Banco Bradesco Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 2, 2024

There are 4 speakers on the call.

Operator

Hello. Good morning, everyone. I am Marcela Nuroinga. I'm here to present the results for the Q1 of 2024 of Bradesco. I'm here live speaking from Sidade de Gideos of City of God.

Operator

It's 10:31 a. M. It's a great pleasure to be with you once again. And before we start the presentation, I would like to say that unlike what we did in February when I started presenting the strategy in a more lengthier way. The idea here is not to present the strategy in so many details again, but we will summarize everything, and then we will revisit some of the topics as the questions pop up.

Operator

And so I will talk throughout the presentation about what we delivered in addition to the numbers related to the Q1. And I'm sure I think you have the opportunity to take a look at the numbers since we published we posted the presentations and the release after 6 a. M.

Speaker 1

Our

Operator

net income recurring net income was €4,200,000,000 It was flat in relation to the previous quarter, but 46% better than the last quarter of 2023. And there are some points of attention here that are highlights of

Speaker 2

our

Operator

balance sheet. Some are challenging and some other topics related to deliveries that we've been doing. 1st, the improvement in ALLL for both retail and wholesale that also leads to an improvement of our NPL that is improving in all segments. We also increased loan in all segments. I think there is a colleague from the sales side that last quarter asked me a question.

Operator

He said, do you think you would resume traction? And you will see through another chart that I'm about to show you that there is an inflection in the total loan portfolio. And that's what we will show you. We will show you growth in all loan segments with traction. And this is just to answer that question from the previous quarter.

Operator

Well, the challenge is the gross client NII, but there is a justification for that, and that justification is in our guidance. First, we have the loan book, and then the margin follows suit. And I will talk a little bit more about it when I talk about the loan book and the guidance. Another topic which is very satisfactory is the control of operating expenses, which grew 4.4% as we will see and a very sound performance of the Bradesco Insurance business. In all lines, we had a solid performance.

Operator

So the results for the Q1 was BRL 4,200,000,000, very much in line with what we intend to deliver this year. And as I said before, step by step, we will gradually grow. And I know that my clients on the sales side, in particular, those that have been analyzing as they look at the presentation from the last quarter of 2023 and then take a look at everything I'm about to tell you and run a comparison with what we talked about the previous quarter. Therefore, our loan portfolio reached almost BRL 890,000,000,000. We grew 1.2% year on year.

Operator

And looking at the quarter alone, and the quarter says that we are growing steadily, we grew 1.4 quarter on quarter. The inflection of the curve, saying that in the last two quarters, the portfolio was coming down, but now it was declining. Now we are resuming growth. If we look at the free portfolio, if we were to look at the presentation from the previous quarter, you will see that traction now is much better based on the KPIs that we showed

Speaker 2

you in

Speaker 1

the previous quarter.

Operator

Looking at individuals portfolio, we accrue year on year 2% and 1.9% quarter on quarter, but this growth is well spread. Some portfolios give us a pretty good balance and there are other portfolios where we have to grow products with higher margins, but we are getting there. Payroll loans grew 4%, 2.1% growth quarter on quarter. Mortgage loan or real estate, I think we are probably the largest private bank to deliver growth 5.8% year on year and 1.8% quarter on quarter. Credit card, we didn't grow.

Operator

The risk was higher. But where is it that we are not growing? We are not growing in non account holders. When you look at prime banking, we posted 12 almost 12% growth when we look at the credit card high in the high income segment. Personal loan, 10.1% growth quarter on quarter and 1.8% year on year.

Operator

Vehicles also in rural credit, the lines that are more secured, these are lines that are long term lines, but at the same time, they carry smaller margins. Now looking at SMEs or companies. In Wholesale Bank, large companies, we grew 1.6% and SME, micro, small and midsized companies, We are beginning to see more traction. So we grew 2.3% quarter on quarter. But I will elaborate further on SMEs later on.

Operator

Something new that I am now bringing to you is an example of the vintages. Vintages for mass individuals or individuals' mass market. So we started with 100 back in 2019 and look at the Q2 of 2022. The vintages that we have been acquiring, that's the blue line starting with the base of 100. But the bar in gray means origination for 2019.

Operator

So origination for individuals' mass market, and this is again answering the question that you asked back in the Q3, what about the mass market? This is proof of our principality, meaning that we are increasingly bringing better ratings even in mass market, and this is proof of what we are saying. I'm talking about vintages over 30, etcetera. With time, we are not going to see vintages being right here. They will be slightly above because we will get into products that carry a bit more risk, but they also lead to better margins.

Operator

Here, we have to the right, payroll loans, installments,

Speaker 2

finance.

Operator

Cards alone is the only line that is not growing, and I already explained. And that was due to non account holders, clients that come from OpenSea and from the digital segment. But delinquency is coming down, and this is due to the quality of the collection service we are now providing. And now let's look at SMEs. I am exclusively talking about SMEs, starting with the base of 100, but look at quality of the vintages.

Operator

In terms of SMEs or companies, the bars have not yet reached the levels of 2019 because we're being more conservative. Now I would like to highlight a few lines of growth, but there are some lines that we are not growing as much because of the risk involved. This today is a segment that presents the highest credit risk. But nonetheless, we continue to grow. And this certainly explains why we haven't yet increased in the total NII.

Operator

Now you see delinquency levels falling. And Suna will talk about

Speaker 1

the net margin. So

Operator

this is NII. You already look at the KPIs, and this is a snapshot of our portfolio. When you look at this column that is available for

Speaker 2

you to

Operator

look at, you look at how much we grow in terms of portfolios that are safer within our portfolio. And now we also leverage credit to these other two lines here. So the loan portfolio comes first, and then that's followed by the margin. According to our expectation, this is what we expect to see throughout the year that the market NII goes down. So client NII is coming down.

Operator

But when we look at the net client NII, look at the relative numbers, where we were and where we stand today. So risk appetite is different. Therefore, we have new credit models. We have new credit policies. We are using a lot of machine learning in our credit segment and with our team.

Operator

Therefore, the quality of the risk is being monitored very closely,

Speaker 1

starting with

Operator

FPD to control all of our purpose. We are very much grounded. And then you could see that we gained market share in February when compared to the Central Bank portfolio. It's not the expanded portfolio because the Central Bank does not disclose that. But I can tell you with a very good degree of certainty that we gained share in March alone

Speaker 1

as well. So we grew more

Operator

in February March when compared to January. So what we produced in January, there was just 1 month when we increased our NII. And whatever was produced in March, this will be reflected in April. So our overnight loan portfolio, everything is in the control in all lines, NPL, 100 percent of provisions. And our coverage ratio, very flat and stable when compared to

Speaker 1

the previous quarter. Expanded ALLL

Operator

also brings important figures. I'm not going to look at the previous quarter, but we had almost 18% growth year on year. I mean, in terms of mass retail, there was a drop, but the quality of what we are bringing is much better. We are much more effective in terms of our collection in credit recovery. Whenever we talk about ALLL, I mean, this provision indicator versus the annualized portfolio, this is an index that we haven't seen for quite some time.

Operator

Therefore, the numbers are very important because it goes towards the NII that we presented in the previous quarter. Now speaking about fees and commission income, this is very much leverage on payment because of the exchange and the companies that we have. So this is it's natural that it falls. I mean, this type of revenue is the lowest in terms of all the previous quarters. And the second quarter is better because we have Mother's Day.

Speaker 1

And the

Operator

last quarter, you have Children's Day, Black Friday and all of the holidays, Christmas holidays. So 1.3% a year growth is an indication that growth will be according to our guidance. So it's within our expectations. And in all of the other lines, I would like to highlight Consortia with this level of growth that you see. I mean, loan operations, 10%.

Operator

That means that we are well on track. And checking account, we had been losing ground with checking account, but now we resume growth because of some of the intelligent packages that we are delivering and capturing that. I think the most difficult part is equities and capital markets, and the expectation is low for this year and all of the reasons are well known to all of you. But we are very pleased to see the level of growth in terms of fee and commissions income. When it comes for Bradesco to run comparisons,

Speaker 1

I mean,

Operator

other incumbents say that within the fee and commissions income, they also include insurance revenues. But in our case, that's separate because that is included in the insurance operations. Our operating expenses for me, that is a highlight. That's our goal. We talked about 4.4% year on year growth.

Operator

We are delivering things with a lot of seriousness and the optimization of our print with about 300 movements in the Q1 of 2024. Now when you look at the

Speaker 1

book, you

Operator

will see a chart that shows branches and points of service. Within that point of service, we have what we call PA. We have small PAs and large PAs, which are points of service. This is another name used by the Central Bank, but it is a mini branch. In some municipalities, we shut down some of these PAs

Speaker 1

or points of service. But I

Operator

will later on talk about the company segment. This is something that we referred to at the beginning of the year. We said that we would do another segmentation with very specific service with specific branches to cater to companies, and that's what we did. So here you see a larger number of branches serving companies. In fact, there was a reduction significant reduction or maybe at a bigger pace than what was previously announced.

Speaker 2

And now

Operator

later on, I will talk about this new branches for companies and Bradesco Expresso. When we talk about personnel and admin expenses, the growth was even below inflation in the period.

Speaker 1

In the results of the insurance group, they did some net income of BRL 2,000,000,000, 10% increase here on year almost 20% ROAE, a substantial increase in premium income, pension plan

Speaker 2

contributions and the result of almost BRL 4,000,000,000 showed a significant increase in premium income,

Speaker 1

pension plan contributions and the out of almost €4,000,000,000 showed a significant increase. And I'd like to highlight technical provisions, which grew almost 12%, reaching BRL380,000,000,000 quite a significant amount for the insurance group, which is doing quite well, performing really well. Here, our bezel Tier 1 bezel ratio of 12.7%. We have BIS in the book, so you can look at the total. And we provisioned IOC for Q1 of about 2,600,000,000 guidance.

Speaker 1

So this brings me to the guidance. Here's what I can say. When you look at this indicator in the previous quarter, what did we have? A declining, a negative number. But we've got traction now and we are within the guidance.

Speaker 1

No doubt about that. And of course, we have to move in this direction so that we will have a reflection in net interest income. So we have the loan book and then net interest income. And this can be the indicator that is the most challenging for all of us. But let's focus of 1.2% and then net interest income will improve and we believe will be within the guidance.

Speaker 1

Fee in commissioning company was And again, the expectation is that it will be the case. Income from insurance operations, a little over, a little better, great. But we believe that it will be within the guidance. But to remind you that the guidance more expected losses even with the better vintages. So of course, I'm going to have more provisions down here.

Speaker 1

And that's why we believe that we'll be within the guidance one or other line item or more towards the bottom of

Speaker 2

the guidance and some others more towards the higher end of

Speaker 1

the guidance. Towards the higher end of the guidance. We continue to believe and we continue to move forward step by step, as I mentioned in the previous I'll make some comments about run the bank and change the bank. As I told you then, in the past, we spoke about quick It's a plan. I said we are not going to be delivering the next quarter.

Speaker 2

We will

Speaker 1

be delivering that along the next few years and we'll have quick wins in recoveries, in collections in some segments. So the reflection

Speaker 2

of all

Speaker 1

of us over time will be seen in our income statement and in our balance sheet with the exception of some specific cases. For example, the delivery for the companies segment. You can go to the branches and you can speak with people there. So we'll implement in your modeling and this will be reflected in our credit increase, credit poverty, etcetera. So run and change are kind of mixed together because we don't have quick wins.

Speaker 1

You remember the 10 topics like I said in the beginning. I'm not going to go over them again, but I would like to make a brief comment And you can look at these indicators. Speak about the digital bank,

Speaker 2

98% of transactions are

Speaker 1

carried out through digital channels. I'm speaking about the app, mobile and Internet banking in the case of companies. And this is our timeline for our strategic plan. You will remember, that we presented a plan in detail back in February. And what have we delivered so far?

Speaker 1

Far? A new organizational structure, reduction of layers,

Operator

and we

Speaker 1

are putting this into practice at the bank and the spend of control revision. So we increased that spend of control. The transformation of this today comes with more than 800 people. And this was only possible because of these reorg that we have, or else we would not have the ability to allocate leaders here. So we are in the process of execution, which is very daring and bold and accelerated.

Speaker 1

And it's not easy. You know that. We spoke about diagnosis, a plan, a structure and execution. And execution, of course, is the biggest challenge for any organization, but we are executing with determination, safety and control. External hires, we also spoke about this.

Speaker 1

You will remember that we had 2 heads of departments that would report directly to me, 1 in HR and the other one for the business the digital business unit, which will take mass market to digital. And I'd like to announce that we had reinforcement of the credit being used with the whole reconfiguration and targeting with data and the creation of a portfolio management He was an officer in his prior role and he was already providing services to us. I think it was great to bring Giulio to the company to reinforce our credit team. And regarding the C level, we already hired those to officers. This is the 3rd time we drove.

Speaker 1

Many people ask me, when will you be able to do it? On May 9. So on May 9, we'll disclose the name and he will be starting to work on the 20th. So we'll use the price for that in our IR department. And we also hired a woman, a colleague who will be in the C suite with us In HR, Silvana, she's watching this call.

Speaker 1

And Silvana came from Advent. She was a talent manager of the firm. She was also an engender for many years. So she is an asset for us. She's couple's experience in dealing with culture and talent as well as her financial services knowledge so that she can be discussing any theme about the banking industry.

Speaker 1

And footprint revisions. I mentioned about this, about 300 points. And this continues. Here. This will stretch until year end with strong execution.

Speaker 1

And the opening of 122 branches dedicated to companies. I'd like to congratulate the team that worked strongly on this to put together the team. And here, I show you a picture of these branches dedicated to companies. We submitted 143,000 clients in this which is exclusive companies with specialists, in addition to the experience here, who manage risk. This is the name of the game here.

Speaker 1

If you look closer, cyclical with middle market, we are now doing with these SMEs without losing sight of everything we're doing, but SMEs between BRL 80,003,000,000 per year. We're using remote and after that expanding our radius of action for SMEs and ensure that we are going to have a lot of traction here. We'll have the footprint provision as I mentioned and we'll expand Bradesco Express. And here I'd like to comment on another We can use this to sell banking products and services and also So the moment the merchants identify with their tax payer number automatically, our CRM engine clients, what we can offer them according to their profile and list. So all of the efficiency tends to grow significantly here.

Speaker 1

Inaugusto, Consurgency has 100% of products in Brazilian municipalities. And this quarter, look at insurance sales versus Q1 'twenty

Speaker 2

three,

Speaker 1

up 89% on this channel. And origination of payroll deductible was 361 percent increase. So we expect to give a lot more traction to espresso. But there's another detail here, which is a game changer for providers of these solutions. Going to the merchants with the traditional POS machines and some functionalities in the futures in these machines.

Speaker 1

We will find all that. 2 have left And by the end of the year, we'll have just one platform with a lot more versatility and the ability to deliver functionalities and Expenses control robust credit growth in all segments in addition to the results of the disasurers and change

Operator

the bank,

Speaker 1

I highlighted our external hires. I've just mentioned one of the names. Of the rentals for companies for SMEs, this has been delivered. Footprint revision, that's strongly underway and expansion of food services I've just mentioned. So we have deliveries.

Speaker 1

We are following the plan step by step, so that we'll offer better and better premium every quarter. I thank you for your attention. And I now have my colleagues, Cassiano Scropelli, our CFO and Andre Carvalho, our new IRR officer, taking over from Ferreri, and we'll start the Q and A. Andre, over to you.

Operator

I think I already said a lot. Good morning, everyone.

Speaker 2

I would

Operator

like to inform all participants that Ivan Gonteijo, the CEO of our insurance company, is also joining us during this Q and A session, and he's with us remotely. But if you want to send in your questions, you can send them either in Portuguese or English. And please do so using our e mail investor like you see on the screen investorsbradesco.com.br or using the WhatsApp number. The information appears on the screen. The first question comes from Renato Meloni from Autonomous.

Operator

Renato, over to you. We can't hear you. I think you're muted. Good morning. Thank you for taking my questions.

Operator

I have 2 questions. The first question what is different when compared to the original plan? And given your current visibility, whether there has been any changes in terms of delivering ROE above the cost of capital, and you said that you would do that throughout 2026. And my second question relates to the guidance. To reach the NII guidance, this means that you have to have better origination, better margin because I think this will come with the mix and this will improve provisioning.

Speaker 1

So how

Operator

do you see these 3 levers performing throughout the year? And what is pace? And where do you see the risks of not delivering what you expect, not delivering to plan? Well, thank you for your questions. I will ask Cassiano to start and then I will not only Cassiano is the CFO, but he's the CPO.

Operator

So Cassiano is the best person to talk about the KPIs of our transformation plan. Thank you. Thank you, Renato. Thank you for your question. Our transformation plan, I mean, what we did, we ratified what we envisioned in the diagnosis of our transformation process.

Operator

As Marcelo put it quite well, we have over 800 people engaged, 2,600 initiatives and the KPIs are very apparent. I mean starting with the footprint all the way to the ring of the bank and credit segments. Also that involves recovery, risk, hiring new people, technology, etcetera. So we launched the plan on February 19. That's when our new office started operating.

Operator

But looking back, today, we can say that this whole mapping was very important. And we found more days, which was quite interesting. We found other things that can lead us to have to us having a more agile bank, a more digital bank, even more than what we are, rendering even a better customer experience. It's not way ahead in the future, but it's throughout the journey. And I am certain that the plan is well structured and the deliveries are well in schedule and we will improve performance.

Operator

Canato, just to add

Speaker 1

to what

Operator

he said. Reinstate that number. You might recall that I talked about the total number. You may have some small adjustments to the calendar. Okay, this was expected for December, but it may be earlier or later.

Operator

I thought that SME would help us would perform better further on, but we were able to deliver the numbers before schedule. So we still have that expectation in terms of the numbers. You might recall that if our CAGR for loan book would materialize. If CAGR would be 1% a year growth, our loan portfolio total growth for the

Speaker 1

expanded portfolio will be

Operator

3.3 1,000,000,000,000 in 5 years. I mean, we want to capture part

Speaker 1

of it. And the

Operator

expectation remains firm,

Speaker 1

and we see through

Operator

traction that we do have the capacity to get there. Secondly, in regards to that ROE expectation that you mentioned, I would just say it again. I don't want to just promise things. I want to deliver. As soon as I can deliver, you we will deliver to expectations.

Operator

And that's what we intend to do, to deliver things as time goes by. And the other question was about client NII. How do we expedite that? I mean, we accelerate through growing our loan portfolio. And during my presentation, I said that okay, we gained market share in February.

Operator

In January, we did not gain share. So we had to move faster in February, which we did. So firmly believe that we will gain share in March. In April, that's when we will see what has been done. I mean, that NII, things will not happen overnight.

Operator

First, we will see a growth in the portfolio, and then we will see an increase in our net margin because the bottom line is that delinquency is under control. We are bringing good quality things to our portfolio. And that's when we will see a growth in NII, an effective growth in NII. So you might recall that I'm talking about 2 different types of portfolios and 2 different types of risk acceptance. This will require additional effort on the part of the bank.

Operator

I don't know whether you would like to mention it.

Speaker 2

It. I mean the

Operator

client NII will be better in the second quarter visavis the first quarter

Speaker 1

because there

Operator

is a gradual evolution, 1st quarter lower in ALL. And then with time, the margin will grow with ALL

Speaker 1

because we will go through

Operator

more risky segments. And our funding

Speaker 1

cost is

Operator

coming down as well. This is what we are noticing. And this has an impact in the time line. And I thank you for your questions. The next question comes from Brian Flores from Citi.

Operator

Hello. Thank you for taking my question. With a more restrictive central bank, and you talked about funding, how does that change

Speaker 1

funding? And

Operator

talking about and also talking about market NII, what is your view about market NII? Hi, it's a pleasure to see you. In terms of market NII, I would say that we don't see any major changes through this year. There was a light drop from 1 quarter to the next and the Central Bank with a more restrictive curve. But shifted curve, as we say, it is very important for our pre fixed portfolio because it brings a more interesting fee volume.

Operator

And we believe that even though the landscape is more restrictive, it points to decline in interest rates because 9.5% or 10% that is not very significant because it doesn't change the landscape as much in terms of our treasury position. Therefore, we see this as something beneficial because on the one hand, we reinstate our loan portfolio with higher rates. So in terms of

Speaker 1

the cycle as a

Speaker 3

whole, the

Operator

cycle would indicate to 9.5% to 10%. Our economists point to 9.25%. I don't believe in a cycle where interest rates will spike after that. So this scenario will bring about good results, and the market is performing well pretty much along the lines that we mentioned before, which is positive. And we see a positive trend towards 2025.

Operator

Just to reinstate what he said, the expectation is that the market is very bullish from

Speaker 1

now on.

Operator

And the fact that the rate will come down 50 or 25

Speaker 1

basis points, nothing much will change, okay?

Operator

Thank you for your questions.

Speaker 1

Mr. Kuri? Standpoint, that would be very helpful. Thank you. Thank you for the question.

Speaker 2

As I

Speaker 1

mentioned during the presentation, we have been using a lot more machine learning than in the past exactly that. So that's number 1. Number 2, we worked on our credit policies for certain credit ratings revenue, what kind of proportion of that you want to have in legal entities? What kind of quota do you want to have and

Operator

the kind of loan?

Speaker 1

Structural change so that we could adequately price on and adjust levels of approval. But in mass market, I'd say that this is a new credit policy, new credit models with a collection process which is very fine, fine tuned and living portfolio management which is what we do now. That gives us greater safety regarding everything we are seeing. We define the indicators that we are measuring strictly. We are measuring them full time.

Speaker 1

And also in the wholesale bank, we made some changes. We hold other people. It was not just one officer. We brought in teams for the credit department. We're still hiring more people, And we changed some processes so that we could have a lot more agility in serving legal entities.

Speaker 1

I'm talking about all the way from large corporates down to middle income and SMEs. So with that, with this portfolio management department, we have the 1st and second line of defense. We have colleagues in charge of modeling and then colleagues who check the modeling and validate the modeling regardless of the risk control department. So what I can tell you is we're very safe. I mean, of course, we are not going to be with that with that ratio for the vintages, but a little higher, which is the optimal point.

Speaker 1

But what we are measuring the economic return of each These were adjustments. Credit card for non checking

Operator

account holders.

Speaker 2

That's a

Speaker 1

modality where we are more to restrict there. For high income clients, we are growing credit cards almost 12%. So the OMC credit offers quite a little more risk today, but we have modeling for that. The wholesale

Operator

price.

Speaker 1

When can we expect this to grow? Or number 1? It's about risk at the way. This is the highest risk development. The T, Lilly, for those companies is 0 to 3.

Speaker 1

But in 3 to 50, I spoke about managing a living portfolio. So there's a management model that is being implemented in this segment. There is effectively more risk because the Brazilian market is like that for the Saudis. Reason. So we have a little appetite to get that.

Speaker 1

But we believe that we have started and we will continue to grow origination. And another reason to believe in that is that we change our offering what we offer to our sales force for preapprove, the way to approach clients with a commercial tool. This will change. And it started now in the month

Operator

of April

Speaker 1

with a different setup, different comping direction.

Speaker 2

In our

Speaker 1

opinion, in the opinion of the colleagues responsible for that segment, This will give a lot more traction to have a better credit quality, better credit analysis, more specialists

Speaker 2

in Brazil.

Speaker 1

In Quebec, in the low look at the track record of delinquency, historical series shows that individuals drop first and then SMEs and then at small enterprises. So small enterprises are having their inflection now. That's the market risk, Marcelo talked about.

Operator

Good morning. I have 2 questions. First question, when we look at the bank's coverage ratio, we calculate the ratio close to 162%. I mean, it's lower than your peers. But we also look at your complementary provision close to BRL6.2 billion and historically used to be around BRL 8,000,000,000 to BRL 9,000,000,000.

Operator

Do you intend to revisit those reserves?

Speaker 1

How do you feel the

Operator

reserve level stands today? And the second question is about capital. There was a decline in your CTO ratio, a drop quarter on quarter. So how do you see this CET ratio impacting your dividend policy or even your capacity to grow? We do not have a target for that coverage ratio because it fluctuates according to the credit cycle.

Operator

So if the cycle aggravates delinquency as well, I mean, because we increase the amount of provisions. I mean, we provision for 100 percent of our clients as the credit cycle begins to change. When we saw that happening in the Q1 of the year, Certainly, the coverage ratio increases because we originate credit that naturally at the beginning comes with higher provisions, then delinquency coverage increases. Therefore, this is a very cyclical KPI. We are not very much concerned with it.

Operator

We think it's very adequate for the current moment. And certainly, it has a natural recovery. Now in terms of CET1, We continue to say that capital

Speaker 1

is well

Operator

in place and in terms of the capacity to do all the traction that Marcelo talked

Speaker 2

about,

Operator

we can say that it grew vis a vis the Q3 of 'twenty three. There was a slight drop in this first quarter basically focused on mark to market bonds, but this also has to do with IOC. And so we understand that it develops naturally. We don't anticipate any changes in this capital throughout the year. It will be very close to what you see today.

Operator

And we believe that this could be a possible leverage to our credit increase. Therefore, our capital is in a very comfortable position right now. Well, first of all, you know that we project capital going forward. Also, we project it for following years. We see capital standing flat even though the portfolio is growing.

Operator

No problems here. Secondly, I don't think this will be a limiting factor for growth or even the distribution, I mean, of interest on capital. And the coverage ratio, I think I told you in the Q1, I referred to how comfortable we are in terms of the wholesale banking. Our total coverage ratio is very good. And in particularly, in terms of the wholesale bank, because I was asked this question by journalists during our press conference, it is very much under control.

Operator

And I talked about that last quarter. Our coverage ratio is ideal. And we even have some room for other cases related to expected losses. No problem at all in terms of our coverage ratio. Thank you for the questions.

Operator

Mario, now we have Thiago Batista from UBS. Next question. Good morning.

Speaker 1

Thank you

Operator

for taking my questions. I have 2 questions. One is I mean, it's a follow-up question. My first question is about the insurance business. We could see an increase in technical provision, quite significant this quarter.

Operator

But when you look at the details, you had JPY 2,400,000,000 in additional coverage provision. Moreover, there are other technical reasons. Last quarter, you used part of that technical provision. I would just like to understand 2 things. If this was part of your income statement or if there was something that was recurring and you wanted to reset, So what was the reason for that additional coverage?

Operator

And now speaking about Mario's question on capital, I understand you said that maybe at the end of the year, your capital position will be similar to the one we have today. Does that include any kind of arrangement in terms of the capital for the insurance company? Or I think in 2015 or 2016, you will get capital together with IOC. Is there anything included in this line? Or maybe historically, you think that you could keep capital very stable?

Operator

Because the portfolio, I think, increased by 1,400,000,000 and you consume 1,300,000,000 in capital. So it doesn't seem ideal to keep it stable and maintain the guidance without any sort of arrangement in terms of the insurance company or IOC. I mean, to answer your second question, I will say no. I mean, you're saying that you have an additional flexibility. We won't even need to use it because we could even think about using it, but I don't think we will need to.

Operator

Our projection leads us to say that with great degree of certainty, what changed from last quarter to this quarter? The main motivation evolved 2 things: payroll. We had the payment of 2 important payrolls and also NT and P, which is mark to market bond, and this is due to the natural hedge of our funding. And also, this is related to private pension funds, which is an important part of this project. So these were 2 big movements.

Operator

So this was a event. And the difference is due to the payroll payment I mean to the payment of payrolls. That's why our projections and our growth curve is very much under control.

Speaker 2

I think

Operator

we can also ask Ivan to answer the second question. But I would like to recall another point about the insurance company. This is something that we already saw in the past. Thiago said that himself, this is part of the technical strategy. At some moments, we had to do some improvements in the provision.

Operator

This was strictly technical and the provision has to do with all of the economics of the insurance business. I now on our income statement and what would be that additional provision. So Ivan, go ahead. Thank you, Marcelo and Casciano. I think Casciano already linked to an increase in the revenue of insurance and pension funds, special pension funds and savings bonds.

Operator

So that link in that increase in provisions is proportional to increase in revenues. Fund products. And certainly, they've demand an adequate level of provisions, always having a very conservative approach. And Marcelo, you mentioned our provisioning, which is close BRL380 1,000,000, especially products like pension funds that increased significantly during the period. I would just like to emphasize that there hasn't been any kind of recurring gain that could probably lead us to have anything different in our structure.

Operator

So everything is business as usual and in compliance with the regulating agencies because it's important that we comply with our short, mid- and long term agreements. Okay. Thank you very much. Next question

Speaker 1

from Tito Labarto with Goldman Sachs. Go ahead, sir.

Speaker 3

Hi. Good morning. Thank you for taking my questions. My question is on your funding. Looking at deposit base, finally, in the quarter, in the seasonality related to that, we have also seen a big shift from demand deposits to time deposits.

Speaker 3

Now that could be a function of rates. But just putting that in the context of the competitive environment that we're seeing, are you having to pay more to maintain deposits than retain clients and is that limit your ability to control your NII because in order to fund the growth, you would need to pay more deposits. How are you thinking about that?

Speaker 1

And so it's been reducing a little because we have to balance with our credit granting. We have to optimize cash and costs. So funding costs somehow continues to grow. It has a little bit to do with the reduction in LCR and credit consumption. Demand deposits continue to suffer because as clients, pay attention or their approach by our investment department or our platforms, they

Operator

tend to look for products with more profitability.

Speaker 1

Our funds grew almost BRL20 1,000,000,000 and some of that comes from the movements of demand deposits and the savings accounts. Savings accounts have been dropping in the system as a whole. There is always this discussion about savings accounts and CDI, and this comes from the discussion with the Fintech. So clients look at depreciated opportunities. We have Agora, our experts, onboarding the channels, the app or Internet Banking.

Speaker 1

And they, one way or another, observe this and provide opportunities to clients. So we see this as a natural moment in the industry, but we have products with different allocations to different clients. So with savings accounts and demand deposits, they are enough to maintain our strategy for rural loans or mortgages, real estate, finance. Would you like to add anything? But in savings accounts, we had a market share of 13%, and that increased to 13.1%.

Speaker 1

This is kind of the DNA of our clients. We have a savings account D and A. So savings accounts tend to remain flat, but the non floating products with higher interest rates have a trend to capture more clients. So we see this movement with us has been natural. And a lot of people have asked us about funding linked to changes in those what we call exempt securities.

Speaker 1

And the impact here is practically 0, first, because we have funding with exempt securities that is being accelerated to purchase inventory and then we have a natural replacement of these exempt securities by other bonds. So the impact here is practically 0 in our funding. Next question from Edward Rosman with BTG. BTIGI. I have a question about the results in the different segments of the bank because the earnings of the bank improved.

Speaker 1

The insurance company remains well and lost a little bit of relevance as a whole in this quarter. And you don't really disclose the results for high income, low income, retail and wholesale. So it would be interesting to hear from you where do you see easier improvements in the results, if in low income, if the reduced provision is already improving the result and whether there is any segment that is sufficient, if you could elaborate about the different segments of the bank? Thank you. Thank you, Rosemond, for the question.

Speaker 1

Well, we are doing more in the wholesale bank We have in RAR that is high for the different segments. And this is also for high income segment, not to mention private. So that's doing quite well. Our challenge, as you know, spoke about the insurance group, but our challenge, as you know, comes from our mass market clients given the cost to serve and delinquency and we've been paying that bill. But indeed, things are starting to improve a lot.

Speaker 1

In SMEs, in particular, though we see the delinquency curve dropping, but there's some improvement and month by month we see improvement. So our expectation is that we will drive the RAR of the mass market quarter after quarter. And I have to tell you, what we don't really disclose this breakdown, but what I can tell you is that all business units have a lot of traction right now.

Operator

An area of demand has a small traction

Speaker 1

or smaller attraction could be small and midsize enterprises, but it's improving. And again, that open sea of a lower income client because they have a higher risk, But they are all with a lot of traction. Not by chance that we are doing this, We are growing credit general segments in important lines. So we have the ability to deliver and to deliver more than we are delivering right now. And what I see and what I am living because I've been going all over Brazil.

Speaker 1

I've been having breakfast with colleagues in the headquarters, in many locations, in Rio de Janeiro, in Sao Paulo, in Salvador. And it's I see everyone motivated and excited and moving in the same direction. So we are improving the business units. And in the mass market, perhaps the biggest challenge is to accelerate credit, maintaining NPL declining and adjusting the footprint. And the numbers we showed here quite exactly at that.

Speaker 1

The new vintage of mass market increasing accelerating with exceptional quality and the footprint adjustment happening. Thank you, Rosemond, for the question. Next question from Eduardo Nishi with Janiel.

Operator

Good morning, everyone. Thank you for taking my question. Yes, everything is fine. Thank you. My question relates to your strategic plan.

Operator

Part of the recovery that you anticipate comes from improvement in the cycle that impacted the mass market, but most of it comes from more structural changes that you are promoting.

Speaker 2

I would

Operator

like you to elaborate further on your structural changes and everything else that is happening with your strategic planning, if you could list probably the main strategic structural changes that you have in mind for the next quarters or maybe years? And also, if you could give me more details about changes in management and cultural changes as well that you were trying to introduce in the bank, especially that cultural aspect because this has been something so important in the DNA of the bank. How

Speaker 1

do you anticipate

Operator

in terms of these changes? And what do you see going forward in 2028 after everything has been done? Well, thank you. These are very open questions, and I think we could spend days here just answering everything in more details. I'll ask Casio to help me with the answers.

Operator

Well, number 1, that delivery of that credit business unit, we unified processes that were separated in our organization. So everything is now combined, integrated. We I mean, the separation of the teams that used to serve the mass market and the wholesale bank, we made also important process changes, 1st line of defense, 2nd line of defense with the use of machine learning running in the background of our modeling. And we also introduced some credit policies because you put a certain appetite. Okay, you say I want to give 50% of the company's revenue.

Speaker 2

So

Operator

that was one change. The second change was segmentation. That segment of SME is one of the things that we told you that we would launch early this year. Is already in place. We don't have all the clients already in there because we're still in the process of segmenting clients.

Operator

But we will also deliver the affluent segment, the wealth segment in the second half. But we will also we are also working on restructuring our prime segment for more for wealthier clients, and that's another important segmentation. In terms of the Wholesale Banking, I told you that we made some process changes on the loan book side. So I'm saying that this is something that is already happening, and this is generating results. And in turn, this will improve our numbers with time.

Operator

And obviously, I think the biggest challenge is in the cost to serve or more mass retail clients. Well, we have we are reviewing the footprint because we are delivering above plan, but we will deliver numbers above the plan with costs under control. And all of these deliveries will allow us to get that additional revenue that we talked about last year. But even today, I said that since the market is growing with a CAGR of 8% a year in terms of the credit volume for the next 5 years, it will bring an additional 3,300,000,000 BRL to the Brazilian market in 5 years. And certainly, we want to capture part of that so that when we go forward, our revenue level will be much higher and our return will be higher because the bottom line matters, which is the profitability that we will have.

Operator

And Cassiano, I think you can add to what I'm saying because out of the 10 topics that we listed, we had over 2,600 initiatives, but I am just highlighting some of the main initiatives. And also, there was that movement of time to market that we are doing with the technology area and the very intensive use

Speaker 2

of

Operator

Gen AI, I would also mention these 2. Yes, I'll talk about that management side as well. But there are 2 important points. Bradesco espresso, it's a very important link with this new concept of the new footprint and our cost to serve together with digital. Marcelo also mentioned that during the presentation.

Operator

It's a very strong digital bank. Bradesco Espresso is a very positive tool because we can be present in many municipalities. Technology, Marcelo mentioned that not only in terms of reskilling, but also we are hiring new people. We are hiring people at all levels of technology and all important processes are becoming more agile. It's becoming more productive.

Operator

It's a new concept. And this is across the board. And culture management, I think you should also talk a little bit about that and what we are doing in terms of our culture. Regardless of the fact that we do not want to lose our Bradesco way of being, we also want to have new colleagues that can add important values. Here, we have colleagues from 3 different places.

Operator

I even think that when we meet in person, I think we can also discuss things with the sales side. I would say that what we are seeing just trying to make an executive summary of everything. We are bringing 2 C levels to the organization, people that are being brought from the market. And this is an important culture change. The reduction of these layers brought about an enormous difference in terms of speed.

Operator

As I was saying before, I've been going around the country and having breakfast and amazing to see that once you shorten the layers, the communication becomes much faster. Things become a lot more agile. And our decision making process in the bank, if you just start interviewing people from within, people will come and talk to you about it. That's another relevant aspect. Once we talk about changes to our culture and management.

Operator

Silvana is just arriving. She will work together with Giuliano in that transition. She will work with me as well. So we are working on that new HR plan that I've been telling you that we will deliver, and we will go even beyond. We eliminated some positions, some layers, and we want to continue to do changes within our organization with hierarchical levels maybe better so that throughout the end of this year and next year, we will have a leaner, a more lean company.

Operator

We do not want to eliminate the values because the values are important because they support our culture, but that's not all. In fact, we want to maintain values. What values?

Speaker 1

For example, we will stop offering promotions and career promotions. No, Rotomem, this is a place where you can get promoted and improve professionally. But we are also willing to bring somebody from the market. If we need to have more skills in the organization, this is basically it. Secondly, our employees, our managers, they carry the banner of Frutisco.

Speaker 1

Why is it that we would think about ending this? On the contrary, we want to harness this even more,

Operator

but we want to have

Speaker 1

a wider management in our organization with fewer layers. We want to have a different outlook, a different perspective, see the areas different ways, not being standardized with a much faster decision making with a lot of technology integration, different skills directed to digital. And this is what you're going to see in our organization. With these changes

Speaker 2

in

Speaker 1

cultural trends, with these additions that we'll have that we will not really, that we have been the changes that we have been making in the organization. And with the span of control that is different, you have no idea an issue. It's so different. So I think this is it because we even spoke about this in the prior quarter about the total volume of revenue available in the Brazilian market. I'm not sure of that.

Speaker 1

I haven't got the number from the top of my head, but please check the previous earnings conference call. And I'd like to take this moment to draw your attention. If you look at my presentation back then and my presentation today, please let me know if there is any difference. What we said back then is what we're executing. And another important thing, there is nothing else in this bank that is not measured.

Speaker 1

Everything in run the bank or change the bank is measured. We have a new project. For example, we are going to expand our middle corporate segment. It will be expanded. This project has been approved.

Speaker 1

We'll grow the team, another 10 platforms around Brazil. What we call platform is actually having a branch dedicated to this middle corporate segment. But it all involves measurements and decisions are made quickly. But all suggestions need to be proven and it's going to be a cheap branch, not a huge branch. It's platform, as we call it, when you look at total numbers, but it's registered as a branch at the Central Bank of Brazil.

Speaker 1

So initially, I think that this is kind of an overview.

Speaker 2

And my

Speaker 1

last comment to the result of the transformation process will be transformation and the timeline to organize what we've done already and what we will be doing in the future. Thank you, Nishio. Next question from Pedro Leduc with Itau BBA. Leduc? Thank you for the call.

Speaker 1

And thank you for taking my question. I'd like you to elaborate on the NII dynamic, particularly client NII. The NII in this quarter had a relevant drop 14% year on year and the NII is still dropping in a similar speed to the past quarters. I know Andrea, you said, first, you grow the portfolio and then we're going to see a positive impact on NII. But thinking about the sequence, it seems to me that the current origination is coming with lower spreads perhaps because of the line order mix.

Speaker 1

My rationale is I see payroll deductible loans increasing, but with caps putting pressure on profitability. You also have the savings accounts, deposits fall. I mean, corporate segment being very competitive. So as an outsider, it doesn't seem that the portfolio construction is not helping to converge to the guidance. NII historically, I know a lot has changed, but it was the line item that was always farther from the guidance.

Speaker 1

And I see you're very comfortable maintaining the guidance, particularly for NII.

Speaker 2

So I'd

Speaker 1

like to hear from you, is my interpretation wrong? Are the spreads more pressured, more under pressure? Is it about more mix or more volume? And perhaps a lower AWL will offset a less dynamic NII. Well, it's a long question, but thank you for this question.

Operator

I guess that at

Speaker 1

the very end of your question, you kind

Operator

of gave us the answer

Speaker 1

because we look at economic value. So we look at the NII, not the growth NII. So in NII, you saw that it's starting to grow and we'll see that. And if you look at the mix of products, you will see that we boosted those higher risk products, but everyone here is very down to earth. We are not going to have that NPL, that delinquency in the future.

Speaker 1

On the contrary, and like I said, and I stressed this during my presentation, in February, we gained market share. In March, most likely, this will be disclosed by the Brazilian Central Bank tomorrow. And most likely, we also gained market share. You're also right when you say that payroll loans and mortgages have lower margins. That is a fact.

Speaker 1

The margin takes longer to come, but we are also offering products with a higher margin. We grew in February and more in March, and this will have a reflection in April, May, June, July and so on and so forth. As regards to wholesale, we talked about spread. Well, that doesn't exist. But the spread in the whole sale bank is under pressure.

Speaker 1

It's always been. Here we work with RAR and risk adjusted return. So our regional managers using their phone, the tablet or their managers, they see exactly the same thing. They see the RAR history of the client. They can simulate what they need to do to negotiate with the client online real time.

Speaker 1

So we put pressure on them regarding RAR. They just don't have a deal to add to their portfolio. Today, the market doesn't give you a lot of room to bring those to your portfolio. We also have what we call OPCD for the secondary market, OPCD portfolio. So you see the momentum is not coming only from spread.

Speaker 1

We don't address this operation by operation. We address it by client. So when they have an adequate RAR and relationship, the deal goes through or else they don't have the ability to approve the deal. So there's a rationale here. We implemented this when I was in the whole sale bank together with Bruno and our colleagues there.

Speaker 1

So this is not new. The margin from the whole. We also have private payrolls. We are one of the largest banks. Managing payrolls, this means relationship with large corps, midsize enterprises, small enterprises.

Speaker 1

And we have other businesses that we do around the relationship of legal entities. So revenue doesn't come only from the margin. Now to make up the client NII, we'll grow SMEs because this is added to individuals for us to build up our margin over time. Is that line item challenging? It is.

Speaker 1

But rest assured, just wait because we'll get there. But we are looking at NII, net interest income. That is what is important. I have to have a balance between what I do and the potential loss with these clients. And this is our handbook for our day to day.

Speaker 1

But of course, the portfolio needs to come first and the NII will come later. And we'll keep looking at the mix over time and we'll see a more balanced mix. But with delinquency under control, we have to have high quality assets, okay, Pedro? So we won't make a mistake.

Operator

If you want to add anything, just I just have 2 very brief comments. Pedro's question was more directed to product mix. And as Marcelo was saying, there is also the segment mix. Once we accelerate SME and individuals' mass market, we bring onboard more margin. The second comment is about guidance.

Operator

When we look at the guidance, the guidance gives us an idea of profit a year. That's valid. This is what we work with. But in terms of a turnaround history, when we point the guidance towards the end of the year, the beginning of the year is different from the end of the year because you are churning the portfolio. So it's a more classic case.

Operator

It is more limited, and it turns around, and then it picks up again. So it will be different if you compare 1 and another. I mean, it is valid, but there are fluctuations in some possible lines within a turnaround perspective. Now Carlos Gomes Lopez. Next question from HSBC.

Operator

The floor is yours. My question I have 2 questions. First is on funding. There was a drop of almost 13% on checking account year on year. When do you intend to change that in terms of cheap funding?

Operator

The second question is about NEXX. We don't have a lot of information about the future of NEXX or the digital platform. [SPEAKER UNIDENTIFIED

Speaker 1

COMPANY REPRESENTATIVE:]

Operator

Thank you. Thank you, Carlos. So you start first, and then I'll talk about next. Carlos, thanks. It's a pleasure to see you.

Operator

Marcelo just said now that one of the important indicators is our cash growth. We are doing some important work with companies and also working with some SMEs that are now coming into our offices. I think that the fair share path is important, and this will strike a balance when it comes to mix or with that demand deposit. We must also remember that we have lots of CDBs, which are some instruments related to demand deposits, and that's not specifically in that same line. I mean, you have a remunerated line, but not to that client.

Operator

You only see that when you look at the time deposit line. I mean remuneration is a bit lower. I mean, it's a bit lower in this business. That's why you see this change. But it's not loss, but gain because the line is not broken down for you to see it more clearly.

Speaker 2

Yes, I

Operator

think you're right. In terms of the clients, that is it. And again, the more the client helps itself, it looks for different alternatives. And we keep we will keep seeing these changes. I mean, the Q1 is more seasonal, but we understand that this is quite normal.

Operator

And within the context of the year, this will be within the lines of what we often do. Now about NEX. Now to answer your question about NEX, with NEX, you know that part of the investments are within Bradesco. Digital is totally outside Bradesco. We have decided that next would be another segment for us here with a brand that is known in the market.

Operator

But when we reviewed our strategy and the plan, we decided not to make that move before we would make all the decisions related to that mass segment because we have learnings with NEX and learnings that come from digital. So we are now in this decision making process. We have some possible paths, and you will see that in due time. Also with this new colleague that is arriving, that will certainly help us in this process of execution and decision making. But if you look at our playbook, you will also see some interesting figures about digital.

Operator

Take a look at that because we have some information about digital in our playbook. Thank you for your questions. Thank you. The next question comes from Guilherme Graceben from JPMorgan. Our question is on cost.

Operator

We already talked a lot about G and A, etcetera. I would just like to look at orders. This was a controlled I will say a controlled quarter. And discussing the guidance with you early this year, I think there was a caution in terms of the total cost of the guidance. Because of that, my guidance was above inflation.

Operator

And part of the explanation was because you were very cautious about that line throughout the year. But looking at the run rate for the quarter, if the pace was to be maintained of about 1.5% throughout the year, we would see a drop when compared to 2023. The question is, how could we see this line going forward if the pressure you were anticipating at the beginning of the year, is this still a base case for the rest of the year? And also exactly what led you to see this more beneficial performance or behavior up the line? Thank you.

Operator

Andre, you start and then I will add. My first comment is that there was a very good performance in all the lines of the main operating expenses: personnel, admin and other expenses. Marcelo pointed out quite well that personnel and admin expenses grew 3.5% in the Q1 against an inflation in the 1st period of 4.3%, showing that our expenses are very much under control. So we started off controlling our expenses, and this is our objective for the rest of the year. But we have to bear in mind that the strategic plan that is started in February 2019 has a very small impact in the Q1.

Operator

So it's just natural that the impact will grow going forward and the impact that will be felt in technologies, new hirings, contingencies, fiscal contingencies, etcetera. This will appear throughout the year. But this is what makes us certain that this line will go within the guidance, but we will certainly do all we can to lower that number. We have to also recall the collective bargaining agreement. I mean, of course, that we have our own impressions about the collective bargaining agreement, but the negotiation remains open.

Operator

I mean, if you look at the line of others and compare it with the same line, it's the same as other companies that consolidate with us. And this line is going back to its traditional level from previous years without the effects that we had in the past 2 years. So everything is under control and normal. I mean the collective bargaining agreement could probably move the needle a bit, but everything is being looked at and treated very rigorously. As Marcelo was saying, all the lines should be within the guidance.

Operator

Some lines are even above guidance, but we will see a balance between 1 and the other. Some will be closer to the bottom part of the guidance, and the others will be more closer to the top of the guidance. But we are certainly controlling our expenses and costs, but at the same time, always investing in what needs to be invested on. So thank you. And with now, we conclude our Q and A session.

Operator

Questions that couldn't be sent to our IR department. And before I turn the floor to Marcelo to conclude this presentation, I would just like to say that in our IR website, you will be able to find this presentation and also all of the other materials related to this earnings release presentation. So I just recommend that you take a look at that. So what are your final remarks? Thank you, Andrea.

Operator

Thank you, Cacino. Thank you, all of you, for your interest and for joining us today in this quarterly earnings release. And we remain at your disposal. Sell side, all analysts, we are available to give you further information. But before I say farewell, I would just like to say something.

Operator

Yesterday, Carlos Alberto Rodriguez Guilherme Coca passed away. He was a board member since last December when he retired. He was also Vice President of the Board. He died yesterday. But for several decades, he worked for our organization.

Operator

That's why I thought it would be important for us to express our sorrow for the loss of our colleagues that spent many years working with us. But I would like to remember him with joy rather than sadness. Thank you so much for joining us today, and I wish you all a very good month of May. Thank you.

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Earnings Conference Call
Banco Bradesco Q1 2024
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