Good afternoon, ladies and gentlemen, and thank you for waiting. We would like to welcome everyone to Bradesco's fourth quarter 2021 earnings conference call. This call is being broadcast simultaneously through the Internet on the investor relations website, ri.bradesco.com.br/en. In that address, you can also find the presentation available for download. We affirm that all participants will be in a listen-only mode during the company's presentation. After the presentation, there will be a question- and- answer session where further instructions will be given. Should any participant need assistance during this call, please press star zero to reach the operator. Before proceeding, let me mention that forward-looking statements are based on the beliefs and assumptions of Banco Bradesco's management and on information currently available to the company.
They involve risks, uncertainties and assumptions because they relate to future events and therefore depend on circumstances that may or may not occur in the future. Investors should understand that general economic conditions, industry conditions, and other operating factors could also affect the future results of Banco Bradesco and could cause the results to differ materially from those expressed in such forward-looking statements. Now, I will turn the conference over to Mr. Carlos Firetti, Business Controller and Market Relations Director. Please proceed.
Hi, everyone. Good afternoon. Welcome to our conference call for the discussion of our fourth quarter 2022 results, as well as our strategy. We have today with us Banco Bradesco's Chief Executive Officer, Octavio de Lazari Junior, Andre Rodrigues Cano, Executive Vice President and CFO, Leandro Miranda, Executive Director and IRO, Oswaldo Fernandes, Executive Director, Ivan Gontijo, Bradesco Seguros CEO, Renato Ejnisman, Banco Next CEO, and Curt Zimmermann, Bitz Chief Executive Officer. For starting the presentation, I turn the floor now to Leandro.
Thank you very much, Firetti. Good afternoon, everyone. I hope you are doing well. Thank you for joining our fourth quarter 2021 earnings conference call. 2021 was more complex than expected, but also a year of record profit in our history, BRL 26.2 billion. We went through two more waves of the pandemic, which had a significant impact on the economy and our business. The rapid rollout of vaccinations as the middle of the year allowed business to resume activities. Unfortunately, high inflation, a global phenomenon along with some local flavor, led to a dramatic rise in interest rates. The tightening of monetary policy was a factor in 2021, and it will affect the recovery of the economy in 2022.
For 2022, we anticipate a continued return to normalcy despite the current increase in COVID cases as a result of the Omicron variant, which we believe to be temporary. However, 2022 looks to be a year with modest growth due to the impacts of the monetary policy and fiscal uncertainties, which will certainly have an impact on our business. In this landscape, we see consistent credit growth over the year as the quality of origination remains quite good, and there is demand from customers. We'll talk more specifically about guidance later on. Regarding our earnings, we saw a solid performance in 2021. Net income came up to BRL 26.2 billion, the highest annual recurring net income in our history. We performed well in client NII, which grew 6.5%, and fees, which grew 4.1%, also an all-time record.
The insurance segment was a solid contributor to the results, even after absorbing around BRL 5 billion in claims related to the pandemic. The loan portfolio grew by 18.3% and reached BRL 812.7 billion. Credit origination through digital channels came up to BRL 88 billion, and now represents about 30% of the total. Cumulative ROE jumped to 18.1% on the way to recover to a higher recurring level, and the efficiency ratio also improved, coming down to 46%. Finally, we would like to point out the distribution of BRL 9.2 billion in the form of interest on equity and dividends, resulting in a payout higher than 44%. Turning now to slide four, we'll address the issue of sustainability at Bradesco.
Over the last few years, we have seen growing concerns of climate change and its risks and opportunities for companies and economies. This is why this issue is one of the pillars of our sustainability strategy, ESG. In 2021, we were the first Brazilian bank to sign on to net zero. It's a major commitment because it involves working even closer with our clients during the transition to a low carbon economy. Once again, placing the client at the center of our strategies. As of now, we are already carbon neutral in terms of the emissions generated by our proprietary operations, including indirectly Scope 3 emissions, which for instance, involves our employees commuting between their homes and the workplace. We were the first Brazilian bank to join the PCAF, the Partnership for Carbon Accounting Financials, in 2020, aiming at measuring and publishing our financial emissions.
From this point on, our challenge will be even more significant because it's no longer related to our operations, but about engaging and helping our customer during this transition, so they will be able to better manage their risks and take advantage of the opportunities that will come out of this new economy and becoming more resilient to climate change. Now we go to slide five. We also announced that in 2021, the goal of targeting BRL 250 billion by 2025 to sectors and assets with a positive social and environmental impact as part of the commitments and strategies related to the transition to the new economy. We have already channeled BRL 83.6 billion, representing one-third of the target as a result of the growing demand for credit in these sectors and the greater momentum in the investment banking area.
This solid performance made us to revise this goal. Further evidence of our commitment to financing sustainable business and serving as an agent of positive change in society was the issuance of our first bond linked to social and environmental criteria in the international debt capital markets. It was announced in January, which amounted to $500 million. As a result of our continuous development of the ESG aspects of our business, we have been recognized by major indexes and specialized agencies, and have received a rating above the market average. We would like to point out that the fourth year in a row, we are among the 10 top banks in the world in the Dow Jones Sustainability Index. We have also been a part of the B3 ESG since its creation in 2005.
Now we are part of the first IGPTW portfolio, which is the new index from the B3 ESG family in partnership with Great Place to Work. Turning now to slide six. Respect and care for our people have always been an integral part of Bradesco culture. When we speak about our people, we are referring not only to 90,000 employees, but to 9,000 families. We believe in the strength of diversity, reinforcing the company's culture with interaction between employees. We employ a diverse staff with solid attitudes and actions related to the inclusion, and have focused on our efforts to continually evolve through training and development. We adopted measures during the pandemic to ensure that customer service continues along with the safety of our employees through unconditional support, including a 24/7 team of health professionals.
The return to on-site activities has taken place gradually in the administrative areas with a bit more caution in place this time. We implement a hybrid model in which we are gonna combine the best of both worlds, thereby benefiting both productivity and the quality of life for our teams and environmental matters. Turning now to slide seven. With technology advancing quickly, the client has increasingly become the main player of their own choices, which is at the center of our decisions. Clients are more digital and demanding each day. They are engaged and intensively applying new technology to their daily routines. Our policy is one of alignment with what drives the client, and we are continually devoted to the search for new solutions to make our clients' lives more uncomplicated.
Bradesco Experience uses data intelligence to build customized solutions, improving financial and non-financial products and services according to customer expectations. On slide eight, we outlined some of the innovations in clients' experience with the bank, which are quickly deployed in systems that run into the cloud. We have implemented a financial manager tool, which facilitates management of Bradesco accounts, and soon, those of other institutions, plus promoting personalized insights. Everything in a single place within our existing app. The Bradesco app offers access to exclusive cash backs, in addition to non-financial products such as our partnership with Disney. Transferring money abroad just got easier with the me-to-me currency exchange from Bradesco to BAC Florida, an instant transfer from one account to another account.
Through Bradesco Invest U.S., our digital investment platform in Miami, clients now have a simplified and 100% digital journey to invest in international assets through portfolios managed by BlackRock and Bradesco. Therefore, those portfolios are based on their investment profile and objectives. Turning now to slide nine. The digital experience within Bradesco is constantly evolving, and it ensures that the client has autonomy in their financial management. Proof can be found in the total amount of transactions. 98% are carried out through our digital channels, 91% of which are concentrated in mobile and internet. We posted a surge of 5.3 million digital account holders compared to 2019, and the number of accounts opened through the app grew by 5 x. We also saw a significant boost in the number of products both individuals and companies have applied for.
Turning now to slide 10. The volume of credit that we originated through our digital channels was BRL 88 billion in 2021, a 36% growth compared to 2020. This amount now represents 30% of all credit produced by Bradesco. It should be pointed out that this number is greater than the sum of the credit portfolios of all fintechs operating in Brazil. We even made a progress in digital renegotiation, which was 43% higher than in 2020. These results illustrate the quick progress of our cloud systems, such as Brain and CRM, in the evolution of our business platforms that are centered on the clients. Moving on to slide 11, we present the growth in the numbers of four of our cards.
We revised the product portfolio and introduced cards that complement our offer, allowing clients to choose the card that best suits their usage profile. The sale of cards through digital channels grew 5.8 x this year and now represents 20% of total sales. Slide 12 outlines our performance in vehicle financing. We took the lead in origination with a production that was 25% higher than a year ago. This performance is due to our continued focus on the needs of customers and partner channels, which has made the journey to contract our products a phygital experience, where it's possible to finance, along with the vehicle, accessories, IPVA, and other expenses, plus the ability to take out insurance coverage. Rounding out this block of solutions focused on client experience, I turn to slide 13 to address BIA.
BIA, which also runs in the cloud, has allowed us to become the pioneer bank in artificial intelligence. It's a solution that has already totaled 1.2 billion client transactions. Multi-platform, BIA is found in branches, Fone Fácil, or WhatsApp, one of the primary communication channels in the market, responsible for over 60% of BIA's mobile interactions. The most intriguing thing is that BIA is also a pioneer in linking artificial intelligence with voice commands. It's not only listen to the customer, but also performs requested actions, such as sharing a Pix receipt. On slide 14, we feature some of the progress we have made in our digital initiatives that also make a great use of the cloud, Next, Ágora, and Bitz. We have already received the regulatory approval, and as soon as we conclude the acquisition of Digio, we will post its numbers as well.
Ágora, which has increased and diversified its product offering, double its net funding in 2021 and settled at 743,000 customers, a growth of 35.7% over 12 months. Next, which had a target of double its client base in 2021, has done even more. It reached close to 10 million clients at the end of last year with a 169% increase. This greater scale has led to significant strides in the total volume transacted and in the revenue base. The November release of our marketplace, the NextShop, is another step in the move towards an increasingly better and more complete platform and digital experience. Bitz, the digital wallet we introduced in September 2020, double its amount of accumulated accounts and downloads in the last quarter.
There are now more than 4.2 million accounts and 6.2 million downloads there. Just looking at these, digital initiatives, there are already nearly 15 million customers. After having discussed some of our macro strategies, we now turn to our financial performance. Turning now to slide 16. Operating income increased 6.3% year-on-year, and the net income was BRL 6.6 billion. The insurance business grew 54.6% in relation to last year, with a solid evolution of premiums and financial results. Client NII grew 11.8%, helped along by the growth of the portfolio as a whole. The next slides will show details of our lines. Before we move on, it's important to point out the comparison of operations 2021 with 2019, before the pandemic began.
We saw revenue growth despite partial restrictions on mobility during the past year, and we managed to reduce expenses in an environment of rising inflation, which resulted in a 9.6% increase in our operating income. Now we move to slide 17. In this slide, we can see the data on the reconciliation of managerial and accounting profits. By looking at the annual consolidated column, you can see that the adjustments are very similar to those of the previous year, except for the reclassification and realization of financial instruments made in this quarter, with an extraordinary impact of BRL 1.8 billion on the results. This movement realigned part of the securities portfolio to the new reality of interest rates that we see in the markets.
We also underline the constitution of a restructuring provision of BRL 441 million, net of taxes, as we continue to make adjustments to our physical presence with the conversion of branches into business units in 2022. Moving on to slide 18, we will show the growth of our loan portfolio. In December, the total volume exceeded BRL 812 billion, a growth of 5.1% in the quarter and 18.3% in the year, above the ceiling of our guidance that we had revised upwards in the last quarter. There was significant growth in all groups and types, highlighted by the expansion of operations with SMEs, which represents an increase of 24.5% for the year, as well as individuals with an increase of 23.2%.
The performance reflects the gradual recovery of business and the relaxation of restrictions related to the pandemic. As we point out at the beginning, cars and vehicles were lines that saw relevant growth of 30.5% and 11.7%, respectively. The real estate financing portfolio grew 23.4% year-on-year, and the volume of operations with individuals grew 31.2%. We broke a record in 2021. Origination was BRL 37 billion, 50.6% higher than in 2020, and the number of financed units exceeded 125,000 homes, 48% more than in the previous year. The expectations for continued growth in real estate loans in 2022, but at a slightly lower rate than in 2021 due to the higher interest rates that we see nowadays.
In rural loans, we posted a significant growth of 40.6%, reflecting our historical support for agribusiness. We are the leader among private banks in this segment, and we operate through 14 regional platforms, which include agriculture engineers. We distribute credits, products, and services that support the modernization of the sector. We are making massive investments this year to deliver a fully digital ecosystem to our clients, complementing our performance more broadly in a pioneering partnership with one of the world's largest player in the technology sector. The 2022 credit outlook is for double-digit growth, with an acceleration of the lines with higher spreads, which will all lead to an improvement in Client NII. Now we go to slide 19 to discuss our provisions.
Credit provisions expenses totaled BRL 15 billion this year, 41.6% lower than in 2020 when there was an impact from the strong increase in provisions that anticipated the effects of the pandemic on delinquency. The expressive growth in higher spread loan operations in the fourth quarter, such as credit cards, personal loans, and working capital, had a slight impact on the amount of provision in the quarter and on our cost of risk. This is a good cholesterol because it comes from the portfolio growth. Even so, the indicator remained below historical levels. Our NPL coverage ratio over 90 days remained at a very comfortable level and above the pre-COVID level at 261%, and when we included the entire renegotiated portfolio, 111%.
The coverage indicator over 90 days, excluding operations 100% provisioned, remains stable. Our coverage is the highest in the markets. Provisions should continue to adjust over the next few quarters following a natural trend in the process of normalizing credit conditions. Turning now to slide 20, we can see that our renegotiated portfolio totaled BRL 28.6 billion. It's important to point out that the volumes continue to decline in comparison with the total portfolio. This indicator reached 4.7% in the quarter, already approaching the pre-pandemic level. The provision volume is 662.3% and represents 3.5 x the observed delinquency, which continues to return to normal and is approaching pre-pandemic levels. Now turning to slide 21.
Default rates remain very under control and at levels that are lower than in the pre-pandemic periods due to a solid portfolio management, evolution of credit models, and client-centric approach and renegotiation journeys. In line with our expectations, total delinquents over 90 days rose 20 basis points. Indexes for individuals and SMEs were most impacted, absorbing the effects of the renegotiated portfolio referred on to the previous slides. Gross credit provision expenses were BRL 5.1 billion, and represented 88% of our NPL creation. Pretty much because the operations of the renegotiated portfolio that became delinquent had a higher provision that requires less of a supplement. Finally, I would like to point out that in this quarter, as in previous quarters, we sold both non-performing and active portfolios.
Within the rationale of our credit management process, we use this mechanism whenever we believe there is more value creation in the sale than using our own teams to collect overdue loans. Turning now to slide 22. The total NII presented strong growth in the quarter with an increase of 80%. Year-to-date, the evolution was 1.3%. Client NII for the year topped at 6.5%, surpassing the upper levels of the guidance as a result of the higher average volume of operations, better spreads, and the product mix. The recomposition of spreads as of the third quarter in 2021 was of great importance to offset parts of the negative variation in the H1 of 2021, and will continue to be significant in the coming periods.
The reduction in market NII, which posted a record result in 2020, is due to the impact of the higher CDI on our ALM positions, partially offset by the higher results from our own working capital. Turning now to slide 23, we can see that fees income surpassed the BRL 8.8 billion mark in the quarter, the all-time highest result we have ever had. The amount was BRL 34 billion for the year, a growth of 4.1% above the center of the guidance. The volume transacted on our credit cards this quarter once again performed very well, exceeding BRL 66 billion, surpassing even the pre-pandemic periods. This growth has permitted this line to develop by about 10% in both the quarterly and annual comparison.
The year-to-date 0.7% increase in the checking account revenue line is related to the growth of our account holder client by a base of 1.8 million over 12 months, on top of the higher business volume of correspondent banking, given the overall resumption of commerce. These movements compensated by the revenue losses due to Pix. On the right side of the slide, we can see the total number of clients, which reached 74.1 million, as well as the number of Bradesco account holders, which reached 32.6 million, not including Next and Bitz in this number of checking accounts. The annual growth of 3.9% in the income from credit operation is related to the expansion of the portfolio.
The consortium management, custody, and brokerage services and financial advisory services contributed significantly to the annual growth in fees, despite posting a decline in the quarter due to the lower number of working days. We are going next to slide 24 to discuss our operating expenses. Even in an environment of high inflation with IPCA of 10.1% and an IGP-M of 17.8%, along with a collective bargaining agreement of 11%, total operating expenses increased by only 1.1%, a clear sign of efficient cost management. The 6% increase in personal expenses for the year is due to the higher provision for profit sharing and collective bargaining agreements starting September.
In the area of administrative expenses, the increased use of digital channels and the optimization of our physical presence and process offset the inflationary pressure that we felt, and also the higher costs associated with technology investments and customer acquisition for Next and Bitz. The increase for the year was 1.3%. The variance in other income and expenses is primarily explained by the change in the supplementary provision for insurance. We will see a reduction in the number of branches and an increase in the number of business units in 2022. Now we move to slide 25, where we present data on our insurance business. Net income posted an annual growth of 4%, and it has been around 8% if not for the increase in social contribution. We had a growth of approximately 11% in revenue.
The solid performance observed in all business areas was followed by an increase in the number of life insurance, vehicles, and residences, as the insurance group was able to take advantage of opportunities in the various distribution channels and business partners, particularly with performance in digital channels. Income from operations saw an improved performance in the H2 and was in the middle of our guidance. This performance is related to the improvement in the claims ratio due to reduced effects of the pandemic, as well as improvements in the financial results for the periods. The volume of COVID-related claims in the fourth quarter of 2021 was the lowest since the beginning of the pandemic. Despite the more recent increase in demands due to the new Omicron variant, we didn't see the same severities in the previous periods.
We provide our policyholders with antigen tests at Meu Doutor Novamed clinics to support the diagnosis of the disease. It should be noted that in 2021, we had more than BRL 5 billion in claims paid related to the pandemic. These volumes emphasize the strength of our balance sheet and the importance of insurance in mitigating the effects of losses on families. We now move on to slide 26. Our tier one capital finished the year at 13.7%, remaining rather robust and well above regulatory limits, even with the significant annual increase in risk-weighted assets. Given the strong growth of the loan portfolio, mark to market of securities and payment of interest on equity and dividends. Indicators for liquidity also remain at rather comfortable levels. Next is slide 27, the final one today, before we move on to your questions.
As we mentioned at the beginning of the presentation, uncertainties will remain in 2022. We continue to believe that there is room for growth, chiefly due to our business model and technological innovations in recent years. The loan portfolio grew 18.3% in 2021, above the top of the guidance. We see growth in this line for 2022 between 10%-14%. In client NII, growth was 6.5% in 2021, also above our previous estimates. For 2022, we expect to grow this line between 8%-12%. In fees, we grew 4.1% in 2021. Our expectations for an expansion of 2%-6% in this line for 2022.
Total expenses grew by only 1.1%, despite the rise in inflation with an IPCA of 10.1%, an IGP-M of 17.8%. Guidance for 2022 ranges from 3%-7%, including our optimization initiatives to mitigate the effects of inflationary pressures and also to preserve space for important investments in technology and growth of the customer base. We saw a 5.5% tightening in income for insurance in 2021 due to impacts of claims from COVID. Our 2022 forecast calls for a growth of 18%-23% in this line, with a growth in premiums and a reduction in claims. We believe that the worst phase of the pandemic is behind us. Expanded credit provisions ended 2021 at BRL 15 billion. It is still at very low levels.
For 2022, we expect a range of BRL 15 billion-BRL 19 billion in this line, mainly due to the growth of the loan portfolio. We expect market NII to post a further reduction in 2022. Thank you very much for your time, and we are now available to answer your questions.
Thank you. We'll now begin the question and answer session. If you would like to ask a question, please press star one. If at any point your question has been answered, you may remove your question by pressing star two. Our first question comes from Jorge Kuri, Morgan Stanley.
Hi, everyone. Good morning. Thanks for the presentation. I wanted to ask two questions, if I may. The first one is on your credit card book, which grew 30% year-on-year, which is evidently very impressive. I wanted to understand what's driving this. You know, what percentage is new clients? Where are those clients coming from? What type of segments you're winning market share on? Is it higher credit limits to your existing clients? And what do you think that looks like over the next 12 months in terms of growth rate for that portfolio? The second question is on asset quality. Evidently, I'm guessing, you know, you're seeing your stock down, it's down now 9% today. My guess is that it's on delinquency risks.
I think the market was unhappy to see NPLs go up. What do you think the market is missing? You seem to be very comfortable, if not even optimistic on delinquency. What do you think we're not seeing that you are? Can you maybe help us understand delinquency by product? What's your delinquency on your credit card book, for example? What is your delinquency on your SME book? I think as you talk about mix shifts driving these increasing NPLs and provisions, I think it's very useful to provide the evidence of that. My guess is that NPLs by product will be quite useful. Thank you.
Jorge, this is Leandro speaking. Thank you so much for your question. Well, basically credit card book has been increasing by 30% year-over-year. The reason for that is the reopening of the economy primarily. Besides that, we are also improving and increasing our base of clients. Bradesco itself has reached the number of 31.4 million clients with checking accounts with us. Those clients also benefit from credit cards. Also, when you consider Next, you see these benefits. As the pandemic recedes, we believe that the retail shall also increase the issuance of credit cards. Besides that, we also have Bradesco Expresso. That's our network that expands our physical presence even more on an asset-light basis.
Regarding the quality of the NPL, it's important to point out that it has been still lower than our historical levels. Therefore, we feel very comfortable with the level of delinquency that we have seen. Pretty much we have increased NPL by 20 basis points. We do not see clients requesting any sort of additional renegotiations that significantly impact our books. We guess the quality is very good. We have made all the provisions that we needed in 2021, especially. Therefore, from now on, it's much more like the growth of the portfolio itself than any sort of derailment of the quality of the portfolio.
Hi, Jorge. Let me complement Leandro in these two questions. Regarding credit card, I think we had a pretty meaningful improvement in some of our platforms in credit card. We have increased a lot our digital origination of credit card with new products. Also, we benefit from a big improvement in the last few years in our process of credit analysis, analytics, usage of data that allowed us to have even better underwriting. We have been working a lot in the activation of cards in our base of clients, trying to deepening the penetration of cards in our base of own checking account holders.
We have an operation with retailers that was pretty much affected by the pandemic. The reopening of the economy has also benefited this operation. Regarding credit quality, we are very comfortable with the evolution of our credit quality. NPL is doing very well, sustained by a very good underwriting by all the changes in the profile of loans with strong growth and collateralized loans during the last two years, payroll loans, mortgage. This is behind this very good performance. In terms of cost of risk, we think we have a pretty realistic assumption and guidance for cost of risk.
I remember last year when we provided our guidance, I think the market also thought it was kind of optimistic. Actually, we over-delivered on that. We think we are ready to go through the same path this time. Regarding NPLs by product, as you know, we don't provide and no one in the market among the peers provide, so we will at this time keep it that way.
Thanks, Firetti and Leandro. Much appreciated.
Thank you, Jorge.
Our next question comes from Jason Mollin, Scotiabank. Please proceed.
Hello, everyone. Thanks for the opportunity to ask questions. My first question is on the outlook for Next and perhaps some additional operating metrics. You showed us over 10 million clients now. I'm not sure if you're able to share some more details on acquisition costs for clients or revenue for clients. If you have a view on whether it makes sense, you've talked about potentially doing this in the past or made some comments that you'll see about listing, potentially listing Next in the public market. My second question is on the nature of the non-recurring items that you reported in the quarter. Specifically on the reclassification of the securities from available for sale to trading. What were the implications? What was the decision-making process there? Were there tax implications?
Now, you know, are you planning to sell those or now you have the ability, I guess, to sell them? Also on the non-recurring, if you can give us an update on potential future impairments. We saw some impairment charges and goodwill write-offs, et cetera. If you can give us an update on what you think we could see going forward there. Thank you very much.
Jason, Leandro speaking. Thank you so much for your questions. I'm gonna answer your second one, and then I'll pass the word to Renato Ejnisman that is next CEO. He's also with us on the line. Okay? Well, basically, we perceive a strong movement in interest rates. We realize that there would be an opportunity for handling a larger portfolio with current rates, and we sold the portion with lower interest rates, and we acquired the portion with the long ones. It will bring benefit to 2022 and also the coming years, and it will be neutral regarding to tax implications on this matter. Renato, please go ahead.
Thank you, Leandro. Thank you, Jason, for the question. I mean, with regards to NIMs, I mean, it's true. I mean, we don't you know yet divulge you know a lot of the figures which is in-
Renato, are you there? Renato?
Jason on the line. Jason?
Yeah, this is Jason.
I'm here.
We have lost Renato connection. Please hold.
Sure.
Now the carrier. Huh? Jason, are you there?
I'm here.
Okay.
Yeah.
Unfortunately, we missed Renato. He shall be back shortly with us. We're gonna move to the next question, and then we get back to yours. Okay.
Sounds good. Thank you very much.
Thank you.
Thank you. Our next question comes from Tito Labarta, Goldman Sachs.
Hi. Good morning, good afternoon. Thank you for the call and taking my question. A couple questions also, I guess. Following up on your loan growth guidance, right, 10%-14%. I mean, the system today is growing around 15%, but you have, you know, the economy's decelerating. You know, GDP growth, you know, could be 0%-1%. How realistic or how comfortable do you feel on being able to achieve that growth? Yeah, what kind of growth would you expect for the system? In other words, do you expect that you'll be able to gain some market share? It looks like you gained a little bit of market share on the overall loan portfolio in 2021. Do you expect that trend to continue?
Second question, in terms of NII, you know, growing a bit below that loan portfolio, you know, is that because of just your liabilities kind of repricing from the higher interest rates? How long would it take to reprice your loan portfolio? You know, if you can give when do you think you could maybe see some margin expansion from the higher rates, if you can? Thank you.
Thank you, Tito. I'm gonna start here, and then Firetti will come up with a complement, okay? Basically, economists in Brazil, they see the credit portfolio growing by 7.5% this year. It's way higher than the GDP because there is a huge room for needs. Therefore, it won't be possible to grow by 18% as we did last year. When you see the range that we are indicating, we are pretty much comfortable with that. We have always been growing ahead of the market, and we feel very confident that we shall be in the middle or even the upper part of the of our guidance. Regarding NII, basically, we are changing here in terms of market for higher coupons.
We believe there is a very good gains ahead of us. It should be neutral by the end of this operation. Regarding clients, we have seen that clients are keeping up the spreads. We have been able to grow our margin. By year-end, it was around 12% when you compare year-on-year. Besides that, you have to consider that we have a back book. Basically, the margin with clients is gonna grow on a step-by-step basis, while you just see the outstanding balance of our portfolio. That's the reason why you see some sort of disconnect between the lines.
All right. Thanks for that, Leandro. Maybe one follow-up on the loan growth again. I mean-
Sure.
You mentioned more in terms of the asset quality that you feel pretty comfortable with current levels, but I mean, there was some deterioration. How much do you expect the asset quality to deteriorate a lot, you know, NPLs to get back to pre-COVID levels? Do you think they can kind of still stay below that? I mean, just with that type of growth in this economy, you don't worry that, you know, there could be further deterioration in asset quality? Just trying to think how much can NPLs increase from here?
That's-
Does that impact your loan growth at all?
Tito, that's a very good question. We ourselves believe that we should be getting back to 2019 pre-pandemic levels. The quality of the harvest have been so good so far that we have been driven to believe that we shall be even below our historical levels. We see a normal deterioration, but we shall believe that all the provisions that we have made heavily in 2020 and 2021 shall be more than enough to keep us on a very comfortable level. Besides that, even if the whole renegotiated portfolio went into delinquency, we would still have 111%. The whole market would be below 100%. 206.2% in the way it is today, and the worst-case scenario, in a chaos scenario, would have 111%. We feel very comfortable with the level of protection that we have today.
Great. Thanks for that. Sorry, one final follow-up on that. That would imply that you do expect to use some of that excess coverage, you know, so that coverage ratio could maybe fall a bit this year to what's a normalized level? I know you don't always look at it this way, but just to kind of think how that should evolve.
Indeed, it shall even increase. We do not see a deterioration of our coverage ratio.
Okay, perfect. Thank you.
Jason, I guess Renato is back with us, so
Yeah.
I'm gonna kindly ask him to keep on answering your point. Renato, can you hear me? Can you hear us?
Thank you, Jason. Yes. I hope you can hear me. You know, I apologize. You know, I don't know what happened and, you know, I kept talking, so I don't know exactly where, you know, I got interrupted. What I'll do is I'll kind of start again, but I'll try to be quick and summarize my answer. Essentially what I was saying was, you know, reach the 10 million mark level, which you know, was a mark that, you know, showed that we, you know, are able to, you know, grow at a fast rate and, you know, have continued to do that. We did that while increasing unit metrics in a way that we, you know, are very comfortable with in terms of, you know, increasing revenues.
The revenue line that is most important for our business model is credit, and we managed to do that, you know, increasing credit, and we have improved tremendously our credit policies. We're in the fourth review of our credit policy using a lot of analytics. You know, we have hundreds of variables that we take into account in our credit models, much in line with, you know, what other digital initiatives like ourselves have been doing. As a result, you know, we managed to increase. When you look at on a year-over-year basis, we increased 84% our credit portfolio.
This mostly happened in the course of the second semester of last year when we started, you know, kind of around July, kicking in the new credit policies and new credit models that have been improving over the last few months. We believe that, you know, this will continue to accelerate and improve our revenue line. With regards to the customer acquisition cost that you also asked, Jason, we, again, I mean, we don't talk about ARPU or CAC most, like, you know, most of our competitors. But what I can tell you is that we managed to, you know, increase the number of clients and accelerate the customer acquisition rate, but actually reducing customer acquisition costs.
Obviously, there is some seasonality within that, so towards the end of the year, it costs more because there are more people fighting for airtime in the, you know, in the different media, especially because of Black Friday and Christmas. You know, kind of, if we take that out of this effect, because we have changed our marketing strategy, because we have Like, you know, we have more awareness, we have adopted, you know, some marketing campaigns. We have also introduced new models of acquisition like the member get member program. You know, I think essentially our awareness has increased, so we didn't have to push much in the end of the funnel at the performance. We managed to reduce the customer acquisition costs.
Again, when we look at the business model, I think things fall into place and we're happy with the way we are growing our business and also with the way that you know the metrics are. Thank you for the question, Jason.
Thank you.
Our next question comes from Thiago Batista, UBS.
Hi, guys. Thanks for the opportunity. I have basically two questions and both of them on the guidance. The first one, your guidance clearly is very complete, but there are two main lines that are missing, the Market NII and the taxes. Can you comment what are the main trends that you are seeing for Market NII and tax rates? The second question is still on the guidance, is about the NPL ratio that you guys are considering when you look for the midpoint of the guidance in terms of provision, sorry.
Tiago, regarding the first part of your question. In terms of market NII, you can consider that we're gonna have a reduction in 2022 compared to 2021. Tax rate, you can use a range between 32-34%. Regarding the NPLs considered in our guidance, we consider that the total NPL will rise a little more in 2022, getting probably closer to pre-pandemic levels, but probably still a little below it, but already close .
Thanks.
Our next question comes from Mario Pierry, Bank of America.
Hi, guys. Good afternoon. Thanks for taking my questions. Let me ask you two questions as well. The first one is on your Client NII outlook. I was wondering how conservative are you being here? Because when I look at your Client NII in the fourth quarter, and I annualize it, I already get 7% growth in 2022, while your guidance is only 8%-12% growth. Either you're having problems like repricing your loan books, maybe you can discuss that, you know. Are you seeing a more competitive environment, or are you concerned about raising spreads because the consumer is not in good shape in Brazil, given the high inflation, weak economy? You know, that's the first question.
Like, it just seems too conservative to grow NII only 8%-12%, especially when you're expecting loan growth of 10%-14%. Maybe it has to do with the mix of your loan book. Can you also discuss on your loan book forecasts, what are you expecting for SMEs, consumers, and large corporates? That's the first question. The second question is related to your guidance for provisions. You know, at the high end of your guidance, you're expecting growth of almost 30% in provisions. I was wondering, you know, what could happen for you to reach the high end of your guidance, and why you think that, you know, why you provide a guidance where provisions are rising 30%? Thank you.
Mario, let me start. Regarding the NII for clients outlook, I think, thank you for the question. I think we have been getting a lot of inquiries on that. In our guidance, the NII from clients doesn't grow in line or faster than the loan growth relates to the fact that, despite the spreads in the new loans originated being higher than what we have seen, for instance, in the H1 of 2021, when probably we had a bottom in spreads, it takes time to have the full repricing of the loan book.
Basically, this discrepancy between the fact that in your view you see in the rates rates are up, and the fact that our NII from clients doesn't reflect that totally is related to the pace of repricing. Our loan book has a duration of one year and a half, two years, so it takes time. Also, despite the fact that spreads are higher than the bottom, they are still lower than what they were in the beginning of 2020. You have operations maturing and getting out of our loan book. So that's the effect that is behind this kind of lag in the evolution of the client NII. I remind you, we had that 18% growth in the loan book in 2021, and our NII from clients grew 6.5%.
We are pointing to 12, and NII from clients grow 10. This repricing and this benefit, it's coming, but the full benefit of higher spread, higher interest rates on the funding side takes a while to happen. That's the key message there. In terms of client mix, we're gonna have lower growth in large companies and probably kind of a similar growth in individuals and SMEs leading. Individuals and SMEs growing higher than the 12%. Sorry, can you remind me the question on provisions? I
Yeah. Just before we get to the question on provisions then. When you talk about loan growth being driven by individuals and SMEs, right? This is a better loan mix that we're talking about in 2022 than 2021. You should have some benefit on your margins from that. If you can discuss, like you said, right, the spread's already higher than in the H1 of 2021. Do you see room for you to continue to increase spreads? Do you think that the consumers and corporates in Brazil would be able to absorb the higher spreads?
I think, basically spreads were actually in a very low level in the H1 of 2021. I think we are going through the composition of spreads in this environment of higher interest rates. I think the impact of higher spreads in the origination leads to this lower loan growth we are pointing in 2022 comparing to 2021.
The question on provisions was, when I look at your guidance range of BRL 15 billion-BRL 19 billion, the BRL 19 billion implies growth of almost 30% in provisions relative to 2021. I was wondering, under what kind of scenario you think, you know, you would be close to this high end of your guidance?
Our guidance, as it always happens, we focus on the middle of the range. That is, what connects with our budget, our estimates. The range contemplates unforeseen scenarios where actually things go worse than our expectations. Basically, that's what is contemplated in the range. As you know, the base case is BRL 17 billion.
Okay. That's what I was trying to get to then. The BRL 19 billion, right, if things don't go as expected, what are we talking about here? Is the economy contracting 1%, 2%? What are the macro assumptions behind that?
That may be related to growth higher than expected, economy lower than expected. Again, the range contemplates some sort of standard deviation on the base case scenario. Not necessarily relates to a well-defined scenario.
Okay, Firetti. You know, that's helpful. Just final one then. What is your base case scenario for interest rates, inflation and GDP growth?
Our scenario for GDP growth is 0.5% growth. For inflation is 5.4%. We have Selic at the end of 2022 at 11.75%.
Okay. Very helpful. Thank you very much.
Our next question comes from Geoffrey Elliot, Autonomous.
Oh, hello, everyone. Thanks for taking the question. The expense outlook, clearly, you know, you're pointing to something that embeds some efficiency improvements. But can you talk about your expectations on the personnel cost side? You know, you had the 11% agreement with the unions last year. Inflation is high, I'm sure they're gonna want chunky increases again. What sort of expectations are you embedding? Is it 11% again? Is it something a bit lower than that this time? And what are you seeing in the labor market in Brazil when you're out trying to hire people?
Thank you, Geoffrey Elliot. Basically, our cost growth guidance considers all the impacts of this environment of higher inflation. The fact that we are actually investing in our operation, in technology, we are investing in people. At the same time, we are running a process in which we improve our efficiency. We should incorporate or convert about 500 branches in 2022 in smaller formats. We continue the process of improving efficiency. We have been converting most of our operations.
For instance, the formalization of sale of products, the signature of contracts in digital process, on some sort of omnichannel approach, where the client may be talking to a branch manager, but the confirmation of the contract, the signature actually happens online. All this process has been helping us to reduce costs. This 5% considers all the pressures we have coming from the increasing salaries we had last year of about 11%. Consider the fact that probably we're gonna have inflation plus something or at least inflation again in September. That is pretty much given by the jurisprudence in terms of labor agreements we have in Brazil. Probably it will happened something kind of in the same trend this year. With that, with all this cost-cutting initiatives, we think we may have the ability of keeping costs running only close to the inflation increase.
Got it. Thank you. If I could squeeze one more in on this credit topic. Are there any pockets at all where you've seen credit metrics worse than you would have expected maybe six months ago, given the, you know, the slowdown in macro, the other pressures on consumers and businesses? Is there anything that you're seeing that is worse than you would have expected if only because the macro and GDP growth is gonna be a bit lower?
Look, I think during the pandemic, there were some different and new trends. There was first the trend of actually clients and people, the population accumulating cash actually saving, so getting financially in a better position. That certainly have improved the creditworthiness of potential credit card clients as a whole. Even if the economy hasn't been doing as good as we expected, we have seen actually formal employment in Brazil improving, job creation so far improving and that's kind of good for us kind of as part of the normalization of the economy in the post-pandemic.
On top of that, there were all the improvements we had in terms of credit modeling, usage of data, access to different kinds of information, knowing structured information about clients that somehow we could incorporate in our credit modeling process. We originated a lot of credit with collaterals, mortgage, payroll loans. I think that's with that, we believe, as you said, as credit quality should normalize with NPLs increasing, but we think it will keep relatively under control.
That's great. Thank you.
Our next question comes from Carlos Gomez, HSBC.
Hi. Good morning. I'm going to go back to the extraordinary charges in the quarter. The first one referred to your restructuring is about BRL 440 million. Now you do that every year, so one wonders to what extent that is extraordinary or you could consider it part of normal expenses. What is your logic to say that it is extraordinary? Should we expect more such charges in the coming years? Is this a recurring event? The second one refers to the BRL 1.9 billion reclassification of securities. Again, I think we struggle to understand what the logic is to be able to bring that loss forward and to consider it extraordinary now, because had it been in the books, you would have had it as an ordinary loss or lower income for the next two or three years.
Why is it extraordinary now, but it would be ordinary had it remained there? Thank you.
Hi, Carlos. Leandro speaking. Well, basically, regarding to your first question, on the restructuring provision that we have made, it's pretty much to cease branches and to transform branches into business units. Just to give you a flavor, we plan to cease around 700 branches and to transform, I would say, by 650 branches. So if you put their rental, labor, and furniture costs is pretty much you shall have this this amount. In order to say if we're gonna be able to keep on doing that for the coming years, it should pretty much depend on how much our clients are gonna continue to increase the use of digital channels and the business units.
As long as it makes sense, we wanna do it, but it's very hard to say that it's gonna be every year, and therefore, that's the reason why we put as an extraordinary provision for that. Related to the Market NII, what happened is that we realized that the volatility in interest rates and the fast growth of the base rates allowed us an opportunity to sell the existing portfolio that there was a lower coupon and to increase with another portfolio of a higher coupon and a duration that our treasury guys thought that there would be a gain for us.
By the end of the day, according as you count on the years ahead, it shall be neutral or with a slight gain for us. We are just discussing the year. You're gonna be able to see that would be good for us. There was no tax advantage. It's pretty much neutral.
Sorry, if I can insist, this really is a treasury operation. You are exchanging some bonds for others. You are, Matheus, you are realizing a capital loss. I mean, why is that not a trading loss, part of your market income?
That's basically because it was a management decision. We think it is extraordinary in that sense.
Mm-hmm.
The realization of profits this year comes from kind of a decision of doing this movement.
Thank you so much.
Our next question comes from James Saul, Lazard Asset Management.
Yes. Can you guys hear me? Yeah, so I have two questions, one on NII. Just let me ask it in slightly different way. You know, I think the Q4 was the second quarter in a row where we see positive NII contributions from both spreads and mix, if I look at the Q- on- Q, the quarter-over-quarter movement. My question is the following. Is there any reason why we should think that this trend, positive contribution from mix as well as spreads, won't continue in 2022? Or too. If I put it differently, any reason why we should believe that spreads will be worse in Q4 2022 versus Q4 2021, or product mix will be worse in Q4 2022 than Q4 2021? I have another question as well.
Thanks for the question, James. I guess we are pretty much confident that this trend shall go on, so we shall be able to increase spreads with individuals and SMEs. As our CEO pointed out earlier, we shall see a reduction in large corporate names because they are pretty much able to access the capital markets, and they do not need capital. They are very well liquid. We believe that we shall go on.
That doesn't tally to your guidance.
Yeah.
Right. Okay. Fair enough. Second question, insurance. In your 18%-23% insurance income growth guidance, what's the implied claims ratio you're assuming versus 2019? Hello?
Hi, James. Look, the guidance implies both an improvement in the financial income in 2022 and a continuation of the improvements in the operation of insurance operation trends. I don't have at this moment specifically the implied loss ratio.
It's fine. Just
I can get back to you.
It's fine. Just give me-
It's a con-
Yeah. If you can just give me a yes or no answer.
It's a continuation of the growth.
So will-
Yeah.
Will the 2023 claims ratio be better than 2022? In your-
Yeah.
An assumption, of course. Okay.
Yeah. Just by the continuation of the improvements related to COVID normalization, there's a lot of improvements we can still capture, especially in health insurance but also-
Mm-hmm.
The claims in car insurance remains high. There's a lot of improvements.
Sure.
This is Leandro speaking. Just to give you a flavor, we pretty much understand that in terms of life and health, as well as elementary branches, we shall see some reduction in delinquencies. Nevertheless, in terms of vehicles, we shall see a higher delinquencies because pretty much the life will be turning back to the old times and we shall see more vehicles in the street, more traffic and all, the delinquencies, all the claims related to that.
Okay. Thank you very much. That's really helpful. Thank you.
Thanks. No problem. Take care.
Our next question comes from Yuri Fernandes, JP Morgan.
Hello, everybody. Thank you for the opportunity of asking questions. I have a first one regarding the dividend payout. Given, I guess, you may continue delivering those 18%-19% early this year, and you are expected to grow from 10%-14%, what is the level of payouts you are expecting on this equation, right, for to kind of keep your no major increase on leverage, nothing like that? I guess your bylaws is around 30% minimum payouts, but historically you have been paying 40%-50%. If you can comment a little bit on what should we expect for dividends for this year, that would be great. I have a follow-up regarding market income.
I guess it's clear, the message from Federico that market income may decrease. If you can quantify a little bit, like what should we expect? I know you don't have a guidance. I know this is very volatile, but I do see two potential tailwinds for you here. Like, the first one is potential major gains from your shareholders' debt remuneration. I know it's not fully floating, but higher rates should help a little bit on your working capital. The second one is the reclassification, right, of the securities book. If you can provide some color, should we expect another decrease similar to the 2021? That is something closer to 20. It's something smaller than that. Just an order of magnitude would be great for us here. Thank you very much.
Thank you. This is Leandro speaking. Let me start with your JCP, right? Basically, the idea here is, of course, it will pretty much depend on the year we have ahead, the economic conditions, the opportunities, how we use our capital, but it's to continue to pay around 40% as we have done throughout the years. We believe that 35% of that will come from JCP. That's pretty much the maximum we can pay, is the most efficient for our shareholders. The difference will be through dividends. That's your first question. Regarding the second one, there is market NII. We shift the position to a longer portfolio of a higher coupon securities. We shall benefit from that in the three -four years ahead.
Perfect, Leandro. Thank you very much.
Thank you.
Thank you. Due to duration of the call, we now finish the question- and- answer session. I would like to invite the speakers for the closing remarks.
Well, first of all, I would like to thank you very much for making the time to be with us, not only through our presentation, but questions and answer. Of course, the market is changing very quickly. We are analyzing the opportunities and should you have additional questions or clarifications, our IR team is gonna be more than happy to address any of those. I wish you a very healthy and a great day. Take care. Bye-bye.
That does conclude Bradesco's conference call for today. Thank you very much for your participation. Have a good day.