Banco Do Brasil Sa S/Adr

Good morning, everyone. I'm Jonaína Storti, Head of Investor Relations at Banco do Brasil. Welcome to our first quarter 2024 earnings live stream. Our event will be in Portuguese with simultaneous translation into English, and you can choose between three audio options, original, Portuguese, or English. Present here with us are our president, Tarsiana Medeiros, our CFO, Giovanni Tobias, and our CRO, Felipe Prince. Yesterday, at the end of the day, we released the numbers of these earnings, and along with it, we made available to everyone a video of our CFO commenting on its main components. This was done so that we can optimize the time here a little bit more. making better use of our space for the questions and answers session. So considering this new dynamic, I'm going to turn the floor to Tarsiana to make her initial considerations. And next, Giovanni will give a very brief speech with some highlights, and then we will move on to the Q&A. But before that, you will see here throughout our event a QR code on the screen. This QR code takes to a very brief survey with three questions so that we can hear your perception of this new model for our earnings conference call. I would now like to turn the floor to our CEO, Tarsiana Medeiros. Good morning to all. Bibi's purpose is to always be relevant to people's lives. And at a time when we are all in solidarity with the magnitude of the tragedy that is plaguing Rio Grande do Sul, I begin this live by saying that the residents of the regions affected by this disaster can once again count on the full support of Banco do Brasil. From the very beginning, last week, we announced actions to contribute to the recovery of the state, and we have updated this package of actions based on the development of several measures throughout our Banco do Brasil conglomerate. Today, through the Banco do Brasil Foundation, we allocate another R$ 50 million in support to the population of Rio Grande do Sul. This amount is in addition to the other $5 million that we had announced already last week and to the $3 million that we received through our solidarity campaign, which is still going on, published on all of our channels. But I emphasize that our actions go beyond donations in the millions of PRLs by Banco do Brasil and the companies in the conglomerate. They also involve humanitarian support in the region and relevant business measures for our customers. We have made credit lines more flexible, increased grace periods, postponed payments of credit card bills, in addition to other measures that can contribute to alleviating this moment of pain. We have also implemented a set of initiatives to support our employees who are in the impacted cities. We are in direct contact with all the 113 impacted employees, providing support and advice to each of them individually and according to the needs that afflict them. With this, we seek to ensure the comfort and dignity for our colleagues that are going through this difficult time. We continue to closely monitor the situation and will use all of our channels, capillarity, and whatever is in our power to help the state. We hope that Rio Grande do Sul can begin to rebuild itself as soon as possible with the support of the entire Brazilian society and international society. Continuing with our earnings presentation, I would like to thank you all for your participation. We are pleased to deliver the best first quarter in history for the second year in a row. Income of 9.3 billion BRLs in the first quarter of this year represents a growth of 8.8% over the same period of 2023. I always say that discipline in the execution of our strategy and our governance model are attributes that generate value for our shareholders and bring returns to society. Banco do Brasil's corporate strategy reflects its participatory and diverse management model, we bring together representatives of the controlling shareholder, minority shareholders, and employees in our deliberative bodies, and we give them voting power, all aligned with the same objective of building sustainable results. We are accountable to more than 1 million individual shareholders with whom we have a transparent relationship. We understand that the value of our shares does not yet reflect the fact that we are among the most profitable banks in the country that grows our portfolio sustainably and responsibly with robust capital. We have been working together with our partners to diversify the generation of business as we know that with this, we will be increasingly competitive, offering a complete value proposition in the different segments of the market. Fee income proves this. We closed March with 8.3 billion BRLs. And here, the performance of our conglomerate is very important. We foster innovation in our company's businesses, and I'll give you some examples here. In the case of BB Consortium, we have an initiative in the market, which are the green consortia. The strategy provides for an ecological counterpart with the planting of trees per quota sold. Green groups encourage the acquisition of green economic goods, such as electric or hybrid vehicles, solar energy, water reuse systems, among others. This initiative has already reached a volume of 3.7 billion BRLs, and quote us, quote, which made it possible for us to plant more than 435,000 trees. Another example, BB Assets structured its first real estate fund for shopping malls, BB Premium Malls, BBIG11. Launched on B3 last Friday, the fund has already consolidated itself as an absolute success in fundraising with almost 1 billion BRLs. This initiative reinforces our commitment to offering complete, sophisticated solutions. We have also intensified talks with Banco Votorantim with a focus on increasing the financing of new vehicles. This partnership aims to increase market share in the segment, combining BV's expertise in credit and risk and BV's distribution and vehicle financing.

Another important point that I would like to mention would be about Cielo. We believe that the listing will bring relevant conditions for the company to compete and better position itself in the quality, new reality of acquiring a means of payment. We do understand that it's possible, and we have a complete value proposition for corporate clients, integrating the main aspect of the relationship through payroll, collection, acquiring, and cash, amongst other problems, in a more dynamic, efficient, and increasingly innovative way. And, in fact, business innovation is fundamental, and it still fuels. loan growth. At the end of March this year, loan portfolio registered 1,138,000,000,000 BRLs. This is a growth of 10.2% vis-a-vis the same period last year. Amongst banks, we were the one with the highest portfolio growth with defaults below the average for the financial system and with a mix of risk and return that suited our business ambitions. For 2024, we intend to keep ahead of competition in expanding our portfolio considering our strengths and leadership such as payroll loans, loan facilities for companies and agribusiness. The results we're presenting today are quite significant in terms of figures with an NII of 25.6 BRLs, 22% higher than that registered during Q1 last year. This performance shows the relevance of our work and enables ideal conditions to prepare and deliver today the Bank of Brazil of the future. We are working to assure for BB to be able to reshape itself, adapt and be an agent of transformation in an economy and society that is reconfiguring themselves with impressive dynamics, the bank we already want For the future, operating on three fronts. The first concerns a new way of relating to our clients. We call this Ponto Bebe, which bears no relation to what we know as a traditional branch. We want to bring the best of the digital experience to our brick-and-mortar locations based on the complementary performances of these two worlds at the service of our customers. We presented this strategy to our market during our BB Day. Some of You joined us there and we opened the first BB.BB in March this year in Recife in a hub of new technologies in Marcosero region. And the initial results of our first BB.BB in Recife are very promising. In just two months since it opened, this lab of experience and innovation has already led to a 20% increase in the opening of bank accounts and over 43% increase in disbursement of payroll loans and other lines of loan for individuals. Figures like this reassure us that with Ponto Bebe we'll be able to relate even better to local communities and thus be able to offer our products and services for new perspectives to these clients. All of this efficiently since we will be offering partners the chance to host their brands in these spaces, sharing part of Punto Bebe's expenses with us. In brief, we will be launching Punto Bebe in new locations with this new way of relationship. There will be an even greater change in the roles and attributions of our employees. And here we come to the second aspect of preparing the bank for the future. We will increasingly train Our employees to be financial advisors and agents of transformation in customer relations. The third way for BBs to remain competitive is through data intelligence, which has increased its influence on the conglomerate's business generation. Data intelligence is behind the strategy to offer a bang for each client in a hyper-customized approach. As those of you who follow us closely already know, In addition, BB's experience in providing robust loan and risk models coupled with the exponential amount of transactional information generated historically has brought opportunities of hyper-customizations from the combination of structured and unstructured data. These actions have boosted the granting of loan with agility, innovation, and operational efficiency. This has allowed to accurately map clients connected to the various productive chains where we identify the link between companies and individuals, enabling an offer of sustainable loans. We have already implemented this solution for the agri-public with the potential to disperse 2.5 million clients. And speaking of agro, I'd like to use this opportunity to inform you that our disbursement under the crop plan have already exceeded this volume of the previous crop. 200 billion BRLs were dispersed in just 10 months' current harvest, which reinforces the strength in agriculture. and our partnership with the clients in the countryside. To give you an idea, we just burned $196.6 billion in the entire past crop. We participated in the country's main agribusiness trade shows in the beginning of the year. We achieved record business volumes in all of them. All in all, we totaled more than 13 billion BRL proposals received at these events. I would like to point out that we are the first bank to announce in our and ESG target, our sustainable loan portfolio reached 359 BRL in the period. This is a growth of 9.3% growth in 12 months, and this is one-third of our total portfolio. So to talk a bit about the highlights of our results, now I will hand it over to our CFO, Giovanni Tovias. Subsequently, we will have a Q&A session. Thank you very much, Giovanni. Thank you, Giovanni.

Thank you, Tarsi. Good morning, everyone. So here, briefly, so that we can skip to the questions, just a reminder for those who didn't have the opportunity. So we had adjusted net income of 9.3 billion BRLs, growth of 8.8%. Our growth, NII, expanded 21.6%, reaching 25.7 million BRLs. Fee income growing 2.6%. Our guidance is between 4 and 8, but we believe we will continue. We'll be able to deliver this fee income at those levels. Administrative expenses are under control, 8.9 billion reais. The growth of 4.9% in 12 months. And our expanded loan portfolio growing 10% in line with the guidance. NPL also under control, starting to stabilize at 2.9%. and our cost-to-income ratio of 25.9%. And finally, even with a payout of 45%, we've reached the CET1 at 11.9, coming from the levels of last quarter. Before we open for questions, it's important to note that this adjusted net income, we had two movements that a lot of analysts have been asking about, and so I'm getting ahead of the Q&A. One of them is about self-regulation, incentivized tax self-regulation. In November, Law 14740 was developed to allow companies as a whole to self-regulate like that. This was approved by the Federal Revenue Service. by rule 12-168 of December of last year. So within a routine verification, we had already foreseen when checking the profits of our external dependencies, especially Banco Patagonia, we were considering profit levels where the Brazilian accounting would not allow, especially when we're discussing hyper-inflectionary economies. Because of that, we already saw the need to correct the base of the tax calculation, the tax that was collected in previous periods. So we paid more and less. And with the definition of this self-regularization program, we've had the opportunity to offer this adjustment within the program that would already have been done normally within a spontaneous reporting. So we had the opportunity to adhere to the program and we were also benefited with the non-collection or charging of fines. So every time you need to make an adjustment from the past payments, tax payments. So that led to gains to Banco do Brasil. Due to that, the management has decided even to be able to be coherent, our tax rate with this gain would go to 6%. And in reality, we know that this is not a recurring tax rate. So we decided to anticipate the movement of a specific company, a specific case that was already under judicial recovery for some time. This process had already been addressed previously as an extraordinary event, but it was provisioned within our recoverability expectation for that asset. That asset from the telecom industry has recently started to ask questions. There was a change in governance, and that brought some serious doubt in this case, even considering extraordinarily this judicial recuperation that was being under development for some time with a second recovery. So a recovery from the recovery or a recuperation from the recuperation. So in face of that and considering this opportunity to adhere to the self-regularization with that gain and the tax correction for paying taxes that were paid in excess in previous periods, the management decided to end that and do the complete payment of this problem assets that had been with these legal issues. So with the fact that we addressed these two events as non-recurring events to allow for comparison and for a better projection of what actually is Banco do Brasil's earnings that we are delivering to our shareholders. With that said, I would like to turn the floor to Janaína so that we can go to the Q&A session. Thank you, Giovanni. So I'll begin our Q&A session here. You may ask your questions in Portuguese or English. And you have the button on your screen to raise your hand in order to ask a question. I'll ask you to kindly ask one question per analyst so that we are better able to bring everyone to this discussion. We already have a long list of people enrolling for questions, so I will call the first analyst, Renato Meloni from Autonomous. In relation to the first quarter, I apologize. The quality of his audio is impossible to understand. I'd like to understand the factors that influenced that. And what's your expectation for the coming quarters? Without a doubt, when we look at our NII, Renato, right? Thank you for the question. When we look at the NII, you can clearly see a growth of 21.6% in the annual view, reaching 25, 734 billion BRLs. When we exclude the Patagonia effect, this NII... would continue in the annualized view, presenting a growth of 20%, reaching R$3,666,000,000, and 25% in the quarterly view. What happens with Banco Patagonia has a direct effect of max. When we consolidated the results of Patagonia in the fourth quarter, by consolidating it, we used the average... exchange rate in the period of that quarter and that market inflation happened at the end of 2023. So when I brought Patagonia's earnings now in the first quarter of 24, the actual consolidation took into account the average exchange rate of the first quarter of 2024, which is already fully impacted by MOXIE. So the results went down, basically there's a reduction of one billion, so it's contributing to around two billion of my margin. Our expectation is to continue with that guidance that we set forth, that growth of around 11% for my NII, And we recognize that this 20% increase somehow tends to evolve as we have a readjustment of the indicators and TMS during the year. So we don't have a lot of concern. We're not greatly concerned. Quite the opposite. If you look at Patagonia's earnings now in pesos, in Argentinian pesos, it's been quite favorable. Because until last year, there was a cap that forced you to remunerate for fundraising. So it's a very – a bank with great liquidity, they have a network. It's a bank with a network. So they're very little exposed to credit. With the new measures of the Argentinian government, you were able to reprice that funding cost, improving the earnings of Banco Patagonia. So somehow, when we did our forecast – We had the conditions, and the maxi has impacted consolidation of results, but we believe that it is part of our business. It's a connected company. It's a business that is generating results. But if you look at our margin, our NIIX Patagonia, it continues to present growth, and growth of 20% in the annualized view and 6.5 in the quarterly view. So that's a result of our asset and liability structure, the repricing of our funding costs here was faster than the pricing of my asset portfolio, especially for loan operations. Of course, in the active end, I also have a drop on the private securities income because of the drop on the TMS, but nothing outside of that are estimates. I'd also like to point that Banco Patagonia is a bank that similarly to Banco do Brasil's corporate strategy, seeks new sources of revenue. It's a bank that's present in all of Argentina's provinces and managed by Banco do Brasil. The board of the Patagonia Bank is Banco do Brasil's board. It's colleagues from Banco do Brasil who manage it. The CEO has actually had 40 years of experience in the financial market, and he's been through all of the economic challenges conditions that Brazil has experienced. So we're talking about an operation that is very well managed. And I think it's important for us to emphasize this when we talk about Banco Patagonia. Thank you, Tarsi. If I may also add, when we brought our guidance and we already considered a reduction of Banco Patagonia's contribution. This reduction happened. It was slightly smaller than what we expected, considering everything that Giovanni mentioned, the deposits and the greater volume. And we'll continue to monitor this situation. We know that in Argentina, there's still some volatility in the market, and we'll continue to monitor it to understand this dynamic over time. over the quarters. Thank you, Renato. For our next question, I'll bring Danielle Vass from Safra. Please, Danielle. Good morning, everyone. My question is about a triple L. you're having the guidance up to 30 billion, but the level that we'd have an average per quarter. We see that the new NPL is running close to 9.5, but I'd like to understand from which segments do you expect this version of risk in NPL? Is it individuals, companies, corporate, agribusiness? And it's going to move to a lower... or if you can give us more details about this. You asked and answered your own question actually. What we saw in the first quarter, in addition to the complete stabilization of that risk management process that we had begun on the individual's portfolio, I think the provision for the individual's portfolio is normalized. compliant with the result generation that we seek in this market, we started to be more pressured in the first quarter due to the credit to companies, loans to companies. So you saw we had some cases of clients that were part of judicial or extrajudicial recuperation processes, and the SMEs market is growing. challenge to the entire market. It's a tailwind effect of the individual's NPL, and when that's stabilized, of course, there's less credits available for individuals in the market, and that impacts consumption, especially from micro and small businesses. In terms of agribusiness, it's still an effect mainly of the costing operations with producers who are with full inventories waiting for an improvement in the trading prices for their products. So what happens? These costing operations must be liquidated by the end of this harvest so that these farmers can justify new fundings, new loans for upcoming harvests. So we've been working very closely to these farmers so that we can regularize these operations, and of course, buffer this provision flow that came from agribusiness in the first quarter. So, there's no magic trick here. We will seek and deliver convergence to the guidance, optimizing provisions for companies. It's important to note as well that one-third of the SMEs portfolio is pegged to risk mitigators of governmental programs. So we have the course of delinquency, you have the course of provisioning, but once the operation is honored, this provision cost is reversed, the A-triple-L. So there's no other major case in our radar. SMEs, in addition to the risk management process, on the reindeer operations is guaranteed, and agribusiness, this intensification of regularizing costing operations so that we can have another beautiful crop plan in 2024-25. So these are the three components that we're working very strongly on to make NPL converge. We're working on the medium to high end for 2024.

Apologize, we're having sound problems.

The program during the pandemic presented tranches and afterwards it was continued in 2023. Therefore, we have one tranche concentrated for July 2024 because of the pandemic, but then the operations will go normal and I will show you how the mechanism works. Our operations have to expect 180 days of maturity to submit it to the owner of the guarantee fund that is managed by Banco do Brasil. Thank you. Our next question from Flavio Yoshida from Bank of America. Good morning to everyone. Thank you for taking my question. My question here is regarding the risk appetite that you have. I would like to know how it has changed. Regarding your guidance, we can see the economy is doing fine, unemployment control, but the interest rate will not drop as we expected. So I would like to know how your risk appetite has changed. From then till now, we know that your individual portfolio is more or less 40%, and this is different amongst different banks. There are banks that have more or less appetite to risk, and this is connected to the interest rate. I would like to know how you're addressing that. these variables regarding payroll loans. Yoshida, thank you very much for your question. Our strategy is clear. It is sound. We are extremely disciplined when it comes to implementing the strategy. The growth driver of our individuals is payroll. payroll loans and a point that we would focus on, we were going to go after the group was fair because of the size of Banco do Brasil, like for example, the retirees payroll customers, we've grown this 16% in 12 months. Another area would be private payroll customers. We were able to broaden like the base effect helps us in this rate, but this represents over 40% of growth. Our appetite is when we see individual is driven towards a less risky segment, of course. The spread is lower than installments with interest rate. This would be a marginal spread, but we are looking for principality, and we want to maintain the engagement of this customer to us because we want a sustainable growth of results. So we do continue focus on our payroll clients. They are retirees. and we are after payroll clients, we're after the strategy, we're strong with it. Now regarding agro, it is the heart of our activity. Agro, it continues and there are measures that we will announce and we are analyzing involving the agro industry in Rio Grande do Sul. Now regarding Now, companies, we've realized a resumption of the capital market, so we expect in that specific case to see a stronger activity in the capital market. Our loan expansion guidance continues. We had a growth for individuals and for companies in the lower end, We believe that we will bring this to the middle of the range. And agribusiness will be the high end. So we do not have visibility what 24-25 crop plan is going to be like. But we are paying attention. As Starcy said, what do you like to state? When you give credit, when you give loan, this means that you believe in people. So this is how Banco do Brasil is going to act and perform. Prince, if you could say something else. Giovanni, we have a strategy to balance our mix. Clearly, we have paid attentions to portfolios that provide greater NII, like credit card, like the non-payroll loan but we've used a lot of technology in order to have a sound portfolio in order to have a robust and i i and we want to work in productive change change we've identified the engines a clear example in tarsi address this would be the agribusiness chain where we work or we focus on transactional data analysis of these customers from the engines until the small farmer as we identify all the individuals and companies that have transactions within this productive chain. We recognize recurrent transactions that point out that there is an interconnection which is very strong between these connections and we have leveraged credit concessions be it to big or medium-sized company but we are also focused on personal loans because we always want to have a balanced mix, maximizing risk return of our portfolio. Now, the value chain, we have over 2.5 million customers that we have identified, and we will focus on them in the upcoming quarters. A government strategy that is ready that we launched in the beginning of April, we underwent the same process with a higher price. pay with a higher payer of the public system we can make all these transactions and then we mix this together with our traditional models and this actually provides us a sound response of market niches that we have to tackle and flavio the last point of your question you asked about the cap our cap for payroll Well, here we have the pensioner's portfolio, and as we have a value proposition integrated to this customer, we have a cost structure that is different. We do not work together. with the common cost in these type of markets. And at the same time, we have a diversified funding base. With this, we have a differentiated cost structure. We can continue growing and pursuing our target to grow in this portfolio under very favorable conditions for us, even when we think about competitiveness, to continue growing there. This is something that we focused on when we talked about growth. We also grew a lot in terms of portability to Bank of Brazil. People changing to our bank. Thank you, Flavio.

Our next question, Jorge Cury, Morgan Stanley.

And we will answer you in Portuguese, okay?

Thank you.

I'm definitely going to make it in English, so thanks for the opportunity to ask questions. I wanted to ask about NII with market, which was . Okay, Carlos.

Okay, Carlos, I think people who are listening to the video missed your question.

Just see you here.

So basically he's asking us about the composition of market NII, what we have there and what are the elements that influence the growth of this metric within what we disclosed. I mean we have Client NII and Market NII. So, Jorge, when we bring Market NII, Patagonia is an important element there. In this quarter specifically, it added R$2 billion. But we have other important elements there as well. So just to detail it to you, we have the private securities and insurance. Compromised operations, we have the portfolio, derivatives, exchange rate. Our working capital also is included in this line. And our institutional funding expenses, so what we see. If you look at this quarter specifically, we had significant growth even with the reduction of Banco Patagonia's contribution, so that comes from our commercial activities, our business. And that's where we see we will continue to grow. So that's an important item for us to mention. And of course, when we open, there's a series of lines and elements that affect that line. So we brought this breakdown of client NII and market NII to make it easier to compare between peers. Of course, not everybody classifies things the same way, but that's why we always tell you to look at our NII in a consolidated way, because there you're able to see precisely the results of my credit and how I'm growing in the revenues. You can see the effect of funding cost going down. That's another important element in our NII dynamics. You can see the treasury results, and as we have been telling you, considering the select rate effect. We see that it's settling at a lower level for that line. But in the overall condition, our NII performance continues very strong. And to accommodate this soft landing within the guidance that we provide for the closing of the year. And just to add, looking at NII, Jonaína, we continue We maintain our estimate that as the SELIC rate, of course the announcement yesterday of a reduction of 25 points, the market is not working with a single-digit SELIC rate until the end of the year. It's going to be closer to 10 or 11. But after every 100 BPS drops in SELIC rate, we see around 100 million BRLs of reduction in our NII ex-Patagonia. It's important to point that. Patagonia, the way we break down client NII and market NII, Patagonia is entirely concentrated there. So if you exclude those 2 billion that Janaina mentioned, then you're able to see our market NII. Thank you. Now our next question, Ana E. Hills from Santander. Hello, everyone. Good morning.

Thank you for this opportunity to ask questions. It's going to be more efficient than a bad branch, right?

So my question is how you expect expenses to behave moving forward if it's going to correct the guidance to a lower number and if the cost-to-income ratio will be improved? I'll talk a little bit about Ponto BB. The strategy of Ponto BB is a strategy where we're working to take the best of two worlds to our client. Banco do Brasil is a bank that has capillarity in a very large country. We have 93% of the municipalities in the country with a physical presence of Banco do Brasil. We have the best evaluated app in the financial system. Shopping BB is at full growth in many digital products. where we have a differentiated offer to our clients. So one of our expectations for Ponto Bebe is to have a diversified counter as diverse as our conglomerate is. So we will have the possibility to literally have partner counters at our branches. And that will certainly help reduce the fixed operating cost of our physical points of care. with an increase in digital revenue and conglomerate companies' revenue. So the Ponto Bebe strategy today, the first one we opened in Recife, is like a main laboratory for innovation. We are learning what the client demands are, the... physical and digital demands, and how we can combine distant human service. We have service booths that also have a lower cost, allocating the network of employees, more efficiency in this allocation of people to serve people, and we're also testing some innovations. in technology. For example, printing cards at the moment the client gets to the branch. The client goes through a self-service process and leaves the branch with a card in hand. So we already win over an online client. So this strategy for Ponto Bebê is something that we understand as a strategy where we're capable of diversifying from the different publics with specific profiles. For example, Ponto Bebê's for small business, for agribusiness. We're studying it and you will soon have more figures and details about the efficiency of Ponto Bebe and efficiency gains. Something that I really like about this idea, it's a paradigm shift in an IE. It's like if you're getting to a traditional bank branch and all of a sudden you look at a space that may look like an Apple store. You have a relationship there, and we have this demystification of positions, and the cash aspect is almost secondary to it because digitalization of our economy and PIX, for example, has been... demanding less of this position of a clerk and a cashier. And we can reorganize the attributions and the people. We can reskill our staff, changing the skills of those people and making that point of service not only into a banking relationship point, but also a place where you can have lectures, cultural events, where you can go to seek internet shopping. We're looking into that as well, to have partnerships. And we already see that in the United States because the physical branch is there. How can I increase the revenue of that, reducing fixed costs? And then going straight to the expense part that you asked, what we've been seeing is when we look at 2024. It's important for you to have in mind that in September there will be the negotiation for those employees and Banco do Brasil and the other banks will have the negotiations for the collective bargaining agreement and that will probably impact administrative expenses. And we also commit within this view of re-signifying the banking relationship of clients with us, we need to expand, modernize, and innovate the technology field. So the cloud side is another thing. We've been working on the cloud in different applications, private cloud, re-expanding to public clouds. We're developing partnerships. seeking partners that are already plugged in our system via API. Banco do Brasil's super app is increasingly better with Shopping Bebe and a number of other functions and features that are offered there that could potentially be provided in the physical environment or you can begin or conclude the transaction in the physical environment if that's the client's preference. What's important is for the client to be increasingly engaged with Banco do Brasil in its different platforms, and that's why we have the digital concept. Giovanni, you mentioned something very interesting, and I think we can build a very interesting analogy. Our super app already has a shared development. So the companies, the products that we offer in our super app, for example, insurance, the development for it to be part of Brazil's super app shares the cost with the company that's part of the conglomerate. So premium bonds, for us to offer premium bonds in our super app, the premium bond company splits the cost with us to be in super app. So this analogy with Ponto BB is interesting because in the super app, for example, today we have an estimate of a reduction of about 35% in terms of costs with this shared development. If we take this similarly to Ponto BB, we have a reduction of 25 to 35% due to sharing that space, the physical space. So it's an interesting analogy with Super App. Yes, and we believe that we'll continue focused on improving efficiency, delivering 6% to 10% decrease in administrative expenses. And always, whenever we have an opportunity, whatever we can do more with less, it's more efficiency, more results to everyone in Banco do Brasil.

Yes. Thank you, Anae. Our next question comes from Bernardo Gutsman from XISPE, XP Bank. Bernardo, can you hear us? You can pose your question. I think that probably he was disconnected. Oh, we have another name here. The next question from from Goldman Sachs. Chito? Chito, you may go.

Hi, good morning, everyone. Thank you for the call and taking my question. A follow-up on your NII, specifically your financial expenses, if you look at the commercial funding expenses, we're down like 12% on the quarter. If you look at time deposit expenses, we're down almost 30% on the quarter. I know you have lower rates in Brazil, but if you look at time deposits, we're actually up around 3%. percent on the quarter just understand what drove that sharp decline in in the financial expenses in the quarter and do you expect this to continue as rates come down in brazil or was there anything else impacting that line there thank you thank you for the question definitely

Reduction on that, especially because roughly 80% of our funding is floating rates. So as long as rates come down in Brazil, you should expect a reduction in the funding expenses. It is important to mention that there was a change in LCA, Letras do Crédito Agrícola. Clients, they used to have a three-month period of lockup in order to access that particular investment. And according to the law, it increased to nine months, okay? So there was a specific strategic change here with our branches in order to incentivate clients to maintain, to keep their money with us, moving to time deposits and other kinds of floating rate funds. So this helped us on reducing also our funding expenses. Do you want to add something?

No, I think these are the main elements. These are the main elements, the floating side of our funding being impacted by the drop of our SELIC. a part of the savings account payout that has a positive contribution here. Now, when we analyze funding expenses in a consolidated fashion, there is a part of the Patagonia Bank reminding you of our vision. There is an effect. But I believe that this change, this drop, is more organic, within the multiple NII context. Okay? Thank you, Gina. Our next question from Yuri Fernandes from JP Morgan. Congratulations for your result. I would like to ask you about your fees. Perhaps you said something in your guidance. Now, your credit card, we know that it's transactional for you. It could be a little bit different, especially because of the impacts of Cielo. I would like to know, number one, your guidance. What is going to happen with your fees if we're going to have any surprises that go beyond your guidance? What about credit card? I do know that you have your AutoCard product. I would better understand of your revenue fees. Judy, there is no doubt that the most challenging lines that incumbent banks face today and the credit card segment with no doubt is something that has drawn our attention because we're trying to find mechanisms to recover this level. We have a regulatory asymmetry. Now, regarding this growth, when you analyze 2.6%, if I would neutralize the effects, seeing Brazil fees fall, Excluding Patagonia, my growth would be on the lower end of the guidance. That would be 4%. And what we have to discuss is where can we resume the growth of this line? There is no doubt we need better engagement with our customers. We have been able to grow strongly in fund management. You saw 6% of this expansion. This is a result of the growth of the asset under management and even the LCA allow us to channelize the resources of LCA because of the increase of the grace period. So we have grown well pension funds and also we've grown in credit cards we've looked for other alternatives to encourage the use it's the best way of growing volume we've improved this we've improving offerings we're being more active and an example would be the use of our credit card for international This is AutoCard. We are encouraging our customers. We're offsetting the difference between the IOF rate between one transfer to one of these, a WISE, you know, when you use WISE. So we guarantee to our customers, use your AutoCard. international enable it to use it abroad we will return the IOF we would level the IOF that he would have to pay with normal exchange rate and he of course and he will gain livello points when he pays his bill Now, when they come back from abroad, they can even pay this purchase in installments. So these are specific actions that we're focusing on in order to optimize and to encourage the use of our credit card. Because we want to increase the contribution with fees. Another thing that will help us to fulfill the guidance would be the tariffs that come from the capital markets. We've seen a growth in this line. And as the capital markets opens companies, they threw crisscrossed ventures and other bonds down. And we have even reactivated our organic growth. We have a partnership with U of S. We have organic VO in order to capture the growth of the issuance of the Brazilian capital markets. We believe that there will be a strengthening of fees in 2024. This is why we stick to our guidance and we are looking for the customer's principality. The strategy of credit card fee is big strategy goes beyond the customer principality when Giovanni says that we will have different sources of tariff fees well not necessarily 2.6 of the card reflects a non growth of fees in this area but this will be reflected on a global growth of profitability and principality of our customer The car, due to the market dynamic and to legal asymmetries, has become a product that, yes, is one of the main products that we use to attract customers and have loyal customers. So it is worthwhile to state that the positive interpretation adds something else here. We are, at the end, we're closing the risk analysis process. of a credit card portfolio generated digitally. And as you said, during the past two years, it was offensive to our risk in terms of results. We're not talking only about 2.6. We were able to replace this balance and this fee that came from a non-sustainable card towards a product Whereas, as a matter of fact, we will be able to make money for a long period of time because we're being very selective in terms of the customers that are part of this portfolio.

Just a follow-up to what Prince said, our growth in the balance of credit cards in recent periods was greatly based on this portfolio. qualified growth by client profile. And that, along with the measures that we've been taking throughout the year, have allowed us to reduce delinquency. So we closed the quarter with NPL 7.15. So I think it's a convergence of multiple factors within credit cards and the proposal that we bring of having a single card that the client uses the card for everything that they need, bringing the benefits that they have, and being also benefiting from the relationship they have with us. So we have, for example, in that line of the revenue from the annual fee in this last quarter, we've implemented a new program that automatically brings and translates this relationship into discounts in the annual fee, the relationship the client has with us in terms of investment. So that is all done in an automated way for us to win over the principality that we seek so much. Okay? Great, thank you. Thank you, Yuri. Our next question, Pedro Leduque, Itaú. Hello, everyone. Thanks for the opportunity to ask my question. It's about NII. The quality of his audio is very poor, but he is asking about market NII, and now he's asking about client NII. We have the portfolio mix compared to the guidance of the first quarter, whether or not it's going to grow more soon. Funding is going down. Giovanni helped us understand the A-triple-L operation and that would help us understand more about the guidance and the trajectory. What's important to have in mind, that an important part of this results when you look at it, especially from loan operations, still coming from individual's portfolio. What we see in this first quarter is that actually there was an adjustment in the mix. We're able to see a faster repricing of our liabilities. We see it faster than within our assets, but there has been growth in the balance of agribusiness portfolio and it's almost comparable to the corporate portfolio. So you take some of that, you see some of that drop due to the nature of this portfolio for agribusiness. As for institutional funding, you see growth basically due to the financial notes. We announced a buyback in July. We reset it. the perpetual bonds that do now in April. And even our capital level, we were issuing notes here in Brazil. So looking at NII, those assets that are in the treasury are floating, they're repriced faster. But since we have more than 80% of our funding also in floating rates, I think this is well protected in our structure. And as we reprice this portfolio, slower we'll be able to maintain our spread and our margin, and I am in our margin, in a more protected way above the 8% level. We consider that to be very healthy. Janine, I don't know if you'd like to add any comments. No, I think those are the main points. When we look at it, Pedro, you asked about the range of the guidance of, we see this convergence going on, the soft landing, considering all of the movements that Giovanni mentioned. The reduction in funding, we have the liability margins also in the Treasury pressured by the SILIC rate, but at the same time, we've been increasing portfolio, repricing portfolio, and that tends to become more relevant as the year progresses. So that makes us very comfortable for this range that we brought to you and for the soft lending that we expect during the year. Okay? Thank you. Moving on to our next question. Moving towards the end, we have two more questions, okay? Next one, Nicholas Riva, Bank of America. Please go ahead.

Thank you very much.

But you also said you're going to be calling the 9% PERP in June. So that's about 60 basis points of 81 capital that are going to be losing by calling that PERP. So with that, your 81 capital would decrease to about 140 basis points. I wanted to ask if that's an 81 capital level that you would feel comfortable with, 1.40% of 81 capital. or if you plan to issue more AT1, especially in the local market that Giovanni, I remember that in the last earnings call, you had referred to the fact that you have a preference to issue AT1 capital in the domestic market. Thank you.

That's what I mentioned. One of the reasons why our institutional funding increased the cost was because of the domestic AT1s that we issued here. So we have a plan that we are issuing throughout the whole 24 in order to replace the ones that we are going to call in June. So you should expect stability from our BIS ratio, Tier 1 BIS ratio. So this reduction you mentioned, once I call the June 821s, will be offset by the issuance of domestic 821s, okay?

Okay. Thanks very much, Juan.

Pessoal, a gente teve aqui um probleminha de conexão na hora que o Nicolas colocou a pergunta.

When Nicolas asked his question, we only took Giovanni's answer, but I think it was very clear in the sense of bringing a level of comfort in the 81 and what we've been doing in the local debt market, but that's the question that Nicolas was along that line because I think that sound quality was not as good for those listening online. Our next question, Natalia Corfield, JP Morgan. Good morning, everyone. Thank you for taking my question about funding. I have some doubts about this quarter. There was a drop in the tier two cost. So that was due to the local Tier 2, but at the same time, there was an increase of the AT1. And I'd like to know if this is linked to the local issuance. And looking to your provincial adjustments, there's also a high increase. 6.9 million BRLs compared to 4.7 in the previous quarter, and nothing in March 23. And along these lines, a final question about the operational risk and the actions there. Natalia, if you can say it again, please. The final point, the audio is very distorted. We weren't able to understand. About operational risk that had great increases, 13.5% quarter on quarter. And I'll start to answer in a strategy. to protect our capital. We include that and that's why there was an increase. We've been issuing not only now, but on previous years, these financial notes or letters that are called 81s in the domestic market and expressive values that have been helping our tier one. And we believe that the income generation allows us to incorporate that income So there's an organic generation of CET that helps our business. But that's considering the payout of 45. But looking forward, and we also included that in our estimates of resetting the coupon of my Tier 1 at 6. to rebuy or buy back the one at eight that would be repriced in June, everything went into the math of the operational risk. And then I'd like Prince to talk a little bit more about the view of operational risk. That was great, Natalia. I think you had a very good perspective of this evolution, and it's already a result of those models of phase three, phase two. You remember we had declared that after the publication of that rule by the central bank, we expected an impact in our capital of around 100 BPSs, and that estimate's already smaller because we consumed 0.23 in this RWA of the first quarter of 24, and we have the expectation of consuming another 0.5 until the full implementation of the resolution. I use a proxy because what the legislation, the rule says is that until you have a consolidated base of losses in the new model, you should have a loss proxy based on your potential to generate business. So since we've been fully exercising this potential to generate business, that brings an impact. that it consumes, but it's positive because it comes from business, from deals, but in the operational risk until the proprietary model is fully implemented in 2028. So gradually you will see this consumption over the quarters, but they should not exceed what's already being done plus 50 BPS. And Natalia, just to add to about the tier two that you saw, this reduction, it happens greatly due to the application of the cap that is a regulation for the FCO funds that we have to have an impact on tier two. So that drops over the years, and that's why you saw this movement along these lines. Very clear, thank you.

I said that we had two more questions, but I'm going to have to include the last question. Carlos Gomez from HSBC. Please, Carlos, go ahead. I would like to know about your economic plans. We have 7% here and taxes. But I would like to know until when you will continue with these provisions. Well, I can start answering here. Number one, because we have a current agreement in Brazil that allows us to resolve these controversies That would be the agreement between FEBRA and the Federal Supreme Court. This agreement is agreement of 10 years ago. We've tried to encourage the celebration of these agreements to extinguish these demands so that this agreement is fulfilled and this will be valid until the end of 2025. And as we know, we're talking about a clash connected to financial investments that theoretically were impacted in the 90 because of successive economic plans in Brazil. Today we have a stable economy. Nobody thinks that we will face these problems once again. So what we have done is we've made efforts to accelerate these agreements And this became visible on Q4 of 2023, where you can see a relevant disbursement regarding this subject, but in practice, It is something that will no longer take place, and this will not future affect the results of Banco do Brasil. This is why we deal with this fact as an extraordinary fact, because we want you to have clear visibility of what our banking operation is like and not a, a process or a lawsuit from the 90s that we are focused on resolving it. But this does not represent our core right now. Thank you very much. After 2025, well 2025, we expect to end this agreement. This is the deadline of the agreement. and we have spoken to FEBRA Bank and to the judiciary if it will be necessary to extend it. What do we do in the bank in management? We don't want an extension and we want to resolve the highest amount of cases until then that you have seen during this quarters, the values dispersed have dropped because we have a higher amount of agreements So the assumption of our management is yes to close this event in 2025. But of course, this doesn't only touch the Banco do Brasil, it touches the entire financial market and also our legal system. Thank you very much. Thank you, Carlos. Well, so now we are bringing our Q&A session to the end. I thank all of you for your participation, and now I will hand it over to Darcy. I would like to thank you. Once again, for participating, you can trust us because we will deliver our guidance amongst the indexes that we propose to deliver and to state that we are building a stronger, sounder, robust bank with resilient results and with the proper return. Therefore, we will meet during our next conference call and thank you very much for participating.