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 of '22 Earnings Conference Call. This call is being broadcasted simultaneously on the internet at the Investor Relations website at banco.bradesco/ir, where you can also find the presentation for download. We would like to inform you that there is simultaneous translation into English. [Operator Instructions]
Before proceeding, we would like to mention that forward-looking statements that might be made during this call in relation to Bradesco's business outlook as well as operating and financial projections and targets, are beliefs and assumptions of Bradesco's management as well as information currently available to the company. Forward-looking statements are no guarantee of performance. They involve risks, uncertainties and assumptions as they refer to future events, and therefore, they depend on circumstances that may or may not occur. Investors should understand that general economic conditions, industry conditions and other operating factors may also affect the future results of Bradesco and may cause results to differ materially from those expressed in such forward-looking statements.
Now I would like to turn the conference over to Mr. Leandro de Miranda, Executive Director and IRO.
Good morning, everybody. Welcome to our call about the earnings of the third quarter of 2022. We have present with us Octavio de Lazari Jr., our CEO; Cassiano Scarpelli, Vice-President; Eurico Fabri, also Vice-President; Oswaldo Tadeu Fernandes, Executive Director; Carlos Wagner Firetti, Controller and Market Relations Director; Ivan Gontijo, CEO of Bradesco Seguros; and Curt Zimmerman, Next and Bitz Chief Executive Officer and the president of [indiscernible].
After the presentation to be made by Octavio, we will have a Q&A session. Octavio?
Thank you, Leandro. Welcome, everybody. And thank you once again for participating in our earnings conference call. The third quarter of the '22 earnings reflect the current economic moment in the market that goes through cycles. We have different points of the credit cycle with the beginning of the pandemic bringing along a known threats and expectation of a worsening economy. And we made significant credit provision. With the economy improved in '21 and beginning of '22, we were able to release part of the excess provisions, especially in the medium and large company sector. Right now, we are moving into a cycle of increased provision that is expected to continue throughout 2023 due to the loan that have already been granted in the mass market.
We are now at full speed in the transforming of the bank. As of today, we are undoubtedly one of the largest digital banks in Brazil while maintaining the greatest physical presence among the peers. We transformed our way of servicing clients according to their preference and needs. Customer centricity is behind our motto "between us, you will always come first." We have a unique position to the largest invest insurance company in Brazil, a capillarity that put together physical and digital and certainly, the finest financial product offer in Brazil for individuals and corporation.
As you know, Bradesco has a broad operation serving all segments of clients, individuals and companies and acting all over Brazil. As a result of this strategy with the broad position in the market, our activities in loans and banking are correlated with the performance of Brazilian economy and disposable income. The economic scenario, high inflation and interest rates led to a deterioration of the clients' payment capacity and the consequent increase in the nonperforming loans, making it necessary to have higher-than-expected credit provision. Delinquency grew up in the low-income market segment for individuals and micro and small companies. Observing the delinquency of recent harvest, which already indicate improvement and all the adjustments that we made in 2022, we project that delinquency should stabilize and improve in the course of 2023.
In the last 2 quarters, we have made provisions above the NPL formation, which should continue throughout the fourth quarter of '22. The fast hike in the Selic versus the natural speed of renewal in our prefixed loan portfolio also affected the result of the margin and market NII as we pointed out in the previous quarter. This effect will probably continue in the fourth quarter and throughout the first 6 months of '23. Earnings are expected to remain under pressure for a few quarters, but this should change more consistently in the second half of '23. We believe that the bank will continue to be able to operate with an improved level of return, and we will pursue this and continue making the necessary adjustments to return to the level of profitability, the drivers of our recovery and performance.
Well, this should peak at around the middle of the year. And as of the second quarter of '23, it will allow for the gradual reduction, a significant improvement in the Market NII, mainly from the second half of '23, the evolution of the income from the insurance group, the maintenance of strict cost control and the continuity of good results in the wholesale bank with a high return level that even recorded the lowest historical delinquency rates. With respect to the quarter's earnings, we saw a drop in the recurring net income that we had in previous quarter, mainly due to the credit provision, market NII and income from insurance. The loan portfolio grew 13.6% year-on-year associated with the origination mix brought the benefit to the client NII, which grew 25% over the same period. Finally, we closed the quarter with 13.6% Tier 1 capital, a level that points to the strength of our balance sheet.
Now let's go to Slide 3. When we compare the net income accumulated over the first 9 months of the year to last year's same period. The main item that made a positive contribution were the client NII, which had an increase of BRL 9.5 billion, which likely the growth is a loan portfolio and the spread in addition to the origination mix, more concentrated in the short-term lines that have higher margins. And income from insurance grow BRL 2.5 billion, benefited from higher premiums and increased financial income despite the increase in the claims ratio.
We also had 2 items that reduced our profit by nearly the same magnitude. Market NII, we posted a reduction of BRL 6.8 billion as a result of the impact of the accelerated increase and high-level maintenance of the Selic rate on the ALM and also credit provisions, BRL 6.6 billion million higher, reflecting the portfolio growth, mix of origination increase in delinquency. This amount includes BRL 1 billion that we had a supplementary provision for the quarter.
Now let's go to Slide 4 to talk about the loan portfolio, which grew 2.7% vis-a-vis the previous quarter and 13.6% year-on-year. Origination for individual is 10% lower than last year, but higher credit quality. And the adjustment was mainly in the low-income mass-market, which presents more credit risk as we restricted the criteria for approval given the scenario of higher delinquency. As an example, in 2019, pre-pandemic, the approval was 68% of the proposal. 1 year ago, it was 58%, and now it is 48% of the credit proposal. 39% growth in credit card reflect the increased penetration of cards among our high-income clients in addition to the increase in average expenses after the pandemic and inflation in the period. Then we are very restricted here with the low-income segment. In rural credit, 30.5% increase due to our focus on agribusiness through our 14 agro platforms in Brazil. In the third quarter mainly and this should further improve the renegotiated. Portfolio remains stable as a proportion of the loan portfolio.
Now next to Slide 5. As we said, delinquency was affected by the economic cycle. The ratio grew 0.4 percentage points over 90 days with an increased concentration in mass-market lines, individuals and micro and small companies segments are more affected by inflation. Short-term delinquency has remained stable for 2 quarters, slightly the adjustments that we made in origination. This quarter, the gross credit provision was higher than NPL formation and the cost reached 3.3%. The coverage ratio for NPL 90 days remained at a robust level of 201%.
Now Slide 6, talking about NII overall. NII has risen 5.7% in the accumulated 9 months. Client NII continues to expand benefiting from the portfolio growth and favorable spread given the product mix in addition to the positive impact on deposit margin due to the increase in the Selic rate. The increase over the year 23.4%. In the chart at the bottom of the slide, we highlighted the client NII, net of credit provision, which is 10% higher viz-a-viz 2021, 25% higher than 2019, pre-COVID.
Client NIM also continues to evolve, up 10 bps in the quarter, while the net NIM impacted by the higher provisioning, posted a reduction. In the Market NII, the ALM portion continues under pressure. And we can say that the performance in the fourth quarter should be better than the third quarter, although still negative. Recovery of this line should be gradual during 2023 with the second half better than the first considering the current expectations of interest rates and portfolio repricing as well.
Moving now to Slide 7. Let us talk about the Insurance Group results. Accumulated net income expanded by more than 28% with a major contribution from the operating result, which offset the financial result influenced by the dynamics of the financial indexes in 3 months of deflation we highlight the growth in revenues across all business lines, 19% in Q3 '22 and 17% higher over the year. Therefore, the income from insurance, our guidance continues with a very positive performance, growing by 32% in the year, with an emphasis on operating performance. The volume of claims directly related to COVID in the third quarter of '22, reached BRL 289 million, the lowest in the series and BRL 1.1 billion in the year, around 73% less than the same period of last year.
Our loss ratio is already showing a reduction from the previous quarter and from third quarter '21. The insurance group continues to grow and improve its operating performance with an expansion in the number of insured clients and items thus reinforcing our strategy and confidence in this segment.
Turning now to Slide 8. Let's talk about fees growing 4.8% for the year.,, card income increased by 3.8% in a quarterly comparison and 22% for the year. The transacted volume has demonstrated a progressive growth. And it's worth mentioning that we increased our base, especially in the high-income segment, which reached 39% share in total, a group with lower risk and high return. We reached 76.8 million clients, an annual growth of 4.3 million, which contributed in maintaining the level in the checking account line, offsetting a substantial part of the drop in revenue from service packages and from the use of PIX.
Continuing in the same sales strategy. Let us talk about on Slide 9 about Bradesco Global Private Bank. We are currently the second largest private bank in Brazil with around 22% share in the local market and a notable growth in recent years. Since 2019, we have grown the volume of managed resources by 52%, arriving at BRL 389 billion. We have also continued to advance our specialization and increase our bankers and consultants team with a solid value proposition, which has reinforced with the acquisition of BAC in Florida. We will continue with our strategy of observing acquisition opportunities and signing agreements and partnerships such as those with JPMorgan, BNP Paribas and the independent wealth management with Banco BV with a view towards increasing our share in the sector, always providing the best offer to our clients.
Now on Slide 10, addressing operating expenses. They posted a 4.6% growth in the year, a mark below inflation for the period. The personnel line grew by 11.6%, naturally impacted by the collective bargaining agreements of '21 and '22. We also continue to invest in reinforcing and improving our investment advisory, technology and data science teams in an effort to enhance our processes and provide a better experience to our clients. We continue with our focus on optimizing the physical presence and investments in digitalization of client services. These actions and trends have helped to contain the increase in administrative expenses at 6.2% for the year, also below the inflation rate. Bradesco Expresso, our bank correspondents network complements our physical presence with great capillarity and convenience for customers in a structure based on variable costs.
Now on Slide 11, we will now discuss capital and liquidity profit generation and the positive mark-to-market on securities over the quarter more than offset the distribution in the form of interest on shareholders' equity and consumption by weighted assets, increasing our Tier 1 capital to 30 bps, which continued in a robust level. Our estimates for the fourth quarter suggests that we will end the year with a level closer to the current one, even with the impact of nearly 40 bps in December, with the completion of the application of the rule for handling tax credits originating from the hedge of investments abroad, therefore, a mandatory regulation by the Central Bank. We closed the quarter with a high level of LCR.
On Slide 12, maintaining our digital experience. We work with a client-centric approach bring in more autonomy and better experience for the customer and results in a lot more business. Currently, 71% of our account holders are now digital and 98% of all transactions take place via digital channels. In an annual comparison, the opening of accounts directly through the app grew 62% for individuals and 66% for micro entrepreneurs. The frequent upgrades that we perform in the app, which introduced new features and experiences based on data and aligned with the needs of our clients, have been an enormous success with clients evidenced by the 90% level of overall satisfaction with our app within official stores.
Now on Slide 13, we'll talk about Bradesco's sustainability agenda. For sustainable sustainability business agenda, we remain committed to carry out our activities with a positive social environmental impact, and we have already achieved 63% of our goal. We have more than 20 products that bode socio-environmental benefits in our portfolio. And we have 2 highlights for the growth within the last 2 years: Financing for the purchase of solar panels, which reached BRL 1.2 billion and financing for hybrid and electric vehicles, which increased 4.5x. We also highlight the importance of our historical partnership with the SOS Mata Atlântica Foundation. And right now, we have the 27 UN conference on climate change in Egypt, and we are joining the conference. We also include the climate agenda in our sustainability strategy and follow all major trends to ensure that Bradesco is maintaining its pioneering spirit in this very significant and relevant topic.
Now on Slide 14, the last slide today, we show our guidance. Considering our performance up to the third quarter, we believe that we'll be at the lower or mid part of the range for loan growth and fees. And at the top of the range, forecasts and expenses, insurance and client NII. With regards to our client NII, we're going to be slightly better at the top and also in insurance operations. With regards to credit provisions, we decided to revise the guidance. According to our projections, the expanded credit provision for 2022 will be in the range of BRL 25.5 billion to BRL 27.5 billion. This performance reflects the points we covered on the cross cycle in the credit mass market despite a further strong performance in loan quality and wholesale. On market NII, as we mentioned earlier, we should return to positive levels in 2023. In Q4, this line shall remain negative, but better than the level of the third quarter.
Thank you for your attention. And now we begin the question-and-answer session so we can clarify your questions. Thank you.
Now we will start the Q&A session. [Operator Instructions] Thiago Bovolenta from UBS.
Good morning, everybody. I have 2 questions in relation to the asset quality. When I look at the AA, we see a relevant increase which is counterintuitive vis-a-vis the bank. Have you made any changes in the criteria? Or is the origination better? I would like to know the reason for this change in the AA. And when you look at the portfolio quality, you said that you are making an adjustment in credit origination, but it is much worse than the average in the market. What is the reason for that? Was that because of the COVID action? Is this something temporary? Could you give us diagnosis about the deterioration of Bradesco loan portfolio?
With relation to your second question. As I said before, Bradesco has a nationwide operation over Brazil in all regions. And basically, we have a very large number of clients in the low-income category. And this is very classic or a retail bank such as Bradesco. And this position of Bradesco, when you'll have another part of the cycle, this is very beneficial when you have infection under control and lower interest rate, this plays for the bank, in favor of the bank. On the other hand, when you have a situation like the one that we are living now, delinquency going up and very quick movement in the interest rate, it is only natural for this to hinder us a little bit more, and we have to pay the thought.
We see a very big movement in the approval of credit cards for it. What you said you're right. When you talk about the COVID, so this happened due to the characteristic of many low-income clients such as the case of Bradesco. But we know that this is specifically the low-income bracket of the population and personal loans and credit cards and the micro company that also suffer with the increase in interest rate and higher inflation and deterioration of the disposable income. So we took the necessary measures so that we could control this delinquency, and it will be controlled, as I said before, over the next 4 quarters. The remaining quarter of 2022 is the next one when the concern delinquency will continue, but we will be able to stagnate this delinquency. And afterwards, you must remember that you lose 10%, but you have results coming from the remainder 90%.
So I believe this is temporary when you pay a higher price for delinquency, and this is why we have this concern, but afterwards, this comes under control. In the third quarter, Thiago, we had the perfect storm. The delinquency going up. ALM, we said this to you that this was not what we expected. It was negative, in fact, but we also know that this will come to an end when you have a reduction in interest rates and you can turn over your portfolio, which cannot be done overnight because the origination work with the lower Selic rate that is higher now. So you have a delay of about 18 months in order to turn over the whole portfolio.
Turning the portfolio over, which should happen at the end of the second quarter of next year and with the expectation of interest rates going down, you start having a better market NII and also deflation that we expect for the second quarter what could offset a little bit of the delinquency and of the necessary provision needs to happen because of the fact that I have just mentioned. But it should come back to normal over the first quarter of 2023, and then you have a much better condition.
Regarding the first question, you talk about rating. This happens because of our new origination, which is already much better. We have been adjusting the 2020 model. And in May, June, July, we applied the same policy that we have today and we can do that. And this ALL should be improving more in the future.
This is Eurico. Thiago, I would like to bring you some element to answer your question and some figures as well. If we look at our approval rate, pre-pandemic rate in 2019. And if you look at our approval rate post-pandemic, reminding you, that in the post-pandemic period, we had a low delinquency at the lowest ever. So we take steps back already analyzing the moment, and so we went back. We've had 68% of the pre-pandemic, then it went back to 46% after the pandemic because of the uncertainties in the scenario with a gradual improvement when the market reached the lowest ever level of delinquency and it reached 58%, 10 points below pre-pandemic levels. And afterward, as of November '21, when we look at inflation, the resilient inflation and the interest rate higher than the market expectation, up to then, knowing that our portfolio has a concentration C, D and E classes, we started to make the credit adjustment.
And as of then, we have been going back with the approval rate, and it closes here in October with 48%. That is to say, 20 points lower than the pre-pandemic levels in 2019. And this brings about an improvement in the quality of origination. If we take credit card for instance. In 2021, we had a proportion between very low risk, and low risk around 60% from our clients. And today, it is 82%, and we will be closing the year higher than 90%. I'm giving you the example of cards that this is valid also for all the mass portfolios of the low income and the small companies. And the credit with the first delay [indiscernible] is already improving. And during the second half, we are already running lower than the percentage of 2019 with suffering with low ones, and this still drives our index in term of the lower harvest that have the highest turnover.
And also regarding the harvest, all of them and all the main products, they are below the level that we had in 2019. So the trend is what Octavio said, we will follow and it had growth in delinquency still, it could be growing up to the first quarter of 2023, and then it will remain stable and then it will start dropping in the second half gradually. It is also important to say about our client NII, net of ALL. And if we look at the future quarters of '22 vis-a-vis '21, you will see a comparison -- a clean comparison, we grew 25%. We are absorbing all this ALL, and we have a very strong growth of credit during this period. The client NII net of the ALL is a very important factor.
The next question comes from Rafael Frade with Citibank.
I would like to better understand what changed in your expectations? If you think about 2 lines more specifically, if we speak about market NII. In the second quarter, you stated that the market NII was closing the year close to 0. And now on an accurate basis or at 9 months, it's already negative. Like Octavio said, it's also expected to remain negative in Q4. So I assume you have a good predictability of this line, but it was way worse than the first expectation. So what changed in the dynamics vis-a-vis the second quarter. The second question about credit or loan, there was an expansion in low income, but it drew my attention, the increase in the worsening scenario vis-a-vis what you expected or what you said in Q2. So in the second quarter, you said you would be in the guidance, and now you increased the guidance very significantly. And I have this concern about this visibility of the operation. and NPL for the first quarter. So how can we be confident about this? So what changed vis-a-vis what you expected to see in the second quarter.
When it comes to Market NII, your expectation to have a faster portfolio turnover was not possible. There is a time for this turnover to happen in the portfolio and considering visibility down the road. So interest rates is expected to remain higher for some time now. At least based on what we feel about the first half of 2023, maybe after or in the beginning of the second half of 2023, it might expect to go down. So our sensitivity is greater with the margin or the Market NII. As for delinquency, you're right, delinquency and consequently, ALL, where we didn't expect to be fast so fast, but considering the growth in inflation and the first deterioration of consumer or purchasing power or income of the population we can see in the media, the level of investment in the population at record times. So this brought additional concerns to us. And these portfolios, particularly credit -- credit card and individual loan delinquency is faster. So we decided to be cautious and make adjustments because we can see this delinquency hitting us, particularly if you think about the retail bank base at Bradesco. So we understood that it will be important to revise the expanded ALL vis-a-vis what we consider to be the scenario by being cautious and conservative, so we can have more transparent information. Just adding Rafael [indiscernible] put it so well. I think it's important to say and to highlight one detail here. What took us by surprise actually was resilient inflation and also the Selic rate, which is a natural consequence of inflation. We had higher growth of inflation and intensity since 1986. So inflation is very corrosive in the purchasing power of Brazilians particularly low income brackets. So if we check our delinquency curve over crisis, there is a strong correlation with interest and inflation rates. If you think about the crisis in 2008 and '09, we will see this growth. This is part of our strategy. If you think about the crisis in 2016, we can see this growth. As we speak, we also noticed this growth, and it's worth bringing another element now. So what happened? There is a significant reduction in budget available for nonessential items. If we consider the data of people with up to 5 minimum wage or the whole classes D&E. In the 2009 crisis, they had available or disposable, 17% of nonessential items and 11% in 2016. And today, what is disposable is 5%. I'm referring to social brackets, CD&E. So this is in statistics for Classes D and E, they would be below the curve. So that's why we anticipated even though we knew the forecast did not show such a resilient inflation or so like over 2023, but we started to work on these cuts by the end of 2021, and we never came back to the level we had in 2019. even when we had the lowest delinquency for the last 20 or 30 years because we knew there was some adverse impacts related to all the moves that happened during the COVID pandemic.
Just a follow-up question. This is very clear when it comes to the dynamics and inflation and interest rates. But once again, my question is slightly more related to the second quarter. When we thought about the second quarter I believe expectations have not changed and maybe the slightly increased about inflation or other variables vis-a-vis the second quarter. So once again, if you take a snapshot of the second quarter, I would like to understand what got worse? What took you by surprise in this worsening loan portfolio?
Rafael, I believe this worsening that we found over the third quarter which might have signs slowdown was different from what we imagined. So this was the most important point. And because there was a strong acceleration in July and August. We understood it was about time we could correct our route and be more prudent with more provisions in order not to have any surprises in the future. We had a surprise from the second to the third quarter, and now we're trying to make adjustments to the ALL, an important adjustment to ALL. That has to do with the dynamics that happened over the third quarter of 2022.
Just adding to what he said, that's about it. The moment when we started to realize this acceleration or worsening. If you remember, we have this -- we communicated it should be top of the guidance or above the top of the guidance at that time. If we consider this scenario in which delinquency clearly exceeded our expectations, we tried to reset the guidance in order to be very transparent at the level we consider delinquency to be in the future and consequently ALL as well.
Flavio Yoshida, Bank of America.
It's more structural in the sense of Bradesco's position. You said that there is a higher penetration in the lower-income bracket. And you said that this segment suffers more when you have a high inflation and high interest rate situation. Thinking about the country as a whole, very much indexed country and very frequently with high inflation, high interest rates. Do you consider changing this concentration concentrating less on the segment. And also, I would like to ask a question about the fee income besides the good performance in the cards your fee income dropped 9% year-on-year. And I would like to understand what we can expect and what explains the strong drop exceptionally to the card segment.
Thank you, Flavio. Regarding Bradesco's structural position, we do not intend, and we are not going to change the way that work with our retailing because when you have this moment in the cycle of the country, the economy, 2018-'19 and which should not consider the pandemic years. But in moments when you have a low interest rate and inflation under control displays in our paper, and we can tap into value with the client base that we have. So there will be no change in our structural positioning as you described it as I said, regarding the private banking, we have to increase our penetration, the higher income bracket of the population because this will really bring a better balance. When you have this moment in the cycle, when you have a higher delinquency because of your work in the retail base. On the other hand, you have a much higher revenue from playing the hire income bracket, and you have a higher NII and lower expenses. So this is what we have been doing with our investment experts. We already have 2,500 investment experts throughout Brazil in our platforms and in our branches, all the work that we have been doing with the high health in wealth management to increase the volume of assets under management and in having almost a natural hedge to cope with these moments like the one that we are having today. So it's a little bit of what we are doing now. Of course, it takes time. We have BRL 390 million in assets under management in the private bank, but this is a leader in the long run work that we have to do. So we have this trend that when the moment of the economy or the cycle of the economy changes, when the no bracket of the population, our client have a better purchasing power and more disposable income. And on the other hand, we have all kinds of assets under matters that we have a better revenue coming from interest rates or management fees to offset these moments like the one today. Besides, we also have the corporate bank. If you look at the large corp, we have delinquency close to 0. And in these companies, delinquency, 0.85. And the corporate part is much higher than 20%. So in large core higher than 21, 22 and medium higher than 30, so we expect a return on investments coming from these companies. So these are the highest level that we have in terms of services delivered. And there is one additional point, Flavio, besides what it was said. Our strategy for the low income is a proven strategy. Bradesco is the main that gives access to credit to CD&E-classes and small companies, all for Brazil, benefiting all these classes. And we have always made money from these segments. What we are doing, which is very important, is to adapt the cost of the services. Now we have the digital platforms, where we have a lower cost, the higher efficiency ratio. We are advancing our business unit. We have almost 1,000 business units with a higher income and a lower cost and the higher attrition ratio as well. And we are digitalizing Bradesco Express, which is through our banking correspondent with no fixed cost [indiscernible] cost. So our correspond we sell, and this is a convenience model, and this has been digital so that we may have a full offer of products by means of our refund and for our clients, and also with peaks, et cetera, with all the convenience of Bradesco Expresso. So this is a proven model and the credit cycle will continue to exist, and we have to wait for the other part of the cycle to come back. Fee income is according to our guidance, and I believe it will continue to be according to our guidance. So there are no way deviations regarding our original expectation. The sale of cards is the line where we expect it to have a better performance, and it continues to be so. And this quarter specifically, there was a negative impact from the consortium of operation because of a new accounting rule because of specific operations or things, it is brought about this variation because of the adaptation that was necessarily checking account is a line that we have been managing in terms of asset is offered in the adaptation regarding the clients, and it should continue to be under pressure for some time. We have been doing a very good job in assets under management or [indiscernible] and very soon, we will have better results. But overall, our performance is according to our expectations and according to our guidance. Thank you.
The next question comes from Pedro Leduc with Itau BBA.
Thank you for your transparency and the bank's prudence to navigate on this worsening scenario. I have 2 questions. The first one is a brief question. Considering there's more adverse scenario that we identify how does this reflect on the client NIM, would it be reasonable to consider being more selective or maybe client NII growing closer to the portfolio in the following quarters with a less risky portfolio, maybe a slightly lower average yield. Does it make sense?
Pedro. It makes sense. What does that make sense? However, we also have another expectation. This year and last year, we had a small growth of loan to companies or corporate segment. Basically, companies were more related to short-term loan operations for cash emergency or just to go through the year, but nothing with long-term operations as investments. We understand that starting 2023, with expected reduction in interest rates and inflation more under control. There is good room to grow in large company operations, not only in the traditional bank or balance operations, but also including capital markets or structured loans. So that's important to bear that in mind. And it could be helpful. On the other hand, Pedro, this is the moment. It's a onetime thing. Certainly, you've been through several peers like this in the past. When there is slightly higher delinquency rate, but then you can adjust it, control it, it disappears fast, and you keep on adjusting it. Considering all the clients that joined Bradesco, which had the loan assigned over 2019 and along or over the pandemic in 2021. There is a portion of them that became delinquent is failing to pay their duties. But the bulk of the patients of the clients who came in managed to pay and therefore, they will generate results on a monthly basis. So there is a base of clients that join the bank part of it was not good, and it takes adjustments. However, there is a significant share that is beginning to bring results. So yes, your statement is correct. As we speak, we are more selective, particularly for this lower income bracket, but we also expect to have other levers to move on and to improve the Client NII.
Excellent. My second question is slightly more related to management. So lessons to learn, certainly things that you bear in mind about making adjustments or make it differently like product design, different channels, strengthening the team. So I would like to explore this angle are things that we have already pinpointed or acting on in order to prevent it from happening again in the future.
This is something ongoing that we have to do with the organization constantly learning from what wasn't so right if we can say this because this is circumstantial. We know it. But it does bring -- it has an impact on the target audience through the dynamics of setting limits over time and having this moving pattern according to inflation rates, interest rates and all the variables that we can see in the economy. So this is part of the learning as we could speak, but this is a lesson learned from an ongoing process evolution. These are tough times and mature times that we go through, but we always have to learn from them. And I believe that the data scientists team is being strengthened, and the same goes for the investment team, the whole structure for credit assignment and information collection until we go to the customer's checking account. So it is constantly being assessed. That's something we have to keep on doing. So the bank keeps on growing and delivering results, which is what we always want to bring.
Domingos Falavina, JPMorgan.
I have a doubt regarding the others line. I think this is the second quarter that it comes below BRL 1 billion, BRL 1.3 billion. And it seems to me that there is a part that has to do with the reversal of provisions, going up 100% in the 9 months, BRL 1.9 billion difference. Maybe this is another reversal of provisions or something regarding taxes. I would like to know the reason for that and what we could expect from reversals that may be accrued, it is something that will continue, or did we have 2 atypical quarters about that to me that this is about in the other line, we had in this project.
We are in a process that we had a provision about deductibility of the discounts that we granted. We won this last few [indiscernible] Bradesco. This was provisioned, now because of this gain, we reversed this provision. This was the main reason for this change that you referred to. It is all reverted already, fully reverted because this is initial decision. We have to comply with that fully. So there is no further discussion about it.
The next question with [indiscernible] with XP.
You made some comments already about the reason why there is an impact on delinquency for individuals, particularly for lower-income households. However, there is another line showing an increase, a very significant increase, which is for small companies and SMEs. I would like to better understand the dynamics, the impact, and if this behavior is expected to become more stable over the coming quarters or perhaps even showing a reduction.
What you said about micro companies and SMEs. By the way, this is -- this can be confusing sometimes, but it's the same dynamics. Just as we were and we are being more selective in loans for low-income individuals, the same goes for this micro and SMEs. So we can control them with a specific and long line, but the dynamics is exactly the same for low income. More specifically for companies or corporate, we already have the new origination harvest, 50% lower compared to 2019, '18 and '17. In the first collection rollover, we already begin to see that corporate is the same line as we had in 2019 and going down for the last 4 months. So going down at the level of the first rollout. It's true that for greater rollouts over 30 days, it is still affected. However, that's an important sign. So whatever is being originated has better loan quality and the harvest give evidence that it's 50% lower than what we had in pre-pandemic years. And we also have the indicator of the first rollover, bringing a lot of signs of this gradual improvement, which already started, like Octavio said, small individuals and small companies have very similar behaviors and they have to cope with the same problems like inflation and interest rates, like we said before.
Henato Meloni, Autonomous Research.
What are the assumptions you're using for the improvement of the NPL or stabilization of the same around the half of '23, given the credit restrictions that you are implementing, what about the growth of the portfolio for 2023?
Regarding the growth of the loan portfolio for next year, our expectation is better because of a better condition in the market as a whole because we should see a higher demand for credit by the large companies and medium-sized companies as well. So there should be a demand for investment and long-term operations also for the capital markets. As I said that this year, it was practically nonexistent even because of the high interest rate that we are seeing now and with the expectation of reduction in the interest rate, it is possible that we may see a growth in this portfolio. I don't think the growth will be much different from what we see right now. This year, and the growth expectation for '23, up to now is small. It depend on the GDP, and we expect it to be close to what we see today. It shouldn't be much different from that unless there are other factors coming into place. The growth expectation for this year was 0.5 or 0, and we are going to close the year with over 2%, and these conditions may change during next year, and we hope they do it would be very great for the company to go or to have a better situation in this regard. And also answering your other question, we analyzed this difference in delinquency and many measures have been taken, as we said before, we have revised the credit model, both for individuals and corporations. And we have already said that the approval rate for the proposals block from 68% to 48%. And when you look at the new harbor, and you project them for the new harvest and you look at what is going on now you haven't [indiscernible] a good visibility of when the delinquency cuts tend to stabilize and tend to reach a point of inflection. So this will be a consequence about the measures that we have taken over 2022 to have a better control over delinquency and be able to mold this new scenario of more of delinquency more under control.
There are no further questions. We give the floor back to the company's management for the closing remarks. Please go ahead.
We'd like to thank you all for joining us today in this conference call. Firetti, Leandro, everybody will be here at your service for any pending questions. We hope we've managed to explain what happened over the third quarter of 2022. So we have more clarity about everything that happened and clarity so you can work on your analysis and count on us for any pending questions. Have a great day. Thank you.
This concludes Bradesco's conference call. Thank you all for joining us today. Have a great day.