Good morning, ladies and gentlemen, and thank you for waiting. We would like to welcome everyone to Banco Bradesco's 3rd Quarter of 2019 Earnings Conference Call. This call is being broadcast simultaneously on the Internet at the Investor Relations website of Bradesco at banco. Bradescoir, 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. Before proceeding, we would like to mention that forward looking statements that we made during this call in relation to the company's business perspective and operating and financial projections and targets are the beliefs and assumptions of Bradesco's management as well as information currently available to the company. Forward looking statements are not guarantees of performance based on risks, uncertainties and assumptions as a 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 the conference over to Mr. Carlos Diretti, Market Relations Officer. Good morning, everyone, and thank you for participating in our call about the 3rd quarter results. Today, we have our CEO, Gustavo de Lazare, Jr. The Vice President and CFO, Andres Kurno issue of Verdesk Securus, Vinations of Enas, our Executive Officer and Investor Relations Officer, Leandro Miranda.
And now I would like to turn the floor over to Otavio. Thank you, Sergey. Good morning, everybody. I thank you very for participating in our call about the results of the Q3. There is a positive feeling regarding the moment that Brazil is looking so 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 and also for the prioritization of a positive agenda for the Brazilian economy, the combination of the fiscal and monetary policies, adequate and clear policies in order to alleviate from the very low economic growth allowed us to control inflation and with the consistent drop in interest rates, we see a lower risk scenario that motivates more and more investment job created and consumption by the private economic agency with a gradual recovery of economic activity. And this is very important for us as an organization because we prepared ourselves and we are position to capture the benefits of a more positive economic cycle. On Page 3, we review our highlights. Expanded credit portfolio continues to grow in a healthy and well diversified manner in the higher growth and return segments as the Pitotas SMEs, the new venture for these vintages are still improving 3.2% increase. Growth in the quarter of 10.5%.
In any other comparison, we especially highlight the performance individual segments growing 19% in 12 months. RC revenues, which were under pressure, were adjusted in the previous quarters and already showed 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 phase after a stringent and comprehensive program for excess reductions and controls that we will be detailing ahead. We are determined to keep them in line, under control. And 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 line 1 of 2019.
Our net income was 22 with the higher operating income of 11.6%. As a result, our ROE in 9 months remained higher than 20%. Tier 1 BRS ratio reached 14.7 percent or 250 bps growth in the last 12 months. And finally, it is worth highlighting the extraordinary event of BRL8 1,000,000,000 recently announced, and we will keep an asset management of our capital considering growth opportunities and our projection of the optimal capital structure given the economic moment that we will be meeting. And starting to present details of our figures, Let's go to Slide number 5.
Our net interest income grew 5.7% to 9 point year on year and 5.9% year in quarter. The performance of the client indicates that we can stay at the center of the guidance. The rate The profile of the new loan vintages continue to be very good. Our expanded loan loss position expenses decreased by 4.3% for the quarter, cumulated a reduction of 4.9 percent considering a 9 month comparison. As a result, our net income recorded a 19.6% increase year on year in the Q1 of 2019 and 22.3% year to date.
On Slide number 6, we show you the indicator of ROE reaching 20 0.2% considering the 3Q. Nevertheless, for analysis purposes, addressing our equity by the Brazilian BRL8 billion extraordinary dividend, ROE would have been BRL21.5 billion. ROA was 1.9 percent. As we have been saying in the last quarters, we believe that we can keep the ROE higher than 20%. And in spite of the impact of low interest rates and spreads slightly decreased, we have either then had our future return benefits from a stronger loan volume growth, a more favorable portfolio mix and scale as well.
And looking at the longer term, considering the maintenance of low interest rates and foreign spread scenario, we could see a reduction in returns. But we believe they will still remain at a high level, especially because of the lower level of risk of the demand loss position. Now going to Page 7, growth in our loan portfolio. Accelerating again. As we had said, it would happen close in Q3 at 10.5%.
The highlight were the individual segment, which recorded a 5.5% growth in the quarter, 19% year on year, with all lines showing a good performance. And 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 to portfolio to have a 9.7% growth in the quarter, 36.2% In the annual comparison, payroll loan, we grew by 24.1% year on year. And we have a unique position in this product due to our distribution network, public sector payroll agreement and also public pension system processing, where we are the leading bank. It's important to say that 78% of our originations of 0 loans is carried out at our branches, therefore, without paying any commissions whatsoever. And we had a good performance in mortgages 12, 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. And in the company's portfolios, there was an acceleration in SMEs, which grew by 8.3% year on year. But adjusting for the migration of customers between segments and the slowdown in corporate will be increasingly 12.9%, and we already expected this. And The increase is stronger in small companies than in mixed sized companies. Now let's go to Page number 8, 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 BRL40.8 billion for corporations.
On Slide number 9, we discuss our net interest income. Total NII grew 5.9% year on year, accelerating the credit margin growth to 5 0.2%, 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 spread. 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 and in line 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.
And the cost of risk ratio drops by 20 bps, going to 2.3% on Page number 12. We show the NPL creation per segment and 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 3rd quarter with 3 7% increase year on year and 2.5% year to date, that is to say, accelerating in the 3rd quarter. And it's worth noting the good performance of the annual comparison of custody and brokerage, consortia, checking accounts and loan operations.
In the quarter, 4.8% in creating asset management despite the reduction in private pension administration fees that happened in the Q1. We have additional initiatives in this year 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 settlement because of cars and reinforcement and some teams such as the next team and the hiring of a more robust team of data scientists. And we understand that we have to improve our performance in expenses, and we have already taken all the necessary measures in order to reach those targets.
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 should close. We expect to close the total of 150 branches in 2019, 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 gain from digitalization. And Just to get an idea, so far, we had over 3,000 employees joining our voluntary redundancy program, and this figure is higher than our plan.
And finally, we believe that the labor loss suit 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 1,890,000,000,000,000,000, real, the 2.8% growth in the quarter and 28.9% year on year and ROE reaching 24.1% in Q3. We should note that the acceleration of premium growth would reach 12.3% year on year, highlighting the strong performance in Life and pension, which grew 8.3% in the quarter 18.2% year on year. On the next slide, No.
17, we highlight the 20.1 percent evolution year to date and net income with a 23.6 percent ROE held in P and C segment stood out in terms of earnings performance. In the 3 months in the 9 month comparison, which 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 constant BIS ratio of 14.7% and the impact on the BIS ratio of the €8,000,000 extraordinary dividend distribution will partially being mitigated by the reallocation of the group's insurance results of via dividends. As you can see, this pro form a bar here, the last one on the slide. And the only 16 bps of this drop will be mitigated additionally by what we will be accumulating in the Q4.
Now talking about capital management on Page 19, On October 7, we announced extraordinary dividends of BRL 8,000,000,000 representing a yield for a distribution of approximately 3%. And we will define our distribution of the excess capital generated in our operations to create the following aspects: business opportunities, the rate environment risk level and the view of an optimal capital structure for the economic moment that we will be leaving. And 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 revenue 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, so to 0.7% goes to 5.9%. And on the above the guidance in earnings from the insurance offering, in the upper part of the guidance is extended loan loss provision that is BRL 13,000,000 to BRL 14,000,000.
So these are the data that we wanted to inform to you. Thank you very much for your attention. Now we are going to go to our Q and A session. Thank you very much. Now we will start our Q and A session.
Questions in Portuguese may be asked. And the other participants, could you please remain in listen only mode. Rosario Sandanelli from Credit Suisse, you may proceed. Good morning, everybody, and thank you for the opportunity. I have 2 very quick questions, if you allow me.
The first one has to do with the spread. We see a drop that you saw of about BRL 300 1,000,000 per quarter in this waterfall chart. And I understand that part that is a repricing of your back book of corporate. So my question is the following. From now on, are you going to reprice a lot the negative BRL200 1,000,000?
Should we continue to EBITDA in the next few quarters? And 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, maybe Thank you very much for your question. And with relation of the spreads, the answer is no. There will be a spread reduction.
This is only a matter with the reduction of the Felicia rate that yesterday dropped to 5 and already contracted for the Perko meeting. And as of February, it should they should be more carefully measuring based by the or based on the economic activity, etcetera. But 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 that we grow in the portfolios that have the different spread like the individual and the SMEs portfolio. But for large caps, which is a fact that we have already been living since the beginning of this year.
We have different costs for our commercial portfolio. We will talk about an IOS of 2% and there is a natural migration to the capital markets. So I'm not going to repeat it, BRL 300,000,000 as we repeated. And 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, besides the physical structure and the rents and personnel, but the cost reduction is very significant as we digitalize the company costs 70% lower or when you transform these branches into many branches only for businesses, then you no longer have costs. However, you have we still have less revenue. It's very difficult to quantify this, but what I can say is that it will be very big. In relation to the bank book, most of the pricing should come in 1 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. Good morning, everybody. I have two questions. The first one is the following.
I would like to know how you see the excess AOL. We saw that This drop for some reasons, but excess AOL continues to be stable. So are you going to review your policy of never reverting your provisions? Because Recently, you decided to review your dividend policy. And the second question, would you like to give us more color for next year, the most important lines?
And 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? And could you give us an idea about your loan portfolio maybe going up, maybe more than in 2019 NII. 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 because you mentioned that the ROE should be close to more than 20% in 2020.
Thank you for your questions. In relation to the excess NPL 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 and we believe that there is room to consider the excess NPLs, not any longer as a buffer, but looking at it within the process of migration for the migration towards IFRS 9. Although it is still being discussed for 2021, 2022, we should start to run this regarding the provisioning and doing this even more in advance.
So all the provisions would be included in this bulk, so to say, and 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 and I will try to avoid giving you a guidance. And but 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 line that brings higher margin individuals at SMEs and also the back book will be repriced. Obviously, there is a consistent gradual repricing, but we got a period of very high spreads 2016, 2017.
So we still have part of that in our book. But we believe that for 2020, the evolution of credit margins considering the effects of spreads and mix will be better than in 2019 and maybe with a slight reduction, but allowing the average price of the volume that we expect to be quite big, expecting this to play a more important role of the then the NII, the credit NII as a whole. You have the market NII part where we put our Well, we believe there will be a positive effect, But of course, this will happen over time. But we believe that the scenario for NIS for next year is constructed 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. And we intend to achieve this as fast as possible.
And the fee in 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. And 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. So 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 if you would like to talk.
Well, about the interim scenario. While we see a gradual rebound of the economy, while we are experiencing a good top line growth in the insurance line. And 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, allows for loan losses that is higher than 3,000 employees, and that was our initial expectations and even the actions related to expediting labor agreement.
Even before the labor reform, this helped Now it moves to the economy, and it will help us towards 2020. I think we should envision a better day because We are increasing the customer base by 1,500,000 clients. And in 2019, we will have 2,000,000 plan. I want to break this down in addition to all of the payment means that we are acquiring. 74% of payroll is now in the hands of Bradesco.
So 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 is from Gabriel da Berga from Citi. You may proceed, sir. Mr. Gabriel Narverga, you may proceed.
Filing. This is George Friedman. I have two questions. The first is about write offs. I noticed that this quarter, your write off was down by 20% vis a vis the previous quarter.
It's the lowest one since 2017. And I don't know whether this should be seen as a new normal because it was it appeared in several lines not only corporate, SMEs, etcetera. So I would just like you to elaborate a bit more on write off evolution? And my second question is with the approval of the pension reform and the slightly increase in the banking sector. We hope that this will have a positive impact on the part of the bank in in terms of the evaluation of tax credits.
And given the inventories you reported on the 3rd quarter and according to my other relation to be over BRL6 1,000,000,000. So how do you intend to approach that in terms of destination. I just want to understand what we would 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 in tenures in terms of line considering collateral. So in a way, this dropping right off is just a consequence, stemming from the fact that the credit quality has improved. So after some time, this is just a natural consequence. So it was it's 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 BRL6 1,000,000,000.
And then we will still have to evaluate and think about what we'll do because it's possible that something will go into provisions, but 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. But 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%.
And If the new tax rate of 5, 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 points. 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 having 3,000 employees through your voluntary severance program. And I would like to know what is your outlook for next year. When I look at cost For employees, I arrived at an economy savings of about BRL630 1,000,000 for next year. I mean, I know that these employees have joined the program.
They are older employees. So maybe just 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. Susana, I think that your assessment that looking at the tenure of the employees and the average costs is higher, it's true. But we don't have yet any numbers to share with you at the moment.
This test will have a relevant impact which is almost 3% of the employee base of the bank, but we don't have yet any numbers or share with you. In fact, this program, the voluntary severance program, ends today. So this number of 3,000 referred to a day before yesterday. So we still may have some variation. Moreover, It also depends on who is joining the program because we have people from different job Hence, different positions in the company, so we still have to run a more thorough analysis, but 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, to as part of that will be used when IFRS 9 is implemented. But should we expect that ARL should grow below that portfolio?
Or from now on, they will be moving hand in hand? Well, basically, we think that we still have positive effect of the loan vintages until the end of the year. And I think that the numbers should be lower when compared to the loan portfolio that we've been posting. But 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 midsized companies.
And 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, and NPL should go down?
That's very clear. Thank you. If you could give me just a follow-up on your answer. You are growing significantly in the individual and SME segment. I would just like to understand whether there is still room to sustain those growth or you reached the top of growth for both lines.
Now we still see further growth in those lines because unemployment is still quite high in Brazil, in particular in regions where we have absolute leadership in market share. Therefore, we should see growth in individuals and also particularly in For a small company, we should see some economic growth. Therefore, 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 policies. So we haven't reached the top yet. There's 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 to be better than the period was, right? Yes, you're right. Because we are seeing a reduction on the federal large corporate. And so 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. So if we reduce large corporates, I mean, the fact that we have good new operations, These are operations on the individual segments. I mean, this is still very healthy because these are new operations and they are performing well. And 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. Girona, I think you should look at the net spread because despite the pressure on spreads in several segments, when we look at net spread, we see growth and we've been growing.
And in this segment, we can keep the bulk of our current revenues because we are seeing now fee in terms of new consumers and new clients. Yes, that's very clear. Thank you very much. Our next question is Santiago 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 you said it will generate substantial gains. And my question is whether it is only this capital line or we should see any other activity similar to that in Italian use. 1st quarter, As Otavio said, when we look at 9 months, we say from leadership positions.
But when we look quarter on quarter, there was a worsening scenario. I mean, you are above in some quarters today than what we're in previous quarters. What should we expect looking forward? Are we going to see improvement or maybe now the opposite? Let me first refer to the claims ratio.
In fact, If you look at the 9 month period, we see a very favorable period for individual income. But when we look at quarterly figures, what we see is a fair seasonal effect. This Q3 was affected by the health claims ratio and this affected and our overall claims ratio. In terms of frequency, this is common due to seasonality reasons. And 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 the previous quarters and even more date compared to the Q2 of this year and this affects frequency. If you look at combined figures, there are some good news because there's Despite this worsening in price ratio, we have been putting good efforts to control costs, etcetera, and to control our assets has been an adequate move to maintain the combined effect and to maintain things stable. Now this effect, the seasonal effect has to be analyzed because there are some peculiarities here. We had a 3rd quarter which was very positive. We see a growing trend coming still coming from the 1st and second quarters.
We are monitoring the situation. We've been looking at the performance of the insurance line. So we still see some room for improvement. And 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. So in relation to the average cost, we are very comfortable. And this effect is an effect of frequency that also includes seasonal effect. When we talk about claims ratios, Frank is also important to talk about premiums earned and job generation.
The market, The health care market is very competitive and we've seen payers with lower capacity to transfer prices. We had to increase our portfolio. I mean, in this quarter, we didn't see any positive effect from that increase in our portfolio. And so this will have a positive effect looking forward. Now talking about dividends, I now give the floor to Ferreccio to comment on that or capital management.
In terms of solvency in the insurance company and our holdings, we can say that this does not impact to capital. And so management is just normal. Every month, we depending on the provision level, we managed 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. But 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. Our next question from Thiago Greenfield from Itau BBA.
Good morning and thank you for taking my question. I have two questions. Going back to the number of Current account holders, you have BRL 1,500,000 that you add to your base every year. How much of that is Q2 year strategy in terms of payroll. And Otavio said that Bradesco has 74% of all payroll accounts.
I want to know whether that only refers to civil servants or also certainly from the private sector. I just want to know what generally increases in the operating risk this quarter and whether we should expect additional effects looking forward. Saba, this is Jose. In terms of our current account holders and the fact that we are adding 1,500,000 comes to our network of branches. I would say that 40% of these accounts come from payrolls that we acquired and The remaining comes from our own internal work and some agreements that we have like with Avon and other companies that will help make up that same number.
So it is mostly related to payroll accounts and also our own internal work to procure customers' clients. It's also important to say that our focus in terms of payroll accounts but mainly in the public sector. We work in the relationships with bankers. And 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 in terms of capital, and this could vary up or down. And you should recall the landscape in the Q3 right 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. Next question from Edoardo Michaud from Banco Plural. You may proceed. 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 specific rate, minus 5% now. And so now we are probably heading towards even lower numbers than years ago.
We couldn't even think that something like that would happen. So my question to you is how do you see the landscape looking forward And maybe if we focus on loans, fees, costs? And on the insurance side, how do you see this scenario when interest rate rates are structural lower and how does it impact your businesses? How whether you grow or whether you would not grow, and if you could also mention about competition in the market, it would be interesting. We see the growth of Fintechs and they are hardly charging any fees for their services.
And as a consequence, whether I want to know whether you could maintain ROE around 20%. I think even more important than that, your bottom line in 2 digits, because maybe we could utilize septa, but also I want to know whether you can grow your net income or your earnings in the next 7 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% to 20% or even slightly above. But we are experiencing a structural change. This will be the new normal. If we think in terms of an interest rate that is now 5 or maybe 4.5% depending on whether it will be lower with inflation question rate at around 2%, 3% or even 5%. We're talking about an actual rate of 1%.
And this 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 2 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 wins for 1 or 2 years and then things will go backwards. So 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 there still have a lot of unemployment employment and people that are in a place. Once they return to the labor market, I mean, we are well positioned to capture favorable accounts, current accounts to capture more clients in the health care segment because we're not moving our clients to the competition, just clients left because they were unemployed. Therefore, we were able to grow despite all of these facts.
Therefore, 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. So if you don't manage to get scale, you won't be able to keep growing around 2 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. We are not even fintechs when we talk about investments, we have a lot of large companies. When we talk about acquiring, we have a lot of companies already operating in these segments.
This is all true that the growth that can be expected in the market considering 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 just change. Look what happened to the real estate market 7 years ago and the growth we had once we reached the level of full employment or almost fully employed. But unfortunately, it didn't last very long, almost just 1 year, and then we had to go backwards and the banks had to step on the brakes. But 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 and challenges. And we will be able to grow and absorb all the labor force, especially because of please. Thank you very much. Next question from Yuri Fernandes from JPMorgan. 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. The process grew about 4%, whereas the loan always were more.
I know that the bank is very liquid. But how do you see competition for liabilities? Will that be a problem in the future? I mean, there are digital banks and some independent organizations. Do Do you think that this could be a problem for you in terms of the cost of the bank?
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 the last year of customer base. Thank you. Yes, this is a very good remark.
The remark is extremely timely, and this is a job that we have been doing very for a long time and the bank that has networks such as the one that we have and the Galafelopane that's in Brazil, which gives you the impression that you do not have the same performance of the economy. But just to give an idea, all the wealth management area of the bank was changed. We are training 230 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 growth management coming from the different types of funding from the different sources, digital banks and our branches, etcetera.
So this is something that we are studying very thoroughly, mainly in our prime clients, was very important clients when you talk about events. And then the other hand in line from our retail clients, because funding of the wholesale bank, you can do this whenever you want. So we do not need invested in this kind of funding and release. We do not have a big reliance on that and the funding that is cheaper Palazzo's and Prime and the tailback as a whole. But your question, your remark is very good and we have taken all the measures regarding that.
And your other question has to do with brand, The Bradesco Asset Management that suffered 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 levels that we are today and going down. People who have more clarity about financial investment, when the investment, they are looking for other types of investments and not only fixed income in order to try to obtain turn more equity in this basket and with a better income. But this is a challenge for all the asset management companies. Of course, we have many portfolios under management and I believe the brand was able to have an excellent learning curve.
And as of the Q3, we will be seeing this, that is to say, from now on. Okay, sometimes you don't have new increase of participation, but you do not increase your profitability and this is not our focus. Very clear. Thank you very much. Daniel Gai from Santander.
I would like to refer to what was said here with a G and A higher because of the branches, etcetera, and net. How do you project the breakeven for that? Where do you believe This will leave your liabilities line and start to have a return on these lines. So this is my question. Could be more.
For NEXT, we already have defined strategies. Mexico has a separate structure. It has already moved and will be transferred to their own facilities with an IT area, with a different CEO, with a different Puma Resources area. And 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 yes, because the investment you have, but With the increase in SG and A, we might have to softness line of liability, so to say, and having that bringing revenue before schedule.
And this is a strategy that we are establishing for the future. Digitalization is a crucial point. We mean to decrease in the back coffees and beverages and this is what we're seeking, but mainly for businesses. So 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 to digital 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 office and services 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 constantly 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.