Banco Bradesco - Q3 2024

Transcript

'Marcelo de Araújo Noronha' (CEO)

Good day, everyone. I am Marcelo Noronha, CEO of Bradesco. I am here to present the earnings of the third quarter of 2024. I'm speaking at Cidade de Deus. It's a little over 10:30 A.M., 10:31 A.M. It's a pleasure to be with you again. Thank you for joining us, and we'll speak about the balance sheet of the third quarter, and then I'll sit with my colleagues to answer some of the questions from our colleagues of the sales side. I'll start with the earnings of Q3 2024, which we received. We had a recurring net income of BRL 5.2 billion, growing almost 11% compared to the second quarter of 2024. In the past quarter, as a reminder, we grew more than 12% quarter on quarter, so we have been delivering what we committed to do. We don't promise things.

We deliver things, and we are growing step by step, consistently.

In here, we have a snapshot of everything we are going to present to you today during this video conference call. Our profitability is growing. It's a solid and safe profitability growth. Our NII evolves driven by client NII and reduction of loan loss provision expense. We'll speak more about that. Productivity gains with rising revenues, risk of credit risk controlled and the footprint adjustment, balanced credit portfolio growth, improving delinquency ratios, operating expenses evolving as expected, and the insurance group delivering an ROE that was very relevant, almost 24%, growing practically all the line, and we'll speak about the increase in Cielo as a result of the tender offer we had and with the closing in the month of September, so moving forward, let's speak about total revenue in the quarter: 30.6 billion BRL, and I'm always comparing quarter on quarter more than year on year.

So 3.7% quarter on quarter. And we wanted to break it down for you: fee and commission income. So we have three blocks here. Total net interest income growing 2.7% quarter on quarter. Fee and commission income growing 2.8%. And the insurance group, 8.7% growth. And we have this performance of growth comparing quarter on quarter. So increasing 3.7% in terms of total revenue. Our loan book, almost BRL 944 billion, again, growing 3.5% quarter on quarter. We bring you some data of average daily origination, loan granting through digital channels. But what matters is to show you the whole set. We're growing in all segments of clients. 7.6% in total, but in individuals, we're growing 10%. Large corporates, of course, it follows its natural trend, again, with a positive growth of 0.7%, and small and medium-sized enterprises up almost 17%.

I'll speak more about that momentarily when we speak about the loan book. First conclusion when we look at this is that we see big traction in the bank. We grew in practically 100% of the credit model that is in all segments of clients: individuals, large corporates, SMEs. Let's look at the whole macro picture because it gives us a lot of information. First, on individuals, growing 3.9% quarter on quarter. Let's look at the mix: payroll deductible loans. I think that the Brazilian central bank communicated their September statistics. We grew a little bit above the market, but please note that we grew 0.25% more than the market. We are growing in line with the market, perhaps with a little more traction. Let's see where we are growing. Payroll loans, we grew 2%. The market grew 1.9%.

We have an important portfolio, collateralized portfolio. The same goes to vehicle, 4%. Real estate finance, which brings a lot of client profitability and long-term relationship, up 3.3% and 11.2% year on year. This applies to rural loans with 16.5% growth. When we look at the whole mix, we are talking about growing loans to individuals but in very safe lines of credit with collaterals. In the case of credit card, quarter on quarter, we grew 2.2%. However, when we break down the portfolio and look at high-net-worth clients, we're growing 4.5%. When we speak about NII, you will note that in the case of credit card, it's losing share in our NII because the lower-income clients, they are more prone to pay in installment, paying interest and having more revolving credit. The high income is a transaction where they pay their statements fully every month.

So we gain based on interchange of fees and not based on intermediation fees. When I look at consumer credit, growing 5.9% quarter on quarter, when we look at this accounting line item, that's growth of personal loans with very high margins. But what I mean to say is that we are doing our homework so we can have a good quality of assets. What we are originating here is half of personal loans we are originating is with collaterals, guarantees. Secondly, the other half of this is personal loans to high-net-worth individuals. And only a small part is going to lower-income individuals with a slightly higher margin. And it requires more provisions, but overall, it is not going to change our curve of losses and delinquency. What does this mean? It means we're working with smaller spreads.

When I look at payroll deductible loans, the INSS loan, the spread we're working with is 30% lower than the spread we used to work with, with the NIM that we used to have before for INSS. That's why external channels fight hard to make new INSS operations more difficult because 100% of what we originated is sold through our own channels. So we have a much safer portfolio requiring much less provisions and with an NII growing, but growing steadily because we're working with better quality. With companies, we are growing 3.2% quarter on quarter. When we speak about micro and SMEs, we talk about a 5% increase. Please note that our big growth comes from the middle market, with companies earning more than 50 million BRL per annum.

They are the ones growing, but in the other segments, in retail, SMEs making between 3-50 million BRL, they're also growing. We're growing all of them, but we're growing even more in the middle market. Now let's look at the portfolio. Real estate, 5.5% with collaterals, guarantees, in foreign trade finance. We have a lot of traction with large companies and with the middle market, with a cost of risk that is very good. And the same applies to CDC and vehicle leasing, growing 2.3%. When we break down working capital, you will see the full income statement that we have securities with the bankers and working capital. So net of the large companies, and if we focus on the middle market and small businesses, these two segments, up to 3 million and 3-50 million BRL, what do we find?

For your information, number one, in some segments, our whole origination or 80% of origination is collateralized. Real guarantees, we can ensure good quality receivables with government programs such as ProCred, Pronampe, and FGI. Depending on these, we go to 4.8 million turnover year in the case of FGI with companies of up to 300 million BRL. So we're growing quite well here. So what is the decision? What was our decision in the beginning with all of the modeling? Our guiding star for decision-making regarding risk appetite and growth, it's called RAR, risk-adjusted return. We ran a lot of simulations in terms of growing working capital for small businesses, and we realized that even with a much higher rate, we had an RAR much higher, of 60% when we operate with FGI and Pronampe. This is what is guiding us.

NII is lower, but the level of cost of risk and provisions is much lower, and this gives us stability with this portfolio mix, and this gives us a peace of mind looking at the future, considering everything that we are doing. When we grant loans for working capital with Pronampe or FGI, the margin is 5%, 5.5%, perhaps one line with a slightly higher. But this is more geared to high, middle, and large companies than for SMEs. On the other hand, losses almost zero here, so we have good modeling, good models, good traction. This is what we've been doing, and I can tell you, Bradesco is one of the leaders in granting these types of loans in the Brazilian market. Now, talking about credit vintages, based on 100 average of 2019, this was our level of origination. I'm speaking about mass market individuals.

So we continue with a very good balance in our vintages, over 30 MOB, growing production, but based on those modalities I mentioned. Origination was very good in Q3, but always looking at the mix and the rating of clients. I remember that in the prior quarter, I mentioned this. In the case of individuals in 2019, we had 50%-51% individuals with a rating between A and B, 74%-75%, in addition to having this mix, and that's why delinquency is dropping, and we obviously need fewer provisions for these vintages, and this is what we're seeing in our cost of risk. Now, looking at mass market companies, I'm looking at SMEs, same base 100, 2019 average. We have very good vintages.

The past quarter, you asked about this, growing way below 100, but note with the borrowers that the level of origination is not so leveraged as it is with individuals. There are marked differences in the market. Individuals are growing, real income growing more than 6%. Level of unemployment in Brazil is 6.7%, but companies are different. And we want to operate safely with our portfolio mix. And we can see over 90 days delinquency reducing, requiring fewer provisions. So net interest income is zero. Let's look at credit cards. It used to have a share in the past year ago, 8%, dropping to 7.5%. That's what I mean. I'm working with a transaction with a better risk. We have been talking about this with our investor relations team, and our focus is on the NII net of provision based on risk-adjusted return, growing 6.8%, growing consistently.

And what we need to look at here is eight or nine. It depends on the mix. We have to know how much we'll deliver in terms of cost of provision to have the best combinations. Eight or nine, no problem. How much will it cost for us to deliver constant growth in our NII? That's when we look at RAR for our decision-making. And I can tell you, in payroll deductible loans, the level of RAR is good, it's high, with traction. But in the case of INSS loans, the spread is 30% lower compared to what we are originating now, compared to what used to be originated before the prices were controlled. RAR in working capital, again, it is a high RAR. Sometimes 60% in the programs with guarantees, then we get to credit indicators. All indicators dropping more.

Delinquency, of course, will start dropping at a lower pace, but we have stable coverage ratios and NPL creation as well. You can see on the screen our expenses with expanded loan loss provisions, of course, are dropping. We'll have fewer loan loss provisions in the new vintages because we have better quality vintages and met the portfolio mix. Of course, improved efficiency, not only with modeling, with our credit policies, portfolio management, and also improved efficiency in collection of our credit team. I'm speaking about fee and commission income. I'll speak about CLO. Here, we have the normalization of this consolidation. We closed the tender offer of CLO in September. Our fee and commission income, excluding this, was 2.8%, excluding decreased take in CLO, and 4.3% comparing nine months of 2024 with nine months of 2023.

And Cielo in this case did not bring us any quarterly gain. Actually, we had a negative consolidation. Our earnings would have been a little higher if we had not had the negative consolidation of Cielo. And I'm speaking directly about current income. A growth net of Cielo would be 0.3% quarter on quarter. Aqui tem uma comparação anual importante. But we have an important comparison when we look at high income, 15% against 1.5% year on year. I talked about the transactions. Well, this is what is moving us. And please note that we are growing practically all revenue streams, whatever the period you look at. And our drawing rotation to our recent increase of our AUM, increasing BRL 55 billion at Ágora. And in total, we'll have an AUM close to BRL 1 trillion.

This is reflected in an increase in fee and commissions income, growing 11% for asset management. Bradesco has had one very important award in the sector. Now, looking at our operating expenses, the same thing we said about CLO. When we normalize the consolidation of CLO, we're talking about a 2% growth quarter on quarter. In the 9 months, which is what goes into the guidance, 9.1%. But look at the red box here. If we look at personnel plus administrative expenses, our growth in the organization is 0.6% quarter on quarter, and in 9 months, 4.6%. So perfectly controlled. When we have a trend upwards in this indicator, we may have to take expenses, labor expenses, without considering the consolidation of CLO, the current business. However, we have been investing in Elo, Livelo, and the growth of operating expenses there has been a high two-digit.

Even Cielo is now investing in their transformation. If we exclude that, if we look at the banking business plus the insurance group, then the growth would not have been 8.4%, it would have been 7.2%, in line with our plan, even with the investment we've made. Now, it is also important to look at our footprint revision, another 415 transactions. We come to the third quarter. We had an expectation of 1,000 points of sale, 250 transformations. The number we delivered is higher, but we are still accelerating now in the fourth quarter of 2024, although our client base has grown. Now, additional 1.8 million clients. If we look at the insurance group, we had great performance. This level of growth in premium revenue, with a net income of BRL 2.4 billion and RAR of 23.7%, growth of 8.1% quarter on quarter.

And if we look at insurance operations, we had 8.7 quarter on quarter and 4.2 compared to the same period last year, the nine months. And look at the combined ratio, also coming down to 86.6%. You will have all of these figures in our presentation. Our Tier 1 Basel ratio, growing 0.1 quarter on quarter, now 12.7%, stable capital. This is what we're showing coming to our guidance. We've had the normalization of CLO in the mid column. And when we look at the expanded loan portfolio, we've announced earlier this year that we were in line with the guidance, and that's it. We're delivering as planned. When we look at net interest income and expanded loan loss provisions, and we always talk about these two indicators hand in hand, you can see the NII, which is important because it impacts our bottom line.

You look at our fee and commissions income, including and excluding CLO, operating expenses, and the income from insurance, where you have a combination with the baseline in the previous quarter. It was excluded from the guidance, but it is now included, and we will deliver the guidance as planned. Now, a few topics about the change of the bank. This is a balance of what we delivered in this quarter. We now have a new IT colleague. We have made progress in our culture. We conducted a survey with 74% response, a great level of engagement, and we're still growing. We have hired not only IT professionals, and of course, that increases operating expenses, but we've hired senior professionals who have joined our team at the bank. We invested in our business unit for credit, also in middle market, with eight units, eight new branches last quarter.

We've also invested in fixed income so that we have more resources to be able to meet the demand. We are also continuing our efforts in footprint adjustment. Two inorganic items are here. I told you we have completed Cielo tender offer, and that did not really impact our result. I mean, it had a slight negative impact. Our result could have been a little better. And the John Deere Bank acquisition had an approval by CADE. We were expecting the Brazilian central bank approval to close the deal this year. So, eight months after we launched the plan, we are now launching a new segment of clients for high net worth individuals, and I'll speak more about that. That's our expectation for the last quarter: more investment in digital channels. We will have more hires in technology. We will continue to review our footprint.

We will also expand SMEs in that segment between BRL 3 million and BRL 50 million a year. We are also accelerating our gains in cash management. As I mentioned last quarter about Bradesco Expresso, we delivered two platforms. We were going to do the rollout until the end of November, but yesterday we concluded the branch rollout, bringing a better experience to our service centers and also to all users of Bradesco Expresso. In the next quarter, I will bring more news about this. Now, coming to the conclusions, we have been able to grow profitability with a solid and safe position. Our top line is growing. We have traction in all segments and products, but focusing on the risk-adjusted return, the RAR, because that will determine our net income. We have a new segmentation for individuals. We will talk about that in our transformation efforts.

We are accelerating the execution of our plan. And now that's the reason why we're all wearing the red vest. This is Bradesco's color, but it's a brand new tone because we now have a new segment for high net worth individuals. It is here under the wealth management vertical, with a different value proposition for our high net worth individual clients. I will now show you a video. It's a three-minute video because we could not give you a longer presentation, but this video will be talking about the new segment. And the video is presented by the project leader, the person in charge of implementing the new segment, Andressa Augy. So let us now watch the video, and I will come here for the Q&A session we will have immediately after the video.

We also have our IR colleagues to talk to you, to talk to the buy side and to the sell side. So let's watch the video, and then we will be here with Cassiano and André to answer your questions. Thank you for being with us. Let us now look at our new segment. Thank you. Listening to our clients has made us build eight decades of a solid, one of the largest financial groups in the world, and one of the best market wealth managers. This close relationship with clients has inspired us to launch a new segment, a new proposal in our strategy of wealth management, considering different surveys, international benchmarks, extensive data analysis, and technology advance. We now have extended these resources to the whole organization.

With all of this information, we built a new value proposition with a new concept of service closer to clients: exclusive credit card, international full banking, connecting the excellence of our functions also in the United States, in addition to a unique experience and benefits to value our clients. This segment has high relevance for Bradesco, and now we want to improve our relationship and gain primacy among these clients, improving also our profitability, customer satisfaction, and the NPS. So now I will invite you to come and learn more about this new concept, new solutions, in a unique experience. Come and see our new segment for high net worth individuals. Para alguns, vermelho é a cor da sofisticação. Red is the color of sophistication. Para outros, é a cor da emoção. Some others believe red is the color of emotion. O vermelho é certo.

However, we know for certain that red é o que é principal. It has a highlight. It is different. Bem-vindo ao Bradesco. It brings focus to what is principal. Welcome to Bradesco Principal, the new Bradesco segment. If we must have time, you can count on your relationship officer and our new offices that provide services in extended working hours. If you're looking for performance, you now have the excellence of the best bank to invest, aligned to the expertise of our brokerage, coming and wealth planning to offer you a unique experience in a single place. If we want to be international, you now have a full experience also in the United States with your current account, U.S.-issued credit cards, and many more benefits.

If you are a person who travels, you will now have a credit card with points that will never expire in the main lounges at airports and a fast pass in Brazilian airports. This is the new segment, Bradesco Principal, the same Bradesco you already know, but at a higher level of sophistication you cannot even imagine. Muito bem, pessoal. Está aqui a novidade, né?

That's great. So this was the summary of our new segment. Eu tenho certeza para vocês da gente que estamos muito orgulhoso. I must tell you we feel great pride in this segment. No lançamento, a gente tem network to launch the new segment. Temos três flagships, three flagships, which you can actually see in the library. One will be here on Faria Lima and Juscelino Kubitschek, and another one in Rio in the neighborhood of Leblon.

A partir de amanhã, we're going to be in Campinas. As of tomorrow, our team will be there. They have been trained, and we will begin to invite our clients to enjoy this new experience. By late January 2025, we will have between 45,000 and 50,000 clients in the new segment, which we will continue to expand until 2026. We will also have geographical expansion throughout Brazil in the main locations that have been selected for this new segment for high net worth individuals, with a new value proposition for these clients. I believe we will have more opportunity to talk about that in the future with you. Now, André, over to you.

Thank you, Marcelo. Thank you, Cassiano. It's a pleasure to be here with you. Good morning, everyone.

Moderator (participant)

I'd like to tell you that Ivan Gontijo, CEO of our insurance group, is here with us today remotely. He is with us online. You can ask your questions either in Portuguese or English. You just have to send your questions by email to [email protected], or you can use this WhatsApp number, 1197-443-8238, or you can use this QR code. The first question comes from Eduardo Rossmann from BTG. Rossmann, please. Oi, bom dia. Hello, good morning, everyone. Eu tenho uma pergunta. I have a question. Desculpa, minha câmera, eu tive probleminha. I apologize, my camera is not working, so I only have the picture today. Minha pergunta é sobre uma questão de crédito. About the loan portfolio growth. E a gente tem falado muito sobre isso. A gente está reabrindo a porta do cliente, the doors of the bank, for clients looking for loans.

'Marcelo de Araújo Noronha' (CEO)

Eu tenho uma perda de Principal. We will try and recover, olhando para o cenário of market share and the loss of Principal with these clients. But when we look at the loan portfolio, the profitability is lower, not only in corporate but also in payroll deducted loans. Even Noronha spoke about that in his presentation. I'd like to hear from you about growth and the prospect of growth. What is your number one concern? If inflation and unemployment were maybe the price, you would have to be more prudent with that. I'd like to understand the speed of this recovery. Thank you, Rossmann, for the question. It is a deep question, and it certainly relates back to what I said. Yes, we are conducting this movement based on data. We want to have the right mix and the right ratings. Because let's think about it.

Think about an individual who went through financial stress in the last three years. Have they recovered completely? They may have a job. The real individual income is growing more than 6% a year. But have these people truly been able to pay back their liabilities? Well, if you look at banks and banks' models, you will see many of them have not. So we do not want to play the game of financial stress. We want to have a safe portfolio with the right risk-adjusted return, because that has an impact on the bottom line. So, for example, you say, well, I had an expectation of a higher NII. Oh, well, some time ago, we prepared a new plan, a 60-day plan. We conducted, we've executed the plan, and we were looking at a certain level of risk.

I mean, we have a very high penetration in all client segments. Otherwise, we wouldn't have so much traction as we do. As we build this new business unit and with the integrated software conducted plan, have we seen? Well, we realized that if we could use FGI and Pronampe more, we would have a much better risk-adjusted evolution, because although the NII can be lower, you need less provisions. And so that is a more attractive line of business for us. If you look at a ranking de garantia na Pronampe e também no ProCred, que começaram agora, você vai ver que o Bradesco you will see that Bradesco has a great traction and we will continue to have a very attractive risk-adjusted return. So looking at our channels, we're always looking for the best RAR. Because that's the name of the game.

We may not have a quick growth of NII, but we have a significant entrega a provisão. E você está dizendo, pô, você está maluco. Agora, não se surpreenda. Of our net income. A nossa chamada de provisão our provision is now lower porque a qualidade do risco que o cliente está trazendo é muito superior, e a qualidade do nosso mix é muito superior. And also the mix has a much better quality. And when we look at the current economic scenario temos uma estratégia aqui que a gente está muito seguro de ter. And looking at our strategy, we feel very confident about what we have been doing. I just had a meeting with journalists, and one of the journalists asked about the economic scenario. He said, well, the economic scenario has worsened. What does that mean? What do we mean by a worsened economic scenario?

A gente tem cenário que, se a gente olhar para o cenário atual, we may have a deterioration, but I think this is less probable. This is less probable than the second option. AB9 as well, we are not related to the group, so we may have a change in the exchange rate. Yes, we may. And inflation will certainly grow. Isso é cenário que vai grow faster. But this would be a more stressed scenario, but I don't really believe in it. Let's wait for the new measures to be taken by the finance minister, Minister Haddad, because yesterday we had important statements, and we will have more expenses, which means that we will need more expense control. And we believe this is good news. However, what do I view as the most probable scenario? Interest rates growing up until 13%, maybe closing the year at 11.75%.

The unemployment in Brazil is currently 6.7%. However, there are regional variations. For example, São Paulo has a higher unemployment, and also Center West that has 5.2% unemployment rate. You see, so we have regional differences in Brazil.

Moderator (participant)

The GDP will be growing 3% this year, inflation about 4.5%. If this is the scenario we expect, well, what will we have next year? Real income is growing this year 6.3% with this level of unemployment. If we project this scenario towards the future, Rossmann, what will we see? I mean, I'm sharing more information with you using your question, Rossmann. You will see the GDP will probably grow slower, about 2% to 0.1%, but there will be growth. The expected unemployment level will not be very different from 8%. The conclusion, I'll come to the conclusion in a minute. What about the real income?

'Marcelo de Araújo Noronha' (CEO)

It may grow between 2% and 2.5% next year, so look here, the market for individuals will possibly be good. We have great traction. That's what we want, because this is risk we consider good. We actively participated in the auction of the INSS because we want to have a clear strategy to operate in this line of business, so we will continue to monitor this scenario. If we had a financial stress, we feel safe because of our current mix and individuals, but what we are truly looking at is the risk-adjusted return. This is what really moves the needle. Now, looking at the company clients, because of these programs that provide collaterals and because of the specific credit lines we're offering, we feel confident about what we've been doing, and we're growing and cross-selling. We are attracting new clients. We are attracting companies' payroll.

So my answer to that journalist was, what is the scenario? Will it deteriorate? But what does it mean? It means this, but is this probable? Well, it depends. And depending on what happens, we'll make a decision. I fear for the country. Nobody wants to see high unemployment. Nobody wants to see the economy growing slower. We don't want financial stress. So I hope the most probable scenario will materialize. And it's not bad. It's not a bad scenario at all for our country. And also, it's not bad for our business, because the next question is, and what will happen to me? Maybe for different industries, you will have different consequences. But for us here, we are very much aware of the current scenario. We see a good correlation in terms of interest rate increase. We continue to monitor our risk models and also NPL.

However, we have two important variables here, especially one, which is when the population loses income. And how may that happen? Well, if you have a very high inflation, if you look at the current inflation, that would be the price of beef today. But the other price is needing to be under control. And the other issue would be if the unemployment rate soars, because that would end up reducing individuals' income. But this is what we project. I believe we will have a controlled expected loss and lower provisions for the new vintages and a growing NII. We will be growing in fee and commission income. We will be also growing in the insurance group. That's where we place our expectations. I'm sorry for such a long answer. I just wanted to add more information about the current economic scenario.

Moderator (participant)

Thank you, Marcelo and Rossmann.

Positive macro scenario, portfolio growth, and client NII growing looking forward. Next question from Renato Meloni with Autonomous. Hi, Renato. Tudo bom, gente? Bom dia. Obrigado pelas respostas às perguntas. Thank you for taking my questions. Eu gostaria de entender um pouco a dinâmica de cliente e a NII and the provision, because in your presentation it seems clear that there is some difficulty in going back to accelerating growth and mass retail, both for SMEs and individuals. You justify that with a cost of risk. Are there other challenges? For example, regaining priority of these clients? And the second part of the question is, how important is the change of bank strategy depending on this acceleration? And will you have to review the plans for next year? Thank you for the question, but let me clarify. Perhaps I was not clear.

'Marcelo de Araújo Noronha' (CEO)

We are not decelerating the mass market, neither in SMEs. Let me give you some data. There is a public ranking. Do access if you're curious. Isso é o Pronampe. That's Pronampe. Vê qual é o banco. Pronampe ranking. E digo que o primeiro banco é o ranking first or second in distribution to SMEs. We're talking about companies making less money. E a quantidade de base de clientes. And the client base. E a principalidade. So we have leadership. We are leaders in small businesses. Vamos acelerar as coisas. We accelerate and we'll be there in ranking. And if you access that ranking. E a quantidade de operações para o Bradesco. The most operations happen within 40 days. So I want to be transparent. I don't want to mention competitors. O Banco do Brasil, that's fighting for the number one position with us.

We have client profitability. We are growing. We are growing with clients with a good rating. With a loan that will ensure constant and perennial growth. Changing the bank helps in our growth strategy, because we will deliver a number of better initiatives for our organization. It will make our organization more competitive. One of them is the new segment, the principal segment that we were calling the affluent one, and the Credit BU, which is super important for us, with a number of quick wins. Then later, Renato, in a future opportunity, we can explore this in more detail. The SME segments with 122 branches increased to 150. That increased markedly our penetration and quality of risk. Our portfolio management quality improved. You will remember that in the credit business unit, we created a new unit of portfolio management.

They have delivered more risk to us with a prediction of the slowdown in the middle market with companies with a turnover up to R$300 million. So we have very important deliveries in portfolio management. And in our time frame for approval of loans in the wholesale bank, it dropped by 40% for our group. So we have good traction in large corporates, the middle market, SMEs, and also individuals. But I want, together with my team, to grant high-quality credit and deliver perennial deliveries. And I don't want to have a good margin and then have a trough of picking a trough. And also our cost management is under control. We are reducing the footprint. And we are managing our personnel and administrative expenses, which are very much under control. And our cost to serve is under control for the whole organization, also in terms of internal processes.

Another interesting element to mention is that the ProCred program was launched, providing collateral for micro companies, micro enterprises in October. Very few banks started operating with this. Bradesco was the first one. You can do it all via our app. We have good traction right now, but we are now going to deliver an NII that will peak and then get to a trough. Let me add to that, Marcelo. There are two slides in the presentation that Marcelo just made showing the new credit vintages. The first slide shows our origination in mass retail individuals and then mass market for companies. We show significant growth in both in Q3 against Q2, even stronger performance in mass market individuals.

So we don't see any difficulties in growing these two segments, but we are growing carefully because we will get a long run. We want to continue to grow quarter after quarter.

Moderator (participant)

Thank you, Renato. Next question by Iuri Fernandes with JPMorgan. Good morning to all. I'd like to have an update in ROE converting to cost of capital. We get that question almost every call. I'd like to get an update from you. Last time this was asked, I think that your answer was that this was going to be a gradual process, that it was doing slightly better than expected, but that it would be aligned with one last provision and then improvement of the top line and NII. But I'd like to focus on the cost of capital, because in Brazil we have a higher cost of capital.

'Marcelo de Araújo Noronha' (CEO)

So my question for 2026, are we going to see a higher ROE or will the growth be delayed? Because the ROE is improving, but Q3, as you can see, is improving in Brazil. So how to balance these two? Thank you for the question. You always mention that. That's our mission. And independently of what you think, regardless of the cost of capital being a little higher or not, we will do it. And our expectation is to deliver better returns quarter after quarter and growing absolute results. This is our expectation. And growing more footprint. And with the reduction in footprint, we had a reduction in our headcount. But we also hired for the credit business unit and for technology, people with greater seniority. And we have to pay them four or five times more. And that will hit the operating expenses.

But still, that's where we are going. We will pursue this balance. And Iuri, what matters is that we pursue this with quality. This gives us some predictability and gives some predictability for the market. Cassiano, do you want to add? No, not really. I think you said it all. We continue to do strong work in all of the initiatives you mentioned. And we have spoken with Iuri about that. The matter is how much more we want to bring this forward. We'll be working for it, but we have to continue to continue with change to the bank and the transformation process led by Marcelo and under my responsibility. The outcome of that will be a solid bank as we have always been, more and more profitable every quarter, and with clear consistency in how to serve our clients, how they want, so we can get their loyalty.

And improving our competitiveness in all segments. That's very important, because that's all the transformation is about.

Moderator (participant)

Thank you. Thank you, Iuri. The next question comes from Tiago Batista from UBS BB. Tiago, please. Oi, pessoal. Hello. Hello, everyone. Good morning. My question is about investment in technology. It seems like the bank is investing more in technology to close the gap compared to peers. How much can these processes become easier now with artificial intelligence? How will that help close the gap? And if you do this now, I mean, is it easier to do it now than it would have been a few years ago? And also a follow-up about the basic interest rate. You spoke about 13% or around 13% next year. What would be the impact if the basic interest rate really confirms at this level? What would be the impact in a few years?

'Marcelo de Araújo Noronha' (CEO)

Oh, well, thank you, Tiago, for participating. Thank you for your question. It's a pleasure to have you with us. About technology, we do not see a technology gap. Our diagnosis shows we have an opportunity to increase significantly our productivity, because we have more third parties than our own employees, and that changes our productivity. We also want to have a more senior team, and then we want to roll out this initiative to the whole organization using our enterprise agility. We're more restricted now. So we are investing in line with the other players on the market. Sometimes we press the gas pedal a little bit more, but the fact is that artificial intelligence has been with us for some time now. BIA, BIA has evolved. It's now moving into GenAI, but BIA has been with us for quite some time.

We have been using artificial intelligence, machine learning to develop models in our business units, but we're using that very strongly also in our pricing efforts, regardless of the value proposition we have in each business unit. So we do have a lot of use of artificial intelligence, even in pricing, so that we can price the micro clusters, even at coming down to the client level. And that will support our digital channels, which we call business experience. So we continue to work hard on this and also on other fronts. If you think about technology development using GenAI, we are also using that in our daily work, and that will expand even further. However, we want to translate that into a better experience for clients and operating efficiency gains. About the interest rate, maybe you'd like to answer.

I believe the interest rate curve is still under stress. We'll have to wait and see. However, at first sight, I believe the effect is neutral. I mean, from our point of view and looking at 2025, there will be higher floating gains, but then I will have perhaps a lower result in asset and liability management. So even if it is at this level of 13%, I do not see a great impact. But of course, there will be other consequences. I mean, if we have such a high interest rate, the inflation will be different, and then we will have a different scenario altogether. Yes, let us wait for the U.S. elections, which will also have an influence on this, on the foreign exchange rate and other variables on the Brazilian market. But thank you, Tiago, for the question. Thank you, Tiago.

Moderator (participant)

And Vaz from Safra, do you have a question? Thank you, André. Good morning, Noronha. Good morning, Cassiano. Noronha, as I was listening to your presentation, we believe you were focusing on risk-adjusted return and also on the mass market with collateralized credit lines. But if you think about other lines, I mean, how was the result of the testing you did in the last few months? What was the return you had in the vintages that you tried, and then you stepped back, and now you are advancing in collateralized lines? Because if we think about fintechs, many of them are providing clean loans without collaterals. And so can you tell us more about this market where you played or did not play in the last three to six months?

'Marcelo de Araújo Noronha' (CEO)

Thank you, Daniel, for the question.

I can tell you that we always look at the risk-adjusted return, even at the wholesale bank. If you talk to any one of our regional managers, they will say, "I have a dynamic curve of the risk-adjusted return for every client," and that's omnichannel. The officers can have that information on the mobile phone, on the tablet, and they also have a risk-adjusted return simulator. So you can work on the margin only if you have the right level of risk-adjusted return, because that is the target that our officers have to meet, and if we look at small businesses, individuals, and even high net worth individuals, when we do pricing, when we look at the price of risk, we always consider that in every opportunity we have.

In SMEs, we may have an RAR as high as 60%, but when we had clean loans, you could never reach such a high RAR. We were at the lower quartile. However, yes, we do provide clean loans in some selected clusters. Remember, we are a large payroll payer for four companies, and so I know our clients' cash flow. We also provide payroll deductible loans, and then you can have other types of relationships that come out of these transactions. So we do have clean loans, but only for very good credit-rating clients. And obviously, we always work within a certain range of expected losses compared to the price that is the margin provided by each client. And when we provide clean loans, that is the case. However, we have to be realistic, Daniel.

Individuals of lower income who had delinquency issues in the past, have they fully recovered? Have they been able to repay all of their liabilities? Do they have a higher risk? I mean, we conduct a battery of tests. We are testing all the time. And I'll tell you, Brazil is a blue ocean. There is risk everywhere you look, so you have to take care of your own portfolio. Of course, I respect the strategy of other players, but we feel very confident about what we've been doing to deliver results that can be sustainable. We do provide clean loans. However, that cannot hurt our results. I mean, unless you have a specific situation, a very large company, but it's not the case. And thank you for the question, Daniel. And please continue to observe. We work case by case.

Moderator (participant)

Next question from Mario Pierry with Bank of America.

Bom dia, pessoal. Obrigado aí pela oportunidade. Good morning, everyone. Thank you for the opportunity. But the focus on the insurance group. 45% of the earnings coming from insurance, and we see increased profit in health insurance. The nine months growing 66% year on year, so Noronha, I'd like to understand what are the drivers here? Can you maintain this level of growth next year? Also in the insurance business? The P&C profit grew 76% quarter on quarter. I imagine that this might have been some effect of the state of Rio Grande do Sul and everything that happened there. Perhaps you could explain the P&C phenomenon. I'd like to invite our colleague Ivan to answer your questions. Ivan? Thank you, Marcelo. I'd like to thank Mário for the question.

'Marcelo de Araújo Noronha' (CEO)

The crescimento do segurador, if you look at the line items, in all of the revenue streams or companies, products, and segments, savings bonds, health, pension, growing very in a robust way, and P&C, as you well observed. In the combined ratios, we can see a substantial improvement in this quarter in all line items, in all companies, in terms of the claims ratio. Of course, that gives us more robust results, as well, as we improved the operational part of the business, and that's why Marcelo mentioned that our results had two-thirds coming from the operational part and one-third from the financial. To answer your question about health insurance, we started adopting some practices over the year that started reaping the fruits now in Q3.

But these are things that have been implemented since the start of the year, with some adjustments made regarding some excessive use of the health plans and also tackling fraud. And of course, that led to a decrease in claims ratio, providing a better operating result. Prospectively, to answer your question, we are comfortable. We'll continue to do this work, which I insist we started at the beginning of the year, and the results are only showing now. But this improvement should continue in the next quarter. Regarding P&C, that's a business that has been growing with an ROE which is extremely solid, showing the robustness of the business, and the transactions in terms of growth. And the growth that you probably have to compare with the second quarter. So we have to compare Q3 to Q2. And Q3 and Q2 show events related to the South of Brazil.

Those events were observed in the balance sheet of Q2 with comfort, and now, in Q3, with all of these events in the South, we were able to grow the P&C business with more comfort, lower claims ratio, and with a commercialization and administrative ratios which were extremely positive. This is how we can explain this positive result for both of the companies that you mentioned. Excellent, Mário. Thank you for the question. I can add, saying that we have good traction in all segments of clients, and distribution at the bank is very strong also for the insurance business. Thank you. Thank you, Mário. Thank you, Ivan.

Moderator (participant)

Thank you, Mário. Thank you, Ivan. Next question from Pedro Leduc with Itaú BBA. Bom dia a todos. Obrigado pela pergunta. E ela vai na diretiva, né? Da renda bruta e líquida também.

O ano vai se concretizando igual vocês planejaram lá em fevereiro. The first of all, we are spending in February. The first stage of ROE recovery came from loss provision. We got that and then grow in the portfolio. You're getting there too. The next would be NII, and that's starting. And finally, SG&A in the future. So Noronha, I'd like to get your take on this. If this sequence to improve ROE first, loss provision, then portfolio, then NII, if this is still going right, now that you have the new vintages, you have pricing, and you have funding, and gross NII, I think can be increased in the next 12 months. Obrigado, Pedro. Obrigado pela tua pergunta. Obrigado pela tua resposta. Eu acho que sim, a gente pode seguir nesse trend aqui.

'Marcelo de Araújo Noronha' (CEO)

I think that we can continue in the trend that you mentioned and that you mentioned so well. E a NII, ela vai depender exatamente desse cenário? Will grow depending on the scenario that we mentioned. The portfolio mix. But you can promise. I don't like to promise. I like to deliver. And I've been saying this for an hour. But you have in mind? Se a gente entregar uma NII, eu falei 8%, 8%, 9%. Let's talk about 8%, 9%. It doesn't matter. High or low. If we deliver this with an adequate cost provision, this is what we need to do. Because that's our NII net of provision. And that's why we use the risk-adjusted return. We'll continue to grow NII, the NII behavior will depend on the mix.

Because if I can originate more payroll deductible loan, the INSS deductible loan, well, it lost share, but it is good. It gives me RAR for our channels. That's what I'm saying. That commercialization cost. Se eu puder produzir mais, eu vou produzir mais. Ele pode trazer mais. And this will bring us some more lower NII than other lines, but it will bring us more NII. Então essa promessa que continua aqui, a nossa expectativa é exatamente a crescimento do nosso NII ao longo do tempo e a entrega de ROE cada vez mais consistente. Eu acho que isso também é a própria parte da margem de passivo. Not forget the liability NII, it's part of this NII and the work that we're doing with SMEs e todo esse trabalho.

Ou seja, a nossa principal alavanca de buscar essa rentabilidade maior vai ser com o nosso NII, porque a gente vai ter grande potencial de crescimento de negócios. So it's a mix of things. Esse trend que está muito bem colocado vai fazer a gente fazer esse próximo passo aqui, and this will allow us to take the next stride in 2025. Thank you for the question, Pedro. Gancho aqui. Posso pegar gancho no que o Marcelo falou? Da margem de passivo, eu queria entender o ALM da carteira atual. Vocês têm portfólio mais, principalmente a carteira PF, né? De maneira que se tiver uma alta daqui, ele não vai machucar tanto o estoque da carteira atual. Como é que está essa prática do ALM ali agora? Não tem uma mudança. Ele não tem uma mudança grande, mas ele está mais neutro do que a gente vinha trabalhando.

Por isso que eu disse na pergunta anterior que ele tem mais uma neutralidade. Quando eu olho não só a carteira vis-à-vis a curva prospectiva, como também o nosso fundo de capital próprio. Está mais neutro do que o que tradicionalmente foi. Está mais neutro do que a gente esperava. Não mudou, não se reduziu, né? A gente está olhando o risco, né? We do not have more hedging, but we're monitoring the risk. Você tem a oportunidade de capturar patrimônio pelo patrimônio, que o Marcelo comentou também. You have gains on the liabilities side. No mercado onde tem vol, né? Também você tem oportunidades. And you have volatility on the market, you also have opportunities in the trading portfolio and also in other businesses. So our policy of not doing hedging continues. However, we have also reduced the risk using other levers. Perfect, thank you. Thanks for the question.

Moderator (participant)

The next question is from Eduardo Nishio from Genial. Nichio? Bom dia. Hello. Good morning. Thanks for this opportunity. Bom dia, Noronha. André, cá está o André. Eu queria fazer gancho na pergunta do Leduc sobre o plano de transformação que vocês têm na parte de transformação. Vocês fizeram muitas mudanças aí. I've kept up with a number of changes. Catch-up com vocês é onde vocês estão no novo plano de recompensação de executivos como na Danilo. New compensation plan. Queria entender pouquinho mais sobre o branch level. I'd like to understand, you know, the number of branches if that will continue to change. I think you had 5,300 branches in 2016 and now 2,300. So you've had a dramatic reduction in the number of branches. Also about digital banking, if you could provide an update about the future of your digital banking and also the rollout of new platforms.

'Marcelo de Araújo Noronha' (CEO)

You have just rolled out a platform for individuals, and what are your plans for the next quarters? Now, my second question is about delinquency and loan loss provisions. Delinquency seems to be quite well behaved, coming down quarter after quarter, but do you view, I mean, do you expect to go back at the same level before the pandemic? Will that happen? Agora, com a concentração agora? Now that we see na própria pandemia, obrigado. A different situation in terms of credit. Em relação ao total, Nichio, about loan loss provisions, as I said, ratings, melhores, we are attracting better ratings. A tendência da gente é continuar a safe for me and so we will continue to see delinquency coming down. Que deve estar controlado, né? This is something we believe we will be able to control.

Unless, I mean, we have a surprise coming from large corporations, which we don't really expect. E até mudar de patrão, so I believe it may go back to the previous levels. Em relação à remuneração, a gente vê que é o primeiro semestre que a gente vê. This is the first six months when our compensation. Tem uma avaliação individual de cada, tem as ponderações do que é corporação. Of course, we have different ways. It's the level of responsibility of each executive is considered. Então, naturalmente contemplados e incentivados pelo que entrega. Isso também mora em uma motivação. A gente chama de motivação do que a gente entrega. This is what we see in the executive motivation because we also have the engagement of our team. Então, a gente vai ver isso quando a gente finalizar o ano, and we will see that at year-end.

Our compensation plan at all levels, you know, both at the branches and hands of executives, each person is being evaluated according to the deliveries. I will now hand it over to André and Marcelo because they will speak about our footprint. Mas aumentar a gente volta com as respostas que a gente está trabalhando para vocês. I can't provide an answer to you because we have been working with Túlio. Túlio has just joined the company. Ele came from the market. He will be responsible for a few products and the digital mass segment. So we have been working. We will soon be able to provide more information. Eu acho que com o André depois também temos que falar da PAB. I will begin talking about the branches. Oh, yes, I'd like to add. Você falou do número de agentes.

is focused on the number of branches, but we don't really look at branches alone. We look also at our service centers because these are branches. Mas são unidades de negócio do mesmo jeito. They are business units. I mean, although they may have a different size, they're still business units. E acho que é mais importante. At the level of 5,000 points of service. Temos uma evolução importante. We did see an evolution in the cost to serve. Mas acho que é mais importante. 1,041 points of sale is a big number. Mas a gente tem uma avaliação não só qualitativa. We have not only a qualitative and quantitative analysis, but we also look at the behavior of clients. Também da rede de agências.

We also have our ears at the branch level to look at the behavior of clients, to see if we have any kind of attrition and how our Bradesco Expresso is serving clients in each region. We analyze all of these points. Actually, for us to participate in the INSS auction, we had to provide this data. And we've been testing new models. Bradesco Expresso has gained priority. Marcelo spoke about how the platforms of Bradesco Expresso have improved. So that's part of the vertical channel of client service, even non-account holders. So we continue to monitor, and we still have adjustments to make to improve our cost to serve in the mass market. So I believe we are in a comfortable position to attract the best profitability for the mass market. Eu também. Would you like to speak about the loan loss provision?

When we look at our points of sale, we are advancing at a quick speed, and we have actually anticipated future adjustments in 2024 and 2025. We have temporary expenses to conduct the adjustment. However, this will not be present in our operating expenses. The impact will be seen as of 2026. Right? We are still in a vicious circle because the virtuous circle will begin in 2026, right, when we will have our efficiency level closer to the target of 40%. But it's interesting to say that. Então está dentro do planejamento estratégico. Our plan is being executed. I mean, do we have perfect numbers? Not yet, but we will see a great impact as of 2026. Now, about loan loss provisions, we're always based on credit risk.

As Marcelo said, we now have a vintage of higher quality, so we have lower needs for loan loss provisions. Every time we have a new portfolio, we calculate a new loan loss provision. The credit risk has come down to 3% now, which is very close to what we consider normal. It may even go up slightly, but still controlled. So we see a portfolio expansion with controlled credit risk so that we will have a better NII. And that is what truly moves the needle at the bottom line. And this is what Marcelo said. Thank you, Nichio, for your questions.

Moderator (participant)

The next question comes from Tito Labarta from Goldman Sachs. Tito, the floor is yours.

Tito Labarta (Senior Equity Analyst)

Okay. Good morning, everyone. Thank you for the call and taking my question. I have two brief questions, hopefully, if I can.

Just first, on your deposit growth, we saw a nice pickup on your demand deposits, but savings and time were down a bit on the quarter and still haven't really grown much on a year-over-year basis. Just to understand the drivers of the deposit growth in the demand savings and time, is competition impacting that at all, or what's the driver behind that and the somewhat muted growth overall? And then the second question was on your fee income because we saw, you know, good growth in asset management, up 11% on the quarter, even though the investment funds and managed portfolios didn't grow as fast. And also the loan fees were up 9% on the quarter. Loan growth was good, but didn't grow that fast. So just to understand the drivers of those two fee income lines, if you can. Thank you.

'Marcelo de Araújo Noronha' (CEO)

André, o que você perguntou de depósito à vista? That was right. Tito was asking about the demand deposits. Cresceu, mas a gente tem algumas combinações aqui, né? Porque para ser. We can look at it in different combinations, you know, because with some clients we even é bom para a gente aqui because it's good for us to have these demand deposits. So this number is growing. We can provide further information to you after the call. We can provide more details on this, but we are growing in demand deposit. We have a good level of traction in terms of our relationship with these clients. Now, savings accounts, I mean, it is only natural. This is something very Brazilian, and it is, in fact, a challenge for the real estate market. So, but we feel very comfortable vis-à-vis the competition. We have shown we are competitive.

Otherwise, we would not be growing on these lines. But yes, we have things coming out of one line and into another line. But we are looking at all of this, trying to do better every day, delivering a frictionless experience to clients, be them micro companies, high net worth individuals, different lines using different channels. We're always looking at providing the best possible experience. And let me open for you to add. Yes, if I could add, Marcelo, I think it is important to say that. I mean, even Tito spoke about competition, demand deposit and savings account. You always have market competition. That's clear. I mean, looking for attracting clients using FGC and brokerage firms and investment companies are also doing that. And there's a high demand for CDB, certificates of deposit. But I can talk to you, Tito, about our demand deposits.

Demand deposits and savings account, although they are growing slightly, that is always connected to the principal of the relationship. You know, when we open an account, we continue to grow 1.8 million accounts, even though we have adjusted our footprint. The other element is improving our cash, the insertion, the introduction of our cash management. We now have client centricity in all of these lines. We have a positive number in demand deposit, and we also have new transactions from FGC. We see this migration and a higher demand for certificates of deposit. Ágora has received a number of awards as a wealth manager. Ágora has received a number of awards and BRL 55 billion in assets under management. That's also an important number.

Yes, about asset management, we said that we had a BRL 33 billion increase in AUM, now BRL 55 billion, and now we have a performance fee because we had a great performance in some of our funds. So assets under management have been growing quarter after quarter. That's helping us a lot. In terms of loans and services, that is something, I mean, in a number of lines, we may have a lower spread in a few credit lines, but we are having more cross-selling, and we have developed skills to work with that. That's why when you look at the top line, you are adding the revenues coming from insurance, fee and commissions, and also NII. And if you look at company clients, we charge fees every. We have a monthly fee. And also he asked about the capital market.

You know that variable income, you know, the equity market is at a standstill right now in Brazil. And that's a pity for the market. However, fixed income is certainly growing. That is why we have more colleagues. We've expanded the team because we see a lot of opportunity here, and we are adding value. We believe we will grow this quarter and also next year. This is the expectation we have in the investment bank. Thank you. Perfect. Thank you.

Moderator (participant)

Thank you, Tito. Now turn it to Carlos Gomes-Lopez from HSBC. Carlos, please.

Hello. Hi, Carlos. Thank you for the call.

Carlos Gomez- Lopez (Head of LatAm Financial Institutions)

Very well, thank you. So two questions, on other segments. You mentioned the investments that you are doing in credit cards. You mentioned the investments that you are doing, with Elo, and Alelo, the investment in debit cards.

Does it make sense to continue to push the debit cards when perhaps they're going to be replaced by Pix? How do you see that market evolving? And the second would be on your new segment, Principal, how does it relate with Prime? Thank you. Okay, thank you. Você podia falar sobre essa dinâmica. You can speak about this dynamic of debit cards because there's an initiative in the central bank regarding that. Sim, obrigado, Carlos. A gente tem várias questões exatamente que estão trabalhando exatamente. We have been working exactly to understand this dynamic of debit cards vis-à-vis. Cada vez mais a gente trabalhar num único canal. The trend is that we will work more and more with one channel, more digital, with less plastic. Isso faz parte dessa movimentação de CBDC.

'Marcelo de Araújo Noronha' (CEO)

And this is part of these news that Marcelo mentioned we will be communicating particularly in the mass market. But investments are made to clearly maintain our status quo. But we have been doing a lot of work so that we won't have any cannibalization. E efetivamente a gente colocar canal direto. We can have a direct, effective digital channel for our clients. With less plastic. But Carlos, let me say something. This cannibalization by Pix is natural. But the volume captured through debit cards is still significant. We see this in the bank, in the market, and we see that at Elo. Ele é negócio econômico de valor. So this is an economically better business. Com o tabelamento do intercâmbio. Now with the interchange, with this obvious cannibalization, it does make sense to send out plastics and cash management to cards.

Vai trabalhando também com isso para distribuir para os clientes and virtual cards to be distributed to clients. So as long as we can maintain that, as long as clients want to use them, fine, and of course we'll be prepared for a natural evolution of that regard with Pix and debit cards. Now the new segment compared to prior to. A gente está trabalhando aqui primeiro os clientes. We're also working primarily with the clients because they are there. It's not like we're opening a new market front to gain new clients. Of course, new clients are always welcome. They want to open checking accounts with us. That's great. We are inviting our own clients. But as of January, Carlos, you were invited to visit our new business office, and of course, new clients will be very, very welcome. But we already have the clients. They are with Prime.

They're being worked on. The managers will be sitting side by side. So clients will have no discontinuity when they migrate to the new affluent segment. And we have been working with a value proposition. And we are working on the value proposition of prime. And that means working with different account loads for the managers. Of prime. And with a much more objective value proposition for also the prime clients. Clients want to have self-service where they still want to have contact with their manager, their investment advisors, our colleague mentioned in the video. So it all speaks together. They are with this new segment, but we're also working to deliver an even better value proposition to our individual clients. And let me add to that, Marcelo, something that was also asked.

The new segment is above the prime and a superior quartile, 300,000 investments up to BRL 10 million. So it's between prime and private. It is a qualified high net worth individual segment. And the idea is to maintain both? Yes, we'll maintain both prime for all of our category up to 25 BRLs in mass market. And then prime, principal, and private. That's all for individuals. Okay, thank you very much. A próxima pergunta vem aqui do Bernardo Gutman. Question from Bernardo Gutman with XP. Bom dia, pessoal. Obrigado pelo espaço. Good morning, everyone. Thank you for taking my question. I have one specific question about the behavior of the agribusiness portfolio. Looking at the rural portfolio, there is a relevant delta between the growth of rural loans for individuals, which posted strong growth of 16% quarter on quarter, against a reduction in loans for farm companies.

What is the strategy of the bank for this segment? Also considering the slightly more challenging scenario with delinquency in the sector. Thank you, Bernardo. Well, actually, this was the only company's portfolio that showed a drop quarter on quarter because we had some settlements. And some companies closing down, bigger companies that went to the capital market. Given the offering with good cost today. And since we have a good penetration in individuals, and they're kind of mixed with legal companies in agribusiness, so we have a lot of collateralized people's growth for rural individuals. But for the companies, that's more linked to bigger companies that access the capital market because they had an attractive cost. But we stand strong in that sector. We have our distribution across the agribusiness belt of Brazil. We have our support team in rural segments. We have agronomists. We have people.

We'll position for this. And there is some moving news about that. This business we had with John Deere is something we want to close this year. So we'll start next year full steam with them. So that's kind of the phenomenon that explains the difference between the two portfolios. But we also have a very good quality of risk. Delinquency rate in the agribusiness portfolio is absolutely stable. Thank you for me. Next question from Henrique Navarro from Santander. Navarro, please. Obrigado, pessoal. Obrigado pela oportunidade. Thank you for this opportunity. Desculpa aqui voltar no tema. I'm sorry, I'd like to go back. Gerando pouco mais de ruído aqui nas interações que eu tenho. That has created some more noise. Nesse momento, essa colocação foi muito boa. It was very good to hear from you that maybe we should not.

O crescimento puro vai ser muito mais corrente depois que o growth diretamente ligado ao cash. But maybe look at this net of deposit provisions. When you look at this number, 27%, it would be fine. So my question is about the future. You have already shed light about the segment the fourth quarter. You say you will continue to have accelerated growth. But what about 2027? You will look at client and the high net of provisions rate. Looking at 2025, I know the guidance will come a little bit closer to year-end. But how much growth is based on the risk or recovery market share? Market share that has always been yours, you know, in terms of Principal. Continue to have your previous share of holding. And how much of that depends on gaining market share in the competition with other players?

You know, just so that we have an idea about 2025. Thank you, Navarro, for the question, and thank you for your comments. Thanks for being with us. Eu vou dizer, Navarro. I will tell you that I feel extremely confident. We are growing client base and mass individuals, high net worth individuals. I mean, we are growing. We already have a huge base that is growing in the prime segment. Look at the private market share. We have also been gaining market share. Our value proposition has become increasingly more robust, and we now have the new segment, the principal between prime and private, so we have a great penetration in all of these segments. I believe that there will be a natural principality in line with our fair market share. If we did not have that, we would not have such a high level of traction.

I mean, our portfolios are growing, and the portfolios that we want to see growing, delivering what we want to deliver to clients. I'm going to gain a degree of fee and commission. I showed you how our credit card holders are transactors, and this segment of transactors is growing. So we want to gain market share. We have gained a little bit, but not much. I mean, we gained share in this quarter, and we will certainly be well positioned. This is our expectation, but with the right portfolio, also in insurance, I believe we have great traction. We have been reviewing our footprint and growing the client base. Of course, many of these new clients are payroll deductible loan clients, but we also do cross-selling with these clients, so we see that we have a great penetration in the client base.

And with our fair share, we have everything needed for 2025 to be even better than 2024. As I said, we have a lot of traction. That's why I feel so confident in all client segments and verticals. I mean, when we have monoline, for example, auto loans. But if you look at heavy vehicle loans, trucks and heavy vehicles, we have a very significant share, which we will further accelerate now with our business with John Deere. So we have a great penetration in all business lines where we operate. The insurance group, as Yvonne mentioned, I mean, and even I told you, we have a lot of traction also in the insurance group. I mean, look at our penetration. Look at our share. Our risk appetite has decreased a little bit. But we are now pursuing the right quality. This is our expectation.

We expect to deliver a higher top line and have a credit cost under control in 2025. Looking at client NII, there are three main drivers. First, portfolio growth. Marcelo and Cassiano were clear telling you that we continue to grow this portfolio. Next, our cost of funding is below 5% of the CDI. We are taking action to lower that even further, which will help us improve our client NII. Again, look at our spread, which is the risk-adjusted return. We don't want to have more spread with the higher lower loss provisions. We're always looking at the RAR. These drivers will help us. The first two will certainly help us. And the third one too. Thank you, Navarro, for your question. Now, the last question with Brian Flood is from Citi. Hello. Thank you for taking my questions.

It's a brief question about the impact of the interest rate. Thinking about the market NII, I think we are now closer to BRL 2 billion in 2024. And looking at the scenario you described with a higher basic interest rate, do you believe that in 2025, could we dream of having an NII similar to this one, similar to the one in 2024? Obviously, we're not talking about 2025 yet. But I can tell you that we have a more neutral view. I mean, we do not have our structure hedged, but we do have important action that makes our liability management more neutral. For 2025, we still don't have a clear view of what will happen to the market. So I prefer to talk about that when we publish our guidance. But I believe we have a more neutral position now for this new higher interest rate cycle.

Moderator (participant)

Thank you. We are closing the question and answer session. Those questions we were not able to answer here will be answered by our investor relations team. I'd like to turn the floor.