Banco Bradesco SA
BOVESPA:BBDC4
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Banco Bradesco SA
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Good morning, ladies and gentlemen, and thank you for waiting. Welcome to Bradesco's Third Quarter 2020 Earnings Conference Call. This call is being broadcast simultaneously over the web with -- for Bradesco investors at the website, banco.bradesco/ir-en, where the presentation is also available for download. We will have simultaneous translation into English. [Operator Instructions]
Before proceeding, we would like to mention that any forward-looking statements that are made during this conference call related to the company's currently available information and financial information, they involve risks, uncertainties and assumptions because they relate to future events and therefore, depend on circumstances that may or may not occur in the future.
Investors should also understand that general economic conditions, industry conditions and other operating factors could also affect the future results of Banco Bradesco and therefore, could cause results to differ materially from those expressed in such forward-looking statements.
Now I would like to turn the floor over to André Cano, Executive VP and Investor Relations Officer.
Good morning, everyone, and welcome to our third quarter earnings release conference call related to the third quarter of 2020. Here with us are Mr. Octavio de Lazari Jr., our Director and President; Andre Rodrigues Cano, Vice President and CFO; Vinicius Albernaz, the CEO of Bradesco Seguros, Master Executive Director; and Carlos Firetti, Director and Head of IR.
So I'll give the floor to Octavio de Lazari Jr.
Good morning, ladies and gentlemen. It's always a pleasure to be with you again. I hope that you are all well.
To initiate our conversation, throughout the third quarter, we have seen an evolution in the reopening process of the economy and the returns certainly with many restrictions in various day-to-day activities in a number of reasons in Brazil. At Bradesco, almost all of us are still working from home, almost 95% of our employees from departments and affiliates are still working remotely, 50% on a rotation scheme. And as we stated in previous quarters, we are working well, and we have prioritized the health and our -- of our personnel and clients because this is our #1 concern.
Since the beginning of the pandemic, we have made great strides, and we have introduced new solutions that are almost unbelievable, considering the current situation. And we are able to offer a very encompassing basket of services to our clients. In addition, we've been focusing on providing our clients the financial solutions to help them navigate their way through this crisis. The search for loan extension is almost over. In April, alone, we extended almost BRL 32 billion in contracts. And in September, this number fell to BRL 1 billion. But we will give you more details about this ahead.
We also intensify the restructuring of loans in order to provide our customers with loans suited through their payment capacity. And in addition, we are also offering a large volume of new credit lines related to emergency presence.
Now in the third quarter, we see continued recovery of the economy, which suggests an acceleration of GDP. We expect that in 2020, there will be a 4.5% decline, which is far better than what we said -- what we saw at the time of the Q1 '20 disclosure. Despite the anticipated reduction in emergency aid, interest rates will remain low and loan will underpin the economy. Furthermore, we see exports in agriculture playing a beneficial role in the performance of the economy. We believe the economy will fully reopen in 2021, and this will certainly help in the recovery path.
There was a significant amount of money put away into savings during the pandemic, which also helped our collection of deposits. We believe that this will mitigate the risk of the fold and will partially offset the end of the emergency aid. The emergency aid paid to families without income was essential, but we need to recognize that Brazil has spent more on this pandemic than our emerging countries. So as such, managing public accounts will be crucial to ensure that the recovery in 2021 is not disrupted.
Now moving to Slide 3 and going straight to our results. The net income in Q3 was BRL 5 billion, an increase of 30% in the quarter in an annual comparison, but it's still 23% below the same period of 2019.
ROE in the quarter was 15.2%, a positive trend compared to Q2, which was 11.9%, but it's still well below the pre-pandemic level. We believe that our -- will continue to improve, assuming that we do not have any significant worsening in the course of the pandemic and that the economy continues on its path towards recovery.
Our loan portfolio rose by 0.5% in the quarter with good performance from SMEs and individual boards and a reduction in large companies. Tier 1 capital showed a solid growth of 40 bps, reaching 12.9%, closely approaching the levels of Q4 '19.
Now moving to Slide 4. Here, we show the evolution of some lines of our equity. Here, we present the performance of some income and asset's life. We would like to highlight the evolution of margin with a growth of 3.5% year-on-year despite the reductions in interest on overdraft compared with previous quarters and lines that were put available to SMEs which have lower spreads but, again, has a good coverage for delinquency, which comes to suggest that we shouldn't expect any losses due to these lines, but they, in turn, affect our margins. When compared with the previous quarter, we saw a reduction of 8% of the net interest income in Q2 was quite strong due to the margin with market, which was above average. We would also -- it's also worth mentioning the loan loss provision expenses that decreased by BRL 3.3 billion in the quarter.
Now moving to Page 5. Here, we show that our funding continue to progress quite strongly. We had a 3.6% growth in total funds raised from clients in the quarter and a 35% growth in the last 12 months. Our loan portfolio, today, accounts for 81% of total funded, which is a very comfortable position. And this positive performance in funding can be explained by the flat quality of clients to Bradesco's deposits at the beginning of the pandemic, and also the migration of investment in DI funds to deposits or other kinds of investments.
On Page 6, we show you the expanded loan portfolio that grew 11%, and it grew 0.5% in the quarter and 11% in the last 12 months. And when we look at the composition of growth, we see a strong performance coming from SME line, driven by the lines of emergency aid, which had come from government. But most part of the SME growth came from the emergency aid, and there was also solid growth coming from individuals. Where we grew impactfully all ones that have current personal loans, which was expected. On the onset of the economy, we tied up some of our credit model.
Revolving lines and overdraft in credit cards had also been less due. Overdraft in the past was much higher. And so today, clients are not using their credit as much, both in terms of revolving lines and installment payments, all of those lines were reduced. Now large companies portfolio narrowed significantly this quarter, which was expected with clients, most clients now repaying part of the excess working capital in part. The working capital that they took at the beginning, and we also have continuous exposure, and that's why we were trying to improve our spread when it comes to operations with large companies.
Now moving to Page 7, we would like to point out that the bank has already disbursed almost BRL 20 billion, BRL 19.3 billion in line of emergencies created by the government, and this is where we concentrate the bulk of the volume, like FGI Investment Guarantee Fund in lines that is consultory from savings account [indiscernible].
On Page 8, you're talking about provisions. We have continued to divest our provisioning in lower levels this quarter, still naturally making provisions well above the pre-pandemic levels. But this amount has been already reduced, reaching the lowest level of the year, 11.4% just for that. The calculation for provisioning requirement's still based on our modeling of expected losses. And our expenses with extended loan loss provision reached BRL 5.6 billion in the quarter or 3.4% of the loan portfolio. The 9 months of 2020, we totaled BRL 21.1 billion in provision expenses compared to BRL 14.4 billion in 2019. The total provisions in our balance sheet reached BRL 44.9 billion or 9.2% of the loan portfolio, which is a sign of the resilience and the robustness of our portfolio. Even though we are more conservative, if all of the assumptions, current assumptions are maintained, we should also so a further reduction in provision expenses in Q4.
Page 9, we continue to show important improvements in the 90-day delinquency indicator as well as stability in short-term delinquencies. We are seeing most of our loan portfolio performing well in terms of quality. We must also acknowledge that the NPL indicators are also affected by nonrenegotiations, and we now believe that the peak-up results in the current crisis will occur in part of Q2 '21 and Q3 '21.
Our expectations in terms of loan quality have improved substantially, and -- which is why we believe that this peak may be lower than the one seen in 2015 and 2016 during these crisis. But this depends, of course, on our current expectations. And we hope that the economy remains Brazilian and does not go through any further slowdown.
Going to Page 10. NPL this quarter was lower, impacted also by loan extensions and renegotiations, but we have good news as we are going to present ahead.
On Page 11, we show the coverage ratio with a further decline in the NPL ratio and a growth in the stock of provisions. The 90-day NPL coverage ratio continues to grow, 400% mostly. Considering the breakdown by segment, we saw an expansion of coverage in all of them with the extension of the portfolio of large companies. And coverage remains virtually stable in an expanded coverage concept where we include a portfolio renegotiated with 90-day NPL.
On Slide 12, considering transparency, we share important information for you. And it seems to be very timely because it shows a very positive performance of extended loans way better than we could have imagined in the beginning of the pandemic when we talked in Q1. The total expansion in Q2 came to $61 billion, out of which BRL 39 billion was back to normal of scheduled payments after the grace period ended. BRL 21 billion was still within the grace period and those in arrears amounted to only BRL 1 billion. At the end of September, all of the BRL 72.7 billion of extended loans, BRL 54 billion had already returned to normal on scheduled payments and BRL 18.3 billion was still in a grace period, and BRL 1.1 billion was in arrears. So a small volume of over years compared to extension.
For October, we have BRL 6.7 billion; in November, BRL 2.4 billion; in December, onwards. With the information what is available today and considering the behavior of payments that happened in the past, we are confident that the loan quality of clients who are still coming out of their grace period will also be good. So we have to highlight that out of the BRL 74 billion extended, BRL 54 billion already back on schedule, and we only have another BRL 18.3 billion grace period, which at least expect to have the same behavior of the remaining BRL 54 billion. So we have some comfort for divisions that are more than enough to face this adverse scenario, supported by an extended portfolio. A very good quality. As you can see, 92% of customers that are not delinquent, 70% and 94% from AA to C, and these customers, on average, have less than 3 years of relationship with the bank.
Now adding to this information, now we have the renegotiated portfolio on Page 13. The strategy to support clients during this challenging time. And our renegotiated loan portfolio grew by BRL 4 billion in the quarter, mainly due to customers that prefer to renegotiate their loans longer tenure instead of extending the due dates. So the customers decided not to extend any longer. And now we renegotiated with a grace period, with collaterals but it's important to highlight that this renegotiated portfolio has a high level of provisions. The ALL accounts for 62% of the portfolio. And our renegotiated portfolio, particularly the last one, 63% of renegotiations in the quarter have fewer than 90 days overdue because things are back to normal. And therefore, overdue 90 days is now for 5.9%. So the portfolio is comprised of good quality customers. And therefore, we expect to have lower losses this time compared to the traditional renegotiated portfolio.
Then about NII on Slide 14. There was a drop of 8.4% in the quarter. This was primarily due to the reduction in the market portion. Like I said, it's well above the average in Q2 and also a reduction in the client portion due to the still low use of revolving lines.
Companies and individuals and the growth of lines from emergency programs. On an annual comparison, NII grew 3.5% with a 2.3% increase in the client portion, despite, like I said, the cap in overdraft that began in January 2020 and also the use of credit cards. We see the market portion remaining with a good performance over the next few quarters. The client portion is expected to react to volume growth with a more favorable mix.
So I usually highlight that this lower level of NII is very much related to these lines of the government with lower spreads. Like I said, there is a good level of coverage. And we expect to see a very tiny loss. In addition, the use of overdraft the nonuse of customers, like I said before, went down from 4.2% to 3.2% in the balance of overdraft. And credit cards are lower volume, rebuilding credit installments, but that's just a momentary thing. Things will go back to normal. It is already going back to normal. So the trend of these indicators is to have full recovery.
Fee income, now on Slide 15, showed a recovery this quarter, owing to the economic upturn. We still see a negative quarterly performance in the line of loan operations impacted by the reduction in low origination in portions with contracting fee, particularly corporations. This is more explained by the emergency lines growth with no tariff or fee, unlike revolving credit and corporations. But certainly, this will be recovered.
In the annual comparison, reported to the highlight, the investment bank and brokerage. And despite a recovery in the quarter, significant lines such as credit cards and asset management are still decreasing. Like I said, in credit cards, the reduction occurs due to the drop in the volume transaction and in asset management, due to the reduction in the management fee of fixed income funds as well as the integration of resources from these funds to deposits. This effect obscures the solid improvement we have seen in the mix with the growth in equity funds, multi-markets, fund of funds and [ zero ] funds by independent managers.
Now on Slide 16, we continue to deliver an outstanding great cost performance, and we expect them to get even better over 2021. In the annual comparison, we can see the size of the cost adjustments. We saw a drop in administrative expenses of 7.9% for the quarter alone and 3.3% over 9 months.
Personnel expenses dropped 13.3% in the quarter and 7.6% over 9 months. With regards to total expenses, already including others, we reported a 5.7% decrease in the quarter comparison and a 3.9% decrease over 9 months. We are in the process of making a major cost adjustment within the bank right now, which should allow for a reduction in cost in nominal terms already in the last quarter of 2020 and 2021 and beyond to capture this full reduction.
In order to address the expected costs of implementing this adjustment that we put into practice, this quarter, we carried out a restructuring nonrecurring provision of BRL 879 million in the quarter, involving rent, restructuring and personnel.
Now on Slide 17, we show some of the details of the adjustments that we're already making in our branch network. We're already performing an essential adjustment since the beginning of the year, but this adjustments was intensified by the acceleration of client digitalization trends and a reduction in the use of branch tellers with people working from home. We will be reducing our total number of branches by 1,100 in 2020, 700 of which will be converted into satellite or business units, and 400 will be closed this year.
We estimate that we can attain costs. As you can see on the left hand is, we have a hub supplying service to our customers and several satellite branches up to 7 and these branches, known as business units they are linked to these agencies where they don't have treasury costs or surveillance costs, armored cars, 100% focused on business and not back office. So we can see that cost reduction for these business units amount to 30% to 40% of a conventional unit. So far, we have reduced 683 branches, 163 were closed and 520 were already converted.
Now on Slide 18, we address part of our acceleration business. At Bradesco, we have a number of business that should be highlighted due to their strategic importance. For instance, next, we have 700,000 accounts opened with a very small churn, more than 1 million accounts this year. And in addition to that, next already achieved 3.2 million customers. And certainly, by year-end, we were going to have 3.7 Ágora, already 490,000 customers ongoing in the brokerage. And recently, we launched Bitz, which is a strategic, important business, particularly for customers who have a hard time or restrictions to have a conventional account. They can have the digital portfolio, which complements our product and service offering. And now we already acquired a company, which is DinDin, and we have other acquisitions down the road.
In addition, we highlight a series of businesses with specialist banks such as Losango with rural credit or personal credit, payroll loan and Bradesco Financiamentos, more than 34 billion credit portfolios. And Bradesco Consórcios, which is a very lean company, but [ 800 billion ] (sic) [ 80 billion ] generating more than 1 billion results, exceeding 1 billion, which brings a lot to Bradesco. And we just completed the acquisition or will complete the acquisition of our bank in the U.S., BAC. We are just working on the agreement. And our team is already there. And certainly, this will bring equivalency to Bradesco.
And finally, recently announced agreement with JPMorgan to transfer its private banking activities in Brazil to Bradesco. We already hired nearly every [ BRL 120 billion ] in AUM and a considerable share will certainly come to Bradesco so we're maintaining the great talents there, bankers, experts, who will also join us bringing comfort to our private banking at Bradesco.
Now in the insurance business, Page 19, the performance of insurance continues to be adversely impacted, particularly by the financial results, owing to low interest rates, low IPCA or expanded consumer price index and in the operating result, we had a reduction in the quarter, owing to our increased claims. We expected to see some growth but despite this, we saw a 3.8% growth over last year.
Claims ratio increased in life because we provided coverage for pandemic cases owing to humanitarian reasons. And for health insurance, also an increase in loss ratio, but below the levels year-on-year, 84.6% back in the third quarter and '20 vis-à-vis 87.9% in the third quarter of 2019.
This quarter, we had more provisions, BRL 151 million in provision for adverse scenario, amounting to more than BRL 1.2 billion in provisions. So we are very comfortable with provisions at the insurance company, but we should also highlight that despite all these constraints imposed by the pandemic and more challenging to contact customers and with fewer headcounts, our premium is BRL 53 billion in 9 months 2020, vis-à-vis, BRL 56 billion in 2019. Therefore, the same billing, a reduction of BRL 1.9 million, which gives us comfort to recover well our billing of insurance company.
Now on Slide 20, about liquidity and capital. The capital ratio continues to increase. We had an increase of 30 bps in the common equity and 40 bps in Tier One. The main source of capital generation was the retained income in the quarter.
And as final remarks, I would like to share with you, ladies and gentlemen, on Slide 21. Obviously, we prefer not to do an official guidance. It doesn't make sense. We are now in November, but just as in the previous quarter, we'd like to share some expectation about the remaining part of the year. We believe our credit portfolio will grow a little more than in 2020. The NII, we believe it will grow in line, but it will grow a little bit less, but it should be noted that the credit portfolio will grow more than we expected. Fees and services will continue to be pressured by the economic scenario but should grow seasonal growth in Q4. The insurance result will continue to be pressured by the lower financial result as a result of low interest rates and the behavior of inflation index. But like I said, recovering billing.
So like we said, we are having a structural, a deep adjustment in costs, 5% in the previous quarter. We expect to see a drop in nominal costs in 2020 and 2021. And in addition, we will continue to pursue opportunities for the future. With regards to provision expenses, we expect to see an additional numbers lower than for 2021 compared to 2020 because our models are showing this. And the good performance of the extended portfolio also give us this conviction.
Now for 2021, obviously, we are still in the process of completing our budget. But considering that we do not have a significant worsening of the pandemic, I think we are in the last mile to have a final vaccine to this evil that afflicts as all. But today, we have a more constructive view. So even though we haven't closed the budget, but considering expectations for 2021 and assuming a scenario in which our projections for the economy actually comes through with a drop of 4.5% in GDP in 2020 and growth for GDP in 2021.
Generally speaking, we can see that the levels of result of the bank in 2021 tend to go back to levels close to what we posted in 2019. Expenses are expected to have a similar magnitude to what we had in 2019. And according to our modeling, we won't need this provision in 2020.
The total costs naturally will go down. They will go down in nominal terms vis-à-vis 2020. The loan portfolio grows above the market. The current projection for the market in 2021, we expect to grow above what we posted as to the NII, like we've said before, but I made the point in emphasizing it was affected by lower spreads in lines from the government, particularly because we had these lines in which we have lower margins, lower spreads, lower losses. So certainly, it will be somehow effect and lower use of overdraft check, cap and the natural history and the low use of credit cards with lower volumes of use and also lower volume of revolving credit and payments. So like we said, life we will go back to normal. It is going back to normal. So the trend for all indicators is in the upturn.
There is pressure on fees for the gains of scale that we are implementing, like I said. Investments, next investment in the customer base in Ágora and the equivalents that comes from insurance operations, pension funds and also gains of equivalency from Consórcios and BAC come in now and also the corporate banking clients. So if we put it all together, we are confident that we have gains of scale and new products to offset it all.
And before concluding this expectation, I would like to once again invite you to Bradesco Day, which will take place on virtual basis on November 10. Please check the details on our IR website.
Thank you very much, you, ladies and gentlemen. And we move now to the question-and-answer session. Thank you very much.
[Operator Instructions] The first question is from Jorg Friedemann with Citibank.
I have 2 questions. The first question is, I want to have a better understanding of the level of provision that we're working with. It is crystal clear according to the message that we expect to see a drop, not only in the next quarter, but also next year. Now I would also like to understand, considering this level of comfort, and particularly the extended portfolio and the level of provisioning, 9.2% reserve for the total portfolio. Why is it the bank also has BRL 2.6 billion as additional provision for adverse scenarios this quarter? And should we expect to see a reversal of provisions starting next quarters, coming quarters?
And my second question has to do with the level of dividends. The bank already has 12.9%, 11.8% of common equity. And during this call, we are speaking of an improvement in the expected scenario. So after the end of this dividend payout by the Central Bank, what should we expect to see us payout in 2021 or extraordinary payouts for the coming year?
Thank you for your question. With regards to provision levels, we complemented a lower level now and provisions according to our expected loss models are pointing to. So despite good news that even surprised all of us, including you as well, about the good performance of extended operations payments. We thought it would be wise to address some one-off events so we close 100% provision. And we're very comfortable with the level of provisions that we have today and what our expected models point to. So that's why we said that we expect to see lower levels in Q4. Naturally, it will all depend in scenarios for the future.
With regards to dividends, Jorg, there are some constraints imposed by the Central Bank. But over the next year, if we actually see signs of improved scenario, there is some anxiety now about higher number of cases in the U.S. But like I said, if we have the vaccine and people more comfortable and the economy coming back to normal and good expectations of the economy next year, so certainly, we receive dividend payout at a much higher percentage, well, our shareholders. And perhaps even with our provisions, it will all depend on the future scenarios. Provisions, like we said -- since the very beginning, we said that they are provisions for an adverse scenario. If we no longer see an adverse scenario and there are signs that provisions are enough or adequate. Naturally, we always try to be conservative. We are always very careful to have a robust balance sheet at the bank. But certainly, we are going to keep that into account with our dividend payout to our shareholders.
Our next question from Thiago Batista from UBS.
I have 2 questions. My first question, I mean, when you look at your revenue dynamics versus delinquency, so do you have an idea of what comes from NII, from insurance? I know that they will see some important changes looking forward when you break down the bank's revenue.
And my second question is about fee/OpEx. When fixed is introduced, I mean you have the fees on the one hand; and on the other hand, you have the process of holding costs. But when you look at both lines put together, do you think that the cost drop will be enough to upset some possible decline in revenue and fees, not only in 2021 but in the mid-range?
I mean, you also talked about divided. Is there any possibility of a buyback? I know that you do not envision any buyback. But is it possible that we see some buyback in 2021?
Well, thank you so much for your question. In fact, it was very good that you asked that. If I could answer in a single word, I would say that the cost reduction and OpEx reduction, could it offset fixed? Yes, it could. But let me give you some light. The revenue dynamics, for the near future, I'd say, it goes through an increase of revenue coming from the equivalent of these businesses that are growing in the bank right now.
So first of all, the insurance company, that's an obvious thing because, as I said, even in a very, very difficult landscape that we are going through now. In 2019, the insurance company had the same level of revenue. And this level of revenue will certainly increase because of all of the verticals we have in terms of health care insurance, auto insurance because the penetration in mix for other like life is still very small, then we have the Consórcios company that is moving quite well, posting more than BRL 1 million in results. And we have next -- fix that is coming now as well. So next should reach maturity. And once it reaches maturity, it will cause further results. We will -- the equivalence of these customers that we are bringing on board, denominated in dollars, is still very small, but it will grow. We have an incoming new portfolio of clients that not only make their own investments, but they can buy other products. Therefore, there will be another additional fee that will come through these other lines of businesses.
So what I can say is that in a very short period of time in terms of the speeds and this new dynamic coming from all of the other businesses. This is what will evolve in time. Fixed, maybe, is attracting factor in terms of fee income. But I do believe, I mostly believe that this may happen, but in a very marginal way because not everybody will use fixed to transfer money. Companies may not do that through fixed. So fixe, as SPD was in the past, you might recall, requires a learning curve until everybody adheres to it. So as it becomes more utilized, other businesses and other activities from the bank will start communicating among themselves.
Now in terms of OpEx and all of the fees, it is absolutely necessary. But again, let me give you a number, Thiago, that I think is important. The number is posted in our balance sheet. But I would like to highlight, if you take the recurring P&L of Bradesco right now, you will see that our NII in the first 9 months was BRL 46.5 billion, meaning that this is quite relevant and robust. We had BRL 46.5 billion against BRL 43 billion in 2019. So despite this very dire landscape, we were able to grow our revenue by 7.3%.
And when we look at the expense side, in 2019, there was BRL 36.5 billion, against BRL 35 billion now in the first 9 months of 2020. So there was a 4% reduction, BRL 1.5 billion less in expenses. But when you look at the nominal figures, for BRL 46.5 billion of revenue against BRL 35 billion of expenses. Our cost structure is very large, now like that a large corporation, and as [ Trabuco ] said, we have to have a cost structure and inserting costs which is salable to the new reality that large corporations will face, be it in terms of the digitalization of our clients, lower number of branches. And our employees now focusing on doing business with our clients. So for all of these reasons, we can say that the percentage of expense reductions that we are able to post in 2020 that will certainly increase in the second half of the year or in the final months of the year, and then we'll see that when we post the results for the fourth quarter. I mean we already gave you a small sign because we already saw these reductions coming -- being posted this quarter. But it will be further captured throughout the end of 2020.
Let me give you a clear example, which illustrates this point. In [ Galetiva ], when we acquired HSBC, we had 11 administrative facilities in building. But it's all very complex to make reductions because how can you adapt the building when everybody is still working in that building. But with the pandemic, everybody went to work from home. Therefore, we were able to do that. Out of the 11 admin buildings we have in [ Galetiva ], there are only 2 remaining. 9 buildings were -- are now inactive. With that, we were able to reduce taxes, reduce property tax, reduce the cleaning expenses, reduced overhead, we reduced rental payments and also, we put some buildings for sale. I mean, those that belong to us, they are now in the market to be sold. And this accounted for a reduction of BRL 30 million in rental and BRL 40 million reduction in admin expenses. And we wouldn't be able to do that if or not for that pandemic period. So out of the 11 buildings, we only have 2 now. In addition to that, we will sell all of the remaining buildings, and this will probably generate between BRL 80 million to BRL 100 million.
Now we also have efficiency because people are working from home. Well, a building to accommodate 2,000 people, have 1 service center. But once people are working from home or remotely, I don't need 1 entire building just to allocate 2,000 people anymore. Therefore, certainly, costs will be important, not only to us but any other company if they want to maintain the profitability level.
So for us, this has become like a religion. In the fourth quarter, we just trained the graph to use a magnifying land to go deep in every segment, in every business of the bank in order to be more efficient. Well, all of that is just to give you some more light about the importance of OpEx.
Now in terms of the buyback, I think that was your last question. This is not a traditional move by the bank. But we are constantly looking at good opportunities. And it certainly depends on the market conditions. We will look at it. But we never discard that possibility. We are always looking at good possibilities.
Next question from Gustavo Schroden from Goldman Sachs.
I have 2 questions. My first question I would just like to revisit the issue of provisions. Octavio indicated that considering all the information we have so far in the expectation of economic recovery. The economy should resume levels of pre-pandemic.
Let's say, if we exclude the additional provision of the third quarter, the credit cost would be then below what it was prior to the pandemic. If -- so your loan credit is good. So is it possible to identify a lower kind of level, lower than the pre-pandemic period because if you exclude that additional provision.
And as the second question is about ROE. You had a significant recovery of ROE this quarter. And considering the current situation, do you believe that next year or by the end of 2021, we will be able to see ROE returning to normal levels?
Gustavo, we lost the final part of your question. The connection was not very good.
Gustavo, thank you for your question. I think that there will be more conservative to say that the cost of credit would resume the levels prior to the pandemic. I'll say that because we don't know what will happen to interest rate or if inflation will grow once flip rate goes up, therefore, I think we could say something about pre-pandemic levels.
In terms of ROE levels, well, certainly, ROE was impacted because of this adverse landscape. And when we work on our next year budget, we have to consider a better landscape. Now if you look at our balance sheet and you look at the operation of the bank or the operating performance of the bank vis-à-vis 2019, our operating area, I'm only talking about the bank's operating scenario. We had BRL 12.8 billion in 2019. And in the first 9 months, 16.5%, meaning 29% in operating alone. If you include treasury, which was better by almost BRL 3 billion. We are talking about a 39% growth. It's an improvement vis-à-vis the previous year. Therefore, we will aim at our ROE that we had in 2019. That's our target. Well, certainly, of course, everything depends on us not having any further problems or not having any tax issues or the country -- if the country doesn't go through any further economical or tax problems. But see, we cannot work in the budget, considering all of that, but we have to think about business as usual next year.
Okay. So in terms of your last answer, if we look at 2021, your challenge will be more like a margin challenge? Or do you think it would be more related to a portfolio challenge, if you want to resume to pre-pandemic levels?
In terms of the portfolio quality, we are very comfortable with the loan portfolio quality we have. And we had some very positive -- we had a positive performance in terms of the renegotiations of the loans portfolio. In terms of loan quality, what we have to do is to preserve that portfolio because even because we have a very robust provision level. I think that the major challenge for next year will be margin recovery. We have to bring more fees and greater margin to our loan portfolio. With large corporates, we are trying to operate a better margin. No matter where you look. So for us, next year is a year where we will sit for improvement and better margins. And certainly, to focus very diligently on cost because this will be important when it comes to our cost performance at the end.
The next question is from Giovanna Rosa with Bank of America.
I have 2 questions. The first question is about renegotiation. You provided information about what happened. However, I'd like to understand the percentage of renegotiation that were performed. It seems to me that the drop of NPL 90 was owing to the renegotiation.
And still about NPL, I would like to know, is the expectation for the first quarter of 2021? And then I'll ask my second question.
Of the renegotiation portfolio, 63% has to do with operations that were less than over 90 days overdue. If I understood your question well.
Actually, I would like to know the percentage of the negotiation that was on schedule. 63% was lower than 90% -- 90-day overdue. What is the percentage of on schedule operations?
Giovanna, I would say that on schedule operations and renegotiation, whatever comes is part of the extensions that were pending in maturity. And depending on the customers' condition, we do a reprofile. Usually, we do not renegotiate on scheduled loan. The renegotiation in our process is when there is delinquency, then we have collection usually up to day 60. And that's when we have the recovery team involved, and they start renegotiation. What may have come from loan -- well, this is when we have the expiry of extension. Maybe you can compare the size of the growth of the renegotiation loan, which was overdue and then paid again in the extended portfolio. It's a small percentage, the variation of the extension portfolio from the second to the third quarter, but usually, we do not renegotiate on schedule loan.
There's another important detail, Giovanna. Out of the renegotiation portfolio, more than 50% is individuals. So when do individuals renegotiate where they simply cannot pay an extension? So these people were already overdue. So that share in which people renegotiated, when people had nothing pending. This part is very little. I would say it's not even 10% of the total volume. So there's always a small delay of a couple of days, but a percentage of delay in the renegotiated operations.
Okay. Now, what about the performance of NPL?
We have to admit, Giovanna -- by the way, that's an important question you're asking. Every bank worldwide reinforce their provisions concerned with the adverse economic scenario. If they didn't do it, they certainly will have to do it because this higher delinquency, we have to admit that today, we have a better expectation than what we had in the first quarter. When we first talked about funds for the first quarter, our expectation today is better than in the past. But certainly, part of it will come in the first quarter of 2021. And naturally, the second quarter, we also have it and maybe even in the third quarter 2021. The so we will see an increase in NPL in the coming quarters in 2021.
That's clear. My second question to regards to credit quality. This quarter, you already had an additional fund of BRL 1.6 billion. I understand you have a very high level of provision, and you wanted to anticipate yourselves. But what is the rationale? Doesn't it seem too early because the NPL is not so clear and we still have to wait and see all the aid by the government?
Giovanna, that's not consumption. What happens is we're allocating additional provisions to specific loan. We work in this provision as a participated provision for expected losses based on the modeling. And right now, we are beginning to allocate provision for adverse scenarios for individuals. So it's not consumption. All we are doing is allocating this provision to specific names. They are not supplementary but the volume is the same.
By the way, if you check the generic and specific generation, these are very low and this is due to these scenarios. This generation, which depends on credit rating, this is very low. So what we do here is analyzing on a case-by-case basis. When at first we did a surplus additional, now we are allocating to specific credit based on our risk assessment.
The next question is from [ Daniel Rigaard ].
My question is about investments abroad. Bradesco decreased a lot, investments abroad this year. Is it right to assume that you are at a comfortable level right now abroad?
And the second question is, assuming we had a change in legislation, and there will be a reduction in overhead vis-à-vis these investments by year-end, and all banks, by the way, would do it at the turn of the year, is that a strategy at Bradesco on how to address, not only the flow of purchase but also other banks at the end of the year?
Thank you for the question, [ Daniel ]. We had a substantial reduction in overhead. You're right. We brought it to the necessary, mandatory level to be compliant with our business abroad. So today, our level is adequate to comply. If we have a margin, it is not material. But we already have the adequate level. So based on this adequate level, we don't feel any need to have a sudden change in treasury or hedge or overhead. Quite the opposite. We are pretty comfortable with the current numbers.
And just a follow-up question. Considering there will be an amendment to the legislation. The overhead would have to the out by half by year-end. So my question is, will all banks have to do it to reduce the overhead in the tax accounts, that will bring a high flow of purchase in December? Anything you can share about the strategy or anything that makes sense.
Carlos Firetti speaking. Obviously, we do have our strategies, but that's something we don't disclose.
If there are no further questions, we will turn the floor back to the speakers for their final remarks.
Well, thank you so much for joining us today. It was a pleasure to talk to you. I wish you a very good day, very good long weekend with the holiday. We are very comfortable with the number of figures. I think that the balance sheet is very robust, well provisioned. Our expectations for the next quarter and next year are also very good because we understand that we made our homeworks. The homework is done and well done. And we also see our bank with very robust numbers and ready to face a market that goes through so many changes, and we'll go through changes in 2021.
Thank you very much, and have a good day.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]