Banco Bradesco Sa American Depositary Shares

Good morning, ladies and gentlemen, and thank you for waiting. We'd like to welcome everyone to Bradesco's third quarter 2019 earnings conference call. This call is being broadcasted simultaneously through the Internet in the Investor Relations website, banco.bradesco.com. In that address, you can also find the presentation available for download. We inform that all participants will only be able to listen to the conference call during the company's presentation. After the presentation, there will be a question and answer session when further instructions will be given. Should any participant need assistance during this call, please press star zero to reach the operator. Before proceeding, let me mention that forward-looking statements are based on beliefs and assumptions of Banco Bradesco's management and on information currently available to the company. They involve risks, uncertainties, and assumptions because they relate to future events and therefore depend on circumstances that may or may not occur in the future. Investors should understand the general economic conditions. interest conditions, and other operating factors could also affect the future results of Banco Bradesco and could cause results to differ materially from those expressed in such foreign-looking statements. Now, I will turn the conference over to Mr. Carlos Figueiredo, Marketing Relations Director.

Good afternoon, everybody. Welcome to our third quarter 2019 earnings conference call. We have today with us here Mr. Otavio de Landari, Bradesco's Chief Executive Officer, André Cano, Executive Vice President and CFO, Vinicius Albarnas, Bradesco Seguro's Chief Executive Officer, and Leandro Miranda, Executive Director and Investor Relations for the Bank of Venezuela. Now, I turn the floor to Leandro.

Thank you very much, Fidaci. Good afternoon, everyone, and thank you for your participation in our third quarter 2019 earnings focus call. We'd like to start sharing our view on the business macro moments. Pretty much, we have a collective view about the moments of success. of inflection that Brazil is currently experiencing, which finally seems to indicate a good path of gradual, more consistent, and healthy growth, with inflation under control. That's the best part of it. We noticed that the presence of a co-operative spirit ensuring Brazil's needs has allowed the approval of the patient reform, which is fundamental to the long-term sustainability of the country. public finances. And finally, a favorable environment for approval of a positive agenda for the dividend economy. The combination of a moderate and clear income monetary policy has made it possible to effectively control inflation and has enabled the continuous regression of interest rates. This should definitely contribute to growth, and as a consequence, markets then shall benefit the most. In this context, we can pursue the lower risk scenario that is beginning to motivate investments, job creation, and consumption by private economic agents, leading to a more gradual economic access to recovery. And this is very important for our organization as a whole, which got prepared and is uniquely positioned to capture the benefits of a positive economic cycle. In the slide two, We bring a few highlights of the third quarter that I'd like to share with you. First of all, the expanded loan post-homely keeps growing in a very healthy and well-versed-by-the-manor in the higher growth and return segments. At the end of the year, there's an estimate. While it became fine, it's requiring lower vision for loan losses. The new loan ventures are still improving. Our loan book increased by 3.2% in the quarter and by 10.5% in the annual comparison. This especially highlights the performance of the individual segment, which grew 19 in 12 months. Our few revenues, which have been under pressure, have been adjusted in the previous quarters, and the red show signs of improvement with growth in major lines. We believe it should keep the recovery. All expenses which presented a relatively strong increase due to a plentiful strategy of ours have a right to return to their regular pace, and we believe it's going to continue this way after a smooth and comprehensive program of expansion, reductions, and controls that will be carried ahead for ourselves. We are determined to keep them under control, now that we have made all the necessary adjustments. We have been able, once again, to present a very strong order with a new record in our net income that reached 6.5 billion reais, going 19.6% among the comparison. In the nine-month period of our 19... Our net income of 19.2 billion U.S. dollars grew 22.3 percent, and the original income, 11.6 percent. As a result, our return on equity in the nine months remains above 20 percent, and that's the way we want to keep it. Our level one BIS ratio reached 3.7 percent, 206 bits there in the last 12 months. Finally, it's worth highlighting the extraordinary dividend of 8 billion Riyals that we have recently announced on the page in order to keep an active dimension of our capital, considering the opportunity and our perception of a maximum capital structure given the economic momentum. Now I'm going to jump to slide 5 in order to present you some details on our features. Our net interest income grew 5.7% in the ninth most-paid year in the year and 5.5% year-on-year in the quarter. The performance of this line indicates that we can stay at the center of the guidance. That's our belief. The risk profile of new loan ventures continues to be very good. Our extended loan loss provision expenses decreased by 4.3% in the quarter, a cumulative reduction of 4.9%, conceivably the nine-month comparison. As a result, our net income recorded a 19.6% year-on-year growth in the third quarter and 22.3% in the nine-month comparison. We did more details on the figures in the following slides. Moving to slide six, our ROE reached 20.2% considering the report. However, for analysis purposes, adjusting our equity by 8 billion reais, extraordinary results, as I have mentioned before, the ROE report has been in the range of 21.5%. The ROE was 1.9%. And as we have a firm at $2 billion, we believe we can keep the ROE above the 20% level. Despite the impact from lower interest rates and spreads, with wide decrease in usage ahead, our future returns benefit from a stronger loan volume growth, a more favorable performance, and definitely its scale. As the economy grows and develops itself, we shall reach a very good level of scale. Looking at the longer term, considering the maintenance of low interest rates and falling spread scenario, we could see a reduction in returns. but we also believe they need to remain at high levels, especially because of the lower levels that demand less provisions that we have seen in the last four weeks. Going to slide seven, our low inputs for the growth re-accelerated. As we had a four-week shift happen, closing, we paid for it at 10.5%. The highlight was the segment of individuals. We recorded a 5.5% growth in the quarter and a 19% year-on-year with all lines showing a good performance. It's worth to highlight the personal roles, which includes the product journey, meaning the digital channel, 62% growth, competitive rates, longer tenure, and inclusive use of analytics right to the portfolio record of a 9.7% growth in the quarter and 36.2% in the annual comparison. In payroll loan, we do 24.1% year-on-year, and we have a unique position in this digital distribution network. I will see you mentioned a little bit earlier that we are doing around 74% of all the payroll loans from public entities that have come to the market so far. Public sector payroll agreements and credit agencies and processes, we are all the leading banks. 78% of our origination is carried out at our branches without commissions. In mortgage, we grew 16% and 21% in vehicle financing. It's also worth noting that the growth in cards, credit cards, has accelerated to 12.5% year-on-year. And in the company's portfolio, there was an acceleration in athletes, which grew 8.2% year-on-year. 12.9% are just before the migration of customers with new segments. And I go down in profits. The increase is for very small companies and new type companies. So basically, we're still focusing on individuals. And I think that's going to be our main position going on. Journey 2, slide 8, can show that the evolution in our craft automation remains strong, both in individuals and companies. It is easily growing to the quality of 35.5% year-to-year in companies, 4.8%. Now, if you allow me to take it to slide nine, we discussed how we're mapping this income. Our total NII grew 5.9% year-to-year, with acceleration of the credit margin growth to 5.2%, while the margin of the market removed practically flat to the quarter. And that shall be in the following month. The positive effect of the mix and volume growth during quarter has outweighed the negative effect of the following spreads. Our next spread is going very well. We believe that the effect of the positive mix and volume growth should continue to offset the front book, spread reduction, and the renewal of the back book. Moving to slide 10. when you have the delinquency, you can see that it remains flat in individuals, have an increase in the master needs, and a higher increase in large companies as a result of a few specific cases. So we are not concerned at all in the alignment business. However, this has not affected the layoffs provision of staff as the cases were mostly clinical regiments. Overall, we feel delinquency under control and alignment with our product needs strategy. Now, on page 11, you can see that we have maintained a good performance in terms of provision expenses in the reduction of the corporate nominal terms as the things that led to the increase in NPL creation were like provisions. The cost of this creation dropped at 30 bps to 2.2%. In part 12, we showed NPL creation per segment. The increase in the profit is concentrated pretty much in perspective profit carriers. Moving to July 13th, you can see that now it heaves our performance included in the third quarter, as we expected, 2,000 patients and props to the market. It was a 3.7% growth near entry, 2.5% in a nine-month comparison. We took note of the good performance in the annual comparison of the peer-to-peer and brokerage halls, consortium management, checking accounts, and also loan operation lines. As for the management fees, it's hard to show good results. We are in 4.8% of the fall. We started reduction in the private pension management fees. We have additional initiatives being implemented in the wealth management segment. which should certainly produce increasing results in the coming months. Now, as far as operating expenses are concerned, and you can see that on page 14, the increase of costs above the guidance was mainly due to important decisions that we have somehow shared with you throughout the year, such as the implementation of the new branch network compensation program, an increased amount of labor search settlements, reinforcement in terms of data science, and the hiring of data scientists. We understand we have to improve our performance in an extent. We believe that we have made all the good work in terms of readiness, and now we are really committed to reduce costs from now on as we have reached our best levels in terms of execution as a whole. We highlight the measures which should allow us to have a much better performance in 2020. We expect to close a total of 150 branches in 2019. Therefore, as we have closed 50 branches, we still have 100 more to come until the end of the year. And we do intend to close at least 300 branches in 2020. In future periods, we should have a lower number of employees as a result of the new voluntary business program that is happening today. We shall remove some figures ahead, but so far we have 2,000 employees that have joined the voluntary business program. It's a number higher than we initially thought. What is good for our expenses control. And finally, we believe that the labor suits expenses in 2030 will be lower than this year. Going to slide 16, we can see that the third quarter was very good for the insurance arm. The net income reached 1.89 billion reais, 2.8% growth in the per capita and 28.9% year-on-year. The ROE reached 24.1% in the per capita And it's also what led to the acceleration in premium growth, which reached over 12.2 percent year-on-year, highlighted its strong performance in life and pension, which grew by at least 8.2 percent in the quarter and 18.2 percent year-on-year. It's doing a very good job there. The following slide, that is slide 17, we highlight the 20.1 percent evolution In my month, my income from insurance in 2019, we had a 33.6% hourly. The health and P&T segments developed in terms of earnings performance. In the nine-month comparison, which eliminated seasonality, we recorded improvements in the goods consolidated combined with the recurring situation. That's the best way to consider the insurance goods. In 12-year periods, we shall see all the seasonality denatalyzed. Going to slide 18, we closed the quarter with a price-compacted BIS ratio of 14.10%. The impact on the BIS ratio of 8 billion reais at 49 degrees is traditionally partially mitigated by the relocation of insurance groups with activities that came through dividends. The extraordinary dividends should lead to a reduction in DILs of 110 bps, and the greatest possibility of dividends should have a positive impact of 6 bps. So, on that map, you have here 60 bps to come, as you can see here. Such drop should be fully mitigated by the fourth quarter accumulated profits. Going to tax amendments, we'd like to stress that, as you have mentioned, the federal side of the amount in the red page of the 23rd, the DMDIs, that's for ordinary dividends, but dividends represented by yields of 3%. And we find that these dips in the direct tax cap generated in all of the population, we do consider the following aspects. Business opportunities, environmental risk level, and a view of an optimal practice structure for the models. That's the best way to add value to our shareholders. In relation to our guidance for 2019, we can say that we should remain in the middle of the guidance in the extended portfolio, in the middle of the guidance or slightly higher in the net interest margin, in the lower part of the guidance in pre-revenues, above the guidance in operating expenses, above the guidance in earnings from insurance operations, and finally, in the upper part of the guidance in extended loan loss provisions. Thank you very much for your time, and I'm going to be more than happy to address any questions you may have.

We will now initiate the questions and answer section. If you would like to ask a question, please dial the card one. If at any point your question has been answered, you may remove your question from the queue by pressing star two. Our first question comes from George Cooney from Morgan Stanley. You may proceed. Hi. Good morning, everyone. I was wondering if you could share with us the thinking behind the branch rationalization program that you talked about, which is an acceleration from what you've been doing. What is the scope for, if you think a little bit longer term, what is the scope for branch reduction, uh, a few years on the road. And, and what specifically cost savings do you think the 400 branches that are going to close, uh, in the fourth quarter plus next year, uh, could represent for your, uh, PNL? Um, and, and my second question is on, uh, The outlook for credit growth in 2020, I know you provide formal guidance with the fourth quarter numbers, but if we can just talk about just overall performance. you know, big picture thoughts of how 2020 could fare vis-a-vis this year, you know, what are the conditions that could drive faster growth next year versus this year, and where do you think you could see better numbers among the different categories that you provide? Thank you.

Okay, thank you, George. So this is Andrew Sturton. I'm going to speak here regarding the rationale behind our branch reduction program, and then reductionalize some points here regarding to how much money can save from that. First of all, all of our branches have to be profitable. That's the first rule. And we do see how much profit each one of them are regarding to the business and to all the clients that we do have. we have seen that you have small branches that are very close to big ones. And so we can be flexible. We can reduce costs and serve our clients even better. So the way we see that is that Our advancement in IT, as we are on the edge of technology, and a better rationale behind a better use of our branches, and conceiving that all the time we shall be profitable, allow us to see that we shall see up to 300 branches reduction for the coming year. And, again, answering your question regarding the coming year, we are going to see if the clients are using our branches, and we have to consider that Brazil is a country with different countries. That means we have different regions with different features, different kind of clients. And so, in this sense, if we have a proper use of our branches, we shall keep it. Otherwise, we shall change it to digital channels.

Okay. Finally, at this point, we don't have a number to share. These 300 branches represent roughly 6.5% of total branches We have Ibrahimo. And that adds the 300 branches in 2020, and that adds to some 150 we are closing this year. This is actually, you can say, this is not an isolated movement. Basically, it's part of our rationalization that we will keep taking the opportunity to find in coming years, but at this point, we don't have the numbers to share.

Yeah, let's get back here to your second question regarding to our guidance. Of course, we have not provided our guidance for the coming year, but I just would like to give you a flavor regarding to where we should go, right? We are pretty much repositioning individuals and estimates That's the place where we want to stay. We see a natural leadership of ourselves in these segments. We have an aggressive battle regarding to Brazil. So as long as Brazil comes, grows, and develops, we shall see, because of the high unemployment rates, more and more individuals and ethnicities to come into the system. And we are the leading bank in these segments. So we shall see ourselves more and more positioning individuals and ethnicities. The second point is regarding to the provisions that we shall see for our portfolios. We see that this business is extremely healthier than the previous ones. We shall consider that it shall come as long as that's quite a while. And then, in the coming year, we shall see the provisions coming along with the growth of the portfolio. But the more important part of that is the next steps. The next steps, we are, despite all the competition that is in the country, due to this deleverage and due to the environment in Brazil, we are able to improve it. And as we get a scale and as we get new clients in the system, we shall continue to perform very, very well. Feeding commissions, we believe that we are on some sort of a changing point here. Pretty much we have come from a trance in the first quarter, in the first semester that we were not happy with. We have made all the adjustments regarding to that, especially because of the new interest rate scenario. And then We have been able to target all the profits this quarter, but it's still a trend. We pretty much believe that we are in a traction point here. And once we get new clients in the coming year, it shall grow. operating expenses. That's our focus for the moment. We do believe that we are going to be able to keep them below inflation for the coming year, especially because we do have two different lines of costs. We have the And we have all the labor suit settlements that are things that we were not used to doing in the past. So in the following years, we're going to have a base of comparison as well as we're going to have the ability to see what we shall become according to inflation. And then, and this should be especially with health, we are able to grow and develop as the economy goes by. We have a very prime plan. And overall, we expect to see good years ahead.

That's great. Thanks for the details. I appreciate it. Our next question, Nicolas Riva from Bank of America. You may proceed.

Yeah, thanks for taking my question. I have only one question on these corporate cases that you say drove increasing the 90-day inflation by 40 basis points. It looks like you moved them from 1590 days overdue to 90 plus days overdue. If I look at slide 11 of the UNESCO slides, you say that 1.1 billion reais of the new NPL creation was because of these large corporates. Should I interpret them as the exposure that you have to these corporate clients is 1.1 billion reais, or roughly 300 million dollars. Also, can you give some color on these corporate clients? If you can say which sectors they are in, what's the level of coverage on exposure to these clients, and do you expect to book more provisions for these clients in the fourth quarter? Thanks.

Yeah, Nicolas, thank you for your question. As usual, we don't open the name and sectors of these clients when they These are companies that are basically fully provisioned. It is not really something very new. Things that we have been dealing with for some time, so they are fully provisioned. They turned into NTL this quarter. But since they were already provisioned, this is one of the reasons our coverage rate ratio suffered a big reduction this quarter. So you have higher NPLs but not more provisions because we already had it. The other thing on coverage was the sale of a big loan that we had recovered in the first quarter this year from court recovery, when it came back to our portfolio, it is a performing loan. We brought it back with 100% provisions of its state value. And as a performing loan, we sold it this quarter without major impacts. on revenues and the provisions actually were the provisions last about it so this also had an impact in coverage but basically it's not going back to the specific case that we pointed out in 1.1 it's not a single case there are a few cases and as I said full provisions

Thanks very much, Carlos.

Next question comes from Marcos Asuncion from Itaú.

Hi, good afternoon, everyone.

First question, there was news with Mazari commenting that it would be harder for the banks to post 20% ROE levels in the future. If you could comment or talk a little bit about the main trends that you see that could impact long-term profitability of the banking business in Brazil, it would be helpful. And the second question on the cost side, we understand that a big portion of the cost performance can be explained by the non-structural factors. Looking at your structural cost, it also increased 6% in the first nine months of the year. So can you comment a little bit also on the main drivers that impacted the structural costs in 2019, please. Thank you.

Hi, Marcus. Let me just start by the first comment that we have made in line with our CEO statement. Pretty much it was out of context in the way it was printed in the newspaper. What Lagarde has made is that as we're here, folks, And as the economy evolves and we see a decline in interest rates in the world, that is, we have either zero or another two interest rates, you should not be able to keep 20% ROE because the banks all over the world in developing countries do not have 20% hourly. What do you do? Lazari has pointed out in the two calls that he did this morning that we are confident in keeping the 20% hourly for the coming months. We are well-adjusted in the segments that wear the most. and with the higher spread and with lower provisions that are the individuals and afternoons in the country, we are on an inflection point regarding to our fees. And now we are extremely committed and focused to reduce our expenses. So, so far, we want to keep these levels. And, as he also pointed out, we are going to keep an optimum capital structure depending on the economic environment, Okay, Marco. So now going to costs.

As a point of interest, we have breaking down the personnel expense in the structure and the structure as a point. Basically, the structure is growing by 6%. 0.4% year-on-year. We had some hirings this year. Basically, most people related to the data science, commercial people, people for investment consultants. Next, So this is not a big number of hirings, but we've had some in these areas. And also, these structural costs grow with the annual salary readjustments we have every year. So this is the driver for this 6.4. We didn't have major reductions, as I said, on the number of people. So that's why it's growing above inflation. On the structural part, we have first the implementation of a bonus program for the branch network employees. Bradesco, until this year, didn't pay any bonuses. for the account managers in the branches. We base the compensation and the benefits on the career evolution we have here in the bank. And we adopted that. We think it's a very important move from the bank in a number of aspects. So we have This basically comes from zero to the size of our bonus program that reaches roughly something like 35,000 people roughly. So next year, basically the growth certainly is not going to be the same. It's not going to be much more based on the evolution or the achievement of the targets that are proposed. to the people. The second thing is the provision for labor lawsuits. Bradesco historically hasn't been doing agreements on lawsuits. We used to mitigate defending our rights to the end. And considering the cost of carrying liquidations here in Brazil, they are corrected by an indexation factor plus inflation, indexation factor plus 1% per month. We decided to change the approach and we started to work on this agreement. So we have a big inventory, a big number of cases given the fact that we don't do this agreement. So this is the reason we have this increase. It was a decision in the beginning of this year that should ease the cost in the future, but brings higher and higher costs right now. So for next year, we believe the labor lawsuits are going to be more well-behaved. I think part of the agreements we have been doing, we already have some impact for the behavior of the line next year. And in the also looking to the structural part, given the fact we had the road there, this missile program finishing this quarter, Until the day before yesterday, we had 3,000 people enrolled in the program. It closes today. So basically... 3,000 is a little bit more than 3% of the personnel, the current base of people who have the device. So it should have an impact in the industrial part going forward. And on top of that, we have the branch networks restructuring and reduction. As I said, 150 this year, 300 next year. This also will have a positive impact in our costs.

All right, thank you very much. You're welcome. Next question, Chito Labarta from Goldman Sachs. You may proceed. Hi, good afternoon, and thanks for the call. A couple of questions also. First, in thinking about margins, you look like you performed well in the quarter, but if you look at the The spreads were down about 276 basis points. So that was partially affected by the mix, but also the number of days, right? So if we're looking for an increase in the number of days, the margins could have been down a bit. So how do you think about that, I guess, going into next year, a lower interest rate, getting more competition? Do you think there could be some pressure on margins for next year? And the second question in terms of their cost of risk, It came down a bit, even though asset quality deteriorated. I understand you already provisioned for the increase in NPLs in the corporate. So we did see a slight increase in SME NPLs. Consumer NPLs were basically stable, but the mix is shifting towards higher risk loans. Josh, what do you think about the cost of risk going forward? At the bottom here, is there room for improvement, or should it begin to pick up a bit going into next year? Thank you.

Thank you for speaking. Let me start with the modules for the current year. I guess going forward, we shall keep proceeding in a very good behavior. As long as we are focused on individuals and estimates, the modules are there. We believe that we are at one of the worst scenarios. And the individual's families and families still have plenty of room to leverage themselves. So we keep on doing that. Regarding the co-op exchange, we believe that they are going to set more and more the markets, either local or international, as the case may be. And we have a little investment done, so it shall benefit our feed lines. And regarding to cost of risk, we have seen that we have been able to grow the mass plants. And the reasons for that are our provisions. We believe that they shall keep on the same pace until the end of the year. And for the following year, especially on the second semester of 2020, we shall see it really according to the portfolio as a whole.

Okay, thank you. That's helpful. Maybe just a follow-up, I guess, in terms of the margins and the mix. Because if you think about the mix, you're growing consumer loans already 20% year-over-year. Even the economy is still going less than 1%, although the economy should pick up next year. So is there room for that mix to continue to shift the way it's been shifting? I know corporate lending should be kind of... continue to be weak, but maybe that picks up from the low, so maybe you don't get that make-up benefit as much. I don't know, just kind of how you feel about the mix as well, just given you've had very strong growth in consumer and very weak growth in corporate, and maybe that shifts a little bit, no?

Tinko, we believe the mix will look like the same. Basically, The segment that is very dynamic, the segments that are very dynamic are individuals and SMEs. So far, cost rates are not demanding much. They are not investing. They haven't entered so far in a big investment case. We do believe it will happen probably next year. But we believe the Brazilian capital market is very different. The rates are very competitive. So probably they will take part of the needs of cooperatives, but it's not that. Basically, our role in this relationship is being bankers for our clients and providing them the best access to funding where they find it. So we think that's going to be the profile, lower growth in cooperatives, even though we might find a lot of other business in the corporate segment. In terms of individuals, we still have 12% unemployment. We think the economy will still go through an improvement. We haven't seen strong growth. For almost five years, we don't have seen almost any growth, actually, for the last five years. And the return on that growth actually should have some effect. So I think there are new rounds, in our view, coming up. from individuals. And also, there's a lot of things we are doing internally in terms of credit modeling, use of analytics. We can see better, understand better the risk of clients. And this is, for instance, one of the key things behind the very strong growth in personal loss. That is, we are growing almost 36%. In SMEs, We are doing okay. We are doing well in the small growth in this fashion. I think there are some good dynamics there. The FME is still about to see the best days. They have, they probably will accelerate with the economy. So I think the profile next year, I would say, would be more or less, similar for this year and maybe even for the coming few years.

Okay, thank you for that. Next question comes from George Friedman from Citibank. You may proceed.

Thank you very much for the opportunity. I have two questions. First, you highlighted in the presentation that you're going to do a more taking into consideration the growth opportunities and the level of risk. So considering the coming year, would you like to be in terms of your common equity ratio? So this is the first question.

And the second question regarding the voluntary dismissal program, I understood this has already achieved approximately 3,000 employees and could be even a bit higher than as the program closes today.

But could you give us a bit more color about how many employees were eligible to the plan so we understand the iteration that you had? And just to recover here, because I think I lost the part where I discussed this and the part of this call, could you just go over this math? You are dismissing 3% of the bank's headcount. the average income of these people is higher than the bank's average. So recurring savings could be 4% or so in terms of staff expenses. Is this a fair assumption? Thank you. Hi, William. We're going to catch the switcher. We do not have a magic number. We would like to provide so because we are living in a country that's an economic economy. We do have a very good perception that the economy is on track. that we shall see a very good scenario. But if the environment gets worse, we're going to change it. We're going to need more taxes and not to be conservative in respect of the overall shareholders. On the other hand, if the economy really happens the way we see, we shall meet. the adequate capital for that. So we would like to provide an exact number, otherwise we shall not be able to make the right projections. The best way to understand it is that we do have a very good feeling, a very good perception where the business is. And as long as we identify the business opportunities, we see the risks that we have to be provisioning, we are going to consider any sort of excess capital to release it. Otherwise, we shall keep it. So we prefer to stay on the concept than with numbers. That provides us flexibility and the best way to handle the bank and the business as a whole. Regarding to eligible employees, I would say that should be between 9,000 and 10,000 employees that were eligible to enroll in the program. We had around 2,000 employees that were hired in that. It was better than our initial forecast. We have seen that the competitors of ours has released a number of about 2,000 employees and they have a very close size of ours. So we are happy with that. And now we have to understand and make our calculations because we have until the end of the day to see everyone that has enrolled to the program in order to see their level, their compensation, and how much savings we are doing forward. We can follow on in our usual meetings as we have and help when that matters.

Okay, perfect. But the assumption that the average salary for those employees is higher than the bank's average seems correct, right?

It's correct because of the years that they have here in the institution. If you consider that they shall be above 15 years initially, 20 years and then 15, pretty much they shall be above average, above the average of the institution as a whole.

Perfect.

I appreciate it. Thank you.

Just to make sure you understand what I'm speaking about, you have also to consider the funding positions you have to be replacing. Not necessarily improving the number of employees, but promoting some of that position. So calculations are a little bit more complicated than it seems at the beginning, isn't it?

Okay, thank you. Next question, Jason Mullen from Scotch Bank. You may proceed. Hello, everyone. Thank you. My question is related to the lending market in the individual segment. The three largest types of loans that I've seen in the portfolio are payroll, real estate, or mortgage financing. and credit cards. Can you talk about the current lending spreads in general terms for those three segments versus CDI, and then also kind of compare where those spreads are today versus a year ago, and where are we going here? I'm just trying to understand better how the shifting looks. Clearly, the lending yields are higher in individuals, etc., but I'm just trying to understand how this market is evolving and what the outlook is like. Thank you.

We don't provide the spreads for the specific lines. As you know, the central bank provides us weekly surveys on spreads. Basically, this is a very good base for seeing the average price we provide there and even the average price for the line, I think I would prefer to refer you and the other investors to that to talk about numbers. But basically, as a proportion, we are growing 16% in mortgage rates And basically, this is clearly one of the lowest spreads among individuals, but I have other benefits in terms of client retention, profiling, and other relationships we have with the client. They were wrong. It is a good product. I think we play with rates that are on average below the market average because we are very competitive. I think we have very good channels for origination since we are a big bank that is one of the biggest payers for social security retirees. We have the relationships with them. We also have a quite large number of payroll relationships with cities and states that are provided capacity to have a good imagination with it. So 78% of our origination in payroll loans are not subject to commissions to credit agents, on which you can see on average commissions like 15% or so. So we are very competitive in that business. So we can actually be more competitive even in rates. Personal loss certainly comes above payroll loss, but we have been very proactive and exploring the opportunities of pricing. I think that's part of the analytics we mentioned, actually analyzing in more detail the offers and having the capacity to do that. So I think this is the best answer I can provide you on this.

But maybe just to talk a little bit, I understand that, and we do have those public numbers, but I'm just thinking in general terms, if you see spread, I mean, our spread, we know that on some of these products we've seen the loan yields coming down, but is there actually an effort to reduce spread here? What is an average mortgage rate now in the market? They've been obviously coming down in the last year or so. or two, and, you know, I think that could free up. I mean, is there the need? I'm just trying to think about absolute rates. You know, how do you see that? Are the rates moving more than the – are we seeing some spread compression or rates just coming down with the base rate or not even?

No, they have been gradually – they have been going down gradually over the last –

Please wait when it's reconnected. Ladies and gentlemen please wait. You may proceed.

Hello? Hi. Thank you very much for everybody's participation. We don't have any other questions on the list, so if you have any other questions, please contact the Berdesco's Investor Relations Department. We are available to answer them. Thank you very much. Thank you.

That does conclude Berdesco's conference call for today. Thank you very much for your participation. Have a good day.