Banco Bradesco SA

BOVESPA:BBDC4

Earnings Call Transcript 2023-Q1

[Carlos Firetti, Business Controller & Market Relations Director]

Good morning, everyone, and welcome to the Conference Call to discuss our First Quarter 2023 Results. Thank you for your interest and participation. Our CEO, Octavio, will present Bradesco's results, and then we will have a Q&A session. [Operator Instructions]

The presentation and other materials are available for download in our Investor Relations website. The presentation will be made in Portuguese with simultaneous interpretation to English. You can choose the audio of your choice on the platform.

Now I turn the floor to Octavio who will begin the presentation of our earnings. We'll meet again in the Q&A session. Thank you very much. See you soon.

[Octavio de Lazari, CEO]

Thank you, Firetti. Good morning, everyone. Thank you for joining our videoconference to discuss our earnings of the first quarter 2023.

In the first slide, we present some highlights. We posted a net profit of BRL 4.3 billion, a 10.6% ROE in the first quarter, in line with the expectations we indicated in the last earnings release and reflected in the guidance.

Credit provisions are still high, however, within our indications. We saw positive progress in important lines such as insurance operations and market NII. This first quarter was marked by volatility in the markets, including discussions on interest and tax issues. However, the quarter ended better with a positive expectation brought on by the new tax and fiscal framework.

As we mentioned previously, we see our second quarter performance still under pressure mainly due to credit provisions. We reinforce the message that we see our earnings evolving over 2023 with superior performance in the second half. We believe that our structural return has not changed significantly. Bradesco's management is focused on delivering returns compatible with what we have previously provided. But we do acknowledge that this is a recovery that will be gradual.

Before we talk about our numbers, let's talk about strategy. There are a number of initiatives taking place simultaneously, such as in retail bank, high income, digital assets, IT and others. We've spoken at length about expanding our operations in high income; the purchase of Bradesco Bank, the Invest US, which is a partnership with BlackRock for the management of Investment funds abroad; the official opening of the new headquarters in Coral Gables that took place last week; the capital increase in Bradesco Bank now exceeding BRL 2 billion because we understand that this is fundamental, and we are allocating our efforts in this endeavor with a dedicated team.

And we also want to make clear that this does not mean at all that we are reducing our activities in retail because retail is the stronghold of the bank. It is embedded in our DNA. Obviously, at times like this, individuals and small and medium-sized enterprise suffer more. But this is part of the economic cycles.

The opportunities and potential of the retail operation are huge, enormous. It is clearly imperative that we adjust our structure to a cost to serve that is more and more profitable. We will talk a bit about this a little later.

Bradesco is broadly positioned in the Brazilian banking market with outstanding performance in all segments. In individuals, there are over 1.5 million high-income clients, 35 million retail clients and more than 50 million non-account holder clients who consume some type of product such as insurance, consortium, cards and others. In companies, there are 15,500 corporate clients and 1.7 million small and medium-sized enterprises.

With a presence in all regions, socioeconomic classes and generations, Bradesco is a solid reflection of what Brazil is. We've always been positioned to grow in tandem with the country and with the economic development of Brazilians. As I said, our positioning in the market is certainly a winner, and we are adjusting it to be more efficient and to invest in areas where we want to grow.

In the high-income segment, we seek to increase our participation and the relationship with the 1.5 million clients we have. This year, we are growing our investment specialists team by 40%. That is more than 2,000 advisers, specialists spread all over Brazil. And we are not going to stop there. This is a broad and continuous project that extends to our customers' experience also in the United States.

The focus of our teams on customer service has produced tangible results. The NPS of cards for this segment climbed 16 percentage points. And in investments, we rose 25 points. In private, we reached a local market share of 22% based on Anbima data, a bump of 4 percentage points.

Our bank in the United States, Bradesco Bank, already permits Prime clients to open accounts in dollars. We integrated with our app in Brazil, and the transfer of funds is completely digital, done online in real time. Furthermore, we have also created an investment solution that makes BlackRock funds available on a very smooth journey.

Cost to serve. Currently, we have three strategic fronts that we consider of great importance for our future: the review of the cost to serve in its broadest sense; technology and digital transformation; and customer centricity, where we will highlight the themes of NPS and principality. We will go over the details on the upcoming slides.

Optimization in cost of serve. We continue to make adjustments, fully mindful that the need for a physical branch structure was greater in the past since there's just been a migration of transactions to self-service channels.

Just to give you an idea of the change in people's performance, before the pandemic, we had almost 1 million teller transactions per day, every day. And today, this number has reduced to less than 10% of that volume. So because of this change in behavior, our focus is on reducing the cost to serve while promoting enhanced customer experience with a much more advisory approach.

In other words, with less paperwork, we have more time for the commercial team. And thus, we achieved an increase of 11 percentage points in the share of business teams in the service network.

We are transforming our branches and not simply closing them down. Obviously, when there are blatant overlaps, we need to adjust. But the truth is that we're expanding the number of business units, a format that makes more sense in a number of situations. Business units, just like branches, they're points of sale but with much lower fixed costs and no tellers. And therefore, they're focused on providing advice to clients and doing business.

Moreover, we are also expanding our network of banking correspondents called Bradesco Expresso, which will reach 46,000 locations and points of service by the end of the year. This is an important channel of originating -- for originating business and services in various regions because this network is totally based on variable costs, allowing us to serve clients at an adequate cost.

Talking about digital transformation. Our teams are working in a structured way. This is a process that began long ago and makes positive evolution year-after-year with the technological transformations that take place, the changing behavior of our clients, regulatory changes and the natural evolution of our business. As a result, 80% of the developments we make today adhere to the agile methodology with a 40% reduction in the delivery time of solutions.

Currently, 35% of business transactions already run in the cloud, and our goal is to reach 75% by 2025. This year, we are going to invest BRL 6 billion in technology and innovation, modernizing the bank with a continuous focus on customer centricity.

In our digital-native solutions, it is worth noting the simplification we made this quarter. We integrated next into Banco Bradesco, now as a new segment, in an effort to make its cost structure much lighter. Digio absorbed Bitz clients and will continue as a separate structure from Bradesco. It is a digital bank in essence with a sound credit card business. It was chosen as a strategic partner by Uber in Brazil, and it has seen positive results, an interesting opportunity, which is worth deepening.

On Slide 9, talking about NPS. All these initiatives listed so far have a firm purpose. We've been talking for a while about our performance focused on customer centricity. For some time, we've talked about this. And today, we are going to show you some numbers that illustrate the relevance of this theme.

We saw a boost in NPS in all segments, 20 points in retail individuals, 12 points in retail companies, 18 points in Prime and 28 points in cards. Clearly, the improvement of NPS is not only important for the number itself but also for the reflection it brings to the business as our promoter clients have significantly better numbers. You can see here 72% more profitability, 17% more funding invested and 57% less friction or inactivation of accounts. And this is one of the main goals of our teams, which are reflected in their Goals Program, and that has led to a significant improvement in the quality of our services.

Now talking about operational performance. Let's take a look at the figures for the first quarter. This graph depicts the development. Excluding the wholesale client event in Q4, recurring net income is in line with the previous quarter. Market NII variation contributed positively.

Client NII and insurance was -- in the case of insurance, the effect is absolutely seasonal. And we have to bear in mind that in the quarterly variation, we also saw a negative impact from the lower number of calendar days and the higher number of working days.

Loan portfolio. The loan portfolio posted an annual growth of 5.4%, down 1.4% in the quarter. Contraction in corporate segment origination in Q1 was the main pressure and is due in part to the high interest rates that reduced the appetite, the demand by medium and large companies for new operations in addition, of course, to prudence in credit policies in the portfolios of small and micro companies and individuals. For individuals, we saw an evolution of 1.2% in the quarter and 10.2% in 12 months. High-income cards and real estate financing stand out.

As for our guidance, we remain below the floor. Throughout the year, though, we believe that we can return to the indicated range of our guidance.

I'd like to speak a little about credit policies. In credit policies, as we talked about in the previous slide, we have reassessed our risk appetite, making material changes throughout 2022 and therefore slowing the approval rate. This significantly decreased production in the higher-risk portfolios, and this was a necessary measure. But we continue to experience expansion in lower risk lines.

With this effect, it is natural that credit will grow less, but the moment is for caution. We believe that we are on the right track because 95% of loans initiated over the last 12 months are in the better rating ranges. And we already see improvements in newer vintages NPLs.

Excesses with expanded ALL. We had indicated that credit provisions would remain high in this first as well as in the second quarter due to the effect of the change in the ratings of stressed credits. However, the cost of credit was 4.3%, with credit provision expenses of BRL 9.5 billion, in line with guidance in annualized terms. The credit provision balance reached BRL 60 billion, representing 9.3% of the loan portfolio.

Note that our provisions in BR GAAP have historically remained in line with the expected loss under IFRS 9, which is the metric adopted by the bank regardless of whether it is mandatory only in January 2025. Over the quarter, we have seen a lower level of credit provision expenses for IFRS as a result of new loans with a better risk profile and an improved risk landscape.

In coverage, here in this graph, we show the consistency of our provisioning, which maintains the strong and suitable level of provisioning for riskier credits in ratings D through H. And therefore, I point out that the reduction in credit provisions occur in lower risk credits, which are performing well.

Additionally, with the changes we have made to credit policies, we are bringing clients with a better risk profile into the portfolio, which naturally allows us to have a lower level of provisioning.

The NPL creation increased in the quarter, still driven by the default of older vintages and, as explained, by deteriorating ratings. And also part of the growth in the quarter can be attributed to the non-realization of sales of active loan portfolios. Adjusting for this factor, the new NPL still grows but to a lesser extent.

For 90-day NPL coverage, we consider its reduction to be natural given the delinquency cycle. We are approaching the peak when the provisions predicted by the expected loss model are being consumed.

On Slide 17, looking at the NPL graphs. The NPL over 90 days rose in the quarter mainly in the mass market, both for individuals and small and medium-sized companies and also due to a denominator effect due to lower credit growth, as I said. If we considered a constant base of credit growth, this percentage would be 0.5 percentage points lower. Delinquency should still grow in the next quarter, but we believe that we are approaching the end of the cycle.

We did not have relevant sales of active credit portfolios over the quarter, as we said. And the indicator from 15 to 90 days had a 50 bps increase prompted by the seasonality at the start of the year and by fully provisioned cases of corporate clients.

And the renegotiated portfolio reached BRL 36 billion. However, 55% of the renegotiations are less than 90 days past due, which are operations with a higher probability of recovery because they are newer delays. Even so, our provisions for these credits represent 63% of the total volume while the delinquency of this portfolio is 23%, meaning 1/3 of the total provisions.

Now on net interest income. As I said, it's good news. As we said last quarter, market NII continued trending towards a recovery despite the still negative result at the beginning of this year. This line will continue to gradually improve over the upcoming quarters through the repricing of our ALM positions and may become positive in the second half of 2023. Client NII fell 2.9% in the quarter affected by seasonal effects, but year-on-year, it increased 7.3%.

Total net interest income compared on an annual basis fell by 2.4%. Despite being off guidance, this has been anticipated due to the market NII comparison with a much stronger number at the beginning of last year. Over the coming quarters, we will see a recovery with better market NII in the second half of 2023. Total NIM posted quarterly growth of 20 bps.

And lastly, we're going to move on to the interest rate sensitivity. For a 100 bps reduction in the yield curve, we expect a positive impact of BRL 1.4 billion on the total NII over 12 months.

In fees and commissions income, some challenges for this year, as stated in the guidance. We closed the quarter with an annual growth of 1.6%, just below the floor of the guidance, but we expect to move into the range along the year. Card income remains the main positive driver due to a healthy growth on high income.

Checking account line is affected by structural issues and regulatory issues that have impacted the entire market as well as us. And we will recover this in the medium term. Hence, the need for scale gains, improvements in NPS and client perception.

In asset management, the signs of improvement are clear with the adjustments we've made in our structure. So our funds are already showing significant improvement in returns, appearing in the best quartiles of profitability. We reinforce the focus on high-income segment growth, both onshore and offshore.

Now on operating expenses. In costs, we've seen a solid performance despite the collective agreement that occurred in September 2022 and the adjustment of various contacts -- contracts due to accumulated inflation. Overall, growth is 9.3%, at the bottom of our guidance.

Personnel expenses for the quarter grew 9.6% over 12 months and 6.6% for administrative expenses. As we had outlined when the 2023 guidance was released, the most significant pressure on expenses come from the other expenses and revenues line, which posted a lower basis of comparison in 2022.

As we said in previous slides, we're making further adjustments in our cost to serve and service structures without reducing our ability to provide services to clients. And we expect to deliver better results than the guidance. Moreover, through the strategic review of digital initiatives, we'll adjust even further the cost of serving in 2023.

Now on our insurance company, the annual growth in net income was 10.6%. Income from operations expanded 11.7% compared to the same period in 2022, a growth that's above guidance despite, of course, the high increase in care costs especially in health insurance. The quarter posted a good growth in premiums of around 13%, reaching BRL 25 billion. Financial income also had a good evolution in the annual comparison, resulting in an ROE of 18.2%.

Basel and IoC, there was an increase of 20 bps in Tier 1 capital even with the full IoC provisioning. We remain in a very comfortable liquidity position with the LCR reaching 166% despite the seasonal effects of the first quarter.

Now talking about our people, 86,000 employees. So far, we've talked about our numbers. But now it's time to talk about our people who are always encouraged to seek development and training. Our purpose is that inclusion is genuine and permanent. It's rewarding to work with such a diverse staff.

To believe and invest in diversity and inclusion, in addition to being an ethical imperative, is also a business strategy that produces values and results. The outcome of our practices can be seen in our significant acknowledgments and employee satisfaction.

When we talk of sustainability, for the fifth consecutive year, we've been recognized in the S&P yearbook among the top 5% evaluated in the group containing the most sustainable companies in the global banking sector.

In the sustainable business agenda, we remain committed to generating operations with a positive socio-environmental impact. We have allocated 100% of the funds from our first Sustainable Bond earlier than expected. And we should also point out the financing for the purchase of solar panels, which has now topped BRL 1.2 billion, an initiative with huge social and environmental benefits.

As for the climate agenda, we announced earlier this year intermediate sectoral targets in line with the Net-Zero compromise.

In financial citizenship, we remain at the forefront of these actions and are pioneers in taking the commitment to health and financial inclusion of the principles for responsible banking.

Finally, before we move on to the questions-and-answers session, we are going to highlight some acknowledgments on this slide that we received over the period. Two of these acknowledgments stand out. Our private segment was honored by the international magazine, Global Finance, reflecting the advancements we've made in this area. In addition, we were also recognized by our employees through the Great Place to Work 2022.

I'm going to wrap up this first part of the meeting, and I'll join Firetti now at the other studio to proceed to the questions-and-answers session. See you in a bit.

[Carlos Firetti, Business Controller & Market Relations Director]

We are back now with our CEO, Octavio. We also have the CEO of our Insurance Group, Ivan Gontijo. So we'll start now the Q&A session for analysts. Shall we begin, Octavio?

[Octavio de Lazari, CEO]

Yes. Let's put the show on the road.

[Carlos Firetti, Business Controller & Market Relations Director]

Our first question comes from Eduardo Rosman with BTG.

[Eduardo Rosman, Banco BTG Pactual]

My question is about the recovery of profitability. I think we can say that the worst part is behind us. I think that the bank has taken measures to improve profitability. But Octavio mentioned that this recovery should be gradual. So I'd like to know, maybe you could give us more color on this gradual recovery. The bank is taking little risk. It's focusing on perhaps higher-income clients. Maybe that can explain why this recovery will be gradual.

I want to understand whether the bank is being positioned for a more difficult economic scenario ahead. Well, there are a lot of nuances there, but I'd like Octavio to explain how he sees this recovery, how long it would take. Could you quantify things a little bit?

[Octavio de Lazari, CEO]

Thank you very much for your question. Yes, indeed. Of course, we are somewhat cautious because of NPL that needs to be totally under control, and we already see positive signs, as you observed. But we have been reaffirming since the last quarter that, oh, yes, we have to worry and we have to be careful about delinquency. It should be present also in Q2, perhaps still in Q3.

But all signs point to a very good recovery. The new vintages, the new cohorts have come with a better NPL level. And of course, we were more selective in credit, in loan granting. Of course, those worse-risk profile loans need more attention. But the good operations, the good clients with good credit ratings, well, we are giving them loans in an accelerated fashion.

The highlight in Q1 is that there was a contraction. Legal entities did not ask for loans and also because the interest rates are somewhat higher. So people tend to be waiting to see what's going to happen in fiscal terms, the tax reform, the fiscal framework. So mid- to large corporation loan portfolio did not grow a lot in Q1.

Coupled with that, the capital market in Q1 had very few deals happening. A lot of things did not end up happening. So we think that all economic agents are in the wait-and-see approach. And that's why we're talking about a gradual recovery.

We built a first quarter within our expectations, and we mentioned that to you. In Q2, we'll try to do, and we're already doing it because in May, so -- we are in May. So we want to have a better Q2, build a better Q2 and recovering the earnings of the organization month-after-month to be able to deliver 2023 overall that is better than our initial expectations. I think that these are some of the challenges regarding gradual recovery.

Now we have seen signs of a better GDP growth outlook for 2023, Eduardo. So even if this does not happen, even if the GDP does not grow as much as we would like, I believe that the bank is prepared. We have prepared for all the scenarios, and all of our lines are prepared. So even if the GDP grows more than expected or less than expected, the bank is well positioned to enjoy the good signs that we have.

We did all the work in high income, as I mentioned. We did some work in retail banking, in investments, in other words, in all lines that make up the bank and also the insurance group that has posted an important result in Q1.

[Carlos Firetti, Business Controller & Market Relations Director]

Second question from Thiago Batista with UBS.

[Thiago Batista, UBS]

Can you hear me?

[Carlos Firetti, Business Controller & Market Relations Director]

Yes, Thiago, we can hear you well.

[Thiago Batista, UBS]

Well, I have a follow-up question to Rosman's question. We talked about ROE. And if -- with a focus on the insurance company, the ROE is 18%, if I'm not mistaken. How do you imagine the dynamics will be in terms of recovery for the insurance group? And in terms of asset quality provisions and looking at the short term, the dynamic of Q1 was slightly different. I had the impression that Q1 would be a lot heavier in provisions than the second one. When we look at Q1 numbers, they are very much in the middle of the range of our guidance. And it's below capital formation. So I'd like to understand the cost of risk of the bank for 2023. And also, I'd like to know about the profitability of the insurance group.

[Octavio de Lazari, CEO]

Thiago, okay. Ivan Gontijo, who's our CEO of the insurance group, will answer your question about the insurance company, and then I will address your question regarding provisions. Ivan Gontijo?

[Ivan Gontijo, CEO, Insurance Group]

Thank you, Thiago, for the question. We see the insurance company in Q1 posting BRL 1.8 billion net income, BRL 25 billion in sales, up 13%, as highlighted by Octavio. And we're very comfortable with the result of our operations. Insurance operations, pension plans and savings bonds, they are all growing on both the guidance that we communicated of 12% and predictability for the future, which is what you asked about, is positive, which, of course, it will always depend on the economy of the country, the moment that the country is going through, the higher the job ability, the higher the GDP growth. In terms of the economy, of course, that will have a positive impact on the market of insurance, pension plans and savings bonds.

We want to keep to the guidance in terms of ROE at 18%. This reflects our estimates, our forecasting. And I'd like to remind you that we do see some challenges in some segments, and we also envision challenges in the Brazilian economy. But we are confident that the insurance group will achieve its targets along 2023, always contributing with an incremental return that is requested from us by the bank.

[Octavio de Lazari, CEO]

Thank you, Ivan. Thiago, the insurance company is an important piece in the results of the bank. And the insurance company is behaving really well, is performing well, as Gontijo has mentioned. They have been posting constant growth and ROE that is important of 18%. In Q1, they made BRL 25 billion. I talked with Ivan that our goal is to have BRL 100 billion in revenues of insurance, premiums at the insurance company. And the fact that we have an insurance company that has all of its companies, Bradesco RE, Bradesco savings bonds, Bradesco private plans -- and you know that, Thiago. Although we have higher costs of service as we have in the insurance health, the insurance company, together with the team of the bank, we can all grow results, grow revenues of the insurance companies. So we always have very positive expectations regarding the insurance group.

And then as regards the ALL that you mentioned regarding the volume of first half, second half, in Q1 over Q4 of 2022, what we can observe and quite clearly is that first, the volume of the loan portfolio grew less. Credit grew 5% year-over-year naturally because we kind of held back in those higher-risk loans. And of course, we had a lower need for provision. And legal entity credit grew less because of all of the factors that I mentioned with Rosman when he asked about this.

Still, if you observe the overall percentage of ALL as a percentage of our total loan portfolio is 9.3%. So it is the highest index in our historical series of provisions vis-à-vis the loan portfolio that we have. So this level of provision -- of course, now we have 2 situations. We have BR GAAP, 2,682, which is the regulation in effect that we have to abide by, and the expected loss, IFRS 9, which will be in effect as of January 2025.

So although it will only be mandatory as of January 2025, obviously, all of our modeling already looks and considers this kind of provision due to expected loss. Of course, we make adjustments between BR GAAP and IFRS so that they'll move in parallel, so that there will not be differences among the 2 or between the 2 unless there's a benefit in volume of provisions.

So for these characteristics with operations, with a lower credit risk, a lower growth in the loan book and the provisions that have been made in the past, all of that explains the scenario that you mentioned.

[Carlos Firetti, Business Controller & Market Relations Director]

Just one additional point mentioned by Octavio, we had a deceleration in credit origination in Q1. And in terms of reduction of provisions, we provision for expected loss. Deceleration in credit origination kind of explains this lower volume of provisions. And then as regards provisioning below the formation, it is related to the fact that we brought forward some provisions by expected loss. And in this moment of the cycle, we are naturally consuming these anticipated provisions. Next question, Domingos Falavina from JPMorgan.

[Domingos Falavina, JPMorgan]

It'd be interesting for us if you could share a little bit more about the evolution either of the NPL formation and delinquency or the data from now. And I apologize if I missed the comments that you may have made, but I think that the new formation was around BRL 12 billion. If you can explain a little bit more if it was spread out BRL 3 billion per quarter equally or if there was any improvement, any indication or if you can detail us the formation in April, that would be an indication for us. If you don't have about formation, you can just tell me about NPL 90 days, how temporary it is, that would give us an indication.

[Carlos Firetti, Business Controller & Market Relations Director]

So throughout the quarter, we saw a slowdown of this formation. In terms of the evolution of the formation, we are probably maybe at the peak of formation this quarter. We're going to see whether it will be confirmed. It will still remain high in the second quarter. And we expect the beginning of a reduction in NPL formation as of the third quarter, but we'll have to see the actual trends.

[Octavio de Lazari, CEO]

What we actually see when we look at the new vintages or cohorts, what's been happening at least on maybe 3 and 4 -- and when I talk about new cohorts, I'm talking about August, July through October of last year, when we look at the delinquency NPL condition, but now we see very positive signs of a much more controlled NPL. And I said in my presentation that the new vintages, the new categories show that 95% are formed by clients who have better ratings. So that already gives us good indication of how it should behave over time or throughout the year of 2023.

But it's natural, and we've been saying it, that this first quarter, NPL would still be a little high. In the second quarter as well, we've been telling you that it would also be a little bit higher. But this movement of the ratings that decrease over time as credit becomes stressed, we see that already happening. It's normal that it should happen. And that's why there's more consumption of the allowance, as Firetti mentioned.

So it's almost intuitive and natural. At a time of a more positive cycle, you set aside more allowance so that at a time of a more restrictive scenario, you can consume those provisions. But as I said, I don't know if you were listening yet, but we have 9.3 of total provisions for the total credit loan portfolio.

So if you consider the coverage level of our portfolio, excluding those operations that are 100% provisioned for, considering base 1, all of the provision with the portfolio with credit for more than 90 days is at 58% coverage. So we see, first, a very adequate level of provision, and the NPL has been improving. We haven't closed April yet, but it is already better than March was, than February was and so on.

[Carlos Firetti, Business Controller & Market Relations Director]

Next question, Tito Labarta from Goldman Sachs.

[Tito Labarta, Goldman Sachs]

Can you hear me?

[Carlos Firetti, Business Controller & Market Relations Director]

Yes.

[Octavio de Lazari, CEO]

Yes.

[Tito Labarta, Goldman Sachs]

I guess my question is on revenues, right? And we saw your net interest income down in the quarter, pressure particularly on the client NII. You're slowing down loan growth, right, some pressure on spreads as well. How do you think about your ability to deliver on the revenue guidance, both, I guess, on the net interest income and then fees as well? But on the net interest income also, the client NII looks a bit weaker, partly offset by market NII, which seems to be doing a little bit better than expected, although still negative. If you could just help us think about those dynamics in the current environment with still high rates, slowing loan growth, and what does that mean for both the client NII and the market NII from here?

And then so the fees, I mean I know there's some seasonality, but most lines were down in the quarter. Do you think this 2% growth is what we should expect? Anything that you can do there to improve that fee income growth from here?

[Octavio de Lazari, CEO]

So Tito, about the loan portfolio that was better, you're right, there was an increase of 5.4%, but as I said, mostly due to the caution that we had with those clients with the worse credit profile -- credit risk profile. But it's -- we see the growth that we're getting in the personal loan and real estate financing, even in payroll deductible loans that ended up growing less because it was impacted by that issue that we had or the cap of the interest rate. We were almost for 2 weeks unable to operate, but all of those portfolios have been growing well. Where we saw lower growth, that was an involution of 4.5%, was operations with larger corporates or medium-sized companies mostly due to the lack of demand maybe because they were standing by and waiting before they start taking loans again. Large corporate basically making or taking loans for the moment working capital mainly, but credit operations for longer terms, for investment or for other purposes that have a longer maturity, even due to the interest rate of nearly 14%, there's a sense from the companies that it's time to wait a little. The tax framework was already disclosed by Haddad. There's good expectations for the tax reform.

It seems that the good signs that we're starting to see in terms of inflation in the country as well, maybe the profits have not yet reached the desired level, but we can already see a sign or an indication of improvement. Even the statement of the Central Bank for the last Copom meeting already mentioned a scenario that doesn't show as much pressure for interest rate increase. So the scenario seems to be improving, and everybody seems to be standing by before growing.

We have a portfolio in the retail bank, a loan portfolio in the retail bank that's one of the largest in the market. So I believe that everything becoming -- materializing, and it will -- and even the appetite for risk, that changes and improves for us. As people begin to accommodate, we see a scenario for loan increase within that range of the guidance that we mentioned.

Now as for the fees that you mentioned, it is really very close to the bottom of the guidance. And we have huge challenges, regulatory challenges in terms of fees, challenges with the competition because today, you're able to open a checking account to the digital bank, even our own digital, without any fees.

So we must work, and that's why we have that concern of the customer centricity, NPS, of generating a positive perception of our service with our clients so that we can replace those fees that you lose with other fees. Investment bank as well that hasn't really moved this quarter, this first quarter, we had very little, almost no operations. So there's no fee of those operations.

So those are challenges that we need to go after. And this fee income depends on your growth as well. What I mean by that is expanding customer base -- expanding the base of customers that you negotiate with so that you can recover it. But I understand that this line, considering the bank's strategic position throughout Brazil and all regions as well with Bradesco Expresso, I believe we have a good expectation to recover the fees line over the year.

[Carlos Firetti, Business Controller & Market Relations Director]

Just in addition about net income, NII, one of the good news that we had this quarter was the improvement of market NII. As we said, this has been following a trend of gradual recovery. It's improved this quarter. We believe it will continue improving over the next quarters, possibly closing the year at a positive point even in the second half of the year, as a whole being positive. So in terms of driver for total margin, for total NII, that's the base of our guidance. The dynamic of the NII and the market NII is very important.

[Tito Labarta, Goldman Sachs]

Great. If I could, just one follow-up just to understand on the net interest income because the other pressure we saw there was on the funding mix, right? The demand deposit is down quite a bit in the quarter. Time deposit is kind of flattish. I mean we're seeing this kind of globally where people are shifting to higher-yielding-type funding. Do you think that continues to pressure your net interest margin also? And how long before that can begin to stabilize? Or anything that you can do there to boost those demand deposits from here?

[Octavio de Lazari, CEO]

So Tito, the population really did need to consume the savings that they had, that we see a drop, not only in Bradesco but in all financial institutions. I think that total deposits is also a reflection of the growth of the country's GDP, the volume of business, the volume of money circulating. And people are also trying to protect themselves by making other investments, especially to make the most of an interest rate that we have of 14%. So it's a migration even from investment funds, not fixed income but from multi-market funds to these operations of fixed income because they're paying high with the interest rates at 14%, even with an expectation that economic agents may have in mind that this interest rate may go down. So they're making the most of this moment of a higher interest rate.

[Carlos Firetti, Business Controller & Market Relations Director]

Our next question comes from Rafael Frade with Citibank.

[Rafael Frade, Citigroup]

I have two questions. One is a follow-up question regarding NII. Just want to understand, you're making a move towards lower-risk clients. One of the effects of that is an eventual reduction of NIM. There was a slight reduction in this quarter. And I'd like to understand, how do you see this looking forward? Are we getting close to stability? Or should we expect another marginal drop in NIM?

And I think Octavio spoke about origination of clients in the last 12 months with rating A, 95% credit rating. You have an interesting table on Page 15 of the release that shows the evolution of rating for clients originated in the last 12 months. And there was a big improvement vis-à-vis Q2 2022, but then it kind of flattened out perhaps above the previous levels.

So we've had a great improvement. That will translate into results, but we don't see additional improvements. Perhaps this is the new level. I just want to understand that table.

[Octavio de Lazari, CEO]

Well, Frade, yes, it is a little bit of what you said. We were more selective in higher-risk operations. In other words, operations with no collaterals, consumer credit, operations with limits that are made available in the mobile app. In other words, operations that are going on in the app. But then you get to a cap because we have to acknowledge that we operate in the Brazilian market, in Brazil, and Bradesco reflects the Brazilian population and the economic agents. So we can have an improvement because we've reduced the acceptance of those loans that have a higher risk because the population, Frade, I mean we have to acknowledge that the Brazilian population has more debt now. On one hand, it is easier now to have checking accounts in 1 to 5 banks. So clients now don't have to go to a bank branch. They can open a checking account over an app in 4 to 5 minutes with just a few clicks. It's a very attractive journey, we understand that, but it makes things easier.

In Brazil -- in Bradesco, we opened 12,000 checking accounts every day in the mobile channel. So that makes it very easy, but it's also easier for the clients to get credit. Using their credit cards, it doesn't matter the limit, if they have BRL 100, BRL 500, but it's easy for them to get credit in 1, 2, 5, 6 digital banks. The whole context made it easier for people to get more credit and to have more debt. So there are these two aspects.

So we reached a cap in terms of what was possible to select clients with a better credit rating. Of course, we need to operate, continue to operate with lower-risk clients. We've been accelerating our loan book. And we're talking with our whole team about this, that we need to continue to grow the loan book. But again, the main factor has been the low growth of corporate operations, as I mentioned to Tito.

So I think the improvement from now on will be marginal in credit ratings. And we'll have to adequately price operations for those clients that do not have such a good credit rating, such a good credit score. But if we press the operation correctly so that we can cover possible delinquency, well, we can do that in consumer credit. We can do it in our digital operations and transactions as well and even in credit cards. So we can have a more adequate balance of allowing a little bit more risk but at an adequate pricing so that we can cover an eventual delinquency and so that we can have positive results in that operation as well.

In this origination mix that we started doing, Frade, it naturally affects spreads because these are operations with better clients with associated collaterals. So of course, these operations have a lower spread than those operations that are riskier in a way.

So I think the wisdom lies in having a balance of these two legs. We'll open the door a little wider so that we can improve our results formation over time in client NII. And I think the growth was 7.4 in Q1, but we tend to pursue a better result and also because we understand that there will be an expected loan book growth in the coming quarters.

[Carlos Firetti, Business Controller & Market Relations Director]

Next question from Henrique Navarro with Santander.

[Henrique Navarro, Santander]

Kind of a follow-up question to Tito's question that to me was not very clear. You're talking about portfolio growth and NII growth were negative in the quarter, materially below the guidance. So my question is, when you released the guidance, was this kind of performance expected? Will these 2 numbers eventually convert directly to the bottom of the guidance range? Or should we consider that there is a real risk of guidance review in the second half of the year?

[Octavio de Lazari, CEO]

No, no. You're correct in what you said, Henrique. The portfolio growth, as I said in the presentation, has a trend to convert to the guidance. And we are working on it, converting not only towards the bottom of the guidance but at least in the middle of the guidance, the middle of the range. You said this is something that we already had in mind because we knew that Q4 of '22 and, consequently, Q1 of '23 because of delinquency would have an impact on credit. It was in our mind. We knew. We expected this to happen.

Our expectation is that things would be a little better in Q1 in terms of growth in operations of corporates, which did not happen for a number of factors that we talked about. Even in the capital market, we could see a very weak performance. But we understand that given the expectations that we have observed and also the expected GDP growth communicated by the Brazilian Central Bank recently, all of that is favorable for us to post a greater growth of the loan book in 2023. So yes, we had it in mind that Q1 would not be that good because of the restrictions that we adopted in credit granting. And our expectation is to seek the middle of the guidance or the top of the guidance range.

[Carlos Firetti, Business Controller & Market Relations Director]

And I think it is important to mention that when we speak about NII, our guidance is for total NII. Market NII performed a little better than expected with this gradual improvement trend. So considering the total NII guidance in addition to this dynamic that Octavio explained so well, the dynamic of market NII seems to be contributing as well.

Next question, Mario Pierry, Bank of America.

Okay. We'll move to Pedro first then, and then we'll go back to Mario, okay? So we'll continue with Pedro Leduc, Itaú BBA.

[Pedro Leduc, Itaú BBA]

In the ALL and portfolio that we communicate, I'd like to conciliate a little bit more the messages that you told us and the moving pieces of these two sides of the guidance. On one hand, you're saying you're seeing loan cohorts already performing better, and that's why you had the confidence to reduce coverage and so on. But on the other hand, the portfolio was very slow, and you said yourself that NPL formation in the second quarter is still high.

If we follow the same pace of ALL and NPL formation in the second quarter, the coverage will drop even further. It's below 100%. And if the portfolio accelerates to meet the guidance, it should attract more ALL because of the model, the expected model.

So I'm having a hard time conciliate the scenario where the portfolio increase is getting into the guidance and ALL remains in the guidance without the greater drop on coverage. I'd like your help to put these pieces together, the loan portfolio growing without dragging ALL further. And whatever you have in terms of ALL vis-à-vis coverage to the end of the year, that would be good.

[Octavio de Lazari, CEO]

Look, whenever we look at the provisions or ALL, I'd like to comment that quickly with you, we're looking at it within expected losses in IFRS 9, on one side, where you have the provisions, considering everything that could happen to your loan portfolio, observing the concept of expected loss. But what we've done over time in a more positive cycle, we started to make additional provisions or extraordinary provisions, those provisions that we make. And at the time that the cycle is not quite as positive, when it becomes more challenging, you start to consume part of those provisions but always observing this movement of expected loss.

Of course, we also expect an increase in our loan book, and we're working to increase it. It increased 5%. Our guidance is from 7% to 11%. So there's still some ways to go for us to be able to meet it if we took the middle of the guidance, for example.

As a reference, this is only an example, but an increase of around 9% of loans, it's not that far from 5.4% that we grew now. And of course, that increase should occur through operations that have a better rating level, a better credit score and therefore require less ALL. And when you put that into the model of expected losses, you have a lower consumption of ALL because of the improvement of the assets you're working with, because you have guarantees associated to that operation.

So it seems to me that this balance is quite adequate, an increase -- a quality increase in portfolio with a smaller need for provision. So it doesn't seem that the fact of we increasing credit could somehow consume such a level of the allowance that would lead our provisions to decrease more drastically.

Also, it's important to note the volume of provisions that we have and our credit portfolio was 9.3 this quarter. That's the highest in our historical series. So the volume of provision is quite satisfactory. So we also need to consider that when we look at the provisions, excluding the portfolio that's entirely provisioned for this Phase 1, as I said, if you only take the loans or NPL over 90 days, our coverage level is 278%.

So with better cohorts, we're looking at the cohorts that we originated in July, August up to December, 9.3, 9.4. These cohorts have a need -- a lower need for provision because delinquency is higher. So ALL grows at a slower pace than it grows today because of the rollout of those operations that stressed it.

So when we look at expected loss but also at the rule in place, 2,682, of the Central Bank, as credit becomes more stressed with a greater delay, it calls for a much higher ALL, from C to D, goes from 3 to 10, 10 to 30, 30 to 50, 50 to 70. So it calls for a higher ALL.

So the new operations with a better risk quality, with a better repayment quality calls for less ALL. That's why we understand it is possible, it is feasible to get to this balance between the growth of credit portfolio or loan portfolio that should be around -- it's a single digit. If it's double digits, it will be low double digits. And we don't see anything that could not be managed in such a way as we can have the growth of these 2 lines, both loans and ALL without stress and ALL that it goes too far from what we have on the guidance. So observing the guidance.

[Carlos Firetti, Business Controller & Market Relations Director]

Is Mario back? Okay. We'll turn back to Mario Pierry. Can you hear us now?

[Mario Pierry, Bank of America]

Yes. Can you all hear me?

[Carlos Firetti, Business Controller & Market Relations Director]

Yes, we can hear you.

[Mario Pierry, Bank of America]

I apologize for the technical problems. I have 3 quick questions. First, Octavio, you asked about -- or actually, you said that market NII should be positive in the second half of the year. I'd like to understand a little bit the visibility that you have about market NII. Does this depend on the interest curve? Or if there's a Selic rate decrease before, could that have a more positive impact on market NII? So I'd like to understand, in your mind, with what you can see considering what you said that market NII would improve in the second half of the year. Second question about delinquency. You said we're close to the peak, but you still expected to be worse in the second quarter and maybe the third. So it's going to take us 6 months to see the peak of NPL.

What are the lines that concern you the most within NPL? We saw a worsening on individuals' NPLs. So if you can detail other products, which products are getting worse NPL?

Nobody asked yet, but the other question is about the tax rate, to pay the tax rate closer to 10%. I understand that was the IoC benefit. But the soft guidance you released in the beginning of the year had a tax rate of 16% to 20%. I'd like to understand whether the guidance still stands from 16% to 20%.

[Octavio de Lazari, CEO]

About your first question on market NII, that's exactly it. Market NII will improve. The first quarter was a lot better than the last quarter of last year. If you look at the book -- if you can have a look or maybe our guys can send it to you later, but it was 800 in last quarter of the year. It was 300 now, so -- in the first quarter. So it is improving quarter-on-quarter.

So our visibility is very clear, very transparent that this will improve irrespective of what happens to the Selic rate. Of course, that movement to bring down interest rates, the Selic rates may make this scenario even better. But it will be a marginal improvement because we did what we had to do. So what we're going to see quarter-on-quarter will be an improvement on market NII. In the last quarter, it will be positive. That is regardless of what happens with the interest rates today. Of course, as I said, if the Selic interest rates goes down -- interest rate goes down, it improves, but it's a marginal improvement.

As for NPL, let me make this very clear. We told you two quarters back that NPL would remain high in the first quarter and in the second quarter of this year. The third quarter, our expectation is that this will already be controlled. So first and second quarters for sure. And then of course, we expect to have greater control.

And then on the third quarter, we expect it to be at a stable level. That's what we're seeking, that's what we're working for, and that's what the signs tell us. You talked about the worsening of the delinquency. The lines that brought more NPL issues were the lines of credit cards, credit for small and medium-sized enterprises, basically their working capital, and a good portion of that on those lines where we helped the customers in the past and during the pandemic, which were lines with grace periods, with a longer term of operation. So when they start delaying, they have double the time to make the provision.

So those were the lines that are generating more provision. But basically, the biggest is credit cards and working capital for small and micro businesses. That's the central point of attention in working capital lines and credit cards. And that's why what we see -- the growth that we see in the credit card line basically is for credit cards of higher -- or medium- and high-income people, individuals who have a greater spending on the credit card. So that's why there's a little bit of change of reducing approval for people with lower incomes.

As for the tax rate that this quarter was up 10%, you know well, Mario, that the formation of this tax rate on one hand is depending on the organization's operating results, on the other hand, with the IoC and the insurance company's results that are extremely important for us. And the insurance company has a lower rate than the bank.

So the combination, so to speak, of these 3 aspects, not only the insurance company but all of the other companies that are linked to the bank, Cielo, Alelo, Grupo Elo, consortiums and insurance companies, insurance brokerage, all of them, at the end of the day, when you combine these 3 indicators, it ended up getting to around 10%. But throughout the year, as we appropriate it month-by-month, we tend to move towards a tax rate that will be higher for the guidance of 16% to 20%, which is what we had mentioned in our earnings release in January. So it should move towards this range of 16% to 20%, which is what we had talked about.

[Carlos Firetti, Business Controller & Market Relations Director]

Yes, Mario, what's implied in the 16% to 20% is that we really do expect to get better results in the second half of the year, as we have been saying. And therefore, the benefit of the IoC that remains somewhat fixed makes up for less in terms of taxes. So that brings the tax rate up. That's the dynamic. Next question by Daniel Vaz with Credit Suisse.

[Daniel Vaz, Credit Suisse]

My question, well, I'd like to insist on portfolio growth. We heard that write-offs accelerated a little. It was [for 500]. It dropped a little. So we need a little bit more -- unfortunately, we're having the sound chopped. So I'd like to understand, you have less appetite in more aggressive -- the graph on base, the 100 of credit approval in retail in a more difficult scenario, in corporate. Where will the growth be coming from, in what lines so we can achieve the guidance?

[Octavio de Lazari, CEO]

In the last quarter call, we talked about this, and growth was expected in more collateralized lines. Credit card in retail also grew.

[Daniel Vaz, Credit Suisse]

So what are the priorities in terms of portfolio growth? And will you have to accelerate loan granting?

[Octavio de Lazari, CEO]

Well, loan book growth, we spoke a little about this. The write-off has been greater than origination, as you mentioned. But if you observe, personal credit growth is 6%, rural loans 7%, 8%. Mortgage is performing better. So I believe that for the year 2023, we are going to have better growth of these credit lines, personal credit, collateralized personal credit or the rural loan portfolio that should grow. We are taking part in all agricultural trade shows. So if we get just a trade show that is happening as we speak, every show, the business volume, we already have business contracted at the fair 3 times more than in last year's agri show. So I think the rural alone is an important growth portfolio. So we've been seeing growth for corporates in the business plan and for end consumer, for individuals. Obviously, the interest rates did get in the way a little, but Brazilians end up paying installments -- or it has, but they do get mortgages to buy their own home. So that is expected to grow.

Foreign exchange deals and operations should have a better dynamic now starting in Q2, Q3, Q4. Particularly Q2 should post a better growth dynamic considering the dollar rate that we currently see.

And for corporate, the corporate line will grow. So micro and small enterprises have been suffering more, Daniel. It is true, but there are good companies out there in the market.

So just one detail here, story to tell you. A month ago, we visited all capital cities of Brazil where we have our regional offices of the bank, 17 capital cities. So we visited them in 9 business days. So we visited and met with the whole managers of the bank, conveying to them the same message, criteria, preserving credit quality, that we need to give loans to good clients but that we cannot stop operating. We need to operate without a good pricing, credit operations without a good pricing.

And that was the message for the whole team, not only for the retail bank but for the whole sale team as well.

So I think that in essence, to answer your question, I think that the main lines that are expected to grow more where we can have better growth would be personal credit line because it has pricing to withstand a perhaps higher delinquency. Credit cards, easy, higher spending by higher-income clients, real estate operations, mortgages, rural loans and exchange. And of course, these portfolios will take us to a growth that is close to 2 digits.

One technical aspect about your question, the increase in write-offs is also related to the fact that we did not sell portfolios in Q1. The write-off have been a little lower because part of what would be excluded via write-off was excluded via sale. It's not that the level changed so much. There is also this aspect that explains this difference.

[Carlos Firetti, Business Controller & Market Relations Director]

Next question, Renato Meloni of Autonomous.

[Renato Meloni, Autonomous Research]

I just want to speak a little about growth. The acceleration expectation comes from a less restricted policy of credit or does it come from market recovery? That's my first question. And I'm looking at Slide 17 of the presentation. And there was a big increase in delinquency, 15- to 90-day NPL of large corporates even excluding Americanas. So could you give us some color on what led to that?

[Octavio de Lazari, CEO]

Well, the growth of the loan book -- well, the credit market is growing because economy of the country is doing better, because the GDP growth expectation is higher. Economic agents, companies, businesspeople, entrepreneurs, they are all more prone to take on a little more risk because they envision a better outlook looking forward. Of course, if the economic situation improves as we expect to happen given the fiscal framework, the tax reform and the possible reduction of interest rates, all of that would help and would drive the loan book to improve as well. But regardless of that, regardless of economic growth that we expect to happen -- because it is important, it's good for all companies and for all Brazilians and also for us in particular. But regardless of that, we do see room for greater growth for our portfolios because we made a decision, because we are cautious of reducing credit granting so that we could control delinquency better because delinquency is happening in lower-income groups and SMEs.

So regardless of the economic scenario, our risk appetite, for those operations that have spread, that interest rates that can cover a possible loss, will be adjusted over time. So that's point number one.

Point number two that you raised regarding that increase in 15- to 90-day NPL, that's the specific case of the retail bank clients, of corporates. That was this indicator. So it's a specific case. There was that case that we talked about in Q4 that we provisioned 100% for, and there was another case now in Q1, but that is a case that was 100% provisioned for. And it is a case that was already in the bank, and it came in through a specific dynamic of maturity.

They renegotiated. And of course, this matured, it is 100% provisioned for, but of course, it does have an impact on delinquency because the renegotiation matured.

[Carlos Firetti, Business Controller & Market Relations Director]

Next question, Gilberto Garcia, Barclays.

[Gilberto Garcia, Barclays]

I had a follow up question on your -- the trends, particularly in credit cards. I understand it’s very difficult to hit the brakes hard and stop growing in the segments that you are trying to be emphasized. But you also sounded very optimistic when you were talking about the opportunity in the higher income segment. So my question is, will the stronger growth in higher income, allow you to continue to grow sequentially in credit cards. And whether this will lead to an improvement in the financial margin or only in the financial margin adjusted for risk?

[Carlos Firetti, Business Controller & Market Relations Director]

Thank you for your question. Gilberto, the trend -- let's understand this. The ecosystem of credit cards in Brazil is amazing. 40% of deals or transactions that the Brazilian people make of consumption is through credit cards. It's even higher than in the United States. United States, I think it's 38%. In Brazil, it's 40%. So 40% of the Brazilian population also has their credit cards in hand. And credit cards move 21% of the Brazilian GDP. It's something close to BRL 2 trillion.

So the credit card industry, the credit card ecosystem in Brazil is very important, very intensive with multiple players. So credit cards.

[Octavio de Lazari, CEO]

And just to add, credit cards, as I said before, also made people to get more indebted because they were able to get a credit card either with their banks or digital banks, because of how easy it is for them to open a checking account through mobile banking, as I said earlier. So yes, we did step on the brakes. We decreased loan or credit concessions to lower-income people. Not only Bradesco, but if you look at the industry, due to the level of indebtedness of the Brazilian population that it really did reach historical levels, everybody started to hold back on loan concession or long granting for this lower-income population, either by not giving them credit cards or working with very lower limits than what we usually work with due to the indebtedness level of the population.

But there's a share of the population with the medium income or high income that we did to consume a lot on credit cards, have a much higher spending level on credit cards, which result in fees and exchange rates that help in the formation of results but also on client NII, it forms the NII -- the NIM rather with the clients.

This work on the higher income and this availability with the high levels of higher income, with the volumes, it is a strategy. It's part of the bank. It's something we are adopting. I'm sure that it will result or bring a difference in the NII but already risk-adjusted. So there is also an appetite for growth on credit cards for that population of a higher income level.

And this population also brings a very strong benefit in fees especially. Yes, I said, there's higher fees involved as well.

[Carlos Firetti, Business Controller & Market Relations Director]

Next question, Carlos Gomez, HSBC.

[Carlos Gomez, HSBC]

I have two questions. The first one is on capital. You finished the quarter with 11.1% CET1. Has your goal for capital level changed given the current uncertainty in the world and what we have seen in other markets? And the second one is more in the medium term. What do you expect for growth for the business, for credit for 2014, '15, '16, for the coming years?

[Carlos Firetti, Business Controller & Market Relations Director]

So in terms of the capital goals, Carlos, we didn't have any significant difference or change. We have a very comfortable capital base. We believe that our capital will continue to grow throughout the year with the interest and interest rate. And after this moment, especially in the second half where the results will get better, this also tends to bring benefits in terms of capital through earnings retention. So I don't think there's been any significant change in terms of our capital objective. We see capital evolution as a continuous process that comes from the bank's operations and our profitability and accumulation of profits. As for our growth objectives for coming years, we believe that after this phase wherein we're strongly focused on controlling NPL, we will go back to a more important credit origination. We have a strong focus on retail, as Octavio said. So we believe that this segment has important opportunities for growth after this more delicate moment of the cycle. So we see Bradesco as a player who will be growing together with the market's growth or even growing more than the market at some points whenever we're comfortable.

[Octavio de Lazari, CEO]

Yes. Carlos, capital, as we had said, ended up growing now in this quarter. There's no target, there's no guidance for that, but our expectation is for generation of results, of profits, even the bank zone operation, as we showed you in the presentation. So it's the continuity of maintaining capital level at a robust point, as we have always maintained at the organization. And the bank's growth, Irrespective of this moment of being at a more unfavorable point of the cycle in terms of delinquency, this is something that is addressed by the bank's risk department, the bank's loan department, but it points managers, bankers -- our relationship managers at the end have that clear purpose. They have that clear purpose for continuous growth, either in the bank or product services, at our insurance products as well that have been growing soundly, either in terms of the loan book growth or results generation, they all have a target, a budget, an NPL to meet in the year '23, '24, '25.

So this view -- the strategic plan of the corporation, not only the bank but the corporation itself, with all the companies of the Bradesco conglomerate, have this goal and this very clear plan to continue to grow with quality, with profitability but with a clear purpose of continuous growth.

[Carlos Gomez, HSBC]

Yes. But do you mean growth of 8%, 10%, 12%, 15%? What's the realistic objective for Brazil in the coming years?

[Octavio de Lazari, CEO]

Any growth of any company is very much linked to the ability of the country to grow. The more the cash grows, the more the Brazilian GDP grows, the more companies will grow. So it's kind of hard to give you a number, Carlos, that yes, we're going to grow 4%, 5%, 10%. It's hard to do it. We'll grow what is possible to grow with quality, with profitability. But it really depends on those scenarios, not just in Brazil but also globally so that we can grow safely and delivering results to our shareholders and always maintaining the robustness and health of the bank's balance sheet. It's hard to give you a number at this point, and I think that it depends on a number of factors.

[Carlos Firetti, Business Controller & Market Relations Director]

We are moving now to our last question by Eduardo Nishio with Brasil Plural.

[Eduardo Nishio, Brasil Plural]

I also have two questions. First -- well, they're both related to the bank's performance in this cycle. We had a slightly worse performance than your peers. So starting with market NII that drove a lot of revenues in the past, in this cycle, it was a detractor. In your evaluation, do you think you need to redraft your ALM strategy for the next cycles? Are you thinking of something different to avoid this kind of volatility in your results?

Second question, regarding the quality of assets. You have a large exposure to individuals and lower-income segments. I don't think that this should change in the positioning of the bank. So I'd like to know from you, do you consider any of the strategy to try to quickly anticipate and identify these cycles?

And perhaps since I have the mic, the changes that you're making in retail, is this related to this exposure to low income and individuals? You are reformulating perhaps your digital platforms. And the change in the profile of clients, do you see a correlation between these changes that you're implementing and a better positioning in individuals?

[Octavio de Lazari, CEO]

Indeed, the market NII this year -- last year and this year, just in the beginning, it was worse. But we also have to remember that in the last 7 years, the market net interest income has been very good for Bradesco better than our peers. Now of course, a very abrupt change that happened in Brazil, the interest rates increasing very quickly in a very short period of time, of course, that ended up impacting us. But this has been corrected. Obviously, we are a big bank in funding, in retail operations. So we have -- actually, we have to capture more clients for demand deposits, for savings, for funds, in all capturing lines so that in a moment of high interest rate cycle, we can have a more adequate balance. If I don't gain a lot in market NII, I can make more in fee income given the interest rate differential between what I invest and what I put out in the market. So it is always important to grow your capturing levels.

So if I should say that we changed the ALM strategy in the bank, no, we did not change, it is more conservative, with the only different factor being a high increase in interest rates that cannot be expected by any economic agents. We cannot imagine that interest rates would grow as powerfully and as quickly as it did. But it's part of economic cycles. It's part of managing the treasury of a bank like Bradesco.

And like I said, in prior years, the strategy is always winning strategies. So I think that the bank's strategy, the ALM strategy is preserved so that we can enjoy the moments.

And as regards exposure to low income, you said it yourself, Nishio. We are a retail bank. We have retail banking in our DNA. We'll continue to be in retail banking.

Of course, we'll, of course, care for high-income segments because of the fees that we can get from these clients, because of the principality, because these people are in a stage of life where they invest more than borrow more. They invest more than they borrow. So we can increase the relationship -- the investment relationships with these clients.

And that is why we are caring for them. That's why we structured the high-income segment banking. We have Prime with our branches, in our regional offices, working with these higher-income clients. That is why we acquired Bradesco Bank in the United States, Miami, Coral Gables, to serve Brazilian clients when they're abroad, when they are there because a good part of Brazilian clients, they want to have a portion of their investments in dollars or pegged to the U.S. currency.

And that's why we bought Bradesco Bank. And that's why this year, we capitalized in Bradesco Bank. It will have more than BRL 2 billion of shareholders' equity. And that's why we partnered with BlackRock to manage investment funds in the United States.

So you see, a number of work fronts and strategies that have been implemented so that we can have a very close relationship with these high-income clients because they are important, they are profitable, they have a more long-lasting relationship with our organization. So that's an important focus.

But you see, retail, that's our DNA, and we'll continue to work especially in retail, making the necessary adjustments, of course, because people have changed. Their relationship with the bank has changed. I even mentioned in the presentation that in December 2019 before the pandemic, we would have 1 million authentications at the tellers in the branches every day, now 95,000. So about 10% of what we had before the pandemic.

So people are no longer going to bank branches to pay a bill, pay a tax, pay a payment slip. And they go to the bank basically when they need to perhaps do business or get advice regarding investments.

And that's why we increased our head count of investment advisers. We increased 2,000 investment advisers and specialists all over Brazil. People go to a branch to perhaps hire a life insurance. After the COVID-19 pandemic, people started valuing life insurance more because they are worried about what can happen to them and what's going to happen to their families if they go. So that's interesting. Or when they're going to get mortgage, they need more advice because the day-to-day of people and their relationship with the bank, it's practically online. 96% of transactions that take place every day at Bradesco, and you know there are many, they happen digitally online. People are no longer going to the branches.

So adjustments need to be made. We don't need to have a bank branch that has 2,000 square meters or 3,000 square meters. We can serve clients better with a smaller branch, with advisers, specialized managers and bankers working at the branches to meet the needs of the population. We can also serve them well online with digital platforms. We have digital platforms that serve millions and millions of clients who do not want to go to a branch.

They want to be served via WhatsApp, via chat, via videoconferencing. They are not going to go to the branches anymore. So over time, changes have been happening in the way that people relate with the bank, and that has accelerated with the pandemic. And Bradesco needs to adapt to the new times and to what clients want because at the end of the day, we want to delight our clients. We want them to be happy and to be promoters of our bank so that we can have better and better results with long-lasting relationships.

So it's not a strategic repositioning, but it is repositioning in terms of how people, how clients want to be served with the changes we are seeing and changes that were accelerated also because of the COVID-19 pandemic.

[Carlos Firetti, Business Controller & Market Relations Director]

Very well then, thank you very much to all. We are now closing the Q&A session. Questions that were not answered during this call will be answered by our Investor Relations team. I'd like to remind you that the release is available in our Investor Relations website.

Octavio, your final remarks.

[Octavio de Lazari, CEO]

I'd just like to thank all of you for being here with us participating in this earnings conference or videoconference call. It's always a pleasure to be able to talk more and in more detail about the bank to you. Certainly, now the IR area will start to schedule meetings that we're going to have closer to you. We remain available. But in any case, our Investor Relations department is available to all of you to take any doubts, to provide additional information. I wish you all a great day, a great weekend. And thank you very much for your attention.