Good morning, everyone. I am Janaína Storti, Head of Investor Relations of Banco do Brasil. Welcome to our live streaming on the results of the Second Quarter of 2023. Our event is going to be held in Portuguese, with simultaneous translation into English. To choose the language, click on the icon on the right side of the screen and select the language of your choice. To start, our CEO, Tarciana Medeiros, and our CFO, Geovanne Tobias, will present the results of our performance, and at the end, we will have a Q&A session. We would like to remind the analysts that questions can only be asked using the webcast link. Also here with us, our VP for Internal Control and Risk Management, Felipe Prince.
I will now turn the floor to our CEO, Tarciana, to begin the presentation. Good morning, everyone.
Thank you very much for being here with us in our second quarter 2023 earnings live streaming. This is an important opportunity to discuss our business performance and perspectives. Our net income in the second quarter reached BRL 8.8 billion, up 11.7%, vis-a-vis the same period last year, and in the half year, our net income was BRL 17.3 billion, 19.5% higher. This relevant performance proves the success of our business guidelines and follows increasing results, showing our discipline in complying with our strategic planning. If you track our management, you know what to expect from our performance. Our results and the close relationship we have with clients, each quarter support this trust. The bottom line number on the balance sheet is important to us. However, even more relevant has been the company's consistency in achieving its results.
The performance of several business lines contributed to the quarter's net income, with highlights to the credit offer, which was up more than 13% in one year, amounting to BRL 1 trillion and BRL 45 billion. Note that the significant growth of the loan portfolio was followed by adequate risk management. Delinquency over 90 days stood at 2.73%, again, below the financial system average. I also emphasize that the strength of our coverage ratio, which remained above 200%, was a great result. We'll continue to grow our loan portfolio sustainably, supporting a number of sectors in the company. Our portfolio expansion is still one of our main strategies as we maintain the right balance between our clients' needs and the appropriate capital remuneration.
Our result also includes contributions from 84 of our conglomerate companies, which count on the dedication of over 125,000 employees, a collective effort which sustains all our performance. In our daily operations, the responsible balance sheet management and the business goals achievement are fundamental. Nevertheless, they are part of a bigger picture. The benefits and the support we bring to society reflect our work true's dimension. One number well proves it. In the first half of this year, 4.2 million people took out one of our loan or finance lines. Out of those, 2.2 million are women. We're a bank that combines its commercial performance with its public role of supporting the development of the country. We released funds for people from most diverse regions, backgrounds, and economic classes.
For instance, loans for Brazilian Social Security retirees. In this line, we grew 19% over the first half of 2022. In payroll loans, there was an increase of 12% in disbursement. In addition to individuals, we also work side by side with the employers, who allocated funds to more than 180,000 micro and small entrepreneurs in the first half of this year. About BRL 17 billion were released to women entrepreneurs, 20% higher than the amount granted in the first half of 2022. This semester, we launched the first export program. By June, more than 1,200 companies were enrolled in this program, which aims to encourage companies to sell products in the international market. The program fosters companies' first export experience through a complete journey that includes digital training, consulting, and a portfolio of solutions.
In agribusiness, we released BRL 75 billion in the semester, 15% more than the amount allocated in the same period last year. For family agriculture alone, we released BRL 7.8 billion, an increase of 18.4%. Note that we allocated funds to 106,000 family farmers, directly contributing to the country's food security. We are present throughout the whole agribusiness product chain, from family farming to large exporting conglomerates. Our great competitive advantage is knowing how to work in each one of these segments, bringing customized financial solutions to all involved in the process. In a large country as Brazil, we are the most prepared financial institution, with the highest capillarity and agility to meet the sector demands.
Our footprint in 93% of Brazilian towns explains why we are the main agribusiness partner. We have the ability to quickly distribute funds to farmers in all segments and in every corner of this country. Our specialized network provides financial advice and encourages the adoption of best agricultural techniques, that has contributed to agribusiness and family farming to thrive even more. Proof of our commitment to the agribusiness was the launch of the largest harvest plan in our history at the end of June, with the announcement of BRL 240 billion in loans and with a 26% increase in volume of funds. Today, I am pleased to announce that in the first month of the current harvest plan, we have already released BRL 21 billion, an increase of 11% over the same period of 2022-2023 season.
In all, more than 60,000 operations were contracted in July. Financing contracted with family farmers and medium producers represent 66% of total operations. We also work to ensure that a significant part of the Brazilian population can go back to having what we call financial citizenship. In the second quarter of the year, we recovered more than BRL 2 billion in write-offs. Desenrola is also a special achievement. We have helped 264,000 clients to renegotiate via Banco do Brasil and 241,000 via Ativos S.A, one of the companies from our conglomerates. We have BRL 4.4 billion in renegotiated amounts in less than four weeks of the program, in what I like to call Desenrola Brasil. We are working with an expanded vision, offering special conditions for other audiences, including micro and small companies.
We have always believed in the potential of Desenrola program, and we are happy to see how the market embraced this effort, so that millions of Brazilians may have financial dignity. Our performance in the Desenrola program was guided by artificial intelligence or analytical intelligence, in the audit selection and the client's inclination to operate with BB. In fact, in other occasions, I had already mentioned that we are encouraging digital as the improvement matrix of our organizational culture and the strategic decisions we make. We continue following that path that we're able to set well. This means having a bank with data use and analytical information available to increasingly customize relationship with customers. Once again, I stress my mantra: to have a bank for each and every customer. The hyper-customization in solutions delivery, which maximizes customers' acquisition, has been fruitful and generated relationship value.
Some examples of our progress in this quarter are, personal loan portability via open banking data, which increases the effectiveness and business brought to BB, and our cloud systems and applications optimization, which allows us to scale hyper-customization in all touch points in an increasingly integrated vision and customer service. I also would like to highlight that we have launched a whole set of deliveries that are part of our specialized investment ecosystem, providing news, analysis, and financial education to clients so that everyone can start investing even better. The investments app new version has a revamped journey, including multibank's portfolio, consolidated the data of Open Finance and B3 portfolio, in addition to providing digital support anywhere, at any time. There's more. We launched this week in a pioneering approach, the possibility for the customer to use our multibank financial manager, Minhas Finanças, on WhatsApp.
This is once again our digital pioneers. We are the only bank to bring financial intelligence and convenience in this channel, which is very popular among Brazilians. Another relevant highlight this week, we announced that Banco do Brasil has already started testing Real Digital, which will be the gateway to a tokenized economy, confirming our commitment to always be at the forefront in new technologies adoption and innovation in the Brazilian financial market. All of that shows that this broad work of Banco do Brasil in the economy finds even more relevance when we look at all the initiatives promoted in the ESG agenda. This is a vital topic for our company, and is fully in compliance with the interests of our shareholders, customers, and the society. The ESG agenda is an inherent part of every relationship we have with our strategic stakeholders.
Our bank has one of the largest sustainable business portfolios in the world, with a balance of BRL 321 billion, which corresponds to more than 1/3 of BB's total classified portfolio. As part of this strategy for an increasingly green and inclusive economy, the bank has been supporting its clients in the development of projects that generate carbon credits, mainly as avoided deforestation, which already in the first half of this year, meant the protection of over 500,000 hectares of forests in the Amazon biome. Therefore, considering these ongoing projects alone, we will generate more than BRL 60 million in carbon credits over 30 years. We want a lot more in sustainable solutions. We have made 12 commitments for a more sustainable future.
We will have the opportunity to clarify each one of them in the coming days, I already want to mention three right now. These are all commitments to be achieved by 2030, in alignment with global goals, such as the SDGs and also the Paris Agreement. BRL 30 billion in credit balance for renewable energies, BRL 200 billion in credit balance for sustainable agriculture, and BRL 500 billion of balance and sustainable portfolio. We are signatories of the UN Global Compact since 2003. We gathered efforts to promote main values in the areas of human rights, labor, and environment. I am pleased to announce that we have made the commitment to become ambassadors of three important human right movements of the Global Compact, Brazil.
They are: Elas Lideram 2030, Ladies Lead at 2030, Raça é Prioridade , Race is a Priority, and Salário Digno, Proper Wages. These are initiatives that seek to encourage companies and organizations to achieve sustainable development goals. The compliance is reflected in our commitment to valuing diversity. Also, it is a call to Brazilian companies to recognize the urgency and need to promote concrete actions. BB wants to be recognized as a global player in sustainable practices in business and the financial system. This week, during the Amazon Summit in Belém, we joined several development banks operating in the Amazon region through the Green Coalition in this agenda. We also have a number of relevant deliverables with regards to diversity among the publicly traded companies in the country. We're one of the companies that has the highest female presence in leadership.
For the first time in over 214 years of BB's history, we have a board of directors and a board of officers with greater gender, race, and sexual orientation diversity. Half of the eight seats of our board of directors are held by women. In our board of directors, we also have two Blacks and two LGBTQIAPN+. On the board of officers, we are currently 45% women, a much higher number than last year's 11%. In the executive board, female leaders represent 21% of positions, up from 13% in 2022. These are significant progresses, which continue to be in our focus. The speed of change in these 6 months of management brings to us, Black women, the conviction that the increased participation in decision-making levels is here to stay, definitely.
As in any segment of the economy, maintaining sustainable results in the financial sector is greatly influenced by the country's economic environment. Much has been done in a short period of time, and market recognition has come sooner than anticipated, with rating agencies improving the country's credit ratings. We have never stopped believing in the country and in Brazilians. As I said when I took over, to provide credit is to believe in people. We started the second half with a number of real signs towards structural changes in our economy. The fiscal tax, public debt, dynamics matters are being addressed through reforms already submitted. Inflation is under control, the long interest rates curve is already declining. The scenario, because we are very well-positioned in various lines of business and sectors that tend to perform well to this new moment of the economy.
I believe that Banco do Brasil has all it takes to deliver results that are sustainable and adherent to its capacity to generate business. Thank you all very much. Now I turn the floor to Geovanne, our CFO, for the financial results.
Thank you, Tarci. Good morning, everyone. Let's resume the presentation of our numbers, starting on slide 10. We bring you Banco do Brasil's adjusted net income and profitability. In the first half of 2023, we delivered BRL 17.3 billion in income, a growth of 19.5% over the same period last year. This led to a return on equity that reached 21.4%, the highest level in the series in the year-to-date view, and it's very important to point at that. In the second quarter of 2023, income reached BRL 8.8 billion , an increase of 11.7% in the ROE, or rather, an increase of 11.7% over the same period, equivalent to an ROE of 21.3%.
Going on to slide 11, we'll talk a little bit about what helped us lead, get to these results. We've made significant progress in our loan portfolio. In the expanded view, we've reached the mark of BRL 1,045 billion, a growth of 13.6% in 1 year. It is worth mentioning that 31% of the portfolio is made up of sustainable businesses, completely in line with our commitment to support our clients in the transition to a greener and more inclusive economy, as Tarci mentioned. We want to advance even further by setting bold growth targets. About the individual's loan portfolio, the evolution was of 10%, reaching more than BRL 302 billion in the period.
We would like to highlight, in particular, the payroll loan line, which is a lot less risky, grew 9.3%, reaching a balance of BRL 120 billion. I emphasize that we are competitive and efficient in the origination of payroll loans. Banco do Brasil can offer digital solutions to all of our clients, who can contract most operations within seconds, directly through our app. We have the best app among Brazilian banks. In addition, we have a physical network that supports not only the origination of this type of loan, but also the complete relationship with our clients. Looking to the company's portfolio, we would like to point the significant growth, both in the micro, small, and mid-sized companies' portfolio and the large corporate portfolio. MSMEs grew 21.8% and large corporate, 9.3%.
We also highlight the agribusiness portfolio. Our aim is to maintain our leadership in this segment, which is very important and is part of Banco do Brasil's DNA. We had an evolution, significant evolution of 22.7%, reaching more than BRL 321 billion, driven especially by the lines of costing and agricultural investment. We understand that the partnership with the agribusiness, in addition to being part of our DNA, is also part of Banco do Brasil's mission, and we will remain competitive in this segment, bringing credit and solutions with technology and specialized knowledge to all regions of Brazil. Again, all regions of Brazil.
On slide 12, as expected, the ALLL came in higher this quarter, without a doubt, reflecting the increase on credit risk, and this is explained both by a greater demand, the growth on the portfolio, but a greater demand for provisioning in some specific lines, such as non-payroll lines, and there was a worsening of risk levels. As for the enforcement of the provision, for that specific case that we mentioned before, it was a specific company in large corporate that filed for in-court reorganization in January of this year, so we increased the risk, and in the fourth quarter of 2022, we released the information that we had a provision of 50% for this case, and now, due to the delay in the solution for this in-court reorganization, considering this, we expanded the provision to 70%.
It is also worth mentioning two aspects that distort the basis of comparison and the provision expenses. The first is related to the fact that in the same period of 2022, there was still a movement of a consumption of excess coverage formed due to the pandemic. That's why you see registry for ALLL provision in the previous year, much lower than the levels we have today. The second is specifically related to a credit line that we talked about in the previous quarter that had a change in profile, that was a new agreement, and the loan was transformed into securities, migrating from an accounting view to securities, and it's completely provisioned for, and it ended up being transferred as impairment. The comparison basis for the second quarter of 2023 is lower.
Unfortunately, some analysts did not realize this and talked about how the provision expenses in the second quarter compared to the first, has doubled. The truth is not that. If we were to reallocate it here, the provision expenses we had in the second quarter would have been BRL 6.7 billion, equal to an expansion of 26.8% in expenses when compared to the quarterly view. That's why it's important for us to look in particular to the expanded portfolio, because that includes not only credits, but also securities, and you'll see that the provision expenses have grew 22.6%. I'd like to highlight another point we've been talking about with the market related to the recovery of write-offs.
We had an addition with our networks with the purpose of increasing recovery of write, write-offs, and we have this commitment set forth in targets for our branches. I'd like to congratulate our network. We were able to recover BRL 12.1 billion in the second quarter. An excellent performance, even above what we had originally projected in our budget. Now, on slide 13, we'll show you a little bit of NPL. We maintained solid performance in the quality of our portfolio. NPL rate over 90 days reached 2.73%, and the coverage ratio was 201%, both at levels better than the average of the Brazilian financial system.
In this quarter, part of the balance of the operations of that specific client that I mentioned was worsened in terms of provision and also reached the NPL indicator above 90 days, because it became considered a delay of over 90 days, and that included NPL 2.73%. If we didn't have that specific case, and the in-court reorganization had already been enforced, we would not have suffered this impact, and the NPL index would be of around 2.65%. Moving on to the company segment, it's important to mention the difference that there would, there would be NPL of 2.58%, due to that effect, it would actually have been 2.31%. On slide 14, we will look at our net interest income, combining the result of our loan operations as well as securities. We've reached BRL 44 billion in the first half of this year. That was a significant growth of 36% in the year-over-year comparison.
I'd like to highlight the financial revenues from loan operations and the treasury results, which reflected both the behavior of the Selic rate and the increase in the average balance of the securities portfolio. Net interest margin has increased, ending the period at 4.9%. Moving to slide 15. Here, we're meeting a market demand, and in line with our commitment of transparency, and adding to the disclosure of the other participants in the financial industry, we will start to present the additional vision of our NII, which will bring client NII and market NII. As you can see here, client NII is formed by the result of active and passive operations, all sensitive to spread. Active operations here include loans, private securities, et cetera. The passive operations, we considered mainly commercial funding.
Market NII is formed by the result of the asset and liability management of the bank, considering not only the mismatches in terms of terms, but interest rates, exchange rates, and other items. It also considers the Banco Patagonia NIIs, which has definitely impacted it here. It's important for those who want to understand it better, to separate this, to understand what our market NII would be, and that will be in line with some of our peers in the private market. Compared to the first half of 2022, the growth in client NII was driven by the growth of the average balance of operations and the increase in the spread with clients or NIM.
The dynamics of the market NII in the same period is influenced basically by the movements of the average Selic rate and the volume of securities, as well as the NII of Banco Patagonia. On slide 16. In the first half of 2023, fee income totaled BRL 16.4 billion, up 6.8% compared to the first half of 2022. Most of the lines showed a positive performance, with emphasis on the increase of almost 12% in insurance, pension plan, and premium bonds revenues, and 32% in the consortium line. It's the BB conglomerate helping generate more results for our shareholders. On the other hand, revenues from capital markets decreased by 23%, reflecting the behavior of the industry. The first half of the year was really bad for the capital market operations.
Revenues from asset management remained stable, mostly due to the behavior of the volume of funds managed and the comparatively lower fees in fixed income, which, in a scenario of higher interest rates, gain a lot more relevance. In the same period, administrative expenses totaled BRL 17.7 billion, an increase of 7.4% compared to the first half of 2022. Note. Personnel expenses, which grew 8.3%, completely in line with the salary increase of 8% in the bank collective agreement in September of 2022. While other administrative expenses rose by 5.9%, mainly reflecting the investments that we're making in BB's digital transformation, as Tarciana had already mentioned. With this, we reached, this quarter, the best cost-to-income ratio in our history of 28.3%.
Now we'll move on to slide 17 before concluding our presentation, to talk a little bit about our CET1. We remain with a solid level, a result of strong organic results generation. Our CET1 reached 12.21%, a growth of 20 bps in the quarter, one of the highest among the large listed banks, and also thanks to our net income, which was integrated into that basis. Now moving to the final slide, I'd like to talk a little bit about our guidance.
Considering the performance that we presented in the first half of the year and the most up-to-date expectations of our management, as well as the transparency and the commitment we have with the market, we've decided to review some intervals. In the loan portfolio, we increased the projections of the companies and agribusiness portfolios, considering the performance that we saw that is above what we estimated, and therefore, we've increased the company's forecast from 8%-12% growth. In the case of agribusiness, we expanded the range from 14%-18%. As for individuals, we maintained our guidance, but the reflection of this loan, the portfolio expansion reflects in what we expect for total portfolio, which is a growth in the range of 9%-13%.
We also decided to adjust the guidance for the growth of our net interest income due to what we're seeing, this reflects mainly the growth of assets, but also the expansion of our fundraising structure. We saw in the first quarter, 36% of growth. We're expanding the range and expecting to end the year with a growth in net interest income from 22%-26% higher than what we had originally informed the market. I'd like to point two guidances that we are also reviewing down. The first one, of course, is fee income. We had initially a guidance of 7%-11%, we decided to reduce this to between 4% and 8%.
Of course, we've been having an increase in competitiveness and the scenarios showing higher or greater difficulties for us to be able to achieve more expressive growth, especially in asset management and other lines that we break down in the performance analysis. That's why we understand that the commitment to deliver growth in fee income is higher than other of our peers. It's from 4%-8%, and that is good enough. Finally, we're also adjusting the guidance for our ALLL expanded view to BRL 23 billion-BRL 27 billion . This movement is mainly justified by the worsening of credit risks in the non-payroll lines in the individuals portfolio.
As for net income and expenses, we are maintaining the projections. We believe that with this guidance, we are with a more realistic behavior in terms of what we're able to deliver, but also keeping a conservative position as the scenario is changing. We have already started discussions for our planning for 2024, vis-à-vis some changes in the economic scenario. We expect that we will soon be able to bring a better outlook of what to expect for 2024.
With that, I conclude the presentation of our results. I would like to open our Q&A session. I thank you all for your time and attention.
The first question from Daniel Vaz , from Credit Suisse.
Thank you very much, Janaína. Good morning, thank you for the results. CEO Tarciana, Geovanne, good morning. I would like to go into the details into the renegotiated portfolio. I think now I can hear better. I see a movement in the renegotiated portfolio, pre-Desenrola, and a higher contracting in the quarter. I would like to understand, out of these BRL 6.5 billion of contracting, I believe that we have seen higher volumes for individuals and companies. What is this profile like in the pre-Desenrola? I would like to know if there is any specific program in the bank. After Desenrola, I would like to understand how Tier 1 and Tier 2 are behaving.
How can we see that posted to the results from now on? Is everything going to be posted in the renegotiated portfolio, or are you going to have a breakdown? How can we better understand that so that we can model it and to be in line with your guidance? The profile of the renegotiated loans before and, and now. Thank you.
Perfect, Daniel. This is Felipe Prince . I will start answering your question. First, since the beginning of the year, when this program was announced, we had already found. We also mentioned here that there was some resistance from the agents involved in turning renegotiations effective in the beginning of the year because they were expecting the beginning of the program. When the provisional measure was published, we already saw a process of people looking for this, both in our, our offices as well as in WhatsApp. I think we are the only bank that offers the renegotiation process via WhatsApp. This is a very effective channel for these renegotiations, because it removes that embarrassment that the clients sometimes have, you know, to go to an office to say that they are in debt and that they want to renegotiate a debt.
Via WhatsApp, they have a totally digital journey. We were already expecting that. This has been mentioned by our CEO, Tarciana, in this call, so we already expected that Desenrola would allow us a great movement in paying these loans, these debts. We already developed the strategies, models, profiles, and needs of special discounts, also payment terms and payment installments, and also understanding clients that were more inclined to pay cash, then we would work with a higher discount, or other clients that would be inclined to pay in the longer term, and then we would have to adjust the discount. This strategy was ready to go. When the provisional measure was published and people really reacted well to that, there was a lot of people looking for a renegotiating, so we anticipated the strategy. We started early. At the end of May, beginning of June, we had all that strategy in place in the field, and we did see the results.
Thanks to that, and I just wanna make it clear, that we are not limited to individuals, as our CEO said. We have this Desenrola BB, that also offers renegotiations to companies, to SMEs. All this movement that you realize happening in this renegotiated portfolio is thanks to this movement, which happened especially in the last week of May and throughout the whole month of June.
Yeah, I know that you wanted to fine-tune your estimates, but in, in practice, it's 3.7 of our total portfolio. Our commitment here is to offer the best solution to our clients. If there is an opportunity to renegotiate, we'll talk, we'll renegotiate. What is important is to manage this renegotiation, to avoid that operations turn not renegotiated, and so we do want to provide that possibility of renegotiation.
Perfect. Thank you.
Next question, Raphael Laffranchi, Citi . Good morning, Raphael.
Good morning. Thank you for your time.
We can hear you.
Thank you very much. If you could, I'd like you to comment a little bit about the credit quality. In this quarter specifically, I believe we had some effects. Geovanne mentioned a few times about the higher provisions for non-payroll loans, and there was a specific case in the corporate side. When we look at the guidance review for the year, there's still some indication of the provision expenses at around the same level for the second half of the year. Even though it seems that there are some one-off effects this quarter, the expectation is the same level on the second half of the year. My question is, how you see the evolution of this over the year?
Another question on top of that is if you can explain what it is, that worsening on non-payroll loans, the reasons behind that, if it's a new level that we should consider for the future, or if it was a specific effect?
Well, Raphael, thank you for your question. Let's try and clarify your doubts. First, as Geovanne mentioned, in the provision expenses in the second quarter, we have a relevant number for the increased coverage in a specific case on the corporate line, when we expended provision due to the delay of that closing of that in-court recovery plan, and we actually have a flow of provisions that come from the individual's loan lines and non-payroll loans. Looking at the future, what happened? We have the performance of this non-payroll loan, the historic numbers. Of course, we're always fine-tuning our models, both for granting and provision, the reality of the market, to the reality of the market. I believe you can even follow this on the Central Bank's reports.
Even though our individuals NPL has decreased, the market NPL in general is still at a growing curve. What we did, in most part, was to adjust the models of expected loss related to that, those non-payroll lines. Of course, that brings an effect into provision expenses, but what we can declare is that the new originations, in addition of being, to being more qualified, they also maintain our faithful strategy of that adequate re-return adjusted to the risk. What should be taken into account is the size of the portfolio. The portfolio today, in the classified view, is very close to BRL 1 trillion, it's only natural that you have an organic generation of provision expenses, that's what we call the good cholesterol, that will be a little higher.
We understand that these expenses are normalized, and they makes us confident that we can continue, faithful to executing our strategy and presenting it to you, both a higher quality portfolio when compared to the first quarter, we were promising that already, and that we remain with an appetite, but it's a very selective appetite, to expand responsibly and sustainably our loan from now on.
Excellent. Thank you.
Our next question is from Tito Labarta, from Goldman Sachs.
Hi, good morning, everybody. Thank you for the call and for taking my question. My question's on your, your level of profitability. You know, congratulations, your ROE continues to be very strong. Just to think about how, how that should evolve from here. I think, you know, some concerns as interest rates start to come down, your, your net, your net interest income has been strong, and you increased the guidance there. Thanks for disclosing the, the, the market NII to, to make it a little bit more comparable to your peers. You know, as rates come down, could, could that bring some pressure on your overall margin? You know, conversely, you know, loan growth, you seem to be doing, you know, better than peers. Maybe you're behind the peak on, on provisioning, it could seem.
Just think about the, the moving parts and, and how you think about profitability, particularly going into next year with interest rates coming down. Thank you.
Hi, Tito. Thank you for asking. I'm gonna switch to Port, is okay? In fact, Tito, what we are doing is that we are paying attention, we are trying to analyze which will be these impacts. The Central Bank already analyzed their expectations to reduce the interest rates. If we look at our assets and liabilities, we have a liability that is a higher exposure to the post-fixed money. In the short term, the lower interest rates will improve our NII, as my funding cost is going to come down faster. On the other hand, we will tend to have a repricing of my loan portfolio. The average period of time for this repricing is 18 months. Even going towards 2024, we believe we will be able to maintain NII stable, relatively. We did run some simulations.
For every 100 basis points of 100 basis points of interest rates reduction, we are going to have an impact, a reduction in our NII of around BRL 89 million, BRL 90 million. This is a very residual impact, I would say. We do have a conservative structure, and at the same time, we are protected thanks to these mismatches. As we have a better scenario with the lower interest rates in the economy, we also should expect an improved economy. We will have expansion in businesses. We will expand credit and loan operations, ensuring our profits in the bottom line. That's why we are confident that even with this easing cycle scenario, with the reduction in the interest rates, we are not going to be hit so hard in our NII.
Yeah. Maybe just, is it correct to assume, that your provisioning can kind of decline, and I think loan growth remains strong, so that should also kind of potentially be tailwinds for next year?
It will depend on how fast we re-negotiate those debts that are-- The debts. It is important to remind that, especially for individuals, as we worsen the risk, we go down in the ladders based on the resolution of the Central Bank, and then we have to reinforce our provisions. That's why we need to be more proactive in credit renegotiation, so that we do not allow this credit to be too much overdue. Because as it is, becomes overdue growingly, and then it goes down in that risk scale and requires a greater provision. That's why we are being very proactive and diligent in helping clients to reprogram themselves and manage the payments. We don't want them to be late with their payments. We want them to work this out and to be paying their loans on the right days.
If I can add, Tito, looking at 2024, as Geovanne said, the impact and the NII, because of the Selic reduction, is neutral. We have a possibility of increasing our NII by increasing our portfolio. At the same time, the benign macro scenario also brings us another possibility, which is to have well-behaved provisions, I would say, growing with the portfolios, I would say. These movements benefit our profitability, which is still strong in 2024.
Next question from Gustavo Schroden, Bradesco.
Good morning, everyone. Thank you for this opportunity. I'd like to change the focus a little bit to discuss the guidance. You reviewed it, increased NII provision, reduced fee income, and at the end of the day, there was the maintenance of the results of net income. I'd like to understand, what type of dynamics we should expect in other lines that are relevant to the results, but that are not contemplated in the guidance? I'd like to understand, for example, legal expenses, what we can expect from them, because in this quarter, it went down from historical levels of BRL 1.4 billion-BRL 1.5 billion to around BRL 900 million. I'd like to understand how this would behave over the year and the Previ results as well.
It continued at around BRL 800 million, BRL 900 million , If I'm not mistaken, there's been already a change in marking assets and liabilities with the new interest rates. A part of it's already been transferred to the results. How would Previ be expected to be on the second half of the year?
I'll start with the legal risk. I believe you can consider that we should perform legal risks at the levels we delivered in the first quarter. In the third and fourth quarters, we would probably be very close to what happened in the first quarter. What happened this specific quarter was a movement, a process, movements that we were successful in reversing.
It's important to make it very clear, it is not any tax issue, it's a civil demand, and we've been fighting for quite some time, and our legal department was successful in reversing that decision. It's a final ruling, we have adapted the provision to what we effectively have to pay in the closure of this demand. We've also been incentivizing or fostering the agreement processes. It's an initiative that our management has been trying to implement regarding legal risk. We understand that a lot of the demands in Brazil end up taking too long, and we have financial losses in the maintenance of those demands. We've been implementing models here to try and set agreements that are favorable to the bank, and that may bring an impact in provisioning as well.
Looking forward, you can expect the normal levels that we had been delivering in the past quarters, and the first quarter of this year, excluding that specific point of the second quarter of 2023.
Yuri, about Previ, the anticipated results last quarter was BRL 884 million, and now we're guiding you towards BRL 560 million as of the third and fourth quarters. It's important to keep in mind, basically, on Previ's case, since it still has a surplus of BRL 20 billion, there was an adjustment in the discount rate. It was of 8.9%, and now it's 7.16%. Already re-reflecting this environment of reduction, the curve is closed and this adjustment was made.
Since there's that surplus, it doesn't have a significant impact on the bank, and we're applying this reduction of what's expected to BRL 500 million and something quarterly. In the liability, or, rather, in the equity view, the impact is the actual impact of the health plan. There's no guarantee in asset, and the adjustment is made directly in the equity. We're having an increase in profit that is sufficiently large to support these adjustments that reflect that post-employment benefit within the, in Banco do Brasil's employees' health plans.
Excellent. Thank you.
Thank you, Schroden.
Our next question is from Yuri, from JP Morgan. Good morning, Yuri.
Good morning. Can you hear me well? I have one question. Hello, everyone. Good morning. I have a question on the regulatory area. This is something that is in the news every day. We have a possible end of the interest on equity. We have daily discussions on ceilings of interest rates in the revolving credit. I would like to hear your opinion. I know it's not up to Banco do Brasil, but how can you have Congress and people understand that our balance is here, you know, that something, you know, needs to be balanced out? I would like to understand your point of view on that topic. This is a matter that is on the mind of all the banks, and because of that, this is something that is being led by Febraban.
Banco do Brasil is a member of Febraban, the federal administration has already proved that they are open to discussion and, and other discussions also, we have had this opportunity. It's important to have this open communication between Febraban, the government, the Congress, looking for the best solution so that we do not have a negative impact in the sector. We believe that a possible solution will privilege whatever is better to continue business expansions and our economy and, and the country. When we see, you know, the, the, the news and, and the headlines, the, the headlines with interest rates and also the interest on equity, and, you know, we look for a growth in a sustainable fashion. We understand that interest rates and the revolving credit, for us, this is not a credit line.
For us, this is a help line for our clients when they are not able to pay their bills. The average period of time here when a client maintains that revolving credit is 18 days, 20 days. We do not have clients that are carrying over this revolving credit for a year. We always say that whenever we have a client that is going through a hard time, we offer them a credit line, which is different. This is in the long term, this is cheaper, and it doesn't have such interest rates. For our business itself, we are already, we already have a sustainable practice. We look for loan lines with lower costs for our clients.
In the, in the business, in the sector, I'm sure that, you know, this is already being discussed between the government, the Congress and Febraban, which represents all the banks, and they are, I'm sure, discussing all the issues that you raised.
Okay, thank you very much, Geovanne.
Let's move to our next question. I'll call Bernardo Guttman from XP.
Good morning, everyone. Thank you for the opportunity to ask my question. I'd like to go back to a point about the loan portfolio. Considering the challenging macro scenario with a high indebtedness level of families, I'd like to understand better the expectations for the performance of the individuals portfolio, especially clean co credit, like cards and personal loans. If you can give us an idea of the percentage of approval for cards before the pandemics, at the height of the pandemic and now. It would be interesting for us to think and understand this segment looking forward.
Bernardo, let's start. Thinking there's clearly a focus on the payroll loans. As Pres, CEO Tarciana mentioned at the beginning, we understand that there's relevant room for us to grow in this segment, not only maintaining our leadership in public payroll loans, but to advance in the public pension plan, deductible loans, as well as on private pension plans. We are working a lot on the digital originations, then I'll link this to your question. What have we done differently from the expansion strategy that we had during the pandemic and now? We have revisited all of our onboarding tools, integrated multiple types of technologies to this process that we did not use before, and this triggers better origination with higher accuracy of the clients that join the bank, as well as a drop on our indicators of electronic fraud.
Giving some color in terms of the approval, we had an X volume of approvals during the expansioning period. In 12 months, we were able to put 1 million of clients that were taking loans, and we brought them in. Now, we have adjusted our metrics, and compared to that phase, we are now approving 70% less than we did in the past. Always backed by this entire framework, where we want to subscribe the client who is. I n fact, wanting to do business with us, that goes through a whole sequence, not only of fraud assessment, but also a credit evaluation. At the end of the day, we make an offer that is very suited to the profile of that client, which is one of the mantras that we've been following, which is to have a bank for each and every customer.
We come from digital origination that was exclusively dedicated to cards, and now we bring in our clients in the global view of their business. After describing all of that, that I mentioned, we look at their situation, and then we offer a card, checking account, personal loan, or consumer credit, and that reflects in the expansion of our businesses with the clients.
That's why we believe that once the cycle becomes more favorable. You talked about the family's indebtedness level. Today, for the first time, the information was disclosed that this level has dropped slightly. Combining that to a reduction on interest rates, the Desenrola program, we understand that we have a very favorable third and fourth quarters for us to implement our strategy, always based on the adequate risk and return of our deals, our business.
Very clear. Thank you.
Thank you, Bernardo. Now turning to the next question, Mario Pierry from Bank of America. Good morning, Mario.
Good morning, everyone. Congratulations on the results. I would like to go back to ALLL. I would like to better understand why you had to revise up your projections for ALLL, considering that the economic scenario today is a little bit better than what we had in the beginning of the year. Why was it worse? This was a surprise. You said, as expected, the provisions were up, but I think the provisions are up more than expected. I would like to understand if in this new guidance, you are already reflecting provisions that are specific to the company that you mentioned, that you had to increase the coverage in this quarter.
If in this new guidance, you are considering already 100% of provisions for this client, in the middle of the guidance, we talk about BRL 25 billion of provision for 2023. That means that in the second half, the provisions should be lower than in the first half of the year. I would like to better understand if that's what you're thinking, if there may be a higher provision in the third quarter, but in the fourth quarter it starts to come down. Is that it?
Well, in a way, this is our expectation, right, Mario? As the environment improves and the, the Desenrola results reduce the leveraging, it helps to extend families' payments, and I believe we will be able to have better results on this item. I would turn the floor to Prince so that he can talk about how he sees risks from now on.
Mario, I will try to go into the details here. Maybe this is a question, not only yours, but from other colleagues. First, I think we have to isolate expenses from provisions. We go back to that slide when we look at the credit risk, we have to take into consideration that in the first quarter, we did have an adjustment. An operation, and a specific operation was renegotiated. It was fully provisioned in credit. It was renegotiated in securities, and we also applied a full impairment to that security. Although it, it does seem to have higher expenses and provisions and, and a large amount, when you go back with that BRL 1.7 billion, more or less, you realize that the expenses increase was around 25%, as Geovanne mentioned.
Now explaining a little bit more this increase to 25%. We do see, as I said, in the market, is still a process of adjustment of individual loan lines that are non-payroll loans. We have delivered what we promised, that we would reach to that peak of delinquency of NPLs for individuals. You see a reduction of the NPLs in the second quarter. This is part of a strategy that was a mix that we put into practice. In addition to that, we have, in non-payroll loan lines, still a high risk. We adjusted our models for expected losses. Remember, the expected losses models feed our pricing engine, so it is obvious that we want to grow. We are choosing, and we do have a strategy with clients that we would like to grow with.
Obviously, this has to be rightly priced to the risk that we have in the market. This adjustment was done, and this ends up bringing in more expenses to our inventory, but also for the new non-payroll loan originations. This is what happened, and this is reflected in the figures of the second quarter. Obviously, the if the interest rates reduce, and that is happening, and when that happens, we have less provision in the post-fixed portfolio. We also have the Desenrola program, which should help a lot, and the general improvement in the environment. For the first time, families' indebtedness is coming down. All of these elements are still in, not in terms of more provision expenses for Banco do Brasil, but on the other hand, you can see our performance in recovering it. This is very favorable over the year.
It is driven, first, by a seasonality of the second half of the year, where we have more funds in the economy, and naturally, we recover more of those credits. We also have the full Desenrola program in, in both areas that should be happening now in the second and fourth quarters. Also, our all-time history of recovery, which is usually higher in the second half of the year. Maybe we are, are saying here that we are going to have a little bit more expenses in terms of provisions because of the reasons I explained. When we look at the extended ALLL and the global credit risk, you will see a slight reduction. In some cases, also for wholesale, they are very close to being solved in the second half of the year. All of that is considered.
Also, you know, going towards the end of your question, a possible worsening for that specific case, for the full provisions in the second half of the year. That will depend on the success of the in-court reorganization process and, of course, of the expected funding from BRL 10 billion-BRL 12 billion.
Thank you very much, Prince. Just a quick follow-up.
Of course.
What is the macro scenario? How has that changed for you from the beginning of the year to now? Which are your growth expectations for GDP, Selic rate, and inflation growth? We are just starting to debate around these topics. This first, 0.50 drop in our interest rates improved the expectations, right?
Yes, as Geovanne said, we had our first meeting, aiming to develop our corporate strategy, the review for the next five years. We were already contemplating a Selic rate reduction in August, as it has happened. Our model was a little bit more conservative. The interest rates did drop a little bit more than what we expected, and all of that is being still integrated into our, our strategy. If I were to tell you a guidance for 2023, where this is affecting us more, it, it would be in the agribusiness performance. We do see a, an even more favorable trend to expansion production, the agricultural production in the second half of the year. We did have some risk aspects in place, but they did not materialize, especially in terms of price drop.
Geovanne can say it, and I don't know if it was here or when we talked to the media, but we end up being a reflex of our country's GDP. Considering that we have a strong contribution from agribusiness to the Brazilian GDP from now up to the end of the year, we are sure, because we are market leaders, and we understand that we have everything to cater to clients in this segment, that we will be swimming in this favorable current. At the same time, the interest rates reduction, along with the appetite of the capital market, which also came back, and that should feed the loan lines for companies, starting with small and medium companies. It's important to mention that we are again operating with Pronampe. It was suspended for 15 days.
On July 1, we started operating Pronampe again. In less than one month, we disbursed BRL 1 billion in the line that, as you know, has the guarantee of the FGO, a fully controlled fund, controlled by the government. We have Pronampe, FGI, which is once again being offered in the second half of 2023. We do have this loan heating up for SMEs. The capital markets, again, heating up will affect the business volume with large companies. In our opinion, we are in a very favorable scenario. It's important to say that maybe we have never been as well prepared to move forward in businesses.
Within a favorable scenario, which is already there, we believe. I think we can expect good tailwinds for this ship, which is Banco do Brasil.
Thank you. Thank you, Mario. Next question, Ricardo Buchpiguel, BTG.
Good morning. Congratulations on the results. I have a doubt here about capital. With the change in the credit rule in July, should we see an increase in the ca-- in the bank's CET1, as was indicated by private peers? Also, about Desenrola, the tax credits generated in the negotiation process, will it be discounted from the bank's CET1, or? If that's the case, how was it accounted in RWA, would have a negative effect at Basel.
Well, Ricardo, in the Desenrola case, the CE, the capital effect on the Tier 2 tends to be positive, not negative. The mark is similar to what was done at the time of CGPE, so we have the same effect. Regarding Resolution BCB 229, the impact for us ranges from neutral to positive, considering we have less exposure in the credit card portfolio. You can estimate between 10-20 bps.
Perfect. Positive, okay?
That's clear. Thank you.
Just one second. Let me look here where our next question is coming from. Next question is from Arnon Shirazi, Santander.
Hello, everyone. Good morning. Thank you for the opportunity. My question is about 2024. I would like to know if you're already sharing anything for next year. What is your mindset? Also about Selic rate drop, how that has affected Banco do Brasil's top line, but I would like to hear a little bit more.
Arnon, thank you. As I said, we're starting to discuss this now in the second half, and we're going to effectively be able to get a better view of what 2024 will be. In the third quarter earnings call, maybe we can bring a lot of color to you about this. Our perspective is very favorable due to this improvement in scenario, reduction of interest rates, resumption of growth, reduction of the family's level of indebtedness. We are very optimistic looking towards the coming months as well as the year 2024. As for the impact I mentioned, for every 100 basis points, it should be at around BRL 89 million-90 million of reduction in our margin. For each 100 basis points of reduction in Selic rate, around BRL 89 million-90 million in NII.
That's also affected by the growth of credit portfolio, loan portfolio, right, Geovanne?
Yes, definitely. We're really going to be able to work on that and a responsible growth in volume.
Is that okay, Arnon?
Thank you.
Our next question is from Nicolas Riva, from Bank of America.
Janaína and team, for taking my questions. The, the first one is just a follow-up to confirm. Janaína, did you say that the impact of communication 229 from the Central Bank, the positive impact on capital is only 10-20 basis points? Because, I mean, Itaú and BTG guided for a much higher impact. Itaú said about 100 basis points, BTG said about 80 basis points. You did say it's because also of lower exposure to credit cards. My understanding is that the risk weights are coming down, not just for performing credit cards, but also for SME loans, for corporate loans, even for some residential mortgage loans, depending on the loan to value. I want to confirm that you are saying only 10-20 basis points positive impact in your case. Can I have the confirmation?
That's right, Nicholas. The impact that we are estimating between more or less of these lines are a this is a positive impact of 10 to 20 basis points.
The second question is on the perps. I know I keep asking this every, every earnings call, but I'm gonna ask it maybe in on a different way this time. You have both the 6.25 and the 9 next year. You have to make a decision whether you're gonna call them or not. Between the two of them, it's roughly $4 billion, just below $4 billion. Would it be correct to assume that you would like to keep at least 150 basis points of AT1s, which really means that if you were to call both of them, you would be replacing at least or issuing new perps for at least $3 billion?
Also in terms of strategy, if you're gonna be looking for a window to issue both domestically or abroad in the next few months, that's my question. Thanks.
Thanks for the question. Yeah, you're right. Around 150 basis points, okay? Okay. Probably, it would need to issue new AT1s, domestically or abroad. It will depend on the market window, okay?
Okay, thanks, Geovanne. One thing, the idea we need to, to keep at least 150, or actually you would like to, to have that level just 150 risk response of 81?
On average, 150, it's okay for us.
Thanks.
Our next question is from Eduardo Nishio, from Genial Investimentos. Nishio, we cannot hear you. You're muted.
Can you hear me now?
Yes. Hello.
Good morning, everyone. Hello, all. Good morning. My question is about the guidance. The two major changes were in the NII and expanded provisions, and I have questions about both. The expanded provision, I would like to go back to prior questions. Considering our calculations, the peak would be in the second quarter, considering that you had the expected loss, that you reviewed your models in the second quarter, and that specific case also affected the second quarter. Can we expect that the nominal peak for the expanded provision would be in the second quarter?
Looking at the NPL individual curves, can we expect, looking at 2024, that we may have a reduction, a nominal reduction in provisions vis-à-vis 2023? This is my first question about provisions. My second question about NII: Looking back, when there was an increase in the Selic rate, there was a negative impact in the NII. The simulation you ran is pointing to another NII reduction if the Selic rate comes down again. My question is, in this period, in the short term, should we expect that NII have a positive impact with the Selic drop in the next quarters?
Nishio, we start by the second question, and the first one, I'll turn to Prince. Yes, like I said, in the short term, we do have a positive impact. Why when the impact was negative when it increased? My funding cost is post-fixed, and that increased fast when there was a change in the Selic rate. Now, when it turns around, my cost comes down, and that generates a positive impact in the margin. You have to take into consideration that on the asset side, considering it is pre, it would have to last with a duration of 18 months, and that's fine, we do have a more competitive environment. We have rates for a lower amount, lower amount in loans, and we rather have a conservative approach. Basically, BRL 80 million-BRL 90 million in a month is stable, it's almost zero.
We are giving you this sensitivity, but again, being very conservative, and that has to do with how fast clients will want to switch that credit or to work with the portability, and then we would have a price competition there. It's not anything serious. Nishio, remember that our funding expenses, our funding structure, here, we have more or less half of that attached to savings, savings or core deposits. That type of funding does not have an automatic repricing. It will only reprice once Selic goes down 8.5%. That's why the impact now in this going down curve, especially in terms of the funding, this is important, yes, but it is not affecting our whole funding base.
Yes, that's a good point. It's not as elastic. Now, moving to provisions, Nishio, like I said, you can expect expenses to be normalized, the expenses that we had in the second quarter, when compared to the coming quarters. For the next year, I think you can consider that it will be proportional, and, and it will be-- Yes, and the nominal should not come down because we have a perspective to increase, to grow our portfolio, to seize this moment. As I said, we are prepared to surf this wave. Nominally, it should grow, but always attached to the portfolio growth.
Is that okay?
Excellent. Just to clarify, it grows less than the portfolio next year, probably, right?
In line with the portfolio, Nishio. In line .
Good. Thank you.
Next question, Carlos Gomez-Lopez , HSBC. Carlos, switch you to English?
Yeah, I can switch to English, no problem. Thank you very much. My question goes back to the capital. On page 17, you show the evolution of capital, and you show the impact of the actuarial assumptions and the MTM. It's a small impact, so I suspect that the impact of CASI is actually larger, and it's offset by others. Could you tell us what the impact of the actuarial assumptions would be on CASI? What do you expect, you know, the future impact to be as rates continue to go down? At what point would Previ, Previ surplus start to also impact your capital ratio?
The second question is regarding the upcoming change in risk weighting for operational risk. We understand that has been delayed until 2025. We wanted to check again what your initial estimate about the impact might be. Thank you.
Yeah. Thank you, Carlos. With regard to the first question, actuarial expenses from CASI. Definitely, CASI, we don't expect a huge change in terms of expenses, especially because it will depend, of course, on-- will depend on other variables, because as I said, CASI does not have assuring, guaranteeing assets. The adjustment is made in a constant basis, because this liability for Banco do Brasil will always be followed for as long as we have health plans for our employees. I don't think we release an estimate, a specific estimate for CASI in terms of capital consumption. I mean, this quarter, it was of around 18 bps of impact. Carlos, at this time, we don't have an impact of Previ on CET1.
It would mark the capital if there was a deficit situation, and we don't have this perspective. We work with capital banks so that if necessary, we can absorb any impact, any potential impact of actuarial. Looking specifically at Previ, as we have a more benign scenario, also favors the formation of surplus results at Previ. In terms of the reduction of the discount rate, it was probably all of it was absorbed, so there won't be such a significant impact. About your question about the operating risk in our estimates, I believe we released this information on the last call. It was between 100-150 bps of reduction, with the implementation of the operating risk aspects that, as far as we're concerned, is as of January of 25.
It's nothing official, but according to the contacts with our peers and the Central Bank, this will probably be left for January 25, with the possibility of this implementation being a phased process.
Limited, and the, it would be a delayed impact to increase dividends?
No , we'll maintain dividends at this level. Well, we'll take it easy. We have until 2025 to see how the tax reform develops. We also have regulatory issues. I mean, we believe that today we have one of the best payout ratios in the system. We consider that 40% is adequate, and it has been allowing us to maintain the growth of our base in a sustainable way, maintaining this muscle so that we can also support growth. We can't lose track that in a more benign scenario, the growth of the economy will open opportunities for us to grow our assets even further. For that, we need to have a solid capital base as a CET1.
Thank you.
To conclude, we will turn to our last question, Renato Meloni from Autonomous.
Good morning, everyone. Thank you very much for your time. I would like to go back to NII and the market. I would like to know if this is sensitive to the interest rates. Specific for the market, NII, I understand that you're talking about the consolidated NII. Second, when you look at the end of 2024, 2025, if we go into a more stabilized interest rate period, what do you expect it to be a recurring result for this line?
Well, we do not have that-- We, we are not disclosing that information. We are always bringing information to you under a consolidated point of view. This is the first time we are bringing in this new metric, even to be comparable to our peers. We were already testing these figures. That's why we started with our historic series. Looking at the market NII, the ideal situation here would for it to be in that, because then we have everything for the clients, NII, but the drop in the interest rates does help right now our market NII.
Okay. Thank you very much.
Thank you.
We now end our Q&A session. I would like to thank you very much for participating in this call, and I would like to turn the floor back to Tarciana for her final remarks.
I would like to thank you all for being here with us in this conference call. Thank you very much for your questions. Thank you for the true interest in our business. I would like to tell you that you may remain confident. As Prince also repeated, we are trustful about our results. We are confident about the sustainability of this company in the next quarter, and in the next quarters that we'll have in the future. Thank you all very much. See you in the next teleconference. Bye-bye.