Banco Bradesco Sa American Depositary Shares

Hello, good morning, everyone. Welcome to our second quarter 2023 earnings video conference. Thank you very much for your participation in the opening part of the event. Our President, Otavio, will present the bank's results. Then, we will have the question and answer.

session.

The presentation and other materials are available for download on our investor relations website. If you want to ask a question, you can send your question via email or through a WhatsApp message. Using the address and telephone number on the screen, the presentation will be Portuguese with simultaneous interpreting into English.

Audio language can be selected directly from the window you are watching.

You can also choose audio always in Portuguese even when questions are asked in English and I'll turn the floor to Otavio who will begin our presentation of results we'll meet again later in the Q&A session see you soon

Thank you, Sireti. Good day, everyone.

Thank you for joining us on our very next video conference call.

We've started our presentation with highlights for the period.

The second quarter of 23 was 4.5 billion, a rise of 5.6% versus the previous quarter. And within our expectations, as we've stated, over the past few quarters, the recovery process will be gradual.

Our double ratio posted at 34 BPS, boosting Tier 1 capital even with the full competition of IOC. Market NIA improved even further and will continue to progress over the next quarter. half year end in 2024. Client NII, however, is impacted by the momentary lower origination and lower risk mix. The bank's performance is pressured by credit provisions increases. On the other hand, we've been able to control NPI within improvement in the 15 to 90 day index as a result of adjustments in credit policies that we This has allowed an initial resumption of origination, primarily in personal loans for middle-income individuals, and a good pipeline in the wholesale bank for the second half. This resumption will continue over the coming quarters.

extended to other credit lines, as well as to resale.

The insurance group again saw a growth in the results and income, with a strong momentum for the insurance business, contributing positively to the group's performance.

This year, with a counter-cyclical effect, we continue with our strategic

being the reduction of the cost to serve in retail, strengthening our high-income operation and the bank's digital transformation. Our primary focus is on serving our 72 million clients even better.

placing them at the center of everything we do.

Our work, centered on providing excellent service to our clients, is geared towards contributing to their achievement.

We have evolved and customized the journey, processes and products according to demand, the need and desires of our clients.

Without the recognition of our over 38 million account holders,

through significant progress seen in the MPS for individual retail and Prime in a variety of projects. Google continues to strive for constant improvement in an effort to delight our clients. Speaking of our digital agenda, Prodisco has always been noteworthy for its pioneering spirit in innovation. Our ecosystem of innovation links agile work methodology, tools, and collaboration with suppliers and startups I would also like to point out the partnership with significant and renowned institutions throughout Brazil and abroad with which we have participated in a number of different projects in addition to the search for highly qualified professionals, particularly data scientists. and in technology to join our staff. We are continually promoting the digital mindset and innovation culture across the bank. This facilitates new business scalability and personalization of services for clients.

Accelerated use of the cloud coupled with emerging agile methodologies in villas

has enabled a continuous reduction in the timescales for new implementations. BIA, the artificial intelligence application we pioneered, has had more than 2 billion In addition, we are exploring and using new technologies such as generative AI and quantum computing, open finance, real digital at various stages of our clients' journey. The clients' profile has rapidly evolved as they have become increasingly more digital each day. Nowadays, 73% of our clients have a digital behavior and 98% of all transactions are performed through self-service channels. The volume of financial transactions on mobile devices has continued this trend and has grown by 33% year-to-date compared to 2022.

As part of the efforts to optimize the cost reserve, Bradesco Expresso plays a very important role.

There are more than 41,000 service points throughout the country offering complete through a variable cost network. In addition, we promoted the integration of Next with Bradesco.

In this new context, Next clients will have complete access to Bradesco's complete portfolio of products and services.

DGO continues as a separate digital bank focused on cards, payment accounts, and partnerships. During the digital evolutions, we launched eAgro, an innovative digital platform for specialized services intended for rural producers that combines financial and non-financial products and services in an effort to address all our clients' needs. This robust ecosystem features partners that carry the best offers to the market, covering the entire agro-chain.

Anchored in artificial intelligence, the platform is capable of making proactive recommendations for office and services and also helps rural farmers purchase finest products and get credit all 100% online.

is the growth of 115% in this segment over the last four years, and we are the largest private bank operating in agribusiness, boasting unique and specialized services with 14 agribusiness platforms that have dedicated teams, including agronomists.

We have continued to improve our wealth services, a line of business that has been one of our top strategic priorities.

Our combined investment platforms, which also include our local banks in the United States and Europe, have now received yet another addition, TVO Capital, This investment manager, established in partnership with BV, it has 42 billion under management and will continue to act independently and specialized in managing high-valued structured funds in an open architecture format.

In order to expand our international offer, we launched My Account in July.

This is an international digital account for all the public and includes a personalized debit card, which can be used to make withdrawals and purchases in over 200 countries with automatic currency. conversion. It is a practical and tailored solution. We joined the Bradesco Bank offer. Lastly, before presenting our financial performance, we would like to underline our position in sustainability, which permeates our strategy and our businesses. We have now reached 78% of our goal to allocate 250 billion BRLs to sustainable And we also remain committed to creating operations and products with a positive social and environmental impact, boosting growth, for example, of 72% in financing for the purchase of solar panels and 168% in financing of hybrid and electric vehicles over the last two years. Over the course of the last six months, we received a number of different recognitions, such as the inclusion of the funds managed by Prodisco Asset, as one of the most profitable in the Valor Economical Fund Guide in partnership with Getulio Vargas Foundation. And within our innovation ecosystem, major awards for Payment Initiator and InnovaBRA. Now let's take a look at the figures for the second quarter. Net income for the quarter was 4.5 billion, the URL improving 5.6%. Income from insurance boosted the most relevant positive contribution for the quarter as a result of a solid operating performance and improvements in claims ratio. Market Anaya has been following the path of recovery that we had predicted, making a positive contribution. Client NIL had a negative impact as did credit provision. We'll show additional details on the upcoming slide.

Now we're going to address our credit portfolio.

It grew 1.6% year-on-year and fell 1.2% quarter-on-quarter. This performance reflects the ongoing restricted demand in light of interest rate levels and the adjustments we made to our portfolios. credit policy in some portfolios, mainly in high-risk segments like lower-income individuals and micro and small companies. And individuals, we would like to point out the growth in real estate financing, mortgage and cards concentrated in high income. For corporates, we highlight farm loans. We have begun to gradually increase origination in some segments half of the year, assuming that the vintages maintain the positive performance we have witnessed lately. As for guisers, considering the dynamics of tonight, we opted to revise the growth indication which now ranges from 1 to 5%.

As we mentioned before, the new vintages have demonstrated an improved performance.

The level of delay over 30 days, 4 months after granting credits, the so-called Mob 4, is now almost 50% better than it was in December 2021. This has helped to contain NPLs and has allowed us to expand origination in some products and segments. Credits originated from 2022 onwards when we started adjusting our credit policies now represent 53% of the portfolio and are, for the most part, a profile of lower risk. For example, secured loans represent 68% of new vintages for individuals. We saw 10.3 billion in credit provision expenses over the quarter, representing a cost of risk of 4.8%. In this first six months, the actual is 52%, 62% of what I indicated in the center of the guidance, which ranges from 36.5 to 39.5 billion BRL. We believe that the guidance remains valid, although the annualized value points to the upper portion at this time.

Still on credit provision, the balance reached 60.2 billion BRL, representing 9.6%.

of the credit portfolio. Over the quarter, we once again posted a lower level of credit provision expenses under IFRS 9, which reflects expected losses. NPL creation over the quarter came to 11.6 billion BRL, excluding the specific client effect.

The still high level reflects the performance of older vintages. When we analyzed

over the second quarter of 2023, and that's why we break it down by months, we see some stability in these indicators. We emphasize the coverage excluding 100% provisions credit, which is now 244%. Exceptionally this quarter, we present the monthly delinquency as this provides a clearer view of the syndication's stabilizing trend. The short-term NPL showed some improvement in all segments. And in the graph for the over 90-day ratio, it is now possible to see the inflection of the curves, even with the unfavorable denominator effect caused by the shrinking of the credit portfolio. I would also like to highlight the disclosure of our NPL ratios without the impact of that specific client. Now on net interest income, the total NII was $16.6 billion in this quarter. Market NII posted a new evolution compared to the previous quarter, and this line will continue to gradually improve with the recovery of the bank's ALM. Client NII dropped 1.7% on an annual basis, reflecting the reduced volume and the 20 BPS fall in the spread which stood at 9.7% due to the lower risk origination mix.

We have revised our projections for total NII, considering the trend we see for the rest of the year. The new guidance range includes growth between 2% and 6%. The fees line is a challenge for the entire market, and it's no different for us.

Cards income continue to perform well, driven by higher spending by our middle and high income clients, in which we have recently increased penetration. For asset management, we are also adjusting our products and client offers and are already seeing signs of improvement.

The other lines continue to be pressured by regulatory issues and the market's momentum. In this quarter, we had significant revenues in capital market operations, and we expect that these revenues may be even more relevant in the second half of the year.

We closed the first six months below the guidance floor, but we expect an improvement over the second half of the year, and so we have kept the expectation for this line with an indication more towards the floor of this

production. Costs grew 11% year-to-date.

Personnel expenses rose by 7.6%, driven by the last year collective agreement.

Administrative expenses expanded 4%. The biggest impact on costs, as we have been mentioning, comes from the other expenses and revenues line, due to the lowest comparison base in 2022.

We continue with tight control on expenses, adjusting our operations, structures and the cost to serve to allow better results without impacting customer service. If, on the one hand, we've adjusted our guidance for credit growth and consequently for NII, on the other hand, we are improving the guidance for operations, operating expenses, and insurance income, as we'll discuss later. The guidance for expenses, which was from 9% to 13%, now ranges from 7% to 11%, reflecting our efficiency and control actions. In the insurance group, our performance continues to evolve. Net income for the quarter was 2.4 billion BRL, an increase of around 30% in quarterly and annual comparisons. The premiums growth and the improvement in claims ratio allow for a strong evolution on the operational side. The performance of financial results was also positive. Income from operations is up 21.7% year-to-date, and given this scenario, we've revised the expectation for the year, which now ranges from 21% to 25%. Finally, we'll talk about capital and IOC. Tier 1 capital ratio grew 34 BPS to 12.9%, primarily benefited by the cumulative profit for the period. The provisioned amount for interest on equity accumulated in the first half of the year posted a potential payout of of 69% for the period. Our liquidity position also remains quite comfortable with LCR at 178%. I'm going to finish up the presentation and before moving on to the Q&A session, I'd like to point out that the revisions we've made to our projections reflect the operating dynamics we've seen up to this point. We know that we have important challenges in translating our commitment into better results, and therefore you can be sure that we are committed to delivering a better performance every quarter. Now I'll join Cassiano and Firetti for the Q&A session. Thank you.

Well, we will now begin the Q&A session.

We have Otavio N. Cassiano, our CFO. We also have the president of the insurance group, Ivan Gontijo, connected by voice. You can ask questions in Portuguese or English.

will always be in Portuguese.

You have an option for simultaneous interpreting of questions in English into Portuguese. The recording will be available on our Industrial Relations website. Without further ado, shall we begin?

Yes. Let's get the show going.

The first question from Yuri Fernandes with JP Morgan. Thank you, Fidel. The first place I'd like to understand the trajectory of credit provision for 2024. I think it's clear what you mentioned in the presentation, that it would be close to the top of the guidance. And there's a positive message in NPL. So I'd like to check if this is your opinion indeed. But my question is, for 2024, There is an expected loss. So as you grow origination, my doubt is whether if the growth of new originations will not increase ALL or credit provision. So if we have a peak of NPL, let's understand the bank's vision or opinion for the next year in terms of the credit provision curve. And the second question regarding interest rates sensitivity. In the past, you would show sensitivity. Every 100 bits of SELIC, it would be 1.4 billion, and I didn't see those this time. Do you still measure the sensitivity of a reduction in the SELIC interest rate?

Yuri.

Good morning. Thank you for the questions.

Yuri.

As regards to provisions, it is a fact the loan book growth was smaller because of a need to adjust for delinquency.

The delinquency curves that you observed, well, we broke it down month by month just to have transparency of the NPL curve.

So there's a reduction in 15 to 90 days delinquency.

over 90 day NPO it seems we reached a peak because in recent months it's been stable it's not increasing but still in July we started having new loan originations of course very cautiously particularly for middle to high income clients that give us a good

good spread, a good margin.

So we resumed these operations.

We have an important pipeline in the whole single bank, a very interesting pipeline for the second half of the year.

And I believe that the country's economic conditions

was reduced by half a percent by the Brazilian Central Bank, it seems to all of us that the drop in interest rates is a given. Perhaps more than we in the market initially expected. We were expecting 0.1%. 25, it seems that it's going to 50 points. Some people are talking about an even greater reduction. So the whole outlook seems to be more positive for the second half of 2023 and also for 2024. With all the reforms that are in the pipeline, everything that is being talked about in outlook for the country, GDP growth, etc. Now, of course, as we have new operations, we will need to provision for those. That's all correct, but lower provisions than the ones we have now linked to delinquency, particularly in the end of this cycle, Yuri, because as you know, from D to E, G to F, etc., these skips are much greater. The percentages are a lot higher. So we see reduction in credit provision.

That will happen. That is happening given the final cycle of this delinquency that we had.

This will allow us to have new credit provisions for the new operations. So if we look at the credit provision, in the quarter it was $12 billion, right, Fioretti? $12 billion. So we're talking about $4 billion.

a month of credit provisions.

So, we can reduce the provisions given delays, particularly the longer delays where the percentages are higher.

Therefore, we can and should

have new operations with a much lower credit provision because we have better rating and better scores for these clients, so the percentage and the level of provision will be a lot smaller.

As regards to your other question about MIA sensitivity, if I'm not mistaken, 900 million for every 100 points.

The sensitivity is 900 million. Super clear. Thank you very much. And good luck with the results. Thank you, Yuri. Next question from Bernardo Gutmann with XP.

Good morning.

Thank you for taking my two questions.

Number one, about portfolio growth.

The starting point in the first quarter was low, close to the low part of the guidance. So you would need to accelerate a lot to get close to the top of 5%. So I'd like to understand, how do you intend to accelerate? How do you rate this? Do you have a lower appetite and more risky lines? What about corporate? Does it remain challenging? So where will the growth come from? Specifically, in what line items? And my second question has to do with the tax reform and the risks of the change, the proposals that have been discussed. And what is your base? your best scenario, particularly regarding IOC. I'd like to have your opinion on this theme and how you evaluate the risk. Thank you, Bernardo, for the questions. It's a pleasure to have you with us.

Indeed. Growth seems to be challenging.

And we wanted to be transparent and fair with you, so it didn't make sense to us to maintain a guidance of 6.5 to 9.5 with a 1.2% growth in our portfolio in the first six months, given the whole outlook, the whole context that we talked about. Nevertheless, we have observed and we have been seeing

in the new productions that we've been doing, particularly with head portfolios with the best credit margins. We have 33 million account holders, as we mentioned.

In addition to all of the people who, one way or another, have a contact with the bank, more than 70 million people. So there is room for us to grow the book, particularly in those operations that are more profitable, with the highest spread. we can accept a little more challenge in delinquency. So in terms of individuals, growth will come from these portfolios.

Consumer credit, payroll deductible loans,

real estate financing as much as possible. So that's for individuals. Now, for legal entities, micro, small companies are the ones that are suffering the most, and that's where we have the biggest delinquency challenges we showed.

in the charts. But still, we have good clients there that we can operate with good secured loans, with bringing forward the receivables, so there's room to grow these portfolios as well. And in the wholesale bank,

Because of our strategic planning, we have a pipeline of the operations for the second half of the year, and we have a very robust pipeline for second half pipeline or second half of the year for large corporates. and legal entities. And we see more momentum in the operations. This was in July. It's recent. But in July, we saw more momentum in fixed income and variable income deals. We had some follow-ons that were very successful.

Two, three, four times the book.

And with the price discount,

That was very small. So there is great expectations. Many IPOs were in the draw.

Well, they are now coming back.

We know, and you're right.

The outlook is challenging. That's why we revised the guidance from 1 to 5. If we talk about the mid-guidance, we're talking about 3. But it won't work to get at least the mid-range of the guidance. but always with an expectation that we might have a higher demand for loan operations. Perhaps we can pursue more loans so that we can get to the top range, the top of the range of the guidance.

Oh, and regarding IOC... Bernardo, we practically have nothing.

We haven't got the text written yet. We knew about the challenges. We have spoken about this with the government.

We have spoken to them about the impact that will have on us, on the banks, but also on the market as a whole.

So there will be a lot of discussion. There will be a lot of meetings. Committees will be formed so that we can address address this in an adequate way to maintain the levels of profitability and results for our shareholders.

But it is a challenge because to date we haven't got anything formalized.

Nothing was formalized regarding IOC. And nothing was formally submitted regarding IOC.

But, Bernardo, you've probably observed this.

The contact with the government, the interactions with the government are very positive, both with Roberto Campos in the Central Bank and Minister of Finance Haddad. We are trying to find a solution that is adequate. for revolving credit, interest rates. Even Minister Haddad yesterday said that a working group was formed with the participation of the central bank, the Ministry of Finance, FEBRABAN, the Federation of Banks, to find an adequate solution. That in 90 days, the solution... There will not be a single solution, because there is no easy solution for complex problems, but that within 90 days they will present a solution that will at least address the situation.

this portfolio, this credit card portfolio.

Everybody complains and talks about interest rates of 400%. So this facilitated interaction with Brasilia is important so that we can have a high-level discussion, high-level interaction with them. This is what we've been observing, and I think that this This will bring about a good discussion. The points will be put on the table so that we can find the best solution and the best solution in the tax reform trying to maintain profitability and companies' ability to grow.

Very clear.

Thank you very much, Lazari, and good luck with the results. Thank you, Bernardo.

So our next question, Tito Labarta, Goldman Sachs.

Hi, good morning. Thank you for the call and taking my question. A couple of questions, I guess. Maybe one starting on profitability. In the past, you've mentioned getting back to around an 18% ROE, maybe sometime end of next year. Just help us think about that potential evolution. What would need to happen to get back to that 18% ROE? And thinking about some of the headwinds that you're facing at the bank, You've talked a little bit about loan growth and credit quality, but just do you think you'll be able to grow your loan book sufficiently enough, asset quality improve enough, particularly in a scenario of lower rates where you can get back to that 18% ROE? Is it still feasible to think end of next year, or is it more of a longer-term target? So that would be my first question. Then my second question, thinking about the competitive dynamics, You know, the lower income segment, because of credit quality issues and everything else, has suffered a bit more, and now you're going more into higher income segments. If you can help talk a little bit about how you see the different competitive dynamics and your advantages between both lower income and as you shift a little bit more into higher income and some challenges that you could face there. Thank you.

Thank you, Tito. Good morning. Thank you for your question. Tito, you're quite right, and I fully understand your question.

Of course, we're not delivering the results we wished for. to deliver and as you would expect, but we have a very well-defined path for us to gradually resume seeking those results.

I think a series of factors contribute to this belief, to this work that we do to go back to having the results we had in the past.

I think the market ALM The issue is absolutely solved in the third quarter, already with positive results, low, but already positive and not negative as we had in 2022. And for 2024, the scenario is quite positive in terms of market ALM. As for credit, as you saw me answering earlier, We already have better control of delinquency that happened due to a series of factors, economic factors and situational issues, the type of clients that we have, the profile of clients that are Bradesco clients, and that combined to a much better expectation that we see for the second half of the year and for 2024 as well.

regarding what the Brazilian economy can be.

We opened 2023 with economists talking about a GDP growth of 0.8, and now we're talking about maybe 2.2% of GDP increase for 2023. And this will certainly carry a tail into 2024. 2024 already indicates to have a better scenario. interest rates. It's low, yes, of course. It's from 375 to 325, it's small, but it's the beginning of a reduction. And the reduction of interest rates seems to be already a given. The drop on SELIC rate is already in a percentage that is higher than we expected, from 25 BPS to 50 BPS, even higher maybe.

So that also gives us very good expectations for the future, for what's going to unfold.

The expectations we have for the year 2024 seems much better.

So I think all of these variables combined give us the expectation that we will have

A better second half of 2023 and the year 2024 also better, with lower delinquency, better growth of loan portfolios with quality, with IPOs and follow-ons already coming in and being able to increase revenues. The insurance company has been going through a good phase. In the second quarter, it made 25 billion BRLs. In the half year, it's already been 50 billion. So we're working hard to close the year with a higher income, above 100 billion. Of course, it had benefited from the... indices, IGPM and IPCA, but what we see is the operating growth of Bradesco Seguros in all segments, in their private pension plans that already has a positive intake, the auto sector and property and casualty, also improving in reduction of claims. Even health, with all the challenges, despite the challenges of service costs, we're able to bring new customers, new companies to our portfolio. So the insurance company also has very good expectations.

We see a brand with relevant growth in their portfolio, with relevant growth in the funds under management, and they are ranked as one of the best asset managers from the end of last year to the beginning of this year. So looking at the whole macroeconomic scenario, and the work we've been developing here at the bank, we do see the possibility of us going back to the results we had in the past.

It will be gradual, yes, but we're working to make it happen, and it certainly will. So I think that's a little bit of what we expect for the second half of 23 and for the year 24. As for the competitive scenario, especially on lower income, Tito, you know inflation is a huge plague for the Brazilian population and it's the majority of our clients, the people who are 70% of Bradesco's clients. And at this point, these people are more affected in their purchasing capacity and payment capacity, and that translates into the liquidity as we see here, clearly. But as the country starts to get a better condition for GDP growth, we're seeing unemployment at lower levels.

So I believe...

that our competitive advantage and our comparative basis to continue to grow in this segment as well, despite all the competition, especially from digital banks that are competing with us, and some of them did well, they're doing good work, and that's also important for the competitive scenario in Brazil. So I think we're well positioned to also grow in that market. with product placement, credit placement at the right rate and the right size of credit. So it is a competitive scenario.

It's big, quite large, but that we understand we're well positioned to compete.

As for higher income, at our last earnings conference call, I talked to you and we said that our high income vertical, as we also showed in today's presentation, we have total focus and a priority in the high income.

vertical when we put everything under Guilherme taking care of high income and we combined private, top tier, prime as well as our Agoda brokerage digital high income that's also devolving quite well.

Our bank in the United States, in Europe, we added capital, $230 billion of capital in the United States to be able to grow on loan operations there as well. There's a lot of room for that. And now we recently launched my account, last month actually, and my account also gives us expectations because everything is aligned under the same vertical, not to mention a brand Bradesco asset that's also part of this process. So I think that this vertical with this quality, with this capacity that these businesses have to evolve during 23 and 24, they'll be consolidating and bring better profitability.

And now, more recently, this week, yesterday or the day before, we were the winners and we'll be the partners for Amazon here in Brazil to issue their credit card.

This will be officially launched on the 8th, but they released the information yesterday, so Bradesco will be the issuer of Amazon cards here, and they're a quality brand. that is respected around the world. So I believe we have very good expectations when we look at what was done in terms of the market ALM, the better control of the Linguency, and the expectations for growth that we have for 2023 and 2024. Otávio, if I can add, And lower income, it's important to mention, as you said in the presentation as well, Next, the work that we did with Next, bring this to the bank, it's a synergy. We have two strong brands, Next and Bradesco, for this digital native client who's starting their banking journey, and that also contributes to access and competitiveness in the lower income market.

So this strategy is...

along with all the others that Otavio mentioned in our high-income vertical and our repositioning that's focused on this customer-centric and principality. And that's very important. In Bradesco alone, we opened 15,000 accounts on mobile every day. So every day we're talking here about 300,000 accounts. And Next is no different. On Next we open 4,000 accounts per day. Four or five million clients that we have that are active on Next that was incorporated into Bradesco and it does not have anymore all the costs it did. And it now becomes an expression for our heavy digital user clients to have a digital bank to call theirs, even if they don't like Bradesco particularly. They have a digital bank available with all products and services that Bradesco can offer. but with that face, with that feel, the journey that is of Next.

In addition to the digital bank that is a completely separate bank with very important partnerships, they work with partnerships in credit cards, payment accounts, and they have a partnership with Uber.

There's more than one million clients that are Uber partners, Uber drivers, who already have digital accounts. So this scenario shows you a little bit of our activities on low income as well.

Okay, thank you. Thank you, Tito. Our next question, Daniel Vaz, Credit Suisse.

Daniel, you may go ahead, please.

Daniel?

Daniel, can you hear us? Sorry, my microphone was muted. Thank you, Firete. Good morning, Otavio, everyone. Thank you for this opportunity. I'd like to talk a little bit about asset quality. We saw here in the presentation that the new vintages already take 53% of the loan portfolio, and individual concessions are already 58%. And we can say that there's a level of a portfolio with a new risk profile, but NPL creation is stable at higher levels. So loss, when we look at what was expected on IFRS for the portfolio, increased. So I'd like to understand from you how to read these indicators correctly vis-à-vis expectation of portfolio increase. Is it possible to increase the portfolio without these indicators rising or at least remaining stable? What would be the new mix or new trend? risk profile or if you must make any additional correction on origination so that these indicators drop considering the portfolio increase you're aiming for next year. I'd like to explore this with you and if you can help us read this correctly. Hello, Daniel. Good morning. Thank you for your question. It's a pleasure to have you here with us.

Indeed, you're right, but that's what I said.

At the end of this cycle, when you carry over more provision, that skipping of letters when it goes from 10 to 30 to 50 to 70 to 100, the provision volume ends up higher here, although the credit provision volume for new operations is not as high because they are operations that come at a better rating or score. So that balances our capacity to continue to grow increasing our credit and accelerating as we expect and want to accelerate without having an increase on credit provision expenses. We're running at 3.5 to 4 per month, but a majority of this are the operations of the older vintages that are closing their formation cycle

in vr gap now unexpected losses that's the concepts that we use and that's why in every presentation we show this to you and this will be enforced now in 2025 in january 25 so we're always looking at that and showing it to you through the expected loss concept, because that's how we're able to better see it. So a better origination of a better portfolio with clients with better ratings and scores, as you already mentioned, already gives us a good dimension of the work that we're seeking to do to increase our credit portfolio.

And on the other hand, it also benefits those operations who have bigger spreads. That means that can take a little bit more of delinquency, but on the other hand,

bring higher credit revenues.

So I think this balance that we're trying to achieve and implement over the second half of the year and 2024 will allow us to get the credit portfolio to grow because there will be a demand for credit. seems pretty certain with a reduction of interest rates and increase in the GDP and employment going down will allow us to grow our loan portfolio without increasing or maybe even reducing the credit provision expenses that we see for the year 2023 because it is still carrying over expenses with the provisions of ALL. It's also worth mentioning that NPL formation has already given clear indications of stability in the last quarter. We believe it will begin to drop. The NPL flow to formation also goes through this negotiation process and renegotiation with the client that also delays the natural flow from those older vintages that have already given some indication of deterioration. So I believe this cycle is flowing. We believe that soon we'll be able to get better news and information as well.

Thank you.

Next question, from Rafael Frades.

I have two questions. One

building on the comment made by Ferretti regarding renegotiation. I don't know, maybe I overlooked this in the previous quarter. But I believe that you negotiated very little in portfolios that were less than 90 days past due. But in this quarter, you mentioned almost 50% of the renegotiation came in the portfolio of... So I'd like to know, when did this change happen? And please elaborate on the rationale for this change. How do you see this renegotiation that is somewhat earlier? And the second question regarding the insurance operation, you posted a relevant improvement in the operation this quarter and in the guidance for the year. But I also noticed a reversal

provisions, specifically in the line item, other provisions in life and pensions.

So I'd like to know, does this help explain the improvement? I'd like to understand this reduction in provisions and if this helps explain the improvement in the yearly guidance. and perhaps how this will be in 2024 because you're not going to have this kind of reversal.

Thank you, Rafael.

Good morning. Thank you for joining us. Well, Rafael, regarding the NPL that Sireti mentioned, we have always worked with the negotiation with clients.

Comparatively, can I recover?

How much can I recover in that past year portfolio?

Is it best to sell this portfolio because I can get a better price for it?

But you will remember that given the interest rates,

and the interest rates hike, sale of portfolios became more and more difficult because the prices were no longer attractive. This indeed happened, and we did not sell a lot of portfolios because

It would make business sense to us because we would get a better price if we renegotiated. And in credit recovery, you know, you can bring more money in and have better results. So, indeed, we focus. collecting from clients, particularly in loans that are not very much past due. Because when it's long past due, we can renegotiate more easily. So the fact that we are now selling the portfolios because the prices were not attractive and All along, we said that we would make a comparison between the advantages of selling the portfolio and what I can collect internally. So this is a business that has to... And so we are focused more on recovering the loans from our clients, and this is what led to this effect that you yourself mentioned. In addition to improving the modeling, predictive modeling, to understand and identify the patients that have more ability to pay.

And so we can recover their loan.

And this is about NPL. Recurring the insurance company, the CEO of the insurance group is here. Ivan, would you like to comment on Rafael's question? Rafael, thank you for the question. And based on your

of our guidance in the robust balance sheet of the insurance group.

Before addressing directly your question, I would like to highlight, and based on what you said, our sustainable growth, better revenue that is noteworthy given the joint integrated work of co-management among the companies and the several departments of the insurance group. We are market leaders in insurance, pension plans, and capitalization bonds. The better results of our operations, very robust sales, 51 billion BRL in the first half. A better claims ratio, better mix of products with new products. more tailored to the regions, better processes, aiming to serve our clients better, and particularly an improvement of our fundamentals. Focusing on the people also of the insurance group.

So to your question, in the technical provision line item that you mentioned, well, these are formed in addition

to face the future commitments of the insurance group, always considering the economic assumptions and the actuarial assumptions reflecting the best estimates for the portfolios. To give you an idea, the behavior of IGPM influences this line item that you mentioned, this line item of provisions. In fact, we always form our provisions based on the best market practices, and particularly considering IFRS 17 and the standards in effect. of the insurance group was established about 40 years ago, and we are always focused on the sustainability of the business and aiming to better serve our clients and the perennial behavior of the insurance operation. So I'd like to draw your attention to the fact that in the end of July, the insurance group posted 340 billion, and I stress billion, BRLs of provisions.

So this gives us a lot of comfort, and it gives us peace of mind.

this path that the Bradesco organization decided to start about 40 years ago, and that will continue.

Thank you, Ivan.

Thank you, Fredy.

Next question.

By Mario Pieri with Bank of America.

Mario, please go ahead. Good morning, folks.

Thank you for the opportunity.

I have two questions. Number one, looking at the new guidance of expenses.

It is implicit that expenses will remain flat in the second half compared to the first half. So any new measures taken by the bank to contain expenses? because you mentioned that you're going to be issuing credit cards for Amazon, and I'd like to understand the economics of this project. If the credit risk is on you, and if you could elaborate on that, it would be very appreciated.

Thank you.

Good morning, Mario. Thank you for the first question. Well, the second question, I won't be able to elaborate a lot, but I'll tell you whatever I can. Regarding the guidance of expenses, I would like Cassiano to speak a little bit about this, and then I'll end, if necessary. Thank you, Mario, for the question. Good morning.

Well, the guidance of expenses.

Let's remember what we have been systematically reporting to the market. It means a strong cop control of the organization. And this continues. Expense lines, both administrative expenses and personnel expenses, well, that's all under control. Because that's the work that we've been doing.

This has to do with our cost to serve

so that we can have a good control of expenses. Even considering our collective labor agreement in September, still we have expenses under control. Operating expenses are those that are making some difference, but in the second half, they are coming down to the normal range.

So we are convinced that when we change the guidance, we are right in the middle of the guidance.

And we'll know that our expenses are always under control. We don't see a lot of variation. We understand that we are on the right path of maintaining expenses flat or stable in the second half of the year. Yes. And, Mario, let me add to what Cassiano said.

Of course. We are continuously making adjustments in our network of branches. you will see that it's not that we closed down branches, but we changed the branches.

Either we merged some that were very physically closed or we turned a conventional branch that has a lot more costs, guards, security guards, revolving doors, etc. We turned them into a branch that has a lot less fixed costs and fixed expenses.

Since last year, this work has been

Starting in 2021, 2022, we're trying to do that. In 2023, in the second half, there's about 100 or 150 branches that will be transformed.

We will continue on that path.

There is also the progress of Francisco Express with 41,000 points. So we can ensure our presence in the cities, but it's all based on variable cost. So we don't have that problem of cost increase.

If we have a cost increase, it's because we have a much higher additional revenue flowing in.

So this gives us a lot of comfort, a lot of peace of mind to adapt the expense guidance and to say that our expenses should be in the mid-range of the guidance. And as for the Amazon card, Mario, you will forgive me, but we cannot say anything.

But what I can tell you is that the credit risk is ours, but with total autonomy of Prodisco.

Now, the other aspects of the business, you will forgive me, but this will be launched on August 8th with the presence of the Amazon board and our Prodisco people as well.

The launch will be on August 8th. And during that event, more details...

will be disclosed. I shouldn't be talking more about that. On the 8th, we'll be able to speak more about this. They will present all the economics. And if you want a meeting, Hosher, the VP of Cards, can meet with you, can give you all of the information as long or as soon as we have disclosed the business with Amazon, which is our partner in this. this business. They're a wonderful partner. This is a wonderful partnership. We're very happy to have them as partners in Brazil for the issuance of cards. And other than that, I cannot disclose anymore. Thank you very much.

Thank you, Mario, for your questions.

Next, from Juan Recaldi.

Juan?

Okay, so we'll go to the next question, and then if Juan reconnects, we'll go back to him.

Next question, Thiago Batista, UBS. Thiago, please go ahead. Hello, guys. I have two questions. The first about Disinghala. There's been one month of the program. I'd like to understand a little bit of the impacts that this second phase of Disinghala will have on Bradesco, if it's going to lead to a drop of NPL or... if you can give us a view of the impact you expect to see both in the bank and overall. And my second question, also in terms of regulation, in July we had that change. In the risk factor, the bank has already improved since the fourth quarter of last year, but how do you see the impact of this capital regulation change? How much can it add? 50 BPFs? 100? What is the magnitude, if you can give us, after this new regulation? Thiago, hello, it's a pleasure to have you here. About this in Holland, the operations are of low amounts. We're talking about the second phase, Thiago, where the person still has to negotiate directly with their creditor, either the bank or the store, whatever it is. So what we've seen is that there has been an increase in renegotiation operations of that which we already had around 8-9% the daily volume of renegotiation that's the first 12-13 days since it started in this first phase there was an exclusion of 620,000 default accounts of up to 100 BRL now for the client to normally pay for their operations so that they don't go back into the status.

But the amounts are low, so it's not going to really affect an EPL that much because these are operations that have already been written off.

It doesn't really change And he thinks so much at this first moment and in this scenario.

But what we can see, Tiago, the people that we were trying to reach in order to collect, it was impossible and we couldn't.

With Desenhalla, at least they went there and clicked on the website. They showed up to try to see the conditions they have, and then we were able to renegotiate or get something back. But it's small.

It doesn't really change NPL that much. capital-based bezel, as I said, we have been improving.

This quarter is a little bit better, and now we have this new legislation that started in July from the central bank. The impact will be from 0.20 to 30, so 20 to 30 BPS, and it was implemented down July 1st. So the initial impact is that it will be from 20 to 30 BPS.

Thank you, Tiago.

Let's go back then to Juan Ricaldi from Scotiabank.

Go ahead. Hi, can you hear me now? Yeah. Perfect. Okay, apologies for that. And thank you for the opportunity to ask questions. My question is related to the fees and commissions. I see that you reiterated the guidance of a growth of 2% to 6%, but in the first half, The change was year-on-year, the change was negative 0.5%. So I was wondering if you can talk about what will drive the stronger fee income in the second half, whether it's going to be card income, asset management, checking accounts, or any color on that would be helpful.

Okay, Juan, thank you for your question. Good morning. Juan, we're below the guidance in terms of fees and this is a business that really struggles with regulation governmental decisions, the central bank's decisions. There's some asymmetry in that sense.

And sometimes a lot of dissemination on social media for fees to be canceled because there's the essential package by the central bank. So there's always a lot of offenders for us to grow. In order to grow in fees, there's no other way other than growing in volume, increasing client base, strongly increase the bank's client base. And that's what we've been doing. I mentioned briefly about the grow in accounts open on mobile. Even the accounts on Next, there's 4,000 accounts per day. And in all these cases, seeking to generate benefits to the client so that they see that the fee is not just an expense that they have, but that the fee will bring them additional benefits. So they pay the fee, for example, to have a subscription of a streaming channel or maybe Disney Channel or Disney Plus, rather, and some partnerships that we're to make this fee more attractive for the client so that they can perceive not only the work behind and the quality of the services provided by the bank, but also additional benefits to our clients so that we can retain them.

And that's a good point. Bradesco Assets has been doing a good job increasing their portfolio and the assets managed there with new funds, with performance rates, the administration fees due to the reduction of interest rates in the past.

Administration fees went down, but once interest rates went up, administration fees did not increase and they won't increase. So you need to work with other funds that include a performance fee because that's how you can get additional revenue, and Abram has been developing good work in that sense with credit funds that stand out in the market. So to summarize one, I tell you that we need to gain scale. We need to get more clients, more products and services to be able to add products and services that have a high perception of value for our customers, and that's how we can think about fees. So it is a challenging guidance, but we understand that, considering this greater volume that grow on client base and fees that come from other areas in the bank, we understand it is possible for us to seek at least a lower level of the guidance. in fee revenue. Another important point that you mentioned earlier, Otavio, in the market, in the capital market operations, we understand there's strong attraction in that in the second half of the year, and that has been contributing to our fee income. July was very good. We also need to look at high income and cards. Spence has also been working well. And Tivio, that's an association that we formed recently with Banco do Brasil that adds that other work that you mentioned about Bram.

So it's all of these aspects. And we cannot forget an important point, Juan, which is credit. If the credits are... retracted, the fee revenue also retracts.

And now, as Otávio said, now we'll be more comfortable to seek at least a lower level of the guidance. Thank you, Juan.

Thank you for your comments. Thank you, Juan.

No, we still have a very long list of questions, so as much as possible, please limit yourselves to just one question. Next question from Eduardo Rosman with BTG.

Hello, good morning.

Actually, I'd like to ask a follow-up question regarding the insurance company. I believe the result was very solid.

It

everyone we were expecting weaker results, albeit with some improvement. It was not 100% clear to me because there was a big difference quarter on quarter.

In that leap, is it

the new bottom line levels of the insurance group looking forward, or could we expect more improvement? I just would like to have a clear notion regarding that.

Ivan, can you answer Eduardo's question?

Just to confirm your previous answer regarding additional provisions, as you mentioned. And then I will add something. Thank you, Otavio, and thank you, Eduardo, for the question. Your question, unlike Rafael's question, is more geared to the future, and I would like to say that we changed our guidance.

from 21 to 25%, but we did it under a lot of thought, and this is based on the fact that in the first half, we achieved the mark of 21.5%, so it couldn't be different for the second

We made some changes in the commercial department of the insurance group in the beginning of this year, and this has started showing excellent fruit. in the first half of the year, and our earnings clearly show that, 51 billion BRL as I mentioned. But actually in the second half, we expect to reap the effects and the fruits of this commercial operation. We will be working on the banker shares in a differentiated fashion.

And we believe that in the second half we are going to reap even more fruit in addition to the increment of the commercial channel. that now will work together with the network channel but separately also with the strategy that we developed.

This will happen in the ecosystem of each company. This was implemented in the first half and again we can see the positivity.

which we call Project Bravo, bringing the multi-channel to the inside of the companies, driving improvement in performance, and will make performance improve even further in the second half of the year. So businesses will evolve given the sales to companies. We are considering a higher NII and its continuity in the second half.

We will maintain the loss ratio, the claims ratio at this level or even lower.

And all of these are positive effects together with the product mix and expansion of the margin.

All of that gives us comfort. And now I address your question. And it gives us the hope that we will achieve, definitely, but for sure, even better results in the second half. I'm not sure I answered your question.

And, Rosman, let me just add to what Ivan said.

The sales, the revenue of this group will be... greater than 100 billion. And this is the result of the work that insurance group has been doing led by Ivan. They had an important reduction in the claims ratio.

And you know that every percentage point of reduction in claims ratio is fundamental. There was a positive impact. The IGPM was negative. And the increase in sales.

To give an idea, EVA did a work for the development of digital journeys and this year will have more than 2 million items sent in mobile devices, just of insurance.

So, of course, our wish and we will work to continue to maintain this kind of revenue for the coming years.

in the insurance company because of this growth and because of the independence of each one of the verticals of the insurance group as mentioned by Ivan.

Thank you, Rosman.

And if you allow me, Otavio and Rosman, the fundamentals of the insurance group, if you look at our balance sheet, give us comfort to have a very objective perspective look of the future, very positive outlook for the future.

Thank you.

Thank you, Rosman.

Next question.

From Arnon Shirazi with Santander. Arnon, go ahead. Arnon, are you there? We do not hear you.

Okay. So let's move to the next.

Renato Meloni from Autonomous.

Unfortunately, the sound is not audible.

We apologize. We apologize, but Renato Meloni's sound is not audible. I'm sorry, Renato...

We could not hear you at all.

Your voice was very metallic. Renato, are you there? Okay, let's go to Pedro Leduc, and we'll come back to Renato later, okay? Next question from Pedro Leduc with Itaú. Thank you, Ferretti. Good morning, everyone. A quick question regarding the guidance review for NII.

7 to 11, now 6 to 10.

And since this guidance was disclosed, the CDI curve moved in a favorable position regarding market NII, and still this total line was reviewed down. I think it has to do with the portfolio. So what do you expect regarding client NII? Because it seems that considering the drop in CDI, still you reverse this down, it seems that there was a deterioration in client names. for the coming quarters. Is this a fair statement? And how will this evolve for 2024?

Okay, Pedro, thank you for the question.

As we have been saying, the market in AI, yes, it has that constant gradual growth towards the second half, and the main offender for changing the guidance continues to be the loan book.

It works strongly.

To hold back loans in the first half, we reviewed all of our policies, and now, in June, July, and August, this is changing. We understand that we can accelerate, but not as it was before, even though it's infeasible. We recognize that the loan book grows less than the previous status. The market portfolio is recovering. The market NIA is helping us in this indicator, but it is not enough for us to reach the total of that first guidance.

So credit is still at an important level. We are now opening short-term portfolios, loans for individuals. We have a higher spread.

and it can hold a lower credit provision. So this is what we are doing. We are doing it, but cautiously and gradually. With this mix in market improvement and when we ended the balance sheet, that interest rate reduction was not guaranteed. But this is coming, and an interesting prospective cycle is coming up, particularly for 2024 with undoubtedly credit and credit granting will guide us in the NII guidance.

The market in IAEA, as Cassiano mentioned, tends to recover.

I think this is a given. It will improve in the second half of the year, and hopefully will end at a positive level in the second half, slightly positive, perhaps even in the next quarter. And it will continue to gradually improve along 2024. And I think that the resumption of the loan book, as Cassiano mentioned, will be the biggest driver looking forward.

Thank you.

So now we'll go back to Arnon Shirazi from Santander. Arnon, can you hear me?

So Arnon is still not connected.

We'll turn to Renato Meloni from Autonomous. Donato, can you hear us?

Good morning.

Is it better now? Yes, much better. Excellent.

I apologize. I'd like to talk about your view when you talk about the recovery for the coming quarters.

If you look at the leak rate for next year with the offer of 9%, can we talk about a level of 18%? especially the competitive view that's very different from the past.

Thank you for your question, Renato.

So, Renato, we understand that this moment of a reduction of ROE that occurred is a situational aspect, not structural. So, of course, the change in the market and changing people's consumption habits has a structural aspect that the bank needs to adapt to, and that's what we've been doing since the pandemic. And I remembered in the last meeting that we had, in the last meeting, that before the pandemic, every day the bank would make 1 million authentications at the teller, and now it's 90,000. So we went from 1 million every day to 100,000 to 90,000. authentications at the tellers, so there's a change in the market in terms of relationship with the customers and people's consuming habits that influence how they consume products and services that requires you to make structural changes that are essential, as I said, the change in the types of our branches, the reduction in size, the adoption of business units for advisory and service to our clients,

no longer a branch for back office service or account payment or bill payment. Many processes that we've been developing in the bank with negative, or as you saw last week, some negotiations we have with some partners with quantum computing.

The structural change we had on Next, that is no longer an expense line or rather a strong investment line, but bringing it into the bank so that it can bring the expense close to zero and make the most of all the synergies between Next and Bradesco, preserving for the clients, especially lower income or heavy user clients or younger clients, to have an option of having a digital bank for themselves. through Next, which has a different visual look than Bradesco, the way that they want. So there are, in fact, structural changes that must be and are being implemented, and a good trigger for that was what ended up happening with the pandemic that changed completely these relationships. as well as the entry of new competent competitors that require us to go through substantial change in relationship. And as I showed you, 98% of relationships with clients with us go through the mobile service. So these are structural changes that we have been evolving and developing, creating through new methodologies for the development of systems through partners, the agile villas, squads, and that is structural, and we have been implementing it quite well. Now, in terms of ROE, as you said, well, that was a situation that happened in terms of market ELM and delinquency that affected us.

Market ELM, I believe,

as Firetti said, is done, it's solved, the third quarter, fourth quarter, it will be positive again, 2024, with much better expectations in terms of results, interest rates going down, we have portfolios formed with better rates, so that helps improve the condition. So it's hard to pinpoint when, Renato, but we've been working, we are working quarter over quarter to deliver an ROE at the levels we delivered in the past. You can be sure of that, and we will continue to pursue the resumption of that ROE that we used to deliver up to two years ago.

Thank you, Renato.

And now we'll turn to Carlos Gomez from HSBC.

Hello. Thank you very much for taking my question. I wanted to ask about the tax rate. It was particularly low this quarter, 8%. What do you expect for the rest of the year, and what should we expect as a normalized tax rate without any changes to interest on capital, of course?

Mr. Lester. So, Carlos, the tax rate is at a very low level due to the fact that the earnings level is lower.

So the effect of the IOC leads this rate to be at a lower level. In addition, as you have been seeing, there is also greater participation of the insurance company in the total of the bank's results, The insurance company has a lower rate. So, based on all that, we would say that a reasonable range for tax rates would be from 10% to 14%. Thank you.

And that's for this year. What about, you know, when things stabilize? You have recovered.

Thank you. Okay. So looking forward, as the results increase and take on the maintenance of the structure we have today with IOC, the IOC tax shield will cut less from the tax, so the tax rate will normally increase.

So I'd say that when we go back to the levels of ROE that we had in the past, our rate will also go back to the levels we had in the past.

Thank you.

Well, then, now we have a question by Nicolas River with Bank of America. Nicolas, go ahead.

Thanks very much for the chance to ask questions. I have a question on your 81 capital. So I see about 14 billion reais of 81 capital on the balance sheet. I understand this has all been raised in the domestic market. So I wanted to ask what are the important call dates for this 81 capital, and what's your plan if you plan to refinance this as well in the local market? I do not recall any local 81 issuance this year after the Americanas event. And then in general, how do you see your funding needs, your dollar funding needs? I think historically you have shown a preference more to issue locally rather than issue in dollars and hedge back to reais. But if you can give us kind of your updated thoughts in terms of dollar funding needs. Thanks very much.

Thank you, Nicolas. Well, as regards debt in capital tier one to one capital instrument, we have about 1.5%. which is our limit. To us, it is the efficiency limit.

We do not need to have any additional issuances. We had an opportunity to issue the whole AT1 in the local market here at cost and with a structure

that we consider to be very adequate in BRL, which to us brings a lot of efficiency in terms of not requiring hedge. So we do not have any big core event coming up.

So this limit has been used and we will maintain these issuances here in the local market. We do not see any room for new issuances, particularly in the international market via AT1. Now, as for debt instruments, dollar funding needs, I will turn the floor to Cassiano because he knows a lot about this.

Thank you, Nicolas.

At the international level at this point, we don't see the right conditions. Again, it all depends on market conditions. We still have a high CDS. We and the interest rates abroad. When we compare local and international issuance, local issuance, considering the high SELIC rate, is still better than international conditions.

But we look at this every single day.

So if we see an opportunity that is beneficial, that will benefit us with international funding, we will consider that. But right now, the local conditions are better.

Thank you, Nicolas. And with that, we are ending the Q&A session.

Questions that were not answered during this call will be answered by our investor relations team. Before I turn the floor to Otavio for his final statements, I'd like to remind you that in our IR website, you will find this presentation as well as all of the material related to our earnings release.

Thank you for the presentation. Thank you, Peretti.

Thank you, Cassiano. And thank all of you in particular for joining us, for your participation and attention. I hope that we have answered all of your questions. I'd like to thank also Ivan Gontijo who joined us online.

And hopefully we have answered all of your questions.

But if you have any pending questions, if you need more detail, on any topic whatsoever, please get in touch with us.

Tiretti and our whole IR team in Oswaldo will be available to speak with you.

Thank you very much for your attention. Enjoy your weekend and have a great rest of the day.