Good afternoon, ladies and gentlemen, and thank you for waiting. We would like to welcome everyone to Banco Bradesco's 2nd Quarter 2018 Earnings Results Conference Call. This call is being broadcasted simultaneously through the Internet in the website, banco. Radesco We inform that all participants will be able to listen to the conference call during the company's presentation. After the presentation, There will be a question and answer session.
Please press star 0 to reach the operator. Before proceeding, let me mention that forward looking statements Are based on the beliefs and assumptions of Banco Bradesco's management and on information currently available to the company. They involve risks, uncertainties and assumptions because they relate to future events and therefore depend on circumstances that may or may not occur in the future. Investors should understand that general economic conditions, industry conditions and other operating factors Could also affect the future results of Banco DO A Bisco and could cause results to differ materially from those expressed in such forward looking statements. Now I'll turn the conference over to Mr.
Carlos Firetti, Market Relations Director.
Good afternoon, everybody. Welcome to our conference call to discuss our 2nd quarter results. We have today with us our Chief Executive Officer, Mr. Botany de la Tari Our Executive Vice President, Andre Acano our Executive Director and Investor Relations Denis Pavarina and the CEO of Bradesco Chibout, Denis is Albernard. I turn now the presentation to
Good afternoon, everyone, and thank you for participating in this call. I'll come with some highlights for the quarter and then to let you present Please start on screen number 2. The net income reached BRL5.2 billion in the 2nd quarter, a growth of 1.2% compared to the previous quarter And 9.5% compared to the 2nd quarter and also to the first half of twenty eighteen. The operational results have a very solid growth of more than 25% if we compare annually. This result reflects in part the economy improvement, but more than that, the adjustments that we made in our operation In spite of the volatility the market volatility that we had in the late May June, The extended fixed portfolio presented a growth of 6% in the quarter and 4.5% in the annual comparison.
A very good performance in both individuals and corporate segments. In the corporate segment, the growth was 7.5% in the quarter, And individual segment that was very successful individually online, whatever is for the We have market portfolios of retail and prime that are growing 9.5% in the year. As we have already anticipated, we highlight the positive evolution that we have in credit quality. The delinquency ratios are decreasing. Ratios are decreasing and we can expect to have a reduction of 50 bps In the quarter, and $150,000,000 in relation to the same period of last year.
As a consequence, the extended loan of provision expenses Hello. For the reduction, we have a drop of 11.7% in the quarter and 36% If you compare, Emily, it was mentioned that expenses for both the L'Oreal Norte division and the impairment As well as the guidance is now from BRL 13,000,000,000 to BRL 16,000,000,000. We believe that at the end of the second half, our guidance is to ratio will be back to the 2 crisis level. Operating expenses continue to perform well in comparison with the first half of the previous year. Despite the inflation that we had, the As you know, we are I was trying to maximize our operation and this is for cost reduction and we made them mainly Through the usage of technology, the physical presence of innovation for consideration, the convenience of our clients, the necessity of which And then results in our operation or reduction of our unit.
We intend to deliver for each year a total of 200 Ventures. If you look to the revenues compared with the The commission represented a growth of 2.7% in the quarter and 6.9% in the 6 months comparison, I think I did show that we have done a very important work on expenses in the UK, And now we can see the synergies on revenues starting to come. Regarding our Capa window, we have a reduction of 100 bps in this quarter. This is the volatility of the market, These are the main topics related to the results. And now I would like to take a few thanks to some of the initiatives we are putting Talking now and very good to our customer base and our businesses.
There will be 4 of them. First of all, the digital micro entrepreneur initiative, In this segment, we are providing a new platform for our customers. We just launched a website called Mail, which is Thanks for participating, Michael, Mr. Pena. In addition to the pay off that's related to Stallard, the machine Next, as you know, our digital bank has talked to some customers that speak for both digital and We are very happy with the results.
This quarter, by the time it has reached already Bradesco POS, we distributed Bradesco POS to our acquiring customers with a package that keeps insured, Thank you, John. Something that's very interesting that we are focusing on is the position of what we call My comments are from Copesan department. Actually, they are our clients. Many products that we provide, And this department is going to develop main office to explore and to extend better both clients. This is Vashelle with Investment of Regulation.
And considering this progress that we just mentioned, we expect Very interesting in the future as the economic surprises is behind. So now I would like to turn to Foresi To you, sir, guide the safe information, Mr. Jun.
Thank you, Denis. Starting on Slide 3, Adjustments on our recurring net earnings, basically, the main adjustment as in the previous quarter was the goodwill amortization. We amortized BRL613 1,000,000. Our expectation for the year is BRL 2,000,000,000. Therefore, we expect a reduction The level of amortization in the second half.
In Slide 4, only a few comments on this slide. I will go into detail On the following line, basically, return on FX of 18.4% In the quarter, our operating income showed a strong growth of 25.7%. Recurring earnings grew 9.7%. Basically, as you can see, we have a higher tax rate this quarter. This is related to the creation of tax credit due to the tax Variation, this reduced our ability to consume tax credit, but previously constituted At 40% and had a business impact on the tax rate.
We can discuss that more in detail in the Q and A if Going to Slide 5, the our net Turning, as I said, grew 9.7%, 32% of the results in the first half came from insurance. In July 6, we have some details on our net interest income. Our net interest income In the first half, we had a reduction of 3.8%. In the quarter, we had A reduction of 3.3%. We have a nice increase in credit intermediation Already reflecting the increase in volumes in our loan book and also the overall favorable mix Mostly coming from loans in the retail operation that have better margin.
In the insurance, we had for the margin, we had a reduction in NII from insurance, Mostly due to the differential of indexation ratio in our For assets and liability management for the insurance company, basically, we have a very high wholesale inflation that corrects Our liabilities, while our assets have mostly volumes indexed To repay inflation, this differential represents a higher cost for us that reduce the margin for insurance. We can I'd say this is a temporary impact provided that the As normally is the case, retail inflation comes higher than wholesale. Basically, we don't have This impact that is normally the case. In the asset liability management and other line, Basically, we had the impact from results in the Bone portfolio, I will talk a little bit more about market to markets when I talk about capital. We had a good quarter.
Looking to the quarter, I don't really recall in the credit margin Basically, I have a tab reflecting most of the better links. In Slide 7, we have our loan book. Focusing on the bottom part of this slide, the expenses loan by segment. You can see that we are growing Above 9% in the retail portfolio, basically retail and prime, while we had a pickup in growth for Corporate, this is as the minimization mostly due to FX. It's a small a small part of this and mostly due to Some specific operations in the corporate segment we originated this quarter and helped Growth.
We didn't change our view that corporate probably We will not grow that much in the short term, mostly because companies still didn't Start an investment cycle so that we remain with the same deal. We believe retail should be better than corporate loan Going forward, we had the 1st quarterly growth in the middle market portfolio for some time this quarter. So basically, we had an increase of 6% in our expanded loan book in the quarter, 4.5% year on year. On the Slide 8, we have our expanded loan book. You can see that the lines are growing more continuously in the payroll loans where we have A big strength coming from the origination of payroll loans in our own branches and also Again, it was stronger in private sector payroll loans and real estate financing, Carlo, so we have mostly this quarter an increase in all individual lines in the portfolio.
In Slide 9, we have the originations per business day. Our Unit and Per Business Day grew 23% in the quarter in the annual comparison. For our company, we had an increase of 25.6%. In Slide 10, we Our delinquency ratio is one of the big highlights of the quarter and has been one of the highlights for the previous year. The midpoint ratio of 90 days dropped almost 40 bps this quarter, we had improvement in SMEs Despite the big improvement, it still remains above the bottoms we have seen in the past.
We believe we may see still Gradual improvement there. Individuals, we are getting closer to the portal bottoms, but Remember that we changed the mix, so it's possible to see some improvements there. In corporate loans, despite the improvement, it is still high. Probably, it will take a little bit more time to see The interest ratio there going back to the bottom that historically were around 0.5, Mostly because this segment tends to be impacted by specific cases or a few specific cases, Even though most of the portfolio is in a much better shape. In the slide 11, we have our gross provisions without considering impairment and The coverage compared to the NPL formation, our new provisions represented 112 Percent of the NPL formation, the no can be consistent in our provision.
In the lower part of the slide, We have our expanded loan book in relation to the portfolio. We reached the ratio of 2.7 It's a very low level, and it's basically, In our view, the provision expenses will remain very well behaved. Besides 12, the NPL operation per segment, the total NPL operation continue Reducing this quarter, we had reductions in corporate, NPL creation, SME. For individuals, it remained stable this quarter. In Slide 13, we have our coverage ratio.
We've reached 230 percent coverage over the 90 days NPL, a very healthy level. We believe that cost rates will go down when we grow With growth in our portfolio, we don't intend to revert additional provisions We have constituted in the past at this moment. Page 14, we have our renegotiated portfolio. We had an increase in the total Regulated portfolio by BRL 700,000,000 this quarter. This is more like a not a one off, but It's driven mostly by the renegotiation of some Upscale corporate loans, And it's not a trend.
These loans already had provisions. So basically, it doesn't impact at all The dynamics for the expanded provision expenses
In our portfolio, not in the hostel, it doesn't change the trend for NPL.
Slide 15, we have our teams and commissions. Our teams We grew on a year on year basis in the 2nd quarter at a rate of 8.3%. Good performance from checking account, asset management, from Brokerage and also Investment Bank, that is clearly one of the big highlights In the quarter, the checking account performance growing 8% in the first half So we have been able to capture more synergies from our acquisition, especially In the current account, in July 16, our costs Our total cost grew in the quarter year on year at 0.6 percent for the first half, 0.1 We had a slight higher increase in administrative expenses, mostly related to the concentration Marketing expenses in the quarter, but also some impact from third party services. And also, we had this quarter an increase reduction Year on year in personnel expenses, EUR 0.8 billion, but actually the structural part of personnel expenses Dropped 4.1, while the loan structure grew 13.9. The main reason behind that The very high level of provisions for labor lawsuits, this has been high Because of the higher numbers of lawsuits filed against us, there will be The reduction in the number of employees we have recently also The average per million we have been making for this case is still on a higher level.
We already see a lower flow of new lawsuits. And we believe as time goes by, since the Provisions are made on a moving average. Also, the provision for losses will be lower. So we believe in the second half, The provisions for labor losses can be materially lower, and that should help Personal expenses. We continue in terms of Brent's network.
We had A small reduction of 8 branches. We continue with our target on Around 200 branches in 2018. The efficiency ratio, 40.8% This quarter, the coverage ratio that is basically Fee revenue divided by cost reached 8.3%. This is the Best level we had for the May quarter. Now I turn the presentation to Vinicius to comment on insurance.
Thank you, Perret, and good afternoon, everyone. The first half of twenty eighteen figures So that the Brazilian insurance market is still feeling the effect of the general economic environment, we're well below its potential. Despite this challenging scenario, the mid performance indicators of Mediobradesco's immunity business have reported. Our claims ratio Showed an improvement of 70 basis points in the first half of the year when compared to the same period last year, reaching 74.4%. In a similar manner, our commissions ratio improved by 100 basis points, reaching 8.9%.
Our efficiency mix, which completed its 9th consecutive quarter around 4%, has remained At the best of the market among the large insurers in Brazil, reflecting a strict control of our direct costs. As a result, our combined ratio has also shown a dilution of 100 basis points, reaching 85%. In the same direction and despite a lower savings rate and an increase in market volatility, our first half financial results exceeded approximately 5% We're going to work in the same period of 2017. This strong operational performance Has allowed Insurance Group's net income, which totaled BRL2.145 billion in the first half It grew by 19% in comparison with the same period last year. The adjusted return on shareholders' equity was 19.6%.
Our technical provisions exceeded BRL253 billion corresponding to about 27% of the Brazilian insurance market The total provision of the Brazilian insurance market. The total financial assets reaching EUR 280,000,000. The total amount of paid in inventories and benefits reached €29,000,000 corresponding to more than €220,000,000 for working debt. This business translates the strength of the Bradesco's agreement whose revenue has maintained our market share around 25%. With the standard insurance market undergoing major changes, both in Brazil and the rest of the world.
Changes that range from the demographic profile of the population, the introduction of new technology and strong relationship with the clients, In addition to the rise of a hyper connected generation, a very specific perspective. We have been working with special focus in improving our internal processes Aiming not only at the development of new products, but also the continued improvement of our pricing models, acceptance and management of claims I know the key aspects of potential to ensure activity. Therefore, in In spite of the challenges, we still have the confidence we had at the beginning of the year. 2, on the one hand, the reduction of the steady trade Challenges are market concerning financial results, which is an integral part of the insurance business. On the other hand, the modest recovery of the economy We will continue to pursue gains of scale administrative efficiency while maintaining the excellence in our services.
And also promote the continued evolution of our multi product distribution channels. Our ambition is to have a strong presence in all channels delivering complete insurance solutions to all Our generations of clients love their lifetime and protection needs. Thank you very much. Thank you, Vinicius. So jumping to Slide 19, we have our vessel ratio.
We had this quarter variation Now we're capital by 100 bps. Basically, as you can see, the main part is the main driver for this reason For the market to market, in our available for sale secured portfolios that are mostly secured from our asset management The provisional adjustments that mean basically tax credit that we generated this quarter. On market to market, only a remark here. Basically, the duration of our provisions in this asset to address management For the bank, I'm very sorry. Basically, they are limited to the volatile of the monetary policy.
Our focus here It's towards the accrual interest from the position. So basically, As we get closer to the maturities of those securities, considering that It didn't change to continue with a positive accrual and actually the market to market naturally reduces for the security. So basically, this should very soon Go back to Equit. Also, I remind you our strong Generating capital organically from our retained earnings, that is enough to Really offset even strong growth in risk weighted assets as we had Good quarter. So basically, we feel very comfortable with capital.
And finally, at Slide 20, we have our guidance. We revised the guidance for 2 lines insurance premiums. We reviewed the range from 4% to 8% to 2% to 6%, basically reflecting The fact that the market has underperformed in terms of growth agreements, we feel we are In a better position to meet this guidance now. And also, we revised the guidance for We expanded Brazilian expenses from BRL 16,000,000 to BRL 19 To a range of $13,000,000,000 to $16,000,000,000 We're starting at the end of the middle. We can analyze The first half, we would have BRL 14,600,000,000 in revenue.
So we are Very comfortable on that. On the other line, for the expanded loan book growth, we target the middle. For NII, we are comfortable with the middle, the minus 2, in this range, middle to minus 4. The fees and commissions also are below. And operating expenses, we believe we can We will be on the lower portion of the guidance for full year 2018.
With that, I close my comments On the presentation and open for Q and A.
Thank you. Ladies and gentlemen, We will now initiate the questions and answer section. Our first question is coming from Mr. Carlos Macedo with Goldman Sachs. You may proceed.
Thank you. Good morning, everyone. I have a couple of questions. First question, thank you for updating the guidance. I want to talk a little bit about the margin Good guidance that you put.
You didn't change 0 to minus 4%, minus 3.8%. I think it's 2 questions around that. First is on the loan growth. You're moving to the upper side The range here on the loan growth guidance. And from everything that you can tell from the origination, your retail book is starting to grow We're probably excited through the second half of the year.
Do you think there's upside to this growth on the retail side? And could that have an impact On your margin, given that you had the negative effect on insurance this quarter and that you're going to have a better mix in the
second half of the year, do you
think that's something that could offset Some of the headwinds you faced earlier in 2018.
I agree. We totally agree. We believe the mix Can you really help us? I think it's important to help when you look on the quarterly variation. We already have An increase in the credit margin this quarter.
So credit margin Can you conclude? And basically, insurance, we don't call it 1 off, but the Differential between wholesale and retail inflation shouldn't repeat. So basically, the Insurance will go to normalize. And also, the ALM orders Also have no formalized. So yes, we think mix can help.
The growth In the corporate, this quarter, it's kind of, as I said, based on specific Opportunities, we hope we have those same opportunities during the rest of the year, but Most likely, we go back to the same path in terms of growth per quarter as we had before, maybe Better north at the end of the year. While the strength in retail probably We'll remain. We always point that we should be able to grow high single digits for these retail portfolios and as we are there.
Our next question is coming from Mr. George Coulee of Morgan Stanley. You may proceed.
Hi, good morning. Two questions, if I may. On your guidance for provisions that you reduced considerably, You are seeing faster growth in consumer loans for the second half, as you mentioned. When you initially set the The guidance, I think the expectation for GDP growth, which was in this year, it was around 2.5% to 3% consensus is probably around 1.5% now. So on the economy growing Yes.
Unemployment is having improved as market expected early on. So it does seem that the macro environment It's a bit worse than what you said in your guidance on, and you're actually going faster. And we did see That information picked up quite meaningfully this quarter. We have remained 25% quarter on quarter. So just wanted to understand what's allowing you to grow more provision less In an environment where NPL's bad information is picking up and the economy is growing, what's the likelihood you expected early on this year?
I'll take question 1 and go ahead, Pavel.
Yes. First, let's start with your comments on bad debt I understand you include renegotiations in your bad debt formation calculation. That It's the only difference to our calculation that is basically the variation of NPL plus write offs. Basically, as I pointed, the bad debt, the increase in renegotiations this quarter is due to Very few companies renegotiated for which we mostly have provisions. So basically, these Renegotiations don't give an impact to provisions despite the fact that, yes, the renegotiated loans This is the NPL.
So basically, in the retail and SMEs, actually, there is no impact From renegotiators and the trend you see there in terms of NPL, NPL is a real one. So Sustainably, I would say, we are doing very, very well in credit quality. Your point about GDP, we said we We started the year expecting something at 2.5% growth. We are seeing 1.5%. But it's interesting.
We saw very strong months In April, May June, in terms of origination, very good product. The businesses we originated were very good. So we didn't reduce our credit standards. So basically, We still see demand. Maybe we have some impact going forward, some slowdown in the origination.
We haven't seen that So far, it may happen, but we continue optimistic that Actually, considering we are now very close to a very important event. And after that, We believe we may see a real acceleration in the economy. So eventually, we don't see I must hear deceleration in the wrong world.
I just want to add something, Jose. What we see is that the team is much more prepared. We do have systems that can come from the managers. The offers, they should be reached to each client in each morning. And the credit can be contracted also By the mobile, via ATM, Internet banking, so at least are creating conditions To the clients to access the credit easier and also for the managers to offer in a more effective way, Good morning, Christian.
So adding to what Piretti said, I think the 2 things together And there are specific lines where we are growing faster like the real estate, the output financing And the seller is related to our loan. So those are very focused by the managers
Great. Thank you. And my second question is on net interest margins. I understood from your comments that you expect a better performance in the second half From an improvement in lending mix and normalization of the insurance product, Could I ask what is the duration of your overall loan book? Because if yours looks Similar to the overall industry, which is somewhere around 12 to 18 months, that means that credits that are going to come due in the second half of the year We're issued with a 11 of solic rate that was closer to 10% versus 6.5 now.
So your back to front book repricing seems a bit challenging To expect a normalization in margins, could you talk about that, please? Thank you.
You're right. Our loan book is about 1.5 years mostly. And you are right. There is a repricing Of the portfolio and the stress really, when you look line by line, in some case, went down. The key thing here is the mix.
Actually, we are growing more in retail loans And last, in corporate, apart for this quarter, that was, as I said, due to some specific Great. So this and we are growing in retail, we are growing small companies and individuals. So basically, small companies have pretty good margins. So basically, this is The point that we're executing corporate loans or retail loans, even though you are true you are right, there's the The fact of repricing helped margins together with the pickup in volume. Sorry, that will help in Okay.
Thanks for your answers. Thank you very much. You're
welcome. Our next question comes from Mr. Jason Mollin Mr. Scotiabank, you may proceed.
Thank you. My first question is on loan growth And origination, you do show on Slide 9 of your presentation the origination By business day, for individuals and companies, I think for individuals, it's pretty easy to understand. Can you help us follow what happened for companies Because of the devaluation, 17% devaluation Q on Q in the quarter, We do provide some details on foreign currency loans that we've looked at. But specifically, what would the origination be like if we exclude the impact on FX?
I don't have that information, Jason. I guess, on origination, probably The impact is not really material. We can try to do something. There's an impact, strong effect In the overall portfolio growth, that I can give you, basically, we grew nominal terms 4.5%. Without the FX impact, it would be 3.2.
That's helpful. I mean, I get it. I guess just comparing year on year, if you're comparing, I guess, in the quarter, I'm wondering if part of this origination clearly, I think part of the year on year is probably just looking at such a different level.
Yes, it's fair to assume that probably it would still be growing anyway, but it's fair It's fair to assume that it may have the real impact. Thanks. My second question is on and
you mentioned the book value evolution or the negative impact of the mark to market. And you said that the duration of the security book is very short and that as these bonds mature, You could actually have the losses reversed. Maybe you could give some more color. What's a big hit In the quarter, we didn't see book value growth even after the $5,000,000,000 in recurring earnings After we look at this mark to market and I guess we have this impact of prudential measures that we saw that also you show impacting the capital. If you can give us some color there as well.
And should we expect, therefore, I mean, we don't know what's going to happen with volatility, But if you were to sell these securities available for sale, they would obviously you would realize the loss.
No, yes. You are right. The duration of that, as I said, it's not really No, it's we for strategic reasons, we will not give the break, but we can say It matches the volume of the monetary policy. We since those securities are really As part of our liability management policy, how we invest, especially we have I'll just raise some liability. We should take it to maturity.
First, The accrual on that position is still positive despite the fact we had a negative Mark to market, given that actually, it's a bit even good. And basically, as we get closer to maturity, The market to market, even if prices remain rates remain the same level, actually the market to market The tax credits didn't impact equity. It impacts the referential capital for EIS purpose, but it doesn't There's an impact actually shareholder debt. Where was that booked then? So where was that booked?
That was booked in that we have that line, that preferential that prudential
You have that in the capital calculation. In the table, we show the calculation of the capital for BIS, But that's very low on the balance sheet. It's there, not in the In the equity, actually, it's reflected in the equity somehow, but it does affect shareholders' equity. And the market to market, yes, one of the shareholders' package companies. Okay.
Thank you.
Our next question comes from Mr. Marcelo Perez with Credit Suisse. You may proceed.
Hi. Hello, everyone. Thanks for your time. I have two questions, if I may. The first one, I'd like to dig a little bit deeper on the insurance margin for the quarter.
Now as you mentioned, the margin was negatively affected by the mismatch between iGPM and IPCA. I just trying to quantify or try to quantify that impact. Looking at your financials, I just want to confirm with you if the part that is there is mismatches is the BRL 22,000,000,000 reals of MTNs in your that are like How to maturity in the insurance business? Because if that was the case, this 2% differential Pretty much represents close to BRL440,000,000 of NII in the quarter, which is quite meaningful. And if you have those GPM and FPCA aligning down the road, You could have a very significant pickup in an hour down the road.
Do these calculations make sense to you? Or I'm looking at something incorrect here? And the second question is, Your insurance operation, when you look at the operational result Your insurance result and excluding, of course, the financial results, there was a very significant improvement in the quarter. As you mentioned, claims ratio And improved, and it seems that a lot had to do in the health insurance. So going forward, do you think there is room for you to improve further?
Where do you think you are In terms of claims ratio, visavis, what you see as kind of the more recurring level? Thank you.
Okay. I'll start the answer. The mismatch in the insurance is really In terms of IGT and PCA, it's much, much smaller than that. For Strategic reasons, we don't disclose, but the mismatch It's more in the range of a couple of billions than actually the number we said. When you look to the The position in the inflationary volume, you actually see look The management of reserves and also the capital of insurance company, not Really, only the management of this acquirer of this net net probably on the pensions business.
So basically but you are right. As This is only to explain the nature of this negative impact from this mismatch, even though I'm not saying that magnitude is not the one you mentioned. Basically, we have liabilities In the insurance company, mostly related to traditional pension. And we have assets Covering and this liabilities was part of the portfolio with IGP M plus something. And we had that with bonds and basically some of these bonds are IPCA, the parent rate and plus something.
We have part of the liability covered by matching action, but there is a gap. But basically, when IGP and is higher, we have expense that is higher than the revenues from
And of
course, the government no longer issues government bonds relating to our GPM. In the past, we used to have most of our lab members covered by fully by Glenbank's It's based on the EBITDA, which they have a natural schedule of reentrants. We had a big reentrant back last year. So that mismatch is part of our life. This is no longer issue with that.
And of course, I mean, we are at This point is just a fairly mismatched, leaving on the margins. But We have to remember that, I think, for a couple of years, the opposite happened. So I mean, this is something that over the long term Thanks, Stefaan, George. But there are many different periods of impact. And also, as Pieterci said, The portfolio of inflation response to ICP, we also covered other liabilities.
We have liabilities linked to General inflation in the goodwill as well as long term liabilities have been helpful for instance, warrant some sort of asset in this situation. And as for your question on the operating results, I think that it's not only auto. I mean, auto is an important part of that, as I mentioned, Underlying discipline and improving the mix of auto and In general, we're looking for better results and better returns in that portfolio. But also I have to say that we had a significant increase We have the health business. This is a trend that we believe continues the trend of the Q1.
This is very, very positive and it's caused by an improvement in employment in the current environment situation, but also There is also several measures that were undertaken by the company in the last year. So in order to control Losses to control claims reflects a lot of those operational gains that we believe will be fruitful going forward.
It's very helpful. Thank you.
You're welcome.
Our next question comes
I have just one question about the insurance results, But this time, on the operational side of the insurance results. The results of insurance included a lot this quarter. And it's not me wrong. This was the best quarter ever for the operating insurance results. I do believe this level is, Let's say, recurring, we can see the level of future results in coming quarters similar to this one.
And also, if there is any one off impact that explain this very strong issuance result? There are some trends that we need to mention In our view, sustainable, the improvement in health, basically, we did a lot of homework, Really control costs. There's the stability of unemployment ratio. Remember, we always said that In the increasing of unemployment, basically, we had an increase in frequency Due to this, even though unemployment is not going down, actually more stable. So we have benefits on insurance On health insurance, we also have improvement in claims in other lines.
And also, we had some improvement We have been keeping our administrative efficiency ratio. Yes, but I think, Charlie, it's important to mention that it's Coming also from lower commercial ratios, expense ratio, commercial commission ratios, No, I mean, taking costs. And also, I mean, you have to remember, it's a counterpart of the financial side. I mean, when In insurance business, when the financial results go down, given lower interest rates in this scenario, it's natural that you have an improvement In
the operating results, also I think you
should take into account the 2 quarters combined compared to last year, I think, the first half of twenty We did confirm 2017. And of course, going forward, we believe that these Improvements in processes that we have undertaken and as well as controlling our needs and discipline on the right policies will continue to But of course, we also in Brazil and we also meet with the general environment and that has a big impact. So we are, I think, in a very good position to capture continuing business in the general economic environment Should it happen? But it is
a risk to business, of course, to ensure that it is
not that we can reduce 100%.
Our next question comes from Mr. Mario Pierry with Bank of America. You may proceed.
Good afternoon, everybody. Congratulations on the results. Two questions here. First one is related to your new guidance for provisions. The midpoint of your guidance is BRL 14,500,000,000.
However, if I consider that you had already gone $7,300,000,000 in the first half, And you're running at 3,400,000,000 per quarter now. It implies that you would be reaching closer to BRL 14,000,000,000. So Just wondering, how conservative are you being on your guidance for provisions? And does it reflect maybe conservative because something could come up? Or should we be working with a figure then closer to the bottom of your guidance Rather than the midpoint of your guidance.
2nd question is related to your headcounts and branch counts. As you've shown on your presentation, they are down about 7% year on year, but it seems like they have stabilized. At the same time, when we look at your efficiency ratio on Page 17, your efficiency ratio is stable for the last 5 quarters at 41%. Part of that, I think, reflects, right, the weak NII growth or the NII contraction that you're showing. Well, I wanted to get a sense from you.
Is there more room for you to improve your costs? And at what level do you think Or do you want your efficiency ratio to get to, let's say, by next year? Thank you.
Okay. 1st, on your question, I think we overall prefer To say that our target is the middle of the range. I think there's still A lot of things going on. I think there are some uncertainties. I think this 14.5 percent is already a very strong reduction.
We think the trend overall in terms of Credit score is a very positive one, but really we prefer to commit only to the 14.5 percent that is actually Very, very, very good. In terms of efficiency, you are right. We did a lot, but this quarter specifically, I'm not saying one off, but margin was impacted by some effect that reduced NII. Probably, We have a recovery soon on those specific lines And part of the benefit improving efficiency has to come So revenues, we did a lot in terms of reducing costs. And basically, the fact we even improved more Was because the revenue scenario for a while was very hard.
So we expect Revenues will from now on start to help more, but we continue with our focus on costs. I think For this year, we expect to close more 200 branches. Probably, the reduction in number of people It is lower, but it should still happen. And there is also other From here, in terms of trying to control spending we don't. For this year, probably, as I said, The expenses should be in the mid lower quarter of the guidance, 0 to minus 2.
So there's improvement in the accounting in personnel expenses only By having better labor lawsuits or lower labor lawsuits that should happen in the Q2, so we will see Benefit on the cost front, and we expect to start to see better numbers on the revenue front. And starting to capture more seniority.
Just to add, when I mentioned the adaptation of the branches, I think When we see that a place doesn't even necessarily to have a branch, what we do is we just change to a post of a pending Where we don't have to have the certificate and so the cost and with this space that we are using, So the cost reduced an average of 5% of what the branch had was previously to this adaptation. What happens is that this will come on time. We don't see it at first, but this will come on time. Emma, we continue to evaluate and understand all the points we have and considering the business model we have of our National presence, the adaptation has to be done according to the needs of the place And the results that I think can be answered. This is something that we are very carefully looking at.
Okay. Thank you very much.
Our next question comes from Mr. Felipe Salomeo with Citibank. You may proceed.
Hi. Good afternoon, everyone. I have a question about Sierra, to be more precise. So recent months have been challenging for Sierra. Competition has intensified, important equity for the rest of the company and results are deteriorating despite the macro recovery.
I'm sorry for asking a tough question, but how the bank, as one of the controls of Ciale, is in the future of the company in the short to mid term? Should the rates continue to be under pressure? Or are they expected to improve given that the SME loan portfolio growth is accelerating? And can you please also comment if the distribution of PIR devices at the benches has been accelerating since the launch of the Italo brand? Thanks.
These are my questions. Okay. Thank you, Felipe. We have to be careful here. Talking about Thiago, but overall, our view, for sure, you're totally right In our region, there is a change in the competitive environment in the acquiring business.
Cielo Had some advantages in the past that are not there anymore. There's a strong increase in the number Our competitors, Cielo remains a great company. It's our partner for our initiatives in the acquiring business. We do then the our POS machine, co branded POS machine. We have been growing there in terms of number of POS, thank you.
Their POS is our vehicle for playing in the individual It's a brand new business. That is a business that makes a lot of sense for us. We have been investing and positioning ourselves To be the most relevant player there, we already have a big number of clients In that segment, as clients of Bradesco, considering we have A lot of correspondence also in the bottom of the pyramid, and we are really improving our offer to Be even more competitive in that segment, offering the tools for attracting and providing the better service for the best service for the client. We are selling quite a few, the sale of the last Bradetto, congrats for Brandon POS as well helping them in other Situations, basically, We are comfortable and think that you very soon overcome this Pressures in revenues and in terms of market. We have so far, considering both Cielo The Cobrendes and Stelo machine, about 110,000 POS.
So we are quite active. We have just started on that. Okay. Thank you, Patriachi. Thank you for your answer.
Our next Question comes from Ms. Natalia Coffey with JPMorgan. Hi, thank you for the question. Could you just ask your customization? We saw this decline of 100 basis points from total practice.
And I want to know first, if you what to expect for the second half of the year, if you think There is no chance that this will continue to go down. Secondly, if you're comfortable with The level that you currently have, whether the issue or not, which would be the possible level of capitalization for you?
Yes. Okay, Natalia, thank you for the question. Basically, We are comfortable with the driver, but we understand and I think everybody understands that actually We generate a lot of capital. We are gradually through the same inertia that should continue. This quarter, we have, Especially the corporate business and also due to FX and acceleration in the low growth part of it, It's due to very specific issues.
Even though we believe loan growth Should continue, probably this effect are more like 1 off. It's based as I mentioned in the presentation, part of the impact or most of the impact comes from market to market In our securities portfolio, most of these securities are short term. And as we converge to Curious and considering that basically, we believe we recovered This market to market to our capital. Also consumption of tax credit Generators are also impacted just last quarter ago, and we should consume a big part of it. So basically, we think our capital will naturally expand over the We have said we believe some sort of Comparable level would be something around 13.5% year 1, probably 12 Principal Capital Plus, the perpetual bond.
And we think we may we should get there in Not that long considering all the trends, capital simulation and actually We're going to make it to market naturally flow through our balance sheet.
Okay. And what about the corex, which you like at 10.6% level? Is that something that you have in your mind? Or you think that broadly based on what you said, The macro explain the effect of the mark to market trade, which should gradually improve.
Yes. That's what I said. Basically, we naturally improved with this natural evolution plus Earnings retention, we continue generating cash flow or getting into earnings retention.
Okay. And to reach your the comparable level of Tier 1, do you think about issuance of 81?
You say perpetual bonds? We always are attentive to this market, but we don't have any plans at this moment For the issuance, but we are always looking.
In that space, if we reach?
Yes. If we wish, we could issue up to 70 bps more. We already have 80 bps in our issuance made in
Our next question comes from Mr. Carlos Gomez with HSBC. You may proceed.
The line is poor and you may have already answered this question, but I was just for that. The first one is about the The second one was first Carlos, let me ask, let me the line is very good. Let me ask your questions 1 by 1. That's going to make it easier, okay? Okay.
First, basically, the prudential adjustment, basically, it's something that adds to the prudential adjustment. Basically, I mentioned in the call, The Prudential adjustment basically is the increase in the stock of Tax credit, mostly related to FX variation on our hedging of external FX So basically, this quarter, given the level of real depreciation, we had the tax credit That's our good estimate from our record. That's it. And basically, We basically should consume that. Okay.
So let me understand. You got business in the currency. You have because of your heritage an increase in the Thanks, Freddie. And before, Freddie, it's more on Yes. I don't have any effect exposure.
The only fact is really the fact there's the duration of tax credit. Carlos, would you mind to call me after the call? I'm really having trouble to understand when maybe we can discuss that. Thank you.
Excuse me, ladies and gentlemen. Since there are no further questions, I would like to invite the speakers for the closing remarks. I would like to thank you, everyone, for participating on this call. Thank you. Have a very nice day.
That does conclude Banco Bradesco's conference call for today. Thank you very much for your participation. Have a good day.