Q2 2022 Banco Bradesco SA Earnings Call - Morning Session
Okay.
Good morning, ladies and gentlemen, and thank you for waiting welcome to Brad data, Chris Paul could calm about the second quarter of 'twenty to 'twenty two results. The call is being broadcast on the internet at the desk, because investor Relations website for Das Bradesco Slash IR, where you can find the presentation for download.
Yeah.
We have simultaneous interpretation into English adult participants will be in listen only mode. During the cultural selling show Google have a training session. When further instructions will be given <expletive> joining bircher said during the call. Please press star zero to reach the operator.
Before proceeding let me to clarify that forward looking statements that might be made during this call in relation to the company's vision perspective, operating and financial projections and targets I believe that the assumptions of the company's management as well as information currently available to the comes.
Tony.
Forward looking statements Doug mill guarantee a performance thing Volte raised test out their teeth and assumptions as they refer to future events and therefore depend on circumstances that may or may not occur.
Investors should know, Chris said that churn or economic conditions industry conditions and other operating factors may affect the future performance of the company and May need to reserve that Dave Committee railing from those expressed in the east Huawei Newquay statements.
Now I will turn the floor over to Mr. Lai, Adobe and executive director ended and I ever.
Good morning, everybody. Thank consortium present, thank you very much for joining us and in this conference about the second quarter.
Page 22, we.
We have Mr Republic, as it must junior Arsenio Hall, with Monday, everyday dish and executive VP and CFO .
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Has that thank you very much good morning, everyone. Thank you for participating in our call about the second quarter was 922.
Earnings.
The scenario has remained quite complex in the second quarter with a persistent high inflation and the hateful monetary tightening eat a major global economies and the impact of the Ukrainian War.
In the maintenance number is going to work maybe.
With the acceleration of the high interest rate in February with instant near at the Endoscopy Coulter. The concern in terms of the risk of global recession at the end of the quarter and pursue highest tradition of deposit like Lincoln, where part of the dynamics that affected the economy during the period, including generation Daegu physical branches.
In spite of the outlook the Brazilian economy is a little bit better, which led us to increase our JD P growth expectation to two 3%.
The cycle of rising interest rates in Brazil has already advanced rapidly and thirdly, just a biggie.
Or have a less optimistic view portway to pay two three with Zimmer growth projections for the two rupees, we saw foundries out into second quarter equated to a net income of 7.041 billion at three five to increase quarter on quarter, representing 18.1, our wheat that loan portfolio answer.
The debt evolution, expanding two 5% quarter on quarter and $17 seven <unk> on year, the more expressive value advance occurred in the portfolio for individuals to anchor 0.2% rise in 12 months and the credit card portfolio expanded 46% the growth at the.
The end of the period is expected to be lower in line with our guidance, mainly due to the comparison basis with the last year and we pointed out the performance of the client NII growing seven 1% in the quarter, Adam Markman NII continues to be credited by the impact of the <unk> region on D. A L M position.
And this should continue throughout 2022 going back to normal in 'twenty two 'twenty three.
The insurance business posted $3 7 billion in income in the quarter growing 100, plus two 5% in 12 months excellent back by the comparison base with last year and the growth of 12, 8% in the quarter changed by potent Charlotte with an increase of 6.7%.
Year on year benefiting primarily by the strong performance in the line of credit card, which has favored by the client based growth in the higher spending as well.
Despite the challenges brought about by inflation total costs were well controlled total expenses growing four 9% year on year in line with our guidance.
And we have been able to offset much of the inflationary pressures by means of our efficiency actions and this growth that we had including the red meat investments in our digital initiatives set the next digit et cetera, and at nature reinforcements A&P investment advisory technology and data analytics.
And data science teams.
We will analyze our copolymer terminations with the guidance later, but we can report that we were able to maintain a consistent performance consistent with what we proposed.
Now moving to slide number three we have the evolution of our results considering denominal variation of each line of the period.
The quarterly and annual comparisons we had an expansion in client NII fees and insurance.
This growth was more than enough to absorb the drop in the market NII, which is currently under pressure by the high til into rate and the highest credit provisions with charter consequent job delinquency returning to historical levels and growth in high yield credit lines as well.
Now on slide number four the loan portfolio solved in line with our expectations originations for companies.
For business they was higher mainly due to the base of comparison, which was affected by the second wave of the pandemic last year edited mainly concentrated on surety line in individuals.
Lower demand for neural benign such as mortgage and the natural cave head.
In credit assignment that we have.
We saw a great.
Evolution and culture with Fandango, and these lines have higher spread than they have favored the growth of client NII.
And the more expensive movement occurred in the credit card controller, new within 7% hike in the quarter, 46% in 12 months the growth of the renegotiated portfolio cut Chompy advent of the credit portfolio and also the origination mix with a higher chair or of more profitable lines.
Now on slide number five the cost of risk increased slides me in the quarter, representing 2.5% of the portfolio, reflecting the origination mix plus the higher delinquency and retail Macquarie debate dose and small companies.
The early delinquency remained at the same level as the previous quarter and the over 90 days past Dew grew 30 bps, reflecting the increase in retail delinquency and the corporate Checkmate <unk> news at historical lows.
The coverage ratio.
Going down as we shed once we anticipated provisions in 2020 and today are being consumed with a delay of some of the space in our projections. We mentioned the first boat the second quarter.
Depending on the conditions of employment and income and we expect that coverage ratio to continue to be consistent around 200% on slide number six we inked moved some chart that Iran event to the credit dynamics.
Overall employment levels continue to show a good growth with trauma and employing informal unemployment rate dipping and has reached a level with joint venture with <unk> Route waste math has improved reach out to reflect increases in employment and the transfer of inflation related to collective agreement.
And in this chart on the right.
No right.
It is important to highlight this proprietary information.
With the debt to income ratio of our client with credit services constant green both operation of branding, it's my daughter's AGA institution.
You're relatively small increase in the debt to income ratio with the graduate Turbot and 2020 for instance, we had the ratio of 22.2 than 'twenty 1.1, 0.2 appoint Amy.
And.
2.6 in May 22.
Now, let's go to slide number seven about the client NII. It continues to expand both quarterly and annual comparison, reflecting the rise in the loan portfolio by the higher U line.
The growth in revenue from funding.
The market and I as we said before.
In the previous quarter continued to be under pressure by the higher affiliate, partially offset by the higher result of our working capital and we should mention evolution of spread book gross churn neglecting the a O L on the right.
Hi.
6.8, as you can see on the right of the slide.
On slide number eight we talk about insurance.
Net income improvement 14 has presented the top of the reflecting our ROE of 19, 7%.
We emphasize the growth in revenue.
For the half year higher than 16% and that's why it is due to the increase in the number of lives covered by hail as well as pension and life beside the adjustment in auto insurance.
Consolidated income from insurance to chop there to performance.
According to our guidance mainly related to the improvement did loss ratio from reduced effect of the pandemic as well as a better financial results for the period.
We believe that in our projected up to the end of the ear are in line with our highest growth expectations.
We continue to see a drop in the Covid related claims ended the second quarter of 'twenty two to who these events represents 348 million well the lowest volume since the beginning of the pandemic.
On slide number nine.
Okay about seeing six 7% year on year in Queens, reflecting an additional $4 3 million times in the last 12 months.
Totaling 17, five point something million clients that credit card lines by 32% in one year, reflecting a high transacted volume in cards, which stop in this quarter of 73.6, almost half of two 4 billion and this growth in volume as a consequence of the larger clients.
The normalization of the economy and also the effect of inflation on our client spending.
Now slide number 10 talking about operating expenses, they increased four 7% in the accumulated six months or which are damaged much lower than the inflation of 10, 7%.
<unk> P M at 11.9% might be FPGA personnel expenses of course have risen due to the collective bargaining agreement, 11% last year and also investments in investment advisory technology analytics and data science teams.
As a result of our efficiency campaign aimed at maintenance project classes posted it.
Continued growth other expenses due to the large volume of conviction that occurred last junior and should not be repeated this junior nutritional fee ratio was 42, 4% one of the best in our history.
We highlight the optimization that we promoted in our physical presence, we have transformed our brands migrating to a more advisory and less transactional model.
And desktop in 2018, we have opened 976 business units and we reduced 1691 branches as a part of this transformation. We trained our managers with two that facilitate removed RK to face service.
According to a dilution of our clients today, we have nearly 25000 relationship managers and more than 1000 investment depression, who promote low advancement and assurance consulting who submits has dropped like we will be adding an additional 700 investments actually to the team.
We should place now one of the unique competitive advantages our strategy, which is Fedex Express, where we complement our physical presence with a significant.
Capillary and convenient to customers by means of 40000 bank responses, where the cost is very.
Okay.
Moving now to slide 11.
Our capital ratio remain at fairly comfortable levels prop.
Profit generation has allowed us to maintain a solid distribution to shareholders in the form of interest on shareholders' equity.
This quarter as expected we had a reduction of 40 bips in the tier one capital index over the quarter due to the regulation of tax credit treatment originating from the hedge of investments abroad with an impact of 50% in June and the remaining 50% in December 'twenty.
Two according to the Central Bank. In addition, we also saw the impact from Mark to market on the securities portfolio. The additional capital increased by 20 bps with a renewal of that that would mature progressively from 'twenty to 'twenty five taken advantage of more favorable market conditions at the most.
Man.
Liquidity ratios improved owing to funded particularly in C D B and notes LCR of 168%.
And 120%.
Now.
Speaking of digital experience moving now to slide number 12, our digital experience, which is continuously evolving represents enhanced autonomy, a better experience and more business, 70% of the account holders are already digital of our total transactions.
98% are carried out via digital channels and financial transactions via mobile and Internet grew by 57%. This autonomy also drives the account opening in the Bradesco app.
This half of the year alone we have nearly topped the tutto of accounts opened through the App in all of 2021 that are 82% more accounts totally close to one 5 million openings from January to June this year. The opening of individuals make crew Intrapreneur may account follow this growth with an increase of 17.
9% within the same period, and that's where experience clear clients have increasingly shot ease of customization and to improve their experience will give voice to our clients, we listen to what they have to say and develop products and services consistent with their desires and needs and moment in their lives. This allows us to win.
Has the experiences as we did for example, with a revitalization of the Pic section within our App.
In addition to positive feedback this closeness to our clients generate a lot more business opportunities for individuals digital origination already represent 74% of the volume of transactions. The same effect can be seen in investments, which jumped 112% and in <unk>.
Purists, which grew 132%. These were also positive results seen in companies, where the amount of credit relief spiked by a 139% and his estimates by 111% consortia also grew by 70%.
Turning now to page 13 in.
In sustainability, which is one of our pillars of our corporate strategy. We were the first Brazilian bank to join the P. C. A F.
Which is an international benchmark for calculated the portfolio's carbon emission in 2021 the carbon emissions from our company's portfolio were 13% lower that emissions in 2020, just to give an idea of 20% of this portfolio comes from customers, who have already made some voluntary commitment to D.
Carbonization. Our strategy was also recognized by G fans, an alliance that brings together financial institutions around the world with net zero commitments. We had two case is highlighted as a reference to the financial sector. This recognition reinforces our purpose and performance a favor of sustainable development.
And the sustainable business agenda, we remain committed to the goal of generating business with a positive impact and Baidu will have already reached 52% of Oracle our strategy of leading role are recognizing the evolution of the main sustainability indices and ratings, where we perform above.
The industry average.
As you can see on the right hand side chart. We are happy with this recognition and we invite you all to learn more about of our sustainability strategy in the integrated report and lastly on the next slide our last slide we show our guidance in the expanded loan portfolio, we expect to close the year with a mood.
Men compatible with a range from 10% to 14% close to the middle of the range considering a stronger comparative base in the second half of 2022 and the adjustments we continue to make in our origination according to the scenario observed which brings more cautious the performers.
And client NII Cuttino us along at a good pace benefiting from the increase in spreads portfolio repricing shift in the mix and the impact of the higher selic rate.
Our liability margin, we see growth at the top of the range or top of the guidance between 18 and 22.
Fee and commission income is expected to continue being favored by the growth in the card income and loan operations our expectation for the rest of the year is convergence towards the center of the guidance between four and 8% regarding operating expenses, we continue with our efficiency and Cook.
Crow actions that allowed for a guidance with a range well below inflation actually 50% of inflation, even with investments in our digital banks next digital the digital initiatives and the technological evolution of our business, we should finish the year between the <unk>.
Enter and top of the guidance for insurance expectations are positive with a growth trend at the top of the guidance of 18% to 23%. The result may be driven by both operating improvements with the evolution and premiums and financial improvement with more favorable index.
Finally in credit provisions were looking at the movement towards the upper part of the guidance.
Which is 17 to 21 billion due to the intensification of growth in higher era portfolios and the expectation of delinquency levels slightly higher than the current ones as for the market NII. Although we don't have a guidance we remain with an outlook that is proceeds of the pressure as we said before thank you for your time.
And we will now proceed to the question and answer session.
Thank you very much now we will start our Q&A session.
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Uhm Mahlum the Scotiabank.
Good morning.
My first question is about the quality of assets.
Over 90 days past due.
Going to 3.5.
5%.
Could you talk about this sale.
Of the portfolio.
And how this impacted delinquency.
From 15.
Two.
90 days it was sequential afford the total portfolio, including.
Individuals.
We apologize because we cannot hear the question.
Thank you very much with relation to the sale of portfolio.
This is a strategy that we have been adopting for quite a few years and we have been reiterating this with you because we have already seen based on our past experience that.
Cost of collection.
What would follow ons as president.
Is not efficient cost lives.
So it's much better to transfer data to come.
Is that a good price so that we'd have a higher efficiency in the organization.
And we have a participation in the credit company at the Beach and you can see that collection is better in this company, where we have a stake.
This is in our business plan every single ear in a budget and it is also a person and a strategy for the following years I will continue to sell portfolio because.
The ones that are stretched that have no guarantee of that over five years and that part of the collection internally is much higher.
Then if we sell the portfolios. So we continue given our strategy and over time, we continue to observe good opportunities for us to sell the portfolio provided we have an adequate price.
And it seems to me that the market as a whole are all banks started to adopt this strategy as well because it is more efficient. So this is something that is inbuilt in our strategy and we will continue to look for good opportunities.
Regarding the delinquency rate with the sale of the portfolio, we have an improvement in our delinquency rate.
That's zero point to 18 nine.
It was already you know it's clear to look for 2022 to sell at shoulders. So it improved our delinquency in or by 0.9 hundred 30 to 90 day delinquency, especially the SME.
We see the segment.
More companies more under pressure.
Others and this is why we had the higher the liquidity both in.
Oh individuals and small companies, but based on our model. This should go back to normal.
<unk>.
Continuing to grow a little bit, but just a little bit.
And we've seen this as a more normal situation.
Another point this is a drug that.
In relation to the sale of portfolio.
As it gets or that we show $5 1 million wells in the portfolio in the second quarter was 21 5.5.
<unk> ended the first quarter Apache two we sold 600 twenty's.
So you can see that it is consistent here consistent here at the bank.
Today, as we are working with more profitable operations.
They have a high demand cutting than mortgage loans.
We did an exercise we did that through accumulating our delinquency in 2022.
Portfolio mix that we had in 2019.
And the impact was op points, 4% improvement in our <unk>.
Operations are not.
Profit.
It has different characteristics, but on the other hand as you can see this gives us a better NII.
So we have this counterpart so to say.
Which is positive and net of a O L. You can see the resultant.
Hi.
Second.
Question.
He's a bug.
Revenues operating revenues.
The change quarter on quarter.
Could you talk about your strategy in this regard.
Ditto result.
Physical presence, we will have already shown that there is good.
Is taking the measures that you mentioned.
And in the future.
We expect inflation to go down in 2023.
Very good question Jason.
We know that.
And we.
Tap into results and client NII because of the Diavik distributions that we have but on the other hand, we've talked very clearly that the expansion of the branches should be done in a different way the way it branch and smoke more purpose own businesses and smaller.
Physical area. This is why we did this tradeoff closing some branches and transform the remaining branches into business units.
1690 workload.
We opened.
New business units and of course, we will continue with this strategy because the strategy is a winner.
Just to give you an idea.
Egypt is a typical 40% less than a traditional branch trading compared to the business unit. So this containers in our strategy and our budget for the coming years.
It's nice.
We have an identity.
And Ikea expand as an incumbent bank for the last eight years, we have a legacy and we have to pay without core transformation you can have to keep in mind that many things up when you migrate to the cloud.
And it requires a very big.
We made some investments and then you recover. This next for instance works in cloud vote. When you almost totally and page you as well besides all the other digital initiatives of the bank itself.
You are correct.
This year.
We see a growth in expenses, which is half of the inflation that we have for the next year for 2019, three we will continue to have the same discipline. We will continue with the same discipline.
And making investments.
And reducing expenses.
Other areas in.
Number.
Who can have the collective agreement that should be around 11% or similar to what it was last year and the impact on our organization is correct Rick.
So this is a growing challenge faced by our organization at Bradesco as well.
But it is one of our assumptions to continue to grow.
All resolved when operating expenses always below the inflation rate that this is the challenge that we face every single ear. Thank.
Thank you.
The next question comes from Hefei on Friday with Citi.
<unk>. Good morning, everyone. Thank you for taking my question I have a couple of questions. The first one is about provision expenses.
Could you please tell us more about it you talked about no changes to the guidance. However, when we think about D O creation NPL creation.
Seven 5 billion.
And if we hadn't had a loan portfolio sale I think it would be close to $9 billion.
So imagine a 9 billion minors recovery, so maybe provision expenses would be a 7.5 for the next two quarter.
Assuming.
P L creation of the same magnitude, which would be way above the guidance.
When do you, saying this should be enhanced maybe a better NPL creation or use coverage better. So I'd just like to understand how delinquency expenses might behave in the second half of the year in order to be within the guidance.
Hi, Rafael Thank you nice to talk to you have IL when we work on a portfolio sale and like I said. This is part of our strategy for a while now you sell the net portfolio and it's totally clean it's the whole portfolio.
Now for the second half of the year, we'll also keep an eye on portfolio sale. It's part of our Rader Strauss operations long term portfolio with no guarantees as a reminder, we have bradesco financing a subsidiary that has operations for.
Portfolios, most anguish and other financing company to finance your retail. So this is in our strategy. So like I said before this is why we are strengthening here.
Our global E L L for year end.
Should be top of the guide and 17 to 21 of our guidance, we expect it to be top of the guidance considering all the strategies that were already part of our budget since late last year.
Perfect. If I may another question this time about.
Market NII.
I understand that most of the impact we see related to a L. Lam I believe there is a lot of visibility for the coming quarters. So it would be helpful. If you could listen or hear more about you talked about pressure, but would it be reasonable to assume that we should see a gradual improvement or maybe.
The getting to zero in the fourth quarter or maybe first quarter of next year.
About market NII trajectory.
Good point.
Good point about market NII phase.
Based on the latest and then it's off by saying.
Maybe we came to the top of interest grade roads.
Selic rates, so maybe some adjustment in the next coupon meeting.
Close to 14, but we shouldn't see new increases maybe a better scenario for market NII. In addition, we also have.
A change in the operations of our portfolio.
So there is a change of the portfolio with maturity.
Would be from 17 to 18 months for you to use the portfolio as a whole so for the future. This scenario is better because there was pressure, but it will be better in the future. So I would say that for year 'twenty two we could consider 000.
Great. Thank you Latanya.
Thank you have Io.
Thiago, but interpublic here.
Good morning, everybody. Thank you for the question I have one question.
About two law that was.
A few shoulders above the commitment of income 22% about 92%.
The debt to income ratio do you already see an impact of this law.
On Bang, so no relevant impact.
Because you have a lower debt to income ratios than other institutions.
And the second question has to do with their children.
We said that for this year you should stay at the top of the guidance.
What about 2023.
Are you being able to transfer prices.
Do you still have some residual effect of feed for 'twenty to 'twenty three what could you tell us about insurance operations for 2023.
I will talk about the first.
And if you do move the answering your second question about into Jordan.
We have not felt any impact.
This law about the limit for the dead to act to income ratio, but of course, we are dealing with that as an industry because it's very difficult.
Two.
Make or two.
Crew.
But it's very difficult.
Two crews this because.
The client could come to a bank branch and say.
That they have so much preserved for instance, and half an hour. Later this same client goes through a department store and bind.
Something and we'll no longer have the reserve that you mentioned when he came to the bank, it's going to be very difficult to implement this law and this brings the level of concern because of what I have no debt. So this has to be started by the favorable the federation of bank.
Because of Central Bank takes every button and divide by all the debt.
And here you.
Youre talking about clients that really have with that with that at.
Oh, the climb covered lives growth.
Which one have debt plus the debt they have in the market divided by their income so.
<unk>.
It's very difficult to draw a comparison.
Yes.
Totally impossible to do the things that you're comparing it to what.
Just by the Central Bank.
We have a long way to go yet.
Implementation of this law.
So the impact that this could have on the whole chain people not being able to.
Loans or going to chapter 11 as individuals.
And there was a legal discussion that the operational discussion going on about how to implement that.
And we cannot Genie how high.
Hi, owes the department store or an instance, or the companies that sell on Ting Internet, we only chi.
Well they have a bank debt.
In the financial industry, and we have no access we have no visibility about the death of display. So how can we guarantee that that client has that minimum reserve. So there is a whole legal it operates or no discussion about that.
So.
It has no effect yet on what is going on with us or with the bank.
Okay.
This isn't the kernel.
It was about 300.
Sure.
How would the existential minimum.
This is a relatively low amount it should bring a very big impact on financial institutions.
In terms of actions.
Well this numbers close to zero in terms of impact.
Even continues you will know give me some color about the insurance operation.
Oh, Thank you very much.
Thiago, it's a very big pleasure to participate or have you purchased 18. Thank you very much question in relation to 'twenty to 'twenty, two which was part of Europe .
Aiming at the top of the guidance for 'twenty two.
We are well above.
The drop in the claims ratio.
And as you saw in the presentation that was made.
It's Rob.
Ratio over this first quarter.
You too.
So honestly.
Indeed mortality and.
That makeup.
Yeah.
All of this is to get it would be really the number of businesses using our revenue adults with all the time.
<unk>.
Together with improvement in the financial result.
This delta is for the <unk>.
Movement of rented igloo fall.
Okay.
Insurance company regarding the movie.
It has been hurting list.
Results.
In the last quarter.
In the last quarter, we saw a.
Alright.
It won't be a decree.
But we must say that we are proud.
Oh the knee.
Strength of the Bradesco seguros blue tooth pain over the pandemic something close to $7 billion and the Midland.
Only regarding be could be a damage claims.
This shows our erratically hours trends, Ed alter our sustainability adults permanent.
The insurance pension plan and capitalization bond businesses.
The second part of your question about the fish.
View for 'twenty to 'twenty three.
Which you have very big resilience in the market.
A capacity of insurance market as a whole to add jobs and Bradesco Seguros is included.
And we believe that there will be growth not only this.
Second.
Looking at the second half of 2022.
Looking at <unk>.
We also had a very positive very bullish.
Yes.
Ed we should be seeing an ROE not only the number.
<unk>.
We choose policyholders.
Portfolios of hotels to increase them.
Capacity to negotiate our current or older.
Which will allow us to have it in England really means or comfort. So that we may continue to deliver the best.
Service to our policyholders.
Our clients in general are a 16% increase in our revenues.
Has to do with the diversification of our portfolios as well as an increase in our businesses and we feel very comfortable and we look with very positive bias to 'twenty two 'twenty three.
Thank you very much very clear.
Our next question comes from Flavio Yoshida with Bank of America.
Hello, Good morning, everyone. Thank you for taking my questions.
Well My question has to do with delinquency in the last earnings conference call in the first quarter, which was in early may.
You mentioned that delinquency in the second quarter could get worse.
From maybe 10 bps, and then get flat in the second half of the year.
Eventually delinquency was slightly worse and is expected to continue to get even worse in the second half of the year. So what was the difference.
What happened, which is different from what you said before.
Our portfolio is actually getting worse faster or what exactly is going on and still along the same lines I imagine if.
The port phone as sales activity.
At significant amounts actually become recurring.
Would you consider improving the efficiency.
Of Bradesco recovery infrastructure in order not to keep on having to sell and maybe leave money at the table in this kind of deal.
Thank you Flavio.
Actually youre right, however, well we try to be.
On target, but not always can be so accurate.
By the way, we should bear in mind that in the last three months.
The scenario was worse when it comes to supply chain problems at oil prices going up in the last quarter hidden inflation rates and interest rates, we tweet expected to be better got worse. So if we consider the size of bradesco and diversity in our <unk>.
It's not always so easy to hit the target. So at least you gave us some guidance on what might happen.
Anyway Flavio.
I believe the main message here to be highlighted.
Is the diversification of lines that we have in the bank and also diversity in customers.
And it gives us some comfort.
In terms of how delinquency will behave.
And also the client NII that goes higher than delinquency. So we have a natural trade off here.
If we only had a single line that you could have exactly what delinquency our results would be but because we have multiple business lines in the bank and multiple customers different types of companies different size of companies different sizes of individuals then you're subject to these factors, but the important thing is to try.
To deliver and bring margins. So you can't offset this increase in delinquencies so our expectation for the second half of the year.
Maybe that would be some increase but when we check the delinquency lines from 15 to 90 days.
Which is short term delinquency sensors, not absolute but at least it gives us a perception of what we should face down the road. So total delinquency.
Also went down for 315 now.
And individuals which was 941 is four 475 companies also went down and when we consider and by the way. Let me give you a figure that we don't usually disclose.
But I think it's important to mention to you at least to give you. Some color what you consider for instance.
The credit line credit card line, which is what increase more credit cards, despite a growth of 46%.
And volume of the portfolio of credit cards.
The share there is fund debt remained flat, 16%, 16% to 17% of the todo.
Funded portfolio, please bear in mind that credit card.
When it's used by the customer we need provisions.
Around 3% to 4% of provisions, which increases naturally our E. L L.
So we can see that over time, you begin to bring revenues.
For exchange and fee.
So that's a natural trade off like I said.
A little bit more delinquency, but on the other hand, you can also have more margin with customers client NII and this mix is very favorable to us because when one of them is not doing so well see other takes over so we have a balance of the business. So.
So that's how we want to go when it comes to delinquency in the second half.
And the other question has to do with our structure for credit recovery.
At this point at our structure look we have already attached at all models Flavio.
And we keep on testing our models naturally where you had so lake at 2%.
You had improved pricing after portfolios, you're selling because interest rates are cheap you have better pricing, but with a higher interest rate pricing might go down.
We already see this move.
We already see this change in pricing in other words lower pricing because the cost of capital is much higher so that's something that we keep on considering all the time so the structure of collection.
From the credit recovery area of the bank ish still sat and they keep on doing collections look.
I'm, referring to the Toronto area after bank.
For collections it is to prepare to work on the first collection.
When we have shorter overdue time and it's <unk>.
These year to May collections, but what do you think about credit card portfolio individual crowded at mosaic <unk>, which has been overdue for five years, it's very hard to be successful in collection. That's why the fact, because we have the RCP share is very good for us because.
At any time, we can gauge this comparison, where in my more efficient.
You're always rug cash with a control group.
And the group that is bought by our C D and we check where we are more efficient.
So.
This shows.
This changes our distractions that high interest rates are high inflation rates might cause.
And growing.
With volatility.
Because if interest rates are high but are flat you know exactly how to work and you have a more easy outlook for the future. However, when you have the volatility that we had things are more challenging and then you have to work on this all the time, but you're right. That's something we'll have to keep our eyes on because he is.
It's better for us to collect with better half internal team just adding to what he said what do you do assessment of the portfolio.
We have a very clear picture of what we see in terms of probable statistics and internal recovery. So this evaluation compares what we can recover bring back to the market and we try to go beyond what we could recover internally and how easy.
Is it for these players to buy.
Well they use these portfolios in their strategy to work on that competition and that's how they can bring some value.
So we don't leave money at the table.
Considering what we can recover already considering that the recovery process is already quite good.
Got it. Thank you Crystal clear I have another question about the insurance business. If we check the results of the second quarter. If you do simple math and replicated over Q3 and Q4. The result for the year exceeds the guidance.
So my question is.
Maybe why do you do to change the guidance, because youre being conservative or should we see expected surprises over the second half.
Flavio nothing that might add pressure to the results quite the opposite we expect to see things better that's why even sad that it's the.
Top of the guidance because that's our true expectation, we should remember the comparative stage of last year. The fact that we had a deflation in July and now in August we're going to have deflation again, possibly so that's why we are considering the top of the guidance and it wouldn't make sense to.
A revisit our guidance now.
Because there is uncertainty about interest rate and inflation rate.
However, we're very comfortable when it comes to the top of the guidance.
For our insurance operation Great. Thank you.
Mcnair law.
Six.
Good morning Barton.
Thank you very much for the call.
I have a follow up all of the previous question about provisions.
You'll have already reiterated that we expect provisions to reach the top of the guidance.
And this expectation.
Can you believe it will be more positive for the next few quarters because it is debentures.
Could we expected for the second half.
What about your risk appetite.
In this environment.
You used to see opportunity.
To grow.
In the individuals segment.
Thank you very much.
This is landrum.
Thank you for your question that we believe that our level of provision.
Shouldnt be reaching the top of the guidance as we said before.
And we also see some pressure coming from delinquency on our models.
As benched leads us to believe that this is the correct positioning.
Regarding the segment with the highest alone continue we have individuals and the micro and small companies very small companies in the short line more under pressure.
What guides us is the net spread.
And then it spread has been growing.
About 0.1% per quarter.
Okay, having said that we continue to have a positive re winging in terms of our position and if we see that there is a reversal in that trend then of course, we will be decreasing the intensity of these lines. So that we have always been very positive.
The management of our added value regarding the longer lines.
This happens in a more favorable macroeconomic environment, where you'd see a higher demand from clients.
And a lower specific risk assessment.
Thank you very much landrieu.
Our next question comes from.
And he can about Navarro with Santander.
Okay.
You May ask your question.
Thank you for taking my question. My question is in line with Flavio question.
I would like to understand the trend for delinquency in the future could we consider 20 to 30 bps.
Delinquency over the third quarter and the second question is about the scenario.
Considering the strong growth in portfolio today.
And 30 bps in Crazy.
In.
The Q4.
For third quarter it doesn't match what will happen next year.
So things will have to change either GDP will go up or we will have to lower loan origination.
Considering the flat delinquencies and stability in Q4, so one should we expect to see a change a stronger.
Change in protest goes levels would it be in Q4 or.
Are you going to lower origination I would like to have a better understanding and a macro scenario considering 2023.
And he can thank you.
That's an excellent point actually we have already reduced origination.
If you check the originations, we performed compared to previous quarters.
It was slightly higher but not so much this quarter, but for individuals origination is already lower and this has an impact on the credit models naturally when you have an increase in interest rates as we see now in select rate naturally the model already excludes part of it.
Those customers who are asking for credit.
Naturally owing to the higher interest rates and any debt to income ratio. So that's about it we keep on working on dish and putting pressure on days I don't think we'd need to squeeze anymore.
I said before.
Sometimes we seem to be improved delinquency.
So it's a fact.
We expect to see.
Some worsening over Q3 and Q4 with a better outlook next year. However.
However, that's something that we have to consider on a daily basis, because theres not another way out everyday every mile whenever we have new information on delinquency and growth in NII will have to make it happening working in the capital of the bank. So that's the most important thing we should keep our eye.
He's on constantly.
So that's it and by the way.
If there is no growth in GDP and no reduction.
In employment and no increase in income naturally our mottos, we show a reduction.
In a higher risk lines.
Thank you.
The question. My first question was about 20 to 30 bps for delinquency in Q4 is it right to assume that we prefer not to give any guidance because as we speak we are reversing our trends.
Like Ottava Sad 15 to 90 has performed well.
We believe we're very cautious right now and for the moment, what really matters is that we have a positive grow in that spread.
We expect not to reach that level in Haiti perfect. Thank you and my last question covered ratio 18.
2% I think it's close to historical levels.
Do you believe this is going to be flat or should we have a chance to go 4% to 100%.
We expect to get close to 200% of coverage by Iran. Historically, you already reached 180.
As a reminder, we had already mentioned last quarter that we should close between or around 200 or 220 excellent. Thank you.
Tablet with Comito BVA.
Good morning, everybody. Thank you for the question.
Delinquency going up gradually.
Close to 4% already.
The level that we had.
Before the pandemic when.
Up to 19 stable may be this is not so good.
I see that it always drops.
In the second quarter.
The portfolio has already decelerated a little bit.
But I would like to.
No the behavior.
Your portfolios in <unk>.
In all the portfolios.
And.
Do you know already about to prune empty you have any information about the levels.
Basically what we have been seeing.
Is that the concentration of delinquency within the individuals area personal loans credit cards and.
In a very small companies up to 50 million rail that sometimes is mixed up with again, a bigger one and working capital.
And we have been seeing a drop in delinquency in the medium sized company and the large corporation. So they are very comfortable and we believe that this is a trend that.
That will be maintained.
And as you said yourself.
As we see a reduction in interest rate the inflation rate.
When the trend this pep from 15 to 90, we will see a lower pressure.
We believe that these are the major trench.
In relation to prudently.
Have any expectation regarding goodness.
Well it'll start on Monday.
Good morning.
It will be as of Monday, but the volume should be lower than last year.
Because of the available volume.
And it will be operating the same way as we do it.
Alright, a pure proving the operation for the client so that he can call correct.
King.
On the Internet banking, so that he doesn't have to go through all the bureaucracy that the branches.
But I can say that it will be lower than last year.
But your editor has been very useful.
I would like to mention that we had concerns regarding delinquency. We are looking at the liquidity here, but we need to extend.
<unk>.
Spectrum of our vision.
We achieved three 5%.
But we're talking about this unique key off peak months of the Japan, If we look back.
When we had the very highest M 80 day delinquency rates were higher than we would have to go. So you have to look.
Okay.
The wider picture.
We own <unk> T.
Changes in <unk>.
Scenario.
Interest rate.
Went from two to 13 17, five with less than 12 months, who has an impact on People's lives.
As I said before.
Aye.
No portfolio was much more real estate.
Loans and a mix of the portfolio has changed ever since.
So the characteristic of delinquencies different now.
0.4 percentage points come from the different in the mix of 2019 to today and this is what we.
Says about our NII.
A very quick follow up here.
It has to do with credit cards.
Your focus is more on the growth of internal client.
When we talk about Nexen Dictu led thank you Paul.
Explaining the performance do you consider them.
As internal client as well.
<unk>.
No.
No they are separate company.
That data.
Yeah.
Okay.
A separate company.
And we look at them as separate companies. So they are not included in this calculation okay.
Thank you very much.
The next question comes from Domingos <unk> with Jpmorgan.
Good morning, everyone. Thank you for taking my question two questions.
About provisions.
And I would like to understand other accounting lines. One of them is other revenues at Bradesco. This is growing a lot.
Almost 4 billion Morris, specifically our provision line.
Reverse provisions operating reversal of provisions some there that was around 700 or 800 million now. It's one seven this quarter I'd like to better understand what exactly is driving this reversal and what about this line for the future.
The consolidated or not and the second question.
I don't know if you addressed it before.
But long term interest rates are going up.
So how do you consider an effective rate or a soft guidance a reasonable guidance.
To work considering this highest interest rate.
Cause valdo speaking hi, Domingos, how youre doing let me begin by answering your first question I imagine you're using the explanatory note of other operating revenues for US ideally if you check you should consider both other revenues and other <unk>.
Expanses for instance on page 25, we have this jointly assessed but considering the explanatory note. It's important to see that the daily operations of the bank Brig reversals and provisions that match in the accounting line. However, we have other provisions that also hit another accounting line.
So if you check for anticipated pretty far which is condensed.
And the other in other operating.
Numbers, you can see that our full lines had a drop.
Commercialization of cards was reduced and if you compare Q2 of 2022 with our second quarter of 'twenty. One the number is nearly of the same 446 and <unk>.
Contingencies also had a drop tax contingency if you consider year over a year. It's nearly of the same <unk> hundred three and 88 and the next part claw.
Claims or fraud this quarter vis vis the previous quarter, there was a drop but if you compare to the same quarter of the previous year a slight drop.
As for others.
Brings together other expenses this was positive but basically.
Allocation our provisions.
For insurance and technical provisions at the top so in this case. These are our removes this quarter vis vis others. Another point that you mentioned about.
T G L P increase in the first quarter.
From 608 to $6 82.
So we improved our tax benefits here.
So it has an impact on our tax rate just to give an idea around one or one point percentage points. Our tax line was benefited from that and this quarter.
Is already 701, another positive impact vis vis tax benefits for.
I O E. So.
Up to three percentage points would bring a benefit to the tax rate. So.
So our soft guidance visa visa tax rate vis vis. This change is from 30 to 32 now and obviously for the year.
Obviously, we don't know what it will be in the Q4.
So our estimate is a slight difference owing to the change in interest rates.
Crystal clear.
For accounting purposes E and about insurance and this line, it's close to $1 billion.
Does it include in reverse provisions does it include insurance as well or is it labor or tax.
Well insurance is included because that is a consolidated balance sheet include our companies, including companies that are consolidated like CLO, the allowance grube and all companies of the protest koku perfect Crystal clear. Thank you.
This business is the data from Safra Bank.
About delinquency.
You said that the trend would be.
Worsening.
Without this says that if the mix of the.
Portfolio is goes back to normal it would go to the levels of 2019.
What would be a more normal delinquency from now on this is the first question, we can barely hear the analyst.
This is a therapy.
Delinquency.
Corporation.
Minimum levels that it should conclude there is no perspective of change when there was a problem in the large corporation, we already know and this is published it makes the headlines. So we've seen no problem for the large score.
In a scenario.
Led fitting up to the end of this year or something like that.
For smaller companies.
Once that.
Face more difficulties I would quote.
Enrollment has generation of Jordan implementing.
England.
Rates stop going up which is like the expansion that we all have for next year this improves and for all the victims.
Lines that have a higher delinquency or the one that <unk>.
You have a better profitability.
Such as credit mine in personal loans credit cards and personal loans. So the other two.
Loans in vehicles et cetera.
They are in line there has been no increase in these lines.
If we see a growth.
I think you have a very good perspective, because the delinquency for the end of the year and beginning of next year.
Could maybe reached four talks.
I believe but the modules and the agility that we have in terms of adjusting our credit models those bringing this to a lower delinquency level is much better than we had in the past just to do a comparable in 2017.
When the interest rate was 14, 14%.
Delinquency over 90 days of four 7% and today, we have 35 shows the way that should be the $3 five more.
Adequate.
Hang out is my second question.
We consider the dynamic that you mentioned.
Yeah.
In order to.
Okay.
To consider interest on equity it could be 40% may be you do you believe it could be higher than 40%.
We will reach the 40% which is.
What we have been doing for two years 'twenty 'twenty around with a 40%. Thank you.
Thank you. This concludes the Q&A session now I give the floor back to the final remarks.
Okay.
Thank you all ladies and gentlemen, thank you for your time to hear on this call will be here at your service, our whole Investor Relations area and market relations foederati ores vow to Leandro Joy see battle, they're all here for you and even and drag kind of weird.
We're here for you for any additional questions.
About more details. So thank you very much have a great day and a great weekend.
This concludes Bradesco <unk> earnings conference call. Thank you all for joining us have a great day.
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