Banco Bradesco Q1 2025 Earnings Call Transcript

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May 8, 2025
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Moderator

It is now precisely 10:31. It is a pleasure to be here with you to disclose Bradesco earnings in the first quarter of twenty twenty five. So thank you very much for all of you who are joining us. So speaking about our net income, you probably all had an opportunity to read the earnings release last night, almost R5.9 billion recurring net income, growing more than 39% year on year and 8.6% quarter on quarter, with this level of ROAE of 14.4%. Is obvious that this result, the net income is a of consequence.

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I will speak about the causes. The main one, the main driver being our revenue in three different pillars, which I will comment on momentarily. And with a very safe portfolio, intensive use of technology helping to increase our productivity and of course with a strong result from the insurance group. These are the pillars of revenue, which are also a consequence. In a moment, I will speak about what's driving each one of these pillars.

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But total revenue was 2,000,000,000 yen growing 15% year on year. We have this absolute growth seen on the chart below. So total net interest, 13.7% increase year on year, 1.4% increase quarter on quarter. Fee and commission income increasing 10.3% and insurance growing 32.7% year on year. Should we get to the item or topic which is driving our NII, NII, net of provisions, suspended loan portfolio for BRL1 trillion, it's growing 4.9% year on year and 2.4% quarter on quarter.

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Excluding John Deere Bank, the growth would be so significant, 11%. And we can see in the chart the level of growth. So we had

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this is blocked

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each one of these segments of the loan book. In the visual, 16.2% with a relative growth. And micro, small and medium sized enterprises growing almost 30% year on year, wholesale banker growing 1.2%. And if we didn't have the exchange of depreciation, this number would be higher. But here in the wholesale bank, as I normally say, we got a lot of traction in each one of the segments of the wholesale thing.

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But there are quarters where the JPY 10,000,000,000 has increased and in another quarter, a decrease of JPY 10,000,000,000 for some reason. The capital markets here, DCM is very active. A lot of company getting loans. We are having issuances. We are participating in those.

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And we also have the secondary market with our origination book for distribution. If you look at the main publication, you will see a TVM reduction of the Wholesale Bank of 7,000,000,000 yen year on year. And I draw your attention when we communicated our results in February 8, on February eight of twenty twenty four, the cost of risk, the cost of equity was below 15%. Today, we would be above the cost of capital, but we are worried about that. We are looking forward because we have much greater ambitions.

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And gradually, we will achieve them. So looking at our book, we have traction in all of the business units and business segments, but our credit business unit has very important deliveries. We increased our headcount. We have intensive use of machine learning, better credit modeling, better credit policies. And in the last quarter of twenty twenty four, we expect that our risk appetite was more moderate for the year of 2025, and that continues to apply.

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And we adjust our models all the time. And we assess this relationship with the team led by Andre at the business unit. In each one of the segment heads, they have an excellent communication. We don't have a lot of discussions to step on the brakes when we need to hold back a little or the opposite so that we can have a risk adjusted return, RAR. So we are working with the ratings.

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And we have a lot of growth in collateralized portfolios. So I'd like to draw your attention to that. Individuals growing 16.2%. Rural loans posted significant You just have to look at our LTV of origination about 61%. You can find this in the main publication.

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And in the portfolio close to 52%, we continue to grow payroll deductible loans. Here for payroll deductible loans, among the private banks, we have the highest share, 14.3%. And here, we see an avenue of opportunities. For personal loans, we have good ratings. We follow the vintages one by one, and we have been growing with a lot of quality.

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In part of this is FGTS guarantee. Credit cards are growing in high income segments. This is what we see here. In the open market, we have been a lot more conservative regarding loans and for CDC. We also posted an important growth, another collateralized portfolio.

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As spoke about micro and SMEs posting 3.5% growth quarter on quarter and almost 30% year on year. And what has driven this for the company's working capital? This is growth, which is fully collateralized. Speaking about receivables and speaking about FGO and FGI, we have a lot of traction, as I mentioned in the past quarter. Same for rural loans, CDC and foreign trade finance.

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So we are very certain about what we are doing. We have consistent growth with an adequate RAR for our clients and for our business lines. And of course, this drive, this distribution capability combined with good models, good policies,

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good

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processes would not be effectively used if we didn't have a solid client base, a high penetration in all client segments, and commercial capability to make the business happen, not just with our army of managers in each one of the segments. And they've been working really well with very high engagement, but also counting on our digital channels and better and better CRM supporting all client segments. We grew based on that asset portfolio. Our net interest income growing almost 14% year on year And with a positive combination of cost of risk, we can see here 3%, it is absolutely stable. And with this, we had an NII net of provisions of KRW 9,600,000,000.0 growing 30% year over year.

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And we also had a good performance in our market NII. And the main driver here was ALM. And I was telling some colleagues in our internal presentation last night, I told them our ALM continues to work and work really well. We had volatility in Brazil in the last six months, and this gives us an opportunity to make some moves working not just during the quarter, and they did that from January to March, but also looking forward and focusing on the first quarter of twenty twenty five. We had high activity with a lot of traction in the Wholesale Bank, and that creates a lot of business for our client desk.

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And of course, there is a pass through in the for trading, via trading. The more activity or treasury activity we have with the Wholesale Bank, the more successful the trading is. And there was a third line item, which was smaller and that is developing with good origination is the Energy Trading Desk. It's not as material as trading or ALM for us, but still we have that energy desk. Client NII, 16,800,000,000.0 and growing 15.5% year on year.

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NII increasing to 8.6% from 8.4. And more than this important growth, in my view, is the consistent growth of our client NII quarter after quarter and with quality in our loan book, and we are going to explain that more. And also client NII, net of provisions that grew 36% year on year, 5% quarter on quarter. And again, we'll look at the bar chart, and we see consistent growth in terms of our client NII net of provisions because this has a bearing on our bottom line. The quality of our portfolio is not debatable.

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We have an over ninety day delinquency totally under control. We have the share of the loan portfolio by stages already with resolution for September. So we have some regulatory, additional regulatory topics imposed by the Brazilian Central Bank. But the way we see this, 92% of our portfolio is on stages one and two and with a higher proportion. And in the stage three portfolio, 35% are up to date.

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So they are paying. And also in terms of collateralized portfolio, we have this 54% to 57% in percentage with guarantees. When we focus more on loan origination, this number is even more important for us. Another important element to highlight here in this quarter is exactly the restructured or renegotiated portfolio, whatever you prefer to call it. But this is a legal obligation by Resolution four thousand nine and sixty six, restructured portfolio, problematic assets, secured operations.

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So regarding Resolution 4,966, it's important to tell our investors by side and sell side that this has that the resolution has its own characteristics, and it forces market players to treat certain elements in a certain way. This is in the complete publication in our explanatory notes. It explains each one of these concepts, and our team is available to you to discuss these items whenever you feel like it. So what I would like to stress here is that in the year 2024, we had a total portfolio of JPY 39,000,000,000. We reduced JPY 500,000,000.0, and we get to this total portfolio in December.

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So we reduced BRL 4,500,000,000.0 in 2024. In one quarter, in Q1 'twenty five, we reduced it about BRL 3,000,000,000, twothree of what we reduced throughout 2024. So we are trending towards an even smaller portfolio considering these criteria. Another growth driver of our result is the set of fee and income or fee and commission income. As you can see, I'm not going to address each one of the topics, but we grew practically in all of the items.

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Have high activity even in card income that is growing here in the best portfolios of middle income, high income. But we have two topics which I would like to underscore. Consistent growth of our consortium business and also asset management and capital markets. Our IB, Investment Banking, grew year over year 76%, and we continue to have a robust pipeline. So we're continuing to give this business more traction to do business in our Wholesale Bank, combining all Wholesale segments with our IB, both in terms of fixed income and M and A and repo operations.

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So this is another driver of revenue that brings us results. And it is boosted by our commercial activity and our relationship with our clients. Operating expenses, as you saw, 12% growth year over year, a reduction of 8.6 quarter on quarter, and I'll speak about this. We reviewed our footprint. So we have been reviewing our footprint with a lot of discipline and organization, achieving numbers that are higher than what we had planned.

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We had 1,400 close to 1,400 branches closed. So I have been mentioning this to you quarter on quarter. We have to include CLO and LLPAR. Part of CLO is in LLPAR. I'm talking about LLPAR, CLO, LO, LLO and CLO itself.

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The growth of our revenue is 8.8%, but we integrate everything in our balance sheet. And when we look at personnel and administrative expenses, we look at the growth year on year, slower than inflation. So I have a lot of control here. But it is also important to highlight that this is not bad, it's good. We have a transformation process underway at Cielo.

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We have been investing in Lavello and other companies as well. They've been bringing revenues and results to us. It's accelerated. Distribution is good. Our insurance group continues to bring results.

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We have a smaller set of employees. With the insurance group, some more because they are also investing in growth just as our related companies here. We also grew in technology, in our credit business unit, in our CRM, in our data analytics department, in the enterprise segment, in the principal segment, in our corporate segment, which is our middle market. So we continue to invest, but expenses under control.

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Now the insurance group, we also see a lot of traction. I'd like to highlight two drivers. The ROAE, very high, 22.4% in this growth year over year, 25.3%, reaching 30,000,000,000 yen revenue from insurance premium, pension contributions and capitalization bonds. So as you can see here, our technical provisions are now €414,000,000,000 growing a bit more than 11% year over year. And two main drivers here: good management in each one of the pillars a very good combined ratio in each business line and commercial capability using external channels and internal channels increasing our penetration in the customer base and bringing revenue growth from the insurance group.

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And now talking about capital ratios, the Basel ratio has grown 13%, and we see the JCP limit will be distributed throughout the year. Our guidance for 2025, as we look at this guidance I mean, we have an annual guidance, so that's for the whole year of 2025. However, we are trending towards delivering this guidance. At the end of this presentation, I'll make a few comments about this again. And so let me now move on to our final slides talking about our strategy.

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First, Bradesco Principal. We launched this initiative in October with three offices. We wanted to reach 50,000 customers, and we have done so. We now have approximately 50,000 clients. We will now open 45 new offices this year, expanding service and the managed model for the middle market and corporations with more than 10 different platforms for the middle market.

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That has helped us grow our assets and the relationships with small and medium sized enterprises. We are leaders in this segment, and we continue to grow with secure loans, with a very safe loan portfolio, and we continue in our cultural evolution with Sobradesco. More than 1,400 people have been hired in tech. And there are two more elements I'd like to speak about. Productivity in tech, we've been able to reduce the delivery lead time by 32%.

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And this delivery, I mean, in terms of applications, we've grown more than 53% in terms of business development hours, not only because we have a greater team but also because we've improved productivity. And now everyone is making intensive use of GenAI, including Copilot, much connected to our tech modernization initiative. We have enterprise agility with our tech squads throughout all levels of the organization. And our developers are using our Gen AI, using our Gen AI, we call BIA TAC. So one thing is BIA Gen AI that is already serving 768,000 customers.

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Very soon, all our customers will be able to use our new BIA. But we have our corporate BIA for employees, which reads and rates our stories, and that has improved our productivity significantly. We've had a 46% efficiency gain in our developments. So we are using Gen AI intensely to build our path towards using multi agents. So we set up a squad with eight or 10 employees, a developer, someone for product, and you will have one specific Gen AI for each pillar.

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So all the squads will be using Gen AI to improve our productivity significantly. So we can certainly provide more color on this if you have any questions. But I'd like to speak about all of these deliveries. Yesterday, we disclosed two very important points. First, we've promoted two of our colleagues to be directors in our legal department.

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Afreno, who's been with us for a long time in the company, he's a very promising young attorney who will now take on all litigation activities in our legal department. The other new director is a colleague who has a strong relationship with our customers in wealth, banking, and he is Marcio Renato, who will be our new Legal Director, also supporting GlobalPrague and all other business lines. For example, the investment bank needs a lot of support in writing contracts. And we have another Executive Director who will join us to be part of the legal team, bringing his vast thirty five year experience in one of the best law firms in Brazil, Pinedo Neto. His name is Giulio Bueno.

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He will join the bank. He will start working with us as of July 1. We feel proud of this new team leading our legal department, of course, with all other colleagues in our legal team at Bradesco. Now let me move on to my conclusions. Let me tell you that our growth, our net income growth is based on revenue, and that will continue.

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So revenue from different business lines and controlled expenses. Our loan book is under control. Our view based on our AR, looking at every vintage. So we continue to work very closely in our loan book because the quality of our assets is not negotiable. I always tell our team that quality of our assets is something we cannot negotiate.

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So that is why we have continued in this path step by step in a good track. And as you've seen, our transformation plan is now being executed in acceleration and very well done. So thank you for being with us. Let me now invite Cassianus Carpelli and Andre Carvalho so that we can answer your questions. But I still have a few brief comments before I give you the floor, if I may.

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I mentioned our guidance. And now what happens with our annual guidance? You've seen our expanded loan book. We have delivered above the guidance. The NII net of provisions also has a great number, so you can project our trajectory in the next quarters.

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So we're delivering above the guidance. These numbers will trend towards the guidance, but one thing is for us to be at the top of the guidance. The other thing is for us to be above the guidance. So if you look at these three lines, we are above the guidance. So that's the first thing we see.

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But so why don't you review the guidance? Well, because we are still within the ranges disclosed in the guidance. However, if it's necessary, we will be willing to review the guidance in the second half of the year. The second comment I'd like to make, I had a conversation with journalists, and I got an interesting question from a journalist. I mean, if we believe we will have growth of 8% or 10% quarter on quarter, I answered no.

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We continue to bet on slow, consistent growth step by step. We have not changed our speech. We have a plan. We have not interrupted our investments. We continue to follow our plan with a lot of discipline.

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But my view is that right now, we are at the top of the basic interest rate, the SALIC rate. So the margins, the NII, they are more under stress when you are at the top of the guidance. So what we expect is that there will be challenges in terms of NII. But my view for this year is much more favorable At the midpoint of the guidance, we are trending towards the top of the guidance.

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From the mid to the top of the guidance, I believe we will deliver a result above this guidance. So I do feel optimistic about our performance. Although we see a slower growth in the second half of the year, this is what our economists have told us. But we still feel optimistic in terms of growth because we see lots of opportunities to continue to grow in individual loans, payroll deductible loans. And regarding company customers, we can continue to grow loans with collaterals such as receivables, CGI, CGO.

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So that will help us grow our NII. As we look at service and commission income, what are the offenders and what is driving the growth? Well, by the June, we may see a charge for instant transfers or PIATs. But we feel we are in a very comfortable position. Also, we will be launching a

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new cash model.

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And when I look at the bright side growth, I can see payments growing healthily as the main driver in revenue from service. And a few related companies, such as the consortium and but also payments will bring us more commercial traction and revenue. The third point I'd like to mention is the investment bank. I said we have a robust pipeline, and I believe we will also deliver a good performance this year. And the insurance group, I've already mentioned.

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So all in all, what drives our optimism is the loan book, a very secure loan book, good credit lines, higher intermediation margins and more revenue from the insurance group. This is going to help us close a good year in 2025. That was it, Andre. Thank you, Marcelo. Thank you, Pasiano.

Moderator

Good morning, everyone. Let me tell you, the CEO of our insurance group is also with us. He is online. So you can ask your questions in Portuguese or English. You can send us your questions in writing using the WhatsApp number on screen now, or you can send us your question using this e mail address.

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First question from Thiago Batista with UBS. Hi. How are you doing? Good morning. Congratulations on the results.

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I think it was very strong across the board. My question is about the ROI of the bank. Moroni, you mentioned an ROE of 14.4% and you said that you naturally aim for a much more robust return for the bank. At the beginning, two or three years ago, you had said that the initial metric was to achieve the cost of capital. But now you said you want to fly even higher.

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So my question is, when we look at it by segments, we see the Insurance Group and ROAE of 20%, which means that the banking operation has returned close to 10% or slightly under 10%. So what do you still have to normalize? What are the main segments? Is it retail, wholesale, SMEs? I mean, what are the big boxes that you have where you still see some room to bring the ROAE to a higher level?

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I'll ask Cristiano to answer, but I'll start. Thiago, thank you for the question. It's a pleasure to have you on board. Well, it's basically mass retail. This cost to serve is something we've been correcting.

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Over time, this will bring us a different level of return. For example, the Wholesale Bank. The level of RER is high in all client segments that we have. I'm not talking about IPO or global markets because that requires much less capital. Global private is high 30s to 40.

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High income segment, the same. The principal clients, I mean, they are impressive in terms of level of return we have. And that applies to prime as well. With SMEs, we reversed the trend, and it's increasing. So that's what we are working on.

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And of course, we are investing to gain productivity. As I mentioned, Kassiano, you can complement. No, that's exactly it. These are the levers. Productivity is one of them.

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And of course, the effect of our cost to serve in our mass retail, this is what's going to give us the final leap to improve our ROE. Thiago, thank you for the question. Next question from Daniel Vaz with Safra. Congratulations on the excellent results. It's clear that the bank has traction with good indicators.

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I'd like to take this moment with you to hear a bit about what we didn't read in the readings, which is the part on private payroll deductible loan. A lot of people are discussing projects. I'd like to get your take on this because you have a big market share, about 15% in the traditional payroll deductible loan. So what will be the position of the bank? Would you have flexibility of everything?

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Or how are you planning to operate in this segment? Thank you for the question. Well, I'm going to give you some of my own perspectives. Sorry, Daniel. I called you Thiago again.

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Sorry, Daniel. It's a pleasure to have you. Anyway, here are some points in our review regarding that. Number one, we believe that here lies a great opportunity for Bradesco. You see, we have 14.3% market share of payroll deductible loans in the public setting at different levels of government, INSS and private.

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But with private deductible loans, our shares lower. Our share is much lower there. And private payroll deductible loans take up small space, just about 6% of the whole 14.3%. So among the private payroll deductible loans, we are the biggest in terms of share. So we understand that here there's a lot of growth coming from this.

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Perhaps the question should be, why is it that private banks or perhaps the mainstream banks, incumbents have not yet presented a great origination here? Well, there are some important variables here. Number one, the client base that already had a payroll deductible loan increased between April according to Doctor. Prev. Until then, there was an origination of BRL 8,000,000,000.

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So from our standpoint, what we did was we had an initially defensive strategy. Other more active organizations might have operated with their agreements in force but using a new channel. Others did not see I mean did not see these clients that are or did not look at these clients that already had a a payroll deductible loan. So I suppose you had an agreement with me, Bradesco had an agreement with your company, and then you apply for a loan and perhaps an organization offered this loan to you. But when that base increases, there is no more margin.

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So this is a credit with a clean risk. And that's why some organizations, even smaller organizations, which are more focused, have offered a slightly higher price with smaller tickets. Yesterday, there was another meeting of the working group with Adapted Prep, February Band of Federation of Banks regarding portability of these loans. So this is an organization that is closing. And of course, we will now move to a more aggressive, active strategy rather than a defensive strategy regarding our client base and regarding the market.

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So we see a good growth expectation perhaps starting June or July when everything is very well oiled. And I would like to add one element, Daniel, that I think I should remind you of. We continue to have room to grow in public payroll deductible loan, INSS deductible loan. But the level of delinquency of these two line items is a much lower delinquency I'm going to give you a general number, okay? General market number.

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The over 90 NPO is probably 2%. In the case of private payroll deductible loans that we currently have, our delinquency is more than double that. So approval is not just of the individual. We take into account the individual and the company that pays the salary of this individual. But in the market, and this is marketing information, is that the existing private deductible loans, I don't see this in the large banks.

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I think that the large banks have also a very low delinquency level. But I guess it has a delinquency rate that is higher, to 9%. So here, have to work with good models looking at the individual and the company they work for. So these variables are on the table so that we can have the right pricing, okay, Daniel. But we will be fighting for our market share.

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The next question comes from Mario Pier from the Bank of America. Mario, congratulations on the earnings. Now I'd like to hear a bit more from you about the insurance group. I believe the market does not yet appreciate the value of the insurance company, growing 25% year on year and accounting for almost 40% of the net income. We've seen lots of improvements.

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The level of claims has fallen or the claim ratio has fallen. So I'd like to hear from you whether you believe you can keep the same level of growth and the same level of claim rate. So I mean, to what extent are these results sustainable? Andre?

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Yes. Ivan is also here.

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But when we look at the insurance earnings, twothree came from production and onethree came from the financial portion. But production had a bigger weight, and that's what provides us more confidence that this is sustainable. So also, you spoke about the improvement in the claim rate. So of course, you have some seasonal effects and a bit of volatility, but it's trending down because of investments we've been making for a number of years to improve the claim rate. And we are now harvesting the benefits of this initiative, especially in health insurance.

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So we trend towards a lower claim rate. Actually, the first quarter was not even so favorable, and we do have noise along the path. But there is a very good trend down the claim rate. And because we have a lot of traction in sales, again, that is good for the insurance group because that will drive sales, that will drive the premium and bringing the claim rate down. So that's the improvement we expect both in production and also in the financial portion with a higher basic interest rate.

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So we believe the performance will remain consistent. We could see the ROAE 2.6% above the first quarter last year. After many years of improvement, we continue to improve. So insurance is one of the lines that Marcelo highlighted. We want to be closer to the top of the guidance, at least above the midpoint.

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Mario, let me add. And also, Ivan is here, and he can also add if he wants. But here, we see also our strategy. The associations we now have with hospitals to improve the efficiency of our health insurance, we're growing our network of health care providers. And that also helps us control the claim rate and the cost.

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So the combination of these figures give us excellent earnings. And our concern in each one of the verticals, we want to always work to improve our operation and a very strong distribution. I mean if you look at the future, we do see room for more improvement. Also, look at the penetration of insurance in the Brazilian GDP. We have a lot of room for growth, and I do believe we can have a higher penetration of insurance products.

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And of course, we will continue to work hard to improve this rate of insurance over the GDP. And all our colleagues are working towards the same goal. Now Eva, do you want to add to this answer? Thank you, Marcelo. No, I believe Andre provided a very thorough answer to Mario.

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But if Mario has any further questions, I shall be available to help. I learned from you. Anyway, the next question comes from Gustavo Schroeder from the Citibank. Congratulations on the earnings. It's very good to see this traction that the bank currently has.

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Now Marcelo, what is the level of comfort that you feel in terms of more growth in your loan portfolio? We can see the bank clearly has capacity to manage risk. And as you mentioned, delinquency is lower. The quality of the loans is a mantra for you, as you said. But I'm also looking at the country's economy, inflation up, a high interest rate.

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So what do you expect in the next twelve months looking outside the bank's borders? Because that may lead to a slower growth in the bank. So how do you view these aspects so that we can also feel confident that the macroeconomic factors will not go against your very well done work. Thank you, Gustavo, for your question. I'll be very candid.

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Loan portfolio growth, as I said, our risk appetite remains moderate. Since the last quarter of last year, we said that. So one thing is risk appetite. The other thing is model adjustment, credit policy adjustment. So if you look at the concentration of loans, it is down.

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In the largest customers, the concentration has fallen. So although we have a moderate risk appetite, we see great opportunities because we have a large customer base, because of our penetration capacity, but we want to grow in secured loans. In payroll deductible loans, we have 14% market share. So we have an opportunity to continue to grow regardless of macroeconomic factors. So private payroll deductible loans are also an opportunity.

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But in public payroll deductible loans, we still have lots of opportunities to grow. Let me remind you, our book is now about EUR 100,000,000,000 in payroll deductible loans. The second front would be working with agribusiness, always customers with good credit ratings. I mean, in this segment of the economy, either cattle breeding or agriculture, when you look at the different segments, for example, corn, corn prices went up. They're now down closer to 50%, but farmers are well compensated.

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As well, sometimes we do see issues, but not now. We don't see any problems in terms of these prices now. So this market can bring us a lot of opportunity to grow our relationships with the current customer base. Even the Xuan Diaz Bank, we are now the two teams are now working together. We're reviewing the guidance for this year.

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And in terms of small companies, Gustavo, in fact, I've shown you a ranking. Well, this information is open to the public. So looking at FGO and ProName, why don't you check the ranking of financial institutions? You will see Bradesco currently has a lot of traction, so we keep a close eye in this market. And we're working with receivables, FGO, FGI in terms of collaterals.

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And the same thing, we want to grow agricultural loans but always with collaterals. So what do I see? I see that we have a great potential ahead of us. Obviously, when the economy grows slower, and that may happen in the second half of the year, So a few demands will be lower. But in these specific lines that I've mentioned, I have great confidence that this is the right track for us to deliver good margins and good net income even in the second half of the year without having any interruptions.

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So that's why I say the drivers are these three main lines. So always secured loans, loans with the right collaterals and all the activities that will be related to that. NPS, for example, these are the fees generated by our robust pipeline, which we've had even in the first quarter. So I do feel very confident. Why don't you have a look at the FGO ranking?

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Last year, FGO plus FGI, these two collateral lines, these two guarantee lines, we've had an origination of 89,000,000,000 yen I mean that's what the market did So these are numbers that you should watch and monitor, and then you will understand what I say and possibly feel the same level of comfort as I feel looking at the quality of our loan book, which, again, is not negotiable for us. So thank you, Gustavo, for the question. Good to see you.

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Next question from Pedro Leduc with Pitou BBA. Congrats on the results. Thank you. My question is about LLP. LLP in the quarter increased at the same level of the quarter, about 2% quarter on quarter with a very stable cost of credit.

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The question is that the pace of LLP compared to NPL formation was much smaller, but it's not easy to get this conclusion. So I'd like to help on this because some things changed. And the NPL formation is not in the release, fifteen ten ninety NPL is no longer in the release. So I'd like you to elaborate and to help us consolidate this because these slight changes perhaps doesn't make any sense to look at NPL formation the way we used to because 15 to 90, they changed, and perhaps that's why you're not communicating this. But I just want to understand the pace of loan loss provision versus NPL formation Stage three.

Moderator

What is more relevant? What should we be looking at looking forward? Pedro, thank you for the question, and I'll ask my colleagues to answer that. But I'd like to stress one thing that you mentioned, which is important. Indeed, we were not going to mention NPL creation in the fifteen to ninety day NPL, but we did include it in the presentation.

Moderator

NPL formation or NPL creation went from 109 to 98. And our 15% to 90%, was 3.4% last quarter, flat 3.4%. And a year ago, I think it was a little over 4%, four point one %, down to 3.4. So indeed, this doesn't have a lot of sense. Doesn't make a lot of sense.

Moderator

So I'll let Caciano and Andre complement the answer. It is exactly what you said, Marcelo. With Resolution 4,966, we will have to adapt and look at this new concept. So Stage three is super important. I liked Andre's explanation of Stage three.

Moderator

He will mention this. But Stage three is our main topic to pay attention to. There's not much comparability with 109 against 98 in the last quarter. That shows the robustness of our loan book. The WLO the legacy WLO model can no longer be done.

Moderator

So this leads to a new way of looking at our loan book. So we have to look at Stage three quality. Our LLP compared to the portfolio, which has remained stable around three percent. So that attest to our ability to grant loans. Andre will comment on this.

Moderator

I just want to add something. You see, Pedro, I think that in the complete publication, there is a table where they reconcile what were stages one, two, three, what was included, what was excluded. And I think that this reconciliation is crucial for me. And I think that you should monitor that from now on. So what was done with 04/1966 regarding write offs?

Moderator

Because we can have a more lenient term. We can change over 90. We don't lose portfolio because we are no longer writing it off, which did not happen to us, by the way. Okay, Pedro, we kept exactly the same concept we had with twenty six point eight zero two, same write off period. So you can compare apples to apples.

Moderator

Andre? Okay. So what changed in the accounting regime in terms of quality of assets is that until Q4, we looked at the operations in arrears more than ninety days, over ninety day NPL. That's what we announced. 98% coverage in Q4 provisions compared to the over 90 provision.

Moderator

Before nine sixty six, we changed this to Stage three. Stage three is a broader look and has almost double the value of operations, classified as more problematic. So we have over 90% and the problematic ones, over 90 increases. And in Q1, problematic ones drops the problematic assets drop. So what in the economic financial analysis report, Page 18, we have a table of Stage three moves, and we see what was included from Stages one, two to three, the cured operations and what was originated.

Moderator

Because the total put the provision in the numerator, we get to 109 coverage. So in a broader concept of quality of assets, we had 109% provision in Q1 'twenty five, which to us seems more than adequate. And if we get expected LLP 8 billion, give or take, we'll get to this 109 percent coverage. And that's how we have to look at this. It's good to read our explanatory notes because since last year, we made these movements very, very clear.

Moderator

So it's expected loss and divided by Stage three. That's what we should look at. And during the presentation, in the explanatory notes, we have all of the criteria used with Resolution four nine sixty six in detail. So thank you for the question, Pedro.

Operator

The next question comes from Jorge Curie from Morgan Stanley. Jorge, the floor is yours.

Jorge Kuri
Jorge Kuri
Analyst at Morgan Stanley

Thank you. Good morning, everyone. Thanks for the presentation and congrats on the number. Can you hear me? Yes.

Jorge Kuri
Jorge Kuri
Analyst at Morgan Stanley

Thank you. So I wanted to explore part of the answer that Lorongia gave at the beginning of the presentation, why you don't think you can get closer to the top end of the guidance, which was basically on the market NII. And Noranda, I believe you said that with rates now peaking, you think that the next few quarters are going to be more challenging. So could you please maybe elaborate on what that means exactly in terms of numbers? You're expecting a negative result on market NII for the next couple of quarters because if it's just a bit smaller than the first quarter, which was $462,000,000 It's just really hard to see how your net income is not going to continue to grow from the first quarter number because of operating leverage, much better seasonality as we move forward.

Jorge Kuri
Jorge Kuri
Analyst at Morgan Stanley

And then that gets you to CHF 24,000,000,000, 20 5 billion in net income, which is not far from that CHF 26,000,000,000, which I believe is the upper part of the guidance. So maybe drill down a little bit of that, if you will. Okay.

Moderator

So let's speak about market NII, which is super important. Marcelo kind of touched on this, on the work that we do at our treasury. It is very focused, strong work. We were seeking the best opportunities, and it was not different in this Q1. It was very important to consolidate our ALM, a market that was very volatile in the last six months.

Moderator

But we could work strongly on this concept of protecting our ALM or our prefixed portfolio. Indeed, we see Q2 being tighter. I'm talking about market NII between BRL 0 and BRL 1,000,000,000, which we confirm. We think it's very feasible throughout the year, And this will lead us to have a certain robustness in managing the ALM. Treasury, as Marcelo mentioned, trading, there are a number of opportunities.

Moderator

So we understand that the soft guidance is valid. It is sufficiently well protected. By this protection work that we did, worked to create value in our prefixed portfolios, and this is what's done by our treasury. So I think that in that regard, we are doing very well. And looking at our guidance, we normally are at the middle of the guidance.

Moderator

And that's how you evaluate us. Marcelo is talking about the upper range. So when we look at both ends of the guidance, it includes the potential of looking above the middle of the guidance. I think that this is fundamental to keep us attractive. We consider this as a very positive trend for the next nine months.

Moderator

And Masaru mentioned, if there is a need for adjustments, we'll make adjustments to the guidance, and we'll communicate that. Would you like to add, Andre? And also the income tax rate to do the implicit calculation in our guidance. We were talking about a rate between 1923% for this year. But in the March, the National Monetary Council increased TJLP, potentializing the payment of interest on capital.

Moderator

We understand that for our stakeholders, we have to enjoy this benefit to the most. Increasing the benefit, we reduced the rate. The most probable range would be between 1821%. So at the midportion, it would fall from 21% to 19.5%. And with that, we kind of adjust of the implicit income in the guidance that you can calculate.

Moderator

But I would like to stress what Kassiano said. Jorge, we are more optimistic, okay? Looking at client NII, the expectation was to grow 14% in the full year, right? Yes, to be in the middle of the guidance. Yes.

Moderator

The next question comes from Rosman. Congratulations on the earnings. My question is about the profitability or the income growth. You said the recovery will happen, but it's gradual. So sometimes when you look at just one quarter, it's difficult to have a general view because maybe in this quarter, you are building the foundation.

Moderator

And on the following quarter, you may have a higher net income. But we saw a leap between the Q4 twenty twenty four and Q1 twenty twenty five. Today, I feel you are more optimistic. So was there any surprise internally? I mean did you have a better reaction to change?

Moderator

Did the loan book grow more profitable? Or maybe you were talking about lower income customers that are more active again? Or was it funding? I mean can you help us understand this leap between Q4 and Q1? UNIDENTIFIED No.

Moderator

These are not customers that have become more active. No. This is our penetration in the customer base. Without that, we wouldn't have so much traction. Even though we could have new investment groups, new processes, I mean, you don't have the right level of origination, if you don't have a good penetration level in the customer base, then it's more difficult to sell.

Moderator

For us, we see growth in sales, and that is the plan we have growing with quality, growing with quality in credit lines, quality of our credit models, quality of our credit policies, whether you're talking about automated loan approvals or otherwise. I mean we have our criteria to make loan decisions. So when we prepared our budget for 2025, that was back in October or November 2024. So by then, we looked at 2025. We prepared the guidance.

Moderator

We had a discussion about volatility on the Brazilian market. We also had a discussion about changes in The U. S. Market, a higher interest rate. So then the NII, the market NII could have been a bit lower.

Moderator

But so then in October, November last year, we made a decision not to stop our transformation initiative because we believe in the short term and also in the long term. And yes, we had a few good surprises. First, productivity gain with our technology squads. Grossman, we expected that already, but it was better than expected. So these deliveries are extremely relevant because sometimes, it is not a new application.

Moderator

But we continue to have developments in the company. We're reviewing our KPIs so that we can monitor each business very closely. We have reviewed our legacy systems, which would provide an experience to customers, which was not the best. But as we modernize that, that brings benefits for the future. But again, we realized that we have a lot of traction.

Moderator

We have a high penetration in different customer bases, and we still see a potential for growth in secured loans. It is loans that are fully collateralized. I said that already, and I'll repeat now. Please have a look at the collaterals provided by FGI and FGO.

Moderator

This is

Moderator

public information. And so you will see, last year, in both of these lines, I mentioned that we ranked second with a share of approximately 18%, eighteen point three billion or BRL 18,400,000,000.0 of an overall origination of BRL 89,000,000,000. So I suggest you will check these two lines, FGI and FGO, because you will see that we have a lot of traction. In our Bradesco Espresso, and I didn't mention it today, but Bradesco Espresso has almost 300 islands. That's different from the traditional points of sale organization.

Moderator

Now we have these islands, and but the level of productivity is much higher. In these two platforms we've delivered, the growth is more than 100% compared to the traditional channel. And you can see that in our press release. So what is good is that we continue to have a lot of traction in the loan book. We had a more defensive position in terms of growth, but we could see we have a big potential to continue to grow, and we will go for it with the right ratings, with the right collaterals for both individuals and small companies, another very good line of business.

Moderator

But you see, this is not casual. This is because we made the right investments in the loan book, in commercial initiatives. We've expanded our investment bank team. And then what happened? Well, the pipeline grew.

Moderator

And also, fee income grew more than 70% year over year, right, in the first quarter. So yes, we had a few good surprises. But based on the hard work we've been doing, right, Andre Cacciano, I'm not sure you would like to add. Yes. Well, I agree with you.

Moderator

But it's always about people. It's always about our team. Look at the level of engagement. That's really important. Look at the new model of our culture that can engage our leaders, that can engage our associates.

Moderator

And the determination of our sales force now in this transformation, I mean, we've had four great balance sheets. And so we have to continue on this path because we truly believe in the value of our franchise, the value of our brand. Yes, that's important. I agree with what Caciano said. The level of engagement, I have recently last week, I went to Miami, and we have a transformation initiative in the BAC very much connected to our private bank and the principal segment because that's all part of our value proposition for high worth individuals offshore.

Moderator

And we now have 150 associates in The U. S. We had a town hall where we could see a high level of engagement, everyone working on this transformation initiative. I also went to Fortaleza. I spoke to customers.

Moderator

I went to Belem. I went to Ribeirao agricultural trade show, and I could see a very high level of engagement. I have to thank you because I can see our leaders are highly engaged And our teams throughout Brazil, right, Andre, in all segments, in technology and support, a very high level of engagement, Rosman. That's why we make it happen. I feel this is a bright moment for the organization.

Moderator

Everyone knows what to do. We know where we want to go, and there's a strong belief and a high engagement. That's why we are delivering more earnings. The next question comes from Enrique Navarro from Santander. My question is about capital.

Moderator

In the last few months, we've received a number of questions about Bradesco Capital. I'm sure you've also received questions about this. Actually, two questions: the quality of common equity, the quality of the capital. And the other question from investors is that in a new moment of growth, maybe Bradesco will be more fragile in terms of capital compared to other competitors. From everything we heard, we could see that in the first quarter, Bradesco is at a higher level of income with quality, and that should continue in the second and third quarters, maybe not with an expansion but with stability.

Moderator

But then in the second half of the year, we may have tailwinds. And then so maybe Bradesco will have another leap in terms of quality and income. But now do you have the right capital structure to face a growing demand that may happen in 2026 in Brazil? So I'd like to hear from you because this has been a frequent question from investors. But now, of course, looking at the great results that you are presenting, this concern is not so present.

Moderator

But I'd like to hear a bit more from you. Thank you. Thank you for the question. I think Kassiano can answer your question. But let me tell you, I would love to have a problem of having to face such a relevant growth because the fact is that we feel very comfortable looking at the plans we have.

Moderator

In terms of capital structure, I mean but we're growing our revenue so quickly that maybe we have questions about the capital structure, which we don't really. Well, we started a project last year with a firm belief, and we cannot forget that. The project, when we were in 2024 and looking at 2025, we would have a better cost of capital. And this is very relevant, and it makes us feel optimistic to continue following our plan step by step. So the plan has four years, four important And the level of capital is at the level we planned, and that's important.

Moderator

If you look at the level of Bradesco Capital historically, this is the level, working with the dividends, paying out the dividends to our investors as we've historically done. So there's no deviation from our plan. So in 2025 and 'twenty six, Navarro, we want to continue to be very close to this new market and be even stronger and attractive for customers. Our customers have not left us. We continue to work with the banker's share.

Moderator

But we feel very comfortable when we think about 2026. And we all hope you're right so that Brazil will truly grow macroeconomically in 2026. And we feel we have a comfortable level of capital. As Marcelo said, this could be a good problem, right? But our capital will continue to grow.

Moderator

Yes. He also spoke about tax credits. Yes, of course, if we have a higher income, that helps in everything because our main capital comes from the net income or maybe a specific capital call, but we don't see that in the horizon. Now in terms of tax credit, the higher the NII, then the more we can use our tax credit, and we'll continue to do that. That's also included in our four year plan.

Moderator

Thank you, Navarro. Let me also add. So we are talking about growing capital in the first quarter when many questioned whether we could do that. And the main source of this growth was the net income. So in 2026, we may have a higher number, but also in 2025, continuing to follow our plan step by step and generating more net income.

Moderator

So that's going to help us. We will continue to pay out our dividends, and the level of capital shall remain stable until year end. We are not really concerned about that.

Moderator

Next question from Nishio with Geniao. Congratulations on the results. My question is more linked to retail. According to you, this is still the detractor of profitability. So how are you executing the strategy, unifying the brands, the timing for launch?

Moderator

For the launch, you have basically four verticals to work with, Classic, Next and DiGio and Bits. So if you could talk about your expectations regarding profitability, growth. And with this focus on digital transformation in mass detail, if you could comment on the size of your network. The beginning of the year, you said that you intended to reduce points of service by 1,000. You did two twenty two in Q1 alone.

Moderator

So perhaps you could speak a little about that linked to costs and the size of your workforce. Because in terms of headcount, headcount has not changed a lot. So if you could speak about these two perspectives, network cost and mass retail. I'll ask Caciano to start answering. But before that, Nishio, thank you for the question.

Moderator

Thank you for joining us in this call. And you spoke about different brands, and you're talking about NEXT and DGO. So bits, well, bits is something that was absorbed. It does not exist as a business unit any longer. So it was absorbed.

Moderator

But Dijio, Dijio is a separate unit. It continues to operate. But we'll speak later about the movement for NEXT over time. And, Kassiano, you can comment on retail, mass retail. You, Nishio.

Moderator

Good to see you here. Well, I think an important part. Throughout the year, we'll be bringing a new value proposition for the mass retail. This value proposition will touch these three brands that you mentioned. So this will be important in the future.

Moderator

Marcelo and I will be communicating this value proposition to the market, and we'll be speaking to you about this. It will be an interesting one. So I think that, that is the take home message. This is clear to us, and this is added to our cost to serve, which is one of the main points of action in retail. The cost to serve these 30,000,000 clients, are they good clients, but we have to adapt them to the best cost to serve.

Moderator

So this will entail some adjustments. On the other hand, the footprint adjustment is linked to this. Adjusting the footprint is fully linked to the way in which we will serve the mass retail in a more digital way, in a user friendly way, in almost a tailor made way to serve. So this is our vocation. We have a reduction of the footprint, but this is going to be done carefully and cautiously, testing possible attrition because we'll spread all over this continental country that Brazil is.

Moderator

So we cannot lose our presence there. So this is important. We are growing clients, even closing 1,400 branches because we have Bradesco Espresso that is very strong in the front line, 30,000 offices of Bradesco Express or almost 39,000 banking correspondents. So we have to make all of these connections. The disco espresso, reduction of the footprint, bringing clients to a new value proposition in digital retail.

Moderator

With this, we will rebuild profitability because this is the detractor segment in the set of our ROAE. So that's why it is important to move in that direction. And regarding costs, it is important to look at the efficiency ratio. Our efficiency ratio was 49.7% in Q1. This year, we shouldn't expect a significant change from that level because there is a lot of investments to be made in the transformation plan, where we should see more significant reduction in the efficiency ratio starting 2026, moving towards 40%, which is our ambition by 2028.

Moderator

So the impact will happen starting in 2026. Thank you, Nishiyo. Next question from Yuri Fernandes with JPMorgan. Thank you, Andre. Well, congratulations to all of you, Noronga, Ivan, Castiano, congratulations on the earnings because they were really strong.

Moderator

I would like to explore a point that you kind of touched on Noronga. I'm talking about NIM and JUUL spread that increased 20 bps. And that was a very good result. And I think that the message is that it should continue to expand. I'd like to understand the order of magnitude that you're seeing because in this quarter, you had some help from funding.

Moderator

It helps, but I don't know whether this should be helping in the coming quarters. And my question is about the mix. Marona, you said it over and over that the bank is growing, that there is risk appetite, but following safer lines, FGO, FGI, PRONAMP. So I'd like to understand, should this margin remain at the same level we saw in this quarter? Will it expand a little less or perhaps a little more?

Moderator

I just want to think about the spread. NII? NIM? You can start, Andre. Yuri, I think that there are two points to highlight here.

Moderator

First, the funding NII. In terms of positive contribution from funding NII in Q1 will increase over time along 2025. This is a cumulative process of efficiency gains in managing clients' resources, and this is underway in the bank at an accelerated pace. So this should contribute even more in the coming quarters. The benefit is not done.

Moderator

There will be additional benefits to be captured. And we are seeing this happen in Q2. The expectation is that it will continue throughout the year. Second point, bringing the focus to the macro economy. When we have a monetary tightening, normally, there's increase in the spreads.

Moderator

It's not that the banks aim to increase the spreads, but we look at the RAR of the operations. The bank wants to have NII net of provisions, And the spreads tend to widen when we have moments of monetary tightening, and this is what's happening in the Brazilian economy. This will be another driver that will help us increase 8.6% towards the end of the year. Don't want give you a specific target, but what I can tell you is that there is an upward trend. Andre, let me add to what you said.

Moderator

Thank you for the question, Yuri. We had a cost of funding that was the lowest that we saw in recent years, and this is a fact. And Andre mentioned this. The biggest driver came from the growth of

Jorge Kuri
Jorge Kuri
Analyst at Morgan Stanley

assets and

Moderator

from the growth of our relationship with micro, small, medium sized enterprises because here, we have better margins, better NII. We reduced the loan book of the Wholesale Bank. So if you look at the complete publication, there is the TBM line item. Year over year, first quarter 'twenty five, over first quarter 'twenty five, there was R7 billion drop in TVM in securities, actually. TVMs of the securities.

Moderator

So I'm convinced of what we are doing with individuals and micro and SMEs. That's where the biggest opportunities lie. One of the colleagues asked about growth drivers. And what I see, Yuri, is that we'll continue to grow, mainly our NII. The NII is growing steadily.

Moderator

If you look at the bar chart that I showed, it's there, it's piling up. We are offering loans with guarantees collateralized longer maturities with a very high RAR and very low losses. So we see NII growing and NII net of provisions also growing. And I guess that this is the main point explaining this growth, not just of NIM, but I would like to stress NII. Thank you, Yuri.

Operator

The next question comes from Carlos Gomez Lopez from HSBC. Carlos, voice yours.

Carlos Gomez-Lopez
Carlos Gomez-Lopez
Analyst at HSBC

Nice to meet you. Thank you, Andre. Thank you, Andre, and congratulations to all for the results and for the market So two specific questions.

Carlos Gomez-Lopez
Carlos Gomez-Lopez
Analyst at HSBC

One is long term in terms of credit cost in the corporate sector, in the Peso Agios de la Dica. We have had record low cost of credit, I would say, since COVID. It has never quite increased. At some point, the bank was guiding for higher provisions from that, but they have never quite materialized. Do you think that even with these higher interest rates, we should continue to have this benign scenario of credit costs, again, in the corporate segment in the coming years?

Carlos Gomez-Lopez
Carlos Gomez-Lopez
Analyst at HSBC

And my second question refers to insurance, again, following up on Mario's question. Health insurance has given you 900,000,000 this quarter. That's about 3x as much as it has typically given you. What has changed there? And how sustainable is that for the coming quarters and years?

Carlos Gomez-Lopez
Carlos Gomez-Lopez
Analyst at HSBC

You.

Moderator

Would you

Moderator

like to

Moderator

start? All Carlos, I will begin to answer your second question about health care insurance. What we've noted, as Marcelo mentioned, is a lower claim rate. But that lower claim rate is the consequence of many years of investment plans. And after the COVID pandemic, we see a more normal curve in terms of the claim rate.

Moderator

These two factors are helping us push down the claim rate in the health insurance product, and we expect that to continue. And that's very relevant. Also, as Marcelo mentioned, in health care, we have our strategy in terms of Atlantica door, and that will bring benefits in the midterm or in the long term. But the new hospitals, we've had incredible benefits, a high level of occupation, and they already bring benefits to our earnings. So that's a promising kind of investment, maybe not now, but more in the mid and long So that is a very healthy movement.

Moderator

Look, Carlos, about the cost of risk, you're right. The margins are tight. We had funds stepping out from variable income and even multi market, they are moving to fixed income securities. And that's what we see. So regardless of the corporate ratings, but especially companies that have a higher credit rating, they are being able to obtain funding much at a much lower cost.

Moderator

So this is a very favorable moment. So that's why I spoke about our origination strategy. I'm looking at low cap with a small share, but then I can work on the secondary market over the counter, and there is a big demand. So while we have high interest rates and a weaker capital market with more volatility and without new money coming into Brazilian funds, with these funds in BRL towards variable income securities, we will continue to see the same circumstances. Maybe further on, maybe closer to year end 2025, when the Monetary Committee begins to plan for 2027, and the interest rate would be around 15%, fourteen point seven five %.

Moderator

I mean, where is the center of the inflation? What is the inflation target? We may see our inflation very close to the inflation target, right? So that's what we expect. As you see interest rates coming down, you see more expectations in the variable income market, in the equity market.

Moderator

That would be later on in 2026 or in the beginning of twenty twenty seven. That's when we expect to see a change. Maybe you'd like to add yes, I'd like to add

Jorge Kuri
Jorge Kuri
Analyst at Morgan Stanley

two

Moderator

comments. Bank credit for large corporations and the capital market as a funding source for these large companies. Because the margins are lower, then you can see a higher demand for loans by large corporations. And at the same time, this helps improve the quality of our loans because large corporations, they have different sources of funding. Today, we see a high level of liquidity for large corporations.

Moderator

So that helps us keep delinquency down. As the economy grows slower, that will be a risk to be closely monitored. And the quicker the interest rate begins to fall, then the better will be the outlook. Right. And it is important to remember that if you look at the largest Brazilian companies, Brazil has more than 400 companies in the open market listed in the stock exchange.

Moderator

Most of them have the right level of leverage. Of course, with a high cost of funding, that is pressure for the EBITDA margin to pay for the debt or for liability management.

Moderator

However,

Moderator

we all know that looking at this group of large corporations, some are in a more complicated situation, but that's not true for most of the large Brazilian corporations. So looking at that, I expect we will not have any surprises in terms of delinquency because that's more concentrated in the middle market and in specific industries, not really in large corporations. Yes, that's what I was going to say. Thank you, Carlos. Our next question comes from Bernardo Gutman from XP.

Moderator

Bernardo, good afternoon. Noron, Andre, Cacciano, thank you for taking my questions. Congratulations on your deliveries. Now looking at the NII improvement, that comes from higher efficiency in the bank's funding strategy. I'd like to hear more about your funding strategy in retail.

Moderator

Do you expect to continue to improve? What about the marginal cost of funding considering the current level of the interest rate and the concern about liabilities. We see a few now banks that are more aggressive, more active in this. So we'd like to hear more from you about that, please. Thank you, Bernardo.

Moderator

What I usually say is that here, we're always looking at liquidity management, trying to reach the best level of cash. And so you see, we now have 136%. And so that has helped us reduce our cost of funding. And here, two levers are important. Our customers are closer to us.

Moderator

We have more principality in the relationship, not only in low income but also mid income and high income customers. And so that helps us keep the cost of funding down. And the second lever, which is also relevant, is how we compensate customers when they bring deposits, when they bring demand deposits to us. We have improved the way we compensate these customers, and that has been very helpful. Now when Marcelo spoke about the whole year, this is something that we are doing in our cash management in the middle market that has made us become that has made us gain in terms of principality.

Moderator

So now we no longer need higher cost funding. So when I have a plan and I can execute the plan, engaging our results and keeping a balance in terms of lower funding cost from small companies and even from lower income individuals, that certainly helps us reach this optimum cost of funding. Will this last forever? Well, I don't believe anything will last forever. However, we still have our plan, which we are executing step by step.

Moderator

The more principality we have in our customer base, then the easier it will be for us to keep this balance. And this year, I believe we will be able to maintain this optimum level of cash and funding. Right. We have increased our origination also at BRAM in the asset management. Our BRAM has grown very healthily in this last year, in our brand, asset management.

Moderator

And that's because of our strategy, right? And so we trend towards the optimum level of cash. And the liability level is possibly the lowest in the last few years because of this strategy. And at the same time, we are harvesting benefits from a few investments. We see there is a demand on the market.

Moderator

So we have maybe our lowest historical cost. So thank you, Bernardo. Thank you for the question.

Moderator

Next question from Renato Meloni with Autonomous. I would like to focus on client NII and focus on this message of being conservative. At the same time, you're growing more than the industry and with a reasonably high yield. I know you spoke a lot about loans with guarantees, the payroll deductible loan, but that's a segment which is the most competitive. And your CTC is also growing.

Moderator

So I'd like to understand, perhaps you found a niche which has been underserved by the other banks and that's where you're growing? In the beginning, you said that these are not new clients. You are just using your network. And looking forward, can you continue to grow with the current mix or would you need to get into more risky lines to continue to expand your NIM? Thank you very much.

Moderator

But I can answer that quite objectively. In personal loans, we had some movements that were interesting. For example, with higher net worth clients. They normally get personal loans but with lower rates. Because if I offer conventional rates, I will do an adverse selection.

Moderator

And these higher income clients and have the payroll with us and they ask for a loan, they have a good credit rating. So that's number one. And regarding payroll deductible loans, part of that personal loan line item, and I mentioned that in the presentation, you might remember that, a part of that is loan which is guaranteed by FGTS. If I included that in payroll deductible loan, instead of seeing a 5,000,000,000 yen increase year over year, perhaps we would see an increase of 10,000,000,000 to €11,000,000,000 considering FTTS and the other set of payroll deductible loans, which means that we are quite well tractioned in the INSS deductible loan. And we also have a great penetration.

Moderator

We are big payers of INSS. We have a high capability of distribution. So there's distribution, which is done by competitors, not just digitally but also using external distribution. We access that, but the bulk of our distribution is done through our own channels, our digital channels, other channels that we use, the ATMs themselves and also in our service units, our points of service. So we have a great distribution of payroll deductible loans.

Moderator

So I don't see the bank entering into riskier lines. It's not great opportunities. And I mentioned micro and small and midsized enterprises. Look at those. Last year, the set of origination of Alliance, FGO, FJIVE was about BRL89 billion, continues to have traction.

Moderator

And we have penetration here, but in order to have penetration, you have to have a client base and you have to have an ability to deliver. And we do have that. This is what we're showing. So I don't see riskier lines in the horizon. I might offer more personal loans in the prime segment.

Moderator

Yes, it's possible. As long as the pricing is adequate, if we have the right risk adjusted return, and this is our target. This is the way to go. And I stress what I've said before, this is an important focus for us. It is the quality of our assets.

Moderator

We don't give that up. We prefer to advance more slowly towards the future than moving in the future too quickly and making mistakes.

Operator

Comes from Tito Labata from Goldman Sachs. Tito?

Operator

We cannot hear you. It's on mute.

Tito Labarta
Tito Labarta
Vice President at Goldman Sachs

Yes. Sorry about that. Thank you. Thanks, Andre. Hi, Marcelo.

Tito Labarta
Tito Labarta
Vice President at Goldman Sachs

congratulations on the strong results and the stock reaction. Just one final question, I guess, on my end. Just I saw John Deere contributed, right, 17,000,000,000 to your loan book. Did that contribute at all to the earnings, particularly, I guess, on the client NII? Just did you see any benefit from that?

Tito Labarta
Tito Labarta
Vice President at Goldman Sachs

And just to think going forward, if you see any contribution from John Deere in terms of the business, the potential improvements in profitability, just to quantify if that had any impact in the quarter and expectations for the year? You.

Moderator

UNIDENTIFIED

Moderator

Well, Deere was much more important strategically with a stronger share in the agribusiness. The 17,300,000,000.0 yen that was added to our portfolio at the very end of Q1 is broken down to individuals, legal entities. Without that, our portfolio would have grown 11% in Q1 'twenty five year on year. But the contribution to the net income is very close to zero. It's actually immaterial and that's why we didn't highlight that.

Moderator

If you consider that we have a cash outlay with the cash not being remunerated, that contribution becomes even less important to our net income. So for that criterion, we shouldn't be thinking so much about John Deere. I think that John Deere will come much later. And this is a moment when we are discussing the strategy of including John Deere in our operation and how we can work better together to better serve the agribusiness industry, which is very strategic with a good outlook in an industry that is very resilient to the macroeconomic scenario. So the strategy is much more important right now than any contribution to the net income or client NII or any other line item.

Moderator

So

Moderator

we are now closing our Q and A session. I want to thank you all for contributing with your questions. Before I give the floor back to Marcelo, let me tell you the questions that we did not have time to answer will be answered by our IR team, and the press release is available on our website. Marcelo, your final comments. Thank you, Andre.

Moderator

Thank you, Cassiano. I want to thank you all who've joined us this morning for this earnings call, the earnings of the first quarter of twenty twenty five. I am certain we will continue to work hard to deliver more and better during the year. Thank you all for your time. Have a great day.

Moderator

Thank you all.

Analysts
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Key Takeaways

  • Bradesco generated BRL 5.9 billion in Q1 recurring net income (+39% YoY), achieving ROAE of 14.4% on total revenue growth of 15% driven by NII (+13.7%), fees (+10.3%) and insurance (+32.7%).
  • The loan book reached BRL 1 trillion, expanding 4.9% YoY (2.4% QoQ) with micro and SME lending up ~30% YoY, while maintaining 92% of exposures in low-risk stages and delinquency under tight control.
  • Net interest income net of provisions rose 30% YoY to BRL 9.6 billion, fuelled by strong client NII growth (+36% YoY) and effective ALM/trading strategies that mitigated market volatility.
  • Fee and commission income showed broad-based gains, with investment banking fees up 76% YoY, and the insurance arm delivered 25% YoY revenue growth and a 22.4% ROAE on improved combined ratios.
  • Operating expenses fell 8.6% QoQ (though up 12% YoY) as Bradesco closed ~1,400 branches and drove a 32% faster tech delivery time and a 46% boost in development productivity through digital and GenAI initiatives.
AI Generated. May Contain Errors.
Earnings Conference Call
Banco Bradesco Q1 2025
00:00 / 00:00

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