Good morning, ladies and gentlemen, and thank you for waiting. Welcome to Bradesco's second quarter of 2020 earnings conference call. This call is being broadcast via the internet at banco.bradesco/ir, where you can find the presentation available for download as well. We would like to inform you that there is simultaneous translation into English, and all participants will be in listen-only mode during the company's presentation. After the presentation, there will be a Q&A session where 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 perspective 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 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 the company and lead to results that differ materially from those expressed in such forward-looking statements. Now we would like to give the floor over to Leandro Miranda, Executive Director and Investor Relations Officer.
Good morning, everybody, and welcome to our results conference about the second quarter of 2020. Octavio, our CEO, will be making the presentation. We also have André Cano here, our Executive VP, Vinicius Albernaz, Bradesco Seguros, and Carlos Firetti, Market Relations Director and Head of IR.
Thank you, Leandro. Good morning, everybody. Thank you very much for participating in our call about the results of the second quarter. The second quarter was one of the most challenging quarters in our recent history of the bank because of the pandemic that is having a very strong impact on the economy and also on our clients and our divisions. In a scenario, in a precedent scenario like this one, liquidity is fundamental. The new operating conditions are very important. With the control of the pandemic and the pace of opening of the economy as of May, probably with the contribution of the emergency aid and the beginning of the reopening in other countries, we started to see an improvement in the activity and in trust as well.
Today, we see a still difficult economic scenario, but maybe we could say that the worst is already under the bridge, depending on a second wave or a return of the pandemic. On the first slide, we show you some highlights of the second quarter 2020 and also the first one. Our Chief Economist, Fernando Honorato, said that the expectation of the GDP improved from 5.9% growth to 4.5% growth. In the quarter, we had a growth of credit of 4.9% and 14.9% in 12 months, driven especially by the segment of corporations or legal entities.
Among the many measures adopted by the central bank, we had the liberation of reserve requirement amounting to BRL 24 billion. Between April and June, we released BRL 129 billion in new credits, and one of the main highlights of the quarter was the process of extension of credit operations for clients that were not delinquent at the end of February. The total of extensions amounts to BRL 61 billion, giving comfort to our clients in order for them to cross this crisis or overcome the crisis.
We will be showing you some details of these extensions, the quality of credit, and showing the quality of credit for the next few slides, showing the relative comfort that we have vis-a-vis the extended credits. In this context, we continue to anticipate ourselves to the effects of the crisis, strengthening the balance sheet with credit provisions at the bank and conservative provisions as well at the insurance company. Our extended provision extension, our extended expense for loss of credit, BRL 8.9 billion, reflecting the effort made by the bank and the insurance company. We made precautionary provisions amounting to BRL 1.1 billion in the quarter. In the half year, we will be going into details. Another highlight of the quarter was the performance of costs is strong control in our areas, and later we'll be talking in detail with our plans about cost reduction structurally.
Our liquidity continues to expand with the increase in the volume of funding, BRL 83 billion in the half year. The core capital ratio increased by 120 basis points, recovering part of the significant reduction that we had in the first quarter. On the next page, we talk about our actions during the pandemic on many fronts. Especially about the well-being of our people, our employees, support to our clients, support to society. In relation to our employees, one of the main measures was the maintenance of most of them in home office. This was the main measure. Today, 94% of our people who work in the offices are working from home, and 50% of those who work at the branches, they work in a weekly rotation system as we have to deliver this essential service to our population.
Another highlight, and that was very well received by our employees, was the fact that we imported 500,000 tests, COVID tests, with a third laboratory to test all these people in the organization. We have already carried out 57,000 tests. Our employees will be tested again when they are about to return to work in the offices, depending on the situation of the pandemic. Our Viva Bem program gives our employees the necessary support and the follow-up in case of contamination by COVID, both for our employees and their families. For our clients, we make available all the necessary support to cope with the crisis, and we extended BRL 1.9 million of credit contracts amounting to BRL 8.2 billion in installments. We were players also in program to support the society with donations to fight this pandemic.
On page number four, a highlight for the digital channels due to the social distancing. In the last few months, we saw an acceleration in the trend of digitalization of clients. This was consolidated, we added, in the second quarter alone, 1.4 million users of mobile banking. We added an additional 900,000 account holders with the digital so far in the last month. Over 100,000 people have opened an account at the Banco Bradesco in the month of June. Not to mention the other channels. The crisis brought about a reduction in the economic activity with a negative impact on bank transactions in general. Even in spite of that, the transactions in mobile banking grew by 17% in the quarter, 33% in the last 12 months. On the other hand, there was a strong reduction in the volume of transactions in our bank tellers.
The reduction in the use of tellers by our clients opened an avenue for the deepening of the transformation of our branches. Going to slide number five, we talk about the many fronts of digital transformation in Bradesco. One of the main fronts today is the transformation of the traditional bank into mobile bank. With this end, recently, we introduced our new app for mobile banking, an important evolution vis-à-vis the previous version. With a much faster experience, a customizable screen, and our clients can highlight their functions or the main functions that they use more frequently. Also on this slide, as I said, we highlight two strategies that we consider as winning strategies. Ágora Investimentos, our investment house, for clients who want an open platform with many options.
Ágora in 2020, had a growth of 22.4% in client base, reaching 449,000 clients in the Ágora app, is integrated into the Banco Bradesco app and more recently to Next. We believe that there is an opportunity for our client base. At Ágora, we have over BRL 50.6 billion in assets under custody at Ágora, a growth of 7.7% in the year, now that the assets are not mainly equity. Next, our native digital bank with a free service, also growing very steeply. We reached 2.7 million clients in June 2020, and we believe that we might be able or we will be able to reach 3.5 million accounts by the end of this year. We see a strong evolution in the volume of transactions carried out by Next clients this half year.
30% of the client base of Next uses this digital bank as their main bank. Next also got a very good assessment at the App Store with an evolution over the last year. This reflects a very high NPS of 77.6. As we said in the first quarter, we are working for the segregation of Next of Bradesco, and this will be a separate company with its own policies, its own manager, and we expect to do this by the end of year. Now going to slide number six. We talk about the details of our results and our financial highlights of our balance sheet. This balance is very well-balanced and with four essential actions that took place, and we identified at the beginning of the pandemic with a reduction in costs, a very rigorous one, I would say a radical one.
Also new funds for the organization, new clients, and new investments for the bank and, of course, growing credit with quality. Very good quality credit because we have a very well-balanced balance sheet, not only because of the results and the indicators, but mainly because we show you what the company is doing, what we will be doing in the future. On slide number six, we have the financial highlights. Of course, we continue to be under pressure from the economic environment. Net income growing 3.2% in the quarter, BRL 3.9 billion, still 40.1% lower on a year-on-year compared ROE with a slight expansion reaching 11.9%, still lower than what we consider the ideal level. Shareholders equity growing by 4.3% in the quarter under the positive effect of income retention and reversal of part of the mark-to-market that were negative in the first quarter.
NII growing by 15.3% in the quarter, the expanded provisions reaching BRL 8.9 billion, a growth of 52% in the quarter. The result of the insurance company recovered, growing by 29% through the quarter, but remaining 9.6% lower than 2019 on a half-year comparison. Fee income, still very much under pressure from the economic scenario. Finally, operating expenses highlight an excellent performance with a drop of 5.5% on a year-on-year comparison. Now going to slide seven, we show a deceleration of the origination of credit in the quarter. Very natural with a reduction of demand in many different lines. Maybe it's a large corp. Large corp growing by 18.2% year-on-year.
If we talk about SMEs, we maintained a good growth of 11.7% per year, with a natural drop in the quarter because this line reflects the reduction in the demand for credit, mainly for the expansion of businesses, which normally is the main driver for growth. Payroll loans with a good growth, 14.2% a year with a recovery of demand as of May. It started in May. Highlight is the maintenance of the strong growth in our real estate financing, growing by 18.8% and 11.2% drop in our credit portfolio because of the reduction in the volume of transactions because of the pandemic, as we said. Sometimes we see even 35% reduction in transactions with credit cards. This has already been improving gradually, and we believe that the recovery will happen as soon as we see a recovery in the economy. In vehicle financing, growing 8.7%.
A reduction in the sale of cars dropped this drop to 4%. We expect that the recovery of credit demand in the second half comes with the reopening of the economy. Now going to slide number eight, when we talk about funding. We had a significant performance in funding, 14% increase in net of funding for reserve requirements this quarter and 39.3% in 12 months. We added over BRL 83 billion in the first quarter of 2020. This reflects the movement that we call flight to quality that occurred in the pandemic that led us to receive a significant volume of deposits. Another item is that the ratio of loans vis-à-vis funding, loans to deposits, closed the quarter at 82%, a very comfortable level.
Once again, what I said in the first slide, the actions of the central bank to reduce reserve requirement at the beginning of the pandemic released funds of BRL 24 billion for Bradesco as liquidity. This year alone, we added to our loan portfolio BRL 38 billion in credit net of amortization, considering originations of BRL 129 billion. That is to say much more than the BRL 24 billion that were released in terms of the reserve requirement. On slide number nine, we show you the concentration of credit of Bradesco. On this slide, we show you the diversification of our portfolio. The portfolio is totally diversified with a low exposure to sectors that are more impacted by the crisis. As you can see, you have a list here, 0.2% for instance, airlines, et cetera.
Portfolio in foreign currency represents only 7% of the total, and the funding is always in the same currency, and our loan portfolio is covered by 59% by real guarantees. If we look at the coverage for individuals and SMEs, the coverage is still much higher than that. Now going to slide number 10, talking about provisions for credit risk. Our expense with extended provision of credit risk reached in the quarter BRL 8.9 billion, with a growth of 32% in the quarter, representing 5.4% of our portfolio. We highlight that the average of the provision was BRL 7.5 billion, much higher than the quarterly average that we saw in 2019. That was BRL 3.5 billion. This reflects the efforts for provisioning that we are carrying out by means of establishing a supplementary provision, but also reflected in the required provision.
Probably, we have already reached the peak of the cost of credit in the second quarter of 2020, with room for further reduction the next two quarters, and also the variation, half year variation, depending, of course, on the extension and the return of cases of this disease and the effects on the economy, of course. The building of our provisions occur based on the expectation for future losses in our credit portfolio. Provisions are based on our models, considering the historic information and our perspective as well. A little of what we showed in the first quarter, and there was a study carried out by a risk area, taking the most impacted sectors of the year and also in 2016, 2017, scenarios that were aggravated by the pandemic in a scenario that is unprecedented.
Today, we have a total credit provision on our balance sheet of BRL 43 billion, representing 9% of the credit portfolio, which gives us a relative comfort. We are well-provisioned for any scenario that might happen. Considering that we have a higher volume of operations with guarantees than in the crisis of 2008 and 2015-2016, and the risk is lower. We are well-provisioned for the moment, and we will continue to evaluate the scenario and making the necessary adjustments whenever necessary. Moving now to slide 11. The delinquency ratio shows a reduction in all lines, both for 90 days overdue and 15-90 days overdue. The reduction at this time is due in large measure to the extensions and the negotiation. In addition to the traditional or total delinquency ratio that we showed quarter-on-quarter, we also bring this quarter new information.
It is the ratio excluding the credits 100% provisioned, which is this chart on the right-hand side that you can see, ladies and gentlemen, in the upper part, over 90 days. It would be lower, 1.2% for the total NPL, reinforcing the perception that we are very well-provisioned. The NPL creation, on slide 12. What we can see this quarter is a significant reduction to BRL 2.2 billion in the second quarter, from BRL 7 billion to BRL 2.2 billion, also due to renegotiations and the sale of the loan portfolio, which was already 100% provisioned. The reduction occurred in all segments of the loan portfolio, the provision that we made in the quarter represented 398% of the NPL creation. Turning to slide 13, also important information.
With the reduction of the NPL and the strengthening of the provision in the quarter, the coverage ratio for NPL over 90 days in the second quarter increased strongly, reaching 299% against 228% in Q1. We also show the coverage ratio for each segment of the portfolio. For individuals, ratio is 189% and 375% for SMEs and 1,593% for large corporates. We also included in this chart another indicator of coverage excluding credits 100% provisioned. By this concept, the rate of total coverage would reach 602%, the first line of the chart, compared to 425% in the previous quarter.
We show the coverage ratio including the renegotiated portfolio to the non-performing loans. The coverage ratio, the last line, in this concept would be 124%. All of these indicators show that we are very well covered with provisions to deal with this cycle of credit. Moving now to slide 14. This is a totally new slide, by the way, for the benefit of transparency.
We are only focusing on those information that had the installments postponed. One of the most important aspects of the crisis for the banking system has been the loan extension, an instrument that we started to use to face the unique characteristics of the crisis. Part of our clients suffered a temporary loss of income and need time to rearrange their financial situations or wanted to maintain a position of greater liquidity during this period of uncertainty. Very interesting detail is that the average profile of clients who extended the loan is very close to the average profile of clients who remain up to date, confirming the thesis that these clients only became delinquent due to circumstantial issues. Considering the extended portfolio, 60 days or which added BRL 1.9 million payments with a total balance of the contract but installments accounted for BRL 8.9 million.
93% of these clients did not show any significant delinquency in the last 12 months. 71% of the balance has guarantee, real guarantee. 96% of these clients have a rating between AA and C. Very good rating. Another item is that these clients which extended have an average of 14 years of relationship with the bank, a long-standing relation with the bank, and therefore delinquency is lower. 50% of the operations came from individuals, 50 from companies. The line extended being working capital was 32% of the total, with very good additional guarantee, followed by real estate financing with nearly 30% of the total, a 100% guarantee, and 52%-54% of all the operations with real guarantee. Turning now to slide 15. On slide 14, we saw extended operations only.
Let us check the renegotiated portfolio as well. In June, our portfolio was composed of BRL 4.8 billion in loans recovered from write-offs, 100% provision and BRL 18.3 billion of other renegotiated loans. 65% of the renegotiations that occurred during the second quarter were less than 90 days late. Very recent debt and the percentage of success is much greater. In June, the renegotiated portfolio had 68% of provision. We believe that we have a very significant level of provisions in the renegotiated portfolio, enough with considerable leeway to cover the potential losses in this portfolio. On slide 16, the total net interest income, which is excellent news. It showed a strong growth of 11.1% in the quarter, leading to a growth of 9% in the semi-annual comparison.
This behavior of NII is explained partly by the strong performance of the market portion, effect of recovery of the various markets in which we are, but also owing to the good performance of the client portion, which grew due to the increase in volume with a strong expansion of the loan portfolio in the last 12 months, despite the negative regulatory impact of setting the overdraft rate at 8%, which negatively affected the spread of the portfolio. Moving now to slide 17, addressing fee and commission income. This line proved to be one of the most affected by the crisis, particularly credit cards, the volume of transactions with cards, and also the revenue mix with lower rates on the volume. Our perception and the numbers in June and July show our perception that the line of cards should recover with the reopening of the economy.
In addition, we had a negative impact in the line of asset management with a reduction in the asset management rates of fixed funds and reduction of the volumes managed in these products as a consequence of Selic reduction, because many clients decided to have ventures, other securities, and other types of investments owing to the lower Selic rate. Additionally, we also had a reduction in the line of loan operations. Slide 18 now will be addressing costs, which is one of the pillars, the key pillars in the organization. In operating expenses, we had a very adequate performance in the quarter. Operating expenses, including others, showed a drop in the annual comparison of 5.5% and 3% in the semi-annual comparison. We had an excellent performance in the line of personnel with a drop in the quarter of 12% and also a drop in administrative expenses of 2.6%.
This performance reflects the effort of reducing costs that we had in recent months. As I already mentioned, we've made precautionary provisions in the insurance company amounting to BRL 361 million in the first quarter and BRL 747 million in the second quarter, which are consolidated in the bank in the line of other operating expenses, which is the last line in blue that you can see on the left-hand side. If we adjust the line of costs by these provisions in the insurance company, the total cost would present a decrease of 6% in the quarter, 11.6% in the annual valuation, and 7.6% in the semi-annual comparison. On the right-hand side, we can see significant improvement in operating efficiency, a reduction in the network of branches from 233 branches only this year. We committed ourselves to reduce 400 and the number will be even higher in 2020.
A reduction in the number of employees owing to the voluntary severance program and the natural turnover that we have of the employees in the organization around 7%. Moving to slide 19 now. Here we brought some levers of efficiency that we'd like to discuss with you. Certainly, they will lead to a nominal drop of cost in 2020, 2021. All these facts are already mapped. Cost reduction in the structure and a nominal reduction of the cost. The program entails new initiatives and deepening of others which were already in course. I even mentioned the reduction in number of clients who go to the branch, and now we can have a new structure and migrating more into digital channels, which will allow us to expedite and streamline what we do at the branch, reducing the number of branches, the points of service.
We use the model of home office intensively now that we learn how to work from home, and that will bring us important and very significant benefits to reduce our buildings, our structure, in addition to changes in administrative areas of the bank. Finally, we'll continue to seek reduction opportunities based on changes of customer behavior, which should continue to bring possible benefits and significant benefits and cost reduction in the immediate future. On slide 20, addressing insurance. Bradesco Seguros, our insurance group. As you know, this is an important arm of the bank, and the income was naturally affected by the financial reduction and also positively affected by the reduction in the loss of claims ratio. We also added precautionary provisions of BRL 1.1 billion.
Despite the decline in the income, the share of insurance as a bank profit rose to 33% in the first half of 2020, showing the better performance from insurance and also in the period when compared to the bank. As highlighted in the chart, there was a sharp decrease in the claims ratio in most of the lines, but especially health and auto, which also reflected in the improvement of the combined ratio. The provisions that I mentioned made outside the line of technical provisions, in other words, those that are in the expense line that I mentioned two slides before. They seek to anticipate the potential risks of claims or loss ratio once the economy goes back to normal. People will have car crashes again, we will start visiting the doctor again.
This is included in the chart, simulations of provisions effect in the claims and combined ratios in the right-hand side of the chart. Moving to the end of my presentation. Turning to slide 21, we have good news to share. BIS ratio showed a significant improvement in the quarter. Increase of 120 basis points in the core equity to 11.5% and 110 basis points in the Tier 1 capital to 12.5%. We see the current rates at quite comfortable levels, but considering our retention of income and the current regulation of the distribution of dividends, which restricts our payout to 30% of the adjusted income, BIS can improve even further. This quarter, we adopted some measures that should reduce the variations of capital in times of crisis. We reduced our position in assets abroad to one-third of the position that we had in Q1, and consequently, the overhead.
Despite being a neutralizing operation of the foreign exchange risk, in moments of extreme volatility of FX, negatively affects our capital by the generation of tax assets. We reduced by one-third and we also transferred part of our position of securities that we intend to carry over until the due date to the line of held-to-maturity. It should also avoid impacts on the capital arising from the mark-to-market of securities in the equity. Our liquidity ratios also remain very comfortable, with the LCR at 170% and NSFR at 120%. To conclude our presentation on slide 22, I would like to give you some outlook for our performance in 2020. We feel it's not yet the right time to talk about a formal guidance. Despite the improvement in the scenario, there is still much uncertainty, but we are comfortable in providing a direction.
For instance, we can see our loan portfolio will keep on growing in 2020 above the financial system. Our economists estimate that the loan market is expected to grow 5% in 2020, so we expect to go beyond that. The line of fee and commission income should remain pressured by the economic scenario, but probably will improve for the next two quarters vis-à-vis the second quarter. Income from insurance should benefit with a scenario of low claims ratio, but remains pressured naturally by low interest rates. On the cost side, we have very positive news. We should have a reduction of costs in nominal terms in 2020. In the next few years, we must also have reductions with the implementation of our program for the reduction of costs.
Finally, in relation to expenses with provisions, we can now say that we'll continue to have a conservative approach. It's possible to assume that considering the current scenario, expenses will be lower in the second half compared to the first half of the year. In addition, we can say that the expenses with provisions should be significantly lower in 2021. Obviously, if the scenario that we're going through, because it's too hard to say any magnitude right now, as long as there is no second wave. This is what we expect to see for the second half of 2020. Thank you very much for your attention. Now we give the floor to the Q&A session.
Thank you. We will be starting now the Q&A session. Participants with the audio in Portuguese can ask questions. Other participants will be in listen only mode. If you want to ask questions, please press star one. If you want to remove your question from the queue, please press star two. Our first question comes from Giovanna Rosa with Bank of America.
Good morning. Thank you very much for the opportunity. For the question, I have two questions. Can you talk about the credit cost, please? Which were the variables that you used in order to read the current credit cost? You talk about lower provisions for the second half and 2021, including the renegotiated portfolio, which is in according to the history or the historic levels that you mentioned. It seems to me that it should be higher considering the level of renegotiations and also the economic deterioration that we see. Could you please go in depth into that and explain the reason why your current level of reserves should be adequate? My second question has to do with the generation of revenues. You talked about the comparison with the credit. The spread is going down and the environment is being more conservative right now.
Thank you very much for your question. Regarding the cost of credit, Giovanna. The provisions that we made, you remember that in the first quarter, I showed you a study made by our risk and our credit areas, we considered the worst crisis, 2008, 2015, and 2016. We aggravated the scenario, including the pandemic, which is still a big question mark. The bank's capacity to generate results and generate income led us to make these provisions in the second quarter. When we look at the operations that were postponed, and we look at the profile of these clients, it's a very adequate profile. These are people that really are very punctual, so to say, in their operations.
Sometimes they need a longer term or maybe they need to renegotiate the debt or the term of the debt, but they are very good players. This is the reason why we are very comfortable about our levels of provision. They are very high considering all that. We still have a very good level and our coverage level 2 99% . It was 299% , and we reduced the long-term and the short-term delinquency as well. Of course, w e will continue to observe this on a weekly basis and the payment of these installments.
We are very comfortable regarding our provision level, which is very adequate for the scenario of difficulty that could happen until the end of this year or the first quarter of next year. Of course, the spreads are dropping, as you said yourself, and fees also. As I said, we believe that the worst is already water under the bridge because the lines of credit cards and charge cards, we had a drop of 35% in the past, and now it's 8%. Another important factor is the flight to quality. That is to say, we have more and more clients coming to the bank, making their investments with us, and we have over 2 million new accounts being opened in this period of difficulty last year.
We built the record of new openings or new accounts opened, not only Banco Bradesco, but also next, over 120,000 new ones. More and more clients coming on board, bringing with them their businesses, their investments, and bringing the fees that they pay. The scenario in spite of a reduction in other lines, this gives us a very good expectation in terms of gaining volume from the new clients that are coming on board on the organization, and we believe that we will be at least be able to keep our NII in line with our credit portfolio. Thank you very much.
I would like to remind you, in order to ask a question, please press star one. Our next question, Domingos Falavina , JPMorgan.
Thank you very much. Good morning. I would like you to talk about insurance, you made a provision of BRL 150 million. When we look at the loss ratio, the industry as a whole in the main business line, they have been dropping consistently. It seems to me that there should be some pressure coming from that. Also, for instance, in March and April, and many things regarding health as well, health procedures, because they build up. It seems to me that it is BRL 1 billion and something, and it seems to be, to me, a little bit conservative, but of course, there are some other factors besides mathematics. With expenses not growing nominally in the last couple of years, I think this is quite an aggressive assumption.
Thank you very much. I will give the floor to Vinicius. He's the CEO of our insurance group, and he will be answering your question.
Thank you very much for your question, Domingos. In fact, we have a very strong history in the second quarter with a relevant hike vis-à-vis the first quarter. In spite of the very strong results, we see that this was based on non-typical situation, that is to say, both in auto and health because of the social distancing. We believe that we have to normalize the results, and we do not see this as recurring from the operational viewpoint. What we see in the degree of visibility that we have, and we work with this more challenging economic scenario as our assumption vis-à-vis our top line. We believe that a significant part of the elective procedures that were not carried out in health, for instance, over the first quarter, they will come back.
We still have a very low visibility for that, so we do not have a time frame, but we believe that a major part of that will have to be done. This will have an impact on the economic activity, and we still have to measure, ultimately, the results on our top line. In order to summarize, we believe that the premium revenues and contributions will come back, and the loss ratio will take the elevator and the other will take the stairs, so to say. It makes all the sense in the world to build these provisions in order to normalize the results for the insurance group as a whole.
Thank you, Domingos.
The next question is from Jörg Friedemann with Citibank.
Thank you for the opportunity. I also have two questions. The first question is about extensions. You have BRL 61 billion. The last number I heard, the most current, after you close the quarter, it gave me the idea you could be close to BRL 65 billion. I would like to know if you confirm this number and if you already begin to see customers who are moving away from grace period . What is the behavior of clients who left? How many clients do you expect to leave the grace period after this quarter or end of the first semester? That's my first question. Second question, could you give us more color about the NII in the market, and to what extent is it structural so we can work on these numbers down the road?
Jörg, thank you. Thank you for your question. With regards to extensions, you're right, the number is correct, 65 in July. It's becoming marginal now vis-à-vis the 61 that we had before. An important thing about the question, by the way, a very timely question. 60 of extension, we could have another one. 65% of customers were in the first round, 65% who did not extend delinquency is 3.2%. 35% in the second part of 60 days, which will be due depending on the month. I don't know if it was April or May, will only be due in September, October or November. That's what we said. The characteristics of the clients who wanted to have an extension or extension are they are very good payers. For those who failed or maybe have lost their job, maybe we have to reorganize their financial lives.
The outlook to get the payments is very good. Naturally, we have to wait and see the effects and the magnitude of the effects of the pandemic. It's too early to say anything, but the scenario is good payers, good clients.
Octavio, can I just have a brief follow-up? This information is very important. You said 3.2% of NPL for customers who did not want to extend. Is it 60-day NPL?
No. Delinquency. Let me start from scratch. Those who extended the first installment was due in July. They paid April and May, and the first installment was due in June. They extended, and the first was due in July. This is over 30 days delinquency.
Okay, perfect. It's clear.
This is the delinquency rate that totals 3.2%.
Perfect. Got it.
The last question will be answered by Firetti. Firetti, what is the, about the NII?
For NII, could you give us more color about the structural part so we can have a better estimate down the road?
Well, we do not disclose all the components, but within NII, with the market, we have commercial operations of the Treasury swaps, derivatives, et cetera. We also have ALM, which is basically assets and liabilities and return of working capital of the bank, and also a trading position that is pretty much based on flow trading. These are the components of the margin, NII to the market. ALM is structural. The appreciation of working capital and also the commercial area. That's for the last few years. That's about it. These are the components.
Perfect. Thank you.
As a reminder, if you want to ask questions, please press star one. We kindly ask participants to ask just one question. The next question is Eduardo Rosman with BTG Pactual.
Hello. Good morning, everyone. I just wanted to ask you an update about participations or stake. I think you mentioned that for Next, you intend to have a spin-off of the bank by year-end. I'd like to know what the idea is to have an IPO, and if it makes sense to have a key partner. Is there an update about Ágora as well? Does it make sense to have an Ágora spin-off? Cielo, I'd like to know how you see the future of the company and if you believe the partnership is working with two banks or not. What about IRB? You left the board, but you'll also be involved in the capital increase. Are you planning to increase your stake, and what about it? I understand you also changed the investment rating or classification. Could you give us an update about the partnerships? Thank you.
Thank you, Eduardo. Thank you for your question. With regards to Next, we are working on the preparation. It will be a fully independent company with its own CEO, CFO. The physical structure, the headquarters are fully separate from the bank, but it's 100% part of the organization. We have no intention of bringing any partners along, but we are always open to good business. This company already has 2.7 million customers, and we expect to close the year with 3.5 million customers. If you think about digital banks in the past, BRL 1,000 per customer, we're speaking of a company that will be worth BRL 3.5 billion by year-end, which is nearly BRL 20 billion. It makes sense. It makes sense to go public one day.
We don't know if it's going to be fully separate, but that's a company which we intend to maintain with us in the organization. Ágora is a company that is led by Leandro, who is our Ágora director, and we remodeled the whole structure. The company is growing very significantly, and it's beginning to be a player with other key players in the market.
Does it make sense to spin it off?
Too early to say anything. We're still studying Ágora's structure. Ágora is a company that will be increasingly more present in the lives of Brazilian investors with its own team, consultants, experts in investments. Ágora has its own path to take and we'll be heavily investing in Ágora so it actually becomes one of the big companies in the market that can compete with any other in the market. In Cielo, the partnership is great.
It's the business that was disrupted and was dramatically changed by the regulation behind it. Acquiring is an important business to us, and it also adds to the way we serve our big clients and networks and retailers. We'll continue having Cielo's business with us. To some extent, it is very important to us, so we keep the Cielo business. If it always boils down to investment, we have no other intentions. We are always investors because we have the insurance company. We have the insurance there. It's a very important corporation in the earnings of our Bradesco organization. We did have some challenges in the past, but shareholders, investors are always there, and that's only for investment purposes.
Because we still believe in the business, we deem it would be reasonable for us or other shareholders to follow the private cash call and also invest in there because the company is tackling its own problem, but it's nothing but investment to us. Thank you, Eduardo.
Thank you.
Gustavo Schroden, at Goldman Sachs.
Good afternoon. Thank you. I would like to have a follow-up. You talked a lot about expenses with provisions and credit costs and that. Based on the information that we have so far, with what level of delinquency do you work? Why do you believe it has already reached a peak? What's the dynamic for delinquency right now? It dropped in this quarter based on the special conditions, et cetera. What do you expect for NPL from now on? Should it open or should it go up suddenly or maybe gradually? What about up to the first quarter of 2021?
The second question has to do with expenses, operating expenses. You say that there could be a nominal drop in 2021 and the next years, but could you specify this? Do you have any plan regarding a further reduction in the number of branches? Could you give us some more information about that so that we may know whether there could really be a nominal drop, and based on what?
Thank you very much, Gustavo. With relation to delinquency, there has been a reduction. As we said before, we believe that the growth could be gradual, maybe reaching a peak in the first quarter of 2021, depending on whether a vaccine is found or not. Given the scenario today, looking at a snapshot and not a film, it should reach a peak in the first quarter of 2021. With relation to the nominal drop, we have many actions that we are taking and putting in place, as we said before. The number will be higher than 400 branches, certainly.
Besides, we will have a transformation in the way that the branches work. Because of that, we will have a very major cost reduction. When you transform a branch into a business unit, you no longer need three people for security, for instance, because it costs BRL 10,000 per branch for the bank in terms of security. These structural changes will be strengthening this nominal drop that you referred to. Thank you very much, Gustavo.
Thank you. Thank you very much.
Thiago Batista, UBS.
Good afternoon. I have two questions. The first one has to do with the bank's capital, Octavio. You talked about a major reduction in the overhead. With this major reduction in your overhead, what is the level of capital that you believe that is the ideal point, the optimal point, considering this reduction in overhead? The second question, in a few months, we will have the Pix. How do you see the process? Do you have more to gain in terms of cost reduction? Maybe you will be losing more because of the end of the TED and other kinds of operations. How do you see the scenario for that?
Thiago, regarding the bank's capital, at all moments, we try to improve the capital of the bank. We have the dividend payout of 30% now, so we will be improving 2.5 or 3 or the most adequate level, depending on the scenario that we expect to face. Going back to the levels of 2013, I don't know. Next year, we will go back to the level that we had before. The Pix is already a reality, and I think it's going to be important.
I think it will be necessary. I think that the utmost importance will not be the existence or non-existence of the Pix. It has to do with how we position ourselves in order to bring the product in a more effective solution for our clients. The central bank will establish that it will be for the access of all banks that have over 500,000 clients. More important than Pix is what I deliver to my client. This is a trend. In order to pay smaller amounts or making smaller transfers, you can do this with the Pix, and this is not an absolute truth. If you take the British market, for instance, 27% of the population is using this method.
In the Indian market, another situation, because the people didn't have a bank account in India, so this was implemented and with 30% utilization. Brazilians are top users. The challenge that we have is how we adapt this to Bradesco so that our clients can do this through Bradesco, not through competitors. I think this is a major challenge.
The next question is Marcos Assumpção with Itaú BBA.
Good afternoon, everyone. A slightly different question now. With regards to the tax reform, I wonder you could share your first impressions about the first part of the reform that was announced about the unification of fiscal things. What do you expect to see for the future, for the next parts still to be announced, including a potential tax on dividends, interest on equity, and the increase of taxes for specific industries.
Marcos, the tax reform topic, well, we cannot run away from it. Not only a tax reform, it is a tax simplification system. The big problem we face in Brazil today is the amount of taxes that companies, not only small but large corporates, have to address on a daily basis. In the past, people would say, "This is in my area.
I have 240 people just to handle with different taxes that we have all over the country. Particularly with municipalities now regulating ISS or different taxes. The tax framework in Brazil is quite complex, and we know very well all the discussions that eventually we need to have with regulatory authorities or even going to court in order to be protected from some lawsuits against us that have no ground whatsoever because we are compliant to the current legislation. It's not really the cost of the tax per se. The first decision of the tax reform is to increase our bank taxes. We're going to pay more taxes, even more taxes.
It's not only the tax per se, but the added cost you have in terms of staff, personnel, tax experts, lawyers, letter of guarantees, sureties in order to work and be protected with the current tax framework we have in Brazil. As for the real need for a tax simplification system or tax reform, we don't need to discuss it. Directly it's not beneficial for banks or to our companies, I would say that indirectly the cost or the cost reduction that we'll have to handle in the future when it comes to taxes in Brazil will be very significant because the number of people involved is really large. Thank you, Marcos.
Anything about dividends for Octavio?
Now we are complying with the Central Bank 30% payout. There will be as is limit set by the regulation by the monetary authorities. Let's wait and see what happens next year. We want to deliver, improve our results. We can share with shareholders so we can go back to normal. Thank you, Marcos.
Next question, [audio distortion] with Santander.
Good afternoon, everyone. A follow-up question about insurance. Vinicius made comments about BRL 747 million in order to go back to normal with the claims ratio. Is it only for healthcare purposes? This is where we expect to see an increase in procedures or is it spread over many segments? The 71% normalization, it is lower than the historical figures. Do you think about claims ratio after pandemic being lower than historic level? If you think about capital abroad, you mentioned one-third. Are you comfortable at this level or should we expect to see a further reduction? Thank you.
Thank you, [Hernan]. Vinicius speaking. We believe that the effect of this normalization applies to healthcare claims. We also believe there will be an impact in auto. For the future, we expect to see possibly an increase that may be even combined with some kind of worse social indicators. There's always an increase in the number of deaths. Also the life insurance portfolio, despite the drop in claims, there was an increase in claims, specifically in the life insurance portfolio, particularly claims associated to the pandemic, which were not originally priced. We're speaking of a level of return over time, associated to healthcare.
Answering your question about the new normal level, we do believe there is a trend of seeing a drop in the claims ratio considering these provisions. We also believe that prudentially speaking, with the information we have in hand today, the expected return of claims supports the additional numbers that we've worked on. Thank you.
[Hernan], with regards to capital abroad, we had a reduction, and it is good enough to face our operations abroad. It is the adequate size. We don't need to touch it right now. It's correct to handle our business abroad. Thank you.
Perfect. Thank you.
Thank you, folks. I would like to thank you all very much for your presence, for your participation, for your questions. Our team, Leandro, Firetti , and everybody will remain at your disposal for any additional information. Thank you very much. Have a very good afternoon, and we wish you a very good day. Thank you.
Thank you very much. The Bradesco conference call has come to an end. We thank you very much for participating, and we wish you all a very good afternoon. Thank you.