Banco Bradesco SA

BOVESPA:BBDC4

Earnings Call Transcript 2018-Q4

[Operator]

Good morning, and thank you for waiting. Welcome to Bradesco's conference call about the results of the fourth quarter 2018. This call is being broadcast on the Internet at the Investor Relations website of Bradesco, banco.bradesco/ir. And there, you will find the respective presentation as well for download. [Operator Instructions]

Before proceeding, we would like to clarify that forward-looking statements that might be made during this call in relation to the business perspectives of the company as well as financial and operating projections and targets are assumptions and beliefs of the company's management as well as information currently available to the organization. Forward-looking statements are not guarantees of performance. These are 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 affect the future performance of the company and may lead to result that differ materially from those expressed in such forward-looking statements.

Now I would like to give the floor to Mr. Carlos Firetti, Investor Relations Officer -- Market Relations Officer.

[Carlos Firetti, executive]

Good morning, everyone, and welcome to our call to discuss the results of the fourth quarter of 2018. Today, we have the presence in the call of our CEO, Octavio de Lazari Junior; our Executive Vice President, [ Denise de Pavarina ]; and the CEO of Bradesco Seguros, Vinicius Albernaz; the Executive Deputy Officer and Investor Relations Officer of Banco Bradesco, [ Leandro Miranda ]. And we thank you very much for your participation.

And now I'll give the floor to Octavio Lazari to start the presentation.

[Octavio de Lazari, executive]

Good morning, my friends. It's a great pleasure for me to have your presence, and I thank you for that. We are going to talk about the figures of the fourth quarter of 2018 as well as the full year. I think we could start by saying that our figures are very robust ones and a very sound balance sheet.

Let's go to presentation now. Let's go to Page #3. This is where we have the financial highlights of 2018. And 2018 as well as everybody knows, were a very complex year with a great volatility and uncertainty due to the election scenario. And this ultimately affected the expectations of the economic agents and the scenario of economic growth and investments. This not happened exactly as we expected. Even if we consider the fact that we were leaving the biggest recession, the biggest crisis that we have faced in the recent part of Brazil, and we should be tapping into the recovery -- of a cyclical recovery. And although this has not happened, and in spite of the challenging scenario, Bradesco had a robust performance in 2018. The bank was and is adjusted and prepared to grow, and this allowed us to expand our loan portfolio, increase our services revenue and with a strong decrease in our AOL expenses, operating cost of the bank remained totally under control, and we partially absorbed the impact of collective bargaining agreement, resulting in cost growing below inflation. Net income were BRL 21.6 billion in 2018, a 13.4% growth compared to 2017. And I would like to mention that the operating income grew 24.9% or almost 25% in 2018. ROE made 90 bps, 19% in the fourth quarter -- 19.7%. One of the major highlights was the expansion of 7.8% in the loan portfolio, delinquency dropping 120 bps, and we can talk about the better BIS ratio, 150 points higher, 13.7% overall.

Now let's go to Page #4, where I would like to highlight some important initiatives and maybe the first one is the rebranding of our brand, the brand becoming lighter and younger, and allowing us to have a better communication with our clients, the eco-TV, or written media or -- this was a very important impact. BIA is an important point. We are evolving gradually with Bradesco, artificial intelligence that we call BIA, B-I-A, over 17 million interactions already. And we will be getting into that afterwards.

And next, as we have said, 500,000 clients, but our goal is to reach 1.5 million by the end of this year. So this is a commitment on the part of our team, to reach 1.5 million by the end of 2019.

On Page #5, it is worth mentioning the new segmentation structure of the bank at the beginning of 2019. And we announced a redesigning of our management structure, which you see the number of Executive Vice President seats from 6 to 4. And this movement is speeding up the decision making process and increasing more the corporation and synergies among the areas. Furthermore, we improved our client segmentation, seeking to provide an even more customized service to our customers. That is to say the client is the core. And the reason that our organization, and this is the reason why it is so important to have this as the core, to have the consumer as the core of our organization.

Just to explain this new structure, we have a wholesale bank with Marcelo Noronha; involve a large corporate, corporate, corporate 1, which was the Bradesco Empresas or Bradesco Enterprise, and the whole support structure to the business, global market, securities, prime brokerage here and the exchange and international and private bank as well with total synergy with this area.

Another important vertical axis is our high net worth bank. [indiscernible] in charge of this area. And the high net worth involves prime, prime event, top tier, brokerage houses loan, Ágora and Bradesco Cultura and wealth management, which is a new concept which is here and is also in our private bank.

A third vertical axis is the retail bank headed by [ Enrico ], our VP. And in this one, we have the branches, we have the digital branches platform, the mini branches, the Bradesco Express, digital channels and the card structure.

And the fourth vertical axis, which is the control and business support structure that supports the 3 areas so that they can have a fundamentally commercial focus. And this is the technology and human resources area headed by Andre Cano, who looks out to technology and human resources as well in risk and finance and some other areas of the organization.

So the bank has a very lean structure now, and each one of the vertical axis has its challenges and their obligation in terms of delivering results.

On the next page, Page #6, where we talk about the customer experience. And I'd say that the customers are the core of our organization. Our objective is to improve the customer experience with better products and services being distributed by -- through the digital channels. Better understanding the need on the part of each customer at that specific moment of their lives and also speed up the services and the convenience and the product and services portfolio becoming better tailored for our customer needs. And so that this may be much more dynamic. And we are sure that we're already reaping results in our NPS that have improved around 20% in 2018 vis-à-vis 2017.

On Page #7, we talk about BIA, B-I-A, Bradesco Artificial Intelligence. This is a victorious endeavor on the part of the bank so that we can deliver a better experience to our client, and this is a major investment made by the bank. We already have 8.3 million customers that have already used BIA with over 70 -- that is to say 73 million interactions. And a major advantage of BIA is that it is multiplatform, so it is in the Bradesco apps, Next, WhatsApp, Google and other apps as well in order to meet our client need. And this evolution has been very fast. And the accuracy of response is around 90% to date and tends to enhance every time we interact with our clients. So this accuracy is gradually improved. And BIA has a wide range of application. BIA already assists our managers, our clients, our traders to clarify doubts and also to execute transactions. So BIA is already a transaction app within the bank.

On Page #8, talking about Next. As I said before, we have the commitment of reaching 1.5 million clients. We are opening about 1,000 accounts per day, 77 per day -- 77% of these clients who joined Next are not or were not Bradesco clients. So we are bringing oxygen to our client base and this is fundamental for us to continue in the long run. And besides, over 70,000 accounts were opened in 2018. The number of interactions with BIA by means of WhatsApp alone is growing fast, has already exceeded 5.2 million interactions in the 4Q. And the volume of loans released through mobile and Internet access increases steadily. And in 2018, we had an extension of 63% of credit for individuals, and 76% of credits assigned to companies.

Just to give you an idea to you of personal loans by the banks, 55% of origination already comes from the digital channel, fundamentally mobile but also Internet banking. And we have reached a total of digital clients who use mobile and/or Internet banking of 15.3 million, represents 53% of our clients.

On Page #9, talking about efficiency, we have a commitment which is very strict regarding optimizing our service network. Over the last 2 years, practically 3 years, we've made an important adjustment. We -- because of the acquisition of HSBC, we closed branches in 2017, 230; in 2018, 220 which were branches that still needed some adjustment because of overlapping. But we are very pragmatic because branches have to remunerate the shareholders' equity and have to deliver good services to our clients. And with the closing of these -- while the closing of branches will be smaller because of the process that we are living today and the perspective of economic growth where the point-of-sale are very important, and we have to be very pragmatic as we are and keeping only the branches that give an adequate remuneration to our shareholders' equity. And the digital clients have been growing very fast and we created the digital platform. And a good example of digital branches are where we select clients that are heavy users of mobile and Internet banking. And we invite these clients to participate in a digital platform. So the growth in this platform has already exceeded 25%, and we expect to triple the number of platforms in 2019 of branches, digital branches. And a client that is served by a digital branch in comparison to the profitability of the brick-and-mortar branch during 1 year, the growth is up 40%. And the efficiency is much higher because we have a manager in the digital branches and they are very well prepared in order to serve these clients on the digital branch so they can serve 3x more clients, each one of the managers. So 400 clients in a portfolio and up to 1,200 clients in 1 platform or 1 portfolio.

So now going to Page #10, talking about the insurance world. In the insurance operation, the main highlight, well, it represents 1/3 of our results. And the main highlight is a decrease in claims, resulting from important measures that we took in the last few years. And we redesigned many pricing models. And you have already seen in our balance sheet that the volume of premiums has gone down but profitability has gone up because of pricing models that were revamped. Very good work done by Denise in May regarding the acceptance of risk and advising and very important work done by them and Bradesco Seguros, for instance, Bradesco Health, regarding risk acceptance but mainly in cost control.

We established packages with hospitals. We know exactly how much some procedure or some hospitalization will cost, and this makes the operation much more streamlined. And we have also invested in primary care. We have 9 units and we will have 22 by the end of the year. We have over 28 already contracted and waiting for approval so that we may increase and expand this. And this will bring the better management on claims in the Bradesco health area and also Bradesco Seguros overall. We have just started, too, with this operation. But what I can tell you so far, as we'll be sure about after 1 year of experimentation is that one client in [indiscernible] and the same client in another hospital, the level of client satisfaction is much higher with [indiscernible]. And 42% to 48% lower cost than if we have the same patient in the -- in a hospital. So we have much more brilliant policyholders. Private pension plan. What I can say is that it is part of the investment portfolio or the long-term investment portfolio of the Brazilian population.

And we have other initiatives as well that are focused on the client experience to the overall products by means of the digital channel. And as incredible as it may seem, through mobile alone, we sold over 500 million last year.

Now let's go to Bradesco growth in Ágora. We concluded all the investment of platform for the brokerage houses, both Agora and Bradesco Cultura working in the same environment now, and the Agora platform has been completely redesigned. And our brokerage houses have a potential market. It's finding 300,000 clients, the potential market is worth 1.3 million clients for prime and private segments in order -- and these clients will be looking for equity more and more. And we will continue to evolve our wealth management strategy that we started last year and bringing further news about that during the first quarter of 2019 vis-à-vis high wealth and finalizing this. First, look, I think we should mention again the contribution given to society by our organization. Fundação Bradesco, for instance, last year, we invested over BRL 600 million in basic education of almost 100,000 students in Brazil. And Bradesco giving back to society part of the trust that is invested by this population in Bradesco. And this is what this country needs in order to get into a sustainable growth cycle. And this year, we have already confirmed that we will be investing about BRL 650 million in order to maintain these schools and everything that they should need. On the other hand, we can see BRL 61 billion of added value by the bank, 34% paid in taxes, 30% of the compensation of our employees, so the distribution that you can see on this slide regarding the social work that is developed by Bradesco.

Now going to Page 14, already talking about the fourth quarter results and going straight to the recurring income statement. As of now -- well, from now on, we will discuss the figures of the quarter. And I'll highlight BRL 5,830,000,000 of net income, which represents about 20% on a year-on-year comparison, operating results growing 32.9% year-over-year.

And with that, our ROE reached 19.7% for the quarter and ROA, 1.7%. And other figures will be discussed on the next few slides.

Slide #15 now. You will see a timeline starting in the first quarter of '17, [ and into third ]. Total level has increased in the last 2 quarters. This is the result of the loan [ broker ] increase and adjustments that we made in the banks.

We believe that we have the right conditions to continue to deliver even higher levels of return. Our operational momentum is very good. We have been consistently expanding credit with absolute cost control. As you will see, lower ALL levels and with a downward in trend and a focus on expanding our NII. So we have a positive view for the economy this year and a positive view regarding the bank's ability to deliver even better results.

On Page 16, another point to be highlighted, and we've been emphasizing this for several quarters. And so the current improvement on loan origination in the aimable comparison. Loan origination grew 23% for individuals in the first quarter, and 37% for companies in the first quarter. And what is better when normalizing delinquency.

Of these new originations, these new operations, we see that delinquency is very much in line or even below what we've seen recently. The new [ vintages ] are healthier and healthier. And this will be seen in the delinquency ratio that I will show you momentarily. And also, in the delinquency ratio for the future.

Moving to Page 17, talking about our expanded loan portfolio. The largest origination or the larger origination contributed to the increase of our expanded portfolio which grew 7.8% in the year, above the guidance for 2018. The expansion profile we have forecast provides this increase occurred in individuals growing in those portfolios that should grow. Even cards grew a little, but the highlight goes to individuals growing 15.8 in payroll loans, we maintained the leadership in this market growing 13.6 in mortgages. Today, the received ranking was published and Bradesco was the leader, both in individuals and companies in 2018.

[indiscernible], which is a historical mark and we are in the full conditions to maintain that leading position. We have funding, we have [ phasing ] and we had our first tranche of BRL 450 million. We had a second tranche of BRL 450 million. We have a third tranche expected for next year of BRL 450 million, totally allocated for net -- for high net worth clients of the bank, so we have a lot of room to improve.

We have a 14% improved [indiscernible] vehicle leasing with very good quality of portfolio. Most of it is coming from newer vehicle loans, personal loans grew 18%. Like I said, 55% of origination of personal loans in the bank account from operation on the mobile platform. That's how comfortable clients want to be. They want to do it at anytime, anywhere, at their own convenience. And the results are being seen per individual.

Companies also showed a good growth of 10.1%, a 2-digit range. And we will talk about corporate. Credit has increased [indiscernible] the large corporate segment have not fully retaken their investment cycle yet. And we remain very pragmatic about this. Our loan operations has to enumerate our equity. If not, we need to maximize our result. And so, we can serve our clients using our balance sheet if we can remunerate the capital adequately or through operations via capital markets or even originating operations, going to markets, motivating incremental spending with secondary markets when necessary. In a nutshell, we will serve our clients, and serve their needs but always focusing on equity remuneration, of which is a [indiscernible] condition for us.

And this is something in regards on Page [ 4 ] that I skipped and that it is important to highlight. What makes me confident is our operating results of our corporation. The operating result of the bank grew almost 33% in the fourth quarter, and year-over-year, the operating results grew 24.9%, almost 25%.

Moving to Page 18. Talking about the net interest income, NII. We had a good performance. Insurance NII improved and ALM and other strongly grew in the fourth quarter as markets grew suddenly by the end of the quarter and mainly with improvements in the insurance to market. Credit intermediation NII remained flat in the quarter despite volume increase. This is due to price compression, as you can see, it almost dropped on one, down to 11. And we can see the [indiscernible] markets, the [indiscernible] in that sense and we're totally aware that bad compression is a given. We cannot change that. That will be compressed, and this is good, good for the country, good for the company, it's good for the population. We will continue to happen for the remedy of that. I will start with the gain scale.

And this is the focus of our service network, operation network, our traders and all of our employees, we have to gain scale, optimize our client base and gain scale. But for 2019, we expect the average loan volume to increase and that the mix of the portfolio will partially offset the reduced spread, allowing us to more significantly grow the NII.

On Page 19, delinquency ratio over 90 days. Another good piece of news. Our delinquency ratio over 90 days continued to enhance, improving by 12 bps. Delinquency has been dropping 7 quarters in a row. The expectation is that it will continue to drop marginally. Individual delinquency decreased 23 bps; [ commercial ] delinquency, 21 bps while corporate remains practically steady.

And in our large corporate, the [ same ] effectively can bring delinquency of the large corporate segment down even some.

Moving to Slide 20, talking about NPL creation and allowance for loan losses expenses, ALL, which was another good highlight for the quarter. We have an NPL creation increase of BRL 467 million. This growth happened mainly in SMEs and was concentrated in 20 million-sized companies. So this is nothing that can cause a concern. We don't see any systemic trend of increasing delinquency. We see the higher level of NPL creation in the quarter for individuals, but it definitely is in line with expected. Our expanded ALL for 2018 remains in the center of the guidance after revised the guidance showed a slight increase in the first quarter.

Moving to Page 21, coverage ratio over 90 days. Like I said, coverage ratio have in fact increased, reaching 245% in the fourth quarter. This will start to drop when the NPL in this stabilizes. Look at now exact provisions, E-H, is frequently asked question. We should receive provisions for the IFRS 9 adjustment. Everything will happen in this bank. All of the tests and trials have been done with our modeling systems and it seems very likely. And [ NPS ] provision will not be released to comply for with IFRS 9.

On Page 22, we'll talk about fees and commission income. This is a good highlight result. Exceeding our expectations results, now again, the scenario is more challenging. Highlight our checking accounts, asset management, loans. Checking account growing almost 8%, asset management growing 7%. Consortiums grew more than 10%. Including the brokerage house operations with [indiscernible] Bradesco brokerage house and Ágora investments, representing a good growth.

On Page 23, talking about operating expenses. Cost are totally continuing, and in 2018, within the guidance growing 1.7% below inflation. This represents a decreasingly alternative 2017 cost, [ 2.9% ] in nominal terms. Personnel costs in the fourth quarter were impacted by 5% of the collective bargaining agreement for banking workers. And our lower profit sharing participation. Most of the results of the bank ended the year growing costs and growing personnel costs below inflation.

On Page 24 and 25, talking a little bit about insurance company. In Bradesco Seguros, presented good results, 15.4% net income increase and the ROE of the insurance company ended 2018 at 20%, above the guidance, and in the fourth quarter it was 22.3%. The insurance company has very good ratios and with the points that you can see improving. Particularly, due to an operational improvement that offset the reduction in NII -- in the insurance NII, combined ratio reached 88.8 in the quarter when it was 86 in the fourth quarter of 2017. And for the sixth quarter in a row, there was an improvement in the combined ratio.

The main responsible for this performance was quite a set reduction of claims in health, life and P&C. We can see the numbers, the insurance company claim ratio which is 70.4% in the fourth quarter '18 compared to 74% in the fourth quarter.

And moving on to BIS ratio on Page 26. The maturation in the fourth quarter showed a sound evolution quote in the fourth quarter at 13.7% and improved of 150 bps from the third. Core equity tier 1 grew 90 bps, reaching 12.3% as the result of the retained earnings and the enhancement of the mark-to-market position and tight credit as a consequence of market recovery. In addition, in the fourth quarter, we made a -- we had a fund-raising in the Brazilian -- additional equity market with perpetual subordinated notes for the private issuances, [ which are ] issuance qualified investors, we raised BRL 4.2 billion which represents 60 bps of Tier 1 capital.

And on Page 27, reclassification as of first quarter '19. We announced some reclassifications in our income statement, which started having a new standard starting in the first quarter of '19. I'm not going to get into details, if you have questions, we can talk about that. But the main change with the reclassification of insured NII to the loan loss insurance results.

With that, we reclassified part of the results that were previously allocated in other expenses and revenues, mainly for the margin and a smaller portion to cost of risk and services revenue. The main message is that in the new guidance follows the new classification.

And finally, talking about our guidance, which we are looking will deliver it on almost every line from the reviewed second tier guidance. Noted change at that time was the decrease in the expected expanded ALL. Regarding our new guidance for 2019, our expectation is growth for both -- the loan book, we are expecting 9% to 13% growth with a total NII 4% to 8% growth; fULL services 3% to 7% increase. Operating expenses 0% to 4% increase. For insurance results, let me remind you that the insurance NII now reflects the better performance of 5% to 9%. If you look at the points -- because until then, we only spoke about premium of insurance, the premiums -- depending on what they have they can increase premium a lot but that could entail high claims.

So that we think -- better reflect efficiency, efficacy, accuracy and performance in the insurance business with the result of insurance operation. So we are giving newer guidance of 5% to 9% growth from insurance operation.

And for expanded cost, such as the guidance of BRL 11.5 billion to BRL 14.5 billion. So these are the main figures that we wanted to share with you.

End-to-end, we have good expectations about what can happen to the economy. Given the outlook, because we have the reforms that should take place, but we are also absolutely convinced that there is no sustainable economic adjustment without a financial system which is efficient, profitable and healthy.

The profitability of the bank is the insurance. For the shareholders and the economic agents that the economic environment is safe, healthy and stable. And therefore, favorable to new investment.

We had many economic policies along the last 7 decades, which is the -- always trust the feature of results, but back on it to better our economy and the ability to work with Brazilian. In the same, our employees is the greatest asset that Bradesco has, our strategy of modernization is certainly client oriented. With these changes that we made in January, our management structure, for the breadth of our vision. That clients have the day-to-day top of our priority. This is what brings financial health and robustness. Uncertainties generate opportunity for us and challenges, but we try to invest in opportunities. And truth, uncertainties are a given, it is something that is out there. We have to cope with that with valor. So to us, this is a benign situation. We built a solid, large strong, improved business volumes in every line as we could show in our operational result, increased competition, increased our new market dynamic, it requires agility in responses with the arrival of new market entrants.

According to reduce the vice presidencies of Bradesco so that we could be more focused and have more agile decision making. We expect more growth for 2019, almost double of last year. Some people consider the pace is too slow. For us, it is necessary to gradually recover a sound business environment for our clients.

We are exchanging a recession cycle for recovery cycle. Now we'll share the cycle with growth. Thank you very much for your attention, and we remain available for your questions.

[Operator]

[Operator Instructions] Our first question comes from Jorg Friedemann from Citibank.

[Jorg Friedemann, analyst]

I have 2 questions. First, regarding one point that was mentioned during the presentation by Octavio. I might have missed part of the explanation. Maybe I think you mentioned that if there's a reversal of additional ALL, that will be more related to IFRS 9. But just to know from your viewpoint. Is IFRS 9 something that will come for 2019 for Brazil, right, how do you think this will be implemented and that is found in the guidance, it is natural that we are going to have a reduction in coverage. But it seems like you're going to provision a little less, this would mean an ALL reversal. But from all that was said in this webcast, this reduction would be related only to the implementation of IFRS 9. That's my first question. And the second question has to do with the guidance for fee. I think that the results were good. We had an upside, with the consensus working at all, your guidance, [ great ]. But obvious that we understand that there is some pressure in the market. Because that's the credit card business, not only in terms of the acquiring business, but also with the interchange -- change that happened recently, that impacts total fees. So the guidance of 3% to 7%, hopefully it's little over than 2018 guidance, in an environment where there is economic recovery, credit recovery and inflation that remains low but perhaps increasing a little, that might help pricing. But what do you see in terms of additional pressure? Are there any other lines in addition to credit card that could control this, to drive this down or is there room a price that could be positive along here?

[Unknown Analyst]

Okay. Regarding my situation IFRS 9 -- implementation -- compared to implementation of IFRS 9, in 2021, the banks are already converging gradually to it. For me, the provision -- the complete IFRS 9 requirements, that does not change the coverage because the corporate provision will not change. There will be no reversal of these provisions along the process. What Octavio mentioned when he made a comment on that?

[Unknown Executive]

Well, there will be a gradual process of migration to IFRS 9. And have, eventually in the future, with the expected implementation, it is possible that we'll have room to consume -- to use that provision, although we don't have that expectation. The guidance is not considering for 2019 any reversal of additional provision.

[Unknown Executive]

Perfect. This is Octavio. We are working with the operating side regarding the guidance for fee. And I think there is a pressure, and the pressure is already here. You could look at the those numbers. [indiscernible] released a guidance which is BRL 1 billion below the guidance that they had for 2018. And there is -- the guidance used to be BRL 3 billion, now it's BRL 2.3 billion to BRL 2.5 billion. But this is transient. I think that as of 2020, sale will pick up again because the market will be totally deregulated. It has been opened by the monetary of already, and that was an impact not just the company, [ 52% ] cash generation, new entrants in the market are competent so we have an expectation that we'll assume the results of that company will contribute a lot to ROE. In addition, the reaction with the sale of POS terminals, more than 400,000 POS terminals with all the banks [indiscernible]. Now that we have a greater commercial appetite and this started happening as of June, July last year. Maybe August. But this is one point. I believe another point we could mention, is that pressure is natural. I met with clients, anywhere you look, they maintain ALL lower. I don't know how the brokerage houses will live without broker fees but they're in the pressure out there. So much so that we gave you a guidance of 3% to 7%, but the greatest pressure that we saw was from P&L. Nothing else, nothing that hasn't started happening already. So we believe that we can gain in volume and sales to offset that.

[Operator]

Thiago Batista, Itaú BBA.

[Thiago Bovolenta Batista, analyst]

A follow-up regarding your guidance about provision, the assumptions for the guidance. NPL formation, is it going to continue? Is it because of the drop in impairment? Okay, so the question is, which are the drivers? And is second question is very simple. For the fiscal provision of BRL 180 million this quarter, is it nontypical? Or could we expect something similar to that in the next few quarters?

[Octavio de Lazari, executive]

Thiago, thank you for the question. In relation to our ALL guidance, the assumption adjacent to that -- we have been talking about the credit origination, very good performance. We are with a track of improvement in our delinquency rates, NPL formation should be maintained at low levels over 2018. In our provision for 14.5, we had some specific cases of higher ticket. And when you look at your -- our portfolio, we do not see right now and we do not believe there will be this kind of provision. There is room for the reduction of provisions for impairment and we have already made long strides there, so it's a whole array of reasons and also our cost of risk and our delinquency, this has already happened in part, but the process has not been concluded yet. So the points that are included in this guidance and how the area in charge has projected this comes from these items that I have just mentioned. Regarding provision under others, this is a tax provision, this is fiscal provision-related mainly to 2 cases of tax. We had a reclassification of the risk probability from possible to probable. So because of that, we made this provision. So this provision has a specific characteristic. You thought by then we do not see this kind of movement very frequently so this is very specific.

[Operator]

[Operator Instructions] This is [ Anna Houser, ] UBS.

[Unknown Analyst]

I have 2 questions. In relation to your Tier 1, you have already reached this target in this quarter -- your target in this quarter, 13.5%, and do you believe there will be a higher. payout are you considering a new acquisition? And I would like you to explain this, my second question has to do with your fee guidance. The Central Bank will be regulating open banking as they have already said. And how are you positioning yourselves in this new competitive environment? And your guidance, does it include anything regarding this new open banking situation in relation to Tier 1?

[Unknown Executive]

The one that we talked about, 3.5, this is a target that we believe -- while we consider this as a very comfortable level, equity level, we have never placed this as a cap. We are not going to manage based on this as a cap, so the discussions regarding capital allocation, dividends, et cetera, this is an ongoing discussion and this is in the hands of our Board of Directors. And right now, we would have nothing to add to that. Regarding open banking, which is your second question, this is a process that is already underway. There are some definitions already in terms of regulation. What we can say so far is that it is good with our platform, we are prepared to operate in an open bank environment and we believe that the evolution will be a gradual process. And certainly, there is no impact of the open banking on your -- in our guidance. It has much more to do with payment than other competitors' moves.

[Octavio de Lazari, executive]

This is Octavio. I would like to add to what we had said. In regard to our BIS ratio, 13, 13.5 -- 13.7, you said 13.5 but we're reaching 13.7. And this is a number that makes us comfortable because we are on the verge of seeing economic growth resuming. And we believe this will happen. And we have to understand that there are 2 different moments. We have to have the necessary capital for the different cycles of the economy. We have over 5,000 branches, et cetera, besides mobile and digital platforms, et cetera. So we need to grow and have the necessary capital to grow. But we know that economic cycles have not been done away with, which means that we have to have the necessary capital as we had the situation 2 years ago regarding delinquency. You know that delinquency was very high in all Brazilian banks 2 years ago and only BRL 450 billion were written off by the 5 main banks in Brazil. So this equity management is fundamental for us and we have to take care of that every single day so that we may accompany the growth cycle and the delinquency cycle, and we have to wait and see. If the pension reform happen, this will be the most important trigger so that we may see economic growth. So based on that, then we will check our capital needs vis-à-vis a resumption of investments and also investments in infrastructure, energy, et cetera. Everything that the country needs. And regarding the second item, this is what I said answering Thiago's question. It has to do much more with share look and the high net worth clients, the rates are lower in the brokerage houses operations, and we do not see a big problem there coming from FinTechs or whatever. If you take the website of the made -- micro individual entrepreneur and MEI, you can see that the companies that supplied balance sheet and the obtaining inventory control and many other things that are necessary for these MEI. These are FinTechs that are plugged in the open banking system of our platform. And we are already doing that. You are correct. There could be a little bit, but this is not what is reflected in our guidance. We do not see it this way. We believe that there is even more room for growth. Thank you very much.

[Operator]

If there are no more questions, I would like to turn the floor back to the executives of the bank for their final remarks.

[Carlos Firetti, executive]

My dear friends, I would like to thank you very much for your attention, for joining us in this webcast. It's always important to speak with you, to clarify some points about our balance sheet. As you know, the Bradesco doors are always open. All of our executives, the rest and the IR team are all available for any other further clarification you might need. We are available to have meetings with you -- I, myself, am available to speak with you, to discuss some points with you, to speak a bit more about the future, so I just want to thank you for joining us. We will continue in 2019 to work very focused on our clients. This capital discipline with a focus on our client and so that we can have good shareholder returns. A good return on our shareholders' capital. We should put our shareholders and investors always speak. We'll remain available. I wish you a good day, and a great 2019 for all of you and all of us. Thank you very much.

[Operator]

Bradesco Bank conference call is closed. We would like to thank all of you for joining us. Have a good day.