Banco Bradesco - Earnings Call - Q4 2024

Transcript

Marcelo Noronha (CEO)

[Foreign language] Olá, pessoal, bom dia.

Operator (participant)

Hello, good morning.

Marcelo Noronha (CEO)

[Foreign language], [crosstalk] Eu sou Marcelo de Noronha, vivo aqui da Cidade de Deus para apresentar os resultados do quarto trimestre do Bradesco e, obviamente, o resultado fechado do ano de 2024. Mês começa, eu queria dizer para vocês que a gente vai dividir a nossa apresentação praticamente em três partes, três mensagens iniciais para todos vocês. Primeiro, os nossos resultados do quarto tri confirmam a nossa melhora de rentabilidade, daquela maneira que eu apresentei ano atrás aqui.

[crosstalk] Just a few months ago, when we presented the plan, the plan we started last year, when we started our growth plan, and I showed you what was going to happen step by step, quarter on quarter. The second message is that our guidance for 2025 is a more cautious guidance in terms of risk appetite.

[crosstalk] It has also introduced the effects of 4966 and higher stake of Cielo, and it is cautious vis-à-vis the macro scenario, and at the same time, it is very optimistic in terms of what we are delivering and what we are currently doing. And also, there is our transformation plan. So it is my duty to present to you a small summary of what we did in 2024. We continue to expedite our transformation, and we made a decision based on a better macro scenario, a more cautious scenario. We decided to invest in our transformation without stopping anything else because here we have efficiency gains, increase of the activities, and everything else that we are about to see. Now, it's precisely 10:32 A.M. I will start our presentation with the results that have been posted earlier on this morning.

[crosstalk] Our net income is BRL 5.4 billion, and we are over 87%. No ano fechado, 2024 contra 2023, and BRL 19.6 billion in 2024, meaning 20% growth. And how did we achieve this net income and this result? This net income was boosted by our revenues, mostly, but also due to the fact that we are very cautious with our expenses, despite the investments we've made. So now I'll show you our position and our status in terms of credit, the income, the insurance company, and so on and so forth. I have here some operating highlights, and this summarizes our balance sheet. But before I begin, I would like to say that our recurring net income allowed us to make a non-recurring provision, and the net effect is about BRL 440 million. And this is precisely because we wanted to boost our footprint review for 2025. So what are the highlights?

[crosstalk] Our total loan portfolio grew, and despite the review of our footprint, 1,233 points, way beyond what we anticipated. Our customer base grew by more than 2 million clients. 99% of our transactions are occurring through the digital channels, that was the case in 2024, and this helps us throughout our transformation in terms of the cost to serve. I would like to highlight our Bradesco Expresso platform. Last year, we delivered two new platforms, and the outcome of that was better customer experience, a better customer experience of those clients that use Bradesco Expresso. Secondly, there was also an improved experience from our correspondents, and this is the outcome. We grew, you know, payroll. We increased 49% in insurance sales. We also increased our base of correspondents by almost 1,000, reaching 39,100 bank correspondents. Our AUM grew, AUM, assets under management, reaching BRL 122 billion.

[crosstalk] We were the recipient of two awards by Infomoney. We provide the best customer experience in our business process. This is what I said in terms of the wholesale and retail bank. I already talked about our net income, and transformation is occurring at a very accelerated pace, and I'll elaborate more on that, and we also had two inorganic events. We concluded the closing of Cielo's capital, and we also had the acquisition of 50% of John Deere after we got the approval from the central bank and CADE. This is a picture of our Bradesco Expresso aisle, and this is just a picture I have for you because this is another test that we are testing new models with our Bradesco Expresso, and this is occurring in several different municipalities of the country.

[crosstalk] Then we go to total revenue, which boosted the growth of our net income. Our revenue was over BRL 32 billion. We grew 7.9% year on year, and almost all lines of revenues. NII was up by 5.4% year on year. Fee and commissions income grew by 7.9% year on year, and our insurance companies grew more than 16%, 16.6% year on year, with a recurring net income that was quite relevant in another full quarter. From the third quarter, our total revenue was BRL 30.6 billion, reaching BRL 32.3 billion, growing by 5.4% in the quarter in terms of revenues. This is happening thanks to the traction we have the bank in all of our business lines and associated companies. Another important lever that boosts revenue, even in a presentation, I think we should do the opposite.

[crosstalk] We should start with the leverages and then arrive at the final number, but we started with the net income, so our total loan portfolio reached more than BRL 980 billion, growing almost 12% year on year, and the average daily production posted impressive growth. I highlighted here the growth of individuals with 13.3%, and I'll give you more details in a few moments of some of the lines, and also, we grew micro, small, and medium-sized companies, and this portfolio grew 28% during the period, and the highlight goes not only to middle market, but also small businesses, and I will elaborate further on the risk part of it, so if we break down the portfolio, you see here individuals on the left-hand side, companies and corporate on the right-hand side.

[crosstalk] If you look at all the segments in every period, very seldom will we find a period with no growth, and now I would like to draw your attention to a few items that matter to us. In the case of credit cards, our year-on-year growth was 5.1%, but the major growth lever to reach that 5% was high income because high income posted growth of 14.5%, so I would like to highlight how cautious we are in terms of risk-adjusted returns, and we were very mindful in terms of the quality and generation of our assets with new credit models, new policies, and also process organization, and our payroll loans grew by 5.8%. It could have grown more with the cap. This doesn't help, but I would like to say that anyhow, our traction is quite relevant in this regard.

[crosstalk] Both banks that have government control, they are market leaders in payroll deductible loans with 15%-20% market share, but being a private bank, Bradesco has 14.3% of share in payroll deductible loans for public and private payroll deductible loans. On the right-hand side, we have corporate or companies. We are not growing 28% in high-risk portfolios. We have our feet on the ground. So if we look at the total portfolio and look at our working capital, we went from BRL 130 billion-BRL 147 billion, and this is precisely coincides with our generation of FGI, FGO, Pronampe, both in middle market and also small business. In middle business, we are growing slightly above that. This is a combined growth, but in terms of small-sized companies, our growth reached almost 20% when it comes to companies.

[crosstalk] We are very careful in terms of our growth in real estate loans and collateralized loans, and in large corporate, we are using our origination for distribution portfolio, optimizing our capital and our return from clients, so all of these are good news, and if you allow me to say, we need three combinations in order to deliver numbers like that. The first combination is having a very sound customer base in all customer segments and high penetration in the base. If we didn't have that, we wouldn't be able to deliver it, and secondly, commercial traction with a very well-orchestrated process in the physical and the digital world, and the third pillar is our credit business unit.

[crosstalk] It brought us new credit models with a lot of machine learning, improving every day, measuring our risk appetite and our portfolio pricing so that we have the right numbers for every segment and every audience. This has to be very well tuned because if we are totally integrated, we can certainly deliver what we are delivering today with portfolios with controlled risk. Well, here I have another piece of information, and that is that we certainly regulate our risk appetite the entire time. And when we saw that we were heading towards a more regulated policy, we looked at that in the fourth quarter. We're not thinking about 2025, but we did that beforehand. And this other chart down below shows that 54% of our portfolio is secured in a very dynamic way. We are looking at several other periods, but I'm talking about the portfolio.

[crosstalk] If we were to show the production or everything that is coming in, this KPI would be much higher, and this really shows the quality of what we are delivering in our margins, and that's why we are not delivering a very high margin. We are delivering controlled portfolios, but even then, every quarter, we posted growth in absolute terms in terms of client NII. Our NII was 5.4% year on year. I can comment on the guidance later on. Our market NII was BRL 440 million this quarter. I would like to highlight trading, but the good operation of our treasury team is responsible for that.

Then we have the growth of client NII, and this is reflected in this item that we've been talking to you about, which is the client NII net of provisions, which has to do with the bottom line and this impact in our growth of BRL 8.7 billion, 77% year on year. When we look at the entire year, almost 26%, 25.8%. We continue on the same pace, you know, envisioning growth despite a more cautiousness. The message here is that we continue to control our portfolios. We are reducing overnight the liquidity with a very good coverage ratio in all of the KPIs and all of the indicators.

You know, expanded loan loss provisions. I would like to draw your attention that in this fourth quarter was BRL 7.5 billion, I mean, increasing by BRL 400 million, but the same cost of credit that we are indicating of 3%. And certainly here, again, you can look at mass market, and this is due to everything I told you before. I mean, control portfolios, and we are investing in clients that give us an adequate RAR. And I can also give you more details later on about some aspects related to product and share. Another important item has to do with our fee and commission income. Why is it growing? It grows because of traction, because of the level of activities that we have in the entire organization. BRL 10.3 billion, year on year, 13.7% and 7.6%, and these numbers do not consider that additional share from Cielo that we acquired.

But here you can maybe draw the same conclusion. We are growing in all aspects and in almost all the periods, as you can tell from the slide. But this is certainly a consequence from the high activity that we are in. Now, here I'm bringing the number that I mentioned at the beginning when we reviewed our footprint. We did way beyond our expectations. 1,385, I would say, reviews and the ending of some POSs, but even then, we were able to grow our customer base by over 2 million customers. Year-on-year expenses is here, but we have to do some important reconciliations. Well, if I remove, like in fee income, the additional share from Cielo, this growth would reach 7.5% year on year and 8.1%, you know, for the entire period, for the entire year. But let's look at another indicator that we have here.

I think I've been bringing this for the last three quarters. The total number of expenses, the total amount of expenses of 9.3%, but once we exclude Elopar and Cielo from this number, the growth was, you know, 6.9%. I mean, Cielo is delivering new solutions, and this will allow us to increase our share at SMEs and large corporate, Livelo, Alelo, and the Elo banner. We are investing to grow the business even with very good returns. However, we do not have the daily management operation. I mean, we are approving investments and expenses, so when we exclude that, expenses are absolutely under control, as you can tell from these other indicators. And I would like to remind you of two other details.

Number one, we are in this transformation cap, which is very robust with a lot of CapEx investment, but there is also OPEX as part of the story. Second of all, not only we're doing that, then we're making things happen, but the insurance company is also investing in CapEx and OPEX, and this helps these areas of the bank to grow as well. Therefore, my conclusion is that all of our expenses are under control in all of the lines that we can look at. Now, looking at the consolidated numbers, there is one or two deviations, but we can talk about that when we talk about the guidance. Now I'm talking about the insurance business. Another quarter of good results. If you look at total revenue, BRL 121 billion, that's why, you know, we posted 13.6% growth.

Net income was BRL 2.5 billion, not BRL 9.1 billion in the year with an ROE of 21%. The insurance business is well on track. When we look at, you know, the insurance operation and the guidance, we see the performance quarter on quarter posting growth. I would like to draw your attention to technical provisions that went beyond BRL 400 billion with almost 12% growth. The same thing goes for the insurance company, meaning that the insurance business is well on track with distribution in different lines in all of our customer segments inside the bank and also in our external channels, which are, you know, operated by the insurance. We had a technical index. We have a macro market.

We ended the year of 2024 with 12.4%, and the trend of the year, January 1st, we applied for 4,966, achieving 12.8% capital, already considering the 20 basis points required by the central bank for the system in operating risk. Here we have dividends and ROC, and they're dynamic. In 2024, we see the number, and I'd like to remind you we have a share buyback program which is open, and it will stretch until May 7th of 2025. As part of the program, we had a buyback of about 50 million shares, and we announced we are going to have the calculation of these stock close to 1% of the bank, just for your information. Here we have the guidance for 2024, and we started giving you this complimentary information of NII net of provisions, almost like an informal guidance.

It increased to BRL 34 billion, and that's what matters. It's the bottom line. Instead of us discussing where I make more of a margin and where I make less of a margin. So here we have total NII minus the cost of risk, and we had a good delivery. In NII net of provisions, we did very well. I extended loan loss provisions close to the top of the guidance, fee and commission income close to the top of the guidance, operating expenses close to the top of the guidance. But with those observations I made regarding consolidations that we have and the result of the insurance operation, those like we said, close to the top of the guidance, 7.5%. So now we'll talk about a quick balance about our transformation. I'll try to be brief.

Of course, I cannot mention all of the indicators because we have a lot of information. Among the initiatives, I would like to have the organizational highlights. You will remember we reduced layers, reviewed span of control, we hired C-levels, made some changes in the leadership team. We put together a transformation office with 800 people or more, and it's doing really well. Management, culture, we have been working in management and culture. We did some surveys with high level of engagement, and we launched some messages together with our team, which is what we want to see in our day-to-day in our business model and management model. So we are talking about a much more contemporary management. We have Somos Bradesco, Eu sou Bradesco. We are here for clients.

We are much more focused on clients with all of the transformation we had in products, adjusting, modifying these departments in the organization. We have an empowered team with the processes of enterprise agility. We have been decentralizing decisions, making our team effectively participate and decide fast so that we have a faster time to market and faster deliverables. We are challenge-oriented. What does this mean? The best example is the transformation, how bold we are to put together this kind of large plan, a billion plan, and we are touching all points of the organization. This is a big challenge, but we are sure of our deliveries because we have a lot of deliveries already of the several initiatives we've adopted. Digital retail service model evolution.

We delivered a new experience in all segments in our app with increased NPS, and you can see that we are following and we will deliver a totally new experience, not just for the segment, but for all segments. You will see this. There will be more news along the year, but here in this set of clients, we have been working with our Gen AI BIA with 90% resolution. I will speak more about this when I talk about technology, so I'll come back to this, okay? Bear with me. So we have BIA with AI, and we have a decision tree which is transactional. It is working really well, but now we're implementing Gen AI BIA. We have better NBO models with intensive AI use and hyper-personalization, with the consequences you can see at the bottom.

We will show you this year because we are already delivering this value proposition, but we are going to show the market what we're building here, what we are delivering. Some of the highlights of Principal launched in November 2024. We have about 50,000 clients, and we are starting to expand in payments and synergies, new cash management products, and the synergy with Cielo. Again, Cielo has been investing, so we have the deliverable, Tap on Phone. Up here, some important highlights for SMEs. We launched this segment after we presented our plan with 122 branches dedicated to enterprises. We ended the year with 150. We are growing really well. We have big traction here. Middle corporate is doing really well. We have more platforms and more RMs, and the consequence is the increase of market share gain in wholesale.

We also launched the agro segment so that we can take, so we can seize this opportunity with our John Deere Bank, big partner. Our credit business unit has been making a huge difference for us with its implementation and with the creation of the portfolio management department. We have intensive use of conglomerate data, improving our modeling. We hired almost 200 professionals over the year, and we improved our credit policy and processes. We have intensive use of machine learning, and here in the red box, we have the consequences. The portfolio grew because we have commercial traction and penetration in our client base. Market share gain in SMEs and individuals. Over 90%, default dropping, and with the new vintages of mass market, with much better vintages compared to the pre-pandemic period. Okay, so now let's speak a little about technology, about tech modernization.

Here our team led by Francisco, the executive we hired, but with an active participation of his colleagues in the management. We have enterprise agility. We ended the year with another 500 squads, and we are scaling up in 2025. We have a dedicated team of more than 10,000 people. We are in a process of strong internalization with very senior people. We continue to migrate several applications to the cloud that reached 79%, and I spoke about Gen AI when I was speaking about digital mass market, right? Well, Gen AI, BIA. We have been testing with more than 40,000 internal employees, 580 clients using it. In the last few months of 2024, more than 2 million interactions happened with that level of resolution of 90%, as I mentioned.

And now we're going to improve this even further, and we are going to scale it up, offering us a completely new experience for clients. BIA Tech. It's called BIA Tech, but actually it is an internal application we have with significant efficiency gain and productivity gain in developing the stories for every new or legacy application we have. So basically what's happening? BIA Tech is learning to adjust the stories. BIA does that instead of having humans doing that. It learns. There are some organizations that work really well with this, but BIA also writes the stories. We are one of the world's pioneers in the use of multi-agents with generative AI in order to modernize applications and legacy systems and to create models. So what does that mean? In two big models or modules that we are working, and we are working strongly on that.

I have a squad which is multidisciplinary, 10 people, developers, UX, for example. So in the place of a developer, I'm going to have an AI, multi-agents for products, for UX, and so on and so forth, with an ability to scale up significantly our business and to expedite our process of delivering systems and modernization of systems. We acquired 100% of Kunumi. Kunumi is a company from Minas, linked to the academia with more than 50 PhDs, a differentiated team. They have been working a lot to solve problems, for problem solving through machine learning, AI, with the credit department, with the collection department, with data intelligence and other systems areas. And again, 90% productivity in addition to the implementation of value assurance to improve our efficiency and to avoid wasting with contracts and applications.

Here we're going to look at the next steps coming to the end of the presentation. In terms of efficiency, we continue to review our footprint, as I mentioned, to evolve our culture. With principal, we'll get to 500,000 clients, and next year we will complete the expansion with more than 800,000 clients in credit. We have all of these processes that we are investing in strongly. We will continue to internalize technology resources, accelerating enterprise agility, and with all this productivity gain coming from tech, as I mentioned, we are increasing tech deliveries and technical output in 2025 by 50%, 50% of all. This is very gratifying because we have this conviction, and it is happening. We are very satisfied with what we are delivering. Here's the guidance for 2025. You probably saw in our earnings and in our material fact that we released today.

We had a scenario of the Febraban survey that would give us 9%-10% portfolio growth, but I told the sell side, as well as the buy side in the past quarter, that we were working with two scenarios. One scenario that we considered a base scenario of 70% and a more cautious scenario with 30%, and that's what we are working with. We want to be cautious because we think that with the contractionary monetary policy and with the interest rates we have today, of course, there is an economic impact, but our NII net of provisions is growing even more. Why is it growing more? Because we have the carryover for 2025, and the rest doesn't actually require a lot of comments regarding the rest of the guidance.

Candidly speaking, I am very much optimistic regarding everything we are doing, more or less optimistic about the macroeconomic scenario, but we might have surprises. I'm more optimistic in our guidance from the middle top than from the middle down. I can envision a more positive scenario, and this is a summary. We continue to grow profitability in a solid and safe way, given mainly high revenues, given our traction. We continue to have a lot of traction in run the bank, and we will accelerate the changes of the bank. I'd like to thank you for your attention, for your time, and I'd like now to invite you to the question and answer session. We have André Carvalho and Cassiano Scarpelli, whom you know, and we are here to start the Q&A. Thank you, Marcelo, thank you, Cassiano. It's a pleasure to be here with you.

Operator (participant)

Good morning.

I'd like to inform you that Ivan Gontijo, CEO of the Insurance Group, will be joining us remotely online. If you want to ask questions, you can ask questions in Portuguese or English. If you want to send a question, you can send your question to this email on the screen, [email protected], or use a WhatsApp connection, 11974438238, or point your camera to the QR code on the screen. First question from Bernardo Guttmann with XP Investimentos. Bernardo?

Bernardo Guttmann (Equity Research)

Good morning, [Foreign language] André, Noronha, Cassiano.

Thank you for taking my question. I have one question about the market NII. You had a good performance of your treasury department in Q4, again with arbitrage as well. Any specific change in the hedge policy of the bank, or should we think about market NII dynamics for 2025, considering a high interest rate, the Selic rate?

Marcelo Noronha (CEO)

Thank you, Bernardo.

I'll ask Cassiano to start answering your question, and I'll make a comment.

Cassiano Scarpelli (Vice-Presidente)

Good morning, Bernardo. Good to see you, and happy new year. In this quarter, the surprise was the arbitrage. The main gain was this. Although we don't have a specific hedge operation of ALM, we do a lot of operations for hedging in some circumstances. But indeed, in this quarter, Q4 arbitrage was super important in some specific operations where we got good movement. I do not think that this is a traditional movement for next year, next year for 2025, actually. In 2025, we think we should be more cautious. We work with an NII close to neutrality. Bernardo, I think that there are some additional comments to make. In this guidance, we are being indeed more conservative.

You see, in some months of 2024, we made money, as was the case of the last quarter with trading. Of course, this is also going to happen in 2025. You might say, "Oh, but if you gain six, then lose six, there's neutrality." Yes, but the scenario might be a little better. We are on the cautious side. I can only have more positive expectations than worse expectations. And my second comment is that we have lessons learned. We have a good team coordinated by Roberto Parreiras, with Marina, Bruno, and now Luiz Felipe, who is responsible for trading. So I think that we might have an even better year. Thank you, Bernardo.

Operator (participant)

Next question from Gustavo Schroeder from Citibank.

Gustavo Schroeder (Director and Equity Research Analyst)

Good morning. Good morning, Marcelo, Cassiano, André. It's very nice to talk to you again. Congratulations on your transformation process.

I think Marcelo, in a very summarized way, conveyed a lot of it. But I would like to talk about the structural part of the bank that refers to capital. When we look at CET1 at 10.9%, slightly below the average among your peers, and I understand that it's slightly above the minimum requirement, but we notice some reclassification and transformations that were made. There is an explanatory note that refers to a reclassification of securities available for sale to held to maturity. And then when we look at the OCI line or other comprehensive results, we see another quarter with negative results. I mean, accumulated losses that do not impact the result, but they do have an impact on the capital part. So how comfortable the bank is, or what is the bank's strategy to have that CET1 capital return to a higher level?

Marcelo Noronha (CEO)

I just want to understand how comfortable you are vis-à-vis that capital. As you said yourself, Marcelo, your growth guidance is very conservative. It ranges from 4 to 8, but with a better macro landscape, maybe this portfolio growth range should be more up to the, you know, at the top of this range. So this is something interesting for us to hear from you. Thank you, Gustavo. I would also ask my colleagues to comment as well. We are very comfortable with our capital. You saw that we now reach 12.8 after 4,966. The, you know, CET1 has a huge buffer because I think it goes up to 8%, if I'm not mistaken. The fact is that we are not concerned with that. We said that from the very beginning because we ran several projections, you know, stress scenario, optimistic scenario.

Therefore, we do have room to grow with stable stability in terms of our capital. Therefore, I have no concern at all in terms of everything that we can do, and we will continue to increase profitability and increase our net income, and our CET will be higher, you know, with time. Well, Gustavo, good morning. It's good to talk to you again. It's very important that we bear in mind that our guidance or our projection, you know, has to do with the two ends of the guidance. We are very comfortable in terms of our capital as a whole. I mean, you saw all of the moves. Basically, that reflects the adjustment of our balance sheet to the 4,966.

We had a 0.4 drop in the quarter until December 31, 2024, which is marked to market, and 4,966 on January 1st brings that capital back to 2.8, meaning being 10.9 at the end of the year. That contemplates three important components. We have 0.7 related to adjustments to shareholders' equities, to adjust to the criteria from the central bank. They have the minimum regulatory aspects as part of their role, and we are pretty much in line. We just adjusted, made adjustments to the central bank, and that was 0.27, but as you know, that was split into four installments. The central bank released a regulation, so we have 0.07, which is the negative impact. The other negative impact is 0.20, which refers to operating result. This is the operating result that impacted now. On the other hand, we have a reversal.

But in practice, that means the adjustment to the different types of mark-to-market in our balance sheet, I mean, available for sale and negotiation levels, and a new criterion of business models. They are classified according to the business model of every security. So once you put everything together, we arrive at 12.8, which is higher than 12.7 from the previous quarter. But even more than that, when we look at our projection, we look at all the possibilities of our net income; we have enough capital to fit into the range of our guidance. So in terms of capital, it will be stable this year, even with the full payment of OCI and growing the loan portfolio close to the ceiling of our guidance.

Operator (participant)

So next question is from Daniel Vaz from Safra.

Daniel Vaz (Lead Research Analyst)

Good morning, André. Good morning, Marcelo and Cassiano.

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

Marcelo Noronha (CEO)

Thank you, Daniel, and thank you for your question. What I have to say is that we will continue to grow. Also, our gross margin will grow as well. As I said, we have the carryover to 2025 of everything we produce and we piled up, we accumulated. But if you look at the cost of credit or the cost of risk, our expectation is to keep cost of risk around 3%. This is our expectation. We are very, very comfortable with everything we are doing in relation to credit. But then if we look at the mixed composition in 2024, let me say the following. I talked about payroll deductible loan market share. If you look at growth on the individual side, we grew in payroll loans. We have a higher share, you know, with 14.3% among private banks.

This also has to do with NII, and sometimes we don't even look at it. I'm not only referring to Bradesco, but our peers as well. I mean, there was an INSS cap, but also in terms of the public companies throughout this period, with the increase in interest rates and the long tail, the long curve, every month, we settled a lot of money that was hired in previous years, previous periods, with twice as much margin, and then you hire new payroll loans at a lower margin, and this puts pressure on the gross margin, but there is a good risk-adjusted return or RAR. The second thing for individuals is credit cards. We are feeding the ground, and the major growth lever came from high-income individuals, which grew 14.5% year on year, and combined growth was 5%.

The third aspect is that if you look at our publication and look at it in detail, you see that our personal loan also grew, but we grew in two very safe lines. It's not the most stressed personal loan. The first is that we grew with higher-income clients. We charged them lower rates. Otherwise, the selection would be adverse, so it's a good risk from prime clients. They have specific needs, so the credit line is a bit elongated, and then we have other credit lines with FGTS, you know, secured loans. So the margins are lower in 2024, but then when we look at corporate companies, our growth is focused on collateralized portfolios, particularly based on programs like FGI, where you take several different sizes of companies up to 300 million.

FGO contemplates, I mean, BRL 400 million a year for credit, for companies up to BRL 360 million a year. And then what happened here? Just to be totally transparent, and you can look at the ranking, you can look at that periodically. I mean, in 2024, Bradesco had the highest fraction. Therefore, we grew around 70%. I'm talking about production. When compared to 2023, we grew BRL 17 billion, give or take, you know, once you combine all the programs. And with FGI alone, we were the second largest producer of FGI in the Brazilian market. There was a bank that produced more than us until December 31st, 2024. I'm looking at the full year. On the other hand, when we look at FGO, Pronampe, ProCred, another organization, but not that one, was number one. And we came second, very close to number one.

When we look at the global and total production here, Bradesco had 18.5% share of production in these programs. They are really phenomenal. This is very good for clients and companies. This is a very good government program. They are managed in part by the BNDES and Banco do Brasil, which funds. There are several roles involved. 18.5% of the production came from Bradesco. There is a bank that was slightly above us. The third bank has about 5% lower share than Bradesco was in terms of production. Therefore, we also grew at SMEs, boosted by portfolios that were secured and collateralized, especially this one, which has smaller spreads. Rural loans also collateralized and secured. Real estate loans or mortgage loans are collateralized. Our LTV is about 52%, 51-52%. Therefore, this is a given reality. That is my conclusion.

It will not reduce the spreads. I mean, I expect to see better margins with a controlled cost of credit. So when I look at the level of activity, because life is very dynamic, it's already February, so the level of activity is here. I mean, therefore, I think that our guidance is very cautious because we are looking at the macro scenario. I mean, the rates are high, more for companies than individuals. There are a group of individuals that have a more difficult time to access credit. But the scenario is here. So I don't see, you know, drop in margins. All I see is growth.

Daniel Vaz (Lead Research Analyst)

Thank you.

Cassiano Scarpelli (Vice-Presidente)

Daniel, in this guidance, it's already implicit that client NII grows more than the portfolio. The portfolio is end-to-end, and client is just an average.

So just this average comparison already gives us about 8% of growth for client NII that reaches two digits once we add the efficiency measures and funding and the funding side. And on top of that, you know, Marcelo just mentioned better spreads that can also help us to increase client NII throughout 2025. So yeah, cost of risk is about 3%. And this is pretty much around what Marcelo just said.

Daniel Vaz (Lead Research Analyst)

Thank you.

Marcelo Noronha (CEO)

Thank you, Daniel.

Operator (participant)

Next question. Next question by Thiago Batisha with UBS.

Tiago Batisha (Executive Director /Head of Br Research)

Good morning. [Foreign language] Vamos lá. Eu tenho uma pergunta sobre diversos canais digitais, ou digital trends. Você tem uma pergunta sobre o contrast of these channels considering the new change the bank is adopting and the follow-up about capital. Is the bank capital with 10.9% of core capital? And is there any kind of restructuring or being OCI or something like that?

Is this in the radar of the bank when we look at the next 12 to 18 months looking forward?

Marcelo Noronha (CEO)

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

Operator (participant)

Next question from Renato Meloni with Autonomous.

We cannot hear you.

Renato Meloni (Equity Research Analyst)

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

Marcelo Noronha (CEO)

Thank you, Renato. It's a pleasure to have you on board. First, regarding the 8.4% margin. Well, in absolute terms, we're growing. I made a comment about the INSS and public payroll deductible loans.

Every month, we topple some, but we replenish that with higher margins. We might have a different index, 8.4, 8.5, 8.3. But in absolute terms, we're growing with a cost of risk which is very stable, well-balanced. So we are very certain that we will continue to grow the margin. I don't worry so much about the NII itself, the index itself, but I focus on absolute volume and its constant growth. And this is what we're going to deliver. So we have confidence that we'll deliver that. The restructuring cost this year, we made a provision to move forward with it and faster to review our footprint. And I think that I mentioned in the past, in our initial expectation for 2024 regarding our footprint review, was of about 1,000 points of service, 750 closing agencies, and the rest. And the rest would be restructuring or renewal.

And we had almost a 1,385, even more. In effect, BRL 440 million approximately as an effect for us. So expenses, compared to what we are doing in the transformation, well, it's much better in CapEx as well. So that's what I said. It's a brilliant plan. And the payments companies I mentioned are making important moves in CapEx and OPEX, and the insurance group is also working on OPEX and CapEx. If we isolate the net of the payments companies, it's 6.9%. So we continue to invest. We'll gain efficiency and productivity. And that's why we cannot stop working on the transformation of the bank. I have a lot of confidence in what we're doing. Many deliverables, productivity gains. One of them is we're going to deliver 50% more technology output than we had in 2024. So it is a lot of growth. Thank you, Renato.

Operator (participant)

Thank you, Renato.

Next question from Mario Pierry with Bank of America.

Mario Pierry (Analyst)

[Foreign language] Marcelo de Noronha, my question is, well, you're seeing the results of all of the banks so far. Everyone is focused on more cautious loan granting, more high-income clients, and products that are secured. So it seems that there's going to be intense competition in this. And we see everyone very cautious with the mass market. So wouldn't this be a timely moment for you to grow your mass market? Given that everyone is being very cautious, theoretically, you would have room to price this risk better. My question is, what would make you take on a little bit more risk and focus more on the mass market? Thank you.

Marcelo Noronha (CEO)

That's a good question. It's a provocative question. When I spoke about mass market and digital, we talked about one million clients with this new value proposition.

We are testing some models, and we continue to test higher penetration here. We grew 2 million clients now. So I mean, we are growing account holders. We are growing different trends. And I also mentioned some more information. With the new platforms, we gained a lot of efficiency, productivity, and client experience with Bradesco Expresso. It's a correspondent bank. We grew more than 100% in granting payroll deductible loans. So you see, we have a risk appetite. It's not that we're not working with mass market. We are. But we are choosing the risks adequately because nothing can replace a good quality of assets. And this is something we will not give up. We will not give up on risk-adjusted return, RAR. But we are working in mass market. I showed this with Expresso.

I showed that we increased by 45% our sales with those implementations in mass market for that set of clients. So we are increasing our penetration. But you see, with good risks and good modalities, payroll deductible loans and products that we can work with, that will bring us adequate risk for our organization. Okay? So it's not that we are giving up on growing in our mass market and testing new models with Bradesco Expresso. And even with digital, you will see the deliverables we'll have this year. We'll be showing you. We didn't give up on that. But the risk appetite needs to be controlled. We need to have return. And this is what's on the table full-time. I would like to highlight two improvements in risk management. First, we worked with volatility clusters. We have five volatility clusters.

The moment that we start adjusting risk appetite, we adjust mainly at the highest volatility cluster, the people who are more exposed to the deterioration of the macroeconomy. That's where we start adjusting. And we started doing that. The second improvement has to do with repricing. Of course, higher risk. Clients have higher spreads. Lower risk, lower spread. And that curve became slightly more tilted in the last few quarters. In other words, we're charging a little more spread, but there is a little more risk. We adjusted our offerings, and we have demanded. We want to have a better priced risk. And risk is better priced in these segments. Mario, thank you for the question.

Operator (participant)

Next question from Pedro Leduc with Itaú.

Pedro Leduc (Equity Research Analyst)

Good morning. And thank you for this opportunity. My question relates to NII.

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

Marcelo Noronha (CEO)

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

André Carvalho (Diretor de Relações com Investidores)

I would like to highlight a few efficiency measures that we adopted when it comes to managing our liability, and this is reducing our cost of funding. When there are increases in the Selic rate, we make more money. I mean, this is a process that is ongoing. So all we have to do is accelerate. With the deterioration of the macro scenario, we compensate that with efficiency measures so that our Client NII can improve, and we gain about 2 percentage points in the Client NII segment. This is a very important point. The second important aspect that was even highlighted in the Copom minutes is that the central bank, in terms of banking loans, they see deceleration in lines with lower spreads.

These are lines with longer duration, where the effect of the monetary policy has an initial impact. When you decelerate lines with lower spread, the demand goes to lines with better spreads. Naturally, there is a change in the mix. This helps to recover spreads. That 8.4 number that you see, that's where we see increases throughout 2024.

Marcelo Noronha (CEO)

Pedro, again, well, good morning, and thank you for your question. It's also important. If I comment on your answer, I mean, personalization is something that has been our focus, and this has to do with repricing. This component, in addition to the inventory of 2024, which is quite healthy, is what will set the base for higher growth in client NII. Funding is quite important as well. There are other important aspects.

I mean, we are doing some important work in SME cash management, and all of that has brought good results to the bank. So it's just a set of three pillars: hyper-personalization, pricing, and a better retention in terms of Principa. And the good vintage that we build up in 2024, all of these things combined allow us to reach better client NII levels. I would just like to add one more thing. First of all, we have to carry over, right, for 2025, since there was that accumulation. NIM could fluctuate, but NII will continue to grow, as we saw quarter on quarter, even for this capacity of production that we have in these different lines. Even if the spreads are lower, but the level of return, risk-adjusted return, is much higher. That was a much better level to be.

Portfolios with longer term, like these programs, FGI, FGO, there is stability. And the loss level is low and under control. Second of all, André said that our funding cost is coming down. And the third point is, you know, that we remunerate some clients that have deposits with us at a level that is nice for the client and very positive for us. So this combination of deposits and demand deposits, they grew a lot this year. And this is a result of what Cassiano just said and also a result of our activity. So we are growing funding at a low cost. And this also helps us in terms of our leverage, the funding cost, and the NII margin that you talked about. Therefore, we know that we will gradually grow. And at the same time, the absolute value will be higher.

As a consequence, I mean, this has to do with our bottom line. The bottom line is NII net of provisions. I mean, NII will come in absolute terms. NIM is just the result of something that we are building, you know, along the months.

Operator (participant)

Next question is from Yuri Fernandes.

Yuri Fernandes (Equity Research)

Thank you, André. Thank you, everyone. I would like you to elaborate on your expense line. I mean, what if something goes wrong? I think other analysts already ask about, you know, cost of credit or cost of risk that could be a bit challenging or maybe not. Maybe the margin will not grow. I just want to understand if your expense line could be a buffer. It could be an adjustment line.

If you anticipate a more difficult year for some reason, or maybe you would delay some of your investments just to deliver the bottom line or whether the bank is committed to the investments, or maybe if something goes wrong in the cost of credit or margin, if you will continue to pursue your expense line? It's a trade-off, you know, with long term.

Marcelo Noronha (CEO)

It's a pleasure to talk to you again, Yuri. The first decision, I mean, you were just laying down a hypothesis. And we have to look at it in a very dynamic way. But it certainly depends on, okay, let's say there's a new pandemic coming. It's a new situation. But the macro scenario, it's slightly worse than what we envisioned. That's another situation. But our decision, even bringing it to that scenario I referred to last quarter, it was 70-30.

Now we are working with 30, a more cautious landscape, but I repeat it again, it's more cautious, but I am not pessimistic. On the contrary, I'm very optimistic. I'm very optimistic with what we are doing here, and obviously, I'm optimistic with the opportunities we see in the market. This payroll deductible loan that the government wants to promote with, you know, eSocial and other companies already talked about that, and again, I say that this is an opportunity for all of us to grow, depending on how they implement that, whether there is or there is no cap, so that we can adjust to that kind of risk. Therefore, I see great opportunities in this market, and then we decided that even with a more cautious scenario, to apply a guidance coming from this more cautious scenario, we will not stop investing, not even a cent.

And this will have an important impact in the next coming quarters, in 2026 and 2027. And you will see that. You will see for yourself.

Yuri Fernandes (Equity Research)

Thank you.

André Carvalho (Diretor de Relações com Investidores)

I would just like to add one more thing. I think expenses is something that could be broken down into parts. One is investment. We want to preserve because there is, you know, competitiveness gains in the mid and long range. And the other aspect is the other expenses, personnel expenses, admin expenses that grew below inflation of 4.8%, total control. And here, again, we could be a bit more cautious. We are just reviewing more economics. Meaning that there is always room to be more efficient in our expense market, regardless of the macro scenario. Thank you, Yuri.

Operator (participant)

The next question comes from Carlos Gomez-Lopez.

Carlos Gomez-Lopez (Head of LatAm Financial Institutions)

Okay. Thank you very much. So congratulations on the results. So two questions.

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

Marcelo Noronha (CEO)

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

Cassiano Scarpelli (Vice-Presidente)

Well, thank you, Carlos. I will try to rephrase the previous answer to make it more clear. The movement of the new IFRS brought some differences for the organizations and some competitors. Even Itaú yesterday mentioned that. Very similar to the move we had here.

The first big move was regarding operational risk. We all knew about 0.20%. Then 4,699, 4,966 brings us the possibility of adjustment in shareholders' equity in terms of credit policies and ECL. What we did was an adjustment to the basic model that the central bank allocates. It's a tropicalization of the Brazilian central bank in terms of ECL. We have a total of BRL 2.99 billion that we considered a debit of our shareholders' equity. And this would lead to a reduction in our BIS of 0.27. Given a decision by the central bank, this 0.27 was diluted along the four years, so we had minus 0.20% due to a reduction of operating risk, 0.07% given the reclassification of the credit part, BRL 2.99 billion.

We also had a prerogative that other institutions also used, which is the possibility of classifying our securities that had a 304 classification available for sale or to maturity or free to be traded, to a new concept called amortized cost that adjusts financial instruments to the new categories of classifications according to the business model. In a nutshell, in the bank on January 1st, 2025, we had a full adaptation to the rule 4966 in IFRS. There was no change. I think that the other banks, given their explanatory notes, used the same instruments that we included in our balance sheet. I will complement the answer. We are going to pursue and to deliver an ROE, which is a lot better. This is we want to be under-promising and over-delivering. It is probable that this will not be normalized by 2026. It might still be growing.

Operator (participant)

Next question from Eduardo Nishio, Genial.

Eduardo Nishio (Senior Equity Analyst)

[Foreign language] Bom dia. Bom dia a todos. Bom dia, Noronha. Bom dia, everyone. André, Noronha, Cassiano. Eu queria fazer follow-up. I want to have a follow-up question regarding ROE stability. The scenario has changed a lot. This is ROE, return on shareholders, at least in the capital market. Eu diria o cost of capital, which has also been growing over the year given the macroeconomic scenario. This is the same idea. Cost of capital now is close to perhaps 15%-16%. Do you think that in 2026 you will achieve this kind of profitability? And the second question is regarding market NII. Market NII, you spoke about neutrality. I think that you mean you want to be closer to zero. Not having a negative or positive result in 2025.

So I would like to know what is your strategy regarding that line? In the coming years, not in 2025, but in 2026, 2027, would this line go back to a normalized level? And what would be this normalized level, in your opinion? And what about your hedge strategy? How is this being implemented? Will you remain neutral to the Selic rate in the coming years? And do you consider hedging your capital? Because that would be another possibility.

Marcelo Noronha (CEO)

Nishio, thank you for the questions. It is a pleasure to see you here. I'll start answering the first part of the question. And then I will ask Cassiano to answer the second question. As regards ROE higher than the cost of capital, you were correct. When we delivered our plan in February, we had a different horizon, a cost of capital which was lower.

We don't say what our cost of capital is. But if we imagine that our cost of capital was around 14%, if we get all of the variables we have today, it is above 15%. Is this a bigger challenge? Yes, but we'll get there. And it is what I said earlier in the previous question. We will not promise anything, but we will deliver. So it's under-promising and over-delivering. At the right time, we are advancing step by step. Everything we said we were going to do, we delivered. Everything we said in the timeline, we are reaching that. So we'll get there. Cassiano?

Cassiano Scarpelli (Vice-Presidente)

Thank you, Marcelo. Thank you, Nishio. I think that you raised an important point. Indeed, the market NII is perhaps the most difficult NII for us to forecast and to give a guidance for. There are a number of variations.

As regards the neutrality concept, that is it. We see between zero and one billion BRL. Let's not remember Marcelo's inspiration. We have an important work. The trading gave us very significant results in Q3 and Q4. We are working a lot to pursue gains. This is the essence of trading. We don't have a hedge policy which is open and dedicated and documented, but we do very important work every quarter considering fluctuations. We do this kind of work in specific operations. This is under the management of Roberto Parreiras. We have clarity on that. We are much more neutral to market fluctuations and interest rates. We are now in a hiking cycle. We know where the hiking cycle is going. Overall, both capital and our ALM is analyzed in that context.

We don't have a tacit policy of hedge, but we have a policy of working daily in our operations, making some kind of hedge or protection or an operation against some specific flows. Yes, when we send the 0 to 1, it is a good market NII in the year of high interest rates, although we want to bring in more. In the future, we will have to see what is going to be the new normal. We wasted a lot of time. Over time, we lost the tax. The tax was a very important instrument. It was the hedge of foreign capital. We'll have to have a new neutrality. Last year, we had excellent treasury results, and that is an indicator of a much more normalized market NII than in this year when we have an interest rate hiking cycle.

Marcelo Noronha (CEO)

So the level of 2024 should be the benchmark for us, Nishio. I think that this is what Cassiano is saying. So this would be a reference for you as a bottom in a normalized condition. But thank you for the question.

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

Tito Labarta (Vice President and Senior Equity Analyst)

Hi, good morning, guys. Thank you for the call and taking my question. I guess just a couple of clarifications just to make sure I understood. One is on the restructuring charges, right? I mean, you had BRL 443 million this year, BRL 570 million in 2023. Do you expect to have any more this year? Just want to understand how non-recurring these are or when do you think these restructuring charges go away?

And then the second question, and sorry to ask again on capital, I just want to make sure that I understood the 60 basis points increase from the Resolution 4,966. I wasn't clear what drove the increase. Was that the reclassification of securities? Or just if you could just walk me through why there was an increase, because I think expectations were it would be a bit more negative. So just to make sure I'm clear. Thank you.

Marcelo Noronha (CEO)

Okay. Thank you, Tito. Good to see you again. In relation to the first question, the provision for restructuring, like you commented, it's focused on the revision of our footprint. And the review of our footprint, not only there, but particularly there, because investments that we've been doing, as I said, are much higher than that. How long it will last? I mean, it's a transformation.

We said that our transformation will go from 2024 to 2028. It's not that it will start now and it ends in 2028. I mean, we've been delivering lots of things, and we will continue to deliver. We will continue to invest. We have a lot of investment. There are a lot of things to do in 2025. We still have a lot to do in 2026, but as you go on that journey, we also capture efficiency. We increase productivity. Just like I said when I talked about technology, we are increasing productivity and efficiency, and we managed to do that this year through new technologies, new format, and new team. Therefore, we will continue to pursue that, and certainly, we will capture further benefits as the years go by, 2026 and 2027 and so on.

I think Cassiano can talk about that 60 basis points when he talked about capital growth with the 4966.

Cassiano Scarpelli (Vice-Presidente)

Let me try to clarify. Basically, that 060 comes from the movement of securities. That's what I said in the previous answers. The reclassification of our securities for our very specific cost model for every operation model that allowed us to get to that 060. But as a reminder, within that number, I have two negatives from what I said. 020 comes from operating risk, and 007 comes from the legislation of the adjustment and the shareholders' equity of loan loss provision. So we had 12.7 in September, 12.4 in December 31st, also according to NPM. So on January 1st, our BIS ratio was adjusted. So this 060 from the adjustment comes from mark to market or the cost utilized.

This is something that is very regulated according to the 4,966 and the new IFRS. That's where this positive difference comes from.

Marcelo Noronha (CEO)

So now we conclude our Q&A session. The questions that were not answered, our IR team will certainly answer them right after this. The presentation is available on our website, this presentation, other earnings releases, and other presentations. So now I turn the floor to Marcelo to conclude this presentation. Thank you, André. Thank you, Cassiano. And thank you all of you who worked with us. And thank you to analysts that spent time with us and joined us in this earnings release call for the fourth quarter of 2024 and the full year. We are certainly open to talk to sell side, buy side, and any other investor that seeks for further clarification.

Once again, I must say that we are pursuing a very cautious view, but we remain optimistic in terms of what you're doing and what could be the next prospective scenario for Brazil. I wish you a very good weekend. Thank you.