Banco Bradesco Q4 2024 Earnings Call Transcript

Quartr
Provided by Quartr
February 7, 2025

There are 5 speakers on the call.

Operator

Hello, good morning. I am Marcelo Nodawan, I am your

Speaker 1

wife from CBAB deals to

Operator

present the results for

Speaker 1

the fourth

Speaker 2

quarter twenty twenty four over this quarter.

Operator

In this same month of last year when we started our growth plan, and I showed you what was going to happen step by step, quarter on quarter. The second message is that our guidance for 2025 a more cautious guidance in terms of risk appetite. It has also reduced the effects of four point nine six six and higher stake in CL.

Speaker 2

And it is cautious vis a vis

Operator

the macro scenario. And at the same time is very optimistic in terms of what we are delivering and what we are currently doing. And also there is our transformation plan. So it is my duty to present to you small summary of what we did in 2024. We continued to expedite our transformation, and we made a decision based on a better macro scenario, a more cautious scenario.

Operator

We decided to invest in our transformation without stopping anything else because here we have a vision to gain, increase of the activities and everything else that we are about

Speaker 1

to see.

Operator

Now it's precisely October. And EUR 19,600,000,000.0 in 2024, meaning 20% growth. How did we achieve this net income and this result? This net income was boosted by our revenues mostly, but also due to the fact that we are very cautious with our

Speaker 2

expenses despite the investments we've made. So

Operator

now I'll show you our position and our status in terms of credit, fee income, insurance company, so on and so forth. Have here some highlights. Operating highlights. And this summarizes our balance sheet. But before I begin, I'd like to say that our recurring net income allowed us to make a nonrecurring provision, and the net effect is about $440,000,000.

Operator

And this is precisely because we wanted to

Speaker 2

Boost. Footprint. Our footprint review for 2025.

Operator

Way beyond what we anticipated. Our customer base grew by more than 2,000,000 clients. 99% of our transactions are occurring through the digital channels that we'll think in 2024. And this helps us throughout our transformation in terms of the cost to serve. I would like to highlight our Brutus Espresso platform.

Operator

Last year, we delivered two new platforms, and the outcome of that was better customer experience, a better customer experience of those clients that use Bradesco Express. And secondly, there was also an improved experience from our correspondents. And this is the

Speaker 1

outcome we grew. We increased

Operator

49% insurance sales. We also increased our base of correspondents by almost 1,000, reaching 39,100 bank correspondents. The experience in our business process. This is what I said in terms of the wholesale and retail bank. I already talked about our net income and transformation is occurring at a very accelerated pace.

Operator

And I'll elaborate more on that. And we also had two inorganic events.

Speaker 2

Concluded the closing of

Operator

Cielo's Capital, And we also have the acquisition of 50% of Jean Pierre after we got the approval from the Central Bank in Cahi. And this is a picture of our Bradesco Espresso aisle. And this is just a picture I have for you because this is another test that we are testing new models with our Bradesco Espresso, and this is occurring in several different municipalities of the country. And then we go to total revenue, which boosted the growth of our net income. Our revenue was over 32,000,000,000.

Operator

We grew 7.9 year on year in almost all lines of revenue. NII was up by 5.4% year on year. Fee and commissions income grew by 7.9 year on year, and our insurance companies grew more than 16%, sixteen point six % year on year with a recurring net income that was quite relevant in another fourth quarter. So from the third quarter, our total revenue was 600,000,000.0, reaching 32.3, growing by 5.4% in the quarter in terms of revenues. And this is happening thanks to the traction we have the bank in all of our business lines and associated Another important lever that boosts revenue.

Operator

Even in a presentation, I think we do we should do the opposite. We should start with the leverages and then arrive at the final number, but we started with the net income. So our total loan portfolio

Speaker 1

reached more

Operator

than KRW $980,000,000,000, growing almost 12% year on year, and the average daily production posted impressive growth. I highlighted here the growth of individuals with 13.3% and I

Speaker 2

will give

Operator

you more details in a few moments of some of the lines. And also, we grew micro small and medium sized companies and that this portfolio has grown 28% during the And the highlight goes not only to middle market, but also small business. I will elaborate further on the risk part of So if we break down the

Speaker 2

portfolio, see

Operator

here individuals on the left hand side, companies incorporate on the right hand side. If you look at all, in every period, very seldom we will find a period with growth. And now I would like

Speaker 1

to draw your attention to

Operator

a few items that matter to us. In the face of credit cards, year on year growth was 5.1%, but the major growth lever to reach that five percent was high income because high income posted growth of 14.5%. So I would like to highlight how cautious we are in terms of risk adjusted returns. And we were very mindful in terms of the quality and generation of of our assets with new credit models, new policies, and also process organizations. And our payroll loans grew by 5.8%.

Operator

It it could have grown more with the cap. This doesn't help, but I would like to say that anyhow, our traction is quite relevant in this regard. Both banks that have government control. They are market leaders in payroll deductible loans with 15 or 20% market share. But being a private bank, Bradesco has 14.3% of share in payroll deductible loans for public and private

Speaker 2

payroll deductible loans.

Operator

On the right hand side, we have corporate or companies.

Speaker 3

We are

Operator

now growing 28% in high risk portfolios. We have our feet on the ground. So if we look at the total publication, we look at our working capital, we went from 130,000,000,000 to 147,000,000,000. And this is precisely this coincides with our generation of FGI, FGU, Pronampi, both in middle market and also small business. In middle business, we are growing slightly above that.

Operator

This is a combined growth. But in terms of small sized companies, our growth reached almost 20% when it comes to companies. We are very careful in terms of our growth in real estate loans and collateralized loans. And in large corporate, we are using our origination for distribution portfolio, optimizing our capital and our return

Speaker 1

from clients.

Operator

So all of these are good news. And if you allow me to say, we need three combinations in order to deliver members like that. The first combination is having a very sound customer base in all customer segments and high penetration in the base.

Speaker 2

If we didn't have that,

Operator

we wouldn't be able to deliver it. And secondly, commercial traction with a very well orchestrated process. In the physical and the digital world, the third pillar is our credit business unit. It brought us new credit models with a lot of machine learning, improving every day, measuring our risk appetite and our portfolio pricing so that we have the right numbers for every every segment and every audience. This has to be very well tuned because if we are totally integrated, we can certainly deliver what we are delivering today with portfolios, with control risk.

Operator

Well, here, I have another piece of information, and that is that we certainly regulate our risk appetite the entire time. And when we saw that we were heading towards a more regulated policy, we look at that in the fourth quarter. We're not thinking about 2025, but we did that beforehand. In this other chart down below, it shows that 54% of our portfolio

Speaker 1

secured. In

Operator

a very dynamic way, we are looking at several other periods, but I'm talking about the portfolio. If we were to show the production or everything that is coming in, this KPI would be much higher. And this really shows the quality of what we are delivering in our margins. And that's why we are not delivering a very high margin. We are delivering controlled portfolios.

Operator

But even then, every quarter, we posted growth in absolute terms in terms of client NII. Our NII was 5.4% year on year. I can comment on the guidance later on. Our market NII was BRL440 million this quarter. I would like to highlight trading, but the good operation of our

Speaker 1

treasury

Operator

team is responsible for that. And then we have the growth of client NII. And this is reflected in this item that we've been talking to you about, which is the client NII net of provisions, which has to do with the bottom line and this impact in our growth of billion, seventy 7% year on year. When we look at the entire year, almost 26%, twenty five point eight %. And we continue on the same pace, envisioning growth despite a more cautious So the message here is that we continue to control our portfolio.

Operator

We are reducing overnighting delinquency with a very good coverage ratio in all of the KPIs and all of the initiatives. Expanded loan loss provisions. I would like to draw your attention that in this fourth quarter was EUR 7,500,000,000.0, increasing by EUR 400,000,000, but the same cost of credit that we

Speaker 1

are indicating of 3%.

Operator

And certainly, here, again, you can look at mass market. And this is due to everything I told you before. I mean, portfolio, and we are investing in clients that give us an adequate RAR. And I can also give you more details later on about some aspects related to product and share. Another important item has to do with our fee and commissions income.

Operator

Why is it growing?

Speaker 2

It grows because of the traction, because of the

Operator

level of activities that we have in the entire organization. At 300,000,000.0, year on year, 13.7 and 7.6. And these numbers do not consider that additional share from CL that we acquired. But here, you can maybe draw the same conclusion. We are growing in all aspects and in almost all the periods, As you can tell from this slide, is certainly a consequence

Speaker 2

from the

Operator

high activity that we

Speaker 2

are in.

Operator

But Now here, I'm bringing that number that I mentioned at the beginning when we reviewed our footprint. We did you we went way beyond our expectations with a 385, I would say, reviews and the ending of some POSs. But even then, we were able to grow our customer base by over 2,000,000 customers. Ear on ear expenses is here. But we have to do some important reconciliations.

Operator

Well, by removal, like in fee income, the additional share from Cielo, this growth would reach 7.5% year on year and 8.1% for the entire period, for the entire year. But let's look at another indicator that we have I think I've been bringing this for the last three quarters. The total number of expenses, the total amount of expenses of 9.3%. But once we exclude Lopar and Cielo from this number, the growth is 6.9. I mean, Cielo is delivering new solutions, and this will allow us to increase our share at SMEs and large corporate, Livello, Alello, and the Elo.

Operator

We are investing to grow the business even with very good returns.

Speaker 2

However, we

Operator

do not have the daily management operation. Mean, we are approving investments expenses. So when we exclude that, expenses are absolutely under control, as you can tell from these other indicators.

Speaker 1

And I

Operator

would like to remind you of two other details. Number one, we are in this transformation CAPS, which is very robust with a lot of CapEx investment, but there is also OpEx as part of the story.

Speaker 2

And second of all,

Operator

not only we're doing that, we're making things happen, but the insurance company is also investing in CapEx and OpEx. And this help these areas of the bank to grow as well. Therefore, my conclusion is that all of our expenses are under control in all of the lines that we can look at. And now looking at the consolidated numbers, there is one or two deviations, but we can talk about that when we talk about the guidance. Now I'm talking about the insurance business, another quarter of good results.

Operator

If you look at total revenue, 121,000,000,000. That's why we posted 13.6% growth. Net income was JPY 2,500,000,000.0, not JPY 9,100,000,000.0 in the year with an ROE of 21. So the insurance business is well in track when we look at the insurance operation and the guidance, we see the performance quarter on quarter, close to impact. And I would like to draw your attention to technical provisions that went beyond 400,000,000,000 with almost 12 growth.

Operator

And the same thing goes for the insurance company, meaning that insurance businesses well interact with distribution in different lines in all of our customer segments in Saipeline and also in our external channels, which are operated

Speaker 2

by the insurance. We have the capital index. We have a mark to market. We ended the year of 2024 with top and fourth, and at the turn of the year, January 1, we applied for nine six six, achieving 12.8% capital, already considering the 20 basis points required by the Central Bank for the system in operating risk. Here, have dividends in IEC, and they're dynamic.

Speaker 2

In 2024, we received a number. And I'd like to remind you, we have a share buyback program, which is open, and it will stretch until May seven of twenty twenty five. And as part of the program, we had a buyback of about 50,000,000 shares, and we announced we're going to have the calculation of this stock close to 1% of the bank, just for your information. Here, we have the guidance for 2024. And we started giving you this complementary information of NII net of provisions, almost like an informal guidance.

Speaker 2

It increased to EUR 34,000,000,000, and that's what matters. It's the bottom line instead of discussing where I make more of a margin and where I make less of a margin. So here, have total loan loss provisions close

Speaker 1

to the

Speaker 2

top of the guidance fee and commission income close to the top of the guidance operating expenses close to the top of the guidance. But with these observations I made regarding consolidation that we have and the result of the insurance operation, just like we said, close to the top of the guidance, 7.5%. So now we will talk about a quick balance about our transformation.

Speaker 1

I'll try to

Speaker 2

be brief. Of course, I cannot mention all of the indicators because we have a lot of information. Among the initiatives, I would like to have the organizational highlights. You will remember, we reduced layers, reduced spend of control, we hired skill levels, made some changes in the leadership team. We put together our transformation office with 800 people or more, and it's doing really well.

Speaker 2

Management, culture, we have been working in management and culture. We did some surveys with high level of engagement, And we launched some messages together with our team, which is what we want to see in our day to day, in our business model and management model. So we are talking about a much more contemporary management. We have SobreDesco, IBM BreDesco. We are here for clients.

Speaker 2

We are much more focused on clients with all of the transformation we had in products, adjusting, modifying these departments in the organization. We have an empowered team with the processes of enterprise agility. We have been decentralizing decisions, making our team effectively participate and decide fast so that we have a faster time to market and faster deliverables. Are challenge oriented. What does this mean?

Speaker 2

The best example is the transformation. How bold we are to put together this kind of large plan, a billionaire, a a billionaire plan in. We are touching all points of the organization. This is a big challenge, but we are sure of our deliveries because we have a lot of deliveries already of the several initiatives we've adopted. Digital retail service model evolution.

Speaker 2

We delivered a new experience in all segments in our app with increased NPS. And you can see that we are following and we will deliver a totally new experience, not just for the segment, but

Speaker 1

for all segments.

Speaker 2

We will see this. There will be more news along the year. But here in this set of clients, we have been working with our Gen AI, BIA, with 90% resolution. I will speak more about this when I talk about technology. So I'll come back to this.

Speaker 2

Okay? Bear with me. So we have BIA with AI, and we have a decision tree, which is transactional. It is working really well. But now we're implementing Gen AI BI.

Speaker 2

We have better NBO models with enhanced AI use and hyper personalization with with the consequences you can see at the bottom. And we will show you this, JP. Because we are already delivering this value proposition, but we are going to show the market what we're building here, what we are delivering. Some of the further highlights of Principal launched in November 24. We have about 50,000 clients, and we are starting

Operator

to expand

Speaker 2

in payments and synergies, new cash management products and the synergy with Cielo again. Cielo has been investing. So we have the deliverable tap on phone. And up here, some important highlights for SMEs. We launched this segment after we presented our plan with 122 branches dedicated to enterprise.

Speaker 2

We ended the year with 140. We're growing really well. We have good traction here. Metal coverage is doing really well. We have more platforms and more RMs, and the consequence is the increase Our credit business unit has been making a huge difference

Speaker 1

for us

Speaker 2

with its implementation and with the creation of the portfolio management department. We have intensive use of conglomerate data, improving our modeling. We hired almost 200 professionals over the year, and we improved our credit policy and processes. We have intensive use of machine learning. And here, in the red the fold dropping and with the new vintages of mass market with much better vintages compared to the

Speaker 2

So now let's speak a little about technology, about tech modernization. Here, a team led by Francesco, the executive we hired with an active participation of his colleagues in the management. We have enterprise We ended the year with more another 500 squads, and we are scaling up in 2025. We have a dedicated team of more than 10,000 people. We are in a process of strong internalization with very senior people.

Speaker 2

We continue to migrate several applications to the cloud that reached 79%. And I spoke about GenAI when I was speaking about digital mass market, right? Well, Gen AI via, we have been testing with more than 40,000 internal employees, five eighty clients using it. In the last few months, of 2024, more than 2,000,000 interactions happened with that level of resolution of 90%, as

Speaker 1

I mentioned.

Speaker 2

And now we can improve this even further when we are going to scale it up, the stories. We are one of the world's pioneers in the world in the use of multi agents with generative AI in order to modernize applications, I have a squad, which is multidisciplinary team, people, developers, UX, for example. So case of a developer, you're going to have an AI, multi agent

Speaker 1

d u x.

Speaker 2

For products, for UX and so on and so forth with an ability to scale up significantly in our business and to expedite our process of delivering systems and modernization of systems. We acquired a % of Gnumi. Gnumi is a company from Nimas linked to the academia with more than 50 PhDs. A differentiated team, they have been working hard to solve problems, for problem solving through machine learning, AI with the credit department, with the collection department, with data intelligence and other systems areas and gained 90% productivity in addition to the implementation of value assurance to improve our efficiency and to avoid wasting with contracts and duplications. And here, we're going to look at the next steps coming to the end of the presentation.

Speaker 2

In terms of efficiency, we continue to review our footprint, as I mentioned,

Operator

to evolve our

Speaker 2

culture. With principle, we'll get to 500,000 clients. And next year, we will complete the expansion with more than 800,000 clients in credit. We have all of these processes that we are investing in strongly. We will continue to internalize technology resources, accelerating enterprise agility.

Speaker 2

And with all this productivity gain coming from tech, as I mentioned, the increasing tech deliveries and technical output in 2025 by 50%, five %. This is very gratifying because we have this conviction, and it is happening. We are very satisfied with what we are delivering. And here's the

Speaker 1

guidance for 2025.

Speaker 2

You probably saw in our earnings and in our material fact that we released today. We had a scenario of the fibre burn survey that would give us 9%, ten % of portfolio growth.

Operator

But I

Speaker 2

told the sell side as well

Operator

as the buy side

Speaker 2

in the past quarter that we were working with two scenarios. Once in a way, we considered a base scenario, 70 and a more cautious scenario of 30%, and that's what we are working with. We want to be cautious because we think that with a contraction as the monetary policy And with interest rates we have today, of course, there is an economic impact. But our NII net of provisions is growing even more.

Operator

Why is it growing more?

Speaker 2

Because we have the carryover for 2025.

Operator

And the

Speaker 2

rest doesn't actually require a lot of comments regarding the rest of the guidance. Candidly speaking, I am very much optimistic regarding everything we are doing more or less optimistic about the macroeconomic scenario, but we might have surprises. I'm more optimistic in our guidance from the middle top and from the middle down act. I can envision a more positive scenario, and this is a We continue to grow profitability in a solid and safe way given mainly by revenues given our traction.

Speaker 1

We continue to be tapped

Speaker 2

a lot of traction in around the bank, and we will accelerate the change

Speaker 1

in the bank.

Speaker 2

I'd like to thank you for your attention, for your time. And I'd like now to invite you to the question and answer session. We have Andre

Speaker 2

invite And we are here to start the Q and A. Thank you, Marcelo. Thank you, Casiano. It's a pleasure to be here with you. Good morning.

Speaker 2

I'd like to inform you that Ivan Gontich, CEO of the Insurance Group, will be joining us remotely online. If you want to ask questions, you can ask questions in Portuguese or English. If you want to send a question, you can send your question to this e mail on the screen, investidoires. Budisko dot com. Pr or use a WhatsApp connection, 703038 or point your camera to the QR code on the screen.

Speaker 2

First question from Bernardo Gutmann with XP Investimentos. Bernardo?

Operator

I

Speaker 2

have one question about the market NII, had a good performance of your treasury department in Q4, again, with arbitration as well. Any specific change in the hedge policy of the bank? Or should we think about market NII dynamics for 2025 considering a high interest rate, a liquid rate. Thank you, Bernardo. I'll ask Kacciano to start answering your question, and I'll make a comment.

Speaker 2

Morning, Bernardo. It's good to see you. Of ELM, we do a lot of operations for hedging in some circumstances. But indeed, in this quarter, Q4 arbitration was super important in some specific operations where we got good movement. Do you know that this is a traditional movement for next year?

Speaker 2

For 2025, actually. In 2025, we think we should be more cautious if we were with an NII close to neutrality. I think there are some you.

Operator

You might

Speaker 2

say, oh, but if you gain six and lose six, there's no challenge. Yes, but the scenario might be a little

Speaker 1

better. We are cautious.

Speaker 2

Can only have more positive expectations Bruno, and now Luis, the company

Speaker 1

is responsible for trading.

Speaker 2

I think that we might have an even better year. Thank you, Roberto.

Operator

Next question from Gustavo Schroeder from Citibank. Good morning. Good morning, Marcelo, Caciano, Andre. It's very nice to talk to you again. Congratulations on your transformation process.

Operator

Marcelo, in a very summarized way conveyed a lot of it. But I would like to talk about the structure part of the bank that refers to capital. When we look at CET1 at 10.9%, slightly below the average among your peers. And I understand that it's slightly above the minimum requirement, but we noticed some reclassification and transformations that were made. There is an explanatory note that refers to a reclassification of securities available for sale to maintenance and to or health to maturity.

Operator

And then when you look at the OCI line or other encompassing results, we see another quarter with negative results. I mean, losses that do not impact the results, but they do have an impact on the capital part. So how comfortable the bank is? Or what is the bank's strategy to have that CET capital return to a higher level. And I just want to understand how comfortable you are vis

Speaker 2

a vis that capital.

Operator

As you said yourself, Marcelo, your growth guidance is very conservative, goal ranges from 4% to eight But with a better macro landscape,

Speaker 2

maybe this

Operator

portfolio growth range should be more up to the at the top of this range. So this is something interesting for us to hear from you. Thank you, Gustavo. I would also ask my colleagues to comment as well. We are very comfortable with our capital.

Speaker 2

You saw

Operator

that we now reached 12.8 after 4966. The CET1 has a huge buffer because I think it goes up to 8%, if I'm not mistaken. The fact is we are not concerned with that. And we said that from the very beginning because we ran several projections, stress scenario, optimistic scenario. Therefore, we do have room to grow with stable stability in our in terms of our capital.

Operator

Therefore, I have no concern at all in terms of everything that we can do, and we will continue to increase profitability and increase our net income and our CET will be higher

Speaker 2

with time. Well, good morning. It's good to talk to you again.

Operator

It's very important that we bear in mind that our guidance reflects the adjustment of our balance sheet to the 49 point 6 6. We had 0.4 drop in the quarter until 12/31/2024, which is mark to market. And 4966 on January 1 brings that capital back to 2.8, meaning being 10.9 at the end of the year. And then that contemplates three important components. We have points Seven to adjusted adjustments to shareholders' equity to adjust to the criteria from the central bank.

Operator

They have the minimum regulatory aspects as part of the rule, and we are pretty much in line. We just adjusted, made adjustments to the Central Bank, and that was 27. But as you know, that was split into four installments. Banks the Central Bank released the regulation, so we have 0.0007, which is the negative impact. The other negative impact is point 20, which refers to operating result.

Operator

This is the operating result impacted now. And then on the other hand, we have reversed, but impacted. That means the adjustment to the different types of mark to market in our balance sheet, I mean available for sale and negotiation levels and a new criteria of business models. They are classified according to the business model of every security. So once you put everything together, you we arrive at 12.8, which is higher than 12.7 from the previous quarter.

Operator

But even even more than that, when we look at our projection, we look at all the possibilities of our net income, we have enough capital to fit into the range of our guidance. So in

Speaker 2

in terms of capital, it will be

Operator

stable this year even with the full payment of IOC and growing the loan portfolio close to the ceiling of our guidance. So next question is from Daniel Weiss from Bass from Safra. According to our reading, that means that your provisions are probably lower. Is this the way we should look at it? Is there anything you would like to highlight in terms of provisions or whether it's not in the at the right level today?

Operator

Or do you think that provisions are more collateralized? So I just want to hear your comments. Thank you. Thank you, Daniel, and thank you for your question. What I have to say is that we will continue to grow.

Operator

Also, our gross margin will grow as well. As I said, we have the carryover to 2025 of everything we produce and we piled up, we accumulate it. But if you look at the cost of credit or the cost of risk, expectation is to to keep cost of risk around 3%. This is our expectation. We are very, very comfortable with everything we are doing in relation to credit.

Operator

But then if we look at the mix composition in 2024, let me say the following.

Speaker 1

Market share.

Operator

I talked about payroll deductible loan market share. If you look at growth on the individual side, we grew in payroll loans. We have a higher share, you know, with 14.3% among private banks. This also has to do with NII, and sometimes we don't even look at it. I'm not only referring to Fidesz but our peers as well.

Operator

I mean there was an INSS cap, but also in terms of the public companies throughout this period with the increase in interest rates and the long tail, the long

Speaker 2

part, every month,

Operator

we settle a lot of money that was hired in previous years, previous periods with 5% margin. And then new payroll loans. And this puts pressure on the gross margin, but there is a good risk adjusted return or our AR. The second thing for individuals is credit card. We are are feet in the ground and the major

Speaker 2

growth came from

Operator

high income individuals, which grew 14.5 year on year and combined growth was 5%. The third ask is that if you look at our publication and look at it in detail, you see that our personal loan also grew, but we grew in two very safe lines. It's not the most stressed personal loans. The first is that we grew with higher income clients. We charged lower rates.

Operator

Otherwise, the selection would be adverse. So it's a good risk on prime clients that have specific needs. So credit line is a bit elongated. And then we have other credit lines with FGGS, secured loans, but the margins are lower in 2024. But then when we look at corporate or companies, our

Speaker 2

growth is focused

Operator

on collateralized portfolios, particularly based on programs like FGI, where you take several different sizes of companies up to EUR300 million. FGO contemplates, I mean, million a year,

Speaker 2

pro credit for companies

Operator

up to EUR $316,000,000 a year. And then what happened here? Just be totally transparent. And you can look at the ranking. You can look at that periodically.

Operator

Mean, in 2024, Bradesco had the highest traction. Therefore, we grew around 70, I'm talking about production. When compared to 2023,

Speaker 2

we grew

Operator

billion, give or take. Once you combine all the programs. And with FGI alone, we were the second largest producer of FGI in the Brazilian market. There was a bank

Speaker 1

that produced

Operator

more than this until 12/31/2024. I'm looking at the full year. On the other hand, when we look at FGO Pronampi Procredit, another organization was not that

Speaker 2

one, was

Operator

number one. And we came second, very close to number one. And then when we look at the global and total production here, Redeck Bradesco had 18.5% share of production in these programs. So they are a phenomenal and this is very good for clients and companies. This a very good government program.

Operator

They are managed in part by VMDS and Banco do Brasil, which funds there are several rules involved. So 18.5% of the production came from Bradesco. And there is a bank that was slightly above us. And this the third bank

Speaker 1

share

Operator

about 5% lower share when compared to us in terms of production. Therefore, we also grew at SMEs boosted by portfolios of their work secured and collateralized, especially this one, which has smaller spreads.

Speaker 2

Rural loans

Operator

also collateralized and secured real estate

Speaker 1

loans. It's or mortgage loans

Operator

collateralized, and our NPV is about 52%, fifty one %, fifty two %.

Speaker 2

Therefore This

Operator

is ridiculous. Given reality, and that's my conclusion. They will not reduce the stress. Is here. Therefore, I think that our guidance is very cautious because we are looking at the macro scenario and

Speaker 2

the rates are high.

Operator

More for companies than individuals. There are group of individuals that have more difficult time to access credit. But the scenario is here. So I don't see drop in margins. All I see is growth.

Operator

You. Daniel, in this guidance, it's already implicit that client NII grows more than the portfolio. The portfolio is end to end, and client is just an average. So just this average comparison already gives us about 8% of growth for client NII that reaches two digits once we add the efficiency measures and funding and the funding side. And on top of that, Marcelo just mentioned better spreads that can also help us to increase client NII throughout 2025.

Operator

So yes, cost of risk is about 3%. And this is pretty much around what Marcelo just said. Thank you. Thank you, though. Next question.

Speaker 2

Next question by Thiago Batista with UBS. Percent of core capital? And is there any kind of restructuring or thing IOC or something like that is in the radar of the bank when we look at the next twelve to eighteen months looking forward? Thank you for the question. It is a pleasure to have you with us.

Speaker 2

Regarding the second topic, we are very comfortable. We don't have any movement in the insurance group in that regard. We see profitability increasing, stable capital, a good buffer. Regarding DiGio and Next, very soon, we will bring you this new value proposition of our digital business.

Operator

We should

Speaker 2

be integrating next in this new value proposition along the year of 2025 and until the beginning of the second half of the year, but we'll bring you more on this, more details on this later. We have a strategy for that, and we are in the process of executing it. And about capital, I answered about that. You. Next question from Renato Melone with Autonomous.

Operator

We cannot hear you.

Speaker 2

Thank you for taking my questions. I'd like to go back to the NII, Marcelo. I'd like to reconcile this movement of moving towards safer portfolios while you're expanding NII. And in Q4, we saw a flat NII compared to the prior quarter. I think that even if we consider This is a fair statement.

Speaker 2

Can you give us an order of magnitude of what you expect for 2025? Thank you, Renaud. It's a pleasure to have you on board. Plus, we're currently in 8.4. Payroll Every month, we suffer some, but we replenish that with higher margins.

Speaker 2

So we might have a different index. If we fall, it went five, it went three. But in absolute terms, we're growing with a cost of risk, which is very stable, well balanced. So we are very certain that we will continue to grow. The margin.

Speaker 2

I don't worry so much about the NII itself,

Speaker 1

the index itself.

Speaker 2

But I focus on absolute volume and its constant growth, and this is what we're going to deliver. So we have confidence that we'll deliver that. The restructuring cost this year, 2024 regarding our threat range review was of about 1,000 points of service, seven fifty closing agencies and the rest. And the rest would be restructuring or renewal. And we had almost we had thirteen eighty five, even more.

Speaker 2

In fact, $440,000,000 approximately is an effect for us. So expenses compared to what we are doing in the transformation, well, it's much better in CapEx this month. So that's what I said. It's a billion plan.

Operator

The

Speaker 2

Thank you, Renat. Our next question from Mario Pieri with Bank of America. On more cautious loan granting, more high income clients and products that are secured. So it seems that there's going to be intense competition through this. And we see that we were very cautious with the mass market.

Speaker 2

So wouldn't this be a timely moment for you to grow your mass market given that everyone is being very cautious? Curatively, you would have room to price this risk better. My question is, what would make you take on a little bit more risk and focus more on the mass

Speaker 1

market? Thank

Speaker 2

you. That's a good question. It's a provocative question. When I spoke about mass market and digital, we talked about 1,000,000 clients with this new value proposition. We are testing some models, and we continue to test higher penetration here.

Speaker 2

We grew 2,000,000 clients, Matt. So I mean, we are growing. Account holders, we are growing in different fronts. And I also mentioned A correspondent

Speaker 1

back, we

Speaker 2

grew more than 100% in granting payroll deductible loans. So you see, we have a risk appetite. It's not that we're not working with mass market, we are. But we are choosing the risk

Speaker 1

adequately because

Speaker 2

nothing can replace a good quality of assets. So this is something we will not give up. We will not give up on risk adjusted return

Operator

or AR.

Speaker 2

But we are working in this market. I showed this with Express. I showed that we increased by 45% our sales with those implementations in mass market for that set of pioneers. So we are increasing

Operator

our penetration.

Speaker 2

But you

Speaker 1

see, with goodness

Speaker 2

and good modalities, payroll deductible loans and products that we can work with, that will bring us adequate risk for our organization. Okay? So it's not that we are giving off and growing in our mass market and testing new models would like to highlight two improvements in risk management. First, we worked with volatility clusters. We have five volatility clusters.

Speaker 2

The moment that we start adjusting risk appetite, we adjust mainly at the highest volatility cluster. The people who are more exposed to the deterioration of the macro economy, that's where we start adjusting, and we started doing that. The second improvement has to do with repricing.

Operator

Of course, higher risk. Clients have higher spreads, lower risk, lower spread.

Speaker 2

And that curve became slightly more tilted in the last few quarters. In other words, we're charging a little more spread where

Operator

there is a little

Speaker 2

more risk. We adjusted our offerings and we have demanded we would have a better price risk, and risk is better priced in these segments. Mario, thank you for the question. Next question from Pedro LeDuki with Itau.

Operator

Good morning, Antonio. Thank you for this opportunity.

Speaker 2

My question relates

Operator

to in 2024 NII is below the guidance of course that gauge

Speaker 2

by loan

Operator

loss provisions. But this has been the most the most challenging one. But when you look at the 2025 guidance, I'm saying that it will grow above the portfolio.

Speaker 2

I would just like your help to

Operator

help me understand it because you talked about the tail effects. But even the spreads of the industry for payroll loans and real estate and mortgages have I noted that new vintages are accumulating lower spreads in your portfolio, and you want also to do the risk. And this will be highly depending on funding adjustments. Is this a correct observation? Or maybe in terms of pricing, you might be more aggressive?

Operator

I just want to

Speaker 2

be a

Operator

bit more comfortable when it comes to client NII given the industry challenges and

Speaker 2

recent history. Pedro, thank you

Operator

for your question. It's a pleasure to see you. Andrea will start answering your questions, and then both of us will jump in. I would like to highlight a few efficiency measures that we adopted when it comes to managing our liability, and this is reducing our cost of When there is increases in the SILIQ rate, we make more money. I mean, this is a process that is ongoing.

Operator

So all we have to do is accelerate. With the deterioration of the macro scenario, we compensate that with efficiency measures so that our client NII can improve, and we gain about two percentage points in the NII in the client NII segment. This is a very important point. The second important aspect that was even highlighted in the coupon minutes is that the Central Bank, in terms of banking loans, they see deceleration in lines with lower spreads. And these are lines with longer duration where the effects of the monetary policy has an initial impact.

Operator

So when you decelerate lines with lower spreads, the demand goes to lines with better spreads. So naturally, there is a change in the mix. This helps to recover spread. So that 8.4 number that you see there, that's where we see increases throughout 2025. Pedro, again, well, good morning, and thank you for your question.

Operator

It's also important if I comment on your answer, I mean personalization is something that has been our focus, and this has to do with repricing. This component, in addition to the inventory of 2024, which is quite healthy, is what will set the pace for higher growth in client NII. And funding is quite important as well. There are other important aspects.

Speaker 2

I mean,

Operator

we are doing some important work in SME, cash management and all of that has brought good results to the bank. So it's just a set of three pillars, hyper personalization, pricing, better retention in terms of principality and good vintage that we build up in 2024. All of these things combined allow us to reach better client NII levels. I would just like to add one more thing. First of all, we have the carryover, right, for 2025 since there was Fed accumulation.

Operator

NIM could fluctuate by NII. We'll continue to grow as we saw quarter on quarter even for this capacity of production that we have in these different lines, even if the spreads are lower. But the level of return, risk adjusted return is much higher. That was a much better level to be. And portfolios with longer term like these programs, FGI, FGO, there is stability.

Speaker 2

And the loss

Operator

level is slow and under control. Second of all, Andres said that our funding cost is coming down. And the third point is, you know that we remunerate some clients that have deposits with us at a level that is nice for the client and very positive for us. So this combination of deposits and demand deposits, they grew a lot this year. And this result of what Caciano just said and also a result of our activity.

Operator

So we are growing funding at a low cost, and this also helps us in terms of our leverage, the end cost and the NII margin that you talked about. Therefore, we know that we will gradually grow. And at the same time, the absolute value will be higher. And as a consequence, I mean, has to do with our bottom line. And the bottom line is NII net of provisions.

Operator

I mean, NII will come in absolute terms. And NIM is just the result of something that we are building along

Speaker 2

the month. So next question is from Yuri Fernandes. Thank you, Andre.

Operator

Thank you, everyone. I would like you to elaborate on your expense line. I mean, what if something goes wrong? I think other analysts already asked about cost of credit or cost of risk that could be a bit challenging or maybe not. Maybe the margin will not grow.

Operator

I just want to understand if your expense line could be a buffer, could be an adjustment line. If you you anticipate a more difficult year for some reason, or

Speaker 2

maybe you would

Operator

delay some of your investments just to deliver the bottom line or whether the bank is committed to the investments. Or maybe if something goes wrong in the cost of credit or margin, if you will continue to pursue your expense line is a trade off. It's a pleasure to talk to you again, first decision, I mean, you were just laying down the hypothesis, and we have to look at it in a very dynamic way. But it certainly depends on Okay. Let's say, there's a new pandemic coming.

Operator

It's a new situation, but the macro scenario is slightly worse than what we envision. That's another situation, but

Speaker 2

our decision.

Operator

Bringing it to that scenario I referred to last quarter, It was $17.30, and now we are working

Speaker 2

March 30. A more cautious month,

Operator

but I repeat it again. It's more cautious, but I am not pessimistic. On the contrary, I'm very optimistic. I'm very optimistic with what we are doing here,

Speaker 2

and obviously, I'm optimistic with the

Operator

opportunities we see in the market. This payroll deductible loan that

Speaker 1

the government wants to promote, you know,

Operator

each social and other companies

Speaker 2

already talked about that.

Operator

And again, I say that this is an opportunity for all of us to grow depending on how they implement that, whether there is or there is no cap so that we can adjust to that kind of risk. Therefore, I see great opportunities in this market. And then we decided that even with a more cautious scenario to apply a guidance and coming from this more cautious scenario, we will not stop investing, not even a cent. And this will have an important impact in the next coming quarters,

Speaker 2

in 2026, in 2027,

Operator

and you will see that. You will see for yourself. I would just like to add one more thing, right? Of the macro scenario.

Speaker 2

Thank you. You're welcome. Thank

Speaker 3

very much. So congratulations on the results. So two questions. First, on the implementation of IFRS. Could you revisit the logic why you have such a big impact on securities and why this seems to be quite idiosyncratic to Bradesco?

Speaker 3

We have not seen it in other institutions. It's a big amount, 8,000,000,000. So we want to understand exactly why this happens. And second, earlier last year, you were mentioning 2026 as a year when we reach a normalized return. Is that still the goal that you will get there in 2026?

Speaker 3

And how would you define a normalized return? You.

Speaker 2

Casiano, I think that you can start answering your question. Well, thank you, Carlos. I will try to rephrase the previous answer to make it more clear. The movement of the new IFRS brought some in terms of credit policies and PLL. What we did was an adjustment to the basic model that the Central Bank allocates.

Speaker 2

Tropicalization of the Brazilian to the rule four nine six six. And IFRS, there was no change. I think that the other banks gave you an explanatory note used the same instruments that we included in our balance sheet. And I will compliment

Speaker 1

Promise to

Speaker 2

you, ma'am.

Speaker 1

Again to why We

Speaker 2

are going to pursue and to deliver an ROE, which is

Operator

a lot

Speaker 1

promise.

Speaker 2

But but this is and we want to be underpromising and overdelivering. And it is probable that this will not be normalized by 2026. It might still be growing. Next question from Edward Unichiou Genio. Here.

Speaker 2

I'll start answering the first part of the question, and then I will ask Cristiano to answer the second question. As regards ROE higher than the cost of

Speaker 1

capital, you

Speaker 2

are correct. Earlier in the previous question. We will not promise anything, but we will deliver. So under promising and over delivering. At the right time,

Operator

we are

Speaker 2

progressing step by step. Everything we said we were going to do, we delivered. Everything we said in the time line, we are reaching that. So we'll get there. Thank you, Marcelo.

Speaker 2

Thank you, Marcelo. I think that you raised an important point. Indeed, the market So overall, capital

Operator

our in

Speaker 2

that context. So we don't have a taxing policy of hedge, but we have a policy of working daily in our operations, treasury results, and that is an indicator of a much more normalized market NII than in this year when we have an interest rate hiking cycle. So the level of 2024 should be the benchmark for us, Nishio. I think that this is what Katsiano

Speaker 1

is saying.

Speaker 2

So this would be a reference for you as a bottom in a normalized position. But thank you for the question.

Speaker 3

Turning to English. The next question comes from Tito Labarta from Goldman Sachs. Tito?

Speaker 4

Hi. Good morning, guys. Thank you for the call and taking my question. I guess just a couple of clarifications just to make sure I understood. One is on the restructuring charges, right?

Speaker 4

I mean, you had EUR $443,000,000 this year, dollars $570,000,000 in 2023. Do you expect to have any more this year? Just want to understand how nonrecurring these are or when do you think these restructuring charges go away? And then the second question and sorry to ask again on capital, I just want to make sure that I understood. The 60 bps increase from the Resolution 04/1966, I wasn't clear what drove the increase?

Speaker 4

Was that the reclassification of securities or if you could just walk me through why there was an increase that the expectations were, it would be a bit more negative. So just to make sure I'm clear. Thank you.

Operator

To answer your first question Provisions for restructuring you commented

Speaker 1

focused in

Operator

the review of our footprint. Not only there, but particularly there. Because investments that we've been doing, as I said, are much higher than that. But long it will last? I mean, it's a transformation.

Operator

We said that our transformation will go from 2024 to 2028. It's not that it would start now and it ends in '28. I mean, we've been delivering lots of things, and we will continue to deliver. We'll continue to invest. We have a lot of investment.

Operator

There are a lot of things to do in 2025. We still have a lot to do in 2026.

Speaker 1

But as you

Operator

go on that journey, we also capture efficiency. We increase productivity. Just like I said, when I talked about technology, we are increasing productivity and efficiency, and we managed to do that this year through new technologies, new format and new team. Therefore, we will continue to pursue that. And certainly, we will capture further benefits as the years go by, '26 and '27 and so on.

Operator

And I think that the only thing can talk about at 60 basis points when he talked about capital growth with the 49.66.

Speaker 2

Thank you. Nice to meet you again.

Operator

Let me try to clarify. They said that 60 comes from the movement of securities. That's what I said in the previous answers. The reclassification of our securities for our very specific cost model for every operation model that allows us to get to bed 60. But as a reminder, within that number, I had two negatives.

Operator

What I said, 20 comes from operating risk, and zero zero seven comes from the legislation of the adjustment mark to market or the cost

Speaker 2

of new buyers.

Operator

This is something that is very regulated according to the 04/1966 and the new IFRS. So that's where this positive difference comes from. So now we conclude our Q and A session. The questions that were not answered, our IR team will certainly answer them right after this. The presentation is available in our IR website, this presentation, other earnings releases and other presentations.

Operator

So now I turn the floor to Marcelo to conclude this presentation. Thank you, Andre. Thank you, Castellano. And thank you all of you who worked with us, and thank you to analysts that spent

Speaker 2

time with

Speaker 1

us and

Operator

joined us in this earnings release call for the fourth quarter of twenty twenty four and the full year. We are strictly open to talk to sell side, buy side and any other investor that seeks for

Speaker 2

further

Operator

clarification. And once again,

Speaker 2

I must

Operator

say that we are pursuing a very cautious view, but we remain optimistic in terms of what you're doing and what could be the next prospective scenario for Brazil. So I wish you a very good weekend. Thank you.

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Earnings Conference Call
Banco Bradesco Q4 2024
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