Banco Bradesco - Earnings Call - Q2 2025

Transcript

Speaker 1

Good morning, everyone. I am Marcelo de Araujo Noronha. I'm speaking directly from the headquarters of Bradesco at Cidade de Deus to present our earnings results referring to the second quarter of 2025. We are speaking live. It is now 10:31 A.M. in Brazil. Thank you very much to all of you for joining us in another earnings conference call. I'll move straight to the point, to what matters. We disclosed yesterday our earnings. We reached a recurring net income of R$6.1 billion, boasting a significant ROAE of 14.6%, plus up 3.2 percentage points year on year. What is the summary of our earnings in this quarter? Firstly, we believe that our operating results showed consistency in all of the line items, particularly in the top line in the main revenue streams.

I mentioned NII, net of provisions, fee income, fee and commission income especially, fees, and another good quarterly result of the insurance group. Operating expenses are under control. The loan book is absolutely under control, over 90-day NPL as indicated, over 15-day NPL, all under control, stage three as well, as I will be showing you momentarily. The organization has a lot of traction and is matching the plan that we presented in February of last year. We have changed the bank, and Bradesco Bank, very well connected with a lot of intersections between the two, a lot of deliveries, and the use of GenAI to help us gain productivity and efficiency across the organization. This is the summary, and based on that, we are delivering consistent results, in our view.

Here, our attempt is to present cause and effect because net income, the operating result, is the result of all of the seeds that have been planted and everything that is being done in the organization. Here we have total revenue, R$34 billion, up 15.1% year on year, and in the quarter, up 5.2% quarter on quarter. Here we have the bar chart showing the level of revenue growing. Of course, the first quarter is always less accelerated in our industry, but we can see coherent perennial growth. Since we presented our plan, we said that we were going to do things step by step with consistency. Total net interest income growing a lot in the quarter and year on year, fee and commission income above 10% increase year on year, and more than 5% quarter on quarter.

Insurance, pension plans, and savings bonds growing 6.5% quarter on quarter, 21.7% year on year. This is the effect of. Our activities, very strong activities across the organization and related companies. Now, speaking about the expanded loan book, it leads to the financial revenue, of which I will speak momentarily. Our portfolio reached R$1.118 trillion, growing 1.3% quarter on quarter and 11.3% year on year. Here we can see three main points. Enlarged corporates are not growing for two reasons. We normally say that enlarged corporates, we can grow R$10 billion in a quarter and in the next, supply the same amount. We had some supplemental due to the IOF in May and June. Another phenomenon is that we've been using our origination for distribution, OPD. When we have the ventures in the capital markets, we carry part of it for the secondary market later and to improve risk-adjusted return.

If we look at all of the line items, we are growing practically all of them in the quarter, and we are growing significantly in the year, mainly in individuals, micro, and SMEs. We are growing in lines which are backed by collaterals. We have here the growth in total revenue. I spoke about large corporates, the big highlight, individuals, growing almost 16% year over year. Again, important growth in more safer, collateralized portfolios with good ratings. Micro, small, and medium-sized enterprises, a big highlight here, growing 25.2%. At the end of the presentation, I will again speak about cause and effect. The effect of this growth is that it results in NII, fee income, and all of this is the result of all of the decisions made in our change and run the bank. In all of the segments, individuals and enterprises and companies.

I'll speak about this later on, but let me give you a preview. If we leave behind the segmentation and targeting of each bank, if we look at the segmentation by the Central Bank of Brazil, SMEs, for them, are companies making up to R$300 million a year. All banks have to inform this, regardless of how they call the segments. We see that Bradesco is a leading bank. It's a leader, and we have been growing our assets in this segment of companies earning or making up to R$300 million a year. Moving on, we see here the traction of credit, resulting in growth of net interest income, growing almost 16% year on year, 4.7% up quarter on quarter. With credit provisions growing, NII net of provisions, R$9.9 billion. Here I will explain the numbers. I can tell you that we are quite flat here.

We integrated John Deere Bank into one, and of course, our rural loans have the highest expected loss in the month of May. In June, this is already dropping. We have a cost here, which is slightly higher because of that. If we were not having this consolidation, our cost of risk would be between 3% and 3.1%. Since we've been growing large companies, we have a numerator-denominator effect. I can tell you that we have expenses with LOP are flat. Market NII, $300 million. We were expecting it to be zero or negative given the pressure of interest rates of almost 15% on ALM. This is not happening by chance.

It's happening because of the level of activity we have in our customers' desk, combined with loan production, loan origination in the wholesale bank, and all of that results in trading positions and with our new energy desk that also creates revenues of ALM, trading, energy. Operating really well and bringing us the results. When we look at client NII, growing almost $18 billion, 8.8% spread, a nominal growth superior to the growth that we saw in Q1, $1 billion here, and also growing consistently. More importantly, client NII net of provisions growing 20.7% year on year, $9.6 billion. That's really important to us. The result combined with market NII is important because it has an effect on the bottom line. NII net of provisions, almost $10 billion, 19.4% year on year, growing in the quarter as well, but with consistency and balance in several line items and work fronts.

Credit quality, over 90-day NPL, quite balanced and flat. Here there's a note of 15 to 90 is no longer the indicator. The 15 to 90-day NPL, also flat, and representational share by stage, stage three, growing, growing more than 10 basis points in the last quarter at 7.9%. Stage two is slightly higher here. It doesn't mean it's a bad portfolio's classification by expected loss. Consolidated mix with John Deere influenced that indicator. If it weren't for that, this indicator would be flat as well. Important data, restructured portfolio is dropping. Last year, we reduced by $4.5 billion in this portfolio. If we look at our not cured portfolio in this year alone, we can see there was a reduction of 5.4 basis points, reaching a total of $30 billion. Here we see the evolution of the secured portfolio reaching 58.5%, up from 57%.

Origination is growing a lot more in secured loans vis-à-vis unsecured portfolio. Fee and commission income. Again, speaking about cause and effect, fee and commission income grows because of activity. We show here with a highlight, R$10.3 billion, growing 10.6% year on year, 5.5% quarter on quarter. Three highlights here in this quarter: private income, almost 20% growth year on year, especially in high income and not in the other markets. Open market poses a greater risk. R$4.5 billion in the quarter, 3.3% quarter on quarter. Also, construction, mid-year, another strong quarter, almost 21% growth year on year. We regain leadership in movable assets. Our investment banking, capital markets, surprising with this number. We had strong M&A activity, number one position on M&A ranking. What draws my attention is this growth, almost 34% growth year on year, and almost 76% growth quarter on quarter.

This is the result of our activities, of our balanced pipeline. Our team, I'll speak about this in the end of the presentation, good origination, good activity, considering wholesale bank, retail bank, treasury, everything gave us traction and led to even more gains in these activities. We are very confident of our investment banking and global markets activities. Operating expenses, we reached R$15.9 billion this year, year over year growth, and quarter on quarter growth. Now let's zoom in on our operating expenses. When we break it down, personnel and administrative, we see that growth was 4.9%. If you look at the complete earnings, you will see that administrative expenses have a negative growth. That's the result of several actions to gain efficiency. These will continue along 2026, 2027, 2028. One of them is the adjustment in our footprint.

Compared with June 2024, we are talking about more than 1,500 service points reduced until now. Personal growth is linked to greater result, profit sharing, variable compensation. Even with these adjustments, we grew our client base by more than 1 million. When we look at an indicator that I showed you in the last two quarter calls, all of our payment companies, Elo, Livelo, Cielo, Allo, all of them have been making important investments. Cielo has been going through a strong transformation with good investments, OpEx and CapEx. Excluding this, in our comparison base, when we look at all operating expenses directly under our control, our year-over-year growth was 5.8%. In other words, expenses are controlled, despite our robust transformation plan. We're hiring a lot of technology people, people working with data, and also now we're Credit BU.

Regardless of the adjustment in our footprint, the Insurance Group posted another strong quarter with this level of net income, R$2.3 billion, 4.4% up year on year, and ROE of almost 22%. That's another highlight. Robust revenues and the results of insurance operations are included in our guidance. We can see that the result is primarily operational, 31.1% growth year over year in all aligned items. Although the Insurance Group is very much down to earth in their provisions, they have very balanced provisions, but we see growth in the level of activity. This is a result of management and commercialization through our internal channels, selling to all client segments in the organization and all external channels that work with the Insurance Group, resulting in technical provisions that are robust, R$425 billion in the quarter, growing 11.2% year on year, 2.6% quarter on quarter. Now let's talk about our capital.

We continue to see a lot of consistency. As we've announced, we've been talking about this since late last year, that we would have stable capital. Tier 1 is 13%, now going up common equity to 11.1%, although we've paid out all the dividends, as the market knows. Now looking at our guidance, most all of the indicators now converge to our guidance because of a few facts. First, the economy in the second half of the year tends to be slower. The demand will be slower in the second half of the year because we are now at the peak in terms of interest rate. We have heard comments by the National Monetary Council telling us the economic activity is strong, but slower than in the last quarter. That is, we see a slower growth. It doesn't mean we will stop growing, which is good.

We want to continue to grow in everything that is good. Next, you know our baseline. If you look at the Insurance Group, we had very strong numbers in Q3 and Q4 2024, so that's a higher baseline. If you look at the expanded loan portfolio, the same thing happened in the last quarter last year. We've had a strong growth, but now, closing the year 2025, we will converge towards the guidance. As you've seen, we made two changes because these two indicators had more traction, so they could grow higher: fee and commission income up to 5% to 9%, and insurance from 6% to 10%, now from 9% to 13%. These were the adjustments we made. Now let me give you a brief summary of our initiatives. Change the bank and run the bank, both coordinated and connected, to show you that we have a lot of traction.

We had great deliveries. This is a summary. I will also make a few comments about technology. We had a reduction in the lead time. We've improved productivity. I also want to talk about our wholesale bank and SMEs and tell you that in this quarter, we've expanded the number of Bradesco principal offices. We have seven new offices now. We have been working on our culture and our cultural evolution with Sol Bradesco and training the team, and we continue to hire employees. These were colleagues that were outsourced, and they are now our employees. We're also hiring from the market so that we will have our own team of employees working in tech. Let me break down a few of these line items to provide more qualitative information to you.

First, let me go back here to talk about GenAI again and how much it means to our organization and also where we stand. Here we have three blocks to try and make it easier to understand. We had a debate with the Brazilian Federation of Banks, and there was a lot of talk about GenAI. I also talked about this with you in previous presentations, speaking about some of our initiatives. In the first block, we are looking at technology efficiency. Now we have IT closer to the business. Last year, we've implemented the enterprise agents, so now they're fully operational, and we've expanded that quite quickly. Together with IT and technology and also credit recovery and collections, they worked together and using a lot of GenAIs, building scripts with clients. Every day, we're making changes, making modifications to these scripts, depending on the level of success.

We also have two multi-agent projects. It is important to say that we had a test. We worked with two large consulting companies to include multi-agent projects and large legacy systems. One of them is in COBOL language on the mainframe. Now we went on to the second stage, and we're now beginning the third stage of this project. These two legacy systems will be delivered in the cloud using new technology by year-end, using multi-agents or virtual squads combined with squads, including human colleagues. That will be done also in other projects. We've been using GenAI also in the chat with customers. More than 5 million customers are already using. Here, you can see a combination of indicators to show how much our productivity has improved. Making a comparison between 2024 and 2025, we've had an improvement of 58% in terms of efficiency.

Looking at productivity gain in virtual squads using multi-agent AI, plus other technologies, some important tools that we are using, now with Copilot supporting our developers, our product developers, and storytellers, we've improved our productivity all in all by 94%. If you look at our capacity, we are gaining productivity, not because we want to reduce cost, but because we want to optimize our resources and deliver more, remove legacy systems to deliver a better experience, and have more efficiency in our processes. Different teams in different departments, including Legal, are involved. If I look at December 2023 and compare to now, our delivery capacity is three times greater.

These efficiency gains mean we now have a lower cost per application, and we will see that in the bottom line, but also provide a better experience to customers, more productivity, higher personalization, using a lot of intelligence behind the relationship with customers, and proprietary tools to gain productivity. I told you about our developers. I also spoke about Biotech in the meeting at Febraban, also here talking to you. This tool supports our developers, our squads, bringing 58% more efficiency. The environment is fully organized and prepared for the developers working in our squads. Via GenAI, the new BIA will now be available for 100% of our customers. Compared to the first BIA, the first BIA was based on a different technology. This one now has 50% more accuracy. It's really impressive, you know, the Bradesco artificial intelligence, our BIA. Let me also speak about Bridge.

Bridge is a technology to help us use GenAI, and we have more than 200 initiatives across the board in the organization using Bridge, Bradesco Intelligence of Generative Data, so if you know what the acronym stands for. In terms of education and technological development, we are now using new technology, new technological processes. We acquired 100% of Kunumi, we've already announced. Here, we have very specific deliveries in credit and portfolio management using multi-agent squads to develop our models. These are really important deliverables developed by approximately 100 employees who hold a PhD, who are true experts. We already have an institute with 12 labs, plus 15 in final negotiation, because our goal is to have one lab in each state of Brazil in time, so that we will spread our tech culture through our tech academy, providing training.

We now have the Copilot Premium A5 to 100% of our associates locked here in the bank, including our trainee personnel. Some are using that for development and many using GenAI to learn about that so that we have our true tech culture. The final result is higher productivity, as I've mentioned. I have three more slides. To conclude my presentation, we have been using machine learning and GenAI to support customer management and the applications used by individual customers and companies. That's why I have two slides to speak about our company customers, so large companies and SMEs. We have a high penetration rate in all segments. Our wholesale bank is now even more sophisticated. We have six business segments. All of these segments, in addition to the investment bank and global markets operating in Brazil and abroad.

With this segmentation, we need critical mass, but if we have expert service, because here, we have further segmentation by industry, by geography, so it is a high level of operating complexity, but it helps us be closer to customers. We have a stronger team now, especially in corporate, but also in agribusiness corporate and in global corporate as well. We have a stronger team also in the investment bank, both for variable income and fixed assets. In global market, we also have a stronger team. The result was that we had improved numbers coming from the investment bank because we have much more origination capacity with a stronger team. Our distribution is also stronger and very much connected to wealth management now. We've delivered global solutions, and it's a very interesting solution for cash, for large companies.

We have our new energy trading desk in treasury, working with the wholesale bank, and that has led to new income streams for us. That's why I'm always talking about costs and effects. First, you set up the energy trading desk, and that begins to generate result and income for the bank. In corporate, here, we added 10 platforms. Here, remember, we launched the agribusiness segment. It is now fully operational this year. The wholesale bank, we are doing our homework, and we are very active generating lots of fees and commissions and business for treasury desks. In the retail business, looking at SMEs, we have companies up to $50 million a year, between $3 million and $50 million a year, then small business up to $3 million a year, and the micro businesses, which is also part of this segment.

We have platforms in the main regions of Brazil where we have agricultural activities, also to support customers in this segment and individuals as well. Let us talk a bit more about companies and businesses. We have a new digital platform with great deliveries in these segments. As I mentioned, this is the largest segment in our retail bank. As you know, we've delivered 150 branches in 2024, and we can see significant growth, a new value proposition for these clients, improving the level of service in these branches. In terms of small business, we now have a new segmentation. Here we have these businesses, they are spread geographically, so we need an account officer to manage these accounts and the micro business or MEI offering digital support and also human support, backed by GenAI.

All of this, we had enough traction to deliver all of this because we now have a very different time to market. We can provide a new experience for clients. They can open accounts using the app. We launched these new services for companies in March, and then we expanded in April and in May. We are now able to provide this new experience to very small businesses. MEI, 90% of the customers have already migrated to the new application. They are active using the app 7 to 10 times a week. In August, we have 50,000 new very small businesses or micro businesses joining the app. We provide a higher level of services, solutions for collections, payments, and loans using ProNAMP, ProCred, government programs, and they can use self-service using the app, but also with human support if needed. This is the digital transformation.

We have a reduced time to market, more functionalities using multidisciplinary squads, backed by GenAI again, focusing on the best customer experience. The integration, I spoke about our app. It has been delivered for Android. We now have a new version for iOS launched in August. We are one of the very few organizations that have the app for both systems, for Android and iOS. We are using APIs to have a full integration. We are ready for banking as a service. We even have the integration with BIX, Agility, and corporate account openings, and Cielo integration. Cielo had a great first quarter. Looking at our customer base with Cielo, we've gained share in the first quarter because of all these things we've implemented and the integration by APIs. This is the information I have. Now we come to the conclusion. This is a summary of my presentation.

As I said earlier, we can see, I mean, our team can see that we have been able to deliver consistent operating results, a very consistent balance sheet, growing more than our net income. The operating result is growing above 30% year over year. We feel very certain our delinquency is under control. We can answer questions if you would like to have more information about that, but we believe delinquency will continue under control so that we can continue to grow. We know the market will grow slower, so we have to make the most of all opportunities we have, knowing that the bank has a lot of traction in running the bank, changing the bank, and all the segments of customers. This is the information I prepared for you. Thank you very much for joining us.

That means I'll sit here with André Carvalho, our Investor Relations Officer, and Cassiano Scarpelli. Thank you. Thank you, Marcelo. Good morning, everyone. I'd like to let you know that Ivan Gontijo, CEO of the Insurance Group, is joining us remotely. Questions can be sent in Portuguese or in English. You can send your questions via email to [email protected] using our WhatsApp channel, 11974438238, or just scanning the QR code that is on your screen. First question from Thiago Batista. Thiago? Tudo bem, pessoal? Hi, everyone. Bom dia. Bom dia, André. Bom dia, Noronha. Good morning, André, Noronha, Cassiano, and Ivan. Congratulations on the result. I think you have strong points in the top line. That's the positive highlight. My question is regarding the positioning of the bank regarding low-income segment or mass retail, mass market.

When we look at that sector, it is perhaps the only one operating way below the cost of capital of the bank. Looking at the midterm, do you think that this segment will be able to be profitable, even if it's served by the branches, or not? Do you need to implement a more structural change to provide more digital service? How digital next will be positioned? How will they be used in this segment? Thank you for joining us for the question. The answer is yes. This is what we believe in, and we have been working strongly in the mass market. I mean digital mass market. We have some million clients being served remotely and having different experiences with high personalization. Eventually, we will be talking more about that. Next should be close to this DGO. That was a completely separate operation. Not yet.

They continue on their own track, and we'll speak about that strategy when the time comes. Yes, that segment can be profitable. A super important channel for these clients, for service and for client acquisition, is called Bradesco Expresso. As I mentioned in the past, we have been trying different models, models of service. Remember that we only have variable costs. We have about 39,000 banking correspondents across Brazil. We had a relationship platform, B2B2C. Now we have a B2C. We offer a much better experience connected to CRM and the intelligence behind the offering for the clients, offered by the banking correspondents. All the transactions, I don't know, with the merchants and with a very high penetration in our acquiring business so that these merchants can offer clients alternatives to services and products. This is a strategic, important channel.

In due time, we will give you detailed information of everything we're doing on that channel. We are convinced that we are accelerating and that we will get to very different levels with those combinations. Reducing the footprint, reducing some points of service, growing in principle, growing in corporate, growing in SMEs, growing in businesses, and in banking correspondence as well. It is this balance that we will be showing you in due time, Tiago. We are very excited with everything that we're doing at the bank. Thank you, Tiago. Second question from Daniel Vaz with Safra. Thank you, André. Good morning, everyone. Marcelo, Cassiano, Ivan, congrats on the results. I'd like to explore two points about your presentation, Marcelo. You mentioned signs of slowdown in economic activity and demand. Looking at the business segment, there's a new segmentation.

Exploring this segment, SMEs making up to R$3 million in revenue per year. Could you elaborate on the slowdown of economic activity in this segment? It would be reasonable to think that these SMEs would be the first impacted by this economic slowdown. I'd like to understand the opportunities you're seeing in this segment to understand this new segmentation. What will be the position of Cielo? We have seen some campaigns geared to this segment by Cielo. I'd like to hear about Cielo's risk and opportunities. Thank you, Vas. Thank you for the kind words, and thank you for joining us. Here's what I can tell you. In this segment, up to R$3 million a year. You know about the level of mortality and risk of these companies across Brazil. We have another segment that we call MEI, the micro enterprises.

There are a large number of companies spread all over Brazil that have been in the market for many, many years, and they are really small. They present a slightly lower risk. We see an opportunity to manage these clients because they bring us interesting profitability. They still require contact and service by a human. They use a lot of the digital channels. We talked about the app that we delivered. What have we been doing? This does not apply only to small business. This applies to individuals, legal entities of different sizes in the middle market. The work that we are doing with the Credit BU, to which we implemented many new models, and also portfolio management, permanently monitoring and with an early identification of possible losses in some sectors, in some companies, in some ratings. All of this gives us a different complexity level in our modeling.

We have credit policies adjusted by the modeling periodically and all the time. We have this ability to execute that we didn't used to have. All this credit monitoring with alert signs, automated by machine learning models, it's all connected to the segments. We've been doing this very successfully. We have the enterprise segment. This is happening in the business segment. We are choosing the modalities in which we want to operate. We are operating with a mode of secured loans, programs by the government, FGO, FGI, all government programs. In this half year, produced almost the volume that we originated throughout last year for companies. That's positive for the companies because they have long-term credit with lower spreads, more time to pay. We have to have the right and well-oiled models so that we can accept the range of losses.

Here, the spread is lower, but risk-adjusted return is different. We're operating with government programs, with highly liquid receivables, such as card receivables and other receivables or sales. We have been prioritizing those modalities that bring us lower margin but that bring us long-term relationship and service for these companies. We are seeing a lot of opportunities for growth. We believe that in any economy that will grow in the future, we'll have small businesses growing more than other segments that we see in Brazil. We have a 15% interest rate in Brazil now, but we are looking at a time horizon of 2028, 2029, and 2030. We are going to have these small businesses having a greater share in the financial system. To answer the last part of your question about Cielo, we created a connection via APIs for targeted services.

We have been increasing the penetration rate and our share, mainly in the last few quarters, when we delivered in-house solutions and solutions via Cielo. We see us growing with good combinations and offering better and better services to our clients, micro enterprises, businesses, enterprises, middle market, corporate, up to $300 million, and also for large corporates. Thank you, Daniel. Just one final point, Daniel. Very candidly, and I'm speaking about this now, and I spoke about this in the press conference. We are very confident about the quality of our loan book. We are not taking risks here. André and his whole team have a clear guidance regarding our risk appetite. My colleagues heading each segment are very well aware, and we are very confident about 2025 in terms of our loan book in all segments, individuals and legal entities. Thank you, Daniel. Now, Pedro Leduc from Itaú BBA.

Pedro, hello, good morning, André. Good morning, everyone. Congratulations on the deliveries. You're making solid steps. We didn't speak about step by step. Now, two brief questions. One, as I look at operating expenses, two-thirds of the increase came from the line named other. When you look at administrative and that cost, you know that is under control. When you look at the line other, then you see the increase. Have there been adjustments? When you look at personnel and administrative, you already have a higher level of efficiency. Next year, other will also be under control. It drew my attention that this line item other has all the expense increased. This was my first question. The second question, we've seen you reviewed a few indicators in the guidance, services, and insurance.

When we look at the NII net of provisions, if we compare that to the midpoint of the guidance, it seems like the loan and loss provision will remain the same in the second half of the year. Is that right? I mean, you did not change the guidance because the high range is already including some growth. I'd like to hear more on why you kept this guidance equal. Thank you. Thank you for participating. It was a pleasure to see you. I think that maybe André could begin. Cassiano. All right. Yes. It already includes the loan and loss provision. We had a large number now compared to what we want to have in the future. Also, you have gains from the reductions we made. When you look at personnel and administrative, yes, we already had the adjustment. I believe we have an interconnection there.

This line item other is helping us accommodate to make the changes we have and to change the bank initiative. When you look at personnel and administrative, it has already been optimized. André? Yes, let me add that operating expense, as Marcelo said, grew 5.8% in the second quarter of 2025 compared to last year. The inflation was 5.4% in the same period. Even considering what Cassiano mentioned, operating expenses grew at the same pace as inflation, with all the investments we've made in the transformation of the bank. That shows that cost is under control. Even we are preparing for a slower growth in the second half of the year. Now, we can see a growth in the OpEx. As we already have some of that in the numbers of the last quarter last year, I believe that now the line item other will be adjusted.

About the guidance, the NII guidance remained the same. Our NII net of provisions will be $39 billion, which is the midpoint of our guidance between $37 billion and $41 billion. Our guidance, as Marcelo mentioned, we are at the top range of the guidance. Our NII net of provisions can still grow in the second half of the year compared to the first half of the year, always cautiously because we are building our portfolio with full collaterals. Every half year, we have seen a growth. Let me add to what my colleague said. When we look at all the expenses, personnel, administrative, and other expenses under our control, because under our management. All of this has been approved, obviously, but we are growing 5.8% in operating expenses, even with all the investments made in consulting, in technology.

We are growing in some important areas of the bank, for example, technology, data scientists, data engineers, developers. We have a bigger team now. In time, we see that it will trend towards a normalized curve. In relation to the NII guidance, this is our target, but always net of provisions. That is perhaps more important than the net income margin, which could be a bit higher or lower. What is really important is the number we see at the bottom line. That is the number we look at with a lot of discipline and risk-adjusted return. We will not stop doing business. I hope I will be favorably surprised because I want to do more. When I say I want to do more, I speak on behalf of my team.

We want to do more, but always looking at risk and our current risk appetite that we've imposed to ourselves because we want to grow, but we want to grow perennially, reaching a higher level of both profitability and return. Thank you, Pedro, for the questions. The next question comes from Gustavo Schroden from Citigroup. Gustavo, hello. Thank you, André. Good morning, Marcelo, Cassiano. I will agree with my colleagues and give you congratulations on the earnings. We see the bank is back on credit in terms of revenue and the loan book. I'd like to go back to Leduc's question on expenses. We can see, on the one hand, a reduction and adjustment in the bank's footprint and this initiative to prepare for the future. Still, it has not translated into numbers, so to say. You still have high numbers.

Do we believe we can continue to improve efficiency, or are we going to see a slower efficiency improvement? Is that going to happen this year or next year? I think this is important for us to calculate the ROI because when we look at revenue, it seems to me that everything is on track. Next, looking at trading and market NII, the soft guidance was $0.8 billion, and it's already at $700 million. Can we exceed $1 billion because we already have two quarters ahead of us this year? Thank you. Thank you, Gustavo. You have a nice background behind you. Great. Cassiano, would you like to answer the question? Yes. Let me begin talking about treasury. I think it's really important. Our guidance was from 0 to 1 billion. Today, we believe the soft guidance would be 700 million and 1 billion BRL.

We don't expect a drop in the second two quarters of the year. This is a mix, as Marcelo said. It is our asset and liability management, our trading desk. There is also a lot of work that we do on ALM, which is part of our structure. It's not something we do isolatedly as setting up a trading desk. We're working between 700 million and 1 billion BRL. This would be a reasonable number until the end of the year. The next two quarters will be more challenging, but we have a good strategy. Now, from the viewpoint of ALM, we said that we would have 52% already in 2025, so that will have more improvement as of 2026. That still applies. We've had an improvement of 3 percentage points already this year with very rigorous cost control.

5.8% operating expense growth is not a trivial number, especially if you consider the investments we are making in the change the bank initiative. 5.8%, and if you look at administrative and personnel, 4.9%. I think these are important numbers because we are executing according to the plan. Even better, 3 percentage points better. We believe we will keep that guidance, but maybe in 2026, we'll have better results as well as in 2027, and we'll see more efficiency gains. It's good to see you, Gustavo. Let me also add. Cassiano, Gustavo, thanks for the questions. The efficiency ratio is not a paradigm. We told you that we have a target in the long run. However, the efficiency ratio is not a paradigm for us.

If we believe that we need more expense to gain competitiveness, then we will do that because the key word for us here is competitiveness in the short run and also in the long run. If we can gain competitiveness, then we will do it. Remember, when we disclosed the guidance by year-end in 2024, a few said it was conservative, but we said, "Look, we will not stop any investment initiatives. We will continue the bank transformation in agriculture, in corporate platforms, and in all of the initiatives." We continue to invest in technology and growing the team. Of course, that adds to our expenses, and we are talking about this. It also generates pressure in terms of labor, but we are on the right track in executing our plan. The plan is a straight line. You make adjustments, but we follow a straight line.

We are following all the steps in our plan with great deliveries according to our expectations. Cassiano mentioned that we have a more favorable expectation looking at our origination in the wholesale bank, in the treasury deals, and in all other teams, the energy trading desk. I mean, we see great opportunities to do more business. Let me tell you, sometimes you may ask, "Is that non-recurring net income?" I mean, we don't stop originating. We continue to originate. You close a deal with a customer, and then you're thinking about the next. Right? That's recurring net income. This is what we mean when we say step by step. Thank you, Gustavo. Next question from Mario Pierry with Bank of America. Good morning, everyone. Again, on my side, congratulations on the results. I'd like to focus on growth.

If you're talking about you expect a slowdown of the portfolio, with the portfolio growing close to 12% and union guidance, 6 to 8%. I'd like to understand in what line items do you see this kind of slowdown, and why are you so comfortable in terms of delinquency? Noronha, you said over and over that you're comfortable, that you're not seeing a worsened delinquency. The economy is slowing down. You're becoming more cautious, but at the same time, you're keeping provisions and delinquency under control. What metrics concern you when you look at the economy? What metrics do you see that give you comfort that delinquency will remain under control? Thank you, Mario. For starters, there is a second variable here, which is the baseline of the last quarter. It is higher, so variation or relative variation can be lower.

In addition, we have a lower demand for credit in the market. This is what we observed in the recent data published by the Brazilian Central Bank. It is only natural. With a high real interest rate and a 15% like rate, it is only natural that there will be a lower demand for credit. What makes me comfortable, though, is what I said during the presentation of our earnings. First, metrics, vintage by vintage, line by line, product by product, modality by modality, with the right pricing, risk-adjusted return, adjustment of the models, and dynamic policies, and the choice of those segments that present lower spreads, NII, but a much higher risk-adjusted return, which is the case of FGO, FGI programs, and other security lines, such as payroll deductible loans. Let me give you one example, one piece of data.

If you look at our payroll deductible loans portfolio, you will see that we grew 0.4% quarter on quarter, slightly above 5% year on year. Please note what happened in payroll loans. The banks had agreements with the companies, and there was a change in the private payroll loan via CTPS. However, we prepared for that. There are some people operating at much higher volumes, but we kind of had a reduction. We did not operate with that change because we had two payments here. The first was in May, the second one in June of the amounts of the companies. Secondly, FibraBank published a delinquency rate observed by the market was higher than 16%. We preferred to be down to earth because the bookkeeping was not very robust. When the payments were made, we had a lot of problems of reconciling the numbers.

In our case, with small amounts, we preferred not to run risks. In our case, it was above 5%, and these cases have been practically solved. Why? Because we operated with a restrictive policy. We only wanted to operate initially with the companies that we knew that had agreements with us, and we only operated with employees who had been with the companies for at least one year. A restrictive policy. Now that we're gaining confidence in the process, the trend in Bradesco is that we'll gain share because we have a lower market share, but with a much safer credit because I have to grant credit looking at large companies and their employees. It's a certain risk. Looking at a small company for an employee who has been with the company for a little time, it's a different risk profile. That's why we are leaders among the private banks.

We have significant INSS deductible loan, which decelerated in the last quarter because of biometrics, but this is expected to resume growth. The metrics are rigorous: risk, adjusted return, monitoring vintage by vintage, choosing those segments with lower risk. The demand tends to be lower, and the baseline is different. Again, we are stacking these loans: FGO, FGI, more long-term payroll deductible loans, and those secured loans that we trust more. Thank you. Thank you. Congrats on the numbers. I wanted to ask about net interest margin. Your margins were close to around 5% in the past. They're at a little bit below 4%, and that seems to be what's dragging your ROE down. You've done a relatively good job on the expense side. However, your efficiency ratio continues to be quite high because of that margin pressure that you've seen over time.

How do you think about the path for normalizing net interest margins to levels closer to 5% so that your ROE can really tick up to the high teens? To what extent is your balance sheet sensitivity to rates? If rates are 12%, 11%, 12%, 24 months from today, how does that help your margin or not? How does continuing to grow, particularly on the lower-income segment where you can generate higher spreads, contribute to that? Walk us through your next 24 months of net interest margins. What are the puts and takes, and where should that normalize? Thank you. Thanks, Cory. André, começar a responder? Então, eu tenho expectativas. I'll start answering that. The expectation for NIM is that it will grow safely. Here at Bradesco, we focus on risk-adjusted return of our operations.

If we find a good opportunity with low spread and very high RAR, we do grant the loan, and we expand our portfolio. NIM is the consequence. RAR is the objective. Our NIM is growing because we are finding good opportunities in those lines with a slightly higher spread, but with adequate RAR. That's the first point. Second point is because we are pricing the macro risk that we see coming with a decelerating economy. There is a macro moment favorable for banking spreads. Central banks data reflect that. This is reflected in our NIM and in that of the other banks. It is not by coincidence that other banks are also posting increasing NIMs. In our client NIM, it was 8.8%. It was 8.4% in December. The trend is that this will gradually get close to 9% by year-end.

We don't have an explicit target for that, but it is, though, a trend that we are observing in our analysis. It seems to be a trend of recovery. You asked about the sensitivity of our earnings to the interest rates. Here I'm going to focus on two aspects: market NII, because you mentioned that our market NII increased from €2.2 billion last year to between €701 billion this year. Higher interest rates do have a negative impact on our ALM. Next year, if the scenario is confirmed of a declining interest rate, we would normally see a recovery of this line item. Our chief economists at the desk expect the Selic rate to be at 11.75% by the end of next year. We have to do our best work internally and see if the scenario will be confirmed.

The second aspect about interest rates is the impact it has on the economy. That's what Marcelo mentioned, a gradual slowdown of the economy. What we expect in terms of economic slowdown is a gradual deceleration, more than we expected six months ago. The macro risks reduced in the last six months. High interest rates but showing a labor market that is very robust and a very gradual slowdown of the economy, which allows the banks to adjust their NIIs to face this. Deceleration, with a match being positive or neutral in terms of profitability for the system. Guido, let me add to that. That's a good question, actually. You asked about the expectations regarding NII and NIM. I answered that before. NIM, of course, we wanted to grow, but it is not the most important indicator. We have to continue to grow our NII.

That growth came from better liability management, reducing the cost of funding. It came from this stacking of portfolios that have a much higher risk-adjusted return. This is adding NII with longer maturities. I think that we have room to continue to grow. Yes, we have room to grow our NII with our client-credit operations. I'll take your question and speak about, because I spoke about the quality of the portfolio overall. Our rural loans are very much under control, auto loans very much under control. We have been renting more auto loans for new vehicles and heavy vehicles with a better credit quality. Delinquencies under control, overnight, the NPL under control. We see an opportunity. There is a positive RER for a part of used vehicles until a certain age of the vehicle.

We do have an expectation of growth, just like we see expectation of growth in private payroll loan. As long as it is well-adjusted and we can gain market share. I see an evolution of NII is very important. The efficiency ratio that we talked about in the previous question, we tend to grow. We are very convinced about the growth of our NII with good efficiency ratio and good quality of the portfolio. Okay, Guido, thank you very much.

Speaker 3

The next question comes from Enrique Navarro from Santander. Enrique, thank you. Thank you, André. Congratulations on the earnings. Congratulations, André, also for the communication. It's very good. It helps reduce volatility as well. My question. The second quarter showed that Bradesco is on the track to deliver the rate equity a bit higher than the cost of capital. Now I keep thinking about the next step, and taking back from Guido's question, if we have better market conditions, if SELIC begins to fall as of January 2026 and delinquency also under control, and when we look at Bradesco transformation, we will begin to see more tailwinds in 2026. What could be a possible number? What's the size of this expansion in terms of quality and profitability, which will naturally happen in 2026? Can we think about 17 or 18% ROE or ROI?

I mean, just a number we'd like to have so that the market can align if, I mean, what would be the structure of Bradesco ROI? Thank you, Navarro, for the question. As we've said, we do not promise what the ROI would be or what the ROE will be, but we will do everything in our reach to deliver higher profitability, higher net income, higher revenue, expense control, higher quality of the loan portfolio. We'll do that quarter after quarter, step by step, and that has not changed. We will keep our promise. Of course, we do have the expectation to be able to continue to evolve. If we would now go back to February 8, we expected the interest rate to be 13%. The cost of capital would be lower. We would already be delivering the right numbers now.

We don't promise anything about that, but I believe the balance sheet already has consistent results, as I mentioned earlier on. If you look at the operating result, I think it's the best snapshot we have looking at our balance sheet. Now, how much that will be? We expect to continue to grow with good deliveries, stacking our portfolios. There is something I didn't mention when I answered Guido's question, but I'll do it now. In addition to stacking our portfolios and controlling liabilities and having the right segments and good credit policies, when you have a segment where the delinquency, the expected delinquency is lower, you do face more competition in those segments. We launched a five-year plan only 18 months ago, so we still have a long time ahead of us to execute the plan.

What we want to do is to improve profitability quarter after quarter, step by step, continually. Now, talking about the ROE, the idea would be to come to the cost of capital. I mean, we have a double target. In the short term, the cost of capital. In the long run, we have to continue to work in the long run. That's why Marcelo said we will continue to invest in the bank transformation, because that will ensure competitiveness in the long term. If you want to calculate where we want to get, we have to continue to work to improve efficiency. 40% would be a good number, a good ambition. Let me add, Navarro, and tell you, I said the same thing in the interview with the media. We feel highly excited at everything we're doing at the bank. It's a straight line.

We just make dynamic adjustments, but we feel highly confident. A few deliveries are better, and then we make adjustments. I believe we have a lot of traction in the organization, high engagement, and all teams in the organization, all areas, and in all customer segments. Thanks for the question. Thank you, Navarro. The next question comes from Eduardo Rossmann from BTG. Rossmann, hello, good morning. I'd like to hear more about collateralized portfolios, especially those that are backed by the government, either by FGI, FGO, ProNAM, and other government programs. I'd like to understand the magnitude of this market, the size of this market. I mean, the impact on our AR has been good, but what about the future? Can we have an even higher return growing these portfolios, or are we going to have to find new ways to monetize these customers, or maybe have less cyclical effects?

I'd like to hear more about that from you. Thank you, Rossmann. Thanks for the question, and thank you for joining us. It's a pleasure to see you. My answer is that this portfolio, I mean, I don't know the exact number. Looking at all of these government programs, FGI, ProNAM, ProCred, I mean, this year, up until June, the amount released on the market is the same as we did in the full year 2024, the whole market. The volume has grown. Last year, we said we ranked second with 18.3% share. Now we've gained market share in this business. However, this portfolio has a risk-adjusted return only if you follow your models, because you have different models for different ranges, and also depending on the program providing collateral. André and the teams and even myself, we're always talking about this.

Obviously, when you do that, you are building a long-term relationship with customers. Then you begin to know these customers, and you have more fees from that customer, because that's a long-term customer. We're not doing just that. If you look at direct credit or personal credit, our margins are lower. Why? Because we do have restrictions. Who do we provide these loans to? We have a few people, high income, that will take, will accept personal loans. However, there will be a lower return, a lower rate. If I grow, if I increase the rate, I am not going to have this high-quality customer. We want to attract the best customers, customers that will pay on due date. Maybe the spread will be lower. When you look at personal credit or individual credit, the rates are usually very high. We're looking for a point of balance.

What you see here is also a reflection of the work done in different areas. For example, credit cards growing about 20%. The consortium is also bringing a lot of traction, fees and commissions. Again, we're doing real estate. Our growth with companies in the investment bank, growth in the distribution, generating business for our treasury desk. It is work done on all different fronts. If you look at the insurance group with all the distribution, because you have external channels, but also we still have our own internal channels. I see growth with diversification on different lines of business. As I mentioned earlier, another line of business that can be important for us, with a very interesting RAR and a higher spread, would be to increase our share in used vehicle loans.

Not all kinds of used cars, but I think we can have more participation in this market because the RAR is attractive. I believe it is this balance that will continue to bring growth with profitability to us and perpetual relationship with these customers, building long-term relationships as with mortgage or real estate financing, which is a relationship with individuals, but also with companies, even though the rate can be a bit lower. Thank you. Thank you, Rosman. The next question comes from Carlos Gomez-Lopez from HSBC. Carlos, good to see you.

Good to see you. Thank you very much. Thank you for, and again, congratulations on your next positive step. I think you have six, and these are typically 12-step programs. You have another six to go. I have two questions. The first one to Ivan, who has been there all along, and he's responsible for almost 40% of the company. The insurance business continues to do very well. I wanted to, but you imply lower growth for the next of the year. I wanted to ask you what the evolution is going to be in the second half, in particular in healthcare, which in my account has had very high profitability. How sustainable is that? What leads you to maintain the guidance for insurance? Second, could you define once again what your cost of equity is?

Speaker 0

I think Ivan is connected.

Speaker 3

Carlos, thank you very much for your question.

Carlos, thank you very much for your question. What I can tell you is that we are very optimistic. I just talked to the press. Very optimistic regarding the new guidance of the insurance group as a whole. Secondly, regarding healthcare, we have been seeing in Brazil a consolidation trend in the private health insurance segment. The number of MCOs, the regulatory challenges, they are all components of our interpretation of this consolidation. What we are seeing is that this market of private health insurance, we see it very positively, particularly with the basic needs for protection in this area by the Brazilian middle class, approximately 100 million people, people who need healthcare protection.

At the same time, we do not see anything very incremental, nothing very different in this segment of public healthcare, which leads us to believe that private health insurance will be the big solution for the Brazilian people. We have a positive look of the private health insurance and we intend to take part in this growth in the several phases of our chain of action. We operate with Bradesco Saúde and OdontoPrav, which ensure the lives of about 13 million beneficiaries. If we look at the two operations together, they benefit Brazilians with high-quality solutions all over Brazil. We also execute a robust program of investments, investing primarily in our network of hospitals through a recently created arm called Atlantica Hospitals. We have a very positive approach to this market. We will continue to invest in it, Carlos, and we see this market very positively.

I don't know if I answered your question, and I remain available if you need any further information. Yeah, I was going to say you have made about R$900 million in health every quarter in the last two quarters. Is that a sustainable level or is this a particular period and we should go back to something like the historical returns?

Speaker 0

Ivan, would you like to answer that?

Não temos como establish.

Of course, we cannot really give you any numbers at this point. In the first half of the year, our companies operating in the private health insurance segment published very robust earnings, and this is published in our results. For the second half of the year, we do envision some difficulties, but more related to the indexes. Of course, people will be using the healthcare services, and we will be prepared for that. The point of attention will be the financial indexes, because given the macroeconomics, they might change, either because of IPCA index or even the SELIC rate. These are points of attention. In structural and operational terms, reducing medical loss ratio and in terms of gaining new lives in the several regions of Brazil. Earlier today in the press conference, I mentioned the new health product that we have just launched in the region of Goiás.

We will follow through in Mato Grosso and Mato Grosso do Sul to bring a new understanding of private health insurance in the Midwest of Brazil. South and Southeast regions of Brazil are very well covered, and we are growing strongly in the Northeast region. The region close to Fortaleza gives us a lot of potential. More recently, we were in Minas Gerais state where we intend to increase private health insurance, bringing new clients, new customers, new lives to our portfolio. The trend in the next six months is to increase the net balance of lives under the scope of private health insurance, adding to this number of 13 million beneficiaries that I mentioned earlier. So regarding the cost of equity, Carlos, what we have observed is that cost of equity in the last 18 months has been oscillating between 14% and 16%, depending on market and economic conditions.

Our last survey with sell-side analysts indicated a median, estimated median by the analysts of 15.6%, already dropping a little vis-à-vis the previous survey. It seems that there is a trend for slight reduction looking forward. Of course, we don't control this number. We pursue this number, we monitor it, and we intend to capture that number as quickly as possible, preferably. Thank you for the questions. Next question from Bernardo Guttmann with XP Investimentos. Thank you, André. Good morning, everyone. Thank you for taking my questions and congrats on the improvement of the results of the bank. My question is about the business portfolio, which continues to grow significantly, with delinquencies still under control, even in a moment where we have seen clear signs of deterioration in this segment. How can you explain your more resilient performance?

Is it a more structural profile of the portfolio concentration in mid-size and large clients, greater guarantees, a lower exposure to subsidized lines, or is it linked to an active risk management that avoided a worsening? Looking forward, does the bank remain comfortable in maintaining this pace of expansion in the agribusiness portfolio? Thank you, Gutmann. Thank you for joining us. It's always a pleasure to have you on board. It's actually those three factors that you mentioned. It's all on the table. Of course, we have models to operate with certain ratings. Looking at some crops, for example, we have some traditional clients with us in the agribusiness. The bank has an important share of this sector. We're very active in several regions of Brazil, but it is what you also mentioned. There are crops that have a slightly higher risk. There are crops that have a positive margin.

They've had a positive margin over the years. I see the Brazilian agribusiness as centers of wealth. Of course, there are some exceptions, some sectoral exceptions or some exception companies, either geographically speaking or by crop. We do have an effective market share, and we have a dedicated team to analyze that. Those platforms that I mentioned in the presentation, Gutmann, with that specialized team, we have agronomists working together with our managers in the conversations with our clients to understand details about their farms, crops, and we have all the technological support to monitor. We have a credit team specialized in agribusiness and specialized in different crops, also supporting us. We have a group that analyzes periodically the risks, and this group helps the managers understand the risks. Yes, we are comfortable in expanding this, but expanding for what?

For certain crops for which we have a controlled expected loss. We intend to expand to companies that have acceptable ratings for us. Thirdly, and this is 100% of what we do in rural loans, all of them are secured loans. Most of them were the trusted. There are other guarantees. You might have stronger or weaker guarantees, yes, that happens, but we are very confident about what we see regarding our NPL. Another to highlight in the month of May, which was slightly greater deviation, but then it returned to the expected level, even with the John Deere Bank. And in year after year, we can see in the month of May, it increases a little bit and it drops again. There are some characteristics in the agribusiness that you have to know about.

Yes, we are comfortable to continue to expand, but considering our criteria, not business unit, we have a portfolio management group. We use AI-backed models to monitor together with our economic group to analyze expected loss. I'm not talking about past due loans, okay, Guttmann? I'm talking about the live portfolio. When we see signs of potential expected loss, we do active management. Operationally speaking, and actually on a daily basis, we see alert signs and we observe them for the whole set of companies, from small business to middle market. Thank you for the question. Thank you, Bernardo. Next question from Eduardo Nishio from Genial. Nishio, hello, good morning, good afternoon. Congratulations on your results. I have a question about strategy. If you could provide an update because a few things we can see, a few we don't see.

Now, in this quarter, you reduced, you further reduced the footprint. We can see some relevant numbers. 14% fewer branches. Only in this quarter, a 5% reduction in the number of branches. The overall footprint is down 23% year over year if we also add mini branches or points of sale. In addition to the footprint reduction, what other initiatives will we have that will release value in the next few months? Looking at the numbers, the guidance update, and other numbers, I can see you were a bit more optimistic in terms of the plan. Can you please let us know what is working well, what not? What can you tell us about that? Thank you. Yes, Nishio, it is true. We feel optimistic about the outlook for the bank. Of course, we remain cautious regarding the economy, but we do feel optimistic.

Maybe Cassiano could begin to answer, and I can add something else in the end. Hello, Nishio, it's a pleasure to see you. Yes, I think Marcelo spoke about that. You mentioned the footprint reduction, but I mean, what we're looking at is return and efficiency. Controlling expenses is part of the equation. We're always looking at the cost to serve, and that's really important. Again, productivity, you know that. We've improved using technology, and today Marcelo provided a few more details. That's one of the foundations of our plan. The massive use of GenAI, upskilling of the whole team, especially in technology, and the principal segment growing. We will have 40 new units and a significant number of new customers. Now, further penetration rate in terms of technology, the new app, and the internet banking services for companies. You know, all of these are important business levers.

The concentration of the liquidity optimization is again a very important element. We're also re-engineering our legal processes, and that's something we do every day as part of our daily activities, looking at labor lawsuits and other lawsuits. Also, the new concept of the digital mass market, so having the right resources for the right customers. We already have a number of customers, a few million customers served by the digital platform, and that is something we're growing. I mean, it's a profitable segment when you provide the correct level of service. These are the pillars. These are the fronts where we will be working in 2025, and you will see the evolution in many of these aspects, especially technology. We now have a quicker time to market. We've had a 94% efficiency improvement.

Marcelo mentioned that today we're doing four times more in technology than we used to do in 2023. These are the levers that will help us accelerate. The Bradesco culture has engaged all employees of the organization to do differently, to bring ideas, to bring new solutions so that we can continue to develop the bank. I believe this is our future. Let me also add, Cassiano, and tell you that what we have been doing, what we have been delivering can be seen in operating numbers. We have consistent operating numbers. He mentioned a few points that can help us release more value and continue to execute our plan. We'll close the year with more than 50 principal offices and about 400,000 customers, and that will grow even more. Also, our segment of companies will continue to grow, especially now that we have a new segmentation.

Small businesses will also grow. I spoke about our initiatives in the wholesale bank, including new cash services for large companies and also for SMEs. We have a large number of initiatives that have come out really strong with a lot of support of technology to improve productivity, always backed by GenAI. We will have more news, and we will be talking about that in the next meetings. Thank you. Thank you, Michio. The next question comes from Renato Meloni from Autoc. Good afternoon. Thank you for taking my questions. Congratulations on the results. First, about the payroll deductible loans for private companies. You said that in June and July, you would be able to begin to grow with this product, looking at the better collateral conditions. You also said that you would be growing also outside your customer base. Is that happening? Have the problems been solved?

I'd like to understand what we need to do to protect the customer base. Does that have any impact in terms of personal loans? If I may, talking about agribusiness, I think you have a clear intent to grow there. Although the moment is not really very favorable in terms of agribusiness loans, this is a winning industry. I'd like to understand about the capacity to grow agribusiness loans in the next few years. Thank you. Great. Thank you, Renato. Thank you for participating. I'm happy to see you here again. In terms of payroll deductible loans for private employees or employees in private companies, we prepared for that. Until we had the new regulation, the new rules for that, we had agreements with companies, and we would do the transaction directly with the company.

After the new regulations, we begin to use CTPS, not really using our channels, but you have to use CTPS to sign these loans. We had a lot of work to do to do the paperwork. I provided the loan, I disbursed the amount, and then I need the approval by the company, and then the funds are transferred from Kaiser to the bank and then to the customer. What we could see was that the process was not really well-oiled. We had two payments, as I mentioned, recently. The second was a bit better than the first one. Looking at the market, the delinquency was higher than 16%, which is very high for this type of loan. When we talk about protecting the customer base, we already have payroll deductible loans provided to the companies that are our customers, and we want to protect that business.

First, we did that according to our own criteria. The answer is yes, we will continue to grow. We will begin to accelerate, and now we will trend towards gaining more market share. Why? Because we are a market leader. If you look at the public sector payroll deductible loans plus private, plus FGTS, which are usually separate, I mean, if you look at all these three buckets, we are market leaders. We are ranking behind two public banks only. However, in payroll deductible loans and private companies, we do not have a big share because we only provided these loans to the clients that have their payroll with us. I believe we will now begin to grow because now we have the new regulation. I said the market had 16% delinquency. We had 5%, which is high for us. We will be able to solve that. Why?

Because we have a small customer base. We know the companies. We know the customers. That's my expectation. You asked a second question about agribusiness. Maybe André can answer. Yes, as Marcelo mentioned, agribusiness is one of the most vibrant industries in the economy. We see a favorable outlook for the second half of this year and for the next year as well. We also have good opportunities to grow our agribusiness portfolio. We just have to find the right customers, the right credit lines, and the right collaterals. Yes, of course, it is possible to grow our portfolio in agribusiness with the right crops, the right geographies, the right rates, the right loan rates, and the right collaterals according to our criteria. That's what we will do, Renato.

Always looking at our risk appetite and still continue to grow, doing good business with our customers, providing loans for equipment purchase, including John Deere transactions. Next question from Yuri Fernandes with JPMorgan. Thank you, André, Cassiano, Noronha. I'm another person congratulating you on good earnings. Most of the questions have been honest. To be more technical in my question, something regarding the DTAs. We considered the consumption of DTAs. There was an increase, a slight increase in DTAs. I'd like to understand why DTAs increased. Because look at the bank, everything is better. I know it depends on which unit generates credit. I understand that with 4966, something's changed, and you should stop generating so many DTAs. What happened in this quarter? What is the trajectory of use of these DTAs? Because it has an impact on your CET1, and it could be a good driver for market NII.

I'd like to understand a little bit about the DTAs. Thank you. It's good to see you again. I'd like to ask Cassiano to answer your question. Hi, Yuri. Good to see you. That's a simple answer. In this quarter, there was an increase in DTA related to the provision we made to neutralize gains coming from the comprehensive transaction program. That generated more DTAs. That was a one-off case, a specific case. The more we grow step by step, we will consume more DTA. There was no deviation. This has nothing to do with 4966 and nothing to do with credit origination itself. This is just due to PTI, the comprehensive transaction program, and the provisions we made for labor. The provisions for fiscal claims and labor claims.

Regarding the expectation of using the DTAs, in our report of economic and financial analysis, we present a scenario to consume the DTAs in the next 10 years, considering full IOC payment, growth of the loan book. We can see that the expectation is that there will be no capital consumption, in other words, there will be a taxable base to consume the DTAs. It's all in the report. Thank you, Yuri. The next question comes from Tito Labarta from Goldman Sachs. Tito. Hi, thanks, André. Hi, Marcelo, Cassiano, thank you for the call and taking my questions. Congratulations on the continued improvements in the quality of results. My question is, I guess, on your capital base, your quarter one, 11.1%. We did start to see shareholders' equities increasing a little bit, particularly as ROE is improving. You're paying around 60% payout.

I know you're maximizing interest on capital to take advantage of the tax rate. How do you think about your capital base? Would you want to increase that at some point, particularly as profitability should continue to improve from here? Where should we think is the sustainable quarter one? If we look at the midpoint of your guidance, you get net income 23, 24 billion reais, implies a dividend of maybe 13, 14 billion reais. Is that sort of the right assumption? Would that lead to, could you increase capital in that perspective, or should we stay around 11.1% or so? Thank you. In Q2, we had an index of 11.1%. In Q2, exactly the same as Q1, with an expectation of stability in this indicator until the end of the year.

In other words, everything we need to pay IOC to enjoy the benefit the most and grow the portfolio, we'll find funding sources internally, organically, based on our profit generation, stabilizing this indicator. This is a very adequate level in our opinion. We are above the minimum regulatory requirement and according to our internal requirements. We have a buffer to take advantage of all opportunities that arise without an evident capital restriction. As I mentioned in the previous question, in our report of economic and financial analysis, we consider a scenario in which we absorb our stock of DTAs without impacting our capital base. That is a very realistic and stable scenario for our capital base. Thank you. We now close the Q&A session. The questions that were not answered today, our investor relations team will answer them immediately after the meeting.

Before I hand the floor back to Marcelo to close the meeting, let me tell you on our investor relations website, we have the full presentation plus more details about our results. Marcelo, thank you, André. Thank you, Cassiano. Thank you all for joining us this morning. Thank you. All the analysts and investors who contributed with your questions. You can come and talk to us, the whole sell side and buy side if you have questions about our quarterly balance sheet. Thank you all very much. Have a great week. Thank you. Bye-bye.