Good morning, ladies and gentlemen, and thank you for waiting. Welcome to Bradesco's 2nd quarter of 2020 earnings conference call. This call is being broadcast by the Internet atvalco. Dadescuir, where you can find the presentation available for download as well. We would like to inform you that a simultaneous translation in English and all participants will be in listen only mode during the company's presentation.
After the presentation, there will be a Q and A session when further instructions will be given. 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 respective and operating and financial projections and targets, our beliefs and assumptions of Radix management as well as information currently available to the company. Forward looking statements are not guarantees of performance. They've all reached 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 need to result that differ materially from those expressed in such forward looking statements.
Now we would like to give the floor to Mr. Leandro Miranda, Executive Director and Investor Relations Officer. Good morning, everybody, and welcome to our results conference about the Q2 of 2020. With that, our CEO will be linked to the presentation. And we also have Andre Cano here, Our next question will be from Vinicius of Bernacio, Verdesku, Seguros and Carlos Finan.
Peretti, Marcio Felicia, 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. And 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 position.
And in a scenario in a residential scenario like this one, liquidity is fundamental and the new operating conditions are very important. And 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 At the beginning of the reopening of the 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 water 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 Q2 2020 and also the first one. And our That the expectation of the GDP improved from 5.9 drop to 4.5 drop.
And in the quarter, we had a growth of credit of 0.9% and 14.9% in 12 months, driven especially by the segments of corporations or legal entities. Among the many measures adopted by the Central Bank, we had deliberation of reserve requirement amounting to BRL 24,000,000,000 between April June, we released BRL 129 €59,000,000,000 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 61,000,000,000 giving comfort to our clients in order for them to Cross this crisis or overcome the crisis. And we will be showing you some details of these expansions, 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 effect of the crisis strengthening the balance sheet with credit positions at the bank and conservative positions as well as the maturing company, our extended position expansion our extended expense for loss of credit, EUR 8,900,000,000 reflecting the effort made by the bank and the insurance company.
We make the cautionary provisions amounting to BRL 1,100,000,000 in the quarter. In the half year, We will be going into details and another highlight of the quarter was the performance of Porto is a strong control in all areas. And later we'll be talking in detail about plans about port reduction structurally and our liquidity continues to expand with the increase in the volume of funding BRL83 1,000,000,000 in the half year. And the core capital ratio increased by BRL 120 bps, recovery part of the reduction significant reduction that we had in the Q1. On the next page, We talk about our actions during this pandemic in many fronts, especially about the well-being of our people, our employees, support to our clients, support to society.
In relation So I'm sorry, one of the main measures was the maintenance of most of them in home office. And this was a main measure. And today, 94% of our people who work And the offices are working from home and 50% of those who work at the branches, they work in weekly rotation system as we have to deliver this essential service to our population. And another highlight, and that was very well received by our employees was the fact that we improved 500,000 test COVID test and with the 3 d laboratories and to test All these people in the organization, we have already carried out 57,000 tests and 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 Givabayim program gives our employees the necessary support and the follow-up in case of contamination by COVID, those for our employees and their families and for our clients, we make available all the necessary support to cope with the crisis and we extended BRL 1,900,000 of credit contracts amounted to BRL 8,200,000,000 in installments and we were players also in program to support the society with donations to fight this pandemic.
On Page number 4, 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, and we added In the Q2 alone, 1,400,000 users of mobile banking, and we added an additional 900,000 accounts holders with the digital profile in the last month, over 100,000 people have opened an account of the base in Banco Bradesco in the month of June and the year, not to mention the other channels. And the crisis brought about a reduction in the economic activity with a negative impact on bank transactions in general. And even in spite of that, the transactions at mobile banking grew by 17% The growth was 33% over 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. Now going to Slide 5, we talk about the many fronts of digital transformation in Bradesco. And one of the main fronts today is the transformation of the traditional bank into mobile bank. And with the sense, recently we introduced a new app For mobile banking, an important evolution visavis the previous version and with a much faster experience, a customizable screens and our clients can highlight their functions or the main functions that they use more frequently. And also on the slide, as I said, we highlight 2 strategies that we consider as winning strategies: Agora Investments, our investment house for clients want an open platform with many options.
And agro, In 2020, we had a growth of 22.4 percent in client base, reaching 449,000 clients in the Agra app is integrated into the Vibancobladesco app and more recently to next and we believe that there is an opportunity for our client base at Agro, we have over BRL 50,600,000,000 in assets under custody at Agro, a growth of 7.7% in the year. Now that the assets are not mainly equity. And next, our Native Digital Bank with a free service also growing very steeply. We reached 2,700,000 times in June 2020, and we believe that we might be able or we will be able to reach 3,500,000 accounts by the end of this year. We see a strong evolution in the volume of transactions carried out by next slide this up here.
30% of the client base of NEX uses this digital bank as their main bank. NNX also got a very good assessment at the App Store with an evolution over the last year, And this reflects a very high NPS of 77.6. And as we said in the Q1, we are working for the segregation of next And this will be a separate company with its own policies, its own manager, and we expect to do this by the end of this year. And now going to Slide number 6, we talk about the details of results and financial highlights of our balance sheet. And This balance is very well balanced and with 4 essential actions that took place and we identified at the beginning of this pandemic with the reduction in cost, a very rigorous one, I would say a radical one.
And also new funds for the organization, new clients and new investments for the bank. And the 4th, 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 6, we have the financial highlights. And of course, we continue to be under pressure From the economic environment, net income growing 3.2 percent in the quarter, EUR 3,900,000,000, still 40.1% lower on an 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 the reversal of part of the mark to market that were negative in the Q1.
NII growing by BRL 15.3 billion in the quarter. And the expanded provisions reaching BRL 8,900,000,000, a growth of 52%. In the quarter, and the result of the insurance company recovered growing by 29% for the quarter, but remaining 9.6% lower than 2019 on the half year comparison. And fee income still very much under pressure from the economic scenario. And finally, operating expenses highlight an excellent performance with a drop of 5.5% on a year on year comparison.
Now going to Slide 7, we show a deceleration of the origination of credit in the quarter, Very natural with the reduction of demand in many different lines. Maybe it's a large core growing by 18.2 year on year. But if we talk about CME, we maintained a good growth of 11.7% a year ago with a natural drop in the quarter This line reflects a 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 percent a year with a recovery of demand as of May. It started in May and highlight is the maintenance of the strong growth in our real estate 2019, growing by 18.8 and 11.2% growth in our credit portfolio because of the reduction in the volume transactions because of this pandemic, as we said, sometimes we see even 35% reduction in transactions with credit cards.
However, this has already been improving gradually, and we believe that the recovery will happen as soon as this year recovering the economy. In vehicle financing growing 8.7 percent, a reduction in the pay of cars dropped dropped to 4%. And we expect that the recovery of credit demand in the second half comes with the reopening of the economy. Now going to Slide 8, when we talk about funding, we had a significant performance in funding 14%, increase in net funding for reserve required in the quarter and 39.3 12 months, we added BRL 83,000,000 over BRL 83,000,000 in the Q1 of 2020, and this reflects the movement that we call flight to quality that's occurring in the pandemic that led us to receive a significant volume of deposits. And another item is that the ratio of loans, VW funding, loan to deposits closed the quarter at 82%, a very comfortable level.
And once again, what I said in the first slide, the actions of the Central Bank to reduce reserve requirement at the beginning of the pending release fund of BRL 24,000,000,000 for liquidity. And this year alone, we added to our loan portfolio BRL 38,000,000,000 in net in credit net of amortization considering originations of BRL 129,000,000,000 that is to say much more than the BRL 24,000,000,000 that were released in terms of the reserve requirement. Now on Slide number 9. We show the concentration of credit of Vadescu. On this slide, we show 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, we have a list here, 0.2, for instance, airlines, etcetera. And the portfolio in foreign currency represents only 7% of the total, and the fund is always in the same currency, and our loan portfolio is covered by 59% by real guarantees. And if we look at the coverage for individuals and SMEs, the coverage is still much higher than that. And now going to Slide 10, talking about provision for credit risk.
Our expense with extended provision of Credit risk reached in the quarter BRL 8,900,000,000 with a growth of 32% in the quarter representing 5.4% of our portfolio. We highlight that the average of the provision was EUR 7,500,000,000 much higher than the quarterly average that we saw in 2019 that was 3.5. And this reflects these efforts for provisioning that we are carrying out by means of establishing a supplementary provision, but also reflected in the required provisions. Probably, we have already reached a piece of the cost of credit in the Q2 of 2020 with room for further reductions in 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 effect on the economy, of course. The building of our provisions occur based On the expectation for future losses, future losses in our credit portfolio provisions are based on our models So it's really in the Eastern storage, information and our perspective as well.
A little of what we showed in the Q1 and there was The study carried out by our 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. So Today, we have a total credit provision on balance sheet of BRL 43,000,000, 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 that than in the crisis of 20,08 and 20 fifteen-sixteen and the risk that we will show, we are well positioned 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 showed a reduction in all lines, both for 90 days overdue and 15 to 90 days overdue.
The reduction at this time is due in large measure to the sanctions and renegotiation. 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 credit is 100% provisions, which is this chart on the right hand side that you can see, ladies and gentlemen, in the upper part over 90 days. So It would be lower, 1.2 percent for the total NPL, reinforcing the perception that we are very well positioned. The NPL creation now on Slide 12.
What we can see this quarter is a significant reduction to BRL2.2 billion in the second quarter from BRL7 1,000,000,000 to RMB 2,200,000,000 also due to renegotiations and the sale of the loan portfolio, which was already 100% provision. The reduction occurred in all segments of the loan portfolio and the provision that we made in the quarter, we presented 298 percent of the NPL creation. Now turning to Slide 13, also important information. With the reduction of the NPL and the strengthening of the provision in the quarter, the covered 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 was 189% and 3 75% for SMEs and 1593 percent for large corporates. We also included in this chart another indicator of coverage excluding Credit's 100% provision. By this concept, the rate of Pillar coverage would reach 602%, the first line of the chart, compared to 4 25% in the previous quarter. Furthermore, we show the coverage ratio including the renegotiated portfolio to the non performing loans, the coverage ratio, the last line, the coverage ratio 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 Postpaid. 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.
Now very interesting detail is that the average 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. So considering the extended portfolio for 60 days which added BRL 1,900,000 payments with a total balance of the contract, but the installments accounted for BRL 8 €900,000, 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 AAMC, very good rating. And 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.
So the line extended being working capital was 32% of the total, a very good additional guarantee followed by real estate financing with nearly 30% of the total, a 100% guarantee and 52% to 54%, so of all the operations with real guarantee. Turning now to Slide 15. On Slide 14, we saw extended operations only. Now let us check the renegotiated portfolio as well. In June, our portfolio was composed of BRL 4,800,000,000 in loans recovered from write off, 100 percent provision and BRL 18,300,000,000 of other renegotiated loans.
65% of the renegotiations that occurred during the second quarter were less than 90 days late, so very recent debt and the percentage of success is much greater. And in June, the renegotiated portfolio had 68% of provision. Therefore, we believe that we have a very 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 semiannual 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 offsetting 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 will lower rates on the volume. However, our perception and the numbers in June 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 the LINK reduction because many clients decided to have ventures, other securities and other types of investments going to the lower silic rate.
Additionally, we also had a reduction in the line of loan operations. Slide 18 now We'll 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% 3% in the semiannual 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 already mentioned, we've made precautionary provisions in the insurance company amounting to RMB361 1,000,000 in the first quarter and BRL747 1,000,000 in the 2nd 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. So 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 semiannual comparison. Also on the right hand side, we can see significant improvement in operating efficiency, a reduction in the network of branch from 233 branches only this year. We use well, we committed ourselves to reduce EUR 400,000,000 and the number will be even higher in 2020 and 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 letters of efficiency that we'd like to discuss with you. And certainly, they will lead to a nominal drop of costs in 2020, 2021 and all the effects are already mapped, cost reduction in the structure and a nominal reduction of the costs, the program entails new initiatives and deepening of others, which were already in course. And I even mentioned the reduction in number of clients to 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. And 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. And finally, we will 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. Now on Slide 20, addressing insurance. Bradesco Sigurros, our insurance group. As you know, this is an important arm of the bank and the income was naturally affected by the reduction financial reduction and also positively affected by the reduction in the loss of claims ratio.
We also added precautionary provisions of DKK 1,100,000,000, but despite the decline in the income, The share of insurance of the bank profit rose to 33% in the first half of twenty twenty, 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 2 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. And this is included in the chart, simulations of provisions effect in the claims and combined ratios in the right hand side of the chart. Now 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 bps in the core equity to 11.5 percent and 110 bps in the Tier 1 capital to 12 0.5%. 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 breaks our payout of 30% of the adjusted income, CIS 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 1 third of the position that we had in Q1 and consequently the over hedge.
And despite being a neutralizing operation of the foreign change risk in moments of extreme volatility of FX negatively affects our capital by the generation of tax assets. So we reduced by 1 third and we also transferred part of our position of securities, which 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%. And 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 this 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. We see the net interest income growing in line with the loan portfolio And the line of fee and commission income should remain pressured by the economic scenario, but probably will improve for the next two quarters vis a vis the 2nd quarter. Income from insurance should benefit with a scenario of low claims ratio, but remains pressured naturally by low interest rates. And on the cost side, we have very positive news.
We should have a reduction of costs in nominal terms in 2020. And 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 continue to have a conservative approach, but 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.
So this is what we expect to see for the second half of twenty twenty. Thank you very much for your attention. And now we give the floor to the Q and A session. Thank you. We'll be starting now the Q and A session.
Our first question Comes from Giovanna Rosa with Bank of America. Good morning. Thank you very much The opportunity for the question, I have two questions. Can you talk about the credit cost, please, which was the variable that you used in order to reach the current credit cost. And you talk about lower positions for the second half of twenty twenty one, including the renegotiated portfolio, It is in accordance with the history or the historic levels that you mentioned.
And it seems to me that it should be higher Considering the level of renegotiations and also the economic deterioration that we see, so could you please go in-depth into that and explain the reason why your current level of reserves should be adequate? And my second question has to do with the generation of revenues. You talked about the comparison with this credit, But 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, Jovan, the provisions that we made, you remember that in the Q1, I showed you a shall be made by our risk and our credit areas.
And we consider the worst crisis 2008, 2015 2016, we aggravated this scenario, including the pandemic, which is still a big question mark. So the bank's capacity to generate results and generate income has to do with led us to make new positions in the Q2. But 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 We negotiate the debt or the term of the debt, but they are very good players.
So this is the reason why we are very comfortable About our levels of provision, they are very high considering all that. And we We have a very good level and our coverage level to 99 it was to 99, and we reduced The long term and the short term delinquency as well. So of course, We will continue to observe this on a weekly basis and the payments of these installments, but We are very comfortable regarding our provision level, which is very adequate for the scenario of difficulties that could happen until the end of this year, Q1 of next year. Of course, the spreads are dropping, as you said yourself and Steve also. But as I said, we believe that the worst has already 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 safe.
And another important factor is applied 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 2,000,000 new accounts being opened in this period of difficulty. Last year, We those records of new openings or new accounts opened, not only Banco Bradesse, but also Next, over 120,000 new ones, so more and more clients coming on board, bringing with them their businesses, their investments and bringing the fee that they pay. So this scenario in spite of a reduction in other lines, this gives us a very good expectation in terms of gaining volume from these new clients that are coming onboard 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.
Our next question from Beniry Salavina, JPMorgan. Thank you very much. Good morning. I would like you to talk about insurance and to make a provision of BRL 150,000,000. But when we look at the loss ratio, the industry as a whole, with the main business lines, they have been talking persistently.
And And it seems to me that there should be some pressure coming from that. Also for instance, in March April And many things regarding health as well, health procedures, because they build up. It seems to me that it is EUR 1,000,000,000 something and it seems to be to me a little bit conservative, But of course, there are some other factors besides mathematics. And 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 is the CEO of our Insurance Group, and he will be answering your question. Thank you very much for your question, Danilo. In fact, we have a very strong history in the Q2. With the relevant hike visavis the Q1, in spite of the very small results, We see that this was based on non typical situation that is disabled in Northland and Health because of the social distancing.
And We believe that we have to normalize the results, and we do not see this as the current 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 a vis our top line. And we believe that a significant part of the elective procedures that were not carried out in health, for instance, over the Q1, they will come back, But we still have a very low visibility for that. So we do not have a time frame, but we believe that a major part that will have to be done. And this will have an impact on the economic activity, and we still have to measure ultimately, the results on our top line. So 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.
So it makes all the sense in the world to build these positions in order to normalize the results for the insurance group as a whole. Thank you, Domingo. The next question is from George Friedman with Citibank. Thank you for the opportunity. I also have two questions.
The first question is about extensions. You have RMB 61,000,000,000, the last number I heard, the most current After you close the quarter, it gave me the idea you could be close to EUR 65,000,000,000. I would like to know if you confirm this number and if you already begin to see customers who are Moving away from great superior, what is the behavior of clients who left? In this sense, how many clients do you expect to leave the grace period after this quarter or end of the first That's my first question. And 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? Joerg, thank you. Thank you for your question. With regards to extensions, You're right. The number is correct, 65 in July and it's becoming marginal now visavis 61 that we had before.
Now an important thing about the question, by the way, a very timely question, 60% of extension and we could have another one, 65% of customers were in the 1st round and 65% who did not extend delinquency is 3.2. So 35% in the 2nd part of 60 days, which will be due depending on the month. I don't know if it was April or May, but we only did do in September, October or November. So that's what we said. The characteristics of the clients who wanted to have an expansion or Ascension are they are very good payers.
And for those who failed or maybe have lost their job, maybe we have to reorganize their financial lives. But the outlook to get the payments is very good. But 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. This scenario is good payers, good clients.
Otavio, can I just have a brief follow-up? This information is very important. You said 3.2 percent of NPL for customers who did not want to expand. Is it 60 day NPL? No, no.
Delinquency, those who extended let me start from scratch. Those who extended the first installment was due in July. They paid April May and the first installment was due in June. They expanded and the first was due in July. So this is over 30 days delinquency.
Okay, perfect. It's clear. And this is the delinquency rate that totals 3.2%. Perfect. Got it.
And the last question will be answered by Fereci. Fidelity, what is the about the MII? For NRI, could you give us more color about the structural part, so you 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, etcetera. 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.
So these are the components of the margin NII to the market. LM is structural. The appreciation of working capital and also the commercial area That's for the last few years. So that's about it. These are the components.
Perfect. Thank you. The next question is Eduardo Hoffman with BTG Pactual. Hello. Good morning, everyone.
I just wanted to ask you an update about some participations or stake. I think you mentioned that for Nxt, 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 Agora as well? Does it make sense to have an Agora spin off? And Cielo, I'd like to know how you see the future of the company and if you believe the partnership is working with 2 banks or not.
And what about IRB? You left the board, but you'll also be involved in the capital increase. So are you planning to increase your stake and what about it? And I understand you also changed the investment Rating or classification, so could you give us an update about the partnerships? Thank you.
Thank you, Eduardo. Thank you for your question. With regards to NEX, 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. Now this company already has 2.7 customers and we expect to close the year with 3,500,000 customers.
If you think about digital banks in the past, dollars 1,000 per customer, we're speaking of a company that we will be worth $3,500,000,000 by year end, which is nearly BRL20 1,000,000,000. 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.
Agora is a company that is led by Leandro, who is our Agora Director and we remodel the whole structure. And the company is growing very significantly and it's beginning to be a player with other players in the market. Does it make sense to spin it off? Too early to say anything. We're still studying Agora structure.
But Agora is a company that will be increasingly more present in the life of Brazilian investors with its own team, consultants, experts in investments. So Agora has its own path to take and we'll be heavily investing in Agora. 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.
But acquiring is an important business to us and it also adds to the way we serve our big clients and networks and retailers. So we'll continue having Thiello's business with us. To some extent, it is very important to us that we keep the Thiago business and 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. So we did have some challenges in the past, but shareholders, investors are always there and that's only for investment purposes. And 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 investing there because the company is tackling its own problem, but it's nothing but investment to us. Thank you, Eduardo. Thank you.
The establishment or Goldman Sachs? Good afternoon. I would like to have a follow-up. We talked a lot about expenses with provisions and credit costs and Based on the information that we have so far, do you believe that with what level of delinquency do you work? Why do you believe it has already reached the peak?
What's the dynamic for delinquency right now? It dropped in this quarter based on the special conditions, etcetera. But 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 Q1 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 about the 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 date on what? Thank you very much, Usado.
With relation to delinquency, there has been a reduction. As we've said before, We believe that the growth could be gradual, maybe reaching a peak in the Q1 of 2021 depending on whether a vaccine is found or not. But given the scenario today looking at a snapshot and not a film, it should reach a peak in the Q1 of 2021. With relation of 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 for other branches, certainly.
And despite, 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 3 people for security, for instance, because it costs like BRL10,000 programs for the bank in terms of security. So these record changes will be strengthening This nominal drop that you referred to. Thank you very much, Gustavo.
Thank you. Thank you very much. Good afternoon. I have two questions. The first one has to do with the bank's capital with Abio.
You talked about the major reduction, the overhead. And 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? And the second question, in a few months, we will have to pick. How do you see the process? Do you have more to gain in terms of cost reduction?
And Maybe you will be losing more because of the end of the TED, TD and other kinds of operations. So how do you see the scenario Regarding the bank's capital at all moment. 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 aggressive level depending on the scenario that we expect to face.
But Going back to the levels of 2013, I don't know. Next year, we will go back to the level that we had before and the peak is already a reality. And I think it's going to be important. I think it will be necessary, but I think that the utmost importance will not be the existence or non existence of the PPP. It has to do with how we position ourselves in order to bring the others in a more effective solution for our clients Because the Central Bank will establish that it will be for the assets of all that have over 500,000 clients.
So more important than this is what I deliver to my clients. So this is a trend In order to pay smaller amounts or making smaller transfer, you can do this with the fixed and this is not an absolute truth. If you take the British market, for instance, 27% of the population is using this sector. In the Asian market or other situation because the people didn't have a bank account EMEA showed this for us in the meantime, with 30% utilization. Brazilians are 5 users.
So the challenge that we have is How we adapt these 2 Bradesco so that our clients can do this Through the base, we're not 2 competitors. I think this is a major challenge. The next question is Markus Asuncion with Itau BBA. Good afternoon, everyone. A slightly different question now.
With regards to the tax reform, I wonder if you could share your first impressions about the first part of the reform that was announced about the unification of PISCOFINS And 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. Markus, the tax reform topic, While we cannot run away from it, not only a tax reform, it is a tax Simplification system, the big problem we're facing 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. So the tax framework in Brazil is quite complex. And you know very well all the discussions that eventually We need to have regulatory authorities or even go into court in order to be protected from some lawsuits against us that have no ground whatsoever because we are compliant to the current legislation.
So it's not only the cost it's not really the cost of the tax per se. The first decision of the tax reform is to increase our bank taxes. So we're going to pay more taxes, even more taxes. So 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, shorties in order to work and be protected with the current tax framework we have in Brazil. As for the need, the real need for a tax simplification system or tax reform, we cannot, we don't need to discuss it.
Although directly it's not beneficial for banks or to our companies, I would say that indirectly The cost or the cost reduction that we will 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 or target? Now we are complying with the Central Bank 30% payout. There will be as is limit set by the regulation, by the monetary authorities.
And let's wait and see what happens next year. So we want to deliver, improve our results. And then we can share with shareholders, so we can go back to normal. Thank you, Markus. Next question, Henan Ikemoto with Santander.
Good afternoon, everyone. A follow-up question about insurance. Vinicius made comments about EUR 747,000,000 In order to go back to normal with the claims ratio, but is it only for health care purposes? This is where we expect to see an increase in procedures or is it spread over many segments? And the 71% normalization, it is lower than the historical figures.
So do you think about claims ratio after pandemic being lower than historic level? And if you think about capital abroad, you mentioned 1 third. Are you comfortable at this level or should you expect to see a further reduction? Thank you. Thank you, Renaud.
Vinicio speaking. We believe that basically the fact of normalization applies to health care claims. However, we also believe there will be an impact in auto. For the future, we expect to see possibly an increase that maybe even combined with some kind of worse social indicators, There's always an increase in the number of pets and also the life insurance portfolio. Despite the drop In claims, there was an increase in claims, specifically in the life insurance portfolio, particularly claims to the pandemic, which were not originally priced, but we are speaking of a level of return over time, roughly speaking associated to healthcare.
And 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. But we also believe that prudentially speaking with the informations 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. So 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, Thank you for your participation, for your questions. And our team, Leandro, Shiraz, she 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 day's 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.