Banco Bradesco S.A. (BBDC4) Earnings Call Transcript & Summary

Hello. Good morning. I am Marcelo. I'm here live from [indiscernible] to present the results for the fourth quarter 2024 of Bradesco. And certainly there is also contemplate the whole year results for 2024. I would like to say that we will split our presentation in three parts, which we [indiscernible] messages for all of you. First, the results of the fourth quarter real reinstate our profitability improvement, just the same way as I presented an year ago here. When we presented the plan in the same months of last year when we started our growth plan, and I showed you what was going to happen step-by-step, quarter-on-quarter. The second message is that our guidance for 2025 is a more cautious guidance in terms of risk appetite and it also includes the effect of 4966 and higher [indiscernible] Brazil. And it is cautious vis-a-vis the macro scenarios. And at the same time, is very optimistic in terms of what we are delivering and what we are currently doing. And also there is our transformation plan. So it is my duty to present to you a small summary of what we did in 2024. We continue to expedite our transformation and we made a decision based on a better macro scenario, more cautious scenario, we decided to invest in our transformation without stopping anything else because here, we have efficiency gains, increase of the activities and everything else that we are about to see. Now it's precisely 10:32. I will start our presentation with results that have been posted earlier on this morning. Our net income of BRL 5.4 billion, growth of [ 37%] and BRL 19.6 billion in 2024 meaning 20% growth. And how did we achieve this net income and result? This net income was boosted by our revenues mostly but also due to the fact that we were very cautious with our expenses despite the investments we made. So now I'll show you our position and our status in terms of credit, fee income, insurance company and so on and so forth. I have some highlight. These are operating highlights and this summarizes our balance sheet. But before I begin, I'd like to say that our recurring net income allowed us to make a nonrecurring provision and the net effect is about BRL 440 million. And this is precisely because we wanted to boost our footprint review for 2025. So what are the highlights? Well, our total loan portfolio grew. And despite the review of our footprint, 1,233 points way beyond what we anticipated, our customer base grew by more than 2 million clients. 99% of our transactions are occurring through the digital channels. That was the case in 2024. And this helps us throughout our transformation in terms of the cost to serve. I would like to highlight our Bradesco Expresso platform last year. We delivered two new platforms. And the outcome of that was better customer experience, a better customer experience of those clients that use Bradesco Expresso. And secondly, there was also an improved experience from our corresponds. And this is the outcome, we grew in the payroll, we increased 49% insurance sales. We also increased our base of correspondence by almost 1,000 reaching 39,000 [indiscernible] correspondence. Our [indiscernible] grew AUM, assets under management, reaching BRL 122 billion. We were recipient of two awards by [ InfoMoney ]. We are the best -- we provide the best customer experience in our business process. This is what I said in terms of the wholesale and retail bank. [ Everybody ] talked about our net income and transformation is occuring at a very accelerated pace and I'll elaborate more on that. And we also had two inorganic events. We concluded disclosing of Cielo's Capital and we also have the acquisition of 50% of John Deere after we got the approval from the Central Bank in [indiscernible]. And this is a picture of our Bradesco Expresso aisle. And this is just a picture I have for you because this is another test that we are testing new models with our Bradesco Expresso. And this is occurring in several different municipalities of the country. And then we go to total revenue, which boosted a growth of our net income. Our revenue was over BRL 32 billion. We grew 7.9% year-on-year and almost all lines of revenue, NII was up by 5.4% year-on-year. Fee and commission income grew by 7.9% year-on-year and our insurance company grew more than 16% -- 16.6% year-on-year with a recurring net income that was quite relevant in another fourth quarter. So from the third quarter, our total revenue was BRL 30.6 billion, reaching 32.3%, growing by 5.4% in the quarter in terms of revenues. And this is happening, thanks to the traction we have the bank in all of our business lines and associated companies. Another important lever that boosts revenue. Even in a presentation, I think we do -- we should do the opposite. We should start with the leverages and then arrive at the final number, but we started with the net income. So our total loan portfolio reached more than BRL 180 billion, growing almost 12% year-on-year, and the average daily production posted impressive growth. I highlighted here the growth of individuals with 13.3%, and I'll give you more details in the moment of some of the lines. And also, we grew micro, small and medium-sized companies. And that this portfolio grew 28% during the period. And the highlight goes not only to middle market, but also small, and I will elaborate further on the risk part of it. So if we break down the portfolio, you'll see here individuals on the left-hand side, companies incorporate on the right-hand side. If you look at all the segments in every period, very seldom we will find a period with no growth. And now I would like to draw your attention to a few items that matter to us. In the case of credit cards, our year-on-year growth was 5.1%, but the major growth lever to reach that 5% was high income because high income posted growth of 14.5%. So I would like to highlight how cautious we are in terms of risk-adjusted returns. And we were very mindful in terms of the quality and generation of our assets with new credit models, new policies and also [ process ] organization and our payroll loans grew by 5.8%. It could have grown more with the cap. This doesn't help, but I would like to say that anyhow our traction is quite relevant in this regard. Those banks that have government control. They are market leaders in payroll deductible loans with 15% or 20% market share. But being a private bank Bradesco has 14.3% of share in payroll deductible loan for public and private payroll deductible loans. On the right-hand side, we have corporate or companies. We are [ now ] growing 28% in high risk portfolios. We will have our feet on the ground. So if we look at the total publications, look at our working capital, we went from BRL 130 billion to BRL 147 billion. And this is precisely this coincides with our generation of FGI and FGO, both in middle market and also small business. In middle business, we are growing slightly above that. This is a combined growth. But in terms of small sized companies, our growth reached almost 20%. When it comes to companies. We are very careful in terms of our growth in the real estate loan and collateralized loans. And in large corporates, we are using our origination for distribution portfolio, optimizing our capital and our return from clients. All of these are good news. And you allow me to say, we need combinations in order to deliver numbers like that. The first combination is having a very sound customer base in all customer segments and high penetration in the base. if we didn't have that, we wouldn't be able to deliver. And secondly, commercial traction with a very well orchestrated process, in the physical and the digital world and the third pillar is our credit business unit. It brought us new credit models with a lot of machine learning, improving every day, measuring our risk appetite and our portfolio pricing so that we have the right numbers for every segment and every audience. This has to be very well tuned. Because if we are totally integrated, we can certainly deliver what we are delivering today with portfolios with control risk. Well, here, I have another piece of information, and that is that we certainly regulate our risk appetite, the entire time. And when we saw that we were heading towards a more regulated policy. We look at that in the fourth quarter, we're not thinking about 2025, but we did that beforehand and this other chart down below shows that 54% of our portfolio is secure, in a very dynamic way. We are looking at several other periods, but I'm talking about the portfolio. If we were to show the production or everything that is coming in, this KPI would be much higher and this really shows the quality of what we are delivering in our margins. And that's why we are not delivering very a high margin. We are delivering control portfolios. But even then, every quarter, we posted growth in absolute terms in terms of client NII. Our NII was 5.4% year-on-year. I [ can ] comment on the guidance later on. Our market NII was BRL 440 million this quarter. I would like to highlight trading, but the good operations, our treasury team is responsible for that. And then we have the growth of client NII. And this is reflected in this item as we've been talking to you about, which is the client NII net of provisions, which has to do with the bottom line and this impact in our growth of [ 8.7 ] billion, 77% year-on-year. And when we look at the entire year, almost 26%, 25.8%. And we continue on the same pace, envisioning growth despite a more cautious scenario. So the message here is that we continue to control our portfolio. We are redoing over [ 90 ] delinquencies with a very good coverage ratio in all of the KPIs, all of the indicators. Expanded loan loss provisions. I would like to draw your attention that in this fourth quarter was BRL 7.5 billion. I mean, increasing about BRL 400 million but the same cost of credit that we are indicated 3% and certainly here, again, you can look at mass market. And this is due to everything I told you before, I mean, control portfolio and we are investing in clients that give us an adequate [ RAR ] and I can also give you more details later on about some aspects related to product insured. Another important item has to do with our fee and commissions income. Why is it growing? It grows because of traction, because of the level of activities that we have in the entire organization. 10.3 billion year-on-year 13.7% and 7.6% and these numbers do not consider that additional share from CLO that we acquired. But here, you can maybe draw the same conclusion. We are growing in all aspects in almost all the periods, as you can tell from the slide. This is certainly a consequence from the high activities that we are in, but now here I'm bringing that number that I mentioned at the beginning when we reviewed our footprint -- print. We did -- we went way beyond our expectations with 1,385. I would say, reviews and the ending on some POSs. But even then, we were able to grow our customer base by over 2 million customers, year-on-year expenses is here. But we have to do some important reconciliations. Well, if I remove like in fee income, the additional share from Cielo, this growth reached 7.5% year-on-year and 8.1% for the entire period for the entire year. But let's look at another indicator that we have here. I think I've been bringing this for the last three quarters. The total number of expenses, the total amount of expenses of 9.3%. But once we exclude [ Alopar ] and Cielo from this number, the growth 6.9%. I mean Cielo is delivering new solutions, and this will allow us to increase our share at SMEs and large corporate, [ Livelo, Alelo ] and [ Aelo ]. We are investing to grow the business even with very good returns. However, we do not have a daily management operation. I mean we are approving investments and expenses. So when we exclude that, expenses are absolutely under control, as you can tell from these other indications. And I would like to remind you of two other details. Number one, we are in this transformation path, which is very robust with a lot of CapEx investments, but there is also OpEx as part of the story. And second of all, not only we're doing that, then we're making things happen. But the insurance company is also investing in CapEx and OpEx. And this helps these areas of the bank to grow as well. Therefore, my conclusion is that all of our expenses are under control in all of the lines that we can look at -- and now looking at the consolidated numbers there is one or two deviations. But we can talk about that when we talk about the guidance. Now I'm talking about the insurance business. Another quarter of good results. If you look at total revenue of BRL 121 billion. That's why we posted 13.6% growth. Net income was BRL 2.5 billion, BRL 9.1 billion within an year with an ROE of 21%. So the insurance business is well on track. When we look at the insurance operation in the guidance, we see the performance quarter-on-quarter posting growth and I would like to draw your attention to technical provisions that went beyond 400 billion with almost 12% growth. And the same thing goes for the insurance company, meaning that the insurance business is well in track with distribution in different lines in all of our customer segments inside the bank and also in our external channels, which are operated by the insurance, we heard vertical index. We have a market to market. We ended the year of 2024 with 2.4% and in the end of the year, 1st January, we applied [ 4 966], achieving 12.8% capital, already considering the 20 basis points required by the Central bank for the system in operating risks. Here we have, dividends in [ ROC ] and [indiscernible]. In 2024, we see the number. And I'd like to remind you, we have a share buyback program, which is open, and it will stretch until May 1, 2025. And as part of the program, we had a buyback of about 50 million shares, and we announced we are going to have the cancellation of these stock close to 1% of the bank, just for new information. Here, we have the guidance for 2024 and we stated, giving you this complementary information M&A and other provisions. A net of provisions, almost like an informal guidance. It increased to BRL 34 billion, and that's what matters. It's the bottom line instead of us discussing where I make more of a margin and where I make less of margin. So a total NII, minus the cost of risk, and we had a good delivery. In NII net of provisions, we did very well. Expanded loan loss provisions are close to the top of the guidance and commission will come close to the top of the guidance, operating expenses close to the top of the guidance. But with the observation we made regarding consolidations that we have and the result of the insurance operation, to slightly close to the top of the guidance, [ 7.5%]. So now talk about a quick balance about our transformation of trying to be [ brief]. Of course, I cannot mention all of the indicators because we have a lot of information. Among these initiatives, I would like to have the organizational highlights. You will remember, we reduced layers, reviewed span of control, we hired C levels, made some changes in the leadership. We put together a transformation office with 800 people more, and it's doing really well, management culture. We have been working in management and culture, we did some surveys with high level of engagement. We launched some messages together with our team, which is what we want to see in our day to day in our business model. In management model. So we are talking about much more contemporary management. We have [ Bradesco]. We are here for clients. We're much more focused on clients with all of the transformation we had in product, adjusting, modifying these departments in the organization. We have an empowered team with the process of enterprise agility. We have been decentralizing decisions, making our team effectively participate and decide fast so that we have a faster time to market and faster deliverables. We are challenge oriented. What does this mean? The best example is the transformation, how bold we are to put together this kind of large plan BRL 1 billion plan. We are touching all points of the organization. This is a big challenge, but we are sure of our deliveries because we have a lot of deliveries already of the several initiatives we've adopted digital retails for this model evolution. We delivered a new experience in all segments in our app with increased NPS. And you can see that you're following and we will deliver a totally new experience, not just the segment, but for all the segments. You will see this. There will be more news on the year. But here in this set of clients, we have been working with our with GenAI [ BI], with 90% resolution. I will speak more about this when I talk about technologies. I'll come back to this, okay? Bear with me. So we have data with AI. And we have a decision tree which is transactional. It is working really well. But now we're implementing GenAI [ BI ]. We have better NBO models with intensive AI use and hyperpersonalization with the consequences you can see at the bottom. And we will show you this year because we're already delivering this value proposition, but we are going to show the market what we're building here what we are delivering. Some of the highlights of principal launched in November '24. We have about 50,000 clients, and we are starting to expand in payments on synergies, new cash management products and the synergy with Cielo again. Cielo has been investing, so we have the deliverable tech on phone. And up here, some important highlights for SMEs. We launched this segment after we presented our plan with 122 branches dedicated to enterprises. We ended the year with 150. We're growing really well. We have big traction here. Middle corporate is doing really well. We have more platforms and more RMs and the consequences, the increase market share gain in wholesale. We also launched the agro segment so that we can -- so we can seize this opportunity with our John Deere Bank. Big partner. Our credit business unit has been making a huge difference for [indiscernible]. With its implementation and with the creation of the portfolio management department. We have intensive use of conglomerate data, improving our modeling. We hired almost 200 professionals over the year and we improved our credit policy and processes. We have intensive use of machine learning in here in the red box as a consequence of the portfolio because we have commercial traction and penetration in our client base. Market share gain in SMEs and individuals. Over 90 default of droppings and all the new vintages of mass market with much better vintages compared to the pre-pandemic period. Look, to now we speak a little about technology. About tech modernization. Our team led by [ Francesco ], the executive we hired with an active participation of his colleagues in the management. We have enterprise guy. We ended the year with more, another 500 square parts. And we'll scaling up in 2025. We have a dedicated team of more than 10,000 people. We are in a process of strong internalization with very senior people. We continue to migrate several applications to the cloud that reached 79%. And I spoke about GenAI, when I was speaking about digital mass market, right? Well, GenAI beyond, we have been testing with more than 40,000 internal employees, 580 clients using it. In the last few months of 2024 more than 2 million interactions happened with that level of resolution of 90%, as I mentioned. And now, we continue to improve this even further and we are going to scale it up with their new experience [indiscernible]. It's biotech, but actually it is an internal application with significant efficiency gain and productivity gain in developing the stories for every new or legacy applications we have. So basically what happen, biotech is learning to adjust the stories [indiscernible]. [indiscernible] instead of having humans during that, it works, some organizations that work really well with this. But they also write the stories. We are one of the world's pioneers in the world in the use of multi-age with generative AI in order to modernize applications, legacy systems to create models. So what does that mean? In two big models or modules that we are working, and we are working strongly on that. I have a squad, which is multidisciplinary team, developers, UX, for example. So base of a developer, you're going to have an AI multi-agents for products, UX and so on and so forth with an ability to scale up significantly in our business. And to expedite our process of delivering systems and modernization of systems. We acquired 100% of [ Kanuma]. [ Kanuma ] is a company from [indiscernible] linked to decade with more than 50 PhDs, differentiated team. They have been working on to solve problems for problem solving, through machine learning, AI with the credit department, with the collection department with data intelligence and other systems areas. And making 90% productivity in addition to the implementation of value assurance to improve our efficiency into avoid wasting with contracts and applications. And here, we're going to talk about the next steps coming to the end of the presentation. In terms of efficiency, we continue to review our footprint, as I mentioned, people, our culture. With principle, we will get to 500,000 clients. And next year, we will complete the expansion with more than 800,000 clients in credit. We have all of these processes that we are investing in strongly. We will continue to internalize technology resources, accelerating enterprise agility and overall, this productivity gain coming from tech, as I mentioned. We're using tech deliveries in technical output in 2025 by 50% fiber. This is very gratifying because we have this conviction and it is happening. We are very satisfied with what we are delivering. And here's the guidance for 2025. You probably saw in our earnings and in our material fact that we released today. We had a scenario of the Febraban survey that would give us 9%, 10% of portfolio growth. But what i told the sell side as well as the buy side in the past quarter, that We're working with 2 [indiscernible] -- once scenario that we considered a base scenario of 70% and a more conscious scenario, 40%, and that's what we are working with. We want to be conscious because we think that with a contraction of the monetary policy and what interest rates we have today, of course, there is an economic impact, but our NII net of provisions is growing even more. Why is it growing more? Because we have to carry over in 2025. And the rest doesn't actually require a lot of comments regarding the rest of the [ it ]. Generally speaking, I am very much optimistic regarding everything we are doing more in less optimistic about the macroeconomic scenario, but we might have surprises. I'm more optimistic in our guidance from the middle top than from the middle down. I can envision a more positive scenario and this is the summary. We continue to grow profitability in a solid and safe way, given mainly our revenues, given our traction. We continue to be -- to have a lot of traction in -- around the bank, and we will accelerate the change, i think. I'd like to thank you for your attention, for your time. And I'd like now to invite you to the question-and-answer session. We have [indiscernible], and [ Cassiano Scarpelli ]. And we are here to start the Q&A.

It's a pleasure to be here with you. I'd like to inform you that that Ivan Gontijo, CEO of the insurance group will be joining us remotely online. If you want to ask questions, you can ask questions in Portuguese or English. [Operator Instructions] The first question from Bernardo Guttmann with XP Investments.

I have one question about market NII. Had a good performance of the treasury department in Q4, again with arbitration as well. Any specific change in the hedge policy of the bank? How should we think about market NII dynamics for 2025, considering a high interest rate.

I'll ask [ Casciano ] to start answering your question and I'll make a comment.

Good to see you and happy new year. In this quarter, the surprise was the arbitration. The main -- although we don't have a specific hedge operation of ALM, we do a lot of operations for hedging in some circumstances. But indeed, in this quarter, Q4, arbitration was super important in some specific operations where we got good movement. I do think that this is a traditional movement for next year and next year -- for 2025, actually in 2025 we think we should be more cautious. We work with an NII close to neutrality. I think there are some additional comments to guidance. We have been indeed more conservative as [indiscernible] mentioned but you see in some months of 2024, we made money, as was the case of the last quarter with trading. Of course, this is also going to happen in 2025. You might say, "Oh, if you gain 6 and lose 6, there is no challenge." Yes, but the scenario might be a little better. We are on the cautious side. I can only have more positive expectations than as expectations. And my second comment is that we have lessons land. We have a good team coordinated by [ Roberto Paris with Marina, Bruno ] and now Luis is responsible for trading. I think that we might have an even better year.

Next question from Gustavo Schroden from Citibank.

It's very nice to talk to you again. Congratulations on your transformation process. I think Marcelo in a summarized way conveyed a lot of it. But I would like to talk about the structural part of the bank that refers to capital. When we look at CET1 at 10.9%, slightly below the average among your peers. And I understand that it's slightly above the minimum required. We noticed some reclassification and transformations that were made there is an explanatory note that refers to a reclassification of securities available for sale to maintenance and -- or held to maturity. And then we you look at the OCI line or other encompassing results, we see another quarter with negative results. I mean, accumulated losses that do not impact the results, but they do have an impact on the capital part. So how comfortable the bank is or what is the bank's strategy to have that CET capital return to a higher level. And I just want to understand how comfortable you are vis-a-vis that capital. As you said yourself, [ Marcelo], your growth guidance is very conservative goal ranges from 4 to 8, but with a better macro landscape, maybe portfolio growth range should be more up to the -- at the top of this range. So this is something interesting for us to hear from you.

Thank you, Gustavo. I would also ask my colleagues to comment as well. We are very comfortable with our capital you saw that we now reached 12.8% after 49.66. CET1 has a huge problem because I think it goes up to 8%, if I'm not mistaken. The fact is that we are not concerned with that. And we said that from the very beginning because we ran several projections, stress scenario, optimistic scenarios. Therefore, we do have room to grow with stable stability in our -- in terms of our capital. Therefore, I have no concern at all in terms of everything that we can do, and we will continue to increase profitability, increase our net income and our CET will be higher with time.

It's really important that we bear in mind that our guidance or our projection has to do with the two end guidance, we are very comfortable in terms of our capital as a whole. I mean you saw all of the moves basically that reflects the adjustment of our balance sheet to the [ 4966]. We had 0.4% drop in the quarter until December 31, 2024, which is mark-to-market and 49.66 on January 1 brings that capital back to 2.8, being 10.9% at the end of the year. And that contemplates three important components. We have 0.7 related to adjustments to shareholders' equity to adjust to the criteria from the Central Bank. They have the minimum regulatory aspects as part of the rule. And we are pretty much in line. We just adjusted -- made adjustments to the Central Bank, and that was 0.27. But as you know, that was split into four installments. The Central Bank released the regulation. So we have 0.07, which is the negative impact. The other negative impact is 0.20, which refers to operating results. This is the operating result that impacted now. And then on the other hand, we have a reversal. But in practice, that means the adjustment to the different types of mark-to-market in our balance sheet available for sale and negotiation levels and a new criteria of business models. They are classified according to the business model of every security. So once you put everything together, we arrive at 12.8%, which is higher than 12.7% from the previous quarter. But even more than that, when we look at our projection, we look at all the possibilities of our net income, we have enough capital to fit into the range of our guidance. So in terms of capital, it will be stable this year, even with the prepayment of IOC and growing the loan portfolio close to the ceiling of our guidance.

So next question is from Daniel Vaz from Safra.

I would like to revisit the guidance aspect because you said that you'll be more conservative. In fact, when you look at the portfolio and when we highlight the NII net of provisions, maybe it doesn't grow so much when we look at the range, but you lower the comparison base when you look at 2024, but 2025 is more conservative at pronoun and et cetera. So the spread should be lower. So according to our reading, that means that your provisions are probably lower. Is this the way we should look at it? Is there anything you would like to highlight in terms of provisions or whether it's not at the right level today? Or you think that provisions are more collateralized. So I just want to hear your comments.

Thank you. Thank you, Daniel, and thank you for your question. What I have to say is that we will continue to grow. Also, our gross margin will grow as well. As I said, we have the carryover to 2025 of everything we produce and we piled up, we accumulate it. But if you look at the cost of credit or the cost of risk, our expectation is to keep cost of risk around 3%. This is our expectation. We are very, very comfortable with everything we are doing in relation to credit. But then if we look at the mix composition in 2024, let me say the following. I talked about payroll deductible loan market share. If you look at the growth on the individual side, we grew in payroll loans. We have a higher share with 14.3% among private banks. But this also has to do with NII. And sometimes we don't even look at it. I'm not only referring to Bradesco but our peers as well. And there was an INSS cap, but also in terms of the public companies throughout this period with the increase in interest rates and the long tail, the loans every month, we set a lot of money that was hired in previous years, previous periods with twice as much margin. And then you hire new payroll loans at a lower margin. And this puts pressure on the gross margin, but there is a good risk-adjusted return or RAR. The second thing for individuals is credit card. We are with our feet on the ground and the major growth lever came from high-income individuals, which grew 14.5% year-on-year and combined growth was 5%. The third aspect is that if you look at our publication and look at it in detail, you see that our personal loan also grew, but we grew in two very state lines. It's not the most stressed. The first is that we grew with higher income clients. We charge them lower rates. Otherwise, the selection would be adverse. So it's a good risk prime clients, they have specific needs. So the credit line is a bit elongated. And then we have other credit lines with SGGS secured loans. the margins are lower in 2024. But then when we look at corporate companies, our growth is focused on collateralized portfolios, particularly based on programs like FGI, where you take several different sizes of companies up to BRL 300 million, FGO, FGO contemplates, I mean, BRL 400 million a year, credit for companies up to BRL 36 million a year. And then what happened here? Just to be totally transparent, and you can look at the ranking, you can look at that periodically. I mean, in 2024, Bradesco had the highest actions. Therefore, we grew around 70%. I'm talking about production when compared to 2023, we grew BRL 17 billion, give or take, once you combine all the programs. And with FGI alone, we were the second largest producer of SGI in the Brazilian market. There was a bank that produced more than this until December 31, 2024. I'm looking at the full year. On the other hand, when we look at FGO, [indiscernible], ProCredit, another organization that's not that one, was #1. And we came second, very close to #1. And then when we look at the global in total production here, Bradesco had 18.5% share production in these programs. So they are phenomenal. And this is very good for clients and companies. So it's a very good government program. They are managed in part by BNDES and Banco do Brasil with funds. There are several rules involved. So 18.5% of the production came from Bradesco and there is a bank that was slightly above us. And the third bank has about 5% lower share when compared to us in terms of production. Therefore, we also grew at SMEs boosted by portfolios that were secured and collateralized, especially this one, which has smaller spreads. Rural loans also collateralized and secured real estate loans, it's mortgage loans collateral and our is about 52%. And that's my conclusion. It will not reduce the spread. I mean I expect to see better margins with a controlled cost of credit. So when I look at the level of activity because life is very dynamic. It's already in February. So the level of activity is here. I mean therefore, I think that our guidance is very cautious because we are looking at the macro scenario the rates are high, more companies than individuals, there are a group of individuals that have more difficult time to access credit. But the scenario is here. So I don't see a drop in margins. All I see is growth.

Daniel, in this guidance, it's already implicit that client NII grows more than the portfolio. The portfolio is end-to-end and client is just an average. So just this average comparison already gives us about 8% of growth for client NII that reaches two digits once we add the efficiency measures and funding and the funding side. And on top of that, Marcelo just mentioned better spreads that can also help us to increase client NII throughout 2025. So yes, cost of risk is about 3% and this is pretty much around what Marcelo just said. Next question.

Next question by Thiago Batista with UBS.

I have a question about the several digital channels for digital information, do you have the strategy to address these channels considering to change the bank is adopting? And a follow-up about capital. Is the bank capital [ 10.9 percent ] of whole capital and is there any kind of restructuring in or something like [indiscernible] in the radar and when we look at the next 12 to 18 months, looking for it?

It is a pleasure to have you with us. Regarding the second topic, we are very comfortable. We don't have any movement in the insurance group in that regard. We see profitability increasing stable capital, a good buffer. Regarding Digio and Next, very soon, we will bring you this new value of proposition of our digital business. We should be integrating -- next in this new value proposition along the year of 2025 and until the beginning of the second half of the year, but we'll bring you more on this, more detail on this later. We have a strategy for that, and we are in the process of executing it. And about capital, I answered about.

Next question from Renato Meloni with Autonomous. We cannot hear you.

I'd like to go back to the NII. I'd like to reconcile this movement of moving towards portfolios while expanding NII. And in Q4, we saw flat NII compared to the prior quarter. I think even if we consider the portfolio that you mentioned, implicit NII increase. And if I may ask a quick second question. In the guidance, an increase in expenses does not include restructuring costs. Is this a fair statement? And can you give us an order of magnitude of what you expect for 2025?

First, regarding the 8.4 margin. Well, in absolute terms, we're growing. I made a comment about the IS and public payroll deductible loans. Every month, we settle some, but we replenish that with higher margins. So we might have a different index. 4, 5, 3. But I in absolute terms, we are growing with a cost of risk, which is very stable, well balanced. So we are very certain that we will continue to grow the margin. I don't worry so much about the NII itself I focus on absolute volume and it's constant growth and this is what we're going to deliver. So we have confidence that we'll deliver that. The restructuring cost provision to move forward with it and to review our footprint. And I think that I mentioned in the past our initial expectation for 2024 regarding our footprint review was about 1,000 points of service, 750 closing agencies and the rest and the rest will be restructuring or renewal. And we had almost -- we had 1,385 more. Infact of EUR 440 million [indiscernible]. So expenses compared to what we are doing in the transformation well, it's much better in CapEx as well. So that's what I said. It's a brilliant plan. And the payments companies I mentioned are making important moves in CapEx and OpEx and the insurance group also working on OpEx and CapEx. If we isolate net of the payments companies [ 6.9%]. So we continue to invest. We'll gain efficiency and productivity. And that's why we cannot stop working on the transformation of the bank. I have a lot of confidence in what we're doing. Let me do productivity gain. One of them is we're going to deliver 50% more technology output than we had in 2024. So it is a lot of growth -- our next question from Mario Pierry with Bank of America. Congratulations on the results.

Next question from Mario Pierry with Bank of America.

Congratulations on the good results. [indiscernible] and my question is, well, listening to the results of all of the banks so far, if we want [indiscernible] more cautious loan granting, more high-income clients, products that are secured. So it seems that there is going to be intense competition and we see we were very cautious within that market. So wouldn't this be a timely moment for you to grow your mass market given that everyone's being very cautious? Theoretically, you would have room to price this risk. My question is, what would make you take on a little bit more risk and focus more on the mass market?

That's a good question. It's a provocative question. When I spoke about mass market and digital, we talk about 1 million clients, which is new value proposition. We are testing some models and if we continue [indiscernible] we are growing different fronts. And I also mentioned some information with the new platforms, we gained a lot of efficiency, productivity and client experience Bradesco Expresso, it grew more than 100% in granting payroll deductible. So you see we have a risk appetite. It's not that we're not working with mass market. We are we are choosing the because nothing can replace a good quality of assets. So this is something we will not give up. We will not give up on risk-adjusted return, our AR. But we are working in that market. I showed this with Expresso. I showed that we increased by 45% of sales with those implements in mass market for that set of clients. So we are increasing our penetration, but you see goodness and good payroll deductible loans and products that we can work with that will bring us adequate risk for our organization, okay? So it's not that we are giving up and growing in our mass market and testing new models with Bradesco Expresso. You will see the this year. We'll be showing you. We didn't give up on that. But the risk appetite needs to be controlled. We need to have return, and this is what's on the table full time. I would like to highlight improvements in risk management. First, we work with volatility clusters. We have volatility clusters. The moment we start adjusting risk appetite, we adjust mainly at the highest volatility cluster, the people who are more exposed to the deterioration of the macro economy. That's where we start adjusting and we started doing that second improvement has to do with repricing. Of course, higher risk clients have higher spreads, lower risk, lower spread and that became slightly more tilted in the last few quarters. In other words, we're charging a little more spread, but there is a little more risk. We adjusted our offerings and we have demand and we want to have a better price risk and risk is better priced in these segments. Mario, thank you for the question.

Next question from Pedro Leduc with Itau.

My question relates to NII. In 2024, NII is -- was below the guidance. Of course, they are gauged by loan loss provisions. But this has been the most challenging. But when you look at the 2025 guidance, I'm saying that saying that it will grow above the portfolio. I would just like your help to help me understand it because you talked about the tail effect but even the spreads of the industry for payroll loans and real estate mortgages, et cetera, I know that the new vintages are accumulating lower spreads in your portfolio and you want also to the risk. And this will be highly depending on funding adjustments. Is this a correct observation? Or maybe in terms of pricing, you might be more aggressive? I just want to be a bit more comfortable when it comes to client NII, given the industry challenges in recent history.

Pedro, thank you for your question. It's a pleasure to see you. Andrea will start answering your questions and then both of us will jump in.

I would like to highlight a few efficiency measures that we adopted when it comes to managing our liability, and this is reducing our cost of funding. When there is increases in the selic rate, we make more money. I mean this is a process that is ongoing. So all we have to do is accelerate with the deterioration of the macro scenario, we compensate that with efficiency measures so that our client NII can improve, and we gain about 2 percentage points in the client NII segment. This is a very important point. The second important aspect there was even highlighted in the coupon minus is that Central Bank in terms of banking loans, they see deceleration in line with lower spreads. And these are lines with longer duration, where the effects of the monetary policy has an initial impact. So when you decelerate lines with lower spread, the demand goes to lines with better spreads. So naturally, there is a change in the mix. This helps to recover spreads. So that 8.4% number that you'll see that there -- that's where we see increases throughout 2025.

It's also important -- if I comment on your answer, I mean, personalization is something that has been our focus, and this has to be repriced. This component in addition to the inventory of 2024, which is quite healthy is what will set the base for higher growth in client NII. And funding is quite important as well. And there are other important aspects. I mean we are doing some important work in SME, cash management and all of that has brought good results to the bit. So it's just a set of three pillars, hyper personalization, pricing, and a better retention in terms of principality of good vintage that we build up in 2024. All of these things combined allow us to reach better client NII level.

I would just like to add one more thing. First of all, we have to carry over, right? For 2025 since there was the accumulation. And I am -- NII will continue to grow as we saw quarter-on-quarter even for this capacity of production that we have in these different lines. Even if the spreads are lower, but the level of return -- risk-adjusted return is much higher. That was a much better level to be. And portfolios with longer term like [indiscernible] programs, FGI, FGO, there is stability. And the loss level is low and under control. Second of all, Andreas have said, our funding cost is coming down. And the third point is, you know that remit some clients that have deposits with us at a level that is nice for the client and very positive for us. So this combination of deposits and demand deposits, they grew a lot this year. And this result of what Cassiano just said and also a result of our activities. So we are growing funding at a low cost. And this also helps us in terms of our leverage, the end cost and the NII margin that you talked about. Therefore, we know that we will gradually grow. And at the same time, the absolute value will be higher. And as a consequence, I mean this has to do with our bottom line. And the bottom line is NII net of provisions. I mean NII will come in absolute terms. And NIM is just the result of something that we are building along the funds.

So next question is from Yuri Fernandes.

I would like you to elaborate on your expense line. I mean what if something goes wrong? I think other analysts already asked about cost of credit or cost of risk that could be a bit challenging or maybe not. Maybe the margin will not grow. I just want to understand if your expense line could be above, it could be an adjustment line. You anticipate a more difficult year for some leasing or maybe you would delay some of your investments just to deliver the bottom line or whether the bank is committed to do investments or maybe if something goes wrong in the cost of credit or margin, if you will continue to pursue your expense line is a trade-off with long term.

The first decision, I mean you were just laying down a hypothesis, and we have to look at it in a dynamic way. But it certainly depends on okay, let's say there's a new pandemic coming. It's a new situation, but the macro scenario it's slightly worse than what we envision -- that's another situation. But our decision even bringing it to that scenario I referred to last quarter it was 70-30. Now we are working [ March ] 30, a more cautious landscape, but I repeat it again, it's more cautious, but I am not pessimistic. On the contrary, I'm very optimistic. I'm very optimistic with what we are doing here and absolute [indiscernible]. I'm optimistic with the opportunities we see in the market. This payroll deductible loan on the government, social and other companies already talked about that. And again, I say that this is an opportunity for all of us to grow depending on how they implement that, whether there is no cap so that we can adjust to that kind of risk. The -- I see great opportunities in this market. And then we decided that even with a more cautious scenario to apply the guidance and coming from this more cautious scenario, we will not stop investing, not even [indiscernible] and this will have important impact in the next coming quarters in 2026 and 2027, you will see that. You can see for yourself.

I would just like to add one more thing. Expense is something that could be broken down in two parts. One is investment. We want to preserve because there is competitive move gains in the mid- and long range. And the other aspect is the other expenses, personnel expenses, admin expenses that grew below inflation of 4.8% total control and here again, we could be bit a more cautious. We are just reviewing more, meaning there is always room to be more efficient in our expenses regardless of the macro scenario.

Next question from Carlos Gomez-Lopez.

Okay. So congratulations on the results. So two questions. First, on the implementation of IFRS, could you revisit the logic why you have such a big impact on securities and why this seems to be quite idiosyncratic to Bradesco, we have not seen in other institutions. It's a big amount, BRL 8 billion. So we want to understand exactly why this happens. And second, earlier, last year, you were mentioning 2026 as a year when we reach a normalized return. Is that still the goal that you will get there in 2026? And how would you define a normalized return?

Cassiano, I think that you can start answering this question.

Well, thank you, Carlos. I will try rephrase the previous answer to make it more clear. The movement of the new IFRS brought some differences for the organization. And some competitors, even Itau yesterday mentioned that can be similar to the move we had here. The first big move was regarding operational risk, we own now about 0.2% [indiscernible] [ 4966 ] brings us the possibility of adjustment in shareholders equity. In terms of credit policy and [ BIS ], what we did was an adjustment to the basic model that the central bank allocates tropicalization of the Brazilian Central Bank in terms of POL have a total of BRL 2.9 billion that we considered a debit of our [indiscernible] and this would lead to a reduction in our BIS of 0.2 given the decision this 0.27 was diluted along all years. So we had minus 0.20 reduction of operating risk, [ 007 ] given the reclassification of the credit part, BRL 2.9 billion, and we also have a prerogative to [indiscernible] institutions also used, which is the possibility of course, secure that had three or four classifications, available wholesale or to maturity, when you concept called amortized cost that adjust financial instruments to the new categories of classifications according to the business model. In the nutshell the bank generally cost, we had a full adaptation the Rule 4966 on IFRS, there was no change. I think that the other banks given the explanatory notes used the same instruments that we included in our balance sheet and I will complement the answer.

Were you going to pursue and to deliver an ROE which is a lot better?

But this is -- and we want to be under promising and over delivering. And it is probable that this will not be normalized by 2026. It might still be growing.

Next question is from Eduardo Nishio.

Follow up that question. Regarding profitability, the scenario has changed a lot since [indiscernible] return on shareholder's equity [indiscernible] capital deposition [indiscernible] cost of capital, which has also been growing macroeconomic. This is the same idea cost of capital cost [indiscernible] perhaps 15% to 16%. So do you think that in 2026 you will achieve this kind of profitability? My second question is regarding market NII. Market NII, you spoke about neutrality. I think that you mean not to be closer to 0, to not having a negative or positive results in 2025 so I would like to know your strategy [indiscernible]? In the coming years, 2025, 2026, 2027, will these line go back to a normalized level? And what would be this normalized level in your opinion? And what about your hedge strategy? How will this be implemented? Will you remain neutral to the [indiscernible] in the coming years and do you consider hedging your capital because another possibility?

I'll start answering the first part of the question. And then I will ask Cassiano to answer the second question. Our ROE -- as regards ROE higher than the cost of capital. You are correct. When we delivered our plan in [indiscernible], we had a different horizon cost of capital, which was lower. We don't say what our cost of capital is, [indiscernible] of capital was around 14%. If we get all of the [indiscernible] we have today, it is above 15%. Is this a bigger challenge? Yes, we get it and it is what I said earlier in the previous question. We will not promise anything, but we will deliver. So it's under promising and over delivering. At the right time, we are advancing step by step. Everything we said we were going to be delivered. Everything we said in the time line, we are reaching that. So we'll get there. [ Cassiano ]?

I think that you raised an important point, indeed, the market NII is perhaps the most difficult NII for us to forecast and to give a guidance. There are a number of [ reasons ]. As regards to neutrality concept that is [indiscernible] we see between BRL 0 and 1 billion [indiscernible] [ Marcellus ] inspiration. We have an important work. The trading gives us very significant results in Q3 in Q4. So we are working a lot to pursue gains [indiscernible] in trading. We don't have a hedge policy, which is open dedicated documented, but we do very important work in considering fluctuations. And we do this kind of work in specific [indiscernible] the diminishment of our enterprise. So we have clarity on that. We are much more neutral to more market fluctuations and interest rates. We are now in a hiking cycle. We know what the [indiscernible] cycle is going. So overall, and our land is analyzed in that context. And we don't have a tested policy you've had, but we have a policy of working daily in our operations, making some kind of hedge or protection or an operation against some specific close. I understand that your [indiscernible] is a good new market NII [indiscernible] of high interest rates, although we want to bring on and the future we will have to see what is going to be the new normal. We've [indiscernible] a lot of time -- over time, we launch the [indiscernible]. So was the hedge of pulling capital [indiscernible] avenue neutrality. Last year, we had excellent treasury results and that is an indicator of a much more normalized market NII than in this year, when we have an interest rate hike in cycles. So the level of 2024 should be the benchmark for us is. I think that this is what [ Casciano ] is saying. This would be a reference for you as a bottom in a normalized condition.

Now turning to English. The next question comes from Tito Labarta from Goldman Sachs.

I guess just more a couple of clarifications just to make sure I understood. One is on the restructuring charges, right? I mean you had BRL 443 million this year BRL 570 million in 2023. Do you expect to have any more this year? I just want to understand how nonrecurring these are? Or when do you think these restructuring charges go away? And then the second question, and sorry to ask you again on capital. I just want to make sure that I understood. The 60 bps increase from the Resolution 4966, I wasn't clear. What drove the increase? Was that the reclassification of securities? Or -- just if you could just walk me through why there was an increase in expectations where it would be a bit more negative. So just to make sure I'm clear.

Okay. Thank you, Tito. Good to say again. To answer your first question. Provisions for restructuring, like you commented, it's focused in the review of our footprint, not only there, but particularly there because investments that we've been doing, as I said, are much higher than that. How long it will last? I mean it's a transformation. We said that our transformation will go from 2024 to 2028. It's not that it will start now and it ends in '28. I mean we've been delivering lots of things, and we continue to deliver and we continue to invest. We have a lot of investment. There are a lot of things to do in 2025. We still have a lot to do in 2026. But as you go on that journey, we also capture efficiency. We increased productivity. Just like I said, when I talked about technologies, we are increasing productivity and efficiency. And we managed to do that this year through new technologies, more format and more team. Therefore, we will continue to pursue that. And certainly, we will capture further benefits as the years go by '26 and '27 and so on. And I think [indiscernible] can talk about that 60 basis points when you talked about capital growth with the 4966.

Let me try to clarify. Basically that 0.60 comes from the movement of securities. That's what I said in the previous answers. The reclassification of our securities for our very specific cost model for every operation model. That allowed us to get to that 0.60. But as a reminder, within that number. I had two negatives. what I said, 0.20 comes from operating risk and [ 007 ] comes from the legislation of the adjustment and the sharesholders equity of loan loss provision. So we have at 12.7% in September, 12.4 in December 30 phase also according to [ NVM]. So January 1, our BIS ratio was adjusted to the 0.6% from the adjustment comes from mark-to-market or the cost [indiscernible]. This is something that is very regulated according to the new IFRS. So that's where this positive difference comes from.

So now we conclude our Q&A session. The questions that were not answered, our IR team will shortly answer them right after this. The presentation is available in our IR website, this presentation, other earnings releases and other presentation. So now I'll turn the floor to Marcelo to conclude this presentation.

Thank you, and thank you Cassiano and thank you all of you who work with us, and thank you to our analysts spend time with us and joined us in this earnings release call for the fourth quarter of 2024 in the full year. We are certainly open to talk to sell side, buy side and any other investor that seeks for further clarification. And once again, I must say that we are pursuing a very cautious view, but we remain optimistic in terms of what you're doing and what could be the next perspective scenario for Brazil. So I wish you a very good weekend. Thank you.