Banco do Brasil SA

BOVESPA:BBAS3

Earnings Call Analysis

Banco do Brasil Strong Performance in 9M'23

In the first nine months of 2023, Banco do Brasil saw its adjusted net income grow to BRL 26.1 billion, marking a 14% increase from the same period the previous year, with an impressive return on equity (ROE) of 21%. The loan portfolio expanded by 10% over 12 months, featuring an intensified focus on sustainable agriculture, which now represents 45% of the agribusiness portfolio. Provisions for loan losses reached BRL 7.5 billion for the third quarter, underscoring the bank's prudent risk management.

Strategies for a Sustainable Future

Banco do Brasil presents a story of continuously seeking to enhance customer engagement and financial performance while being a protagonist in sustainability. Their strategic drivers include diversifying earnings sources, mitigating risks, improving operational efficiency, and pursuing profitable ecosystems while focusing on four main perspectives: customer experience, financial reach, environmental and social governance, and digital transformation. These strategies are embedded within their longing to become a more inclusive and technologically agile institution, achieving sustainable results well into the future.

Forthcoming Financial Guidance Event

Looking forward to 2024, the bank plans to conduct an in-depth discussion on their strategies and outcomes during the Banco do Brasil Day in February, after releasing their earnings report for all to review. This event aims to provide investors and stakeholders with a clear understanding of how the bank will achieve its targets set for 2024 and beyond.

Expanding Loan Portfolio

The loan portfolio saw consistent growth with an increase of 2% in the quarter and 10% over 12 months, surpassing BRL 1 trillion. Remarkably, a third of this portfolio aligns with sustainable practices, indicating the bank's commitment to ESG principles. Individual portfolios, especially those related to payroll deductible loans, and the SME segment, along with the Agribusiness portfolio, demonstrated significant annual growth. Furthermore, disbursements worth nearly BRL 16 billion with segments are scheduled for the upcoming year.

Credit Risk and NPL Performance

Despite facing provisioning impacts from specific large corporate segments, the Allowance for Loan and Lease Losses (ALLL) expanded to BRL 7.5 billion for the third quarter. The non-performing loan (NPL) ratio remained below the industry's average, with notable improvements in individual loan portfolio quality, indicating a strong risk profile management.

Guidance on Future Performance

The bank’s guidance for the coming period predicts loan portfolio growth to lean toward the lower end of their projections due to performance in the agribusiness and SME sectors. Net Interest Income (NII) is anticipated to close between the average and top of the guidance. Provisions expenses are expected to trend higher, while fee income and administrative expenses should align with previous guidance. Consequently, the bank is positioned to record profits estimated to be close to the average of BRL 33 to 37 billion by year-end.

Earnings Call Transcript 2023-Q3

[Janaína Storti, executive]

Welcome to Banco do Brasil's Public Meeting and Earnings Release Conference. As usual, our event will be in Portuguese with simultaneous translation into English. To choose the language click the button on the right corner of the home page to select the language of your choice.Here with us, we have our CFO Geovanne Tobias; the Vice President of Internal Controls and Risk Management, Felipe Prince; and the Director of Strategy and Organization, Thiago Borsari. We would like to remind analysts that they will only be able to ask questions through the webcast link.I'll turn the floor over to Geovanne to begin our presentation.

[Marco Geovanne da Silva, executive]

Thank you, Janaina. Good morning, everyone. It's a pleasure to welcome you to our third quarter 2023 earnings live stream. I don't know if everyone knows, but Tarciana our CEO, is not here, unfortunately, because she underwent a surgical procedure earlier this week, and she is following the recovery period recommended by the doctors. She's doing well, and she'll be back in a few days. Meanwhile, Felipe Prince, our Chief Risk Officer, is acting as Interim President of BB.Our conference call will be a little bit different from our usual calls because now we are also registering our public meeting with analysts and investors. We also have the participation here with us of Ms. Lucy Sousa, the President of APIMEC, a long-time partner in our public meetings. This is the 30th public meeting held by Banco do Brasil with the market and investors. So for 30 years, every year, we hold this meeting. So we are here to talk more about our robust delivery of results, reflecting the dedication and professionalism of Banco do Brasil's employees.From day 1, this administration has sought to execute a proposal to build sustainable results. In this sense, when we look at the first 9 months of 2023, it is clear how much our commitment to consistent results and growing results is already present in the figures we're going to discuss. We are on track to deliver the highest annual net income in Banco do Brasil's history. At the same time, we are acting as inducers of sustainable practices, and we continue to lead the movement of digital transformation and technology innovation in the financial industry, always with the aim of delivering a personalized Banco do Brasil experience to each one of our customers.Finally, I would also like to just mention that in September of this year, we concluded the periodic cycle to review our corporate strategy for the period from 2024 to 2028. Through this, we reinforce our purpose of being close and relevant in people's lives at all times and our commitment to generating value for all our stakeholders.To talk a little bit more about this topic, we also invited our Director of Strategy and Organization, Thiago Borsari. But before I turn the floor over to him, I'd like to call on a video where Tarcy left a message to you. She'll talk a little bit about our values that have been improved in the review side of our corporate strategy. So let's watch.

[Tarciana Medeiros, executive]

Looking towards the future and thinking what bank we want to be? How do we want to act and position in the market? What's our assets? To contribute to the development of our country, to be close and relevant in people's lives at all times and delivering sustainable results to our shareholders are big challenges. And big challenges require transformation. So in this transformation journey, what guides us are our values. They are what determine our behaviors. They define our identity and make us unique, the Bank of Brazil.And this is built with proximity. We are present, proactive, and empathetic to delight people. We want to be next -- close to our relationship stakeholders supporting their choices and helping them realize their dreams. Our complete portfolio and the search to offer people the best experience are a reflection of our potential to innovate. We innovate to simplify solutions and make people's lives easier. We combine our tradition of more than 200 years with results that go through generations, true scope and constant innovation in all fronts, and that's how we generate value to our clients and society.Growing and sustainable results, the outstanding position in the market and the soundness of our company are acquired with efficiency. We use the resources available to create value to our relationship public and investment in digital solutions to build a safer, more efficient company that is accessible to all. Banco do Brasil's activity is marked by integrity. We've worked based on respect, trust, ethics, and transparence. We are committed to do what's right, always. We take care of the quality of our relationships and are aware of our responsibility towards people. We contribute to the development of our country because we are committed to society.We consider collective interests when making our decisions. We remain a reference in sustainable practices and businesses working very strongly in the social transformation of our country. The greatest Banco do Brasil and the Galaxy is made of diversity. We promote diversity, equity and inclusion to build sustainable relationships and results. We believe in a fair and equal world. Our efforts are based in the creation of plural representative and engaged teams. Our strength resides in the people working together to have one Banco do Brasil for each employee and each customer. That's our way of being BB,

[Marco Geovanne da Silva, executive]

So this is our way of being Banco do Brasil, right, Thiago? Thiago, I'd like to invite you now to talk a little bit about this process to develop a strategy for 2024 to 2028.

[Thiago Borsari, executive]

Great. Good morning, everyone. First, it's a pleasure to be here with you today. Such an important day disclosing and releasing our earnings. And as Geovanne said, in Tarciana's video, we're also in a special moment because we have just reviewed our corporate strategy . What we call CBB is what we lay out as a trajectory for the next 5 years. We've been doing this in a robust participating process. And every year, we take the step to look at the trajectory because the market changes, we need to do specific adjustments, but it is a robust strategy that guarantees the sustainability of our company to be able to achieve increasingly sustainable results.So I'd like to share with you today 2 images that really represent this process. Banco do Brasil, as I said, has been following an increasingly integrated process with the participation of more people and we had this exercise now with 7,000 people participating, colleagues in the front line branches, partners, specialists, debate panels to build what we're going to show you of our ambition and where we want to be in the coming years, starting in 2024. In the process, we consider different pillars. The traditional pillars that we put together collaboratively, our strong SWAT matrix where we look at our weaknesses and strengths and opportunities where we can get in the future where we can drive our leverage more considering the movement that the financial market is going through.We also prioritized megatrends when we look at the future and see what's already impacting our business, what we need to leverage and each perspective that I'll talk in a minute. Another important point is looking at the macroeconomic scenario with our macroeconomy department. We look at what is challenging us in the market. Then we do this fully considering the added value to shareholders, what we need to have as an ambition in our company, also looking at the performance of our peers, the new entrants in the transforming market, also considering the markets where Banco do Brasil acts, each customer segment, how we're going to work and considering the impact of that on society and public policies in each of our stakeholders.So as I said, it's a robust process that we go through with research and market trends. We also hold lives using technology to be able to reach all of our employees in Brazil and around the world to be able to actively hear what we need to adjust in our strategy to generate better results. We have discussions and technical analysis of specific topics with experts and that are reviewed by market experts.Finally, the approval of our CBB's corporate strategy, and a very robust process. We go through the Board and the executive directors. We have a hands-on meeting to design the strategy. We go through all of the advisory committees in the Board and the Board itself approves it, considering the view of the different shareholders so that we can put this forward from 1 year to the next. And then on day -- on the 1st or 2nd of January, each unit of Banco do Brasil, each branch, each colleague knows the challenge that will unfold from the strategy for the coming year.And then on the next slide, I wanted to show you because we have one slide showing or summarizing our corporate strategy from '24 to '28. So it includes our long-term components. That's our purpose of being close and relevant in people's lives at all times, and we follow this very strongly in our purpose. We have our values very well explained in Tarciana's videos with our colleagues from the branches expressing and explaining our 6 values and how to be Banco do Brasil in everything we do. We have a very careful eye to each one of these values.And here in blue is what we revisited, which guides our decision-making and our actions. So when I said that we unfold this for each unit, for each employee, these objectives and drivers are what we look at. We break it down into 5 perspectives. That's our BSE, how we break it down and each perspective feeds back into the other. And I'd like to point each one. First, it's customers: Our goal is to provide the best customer experience at all times. And with 4 drivers.The first is what we call engagement so that our customers have Banco do Brasil as their main bank, our channel, our operation, our products, to be relevant in their lives in every financial and nonfinancial thing. The second point is integrated solutions. We know that each type of products, financial or nonfinancial products, we need to be part of the customer journey. So we will invest heavily in our platform moving towards the third item that's the omnichannel platform, so very robust investments for us to be able to personalize or customize the customer journey so that we can customize the offer to the clients so that they can begin or conclude their journey either in the physical or the digital environment and will follow the client's behavior, making our service channels stronger as well as new customer generation.We have a robust customer base, and it is being engaged, but we need to expand this basis. We have new generations coming in, new product portfolios so that we can have a customer base that is higher -- bigger working with Banco do Brasil.On the financial perspective, the first highlight is our objective of creating value and generating sustainable results. That's the ground or the basis for our earnings. And we have some drivers. The first one being the diversification of results. That's a constant challenge where we look at our portfolio, look at the challenging markets, and we do need to diversify the source of earnings. Risk mitigation is always very strong in Banco do Brasil's activities, the portfolio mix and how to protect our portfolio for sustainable growth.Operational efficiency. We do know that a bank that is undergoing transformation and the trends that I mentioned, using data analytics, AI, that I'll talk about in a minute. We have the opportunity to do better and faster, delivering more value to the customer.Profitability. Again, new business models, working in ecosystems, financial products, nonfinancial products, new sources of income is a very strong action for Banco do Brasil and working in value chains. Banco do Brasil is present around the whole country and the world. We work on the wholesale banking business, agribusiness, retail banking, and how these markets complement in the value chain for our clients.The next point of perspective that I'd like to highlight that was very strong in our corporate strategy is ESG with the objective of being a protagonist and sustainability and in the promotion of business and ESG practices. I highlight practices because we have the ability to deliver very fast, a lot of ESG practices with some drivers. The first being sustainable credits, I think we've already mentioned this as a long-term ambition to have a healthy, sustainable portfolio for the country and the world. Decarbonization also is closely related to the previous driver, looking at greenhouse gas emissions in all of our finance portfolio.And the third, diversity, equity, and inclusion, where we have also our human resources policies, but we have suppliers, shareholders, clients, we want to be the inclusive brand in the world, brand in Brazil to be able to generate the inclusion movement that is so needed in society.The fourth perspective, digital transformation and processes, very strong investments in changing the way we work to accelerate delivery, to have agile delivery in the first waves of technology integrated businesses and deliver autonomy and value to the client, and we have some drivers here that include analytical intelligence. So with this huge amount of data interest and digital transformation increasing, we have the ability to know our customers better and use data to the benefit of our clients so that we can have these offers and deliveries.Digital maturities. So we're going to continue looking at each one of our products in the app, for example, Bando do Brasil's app today is a reference in the market. And we put it more and more as a market -- as a reference by looking at the entire customer journey that it can be digital, but it's also integrated to whatever channel they choose. It can be physical at a branch or ATM or through our app.Efficiency in processes. We have the implementation of automation, the robotization of our processes, the speed and improvement of the processes and journeys to deliver value to customers. And the final point is the agile operating model. As I mentioned, we started with the first lines of agile operation, and we'll learn a lot with them to be able to turn the key and have Banco do Brasil working more and more integrated so that we break down silos and work to the benefit of the client.The final perspective is people and culture. We have the objective of having people engaged with BB's values and promoting collaboration risk factor and inclusion. That's why it's so important to always stress our long-term component with our values, the way of being Banco do Brasil, where we have the drivers of leadership. We have incredible leaders that deliver these values to all of our customers, and we'll continue to invest in training and action.Engagement. So having an engaged staff makes a difference. We look at the customer, we look at the employee experience, bringing the third driver here that we do need to have our employees promoting the brand, and we are proud to say that the pride of belonging to Banco do Brasil's brand is a strong factor of our culture, and we'll make this even stronger.And finally, psychological safety. If we want to have a favorable environment for discussion; autonomy, innovation, we will invest more and more in order to have inclusive discussion environments where people can speak up freely, build things together in collaboration as we did our corporate strategy.So this is a summary of what we have as the drivers for Banco do Brasil for us to continue on track to deliver sustainable results from here on; '24, '25, '26 and 200 years into the future. So it's a pleasure to be here.With you, I turn back to Geovanne to talk a little bit about the numbers and how we make this happen with discipline and strategy to deliver the numbers.

[Marco Geovanne da Silva, executive]

Thank you, Thiago. As you can see, this is the map, the roadmap and from this roadmap was set forth all of our targets. We define our budget. We disseminate this to all of our networks with the purpose of delivering sustainable growing results. We'll have the opportunity to talk a little bit about how we're seeing 2024. Officially, we're going to release the guidance for next year and I already would like to invite you all to participate, in February, right after the earnings release, we will hold our Banco do Brasil Day where we'll have all of our Board of Directors, our executives discussing these drivers and what we'll actually be doing to deliver results in 2024 and the coming years. So let's now get into the results before we open to questions.Here on Slide 5, we bring our adjusted net income and profitability in the 9 months of '23, Banco do Brasil posted BRL 26.1 billion of adjusted net income, which is equivalent to an ROE of 21% and a growth of 14% compared to the same period in 2012. In the quarter, income was BRL 8.8 billion, so an increase that is practically stable when compared to the previous quarter. With a growth of 4.5% compared to the same period of last year, equivalent to an ROE of 21.3%. The income in the third quarter was impacted by reinforcement in the provisions that we made for a specific case, even though to the delay on the judicial recovery. If it was not for that, our income would have been of around BRL 9 billion, in line with the bottom line of the average estimates of the market.Now on Slide 6, talking about our loan portfolio, we have grown our loan portfolio consistently and the expanded view. We had an increase of 2% in the quarter and 10% in 12 months, exceeding BRL 1 trillion and 1/3 of this portfolio corresponds to what we refer to as sustainable businesses. I'd like to highlight here on the performance of this portfolio, the individuals portfolio, the evolution of 7.9% in 12 months with a highlight to payroll deductible loans that increased 8.9%, helping increase the levels of the portfolio.Payroll deductible loans are more than BRL 120 billion, that's 40% of this portfolio. In the company's portfolio, the highlight was, without a doubt, the SME segment, which grew 14.2% in the year. The Agribusiness portfolio grew almost 19% in 1 year, mainly driven by the lines of costing and investment as well as by family agriculture. All of them grew in line with what we presented. 45% of the agribusiness portfolio is what we consider sustainable agriculture. It is part of our strategic drivers to increase even further in sustainable business in the ESG perspective.The government portfolio grew 9% year -- in the quarter comparison. And I'd like to note here that these operations are mostly guaranteed by the National Treasury. But I'd like to highlight disbursements. We've already contracted almost BRL 16 billion with the segments that will be disbursed during the coming year. The modest performance of the corporate portfolios reflected liquidations and in particular, the strategy of having a higher turnover of this portfolio, favoring profitability in the generation of debentures and so on. We ended up favoring the distribution to our private portfolios rather than retaining those papers in our balance sheet.Next move to the next slide, Slide #7, where we'll talk a little bit about credit risk. The ALLL expanded view totaled BRL 7.5 billion in the third quarter of '23 and BRL 20.5 billion in the 9 months of this year. This quarter's flu was impacted by the worsening of that same specific case of a company in the large corporate segment, which filed for reorganization but that so far has not been able to disclose -- release their balance sheet. So we decided to increase provisions in over BRL 500 million due to this delay in this judicial reorganization solution.It's important to note that unlike other banks, I mean, other banks have already gone ahead and then 100% of the provisions for this specific operations in the results of the last years. Banco do Brasil reinforced only 50% of the provisions for last year's results, and there's 50% remaining for this year. The operations of this company were already classified as risk G. In the previous quarter, we had 20% provision. So it was 70% provisioned. We were confident that we would see an acceleration in the recovery of the reorganization process. But since that was not the case, we decided this quarter to reassign and to risk each covering 100% of this operation with provisions.So now on Slide 8, I would like to draw your attention to the quality of our loan portfolio. NPL plus 90 days reached 2.81%, below the industry's average, which was 3.5%. And coverage ratio ended at 199%. As a reminder, total portfolio NPL was affected by the operations balance in the corporate segment that I just mentioned that we had that delay of 90 days. If it were not by that, NPL plus 90 would have been 2.63%. Now to the top right part of the slide, individual portfolio, NPL dropped again, clearly showing an improvement in the quality of the loan portfolio for individuals, reaching 5%. The top of the NPL in this portfolio happened in December of 2022.Corporate portfolio indicator reached 3.04%. Here, considering the aforementioned situation, which is affecting the NPL for this portfolio. And not considering that effect, it would have been at 2.49%. And the agri portfolio closed NFP 0.7%, the lowest for all NPL portfolios in Banco do Brasil. And the new NPL went up to BRL 8.32 billion here also affecting -- affected by that specific case, which added BRL 800 million in this case and also reflecting the volume of write-offs for operation losses a year over-due. Nevertheless, provisions in the quarter were enough to cover for that increment in the NPL and reached 110.5%.On Slide 9, we'll see the breakdown of our NII, both for the new managerial view, including clients and markets NII. And if we go into the details, we have here the different lines in the accounting view with details for long operations, funding expenses and treasury lines. NII reached BRL 67.7 billion in the 9 months of 23%, a significant increase of 30.4%. Also here, we have an impact of margin from Patagonia, approximately BRL 7 million. If it were not by the Patagonia effect, we would have posted expansion of 27%, which is a very robust growth. If we look at Brazil's operation itself, but Patagonia represents around 7% of our NII.And now looking at the quarter, we reached BRL 23.7 billion, an expansion of 3.5%. Annual growth of 17% in client NII was driven by the credit portfolio increase, as I mentioned, also because of a higher spread in all portfolios and higher liability margins stemming from greater funding with our clients. I would like to give a special focus here on the loan operations income increase, thanks to higher loan portfolio and also Selic average rate effect in the period. Margin NII growth or market NII growth can be explained by the average select rate increase effect on the securities portfolio and also by higher Patagonia bank NII. Treasury results reflected Selic's behavior and securities portfolio average balance increase and spread with clients ended the quarter at 9% and NIM global spread was stable and 4.9% in despite of a slow movement of reduction of our interest rates.On Slide #10, fees and expenses. In the 9 months of 2023, fees income was up 5%, thanks to insurance, pension plans, and premium bonds lines and also consortiums. The first ones increased 8.3% and consortiums were up 29.6%. In the same period, administrative expenses increased 8% following into the corporate projections estimate, reflecting inflation and also adjustments in the category, specifically talking about category adjustments, personnel expenses were up 7.3%, in line with pay rises, while other administrative expenses posted 9.4% growth which reflects mainly investments in BB digital transformation, as Thiago mentioned. We are changing our process so that we can become more and more an agile company, innovating our attack capacity and also increasing our data processing capacity.Therefore, in this quarter, we reached an efficiency rate of 28%, our all-time best. And of course, that all these sound and consistent results ended up improving our capital position. We maintained a sound CET1, thanks to strong sustainable results generation. Our CET1 reached 12.49% and here, we have organic capital increase by retained profits of around 53 bps. That's how much we increased our capital base, thanks to profits. In July, we announced the payment of BRL 1 billion of the hybrid instrument, which reduced capital in 11 bps. RWA also increased and accounted for a drop of 54 bps in our main capital index explained basically by the loan portfolio increase. And finally, I would like to highlight the effect of Resolution 29, which added 60 bps to our CET1.And before we open to our Q&A, I would like to comment on our guidance. In general, we expect to see convergence with the intervals that we have disclosed. We continue seeing positive trends for the loan portfolio growth, especially driven by the agribusiness segment. For individual segment, payroll loans, we still deserve a highlight for the corporate segment. We posted relevant growth in SMEs higher than our guidance. And considering wholesale performance in all the movements I mentioned before, we expect growth -- total growth for the year will be pointing towards the lower end of our guidance.NII dynamics stands positive, and we should close between the average and the top of our guidance. Especially because of higher flows of ALLL for individuals in non-panel loans and considering deterioration in companies. And therefore, the portfolio growth, we believe that provisions expenses should point towards the top of the guidance. When we look at the results for the year as a whole, fee income post performance in line with the guidance, which was adjusted in the second quarter results, basically because a disruption that is happening and the payment s-- means of payment market, which also reflects the growth -- in the growth of our fee income.And administrative expenses, of course, we also believe that they will be in line with our guidance. Thus, we are very well positioned and that's what we believe to deliver record results this year with a profitability rate that is consistent with our business generation capacity. We already have BRL 26.1 billion of profits in 9 months, and our guidance points an interval between BRL 33 million and BRL 37 billion. We believe that we will be able to deliver close to the average of this range and maybe towards the top of our guidance, if we look at the results of the fourth quarter of 2023.So now I end my presentation with the figures. And I would like to turn the floor to the Q&A session. Thank you. Janaina, the floor is yours.

[Janaína Storti, executive]

Thank you, Geovanne. So before we start our Q&A session, I would like to welcome Lucy Sousa. She's APIMEC's President. For 29 years, Banco do Brasil holds public meetings and APIMEC is an important partner of the bank. So good morning, Lucy. Welcome.

[Lucy Sousa]

It is a pleasure to be here with you; Thiago, Felipe, Marco Geovanne. Yes, this is a long-term partnership, right. We have been together for almost 30 years. These are 29 years of meetings that allow you to have the Emerald Seal. I would like to add that this partnership is the second longest one for APIMEC. You are part of our own history. We started with back in 1970. And now we are APIMEC Brasil. We had a large restructuring process. We followed the market changes. We are very happy to be here, and I would like to greet all investment analysts and they are the origin of our association.

[Marco Geovanne da Silva, executive]

Thank you very much, Lucy. It is a pleasure to be back here at Banco do Brasil as a CFO and to be able to hear with you for another public meeting. Thank you very much.

[Janaína Storti, executive]

Yes. And I would like to stress the invitation, we will have our BB Day 2024 on February 29. Please save the date so that you can get to know a little bit more about our process.

[Janaína Storti, executive]

So now we are going to start our Q&A session. Questions can be asked in English or in Portuguese. I would like to ask participants to ask only one question at a time so that we can interact.Our next question and first question actually comes from Daniel Vaz from Safra.

[Daniel Vaz, analyst]

[Interpreted] So looking at the new NPLs and the need for provision for next year, how do you see the trajectory of our needs for provision for next year? We would like to -- we are hearing Geovanne saying that the guidance already reflects in the high numbers this year. And we start to already outline next year, and it seems that there's a good opportunity for you to reduce that both in terms of the portfolio and volume as a whole year-on-year. So how are you outlining this for next year? I'd like to hear from you about what we see in terms of the quality of portfolio.

[Felipe Guimaraes Prince, executive]

Excellent, Daniel. Thank you. I think you had a good conclusion. We make it a point to release those harvest charts to show the care and the assertiveness, as we promised and delivered the adjustment of the individual's portfolio to what we believed it should be. Noting that its portfolio with a risk-adjusted return that's very positive. So with that, the perspectives of profitability remains strong both for the closing of 2023 and of course, we've also been taken into account for 2024. We already have our budget approved. And we're now finalizing the adjustments to be able to put it out and work on it in 2024.In the portfolio, overall, we expect growth slightly above what the market has been disclosing either through the Central Bank or Febraban itself. Geovanne even mentioned in a press conference that we should be in the high single digits or low double digits for 2024 in terms of portfolio increase. And obviously, portfolio growth also carries a provision that we call the good cholesterol. So that makes the levels of provision expense -- expenses with provisions converts to stability in 2024.

[Janaína Storti, executive]

So now our next question, and I will switch to English, from [ Tito Labarta ] from Goldman Sachs. Tito, can you hear us?

[Unknown Analyst]

Yes. Thanks, Janaina. Good morning, Geovanne, Felipe. My question, following up a little bit on loan growth outlook. I think particularly on retail loans, right? We saw a nice improvement there in asset quality, credit card NPLs actually improved quite a bit. Yet within consumer, you're not really growing credit cards and personal loans. And I know those have been the 2 segments that have been on the most pressure in terms of asset quality. But now that we seem to be turning the corner on that. How do you think about the growth of the consumer loan book and particularly credit cards and consumer finance loans going into next year? Do you think with asset quality cycle improving, you can accelerate growth? And also, how do you see the competitive environment? There's been increased competition there from digital banks. So how do you see you're positioned in those segments going forward?

[Marco Geovanne da Silva, executive]

Well, thank you, Tito. I'm going to switch to Portuguese, okay? So what we see in terms of growth for loan book for individuals. The main focus is going to be payroll deductible loan. And when we say that, we should be growing in the low double digits is more or less what we envisioned because main growth will be coming from agribusiness once it reflects Safra plan. So it is expected to have in the agribusiness, high double digits rates while for individuals, low double-digit rates, focusing in the payroll loans. And even in this year, the payroll loans have increased almost 9%. And our strategy for next year is to grow in a segment that we do not have a strong action now, which is the private payroll loan.We expect to grow there and credit card loans, these are not a share that is relevant to us. Just to give an idea, we are talking about a balance of BRL 56 million, BRL 54 billion of a portfolio of BRL 304 billion, and it is clearly stable, I would say. This is a stable growth. What happens is that in this market, we still see a discussion in terms of cap and the interest rates for the rotation in the interest rates, also a discussion in the noninterest-bearing installments. So this reflects not only the competition of the new players. And one of the reasons that increase the NPL in this market is because the new players are not in the same regulatory demand levels as banks, and they ended up significantly growing their credit card portfolio without having a good and clear analysis of the risk of their clients.So that ended up causing more indebtedness for Brazilians and more NPLs for their clients. And so this is a discussion that is being held by the Central Bank, by the Congress. So all of that encourages us to be very careful and focused in growing our loans in the lines that will really allow us to have a long-term relationship with our clients that will allow us to guarantee sustainable results. We do not know what will come ahead as they're regulating in terms of the cap for the rotation interest rates and the new rules. So looking at our budget, we are focusing in the other lines where we are leaders. We have 20% of the payroll loans market, we can continue growing on the INS payroll loans. We have a shy share there, even less than 10%. And we have basically no presence at all in the private payroll loans.So we are going to use our large corporate segment, trying to bring that vision of value chain that Thiago mentioned in our strategy so that we can drive growth in these portfolios. For credit card, specifically, we are being very careful because depending on what comes from the regulating agency, that really could hinder the market, okay?

[Unknown Analyst]

Great. Thanks, Geovanne. Can I ask a quick follow-up on that? Just on the payroll lending segment, right? That's also a segment that maybe is going to face increased competition going forward from digital players. And I know you have a leading market share there, a good position. But any concerns on how the competitive environment there and how that will evolve and potentially impact your growth next year?

[Marco Geovanne da Silva, executive]

Definitely being leaders, we must be very careful on protecting our -- sorry, switching to Portuguese.Without a doubt, we must be careful in protecting our customer base since we are the leaders for payroll loans for the public sector. In Brazil, we have that law that built the free choice of bank and the credit portability law or the loan profitability law. When we understand that our banks, especially digital banks that were not quite as cautious when offering credit card loan -- credit for their customer base, and they want to migrate to the segment because it is more sustainable and less risky.But since there is competition in the market, we are being able to defend our customer base. We always have the opportunity before approving the credit portability. We have the ability to be able to work in the customization of price, offering competitive solutions or conditions for those customers that may wish to migrate to other banks. So we've been able to increase this portfolio and protect it from attacks from other players who also want to act in the segment.

[Janaína Storti, executive]

Next question is from Gustavo Schroden from Bradesco.

[Gustavo Schroden, analyst]

Good morning, Geovanne, Janai, and Felipe. Actually, I would like to discuss ALLL. And I don't know if I well understood it. You talked -- you said that in the NPL creation, you have BRL 800 million for a specific case. I would like to know if it is really BRL 800 million. Because if we exclude these BRL 800 million from the creation, we still have 7.5% in creation for 100% provision for the creation, we have plus BRL 7.5 billion for the fourth quarter, and then it was going to go over BRL 27 billion, which is the guidance for the ALLL. So I would like to understand if that rationale is right. If you have anything over 27 or if you're considering a lower ALLL when considering the creation.And even if you exclude that specific case, the NPL for corporate is a little bit higher. And I would think that it's because of SMEs. And this is a segment where you are growing a lot, and that was a highlight of the portfolio growth. So how do you see the quality of the portfolio for SMEs if the NPL that is going up now in this quarter that is higher is because of other operations. Can you give us more information, please?

[Marco Geovanne da Silva, executive]

Well, here, we are talking about delinquency. And also, we are talking about provisions. But Gustavo, yes, if you do the math, you're going to get to those numbers. That is the conclusion that you will get. So in order to be in the guidance, we now should focus in this last quarter, especially in the recovery. So the more we are able to recover the better will be the removal of this math effect that you mentioned. Of course, the corporate effect, the corporate segment, corporate portfolio effect, it's going through a normalization process, but we had specific cases. There is a large -- a big specific case that everyone is waiting for us since the beginning of the year, but we did have other specific cases and that the media also discussed. So -- and we are being very cautious to reinforce our provisions. But I would like to turn the floor to our Interim CEO here.

[Felipe Guimaraes Prince, executive]

So yes, well, the creation is affected in the last 2 quarters because of the balance of operations for specific large corporate in the retail segment. So this creation, both for the second quarter and in the third quarter would be BRL 800 million lower in each one of those bars. Obviously, considering that this is fully provisioned, it will allow us to have a perspective of continuing to have the coverage and reinforcing our balance sheet to face future NPLs. But that's not because we are going to bring in new provisions. But as Geovanne mentioned, this is an effort recovery so that we can maintain this new NPL stable and the coverage ratio also stable, but always aiming at protecting our balance sheet and that we have enough coverage for this new NPL. And obviously, hoping that the other specific cases that rose that we have them already solved and that we do not have anything else for the fourth quarter.Now talking about SMEs. First, I think that you need to consider that there is a normalization of this NPL when compared to the pandemic period when obviously we did have some debt extension and rollover process so that we could give more breath to those entrepreneurs. But you have to take into consideration at the same time that 30% of this growth come from lines that are mitigators that are related to government obligations, mainly PRONEP and also of FGI. And we expect to have a normalization of NPL 4 corporate segment, but it is natural that it will follow some stability from now up to the end of the year. Because part of this NPL balance will be paid based on the government guarantees that do provide us support in 30%, 35% of our portfolio.

[Janaína Storti, executive]

Our next question, Eduardo Rosman, BTG.

[Eduardo Rosman, analyst]

Congratulations on an excellent year. My question is about 2024. You talked -- you gave some indication about next year, and I'd like to get into more details there. Because when we look at the consensus for 2024, even according to Bloomberg, we see that the projections have somewhat flat profit, very close to the results of 2023. So I think there's some fear, so to speak, from the markets with a very strong slowdown of the NII and the increase of provisions.You've already made some interesting comments on how you expect the portfolio to grow high single digits, low double digits. That's probably more than the market. And this year, you're also growing more than the market. So you're replacing securities with loans, you kind of already talked about provision for next year. So I'd like to know your view of the NII post PGD, if it's too compressed or if you can maintain a good performance. I'm trying to think if you can still consider an increase in the bottom line for 2024.

[Marco Geovanne da Silva, executive]

Rosman, thank you for your question. I won't give you any data in advance for what we have in the earnings conference call for the fourth quarter. But as Prince said, we already have the budget for next year approved. And we're already starting to work and involve our entire network and the next step now is to do what we call atomization for us to be able to reach the objectives that were approved by the Board of Administration in terms of profitability, growth, expenses and so on and efficiency. So now we're going to move to the tactical plan, so to speak.But what I can tell you ahead of time is that our view is extremely positive for 2024. We do believe that we are entering a more benign scenario with a reduction of interest rates in the economy. Of course, we're always attentive to external issues, the war inflationary pressures coming from oil, commodities or maybe even an interest rate level in the United States. How long it's going to remain at this level? And how much it could affect the freedom of our regulator to work with the more -- how can I say, or a smoother monetary policy or not? So what's going to be the room for greater reductions of our interest rates and everything ends up having an impact in our margins.But we do believe that considering the configuration of our assets and liabilities, and we've been talking about this to you each reduction of 1% in the basic interest rates equals approximately BRL 89 million, BRL 90 million. You can round it up to BRL 100 million, if you want to make the math easier, BRL 100 million in margin. But we've been -- you saw the spreads even with the resolutions that already happened with the Selic rate, we've been able to, through growth and an improvement in the funding. We've been able to maintain our spread at a stable level.So we don't have a perspective for 2024 of seeing a reduction and bottom line earnings. I know a lot of analysts are saying that there's going to be there. But we're working based on high single digits of growth in terms of earnings for Banco do Brasil in 2024. We believe that we have the capacity to get there. And when you say but you'll be growing more than the market. It's because an important part of our balance sheet of our loan portfolio, 1/3 of it is agribusiness. We're the main financier for the agribusiness market. And this market, as I mentioned, will continue to grow. And we also have individuals, we have some natural protection of our spread because the spread levels are low. Elasticity, if you consider a reduction of interest rates tends to be a lot smaller.So we already have guaranteed the spread for that portfolio that's much better. We don't expect to suffer any huge impact, maybe if there's a cap for the rotating credit facility interest rates. It's a small part, as I said, is EUR 50-some billion of the BRL 300-some billion. But all of that is taken into consideration. Of course, we'll have the opportunity to discuss that with you at our BB Day. So I don't want to get ahead of myself. Otherwise, you won't even attend, and we want to get a full house. But for the company's portfolio, without a doubt, we are very attentive and mindful of that. There's an expression people like there's a game of cards like companies are going through this normalization that Prince mentioned the post-pandemic, and there are -- there have been many adjustments in terms of government policies, allowing the re-agreement or the extension of maturities. But we believe that with a more benign environment, companies do tend to make more investments, seek more working capital, the capital market that was closed in the first half of the year, and we already see it starting to recover.So we are already seeing the issues of Chris craft debentures. We are participating, and we are participating with you the SBB and the companies who want to participate. We have an organic structure in Banco do Brasil. That's the organic PI. In the specific case of the third quarter, it's a portfolio that did not grow because we chose to distribute that. We did not retain those instruments, those papers in our portfolio. We distributed to our private clients. Looking at '24, we believe the companies will find -- have the market available at their disposal and they're not necessarily going to grow in specific loan lives, but the view of the -- the extended view of the loan credit where we include securities tend to grow.But I'd also work with a growth of high single digits for the company's portfolio for 2024. As for provisions, we will always have to be mindful, but we hope we won't have any hiccups or surprises in specific cases, of course, specific cases ended up harming our results, we would be delivering much better results if it weren't for those specific cases. But as the scenario becomes more benign, companies can also crews without any further damage.

[Janaína Storti, executive]

So I'll move on with our Q&A. Next question is from Renato Meloni from Autonomous.

[Renato Meloni, analyst]

It's nice to see you again. My question is about the repricing of portfolio, which was large up to last quarter. I would like to understand your mindset about that, especially if we focus on the payroll loans, if you see more stabilization there? Or if for next year, you see an opportunity to increase that?

[Marco Geovanne da Silva, executive]

I'm sorry, Meloni, to increase what? I could not hear the end of your question.

[Renato Meloni, analyst]

To continue to increase the yields in the portfolio and to go into another repricing cycle.

[Marco Geovanne da Silva, executive]

Well, this is a good question because I'm sure that as you start having lower interest rates, the client always has a possibility to exchange that is -- they are able to have a new loan with a lower rate. The duration of that portfolio usually is of 18 months. So I would say that for 2024, we do not have an expectation to have a huge impact in that specific portfolio. But I would like to remind you that as we are successful in our strategy and increasing the private payroll loans, I think then we will be able to make a better difference in terms of the yield for that portfolio of payroll loans and hold because then we were going to have rates in the private payroll loan that are more attractive than in the public payroll loans.The public payroll loans of course has less risk because we have stability in the jobs, but the private payroll loan is riskier because the employee might be terminated, lose his or her job. Therefore, we do increase the risk of the fall in line. So we are considering all that price and we are pricing it in the right way, but I believe that we can maintain this price for a longer time.

[Janaína Storti, executive]

And if I can add to that, Renato. We also have been able in the payroll loans to bring back operations of lower spreads of past seasons with better profitability. So we -- if we compare the season of contracting of our portfolios, we had 33% of 2023 for the whole portfolio and 23% for 2022. So we also have a possibility to have a turnover in this portfolio with the mix that Geovanne mentioned with the INSS, with the private payroll loan, which also helps us to balance out that spread average.

[Janaína Storti, executive]

Our next question now Mario Pierry from BofA.

[Mario Pierry, analyst]

Congratulations on the results. I'd like to focus a little bit in operating expenses. You talked a lot about investments in IT, digital transformation. And we're seeing that expenses are now growing at a double-digit level for a long time. In recent years, we saw the bank's expenses growing below the inflation. So first, I'd like to understand within expenses, we see marketing expenses going up. This quarter, I'd like to understand a little bit more of the reason why. And we see the administrative expenses are also growing almost 15%. Personnel expense is only 5%. But I'd like to understand whether in the future, there will be a need to increase the number of employees of the bank.

[Marco Geovanne da Silva, executive]

Mario, good to see you. Thank you for your question. So how are we addressing expenses? Expenses are like our nails, right? We always have to cut them and trim them. But we're seeking to separate what is that day-to-day expense that is required to run the structure of the bank from those expenses that are more transformative, as Thiago said, which is our technology innovation strategy of becoming an agile company. All of that falls into administrative expenses, but we could say that part of it is the good cholesterol type. So despite the growth on expenses, we've been able to increase our cost-to-income ratio. We've been able to increase revenues at a level higher than the bank's expenses.When we compare our bank to its peers, we see that our investments in technology are shyer than theirs. But of course, as you increase your investment in technology, the consequence will be an increase of expenses because of the depreciation of those investments made in technology. But looking specifically at a result of this quarter. Marketing expenses, I'd like to remind you, especially when you run that comparison. Part of it was built up. There is a bill that here in Brazil, there is a law that in years of election, after a certain point of the year, you were no longer allowed to make any investments in marketing. So that is building up. But specifically in this last quarter, we had one-off very specific marketing actions that required a higher level of expenses, but that was all planned for. That was all part of the guidance.All we did was phase it out and delay the development of these campaigns. We ran a specific campaign for the Desenrola program, the Desenrola at the bank that we call Desenrola BB. That's already what, BRL 15 billion? Yes, BRL 15 billion of renegotiated loans inside Banco do Brasil. We had a specific ESG action. We launched 3 commitments that we made with the Global Compact from the UN. We have lost the campaign for Amazon in New York, and we are the ambassadors for the racial equality action [indiscernible], which is for women and leadership as well as a dignified salary, and that all explains why the marketing expenses were more impacted this quarter.But looking at 2024, Mario, I would say that we believe -- I mean, we'll continue to make these investments in technology. We expect to increase the current expenses to run the bank in line with the inflation, slightly above even because we've -- we are hiring, we are, I believe, -- we had 2,500 people hired this year. We ran a public competition. And next year, we'll have around 2,000, 2,500 new people. But there's also naturally a departure of people who retire. So the net effect of that is something we'll see later. I wouldn't be able to give you a precise number right now. But we do expect to have an increase in total expenses, probably in line with what we're seeing this year. But an important -- the important indicator is that our target is to maintain our cost-to-income ratio at this level of 28%.

[Janaína Storti, executive]

Mario, as for the number of employees, due to this movement of the natural turnover that Geovanne mentioned, this quarter, we're coming in with a number that's below our historical series, but the expectation is that we will bring this increase in the number of employees as part of the technology investments we're making. Within this public competition that we open now, half the employees, half of the positions were specific for technology professionals. The bank has also been investing in training programs for our employees to foster the development of digital skills.So we're talking about upskilling, reskilling, the review of the work model, as Thiago mentioned, we've been directing our efforts to agile. We are expanding investments in technology. And all of that is part of a trend that we see, as Geovanne said, that will remain for 2024.

[Janaína Storti, executive]

Our next question is from Eduardo Nishio from Genial.

[Eduardo Nishio, analyst]

Geovanne, Felipe, Janaina and Thiago. I would like to go back to a prior question about NII, but also with provisions. We were running at a stronger level for margins almost double of the loan speed. For 2024, we will be able to increase NII? And higher than loan. And if you can break down that according to this new vision of our markets and clients, how do you see the market NII that is hitting an all-time high since your historical series and your clients NII? How do you see the behavior of those numbers from now on?And since you talked about Patagonia I would like to know more about your position in Argentina. We saw a bank selling their position and opening their operations. And what we see here is that the capital contribution for them was negative. So I would like to know from you. For Patagonia, do you have the same negative impact in the capital after the adjustments for inflation and exchange rates.

[Marco Geovanne da Silva, executive]

Well, starting by your second question, our position in Argentina is totally different from our competitor that decided to leave. We have a sound bank there with assets and liability structure that is very conservative, and that has allowed major growth because we do not have delinquency basically treasury there, which has been benefited by the interest rates in that country. This is -- Patagonia Bank is a brand that has trust. It has a work of almost 300 points or branches, and we have colleagues from bank to Brazil that are part of the Executive Board of that bank. So we always try to maintain an alignment in all our policies, whether for risk appetite or with practices that we also put in place here.The only lagging area is in technology. There we really need to move forward in technology. Well, having said that, what we saw here and also because of regulatory matter. In Brazil, monetary adjustment was abandoned a long time ago. So we cannot post in our balance sheet that. And there, they have a hyperinflationary economy. But yes, we are benefiting in our NII, thanks to the results in treasury and also exchange rate effects. We do not intend to sell differently from our peer that decided to leave. I don't know what is their strategy anyway.So in despite of all the volatility that we see, and this is not something that is happening today, the volatility in Argentina. We do hope that this can be addressed and that they move forward in an economic stability, in a better predictability. They are a main commercial partner. They are the third largest commercial or trade partner from Brazil and Brazil being one of the main financing agents in the Brazilian trade wants to be a resource of trade with Argentina. Therefore, this is important for us to be there to have a footprint there that's favorable for us.And so in terms of what that represents in our balance sheet, we do have a breakdown of that. It is disclosed. You will see it is the CTA. It's there in our balance sheet. And there is an accounting rule, you know, if we were to sell how the treatment should be. So we follow the rules. I am not sure if our peer has followed the rule posting the sale of that asset. But for us, we do not intend to sell. So we have it all marked in our P&L, and you can check that you will find the value.

[Janaína Storti, executive]

Just adding to your answer, Geovanne, yes, we do show the variation of FX. You can see that in the explaining notes. But I would like to highlight that the information we provide is very transparent. So everything related to Patagonia Bank is there. So this is not a bank that is compromising value. Even with the negative mark in our P&L, what we lose in terms of results with this bank, it does bring a positive net for us. So just telling you about this difference and everything can be found and it is disclosed in materials.

[Marco Geovanne da Silva, executive]

Yes, you can see the ROE for Patagonia in the third quarter was 23.9%, a base index of 26.7% coverage ratio 217 and NPL of 0.5%. So this is a robust and a good asset. So we do not consider the possibility of selling it.Now the other part of the question about the margin. Well, Nishio, in terms of estimates, think about the NII growing in line with the portfolio with the assets. Of course, that we have an opportunity to do that as the spreads and you have an opportunity to have a better spread, for instance, in the funding. So we eventually can have that. We -- our funding is all posed. And as you have a reduction in the interest rates, you can adjust immediately the cost of funding. Of course, that there was a specific strategy for LCA's funding. And this did help us in our liquidity. All these numbers are all there in our SG&A. But that allows us to have gains on and spreads on the funding, and that can also help us and increased a little bit more than the portfolio.But yes, to -- in order to post a strong growth in the 9 months comparison of 30%, there was another strategy that I already mentioned that is specific for funding with our clients before we were privileging basically the excess of liquidity of these clients and funds that could be automatically withdrawn and we chose to sign CDBs with these clients that did help us a lot. And this is a practice that other peers are doing it, we were not because we were privileging another area of our asset. And so we switched the strategy in terms of funding. So just as we grow our NII with our loan portfolio, we also are able to grow with our clients in terms of funding.

[Janaína Storti, executive]

Next question, Yuri Fernandes, JPMorgan.

[Yuri Fernandes, analyst]

I have a quick out here about the income for 2024. I think it's a very positive overview from Geovanne, the income or the high single digits. There's no guidance yet. But in the moving parts, it seems that next year will be good for you. But my question is, do these estimates consider only Banco do Brasil in Brazil or the group as a whole, like thinking about Nishio's question about Patagonia. If there is more positive view may bring disappointments, for example, with Argentina. That's the first question. And a follow-up in the client NII. When we look at -- it grew very well, and it was not Patagonia, Patagonia grew in line, I believe, it didn't gain any relevance in market NII with you.But I'd like to understand what it was that brought that. My impression is that it was liquidity, as Geovanne mentioned, but just to make sure about the quarter-over-quarter in terms of market NII.

[Marco Geovanne da Silva, executive]

Yes, without a doubt, in market NII, there have been opportunities to spread in securities, and there was also liquidity. But when we talk about earnings, basically, we're looking at Brazil. But we've already said in relation to Patagonia. Of course, there's no way to know exactly what's going to happen. It's too early. It's still going to be issued, and we'll see how it's going to happen after the elections and how they will run their economy in Argentina. But we believe looking at that estimate, I'm looking basically at Brazil operation, we already consider in terms of the budget, a smaller share of Patagonia.We would not maintain Patagonia at that level that it takes today in terms of NII. It's around 7%, right, Janaina? Yes, 7% today. Yes, so we can work considering that Patagonia will be less relevant in 2024.

[Yuri Fernandes, analyst]

Very clear. Thank you, Geovanne.

[Janaína Storti, executive]

I think the main point here is that BB grows, the bank's NII continues to grow even with a potential scenario, Patagonia contributing less, okay.So the next question is from Pedro Leduc, Itau.

[Pedro Leduc, analyst]

Congratulations on the results. A quick question about the additional provision for Lojas Americanas in this third quarter and the balance sheet. If there is a resolution and a solution to this problem, what is the degree of recovery? It looks like they will disclose results on Monday. So can you comment on that? And if it happens, can we expect a reversal in this process?And second question, more technical. I believe -- when you said that the numbers are going to point towards the middle of the guidance and if they are going to go down in the fourth quarter.

[Felipe Guimaraes Prince, executive]

I did not understand the last question.

[Marco Geovanne da Silva, executive]

It's about the provisions guidance. Your audio is not very good, right? Well, it doesn't make sense to adjust the guidance now. So we will be working to deliver towards the high end of the guidance. Could it go over? We are going to go over -- we are going to work so that it stays within the guidance because if it goes over, we have to explain why. Now for your first part of the question, if we should have waited or not because they're going to publish their balance sheet and what's going to happen?

[Felipe Guimaraes Prince, executive]

Well, when we have a better understanding of the process, yes, considering your audio was not very good. If we forget anything, please comment at the end. So as we said in the beginning, we would have provisions related to that specific case according to our models, making it clear that the bank would be a protagonist in the renegotiation process. I think we have moved forward very well on the process. You believe -- you know that in the beginning, we had BRL 7 billion, but we were able to increase that to 10 and then to 12. But with this possible amount of 12 with no restrictions was offered. We had already ended -- closed our balance sheet in the quarter, and this happened in the midst of October.And in addition to the calculation of expected losses that we run this started being laid over 90 days, half of the balance in June and the other half in September. And obviously, that we use our customized model. But on the other hand, we also follow the regulation up to 682. So these 2 facts in line with the delay in the balance sheet disclosure and also the conclusion of the in-court reorganization process to be submitted to the creditors assembly ended up causing us to fully provision the BRL 1.7 billion that we have available for that specific client.So what we expect from now on? The audited balance sheet disclosure, we will compare that to our own models to understand the assertive a level of the expected losses that we had estimated, then this in-court reorganization process has to be approved by the general creditors meeting, which should happen still in 2023, but because of the digital vacation, probably this is not going to happen, but we expect to conclude this process in the first quarter of 2024 carrying over this BRL 12 billion amount, which will bring an amortization in the bank's debt and those that are fully provisioned will have part of that revenue posted in the first or second quarter of 2024.But these are steps not yet taken on the 13th, we'll be looking at the balance sheet. And the idea now is to bring forward this provision balance and to see if we are going to be able to have an amortization of part of that. And we will then analyze the provision according to the ability of payment of the new company that should arise.

[Janaína Storti, executive]

So next question to welcome Nicolas Riva from Bank of America.

[Nicolas Riva, analyst]

Thanks, Janaina. And thanks, Geovanne, first question. I want to ask a couple of questions about the AT1 capital. So I see in the notes to the financial statements that you raised BRL 2 billion of AT1 capital in the -- well, I guess, if you can give more details about our transaction, the rating of BRL 2 million. I would assume that it was in the domestic market, probably a private placement, but if you can tell us a bit more retails about that.And then second, you did a partial buyback of the 9% purpose in international market. You bought back about $750 million. There are still $1.3 billion outstanding on that. I wanted to ask if the plan, I mean, to the extent you can discuss this a bit, if the plan would be to fully call the remaining portion in June next year and the idea would be to replace at least some of that capital with more domestic AT1 issuances?

[Marco Geovanne da Silva, executive]

Thank you, Nicolas. In a certain extent, you already know the answer. Switching back to Portuguese.So yes, we are looking at what to do. We have 2 call windows next year, one of the perpetual Form 6 and the other for the perpetual of 9. The perpetual of 9, we decided to -- considering the softness of our capital base and the liquidity of the bank, we offered an opportunity via tender we're willing to buy up to $1 billion. But unfortunately, -- we had an addition of $700-and-some million. So part or a significant part of our bondholders are comfortable with the Banco do Brasil risk, and they are willing to hold on to those papers.If we are going to call or resets will depend on the conditions of next year. We've been able to considerably reduce that value. We believe that the perpetual bond of 6 financially makes sense to maybe reset it. But what we are going to decide, and there's no decision made so far is without a doubt, looking at the financial issues and the opportunities that present themselves to Banco do Brasil next year. If there is a market for the issue of new bonds internationally, I think it's unlikely, but if there is opportunity, we'll look at it. But in the meantime, we're making the most of the domestic market. Today, we have it, and it's part of our MD&A. We have approximately BRL 4 billion, close to $1 billion of financial letters that would be equivalent to the AT1 that we already raised in the domestic market.The depth of the domestic market is not as profound as the international market, but the price levels that we're seeing today, if we were to test the market for the issue of a new AT1, it's a lot more expensive than what we have, even more expensive than what we can raise domestically. So what I could tell you, Nicolas, is that we offer a window out for those who wanted to go out now for the perpetual bond of 9%. We had the appearance of about 70% of what we wanted to acquire. And for next year, it will depend on the economic conditions and then we'll evaluate it in the economic viewpoint and what it is that we'll do.[Foreign Language]

[Felipe Guimaraes Prince, executive]

[Foreign Language] where we had a non-formal response about the public hearing of '94, which talked about the Basel III II implementation and the regulating agency said that probably they will have a phased implementation in Brazil, which would happen in 4 years. So we then have an impact probably in '25, '6, '7 and '8.In the prior call, we have signaled that impact for Banco do Brasil would be between 100 and 150 bps. But what is new now is that this impact that should fully happen in 2025. Well, now should that information be formalized and this came from the regulating agency, then it will be happening over 4 years. And then how much will be assigned in these 4 years, this sharing will depend on the institution here in Banco do Brasil, considering our expenses related to operating risks, the phasing should be around 1/3 starting in '23 -- '26, sorry. So we are expecting a lower impact in 2025 and 33% in '26, '27, '28 of this 150 bps that we mentioned. This is fresh news that we are sharing now that meeting happened last afternoon with our colleagues from the Central Bank.

[Janaína Storti, executive]

Moving towards the end of our conference call. And for the last question, I'll call [ Brian ] from Citi.

[Unknown Analyst]

I just wanted to confirm part of the data and comments that you made and some answers to my colleagues. In particular, I'd like to ask, you talked about stability and provisions. The stability that you're talking about, is it in the nominal side? That's what -- how we should think about it? And also, I know it's not official that you're working on the budget. But just to confirm that growth in line with the portfolio or the assets as well in the bank's bottom line for next year.

[Marco Geovanne da Silva, executive]

As for the provision for '24, is that what you mean, Brian?

[Unknown Analyst]

Yes, I heard a comment about stability for next year.

[Marco Geovanne da Silva, executive]

No, actually, provision is going to grow.

[Felipe Guimaraes Prince, executive]

It's a proportional stability. Proportional to the growth of the portfolio, not a nominal stability, as we always say. The generation of new business brings with it that good cholesterol, and that's the provision that we expect for 2024. I think we can align it maintaining the portfolio's average risk.

[Marco Geovanne da Silva, executive]

And the other question about his doubt was about the growth for '24 as well as also aligned to the increase in the portfolio.

[Janaína Storti, executive]

Is that right, Brian? Is that your question? Did we answer?

[Unknown Analyst]

Yes, that was it. But on the income part, my specific question.

[Marco Geovanne da Silva, executive]

Well, for the income, we will update it. We're working on it, but we believe that earnings have the means to grow the high single-digit level. That's our estimate for 2024. But we are still going to confirm all of that officially when we release the 2023 years results and announce the guidance. But considering our feeling and based on the expectation of business growth, expense control, maintaining efficiency and the provision and control, we have the possibility to deliver growth in the bottom line.

[Janaína Storti, executive]

I was going to close the call here, but there's a final question, okay? So Carlos Gomez-Lopez from HSBC.

[Carlos Gomez-Lopez, analyst]

I would like, once again, to go back to capital, talking about dividends to 12.5%, and you talked about more visibility on the way operating risk, also the perspective of profit increment for next year. So you can pay more than 40%, right?

[Marco Geovanne da Silva, executive]

Hello, Carlos. It's nice to see you. Thank you very much for your question. Well, I just got to know that my CRO said operating risk is going to be phased out. Yes, in the last call, I did mention that we did have a number of regulatory matters to happen and that we have to be very careful and in discussing a possible payout or not. Now we have a payout of 40%. We know that one of our peers is at 30 less than us. So I'm going to wait for them to increase their so that I can consider increasing ours.

[Carlos Gomez-Lopez, analyst]

But they have announced it already.

[Marco Geovanne da Silva, executive]

So I'll wait for him to pay it. Let's wait for him to pay it, and then I'll announce ours. So we do have to be careful, Carlos. We can run simulations, but all the budget that we will be discussing is working with a payout of 40. There is something that nobody asked about. I don't know why. But that's something that is making us very cautious, which is the tax reform and what we'll see after that. And one of them -- one of the issues here is the interest on equity. And this is going to affect the bank's profits.So considering that signaling of the operating RWA, we have to be careful because -- we do not want to handle the capital base of the bank that is at 11%. Today, I have 50 bps at every quarter and my result, I add that. But I also take 50bps because the assets are going. So I am financing the expansion of my loans, my assets with the profit generation. As I reduced that amount and pay out more. Well, today, I am able to deliver results that are much higher than my KE. And so I consider the volume of funds that are being reinvested here are also being reinvested to your benefit. But I'm not going to say it's impossible. Nevertheless, we are going to take this matter very carefully into account.

[Janaína Storti, executive]

Thank you, Carlos. So we and now our Q&A session. I would like to thank you all very much for your participation. And now for the final remarks, I would like to turn the floor to Geovanne.

[Marco Geovanne da Silva, executive]

Once again, I would like to thank you for this opportunity to be here with you with the open heart. We from Banco do Brasil understand all the concerns from our investors because we are a company that has half of its capital and private investors' hands and also the other half as public capital. And the best way to show you our commitment in generating sustainable results is to bring to you at every quarter, better numbers, growing numbers and that are robust. Thanks to our strategies.Right when I started, I was asked what we would do to improve the stock prices for Banco do Brasil because we know that we are at 4x and some of our peers are being negotiated at all times of their price earnings. And the best way to have the market perceive, see and reprice Banco do Brasil's stock is to deliver sound and consistent results. And when we talk about the year of 2023, we will be able to talk about the fourth quarter. I'm sure we are going to be delivering good results, but mainly we'll be talking about what's going to be done in 2024. So I would like to invite you to be part of this debate, bring in your questions, also improvement suggestions if you have any, because the more transparent we are, safer you will feel not only to understand the business, to understand Banco do Brasil, but also to know what we can bring and deliver to you.Thank you very much for being with us today. Thank you all.[Statements in English on this transcript were spoken by an interpreter present on the live call.]