are already separate commercial teams in the company, But it's a closed capital company that effectively allows us to move faster, make And then a question that may originate from your And I'd like to add here is that, Oba, so if it's a closed capital firm, are you going to be able to have the governance to do that? The answer is yes, and it is yes because we have other partnerships with Bercodobrazio, Alelo, Livelo. And there, they are all delisted companies, and we have this view of 1 and the other. And we have very good Management, each one of us driving our channels and making the business develop, and it's not going to be any different in Cielo's case. Thank you, Yuri, for your

Operator

Thank you, Feretti. Welcome, Noronia. Andre, I wish you a lot of success In this new chapter of your lives, I have a quick question just to clarify regarding the outlook for efficiency. We see the SG and A and OpEx of this year running above inflation. This is a period of investments and are the costs that come with the transformation.

Operator

I guess we could imagine as G and A growing what's then inflation In 2025, 2026, or should we think that efficiency ratio would improve because of revenues, Well, investments are kind of multi annual in a sense. Obviously, you want to grow revenues a lot. But the adjustments that we will be making in terms of reducing the cost And that should start giving us higher effects in 2025 in terms of reaping the benefits, improving the efficiency and evolving those line items. Now when we look at our expenses for 2024, Administrative and personnel expenses will grow basically in line with inflation in our projections. There's a slightly More pressure on the line item others because of provisions for civil claims and other provisions that are part of that line item.

Operator

But in administrative and personnel line items, we already have a good level of control. For 2025, we'll start capturing the benefits. So Feretti summarized, revenues are important, But of course, the biggest capture will come from reduced expenses. Thank you very much. If I may ask a question about SMEs.

Operator

We are discussing the strategy to resume growth in retail, And I know that SMEs are a relevant segment for Bradesco. It's a profitable portfolio. So what is the turnaround strategy perhaps integrated with the recent announcement of CLO? If you could elaborate for SMEs, it would be welcome. As I mentioned, Pedro, Dividing SMEs into 3 segments.

Operator

Tier 1, 3,000,000 to 50,000,000 And we are having new platforms that are being opened in the main cities of Brazil and we'll expand the radius of those Eventually, so we are locating the sales force with more prepared people. We are training people. We started opening these platforms in the end of Last year and we'll continue these openings on 2024. We expect to deliver 122 new platforms with a much more focused and established management, like I said, with a new management model, including portfolio management, not just in a centralized way, but also decentralized and a better customer experience for our clients. We're also changing the value proposition and increasing the sales force in the SMEs, 0 to 3,000,000 because these A more decentralized in the branches in Brazil and also for micro entrepreneurs with remote service and digital service.

Operator

Naturally, we expect to improve the value proposition and it's linked to this If I may add, Noroyo, also the use of transactional information, that's the best use we can put our CRM We've been working a lot on this and the product verticals looking more and more to this niche, The new cash platform that we are introducing. So we add CRM, the transactions, database, Our new products and the new account loading of subdivisions of SMEs, with all that, I believe that we are well positioned To have growth in this new segment. Let me add something. We've accelerated credit rating to small companies in Q4. That was the inflection point.

Operator

What we see is that now that we have this monetary easing in Brazil, that's a tailwind that will benefit Small companies and lower income segments. For small companies, as Marcelo mentioned, they account for 15% of the banking value to be captured in the As this will double in 5 years, these 15 can become 25. And here's where we can create value and grow. That's why we will increase From 1,700,000 to 2,500,000 clients showing clearly that we want to gain market share in this segment. I can tell you all incumbent banks are here fighting for this market.

Operator

This is what we see. And I'll tell you, we'll be in this battle. We'll be competing because we don't want to give up the leading role that we play in this segment. Thank you for the question. Thank you for the transparency for all the time you're devoting to us today.

Operator

Thank you. Success. Now we are moving to the last question from Carlos Gomez with HSBC. Thank you, Carlos. Thank you for waiting.

Speaker 5

Thank you very much. And again, good luck in this new stage and really good to see Andre back, our old colleague. Good luck to this new role as well and to Federici. I had two questions. The first one goes back to capital.

Speaker 5

Could you give us the Potential impact of the proposed tax reform on your capital ratio in the sense that the DTAs would probably be In terms of it is past as it is now, what would happen to your capital? Where would that 11.7% Tier 1 go? And also related to that, what You said you have an adequate level of capital, but what is the level that you want to maintain in the coming years? And my second question is more generic. In your new strategic plan, one of the assumptions is that you are going to grow market share.

Speaker 5

That's unusual for a large bank Like yours, what makes you think that Bradesco can significantly increase its size in a very competitive market? Thank you.

Operator

Thank you for the question. So from the standpoint of capital, the impact of tax credits is about 0.8 to 1 percentage point Starting in 2025, in terms of tax credit operations, this is what we've seen. Now obviously, we still The Central Bank of Brazil will be looking at this as a whole. So there might There'll be some changes in terms of capital, some bias in terms of capital. But If there are no specific assessments for the banks, the impact should be between 0.8 to 1 percentage point.

Operator

Let me add to that. There are a number of changes underway. There's Resolution 2 29 that changes the capital requirement for operational risks. That's the impact of 0.8 Percentage points on capital. There's also the IVA reform.

Operator

It will be implemented Very, very gradually, it will have a little impact on capital. And there is a third front here, which is the income tax reform. This has not been submitted yet. It will probably be submitted in March, and then we'll be able to Do our assessment. We haven't got the details on the table to evaluate this.

Operator

So this impact is for deferred taxes or for recovery, this 0.8% to 1% Yes. Oh, percentage point. It's differed. And then as regards to market share gain, I think To start, I'd like to remember that in this past

Speaker 4

year, because

Operator

of our reduction in risk appetite to control delinquency, We ended up losing some market share in some markets where we can play an important role. So in resuming credit origination, coupled with our initiatives in our strategic

Speaker 2

plan, We

Operator

see room to regain this market share that was lost. That happened because we reduced our risk And also the strategic plan brings some initiatives that will increase our competitive medicine in the credit market by integrating the credit process or through those initiatives for SMEs, for example, and the whole positioning that we are reviewing in our retail operation. We believe that this resumption and market share increase will come naturally given our positioning at this moment. Let me add to what you said, Parete, regarding the affluent segment, high net worth clients that Marcelo mentioned In the strategic plan, it's very important. We have 1,700,000 clients of very important potential share of wallet.

Operator

We believe that by doing all this

Speaker 4

work of

Operator

transformation, of delivery Content in relationship building with Appoint clients, we have possible idea of expanding our share of wallet and naturally get

Speaker 1

Carlos, we have many strengths in different segments as the SMEs In retail business, with low, low income clients, we have a strong penetration there, But we have many strengths in wholesale bank, enough rent for high income clients, SMEs. As I mentioned, we are leading in SMEs. We have an important penetration In all over the country, with different value propositions, with 3 Different segments inside of SMEs. So we believe that we have a strong distribution channels to improve Our loan portfolio maybe in 2024, but over The next few years over the next 5 years, that is the plan. Thank you very much for your question.

Speaker 4

Thank you, Marcelo.

Speaker 2

So now I would like to thank Everyone, we are going to close this video conference call, and I remind you that all of the questions that were not answered during this meeting will be answered by our Investors Relations department. May I just make a final comment here? This is my first Conference with all of you. And I would like to say that I thank you all for your attention here today. We already As I said in the beginning, we already have some meetings scheduled with international buy And we are open to talk, to explain with more details all of these plans for the future, not only myself, but my colleagues here

Speaker 1

As well

Speaker 2

from the Investors Relations department to give you more detail, not only this week, but even later, I am open to Welcome you here. It will always be my pleasure to talk to all of you. Thank you, Fereci. Thank you. Once again, thank you, everyone, and this concludes

Powered by Quartr
Earnings Conference Call
Banco Bradesco Q4 2023
00:00 / 00:00