Banco Bradesco SA

BOVESPA:BBDC4

Earnings Call Transcript 2020-Q1

[Operator]

Good morning, ladies and gentlemen. Thank you for waiting. We would like to welcome everyone to Bradesco's First Quarter 2020 Earnings Conference Call. This call is being broadcast simultaneously on the Internet at the Investor Relations website of Bradesco at banco.bradesco/ir-en where you can find the presentation for download as well. [Operator Instructions]

Before proceeding, we would like to mention that forward-looking statements that are being made during this call, in relation to the company's business perspectives, operating and financial projections and targets, are beliefs and assumptions of the business management as well as information currently available to the company. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions as they relate to future events and, therefore, they depend on circumstances that may or may not occur. Investors should understand that general economic condition, industry conditions and other operating factors may also affect the future results of Banco Bradesco and may cause results to differ materially from those expressed in such forward-looking statements.

Now I'd like to turn the conference over to Mr. Leandro de Miranda, Investor Relations Officer.

[Leandro de Miranda Araujo, executive]

Good morning, everybody. Welcome to our call about the first quarter 2020 results. And today, the presentation will be made by the CEO of Bradesco, Octavio de Lazari Junior. Our Executive Vice President and CFO, Andre Rodrigues Cano, who's in his office in now, will be participating as well. He is Bradesco's [indiscernible] CEO and [ now starting the selection ] of Head of Investor Relations. After Octavio's presentation, we will have a Q&A session, and we will be available to answer your questions.

[Octavio de Lazari, executive]

Thank you very much, Leandro. My friends, good morning. I hope you and your families are well, and welcome to our call about the results of the first quarter 2020. And once again, we will be talking about the [ prevention ] in this very special moment, a very sensitive moment. The focus has gone out quite differently from what was taking place in mid-March, so -- when the performance very strongly in number of line discussions even above guidance. This scenario was radically altered by the worsening of the COVID virus in the second half of March. Nonetheless, we highlight that our balance sheet remained very robust from the moment the crisis rose to the scale that it is today. Our priorities have totally changed focused on maintaining services to our customers and keeping the bank fully operational, along with the well-being of our employees. And we are committed to supporting society in overcoming this crisis. I am proud to say that through the efforts of our entire team, the bank adapted quickly above expectations. In fact, we continue to operate in such extreme conditions, while always accounting for the safety of our people and our clients is the primary parameters.

Just to give a reference today, over 90% of our staff that normally work in offices are now working from home and 50% of the team from our branch network, which were considered an essential service.

We are also striving to resolve any liquidity issues of our clients and clients that may be experiencing by initiating the process for rolling over the debt and opening the red line with large companies, together with other banks and the Central Bank. We are structuring lending to finance small businesses of payrolls, and we have already discussed other measures with the Central Bank and federal bank as well. As I mentioned before, Bradesco has all the interest and duties to help customers emerge from this very critical predicament with the capacity to fulfill their commitments, enriching their lives without creating financial chaos. And also as we mentioned in our previous calls, we can see from previous crisis in which the financial sector was the main responsible for the crisis, this time, in particular, we are an important part of the solution.

In view of the uncertainty in hearing, and any projection at this time, especially considering that we still don't know for sure when the shutdown will end and how the pace of the resumption will be, we have decided to suspend our guidance for 2020. We will outline a new guidance when we have sufficient visibility. Meanwhile, we should stress that we do not see our ability to generate sustainable returns fundamentally altered. And in addition to the return of revenue, and resulting loan issues, which will take place within -- with the recovery of the economy and the return to normalities, one of the main -- one of the ways to recoup our return is through an essential adjustment process. We have already performed quite well before, thanks to the initiative which we have set at the beginning of this year to control cost in 2020 as well as in March due to the effects of the crisis in [indiscernible]. This should allow us to accelerate our corporate [indiscernible]. We see an even greater opportunity for adjustments in the branch network through the use of smaller formats in the workforce.

We will take advantage of this moment to train our talents in new services. And another key focus is the risk management in order to provide support to the country at this time and maintain the bank liquid and capitalize. We headed into the crisis in a strong capital position and high liquidity levels, and we ended [indiscernible], which already reflected a series of the market stress with a comfortable 11.4% Tier 1 ratio. Furthermore, we saw an increase of 6% in deposits in customers to client funds. This show already the -- our expanded loan portfolio had a strong growth with an increase of 5.1% over the quarter and 17% for 12 months. And part of the expansion can be explained by the effect of the exchange rate and part through the strong increase in demand mainly from large companies at the beginning of the crisis. Our delinquency grew by 40 bps.

We believe that we are preparing ourselves quite well in terms of credit provisions to face the impact of the defaults that will be triggered by the crisis. We have increased our excess provision this quarter, posting a provision of BRL 5.1 billion in our balance sheet to face the consequence of the pandemic. Our objective is to preserve our balance sheet. Bradesco had a debt of 44% in the first [indiscernible] jumped 11.7% in the quarter and ROE in the quarter, 11.7%. Income and return for the quarter were adversely impacted by the excess on provision and along with other effects related to market conditions that will return as the situation improves.

Now let's go to Slide #4. Although it's not usual, in order to be more transparent, we have included in the table a column of our performance in the month of January and February only so that you may see this in [ column ] by 2 months, January and February. We don't have our full capacity, but 60% of internal managers and account managers and investment consultants and bankers are on vacation. But you can see that we have been delivering robust numbers as embedded in the guidance, except with the insurance companies mainly due to the financial results. And since February, the credit portfolio was growing 14.4%. NII, which was 4% to 8% was 11.7%. Fee income rate was 3% to 7% was 3.6%. And costs were dropping 0.1%. And the result of the insurance operation, as you can see, has expended and will continue to have a decline. The expanded ALL, more or less, in the middle of the guidance.

And we decided to present the guidance. The [indiscernible] is still rather uncertain and about the resumption of the economy as well -- as soon as we have a better visibility, we will give you guidance.

Now going to Slide #5 where we explained why we decided to have this addition of provision. When the scenario became more stressed, maybe in the second half of March, we went in-depth into a study of the possible and uncertain scenarios for the future. This was when we decided to set up 2 expert teams in order to evaluate the scenarios because of this fear that the pace of growth in credit, exception made of the large companies. It was very clear for us that it would be frothy and delinquency will be going up, a higher denominator effect and a lower denominator effect. One provides credit recovery and the other one, ways and economics, studying the cases in the past and the crisis that we have already lived and probable impact on delinquency and revenues. [indiscernible] into the corporate of large [indiscernible]. In spite of using different methodologies, those areas reached very similar results.

Now going to Slide #6. We can see the effect of delinquency in the mass credits in the 2008 global crisis and the Brazilian 2016 crisis, and we made a projection for a totally uncertain scenario in this COVID crisis that impacts not specific sectors, such as the one indicated in the previous crisis. With all sectors to higher or lower extent that's affecting every sector. Our perception of making additional provisions for losses was totally necessary and materialized in a more important fashion. And they were -- and they're often corroborated by the balanced case of American banks that were published recently. [indiscernible] the drop in profitability of over 40%, ROA going from 16% to 4%. All this shows us very clearly that we needed to make supplementary provisions already in the first quarter of 2020.

Now let's go to Slide #7 to talk about the forecast for adverse economic scenario. Considering the study and in order to cope with the effect of the pandemic on our credit portfolio, we have already a supplementary provision of BRL 4.9 billion and a total of BRL 5.1 billion. That we will used during the crisis. And this secures the [indiscernible] provision is comfortable for the current moment. And it reflects the information that we have at this moment in time. But we will be continually assessing the need for new provisions for this crisis for the second, for the third, for the fourth quarter. This provision is made up of BRL 2.4 billion referring to what we internally call a provision for adverse economic scenario, which is part of our supplementary provision, and we will be using this during the crisis. A new supplementary provision for adverse scenario of BRL 2.5 billion, carried out this quarter and BRL 200 million provisions that is required, and that was carried out this quarter already due to the effects of the crisis. The clients that have extended their installments. The Central Bank, well, we have the date of February 29 and we decided to treat February 29 and kept it as a hedge that already existed. So BRL 200 million in the provision.

Now let's go to Slide #8 and talking about the credit operations. We very quickly made available to our clients of the business and SMEs, the extension of payments of the installment. And we have already extended over BRL 1 billion in operations with installments of BRL 1.4 billion BRL. And we are consistently evaluating the financial situation of our clients and trying to offer them the best solution for each one of them, not only the extension of the installments. And I would like to mention that in the scope of measures announced by the Central Bank, we had the last column, just to give you an idea, the amount coming from the reduction of reserve requirements to Bradesco was over BRL 24 billion that was released in between March 16 and April 23, where we did BRL 57 billion in new operations, more than 2x the reserve requirement. So we have no interest whatsoever in holding on to liquidity.

Now go to Slide #9. We have already talked about the measures to overcome the crisis, the effect of the crisis, but we have already talked about our priorities at the beginning of the crisis, looking out to our people, keeping our services, our food service, contributing to overcoming of crisis and managing the new -- we've set a new scenario has brought about keeping the bank capitalized and liquid. I can say that we were successful in all these items in this initial phase, mainly, and we continue to work hands on in order to maintain this condition. We've set up a 2-wall operation to turn the key to fundamentally base on home office operation. We had a small structure already set up. But overnight, we had to increase it very quickly. And as we said, over 90% of our teams that work in the branches are already working from their homes, and 50% of our teams that work in branches. And this is an essential service. So all our branches are open. We are working with reduced working hours, and 50% was doing one week and then they go home. And then the other team comes in, replacing them. On Monday, we have a new team that takes over and comes to work in the branches and so on and so forth. And I would like to express our deepest thanks to all the teams involved for the excellent work that they have been doing, especially our IT and systems teams and all the teams that work in our network in order to continue to serve our clients with this essential service where we had the impact of the adverse scenario already.

Our net income was BRL 3.8 billion, a drop of 39.8% to 12 months. And among the effects was the ALL provision, the supplementary one of BRL 2.5 billion for the COVID effect. BRL 200 million in provision required due to the crisis reduction into our margins with the markets due to the effects already [indiscernible] in the market reduction as a result of our insurance company, mainly due to the lower financial result, positions in shares and IPCA, a lower-band IGPM, a lower tax benefit because of this provision and for interest on equity.

And now let's go to Slide #12. Now turning to Slide 12. Our ROE in the quarter posted a significant reduction settling at 11.7% and the same effect can be seen in our ROE, 3.1% in the quarter due to the negative impact of mark-to-market advances. So there's mark-to-market, and now we have volatility that becomes more stable. And total assets increased by 5.5%.

Now we turn to Slide 13. Talking about loan portfolio, registered an impressive growth of 17% year-over-year and 5.1% in the quarter, 2.6% in individuals, 7.6% in large companies and 4.4% in SMEs. That's an impact of the liquidity here that I mentioned to you, ladies and gentlemen, about [indiscernible] since March 15 to 19. Part of this growth can be explained by the effect of exchange rate fluctuations on the loan portfolio in U.S. dollars mainly in the large companies portfolio. Excluding the effect of exchange rate variations, portfolio have grown by 3.4%, in addition, a strong increase in demand for loan by large companies in March. But now things are back to normal.

For individuals and SMEs, the growth in the quarter largely reflects the strong performance we have been posting up to February. We expect a slowdown of growth in the coming quarters, but it's still difficult to predict the size of the reduction demand for loan.

Now on Slide 14. Total NII decreased 6% in the quarter and increased 2.9% year-over-year. The reduction in the quarter is mostly related to the performance of the margin with the market. The margin in clients increased 8.4% over 12 months primarily as a result of the increase in loan volume, which more than offset the negative impact, the regulatory cap over the units interest rate at 8%. Mark-to-market decreased 37% quarter-on-quarter due to the impact of market volatility in the trading portfolio, like I said before, with mark-to-market.

Now on Slide 15. We had an increase in NPL creation this quarter, already reflecting the impact of the pandemic on the loan portfolio in the end of March, and specifically within the corporate segment. In addition, this increase in creation reflects the growth of the loan portfolio and the shift in the mix. It is worth mentioning that the NPL creation in the third quarter and Q4 were impacted by the large corporate credit between due and then later renegotiated, for which we were already fully provisioned. Our expanded loan provision amounted to BRL 6.7 billion, including the impact of the supplementary provision of BRL 2.5 billion and the required provision of BRL 200 million. The provision in relation to the portfolio cost of risk stood at 4.1%.

Turning to Slide 16. Our delinquency ratio this quarter increased by 40 bps, like I explained before. The reasons are the same as the one we gave for the progression of NPL creation.

On Slide 17, the 90-day NPL coverage ratio was 228% in the first quarter. As we mentioned before, we have a provision of BRL 5.1 billion. We shall consume this provision throughout the crisis, which may reduce our coverage ratio in the following quarter. In addition to the consumption of the provision already booked, we will constantly adjust our scenarios to evaluate the necessity of new provisions.

Now on Slide 18. Fee income, we saw a decrease in the quarter of 6.2% and an increase of 2.6% over 12 months. We have experienced negative impact on cost income, was reduced 2.4% quarter-on-quarter -- year-on-year mainly impacted by CLO and interchange fees. The checking account lines performed well, growing 7% year-on-year, mainly due to the increase in the customer base last year. We increased our customer base in 1.9 million or nearly 2 million customers.

Custody and brokerage services line were positively impacted by the growth in volume of both institutional and individual trading through Agora, or investment in-house that is doing fine, a lot of demand from our customers. And in the first quarter, we already have 416,000 investors, growing by 13.7% and an increase of 246% in the number of deals performed in the equity market.

Moving now to Slide 19. Speaking of expenses, a reduction of 0.4% over the last 12 months. As we know, as we've said before, our goal is 0 base growth, and we managed to achieve a reduction there. We had a sharp slowdown in annual growth related to administrative and personnel expenses and strong reduction in both lines for the quarter. This performance is mainly due to the measures that we have taken to reduce costs at the beginning of the year. And although our guidance for 2020 is 0% to 4%, our goal was 0 growth. We expect to see a reduction.

Additionally, the reduction in operation volumes in March has already had an impact on lowering our administrative expenses. We reduced 78 branches in the first quarter, with expectations of closing more than 300 branches in 2020 and a reduction in the number of employees also due to the voluntary severance program, a reduction of more -- or nearly 2,000 employees. As I mentioned earlier, the experience would leave in the environment of the COVID crisis, such as home office, a boost in the use of self-service by customer, and remote customer service has opened a phase for a profound restructuring in the way we operate, which we're going to expedite the conversion of branches into customer service points and cut back on traditional branches. For our staff that does not work in branches, we see an opportunity to continue using home office and reducing the amount of occupied space that often build costs.

Moving on Slide 20. We now discuss Bradesco Insurance. We saw a major impact on the financial performance due to the effect of market volatility, particularly equity portfolio, multi-market investment funds. In addition, we had the effects of the lower select and negative impact due to the mismatch of IPCA and IGPM, which affect our ALL.

On the one hand, we know that the financial result will be a challenge. On the other hand, we continue to see an important improvement in operating performance with the reduction in the loss ratio compared to our fourth quarter 2019, which resulted in the improvement of the combined ratio. The Insurance group has been monitoring the economy, and this is the effect caused by the new coronavirus. And we understand the importance of our products as an instrument to help and support the resumption of our customers and families that may eventually be victimized by the virus. Several actions were taken to ensure the best service with security and adjusted to the reality presented through an exclusive call center adjustment of the operations of primary care clinics, that, since the beginning of the pandemic, have been operating at extended hours from Sunday to Sunday. This initiative also serves to relieve the demand for ER and emergency care. In the beginning of social distancing measures, we begin to see changes in the behavior of events. Bradesco [indiscernible], for example, if on the one hand we saw the first signs of reduction in elective procedures, which is only natural, people don't see the doctors so often for elective procedures, these will possibly be postponed to the fourth quarter or even next year. On the other hand, there was a gradual growth in emergency and hospital admissions due to the new coronavirus. It is worth mentioning that these elective procedures should be resumed ahead once isolation -- social isolation is eased. So although this is premature to make any kind of projection regarding, more specifically, the future behavior of these events. It is estimated that their effects can be worsened in the coming periods.

In auto insurance. the decrease in auto circulation calls the momentarily change in the frequency of claim notices driven by the closing of repair workshop as well as the beginning of the drop in the sales of new vehicles, impacting the sales of new insurance, shifting the focus towards policy renewals.

Now turning to Slide 21. Our the final ratio fell by 190 bps in the quarter mainly driven by higher-weighted assets due to an increase in loan portfolio and tax credits generated by the [indiscernible], absolutely normal. In addition, we saw the impact from a reduction in mark-to-market gains on the securities portfolio, which was already explained before. We had a volatility involved. We see the Tier 1 ratio of 11.4% and common equity or core capital of 10.3% at very comfortable levels, considering the requirement of 8.25% for Tier 1 and 6.75% for common equity. We experienced a lower consumption of capital with loan growth throughout the year. Given the downturn in the economy, we must consume at least a portion of the tax credit, raising the capital position further throughout the year.

So that's all we have. Thank you very much for your attention. I think it was important to explain the reason why we have this provision for this half of the year for the first quarter and explain how we study and envisage important measures about provision, considering the future scenario, which is still very confusing, very uncertain, so to speak. We don't know exactly whether dimension or extension of this problem will be, and that's why we consider that despite the reduction, despite the ROE from 20% to 21% going down to 11.7%, we understood it would be very prudent and necessary to do this complementary requirement and the supplementary requirement to preserve the balance sheet of the bank, take good care of our customers and, therefore, resume our operations back to normal, so we can have an upturn again in the Brazilian economy with the profitability of the bank.

Thank you very much, and we're open for questions now.

[Operator]

[Operator Instructions] Thiago Batista, UBS.

[Thiago Bovolenta Batista, analyst]

I have 2 questions about the quality of your portfolio. In my view, it was the main surprise in the results. The first one has to do with the strong increase that we had in NPL and transformation, and how much of that is due to the COVID crisis? I think the COVID was stronger in the first weeks of the quarter. Has there been any change, anything different that might explain this steep increase in NPL formation -- NPL. This is one question.

And the other one has to do with the provisioning of BRL 2.7 billion. You have already talked about this, Octavio, but it does not seem expected loss, but it is close to an expected loss? So what is the scenario that is embedded in this provision, NPL levels or because of the last year's crisis, that is to say, what was the rationale? Could you quantify how much of these provisions have already been built for the uncertain future that we have ahead of us?

[Octavio de Lazari, executive]

Thiago, Thank you for the question. This is Octavio. I will start by the second. With relation to this provision of BRL 2.7 billion, which has a very strong characteristics, BRL 2.5 billion refer to the supplementary provision for the COVID scenario and which is stated, Thiago, on the study that we've shown and that were done by our 2 teams that I have described. This is in many assumptions and many variables that you see on Page #5, and also the effects that happened in 2008 and 2016. And we cannot see the whole picture yet, but we estimated that we have a scenario that we will be living because of the COVID will tend to be worse than the peak of the 2 previous crises of 2008 and 2016. This is the reason why built BRL 2.5 billion now, but we do not know the length of this crisis. There will probably have additional provisions, depending on the science, whether the science is able to solve this COVID problem, whether isolations decrease and gradually companies resume work because we have the scenario of unemployment increasing to 2.5% for this and the BRL 200 million, reemphasizing that this is the first scenario that we see that the COVID. In fact, we shouldn't work only with the scenario [indiscernible] February and this is why we worked in March, and this is why we have an additional provision of BRL 200 million.

Regarding NPLs, I would say that the growth of the NPL formation can be explained by a few factors. First, with the corporate portfolio, the NPL formation, BRL 900 million, in the last quarter covers the regularization of the case of delinquencies that started in the third quarter. And because of that, we had a low effect, and there is a high set on NPL commission -- total NPL commission in the first quarter. We had some cases amounting to BRL 500 million we will take already provisioning and ended up becoming NPLs. That favored already provisions for, so we were willing to make an additional provision there. But for SMEs, we don't break this down, but we can say that is a matched portfolio.

We are not having big variations. SME is formed by mass in the part of the portfolio up to BRL 500 million in revenues. In the corporate portfolio, we also have something close to BRL 500 million, and one of them amount to BRL 300 million that have already become NPL, and they were already provisioned for.

The credit cycle for these companies or what happened to these credits, this doesn't have a lot to do with the crisis. It is not related to the COVID crisis in relation to individuals. I would say that this growth has to do with the growth in the portfolio. Mass credit we do more in riskier operations with higher margins to say. So you have a little bit of risk effect. But I repeat that overall, for mass credit, there is another important aspect, which is the following: If you look at the NPL 60 days past due and compare this to 90 days past due NPL. The 90 days is BRL 4 billion lower than 60 days. Because we are making a major investment in terms of renegotiating and -- with these clients. And this was hindered by the quarantine in the second week of March because we had notary public offices that were closed and many other things. So we see these 2 effects. And the corporate portfolio is almost BRL 1 billion already provisioned and this also explained, in part. Although we have more provisions, the coverage didn't improve a lot because we had a BRL 1 billion NPL coming in without being matched by provisions. So I think these are the most important points that I can raise about your question.

[Operator]

Jorg Friedemann from Citibank.

[Jorg Friedemann, analyst]

I would like to continue with this issue of portfolio quality. How do you intend to give us transparency about your portfolio? We know that you will have the prerogative of maintaining this portfolio as the Central Bank is allowing this without any downgrade. The downgrade has already been given to the portfolio as it is at the end of March. I would like to know if there will be an impact on the renegotiation portfolio and how we're going to work with the renegotiation portfolio regarding the ALL because it was leveled around 67%. So I would like to know the dynamics involved in order for me to -- and to extend is the access ALL was enough or not and whether this is making other level of magnitude?

[Octavio de Lazari, executive]

Thank you for the question. When we extended the installments, well, this was an attitude that we took in order to protect and to help people, and we did this for April and May. And what we see is that we are almost in May, and there is no solution in the horizon. There is no medication or drug or a vaccine yet. Having said that, we think that these people might have lost their job and maybe these people are working from home, and the entrepreneurs can legally decrease their salaries and cut their salaries. And this is why we are going to extend this further for an additional 60 days for June and July. Besides, we said to our branch network that if the person has a serious problem, it will be useless to do only this because the person has lost his or her job, and 60 days is not going to solve the problem. So it only prolong the agony. So -- and the solutions for these people, let's say, giving a grace period of 6 months or something like that. Having said that, the impact of BRL 200 million is because of these cases. So in these BRL 200 million, you have a thought of that, of people who have the 60 days that will pay and some others who will not pay. This is why you need to have a provision for new NPLs. We know the size of this portfolio today, BRL 1,400,000,000, overall, so far.

We do not mean that this will all become delinquency. Part will be delinquency and part will not be. Let's say 30% are delinquent and the other will pay their loans. So the liquidity should be much better, then we will have to evaluate this on a monthly basis. And so for many of these people that have already extended for 60 days will be extending into June and July, for instance. At the end of the next quarter, we believe we will be able to give you much more concrete data because we only have 15 days of this extension. So there is no way you can have a more thorough valuation. At the end of the second quarter, we believe that we will have more complete figures to convey to you regarding what will be paid and what will not be paid. Credits were renegotiated before becoming delinquent. They are not shown in the renegotiated portfolio. But as we said, we have already told you what has been renegotiated so far. But officially, we do not have this yet regarding the renegotiated portfolio before maturity or because of the pandemics. Because of the Central bank, we have not downgraded the credits, and that would be -- correspond to 10% of provision to our renegotiated portfolio, and is a part that has to do with recovered credits means credit -- go with 100% provision into this portfolio. And the position is only reduced when we receive this credit.

[Operator]

Our next question is from Giovanna Rosa, Bank of America.

[Giovanna Rosa, analyst]

I have 2 questions. A follow-up, actually, questions on credit quality. So the current NPL was very high this quarter. We already have 15 days of lockdown. So the worst is yet to come. Do you expect to see provisioning continuing at 100% of NPL formation? Or should we expect to see an additional provision consumption in the coming quarters?

The second question is about the risk appetite of the bank. You don't come in a strong portfolio growth trajectory. So how do you expect the portfolio to behave down the road? Do you think there will be the same growth pace? Or you expect to see an important slowdown in the coming quarters? And how do you imagine that the margin is expected to behave in the current environment that have a part of interest that is in the historical -- low historical rate, but at the same time the risk is going up. So could you give us more color about this?

[Octavio de Lazari, executive]

Thank you, Giovanna. Octavio speaking. With regards to the quality of the loan portfolio, like I shared, we don't know the extension of the problem that we're tackling in this snapshot. And according to our studies, the ideal is to start BRL 2.5 billion or [ 1 ] now. The BRL 2.4 billion that were now decided. So we are maintaining the teams. We are working on it. And yesterday, we issued a report of the Central Bank, mentioning a BRL 495 billion as additional provisional requirement in the Brazilian as a whole. So that's the additional capital necessary. So we keep on working. We keep on doing our job. We don't know what the extension will be and how long this will take place to happen. So we're working on additional provisions for even a second, third or fourth quarter depending on how it will end. We cannot say this is not going to continue. We expect it to continue, maybe at a lower scale, depending on the economic upturn. But if we keep on needing additional investment. As for the loan portfolio, we have one thing, which is customers who already have the risk are these people. We keep on expanding the installments, financial reorganization. Whatever they need. If we continue the same interest rates of the agreement of the contracts, that's a commitment by banks in order not to change the interest rate for these operations. But for new operations, you learned, naturally, there is a change in this scenario as a whole. There is a reduction in international lines, for instance, from U.S. banks, for us, or a significant increase on spreads. So we have to consider the FX and for instance. So for new operations, certainly, the embedded risk is much higher. And therefore, we have to consider the additional risk or better collaterals in the operation. And it might lead to a better low margin -- credit margin, naturally. But certainly, Giovanna, the loan portfolio did not grow again in the near future. Just to give an example, we saw a growth in the individual loan, the growth was 36%, nearly 37% with personal loans, which has a very good margin. So we are not going to grow more during the COVID. So payroll loan, for this one, we'll be working on it to have things under control. Mortgage loan, we also try to maintain the growth guidance, but it's expected to grow less naturally owing to the market. Credit card, also lower growth. Auto is also going down. So it's not going to grow more at the same pace because that's a natural market circumstance coming from lower people demand and also because we have a higher credit risk. And therefore, people are being more conservative, so to speak, in credit rating and also how we work on our guarantees and collaterals, consequently.

[Operator]

The next question is from Thomas from BTG Pactual.

[Thomas Peredo, analyst]

I'd like to ask 2 questions. The first question is more focused on insurance. Can you help us imagine what we expect to see for coming quarters? Maybe seasonality is going to be slightly lower and, therefore, health insurance company profit, but the financial performance was heavily impacted this quarter. So what could you envisage down the road at about the flow coming back in the second quarter or inventory effects that may be are at a lower level? And overall speaking, if you think about the bank, we had a high level of provision, additional provision to about the future, maybe imagining that 11% ROE, as a whole, is something that makes sense for the coming quarters or not. Could you tell us more about it, about these points?

[Leandro de Miranda Araujo, executive]

Thank you, Thomas. Vinicius, the CEO of the insurance company. Are you there? Would you like to tell us more about it? And you, Octavio.

[Vinicius De Almeida Albernaz, executive]

Thank you, Thomas, for the question. With regards to the insurance group results, as you know, the result of insurance operations were heavily affected. We saw a number of factors, very low IPCA, which is a significant part of our portfolio, lower Selic rate, and the impact of the equity income that happened in March, a drop of almost 47%, affecting part of our provisions for equity that is mark-to-market. Down the road, we have a risk allocation that is very appropriate vis-à-vis our AUM. We are still assessing different scenarios. When it comes to the operating income, this income is very adequate for the first quarter, in our opinion. Despite the more challenging scenario that became more intense in the second half of March. This positive result is maintaining at a very appropriate level. Like Octavio said, we're going through a moment in which we have limited visibility, and we are working on an assessment of this prospective scenario, owing to the very atypical event. If you think about our provisions, we already see an impact in the first quarter, according to the model, what technical positions we have based on some strengthening observations. But when you check the context based on the first half of March with a pandemic, what we see is a drop, a natural drop of production, which is related to sales and revenues, but we also see an apparent offset considering the claims owing to the drop of elective procedures in health care, for instance, or maybe postponing the procedures. And at the same time, we see the gradual replacement by ER and admissions to hospital associated to COVID. As for life insurance, we believe that in the future, we expect to see an increase of indemnification or compensation owing to the pandemic. It's still too early to think about the magnitude. We never checked that in March, but in our analysis and model, we are trying to analyze the impact. And like Octavio said for auto, we also see a short-term effect of social distancing role affecting the number of car crashes, claims. And down the road, from the moment we have a scenario of easing of social distancing, chances are that the number of claims will grow very fast, considering some social indicators. And the scenario for new sales will be -- will depend on the economic recovery. Today, the auto segment is really surviving from renewals. So this scenario is poorly visible. We're being very careful with our analysis, already reflecting our models, doing stress tests to fine tuning our modeling, but visibility, it is very low. But what's very strong, in my opinion, is the migration. Like Octavio said, the migration the company did into home office. We have the feeling that we are getting -- we are improving, so to speak, our digital channels, providing operational improvement. So you can adapt business sales in our channels.

[Octavio de Lazari, executive]

So just to summarize, operationally, the insurance part is very good. Operating numbers are good, claims ratio is going down and elective events, medical procedures, well, they don't see a doctor 4x in the same day. So the claims ratio will not be there, and will come back later. So we'll have this gain. But what really hits the insurance company are the conditions or the strategies of volatility in the market for equity, income, stock funds, multi-market. So once volatility is over, this will be -- this will benefit the insurance company. So it's only a matter of considering the volatility moment and consider the long term because the assets we have there for pension plans. So it's macro because the changing scenario was too certain and volatility was very intense. So that's for the insurance company. And answering your first question, for provisions, we did what was reasonable and what the moment asked us to do. But certainly considering this scenario, we have to do some work down the road. Because you have the guidance, it doesn't make sense, talking too much about the ROE, whether it will improve or not. It will mostly depend on the behavior of the economy and how significant the line of delinquency will happen or drop in GDP or higher unemployment, there are too many variables involved and it's too hard to tell any numbers of figures now.

But certainly, we are using the right tools and doing the right job to preserve the company's numbers.

[Operator]

[indiscernible]

[Unknown Analyst]

I have 2 questions. One, having to do with the NPL. Can you give us some color about what you have seen so far in April? And the second question, in short-term delinquency and long-term delinquency as well. And the second has to do with portfolio provisioning. And the delinquencies will probably be worse than in 2008 and 2016. Do you know where this indicator should go in order for you to keep a comfortable level, considering the impact of the crisis?

[Octavio de Lazari, executive]

Right now, I would rather not talk about the evolution of the NPL from now on because we never talk about this, everybody's provisioning. We just can't give you a guidance or new data, you know that we have canceled guidance because we are waiting for a more predictable scenario so that we can go back to giving you guidance. And as I said, we will be evaluating the position on an ongoing basis. And we will probably have to do divestment, and that's all I can say so far.

[Unknown Analyst]

I have another question. We saw the loan, labor loan being discussed and do you believe there will be new forms of risk-sharing in order to further incentivize credit? Have they been working along these lines?

[Octavio de Lazari, executive]

This is Octavio. We continue -- these banks continue to talk with the government and with the Treasury and the Central Bank because we were able to build the good alternative for company from BRL 360 million. But for those lower than BRL 360 million or higher than BRL 10 million, we are discussing. And we are thinking about increasing the range from 0 to 30. So you would get a wider scope of companies, will cover a wider scope of companies. If this is possible, and I believe it will be possible, it will have a wider range of companies. And we have the guarantee -- credit guarantee fund of the BNDES from BRL 30 million to BRL 360 million, and we are in advanced talk. We talk about the new line. Airlines, for instance, and the company that are suffering the most and others. So we don't have one size fits all. We don't have one single solution that may cover all these companies. It will take a lot of companies, for instance. We already have relevant stock with many of them. So that we may reach a good solution, a win-win situation for everybody for these range of companies. Okay.

[Operator]

Eduardo Nishio from Banco Plural.

[Eduardo Nishio, analyst]

The quality of assets. I think 2 points have been very solid considering this moment. But in a way, delinquency, if you compare with the area that didn't have this kind of delinquencies, such as the NPL formation. [ The interpreter apologizes but it's almost impossible to hear the analysts. We apologize. ]

It is not really an additional in terms of accretion or something like that. I would like to understand this, which were the lines that were really impacted by COVID so far. And looking ahead, the 4 million in project extending. This wouldn't be a correct snapshot, I would say, because it would be postponing this. Formation is very strong. Could you explain a little bit about the dynamics involved?

[Octavio de Lazari, executive]

It's very difficult to draw comparisons in relation to the extension. We chose to extend with the consent of our clients at the moment when we study this. At the moment, actually, we are talking with our clients and it's different from other banks that did this like a blanket situation on crisis while it's extended for everybody. So this is a different strategy that it sits among banks. In this period, we had 6 million installments that matured and 1 million ask for extension and the others paid. So you have to look at the flip side of the coin. Anything I can say to you about the situation in terms of provision would be very bad. It wouldn't be honest if I did that because none of us, none of us of any business market or world market, no one can estimate the size, the magnitude of the COVID-19 problem in terms of provisions and delinquency and whatever. JPMorgan, for instance, if you read, they provisioned, if I'm not mistaken, about $8 billion. So this was a decision that we made. And this is what we are doing as well. Although we are not capable of seeing a catastrophic scenario. We know that the COVID scenario will have a bigger impact on delinquency than 2008 or 2016 because all the sectors are being hit. It's completely impossible to have this kind of visibility. So we cannot tell you. We do not know how much or at stake to happen in the future. So any theory is too premature because we only have about 15 days. They know that the curves go up in terms of delinquency, and they continue to go up. What we have to do is monitor this on a weekly basis so that we can see what is going on and to make decisions about what to do in the second quarter. And what will come ahead of us in terms of delinquency problems. So revenue generation capacity. We have huge competitive advantages. Under the -- receiving many, many new clients, many new clients coming onboard. So of course, there are problems, of course. It's very important to look after a quarter, and it would be even stricter than BBB, for instance, and our need for provisions and the need to grow revenues, so this comes together.

[Eduardo Nishio, analyst]

In terms of portfolio, what would be the amount of the loan book? Can you quantify that?

[Octavio de Lazari, executive]

I don't understand what you're saying at Bradesco.

[Eduardo Nishio, analyst]

The extended contracts represent how much of your overall portfolio?

[Octavio de Lazari, executive]

Are you talking about the portfolio or maturities? Well, let's see. 6 million maturities, 1 million extended, with an average of 30 months, 6 times 30, 180. So I would say 180 in terms of installments. Okay. This is just a quick math. I would like to -- visibility is very low. And we do not know what will happen, and a solution has to be found in the future. But with all these uncertainties that is understood that has to take some attitude and play the role that is has to play. And our goal is to preserve our people, our workers, liquidity, our clients, our balance sheet. And it is totally impossible to have a more precise forecast. It will have to be necessary what we are doing. That is necessary and will continue to be necessary from now on. And we are taking the right attitude to preserve and to maintain our history and taking all the necessary measures. They have to be taken. The Brazilian economy is very diversified. And because of that, we have to think also about tapping into all these advantages. But right now, these attitudes were necessary and we took them.

We wish you all a very good afternoon, a very good holiday. Thank you very much.

[Operator]

That is the conference call is closed. We thank you for participating, and we wish you all a good afternoon. Thank you.

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