By In a recent earnings call, Banco Bradesco S.A. (BBDC4.SA) reported an 11% increase in recurring net income to R$5.2 billion in the third quarter of 2024 compared to the second quarter, with total revenue rising to R$30.6 billion, a 3.7% quarter-on-quarter growth.
The Brazilian bank’s loan book expanded by 3.5%, reaching nearly R$944 billion, with strong growth in loans to small and medium-sized enterprises (SMEs) and individuals. The bank’s focus on high-quality, collateralized loans has led to improved delinquency ratios and lower loan loss provisions.
Bradesco is also targeting high net worth individuals with the launch of a new segment called Bradesco Principle, aiming to attract 45,000 to 50,000 clients by January 2025.
Key Takeaways
Bradesco’s recurring net income rose by 11% to R$5.2 billion in Q3 2024.
Total revenue increased by 3.7% quarter-on-quarter to R$30.6 billion.
Loan book grew by 3.5%, with significant growth in SME and individual loans.
The bank focuses on high-quality, collateralized loans, resulting in better delinquency rates.
Bradesco launched a tender offer to increase its stake in Cielo, impacting earnings.
A new segment for high net worth individuals, Bradesco Principle, is being rolled out.
Company Outlook
Bradesco anticipates a GDP growth of 3% in 2023, with inflation at 4.5% and unemployment at 6.7%.
The bank projects slower GDP growth of 2% to 2.1% in 2024.
Bradesco aims to balance growth with prudent risk management and expand its offerings and client base.
Bearish Highlights
The tender offer to increase the stake in Cielo negatively impacted quarterly earnings.
Operating expenses grew by 9.1% over nine months.
Bullish Highlights
Insurance group’s return on equity was nearly 24%.
Net interest income (NII) grew by 6.8% and is projected to reach 8-9%.
Assets under management (AUM) increased by R$55 billion.
The bank expanded its footprint with 1,041 new points of sale and added 1.8 million clients.
Misses
Fee and commission income was impacted negatively by the consolidation from Cielo.
Q&A Highlights
Marcelo Noronha addressed portfolio growth and profitability, emphasizing a cautious approach to lending amid economic challenges.
The bank is investing in technology and artificial intelligence to enhance productivity and client experience.
Management is confident in client growth across various segments, including high net worth individuals and mass market clients.
Bradesco’s strategic emphasis on risk-adjusted returns is evident in the significant portion of loan origination being collateralized. The bank’s credit card portfolio has shifted towards high-net-worth clients, reducing reliance on lower-income segments. Operating expenses have been controlled, with a minimal increase quarter-on-quarter, and the insurance group’s return on equity remains strong.
In the SME sector, Bradesco is enhancing its market penetration and risk quality by expanding its segment branches and improving credit approval times. The ProCred program, launched in October, aims to provide collateral for micro-enterprises and is accessible via the bank’s app.
The insurance sector showed impressive growth in health insurance profits and PNC profits, attributed to improvements across all product lines and enhanced claims ratios. Bradesco is optimistic about maintaining this growth trajectory moving forward.
The bank is also implementing a dynamic risk-adjusted return (RAR) simulator for client interactions and a new compensation structure based on individual performance. Digital banking initiatives and a focus on efficient cost structure are key components of Bradesco’s transformation plan.
In terms of client acquisition, Bradesco has seen success in payroll-deductible law clients and cross-selling strategies. The bank anticipates improved performance in 2025, leveraging market penetration across various business lines. Management remains cautious about projections for 2025, indicating a neutral stance while preparing for a higher interest rate environment.
InvestingPro Insights
Banco Bradesco S.A.’s recent financial performance, as reported in the earnings call, aligns with several key metrics and insights from InvestingPro. The bank’s focus on high-quality loans and improved delinquency ratios is reflected in its financial health, despite some challenges.
According to InvestingPro data, Banco Bradesco has a market capitalization of $24.75 billion USD, positioning it as a prominent player in the banking industry. This substantial market presence supports the bank’s ability to launch new initiatives like the Bradesco Principle segment for high net worth individuals.
The bank’s P/E ratio of 7.6 (adjusted for the last twelve months as of Q2 2024) suggests that the stock may be undervalued relative to its earnings, which could be attractive to value investors. This valuation metric aligns with the bank’s reported 11% increase in recurring net income.
An InvestingPro Tip highlights that Banco Bradesco has maintained dividend payments for 31 consecutive years, demonstrating a commitment to shareholder returns. This is particularly noteworthy given the bank’s focus on balancing growth with prudent risk management, as mentioned in the company outlook.
Another relevant InvestingPro Tip indicates that the bank has shown a strong return over the last three months. This is consistent with the reported 3.7% quarter-on-quarter growth in total revenue and the 3.5% expansion of the loan book.
It’s worth noting that InvestingPro offers additional tips and insights for Banco Bradesco, which could provide further context to the bank’s financial performance and strategic direction.
Full transcript – Banco Bradesco S/A ADR (BBDO) Q3 2024:
Marcelo Noronha: Good day, everyone. I am Marcelo Noronha, CEO of Bradesco. I am here to present the earnings of the Third Quarter 2024. I’m speaking at Cidade de Deus. It’s a little over 10:30, 10:31. It’s a pleasure to be with you again. Thank you for joining us. And we’ll speak about the balance sheet of the third quarter, and then I’ll sit with my colleagues to answer some of the questions from our colleagues of the sales side. I’ll start with the earnings of Q3 ’24, which we received. We had a recurring net income of 5.2 billion barrels, growing almost 11% compared to the second quarter ’24. In the past quarter, as a reminder, we grew more than 12% quarter-on-quarter. So we have been delivering what we committed to do. We don’t promise things. We deliver things. And we are growing step by step consistently. And here we have a snapshot of everything we are going to present to you today during this video conference call. Our profitability is growing. It’s a solid and safe profitability growth. Our NII evolves driven by client NII and reduction of loan loss provision expense. We’ll speak more about that. Productivity gains with rising revenues, risk of credit risk controlled in the footprint adjustment, balanced credit portfolio growth, and improving delinquency ratios, operating expenses evolving as expected, and the insurance group delivering an ROE that was very relevant, almost 24%, growing practically all the lines. And we’ll speak about increased stake in Cielo as a result of the tender offer we had and with the closing in the month of September. So moving forward, let’s speak about total revenue in the quarter, R$30.6 billion. And I’m always comparing quarter-on-quarter more than year-on-year. So 3.7% quarter-on-quarter, and we wanted to break it down for you, fee and commission income. So we have three blocks here. Total net interest income growing 2.7% quarter-on-quarter, fee and commission income growing 2.8%, and the insurance group 8.7% growth. And we have this performance of growth comparing quarter-on-quarter, so increasing 3.7% in terms of total revenue. Our loan book, almost R$944 billion, again, growing 3.5% quarter-on-quarter. We bring you some data of average daily origination, loan granting through digital channels, but what matters is to show you the whole set. We’re growing in all segments of clients. 7.6% total, but in individuals we’re growing 10%. Large corporates, of course, it follows its natural trend again with a positive growth of 0.7%, and small and medium-sized enterprises up almost 17%. And I’ll speak more about that momentarily when we speak about the loan book. First conclusion, when we look at this is that we see big traction in the bank. We’re growing practically 100% of the credit model that is in all segments of clients, individuals, large corporates, SMEs, but let’s look at the whole macro picture because it gives us a lot of information. First on individuals, growing 3.9% quarter-on-quarter. Now let’s look at the minutes. Payroll deductible loans. I think that the Brazilian Central Bank communicated their September statistics. We grew a little bit above the market, but please note we grew 0.25% more than the market. So we’re growing in line with the market, perhaps with a little more traction, but let’s see where we’re growing. Payroll loans, we grew 2%. The market grew 1.9%, and we have an important portfolio, collateralized portfolio. The same goes to vehicle, 4%, real estate finance, which brings a lot of client principality and long-term relationship of 3.3% and 11.2% year-on-year, and this applies to rural loans with 16.5% growth. So when we look at the whole mix, we are talking about growing loans to individuals, but in very safe lines of credit with collaterals. In the case of credit card, quarter-on-quarter, we grew 2.2%. However, when we break down the portfolio and look at high net worth clients, we’re growing 4.5%. So when we speak about NII, you will note that in the case of credit card, it’s losing share in our NII because the lower income clients, they are more prone to pay in installment, pay more interest and have more revolving credit. The high income is a transector. They pay their statements fully every month, so we gain based on interchange of fees and not based on intermediation fees. When I look at consumer credit, we’re growing 5.9%, quarter-on-quarter. When we look at this accounting line item, that’s growth of personal loans with very high margins. But what I mean to say is that we are doing our homework so we can have a good quality of assets. What we are originating here is half of personal loans we’re originating is with collaterals, guarantees. Secondly, the other half of this is personal loans to high net worth individuals, and only a small part is going to lower income individuals with a slightly higher margin, and it requires more provisions. But overall, it is not going to change our curve of losses and delinquency. What does this mean? It means we’re working with smaller spreads. When I look at payroll, deductible loans, the INS loan, the spread we’re working with is 30% lower than the spread we used to work with the NII that we used to have before for INSS. That’s why external channels find it hard to make new INSS operations more difficult because 100% of what we’ve originated is sold through our own channels. So we have a much safer portfolio requiring much less provisions and with an NII growing, but growing steadily because we’re working with better quality. With companies, we are growing 3.2% quarter-on-quarter. When we speak about micro and SMEs, we’re talking about 5% increase. Please note that our big growth comes from the middle market. With companies earning more than R$50 million in per annum, the other one’s growing more, but in the other segments. In retail, the SMEs making between R$3 million to R$50 million, they’re also growing. We’re growing on all of them, but we’re growing even more in the middle market. Now let’s look at the portfolio. Real estate, 5.5% with collateral guarantees. In foreign trade finance, we have a lot of traction with large companies and with the middle market with a cost of risk that is very good and the same applies to CDC and vehicle leasing, growing 2.3%. When we break down working capital, you will see in the full income statement that we have securities with the ventures and working capital. So net of the large companies and if we focus on the middle market and small businesses, these two segments up to R$3 million and R$3 million to R$50 million, what do we find? For your information, number one, in some segments, a whole origination or 80% of origination is collateralized. Real guarantees or we can ensure good quality receivables. Or we work with government programs such as ProCred, ProNEP, and FGI. Depending on these, we go to R$4.8 million turnover a year in the case of FGI with companies of up to R$300 million. So we’re growing quite well here. So what is the decision? What was our decision in the beginning with all of the modeling? Our guiding star for decision making regarding risk appetite and growth, it’s called RAR, risk adjusted return. We ran a lot of simulations in terms of growing working capital for small businesses and we realized that even with a much higher rate, we had an RAR much higher of 60% when we operate with FGI and ProNEP. This is what is guiding us. NII is lower, but the level of cost of risk and provisions is much lower and this gives us stability with this portfolio mix and this gives us a piece of money and looking at the future considering everything that we are doing lower NII. When we grant loans for working capital with ProNEP or FGI, the margin is 5%, 5.5%, perhaps one line with a slightly higher, but this is more geared to high and middle and large companies than for SMEs. On the other hand, losses are almost zero here. So we have good modeling, good models, good traction. This is what we’ve been doing. And I can tell you, Bradesco is one of the leaders in granting these types of loans in the Brazilian market. Now talking about credit vintages, based on the 100 average of 2019, this was our level of origination. I’m speaking about mass market individuals. So we continue with a very good balance in our vintages, over 30 Mob4 or growing production, but based on those modalities I mentioned. Origination was very good in Q3, but always looking at the mix and the rating of clients. I remember that in the prior quarter I mentioned this. In the case of individuals, in 2019 we had 50%, 51% individuals with a rating between A and B, 74%, 75% in addition to having this mix. And that’s why delinquency is dropping. And we obviously need fewer provisions for these vintages. And this is what we’re seeing in our cost of risk. Now looking at mass market companies I’m looking at SMEs, same base, 100, 2019 average. We have very good vintages. In the past quarter you asked about this growing way below 100, but note with the bars that the level of origination is not so leveraged as it is with individuals. There are marked differences in the market. Individuals are growing in real length and growing more than 6%. Level of unemployment in Brazil is 6.7%, but the companies are different. And we want to operate safely with our portfolio mix. And we can see over 90 days delinquency reducing, requiring fewer provisions, so net interest income is here. Let’s look at credit cards. It used to have a share in the past year ago, 8%, dropping to 7.5%. That’s what I mean. I’m working with the transactors with a better risk. Market NII, we have been talking about this with our investor relations team, and our focus is on the NII net of provisions based on risk adjusted return, growing 6.8%, growing consistently. And what we need to look at here is that NII of 8 or 9, it depends on the mix. We have to know how much we’ll deliver in terms of cost of provision, to have the best combinations, 8 or 9? No problem. But how much will it cost for us to deliver constant growth in our NII? That’s when we look at RAR for our decision making. And I can tell you, in payroll deductible loans, the level of RAR is good, it’s high, with traction. But in the case of INS loans, the spread is 30% lower compared to what we are originating now, compared to what used to be originated before the prices were controlled. RAR, in working capital, again, it is a high RAR, sometimes 60% in the programs with guarantees. Then we get to credit indicators. All one indicator is dropping. Delinquency, of course, will start dropping at a lower pace. But we have stable coverage ratios and LPL creation as well. You can see it on the slide. Expenses with expended loan loss provisions, of course, are dropping. And we’ll have fewer loan loss provisions in the new vintages because we have better quality vintages and we have the portfolio makes. And, of course, improved efficiency, not only with modeling, with our credit policies, portfolio management, and also improved efficiency in the collection work of our credit team. And I’m speaking about fee and commission income. I’ll speak about Cielo. Here we have the normalization of this consolidation. We closed the tender offer of Cielo in September. Our fee and commission’s income, excluding this, was 2.8, excluding the tree stake in Cielo. And 4.3%, comparing nine months of ’24 with nine months of ’23. And Cielo, in this case, did not bring us any quarterly gain. Actually, we had a negative consolidation. Our earnings would have been a little higher if we had not had the negative consolidation of Cielo. And I’m speaking directly about current income. Draw your attention to the fact that growth net of Cielo would be 0.3% quarter-on-quarter. But we have an important comparison when we look at high income, 15% against 1.5% year-on-year. I talked about the transactors. Well, this is what is moving us. And please note that we are growing practically all revenue streams, whatever the period you look at. And I draw your attention to the increase of our AUM, increasing R$55 billion at Bram. Bram and TVU will have an AUM close to R$1 trillion. And this is reflected in an increase in fee and commission’s income of 11% for asset management. Bradesco asset won very important awards in the sector. Next, looking at operating expenses. The same thing I said about Cielo. When we normalize the consolidation of Cielo, we’re talking about a 2% growth quarter-on-quarter. And in the nine months, which is what goes into the guidance, 9.1%. But look at the red box now. If we look at personnel plus administrative expenses, our growth in the organization is 0.6% quarter on nine months, 4.6%, so perfectly controlled.
,: But if we exclude that, if we look at the banking business plus the insurance group, then the growth would not have been 8.4%, it would have been 7.2% in line with our plan, even with the investment we’ve made. Now, it’s also important to look at our footprint revision, another 415 transactions. So we come to the third quarter with a change in 1,041 points of sale. We had an expectation of 1,000 points of sale, 250 transformations. The number we delivered is higher, but we’re still accelerating now in the fourth quarter of 2024, although our client base is grown. Now, additional 1.8 million clients. If we look at the insurance group, we had a great performance. This level of growth and premium revenue with a net income of 2.4 billion and ROE of 23.7%, a growth of 8.1% quarter-on-quarter. And if we look at insurance operations, we had 8.7% quarter-on-quarter and 4.2% compared to the same period last year, the nine month. And look at the combined ratio also coming down to 86.6%. You will have all of these figures in our presentation. Our Tier 1 Basel ratio growing 0.1 quarter-on-quarter, it’s now 12.7%, stable capital. This is what we’re showing. Coming to our guidance, we had the normalization of Cielo in the mid column. And when we look at the expended loan portfolio, we’ve announced earlier this year that we were in line with the guidance, and that’s it. We’re delivering as planned. When we look at net interest income and expended loan loss provisions, and we always talk about these two indicators hand-in-hand, you can see the NII, which is important because it impacts our bottom line. You look at our fee and commission’s income, including and excluding Cielo operating expenses and the income from insurance, where you have a combination of the baseline in the previous quarter. It was excluded from the guidance, but it is now included and we will deliver the guidance as planned. Now, a few topics about the change the bank. This is a balance of what we delivered at this quarter. We now have a new IT colleague. We have made progress in our culture. We conducted a survey with 74% response as a great level of engagement, and we’re still growing. We have hired not only IT professionals, and of course, that increases operating expenses, but we’ve hired senior professionals who have joined our team at the bank. We invested in our business unit for credit, also in middle market, with eight units, eight new branches last quarter. We’ve also invested in fixed income so that we have more resources to be able to meet the demand. We are also continuing our efforts in footprint adjustment. Two inter-gammic [ph] items are here. I told you we have completed Cielo tender offer, and that did not really impact our result. I mean, it had a slight negative impact. Our result could have been a little better, and the John Deere (NYSE:DE) Bank acquisition had an approval by CADE. We’re expecting the Brazilian Central Bank approval to close the deal this year. So, eight months after we launched the plan. We are now launching a new segment of clients for high net worth individuals, and I’ll speak more about that. That’s our expectation for the last quarter, more investment in digital channels. We will have more hires in technology. We will continue to review our footprint. We will also expand SMEs and that segment between three and 50 million a year. We are also accelerating our gains in cash management. As I mentioned last quarter about Bradesco Expresso, we delivered two platforms. We were going to do the rollout until the end of November, but yesterday we concluded the branch rollout, bringing a better experience to our service centers and also to all users of Bradesco Expresso. And in the next quarter, I’ll bring more news about this. Now, coming to the conclusions, we have been able to grow profitability with a solid and safe position. Our top line is growing. We have traction in all segments and products, but focusing on the risk-adjusted return, the RAR, because that will determine our net income. We have a new segmentation for individuals. We will talk about that. In our transformation efforts, we are accelerating the execution of our plan, and now that’s the reason why we’re all wearing the Red Fest. This is Bradesco’s color, but it’s a brand new tone because we now have a new segment for high net worth individuals. It is here under the Wealth Management Vertical with a different value proposition for our high net worth individual clients. I will now show you a video. It’s a three-minute video because we could not give you a longer presentation, but this video will be talking about the new segment, and the video is presented by the project leader, the person in charge of implementing the new segment, Andressa Auge. So let us now watch the video, and I will come here for the Q&A session we will have immediately after the video. We also have our colleagues to talk to you, to talk to the buy side and to the sell side. So let’s watch the video, and then we will be here with Cassiano and Andre to answer your questions. Thank you for being with us. Let us now look at our new segment. Thank you. [Video Playing] Listening to our clients has made us build eight decades of a solid, one of the largest financial groups in the world, and one of the best market wealth managers. This close relationship with clients has inspired us to launch a new segment, a new proposal in our strategy of wealth management, considering different surveys, international benchmarks, extends data analysis, and technology advance. We now have extended these resources to the whole organization. With all of this information, we built a new value proposition with a new concept of service closer to clients, exclusive credit card, international full banking connecting the excellence of our functions, also in the United States, in addition to a unique experience in benefits to value work loans. This segment has high relevance for Bradesco, and now we want to improve our relationship and gain principality among these clients, improving also our profitability, customer satisfaction, and the NPS. So now I will invite you to come and learn more about this new concept, new solutions in a unique experience. Come and see our new segment for high net worth individuals. For some, red is the color of sophistication. Some others believe red is the color of emotion. However, we know for certain that red has a highlight. It is different. It brings focus to what is principal. Welcome to Bradesco Principle, the new Bradesco segment. If we must have time, you can count on your relationship officer and our new offices that provide services and extended working hours. If you’re looking for performance, you now have the excellence of the best bank to invest aligned to the expertise of our brokerage coming. We’re planning to offer you a unique experience in a single place. If we want to be international, you now have a full experience also in the United States with your current accounts, U.S. issued credit cards, and many more benefits. If you are a person who travels, you will now have a credit card with points that will never expire in the main launches of the airports and a fast pass in Brazilian airports. This is the new segment, Bradesco Principle, the same Bradesco you already know, but at a higher level of sophistication you cannot even imagine.
Marcelo Noronha: That’s great. So this was a summary of our new segment we saw on the video. I must tell you, we feel great pride in this team that worked to launch the new segment. We have three flagships, which you can actually see in the [indiscernible]. One will be here on Faria Lima and Juscelino Kubitschek, another one in Rio in the neighborhood of Leblon, and one more unit in Campinas. As of tomorrow, our team will be there. They have been trained, and we will begin to invite our clients to enjoy this new experience. By late January ’25, we will have between 45,000 and 50,000 clients in the new segment, which we will continue to expand until 2026. We will also have geographical expansion throughout Brazil in the main locations that have been selected for this new segment for high net worth individuals with a new value proposition for these clients. And I believe we will have more opportunity to talk about that in the future with you. And now, Andre, over to you.
Andre Carvalho: Thank you, Marcelo. Thank you, Cassiana. It’s a pleasure to be here with you. Good morning, everyone. I’d like to tell you that Ivan Gontijo, CEO of our insurance group, is here with us today. Remotely, he is with us online. You can ask your questions either in Portuguese or English. You just have to send your questions by email to investidores@bradesco.com.br or you can use this WhatsApp number (11) 9 7443 8238. Or you can use this QR code. The first question comes from Eduardo Rossman from BTG. Rossman, please.
Q – Eduardo Rossman: Hello, good morning, everyone. I have a question. Hello, good morning. I apologize. My camera is not working, so I only have the picture today. But my question is about the low in portfolio growth. You are again opening the doors of the bank for clients looking for loans. You will try and recover that loss of market share and the loss of principality with these clients. But when we look at the low in portfolio, the profitability is lower, not only in corporate, but also in payroll-deducted loans. Even Noronha spoke about that in his presentation. So I’d like to hear from you about growth and the prospect of growth. And what is your number one concern if inflation and employment, or maybe the price, you would have to be more prudent with that. I’d like to understand the speed of this recovery?
Marcelo Noronha: Thank you, Rossman, for the question. It is a deep question. And it certainly relates back to what I said. Yes, we are conducting this movement based on data. We want to have the right mix and the right ratings. Because let’s think about it. Think about an individual who went through financial stress in the last three years.
Eduardo Rossman: Have they recovered completely?
Marcelo Noronha: They may have a job. Their real individual income is growing more than 6% a year.
Eduardo Rossman: But have these people truly been able to pay back their liabilities?
Marcelo Noronha: Well, if you look at banks’ models, you will see many of them have not. So we do not want to play the game of financial stress. We want to have a safe portfolio with the right risk-adjusted return, because that has an impact on the bottom line. So for example, you say, well, I had an expectation of a higher NII. Oh, well, some time ago, we prepared a new plan, a 60-day plan. We conducted, we’ve executed the plan. And we were looking at a certain level of risk. I mean, we have a very high penetration in all client segments. Otherwise, we wouldn’t have so much traction as we do. However, as we built this new business unit and with the integrated work we were conducting, what have we seen? Well, we realized that if we could use FGI and ProNEP more, we would have a much better risk-adjusted return, because although the NII can be lower, you need much less provisions. And so that is a more attractive way of business for us. If you look at a ranking of these different collateral projects, ProNEP, FGI, you will see that Bradesco has a great traction. And we have a very attractive risk-adjusted return. So looking at our channels, we’re always looking for the best RAR, because that’s the name of the game. We may not have a quick growth of NII, but we have a significant growth of our profit, of our net income. So don’t be surprised. Our provisions are now lower than in the past.
Eduardo Rossman: Why?
Marcelo Noronha: Oh, well, because the quality of risk is much better. And also, the mix has a much better quality. And when we look at the current economic scenario, Rossman, I can tell you that looking at our strategy, we feel very confident about what we’ve been doing. I’ve just had a meeting with journalists, and one of the journalists asked about the economic scenario. Said, well, the economic scenario has worsened. What is that? What do we mean by a worsened economic scenario? First, if we look at the current scenario, we may have a deterioration. But I think this is less probable. This is less probable than the second option. A benign outlook, we are not really considering. So we may have a change in the exchange rate. Yes, we may. And inflation will certainly grow more, grow faster. I mean, this would be a more stressed scenario, but I don’t really believe in it. Let’s wait for the new measures to be taken by the Finance Minister, Minister Haddad, because yesterday we had important statements where we will have more expenses, which means that we will need more expense control. And we believe this is good news. However, what do I view as the most probable scenario? Interest rates growing up into 13%, maybe closing the year at 1175. And the unemployment in Brazil is currently 6.7%. However, there are regional variations. For example, Sao Paulo has a higher unemployment, and also center west that has 5.2 unemployment rate. You see, so we have regional differences in Brazil. And the GDP will be growing 3% this year, inflation about 4.5%. If this is the scenario we expect, well, what will we have next year? And real income is growing this year, 6.3% with this level of unemployment. And if we project this scenario towards the future, Rossman, what will we see? I mean, I’m sharing more information with you using your question, Rossman. We will see the GDP will probably grow slower, about 2%, 2.1%, but there will be growth. The expected unemployment level will not be very different from 8%. In the conclusion, I’ll come to the conclusion in a minute.
Eduardo Rossman: And what about real income?
Marcelo Noronha: It may grow between 2% and 2.5% next year. So look here, the market for individuals will possibly be good. We have great traction. That’s what we want because this is risk we consider good. We’ve actively participated in the auction of the INSS because we want to have a clear strategy to operate in this line of business. So we will continue to monitor this scenario. If we had a financial stress, we feel safe because of our current mix. Now, for individuals, but what we are truly looking at is the risk-adjusted return. This is what really moves the needle. Now, looking at the company clients, because of these programs that provide collaterals and because of the specific credit lines we’re offering, we feel confident about what we’ve been doing. And we’re growing in cross-sell. We are attracting new clients. We are attracting companies’ payroll. So my answer to that journalist was, what is the scenario? Will it deteriorate? But what does it mean? It means this, but is this probable? Well, it depends. And depending on what happens, we’ll make a decision. I fear for the country. Nobody wants to see high unemployment. Nobody wants to see economy growing slower. We don’t want financial stress. So I hope the most probable scenario will materialize. And it’s not bad. It’s not a bad scenario at all for our country. And also, it’s not bad for our business, because the next question is, and what will happen to me? Maybe for different industries, you will have different consequences. But for us here, we are very much aware of the current scenario. We see a good correlation in terms of interest rate increase. We continue to monitor our risk models and also NPL. However, we have two important variables here, especially one, which is when the population loses income. And how may that happen? Well, if you have a very high inflation, if you look at the current deviation that would be the price of beef today. But the other prices seem to be under control. And the other issue would be if the unemployment rate would soar, because that would end up reducing individuals’ income. But this is what we project. I believe we will have a controlled expected loss and lower provisions for the new ventures and a growing NII. We will be growing in fee and commission income. We will be also growing in the insurance group. That’s where we place our expectations. I’m sorry for such a long answer. I just wanted to add more information about the current economic scenario.
Andre Carvalho: Thank you, Marcelo and Rossman. Positive macro scenario, portfolio growth, inclined NII growing looking forward. Next question from Renato Meloni with Autonomous. Hi, Renato.
Renato Meloni: Hi, good morning. Thank you for taking my questions. I’d like to understand the dynamic of client NII and other provision. Because in your presentation, it seems clear that there is some difficulty in going back to accelerating growth and mass retail, both for SMEs and individuals. You justified that with the cost of risk. Good. Are there other challenges, for example, regaining principality of these clients? And the second part of the question is how important is the change in bank strategy, depending on this acceleration? And will you have to review the plans for next year?
Marcelo Noronha: Thank you for the question. But let me clarify. Perhaps I was not clear. We are not decelerating the mass market, neither in SMEs. Let me give you some data. There is a public ranking. Do access it, if you’re curious. That’s ProNEP, ProNEP ranking. And you will see which bank is ranking first or second in distribution to SMEs. We’re talking about companies making less money in the client base. So we have principality. We are leaders in small businesses, and so we’re decelerating those. And if you answer that ranking, you will see that the most operations happen with the Bradesco. I don’t want to be transparent. I don’t want to mention competitors, but Banco de Brazil is fighting for the number one position with us. So we have client principality. We are growing. We are growing with clients with a good rating, with loans that will ensure constant and pre-annual growth. So change the bank helps in our growth strategy because we will deliver a number of better initiatives for our organization. We will make our organization more competitive. One of them is the new segment, the principal segment that we were calling the affluent one. And the credit BU, which is super important for us, with a number of quick wins. And then later, Renato, in the future opportunity, we can explore this in more detail. The SME segments with 122 branches increase into 150 that increased market value, penetration, and quality of risk. Our portfolio management quality improved. You will remember that in the credit business unit, we created a new unit of portfolio management. They have delivered models to us with a prediction of the fold in the middle market with companies that will turn over up to R$300. So we have very important deliveries in portfolio management, in granting loans to clients in our timeframe for approval of loans in the wholesale bank dropped by 40% for our own. So we have good traction in large corporates, middle market, SMEs, and also individuals. But I want, together with my team, to grant high-quality credit and deliver perennial deliveries. And I don’t want to have a good margin and then have a trough, a pick and a trough. And also, cost management is under control. We are reducing the footprint. And we are managing our personnel and administrative expenses, which are very much under control. And our cost to serve is under control for the whole organization. Also in terms of internal processes. But another interesting element to mention is that ProCred program was launched, providing collateral for micro-companies, micro-enterprises in October. Very few banks started operating with this. Bradesco was the first one. And you can do it all via our app. So we have good traction, but we are now going to deliver an NII that will peak and then get to a trough.
Andre Carvalho: And let me add to that, Marcelo. There are two slides in the presentation that Marcelo just made showing the new credit vintages. The first slide shows our origination in mass retail individuals and then mass market for companies. And we show significant growth in both, in Q3 against Q2, even stronger performance in mass market individuals. So we don’t see any difficulties in growing these two segments. But we’re growing carefully because we’re looking at a longer run. We want to continue to grow quarter after quarter.
Marcelo Noronha: Thank you, Renato. Next question by Yuri Fernandes with JP Morgan.
Yuri Fernandes: Good morning to all. I’d like to have an update in ROE converging to cost of capital. We had that question almost every call. I’d like to get an update from you. Last time this was asked, I think that your answer was that this was going to be a gradual process that it was doing slightly better than expected, but that would be aligned with long-lost provision and then improvement of the top line and NII. But I’d like to focus on the cost of capital because in Brazil we have a higher cost of capital. So my question, for 2026 are we going to see a higher ROE or will the plan be delayed because the ROE is improving but QE doesn’t seem to be improving in Brazil. So how to balance these two?
Marcelo Noronha: Thank you for the question. You always mentioned that that’s our mission and our target, our goal. Regardless of the cost of capital being a little higher or not, we’ll pursue it and our expectation is to deliver better returns quarter after quarter and growing absolute results. This is our expectation and growing wood safety. And with the reduction in footprint, we had a reduction in our headcount. But we also hired for the credit business unit and for technology, people with greater seniority and we have to pay them four or five times more and that will hit the operating expenses. But still, that’s where we are going. We will pursue this balance. And Yuri, what matters is that we pursue this with quality. This gives us some predictability and gives some predictability for the market. Cassiano, do you want to add?
Cassiano Scarpelli: No, really, I think you said it all. We continue to do strong work in all of the initiatives you mentioned. And we have spoken with Yuri about that. The matter is how much more we want to bring this forward. We’re working for it, but we have our internal problems in Brazil. But we have the dynamic of our balance sheet, one of continuity. And this shows that we’re very serious about 2025 and in the future to continue to change the bank and the transformation process led by Marcelo and under my responsibility. The outcome of that will be a solid bank as we have always been, more profitable every quarter and with clear consistency in how to serve our clients, how they want so we can get that principality. And improving our competitiveness in all segments, that’s very important because that’s all the transformation is about. Thank you.
Yuri Fernandes: Thank you.
Marcelo Noronha: Thank you, Yuri. The next question comes from Thiago Batista from UBS. Thiago, please.
Thiago Batista: Hello, everyone. Good morning. My question is about investment in technology. It seems like the bank is investing more in technology to close the gap compared to peers. But how much can this process become easier now with artificial intelligence? How will that help close the gap? And if you do this now, I mean, is it easier to do it now than it would have been a few years ago? And also a follow-up about the Selic basic interest rate you spoke about 13% or around 13% next year. What would be the impact if the basic interest rate really confirms at this level? What would be the impact in a few years?
Marcelo Noronha: Well, thank you, Thiago, for participating. Thank you for your question. It’s a pleasure to have you with us. About technology, we do not see a technology gap. Our diagnosis shows we have an opportunity to increase significantly our productivity, because we have more third parties than our own employees, and that changes our productivity. We also want to have a more senior team, and then we want to roll out this initiative to the whole organization using our enterprise agility, whose use was more restricted until now. So we are investing in line with the large players on the market. Sometimes we press the gas pedal a little bit more, but the fact is that artificial intelligence has been with us for some time now. BIA has evolved. It’s now moving into GenAI, but BIA has been with us for quite some time. We have been using artificial intelligence, machine learning to develop models in our business units, but we’re using that very strongly also in our pricing efforts, regardless of the value proposition we have in each business unit. So we do have a lot of use of artificial intelligence, even in pricing, so that we can price in microclusters even at coming down to the client level, and that will support our digital channels, which we call business experience BE [ph]. So we continue to work hard on this and also on other fronts. If you think about technology development using GenAI, we are also using that in our daily work, and that will expand even further. However, we want to translate that into a better experience for clients and operating efficiency gains.
Cassiano Scarpelli: About the interest rate, maybe you’d like to answer. Well, I believe the interest rate curve is still under stress. We’ll have to wait and see. However, at first sight, I believe the effect is neutral. I mean, from our point of view and looking at 2025, there will be higher floating gains, but then I will have perhaps a lower result in asset and liability management. So even if it is at this level of 13%, I do not see a great impact. But of course, there will be other consequences. I mean, if we have such a high interest rate, the inflation will be different, and then we will have a different scenario altogether.
Marcelo Noronha: Yes, let us wait for the U.S. elections, which will also have an influence on this, on the foreign exchange rate, and other variables on the Brazilian market. Thank you, Thiago, for the question.
Andre Carvalho: Thank you, Thiago. Daniel Vaz from Safra, do you have a question?
Daniel Vaz: Thank you, André. Good morning, Noronha. Good morning, Cassiano. Noronha, as I was listening to your presentation, we believe you are focusing on risk-adjusted return and also on the mass market with collateralized credit lines. But if you think about other lines, I mean, how was the result of the testing you did in the last few months? What was the return you had in the vintages that you tried, and then you stepped back, and now you are advancing in collateralized lines? Because if we think about fintech, many of them are providing clean loans without collateral, so can you tell us more about this market where you played or did not play in the last three to six months?
Marcelo Noronha: Thank you, Daniel, for the question. I can tell you that we always look at the risk-adjusted return, even at the wholesale bank. If you talk to any one of our regional managers, they will say, I have a dynamic curve of the risk-adjusted return for every client, and that’s omni-channel. The officers can have that information on the mobile phone, on the tablet, and they also have a risk-adjusted return simulator, so you can work on the margin only if you have the right level of risk-adjusted return, because that is the target that our officers have to meet. And if we look at small businesses, individuals, and even high net worth individuals, when we do pricing, when we look at the price of risk, when we always consider that in every opportunity we have, in SMEs, we may have an RAR as high as 60%, but when we had clean loans, you could never reach such a high RAR. We were at the lower quartile, however, yes, we do provide clean loans in some selected clusters. Remember, we are a large payroll payer for companies, and so I know our clients cash flow. We also provide payroll deductible loans, and then you can have other types of relationship that come out of these transactions, so we do have clean loans, but only for very good credit rating clients. And obviously, we always work within a certain range of expected losses compared to the price that is the margin provided by each client. And when we provide clean loans, that is the case. However, we have to be realistic, Daniel. Individuals of lower income, who had delinquency issues in the past, have they fully recovered? Have they been able to repay all of their liabilities? Do they have a higher risk? I mean, we conduct a battery of tests, we are testing all the time, and I will tell you, Brazil is a blue ocean, there is risk everywhere you look, so you have to take care of your own portfolio. Of course, I respect the strategy of other players, but we feel very confident about what we have been doing to deliver results that can be sustainable. We do provide clean loans, however, that cannot hurt our results. I mean, unless you have a specific situation, a very large company, but it is not the case. And thank you for the question, Daniel, and please continue to observe, we work case by case.
Andre Carvalho: Next question from Mario Piery with Bank of America.
Mario Piery: Good morning everyone, thank you for the opportunity. I’d like to focus on the insurance group. 45% of the earnings coming from insurance, and we see increased profit in health insurance. In the nine months, it’s growing 66% year-on-year. So, Noronha, I’d like to understand, what are the drivers here, and can you maintain those level of growth next year, also in the insurance business?
Marcelo Noronha: The PNC profit grew 76% quarter-on-quarter. I imagine that this might have been some effect of the state of Rio Grande do Sul and everything that happened there. Perhaps you could explain the PNC phenomenon. I would like to invite our colleague, Ivan, to answer your questions. Ivan?
Ivan Gontijo: Thank you, Marcelo. I’d like to thank Mario with Bank of America for the question. So here’s your answer. The issue is group growth, if you work at the line items, it happened in all of the revenue streams of companies, products and segments, savings, bonds, health, pension, growing very in a robust way. And PNC, as you well observed. In the combined ratios, we can see a substantial improvement in this quarter in all line items, in all companies, in terms of the claims ratio. Of course, that gives us more robust results as well as we improve the operational part of the business. And that’s why Marcelo mentioned that our results had two-thirds coming from the operational part and one-third from the financial part. Just your question about health issues, we started adopting some practices over the year that started ripping the fruits now in Q3, but these are things that have been implemented since the start of the year, with some adjustments made regarding some excessive ease of the health plans and also tackling frauds. And of course, that led to a decrease in claims ratio for veterans with a better operating result. Prospectively, to answer your question, we are comfortable, we’ll continue to do this work, which I insist, we started at the beginning of the year and the results are only showing now, but this improvement should continue in the next quarter. Regarding PNC, that’s a business that has been growing with an ROE which is extremely solid, showing the robustness of the business and of the transactions. In terms of auto assurances and homeowners insurance, and the growth, you probably saw this. We have to compare Q3 to Q2, and Q3 and Q2 show events related to the south of Brazil. Those events were observed in the balance sheet of Q2 with comfort. And now in Q3, without these events in the south, we were able to grow the PNC business with more comfort, lower claims ratio and with a commercialization and administrative ratios which were extremely positive. This is how we can explain those positive results for both of the companies that you mentioned.
Marcelo Noronha: Excellent, Mario. Thank you for the question. I can end saying that we have good traction in all segments of clients and distribution of the bank is very strong also for the insurance business. Thank you.
Andre Carvalho: Thank you, Mario. Thank you, Ivan. Next question from Pedro Leduc with Itaú Unibanco.
Pedro Leduc: Good morning. Thank you for taking my question. I want to know about — and I guess that the years unfolding as planned in February, the first stage of ROE recovery came from last provision. You got that and then growing the portfolio, you’re getting there too. And the next would be NII and that’s starting. And finally SG&A in the future. So I’d like to get your take on this. If this sequence to improve ROE, first loan loss provision, then portfolio, then NII, if this is still valid, now that you have the new vintages, you have pricing and you have funding and gross NII can increase in the next 12 months. So that’s what I would like to know.
Marcelo Noronha: Thank you for the question and for participating in the call. I believe so. I think that we can continue in the trend that you mentioned and that you mentioned so well. NII will grow depending on the scenario that we mentioned, the portfolio mix. What you can promise? I don’t like to promise, I like to deliver. I haven’t seen this, it ran over. But what we have in mind is if we deliver an NII which is stable, let’s look about 8%, 9%, doesn’t matter high or low. If we deliver this with an adequate cost of provision, this is what we need to do. Because that’s our NII net of provisions and that’s why we use the risk adjusted return. We’ll continue to prove NII. The NII behavior will depend on the mix, because if I can originate movie role deductible loans, the INSS deductible loan, well it lost share but it is good. It gives me RAR for our channels. For external production, that commercialization cost is more complicated. If I can produce more, originate more, I will. This will bring us somewhat lower NIA than other lines but it will bring us more NII and will require very little provision. So this is the promise that we continue to have and our expectation is to grow our NII over time and deliver a more focused and ROE for the bank.
Cassiano Scarpelli: We should not forget the liabilities in spite of this NII that we’ve been working with. We do work not only with SMEs, with our cash tools and also now with our principal segment because we want to have greater principality in the high net worth individuals. So it’s a mix of things. And we’ll have the right trend and this will allow us to take the next stride along 2025.
Andre Carvalho: Thank you for the question, Pedro.
Pedro Leduc: Now may I ask about the L&M of the current portfolio? Do you have more hedging especially for the pre-fixed or the non-variable products?
Cassiano Scarpelli: Well, there is not a big change but I believe it is more neutral. Now, when I look at the portfolio and look at the perspective curve compared to our funding in our own capital, today it is more neutral.
Marcelo Noronha: No. We do not have more hedging but we’re monitoring the risk. If the rates go up, you have an opportunity to have gains on the liability side, but when you have volatility on the market, you also have opportunities in the trading portfolio and also in other business. So, our policy of not doing hedging continues. However, we have also reduced the risk using other levers.
Andre Carvalho: Perfect. Thank you. Thanks for the question. The next question is from Eduardo Nishio from Genial. Nishio?
Eduardo Nishio: Hello. Good morning. Thanks for this opportunity. Good morning, Noronha, Andre, Cassiano. I’d like to go back to the question about the transformation plan. You have conducted a number of changes. I’d like to hear from you about where you stand in the new compensation plan, both for executives and also at the branch level. I’d like to understand the number of branches. If that will continue to change, I think you had 5,300 branches in 2016 and now 2,300. So, you’ve had a dramatic reduction in the number of branches. Also about digital banking, if you could provide an update about the future and also the rollout of new platforms. You have just rolled out a platform for individuals. And what are your plans for the next quarters? Now, my second question is about delinquency and loan loss provisions. The delinquency seems to be quite well behaved, coming down quarter after quarter. But do you expect to go back at the same level before the pandemic? Will that happen? Now that we see a different situation in terms of credit?
Marcelo Noronha: Look, Nishio, about loan loss provisions, as I said, we are attracting better ratings, a safer mix, and so we will continue to see delinquency coming down. And this is something we believe we will be able to control. Unless, I mean, we have a surprise coming from large corporations, which we don’t really expect. So, I believe it may go back to the previous levels. Now, about compensation, this is the first six months when our compensation is based on individual evaluation. Of course, we have different waves. The level of responsibility of each executive is considered. All client segments are receiving incentives depending on what they can deliver. This is what we call extrinsic motivation, because we also have the engagement of our teams and our professionals. And we will see that at the end. Our compensation plan at all levels, both at the branches and here for executives. Each person is being evaluated according to the deliveries. I will now hand it over to Andre and Cassiano, because they will speak about our footprint. Now, about digital banking, I can come back to provide an answer to you, because we have been working with Tulio. Tulio has just joined the company. He came from the market. He will be responsible for a few products and the digital mass segment. So, we have been working. We will soon be able to provide more information. Now, I will begin talking about our branches. Oh, yes, I’d like to add, you spoke about the number of branches, but we don’t really look at branches alone. We look also at our service centers, because these are branches. They are business units. I mean, although they may have a different size, they’re still business units.
Cassiano Scarpelli: Yes, we are now at the level of 5,000 points of sale or points of service. We did see an evolution in the cost to serve. 1,041 points of sale is a big number, but we have not only a qualitative and quantitative analysis, but we also look at the behavior of clients. We also have our ears at the branch level to look at the behavior of clients to see if we have any kind of attrition and how our Bradesco Espresso is serving clients in each region. We analyze all of these points. Actually, for us to participate in the INSS auction, we have to provide this data. And we’ve been testing new models. Bradesco Espresso has gained principality. Marcelo spoke about how the platforms of Bradesco Espresso have improved. So that’s part of the vertical channel of client service, even non-account holders. So we continue to monitor, and we still have adjustments to make to improve our cost to serve in the mass market. So I believe we are in a comfortable position to attract the best profitability for the mass market. Would you like to speak about the loan loss provision?
Andre Carvalho: Well, when we look at our points of sale, we are advancing at a quick speed. We have actually anticipated future adjustments in 2024 and 2025. We have temporary expenses to conduct the adjustment. However, this will not be present in our operating expenses. So the impact will be seen as of 2026, right? We are still in a vicious circle because the virtuous circle will begin in 2026. Right, when we will have our efficiency level closer to the target of 40%. But it’s interesting to say that our plan is being executed. I mean, do we have perfect numbers? Not yet, but we will see a great impact of 2026. Now, about loan loss provisions, we’re always based on credit risk. As Marcelo said, we now have a vintage of higher quality, so we have lower needs for loan loss provisions. Every time we have a new portfolio, we calculate a new loan loss provision. The credit risk has come down to 3% now, which is very close to what we consider normal. It may even go up slightly, but still controlled. So we see a portfolio expansion with controlled credit risk so that we will have a better NII. And that is what truly moves the needle at the bottom line. And this is what Marcelo said. Thank you, Nishio, for your questions.
Marcelo Noronha: Turning to English, the next question comes from Tito Labarta from Goldman Sachs. Tito, the floor is yours.
Tito Labarta: Okay. Good morning, everyone. Thank you for the call and taking my question. I have two brief questions, hopefully, if I can. Just first on your deposit growth, we saw a nice pickup on your demand deposits, but savings and time were down a bit on the quarter and still haven’t really grown much on a year-over-year basis. Just understand the drivers of the deposit growth and the demand savings and time. Is competition impacting that at all or what’s the driver behind that and the somewhat muted growth overall? And then the second question was on your fee income because we saw good growth in asset management up 11% on the quarter, even though the investment funds and managed portfolios didn’t grow as fast. And also the loan fees were up 9% on the quarter. Loan growth was good, but didn’t grow that fast. So just understand the drivers of those two fee income fines if you can? Thank you.
Marcelo Noronha: Now, Andrea, Tito was asking about deposits, demand deposits. Yes, it has grown, but we can look at it in different combinations because with some clients we even pay because it’s good for us to have these demand deposits. So this number is growing. We can provide further information to you after the call. We can provide more details on this, but we are growing in demand deposit. We have a good level of traction in terms of our relationship with these clients. Now savings accounts, I mean, it is only natural. This is something very Brazilian and it is in fact a challenge for the real estate market. So, but we feel very comfortable vis-à-vis the competition. We have shown we are competitive, otherwise we would not be growing on these lines. But yes, we have things coming out of one line and into another line, but we are looking at all of this, trying to do better every day, delivering a non-friction experience to clients, be them micro companies, high net worth individuals, different clients using different channels. We’re always looking at providing the best possible experience. And let me open for you to add.
Cassiano Scarpelli: Yes, if I could add, Marcelo, I think it is important to say, and I mean, even Tito spoke about competition. Demand deposit and savings account, you always have market competition. That’s clear. I mean, looking for attracting clients using FGC and brokerage firms and investment companies are also doing that. And there’s a high demand for CDB, certificates of deposit. But I can talk to you, Tito, about our demand deposits. So demand deposits and savings account, although they are growing slightly, that is always connected to the principality of the relationship. When we open an account, we continue to grow 1.8 million accounts, even though we have adjusted our footprint. And the other element is improving our cash, the insertion, the introduction of our cash management. We now have client centricity in all of these lines. So we have a positive number in demand deposit, and we also have new transactions from FGC. So we see this migration and a higher demand for certificates of deposit. A Bram has received a number of awards as a wealth manager. Bram has received a number of awards, and $55 billion in assets under management. That’s also an important number.
Andre Carvalho: Yes, about asset management, we said that we had a $33 billion increase in AUM, now $55 billion, and now we have a performance fee because we had a great performance in some of our funds, so assets under management have been growing quarter after quarter. That’s helping us a lot. In terms of loans and services, that is something, I mean, in a number of lines, we may have a lower spread in a few credit lines, but we are having more cross-selling, and we have developed skills to work with that. That’s why, when you look at the top line, you are adding the revenues coming from insurance, fee and commissions, and also NII. And if you look at company clients, we charge fees, we have a monthly fee. And also, he asked about the capital market. You know that variable income, the equity market is at a standstill right now in Brazil, and that’s a pity for the market. However, fixed income is certainly growing. That is why we have more colleagues. We’ve expended the team because we see a lot of opportunity here, and we are adding value. We believe we will grow this quarter and also next year. This is the expectation we have in the investment bank.
Tito Labarta: Perfect. Thank you.
Andre Carvalho: Tito. Now turn it to Carlos Gomez-Lopez from HSBC. Carlos, please.
Carlos Gomez-Lopez: Hello.
Marcelo Noronha: Hi, Carlos. How are you?
Carlos Gomez-Lopez: Very well, thank you. So two questions on other segments. You mentioned the investments that you are doing in credit cards. You mentioned the investments that you are doing with ELO, and a lot of investment in debit cards. Does it make sense to continue to push the debit cards when perhaps they’re going to be replaced by PICS? How do you see that market evolving? And the second would be on your new segment, principal, how does it relate with Prime? Thank you.
Marcelo Noronha: Okay, thank you. Cassiano, you can speak about this dynamic of debit cards because there’s an initiative in the change bank regarding that.
Cassiano Scarpelli: Yes, Carlos, thank you for the question. We have been working exactly to understand this dynamic of debit cards, vis-à-vis PICS. And the trend is that we’ll work more and more with one channel, more digital, with less plastic. And this is part of these news that Marcelo mentioned. We will be communicating particularly in the mass market. But the investments are made to clearly maintain our status quo. But we have been doing a lot of work so that we won’t have any cannibalization, and so that we can have a direct, effective digital channel for our clients with less plastic.
Marcelo Noronha: But Carlos, let me say something. This cannibalization by PICS is natural, but the volume captured through debit cards is still significant. We see this in the bank, in the market, and we see that at ELO. So to us, this is an economically better business. Now, with the interchange being fixed and with this obvious cannibalization, it does make sense to send out plastic, as Cassiano mentioned. But they can use virtual cards. That’s what we’re working with. Virtual cards to be distributed to clients. So as long as we can maintain that — as long as clients want to use them, fine. And of course, we’ll be prepared for a natural evolution of that regard with PICS and debit cards. Now, the news segment compared to Prime, as you mentioned, we’re also working primarily with the clients because of the other. It’s not like we’re opening a new market front to gain new clients. Of course, new clients are always welcome. They want to open checking accounts with us. That’s great. We are inviting our own clients, but as of January, Carlos, you were invited to visit our new business office. And of course, new clients will be very, very welcome. But we already have the clients. They are with Prime. They’re being worked on. And the managers will be sitting side by side, so clients will have no discontinuity when they migrate to the new affluent segment. And we have been working with a remodeling. And we’re working on the value proposition of Prime. That means working with different account loads for the managers of Prime and with a much more objective value proposition for also the Prime clients. Clients want to have self-service, but they still want to have contact with their manager, their investment advisors, our colleague mentioned in the video. So it all speaks together. They are with this new segment, but we’re also working to deliver an even better value proposition to our individual clients.
Cassiano Scarpelli: And let me add to that, Marcelo, because I think that was also asked. The new segment is above the Prime. It’s superior quartile, 300,000 investments up to R$10 million. It is between Prime and Private. It is a qualified high net worth individuals. And it is to maintain both? Yes, we’ll maintain both. Prime for a lower category up to R$25, mass market, and then Prime, Principal and Private. That’s all for individuals.
Andre Carvalho: Okay, thank you very much. Next question from Bernardo Guttmann with XP (NASDAQ:XP).
Bernardo Guttmann: Good morning, everyone. Thank you for taking my question. I have one specific question about the behavior of the agribusiness portfolio. Looking at the rural portfolio, there’s a relevant delta between a growth of rural loans for individuals, which posted strong growth of 16% quarter-on-quarter against a reduction in loans from companies. What is the strategy of the bank for this segment, also considering this slightly more challenging scenario with delinquency in the sector?
Marcelo Noronha: Thank you, Bernardo. Well, actually, this was the only company’s portfolio that showed a drop quarter on quarter, because we had some settlements and some companies closing down. Bigger companies that went to the capital market, given the offering with good custody. And since we have a good penetration in individuals and they’re kind of mixed with legal companies in agribusiness, so we have a lot of collateralized business with these groups. So, 3% growth for rural individuals, but for the companies that were linked to bigger companies that accessed the capital market, because they had an attractive cost. But we stand strong in that sector. We have our distribution across the agribusiness belt of Brazil, and we have our support team, marine force, we have agronomists for the different segments. We have people well positioned for this, and we’re also moving in some news about that. This business we have with John Deere is something we want to close this year, so we’re starting next year full steam with them. So, that’s kind of the phenomenon that explains the difference between the two portfolios, but we also have a very good quality of risk.
Andre Carvalho: Our delinquency rate in the agribusiness portfolio is absolutely stable. Thank you, Bernardo. Next question from Henrique Navarro from Santander (BME:SAN). Navarro, please.
Henrique Navarro: Thank you. Thank you for this opportunity. Now, I’m sorry, I’d like to go back to a topic that has created some more noise in the interactions I’ve had. Not only it was very good to hear from you that maybe we should not look at why NII and sheer growth, but maybe look at an NII net of provisions. When you look at this number, 27%, it would be fine. So, my question is about the future. You have already shed light about the fourth quarter. You said you will continue to have accelerated growth, but what about 2027? You will look at client NII net of provisions, right? And looking at 2025, I know the guidance will come only closer to year end, but how much growth is based on risk of recovery market share? Market share that has always been yours in terms of principality, continue to have your previous share of wallet, and how much of that depends on gaining market share in the competition with other players, just so that we have an idea about 2025.
Marcelo Noronha: Thank you, Navarro, for the question, and thank you for your comments. Thanks for being with us. Navarro, I will tell you that I feel extremely confident. We’re growing client base and mass individuals, our high net worth individuals. I mean, we are growing. We already have huge base, but we are growing in the Prime segment. Look at the private onshore. We have also been gaining market share here. Our value proposition has become increasingly more robust, and we now have the new segment, the principal between Prime and Private. So, we have a great penetration in all of these segments. I believe that there will be a natural principality in line with our fair market share. If we did not have that, we would not have such a high level of traction. I mean, our portfolios are growing, and the portfolios that we want to see growing, delivering what we want to deliver to clients. We are growing in fee and commission income. I showed you how our credit card holders are transactors, and this segment of transactors is growing. So, we want to gain market share. We have gained a little bit, but not much. I mean, we gained share in this quarter, and we will certainly be well positioned. This is our expectation. But with the right portfolio, also in insurance, I believe we have great traction. We have been reviewing our footprint and growing the client base. Of course, many of these new clients are payroll-deductible law and clients, but we also do cross-selling with these clients. So we see that we have a great penetration in the client base, and with our fair share, we have everything needed for 2025 to be even better than 2024. As I said, we have a lot of traction. That’s why I feel so confident in all client segments and verticals. I mean, when we have monoline, for example, auto loans, but if you look at heavy vehicle loans, trucks and heavy vehicles, we have a very significant share, which we will further accelerate now with our business with John Deere. So, we have a great penetration in all business lines where we operate. The insurance group, as Ivan mentioned, I mean, and even I told you, we have a lot of traction also in the insurance group. I mean, look at our penetration. Look at our share. Our risk appetite has decreased a little bit, but we are now pursuing the right quality. This is our expectation, and we expect to deliver a higher top line and have a credit cost under control in 2025.
Andre Carvalho: Looking at client NII, there are three main drivers. First, portfolio growth. Marcelo and Cassiano were clear, telling you that we continue to grow those portfolios. Next, our cost of funding is below 5% of the CDI, and we are taking action to lower that even further, which will help us improve our client NII. And again, look at our spread, which is the risk adjusted return. We don’t want to have more spread with a higher loan loss provisions. We’re always looking at the RAR. So, these drivers will help us. The first two will certainly help us, and the third one, too.
Marcelo Noronha: So, thank you, Navarro, for your question. Now, the last question with Brian Flores from Citi.
Brian Flores: Hello. Thank you for taking my questions. It’s a brief question about the impact of the interest rate. Thinking about the market NII now, I think we are now closer to $2 billion in 2024, and looking at the scenario you described with a higher basic interest rate, do you believe that in 2025, could we dream of having an NII similar to this one, similar to the one in 2024?
Cassiano Scarpelli: Thank you, Brian. Obviously, we’re not talking about 2025 yet, but I can tell you that we have a more neutral view. I mean, we do not have our structure hedged, but we do have important action that make our liability management more neutral. For 2025, we still don’t have a clear view of what will happen to the market, so I prefer to talk about that when we publish our guidance. But I believe we have a more neutral position now for this new higher interest rate cycle.
Andre Carvalho: Thank you. Well, we’re closing the question and answer session. Those questions we were not able to answer here will be answered by our investor relations team. I’d like to turn the floor to Marcelo for his final statement, and I’d like to let you know on your website, you can find the whole package of our results.
Marcelo Noronha: Thank you, Andre. Thank you, Cassiano. I’d like to thank all of you for joining us today. Our team is always available, myself and Cassiano, also are available to answer any more questions you might have. We’ll be meeting soon, and I expect you to join in the next earnings conference call. Thank you very much.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.
