Banco do Estado do Rio Grande do Sul S.A. (BRSR6) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. Welcome to Banrisul's video conference to discuss the results for the Fourth Quarter of 2024 and the whole year of 2024. This video conference is being recorded, and the replay can be accessed on our Investor Relations website a few hours after the event is done. In addition, this broadcast has simultaneous translation into English. If this is your preference, please click on the button you can find on the bottom of your screen. Well, today's event will be divided into 3 parts. First, our CEO, Mr. Fernando Lemos, will give a presentation about our year of 2024 and our main delivery as well as bringing more information on what's to come in 2025. Next, our RI and Director, Gonzaga will present the main figures and performance for this quarter of the year. Then we'll finish with our traditional Q&A session with the market analysts. The presentation will be giving -- we will be giving today will also be available for download on this platform's chat and also on our RI website. Now I would like to hand it over to our CEO. Please, Mr. President.

Thank you, Nathan. Thank you, everyone, for your presence. It's a pleasure to be here. I've been here as the CEO of Banrisul for the past 18 months, and we have restarted to develop what we thought to deliver to Banrisul. I will briefly discuss what we have been doing. We created the idea to have an open bank, which meant not only open for the market, for the capital markets, but also open to our services in general, new technologies, new movements of the banking system in Brazil has gone through to provide the best service to our clients. So we've been implementing this. We started with the modernization process of the bank with a new model for the transactions, moving towards digital, the digital world. We invested millions in the IT department of the bank to modernize Banricompras, a new digital account, which has been really successful, a global account of foreign currencies, first for the individual accounts, and then our idea is to expand it to the whole portfolio. We've been very successful. And from this week on, we will start to open our digital account for the whole country. For the whole of Brazil, we can expand to the whole country, the Banrisul digital account, so we can improve and increase our base, our portfolio and renew many of our businesses in our base, in our client base. In Rio Grande do Sul, we have seen that the digital account has a special feature. This is for -- meant for people who are young, under the age of 35 years old. So this has been really successful among this age group, this group of clients. But we also realized that the bank was too connected to payroll loans. We decided to redirect our services and also approach commercial loans for small, medium-sized companies. We started with a single account, Conta Unica. We have BRL 2.4 billion already being used in -- we have already used BRL 1.5 billion of this total amount. This is expressive for the credit and the loans provided by the bank. The organic growth has been really positive in the commercial loans provided by the bank. So we are not so dependent or depending so much on the payroll loans. This will keep on being an important product of our bank, but we will expand our loans, our credit to other segments of the market, especially the commercial loans, taking advantage of this characteristic given to us by Vero, which help us get into the commercial market. We have Vero close to the bank. We have joint package involving Vero and Banrisul to cover more of businesses in Rio Grande do Sul. This gives us a very good perspective. We also created the digital discount. This is a very important service for the bank, and it has been really successful with the balance of next BRL 150 million. And another product which is digital. This is a self-service, let's say, product or service, which makes the lives of our clients much easier. We keep on investing on our digital services. This is our role. This is what we want to develop. We also had an issue, a problem related to the flood, the climatic event in last May, which affected Rio Grande do Sul. And because of the commitment towards our population, we invested heavily on agriculture to recover all of our segments, all of our areas also which were flooded. And we also provided a credit to museums in Mario Quintana Museum and the orchestra, the local orchestra also was affected. All of this public equipment, public buildings, which were affected were helped by the bank in the form of credit to help us interact with the communities of the Rio Grande do Sul. BRL 15 million were donated for the rebuild of households too and also credits to artists and other parts. We favored this investment in the culture of Rio Grande do Sul. We have a huge investment of BRL 400 more million, most of them in IT, so we can improve our investment and our capacity. We changed all the computers in our branches. They were old, so they needed to be replaced. We improved our data center. Our base is very satisfactory, so we can advance in the development of products that can meet the demands of our clients, looking for efficiency and safety, which are our top -- our priorities. We also performed a new movement in Brazil regarding our ATMs, our cash machines. They were in need of change. And we, along with TecBan replaced all of our equipment, which were in need of replacement to new ATMs relying on state-of-the-art technologies and open to everyone, not only to Banrisul clients, but also open to everyone who wants to make use of this equipment. Clients of other banks who are within this portfolio of the 24-hour bank will have access to ATMs -- Banrisul ATMs. This is a network of almost 150 banks. They can withdraw, they can make deposits, they can make service, they can use them their services, online services and all of this revenue of the service will be a Banrisul income -- revenue. This is an open bank. This also, again, has to do with our idea of establishing an open modern bank. And our company, Vero, which was closed, which will provide the service only to Banrisul clients. Nowadays, Vero can also provide services to clients who are clients of other banks. This is an effectively open concept based on our idea. We're also opening new points of sales through Banricompras because we are convinced, absolutely convinced that we need to get closer to people, especially after the pandemic, many people started working at home. They usually don't travel so much anymore. So it's important to have a point of service that is closer to that community, closer to their household. So we have this what we call [ Banriponto ]. And this is like a mini branch of Banrisul Bank that can provide some services in areas which are further located from the downtown. So we can provide services to these communities. All of our -- the service of PIX, the automatic money transfer service, it's fully automated. We have anchored this in our credit line that was called Credito Minuto, which was traditionally called Credito Minuto, now is connected to this new area. And as I said, we are -- we've been expanding, we've been preparing to expand our services to the whole country with an expressive demand already. Well, we have a net interest income of -- we have a net income of BRL 916.1 million, which is very good. We grew 5.2% if compared to last year. We imagine that maybe the flood that affected Rio Grande do Sul would have a much bigger impact on our net income. And based on the reorganization that we made to protect our portfolio, our default ratio was very low, 1.73%. 1.73% of default ratio is very comfortable for us. We also grew our net interest income and provision expenses are proportional. Banking fees also had an expressive growth through the use of Vero, particularly, which is being more properly used in our opinion. The total assets of the bank is almost BRL 148 billion. And the loan portfolio of Banrisul is BRL 62.1 billion with a growth of 15%, which gives us a very good perspective for our institution. As I said, we are no longer connected to payroll loans, and we are transforming the bank into a more retail service bank in a more balanced way to face the new demands of the market. We are preparing -- we are positioning ourselves for the year of 2025. We need to be careful. Credits and loans are getting more expensive, but we have this perspective, which is a little bit different because we expect to have a very good investment of around BRL 14 billion or BRL 15 billion to recover the infrastructure of Rio Grande do Sul. This money will be provided by the state government. This comes from the waiver on the federal debt. And so this waiver will be used to invest in the infrastructure of Rio Grande do Sul. And so Banrisul has good prospectives for the year of '25. We are not going to talk about specific figures yet. But if you consider the bank we had in '22, in '23, we had a net income of BRL 304 million in -- sorry, in '22, we had BRL 781 million, and this has grown and now we have BRL 916 million. The ROAE also overcome [ BRL 10 billion ] for the first time. I'm very realistic. And I remember that when I started working at Banrisul, talking about -- we talked about the results of the bank and we wanted to reach BRL 1 billion of equity. And now we have over BRL 10 billion in equity. Our ROAE is very good, very expressive and provides us with safety and security. Thank you very much for your attention. Later, I will be with you for the Q&A session. Thank you very much.

This is Gonzaga speaking. Thank you for your presence. Well, let me talk a little bit about the profitability of our bank. Let's talk about profitability first. And well, we reached BRL 916 million, as our CEO said, a growth of 6.2% (sic) [ 5.2% ] if compared to last year. In the past quarter, we advanced 44% for the -- compared to the third quarter and the fourth quarter. And if compared to the fourth quarter of '23, it's a little behind, but the measure is well positioned, especially considering everything that happened in the second quarter of the -- of '24, considering the climatic event and also all the loans we had to reposition and also the payroll loans portfolio changes. In terms of ROAE in the past quarter, we managed to reach 9.1% of ROAE in 2023 and also 9.1% in 2024. As the CEO said, we increased in our equity and this led to ROAE that was the same as 2023. We had some events which were important like the NII, which was very good. In terms of credit provision, no -- almost no impact and administrative expenses also changed a little bit. We had a guidance of 7.6% and the service fees also were good with a result of 7 -- of BRL 916 million. We had a financial margin or NII of -- from the fourth quarter of '23 to the fourth quarter of '24, we had an increase of 44%. And from the third quarter of '24 to the fourth quarter of '24, an increase of 9.9%. We were a little behind what we wanted to have. We wanted to deliver an 18%, but our actual guidance was 16.2%. But even so, we wanted to -- we realized it was a good net interest income. In '24, we faced some important events, the reduction of the cost of funding with an IDS of subordinated debt abroad, [ for 27% ] of cost plus Interbank Deposit Certificate and the cost was only related to the Interbank Deposit Certificate and also increased our loan portfolio, which favored our margin and the cost of operations of previous automatic bank deposit certificates favoring the margin. These were events, the main vectors, the main events that led our margin to be what we reached in '24. We will expect the margin in '24 to regress to the regular market expectation. So the fourth quarter of '24, we grew 9.9% to the fourth quarter, a figure which is in line with what we expected in terms of margin deliveries, which affected the whole result of 2024. Asset quality, 15.6% of growth, 7.6% if compared to the quarter, the [ 9.4% ] in individuals and [ 6.4% ] in corporate, but we also grew in currency over 100%, which is important for the commercial portfolio. Development lines due to the flood in Rio Grande do Sul, we had an increase of BRL 500 million. The rural loans also had an effect because of the extension of debt based because of the flood in Rio Grande do Sul, but we grew 15.6% in our portfolio, individual 74% was payroll loans with a guarantee of this payroll loans. The real estate, that is a stagnation of this portfolio, but we grew 9.9% in the real estate portfolio, we haven't operated just what we had already agreed with the market. The works in the job sites, in construction sites, we have followed all the agreements. We also have some dismissal programs and also what the company receives in terms of -- from construction companies like apartments and other services to pay for the debt. This is what has going on in the real estate portfolio with an expressive figure in industry. This is not an open portfolio for the buy and sell of real estate for the individuals. This is to reinforce employment and income in the state. Credit quality -- asset quality is very good percent, very good results. In individuals, we have [ 1.7% and 2.2% ] in companies. These are not -- I mean, the volume is higher in the individuals accounts if compared to the companies. We check the coverage ratio. It went to 246% in December '23, and now it's 243%, but it grew if compared to September of '24, which was 215%. And provision expenses, we have [ 2.15% ] in this quarter. Next, please. Our administrative expenses, we had 7.2% of growth. If we measure, this is 5.2%. It's in line with the collective agreement. We had some effects of the climatic events. Again, this is natural and expected. We had to remodel some of our infrastructure. We had to pay for cleaning services. This cost us time and money. Of course, our contracted parties services was below what we expected, amortization and we changed the whole set of computers in our network. We invested heavily on that. This has a cost. We had some investments paid to IBM, payroll and stock service and IT service. We decreased this service. We increased the volume of processing, both at Vero and Banrisul. Obviously, this also leads to an increase in costs of processing costs. We had some costs related to advertising to place or to position the bank in the market, and we had to make some ads because of the climatic events, too, and our portfolio of new services such as single unified account or Conta Unica and also guarantees for real estate and digital services, a series of products that have to be advertised by the bank. We also invested heavily on digital media and open TV. So this number in advertising naturally had to grow. And other expenses are there, daily expenses that led to this percentage of 10%. So the total is 7.2%. Next, please. Service fees, we had an increase of 8.6%, led by cards. There was a change in services agreed upon with the Central Bank, the Brazilian Central Bank. We had other services, which were accounted for that came to the revenue of cards. So our -- its expenses, 24.1%, and accounts, insurance and other revenue, consortium and other revenues led to 8.5%. Well, in terms of funding, we've had an excellent performance in funding, 14%, and the average Selic is around 11%. So over -- almost over 4% in real growth in funding. Our global funding is [ 81% ] and CDB is [ 85.4% ]. This also helped us hold NII or financial margin. This funding cost in our portfolio had a growth led by overdraft. We cannot complain about that. We almost had a 5% growth in savings accounts and almost all portfolio had a good results. In terms of capital, we had a Basel ratio of 17.2%. We had the debt of [ BRL 300 million ] in national debt and $300 million in IDS abroad. Tier 1 capital change had a performance of 13.8%. It was reduced a little bit if compared to the previous quarter because of the increase in the portfolio. So capital is doing well. We can continue working on credit and if we keep on working like that. In our guidance, we have our guidance and our projected and estimated number. Our total loan portfolio in '24 is 15.6%, in line with the market. We do not see with this prime interest rate and the market as a whole, and the market weighting for the federal government actions, we expect in 2025, a total loan portfolio from 6% to 10%. We expect to deliver on that. In terms of net interest income, we have here the percentage we work in the level of 7% to 12%, also in line with other banks. Cost of credits, we have a change in the basis of this in '24, according to the new concept, which no longer applies to credit recoveries in both end, we would have 1.4%. But now for 2025, we expect 1.2% over to 2.2% because our portfolio will be controlled -- highly controlled in terms of default ratio. And this is one of our priorities to control default based on the new order and law. And administrative expenses, I don't know about the collective bargain agreement, but we are working with a percentage from -- that ranges from 7% to 11%. So this is our guidance. So for the loan portfolio, 10%, net interest income to up to 12%, cost of risk, 2.2%, and administrative expenses up to 11%. This is what we aim to achieve in this year of 2025. This is it. Thank you for your attention.

Thank you, Mr. Gonzaga. Our CEO, would like to give you a take-home message before we move on to our Q&A session.

Well, I just wanted to thank you all for your participation. I would like to tell you that Banrisul believes in all the services we have provided and all the actions we've been taking, I believe in the performance of Banrisul, we are no longer dependent on a single type of credit, which was the payroll loans. This is an expressive portfolio, but we do not want to rely solely on the payroll loans. We have expanded our range, our mix of loans. And so we have an expectation to have a very good year ahead. We are bold in terms of creation of products and technology, but we are pretty conservative in terms of the number and the figures. So we want to have -- to achieve high numbers, but also be very safe. That's it. Thank you very much.

Thank you, Mr. CEO. Thank you, Mr. Gonzaga. We'll now start our Q&A session. So before we start, if you'd like to ask a question via audio, please press the reaction button and then click on raise hand. If your question is answered, please click on lower your hand. For additional questions which cannot be answered here, our IR team will approach them and answer them. So let's start with the first question coming from Mr. Olavo Arthuzo from UBS. Arthuzo, can you hear us?

Yes. Nathan, Mr. Gonzaga, all the team, thank you for the explanations. Well, my first question has to do with this tax rate you shown for the semester. I looked at the financials and I could see the positive impacts of JCP coming from a base you have distributed some of it in November and December. I mean I'm talking about the interest on own capital and also there was a profit-sharing program based on that, the good of law -- sorry, the law of goodwill. I just wanted you to provide us with more information regarding that. And my second question has to do with the guidance, especially related to the cost of risk. I understand that based on order [ 496 ], I understand that you have to work like this. But where have you booked this credit recovery? In your release, it was more connected to margin and release. Just wanted to confirm, are you indicating in the average point of the guidance, the cost of risk that this liquid provision of cost recovery tends to grow around 30% this year. Is that the percentage you're expecting?

Well, related to the first question in terms of details, our -- we have our colleague here who can discuss this. Can you hear me? Well, in fact, in this past quarter, we have paid interest on -- interest on own capital below the first and the third quarters because we had to verify the capacity of the bank to maintain itself to comply with the rules of the Central Bank to maintain tax credits. But then we realized that we could pay more interest on own capital, and then we paid BRL 182 million that benefited the basis in the past quarter specifically. So subsidiary companies also paid interest on own capital to the bank, and this generated a balance if compared to previous quarters. And in the past quarter, the subsidiaries maintained the same level of payments to the bank. However, the volume that the bank has paid to its shareholders was increased. So this generates these benefits in the past quarter. And the law of goodwill, that is this law we have used and then the benefits of this law for our calculations. So in December, it has -- it allowed us to provide this benefit in our taxation basis. So these are the events. These are the items that led us to these figures on our results and income results. The participation of profit participation was inside for the deductibility of -- for the period. It has no difference if compared to previous quarters because it was already accounted for. Basically, these are the items that provided us with this results. In the consolidated numbers, where we see the taxation of our subsidiaries and the bank, we see a positive tax of BRL 207 million in expenses. I mean, not positive. This is BRL 207 million in expenses for income tax. But if we consider only the bank and the equity, we reduced our taxation in the bank because it was already taxed in the subsidiary companies. And the subsidiary companies have presented excellent results for the Banrisul Group. I don't know if I could answer your question, but basically, that's what happened.

Cost of credit. Mr. Gonzaga, if you could talk about cost of credit revenues, which were considered within the NII, but then from 2025 on, they will be netted in the PMD.

So there is a positive number. They reduce the number of provisions, they will be outside NII and for the position. This is in line with the market, how they present their releases. And then we have the 2025 guidance and the cost of credit. This is in our release, a column on comparative basis, and we will be adjusting the end of '24 based on this new type of calculation. And for cost of credit was this interval of 1.4%. Considering the guidance range for '25, we have 1.2% to 2.2% range. So the mid would be 1.7%. If compared to 2024, we estimate, we project a growth in cost of credit based on the same comparison of '24. And this is in line with what we have shown because this new appetite of the bank for new commercial services. Many banks have -- they allocated this in amounts, but we allocated in percentage. But in terms of numbers, it would be BRL 800 million and BRL 1.3 billion -- BRL 800 million in the minimum and BRL 1.3 billion in the max. We have had a significant involvement in cash credit recovery. We have invested in database, intelligence and IT. And to give you an idea, our cash credit recovery was BRL 180 million against a recovery of BRL 720 million in 2023, a growth of over 20% in relation to 1 year versus the next. We have invested heavily on the modernization and expansion of this area due to this change of concept, and we believe this recovery will keep on strong and progressively grow.

These recovery numbers, I wanted you to confirm that. Just a follow-up regarding the tax rate. And we have discussed with investors yesterday and today in the morning. Can you give us an idea, please, regarding what tax rate we could consider for '25? Because it has been volatile, both in '23 and '24, it varied so much. So could you give us an expectation?

Well, Nathan will check that, and we'll share this with you. But well, in 2023 and 2024, we have used the interest on capital on our subsidiary company. So yes, you are right. There was some variation to pay the dividend in the market. So this gives us a difference because there is a connected companies or subsidiary, they have a difference in percentage. The payment between the companies and the bank generates changes in the global rates when you check the consolidated numbers.

Olavo, well, we will check this, and I will follow up with you. I'll give you a better perspective on these numbers moving forward. Okay. Moving on to the second question. I would like to call Ricardo Buchpiguel from BTG Pactual.

I have 2 questions. First of all, there was a growth of provisions from Q3 to -- quarter 3 to quarter 4 and also an increase in operational expenses moving from [ 2024 ] to BRL 289 million. What led to these increases, which was a normalized numbers or expectations based on the Q3 or checking '24 as a whole year? How can we consider this to have a clear perspective on '25? And my second question. My second question -- well, I can ask later.

Well, regarding expenses, civil expenses, they follow a straight line. We write one-off and then there's a new one. And the labor-related expenses, yes, they went through some changes. We were -- it's Brazil, sometimes we don't know if a lawsuit, it's going to be appealed or not and which is going to be successful or not. So we also work based on safety, and we understand that we should have some provision for our protection to protect Banrisul. So it's around BRL 70 million. But just to give -- provide us with a safety net regarding this perspective, we don't never know if when ruling will be overthrown or not or the lawsuit will be appealed or not. Well, in terms of operations, we had some costs related to administrative expenses, day-to-day expenses, remodeling of branches. We had to spend a lot of money related to the administrative expenses. So this led to this increase. But even if you consider all the expenses, we reached a percentage of 7.6%.

Just a follow-up on this item. How much of these expenses would be specific to the year of '24 to remodeling of branches or reinforcing labor cost provisions? How much were they for the year? What amount they represent or they account for the year, so we can have a perspective of '25? Well, the bank grew more in companies and personal credit, they have better margins, as you said, but they also carry more risk. I would like to understand if that's a trend we will see moving forward to make these credit lines grow more, more margin, but also more risk? And how do you see this positioning considering the market? Because many banks are talking about being careful because the macroeconomic scenario is more challenging. How do you see this scenario? Could you talk about that?

Well, regarding expenses, if you consider the final quarter of '24, it was 0. The third quarter -- I mean, the second quarter had expenses. The third quarter also had expenses. But if we consider only the end of the third quarter and the fourth quarter, there was no expenses. We had no expenses if you can see the data. Well, I can ask my colleague here to add, but we have worked heavily on retail, small retail, credit cards and other services. We have Vero, and also Banricompras connected to that. And Banricompras is a product that in practice, it's virtually like a check. It's a check within the clients' current account. It's also -- clients can pay their purchases also installments and works with Cielo, Visa and Master companies. This is a facilitator service. It's up to the clients. If they can decide between a regular credit card or a Banricompras. They can buy with Banricompras as if they were -- they had a credit card or installments. So it's about their preference. Sometimes if they get paid by the 30th of the month, they don't pay the Banricompras fee, they will pay some interest. And this is also good for the bank. So the clients' current account is like the interest fee that they pay, the clients can buy installments from 2 to 30 days in a basis of 4.5 million of customers who have this type of cards with a very high limit of BRL 6 billion. This makes a lot of difference in our daily operation. And my colleague will talk about other credit strategies we have.

Regarding the credit strategy, we have concentrated our service on small operations, trying to massify retail credit. In all of our models, we have been reviewing our concession models, focusing on the increasing the number of clients and have operations with a better margin, mitigating also the risk or the cost of credit. Our default ratios -- our default levels have decreased, and we have provisioned similar amounts to those of 2023. Another strong point is looking at receivables and the flow of clients' financial flows, both for individual accounts and corporate accounts and receivables in the banks and looking towards this financial movement as an element when it comes to providing credit and modeling credit for the retail services. In corporate accounts, we strongly focus on a connection that has been successful with Vero, which has to do with expanding the Vero network and also increase our credit portfolio. And then we created these unified accounts, Conta Unica, BRL 1.5 billion of amounts and also limits that are provided that are over that. This is a credit that is given to companies they have very good credit scores, and we have risk alienated companies cash flows, providing a revolving credit line. The clients pay interest rates monthly and the capital they give back according to the company's cash flow. This product has a very good demand. We have approximately 12,000 companies that are customers of the service, and our expectation is to double the number of this portfolio. It has a very good demand in the market and also is connected to receivables and the company's cash flows. So receivables and accounts payables generate a revenue. And along with that, we have the payroll that increases our basis of clients for the individual accounts with credit provision. It's very simple to understand Banrisul's strategy. We were outside commercial credit provision in Rio Grande Sul. We are going back into this marketing. We will be back to the good commercial credit to Rio Grande Sul. We are pretty confident that we will advance credit services with confidence and safety. Our good clients were outside Rio Grande Sul. We are attracting these clients with good credit products that are proper in billing, in collection and discounts and they use of Vero in a better way, in a more adequate way. The credit will be harder this year because of cost of credit, but we can make our good credit grow. This is the strategy of the bank for this commercial portfolio.

We'll move forward from Antonio Ruette from BofA.

I have 2 questions. First, I would like to understand better the impact of 4966. I would like to understand the composition of this order, this law. Maybe we have a positive impact for bonds marking and your balance of BRL 58 million of secured and 18% -- [ BRL 18 million ] are available for sales. We have seen in banks disclosure of results. And this -- we have seen some positive markets. I would like to understand better understanding the impact of 4966. According to this new strategy of going back to commercial credit, as you have highlighted, if private payroll loan is of interest for the bank.

The first part of your question has to do with treasury bonds that are available for sale. The market for this bond is almost residual. It can be a bad situation if Brazil goes into default, but that's a different situation. But right now, in this scenario, this is a good portfolio and represents or stands out for a reduced volume. The second part will be tackled by my colleague and also private credit.

Well, regarding the general impact of 4966, we expect to have 1.5% to 2.5% in PL. We are still refining the figures closing in January, but the figures, the numbers will not be so different from 1.5% to 2%. Regarding payroll, we are paying attention to the federal government and Febraban. And if it's in line and there is no price marking or price limitation that is too strong. So this is a product that interests us due to the quality and the assurance that has to do with this operation.

Just as a follow-up regarding the 4966 regarding this negative impact between 1.5% and 2% in PL. I would like to understand a little bit more if it comes from provision, additional provision and it should be more in securities or...

Well, just let me make a drill down on 4966. We have been publishing in IFRS and 4966 from 2018 on we have dealt with this in our IFRS. So this is more about credit that are given and credit -- capital credit, credit debt accounts and credit cards, Banricompras and also credits that are contracted and are to be released in civil construction in the long run and BNDES credit. So this portfolio we have that can be called an off-balance portfolio because these are limits that are controlled in compensation accounts. These limits have led to a new provision in IFRS was already quantified. So this is nothing new for us. I believe these figures that needed to be provided in IFRS were provided for, and we'll continue to do that. And there was a change in the models of provisioning with a minimal provision that Central Bank requires for Tier 1 operations and Tier 3 operations. So the situations as a whole, they bring more impact. And in terms of securities, the provision was created inside in the BRGAAP, what is not done, but in IFRS, has been done and from 2005 (sic) [ 2025 ] on will be done as well. And an impact of 60 to 90 days in credit operations that stop accrual is 60 days. Unlocking this to 90 days, that is a small impact in December was 60 days. But in January, well, they receive the revenue in up to 90 days. Part of this revenue belongs to the previous year, fiscal year, so liquid equity. So these are the impacts regarding to the implementation of 4966 here at the bank. So some of the models, we had that already done this for the -- in relation to IFRS. So it doesn't lead to significant impacts.

In terms of Basel ratio, do you have an expectation for the first quarter of this year in Tier 1 and PPs?

If we have an -- if we achieve that expected credit increase, this will correspond to an increase in equity. There won't be no major change. It can be 13.4%. I hope the rate is 13%.

No. I was talking about the 4966.

No, no, it has no effect. No, no.

It was said by Mr. Ivanor. It's 1.5%, and it's already accounted for. It's already classified. Moving on, we will listen to Eduardo Nishio.

I have 2 questions regarding one, first of all, we had -- until a little ago, we had a mismatch of BRL 20 billion between assets and liabilities. You have changed this in the balance sheet. Your hedge is natural, and we've been working with this change, growing less in the payroll loans, the commercial services growing more to offset this. And we've also made changes in deposits. I would like to know or to understand if there is any time line you expect regarding the whole hedge, the whole balance sheet? And what is the hedge today? And what is the mismatch today in terms of BRL 1 million? This is the first question. And the second question has to do with your guidance. Making some assumptions, we achieve an ROI that is below -- much below what would be expected from -- of the bank, 10%, 11% of ROI for the bank and some credit lines, they go from 1.4% to 1.7%. And then if you consider on top of that, a growth of 9% of the portfolio loans and there is a growth of liquid PDD that is relevant for '25. Should we expect that? And why is this growing so much in 2025? And regarding the administrative expenses, well, we have an average of 9%, which is high. That has to do with another thing, another point. You are behind -- lagging behind the competitors. Do you want to improve your efficiency rate in '25? And what do you expect to do to reach that? Considering the number of branches, you haven't changed this after the pandemic. But now with the rollout of the digital services, are you going to add costs? I would like to know more about that and the digital services and the number of branches and the efficiency rate.

Well, your question has like -- it's a very long one, many questions in one. Later, you have to repeat, I guess, you have to repeat part of the question. Well, times change and things change, there is a mismatch. We reached BRL 21 billion in '22. Now we have a residual value of BRL 10 billion in our predated accounts, accessible prices and costs, 4% and we have funding. We have seen this in CDBs and financial bonds, LCI, LCA over BRL 1 billion in the funding of these portfolios. We also increased credit in the assets we have generated now, all of them indexed assets connected with BNDES. And considering the increase in the credit portfolio, we have Conta Unica, 95% is post fixed accounts in CDI. So as a whole, we still have around 8 -- less than BRL 8 billion. If we consider the accounts, we have netted the defects of the interest rate. We have a margin for all of our portfolios in the service. We're working with a Selic interest rate of 16% to consider all of this credit. We have a cost of funding of 16% to secure margin anyway. We have payroll loans also, INSS had an increase, a promising 1.96. So I would say we -- the bank is really, really protected in terms of interest rate mismatch for liabilities and assets. What was your second question again regarding the guidance?

Well, the guidance implies a relevant increase in cost of credit and administrative expenses for 2025. And then if you make some assumptions and simulations, we have a ROI that is below the history and the potential of the bank, 10% to 11%. And the -- what about your efficiency rate?

Well, regarding ROI, I haven't calculated this. So I can tell you, I don't know.

Well, anyway, credit has an expectation of an additional growth, not identical to last year's but we will grow with high margin -- profitable margins in retail, it's specified. For corporate services, we have an internal campaign to open new corporate accounts for small and medium-sized companies. We know this market. We know how to work with that. We know that we have a historic spread of over 10 years of history working with this spread and also overdraft. It's especially special revolving credit service at Vero. We open a limit for company or corporate accounts. They will have a Banricompras between 10 -- so they can go to a supermarket. They can buy 60 days of credit, and they always have a residual amount of these services. So credits will come in the form of margins. There will be a good margin. And we also have credit wholesale with -- and the default ratio is very low, safe. So considering the mix, I think it has -- is within our expectation. And in the NII, we hope to achieve the top expectation.

Well, Gonzaga, he also talking about cost of risk, cost of credit. If you change the mix, well, we have some risks in some services, but they are offset by the financial margin by the NII.

Yes, that's it. We have a high margin for these lines for these services because there's no point in achieving BRL 10 billion in credits with a margin 1.5%, 2% a year and spreads of 3% a year that we have in major companies. But in -- if we have more accounts, we divide this cost of risk between many more accounts, so we have better margin. So our delivery -- we are committed to delivering this to our consumers and shareholders. Regarding administrative expenses, yes, we have this cost. We have invested and renew our -- all the set of our computers with IBM. There is this CapEx that is accounted for related to the investment in renewing our equipment. So we understand there is this expense and also labor costs and also this inflation, 5%, I don't know what's coming this year. But if this inflation pressure is maintained, anyway, you have to deal with Febraban. We follow what Febraban requirements say, and this is our costs related to labor costs. We have to understand that following the same indexes. We are careful with administrative expenses, but the numbers are there. There's no -- we do not see any increases. We expect to lower them. But with all of the investments we make, of course, there will be more expenses. Some of them will be good expenses. On the other hand, we will not have expenses with our banking correspondent on the top of our expenses, it's diluted for credit payroll loan that can offset that. We are -- we don't know exactly how this portfolio will be. This is why we are so careful with administrative expenses. We hope them will decrease, but we cannot make false promises. And with these investments, that's what's to be expected. So thank you. So we expect to have more positive surprises in the NII in the financial margin. Yes. Yes, that's what we expect.

I think we can answer a final question Natalia Cor from JPMorgan.

It's a simple question regarding quality of assets. I'm looking at your numbers, very good for this quarter. And I understand what we have as a guidance for -- related to cost of risk. You do not see many problems ahead. But my question is, the portfolios, which were benefited by the help to relieve the flood problems. This help is done is in the past. So will it not impact the quality of assets? Could you give us more colors about what is making these numbers so good and what will make them remain as good?

Well, regarding this in the -- when the flood hit Rio Grande Sul, we provided credit to 4 to 6 months for clients in the payroll loan portfolio and also for corporate accounts. All of these grace periods, let's say, they had due dates in November, and on. So in November, there was some installments, which were extended for December and January, and we have not seen any changes regarding the indicators of default rates. On the contrary, some of them we could reorganize the flow of these clients by using Conta Unica unified account with receivables along. So the expectation really is that, the quality of this portfolio continues to be like that. And as we see it, it has increased -- it has improved in terms of -- I mean, after the flood.

So as according to what we said, the portfolio left this grace period and now they are paying regularly.

Yes, they are out of the grace period and they have been paid -- they have been paying regularly. They were given based on safety, looking at the flow of payments of the customers, looking at the cash flow. So for those clients that were heavily affected by the flood and who had losses, they were benefited by the federal government lines of credit and the BNDES lines of credit. So we took that time to reorganize the company's cash flow and bring the receivables like collection, receivables related to Banricompras to credit cards. These were services that involved financial movements that have grown within the bank. So we -- I would say that we could better qualify our credit by using the company's cash flow.

It also includes agribusiness?

Yes. Also in agribusiness, we did the same. I mean, BNDES has released and has devoted an expressive volume of resources to agribusiness. And then we reorganized agro business segment. As much as we could, we could make this reorganization and these producers who were impacted, they have a period of at least 4 years to pay up their debt. And the accounts that had their due dates in '24 in the first months of '25. In our payroll loans portfolio, in our individual loans, 74% is collateralized guaranteed based -- because they are -- most of them are public servants, and they are employed and they will pay, of course, and INSS credits, they may be problematic, but most of our payroll loan portfolio is based on civil servants.

I was more concerned with the agro business portfolio.

Well, it's under control. BNDES, as my colleague said, BNDES has provided finance to agro business, financing them in the long run. And the losses in this segment was not that high. They had refinanced -- they lost some soy crop and some rice crop, but in the order of 15%, not more than that. And they had BNDES credit at 7%, prefixed rate of 7% and a long time to pay. Many of these producers who made the use of the credit lines they are -- they have stocked products or in the cooperative partners waiting for the best price to commercialize. Regarding payroll loan portfolio, they are mostly public servants and INSS clients. So these are portfolios. They are pretty solid, very good, very good quality and automatic performance. And it's -- we work with the Dataprev and the state portals. We usually do not work with private payroll loans, just a little bit. And we have BRL 2 billion in portfolio for municipalities. It's all connected with strong agreements and pretty well consolidated in terms of credit granting, credit concession. And these are for employees who are -- who have stability in their company. So this provides us with a high level of confidence in this payroll loan portfolio.

Thank you, Natalia. Well, we have a long number of questions by our analysts and investors. But unfortunately, we have to close this event. If you haven't had your question answered, our Investor Relations team headed by myself, we will answer your questions as soon as possible. I would like to thank the participation of all of our directors, and I wish you have a wonderful year ahead. Thank you very much. [Statements in English on this transcript were spoken by an interpreter present on the live call.]