Banco do Brasil SA

BOVESPA:BBAS3

Earnings Call Transcript 2022-Q1

[Janaína Storti, executive]

Good morning. Welcome to our live session to report on the results for the first quarter of 2022. [Operator Instructions]

Here with me today, we have our CEO, Fausto Ribeiro; CFO, Ricardo Forni; and the Vice President of Internal Controls and Risk; and Daniel Maria, Director of Finance and IR. We will now start the presentation of our earnings release. And after that, we will start with the Q&A session. Good morning, President Fausto.

[Fausto De Ribeiro, executive]

Good morning. Good morning to you all, to all of you who are joining us today from your companies or your homes. It's a great pleasure for me to be with you today to talk about our results for Q1 2022, very strong and solid results.

First of all, our first slide, I would just like to remind you that everything that we've been doing within the bank has a backdrop or strategy. These 10 structuring initiatives that we started off once we arrived at Banco do Brasil in April of last year. We have 10 structuring initiatives that were based on our ongoing corporate strategy. And at the end, these are just initiatives that we want to anticipate delivery so that the bank can be more agile, more modern and more balanced in terms of being closer to its clients, providing adequate services being digital in practice and also providing adequate results vis-a-vis the performance of all the other peers.

So today, we are presenting to you a growing consistent result with adjusted net income of BRL 6.6 billion, growing 34.6% when compared to the first quarter of last year. And this would be the equivalent to an annual return of 17.6%, which is the ROE, which indeed puts us very close to the return from our private peers. This is something that we've been reporting to the market for quite some time. And I think if I recall, since 2016 and 2017, that's when the bank started saying that we've been following a trajectory that will give returns similar to our peers. And now we were able to close and reduce the gap that used to exist between the profitability of Banco do Brasil vis-a-vis its peers.

So now we are very close to our peers, and now we are posting even better results. So this is just the first step. And I'm sure that in the second half, theoretically and historically, as it has always been more favorable to the banking industry financial sector in Brazil because households are more committed with tax payments. They have to pay tuition for the kids in the beginning of the year. So usually in the second half of the year, the financial results for all financial institutions are better. And we anticipate that this growing and sustainable results will last for a very long time.

Next slide, please. Here, we show our strategy of being customer focused. We center our attentions in our customers so they can choose how, where and when they want to be served. And we have here some relevant information. 24.2 million clients are already using our digital channels. And this is 12.4% increase when compared to the first quarter of last year. Our coverage reach in Brazil due to our commercial partners that we are licensing added -- was added by 1.9%. So now we are covering 96.8% of all Brazilian municipalities. And this, in turn, gives us a rate coverage and good capillarity, which is important if we want to continue to be leaders in agribusiness.

In total, we have 56.7 thousand service post. And so all of our self-service terminals and terminals that we have an agreement with [indiscernible]. So this is a 13% increase in all of the service posts or stations. So the customer can choose where they want to be served, being through our physical branches, digitally through our app. Therefore, we will give them a whole menu of options that they can use. They can have access to the bank.

We had 8 million daily access in our app, 22.6% increase. And I would also like to update the numbers. Last year, we reached a peak in terms of daily access reaching 9.7 million users. All in all, this shows that our clients are increasingly making use of all of the digital channels, and this is very good for the bank because in turn, this represents a reduction in the cost to serve for our clients. We also had 9.7 million customers served through WhatsApp. And this is an addition of 188%, and this with a lot of quality and effectiveness. These are just a few examples.

These are ratings given by clients of Banco do Brasil when they are served. And the first example is a score that goes from 1 to 5 that customers can rate it in terms of the way they were served. We got responses for 3.5 million clients in this first quarter and 4.8 was the average. That is an example that the quality of our service is improving, and we've been very, very much focused on that.

Now this refers to our ecosystem in our digital transformation. I would like to remind you that we just created our Loja BB or our BB store. This is our marketplace. This is the bank as a platform. And last year, we had implemented at the end of last year, something with Amazon. And so now we have 11 new brands that are offering their products within our app and more than 3 million customers use that option within our BB store, more than BRL 230 million in sales of nonfinancial products. And so the main takeaway is that Banco do Brasil is becoming up to speed in terms of technological advances. We are consolidating our platforms and also seeking for new revenue streams to improve our financial margins throughout 2022.

So what else is coming? Well, we also have a multiservice platform, a panel for corporations and the bank invest a lot on the app for individuals and now to close the gap in terms of all the necessary improvements for the corporate segment, we are now delivering a multiservice platform. And through that platform, customers will be able to bring in their data through open finance from other banks. And with that, they will have an integrated platform. And this platform will allow them to have an overall view of all their sales, their cash flow, and there will be a lot of other offerings that will be launched throughout the second quarter and in the second half of the year.

But the good news is, is that we are also getting prepared to serve micro, small and midsized companies with a very robust service platform. And also, we have Broto. Broto started as an ecosystem from agribusiness, but now it is growing. We had -- we originated BRL 1.5 billion in business with more than 2,000 registered products serving the agri community.

Now still speaking about digital transformation, we took advantage of a major challenge that banks were faced with, which is open finance. So we turn that into an opportunity. So now we can add even more added value to our clients. We have an app that allows users to consolidate in a single platform, all of their cash flow positions in and out of their current accounts that they hold in Banco do Brasil and also with other banks, and they will have a very organized agenda with their cash flow so as to allow them to have a much better management of their balances and a single view of all of their banking operations.

And Banco do Brasil was a pioneer in terms of originating payments. We've been a reference according to the Central Bank of Brazil in terms of the adoption of best practices related to Open Banking and open finance. We were the first bank to initiate payments. So we are a payment initiator. So we turn challenges into large business opportunities. And with that, the bank can increase its profitability and also take advantage of all of the new things that we see in the market to better serve our customers.

Our agri identity has been enhanced. We have BRL 225 billion, growing 22.8% vis-a-vis our portfolio, 740,000 customers with personalized service, 4,120 agents -- banking agents, solely working with the agri channel, allowing us to grow our coverage going beyond the locations where we already have a banking branch. Out of our 5,000 units, 3,946 conducted agri transactions. And so the main takeaway is that all branches of Banco do Brasil are eligible to operate a credit line considering all of the complexities of agri business.

So it's coverage that utilizes our branches and our banking agents that can conduct every business in 5,351 municipality. So this is the entire coverage of Banco do Brasil, and this is our very good capillarity that allows us to conduct businesses in every corner of the country and to serve from small to large growers all over the country using our products and helping them to also generate jobs and income locally. We also have platforms in private banking to support large growers. We have 56 platforms. All in all, all of that gives support to our growth. And that makes us very proud because we are the major partner of the Brazilian agribusiness sector.

And finally, in order to increase flexibility and give more flexibility to our growers, in our app, we have a dashboard with options that allows us -- that allows them to operate in the futures market for soybean, corn, cotton, all of the commodities that are traded in the futures market are available to our growers. So farmers can just lock the price of their production instead of being at the mercy of market fluctuations. And this is the result of a conversation that I personally had with a lot of these growers, and we are giving them this very good options so that they can hedge their production in the futures market and be more comfortable to trade in futures.

In addition, we have a partnership with several universities, and with this partnership we developed some laboratories so that we can take to the agri business some of the most disruptive opportunities that are coming along with all of the new start-ups. That means that the bank is very much aligned to all of the digital transformation moves that are taking place at the same time. So these labs have that in mind.

And our Agri Truck that in addition to taking credit or providing loans to small growers all over the country, especially in the small municipalities around the country because they probably have no means of putting together an exhibit because they are all small. So we are moving around with our Agri Truck that no longer provide services and loans but we are also providing technical training with our own agronomists that educate these farmers and also tell them a little bit about all of the technicalities of the crops: when to plant, how to be more mechanized, et cetera, and all of the things that are currently used in the agricultural industry because they are responsible for feeding the planet. So the truck will go around more than 200 municipalities. 60 municipalities have already been visited by our truck. 200 trucks will generate BRL 1.5 billion in business, and we already surpassed that with BRL 1.8 billion in businesses prospected so far.

And in terms of individuals, we are present providing loans and solutions. We have payroll loans reaching BRL 108 billion, growing 12% in this payroll loan portfolio is the safest in the market. We do the deduction in the payroll. On the other hand, we intend to grow with better profitability in lines like non-payroll loans, we reached a portfolio of 89.2%, growing 35.4%. In terms of non-payroll loans, we are talking about our bank customers, account holding customers, customers that we already know their history, we already know their consumption habits. These clients, we already have information about delinquency fees, et cetera. Therefore, this is a more solid portfolio. And we are constantly seeking for a better mix of this portfolio to improve our financial margin. And also, in terms of market trends, we are creating special structures in businesses. And we were able to reach 7 million account holding clients.

In terms of corporations, this is also a way for us to be present amongst companies. We want to be not only a bank for individuals, but a bank for corporations. We reached a total loan portfolio of BRL 92.4 billion. Well, 54% of formal jobs in Brazil are generated by micro and small sized companies. So this is a market segment that really needs our support. And we are providing this support in a very robust way, taking advantage of the best opportunities in the market.

Likewise, for large corporations, our portfolio was BRL 175 billion, growing 18.6% year-on-year. So our portfolio is growing consistently. And at the same time, very much aligned to the best opportunities in the market. Just as we render specialized services to individuals, we are also providing specialized service to micro and midsized companies in our platform.

And finally, I would like to say that this partnership with UBS. With UBS, so the company UBS BB continues to deliver very positive results. I decided to bring information on the partnership as a whole. We totaled 258 deals throughout this partnership, 41 were equity transactions and 26 were international debt and the rest, debt transactions in the domestic market. This partnership is very successful. And it's also very important because it gives more traction to the bank's business. And I'm sure we will be able to leverage greater business volumes serving our clients in the bank as a whole.

On the other hand, as I expressed before, we wanted to be more [indiscernible] in the foreign exchange market in Brazil especially ACC and ACE. So the [indiscernible] of foreign exchange contracts. And as we mentioned, last April, our relative position was between 7th and 10th place. But we worked very hard to understand the reasons behind that ranking. And we made all the necessary movements in terms of tax, of fees and financial conditions. So today, we find ourselves amongst the 3 in class. And we are providing quality to our clients.

So the main takeaway, if you look at our foreign trade operation, on the side, we were losing some businesses because of some tariffs and fees. But once we started looking at the client as a whole and the relationship they had with the bank, be it in a rural client or a commercial client looking at the entire relationship, we decided to make the necessary adjustments and now we are just focusing in also other operations that we were not present before. We are also taking this opportunity to be closer to companies, and this is also a very dear topic for us of the bank. We are putting together workshops with special advisory segment. So we are working in different industry sectors. And we are providing advisory services to help companies to go abroad and start selling their products abroad. We already conducted several events in this first quarter, and there is more to come throughout the year. This really stresses the importance of foreign trade for Brazil and Banco do Brasil.

Our -- we had BRL 3.7 billion in business, [ growth of ] 40.8% in terms of foreign exchange. We still have the cultural transformation within the company, several hours of training, new ways of working. We just introduced hybrid remote work. So this is an ongoing transformation where we try to operate in a more intelligent and more efficient way seeking for further efficiencies and savings and also we are training people to help them move on with this important transformation.

And finally, our role as a bank that is concerned with the environment, which is concerned with sustainable business. And we hope to produce some positive results. So we have our portfolio of sustainable business, which is certified by an independent company. It grew 10.8%, reaching BRL 289.4 billion. Our investment funds that have assets and these assets from companies that also adopt sustainable practices also reached BRL 9.2 billion. We have the first issuance of the social bonus. And this is already awarded by the banker as the bond of the year. The issue is $200 million. And we are also the first bank to offer services in sign language, both [indiscernible] and remotely. We trained our employees locally, and they can also interact via video with our clients because we want every single account holder to be represented.

And also in April, we launched CPR Preservaçã. And this is a major advance in terms of farmers that account for -- that occupy 33% of our territory and 66% of the territories already preserved in Brazil. 33% comes from legal reserves and areas of permanent preservation and they are part of our reforestation code. And this is a very important code, the forestry code because it forces growers to keep part of their property protected. They have to protect the natural environment. And of course, there is a cost to preserve these areas because you cannot extract timber. You have to protect it from fires. You have to protect the wildlife. And this incur costs. But until then, farmers could not monetize over these areas because they were not generating any wealth. Therefore, we launched CPR Preservação. And the farmers are committed to keep the forest intact. And so this is a financial transaction, which is based on Banco do Brasil's commitment that guarantees that the forest is still standing, doing that CPR preservation for a period of 1 year. So they are now able to monetize that area.

This is just one step out of many that can still be deployed in the market. We still have to find a green bonus. We have to find investors that indeed are willing to act instead of just talk and they have to be willing to accept maybe a lower financial compensation, but they have to be signatures to a commitment that our growers are indeed adopting the best preservation practices to preserve our planning. And maybe this will be our next step, looking for a green bonus, a contribution from society so that they can be protagonist in this entire preservation process.

Next slide. And now Forni will give you more details about our results and will be available to take your questions.

[José Ricardo Forni, executive]

Good day, everyone. Thank you, CEO Fausto, for this presentation talking about the strategy and the highlights of our first quarter 2022 performance. I'll get into the numbers. We start on Slide 14 with the highlights.

Adjusted net income posted an annual growth of 34.6% in Q1 2022, ending the period at BRL 6.6 billion. This result was supported by the strong growth of the loan portfolio, which totaled BRL 883 billion with good performance in all segments and nonperforming loans totally under control. The NPL over 90 at 1.89% below the average of the Brazilian financial system reflecting the quality of our loan portfolio. Net interest income and fee income recorded annual growth of 5.6% and 9.4%, respectively.

Administrative expenses remain under strict control with annual growth of 6% below the inflation rate for the period. This led us to a cost-to-income ratio of 34.7%, the lowest in our historical series. And in the quarter, our core capital index or our common equity Tier 1 grew 12.7%.

Moving on to the next slide, please. Here, we show our quarterly adjusted net income that totaled BRL 6.6 billion in Q1 '22, reaching to an ROE of 17.6%. With that, we're consistently closing even further the profitability gap when comparing to our peers and the profitability gap, since 2017, Banco do Brasil has been saying that we want to close the gap that we have with our private peers, and we have the ambition of doing even better than them. This is how motivated the bank's team is. We want to get even higher returns compared to our shareholders' equity.

On the following slide, you will see our loan portfolio. The expanded loan portfolio reached BRL 883 billion. In the end of Q1 '22, up 16.4% and compared to March last year and 1% quarter-on-quarter. The Individuals portfolio grew 14.9% compared to March '21 and it grew 1.2% quarter-on-quarter driven by the positive performance in payroll loans, salary, consumer finance and consumer finance in line with our strategy of origination in lines with better risk-adjusted return.

In SMEs, we observed a quarterly growth of 1% in loans for micro, small and medium-sized companies, while the loan portfolio for large corporates grew 4.5% with a highlight going to operations with private securities and guarantees. The balance of the agribusiness portfolio was BRL 254.6 billion growing 2.6% over the previous quarter.

On Slide 17, we present our credit quality. NPL over 90 days reached 1.89%, up 14 basis points in relation to December 2021, remaining below the Brazilian financial system. The number we present here on the slide compared to Brazilian financial system is the February figure because the March number has not been disclosed by the Brazilian Central Bank yet. As we can see in the slight increase in defaults was concentrated in the segment of individuals, as expected and in line with the origination mix. The coverage ratio ended the quarter at 297% with a slight consumption of our coverage index presented before. And new NPL was 0.76, and the coverage of the new NPL reached 75%.

On the next slide, we present the evolution of ALL in the expanded concept, which ended the quarter at BRL 2.8 billion, down 27% over Q4 '21. Here, I highlight that ALL evolved 36.5% when we compare Q1 '22 over Q1 '21. But the highlight goes to a strong result of recovery of write-offs. It evolved from 20.8%, reaching BRL 2.1 billion. The cost of credit ended the first quarter of 2022 at 2.6% with a relative stability.

Net interest income, NII on the next slide posted an annual growth of 5.6%, totaling BRL 15.3 billion, even with the impact of the rise in the Selic interest rate on funding expenses in this quarter. The expectation is that this margin will accelerate and converge to the guidance along the year. Quarter-on-quarter, the highlight was the rise of almost 9% in revenues from loans and 29% in the treasury result benefited by higher revenues from interest on securities, which more than offset the 30.5% growth in commercial funding expenses. Net interest margin, NIM, remained stable and ended the period at 3.5%.

Fee income totaled BRL 7.5 billion in the quarter, up 9.4% year-on-year, mainly influenced by the commercial performance of asset management, mission funds, consortia and loans. Administrative expenses grew 6% in the year, below the inflation rate for the period. And within the range of the corporate projections for 2022, reflecting our strong discipline in cost control. Our cost-to-income ratio in the last 12 months ended the period at 34.7%, the very best in our historical series.

On Slide 21, we bring or capital indicators with a common equity Tier 1 of 12.7%. As mentioned, there was the contribution of net income, the mark to market, prudential adjustments and also RWA adjustments.

On Slide 22, we present our corporate projections and guidance for 2022. The indicators that presented deviation for the year were net interest income, NII, which was still impacted by the increase in cost of funding due to the rise in Selic rate in the first quarter. However, we believe it should converge to the guidance range over the course of the year. The loan portfolio has been posting a strong performance in the yearly comparison with 19.6% growth of the portfolio as a whole. But the strong growth in all segments. In the second half of 2021 affected the comparability of the first quarter '21 over '22.

Fee income, which exceeded the range in the period had a performance largely justified by the performance of consortia, asset management and insurance lines in addition to a lower comparison base in Q1 '21. Corporate projections are maintained. There was no change in any of the guidance variables.

And I thank you all for your participation. We can now start the Q&A session.

[Janaína Storti, executive]

[Operator Instructions] First question by Gustavo Schroden with Bradesco.

[Gustavo Schroden, analyst]

Well, again, congrats on the results. My question is specifically regarding NII and for clients. We understand the dynamic. There's a mismatch between funding costs and the assets when there is a fast rise in the interest rates. We've been monitoring the bank for a long time. We understand that dynamic. But there was an expectation of improvement along Q4 and particularly in Q1 of this year. Although we understand that the result was very strong. Perhaps a question mark here would be related to client NII. What should we expect from now on? An improvement? And what will be the trigger for NII to increase this margin in the future?

[José Ricardo Forni, executive]

Thank you for the question, Gustavo. As regards to margin, we don't break it down by clients and customers. When we talk about spread, we look specifically at the margin and loan operations. And it is a little bit of what our peers present in terms of client NII. They involve the treasury results, which contributed significantly for us. But we are suffering all of these effect of a comparison with Q1 '21. Q1 '21 was a quarter that in terms of NII, it was one of the strongest last year because we had a very low funding cost because the interest rates rise hasn't begun yet. And if we remember the year of 2021, Q2 and Q3 were quarters where the margins for the NII was more pressured because the funding cost had an initial impact. And there was no repricing or greater repricing for the asset piece of the equation.

Now the repricing work is being done by Banco do Brasil. It started in Q3 -- in Q4, it accelerated in Q1 as well. And this first quarter of 2022 still sees part of the cycle of interest rate rise. So we are still in the process of following this interest rate increase. And of course, the repricing of the assets is faster -- it's actually slower. But since we're getting to the end of the cycle, we understand that in Q2 '22, this effect is going to be a lot reduced in the effect of the repricing of assets will be clearer. So we expect NFB evolution to increase above what it has increased in the yearly comparison.

And we also working to change the funding mix. And that is going to contribute to increased NII. So along the period, we'll see that convergence, and we believe that, that range of 11% to 15% will be attained, but -- in Q4, but along the quarters, we will get closer and closer to that range. I'd like to remind you that the base for the second quarter and third quarter, when we advance in this comparison, that will be a comparison base that was impacted by an increase in funding expenses last year.

[Fausto De Ribeiro, executive]

And while I would like to add to what Ricardo mentioned. Regarding a responsible growth of our portfolio. Well, first, we are growing a lot with non-payroll loans in that base that we call checking account holders and not cardholders. These clients is -- clients have a history with us. We know about their habits, their consumption, we have information about their income. We have all kinds of information to grow that portfolio consistently and selectively. That brings us more confidence in our models. In fact, I always hear in the market that Banco do Brasil has the most robust models for credit management. Because of the technical training and investments that we had over the years to manage risks.

In addition, we have a coverage index -- coverage ratio, which is higher than private banks that allows us to have kind of a buffer so that we can take on higher profitability businesses. There's always a risk return evaluation. We will only grow in business with a higher level of risk, if there is an adequate return.

[Daniel Maria, executive]

Okay. I would like to add a number that might help you model this and understand the dynamic when we look at NII. We have a balance sheet position that we built that drives the growth of NII. To give you an idea, we have about BRL 400 billion of our liabilities pegged to the remuneration of the savings. That accounts for about 52% of our funding. In this environment, we currently have the macroeconomic environment, knowing that remuneration is limited. It has a cap. Once the Selic rate reaches 8.5%, the growth of cost of our liabilities cost tends to be slower compared to the assets.

On the asset side, in addition to repricing of assets, as Forni mentioned, for the new operations, we have about BRL 300 million in our portfolio of private securities or government bonds and even CDCAs that are pegged to the Selic interest rate. So with that, we have an assets dynamic, which is different from the liabilities and repricing is faster. These components do help us have a more dynamic NII so much so that our NII grew threefold the size of the portfolio this quarter. That's a dip -- in Q1, that's a different trend than what we saw in prior quarters. So what we will see is the velocity of growth, which will increase, and that converges the NII to our guidance. We're very confident.

[Gustavo Schroden, analyst]

Okay. I know I should ask on just 1 question, but I'm going to have a follow-up question. This BRL 300 billion that you said in securities, I just want to confirm. This is remunerated based on CDI on Selic. I just want to understand, it is in treasury, right?

[Daniel Maria, executive]

Well, the way in which we allocate these things? Well, that's why it's always better to compare NII as a whole because we have credit revenue that is increasing. We have funding expenses, either institutional and retail, and the different lines in treasury and in treasury, we have hedging, we have the investment of liquidity, we have the portfolio of private securities, which is in treasury as well. And that's why you observed that amount in treasury.

[Janaína Storti, executive]

Now we move to our next question. I would like to call Jorg Friedemann from Citi.

[Jorg Friedemann, analyst]

It's been a pleasure and also a privilege to monitor the bank's results as an analyst and also witnessed throughout the past years, the recovery of the banks profitability and particularly in the past few months and quarters. So congratulations to all the members of the management team.

My question is related to the competitive environment. We are looking at all of the information of your annual loan portfolio and the cohort of 2021 seems that it behaved in a worse fashion when compared to the 2016 period in the midst of the crisis. So I would like you to please elaborate a bit more in terms of how comfortable you are in terms of continue to grow amongst the Individuals portfolio? And how do you see this competitive environment? Or whether you see some other players that are giving you more room to grow with more competitive margins. That would then offset all of the risks.

[José Ricardo Forni, executive]

I will start, and then Paula is also here, and I'm sure she can help us in terms of these cohorts. The competitive environment, I think, in general, the market as a whole. I mean we have the acquisition of clients in Banco do Brasil put a special effort to operate in this open sea. This is how we call it. Attracting clients and the gateway to attract clients that traditionally came just as an account holder. Today, maybe we can attract a client that just wants a credit card rather than an account. So we are already operating in this market. This is a market that we are very much aware that it entitles more risks. And we are doing that in a very responsible way.

Therefore, in terms of the competitive environment, we are attracting clients. And by the same token, we are growing our relationship model. We are also exploiting clients that are already account holders at Banco do Brasil but now are going into other areas like credit cards. We already have something very focused. The growth of this account holding client, these clients are more predictable. It's easier to relate to them because they already know all of our models. But now we are opening new avenues. We are fine-tuning our models in terms of these new fronts.

In terms of competition, we just reinstate our appetite and our commercial willingness and our risk appetite in terms of growing our portfolios into these new lines with better risk and returns. We are looking for more attractive returns, I mean, in search for more risk. The performance of the portfolio. I mean if you look at the portfolio as a whole, we -- our NPL is very comfortable. I think we have the best quality of the system. This profile refers to a portfolio that has been put together throughout many years. And it is being transformed as we add additional risk. We are closely monitoring all of the different cohorts. And what something that may evolve in an unpredictable way or that is being expedited in terms of what we expected, we are doing a very active credit management trying to put ourselves at adequate levels. And as President Fausto said, in line with the risk and return that we are pursuing.

In terms of the portfolio, there is nothing that could be -- could give us reason for concern, especially when you said that you compare to cohorts from 2016, the situation was totally different. What we have now is a different origination in some segments that have more risk, but we are managing that very firmly and now I would like to give the floor to Paula because I think she will be able to give you more details about that.

[Fausto De Ribeiro, executive]

But before her comment, I just have a brief remark. I was saying that we are known for having a very resilient loan portfolio in the market. Our NPL is much lower when compared to our peers in almost 1 percentage point or even more than that. This speaks about the quality of the portfolio and the origination process. But this really proves the quality of our credit models. But certainly, whenever you get into a new business model to non-account holders, this requires focus a lot of care, responsibility, and this is what we've been doing. The models are constantly reviewed in order to be more selective, to seek for more consistency and also be more adequate to the risk profile that we have in mind.

It is important to know that our provision levels at the bank are extremely adequate and our coverage ratio almost close to 300% gives us that additional cushion. We made more provisions in the last quarters, even higher than our peers. So today, we have that big cushion that allows us to grow consistently and in a responsible way.

Now if you look back at the beginning of that strategy, our NPL ratio was 175% and now it's 189%. I mean, the effect was very mild vis-a-vis what has been announced by our peers in the past few weeks. And so this puts us in a very comfortable position, and we can certainly say that the models and our strategy is very much in line. And with what we expect, we will continue to grow carefully so that we will keep on growing with a positive margin vis-a-vis the risk. So Paula?

[Ana Paula de Sousa, executive]

I would just like to add that our portfolio continues to consist mainly of account holders and pension fund holders. And this really helps us in this entire scheme of things when you look at all of the previous cohorts. In this past period, what have we been doing? I mean we've been constantly talking about changes in our mix. And because of these changes, we were able to post consistent results. In this last cohort just is a reflection of changes in the mix. Our portfolio is still very defensive. And this level is consistent with what we expect because it gives us expected results and returns. And that's why we are constantly monitoring this new cohort, as you said, because it's -- unlike the others, this one is already a reflection of that change in the mix within this context, where we are very careful because we wanted to keep growing amongst our current account holders and nonaccount holders. And with that, we feel comfortable enough to move forward working within this mix with very specific audiences and very selective audiences.

[Jorg Friedemann, analyst]

Great. If everything you're saying continues to give you that -- to put you in that comfort zone, all of the other lines are also very comfortable. Now this quarter's net income, if you annualize it, it's already indicating to something at the top of the guidance, would that be because you were being extra conservative?

[Fausto De Ribeiro, executive]

Well, I think I just answered your question a moment ago during our press conference. I think traditionally, if you look at other banks, the review of the guidance in the first quarter of the year is not the most adequate period of the year for that review because we still have to look at some economic and financial variables to be consolidated throughout the coming quarters so that we will indeed be able to review the guidance. That guidance review is something that we do on a frequent basis. We are very much alert about that. And as I was saying before, traditionally, in the Brazilian banking industry, the second half is often better than the first half, given household indebtedness with all of federal and municipal taxes, tuition of the children. So household income is more committed in the first half of the year when compared to the second half.

So the second half is often better. If you look at the results of all banks, this is true. Therefore, once all of the figures are further consolidated and projections are more in place, we will certainly review our guidance so as to have a more adequate performance.

[José Ricardo Forni, executive]

I would just like to add one more thing, Jorg. Our assessment right now is that we expect to reach the high end of the guidance, the top of the guidance. And we also have issues related to the economic environment, increase in delinquency figures, which has been expected by the market in general. This process is currently happening. Well, when we look at the end of the first quarter, with a certain degree of prudence. But going forward, we are optimistic. And certainly, in the second quarter, we will reassess that with probably more convictions in -- since we look at further results, if need be, we will make the necessary adjustments going forward.

[Janaína Storti, executive]

I will now move to the next question from Morgan Stanley.

[Jorge Kuri, analyst]

Congrats on the great numbers. I guess my question was going to be along the lines of the previous questions on the results of [indiscernible] guidance and I want to move the guidance early on in the year, and there's still a lot of uncertainty globally and politically -- but it does seem at least that some of the lines, particularly loan operations. I just simply -- would it be very difficult to see them within the guidance? It just seems that it's going to be [indiscernible] lower especially given your 300% coverage ratio. So I just wanted to see what is it that we're missing? And what are you seeing maybe on the mix shift, maybe on the growth of credit cards that you don't feel confident at this point in pointing towards much lower provisions versus your -- even your low end of the guidance.

[José Ricardo Forni, executive]

Sorry, the order was a bit tricky for us here, but I got that the question was about the guidance and the -- and let's say, the performance and what we are seeing ahead in terms of provisions, in terms of looking forward and the effect on the increase in the -- expected increase in the NPLs, for example, in credit cards, that you said, right?

[Jorge Kuri, analyst]

Yes. I mean, well, sorry, let me -- if you don't mind. So I get it that it's maybe early to change our guidance given at the first quarter, we still have a lot of global volatility, elections are coming. But the level of provisioning that you had in the first quarter versus the guidance is very low. And the coverage ratio that you mentioned at 300% gives you so much room that it's just difficult to understand why would you even be close to the low end of the guidance on the provisioning side. So the question is, what is it that you're seeing in terms of maybe you're going to push more on risk products, maybe you are seeing some deterioration that gives you pause not to be a bit more aggressive on the guidance on provisioning for the year?

[José Ricardo Forni, executive]

Okay. Okay. Understood. So I believe that one thing is to look at the provisions -- the net provisions for credit this quarter, I believe that we have a growth in terms of provision of 34% compared to the first quarter 2021. So this is -- this reflects our portfolio. It was a bit lower from our peers, but it was a growth, let's say, consistent. What was the main reason for this lower net credit risk on this quarter is we had a very good performance on recovery. And also the discounts applied to recovery was -- they were lower. So this performance in this quarter is quite a bit of a conjunction of this. And we still have some, say, the ending effects of the provisioning that we had in the pandemic. What we are looking forward is that in terms of the level of provisions the next quarters, it will grow because the portfolio is growing, because we are adding risk to the portfolio and the whole dynamic of the delinquency portfolios are, let's say, moving forward as well.

So that's why although we are very positive on the net results moving forward, we believe that the provisions will come up more likely what we had, let's say, before the pandemic. We are normalizing, moving forward this -- the provisions. And right now, I believe that we have a good -- the guidance for provision. We are anticipating that we are most likely to be in the middle of this range moving forward until the end of the year. But again, we are looking at credit risk, we have a very close look in terms of the modeling monitoring the delinquency of the portfolios in this, let's say, next quarter, we will have more information more , and we analyze performance and revise if it's necessary. But in this case, I believe that the guidance is quite properly set and we are anticipating at this moment that with the information we have now that will be most likely in the middle of the range.

[Daniel Maria, executive]

If I may add just one observation. We had -- we have -- still have higher coverage comparing to the system. And actually, we consuming part of this coverage. And certainly, this reduces a little bit the provisions that we made in this process. And this is completely consistent on what we said in the past that provisions, they tend to grow gradually the same way as NPLs. You see -- we do not foresee NPLs reaching the levels previously to the pandemic this year. We do not foresee the cost of risk being at the levels that we had previous to the pandemic. Then gradually, step by step, this will be built as it's necessary. Is it clear?

[Jorge Kuri, analyst]

Yes. That's pretty clear.

[Fausto De Ribeiro, executive]

Jorge, another point that I want to add on this is that we are very confident that we have the level of provision necessary to cover our portfolio. We are very confident on this one. Of course, if you compare the growth of provision of the other banks, you have to assume that they have more exposure than us in some line of credits. They are working very hard for so many years with people without current account, that they don't have historical of credit. Maybe this is the reason that they are provisioned a little bit more than us. Of course, that we did more than 30% of growth in terms of provision credit. And we are absolutely confident that we have enough provision for the level of risk that we have in our portfolio.

[Janaína Storti, executive]

Thank you, Jorge. Our next question comes from Marcelo Telles from Credit Suisse.

[Marcelo Telles, analyst]

Deterioration was very limited in the SMEs portfolio. And I would like to know if you have any room to accelerate growth during the year. And congratulations on the results.

[Ana Paula de Sousa, executive]

Thank you. In this context, when we did the work to broaden our action with small and medium-sized companies. One of the main points in our mind, and our CEO Fausto, has mentioned this over and over, is that we have a specific and very robust model. We look at this portfolio into the origination of this portfolio with care based on these models. A model that is knowledgeable about our clients, with their history so that we can have the best levels of risk for this target audience. And that led to a very qualified origination. And we had a number of instruments to follow, monitor and take the pulse of the several sectors where we had origination of loans.

So in a proactive way, we can monitor performance of these several segments. And if necessary, we can add more proactive way with our clients. That has given some peace of mind for us because we're close to them. We are monitoring. We're taking their pulse and taking the pulse of each one of the different industries and sectors. With that, we can anticipate situations that will be not what we expected in our projections, so that we can maintain quality. And if necessary, we can offer them a different credit facility. But this has been an important point, particularly when we had disbursements so that we can select our clients' response, hopefully, and we can follow them up close.

[Marcelo Telles, analyst]

Please go ahead, and then I can ask a follow-up question.

[Daniel Maria, executive]

Well, Telles, to what Paula mentioned, and she talked very well about credit management of that segment. But when we look comparatively, at origination, 1Q this year compared to last year, we have to remember that last year, there was a huge demand because of all those programs and we did not have those in Q1 '22. That distorts origination a little bit. But in terms of origination, I think we are normal. Yes. Yes, it's following our flow and our ambition in this portfolio.

[Marcelo Telles, analyst]

I would like just to have a follow-up question. We know that Pronampe loans are linked to the Selic interest rate. And I would like to understand if you have any concern about the rise in the Selic rate? Could this impact, in any way, the quality of the portfolio?

[Fausto De Ribeiro, executive]

Well, let me try to explain this and speak a little about it. We have 2 sets of loans in the Pronampe program, one that has an extensive coverage of 80%. That was the first cohort. And the second with 20% of first [indiscernible]. Both protections given to the portfolios in our perception are more than enough to cover a possible risk of delinquency. We are very far from it. And the good news is that SMEs are paying. They are paying for their credit, their NPL level compared to these 2 cohorts of funding that were granted. Well, the delinquency rate and the NPL rate is very low, which leads us to believe that they are interested in having their loans paid on time so that they can enjoy future -- possible future loans. So that gives us a little extra comfort so that by maintaining the situation, keep the delinquency level low. The 2 types of guarantees in these programs in our perception, are more than enough, they are far from being reached at this point. So we have a lot of peace of mind.

[Ana Paula de Sousa, executive]

And to go back to your question about the Selic interest rate and this audience then was getting loans with prefixed interest rate. I believe this is your concern when we are talking about the Selic rate. But looking at the credit facilities that they had available with prefixed interest rates, and now with a post fixed Selic rate, it's even more attractive compared to those credit facilities that they were used to having the rates of the programs, although indexed to Selic rate, are more attractive.

[José Ricardo Forni, executive]

And we are confident in the origination, which was very qualified as the starting point when we dispersed funds for these credit facilities. We did a lot of origination work. It was -- origination was fast and qualified. That reflects in a number, this is a public number compared to other agents. I think that we have a good performance. We have the lowest NPL in the market. So the lowest NPL in the market is Banco do Brasil.

[Janaína Storti, executive]

Thank you, Telles. I'll move to the next question. I would like to invite Henrique Navarro with Santander.

[Henrique Navarro, analyst]

Congrats on the results. My question has to do with NPL. I'd like to elaborate on 3 aspects. First, the behavior of short-term NPL over 15 days. In the results of other banks, that was kind of scary for the market. So I'd like to know this performance of short-term delinquency, if it could be an indicator of what to expect looking forward. And also delinquency for NPL and credit cards have increased a lot, like 2,000%. We want to understand what is seasonality and what is a concern and delinquency of CDC salary customer finance. So these 3 points.

[Fausto De Ribeiro, executive]

Before I turn the floor to Paula Teixeira, our Risk and Controls Vice President, she definitely has a lot more exact information for you. Let me just remember something about something I said a minute ago. Most of our portfolio is composed of account holders. These account holders have a history of their credit. We have a history of the behavior over a long period of time. We have analytics, we have intelligence, and we strongly invested in that to identify preferences, habits. In other words, we are aligning a strategy for credit, trying to understand clients' behavior. So perhaps unlike the private initiative, I don't want to mention any names of banks where they perhaps prepared earlier than Banco do Brasil to act in the open sea, which is a more risky market.

Perhaps the impact you're observing now in the delinquency rates of some private peers, perhaps it is the result of a more aggressive strategy that they adopted in the past of operating with these clients without having a long credit history. But we are getting into this now. And we already have this lesson learned from them. So we expect to be more successful because our models are being calibrated online, and we are doing and learning. But it's -- mostly our portfolio, unlike private bank peers, consists of our own account holders and for whom we have history. And she can mentioned the NPL of 15 days.

[Ana Paula de Sousa, executive]

Want to be very direct, when we look at short-term delinquency or NPL, we understand that it is very volatile. It has a little correlation with NPL over 200 days. When we're discussing credit risk, Ricardo Forni mentioned this, it is an important element in this management is recovery of write-offs, which is very high. So we are very successful in that regard. By following and monitoring our short-term NPL, we can take actions. We can take a number of measures for this NPL not to stretch over 90 days. And that's where we are being very successful. We are having recovery of write-off rates that are very robust quarter after quarter.

What I can tell you is that short-term NPL does not have a very direct correlation or has a low correlation with NPL over 90 days. And we have acted on it. Like I said, by monitoring, following up and that's when we start working on the recovery of write-offs. We start collecting from them, we start our collection work.

There was a question about the credit card. Okay. Looking at that, we mentioned that we are working with a more profitable mix. In that regard, it's all as expected. We have been looking at this. We've been monitoring. And like we said before, credit cards, we are talking about a much higher volume of account holders. Our card -- only cardholders, they come for the minority. They are not representative. And as we identify some kind of change in the expected profile considering how prudent we are in our credit granting and again, always seeking to maintain our profitability vis-a-vis the risk. We make adjustments. We fine-tune the portfolio of the portfolio as a whole and its origination. So I understand that what we are seeing is in keeping with what we expected in terms of having a higher profitability for the portfolio.

[José Ricardo Forni, executive]

The credit card portfolio is when we are following up close, and we are already taking actions that do not limit our appetite or our commercial ambition but they qualifying the selectivity of credit granting.

[Ana Paula de Sousa, executive]

Yes. Perfect. So like I said, if there's an outlier considering what we expected, we start acting.

[Fausto De Ribeiro, executive]

And I would like to mention that we have our Vice President of Wholesale. He has just arrived Mr. Pecego. He will also be available to answer questions related to corporates, SMEs and anything you might apply.

[Henrique Navarro, analyst]

And also regarding salary consumer finance, I thought that the NPL was a little higher than expected considering that it is a conservative loan.

[Ana Paula de Sousa, executive]

Again, considering a composite of loans. We follow by cohort. We're talking about a moment where we expected a gradual increase of delinquency in some lines. Like you said, salary, consumer finance, as you said it yourself, is low risk for us. And just like we are taking actions for credit cards. If there is an outlier, something out of the ordinary, also for consumer finance, we have some actions to take. And we believe that the progress of this portfolio will continue to be in keeping with what we expect because of these additional measures and actions that we are taking.

[Janaína Storti, executive]

[Operator Instructions] Next question from Tiago Binsfeld from Goldman Sachs.

[Tiago Binsfeld, analyst]

My question is about profitability and 80% ROE. And you said during the presentation that you wanted to continue to increase profitability. What kind of return level you're pursuing, looking forward? And how do you intend to reach this higher profitability, whether it is through higher leverage, increased revenues, et cetera? If you can please help me understand what are the major opportunities that you see along the road, I would appreciate it.

[Fausto De Ribeiro, executive]

Well, thank you, Tiago, for your question. The results came mostly driven by some of the factors that Ricardo mentioned during his presentation. Well, the increase of the portfolio, better mix, better product mix of all the products [ sold ], NPL under control and also at a much lower level. As I said before, the difference between our NPL vis-a-vis the market is more than 10 basis points and also due to the control of admin expenses, which still remain well balanced. Well, certainly, we want to go further.

Banco do Brasil up until 2009 and 2010, posted stronger results vis-a-vis the rest of the Brazilian financial industry. And so after some of the measures that were taken throughout the period, like the sale of part of our social security asset and other divestments or prepayment of credit card revenues. So one way or another, we -- we're no longer accounting for all of these repairing revenues. And because of that, we were below our peers. So what we want now is to lead the market in terms of profitability.

Due to our technical expertise, the significant engagement that we have at Banco do Brasil today. I mean it's amazing if you walk into any of the bank's branches and you talk to the employees, they would tell you that there is a very strong engagement. And this allow us to say that we can count on them to increase performance further. We will also look at the delinquency indexes and maybe we will use up a little bit more of our coverage ratio, but in a very balanced way and also maximizing our results. I'm not going to tell you that I want to reach 20 or 30. What I'm saying is that we want to make better use of our mixed strategy and also being very diligent and responsible operating in more selective profiles and all of that to help us resume our outstanding position, the one we had for many years.

[José Ricardo Forni, executive]

I would just like to add one more thing. The fact that we got very close to the profitability of our private peers, this did not stem from any changes in strategy but we just pursued a very constant strategy. What we started years ago with those 10 major strategic points, gives us some compass and the guidance is there. We are pursuing our guidance. We are looking at the top end of the guidance. And with more information, we will probably say that we can go further than that. I mean this realization in terms of profitability, it doesn't mean that we are going to change our strategy. That is probably reinstate the fact that we are very consistent in terms of our strategy. And certainly, looking towards 2023, we will carry that ambition along with us.

Now once we get close to the top, we want to go beyond that. We will still continue to be #1 in agri. There is nothing new in terms of leverage that will allow us to increase profitability. We will just pursue our strategy with a firm focus on its execution. This is what we are delivering. It is with this kind of optimism that we look forward.

[Janaína Storti, executive]

Our next question comes from Ricardo Buchpiguel from BTG.

[Ricardo Buchpiguel, analyst]

Congratulations on your results. I just have a follow-up question in terms of NII. I would like to understand what level makes sense to you? You said that this is a line that follows Selic indexed assets. So this should probably follow along the lines of the first quarter. And there is also the issue of the cap. I mean as for deposits, savings deposits and now in the second quarter, maybe all of these funding lines wouldn't have that same increment despite the increase in the Selic rate. So would it make sense for funding yields for both escrow deposits and savings deposits to remain stable in the second quarter going forward despite the Selic increase?

[José Ricardo Forni, executive]

Well, I'll start, maybe Daniel can add to my comment. The effect that we see in terms of funding, I think since the end of last year when Selic went beyond 8.5%, it's been already contributing in that way. And with this latest increase, this will also pay an additional contribution. But after all, this is just an important piece in that whole scheme of margin improvement. But once we change or we enhance the funding mix, this will also lead to NII improvements.

[Fausto De Ribeiro, executive]

Well, I have another comment during our administration, we started to renegotiate with the main courts in terms of the prices in the escrow deposits. And we already had several meetings. The idea is that we want to keep it at a level that allows us to generate good businesses with adequate financial margins. I don't know exactly what courts that we talked to, but we made several rearrangements. So the price that was used in the past was adjusted to this new reality, especially to this specific audience, which are the courts. And this is lowering our funding costs because of this process, and we will continue to do that in the future.

Tonight and tomorrow, there will be a meeting of the Association of Magistrates and Banco do Brasil is sponsoring that gathering. And then tomorrow, I'll have lunch with the heads of the courts. And the conversation will be about having adequate pricing to generate profitability for all parties involved. We want to emphasize the credibility that we give to that process. We are very fit to work with escrow deposits and to render information to the courts unlike other organizations that are new to this segment.

[José Ricardo Forni, executive]

I mean, this is a very specific example of what I say is our diligence in terms of funding costs. In general, we are evaluating the cost of funding, et cetera. And this is an example of our confidence in this work because we are being very diligent in all markets, in all customer segments.

[Ricardo Buchpiguel, analyst]

In terms of treasury, does it make sense to have a positive effect coming from Selic after the next quarter?

[José Ricardo Forni, executive]

Yes, in fact, the treasury result will continue to increase due to this Selic effect vis-a-vis everything we talked about. But again, this comes combined with our funding mix. So our expectation for the coming quarters is that it will grow. But maybe by year-end, we will reach the 11% guidance.

[Daniel Maria, executive]

Well, certainly, the treasury result, I mean, it's very difficult to give you a number, but it tends to be around that range or maybe slightly above, but this is pretty much in line with the scenario that we just mentioned to you.

[Fausto De Ribeiro, executive]

I have to just say goodbye to you because I have another commitment, but I would just start with some final remarks, but my other colleagues will remain here with you. My final remark is that our best virtue is the engagement of our team, of our technical team. I often say that we have the best employees in the market. I mean the last -- in the last time we opened up a public contents for new employees, we had a lot of applicants and 2,240 people were selected to work for the bank. Our selection process to select candidates. It's very robust. So applicants we still have to train with the bank for 90 days. So this is an additional feature. So that at the end, we will have the best-in-class.

In addition, the bank invest millions in training, NBAs and it provides technical information and technical training because what we want is to have very well prepared headcount. Our staff is currently very much engaged. I don't know whether it's a result of the management that comes from somebody from within -- from the bank. So we know exactly where adjustments have to be made. But also due to all of the strategic pillars that we selected and that I'm referring back to that initial plan that we initiated when we came on board. And the results are clear. Things are working out. We have good expectations for solid and consistent results.

If you look at Banco do Brasil's history in terms of results, we've been posting sustainable results, the quality of our portfolio. Unlike other private banks, our portfolio is more defensive. And that's why NPL ratios are below those of the market, even though our coverage ratio is still higher. And we been very conservative in terms of provisions. We were able to reduce the gap vis-a-vis our peers. It's important that we say that. We recovered the lost profitability in view of what we said before. And now we have further ambitions and the results as a whole shows that we are on the right track. All of the structuring activities gave us a very strong focus.

And that's it, I hope that you continue to believe in the bank, our technical team is very strong. Our governance structure is very tough. And even though we are not linked to Sarbanes–Oxley, we operate similarly to those companies that are under SOX. That's why our governance process is very rigorous. The company is a role model to other organizations. Especially in regards to open finance, we take the leadership. The bank is a leader in many other lines. And this is not taking for granted. This is the result of all of the investments that we make in perfecting the quality of our staff. So please believe in our company and rest assured that our provision level is very much in line with the level of risk we have in the portfolio. And we will continue to grow in a very mature and responsible way. Thank you all very much.

[Janaína Storti, executive]

Thank you, Fausto. I will continue with the questions now. The next question by Carlos Lopez with HSBC. Carlos?

[Carlos Gomez-Lopez, analyst]

I would like to ask about the legal risk. If you could comment on what you expect for this year and the next, the legal risk.

[José Ricardo Forni, executive]

The expectation for legal risk. I can start answering. I think that the legal risk of this quarter was within our expectations, perhaps a little under what we saw in previous quarters, but we are at [ 1.6, 1.7 ] every quarter. So our expectation is maintained.

[Ana Paula de Sousa, executive]

Well, it is natural to have some kind of oscillation from 1 quarter to the next. Normally, Q1 is a quarter with a more differentiated dynamic, particularly when we consider the legal environment, but what we see in terms of results. The results that we're starting to reap now is a change from the standpoint of the management of the legal risk as a whole. And in some situations, we want to reduce the expenses that we have in that regard. But looking at everything that we defined in our guidance, we understand that our guidance is very well set. Thank you.

[Janaína Storti, executive]

Thank you, Carlos. Our next question comes from Yuri Fernandes with JPMorgan.

[Yuri Fernandes, analyst]

Congratulations on the results. I have a follow-up question for credit cards. Navarro asked, and it's clear to me that the bank has a good mix, coverage is very high, our taking measured risk. And I think this has to do with the strategy to improve spread in coming to retain clients is well understood. But I'd like to one more about delinquency in NPL. You mentioned that 94% all of your clients have a relationship with the bank for more than 5 years. And the NPL for credit card is quite high. So could you give us some color or the explanation for that. Again, I'm not worried about the bank if you we're well provisioned, the product is small compared to the whole portfolio, do you see any specific segment? Did you perhaps grow outside that account holder client base? Do you think that this NPL will increase? Or has it achieved the credit cards specifically. I just want to understand how you see the worsening in NPL, because the bank is growing a lot, grew 50% in the product and the NPL balances probably growing 150% year-over-year. So I'd love to understand the dynamic behind delinquencies. And again, congratulations.

[José Ricardo Forni, executive]

I'll start, and then Paula will add. I believe that credit card growth is robust. It's mostly coming from our account holders, like I mentioned. So we are offering more cards to our clients. We are stimulating spending and that increases the loan portfolio linked to that. And as CEO Fausto mentioned, we started later to play this game and have a strategy to operate in the open sea. And we already have origination in that way. Non-account holders as clients and we also have some partnerships with retailers. And these partnerships are also attracting clients. And it is this new flow that has a different profile. We knew about that beforehand, and we are acting on it. So the explanation for that rise -- for this marked rise in NPL comes from this group of people.

It'll have a different profile and hope to post much higher NPL compared to our traditional account holders. And like I said before, we are monitoring this portfolio up close so that we can start making changes not in terms of appetite and not in terms of commercial ambition, it's so that we can make changes in terms of selectivity of the portfolio and approval of clients and to find to fine tune limits to clients' ability to pay. Our expectation is that we will be able to continue to expand the portfolio adding risk but with greater control over NPL of this new profile of clients, which were recently added to the portfolio, and we are adding measures to our model to make it demonstrative and more aligned with the profile of the portfolio.

[Daniel Maria, executive]

And if I may make a comment, we expected even more NPL in this portfolio. It came a little faster. And as what Forni mentioned, we make adjustments because this delinquency came faster. We have to divide the portfolio into some subsegments in the traditional account holder portfolio. We didn't see great variations there. And we have other entry doors for non-account holders. It's what we call the open sea. For some, we are promoting the necessary adjustments, and we can see that in the dynamic of credit cards when you look at this in the quarter. Normally, Q1 tends to be a little weaker, but we see slightly different growth because of that. By making adjustments, we are confident as Forni mentioned. Nothing changes our risk appetite, and I turn the floor to Paula.

[Ana Paula de Sousa, executive]

Okay. Just to build on what you said, if this is a trend. No, it's just not a trend. It's not a trend expected by us. What we expected was to have a higher NPL level in new lines of loans, as Daniel mentioned. It came a little faster than expected. And that's why we started acting and adopting measures that include looking at this target audience, select it, qualify it and take into account the dominating 3 channels that Daniel mentioned.

Now with that, the metrics adopted based on the monitoring we had, for that context, the trend changes. And this is the expectation we have in this new segment, which would be non-account holders with a credit card of Banco do Brasil. We want to have an NPL, which is more compatible with what was expected in the expected return for these credit card lines.

[Yuri Fernandes, analyst]

That's perfect. And that's all I wanted to understand this dynamic of account holders. The product is so complex and there are so many variables that I needed more. And I just wanted to understand the open sea strategy, and that's very clear.

[Janaína Storti, executive]

Thank you. Our next question comes from Natalia Corfield with JPMorgan.

[Natalia De Melo Corfield, analyst]

So changing gears, I would love a little bit fixed income and premium bonds. One topic that is a hot topic now, the [ APIs ]. There has been a lot of debates in terms of where the bonds are trading now and resets. Of course, we expect call of 9.25. But regarding 6.25, I would like to know how do you see that? I know that the call is not now. It is in 2024, but just to have an idea of what you're thinking.

[José Ricardo Forni, executive]

Okay. I think that this is an interesting topic. We've been following this discussion and the development of this market dynamic and how other players are reacting to that. In our assessment, we believe that in the issuance, there was an expectation of the issuer and of the investors that we would exercise the call in that period. We continue to work with this assumption. We're assessing the market and against that, whatever is done should not be a surprise to anyone. It is in that spirit that we are evaluating and monitoring this discussion.

Like you said, we still have some time. We are following the whole situation up close and we're getting to ready. And we are working on this portfolio of issuances that we have adapting it to our need for capital, which is lower. Although we do have some maturities in 2023, 2024, which are representatives. So we are monitoring that up close. But I think that the key word here is predictability. We will be monitoring this. We will be communicating this. And our expectation is the same that the market of investors had. We maintain our expectation and let's monitor the situation.

[Daniel Maria, executive]

And if I may add something, Natalia. The best way -- as you said it yourself, these are events maturing 2023, 2024. So perhaps the best way of showing how the bank thinks is looking to the past. In all issuances we always had a tradition of innovative and come to market before and always respecting our investors. So in this scenario, I don't expect anything different from us. And this is what is in our agenda and in our daily discussions when we look at the funding structure of the bank.

[Janaína Storti, executive]

Thank you, Natalia. We are ending our Q&A session at this point. I would like to thank all of you for attending, for participating. And to end, I'd like to turn the floor to Forni for final comments.

[José Ricardo Forni, executive]

Thank you very much to all of you who accepted our invitation to participate in this call. I think our CEO Fausto gave a good summary of what we delivered in our expectations. If I were to summarize, I believe that we delivered an absolutely consistent result, reflecting the quality of our assets. I think it is a little different than our competitors. And the difference is the quality of our assets. This is a very important value for our delivery. This management is committed to the strategy that we have been communicating and reinforcing. This is what brought us this far. And this is what is going to help deliver the results that we aim to deliver for 2022.

We'll have this ambition of continuing to improve our profitability as we look at the future. It is the pleasant realization that we were able to get where the bank has been trying to get since 2017. In other words, closing the gap of profitability compared to our peers. And we're getting here. And now we feel capable of having an even greater ambition. It is with this purpose that the whole team is working.

So I would like to thank all of you. And I'd like to underscore that we expect that these clear consistent results will reflect in more appetite by our investors for an asset that is probably going to deliver the very best results compared to our peers. And this is my take-home message for you, and thank you very much for attending.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]