Banco do Brasil SA

BOVESPA:BBAS3

Earnings Call Transcript 2017-Q4

[Operator]

Good morning, everyone, and thank you for waiting. Welcome to Banco do Brasil Fourth Quarter of 2017 Earnings Conference Call. This call is being recorded. [Operator Instructions] This conference call is also being broadcast live via webcast through Banco do Brasil website at www.bb.com.br/ir where the presentation is also available.

The replay of the conference call will be available through the phone number [phone] in English and Portuguese. To access the replay, you must ask the operator to listen to BB's conference call. Your identification will be required.

[Operator Instructions] Before proceeding, let me mention that this presentation may include references and statements, plans, synergies, estimates, projections and forward-looking strategies concerning Banco do Brasil, its associated and affiliated companies and subsidiaries. These expectations are highly dependent on market conditions and on the performance of domestic and international markets, the Brazilian economy and banking system. Banco do Brasil is not responsible for updating any information in this presentation.

With us today, we have Mr. Paulo Rogério Caffarelli, CEO; Mr. Bernardo Rothe, CFO; and Mr. Daniel Maria, Head of Investor Relations. Mr. Caffarelli, you may now begin.

[Paulo Caffarelli, executive]

Good morning to all. Thank you so much to take part of this meeting with us today. For me, it's a pleasure to be here. What we are presenting today is the consolidation of our effort to provide Banco do Brasil with the strength and dynamics required to operate in a highly competitive and dilutive market. Banco do Brasil needed to adapt to be competitive and [ be much resilient ], therefore, by announcing the 2017 results. 54% higher than in 2016 and the best adjusted net income since 2012. I cannot do this without acknowledging the work of almost 100,000 employees that I am proud to take -- to be part of.

Net income have a stability of 8.8% in 2016 to 11.3% in 2017 requires conviction and perseverance. Conviction that we have everything we need to occupy our space in the market, live up to our customer expectations and to then do our best to guarantee increasing return to our shareholders. Perseverance to overcome obstacles and turn challenges into opportunities. This was the basis of our work in 2017 and will continue to guide us through 2018.

I need to tell you that 2018 for us will be even better than was 2017. I do believe and I repeat that Banco do Brasil's size must be adequate to reach ability to generate results. Only through this way we have been able to fulfill our purpose of taking care what matters to our customers, employees, shareholders and to our Brazilian society.

All that was made in 2017 by combining, first of all, increasing gross spreads in the business. For example, 81% in the individuals portfolio, 31% in companies and 11% in agribusiness. Continuous improvement in our asset quality. The delinquency ratio reached 3.74% in the last quarter of 2017, confirming the trend of improvement that we have been disclosing to you. Let me remember you that in the second quarter, the delinquency was 4.11%. The third is reduction of 20% in provision expenses, 3.1% decrease in the administrative expenses, 9% increase in fee income, cost-to-income ratio improvement moving from 39.7% in 2016 to 38.1% in 2017.

With that said, we are not only reinforcing our commitment to achieve 9.4% in Common Equity Tier 1 in 2019 likely required by Basel III, as I also announced that we will keep at least 11% in CIT1 (sic) [ CET1 ] in 2022. But I can even look further to reach 12%. This is our challenge impossible but it depends on our credit portfolio.

I believe in the path we are leading, the relationship model we pursue with our customers like modernity, convenience and innovation. We are investing heavily in specialization and customer stabilization. We began the year by announcing the expansion of nearly 1,300 relationship managers in our branches who are focused on segments such as individuals, very small and small companies and also agribusiness.

In the first half of 2018, we will open 85 new Exclusivo offices and Estilo branches. We finished the year with 4.6 million high-income [ price ], of which 2.54 million are already in digital models. This means more business with customers served by this model are more likely to consume products and services. We can realize that the improvement of the return is between 22% and 44% in this situation.

We will also open another 5 very small and small companies [ specialized ] offices and [ 46 ] [indiscernible] branches, reaching a total of 168 units until December. We want to offer our customers an experience that goes beyond the banking relationship to reach you where users choose. We are investing in segment specialization and alternative channels to bring innovation and convenience to our clients.

Yesterday, for example, we made available to a group of selected clients access to something completely new. We have built with Facebook and IBM a solution that will allow our customers to do banking transactions essentially on Facebook by using artificial intelligence. The idea is to reproduce the banking solution in the space where the customer is used to another engage.

In terms of macro, we expect the economy to keep on the recovery path starting in 2017, and the GDP is expected to grow by 2.8% this year in Brazil. Consumption, we will again be the protagonist in this economy recovery as well agriculture. We will also count on positive contributions of investments, which are expected to grow after 4 consecutive years of decreases. I believe that despite of some uncertainty in the external scenario, liquidity and low risk aversion will help to get through off of its surface through emerging economies.

And looking at Brazil with inflation and balancing monetary policy. It will certainly benefit from the surface. We have big infrastructure projects that will probably attract foreign capital. 2018 for us at Banco do Brasil will be market by investments, capital market, production and the continued improvement in our relationship with our customers. I do believe that the [ name of the game ] will be in 2018 Brazil that are -- sorry capital market then continues. We do believe in this because nowadays, we are seeing a movement from the corporate funds to project funds, movement from corporate funds to capital market structure as a debt or even the equity operations.

With all that in mind, I would like to reinforce to you my commitment to the guidelines that are guiding our management and which I have been emphasizing since I became the CEO. Take care of what matters to our shareholders, clients and employees. Keep working to improve profitability, efficiency, improvement, capital and credit management, quality of the services provided to clients, digital transformation and customer experiences.

Another thing that I'd like to reinforce to you is our shares in mid-2016 when we started this project at -- was at BRL 15.49. Yesterday, we closed our -- we reached BRL 42.4. Nowadays, Banco do Brasil value is around BRL 118 billion. As I told you yesterday to the news, to the press, we are happy with these results, but we are not satisfied with this result. We believe -- we do believe that we can reach much better with growth in the future. And another thing that we'd like to reinforce to you is relating to our expenses because our guidance was -- from [ 1 to 4 ], but we intend to work hard as we did this in 2017 and try to rebuild this [ gap ].

I'd like to thank you for this moment with you, and thank you for -- to the shareholders from Banco do Brasil. Thank you so much. I will pass to Daniel Maria. Thank you.

[Daniel Maria, executive]

Thank you all for attending our fourth quarter '17 results, financial results conference call. I'd like to start the presentation on Slide 4. On the right-hand side, we point out the strategic foundations that our CEO just pointed out. On the left, we have the highlights for the 2017 results.

2017 adjusted net income grew 54.2% over 2016, driven by the 9% growth in fee income; the strict cost control that resulted in a reduction of 3.1% in mainly administrative expenses; the improvement in credit quality, which result in a decrease of 25.5% in credit provision expenses. As a result, the cost-to-income ratio reached 38.1%, the lowest level in Banco do Brasil's history. The Common Equity Tier 1 rose to 10.5%, the highest level ever reached by the bank since the internalization of Basel III rules in Brazil.

On Slide 5, we bring the details of the net income. The BRL 11 billion in adjusted net income shown in 2017 represents a 54.2% growth over 2016. We also would like to highlight the 82.5% growth in the fourth quarter of 2017 when compared to the same quarter of 2016. As a consequence, the return on equity was 13.6%. Under the commonly used metrics by the market analysts, return on equity was 12.3%.

On Slide 6, we drill the net income down. On the graph at the bottom of the page, we present that the NII for 2017 reached BRL 57.9 billion. The net [ financial ] margin, which comes up to a deduction of BRL 25.3 billion of allowance for loan losses and expenses reached BRL 32.6 billion, the highest value in recent years. The fee income reached almost BRL 26 billion, overcoming the ALL expenses, that occurred for the first time since 2015. Administrative expenses were BRL 31.8 billion. And lastly, the resulting adjusted net income of BRL 11 billion.

On Slide 7, we bring the track record of some market ratios of Banco do Brasil. We've also added to the series the average estimates by analysts for 2018 and 2019 to those metrics. Adjusted earnings per share increased from BRL 2.57 in 2016 to BRL 3.97 in 2017. The dividend yield in the fourth quarter '17 was 3.64%. The price-earnings ratio reached 8.05, and the price-book value ratio was 0.9 in the fourth quarter.

On Slide 8, we advance the commercial funding. Commercial funding grew 1.3% in the quarter, reaching BRL 579.6 billion. We highlight the 5.6% growth in December '17 over December '16 of the savings deposits. I point out the stability of the adjusted net loan portfolio to commercial funding ratio, which corroborates that commercial funding has been primarily supporting the loan portfolio.

On Slide 9, we have an expanded view of the loan portfolio compared to the previous quarters. In the last quarter, the loan portfolio grew slightly, reaching BRL 681 billion. On an annual comparison, we have a decrease of 3.8%. It is important to note a change in the mix over the quarters. Agribusiness loans gained relative participation in the total portfolio, moving from 25.4% in December '16 to 26.7% in December '17. Loans to individuals accounted for more significant share of the total portfolio, reaching 27.5% in December '17. And on the other hand, the companies portfolio has been reducing. It went from 41.7% in December '16 to 39.3% in December '17.

On Slide 10, we present the revision of the graphs, loan disbursement compared to the first quarter '16 that represents the base of 100. This chart demonstrates the loan origination behavior in Banco do Brasil. We see the disbursements growing in the last quarters. We highlight the disbursement of loans to individuals, which grew 81% in comparison to 2016. The disbursement of loans to agribusiness presented a growth of 11%. Loans to companies presented a 31% increase in disbursements. Although the disbursements to companies grew, they were sufficient to offset the amortization and write-offs in the portfolio in the period. What led this portfolio to a lower balance in December '17.

On Page 11, we advance that individuals loan portfolio is comprised of mainly of lines with a better adjusted risk return. The 4 credit products shown in this slide represented 6% -- 76.4% of organic individuals portfolio. We highlight the payroll portfolio, which grew 7.4% in 2017 with a market share of 21.7%. In 2017, Banco do Brasil disbursed BRL 38.9 billion in favorable loans, the highest level since 2013. The balance of mortgage portfolio was also stable in the year, with a market share of for individuals of 7.9%. The salary loan as well as the auto loan portfolio decreased in the last 12 months.

We demonstrate on Slide 12 a decrease of 9.3% in 12 months in the companies portfolio in the expanded view, reaching BRL 267.4 billion. The credit portfolio to our very small and small companies went down 31.5% in the year, while the portfolio of middle-sized companies, corporates and government reduced 2.5% in the same period.

On Slide 13, we have the credit portfolio to agribusiness. The agri portfolio grew 1.2% year-on-year. The agricultural we owned grows 6.1% in 12 months, offsetting the decline in the credit through the agroindustrial disbursements for the 12/17, 12/18. Harvest plan reached BRL 41.4 billion, an increase of 12.5% compared to the 2016, 2017 harvest time. For the 2018, 2019 harvest, we have already made available BRL 12.5 billion to free working capital for input purchase, 15.7% more than the total disbursed for this purpose in the previous crop.

Turning to Slide 14, we present the quality of the portfolio. The behavior of the delinquency ratio over 90 days has been shown in a downward trend in the last quarters. The pickup on the delinquency occurred in the second quarter of '17. And after 3 consecutive reductions, we ended the period with an indicator of 3.74%, which includes the specific case in the companies portfolio. Excluding this case, our NPL 90 days would be 3.3% and 32%.

On Slide 15, we have the breakdown of delinquency by segment. The companies portfolio had shown consistent improvements, ending December with NPL of 6.27%. Individuals had a reduction of 13 basis points compared to September '17, reaching 3.36%, while the agribusiness was 1.67%. We observed that delinquents in the agri portfolio can be explained by weather events observed in some parts of the country associated with the price events that reduced the margins for some procedures. These impacted some change such as the livestock.

On Slide 16, we showed the provisions and coverage ratios. The coverage rates -- the coverage improved and reached 154% -- 154.9% at the end of December '17 with a total provision of BRL 36.7 billion. At the bottom of the page, we present the provision expenses that in the fourth quarter '17 was BRL 5.6 billion, the lowest level for the quarter since the second quarter of 2015. This reflects the quality of the loan origination.

On Slide 17, we present Banco do Brasil's average risk compared to the industry. It reached 5.8% at the end of December while the industry was 6.6%. 91.5% of our loans are rated in the range of -- from AA to C.

On Slide 18, we bring the NPL formation. The nominal value reached BRL 5.6 billion, and the indicator on the loan portfolio attained 0.9%, reinforcing the medium-term trend of lower levels of NPL formation, although some volatility remains, what explains the number compared to the third quarter of '17.

On Slide 19, we present the NPL formation by segment. We have a nominal formation of BRL 1.5 billion in the individual portfolio that is lower than in the last quarters. For our group agribusiness, it was BRL 0.9 billion and BRL 3.13 billion in companies, which is lower than what we have been reporting in recent quarters. Those figures show a trend of improvement in the quality of the portfolio. On the Slide 20, we released the restructured overdue credits. Renegotiated transactions through the fourth quarter reached BRL 3.1 billion. I would like to highlight the amortization of this portfolio, which achieved the highest level in the history, BRL 1.5 billion. Important to highlight also is that this amount does not include accrued interest. Furthermore, NPL over 90 days for the portfolio showed the third consecutive drop as a consequence of the coverage, which is 49.2%, the highest value since the second quarter '15. At the bottom of the slide, we have the NPL formation of the renegotiated loan portfolio, which reached BRL 1.76 billion in nominal value and a ratio of 6.81% over the portfolio.

On Slide 21, we analyzed the recovery reached BRL 52.7 billion, a decrease of 3.8% over 2016. As a reference, the average portfolio fell 7.5% in the 2017 showing the effects of margin optimization.

On Slide 22, we have the spread analysis. NIM rose in this quarter reaching 4.83%. One of the reasons that explains the increase in NIM was due to higher relative participation of the loan portfolio in the early efforts associated to our higher level in recovery. Additionally, the year's performance of financial expenses brought positive impacts in the quarter. The behavior of NIM is highly related to the loan portfolio growth, the reduction of NPL over 60 days and changes in the mix of the portfolio. We believe that those drivers will help to improve the NII and revenue during the second half of 2018 and, more intensively, in 2019. Continuing the spread by portfolio, the individuals portfolio presented stability with 16.29% in durations to 16 23 -- 16.32% in the previous quarter. The spread of the agri portfolio increased 4.79%, while in the spread of the companies portfolio dropped to 4.96%, mainly impacted by the reduction in exposure to very small and small segments, which presents better relative returns.

On Slide 23, we show the fee income. We highlight the 11.7% growth in checking accounts fees. The increase can be explained by changes in the service of those accounts, allowing the bank to capture cross-selling balances. The asset management fees rose 26.5% in 12 months. Moreover, credit fees will 12.5%. We also would like to point out the 33.3% growth in the 12 months of fee-valued consortiums. On Slide 24, we show the administrative expenses and cost to income ratio. We can see improvement of our cost to income ratio, dropping from 39.7% to 38.1%, reaching the best value in the bank's history, as I mentioned previously. The institutional reorganization that we began at the end of 2016 and throughout 2017 has had a positive impact on expenses. We ended 2017 with 99,161 employees, a total of 4,770 branches and 2,033 points of service.

On Slide 25, we present the progression of Banco do Brasil's BIS ratio in the last quarters. At the end of 2017, BB recorded a total capitalization of 19.6%, the highest level since the implementation of Basel III in Brazil. The common equity Tier 1 was 10.8 -- 10.48%, also the highest level. This capitalization level shows the effectiveness of the bank's action to deliver the minimal capital ratio of 9.5% in January 2019 as committed to the markets. I also take the opportunity to reinforce the new policy that our CEO just mentioned to which at least 11% of CET1 in January '22. This target is included in the bank's capital plan and the declaration of the appetite and risk tolerance. On Slide 26, we simulate the capitalization of the bank with Basel III fully loaded. Anticipating the impacts of capital -- on capital resulted in rules that will still be implemented in the future, with which, a pro forma to BIS ratio of 19.32% against 19.64% observed in December '17. The pro forma CET1 ratio is 10.17. This exercise demonstrates that we are comfortable that we will be above 9.5% of CET1 capital in January 29, as commented previously.

On page 27, the [indiscernible] values compared to the 2017 guidance. We have achieved all the guidance for 2017. The allowance for loan losses expenses and administrative expenses were better than projected, the others were within the range.

On Slide 28, we have the guidance for 2018. Adjusted net income for this year is between BRL 11.5 billion and BRL 14 billion. NII, net of recovery, minus 5% to 0%. The organic domestic loan portfolio expanded view with the growth in the range 1% to 4%, with individuals portfolio growing from 4% to 7%, as well as the agribusiness portfolio. Companies portfolio is a range between minus 3% and 0%. ALL expenses, net of recovery, we expect to be in the range of BRL 16 billion to BRL 19 billion. Fee income growing below inflation -- fee income growing above inflation from 4% to 7%. And finally, administrative expenses below inflation, we estimate an increase between 1% to 4% in 2018. Now we can move to Q&A. Thank you very much.

[Operator]

[Operator Instructions] Our first question comes from Tito Labarta from Deutsche Bank.

[Tito Labarta, analyst]

A couple of questions, if you don't mind. First on your outlook for provisions. Since I understand it's after recoveries, and recoveries were about BRL 5.2 billion in 2017 and BRL 4.6 billion in 2016. How do you think that's going to evolve this year as that will impact the guidance a bit? So I just want to understand your outlook for recoveries. Also kind of on the back of that, because your net interest margin in the quarter went up partially because of the pickup in recoveries, but you also had better funding costs with interest rates still coming down. Do you think you can maybe see continued improvements in funding costs and maybe there'll be some upside on the guidance that you're doing for net interest income? Just want to get a little better understanding on it.

[Bernardo Rothe, executive]

It's Silva Rothe speaking. Thank you for the question. First, about the recoveries, if you recall what we mentioned in the previous quarter when we reviewed the results of the previous quarter, recoveries went down in relation to the second quarter. And I mentioned that we have a seasonality reported in Banco do Brasil. Usually second quarter and fourth quarter, we have higher recoveries than in the first and the third quarter. But the increase in year-over-year, you should expect the same trend next year. So we should have more recoveries in '18 than what we had in '17. But the first quarter probably is going to be lower than the fourth quarter of '17, and then it's going to increase again in the second quarter, go down a little bit in the third quarter and go up again in the fourth quarter. Fourth quarter is the strongest quarter for recoveries every year in Banco do Brasil. And just to remind you, we have, nowadays, much more [ good ] coverage than in the past, even what we had in terms of losses throughout the recession. So there is more to work with to improve recoveries, and that trend should continue next year -- this year and next year as well. So that's what we should expect. Again, first quarter, lower than the fourth quarter, but the full year of '18 higher than '17. In terms of NII, as I mentioned that we are going to have a lower recovery in the first quarter, expected lower recovery in the first quarter. We have a negative impact in NIMs in the first quarter coming from that. We are still working through the change in mix to avoid impacts from decreasing interest rates and so on, mostly in company portfolio, where the relationship between the mix and the interest that we charge our clients is much higher. So with 2 working with the banks to improve that relation to avoid big changes in splits by segment over time. But the trend is that we may have another [indiscernible] rates that's a possibility of some players in the market are considering for March. But folks report already consider that estimate is going to be stable throughout 2018. So we should have more some kind of stabilization in terms of cost of funding. But at the same time, we should have optimization in terms of interest rates that we are charging our clients, and that any changes in the future are going to come through increasing competition. That should happen at some point in the near future, but we assume that to be not happening at this point in time.

[Operator]

Our next question comes from Felipe Ikari from Itau BBA.

[Felipe Ikari, analyst]

I have one question regarding the 11% common equity Tier 1 target for 2022. In your assumptions, you expect [ any ] sale of noncore assets to achieve these targets. And could you share with us the assumption of loan growth in these new targets? Or at least, if it is considered the growth in line with the [indiscernible] or not?

[Paulo Caffarelli, executive]

Okay, Felipe, thank you for your question. Well, in our cash plan, in [indiscernible] opening statement, all the documents -- the formal documents that once we reviewed, does not include any sale of assets when we reviewed our targets and then when we planned what we had to do to reach the targets that we have. So no sale of core or noncore assets is considered in our plan and in our budget and so on, right? So we want to go through retention of profits, managing the growth of RWAs, growing in lines of credit that consume less capital. Basically, that's what we are going to keep doing. That's what we've been doing for the last 3 years, and that's what we are going to keep doing moving forward. The second question is on -- sorry. Can you repeat the second question?

[Felipe Ikari, analyst]

Yes, sure. And could you share with us the assumption of loan growth in the new targets or at least, if you're considering that Banco do Brasil is going to grow in line with the system or not?

[Paulo Caffarelli, executive]

Okay. For this year, you have the guidance already in place, right? But our guidance are a little bit below what should be the credit growth for the whole system. Why we have this lower growth than the system? Because we are going to grow -- the lines of credit you need are the right ones to grow. And we still have a big portion of our portfolio of transactions into long duration and lower profitability than our goals, and we don't want to grow that part of the portfolio, so we are going to grow where we are going to make more money, and we are not going to grow where profitability is lower than our target. That's why we have a guidance that indicates a growth below what, potentially, the system is going to deliver this year. For the following years, we don't have a guidance yet, but we should be close to the system. We don't see Banco do Brasil growing faster than the system in the next few years. We see this process of changing the mix of our portfolio continuing in the next years -- in the years ahead of us. Okay? But that can be close to the system but, potentially, in some parts of the portfolio, growing faster than the system. For our business, for example, you should grow in line with the system because we have already a big market share, so there is no need to improve market share. So we should be growing in line with the system. And I think that are not so interesting for us right now. We can grow below the system. So that's what we ultimately expect for the following years, okay?

[Operator]

[Operator Instructions] Our next question comes from Jorg Friedemann from Citibank.

[Jorg Friedemann, analyst]

I'd like to ask a couple of questions. The first one, with regards to your guidance for 2018, I had a bit higher hopes in terms of the fee income growth. It is a bit more shy than compared to the other private peers that already published their, I know, guidance. So just wondering where you see this evolving, especially taking into consideration that, as you showed in Slide #23, you have had significant momentum in the checking account fees and in asset management fees. So where do you think is the weakest parts of the lines that compose overall fees that make you a bit more conservative than peers that already published the guidance for fees. And my second question is related to [indiscernible] was running at a deficit and it turned for a surplus this quarter, more than BRL 8.7 billion surplus. And so just wondering if, on top of that, what do you see for contributions? At some point, do you think contributions could stop? And how much could you save? And whether you see gradually [indiscernible] reducing the exposure that they have in terms of equities in Brazil which is still a substantial part of the total assets?

[Paulo Caffarelli, executive]

Thank you, Jorg, for the question. In terms of fee income, we grew the fee income business by a lot last year, right? So -- and not everything can point to go to the same place. You can say that we should see more pressure coming from asset management fees, given that interest rates went down. So that's the natural trend in the industry to shift from high, [ at a minimum ], fees, like lack of funds, to lower ones. So we are not expecting to grow that much in asset management fees in the year. And our other lines in the fee income business that should have a not so good as what we had last year. So that's why we come to you with guidance that says lower than inflation, so it's good but not as good as what we had last year. And the difference is not that big, right? Well, the top of the guidance, 7%. We delivered 9%, so we are not that far. But we still have things to do and we are going to keep working through this process of bringing -- serving better clients and, with that, help them, moving our profits up further and generating more fees and business for Banco do Brasil. In terms of the fee, as you said, we do now, we have a surplus on our balance sheet and want to generate an income on a quarterly basis, which in the first quarters should be [ BRL 115,000 ], so that's going to impact positively the balance sheet in this manner in first half of 2018. For the second half, we have to wait and see at the end of the first half to see what the [indiscernible] are and that can begin to have a new indication of what's the potential positive or negative impact. About how the fee contributions should be [indiscernible] using the funds that we have need a review that you can see all the details in Chapter 8 of the MD&A. So we are still using GAAP, so there is no impact on the -- cash impact from the [ renewal ] of those to an expense. And if you look at the Table 139, the contributions that we are going to, to plan 1, are lower than what we make just by interest plus inflation over that particular balance that we have to repeat from previous. Exposure to equity, it's very -- it's been on the news, that we have been very verbal about what we are going to do. The plan is to mature the around. There is no -- most of the people that can now already retired so they have a plan to shift from equity to fixed income and to shift from concentration some of their exposures to diversify the exposure, even in equity, so that's what they have said already. That's the long term plan, it's not a short-term plan. So over time, you should see that exposure to equity decreasing. In the end, it's a mature plan, and that's the right thing to do to be able to keep paying the attention they have to pay over time.

[Operator]

Our next question comes from Carlos Gomez, HSBC.

[Carlos Gomez-Lopez, analyst]

I would you like to get an explanation about the tax rate. Previously, it was as low as 19%. If you take around 31%, you will find your guidance is between I think 31%, 32% for the coming year. How should we model the difference between -- after the tax rate comes down hopefully at the end of this year?

[Paulo Caffarelli, executive]

Carlos, thank you for the question. Our tax rate, really, the tax rate for '18 should be a little bit higher than '17. We have changes in our balance sheet that indicate that should happen. But we are keeping our soft guidance for '18 at the same range that we had for last year. In the top line, it's -- what's the top line? You take the earnings before taxes, deduct from that the after tax income and then you apply 30% to 35%. That's what you should have by the end of the year. That's what we have this year, closer to the 30% level than the 35%. It should be a little bit higher than that in '18, but we are keeping the [ top ] guidance that we have before. Related to the future and how the tax rate is going to behave next year, it's something very hard to tell you. We have to wait until September to know if we are going to have -- there will be a reduction in 2018 or if congress is going to keep the total contribution at the level it is right now. So very hard to give you an indication of what's going to happen. We have the 2 scenarios with the automatic we did, the tax rate or the social contribution rate is going to reduce in the beginning of 2019. But if congress decides to keep it, they have to make a decision approving congress that they can keep -- or they can do whatever they want, in fact, that for the social contribution rate should be kept at 20%. We need to have a decision in congress to do that. That's what I can tell you about 2019. We are working both scenarios and can tell you that any reduction in taxes is always good, so it will be great for Banco do Brasil, as a whole, if the tax rate goes down, but we have to pay at least this high level of tax rate that we have already, okay?

[Operator]

This concludes today's question-and-answer session. I would like to invite Mr. Daniel Maria to proceed with his closing statements. Please go ahead, sir.

[Daniel Maria, executive]

All right. I thank you all for the presence in the conference call. And for further questions, we are available for [indiscernible]. Thank you very much. Have a nice day.

[Operator]

This concludes Banco do Brasil's conference call for today. As a reminder, the material used in this conference call is available on Banco do Brasil's Investor Relations website. Thank you very much for your participation and have a nice day. You may now disconnect.