Good morning, ladies and gentlemen, and thank you for waiting. We would like to welcome everyone to Banco Bradesco's third quarter of 2019 earnings conference call. This call is being broadcast simultaneously on the internet at the investor relations website of Bradesco at banco.bradesco/ir, where you may find the presentation available for download as well. We would like to inform you that there is simultaneous translation into English. All participants will be in listen-only mode during the company's presentation. Afterwards, there will be a question-and-answer session when further instructions will be given. Should you need assistance during the call, please press star zero to reach the operator.
Before proceeding, we would like to mention that forward-looking statements that might be made during this call in relation to the company's business perspectives and operating and financial projections and targets are beliefs and assumptions of Bradesco's management, as well as information currently available to the company. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties, and assumptions as they relate to future events, and therefore, they depend on circumstances that may or may not occur. Investors should understand that general economic conditions, industry conditions, and other operating factors may also affect the future results of Banco Bradesco and may cause results to differ materially from those expressed in such forward-looking statements. Now, we would like to turn this conference over to Mr. Carlos Firetti, Market Relations Officer.
Good morning, everyone, and thank you for participating in our call about the third quarter results.
Today, we have our CEO, Octavio de Lazari Junior, the Vice President and CFO, André Cano, the CEO of Bradesco Seguros, Vinicius Albernaz, our Executive Officer and Investor Relations Officer, Leandro Miranda. Now I would like to turn the floor over to Octavio.
Thank you, Firetti. Good morning, everybody, thank you very much for participating in our call about the results of the third quarter. There is a positive feeling regarding the moment that Brazil is living that we may achieve gradual, consistent, and healthy growth and inflation under control. In the current public period, we consolidated the reform of the Social Security, a fundamental point for the sustainability of public finances in Brazil.
Also for the preservation of a positive agenda for the Brazilian economy, this combination of the fiscal and monetary policies, adequate and clear policies in order to alleviate us from the very low economic growth allowed us to control inflation and with a consistent drop in interest rates. We see a lower risk scenario that motivates more and more investment, job creation, and consumption by the private economic agents with a gradual recovery of economic activity. This is very important for us as an organization because we prepared ourselves and we are positioned to capture the benefits of a more positive economic cycle. On page three, we review our highlight extended credit portfolio continues to grow in a healthy and well-diversified manner in the higher growth and return segments as individuals and SMEs.
The new vintages are still improving, 3.2% increase growth in the quarter and 10.5% in an annual comparison. We especially highlight the performance of individual segments growing 19% in 12 months. Our fee revenues, which were under pressure, were adjusted in the previous quarters and already show signs of improvement with growth in the most important lines. We believe that from now on, they should continue to recover. Our expenses, which were presented in a relatively strong increase due to planned strategy, they have already started to go back to their regular pace after a stringent and comprehensive program for expense reductions and controls that we will be detailing ahead.
We are determined to keep them in line, under control. Now that we have made the necessary adjustments, we have been able once again to present a strong quarter with a new record in our net income, growing by 19.6% on an annual comparison in the nine months of 2019. Our net income was 22.3% higher, and operating income 11.6%. A result, our ROE in nine months remains higher than 20%. CET1 ratio reached 14.7% at 250 basis points growth in the last 12 months. Finally, it is worth highlighting the extraordinary event of BRL 8 billion recently announced. We will keep an active management of our capital considering growth opportunities and our perception of the optimal capital structure given the economic moment that we will be living. Starting to present details of our figures. Let's go to slide number five.
Our net interest income grew 5.7% year-on-year and 5.9% year in the quarter. The performance and decline indicates that we can stay at the center of the guidance. The rate profile of the new loan vintages continue to be very good. Our extended loan loss position expense decreased by 4.3% for the quarter, accumulating a reduction of 4.9% considering a nine-month comparison. Our net income recorded a 19.6% increase year-on-year in the first quarter of 2019 and 22.3% year to date. On slide number six, we show you the indicator of ROE reaching 20.2%, considering the 3Q. For analysis purposes, adjusting our equity by the BRL 8 billion extraordinary dividend, ROE would have been 21.5%. ROA was 1.9%. We have been saying in the last quarters, we believe that we can keep the ROE higher than 20%.
In spite of the impacts of low interest rates and spreads likely decrease, we have hedged ahead our future return benefits from a stronger loan volume growth, a more favorable portfolio mix, and scale as well. Looking at the longer term, considering the maintenance of low interest rates and falling spread scenario, we could see a reduction in returns. We believe they will still remain at a high level, especially because of the lower level of risk of the loan loss provision. Now, going to page number seven, growth in our loan portfolio. Accelerating again, as we had said it would happen, closing Q3 at 10.5%. The highlight was the individual segment, which recorded a 5.5% growth in the quarter, 19% year-on-year, with all lines showing a good performance.
It is worth highlighting personal loans with improvement in the product journey, mainly in the digital channels, growing by 62%, together with more competitive rates and longer tenure and increased use of analytics, led this portfolio to have a 9.7% growth in the quarter and 36.2% in an annual comparison. Payroll loan we grew by 24.1% year-over-year. We have a unique position in this product due to our distribution network, public sector payroll agreements, and also public pension system processing, where we are the leading bank. It is important to say that 78% of our origination of payroll loans is carried out at our branches, therefore, without paying any commissions whatsoever. We had a good performance in mortgages as well, growing by 16%, with good perspective and vehicle financing 21%.
It is also worth noting the growth of cards, which accelerated now to 2.5% year-on-year. In the company's portfolio, there was an acceleration in SMEs, which grew by 8.3% year-on-year. Adjusting for the migration of customers between segments and a slowdown in corporate, the increase is 12.9%, and we already expected this. The increase is stronger in small companies than in mid-size companies. Let's go to page eight, where we show our credit origination, which continues to have a good performance, both for individuals and companies, and with a good perspective for a longer term, growing by 35.5% year-on-year for individuals and 40.8% for corporations. On slide nine, we discuss our net interest income.
Our total NII grew 5.9% year-on-year, accelerating the credit margin growth to 5.2%, while the margin with the market remained practically flat in the quarter. The positive effect of the mix and the volume growth during the quarter have outweighed the negative effect of the foreign spreads. We believe that the effects of the positive mix and volume growth should continue to offset the trust book spread reduction and the renewal of the loan book. On slide 10, we talk about delinquency. Delinquency remained flat in individuals with an increase in SMEs and a higher increase in large caps as a result of few specific cases. Nevertheless, this has not affected the loan loss provision expense as the cases were totally provisioned, most of them. Overall, we see delinquency under control, underlined with our product mix strategy. On slide 11, we talk about NPL creation.
We maintained a good performance in terms of provision expenses, with a reduction in the quarter in nominal terms as the cases that led to the increase in NPL creation were already provisioned for. The cost of risk ratio dropped by 20 bps, going to 2.3%. On page number 12, we show the NPL creation per segment, we can see the increase in the quarter is concentrated in specific corporate cases. On page 13, we talk about fee income. We had a better performance in the third quarter with 3.7% increase year-on-year and 2.5% year-to-date. That is to say, accelerating in the third quarter. It's worth noting the good performance of the annual comparison of card custody and brokerage consortia, checking accounts, and loan operations. In the quarter, 4.8% increase in asset management, despite the reduction in private pension administration fees that happened in the first quarter.
We have additional initiatives in this area being implemented in wealth management, which should certainly produce increased results in the coming months. On page 14, operating expenses. The increase in costs above the guidance was mainly due to important decisions made earlier this year, such as the implementation of the new branch network compensation program, the increase in the number of labor lawsuit settlements because of CAR, and reinforcement in some teams such as the Next team and the hiring of a more robust team of data scientists. We understand that we have to improve our performance in expenses, and we have already taken all the necessary measures in order to reach this target. On page 15, on slide number 15, we highlight the measures which should allow us to have a much better performance in cost in 2020.
You can see that we expect to close over 150 branches in 2019. There are therefore 100 more per year up to the year-end 2019, and we have plans to close another 300 branches in 2020, at least an additional 300 branches. In future periods, we should have a lower number of employees as a result of the new voluntary redundancy program and continued adjustments in addition to our productivity gains from digitalization. Just to give an idea, so far, we had over 3,000 employees joining our voluntary redundancy program, and this figure is higher than our plan. Finally, we believe that the labor lawsuits expenses in 2020 will be lower than this year. Now going to slide number 16, talking about our insurance company. The net income of the insurance group was BRL 1,890,000,000, a 2.8% growth in the quarter and 28.9% year-on-year.
ROE reaching 24.1% in Q3. We should note that the acceleration of premium growth, which reached 12.3% year-on-year, highlighting the strong performance in life and pension, which grew 8.3% for the quarter and 18.2% year-on-year. On the next slide, number 17, we highlight the 20.1% evolution year-to-date in net income with a 23.6% ROE. Health and P&C segments stood out in terms of earnings performance. In the nine-month comparison, we actually eliminate seasonality, which is better for the insurance company purposes. We recorded improvement in the group's consolidated, combined, and claims ratios. Going to slide 18, we closed the quarter with a cost of BIS ratio of 14.7%, and the impact on the BIS ratio of the BRL 8 billion extraordinary dividend distribution will partially be mitigated by the reallocation of the group's insurance results via dividends.
As you can see, this pro forma bar here, the last one on the slide, the only 60 basis points. This drop will be mitigated additionally by what we will be accumulating in the fourth quarter. Now talking about capital management on page 19. On October 7, we announced extraordinary dividend of BRL 8 billion, representing a yield for distribution of approximately 3%. We will define our distribution of the excess capital generation that in our operations should read the following aspects: business opportunities, the risk rebalancing risk level, and the view of an optimal capital structure for the economic moment that we will be living. On the last page, on page 20, in relation to our guidance for 2019, what we can say about our guidance is that we should remain in the middle of the guidance in the extended portfolio, 11%, maybe a little bit more.
In the middle of the guidance for the net interest margin, 6%, in the lower part of the guidance for fee revenues between 3% to 4%. Above the guidance in operating expenses, it should go down from the level that we have today and above the guidance in earnings from insurance operations, 20.7% going to 5.9%. Above the guidance in earnings from the insurance in the upper part of the guidance is extended loan loss provision, BRL 13 billion-BRL 14 billion. These are the data that we wanted to inform to you. Thank you very much for your attention.
Now we are going to move to our Q&A session. Thank you very much. Now we will start our Q&A session. Questions in Portuguese may be asked and the other participants, could you please remain in listen-only mode. In order to ask a question, please press star one. In order to remove your question from the queue, please press star two. Ricardo Centenaro from Credit Suisse, you may proceed.
Good morning, everybody, thank you for the opportunity. I have two very quick questions, if you allow me. The first one has to do with the spread. We see a drop that you show of about BRL 300 million per quarter in this waterfall chart. I understand that part that is a repricing of your back book of corporate. My question is the following: from now on, are you going to reprice a lot the negative BRL 300 million? Should we continue to see this in the next quarters? The second question is about the OPEX.
It seems to me that you will be above the guidance for this year, but could you share with us an internal estimate about the cost reduction coming from the closing of these 300 branches? Thank you very much for your question.
With relation of the spreads, the answer is no. There will be a spread reduction. This is only natural with the reduction of the Selic rate that yesterday dropped to five and already contracted for this upcoming meeting. As of February, they should be more careful measuring this or basing this on the economic activity, et cetera. This should be followed by a higher growth in the economy. This is what we believe will happen, and this will allow us to monitor the spread levels.
We grow in the portfolios that have the different spread, like the individual and the SME portfolios. For large caps, this is a fact that we have already been living since the beginning of this year. We have different costs for our commercial portfolio. We were talking about an IOF of 2% and there is a natural migration to the capital markets. We are not going to repeat the BRL 300 million as you repeated. Regarding the branches, this is an important homework that we are doing. Closing 300 branches is our expectation, at least 300 for next year. It is difficult to talk about numbers or figures because there are many factors that come into play beside the physical structure and the rents and personnel, but the cost reduction is very significant.
As we digitalize the company costs, it's 70% lower when you transform these branches into mini branches only for businesses, you no longer have costs. You still have less revenue. It's very difficult to quantify this, what I can say is that it will be very big. In relation to the back book, most of the pricing should come in one single quarter or one additional quarter only. Thank you very much. I would like to remind you that 300 branches represent 6.5% of the whole branch network of the bank. It's a very considerable figure.
Eduardo Rosman from BTG Pactual.
Good morning, everybody. I have two questions. The first one is the following: I would like to know how you see the excess ALL. We saw that this dropped for some reasons, excess ALL continues to be stable.
Are you going to review your policy of never reverting your provisions because recently you decided to review your dividend policy? The second question, would you like to give us more color for next year, the most important lines, as you mentioned during the call that next year expenses will have a better performance than this year and do you see room for fees going up more than in 2019? It would be interesting to know why you feel so comfortable with that. Could you give us an idea about your loan portfolio maybe going up maybe more than in 2019 NIIs, does it make sense to imagine that it will be growing more? I know that you don't have a guidance to give us, but can you give us some indication regarding what you expect in terms of the bank's results for next year?
You mentioned that the ROE should be close to more than 20% in 2020. Thank you for your question. In relation to the excess NPLs, as we have been repeating, there is a practice that we have not been using, that is to say, regarding the non-performing loan. We consider this as a buffer. We believe that there is room to consider the excess NPL not any longer as a buffer, but looking at it within the process of migration for the migration towards IFRS 9. Although it will still be discussed for 2021, 2022, we should start to run this regarding the provisioning and doing this even more in advance. All the provisions would be included in this bulk, so to say. Well, this is what I can say regarding the excess allowance for loan losses.
Regarding the outlook for 2020, I will try to answer this. I will try to avoid giving you a guidance. I think some of these discussions are already underway in the credit scenario. We believe that the credit scenario will be quite good, especially in lines that bring higher margins, individuals and SMEs. Also the back book will be repriced. Obviously, there is a consistent gradual repricing. We got a period of very high spreads, 2016, 2017. We still have part of that in our book. We believe that for 2020, the evolution of credit margins, considering the effect of spreads and mixes, will be better than in 2019.
Maybe with a slight reduction, but allowing the average size of the volume that we expect to be quite big, expecting this to play a more important role than the NII, the credit NII as a whole. You have the market NII part where we believe there will be a positive effect. Of course, this will happen over time. We believe that the scenario for NIIs for next year is constructive. In relation to expenses based on the work that we have been doing and what Fabio has already mentioned during his presentation, we believe that the performance will be much better as far as costs are concerned. We intend to achieve this as fast as possible.
The fee line improving, I would say that this year it is close to the bottom of the guidance, around 3%, and it will be better next year. You have to keep in mind that this year there were some stronger impacts of acquiring and the debit effect that started in October last year. We believe that net of these effects and the volume growing more strongly, we will be able to have a better performance in this line. Insurance. Maybe Vinicius would like to talk. Well, about the insurance scenario.
Well, we see a gradual rebound of the economy. We are experiencing a good top-line growth in the insurance line. With lower interest rates, I think this should be offset by this additional growth. I think this is the landscape that we envision looking forward. Just to add in terms of expenses, I think it has to do with what we talked about in terms of reducing the number of branches, Allowance for Loan Losses that is higher than 3,000 employees, and that was our initial expectation. Even the actions related to expediting labor agreements, even before the labor reform, this helped boost the economy and it will help us towards 2020. I think we should envision better days because we are increasing the customer base by 1.5 million clients. In 2019, we will have 2 million clients.
Once you break this down, in addition to all of the payment means that we are applying, 74% of payroll is now in the hands of Bradesco. With all of that, we have fees, we have credit cards. In addition to that, we also have other products, services, loans, payroll, deductible loans, and all of that can give us a better outlook for next year, right? That's great. Thank you. Thank you very much.
Our next question from Gabriel Nobrega from Citi. You may proceed. Mr. Gabriel Nobrega, you may proceed.
Fine. This is Jorge Friedman. I have two questions. The first is about write-offs. I noticed that this quarter, your write-off was down by 20% vis-à-vis the previous quarter.
It's the lowest one since 2017. I don't know whether this should be seen as a new normal because it appeared in several lines, not only corporate, SMEs, et cetera. I would just like you to elaborate a bit more on write-off evolution. My second question is, with the approval of the pension reform and the likely increase in the banking sector, we hope that this will have a positive impact on the part of the bank in terms of the evaluation of tax credits. I mean, given the inventories you reported on this quarter, and according to my evaluation, should be over BRL 6 billion. How do you intend to approach that in terms of its destination? I just want to understand what you will do with that. In terms of write-offs, there is nothing new. It's just a cycle.
If you look at the provisioning cycle, considering all the provisioning tenures in terms of each line, considering collaterals. In a way, this dropping write-offs is just a consequence stemming from the fact that the credit quality has improved. After some time, this is just a natural consequence. It was just expected that write-offs would attain this level. Now, in terms of tax credits, our expectation is that the reassessment of these credits should generate something like BRL 6 billion, then we will still have to evaluate and think about what we will do, because it's possible that something will go into provisions, this is yet to be decided. Okay, perfect. I'll just add something else in regards to taxes and whether you could give me an idea of how the effective tax should evolve in terms of the bank.
I understand that this does not cover all of the businesses of the organization, so maybe this shouldn't have a full impact. If you can give me an idea, it will help me out.
What we've been saying is that this year's taxes, according to what we've been talking about, should be close to 28%. If the new tax rate of five, as you indicated, taking only the bank and not all of the other businesses, it should have an impact of 2% or 2.5% in addition. Percentage point. Thank you.
Next question from Giovanna Rosa from Bank of America. You may proceed.
Hello, good morning, and thank you for taking my questions. I would like to revisit the issue of cost. You talked about adding 3,000 employees to your voluntary severance program, and I would like to know what is your outlook for next year.
When I look at cost per employee, I arrive at an economy savings of about BRL 630 million for next year. I mean, I know that these employees that have joined the program, they are older employees, maybe these numbers would be higher. If you can give us some idea of your savings, your figure regarding savings in this regard, I would appreciate it. Giovanna, I think that your assessment that looking at the tenure of the employees and the average cost is higher, it's true. We don't have yet any numbers to share with you at the moment. In fact, this is almost 3% of the employee base of the bank, we don't have yet any numbers to share with you.
In fact, this program, the voluntary severance program, ends today, so this number of 3,000 refers to the day before yesterday. We still may have some variations. Moreover, it also depends on who is joining the program, because we have people from different job descriptions, different positions in the company. We still have to run a more thorough analysis. Your calculation makes sense. Okay, thank you. My second question is more related to credit quality and provision when we look at the next quarters looking forward. As part of that will be used when IFRS 9 is implemented. Should we expect that ALL should grow below that portfolio, or from now on, they will be moving hand in hand? Basically, we think that we still have a positive effect of the loan vintages until the end of the year.
I think that the numbers should be lower when compared to the loan portfolio that we've been posting. As for next year, we should see growth more in keeping with the growth of the portfolio. We are well-positioned, and we are growing in the individual segment and the segment of micro, small, and midsize companies. We are experiencing a unique environment in Brazil. Therefore, we believe that there shouldn't be any pressure in terms of provisions. That's at least what we've been experiencing, looking at the natural growth of this segment. Now, this quarter, we don't believe that levels will deteriorate. On the contrary, with the growth of the economy and all of the controls, increasing consumption, lower interest rates, NPL should go down. That's very clear. Thank you. If you could give me just a follow-up of your answer.
You are growing significantly in the individual and SME segment. I would just want to understand whether there is still room to sustain this growth, or you reached the top of growth for both lines. We still see further growth in both lines because unemployment is still quite high in Brazil, in particular in regions where we have absolute leadership in market share. We should see growth in individuals and also particularly in micro and small companies, we should see some economic growth. As we manage our credit models and our algorithms, we are now more comfortable to understand the profile of our customers, and we feel comfortable in expanding our portfolio. We haven't reached the top yet. There is still room for growth. That's clear.
Given the fact that provisions for these portfolios tend to be lower when compared to large corporate, it's just natural that the provision levels looking forward should be better than the current levels, right? Yeah, you're right. We are seeing a reduction in the size of large corporate. Your reading is right if we don't have growth in the same level. If we were to grow the same way, individuals and SMEs, that would be different. If we reduce large corporate, the fact that we have good new operations, these are operations on the individual segment. This is still very healthy because these are new operations, and they are performing well. With the advent of new things to be adopted next year, like IFRS 9, our position should be even more favorable, and this portfolio should be even better.
Giovanna, I think you should look at the net spread, because despite the pressure on spreads in several segments, when you look at net spread, you see growth, and we've been growing. In this segment, we can keep the bulk of our current revenues because we are seeing an outing in terms of new consumers and new clients. Yeah, that's very clear. Thank you very much. Good morning. Our next question is from Thiago Batista. You may proceed. Good morning. I have a few questions on the insurance side. The first has to do with cost reallocation because you said it will generate substantial gains. My question is whether it is only this capital line or we should see any other activities similar to that in the coming years.
This quarter, as Octavio said, when we look at nine months, we say some leadership positions, when we look quarter-on-quarter, there was a worsening scenario. You are above in some quarters today than what were in previous quarters. What should we expect looking forward? Are we going to see improvement or maybe, no, the opposite? When is it the floor giving you now? Let me first refer to the claims ratio. In fact, if you look at the nine-month period, we see a very favorable period for individual income. When we look at quarterly figures, what we see is a seasonal effect. This third quarter was affected by the health claims ratio, and this affected our overall claims ratio. In terms of frequency, this is common due to seasonality reasons.
At the same time, we have an additional effect, which is a larger number of business days. We had a few more days during this quarter when compared to previous quarters, and even more days compared to the second quarter of this year, and this affects frequency. If you look at combined figures, there are some good news because despite this worsening in claims ratio, we have been putting good efforts to control costs etc., and to control our assets have been an adequate move to maintain the combined effect and to maintain things stable. This effect, the seasonal effect, has to be analyzed because there are some peculiarities here. We had a third quarter which was very positive. We see a growing trend still coming from the first and second quarters. We are monitoring the situation. We've been looking at the performance of the insurance line.
We still see some room for improvement. We are monitoring and also see when we should resume to normal figures. This is not the case at the moment. The average cost of these procedures, everything is under control, is way below inflation and in keeping with what we've been doing in the past. In relation to the average cost, we are very comfortable. This effect is an effect of frequency that also includes the seasonal effect. When we talk about claims ratio, claims is also important to talk about premiums earned and job generation. The healthcare market is very competitive, and we've seen payers with lower capacity to transfer prices. We had to increase our portfolio. In this quarter, we didn't see any positive effect from that increase in our portfolio. This will have a positive effect looking forward.
Talking about dividends, and I'll give the floor to Cano to comment on that or capital management. In terms of solvency in the insurance company, in our holdings, we can say that this does not impact the capital. Management is just normal. Every month, depending on the provision level, we manage that on a monthly basis, and we study that on a monthly basis in order for us to maintain an optimum level of capital in the insurance companies. We also have to look at the optimum level of capital because we don't want that to reach the BIS ratio or to affect the BIS ratio.
Thank you. Our next question from Thiago Guedes from Itaú BBA in São Paulo.
Good morning, and thank you for taking my question. I have two questions. Going back to the number of current account holders, you have 1.5 million that you add to your base every year. How much of that is due to your strategy in terms of payrolls? Octavio said that Bradesco has 74% of all payroll accounts. I want to know whether that only refers to civil servants or also servants from the private sector. I just want to know what generated increases in the operating risks this quarter and whether we should expect additional effects looking forward. Now to digital causes.
In terms of our current account holders and the fact that we are adding 1.5 million accounts to our network of branches, I would say that 40% of these accounts come from payrolls that we acquired. The remaining comes from our own internal work and some agreements that we have, like with Avon and other companies that help make up that team number. It is mostly related to payroll accounts and also our own internal work to procure customers, clients. It is also important to say that our focus in terms of payroll accounts is mainly in the public sector. We work in the relationships with bankers.
About RWA, in terms of the market, I think we have to look at the volatility of the market and we have to factor that in the cost of the business and in terms of capital, and this could vary up or down. You should recall the landscape in the third quarter, but now talking about operating risk, a periodic review, so we don't see any frequent variations. In terms of the market, on the market side, the numbers should be lower because the volatility in the environment is lower.
Okay. Thank you. Next question from Eduardo Nishio from Banco Plural.
Thank you for this opportunity. Good morning, everyone. My question is a bit long, but it's a follow-on to Roger's question in relation to the outlook looking forward. We are now going through structural changes.
I mean, yesterday we had another cut in the Selic rate, -5% now. Now we are probably heading towards even lower numbers and years ago, we couldn't even think that something like that would happen. My question to you is, how do you see the landscape looking forward? Maybe if we focus on loans, fees, costs, and on the insurance side, how do you see this scenario when interest rates will go structural lower, and how does it impact your businesses? Whether you grow or whether you not grow, if you could also mention about competition in the market would be interesting. We see the growth of FinTechs and they are hardly charging any fees for their services. As a consequence, I want to know whether you could maintain ROE around 20%.
I think even more important than that, your bottom line in two digits, because maybe we could utilize capital, but also I want to know whether you can grow your net income or your earnings in the next seven years.
Eduardo, thank you for your question. This is Octavio. I think you are very right in what you're saying. We are looking at a shorter term period and that's why we said that we will be able to maintain that return of around 15%-20% or even slightly above. We are experiencing a structural change and this will be the new normal. If we think in terms of an interest rate that is now five, or maybe four and a half, depending on whether it will be lower with inflation rate at around two, three or even five, we'll be talking about an actual rate of 1%.
This would lead us to believe that in the longer term, it could even be lower or if growth, as you put it quite well, can no longer be a two-digit growth. On the other hand, we have the opportunity to capture business and this is a very unique opportunity for us in Brazil because we usually started and we would sail with good winds for one or two years and then things will go backwards.
If we think about the investment that Bradesco did, particularly with the purchase of a few banks and all of the new payrolls that we are adding to our base and new non-payroll clients, considering the fact that we still have a lot of unemployment and people that are Once they return to the labor market, we are well-positioned to capture payroll accounts, current accounts, to capture more clients in the healthcare segment because we're not losing our clients to the competition. Just clients left because they were unemployed. We were able to grow despite all of these facts. I believe we still have a lot of opportunities on the table and they will allow us to look for what we want, an economy with low interest rates.
If you don't manage to get scale, you won't be able to keep growing around two digits or at a high one digit. When we look at all the possibilities we have, of course, there are FinTechs, there's a lot of competition. They are not even FinTechs when we talk about investments, you have a lot of large companies. When we talk about acquiring, you have a lot of companies already operating in these segments. This is all true. The growth that can be expected in the market, considering a higher capacity for Brazilian economy to grow, we still have a lot of people that are not part of the market, and once they return, things will change. Look at what happened to the real estate market seven years ago and the growth we had once we reached a level of full employment or almost full employment.
Unfortunately, it didn't last very long, almost just one year, and then we had to go backwards, and the banks had to step on the brakes. That level of growth was the new normal with the low interest rate and good unemployment rate. There are many challenges, but I think there are more opportunities than challenges, and we will be able to grow and absorb all the labor force, especially because of the growth of Digio. Thank you very much. Next question from Yuri Fernandes from J.P. Morgan. You may proceed. Thank you for taking my question. I have a question on funding. Looking at numbers of the quarter, and I know the situation may volatile, but that is very low. Deposits were about 4%, whereas the loan portfolio grew more. I know that the bank is very liquid. How do you see competition for liabilities?
Will that be a problem in the future? There are digital banks and some independent organizations. Do you think that this could be a problem for you in terms of the cost of the banks? The second question is about assets under management. We took a look at your assets under management, AUM, and there was a drop, and this is something that has been happening in the last few years. Maybe you could tell us whether you have any plans to improve performance in this line of AUM or whether this is related to any specific case or any specific client that left your customer base. Thank you. This is a very good remark.
Your remark is extremely timely. This is a job that we have been doing for a long time. A bank that has a network such as the one that we have and with a level of unemployment in Brazil, it gives you the impression that you do not have the same performance of the economy. Just to give you an idea, all the wealth management area of the bank was changed. We are training 240 people in our organization, experts in investment. We are not concerned with that right now because when the economy gets better and you have a lower unemployment rate, of course, we will have a much better situation for wealth management coming from the different types of funding from the different sources, digital banks and our branches, et cetera. This is something that we are studying very thoroughly.
Mainly in our prime clients who are very important clients when you talk about investment, and the other heavy line from our retail clients, because funding of the wholesale bank, you can do this whenever you want. We do not need investment in this kind of funding, and we do not have a big reliance on that and the funding that is cheaper for us is in prime and retail bank as a whole. Your remark is very good, and we have taken all the measures regarding that. The other question had to do with brand, the Bradesco Asset Management that suffers a more aggressive competition, mainly from the new entrants in the market and others that are not so new.
With an interest rate at the level that they are today and going down, people who have more clarity about financial investment and investment, they are looking for other types of investment and not only fixed income in order to try to obtain some more eggs in this basket and with a better income. This is a challenge for all the asset management companies. Of course, we have many portfolios under management, and I believe that BRAM was able to have an excellent learning curve. As of the third quarter, we will be seeing this, that is to say, from now on.
You increase your participation, but you do not increase your profitability, and this is not our focus.
Very clear. Thank you very much. Daniel Vaz from Santander. I would like to refer to what was said here with the GTNA hires because of the branches, et cetera, in Next. How do you project a breakeven for that? Where do you believe this will leave your liabilities line and start to have a return on these lines? This is my question.
Daniel. Good morning. For Next, we already have a defined strategy. Next, we'll have a separate structure which has already moved and will be transferred to their own facilities with an IT area, with a different CEO, with a different human resources area. This is a phase of building up your muscles.
That is to say, in a few years, we believe that Next, well, we do not expect any good results yet because the investment is high. With the increase in SG&A, we might have to stop this line of liability, so to say, and have Next bringing revenue before schedule. This is a strategy that we are establishing for the future. Digitalization is a crucial point. It means a decrease in the back office, in the branches, and this is what we're seeking, but mainly for businesses. Doing that, we can tap into the commercial strength of our team and not be concerned at the end of the day of doing the most bureaucratic part.
This is a process that we have already accelerated with our IT area, and it is already on track in terms of digitalization and also the decrease in our back offices and branches and focusing on the commercial area, the business area.
Thank you very much. As there are no further questions, I would like to turn the floor back to the speakers for their final remarks. Thank you all very much for participating. Any additional questions, please contact our IR team, and we will happily answer your questions. Thank you very much. Thank you. Have a nice afternoon. Bradesco's conference call is now concluded. Thank you very much for participating, and have a very nice afternoon.