Earnings Call Transcript
BANK BRADESCO (BBD)
Earnings Call Transcript - BBD Q1 2024
Marcelo Noronha, CEO
Hello. Good morning, everyone. I am Marcelo Noronha. I'm here to present the results for the First Quarter of 2024 of Bradesco. I'm here live speaking from Cidade De Deus, the City of God. It's 10:31 AM. It's a great pleasure to be with you once again. And before we start the presentation, I would like to say that unlike what we did in February when I started presenting the strategy in a lengthier way. The idea here is not to present a strategy in such detailed terms again, but we will summarize everything, and then we will revisit some of the topics as the questions pop-up. And so, I will talk throughout the presentation about what we delivered in addition to the numbers related to the first quarter. And I’m sure you have had the opportunity to take a look at the members since we published the presentations and the release after 6:00 AM. Our net income, recurring net income was BRL4.2 billion. It was flat in relation to the previous quarter, but 46% better than the last quarter of '23. And there are some points of attention here that are highlights of our balance sheet. Some are challenging and some other topics relate to good deliveries that we've been doing. First, the improvement in ALL for both retail and wholesale. That also leads to an improvement of our NPL that is improving in all segments. We also increased loan in all segments. I think there is a colleague from the sales side who asked me in the last quarter if I thought we would resume traction. You will see through another charge that I’m about to show you that there is an inflection in that total loan portfolio and that's what we will show you. We will show you growth in all loan segments with traction, and this is just to answer that question from the previous quarter. Well, the challenge is the gross client NII, but there is justification for that and that justification is in our guidance. First, we have the loan book and then the margin follows suit and I will talk a little bit more about it when I talk about the loan book and the guidance. Another topic which is very satisfactory is the control of operating expenses, which grew 4.4%, as we will see, and a very sound performance of the Bradesco Insurance business. In all lines, we had a solid performance. So, the results for the first quarter was BRL4.2 billion, very much in line with what we intend to deliver this year. And as I said before, step-by-step we will gradually grow. And I know that my clients on the sales-side, in particular, those that have been analyzing, they can look at the presentation from the last quarter of 2023 and then take a look at everything I'm about to tell you and run a comparison with what we talked about in the previous quarter. Therefore, our loan portfolio reached almost BRL890 billion. We grew 1.2% year-on-year. And looking at the quarter alone, we grew 1.4% quarter-on-quarter, an inflection of the curve, saying that in the last two quarters, the portfolio was coming down, but now it was declining. Now we are resuming growth. If we look at the free portfolio, you will see that traction now is much better based on the KPIs that we showed you in the previous quarter. Looking at the individuals' portfolio, we grew year-on-year 2% and 1.9% quarter-on-quarter, but this growth is well spread. Some portfolios give us a pretty good balance and there are other portfolios where we have to grow products with higher margins, but we are getting there. Payroll loans grew 4%, 2.1% growth quarter-on-quarter. Mortgage loan or real estate, I think we are probably the largest private bank to deliver growth of 5.8% year-on-year and 1.8% quarter-on-quarter in credit cards; we didn't grow. The risk was higher, but where is it that we are not growing? We are not growing in non-account holders. When we look at prime banking, we posted almost 12% growth in the credit card segment for the high-income segment. Personal loan showed a growth of 10.1% quarter-on-quarter and 1.8% year-on-year. Vehicles, also in rural credit, the lines that are more secured, these are lines that are long-term lines, but at the same time, they carry smaller margins. Now looking at SMEs or companies, in wholesale banks, large companies, we grew 1.6% and in SME, micro, small, and mid-size companies. We are beginning to see more traction. So, we grew 2.3% quarter-on-quarter. But I will elaborate further on SMEs later on. Something new that I am now bringing to you is an example of the vintages. Vintages for mass individuals or individuals in the mass market. We started with 100 back in 2019 and look at the second quarter of 2022. The vintages that we have been acquiring, that's still the blue line starting with a base of a hundred, but the bar in way means origination for 2019. So, origination for individuals in the mass market and this is again answering the question that you asked back in the third quarter. What about the mass market? This is proof of our principality, meaning that we are increasingly bringing better ratings even in the mass market and this is proof of what we are saying. I'm talking about vintages over 30, et cetera. With time, we are not going to see vintages being right here. There will be slightly above because we will get into products that carry more risk, but they also lead to better margins. Here we have to the right payroll loans, installments, finance. Cards alone is the only line that is not growing. And I already explained this was due to non-account holders, clients that come from OpenSea and from the digital segment. But delinquency is coming down, and this is due to the quality of the collection service we are now providing. And now let's look at SMEs. I am exclusively talking about SMEs, starting with the ways of a hundred. Now look at the quality of the vintages. In terms of SMEs, so companies, the borrowers have not yet reached the levels of 2019 because we're being more conservative. Now I would like to highlight a few lines of growth, but there are some lines that we are not growing as much because of the risk involved. This today is a segment that presents the highest credit risk, but nonetheless, we continue to grow and this certainly explains why we haven't yet increased in the total NII. Now you see delinquency levels falling. And soon I will talk about the net margin. So, this is NII. You already see the KPIs and this is a snapshot of our portfolio. When you look at this column that is available for you to look at, you see how much we grow in terms of portfolios that are safer within our portfolio. And now we also leverage credit to these other two lines here. So, the loan portfolio comes first and then that's followed by the margin. According to our expectation, this is what we expect to see throughout the year that the market NII goes down. So, client NII is coming down. But when we look at the net client NII, look at the relative numbers, where we were and where we stand today. So, risk appetite is different. Therefore, we have new credit models. We have new credit policies. We are using a lot of machine learning in our credit segment and with our team. Therefore, with the quality of the risk being monitored very closely starting with FPD to control all of our portfolios. We are very much grounded, and then you could see that we gained market share in February when compared to the Central Bank portfolio. It's not the expanded portfolio because the Central Bank does not disclose that. But I can tell you with a very good degree of certainty that we gained share in March alone as well. So, we grew more in February and March when compared to January in what we produced in January. There was just one month when we increased our NII. And whatever was produced in March, this will be reflected in April. So, our overnight loan portfolio, everything is under control in all lines, NPL, 100% of provisions. And our coverage ratio is very flat and stable when compared to the previous quarter. Expanded ALL also brings important figures. I'm not going to look at the previous quarter, but we had almost 18% growth year-on-year. I mean, in terms of mass retail, there was a drop, but the quality of what we are bringing is much better. We are much more effective in terms of our collection in credit recovery. Whenever we talk about ALL, I mean this provision indicator versus the annualized portfolio, this is an index that we haven't seen for quite some time. Therefore, the numbers are very important because they go towards the NII that we presented in the previous quarter. Now speaking about fees and commission income, this is very much leverage on payment because of exchange and the companies that we have. So, it's natural that it falls. I mean, this type of revenue is the lowest in terms of all the previous quarters. And the second quarter is better because we have Mother's Day. And in the last quarter, you know, you have Children's Day, Black Friday, and all of the holidays, the Christmas holidays. So, 1.3% a year growth is an indication that growth will be according to our guidance. So, it's within our expectations. And in all of the other lines, I would like to highlight for Sao Paulo with this level of growth that you see. I mean, loan operations can present. That means that we are well on track. And checking accounts, we had been losing ground with checking accounts, but now we resume growth because of some of the intelligent packages that we are delivering, and it's capturing value. I think the most difficult part is equities and capital markets, and the expectation is low for this year. All of the reasons are well known to all of you. But we are very pleased to see the level of growth in terms of fee and commissions income. When it comes for Bradesco to run comparisons, I mean, other incumbents say that within the fee and commission's income they also include insurance revenues. But in our case, that's separate because that is included in the insurance operations, our operating expenses. For me, that is a highlight. That's our goal; we talk about the 4.4% year-on-year growth. We are delivering things with a lot of seriousness and the optimization of our footprint with about 300 movements in the first quarter of 2024. Now when you look at the book, you will see a chart that shows branches and points of service. Within that point of service, we have what we call PA. We have small PAs and large PAs, which are points of service. This is another name used by the central bank, but it is a mini branch. In some municipalities, we shut down some of these PAs or points of service. But I will, later on, talk about the company segment. This is something that we've referred to at the beginning of the year. We said that we would do another segmentation with very specific service with specific branches to cater to companies and that's what we did. So here you see a larger number of branches serving companies. In fact, there was a reduction significant reduction or maybe at a bigger pace than what was previously announced. And now later on, I will talk about these new branches for companies and Bradesco Expresso. When we talk about personnel and admin expenses, the growth was even below inflation in the period.
Unidentified Company Representative, Insurance Group Representative
Here are the results for the insurance group, which reported a net income of €2 billion, reflecting a 10% increase. The return on average equity is nearly 20%, indicating a considerable boost in premium income, pension plan contributions, and a result of almost €4 billion, signifying significant growth. I would like to emphasize the technical provisions that rose by almost 12%, reaching €380 billion, which is quite substantial for the insurance group that is performing exceptionally well. Our Tier 1 capital ratio is at 12.7%, and we have the Basel framework in mind, allowing a clear view of our total. We set aside approximately BRL2.6 billion for the first quarter. Now, turning to guidance, it's worth noting our previous quarter's indicator showed a negative trend. However, we have gained traction now and are firmly within guidance. We need to maintain this path which will have an impact on interest income, as seen in the loan book and net interest income. This is potentially one of the most challenging indicators for us, with a focus target of 1.2%. We anticipate improvements in net interest income, keeping within guidance. Fee income from the company has performed adequately, meeting expectations for the year despite operating expenses running high. We are aiming for income from insurance operations to slightly surpass expectations but still fall within guidance. It is important to remember that the guidance encompasses the entire year, not just one quarter. Our projections indicate we will conservatively meet the guidance, as our growth in mass retail and SMEs will inevitably lead to more anticipated losses, requiring increased provisions. Thus, we expect our results to be aligned with the guidance. Some categories may trend towards the lower end of guidance while others may reach the higher end as we progress step-by-step. As previously mentioned, I will share insights on both operational activities and transformational changes within the bank. In the past, we discussed quick wins, but this is an ongoing plan, and we won't see results immediately but over the next few years. There will be wins in recovery and collections across some segments. The effects of our efforts will unfold over time; there will be innovative adjustments within our balance sheet, aside from specific instances such as the delivery report for the corporate sector. Clients can visit branches for discussions. Our implementation will reflect in our credit enhancements and credit quality. Both the operational and transformation efforts are interconnected since we do have quick wins, and I previously outlined 10 key focus areas. I won’t revisit them in detail, but I want to point out the digital banking landscape where 98% of transactions at Bradesco occur through digital channels, including apps and online banking for businesses. This aligns with our strategic plan timeline, which we detailed back in February. What have we accomplished so far? We have established a new organizational structure, reduced layers of management, and are executing practical applications in the bank. Our transformation involves more than 800 individuals, made possible by the restructuring, allowing us to allocate leadership effectively. We are in a bold and accelerated execution phase, which poses challenges. As discussed earlier, executing plans requires determination, safety, and control. We have also engaged external hires for key departments, one for HR and another for the digital business unit, aimed at transitioning the mass market to digital solutions. I’m pleased to announce that we have added a new credit director, Julio Cardoso, who has a strong background in the banking industry and a strong statistical foundation. His experience with credit will be invaluable to our team. We have also appointed two new C-level executives; one for the digital unit who will report directly to me. We will announce the names at the appropriate time when they officially start. We have additionally hired a female executive with expertise in culture and talent management, bringing valuable financial services knowledge to our discussions. I noted a footprint revision of around 300 points, which will continue through the end of the year with strong efforts. We've opened 122 branches focusing on businesses, and I want to commend the teams involved in making this happen. We have identified around 143,000 clients in specific categories targeting businesses with 2,000 professionals dedicated to this vertical. Our service model emphasizes deepening relationships with clients similar to what we have achieved in the middle market; now we are applying this to SMEs, ensuring we don’t overlook any ongoing initiatives, engaging with SMEs generating €8,000 to €3 million annually while using remote services via our app. By year-end, we anticipate targeting 250,000 clients in this new segment, further expanding our SME outreach for substantial growth. Looking ahead to 2026, we will continue our efforts to enhance our technology and digital channels, as well as our footprint provisions. Importantly, Bradesco operates approximately 38,000 merchants through Bradesco Expresso, allowing them to market banking products and services while facilitating transactions. We've launched a new platform in collaboration with about 1,000 merchants, delivering a superior experience. Our CRM systems leverage intelligence to identify offerings relevant to consumers based on their profiles and risks, driving significant growth potential. Bradesco Expresso has a 100% presence across Brazilian municipalities, and this quarter, we've seen insurance sales increase by 89% compared to Q1 of 2023, along with a notable growth of 361% in payroll-deductible loans. We expect even greater momentum for Expresso. Another game-changing detail is that we are consolidating our service providers; by the end of the year, we will have streamlined to one platform, enhancing versatility and functional offerings for merchants. In conclusion, I want to reinforce improvements in retail and wholesale credit control along with robust growth in Expresso and our strategic initiatives. We are advancing step-by-step, ensuring continual improvement in earnings each quarter. Thank you for your attention, and now I will turn it over to my colleagues, Cassiano Scarpelli, our CFO, and Andre Carvalho, our new IR officer, to begin the Q&A. Andre, please take it from here.
Andre Carvalho, IR Officer
I think I already said a lot. Good morning, everyone. I would like to inform all participants that Ivan Gontijo, the CEO of our insurance company is also joining us during this Q&A session, and he's with us remotely. But if you want to send in your questions, you can send them either in Portuguese or English. And please do so using our email, investors like you see in the screen or using the WhatsApp number. The information appears on the screen. The first question comes from Renato Meloni from Autonomous.
Renato Meloni, Analyst
I have two questions. The first question is about your transformation plan. Now that three months have gone by and since the official launch of the program and you have more visibility, what is different when compared to the original plan? And given your current visibility, have there been any changes in terms of delivering ROE above the cost of capital, and you said that you would do that throughout 2026? My second question relates to the guidance. To reach the NII guidance, this means that you have to have better origination, better margin because I think this will come with the mix, and this will improve provisioning. So how do you see these three levers performing throughout the year, and what is the pace and where do you see the risk of not delivering what you expect, not delivering to plan?
Cassiano Scarpelli, CFO
Thank you, Renato. Thank you for your question. Our transformation plan, I mean, what we did, we ratified what we envisioned in the diagnosis of our transformation process. As Marcelo put it quite well, we have over 800 people engaged, 2,600 initiatives, and the KPIs are very apparent. I mean starting with the footprint all the way to the Rand the Bank and credit segments also that involves recovery, risk, hiring new people, technology, etc. So, we launched the plan on February 19. That's when our new office started operating. But looking back today, we can say that this whole mapping was very important and we found more things which was quite interesting. We found other things that can lead us to have to have a more agile bank, a more digital bank even more than what we are, rendering even better customer experience. It's not way ahead in the future, but it's throughout the journey. And I am certain that the plan is well structured and the deliveries are well in schedule, and we will improve performance.
Unidentified Company Representative, Company Representative
Just to add to what he said, in fact, we reinstate that number. You might call that I talk about the total number. You may have some small adjustments to the calendar. Okay, this was expected for December, but it may be earlier or later. I thought that SME would help but would perform better further on, but we were able to deliver the numbers before schedule. So, we still have that expectation in terms of the numbers. You might recall that if our CAGR for the loan book would materialize, if CAGR would be 1% a year growth, our loan portfolio total growth for the expanded portfolio will be BRL3.3 trillion in 5 years. I mean, we want to capture part of it and the expectation remains. We see contraction that we do have the capacity to get. Secondly, in regards to that ROE expectations that you mentioned. I would just say it again, I want to just promise things. I want to deliver. As soon as I can deliver, we will deliver to expectations, and that's what we intend to do, to deliver things as time goes by. And the other question was about client NII. How do we expedite that? I mean, we accelerate through growing our loan portfolio. And during my presentation, I said that, okay, we gained market share in February. In January, we did not gain share. So, we had to move faster in February, which we did. So, I firmly believe that we will gain share in March. In April, that's when we will see what has been done. I mean that NII, things will not happen overnight. First, we will see a growth in the portfolio and then we will see an increase in our net margin because the bottom line is that delinquency is under control. We are bringing good quality things to our portfolio, and that's when we will see a growth in NII, an effective growth in NII. So, you might recall that I'm talking about two different types of portfolios and two different types of risk acceptance. This will require additional effort on the part of the bank. I don't know whether you would like to mention it. I mean, the client NII will be better in the second quarter vis-a-vis the first quarter because there is a gradual evolution. First quarter lower ALL and then retrying the margin we grow with ALL because we will go through more risky segments. And our funding cost is coming down as well. This is what we are noticing. And this has an impact in the timeline.
Operator, Operator
The next question comes from Brian Flores from Citi.
Brian Flores, Analyst
Thank you for taking my question. With a more restrictive Central Bank and you talked about funding, how does that change funding? And also talking about market NII. What is your view about market NII?
Unidentified Company Representative, Company Representative
Hi. It's a pleasure to see you. In terms of market NII, I would say that we don't see any major changes through this year. There was a light drop, you know, from one quarter to the next and the Central Bank with a more restrictive curve. But that tilted curve, as we say, is very important for our prefixed portfolio because it brings a more interesting fee volume. And we believe that even though the landscape is more restrictive, it points to a decline in interest rates because 9.5% or 10%. That is not very significant because it doesn't change the landscape as much in terms of our treasury position. Therefore, we see this as something beneficial because on the one hand, we reinstate our loan portfolio with higher rates. So, in terms of the cycle as a whole, the cycle would indicate into 9.5% to 10%. Our economists point to 9.25%. I don't believe in a cycle where interest rates will spike after that. So, this scenario will bring about good results and the market is performing pretty much along the lines that we mentioned before, which is positive and we see a positive trend towards 2025. Just to reinstate what he said, the expectation is that the market is very bullish from now on. And the fact that the rate will come down 50 basis points or 25 basis points, nothing much will change.
Jorge Kuri, Analyst
Possibility to ask questions. I think that the positive highlight that the quarter was improved credit quality since they are very confident to accelerate growth in those owns with higher spread. The question is, is the bank ready to some of it maintaining NTL under control to protect the takeway in retail. Why we need the main adjustments Centrobank in terms of credit processes, what were the main steps?
Unidentified Company Representative, Company Representative
Thank you for the question. As I mentioned during the presentation, we have been using a lot more machine learning than in the past exactly to improve our modeling. So, from a qualitative standpoint, if and then you were sitting here, people tell you exactly about it, so that's number one. Number two, we work on all credit ratings that are higher risks. Now, I have a policy in place which is a lot more intuitive than in the past. When we talk about the proportion, of the income proportion of company or SME revenue. What kind of proportion that you want to have in legal entities? So, what kind of quota do you want to have and what kind of loan? Improved to our policy or what and it will improve even more when you get this joint to make sure there is to manage the portfolio with pricing. With pricing, we have pricing for product. And now pricing is in the study department. improving our value proposition, that was an important structural change so that we could adequately price alone and adjust the levels of approval. But in mass market, I'd say that this is it. New credit policies, new credit models with a collection process that is very fine-tuned and a leaving portfolio management, which is what we do now. Then gives us greater safety regarding everything we are seeing. We define the indicators that we are measuring strictly. We are measuring them full time and also in the wholesale bank, we made some changes. We hired other people. It was not just one officer. We brought in teams for the credit department. We're still hiring more people and we changed some processes so that we could have a lot more agility in serving legal entities. I'm talking about all the way from large corporates down to middle income and SMEs. With that, we have a much more productive organization than we had recently, and our managers feel that. If you speak with our regional managers and these controls that are now in place, please remember that in the business unit, with this portfolio management department, we have to foreseen second line of defense. We have colleagues in charge of modeling and for colleague, whom check the modeling and validate the modeling, we've got control department. So, what I can tell this, I mean of course, again not going to be within with that ratio for the vintages, but a little higher, which is the optimal point. Report dear management is the economic return of each holistic appliance, so that we can work with the bottom line without good pricing. If it doesn't match what we're expecting, we just won't do it. We're very safe about what we are doing, what we are delivering qualitatively dependency AI is not the main tool. The main tool is machine learning. And this is just for the meeting. Yes, I think it is to be mentioned, the choice is very important.
Unidentified Analyst, Analyst
I'd like to ask a question about the origination for mass, companies mass market. Still a couple way from the other institutions. How this get up? We have across 90-day but why his origination are at the same level of maintain is it a supply or demand issue? When should we expect this to grow? Number one.
Unidentified Company Representative, Company Representative
It's about risk appetite. This is the highest-risk segment. The capacity for those companies is zero to three. But in three to 50, I spoke about managing a living portfolio. So, there's a management model that is being implemented in this segment. And some houses to flow on a living portfolio and act all. It is automated, but at the same time, it counts on our colleagues, the managers, the regional managers to enter specific to use this. So, we'll improve the holiday to treat effectively and there are but until BRL3 million. There is effectively more risk because the Brazilian market is like that for SMEs. So, I have a little appetite to get back. But we believe that we have started and we will continue to grow origination. And another reason to believe in that is that we totally change our offering, what we offer to our sales force for preapproved the way to approach clients with a commercial tool. It's all changed. And it started now in the month of April with a different setup, different comp gearing. In our opinion, in the opinion of the colleagues responsible for that segment, this will give a lot more traction to have a better credit quality, better credit analysis, more specialists working that segment, a new commercial tool. I'm a sign new tool. It's a new commercial format for this segment. In this new segment, BRL3 million to BRL50 million that we've verticalized, there's a different traction compared to the segment of segment up to BRL3 million year-over-year. So, it will increase loan origination with the right controls and, I'm sorry. In to it, when we look at the track record of delinquency, historical series shows that individuals drop first and then SMEs and then at small enterprises. So small enterprises are having their inflection, no, that's the market risk Marcelo. That's why on a appetite and only step-by-step was safety. And in the future, it should accelerate and in the segment of smaller companies that will require more provisions, but the margin will more than offset that. And the credit policy will be adjusted.
Operator, Operator
Now Mario Pierry with Bank of America.
Mario Pierry, Analyst
I have two questions. First question, when we look at the bank's coverage ratio, we calculate a ratio close to 162%. I mean, it's lower than your peers. But we also look at your complementary provision close to BRL6.2 billion and historically used to be around BRL89 billion. Do you intend to revisit those reserves? How do you feel the reserve level stands today? And the second question is about capital. There was a decline in your CTO ratio, a drop quarter-on-quarter. So how do you see this CET ratio impacting your dividend policy or even your capacity to grow?
Unidentified Company Representative, Company Representative
In terms of coverage ratio, we do not have a target for that coverage ratio because it fluctuates according to the credit cycle. So, if the cycle aggravates delinquency as well. I mean, because we increase the amount of provisions. I mean, we provision for 100% of our clients as the credit cycle begins to change when we saw that happening in the first quarter of the year. Certainly, the coverage ratio increases because we originate credit that naturally at the beginning comes with higher provisions than delinquency coverage increases. Therefore, this is a very cyclical KPI. We are not very much concerned with it. We think it's very adequate for the current moment and certainly it has a natural recovery. Now in terms of CET1, I mean, we continue to say that capital is well in place and in terms of the capacity to do all the traction that Marcelo talked about, we can say that it grew vis-a-vis the quarter three of '23. There was a slight drop in this first quarter basically focused on mark-to-market bonds, but this also has to do with IOC. And so, we understand that it develops naturally. We don't anticipate any changes in this capital throughout the year. It will be very close to what you see today and we believe that this could be a possible leverage to our credit increase. Therefore, our capital is in a very comfortable position right now. Well, first of all, you know that we project capital going forward. Also, we project it for following years. We see capital standing flat even though the portfolio is growing. No problems here. Secondly, I don't think this will be a limiting factor for growth or even the distribution, I mean interest on capital. And the coverage ratio, I think I told you in the first quarter I refer to how comfortable we are in terms of the wholesale banking. Our total coverage ratio is very good. And in particularly, in terms of the wholesale bank, because I was asked this question by journalist during our press conference. It is very much under control and I talk about that last quarter our coverage ratio is ideal. And even we have some room for other cases related to expected losses before, no problem at all in terms of our coverage ratio.
Operator, Operator
Now we have Thiago Batista from UBS.
Thiago Bovolenta Batista, Analyst
Good morning. Thank you for taking my question. I have two questions. One is I mean, it's a follow-up question. My first question is about the insurance business. We could see an increase in technical provision, quite significant this quarter. But when you look at the details, you had BRL2.4 billion in additional coverage provision. Moreover, there are also other technical reasons. Last quarter, you used part of that technical provisions. I would just like to understand two things. If this was part of your income statement or there was something that was recurring and you wanted to reset, so what was the reason for that additional coverage? And now speaking about Mario's question on capital, I understand that you said that maybe at the end of the year, your capital position will be similar to the one we have today. Does that include any kind of arrangement in terms of the capital for the insurance company? Or I think in 2015 or 2016, you will get capital together with IOC. Is there anything included in this line? Or maybe historically you think that you could keep capital very stable?
Unidentified Company Representative, Company Representative
To answer your second question, I will say no. I mean, you're saying that you have an additional flexibility. We won't even need to use it because we could even think about using it, but I don't think we will need to. Our projections lead us to say that with great degree of certainty. What changed from last quarter to this quarter? The main motivation evolved two things: payroll. We had the payment of two important payrolls. And also, NTNP, which is mark-to-market bonds, and this is due to the natural hedge of our funding. And also, this is related to private pension funds, which is an important part of this range. So, these were two big movements. So, this was an one-off event. And the difference is due to the payroll payment I mean, to the payment of payrolls. That's why our projections and our growth curve is very much under control. I think we can also ask Ivan to answer the second question. But I would like to recall another point about the insurance company. This is something that we already saw in the past. Thiago said that himself, this is part of the technical strategy. So, at some moments we had to do some improvements in the provisions. This was strictly technical and the provision has to do with all of the economics of the insurance business. Now, I would like to ask Ivan to edge to my comments. Ivan, I think you may recall the question. You talked about technical provisions.
Ivan Gontijo, CEO of Insurance Company
I think Cassiano already explained the technical view. I would just say that that increasing provisions is linked to an increase in the revenue of insurance and pension funds, special pension funds and savings bonds. So that link in that increase in provisions is proportional to the increase in revenues. And secondly, this is also due to the so-called product mix that we have. We have insurance products, patient fund products, and certainly, they demand an adequate level of provisions, always having a very conservative approach. And, Marcelo, you mentioned our provisioning, which is close BRL380 million, especially products like pension funds that increased significantly during the period. I would just like to emphasize that there hasn't been any kind of recurring gain that could probably lead us to have anything different in our structure. So, everything is business as usual and in compliance with the regulating agencies because it's important that we comply with our short, mid- and long-term agreements.
Operator, Operator
Next question from Tito Labarta with Goldman Sachs.
Tito Labarta, Analyst
My question is on your funding. Looking at deposit based, providing this quarter and I know that we can see the narrowing related to that. We also have seen a big shift from demand deposits to time deposits. Now that could be a function of rates. But just putting that in the context of the competitive environment that we're seeing. Are you having to pay more to retain deposits than retain clients? And is that limit your ability to grow your NII, because you're in order to fund the growth, you would need to pay more deposits? Is that how are you thinking about that?
Unidentified Company Representative, Company Representative
The liquidity ratio remains strong, though it has slightly decreased as we balance our credit granting with the need to optimize cash and costs. Funding costs are continuing to rise, which relates to the decline in the liquidity coverage ratio and credit usage. We are witnessing reduced demand deposits as clients are attracted to more profitable products promoted by our investment department and platforms. Our funds have increased by nearly 20 billion, partly due to shifts from demand deposits and savings accounts. Savings accounts are decreasing overall in the market. There's ongoing discussion about savings accounts compared to the CDI, influenced by fintech competition, prompting clients to seek better opportunities. We are utilizing Agora and our experts to engage clients through various channels like our app and Internet banking, which helps to provide new options. This is a natural progression in the industry, and we offer various products tailored to different clients. Our savings accounts and demand deposits are adequate to support our strategies for rural loans, mortgages, and real estate financing. Our market share for savings accounts rose from 13% to 13.1%, highlighting our clients' affinity for savings accounts. While savings accounts may stabilize, higher interest non-floating products are likely to attract more clients, reflecting a typical market shift. Many have inquired about funding impacts from changes to what we refer to as exempt securities, but the effect is minimal. We are actively using these exempt securities for inventory purchases, and they are being replaced with other bonds, resulting in negligible impact on our funding.
Operator, Operator
Next question from Eduardo Rosman with BTG.
Eduardo Rosman, Analyst
Good morning. I have a question about the results in the different segments of the bank because the earnings of the bank improved. The insurance company remains well, it lost a little bit of relevance as a whole in this quarter. And you don't really disclose the results for high income, low income, retail, and wholesale. So, it would be interesting to hear from you where do you see easier improvements in the results. If in low income, if the reduced provision is already improving the result and whether there is any segment that is sufficient, if you could elaborate about the different segments of the bank? Thank you.
Unidentified Company Representative, Company Representative
Thank you, Rosman for the question. Well, we are doing more in the wholesale bank. In RAR, that is high for the different segments. And in this also for high-income segment, not to mention private. So that's doing quite well. Our challenge as you know spoke about the insurance group but our challenge is you know comes from our mass market clients given the cost to serve and delinquency and we've been paying that bill. But indeed, things are starting to improve a lot. In SMEs in particular, though we see the delinquency curve dropping, but there's some improvement. Month by month, we see improvement. So our expectation is that we will drive the RAR of the mass market quarter after quarter. And I have to tell you, we don't really disclose this breakdown, but I can't tell you is that all business units have a lot of traction right now. An area demand has a small traction or a smaller attraction could be small and midsize enterprises, but it's improving. And again, that OpenSea of a lower income client because they have a higher risk. But they are all with a lot of traction. It's not by chance that we are doing this. That we are growing. Credit general segments in important lines. So, we have the ability to deliver and to deliver more than we are delivering right now. And what I see and what I am living, because I've been going all over Brazil, I've been having breakfast with colleagues in the headquarters, in many locations in Rio de Janeiro, in Sao Paulo, in Salvador. And I see everyone motivated and excited and moving in the same direction. So, we are improving. They are the risk-adjusted return for all of these segments. We are going to be delivering in the future quarters. That's my expectation for all business units. And in the mass market, perhaps the biggest challenge is to accelerate credit maintaining NPL declining and adjusting the footprint. And the numbers we showed here point exactly at that. The new vintage of mass market increasing accelerating with exceptional quality and footprint adjustment happening.
Operator, Operator
Next question from Eduardo Nishio with Genial.
Eduardo Nishio, Analyst
My question relates to your strategic plan. Part of the recovery that you anticipate comes from improvement in the cycle that impacted the mass market, but most of it comes from more structural changes that you are promoting. I would like you to elaborate further on your structural changes and everything else that is happening with your strategic planning, if you could list probably the main strategic structural changes that you have in mind for the next quarters or maybe years? And also, if you could give me more details about changes in management and cultural changes as well that you were trying to introduce in the bank, especially that cultural aspect, because this has been something so important in the DNA of the bank. How do you anticipate in terms of these changes? And what do you see going forward in 2028 after everything has been done?
Unidentified Company Representative, Company Representative
These are very open questions, and I think we could spend days here just answering everything in more detail. I'll ask Cassiano to help me with the answers.
Cassiano Scarpelli, CFO
Well, number one, that delivery of that credit business unit, we unified processes that were separated in our organization. So, everything is now combined, integrated. I mean the separation of the teams that used to serve the mass market and the wholesale bank. We made also important process changes, first line of defense, second line of defense with the use of machine learning running in the background of our modeling. And we also introduced some credit policies because you put a certain appetite. Okay, you say, I want to give 50% of the company's revenue. So that was one change. The second change was segmentation. That segment of SME is one of the things that we told you that we would launch early this year is already in place. We don't have all the clients already in there because we're still in the process of segmenting clients, but we will also deliver the affluent segment, the wealth segment in the second half. But we are also, we are also working on restructuring our prime segment for wealthier clients and that's another important segmentation. In terms of wholesale banking, I told you that we made some process changes on the loan book side. So, I'm saying that this is something that is already happening and this is generating results and in turn, this will improve our numbers with time. And obviously, I think the biggest challenge is in the cost to serve or more mass retail clients. Well, we have, we are reviewing the footprint because we are delivering above plan, but we will deliver numbers above the plan with costs under control, and all of these deliveries will allow us to get that additional revenue that we talked about last year. But even today, I said that since the market is growing with the CAGR of 8% a year in terms of the credit volumes for the next five years it will bring an additional BRL3.3 billion to the Brazilian market in five years. Certainly, we want to capture part of that so that when we go forward, our revenue level will be much high, and our return will be higher because the bottom line matters which has the profitability that we will have. And, Cassiano, I think you can add to what I'm saying because out of the 10 topics that we listed, we had over 2,600 initiatives, but I am just highlighting some of the main initiatives. And also, there was that movement of time to market that we are doing with the technology area and the very intensive use of Gen AI. I would also mention these two.
Unidentified Company Representative, Company Representative
Yes, I'll talk about that management side as well. But there are two important points. Bradesco Expresso, it's a very important link with this new concept of the new footprint and our cost to serve together with digital. Marcelo also mentioned that during the presentation, it's a very strong digital bank. Bradesco Expresso is a very positive tool because we can be present in many municipalities. Technology, Marcelo mentioned that not only in terms of reskilling, but also, we are hiring new people. We are hiring people at all levels of technology and all-important processes are becoming more agile. It's becoming more productive. It's a new concept, and this is across the board, and culture management. I think you should also talk a little bit about that and what we are doing in terms of our culture. Regardless of the fact that we do not want to lose our Bradesco way of being, we also want to have new colleagues that can add important values. Here, we have colleagues from three different places. I even think that when we meet in person, I think we can also discuss things with the sales side. What we are seeing is just trying to make an executive summary of everything; we are bringing 2C levels to the organization, people that are being brought from the market and this is an important culture change. The reduction of these layers brought about an enormous difference in terms of speed. As I was saying before, I've been going around the country and having breakfast and lunches with different people. I'm meeting with different segments of the industry. And it is amazing to see that once you shorten the layers, the communication becomes much faster. Things become a lot more agile. And our decision-making process in the bank, if you just start interviewing people from within, people will come and talk to you about it. That's another relevant aspect once we talk about changes to our culture and management. Silvana is just arriving. She will work together with Giuliano in that transition. She will work with me as well. So, we are working on that new HR plan that I've been telling you that we will deliver, and we will go even beyond. We eliminated some positions, some layers and we want to continue to do changes within our organization with hierarchical levels maybe better so that throughout the end of this year and next year, we will have a leaner, more lean company. We do not want to eliminate the values, because the values are important, because they support our culture, but that's not all. In fact, we want to maintain values. What values? For example, we will stop offering promotions and career promotions. No, what on them this is a place where you can get promoted and improve professionally. But we are also willing to bring somebody from the market. If we need to have more skills in the organization, this is basically it. Secondly, our employees, our managers, they carry the banner of Bradesco. Why is it that we would think about ending this? On the contrary, we want to harness this even more, but we want to have a wider management in our organization with fewer layers. We want to have a different outlook, a different perspective, see the areas that are different differently, not being standardized with a much faster decision-making with a lot of technology integration, different skills directed to digital. And this is what you're going to see in our organization with these changes in cultural traits, with these additions that we'll have that we were not really, that we have been making in the organization. And with the span of control that is different, you have no idea, Nishio; it's so different. So, I think this is it, because we even spoke about this in the prior quarter about the total volume of revenue available in the Brazilian market. I'm almost sure of that. I haven't got the number from the top of my head, but please check the previous earnings conference call. And I'd like to take this moment to draw your attention. If you look at my presentation back then and my presentation today, please let me know if there is any difference. What we said back then is what we're executing. And another important thing, there is nothing else in this bank that is not measured. Everything in run the bank or change the bank is measured. We have a new project. For example, we are going to expand our middle corporate segment. It will be expanded. This project has been approved. We'll grow the team another 10 platforms around Brazil. What we call a platform is actually having a branch dedicated to this middle corporate segment. But it all involves measurements and decisions are made quickly. But all suggestions need to be proven and it's going to be a cheap branch, not a huge branch. It's a platform as we call it when you look at total numbers but it's registered as a branch at the Central Bank of Brazil. So initially, I think that this is kind of an overview. And one last comment on the result of the transformation process will be recorded in the operating result of the bank, and that's fundamental. So, we have to focus on the operating result to see the transformation and the timeline organized the way of done already and what we will be doing in the future.
Operator, Operator
Next question from Pedro Leduc with Itau BBA.
Pedro Leduc, Analyst
Thank you for taking my question. I'd like you to elaborate on the NII dynamic, particularly client NII. The NII in this quarter had a relevant drop of 14% year-on-year and the NII is still dropping in a similar speed to the past quarters. I know, Andre, you said, first, you grow the portfolio, and then we're going to see a positive impact on NII. But thinking about this sequence, it seems to me that the current origination is coming with lower spreads. Perhaps because of the line or the mix. My rationale is, I see payroll deductible loans increasing but with caps putting pressure on profitability. You also have the savings accounts deposits following corporate segment being very competitive. So as an outsider, it doesn't seem that the portfolio construction is not helping to converge to the guidance. NII, historically, I know a lot has changed, but it was the line item that was always farthest from the guidance. And I see you're very comfortable maintaining the guidance, particularly for NII. So, I'd like to hear from you. Is my interpretation wrong? Are the spreads more pressure, demand of pressure? Is it about more mix or more volume? And perhaps a lower AWL will offset a less dynamic NII?
Unidentified Company Representative, Company Representative
Well, it's a long question, but thank you for your question. I guess that at the very end of your question, you kind of gave us the answer because we look at economic value. So, we look at the NII, not the growth NII. So, in NII, you thought that it's starting to grow, and we'll see that. And if you look at the mix of products, you will see that we boosted those higher-risk products. But everyone here is very down to earth. We are not going to have that NPL, that delinquency in the future. On the contrary, and like I said, I stressed this during my presentation, in February, we gained market share. In March, most likely, this will be disclosed by the Brazilian Central Bank tomorrow. And we'll say that most likely, we also gained market share. You're also right when you say that payroll loans and mortgages have lower margins. That is a fact. The margin takes longer to come, but we are also offering products with a higher margin. We grew in February and more in March, and this will have a reflection in April, May, June, July, and so on and so forth. As regards to wholesale, we talked about the spread. Well, that doesn't exist. The spread in the wholesale bank is under pressure. It's always been. Here we work with RAR, risk-adjusted return. So, our regional managers using their phone, the tablet or their managers, they see exactly the same thing. They see the RAR history of the client. They can simulate what they need to do to negotiate with the client online in real-time. So, we put pressure on them regarding RAR. They just don't have a deal to add to their portfolio. Today, the market doesn't give you a lot of room to bring those to your portfolio. We also have what we call OPCD for the secondary market, OPCD portfolio. So, you see the margin is not coming only from spread. We don't address this operation by operation. We address it by client. So, when we have an adequate RAR and relationship, the deal goes through or else they don't have the ability to approve the deal. So, there's a rationale here. We implemented this when I was in the whole Seo Bank together with Bruno and our colleagues there. So, this is not new. The margin comes from the whole. We also have private payrolls. We are one of the largest banks. Managing payrolls means relationship with large corps, midsize enterprises, small enterprises. And we have other businesses that we do around the relationship with legal entities. So, revenue doesn't come only from the margin. Now to make up, the client NII will grow SMEs, because this is added to individuals for us to build up our margin over time. Is that line item challenging? It is. But rest assured, just wait because we'll get there. Look, we are looking at NII, net interest income. That is what is important. I have to have a balance between what I do and the potential loss with these clients. And this is our handbook for our day-to-day. But of course, the portfolio needs to come first, and the NII will come later, and we'll keep looking at the mix over time, and we'll see a more balanced mix. But with delinquency under control, we have to have high-quality assets. Okay, Pedro? So, we won't make a mistake. If you want to add anything, I just have two very brief comments. Pedro's question was more directed to product mix and as Marcelo was saying, there is also the segment mix. Once we accelerate SME and individuals mass market, we bring on board more margin. The second comment is about guidance. When we look at the guidance, the guidance gives us an idea of profit for a year. That's valid. This is what we work with. But in terms of a turnaround history, when we point the guidance towards the end of the year, the beginning of the year is different from the end of the year because you are churning the portfolio, so it's a more classic case. It is more limited than it turns around and then it picks up again. So, it will be different if you compare one and another. I mean, it is valid, but there are fluctuations in some possible lines within a turnaround perspective.
Operator, Operator
Now Carlos Gomez Lopez. Next question from HSBC.
Paulo Gomes, Analyst
I have two questions. First is on funding. There was a drop of almost 13% on checking accounts year-on-year. When do you intend to change that in terms of cheap funding? The second question is about NEXT. We don't have a lot of information about the future of NEXT or the digital platform.
Unidentified Company Representative, Company Representative
Thank you. Thank you, Carlos. So, you start first and then I'll talk about NEXT. Carlos, thanks. It's a pleasure to see you. Marcelo just said now that one of the important indicators is our cash growth. We are doing some important work with companies and also working with some SMEs that are now coming into our offices. I think that the fair share path is important and this will strike a balance when it comes to mix or with that demand document. We must also remember that we have lots of CDBs, which are some instruments related to demand deposits and that's not specifically in that same line. I mean, you have a remunerated line, but not to that client. You only see that when you look at the time deposit line. I mean, remuneration is a bit lower. I mean, it's a bit lower in this business. That's why you see this change. But it's not loss, but gain because the line is not broken down for you to see it more clearly. Yes, I think you're right. In terms of the clients, that is it. Again, the more the client helps itself, it looks for different alternatives, and we keep, we will keep seeing these changes. I mean, the first quarter is more seasonal, but we understand that this is quite normal. And within the context of the year, this will be within the lines of what we often do. Now about NEXT. Now to answer your question about NEXT. With NEXT, you know that part of the investments are within Bradesco. Digital is totally outside Bradesco. We had decided that NEXT would be another segment for us here with a brand that is known in the market. But when we reviewed our strategy and the plan, we decided not to make that move before we would make all the decisions related to that mass segment because we have learnings with NEXT and learnings that come from digital. So, we are now in this decision-making process. We have some possible paths, and you will see that in due time. Also, with this new colleague that is arriving, they will certainly help us in this process of execution and decision-making. But if you look at our playbook, you will also see some interesting figures about digital. Take a look at that because we have some information about digital in our playbook. And thank you for your questions.
Operator, Operator
The next question comes from Guilherme from JPMorgan.
Unidentified Analyst, Analyst
Our question is on cost. We already talked a lot about G&A, etc. I would just like to look at orders. This was a controlled, I would say, controlled quarter. And discussing the guidance with you early this year, I think there was a caution in terms of the total cost of the guidance, because of that line guidance was above inflation and part of the explanation was because you were very cautious about that line throughout the year. But looking at the run rate for the quarter, if the pace was to be maintained of about 1.5% throughout the year, we would see a drop when compared to 2023. The question is, how could we see this line going forward, if the pressure you were anticipating at the beginning of the year, is this still a base case for the rest of the year? And also, exactly what led you to see this more beneficial performance or behavior up the line?
Unidentified Company Representative, Company Representative
Andre, you start and then I will add. My first comment is that there was a very good performance in all the lines of the main operating expenses: personnel, admin and other expenses. Marcelo pointed out quite well that personnel and admin expenses grew 3.5% in the first quarter against an inflation in the first period of 4.3%, showing that our expenses are very much under control. So, we started off controlling our expenses and this is our objective for the rest of the year, but we have to bear in mind that the strategic plan that started in February '19 has a very small impact in the first quarter. It's just natural that the impact will grow going forward and impact that will be felt in technologies, new hirings, contingencies, fiscal contingencies etc. This will appear throughout the year. But this is what makes us certain that this line will go within the guidance, but we will certainly do all we can to lower that number. We have to also recall the collective bargaining agreement. I mean, of course, we have our own impressions about the collective bargaining agreement, but the negotiation remains open. I mean, if you look at the line of others and compare it with the same line, it's the same as other companies that consolidate with us and this line is going back to its traditional level from previous years without the effects that we had in the past two years. So, everything is under control and normal. I mean, the collective bargaining agreement could probably move the needle a bit, but everything is being looked at and treated very rigorously. As Marcelo was saying, all the lines should be within the guidance. Some lines are even above guidance, but we will see a balance between one and the other. Some will be closer to the bottom part of the guidance and the others will be more closer to the top of the guidance. But we are certainly controlling our expenses and costs. But at the same time, always investing in what needs to be invested on. So, thank you. And now we conclude our Q&A session. Questions that couldn't be answered in this occasion can be then sent to our IR department. And before I turn the floor to Marcelo to conclude this presentation, I would just like to say that in our IR website, you will be able to find this presentation and also all of the other materials related to this earnings release presentation. So, I just recommend that you take a look at that. So, what are your final remarks? Thank you. Thank you, Andre. Thank you, Casiano. Thank you, all of you, for your interest and for joining us today in this quarterly earnings release. And we remain at your disposal. Sell side, all analysts, we are available to give you further information. But before I say farewell, I would just like to say something. Yesterday, Carlos Alberto Rodrigues Guilherme Caulca passed away. He was a Board member since last December when he retired. He was also Vice President of the board. He died yesterday, but for several decades, he worked for our organization. That's why I thought it would be important for us to express our sorrow for the loss of our colleague that spent many years working with us. But I would like to remember him with joy rather than sadness. Thank you so much for joining us today, and I wish you all a very good month of May.