Banco Bradesco SA

BOVESPA:BBDC4

Earnings Call Analysis

Bradesco's steady Q1 2024 performance and strategic steps

Bradesco reported a recurring net income of BRL 4.2 billion for Q1 2024, a 46% increase from the last quarter of 2023. The loan portfolio saw overall growth of 1.4% quarter-on-quarter, reaching nearly BRL 890 billion. Key challenges include managing client NII, while operating expenses grew modestly by 4.4%. The insurance segment performed robustly, contributing a net income of BRL 2 billion, marking a 10% year-on-year increase. Expectations for the year remain positive with strategic focus on digital transformation and loan growth across all segments while maintaining net interest income and profitability targets.

Introduction and Overview

Marcelo de Noronha kicked off the earnings call by presenting Bradesco's first quarter results for 2024. He emphasized that the results should be compared with previous quarters to understand the bank’s performance trajectory. Bradesco's recurring net income for the quarter stood at BRL 4.2 billion, a 46% improvement compared to the last quarter of 2023, albeit flat from the previous quarter. This outcome underscores the bank's efforts in controlling operating expenses and improving its loan portfolio.

Loan Portfolio and Interest Income

The loan portfolio reached BRL 890 billion, showing a year-on-year growth of 1.2% and quarter-on-quarter growth of 1.4%. The bank experienced traction across all loan segments, with retail and wholesale lending improving significantly. For individuals, the portfolio grew by 2% year-on-year and 1.9% quarter-on-quarter. However, credit card lending did not grow due to higher associated risks with non-account holders.

Challenges in Net Interest Income (NII)

Gross client NII faced challenges, as was outlined in the bank’s guidance. Despite the difficulties, Bradesco's management remains optimistic that NII will improve over time, driven by a balanced loan portfolio and controlled risk. They emphasized the importance of maintaining high-quality assets and reducing delinquencies to stabilize NII.

Operating Expenses and Insurance Business

Operating expenses grew by 4.4%, aligning with Bradesco's strategic objectives. The insurance division delivered a solid performance across all lines, contributing BRL 2 billion in net income for the quarter, a 10% increase year-on-year. This positive trend in insurance highlights the bank's diversified income streams and effective cost management.

Strategic Changes and Market Positioning

The bank has been implementing significant structural changes to unify processes and integrate teams better. This includes segmenting the SME and wealth management client base and enhancing digital and machine learning capabilities for credit assessments. These changes aim to improve operational efficiency and market competitiveness.

Future Outlook

Bradesco's management reaffirmed their confidence in achieving the 2024 guidance. They expect continued growth in the loan portfolio and NII, supported by controlled expenses, strategic investments, and enhanced credit policies. The overarching goal is to deliver progressive improvements in earnings and market share while managing risks effectively.

Conclusion and Q&A Highlights

The Q&A session addressed several investor concerns, including funding strategies, digital transformation, and the impact of central bank policies. Management remained positive about Bradesco's ability to navigate market challenges and deliver consistent growth. They highlighted ongoing efforts to optimize resource allocation and maintain a robust liquidity position.

Earnings Call Transcript 2024-Q1

[Marcelo de Noronha, executive]

I am Marcelo Noronha. I'm here to present the results for the first quarter of 2024 of Bradesco. I'm here live speaking from [indiscernible]. It's 10:31 a.m. It's a great pleasure to be with you once again. And before we start the presentation, I would like to say that unlike what we did in February, when I started presenting the strategy in a more lengthier way, the idea here is not to present the strategy in so many details again, but we will summarize everything, and then we will revisit some of the topics as the questions pop up. And so I will talk throughout the presentation about what we delivered in addition to the numbers related to the first quarter. And I'm sure I think you have the opportunity to take a look at the numbers since we posted the presentations and the release after 6:00 a.m.

Our recurring net income was KRW 4.2 billion. It was flat in relation to the previous quarter, but 46% better than the last quarter of '23. And there are some points of attention here that are highlights of our balance sheet. Some are challenging and some other topics related to good deliveries that we've been doing. First, the improvement in ALL for both retail and wholesale that also leads to an improvement of our NPL that is improving in all segments. We also increased loan in all segments.

I think there is a colleague from the sell side last quarter asked me a question. He said, do you think you would resume traction? And you will see through another charge that I'm about to show you that there is an inflection in the total loan portfolio. And that's what we'll show you. We will show you growth in all loan segments with traction. And this is just to answer that question from the previous quarter.

Well, the challenge is the gross client NII, but there is a justification for that, and that justification is in our guidance. First, we have the loan book and then the margin follows suit. And I'll talk a little bit more about it when I talk about the loan book and the guidance.

Another topic, which is very satisfactory is the control of operating expenses, which grew 4.4% as we will see, and a very sound performance of the Bradesco Insurance business. In all lines, we had a solid performance. So the results for the first quarter was BRL 4.2 billion, very much in line with what we intend to deliver this year. And as I said before, step by step, we will gradually grow. And I know that my clients on the sell side, in particular, those that have been analyzing as they can look at the presentation from the last quarter of 2023 and then take a look at everything I'm about to tell you and run a comparison with what we talked about the previous quarter. Therefore, our loan portfolio reached almost BRL 890 billion. We grew 1.2% year-on-year. And looking at the quarter alone and the quarter says that we are growing steadily. We grew 1.4% quarter-on-quarter, the inflection of the curve saying that in the last two quarters, the portfolio was coming down, but now it was declining. Now we are resuming growth.

If we look at the free portfolio, if we were to look at the presentation from the previous quarter, you will see that traction now is much better based on the KPIs that we showed you in the previous quarter. Looking at individuals portfolio, we grew year-on-year 2% and 1.9% quarter-on-quarter, but this growth is well spread. Some portfolios give us a pretty good balance, and there are other portfolios where we have to grow products with higher margins, but we are getting there. Payroll loans grew 4%, 2.1% growth quarter-on-quarter. Mortgage loan or real estate, I think we are probably the largest private bank to deliver growth, 5.8% year-on-year and 1.8% quarter-on-quarter. Credit card, we didn't grow, the risk was higher. But where is it that we are not growing? We are not growing in non-account holders. When you look at prime banking, we posted almost 12% growth when we look at the credit in the high-income segment. Personal loan, 10.1% growth quarter-on-quarter and 1.8% year-on-year. Vehicles also in rural credit, the lines that are more secure, these are lines that are long term lines, but at the same time, they carry smaller markets.

Now looking at SMEs or companies. In wholesale bank, large companies, we grew 1.6% in SME, micro, small and midsized companies. We are beginning to see more traction so we grew 2.3% quarter-on-quarter, but I will elaborate further on SMEs later on. Something new that I am now bringing to you is an example of the vintages. Vintages for mass individuals or individuals mass market. So we started with [ 100 ] back in 2019 and look at the second quarter of 2022. The vintages that we have been acquiring that's the blue line, starting with the base of [ 100 ], but the bar [ in Ray ] means origination for 2019. So origination for individuals mass market, and this is, again, answering the question that you asked it back in the third quarter. What about the mass market? This is proof of our principality. Meaning that we are increasingly bringing better ratings even in mass market.

And this is proof of what we are saying. I'm talking about vintages over 30 et cetera. With time, we are not going to see vintages being right here. They will be slightly above because we will get into products that carry a bit more risk. But they also lead to better margins. Here, we have to the right, payroll loans, installments, finance. Cards alone is the only line that is not growing. And I already explained, and that was due to non-account holders, clients that come from open sea and from the digital segment. But delinquency is coming down, and this is due to the quality of the collection service, we are now providing.

And now let's look at SMEs. I am exclusively talking about SMEs starting with the base of [ 100 ]. But look at the quality of the vintages. In terms of SMEs or companies, the bars have not yet reached the levels of 2019 because we're being more conservative. Now I would like to highlight a few lines of growth, but there are some lines that we are not growing as much because of the risk involved. Today is a segment that presents the highest credit risk. But netheless, we continue to grow. And this certainly explains why we haven't yet increased in the total NII. Now you see delinquency levels falling. And soon I will talk about the net margin.

So this is NII. You already look at the KPIs, and this is a snapshot of our portfolio. When you look at this column that is available for you to look at, you look at how much we grow in terms of portfolios that are safer within our portfolio. And now we also leverage credit to these other two lines here. So the loan portfolio comes first, and then that's followed by the margin. According to our expectation, this is what we expect to see throughout the year that, that market NII goes down. So client NII is coming down. But when we look at the net client NII, look at the relative numbers, where we were and where we stand today.

Risk appetite is different. Therefore, we have new credit models, we have new credit policies, we are using a lot of machine learning in our credit segment and with our team. Therefore, the quality of the risk is being monitored very closely. Starting with [ MPD ] to control all of our portfolios. We are very much grounded and then you could see that we gained market share in February when compared to the Central Bank portfolio is not the expanded portfolio because the Central Bank does not disclose that. But I can tell you with a very good degree of certainty that we gained [ shared ] in March alone as well.

So we grew more in February to March, when compared to January. So what we produced in January, there was just one month when we increase our NII. And whatever was produced in March, this will be reflected in April so our overnight loan portfolio, everything is under control in all lines. NPL, 100% of provisions and our coverage ratio very flat and stable when compared to the previous quarter.

Expanded ALL also brings important figures. I'm not going to look at the previous quarter but we had almost 18% growth year-on-year. I mean in terms of mass retail, there was a drop the quality of what we are bringing is much better. We are much more effective in terms of our collection and credit recovery. Whenever we talk about ALL, I mean this provision indicator versus the annualized portfolio. This is an index that we haven't seen for quite some time. Therefore, the numbers are very important because it goes towards the NII that we presented in the previous quarter.

Now speaking about fees and commission income, this is very much leveraged on payment because of exchange and the companies that we have. So this is natural that it falls. I mean, this type of revenue is the lowest in terms of all the previous quarters and the second quarter is better because we have Mother's Day and the last quarter, you know you have Children's Day, Black Friday and all of the Christmas holidays. So 1.3% a year growth is an indication that growth will be according to our guidance. So it's within our expectations. And in all of the other lines, I would like to highlight [ Consortia ] with this level of growth that you see -- I mean loan operations of 10%. That means that we are well on track.

And checking accounts. We have been losing ground with checking account, but now we resume growth because of some of the intelligent packages that we are delivering and it's capturing value. I think the most difficult part is equities and capital margins and the expectation is slow for this year, and all of the reasons are well known to all of you. But we are very pleased to see the level of growth in terms of fee and commissions income.

When it comes for Bradesco to run comparisons, I mean other incumbents say that within the fee and commissions income, they also include insurance revenues. But in our case, that's separate because that is included in the insurance operations. Our operating expenses, for me, that is a highlight. That's our goal. We talked about 4.4% year-on-year growth. We are delivering things with a lot of seriousness and the optimization of our footprint with about 300 movements in the first quarter of 2024.

Now when you look at the book, you will see a chart that shows branches and points of service. Within that point of service, we have what we call PA. We have small PAs and large PAs, which are points of service. This is another name used by the Central Bank, but it is a mini branch in some municipalities we shut down some of these PAs or points of service but I will later on talk about the company segment. This is something we referred to at the beginning of the year. We said that we would do another segmentation with very specific service with specific branches to cater to companies, and that's what we did. So here, you see a larger number of branches serving companies. In fact, there was a significant reduction or maybe at a bigger pace than what was previously announced and later on, I will talk about this new branches for companies and Bradesco Expresso. When we talk about personnel and athlete expenses, the growth was even below inflation in the period.

In the results of the insurance group that gives [ us a ] net income of [ BRL 2 billion], a 10% increase year-on-year, almost 20% [ ROAE ], a substantial rate in premium income, insurance plan contributions and results of almost BRL 4 billion showed a significant increase. And I'd like to highlight technical provisions, which grew almost 12%, reaching BRL 380 billion, quite a significant amount for the insurance group, which is doing quite well performing really well. In here Tier 1 Basel ratio of 12.7%. We have [ BIS ] in the book, so you can look at the total and we provisioned [ IFC ] for Q1 of about BRL 2.6 billion. And this brings me to the guidance.

Here's what I can say. When you look at this indicator in the previous quarter, what did we have? A decline in a negative number. We've got traction now, we are within the guidance. No doubt about that. And of course, we have to move in this direction so that we will have a reflection in the interest income. So we have the loan book and the net interest income. And this can be the indicator that is the most challenging for all of us, but let's focus of 1.2% and the net interest income will improve, and we believe we'll be within the guidance.

Fee and commission income to me was delivered for the whole year based on the expectations that I mentioned. Operating expenses again, the expectation is that it will be in the guidance. Income from insurance operations a little over, a little better, great, but we believe that it will be put into guidance. I'd like to remind you that the guidance is for the whole year, not for just one quarter and ALL as you can see [ 7.8 ], [ 8 times 4, BRL 32 billion ]. So you might think will you be below the guidance? Are you being conservative? No, but the calculation is simple. If I'm going to grow here. And most [indiscernible] have more expected losses even with the better vintages so of course, I'm going to have more provision down here and that's why we believe that we'll be within the guidance when all other line item a little more towards the bottom of the guidance and some others more towards the higher end of the guidance. We continue to believe and we continue to move forward step by step.

As I mentioned in the previous quarters, I'll make some comments about running the bank and change the bank. I'll start saying that in the past, we spoke about quick wins. It's a plan I said "We are not going to be delivering the next quarter. We will be delivering that along the next few years, and we'll have quick wins in recoveries in collections, and some [indiscernible]" so the reflection of those over time will be seen in our income statement and in our balance sheet with the exception of some specific cases. For example, the delivery for the company's segment, you can go to the branches, and can speak with people there. So we'll have a comment in your [ modeling ], and this will be reflected in our credit increase, credit quality, et cetera. So run and change kind of mix together because we don't have quick wins. You remember the 10 topics. Like I said in the beginning, I'm not going to go over them again but I would like to make a brief comment and you can look at these indicators.

[ Speaking ] about the digital bank, 98% of transactions are carried out through digital channels [indiscernible] I'm speaking about the app, mobile and Internet banking in the case of companies and this is our timeline for our strategic plan. You will remember that we presented the plan in detail back in February and what have we delivered so far? A new organizational structure. The reduction of the layers and we are putting this into practice at the bank [ and ] the span of control revision. So we increase that span of control. The transformation [ offers ] today counts with more than 800 people, and this was only possible because of these [ reorg ] that we have or else we would not have the ability to allocate leaders here so we are in the process execution, which is very daring and bold and accelerated and it's not east. You know that we spoke about diagnosis applying a structure to execution, and execution of course, is the biggest challenge for any organization, but we are executing with determination safety and control external hires.

We also spoke about this. You will remember that we had two heads of departments that would report directly to me. One in HR and the other one for the business, the digital business which will take mass market to digital and I'd like to announce that we had a reinforcement of the credit [ BU ] with a whole reconfiguration and targeting we did and the creation of a portfolio management part. So we hired in the market a new credit directors who has already joined us [indiscernible] he came from [indiscernible] but has a track record in the banking industry. His background is a statistics, has worked with credit for a long time. He was an officer in his prior role, and he was already providing services to us. I think it was great to bring [ Julio ] to the company to reinforce our credit team. And regarding the C level, we already hired those two officers. This is [indiscernible]. Many people ask me, when will you be able to do it? Well, the colleague who is coming for the digital unit as Head of Digital reporting directly to me is leading another company and our agreement was we will only disclose the person's name on May 9. So May 9, we'll disclose the name, and he'll be starting to work on May 20.

So we use the [ price ] for that in our department. And we also hired a woman, a colleague who will be in the C Suite with us in HR, Silvana [indiscernible]. Silvana started today, she's watching on this call and Silvana came from [indiscernible] she was talent manager there. She was also [indiscernible] for many years [indiscernible] worked for many [ banks ]. So she's an asset for us. She's [indiscernible] experience in dealing with culture and talent as well as her financial services knowledge so that she can be discussing anything about the banking industry.

And [ footprint ] [ revision], I mentioned about this about 300 points. And this continues here. This will stretch until yearend with strong execution. And the opening of 122 branches dedicated to companies, I'd like to congratulate the team that worked strongly to put together the team. And here, I show you a picture of these branches dedicated to companies. We submitted 143,000 clients in [indiscernible] to BRL 50 million with 2,000 professionals focused on customer service. With a specific vertical, this is outside the network. We are working on this to have a serve model, which is exclusive with specialists. And in addition to the experience here, we'll manage risk. This is the name of the game here. [indiscernible] closer just like we did with middle market we are now doing with these SMBs without losing sight of [indiscernible] SMEs between [indiscernible] per year using remote service via the app, but we increased the team that serves these legal entities, these enterprise. And our expectation is that by the end of the year, we have about 250,000 clients already targeted and allocated here and after that expanding, our radius of [indiscernible] that we are going to have a lot of traction here.

Looking forward, what are our expected deliveries until 2028? Looking at this timeline, [indiscernible] will continue to hire technology in digital channels, we will have the suites, as I mentioned, and we'll expand Bradesco Expresso. And here I'd like to comment on another delivery. This is a differential about the [indiscernible] 38,000 merchants using our Bradesco Expresso. We can use this to sell banking products and services and also [ time ] transactions with customers. So we delivered a new platform as you can see here in this photograph. In Q1, we already rolled out this to about 1,000 merchants in [indiscernible] different experience. I mentioned in the prior quarter that this is something that we're developing and preparing so the moment the merchants identified with their taxpayer number, automatically our CRM engine uses intelligence. And even if they are not a checking account holder, the system identifies what we can sell to these clients or we can offer them according to their profile [indiscernible] efficiency tends to grow significantly here in our [indiscernible] has 100% of process in Brazilian municipalities. And this quarter, we're shares sales versus Q1 '23 up 89% on this channel and the origination of payroll deductible loans 361% increase so we expect to give a lot more traction to this process. But there's another [indiscernible] which is a game changer.

We have [ four ] providers of these solutions. Go to the merchant with the traditional POS machines and some functionalities and the futures in these machines. [indiscernible] two have left. And by the end of the year, we'll have just one platform with a lot more versatility and the ability to deliver functionalities and features to operate with these merchants.

So this is basically to move to my conclusion. I spoke a lot about run the bank and change the bank. So I'd like to just reinforce improvement of ALL and retail and wholesale. Expenses control and robust credit growth in all segment in addition to the results of the [indiscernible] and change bank. I highlighted our external hire, I've just mentioned one of the names. This was the first delivery and then the reinforcement of the credit [ BU ] with revisional processes in the opening of the branches for companies for SMEs, this has been delivered, footprint revision, that's strongly underway and expansion of the [indiscernible] which I just mentioned. So we have deliveries, we are following the plan step by step so that we'll offer better and better earnings every quarter.

Thank you for your attention. You may now have my call Cassiano Scarpelli, our CFO; and Andre Carvalho, our new IR officer taking over from [indiscernible] and we'll start the Q&A. And over to you.

[Andre Carvalho, executive]

I think you already said a lot. Good morning, everyone. I would like to inform all participants that Ivan Gontijo, the CEO of our insurance company is also joining us during this session and he's with us remotely. [Operator Instructions]. The first question comes from [indiscernible].

[Unknown Analyst]

I have two questions. The first question is about your transformation plan. Now that three months have gone by and since the official launch of the program and you have more visibility, what is different when compared to the original plan? And given your term visibility, whether there has been any changes in terms of delivering ROE above the cost of capital, and you said that you would do that throughout 2026.

And my second question relates to the guidance. To reach the NII guidance means that you have to have better origination, better margin because I think this will come with the mix, and this will improve provisioning. So how do you see these three levers performing throughout the year? And what is the pace? and where do you see the risks of not delivering what you expect? Not [ delivering to plan ].

[Unknown Executive]

Well, thank you for your questions. I will ask Cassiano to start and then I will end. Not only Cassiano is the CFO, but he is the CPO. So Cassiano is the best person to talk about the KPIs of our transformation plan.

[Cassiano Scarpelli, executive]

Our transformation plan. I mean what we did, we ratified what we envision in the diagnosis of our transformation process. As Marcelo put it quite well, we have over 800 people engaged 2,600 initiatives and the KPIs are very apparent. I mean, starting with the footprint all the way to [indiscernible] bank and credit segments also that involves recovery hiring new people, technology, et cetera.

So we launched the plan on February 19. That's when our new office started operating. But looking back today, we can say that this whole [ mapping ] was very important. And we found more things, which was quite interesting. We found other things that can lead us to us having a more agile bank and more digital bank even more than what we are rendering, even a better customer experience. It's not way ahead in the future, but it's throughout the journey and I am certain that the plant is well structured and the deliveries are well on schedule. And we will improve performance.

[Unknown Executive]

[indiscernible] just to add to what he said, in fact, we reinstate that number. You might recall that I talked about the total number. You may have some small adjustments to the calendar, okay? This was expected for December, but it may be earlier or later. I thought that SME would perform better further on, but we were able to deliver the numbers before schedule. So we still have that expectation in terms of the numbers. You might recall that if our CAGR for loan book would materialize. If CAGR would be 1% a year growth, our loan portfolio, total growth for the expanded portfolio will be [ BRL 3.3 trillion ] in five years. I mean, we want to capture part of it and the expectation remains firm. And we see through traction that we do have the capacity to get there.

Secondly, in regards to that ROE expectation that you mentioned, I would just say it again. I don't want to just promise things I want to deliver. As soon as I can deliver you, we will deliver to expectations, and that's what we intend to do to deliver things as time goes by.

And the other question was about client NII. How do we expedite that? I mean we accelerate through growing our loan portfolio. And during my presentation, I said that Okay. We gained market share in February, in January, we did not gain share. So we had to move faster in February, which we did. So I firmly believe that we will gain share in mind. In April, that's when we will see what has been done. I mean that NII, things will not happen overnight. First, we will see a growth in the portfolio. And then we will see an increase our net margin because the bottom line is that delinquency is under control. We are bringing good quality things to our portfolio. And that's when we will see an effective growth in NII.

You might recall that I'm talking about two different types of portfolios and two different types of risk acceptance as we require additional effort on the part of the bank. I don't know whether you would like to mention it. I mean the client NII will be better in the second quarter vis-a-vis the first quarter because there is a gradual evolution. First quarter lower ALL, and then we time the margin will grow with ALL because we will go through more risky segments and our funding costs is coming down as well. And this is what we are noticing, and this has an impact in the time line.

[Andre Carvalho, executive]

The next question comes from [ Brian Flores ] from Citi.

[Unknown Analyst]

Hello. Thank you for taking my question. With a more restrictive Central Bank, and you talked about funding. How does that change funding? and also talking about market NII, what is your view about market NII?

[Unknown Executive]

In terms of market NII, I would say that we don't see any major changes to this year. There was a slight drop from one quarter to the next. And the Central Bank with a more restrictive curve but that [ tilted ] curve, as we say, it is very important for our pre-fixed portfolio because it brings a more interest fee volume. And we believe that even though the landscape is more restrictive, it points to a decline in interest rates because 9.5% or 10%, that is not very significant because it doesn't change the landscape as much in terms of our treasury position. Therefore, we see this is something beneficial because on the one hand, we reinstate our loan portfolio with higher rates. So in terms of the cycle as a whole, the cycle would indicating to 9.5% to 10%. Our economist points to 9.25%. I don't believe in a cycle where interest rates will spike after that. So this scenario will bring about good results in the market is performing well pretty much along the lines that we mentioned before, which is positive, and we see a positive trend towards 2025.

[Unknown Executive]

Just to reinstate what he said, the expectation is that the market is very bullish from now on. And the fact that the rate will come down 50 or 25 basis points, nothing much will change.

[Andre Carvalho, executive]

[ Jorge Kuri ] with Morgan Stanley.

[Jorge Kuri, analyst]

I think that the positive highlight of the quarter was the improved credit quality so you're very confident to accelerate growth in those loans with higher spread. So question is, is the bank ready to accelerate maintaining [ NPL ] under control particularly in retail? What were the main adjustments the bank made in terms of policies, credit filters, what were the main criteria adjustment, if you can elaborate, perhaps from the qualitative standpoint, that would be very helpful.

[Unknown Executive]

As I mentioned during the presentation, we have been using a lot more machine learning than in the past exactly to improve our modeling. So from a qualitative standpoint, if [indiscernible] were sitting here, he will tell you exactly that, so that's number one.

Number two, we worked on our credit policies for certain credit rating. There are higher risk, we now have a policy in place, which a lot more resolved than in the past.

[Jorge Kuri, analyst]

When we talk about the proportion of income, proportion of company or SME revenue, what kind of proportion effect do you want to have in legal entities? What kind of quota do you want to have and the kind of loan?

[Unknown Executive]

We proved our policy a lot. And it will improve even more when [indiscernible] joins us. His mission is to manage the portfolio with pricing. With pricing, we have pricing for products and now pricing is in the credit department and that will improve our value proposition and that was [indiscernible] change so that we could adequately prize [indiscernible] and adjust levels of approval. But in that market, I'd say that this is it. New credit policies, new credit model with the collection process, which is a very fined fine-tuning and a living portfolio management which is what we do now. That gives us greater safety regarding everything we are seeing. We define the indicators that we are measuring strictly. We are measuring them full time and also in the wholesale bank, we made some changes. We hired other people [indiscernible] just one officer, we brought in teams for the credit department. We're still hiring new people and we changed some processes so that we could have a lot more agility in serving legal entities. I'm talking about all the way from large corporates down to middle income and SMEs. So with that, we have a much more productive organization than we had recently announced, and our Managers feel that. If you speak with our regional managers [indiscernible] this whole modelling and these [indiscernible] Please remember that in the business unit, with this portfolio management department, we have the first and second line of defense We have colleagues in charge of modelling and then colleagues who check the modelling and validate the modelling. We got [indiscernible] department. So what I can say [indiscernible] I mean, of course, we are not going to be with that ratio for the vintages but a little higher, which is the optimal point. What we are most measuring is the economic return of clients so that we can work with the bottom line with adequate pricing. If it is [indiscernible] we just don't do it, [indiscernible] what we're doing, but are delivering qualitatively. There is AI behind us, but AI is not the main tool, the main tool is machine learning.

[indiscernible] Yes, I think that what you mentioned the price is very important. The cost of [indiscernible] with a lot of traction. We could see that in those curves of the vintages [indiscernible] reinvent ourselves and everything you said and we have new colleagues [indiscernible]. So these are often little pieces in the game. These were significant positive charges, these were adjustments made.

For The card for non-checking coholders, that's a modality where we are more restrictive, for high-income clients, [indiscernible] offers a little more today. we have modeling for that so have some piece of mind regarding what [indiscernible] we're not working with just one segment. [indiscernible] about the mass market, high income overall sizes, including wholesale bank.

[Andre Carvalho, executive]

[indiscernible] with [ Safra ].

[Unknown Analyst]

I'd like to ask a question about SMEs. You showed a [ torrent ] of origination [indiscernible] in the company's mass market. You're still [indiscernible] from the average of 2019, how do we explain this gap? We have a plus 90 day in [indiscernible] but why is the origination not at the same level as 2019, Is it a supply or demand issue? When can we expect this to grow?

[Unknown Executive]

Number one. It's about risk appetite. This is the highest risk segment particularly for those companies [indiscernible] I spoke about managing a living portfolio. So there's a management model that is being implemented in this segment and that allows us to follow in the living portfolio and act on totally differently. It is automated, but at the same time, a counter or colleagues, the managers, the regional managers [indiscernible] so we'll improve the quality to [ BRL 3 to 50 million ] but until [ BRL 3 million ], there is effectively more risk because the Brazilian market is like [indiscernible] a little appetite to [indiscernible]. But we believe that we have started and we both continue to grow origination. And another reason to believe in that we've totally changed our offering, what we offered to our sales force. Hopefully approved the way to approach clients with a commercial tool it's all changed and it started now in the month of April with a different set up, a different account configuration and in our opinion, in the opinion of the colleagues responsible for that segment, this will give a lot more traction to have better credit [indiscernible] working in that segment [indiscernible] a new tool, it's not a new tool, it's a new commercial format [indiscernible] and this new segment, a [ BRL 3 million to 50 million ] that we verticalized, there's a different traction compared to the segment of up to [ BRL 3 million ]. [indiscernible] loan origination but with the right controls and quality [indiscernible] look at the track record of delinquency, historical series shows that individuals drop first and then SMEs and then small enterprises. So small enterprises are having their inflection? No [indiscernible] the market risk [indiscernible] that's why our appetite [indiscernible] with safety and in the same in the future should accelerate in the segment of smaller companies that will require more provisions, but the margin will more than upset that and the credit policy we will be adjusted. We will commit all the time.

[Andre Carvalho, executive]

Now Mario Pierry with Bank of America.

[Mario Pierry, analyst]

I have two questions. First question, when we look at the bank's coverage ratio, we calculate the ratio close to 162% I mean it's lower than your peers. But we also look at your complementary provision close to BRL 6.2 billion. And historically, used to be around BRL 8 billion to BRL 9 billion. Do you intend to revisit those reserves? How do you view the reserve level stands today?

And the second question is about capital. There was a decline in your CTO ratio, a drop quarter-on-quarter. So how do you see this CET ratio impacting your dividend policy or even your capacity to grow?

[Unknown Executive]

In terms of coverage ratio, we do not have a target for the coverage ratio because it fluctuates according to the credit cycle. So if the cycle aggravates, delinquency as well, I mean, because we increase the amount of provisions. I mean we provision for 100% of our clients as the credit cycle begins to change when we saw that happened in the first quarter of the year, certainly, the coverage ratio increases because we originate credit that naturally at the beginning comes with higher provisions than delinquency coverage increases. Therefore, this is a very cyclical KPI, we are not very much concerned with it. We think it's very adequate for the current moment. And certainly, it has a natural recovery.

Now in terms of [ CET1 ], we continue to say that Capital is well in place in terms of the capacity to do all the traction that Marcelo talked about. We can say that it grew vis-a-vis the third quarter of '23. There was a slight drop in this first quarter basically focus on mark-to-market bonds, but this also has to do with IOC. And so we understand that develops naturally. We don't anticipate any changes in this capital throughout the year. It will be very close to what you see today. We believe this could be a possible leverage to our credit increase. Therefore, our capital, it's in a very comfortable position right now.

Well, first of all, you know that we project capital going forward. Also, we projected for following years. We see capital standing flat even though the portfolio is growing. No problems here.

Secondly, I don't think this will be a limiting factor for growth or even the distribution -- I mean, of interest on capital. And the coverage ratio I think I told you in the first quarter, I referred to how comfortable we are in terms of the wholesale banking our total coverage ratio is very good. And in particularly, in terms of the wholesale bank because I was asked this question by journalists during our press conference. It is very much under control. And I talked about that last quarter. our coverage ratio is ideal. And we even have some for other cases related to expected losses before no problem at all in terms of our coverage ratio.

[Andre Carvalho, executive]

We now have Thiago Batista from UBS.

[Thiago Bovolenta Batista, analyst]

I have two questions. One is a follow-up question. My first question is about the insurance business. We could see any increase in technical provisions quite significant this quarter. But when you look at the details, you had BRL 2.4 billion in additional coverage provision moreover other technical reasons.

Last quarter, you used part of that technical provision. I would just like to understand two things. if this was part of your income statement or there was something that was recurring and you wanted to reset? So What was the reason for that additional coverage? And now speaking about Mario's question on capital, I understand that you said that maybe at the end of the year, your capital position will be similar than the one we have today. Does that include any kind of arrangement in terms of the capital for the insurance company? Or I think in 2015 or 2016 you will get capital together with IOC. Is there anything included in this line? Or maybe historically, you think that you could keep capital very stable, because the portfolio, I think, increased by 1.4%, and you consume BRL 1.3 billion in capital. So it doesn't seem ideal to keep it stable and maintain the guidance without any sort of arrangement in terms of the insurance company or IOC.

[Unknown Executive]

To answer your second question, I will say no. I mean you're saying that you have an additional flexibility, we won't even need to use that because we couldn't even think about using it. But I think we will need to. Our projection leads us to say that with a big degree of certainty, what changed from last quarter to this quarter? The main motivation involved 2 things. Payroll, we had the payment of two important payrolls and also [ MTMB ], which is mark-to-market bonds, and this is due to the natural hedge of our funding and also this is related to private pension funds, which is an important part of the [indiscernible]. So these were 2 big movements. So this was a one-off one-off event. And the difference is due to the payroll payment. That's why our projections and our growth curve is very much under control.

I think we can also ask Ivan to answer the second question. But I would like to recall another point about the insurance company. This is something that we already saw in the past. Thiago said that himself, this is part of the technical strategy. So at some moment, we had to do some improvements in the provisions. This was particularly technical and the provision has to do with all of the economics of the insurance business. I will now ask [indiscernible] to add to my comments. I think you may recall the question, you talked about technical provisions and whether that had any impact on our income statement and what would be that additional provision, so Ivan go ahead.

[Unknown Executive]

I think Cassiano already explained the technical view. I would just say that increase in provisions is linked to an increase in the revenue of insurance and pension funds, especially pension funds and savings bonds. So that link in that increase in provisions is proportional to increase in revenues. I mean, secondly, this is also due to the product mix that we have, we have insurance products, pension fund products and certainly, the demand in adequate provisions, always having a very conservative approach. And Marcelo, you mentioned our provisioning, which is close to BRL 380 million, especially products like pension funds that increased significantly during the period. I would just like to emphasize that there hasn't been any kind of recurring gain that could probably lead us have anything different in our structure. So everything is business as usual. And in compliance with the regulating agencies because it's important that we apply with our short and long-term agreements.

[Andre Carvalho, executive]

Next question from Tito Labarta with Goldman Sachs.

[Daer Labarta, analyst]

My question is on your funding [indiscernible] I know that seasonality that results against or have also been a big shift from demand deposits [indiscernible] but just putting that in the context of the competitive environment that we're seeing, are you having to pay more to retain deposits than retain clients [indiscernible] your NII in order to fund the growth, you will need to pay more for deposits? How are you thinking about that given the competitive [ landscape ]?

[Unknown Executive]

[indiscernible] Liquidity ratio is quite robust and so it's been reducing a little because we have to balance with our credit granting. We have to optimize cash and cost. So funding costs somehow continues to grow. It has a little bit do with the reduction in [ LCR ] and credit consumptions. Demand deposits continued to suffer because as a client, pay attention or the approach by our investment department or our platforms, they tend to look for products with more profitability. Our funds grew almost BRL 20 billion, and some of that comes from the movements of demand deposits and savings accounts. Savings accounts have been dropping in the system as a whole. There is always this discussion about savings accounts and CDI. And this comes from the discussion with the fintechs. So clients look at depreciated opportunities. We have Agra, our experts onboarding the channels. The app or Internet banking. On then one way or another observes and provide opportunities to clients. So we see this as a natural moment in the industry. But we have products different allocations to different clients. So with savings accounts and demand deposits, they are enough to maintain our strategy for rural loans or mortgages, real estate finance. Would you like to add anything?

[indiscernible] savings accounts, we had a market share of 13%, and that increased to 13.1%. [indiscernible] this is kind of the DNA of our clients. We have a savings account DNA. So savings accounts tend to remain flat but the non-floating products with higher interest rates have a trend to capture more clients. So we see this movement with it has been natural. And a lot of people have asked us about linked to changes in those, what we call exempt securities. And the impact here is practically zero. First, because we have funding with exempt secrets that is being accelerated to purchase inventory. And then we have natural replacement of these exempt securities by other bonds. So the impact here is practically zero in our funding.

[Andre Carvalho, executive]

Next question from Eduardo Rosman with BTG.

[Eduardo Rosman, analyst]

I have a question about the results in the different segments of the bank because the earnings of the bank improved. The insurance company remains well I lost a little bit of relevance as a whole in this quarter, and you don't really disclose the results for high income, low income, retail and wholesale. So a bit interesting to hear from you where do you see easier improvements in the results? If in low income if the reduced provision is already improving the result and whether there is any segment that is sufficient. If you could elaborate about the different segments of the bank.

[Unknown Executive]

[indiscernible] we do own the wholesale sale bank we have an [ RAR ] that is high for the different segments. And this is also for high-income segment, automation private so that's doing quite well. Our challenge, as you know, spoke about the insurance group. But our challenges comes from our mass market clients, given the cost to serve and delinquency. And we've been paying that bill. But indeed, things starting to improve a lot.

In SMEs, in particular, although we see the delinquency curve dropping but there's some improvement month by month, we see improvements. So our expectation is that we will drive the RAR of the [indiscernible] quarter after quarter. And I have to tell you, we don't really disclose this breakdown. But what I can tell you is that business units have a lot of traction right now. An area they might have a small traction or smaller attraction could be small and midsized enterprises. But it's improving. And again, that open of a lower income client because they have a higher risk, but they are all with a lot of traction. So by [indiscernible] we are doing this. we're growing credit in all segments in important lines. So we have the ability to deliver and to deliver more than we are delivering right now. And what I see and what I am living because I've been going all over Brazil, I've been having [indiscernible] with colleagues in the headquarters in many locations in Rio de Janeiro, in Sao Paulo, in Salvador and it's [indiscernible] motivated and excited and moving in the same direction. So we are improving AR, the risk-adjusted return for all of these segments, we are going to be delivering in the future quarters. That's my expectation for all business units. And in the mass market, perhaps the biggest challenge is to accelerate credit, maintaining NPL declining and adjusting the footprint. And the numbers we showed here point exactly about the new vintage of mass market increasing, accelerating with exceptional quality and the footprint adjustment happening.

[Andre Carvalho, executive]

Next question from Eduardo Nishio with [indiscernible].

[Eduardo Nishio, analyst]

My question relates to your strategic plan. Part of the recovery that you anticipate comes from improvement in the cycle that impacted the mass market, but most of it comes from more structural changes that you are promoting I would like you to elaborate further on your structural changes and everything else that is happening with your strategic planning. If you could list probably the mainly strategic structural changes that you have in mind for the next quarters or maybe years? And also if you could give me more details about changes in management and cultural changes as well that you are trying to introduce in the bank, especially that cultural aspect because has been something so important in the DNA of the bank. how do you anticipate in terms of these changes? And what do you see going forward in 2028 after everything has been done?

[Unknown Executive]

Well, thank you. These are very open questions, and I think we could spend days here just answering everything in more detail. I'll ask [indiscernible] to help me with the answers. Well, number one, that delivery of the credit business unit we unify processes that were separated in our organization. So everything is now combined integrated. We -- I mean, the separation of the teams that used to serve the mass market and the wholesale bank. We made also an important process changes, first line of defense, second line of the [indiscernible] with the use of machine learning running in the background of our modeling and we also introduced some credit policies because you put a certain appetite, okay, you say I want to give 50% of the company's revenue. So that was one change.

The second change was segmentation that segment of SME is 1 of the things that we told you that we would launch early this year. is already in place. We don't have all the clients already in there because we're still in the process of segmenting clients. But we will also deliver the affluent segment, the wealth segment in the second half. But we are also working on restructuring our prime segment for more wealthier clients, and that's another important segmentation. In terms of the wholesale banking, I told you that we made some process changes on the loan book side. I'm saying that this is something that is already happening. And this is generating results. And in turn, this will improve our numbers with time. obviously, I think the biggest challenge is in the cost to serve or more mass retail clients. Well, we are reviewing the footprint because we are delivering above plan but we will deliver numbers above the plan with costs under control. And all of these deliveries will allow us to get that additional revenue that we talked about last year. But even today, I said that since the market is growing with a CAGR of 8% a year in terms of the credit volume for the next five years, it will bring an additional BRL 3.3 billion in the Brazilian market in five years. And certainly, we want to capture part of that so that when we go forward, our revenue level be much higher and our return will be higher because the bottom line matters, which is the profitability that we will have and Cassiano, I think you can add to what I'm saying because out of the 10 topics that we listed, we had over 2,600 initiatives that I am just highlighting some of the main initiatives. And also, there was that movement of time to market that we are doing with the technology area and the very intensive use of Gen AI, I would also mention these two.

[Unknown Executive]

Yes, I'll talk about that management side as well. But there are two important points. Bradesco Espresso. It's a very important link with this new concept of the new foot print and our cost to serve. Together with digital, Marcelo also mentioned that during the presentation, it's a very strong digital bank Bradesco Espresso is a very positive tool because we can be present in many municipalities. Technology, Marcelo mentioned that not only in terms of reskilling but also we are hiring new people. We are hiring people at all levels of technology and all the important processes are becoming more agile it's becoming more productive. It's a new concept. And this is across the board and culture management. I think you should also talk a little bit about that and what we are doing in terms of our culture regardless of the fact that we do not want to lose our Bradesco way of being. We also want to have new colleagues that can add important here, we have colleagues from three different places. I even think that when we meet in person, I think we can also discuss things with the sell side. I would say that what we are seeing, just trying to make an executive summary of everything are bringing two C levels to the organization, people that are being brought from the market, and this is an important culture change. The reduction of these layers brought about an enormous difference in terms of speed, as I was saying before, I've been going around the country and having breakfast and lunches with different people, I'm meeting with different segments of the industry. And it is Amazing to see that once you shorten the layers, the communication becomes much faster, things become a lot more agile and our decision-making process in the bank, if you just start interviewing people from within, people will come and talk to you about it. That's another relevant aspect once we talk about changes to our culture and management. Silvana is just arriving. She will work together with Juliano in that transition, she will work with me as well. So we are working on that new HR plan that I've been telling you that we will deliver, and we will go even beyond. We eliminated some positions, some layers. And we want to continue to do changes within our organization with hierarchal levels maybe better so that throughout the end of this year and next year, we will have a linear a more lean company. We do not want to eliminate the values because the values are important because they support our culture, but that's not all.

In fact, we want to maintain values. What values? For example, we will stop offering promotions and Korea promotions. No, [indiscernible] This is a place where you can get promoted and professionally but we're also willing to bring somebody from the market. If we need to have more skills in the organization. This is basically it. Secondly, our employees, our managers, they [indiscernible] of Bradesco. Why is it that we would think about ending this. On the contrary, we want to harness this even more. but we want to have a lighter management in our organization with fewer layers to have a different outlook, a different perspective, see the areas that are different differently, not being standardized with a much faster decision-making with a lot of technology integration, different skills directed to digital. And this is what you're going to see in our organization. these changes in cultural trends with these additions that we'll have that we will not really that we have been the changes that we have been making in the organization. And with the span of control that is different, you have no idea, [indiscernible] it's so different. So I think this is it because we even spoke about this in the prior quarter about the total volume of revenue available in the Brazilian market. I'm almost sure of fact.

I haven't got the number on the top of my head, but please check the previous earnings conference call. And let me take this moment to your attention. If you look at my presentation back then in my presentation today, please let me know if there is any difference. Well, we said that back then is what we're executing to [indiscernible] important thing. There is nothing else in this bank that is not measured everything in [indiscernible] bank or change the bank is measured. We have a new project, for example, we are going to expand our middle corporate, it will be expanded. This project has been approved. We'll grow the team, another 10 platforms around Brazil, what we call platform is actually having a branch dedicated to this middle corporate segment. but it all involves measurements and decisions are made quickly, but all suggestions need to be proven. And it's going to be a cheap branch, not a huge branch. This platform, as we call it, when you look at total numbers, but it's registered as a branch at the Central Bank of Brazil. So we should think that this is kind of an overview.

And one last comment, the result of the transformation process will be recorded in the operating results of the bank, and that's fundamental. So we have to focus on the operating result to see the transformation and the timeline to organize what we've done already and what we will be doing in the future.

[Andre Carvalho, executive]

Next question from Pedro Leduc with Itau BBA. Leduc?

[Tiago Binsfeld, analyst]

I'd like to elaborate on the NII dynamics, particularly client NII. The NII in this quarter had a relevant drop 14% year-on-year. And the NII is still dropping in a similar speed to the past quarters. I know Andrea you said. First, you grow the portfolio, and then we're going to see a positive impact on NII. Thinking about the sequence. It seems to me that the current origination is coming with lower spreads perhaps because of the line of the mix I see payroll deductible loans increasing. But with caps putting pressure on profitability. You also have the savings account deposits following corporate segment being very competitive. So as an outsider, it doesn't seem that the portfolio construction is not helping the guidance. NII historically, no one has changed, but it was the line item that was always others further from the guidance. And as you are very comfortable in maintaining the guidance, particularly for NII. So I'd [indiscernible] wrong or the [indiscernible] more under pressure. Is it about more mix on more volume perhaps lower AWL will offset a less dynamic NII?

[Unknown Executive]

It's a long question. thank you for this question. I guess then at the very end of your question, you kind of gave us the answer because we look at economic value. So we look at the NII, not the growth's NII. So in NII, you saw that it's starting to grow, and we'll see that and if you look at the mix of products, you will see that we boosted those higher-risk products. But everyone here is very down to work. We are not going to have that NPL, the delinquency in the future. On the contrary. And like I said, and I stress this during the presentation. In February, we gained market share in March, most likely, this will be disclosed by the Brazilian Central Bank tomorrow. And most of the most likely, we also gained market share. You're also right when you say that payroll loans and mortgages have lower margins. That is a fact. The margin takes longer to come. But we are also offering products with a higher margin. We grew in February and more in March, and this will have a reflection in April, May, June, July and so on and so forth.

As regards to wholesale, talked about spread? Well, that doesn't exist [indiscernible] wholesale bank is under pressure. It's always been here, we work with RAR, risk-adjusted return. So our regional managers as well using their phone, the tablet, all their monitors, they see exactly the same thing. They see the RAR history of the client. They can send you [indiscernible] what they need to do to negotiate with the client online real time. So we put pressure on them regarding our AR. They just don't have a deal to add to their portfolio. today, the market doesn't give you a lot of room to bring those to your portfolio. We also have what we call OP CD for the secondary market or [ PCD ] portfolio. So you see the margin is not coming only from spread we don't address this operation by operation. We address it by client. So when we have an adequate RAR and relationship, the deal goes through or else they don't have the ability to approve the deal. So there's a rationale here. We implemented this when I was in the wholesale bank together with [indiscernible] and our colleagues there so this is not new. The margin comes from the whole. We also have private payrolls. We are one of the largest banks managing payrolls this means relationship with large corp, midsized enterprises, small enterprises, and we have other businesses that we do around the relationship with legal entities. So revenue doesn't come only from the margin.

Now to make up the client NII will grow SMEs because this was added to individuals for us to build up our margin over time. Is that line item challenging? It is. But rest assured, just wait because we'll get there. But we are looking at NII. Net interest income. That is what is important. We have to have a balance between what I do and the potential loss with these clients. And this is our handbook for our day to day. But of course, the portfolio needs to come first and the NII will come later. And we'll keep working at the mix over time, and we'll see a more balanced mix. But with delinquency under control, we have to have high-quality assets. okay, [indiscernible] to make a mistake. If you want to add anything.

[Unknown Executive]

I just have two very brief comments. Pedro's question was more directed to product mix. And as Marcelo was saying, there is also the segment mix. once we accelerate SME and individuals mass market, we bring on board more margin. The second comment is about guidance. When we look at the guidance, guidance gives us an idea of profit a year that's valid, this is what we work with. In terms of a turnaround history, when we point the guidance towards the end of the year, the beginning of the year is different from the end of the year because you are turning the portfolio. So it's a more classic case. It is more limited than it turns around and then it picks up again. So it will be different if you compare one and another. I mean it is valid, but there are fluctuations in some possible lines within a turnaround perspective.

[Andre Carvalho, executive]

Now Carlos Gomez-Lopez, next question from HSBC.

[Carlos Gomez-Lopez, analyst]

I have two questions. First is on funding, there was a drop of almost 13% on checking account year-on-year. When do you intend to change that in terms of cheap funding. The second question is about next. We don't have a lot of information about the future of next or the digital platform.

[Unknown Executive]

Thank you, Carlos. So you start first, and then I'll talk about next.

[Unknown Executive]

Carlos, thanks. It's a pleasure to see you. Marcelo just said now that one of the important indicators is our cash growth. We are doing some important work with companies and also working with some SMEs that are now coming into our offices. I think that the fair share path is important, and this will strike a balance when it comes to mix or with that demand deposit. We must also remember that we have lots of which are some instruments related to the main deposits, and that's not specifically in that same line. I mean you have a remunerated line but not to that client. You only see that when you look at the time deposit line. I mean, remuneration is a bit lower. I mean is a bit lower in this business. That's why you see this change. But it's not loss, but again because the line is not broken down for you to see it more clearly.

[Unknown Executive]

Yes, I think you're right. In terms of the clients that is it. And again, the more the client helps itself, it looks for different alternatives, and we will keep seeing these changes. I mean, the first quarter is more seasonal, but we understand that this is quite normal. And within the context of the year, this will be within the lines of what we often do.

Now to answer your question about Next, with next, you know that Part of the investments are within Bradesco. Digital is totally outside Bradesco. We have decided that next would be another segment for us here with a brand that is known in the market. But when we reviewed our strategy and the plan we decided not to make that move before we would make all the decisions related to the mass segment because we have learnings with NEXT and learnings that come from digital. So we are now in this decision-making process. We have some possible paths. And you will see that in due time. Also with this new colleague that is arriving, that will certainly help us in this process of execution and decision make. But if you look at our playbook, you will also see some interesting figures about digital. Take a look at that because we have some information about digital in our playbook.

[Andre Carvalho, executive]

The next question comes from [indiscernible] from JPMorgan.

[Unknown Analyst]

Our question is on cost. We already talked a lot about G&A, et cetera. I would just like to look at orders. This was a control, I would say, control quarter. And discussing the guidance with you early this year, I think there was a caution in terms of the total cost of the guidance because of that mine, guidance was above inflation. And part of the explanation was because you were very cautious about that line throughout the year. But looking at the run rate for the quarter, if pace was to be maintained of about 1.5% throughout the year, we would see a drop when compared to 2023.

The question is, how could we see this line going forward? If the pressure you're anticipating at the beginning of the year, is this still a base case for the rest of the year? and also exactly what led you to see this more beneficial performance or behavior of the lines?

[Unknown Executive]

Andre, you start, and then I will add.

[Unknown Executive]

My first comment is that there was a very good performance in all the lines of the main operating expenses. Personnel admin and other expenses, Marcelo pointed out quite well that personnel and admin expenses grew 3.5% in the first quarter against an inflation in the first period of 4.3% showing that our expenses are very much under control. So we started off controlling our expenses, and this is our objective for the rest of the year. But we have to bear in mind that the strategic plan that has started in February '19, has a very small impact in the first quarter. So it's just natural that the impact will grow going forward and impact that will be failed in technologies, new hirings, contingencies, fiscal contingencies, et cetera. This will appear throughout the year. But this is what makes us certain that this line will go within the guidance, but we will certainly do all we can to lower that number. We have to also recall the collective bargaining agreement. I mean, of course, that we have our own impressions about the collective bargaining agreement, but the negotiation remains open. I mean if you look at the line of others and compare it with the same line, it's the same as other companies that consolidate with us in this line is going back to its traditional level from previous years without the effects that we had in the past two years. So everything is under control and normal. I mean the collective bargaining agreement could probably move the needle a bit. But everything is being looked at and treated very rigorously. As Marcelo was saying, all the lines should be within the guidance. Some lines are even above guidance. But we will see a balance between one and the other. Some will be closer to the bottom part of the guidance and the others will be more closer to the top of the guidance. But we are certainly controlling our expenses and costs. but at the same time, always investing in what needs to be invested on.

[Andre Carvalho, executive]

And now we conclude our Q&A session. Questions that couldn't be answered in this occasion can be then to our IR department. And before I turn the floor to Marcelo to conclude this presentation, I would just like to say that in our IR website, you will be able to find this presentation and also all of the other materials related to this earnings release presentation. So I just recommend that you take a look at that. So what are your final remarks?

[Marcelo de Noronha, executive]

Thank you, all of you. for your interest and for joining us today in this quarterly earnings release, and we remain at your disposal sell-side or all analysts, we are available to give you further information. But before I say farewell, I would just like to say something yesterday Carlos Alberto [indiscernible] passed away, he was a Board member since last December when he retired, he was also Vice President of the Board. He died yesterday, but for several decades, he worked for our organization. That's why I thought it would be important for us to express our sorrow for the loss of our colleagues that spent many years working with us. But I would like to remember him with joy rather than sadness.

Thank you so much for joining us today, and I wish you all a very good month of May. Thank you.