Q4 2022 Banco Bradesco SA Earnings Call
Speaker 2: Good afternoon ladies and gentlemen and thank you for waiting. We would like to welcome everyone to the Disco's 4th quarter to 2022 Ernest Conference School.
Speaker 2: This call is being broadcast simultaneously through the Internet and the Investor Relations website. At disgori.com.br is less EN. In that address, you can also find the presentation available for download.
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Speaker 2: After the presentation, there will be a question and answer session when further instructions will be given. Should any participant need assistance during the call, please press star zero to reach the operator.
Speaker 2: Before proceeding, let me mention that forward-looking statements are based on the beliefs and assumptions of Banco Brateusco's management and on information currently available to the company. They involve risks, uncertainties and assumptions because they relate to future events and therefore depend on circumstances that may or may not occur in the future.
Speaker 2: Investors should understand that general economic conditions, industry conditions, and other operating factors could also affect the future results of
Speaker 2: Now, I'll turn the conference over to Mr. Duarte Pletheu, I are ahead. Please go ahead.
Speaker 3: Hello everyone, thanks for joining our call for the fourth quarter of 2022. We have here in the room Octave de Lazri Junior, our CEO , Cassiano Scarpelli, Executive Vice President and CFO , Moassir Nakhbar Junior.
Speaker 3: executive vice president in charge of risk, Osvaldo Fernandez, executive director
Speaker 3: Carlos Fireti, IRO.
Speaker 3: And Ivan Contigio, Bradesco Insurance Group CEO . I move the floor now to Ferretti. Thank you.
Speaker 3: Hello, good afternoon everyone. Thank you for joining our conference call for the fourth quarter's 22 results.
Speaker 3: We posted a net profit of 20.7 billion reais in 2022.
Speaker 3: 23.7 excluding the impact of the full provisioning for a specific large client.
Speaker 3: These numbers are below the levels we want to deliver and below what we consider to be the recurring levels Bradesco is able to show. We are certainly not satisfied with that. Our investors can be sure that we are working to change it as soon as possible.
Speaker 3: We are confident that we can return to levels of performance we use to produce in the past. Our goal is to return to a sustainable RLE above 18%.
Speaker 3: The bit in profit and returns in 2022 can be explained mainly by three factors. The negative impact from the fast...
Speaker 3: Seleak rate, hikes on our assets liabilities management positions.
Speaker 4: an increase in delinquency,
Speaker 4: in the retail segment both for individuals and small companies and additionally provisions amounting 4.9 billion reais in this.
Speaker 2: Ladies and gentlemen, please hold while we reconnect our speakers.
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Speaker 2: The speakers you may now proceed.
Speaker 4: Okay, sorry, we were disconnected. Returning here, the dipping profit and returns in 2022 can be explained mainly by three factors. The negative impact from the fat-savvy rate hikes.
Speaker 4: on our asset and liability management positions and increasing the link length and the retail segment.
Speaker 4: both for individuals and small companies. And additionally, provisions are mounting 4.9 billion reais in the fourth quarter related to 100% of our exposure to a specific wholesale client.
Speaker 4: Our expected performance for 2023 reflected in our guidance, the main effect on our results still comes from the increase in long losses provisions.
Speaker 4: In the retail segment, credit provisions.
Speaker 4: should be higher in the first half of the year and should decline in the second half, growing for a full year in line with the loan book.
Speaker 4: Provisions in the wholesale segment will remain low, but we are not going to have reversals as occurred in 2022.
Speaker 4: Part of the recovery in the bank's return will occur naturally and gradually up to the end of 2023 with improvements in market NII and cost of risk.
Speaker 4: Acetylabillate management results is rebounding with the renewal of the fixed rate loan portfolio with new loans that rates adjusted to the current scenario, leading to improved results throughout the year.
Speaker 4: In terms of the link points, we adopted the necessary measures to control the behavior of the individual and small company's portfolios, revisiting models and our risk appetite. Or sequentially, provision expenses shall reduce in the second half of 2023.
Speaker 4: Looking back, it seems clear that we should have tightened our credit policy and risk of tighted earlier on the retail portfolio.
Speaker 4: Elevated inflation since mid-21 has led to much faster and stronger income loss for our clients over 22 than we expected, mainly with the rise in food and fuel prices.
Speaker 4: Bradisco has historically had an important exposure to low income and small business segments as a result of our regional positioning and by serving all segments of individuals and populists.
Speaker 4: We believe that this market positioning is correct from a strategic point of view, even if at this point in the cycle we are suffering more from non-performing loans. We think that it will prove once again correct in the mid to long term.
Speaker 4: Another part of the improvement in performance and returns will come from implementing measures focused on efficiency.
Speaker 4: and expansion in areas that we consider strategic.
Speaker 4: We continue with the process of optimizing our branch network and we will maintain our personal and administrative expenses growth in line or even below inflation.
Speaker 4: The bank's digital transformation continues in a fast pace. Broadesco is now, above all, also a digital bank, presenting growth in the number of transactions, credit origination, and in all products and services we offer digitally.
Speaker 4: Do the clear changes in the business environment we are seeking efficiency in our digital initiative?
Speaker 4: promoting higher integration with the bank, looking for cost-efficient and potential consolidation of initiative.
Speaker 4: Our focus is on clients profitability.
Speaker 4: We are leaders in wholesale banking and are among the top investment banking market, a business with a high return on capital. We will continue to develop, invest and grow in these areas. Behind home we also remain focused keep the Tid reap to protect industry on his or her
Speaker 4: in the purpose of delivering the best experience to our clients with a complete portfolio of products and with a pleasant and simple journey.
Speaker 4: Our investments.
Speaker 4: These specialists are focused on a advisory, understanding and respecting the moment of life and needs of our customers.
Speaker 4: Finally, we highlight our strong focus in all levels of our organization in placing customers at the center of all actions.
Speaker 4: A strategy that reinforces our purpose and creates even stronger links with our clients. We will continue in this class.
Speaker 4: Moving to slide 3, we present our key numbers. We reported net income of 20.7 billion in 2022, a decrease of 21.1% compared to the previous year.
Speaker 4: The expended portfolio grew 9.8% in the year. One capital closed at 12.4%
Speaker 4: I will go for more details in these lines ahead.
Speaker 4: Turning to his light 4, we illustrate our main impacts in the earnings performance in 22. The main positive is inclined NII, followed by insurance and fees. The negative impacts comes from higher credit provisions.
Speaker 4: market NII and the provision for the large corporate clients.
Speaker 4: moves.
Speaker 4: The expanded loan portfolio of Roo 9.8% in the last 12 months.
Speaker 4: 1.5% in the quarter. In companies growth was 7.9% year on year with 9.7% in the corporate portfolio.
Speaker 4: For SMEs, long growth reduced.
Speaker 4: To 4.6%, mainly as a result of these low downings, small companies, due to lower risk appetite and focus on lower rates operations.
Speaker 4: For cards, quarterly growth can be explained by seasonal effects in the period.
Speaker 4: The annual growth of 20.5% is still strong but pointing to a slowdown.
Speaker 4: In credit originations, we can see an increase in corporate and a decreasing individuals and small companies as a result of tighter credit policy to control the young... By the time...
Speaker 4: Turning to slide 6 now, credit provisions expenses without the amount related to the client from the wholesale segment reaches 10 billion reais.
Speaker 4: in the fourth quarter representing 4.5% of the portfolio in that quarter. Considering total provisions, it reached...
Speaker 4: 14.9 billion in the fourth quarter or 6.7% of the total portfolio.
Speaker 4: We should remain with high cost or risk throughout the first half of 23 with reductions expected for the second half 23.
Speaker 4: Our night days in PL, COVID-19 ratio remains half at 204%.
Speaker 4: In slide 7, you can see that our night days delinquency ratio showed an increase of 40 bits with 40 bits in individuals and 8 bits for SMEs. Our companies remain with a very low delinquence.
Speaker 4: 15 to 90 days the delinquency ratios rose 50 dips with an impact mainly from small confidence.
Speaker 4: NPL creation in a corridor reaches 8.1 billion. We continue to provisioning well above the NPL creation.
Speaker 4: We are not showing the linkance information considering the index without the effect of portfolio sales as showing the chart overnight the case would be higher but they trend similar to the one without sales.
Speaker 4: In fourth quarter we sold portfolios
Speaker 4: totaling 2.8 billion reais.
Speaker 4: The rationale for selling portfolios is purely economic.
Speaker 4: We are able to sell at values above our recovery estimate and free up time of our staff to work more on portfolios with higher probability of recovery.
Speaker 4: Turning to slide 8 we made material revisions in our riscopetite making.
Speaker 4: changes in the credit policy throughout 2022 with reduced our approval rates.
Speaker 4: comparing to the new law approval rate we had a reduction throughout the year of about 33% between December 21 and December 22. As a result
Speaker 4: 30 days delinquence for cohorts, 4 months on the book have already reduced in the last date available by 38% compared to cohorts of December 31st.
Speaker 4: We see similar trends and most.
Speaker 4: of individuals credit lines.
Speaker 4: In our internal estimates, we still expect NPLs under pressure in the first half of 23.
Speaker 4: Now we turn to 9.9 on which presents a breakdown of provisions expenses between retail and wholesale. Total provisions reached 32.3 billion 2022, including 4.9 billion related to the provisions for the wholesale client.
Speaker 4: without this amount it would be 27.4 billion.
Speaker 4: at the top of our guidance.
Speaker 4: We had 33.2 billion provisions for retail, while in the wholesale we had reversals of 5.7.
Speaker 4: In the last years, the corporate segment has presented a very good performance in terms of credit quality, which allowed the release of part of the excess provisions in the segment.
Speaker 4: In 2023, we expect a growth of the windows in retail in line with the portfolio growth higher in the first half than in the second half, as we said.
Speaker 4: and partial normalization in wholesale provisions.
Speaker 4: We expect cost of risk in 23 to reach 4% considering the guidance compared to 3.2% in 22 without the provision for the specific client.
Speaker 4: We turn it off to slide 10.
Speaker 4: The Renegative Shaded portfolio represented 5.2% of the loan book.
Speaker 4: growing 10 bits in the quarter. Provision for this portfolio represented 63% of total renegotiated loans.
Speaker 4: In slide 9 we showed that total NII grew 3.8% year-to-year in 2022 with a strong growth in client NII of 22%.
Speaker 4: On the other hand, market NII was negative in the year.
Speaker 4: As we can see in the chart, our total NII has inverses pivot to the movement of interest rates. It's liability sensitive.
Speaker 4: The current sensitivity points to an increase of 1.58 billion total NII for reductions of 100 beats is increased rates.
Speaker 4: and a similar reduction in NII for rating periods.
Speaker 4: The sensitivity refers to the NII variation in 12 months after a parallel shock interest rate and are based on our pillar 3 report.
Speaker 4: Turning to slide 12, our market NII has a history of positive results as you can see in the chart. This is a story that came out in October 2014 and is expect to all the robotics engineering
Speaker 4: on the bottom left.
Speaker 4: Nonetlas in 2022 posted a negative result of 1.4 billion REI's due to the effects of rising selling on our asset liability management positions.
Speaker 4: Our portfolio has an average market period of 1.5 years and reprices itself in that period.
Speaker 4: What contributes for the improvement of this line in 23, especially in the second half of 23?
Speaker 4: On slide 13, we discussed our fees in commission income. It grew 4.7% in the annual comparison, primarily.
Speaker 4: driven by cards mostly interchange.
Speaker 4: The other lines remain at the pressure. We have important initiatives in both of these lines and hope to revert the trends.
Speaker 4: Card transactions continued to grow reflecting the increased penetration of cards in the high-income segments and inflation in client spending. We reached 77.1 million cards, a growth of 3 million cards in the year.
Speaker 4: We believe that our ongoing strategy of strengthening the high income segment will produce growth in fill lines as one of the key benefits despite
Speaker 4: other important initiatives.
Speaker 4: Turning to slide 14.
Speaker 4: Total cost grew 4.7% well below inflation.
Speaker 4: The other net operating expenses line contribution contributed to a reduction due to less provisions and some reversals.
Speaker 4: Our costs have demonstrated growth well below inflation since 2020, as you can see in the chart in the bottom left.
Speaker 4: In 2013, other net operating expenses will negatively impact total expenses.
Speaker 4: mostly due to the low base of comparison we had in 2022.
Speaker 4: On the other hand, personal and administrative expenses should continue to run in line or below inflation as we will continue looking for gains in efficiency.
Speaker 4: On with light 15 we present data from our insurance group.
Speaker 4: Premium's grew 16.7% year-on-year with the improved operational performance in comfort insurance operations expanded 28.9% and net
Speaker 4: income grew 27.2% year near despite the claims racial challenges and crime rate in a peaceful and harmony.
Speaker 4: We highlight the performance in administrative, efficiency, ratio and the financial results.
Speaker 4: Nations Group continues to grow and improve the disoperation of our partners.
Speaker 4: with keeping it disciplined in terms of underwriting.
Speaker 4: Now we turn to slide 16, we bring the discussion on capital. Year 1 capital remains at 12.4%, a very comfortable level.
Speaker 4: The reduction this quarter was primarily driven by the normalization of the treatment of tax credits arising from our hedge of assets abroad.
Speaker 4: greater prudential measures, the payment of interest on capital that amounted to 10.2 billion Reais. Additionally, the provision for the specific clients reduced earnings and therefore impacted capital by almost 30 billion.
Speaker 4: We see capital ratios expanding throughout 2023.
Speaker 4: On this slide, 17 would present figures on our footprint.
Speaker 4: The growth in digital channels and client service platform help us to continue our optimization efforts.
Speaker 4: We have reduced our footprint by 1.4 thousand points of presence since 2018.
Speaker 4: In 2023, we plan to reduce between 200 and 250 service points.
Speaker 4: Today, 70% of our clients are predominantly making transactions digitally.
Speaker 4: We are also focused on optimizing our digital initiatives, making them more connected to ensure that the experience continues evolving.
Speaker 4: We turned out to slide 18. We have created a new structure for the high income segment in Bradesco, which we call Bradesco Global Growth Management led by Glea Miléau with extensive...
Speaker 4: experience in this segment. We combine our local and US investment platforms, investment distribution and our banks in US and Europe aiming to deliver a complete investment and banking experience for our clients.
Speaker 4: clients will be covered by relationship managers and financial advisors. Today we have close to 2000 financial advisors and both of them will work together. The relationship managers and financial advisors.
Speaker 4: We have also a defense in the unification of the contents available to our customers with investment recommendations aimed to align risk profile and financial goals.
Speaker 4: We turn now to slide 19. In 2022, we performed within the reviewed guidance range except for insurance.
Speaker 4: on which we were above.
Speaker 4: In credit provision expenses, excluding the specific clients, we were at the top of the range. For 23,
Speaker 4: We have the following expectations.
Speaker 4: We expect long growth.
Speaker 4: between 6 and 9.5%. For NII, we now provide guidance for total NII. We expect growth for the line between 7 and 11%. In fees, we expect a growth between 2 and 6%.
Speaker 4: operating expenses should grow between 9 and 13 percent.
Speaker 4: But in personal and administrative expenses, we expect to grow only around inflation or less. The line-other should bring the negative impact in total expenses for 2023.
Speaker 4: The line of insurance operations will go between 10%. Finally, for credit provision expenses we expect to be between 36.5 and 39.5 billion hay ice.
Speaker 4: We believe this guidance still implies a return that is below our potential.
Speaker 4: As we stated before, our strategic objectives
Speaker 4: to once again reach a level of return compatible with our track record or at least 18%
Speaker 4: We understand the bank's ability to generate returns remain intact. So we believe we can go back to those levels we reached before.
Speaker 4: As we pointed, part of the recovery in the bank results will come from the normalization of some lines.
Speaker 4: Other parts will come as a consequence of the execution in topics we highlighted, such as the expansion in high income segment, efficiency and innovation initiatives.
Speaker 4: Finally, we highlight our focus in all levels of the organization in place in customers at the center of all actions.
Speaker 4: A strategy that reinforces our purpose and creates even stronger links with our clients. We will continue in this path.
Speaker 4: Placing customers at the center is a key topic in our strategy focused in the long-term sustainability of the organization.
Speaker 4: With that, I conclude my presentation. Thank you for your attention and we will now move to the Q&A session.
Speaker 2: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star 1. If at any point your question hasn't answered, you may remove your question from the questioning queue by pressing star 2.
Speaker 2: Please hold while we gather your questions.
Speaker 2: Our first question comes from Chitalabarta with Goldman Sachs.
Speaker 6: Hi, good afternoon. Thanks for taking my question. A couple of questions, actually. I guess first, just help us understand what do you need to see or what needs to happen to get back to that 18% ROE and time frame that it would take to get there.
Speaker 6: But think about the path to returning back to those normalized ROE, what it would take to get there. And then the second question, just to understand a little bit on the provision guidance. You know, you said cost of risk to grow or provisions growing line with the retail portfolio growth and corporate provisions are kind of normalizing.
Speaker 6: But do you expect the deterioration that we've seen in the retail portfolio to continue at the same pace that we've seen sort of the last two quarters? I know part of it is your exposure to lower income segments. But when does that, I know you said it'll peak in 2Q, but when do you think that starts to sort of...
Speaker 6: deteriorated, it's a lower pace. Just to help us think about the evolution of that. Thank you.
Speaker 4: Okay Tito, thank you very much for the question.
Speaker 4: much for the question.
Speaker 4: I think the path for the recovery in ROE is the one I mentioned in the presentation. We believe that part of the reduction is related to things that will...
Speaker 4: improve with time. For sure considering the actions we have taken, I mean the asset liability management results that are interested in the NII. This will improve throughout the year with the...
Speaker 4: reprising or renewal of our loan book, especially the fixed rate loan book. And it is already happening. The internal rate of our book is improving and at the time it goes by, it will take...
Speaker 4: these rate closer and closer to Silicon, this will drive the market and II upwards. Today, the results and the asset level management are still on the negative, and we see then...
Speaker 4: going to close to zero at some point in the second half. The other part is the...
Speaker 4: normalization in NPLs. We are at a moment in the cycle where NPLs are already higher than we believe is the more normal life level they should be through the cycles.
Speaker 4: And the cost of risk is already high. So this is something that we would take our ROEs closer to 18%. I'm not, we are not even at this discussion counting on actually.
Speaker 4: going back to material gains in the asset mobility management. But also we think in parallel we will be running and we are running some initiatives in terms of efficiency. We have been moving many initiatives in business areas like as I mentioned the iPro groundwork to continue to adapt to new entrepreneurs who are creating real estate and emphasize new underskj
Speaker 4: investments initiatives behind comes segment. So I think all all together is behind these views. I would say a meaningful part are related to the first two items I mentioned in terms of time. I would say
Speaker 4: We believe we will close the year already with a higher level of return than what we have right now, maybe not exactly what we think is the sustainable level.
Speaker 4: and we'll keep progressing 24. I would say at some point in 24 on a quarterly basis, it's possible we can get to those levels. That's what we view.
Speaker 7: All right.
Speaker 4: regarding the
Speaker 4: deterioration, as we pointed in the presentation, we have already seen the performance of new integers of loans, especially in the consumer.
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Speaker 4: retail loans improved, improved materially. We believe that keep going with those trends considering we have tight and minimfully our credit policies. It will lead to an stabilization and P.L.s as we pointed, probably probably.
Speaker 4: at the end of the first half, second quarter, let's call it. And I think this is kind of the trend we expect.
Speaker 6: Okay, great. Thanks for that, that's helpful. Maybe just want to follow up if I may. And just to understand a little bit on the deterioration and no part of it is your lower income exposure. But you're just thinking of other peers that have perhaps a similar exposure. The deterioration hasn't...
Speaker 6: seemed as severe at least up till now. I mean, we're still getting more data on that, but just kind of curious, is there was anything specific to Brudasco that had your deterioration at least looking worse than peers in industry?
Speaker 4: So we believe we have more exposure to low income. We have... We are...
Speaker 4: given our presence, given our historical positioning, we think we are there well positioning the segment. We think this is a strength, as I mentioned, even at this moment we are suffering, given the cycle.
Speaker 4: but it is a segment that we believe have very high prospects in the future.
Speaker 4: The low-income segment in these small companies in our view suffered more than any other segment in Brazil and considering that probably we are more exposed with suffered more.
Speaker 4: We admit that probably we took longer than we should for tightening our credit policies. Probably that made us to suffer a little bit more than we should. But anyway, I think...
Speaker 4: We have more exposure to the sectors than our peers. I think there are some peers that are expanding the exposure, but we are ready there. We are already playing with small companies. We have credit limits with...
Speaker 4: low income individuals. We are a bank that has a strong presence there. I think that that's probably the difference.
Speaker 4: Again, the message here Tito is really that we see the trends in credit quality already improving and we believe we're going to make this past.
Speaker 6: Great, thanks Ferretti.
Speaker 2: Thank you. Our next question comes from Mario Pieja with Think of America.
Speaker 5: Thank you questions. I'm Ariel.
Speaker 3: Hi, Fred, can you hear me?
Speaker 8: Yes.
Speaker 9: Yes, okay. So two questions. Can you share with us the macro outlook that you have for 2023 and what is driving, right? So that we get a better sense.
Speaker 9: or your guidance if you can share GDP growth and employment inflation that will be helpful. And then, you know, listening to your comments still seems like your biggest concern remains with loans to individuals.
Speaker 9: share GDP growth and employment inflation that will be helpful. And then, you know, listening to your comments still seems like your biggest concern remains with loans to individuals. However,
Speaker 9: You know, we continue to see the newspapers and every day seems like we have millions of specific companies having a problem and trying to renegotiate that and things like that.
Speaker 9: I was wondering if you can make general comments about the health of the corporates in Brazil because clearly we saw interest rates go from 2 to 14% almost in a year and a half. We are finally seeing the impact of that on the corporates. So if you could make some comments on how do you see corporates in Brazil?
Speaker 9: and more significant, more pronounced deterioration in the corporate segment in Brazil. Thank you.
Speaker 4: Hi, Mario. Regarding our economic forecast, actually, that's a V.
Speaker 4: We have, uh, recently, uh,
Speaker 4: increase a little bit our forecast for 2023. We expect 1.5% GDP growth right now, IPCA inflation around 5.7.
Speaker 4: See link at the end of the year at 12, 12, 25.
Speaker 4: So I think these are the main figures. In terms of unemployment, unfortunately I don't have it here in front of me, but no major changes in the trends in terms of unemployment.
Speaker 4: I think, I would say, even when we talk about an employment, we can say that over the past year an employment has really improved. But what we see is...
Speaker 4: Basically, in this segment, especially low-income segments and small companies, this was not really a driver that really changed the trends. I would say the low income, the laws of real income was probably the main...
Speaker 4: the main factor in terms of small companies, I would say it was possibly a continuation of the trends that started with the pandemic, remembering the lockdowns and all the suffering that some small companies had during that time.
Speaker 4: In terms of corporates, we still...
Speaker 4: We still see what's going on as more like specific cases than a big trend. We believe that life is in general.
Speaker 4: have enjoyed long periods without any major CAPEX programs with a big liquid in the bond market, actually low spreads for many years and also no siliques for some time.
Speaker 4: during the pandemic. So we think in general they are in a health position. So most of the cases we see are sometimes cases that somehow were already in the radar or had some other best.
Speaker 4: test problems or induce the case of the specific.
Speaker 4: clients, it was totally out of the rate. So I think the good news is we have a very strong level of provisioning provisions in our in our balance sheet for our courts.
Speaker 4: the coverage ratio for corporates, if we didn't put it in the presentation, because it's like 7000%. Basically, as you know, it's a...
Speaker 4: It doesn't make much sense because delinquency in corporates is more based on some one-offs than really something more continuous. So we don't see a trend. We see some cases after a period of a period of a period of a period of a period of a period
Speaker 4: And we didn't have any major, mayor, mayor case, eaten.
Speaker 4: Some of them might be related more to the kind of reduced liquidity we have seen in capital markets for the past year than actually the level of interest.
Speaker 4: interest rates
Speaker 9: Okay, now let's help. So just let me follow up then on your long growth guidance for 16.5 to 90.5%.
Speaker 9: It basically reflects no real long growth than in 2023. Can you specify or give us a little bit more color on what kind of growth are you expecting for each segment, like broken down between individuals, corporates and SMEs?
Speaker 4: We will grow less than the average.
Speaker 4: implicitly in the guidance for SMEs, especially because we have tightened the origination model or the credit policies more in small companies. And I would say most of our SME book is made of small companies.
Speaker 4: We should grow more or less at the same pace in individuals and corporates, but individuals comparing to the recent test, there is a change. We should grow less in clean credit lines and more in other collateralized lines.
Speaker 10: Great, thank you.
Speaker 2: Thank you. Our next question comes from Ola Vortuz with UPS.
Speaker 4: Hi guys, and thank you for taking my question. Actually, I just have one. I was following the conference call in Portuguese, and I just wanted basically to shift the conversation here to the regulatory front in Brazil. First, I would like to hear from you about the SGTS law.
Speaker 4: If you can share with us what is the market share of Bradesco in terms of origination of this product it would be helpful. And I follow up on this I would like to know more about the government program called Disney Hall. I need.
Speaker 4: I just wanted to hear from you as well. What does a British can understand about how we will be the shape of this problem, the form of this problem, or for renegotiating loans from low income segments?
Speaker 7: Thank you.
Speaker 11: Okay, well, I'll have you.
Speaker 11: related to the FGTS.
Speaker 11: long, I would say, interiority towards a good product.
Speaker 11: But there's not much to say. I think there was a regulatory change.
Speaker 11: it will not exist anymore. We haven't played in this segment on a material way. We have some loans in Deidre, but it's a very, very small portfolio.
Speaker 11: We have done anything in the bank and as I said, our portfolio considering what DG was doing.
Speaker 11: is very small. Can you remind me about your second question, renegotiation?
Speaker 4: Yes, the government program call it a Disney-Holla related to the renewable change.
Speaker 7: I can't have any cold thoughts, I wanted to do warm up.
Speaker 11: We still have to hear more about what is the final shape of this program. It's still under discussions. I think the banks are talking with the government, but the probably the program involves more.
Speaker 11: then only banking loans. It probably will involve utility bills and other other that. We believe it is potentially a good idea and the fact that there would be some sort of guarantee creates an incentive for.
Speaker 12: Okay, thank you very much for that, you.
Speaker 11: Take care, Alab noodles.
Speaker 2: Thank you. Our next question comes from Gilbert Garcia with Worklays.
Speaker 4: Hello, good afternoon and thank you for the call. I had a couple of follow-ups on first on allowances. You mentioned that they should be more firm loaded, higher in the first half than you. Give us a sense of that.
Speaker 13: magnitude, like how much should we expect, say, in the first quarter?
Speaker 11: Thank you. I would say we're not going to provide quarterly or partial guidance on the trends of provisions. I think overall, I think it was fair to give this.
Speaker 11: this guidance, but that view of what would be kind of the flow of this provisions, but as I said, should be more in the first half than in the second half. Also because as I said, we believe NPLs might be...
Speaker 13: Okay, now that's fair. And on market NII, as you mentioned, it is moving in the right direction. Do you expect it to be positive for the full year?
Speaker 14: There it is.
Speaker 11: Again, we moved our guidance to TotalNII. You bet, the idea is really focusing on the TotalNII. As I said, we have the guidance for TotalNII.
Speaker 11: between 7 and 11%. What is implicit there is that market NII improves throughout the year with the asset liability management getting bad and getting improving in the second half, but I will not provide guidance for.
Speaker 13: on your guidance for expenses. It's significantly above what you have been posting the last years. Is this more of a sort of catch up or is it more about you know, projects that could help you?
Speaker 13: come back to lower expenses in the next years.
Speaker 11: The main reason for the range for the guidance in expenses is the line of other net operating expenses.
Speaker 11: In this line, we have a low base of comparison to any 22, considering that we had some reversions of provisions mostly related to things like lawsuits and other events.
Speaker 11: And this reduced the line in 22, so the causes of its variation in 23 is normalization.
Speaker 11: If we isolated the personnel and administrative expenses line,
Speaker 11: we would see this group growing like inflation or even below inflation. We have important efforts to reduce costs there. So the driver is the other line.
Speaker 15: Okay, thank you very much.
Speaker 16: You're welcome.
Speaker 2: Thank you. Our next question comes from Brad Jones with Sagell. All right. Thanks. Thanks for the call. Sorry, my question was actually also raised in the market and I see you may not be able to answer. I mean, maybe let me try phrases.
Speaker 17: Separately, can we assume that the most negative print for Mark Dana, I was in Q3 and that, why does he start to see interest rates being cut? That will turn positive, just given that that turns into the show of the 1.5 billion per 100 basis point.
Speaker 11: So what do you say would be great. Thanks, thank you. Yeah, Brad, the market and II line is composed by a few components. One of them is the working capital of the bank, also the treasury business.
Speaker 11: like trading, flow trading, mostly flow trading, not really risk-taking positions, and it does it, very clearly it does.
Speaker 11: There the deadline is based to the net.
Speaker 11: fixed rate exposed of our balance sheet funded by the regular cost of funding of the bank that is mostly floating, that is what makes it liability sensitive as shown in the sensitive analysis from what we published.
Speaker 11: We don't have a reduction rates. The market and II should, the asset liability management continues reprising, given that old loans, mature new loans come at rates are already adjusted. So we believe by the end of the year, this component of the asset liability management.
Speaker 18: related that.
Speaker 14: Great. Thank you.
Speaker 14: Great, thank you.
Speaker 2: Thank you. Our next question comes from Pedro Le Doque with ITAO BDA.
Speaker 19: A lot awful.
Speaker 20: Thank you very much for the question. Here's well.
Speaker 20: A little bit on OPEX, please guidance for 9 to 13% of your rear. I realized that's got some other effect in it.
Speaker 20: But I want to see if you guys have given some thought to maybe boosting up the profitability lever via efficiency if there's room within personnel. All the digital bank initiatives that you guys have done, understand your combining brands and looking to downsize some stuff. Anything there that could help us understand a little bit what you can do.
Speaker 20: maybe for profitability via cost optics would be much appreciated.
Speaker 11: Thank you for the question Pedro. We are always very attentive to opportunities in terms of cost-efficient. You mentioned some. We are really looking into our digital initiatives. We think we can extract some synergies there.
Speaker 11: benefits we can get. But also we mentioned in some points of our presentation, one of the key things for us going forward is really a reduction of the cost of serving our clients.
Speaker 11: We think we have to get more and more efficient on that. We have We still believe that branches are useful. Branches are a very good vehicle for doing business, to contact clients. But they certainly will be different and probably less costly in the future.
Speaker 11: That's where we have a big focus right now in reducing the cost of served our clients. I think this is really a big point we have been exploring a lot here in the bank.
Speaker 1: Thank you.
Speaker 2: Thank you. Our next question comes from Juan Recalde with Scotiabank.
Speaker 21: Hi, thank you for taking my question. My question is related to the competition in the low income individual segment.
Speaker 21: So can you talk about how you see the competition in this segment now and how this compares to what was happening in 2020 and 2021, 2022 and also what is your expectation for how the competitive environment may evolve in
Speaker 21: 2023 and 2024 and what opportunities done may have for you.
Speaker 11: Okay Juan, I think the competition in the
Speaker 11: In the low income segment or the company is very strong. We have not only traditional banks, but especially digital banks. We believe we have some advantage. We position ourselves in a more complete way.
Speaker 11: We still believe that our position with points of context, with the clients, with brains has value in that process. We believe also that having corporate relationships and relationships with entities where we can have the parole of companies or...
Speaker 11: and have a stronger relationship with this client from the beginning is an advantage for Bradesco and also the credit relationship. This is exactly right now is this kind of a pain in the sense that
Speaker 11: temporary adjustments in our creative policy. So this is the way we play in position or ourselves in the market.
Speaker 21: Thank you for the comments and one more question but this one is related to capital and dividend. So given the current level of capitalization and expectation for the year 2023, what can we expect in terms of...
Speaker 21: The payout ratio in 2023 is...
Speaker 11: One, we're not going to commit with the safety of the payouts ratio, but as we had said in the Portuguese call, we expect to pay the interest on capital IOC at full.
Speaker 11: For sure we're going to look at capital, we're going to monitor, but we believe considering our Expectations that our capital will grow even with the payment of interest on capital and That we will take the payout to a relatively high level
Speaker 11: If it happens, we think in our estimates, even with that event we would see capitals still growing in 2023.
Speaker 2: That's helpful. Thank you very much. Thank you. Excuse me, ladies and gentlemen, since there are no further questions out to invite the speakers for their closing remarks.
Speaker 11: So, thank you all for the participation in our conference call. Our disaster relations team is available for any further questions you might have. Thank you very much. Have a good afternoon.
Speaker 2: That does conclude the disc of Skull from Skull for today. Thank you very much for your participation. Have a great rest of your day.
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