Good morning, everyone, and thank you for waiting. Welcome to Banco do Brasil 1st Quarter i 2020 earnings conference call. This event is being recorded, and all participants will be in listen-only mode during the company's presentation. After this, there will be a question-and-answer session. At that time, further instructions will be given. Should any participant need assistance during this call, please dial star zero to reach the operator. This conference call is also being broadcast live via webcast through Banco do Brasil website at www.bb.com.br/ir, where the presentation is also available. The replay of the conference will be available through the phone number +55 11 2188-0400 until May 15, 2020, in English and Portuguese. To access the replay, please ask the operator to listen to BB's conference call. Identification will be required. Participants may view the slides in any order they wish. With us, we have Mr.
Hamilton Vasconcelos Araújo, CFO, and Mr. Daniel Alves Maria, Head of Investor Relations. Mr. Daniel Alves Maria, you may begin now.
Thank you, thank you, Federico. Good morning, everyone. Thank you for attending the call. I hope that everybody's well and safe. Let's start the presentation on page four. Page four, we bring the earnings highlights. First of all, for 2020, we tend to have an impact coming from the new coronavirus, COVID-19, and we expect some impact in this first quarter. We observe it, mainly presently. Credit provision that we did in the total of BRL 2 billion. This movement implies a growth in the credit provisions of 63% when we compare to the first quarter of 2019. The impact of this was in the adjusted net income. We had a reduction of 20%, reaching BRL 3.4 billion in the adjusted net income. For the other metrics, for instance, NII, we observe an increase of 9.9%, reaching BRL 14 billion.
The fee income, we reached BRL 7.1 billion, an increase of 4% in comparison to the first quarter of 2019. In administrative expenses, we had a growth below inflation, 2.7%, reaching BRL 7.8 billion in administrative expenses. Now, moving to page five, we bring the net income and profitability. As I said, we delivered BRL 3.4 billion in this quarter. This analyzes to represent 12.5% in return on equity and return on assets of 0.8%. Probably another way to look at the results is to look at the pre-provision operating profits. In these metrics, we exclude these movements, prudential movements of the independent provisions. We saw an increase of 15.4% when we compared to the first quarter of 2019 and 7.8% in relation to the fourth quarter of 2019. This shows that operationally, the bank is bringing better numbers.
We can move to page six that we bring the more description of the NII. First of all, we have a quite resilient NII. It grew 9.9%, as I said, in comparison to last year and a reduction of 1.8% when we compared to the fourth quarter, and this is mainly due to the structure of the assets and liabilities that we have. For instance, we had a reduction in the base rate of about 30%. Our funding cost is following the trend of the base rate, reducing the costs in 30.2%, mainly because the liabilities, the net position is slowing. The treasury results observed an increase of 6.3% when we compare to the first quarter. However, we see a reduction in comparison to the fourth quarter, and this is mainly due to the new interest rates, and we see some decrease in the loan operations revenues.
This is a consequence of the new base rates in the economy and also some products, for instance, the overdraft facilities that we have, new regulations limiting the interest rate that we charge for it, that we're going to discuss much more ahead. Now, we can move to page seven that we show the credit provisions, and I would like to highlight in the first quarter this prudential credit provision that we presently adopted. This represents BRL 2 billion, and this implies an increase in the cost of risk moving from 3.15% to 3.41%. We can go to page eight that we show the behavior of the NIM and the credit spread for the portfolio. First of all, we see a reduction in NIM from 4.37% to 4.24% when we compare fourth quarter to the first quarter of 2020.
We see an increase when we compare to the first quarter of 2019. We have different trends here. The movement from 3.97 to 4.24 is that movement that we were in the process of changing the mix going to lines that shows better profitability. However, in the fourth quarter, we had one point that expanded, that is basically the gap that we have for the overdraft facility that impacted the credit portfolio, as we show in the right-hand side of these slides. You see, for instance, that the credit spread that we have for the portfolio moved from not credit spread, but the portfolio spread moved from 8.19 to 8.43 for the loan operations for the portfolio.
When we look at the spread separate by segment, you can observe that the contribution of this reduction came from the individual's portfolio, and this can be explained by the gap in the overdraft facilities, as I said. Also, for the NIM, coming back to the left-hand side of the slide, you have also reduction in the treasury that I mentioned previously. The adjusted NIM, risk-adjusted NIM, can be explained by the higher credit provisions that we made in these periods explaining these movements. We can move to page nine. Page nine, we bring the loan portfolio. We have an increase of 5.8% relative to March 2019 and an increase of 6.5% when we compare to December 2019. By the way, when we compare March to December, we have an increase of 45 billion BRL in the loan portfolio.
BRL 22 billion can be explained mainly by the FX evaluation. We have some portfolios that they are referenced in FX, for instance, the portfolio block, for instance. We have also the government portfolio that we are going to discuss ahead, and some of the highlights that we have also in the growth of the portfolio is the growth of the SME and the individual's portfolio. By the way, those are real referenced. There is nothing to do with the foreign exchange. Also, something I would like to highlight is the dark gray part of this bar that are the company's portfolio. We have an increase in this first quarter of 2020, and this is basically due to the dynamics of capital markets that we're going to discuss a little bit ahead. Moving to page 10, we bring the individual's portfolio.
As I said, a growth of 9.6% in this portfolio. Some of the highlights of this is the growth in the payroll loan of 16.4% March on March. And the consumer finance that we observed an increase of 36% is, by the way, that part in the bar in yellow. 41.5% of the loans originated in the first quarter of 2020 were made through the app. This shows the penetration of the digital solutions for this product. Moving to page eleven, we bring more color in the company's loan portfolio. First of all, as I said, we had mainly an increase in the December compared to March 2020. This increase can be explained by the company's portfolio. Companies with revenues above 200 million reais, that is the gray part in the portfolio. This movement is basically because we have been servicing those customers through capital markets.
As the capital markets shut down, certainly there is more demand, and Brazil provided credit to our customers. But we understand that as soon as the capital markets open again, those loans tend to migrate to capital markets, and finally, just some highlights in the SME portfolio. We show the yellow part of the bar. We open here on the right-hand side how is the growth of this portfolio with some observations about the composition in the short-term profile of this portfolio and working capital. Now, moving to the next page, page twelve, we bring the agribusiness loan portfolio. We have basically two dynamics here. The total portfolio, including the agribusiness, we see a reduction year on year from 187 to 186. However, this basically can be explained by the dynamics of the agribusiness.
That's quite similar to what we observed in the large corporates going much more to capital markets and so on. And when we look at the rural loan portfolio, we see a growth from 169 billion BRL to 173 billion BRL. And this participation, this 173 billion BRL in the rural loans represents a market share of 64.2% in this market. Just some highlights about the performance of this portfolio. First of all, the CPRs, it's rural product bills. It's a negotiable instrument and guarantees grown in this portfolio by 60.2% when we compare March 2019 against March 2020. And 80% of the transactions done in the first quarter of 2020 were done through the mobile, showing that more products that we have a high penetration in the digital formats. And another highlight is the growth in the working capital, 3.9%.
And by the way, 52% of the working capital that we have is insured by or has any sort of mitigation, whether insurance or price insurance or whatever. Moving to the next page, page 13, we bring the credit portfolio. By the way, we saw a reduction in the NPL plus 90 days. We reached 3.17%, including the specific case that we did in Chapter 11. This is below the industry that reached 3.20%. When we look at these metrics through the coverage ratio, we reached 200% in coverage ratio against the system that went down to 193%. Moving to the next page, page 14, we bring the credit quality divided by segments. First of all, we have the individual's portfolio. We show some growth in the NPL plus 90 for this segment that gives us a sound coverage with 199%.
Company's portfolio, so far, we see a downward trend, reaching 2.83%, including the restructuring case. When we exclude these, it's lower, and in terms of coverage, we see growth in the coverage ratios, reaching 283%, considering the case. And the same for agribusiness that we saw the NPL reaching 3.75% and have presented a good coverage for the industry, not for the industry, but for the segments with 114%. Moving to the next page, we present the new NPL, the new page fifteen. On the bottom part of the bar, we show the new NPL format in each quarter. By the way, we didn't show here the exclusion of the specific cases that we had in the second quarter and third quarter that explains why it's higher. But we show here by segment in the dotted line, and we show also the coverage ratio for the new NPL.
You see above 100% and mainly this quarter, 126%. Next page, page sixteen, we bring the Fee Income. We had an increase of 4% with the first quarter trailing compared to the first quarter in 2019. We bring some highlights of some lines that were presented similar. We can start with ratios and the efficiency ratios. Administrative expenses grew 2.7% below inflation. Just observe that personnel expenses grew almost inflation. These having an increase of the personnel above inflation, this shows the cost control and the measures that the bank did to manage this. In terms of the Fee Income to administrative expenses, we reached 93%. By the way, something to highlight is the concern about efficiency and cost control with sustainability. By the way, in the first quarter, we had the inauguration of the first solar plants that the bank could buy this product.
This brings efficiency in terms of the reduction cost and also moves to the energy metrics of the bank towards a more clean energy. This is the only first step in others that are in progress. Moving to page 18, we bring the capital and the CET1. CET1 was almost stable when we compared to the last quarter. In the bottom part, we bring just the building blocks of this. Just highlighting, we had consumption coming from RWA, about 84 basis points, actually 84 basis points. We had also some gains, some increase in capital coming from a resolution issued by the regulator that allows that some tax credits will not be reduced from the capital base. We had also the repricing of the extraordinary position that contributed with 31 basis points in the capital. Then this way, we have almost a flattish movement for the capital.
Just to get some time to speak about the digital process. By the way, we have been investing a lot in the digital experience of the customers and the digitalization of the process. This is a consistent process, and we have been talking a lot with you all about this, and by the way, our app consistently is the best evaluated app in the Brazilian system, and this is for we have been doing we have been delivering this in the last years with a quite sizable number of evaluations, and also, we have a new strategy of having an omnichannel approach for the products in a way that you can reach the customers in different channels and you can manage this.
Also, all those investments that we have been doing the last years certainly put us in an unrivaled position at the moment we want to offer to our customers a remote service. Just some examples, our transactions made by app and internet that used to be 80%, 81%, reached 84.5% in the first quarter. Other initiatives that we have, and just an example, we issued 6 million credit cards with NFC in addition to the Apple Pay and Google Pay that we have. We are seeing growth in the usage of those products. Also the digital accounts that we saw an increase in the digital accounts. By the way, we reached 4.5 million digital accounts since we established this product. The bank is offering quite good conditions to present services to our customers in these markets.
Moving finally to page twenty, I just bring some highlights of Banco do Brasil in this pandemic situation. By the way, Banco do Brasil is an institution with more than 200 years. We have more than 70 million, actually, to be precise, 70.9 million customers. We are present in 98.9% of the municipalities with 62.5 thousand points of services, branches, and shared services that we have with third parties. We have more than 97,000 people working with us. This doesn't include the suppliers or the third-party service providers. Also the people that we service through Banco do Brasil. Banco do Brasil has a quite relevant position in the Brazilian economy, in Brazilian society. We understand this role, and we are a socially responsible company. In this situation, we understand our responsibility in this process.
By the way, in the management report, we bring more color about all the actions that we have been taking to the different stakeholders in the society. And just pointing out some of the things that we did for the customer centrality in the customers. And mainly at those moments, having the relevance of a large institution in Brazil providing services in the different parts of the country, certainly we are channeling to digital service. However, some of them, they need to be done face-to-face. And we're doing this very responsibly and taking into consideration the security of the employees and the customers. And the credit extension in this product at this moment and being closer to the customers is another important aspect in terms of the relationship with the customers. And just an example of how fast the bank adjusted itself.
For instance, we used to have a product or service through WhatsApp. We showed more than 10 million services done through this. And not disrupting the quality of service, even though you have some restrictions in social isolation. When we go to the employee safety, it's another aspect that the bank took several measures. For instance, identifying the risk groups or isolating the risk groups, finding ways to service remotely. We placed almost one-third of our employees working through home office. And this is only some of the initiatives we did exactly to take into consideration those aspects. And certainly, the social initiatives of the bank in the nation through our foundation, FBB, that had several important social impact aspects. And also, it's important to preserve capitalization and liquidity. And this is a relevant aspect that we are monitoring.
By the way, our senior management is meeting every day exactly to fine-tune all the measures that are necessary. And we are presenting a quite good flexibility in this process. And finally, we moved to page twenty-one that we show the guidance. By the way, we suspended the guidance as we have more clarity about the variables to project the results. And just to highlight some of the aspects, for instance, the credit provision that we expected in the interval in the range of BRL 10 billion-BRL 13 billion, we delivered almost half of this in just the first quarter. And certainly, these impacted the adjusted net income that came lower compared to this. And the other metrics, some of them are more or less effective. Saying that, we can move to the Q&A. And I thank you for the attention.
Ladies and gentlemen, we'll now begin the question and answer session. If you have a question, please dial star one now. Our first question comes from Victor Schabbel from Bradesco BBI.
Hi, good morning, everyone. Thank you, guys. Hi, Janaína, Daniel, thanks for the opportunity. So we have spent a lot of time doing the Portuguese call discussing the impacts of the actuarial gains over Banco do Brasil's equity. But there is one point, I think, that impacted most of the banks, all the big banks during the quarter, and I think people overlooked a little bit, which was the fact that the mark-to-market of available-for-sale securities has basically weighed on the equity, impacting negatively all the banks during the quarter.
And I would like to understand the drivers behind it because available-for-sale securities available for sale in the bank's balance sheets are basically the bonds, right? So are basically credit risk, usually high-quality credit risk, which are being only mark-to-market because the rates move up during this crisis. And if there is no problem regarding the credit quality of these usually AAA securities, we would probably have a positive impact when the rates normalize again. So just wanted to understand if this is the case, if we are talking about the impact of BRL 1.7 billion negative during the quarter is about the repricing or mark-to-market of these bonds, and if these bonds are really long-term and are really high quality, or if there was any other security that weighed on the equity as well. Thank you.
Okay. Thank you. Thank you, Victor.
To be frank, we've had some impact in month-to-month, as you can see on page 18, about 26 basis points. Our securities portfolio doesn't have a larger concentration of private securities. I would say that most of the month-to-month gains from the private securities, since you had some shocks. But the concentration, the participation of private securities in the case of the bank is not so large. We have, for instance, the case of the portfolio in the BB's, about 25 billion BRL. Just to give you the reference in terms of month-to-month, we had month-to-month for private securities of 1.5 billion BRL. For the public securities, it was around 706 million BRL. About the credit quality, they have good credit quality. Actually, what happens is that we had a shock in the months, and mainly the prices of those assets, certainly they had some impact.
But credit-wise, this is not a major concern for us.
Perfect. Very clear, Daniel. Thank you.
Our next question comes from Giovanna Rosa from Bank of America.
Hi, everyone. Thanks for the opportunity. I have two questions as well. The first one is related to the NIM. You had a benefit in your funding costs related to the decreasing of the judicial deposits costs. So all the impacts happened already in the first Q, or should we expect further impacts going forward? Also, on the NII, how do you expect it to evolve through the year, taking into consideration the changing rates that we should probably see going forward? And my second question is regarding the NPL formation. Can we expect the NPL formation coverage to continue to be above 100%, as NPLs will probably take longer to appear given the grace period you are offering to our clients?
Should we continue to see you provisioning ahead of NPLs? Thanks.
Okay, Giovanna. Thank you. Let's start with the NIM and the NII behavior. As we said, since when we started, when we delivered the guidance for this year, one major contribution for the NII would come from the funding side, and certainly the judicial deposits. We made some renegotiations last year with important courts. This decreased the cost, or adjusted the cost to the reality. And this is one of the positive aspects. I would say that we got part of this benefit. Probably we have some more to come, but it's minor. Probably in the next quarter, we're going to see more impacts, mainly the second quarter coming from the reduction in the base rate. By the way, just to give back information about it, judicial deposits, usually we negotiate in a long-term bill.
And we had some contracts that we hired, we granted in the past, considering some scenarios of Selic rates with a fixed component. At the moment, if the Selic rate starts to go down, down, down, this fixed component starts to gain more relevance in the cost. And for that reason, the cost of the judicial deposit will start to grow. And what we made is basically a negotiation bringing economic equilibrium for this and bringing some of this compensation as a percentage of the variable cost of the Selic rate. And this is basically the dynamics for this year. And certainly, yes, this will help NII, and this will help NIM as we expected. On the other hand, we have some aspects that probably could put some pressure in these. Certainly, the base rate, and these go straight to the treasury results.
Having less treasury results, and certainly we expect to have lower treasury results relative to the historical numbers because the rate is much lower, this tends to reduce in a certain way. Just reminding that in 2019, we had a treasury much higher than our historical numbers. Then we expect for 2020, a lower treasury, even compared to the historical numbers. Then this is some of the aspects that certainly brings a different dynamics for NII and NIMS. But just fine-tuning some perspectives that I had the opportunity to pass to the market previously, that we have been expecting NIMS for this year from stable to gradual increase. Adjusting this perception, we expect NIMS for 2020 from stable to gradual reduction. This depends on how those variables will behave.
Certainly, because we have some structural positions as the asset and liability positions of assets at fixed rates and liabilities at floating rates. At the moment the base rate goes down, then certainly we can't benefit NIMs, but this depends on how fast the assets will be repriced. Then this goes to the first question and the importance of the restructuring of those contracts for the behavior of the NIM. Secondly, about NPL, what we can expect of NPL. Banco do Brasil is conservative in terms of managing risk, and I think what we showed in the first quarter is a good proxy on how we see this. Because what we did, we anticipated some of the impacts because looking at our balance sheet, NPLs were behaving well. We are expecting increasing the NPLs, certainly, because these NPLs represent the reality of 90 days ago.
The impact of COVID-19 is not even in the balance sheet. What is the stance of the bank? Trying to anticipate this will be part of this, and more anticipation you can expect. Probably the path is a good proxy on how we can look at the management of the bank in a very prudent and conservative way ahead. Did I address your points? Yes, thank you. Thank you for the question.
Ladies and gentlemen, as a reminder, if you'd like to pose a question, please dial star one. Our next question comes from Tito Labarta from Goldman Sachs.
Hi, Daniel. Thank you for the call. I'd love to have questions. A couple of questions. I guess follow-up in terms of asset quality and provisions.
Yeah, I know it's hard to say how bad things could get, but just to put into perspective, right, if we look at the cost of risk this quarter, it was around 3.5. If we look back at prior crises, right, looking back in 2016, I think the cost of risk peaked at around 4.7 in early 2016. If we go back a bit further to 2008, 2009, the cost of risk maybe peaked around 4%. How do you think about this crisis in comparison to previous crises and how much your cost of risk and NPLs can increase? If you can maybe give some color, I think at least to put in perspective would be helpful. I'm going to have a second question on long-term assets.
Okay, Tito, thank you. I think that's the extra question.
First of all, it's hard to create parallels to this shock because certainly there are components that we've never seen like these. For that reason, exactly for that reason, we suspended guidance. Certainly, we have our internal metrics. We are following up the behavior of those metrics, but it's hard because these variables are changing every week or, not to say, every day. And then this makes it quite difficult. But probably I can answer your question just showing what are the differences in our portfolio. First of all, we have a portfolio that is more defensive relative to the portfolios we had in the past, including we understand that relative to the system. First of all, we have 25% in agribusiness. The prospects for agribusiness are quite good. Prices for the main commodities are behaving well.
For those ones that they had some reduction, this was compensated by the tax. Looking at the costs of the producers that are either in dollars or even in dollars, but they were locked with a lower dollar, or even in reais that is even better, margins tend to be quite well for the producers. For the smaller case that you have, certainly we have ways of addressing this. Then this is not a real aspect, but only Banco do Brasil has this portion, this composition of the portfolio. When we go to the individual's portfolio that represents the other one-third of the portfolio, although we had increased in the participation of the non-payroll loan business, we have one-third of this individual's portfolio comprised by payroll loan. Just reminding that roughly 90% of this portfolio is payroll loans to public servants that they have job stability.
Then certainly the biggest risk we have in this scenario is unemployment, unemployment increasing. And for this group, in a certain way, we have some mitigation for this process due to this structure. And when we go to the company's portfolio, comparing to 2016, for instance, we had a larger portfolio and we had some concentration in some groups. And we have lower portfolio. We decreased this portfolio. We cleaned up this portfolio in the last years. We started growing this portfolio last year. And the companies that are in this portfolio, we have long-term relationships with them. We know them very well in a different risk profile compared to the past. And in addition to this, we have a quite good guarantee package for those businesses.
Then saying that, I think that is a quite important asset just to say that we are in better shape for facing these crises. Even when we consider concentration, you can look at the concentration of groups that we've used in the last years. Another important information in terms of collateralization or security, roughly 65% of our portfolio we have is comprised by companies with guarantees. And we have additional 15% that we have any sort of mitigators. Then only 20% of this portfolio we have no guarantee. Then again, we see a very serious shock in the future. NPL tends to go up in the system, but we understand that we are quite well prepared for this moment, even comparing to the last moments.
Then this is basically, although we don't have the final numbers, this is our perception why we understand that we are. I don't think we didn't, but more prepared for this scenario. Did I address your point?
Yeah, no, I think that was very helpful. I think you put it in perspective. Okay, and then my second question on loan growth, right? As expected, your corporate loans went up quite a bit in the quarter, but you're still growing your loan portfolio less than private sector peers. So just to think about going forward, how we might see your loan growth evolve, right? I mean, some of that was just corporate seeking liquidity, so that demand probably goes away. But do you also face any pressure from the government to lend more, thinking about your loan growth compared to private sector banks?
Could you see a scenario where you start to increase while they decrease going forward? Or just talk to us what kind of your loan growth outlook in perspective, given the environment and the moving parts would be helpful.
Okay, Tito, first of all, the corporate governance of the bank is quite strict, and the decisions that we take, our business decisions, although we are controlled by the government, having 50% of the shares, we have the other 50% comprised by more than 500,000 shareholders, and the corporate governance of the bank is prepared much more as a corporation, then I would say that the decisions taken are business decisions, and by the way, another thing that is important to remark about the corporate governance of the bank, we have eight board members.
From the eight board members, we have six board members that are all, sorry, five board members that they are independent board members. Then this shows how important it is to insulate the institution from those aspects that you mentioned, and about the credit growth, I would say that first of all, we had part of this credit growth that is a consequence of the FX movement, as I described it, but when we look at basically the growth that we are observing, we observe it in the SME and the individuals. It's quite consistent with what we have been presenting and saying over the months. The difference in this quarter was basically the growth for the large corporates, but this we see as, I don't say an opportunity, but as a situation we saw over the months.
In the end, the large corporates or the companies, the large companies or medium-sized companies, they are our customers. The difference is we have been channeling those credits through the markets because it was more cost-effective for the customers. And for the bank, the strategy, we moved it from a balance sheet business towards a fee business. As the markets shut down, certainly they continue to be our customers. They have their needs. And we are a relationship bank. We saw an opportunity to fill this gap for those customers. And however, this is important, including to guarantee that we are present in the mandates in the future when they come back to the markets. This is consistent with the strategy of the bank of relationships.
Again, I know that it's hard to talk about the future, but some of the aspects that we can expect about the dynamics of the credit portfolio. It didn't change the approach to increase the participation of retail. It's only temporarily that we had this situation. We expect that this will flow back to the capital markets. It's hard to say if this is going to be in the second quarter, third quarter, or fourth quarter, but at some time, this will happen. The characteristics of those transactions are much more short-term. You can expect more demand coming from the agribusiness. As I said, even though with a shock, with a depression, I can say, I can describe it this way, these segments tend to continue to be active. In the end, the world and Brazil needs to be fed.
And this segment has an important role to preserve food safety, food security in this process. And for the SME, I would say that we saw some demand beginning to decrease, but much more demand to extend the transactions and less demand for new money. And we expect, for instance, for individuals, more demand coming from payroll. And then we see some growth for the portfolio, but probably differently from the way we guided when we started the year.
Okay, well, thank you, Daniel. That's helpful.
Thank you.
Ladies and gentlemen, as a reminder, if you'd like to pose a question, please dial star one. Our next question comes from Nicolo Riva from Bank of America.
Yeah, thanks very much for taking my question, Daniel. I have one question. I understand that the Congress in Brazil approved a plan for the central bank to purchase domestic corporate bonds.
I wanted to ask you if you would anticipate participating on this program to issue domestic bonds to be bought by the central bank. I guess their rationale here is to try to lower yields and increase liquidity in the secondary market in Brazil. And also, if this changes in any way, your outlook to potentially issue U.S. dollar bonds later this year. And also, any color you can have in terms of the size of this program, when it will be implemented, how long it would last. Any color would be helpful to me. Thanks. Okay, thank you.
Thanks for the question. First of all, about the behavior of central bank. Central bank was quite fast in using all the measures to bring liquidity for the system. Certainly, reducing reserve requirements, adjusting the capital needs for the system, and mainly providing liquidity for the system.
This is one important aspect. Another thing that I think this is common in the U.S. and Europe, but this is happening for the first time in Brazil, the possibility of central bank buying private bonds in this process. This is important also when you have more private bonds in the system, and certainly, when you have some shocks of liquidity in other markets that central bank doesn't have the loans for them. Then this to provide liquidity for the system is quite relevant. In terms of anticipation, I would say that no. There is no anticipation. All that movement that we are observing is basically what we, as I said, it was based on the demand of the customers. Certainly, these could bring different dynamics, but I think that is early to say. We probably will need more time to see how this is going to work.
To be very frank, I think that for the system, it's quite important to have this possibility. This possibility was used in other parts of the world and showed a very prudential way of managing liquidity in the system.
Thank you very much. About the second part, sorry, I forgot, about the possibility of issuing bonds. Certainly, the bank is quite liquid in foreign currency, and by the way, we had some payments, some transactions that were in the months. We had the call that will happen in October this year for one old-style Tier 1, then Brazil refunded those transactions, and the funding structure of the bank is quite diversified, then we have certainly capital markets. We have interbank markets.
We have other markets that we reach funding, including just as a coincidence, including in the German markets, for instance. We access some pockets of liquidity like Schuldschein or things like that because we are in those markets. Then this is quite a diversified source of funds. Then the bank is always analyzing those instruments and how we can manage it, how we can manage the best price and the best conditions. Then we always look at this. It's hard to say if we're going to do something or not, but we are always taking these into consideration.
Okay, so to summarize, you already pre-funded the call of the eight and a half curve in October, the $850 million. And at this point, you don't expect to issue in the U.S. dollar market this year?
I would say that mainly with the dislocation of the curves that we have, it's less likely. But again, this is a very light situation. We pre-funded, then we have resources to make the payments. But certainly, it's a question of opportunity. I understand we want to be present in the markets to have our bonds being negotiated, but it's a question of having the funds to use it or having the usage for those funds and certainly pricing. And then we are observing this, but we have nothing decided at this point.
Okay, thanks very much.
Thank you.
Thank you. Our next question comes from Natalia Corfield from J.P. Morgan.
Hi, thank you for taking my question. I'm going to go back a little bit to your core equity. You have a much better performance than your peers, your private peers in this quarter.
But I'm wondering how we can think about this ratio going forward in 2020. I've seen that in the presentation, we still kept the minimum CET1 of 11% in January 2022. But for this year specifically, how do you see the evolution of this ratio considering your loan growth, considering that dividends are capped this year? How can we think about it? And what kind of surprises, negative surprise, could we see in terms of mark-to-market or provisions going through the year? Thank you.
Thank you, Natalia, for the question. Again, it's hard to give projections. We are navigating foggy waters. As I said, the 11% is a target that we always take into consideration, including in our corporate documents. For this year, as we said, we had a reduction in the payout ratio to what is established in our bylaws. Then this adds more capital retention in this process.
The bank is quite conservative in terms of market risk. Then some market movement you can expect, but it depends on the market conditions, but no shocks. Something that was one of the detractors in the system was basically the impact of the fiscal hedge. And by the way, we have a much smaller, much smaller investment abroad. Then the impact was lower for us. For the actuarial position, certainly, we are following this quite closely. And it's hard to give you a projection. But one thing is, and this is one important variable, is how the curve will behave. To be very frank, it will be a surprise if we see more reduction in the long end of the curve. The long end of the curve, we had a movement in the curve. It tends to be a little bit higher, mainly when you have more uncertainty.
Then in all scenarios that we are running, we are showing comfortable capital base to face our needs and to run the business. But this is one important aspect of the way we manage capital. It's always a forward-looking approach. We have very well-defined thresholds in our corporate governance. We project our capital on a regular basis in the next three years in different scenarios. And when we see some of our targets being issued, we have time in anticipation for starting taking actions to reach those targets. A good example of this was in the past when we had more leverage and we had the implementation of Basel III that was challenging worldwide. And we were able to do this in a very disciplined way. Then this is exactly what you can expect on our side.
All right, thank you.
Just on the fiscal hedge that you have the lower impact, can you just explain how exactly that works?
Pardon me, can you say it again?
On the fiscal hedge that you have lower impact than your peers and help your capitalization, can you just remind me how exactly it works?
Okay, because you have a different tax treatment. For instance, the investments you have abroad, you have no taxation for the tax changes. However, to hedge this position, you need to find liabilities. However, those liabilities, you have tax impacts. Just a rough way, let's assume that I have 100 in my investment and I hedge this position with another position at 100. And I have a change, a variation of 10%.
It means that my valuation of the currency means that I'm going to have a hit of 10 in my assets, and my derivatives or my instruments in the liability would compensate this with 10, but since you have not a synchronism in the taxation, having the liability taxable, these 10 converts into 5. Then you're not fully hedged. The way to address this is to build an over hedge, and then to hedge this 100, you need to have 100 and something just for the P&L to compensate this. This additional tax credits or tax impacts goes against capital because you have a different treatment for, how can I say, waiting for tax credits. The situation of Brazil, we have roughly 20 billion BRL investments abroad. When we compare to the system of major players, they have usually four times of this.
Then we have some impact going into the prudentials. But we tend not to have the same extent because the level of investments we have abroad is lower. By the way, there are some changes being discussed in the Congress. We need to observe this, changing this taxation. And in doing this, this will bring the same base for assets and liabilities. And then to reduce these effects in the P&L and the overheads. I know that it was too technical, but am I able to give all the color about these movements?
Yes, you did. Thank you very much, Daniel.
Thank you for the question.
This concludes today's question and answer session. Mr. Daniel Maria will proceed with his closing remarks.
Thank you all for attending and for the questions. We remain available for any remaining questions. And thank you for the support.
And by the way, keep safe. Thank you.
That does conclude the Banco do Brasil conference call for today. As a reminder, the material used in this conference call is available on Banco do Brasil Investor Relations website. Thank you very much for your participation and have a nice day. You may now disconnect.