Good morning, ladies and gentlemen, and thank you for waiting. Welcome to Bradesco's Conference Call About the Second Quarter of 2022 Result. The call is being broadcast on the Internet at Bradesco's Investor Relations website, bank.bradesco/ir, where you can find the presentation for download. We have simultaneous interpretation into English, and all participants will be in listen only mode during the conference. Later, we will have a Q&A session when further instructions will be given. Should you need any assistance during the call, please press star zero to reach the operator. Before proceeding, we wish to clarify that forward-looking statements that might be made during this call in relation to the company's business perspectives, operating and financial projections and targets, are beliefs and assumptions of the company's management, as well as information currently available to the company. Forward-looking statements are no guarantee of performance.
They involve risks, uncertainties, and assumptions as they refer 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 affect the future performance of the company and may lead to results that differ materially from those expressed in these forward-looking statements. Now, I will turn the floor over to Mr. Leandro Miranda, Executive Director and IRO.
Good morning, everybody. Thank you for your presence. Thank you very much for joining us in this conference about the second quarter of 2022. We have Mr. Octavio de Lazari Junior, our CEO, Ms.
Tanda Ebredige, Executive VP and CFO, Oswaldo Tadeu Fernandes, Executive Director, Carlos Wagner Firetti, Controller and Market Relations Director, Ivan Gontijo, CEO of Bradesco Seguros, Renato Ejnisman, CEO of Next Bank, Curt Zimmermann, CEO of Bitz, and Carlos Giovani, CEO of Banco Digio. Now I will turn the floor to Mr. Octavio L azari.
Thank you very much. Good morning, everyone. Thank you for participating in our call about the second quarter of 2022 earnings. The scenario has remained quite complex in the second quarter, with the persistent high inflation and the need for monetary tightening in the major global economy, the impact of the Ukraine war. In the main economies in the world, mainly with the acceleration of the high interest rates in the U.S.
With the scenario at the end of the quarter, the concern turned to the risk of a global recession at the end of the quarter. In Brazil, high inflation and the consequent impact on income were part of the dynamics that affected the economy during the period, including the generation of new fiscal pressures. In spite of the outlook, the Brazilian economy is a little bit better, which led us to increase our GDP growth expectation to 2.3%. The cycle of rising interest rates in Brazil has already advanced rapidly, and this leads us to believe or have a less optimistic view for 2023, with 0% growth projection for the GDP. We saw a sound result in the second quarter of 2022, with a net income of BRL 7.041 billion, a 3.2% increase quarter-on-quarter, representing 18.1% ROE.
The loan portfolio also proved with an evolution at 22.5% quarter-over-quarter and 17.7% year-over-year. The more expressive value advance occurred in the portfolio for individuals, 20.2% rise in 12 months, and the credit card portfolio expanded 46%. The growth at the end of the period is expected to be lower, in line with the guidance, mainly due to the comparison basis with the last year. We point out the performance of the client NII, growing 7.1% in the quarter, and the market NII continues to be pressured by the impact of the Selic increase on the ALM position, and this should continue throughout 2022, going back to normal in 2023.
The insurance business posted BRL 3.7 billion income in the quarter, growing 125% in 12 months, explained in fact by the comparison base with last year and a growth of 12.8% in the quarter. Fees performed solidly with an increase of 6.7% year-on-year, benefiting primarily by the strong performance in the line of credit cards, which is favored by the client base growth and the higher spending as well. Despite the challenges brought about by inflation, total costs were well controlled. Total expenses growing 4.9% year-on-year, in line with our guidance. We have been able to offset much of the inflationary pressure by means of our efficiency action.
This growth that we have includes already the investments in our digital initiatives such as Next, Digio, et cetera, and additional reinforcements in the investment advisory, technology, and data analytics and data science teams. We will analyze our performance in relation to the guidance later, but we can report that we were able to maintain a consistent performance with what we proposed. Now moving to slide number three, we have the evolution of our results considering the nominal variation of each line in the period. In both the quarterly and annual comparisons, we had an expansion in client NII, in fees and insurance.
This growth was more than enough to absorb the drop in the market NII, which is currently under pressure by the high Selic rate and the high credit provisions, which are a consequence of delinquency returning to historical levels and growth in high yield credit lines as well. Now on slide number four, the loan portfolio evolved in line with our expectations. Origination for companies per business day was higher, mainly due to the base of comparison, which was affected by the second wave of the pandemic last year. It is mainly concentrated on shorter lines in individuals, a lower demand for longer lines such as mortgage, and the natural caveat in credit assignment that we have. We saw a great evolution in consumer financing, and these lines have higher spreads, and they have favored the growth of client NII.
The more expensive movement occurred in the credit card portfolio with a 7% hike in the quarter, 46% in 12 months. The growth of the renegotiated portfolio comes from the advance of the credit portfolio and also the origination mix with a higher share of more profitable lines. Now on slide number five, the cost of risk increased slightly in the quarter representing 2.5% of the portfolio, reflecting the origination mix, plus the higher delinquency in retail, both for individuals and small companies. The early delinquency remained at the same level as the previous quarter, and the over 90 days past due grew 30 BPS, reflecting the increase in retail delinquency. The corporate segment continues at historical lows.
The covered ratio going down, as we said, once we anticipated provisions in 2020, and they are being consumed with a delay of some of the spreads. In our projections, we mentioned the second quarter, depending on the conditions of employment and income, and we expect the coverage ratio to continue to be consistent around with 200%. On slide number six, we include some charts that are relevant to the credit dynamic. Overall, employment levels continue to show a good growth, both formal and informal. Unemployment rate dipping, and has reached the level we saw in 2015. Real wage mass has improved, which also reflects the increase in employment and the transfer of inflation to wages due to collective agreement.
In this chart on the right, on the lower right, it is important to highlight this proprietary information with the debt to income ratio of our clients with credit service, considering both operations at [Next] and also with other institutions. We see a relatively small increase in the debt to income ratio with the credit service in 2020. For instance, we had this ratio of 20.2%, then 21.1%, 22.8%, and 20.6% in May 2022. Now let's go to slide number seven about the client NII. It continues to expand both quarterly and annual comparison, reflecting the rise in the loan portfolio by the higher yield lines, plus the growth in revenue from funding.
The market NII, as we said before, in the previous quarter, continued to be under pressure by the higher Selic, partially offset by the higher result of our own working capital. We should mention the evolution of spread both growth and net in the ALM on the right, high 6.8, as you can see on the right of the slide. On slide number eight, we talk about insurance. Net income improving 49% at the first half of the year, reflecting a ROE of 19.7%. We emphasize the growth in revenue for the half year, higher than 16%, and this rise is due to the increase in the number of lives covered by health as well as pension and life, beside the adjustment in auto insurance.
Concerning the income from insurance, we saw a better performance according to our guidance, mainly related to the improvement in loss ratio from reduced effects of the pandemic, as well as a better financial result for the period. We believe that in our projections up to the end of the year are in line with our highest growth expectations. We continue to see a drop in the COVID-related claims, and in the second quarter of 2022, these events represent BRL 348 million, the lowest volume since the beginning of the pandemic. On slide number nine , talking about fees, 6.7% year-on-year increase reflecting the addition of 4.3 million clients in the last 12 months, totaling 75.5 million clients. The credit card lines spiked 32% in one year, reflecting a higher transacted volume in cards, which topped
In this quarter, BRL 73.6 billion, almost BRL 74 billion. This growth in volume is a consequence of the larger client base and normalization of the economy, and also the effect of inflation on our clients' spending. Now slide number 10, talking about operating expenses. They increased 4.7% in the accumulated six months, or year-to-date, much lower than the inflation of 10.7% by the IGPM, at 11.9% by the IPCA. Personnel expenses, of course, have risen due to the collective bargaining agreement, 11% last year, and also investments in investment advisory, technology, analytics, and data science teams. As a result of our efficiency campaign, administrative expenses posted a contained growth. Other expenses dipped due to the large volume of provisions that occurred last year and should not be repeated this year.
The efficiency ratio was 42.4%, one of the best in our history. We highlight the optimization that we promoted in our physical presence. We have transformed our branches, migrating to a more advisory and less transactional model. As such, since 2018, we have opened 976 business units, and we reduced 1,691 branches. As a part of this transformation, we trainned our managers with tools that facilitate remote or face-to-face service according to the wishes of our clients. Today, we have nearly 25,000 relationship managers and more than 1,000 investment specialists who promote loan investment and insurance consulting services to our clients. We will be adding an additional 700 investment specialists to the team.
We should point out one of the unique competitive advantages, our strategy, which is very expressive, where we complement our physical presence with a significant capillarity and convenience to customers by means of 40,000 bank correspondents. Moving now to slide 11. Our capital ratio remain at fairly comfortable levels. Profit generation has allowed us to maintain a solid distribution to shareholders in the form of interest on shareholders' equity. This quarter, as expected, we had a reduction 40 bps in the tier one capital index over the quarter due to the regulation of tax credit treatment originating from the hedge of investments abroad, with an impact of 50% in June and the remaining 50% in December 2022, according to the central bank. In addition, we also saw the impact from mark-to-market on the securities portfolio.
The additional capital increased by 20 bps with a renewal of debts that would mature progressively from 2025, taking advantage of more favorable market conditions at the moment. Liquidity ratios improved owing to funding, particularly in CDB and notes, LCR of 168% and 120%. Now speaking of digital experience, moving now to slide number 12. Our digital experience, which is continuously evolving, represents enhanced autonomy, a better experience and more business. 70% of the account holders are already digital. Of our total transactions, 98% are carried out via digital channels, and financial transactions via mobile and internet grew by 57%. This autonomy also drives the accounts opening in the Bradesco app. This half of the year alone, we have nearly topped the total of accounts opened through the app in all of 2021.
There are 82% more accounts, totaling close to 1.5 million openings from January to June this year. The opening of individual micro entrepreneurs made accounts follow this growth with an increase of 79% within the same period. As for experience, clean clients have increasingly sought ease and customization. To improve their experience, we give voice to our clients. We listen to what they have to say and develop products and services consistent with their desires, needs and moment in their lives. This allows us to enhance their experiences as we did, for example, with the revitalization of the Pix section within our app. In addition to positive feedback, this closeness to our clients generates a lot more business opportunities. For individuals, digital origination already represents 74% of the volume of transactions.
The same effect can be seen in investments, which jumped 112%, and in insurance, which grew 132%. These were also positive results seen in companies where the amount of credits released spiked by 139% and investments by 111%. Consortia also grew by 70%. Turning now to page 13. In sustainability, which is one of our pillars of our corporate strategy, we were the first Brazilian bank to join the PCAF, which is an international benchmark for calculating the portfolio's carbon emission. In 2021, the carbon emissions from our company's portfolio were 13% lower than emissions in 2020. Just to give an idea, 20% of this portfolio comes from customers who have already made some voluntary commitment to decarbonization.
Our strategy was also recognized by GFANZ, an alliance that brings together financial institutions around the world with net zero commitments. We had two cases highlighted as a reference in the financial sector. This recognition reinforces our purpose and performance in favor of sustainable development. In the sustainable business agenda, we remain committed to the goal of generating business with a positive impact, and by June, we have already reached 52% of our goal. Our strategy and leading role are recognized in the evaluation of the main sustainability indices and ratings, where we perform above the industry average. As you can see on the right-hand side chart, we are happy with this recognition, and we invite you all to learn more about our sustainability strategy in the integrated report. Lastly, on the next slide, our last slide, we show our guidance in the expanded loan portfolio.
We expect to close the year with a movement compatible with a range from 10%-14% close to the middle of the range, considering a stronger competitive base in the second half of 2022, and the adjustments we continue to make in our origination according to the scenario observed, which brings more caution. The performance in client NII continues along at a good pace, benefiting from the increase in spreads, portfolio repricing, shift in the mix, and the impact of the higher Selic rate on our liability margin. We see growth at the top of the range or top of the guidance between 18%-22%. Fee and commission income is expected to continue being favored by the growth in card income and loan operations. Our expectation for the rest of the year is convergence towards the center of the guidance between 4%-8%.
Regarding operating expenses, we continue with our efficiency and control actions that allowed for a guidance with a range well below inflation. Actually, 50% of inflation, even with investments in our digital banks, Next d igital, the Pix digital initiatives, and the technological evolution of our business. We should finish the year between the center and top of the guidance. For insurance, expectations are positive with a growth trend at the top of the guidance of 18%-23%. The result may be driven by both operating improvements with the evolution in premiums and financial improvements with more favorable index. Finally, in credit provisions, we're looking at the movement towards the upper part of the guidance, which is BRL 17 billion-BRL 21 billion, due to the intensification of growth in higher yield portfolios and the expectation of delinquency levels slightly higher than the current ones.
As for the market NII, although we don't have a guidance, we remain with an outlook that is precedes to the pressure as we said before. Thank you for your time, and we'll now proceed to the question and answer session.
Thank you very much. Now we will start our Q&A session. Please ask your questions in full. The other participants will be in listen-only mode. In order to ask a question, please press star one. In order to remove your question from the queue, please press star two. Please stand by while we wait for new questions. Jason Mollin, Scotiabank.
Good morning. My first question is about the quality of assets. Over 90 days past due, going to 3.5%. Could you talk about the sale of the portfolio and how this impacted delinquency? From 15 to 90 days was sequential for the total portfolio, including individuals. We apologize because we cannot hear the question. Thank you very much.
With relation to the sale of portfolio, this is a strategy that we have been adopting for quite a few years, and we have been reiterating this with you because we have already seen, based on our past experience, that the cost of collection with portfolio under stress is not efficient cost-wise. It is much better to transfer this to other companies at a good price so that we have a higher efficiency in the organization. We have a participation in a fresh credit company, RCB, and you can see that collection is better in this company where we have a stake. This is in our business plan every single year in our budget. It is also present in our strategy for the following years.
We will continue to sell portfolios because the ones that are stressed, that have no guarantee and that are over five years, and the cost of the collection internally is much higher than if we sell the portfolios. We continue in our strategy and over time, we continue to observe good opportunities for us to sell the portfolios, provided we have an adequate price. It seems to me that the market as a whole, all banks started to adopt this as a strategy as well because it is more efficient. This is something that is inbuilt in our strategy, and we will continue to look for good opportunities. Regarding the delinquency rate with the sale of the portfolio, we have an improvement in our delinquency rate at 0.29%. It was already, you know, scheduled for 2022 to sell portfolios.
It improved our delinquency by 0.29%. 30-90 days delinquency, especially in the SMEs. We see the segment of small companies more under pressure than the others, and this is why we had a high delinquency both in individuals and small companies. Based on our model, this should go back to normal. Now, it could continue to grow a little bit, but just a little bit, and we see this as a more normal situation. Another point, this is about in relation to the sale of portfolio. As it gets older, we've sold BRL 5.1 billion in the portfolio. In the second quarter of 2021, BRL 5.5 billion. In the first quarter of 2022, we sold BRL 6.3 billion. You can see that this is consistent here at the bank.
Today, as we are working with more profitable operations. They have a higher delinquency than mortgage loans. We did an exercise. We did a drill simulating our delinquency in 2022 with the portfolio mix that we had in 2019. The impact was of 0.4% improvement in our operations, in our profit. It has different characteristics, but on the other hand, as you can see, this gives us a better NII. We have this counterpart. To say in our NII, which is positive and net of ALM, you can see the result and. My second question is about revenues, operating revenues that change quarter-over-quarter. Could you talk about your strategy in this regard? In terms of the physical presence, you have already shown us that Bradesco is taking the measures that you mentioned.
In the future, we expect inflation to go down in 2023. Very good question, Jason. We know that ALM is important, and we tap into results and our client NII because of the geographic distribution that we have. On the other hand, we saw very clearly that the expansion of the branches should be done in a different way. The way branches more focused on businesses and with smaller physical area. This is why we did this trade-off, closing some branches and transform the remaining branches into business units. 1,690 were closed, and we opened new business units. Of course, we will continue with this strategy because the strategy is a winner. Just to give you an idea, it represents a fixed cost of 40% less than a traditional branch when you compare to the business unit.
This continues in our strategy and our budget for the coming years. Besides, we have an IT expense as an incumbent bank for the last 80 years. We have a legacy, and we have to carry out a transformation. You have to keep in mind that many things are being migrated to the cloud, and it requires a very big initial investment, and then you recover this. Next, for instance, works in cloud, mostly, almost totally, and Digio as well, besides all the other digital initiatives of the bank itself. You are correct, Jason. This year, we see a growth in expenses, which is half of the inflation that we have. For the next year, for 2023, we will continue to have the same discipline. We will continue with the same discipline and make investments and reducing expenses in other areas.
In September, we have the collective agreement that should be around 11-12% or similar to what it was last year. The impact on our organization is quite big. This is a growing challenge faced by all organizations and Bradesco as well. It is one of our assumptions to continue to grow.
Evolve in operating expenses always below the inflation rate. This is the challenge that we face every single year. Thank you.
The next question comes from Rafael Frade with Citi.
Carlos, good morning, everyone. Thank you for taking my question. I have a couple of questions. The first one is about provision expenses. Could you please tell us more about it? You talked about no changes to the guidance. However, when we think about your creation, NPL creation, BRL 75 billion, and if we hadn't had a loan portfolio sale, I think it would be close to BRL 9 billion. So imagining BRL 9 billion minus recovery, so maybe provision expenses would be BRL 7.5 billion for the next two quarters, assuming NPL creation of the same magnitude, which would be way above the guidance. When do you think this should be enhanced?
Maybe a better NPL creation or use coverage better. I'd just like to understand how delinquency expenses might behave in the second half of the year in order to be within the guidance.
Hi, Rafael. Thank you. Nice to talk to you. Rafael, when we work on a portfolio sale, and like I said, this is part of our strategy for a while now, you sell the net portfolio and it's totally clean. It's the whole portfolio. Now, for the second half of the year, we also keep an eye on portfolio sale. It's part of our radar, stress operations, long-term portfolio with no guarantees. As a reminder, we have Bradesco Financiamentos, a subsidiary that has operations for portfolios. Losango is another financing company to financing retail. So this is in our strategy.
Like I said before, this is why we are strengthening here that our global ALL for year-end should be top of the guidance, 17-21 of our guidance. We expect it to be top of the guidance, considering all the strategies that were already part of our budget since late last year. Perfect. If I may, another question, this time about market NII. I understand that most of the impact we see related to ALM. I believe there is a lot of visibility for the coming quarters. It would be helpful if you could listen or hear more about it. You talked about pressure, but would it be reasonable to assume that we should see a gradual improvement or maybe getting to zero in the fourth quarter or maybe first quarter of next year? What about market NII trajectory? Good point about market NII.
Based on the latest minutes of BACEN, maybe we came to the top of interest rate cycle, Selic rates. Maybe some adjustment in the next Copom meeting, close to 14, but we shouldn't see new increases. Maybe a better scenario for market NII. In addition, we also have a change in the operations of our portfolio. There is a change in the portfolio with maturity would be from 17 to 18 months for you to use the portfolio as a whole. For the future, the scenario is better because there is pressure, but it will be better in the future. I would say that for year 2022, we could consider ,zero, zero .
Great. Thank you, Octavio.
Thank you, Rafael.
Thiago Batista from UBS.
Good morning, everybody. Thank you for the question. I have one question about the law. What you showed us about the commitment of income 22%, about 22% in the debt-to-income ratio, do you already see an impact of this law on banks or no relevant impact? Because you have a lower debt-to-income ratio than other institutions. The second question has to do with insurance. You said that for this year, you should stay at the top of the guidance.
What about 2023? Are you being able to transfer prices? Do you still have some residual effect of COVID for 2023? What could you tell us about the insurance operation for 2023?
I will talk about the first, and Ivan Gontijo will be answering your second question about insurance. We have not felt any impact of this law about the limit for the debt-to-income ratio. Of course, we're dealing with that as an industry because it's very difficult to
Moreover, to prove that it's very difficult to prove this because the client could come to a bank branch and say that they have so much reserve, for instance, and half an hour later, the same client goes to a department store and buys something and will no longer have the reserve that he mentioned when he came to the bank. It's going to be very difficult to implement this law, and this brings a level of concern because of what I have just said. This has to be sorted by the FEBRABAN, the Federation of Banks. Because the central bank takes everybody and divides by all the debt. Here you're talking about clients that really have a debt with Bradesco, that all the clients of Bradesco, which ones have debt plus the debt they have in the market divided by their income.
It's very difficult to draw a comparison. It's totally impossible to do this vis-à-vis or compare it to what is published by the central bank. We have a long way to go yet in terms of the implementation of this law and also the impact that this could have on the whole chain, people not being able to take loans or going to Chapter Eleven as individuals. There is a legal discussion and operational discussion going on about how to implement that. We cannot see how much a client owes the department store, for instance, or the companies that sell on the internet. We only see their debt when they have a bank debt in the financial industry, and we have no access, we have no visibility about the debt of this client. How can we guarantee that that client has that minimum reserve?
There's a whole legal and operational discussion about that. It has no effect yet on what is going on with us or with the bank.
This is André Cano. It was about BRL 300, called the existential minimum. This is a relatively low amount. It shouldn't bring a very big impact on financial institutions in terms of actions. Well, this number is close to zero in terms of impact. Ivan Gontijo will now give you some color about the insurance operation.
Octavio, thank you very much. Thiago, it's a very big pleasure to participate or have you participating. Thank you very much for your question. In relation to 2022, which was part of your question, we are aiming at the top of the guidance for 2022.
We are comfortable with the drop in the claims ratio, and as you saw in the presentation that was made by Octavio, the drop in the claims ratio over this third quarter of 2022 showing also decrease in the mortality of the COVID-19 pandemic. All this together with the increase in our businesses, increase in our revenue and also in all the business lines, together with improvement in the financial results. This serves as a basis for the income statement of Bradesco Seguros for the insurance company. Regarding COVID, it has been hurting less results in the last quarter. In the last quarter, we saw a quite important decrease. We must say that we are proud of the strength of the Bradesco Seguros group to pay during the pandemic something close to BRL 7.8 billion only regarding the COVID-19 pandemic claims.
This shows our serenity, our strength, and also our sustainability and our permanence in the insurance pension plan and capitalization bonds businesses. Regarding the second part of your question about our perspective view for 2023, we've seen a very big resilience in the market, a capacity of the insurance market as a whole to adjust, and Bradesco Seguros included, of course. We believe that there will be growth not only with this second half. Looking at the second half of 2022 and looking at 2023, we also have a very positive, a very bullish view.
We should be seeing growth, not only in the number of insurance policy holders in our portfolio, but also increasing our capacity to negotiate our current portfolios, which will allow us to have an even bigger relief or comfort so that we may continue to deliver the best service to our policy holders and our clients in general. Our 16% increase in our revenues has to do with the diversification of portfolios as well as the increase in our businesses. We feel very comfortable and we look with very positive eyes to 2023. Thank you very much. Very clear.
The next question comes from Flavio Yoshida with Bank of America. Hello. Good morning, everyone. Thank you for taking my questions. Octavio, my question has to do with delinquency.
In the last earnings conference call in the first quarter, which was in early May, you mentioned that delinquency in the second quarter could get worse from maybe 10 basis points and then get flat in the second half of the year. Eventually, delinquency was slightly worse and is expected to continue to get even worse in the second half of the year. What was the difference? What happened, which is different from what you said before? Are portfolios actually getting worse faster, or what exactly is going on? Still along the same lines, I imagine if the portfolio sales activity at significant amounts actually become recurring, would you consider improving the efficiency of Bradesco's recovery infrastructure in order not to keep on having to sell and maybe leave money at the table in this kind of deal?
Thank you, Flavio. Actually, you're right.
However, well, we try to be on target, but not always can we be so accurate. By the way, we should bear in mind that in the last three months, the scenario was worse when it comes to supply chain problems and oil prices going up in the last quarter, hitting inflation rates and interest rates, which we expected to be better, got worse. If we consider the size of Bradesco and diversity in our lines, it's not always so easy to hit the target. At least you give us some guidance on what might happen. Anyway, Flavio, I believe the main message here to be highlighted is the diversification of lines that we have in the bank and also diversity in customers. It gives us some comfort in terms of how delinquency will behave and also the client NII that goes higher than delinquency.
We have a natural trade-off here. If we only had a single line, we could tell exactly what delinquency and results would be. Because we have multiple business lines in the bank and multiple customers, different types of companies, different size of companies, different sizes of individuals, then you're subject to these factors. The important thing is to try to deliver and bring margins so you can offset this increase in delinquency. Our expectation for the second half of the year, maybe there would be some increase, but when we check the delinquency lines from 15 to 90 days, which is short-term delinquency, this is not absolute, but at least it gives us a perception of what we should face down the road. Total delinquency also went down to 3.50% now. Individuals, which was 9.41%, is to 4.75%.
Companies also went down. By the way, let me give you a figure that we don't usually disclose, but I think it's important to mention to you, at least to give you some color. When we consider, for instance, the credit line, credit card line, which is what increased more, credit cards, despite a growth of 46% in volume of the portfolio of credit cards, the share that is funded remained flat, 16%, 16%-17% of the total funded portfolio. Please bear in mind that credit card, when it's used by the customer, we need provisions, around 3%-4% of provisions, which increases naturally our ALL. We can see that over time, you begin to bring revenues for exchange and fee. That's a natural trade-off, like I said.
A little bit more delinquency, but on the other hand, you can also have more margin with customers, client NII. This mix is very favorable to us because when one of them is not doing so well, the other takes over. We have a balance in the business. That's how we want to go when it comes to delinquency in the second half. The other question has to do with our structure for credit recovery. Right. This point about structure, look, we have already tested all models, Flavio, and we keep on testing all models. Naturally, when you had Selic at 2%, you had improved pricing of the portfolios you're selling because interest rates are cheap, you have better pricing. But with a higher interest rate, pricing might go down. We already see this move. We already see this change in pricing.
In other words, lower pricing, because the cost of capital is much higher. That's something that we keep on considering all the time. The structure of collection from the credit recovery area of the bank is still set, and they keep on doing collections. Look, I'm referring to the internal area of the bank for collections. It is still prepared to work on the first collection when we have shorter overdue time and it's easier to make collections. But when you think about credit card portfolio, individual credit at Losango, which has been overdue for five years, it's very hard to be successful in collection. That's why the fact because we have the RCB share is very good for us, because at any time we can gauge this comparison. Where am I more efficient?
You always run tests with a control group and the group that is bought by RCB, and we check where we are more efficient. This shows these changes or distractions that high interest rates or high inflation rates might cause and growing with volatility. If interest rates are high but are flat, you know exactly how to work and you have a more easy outlook for the future. However, when you have the volatility that we had, things are more challenging, and then you have to work on this all the time. You're right, that's something we have to keep our eyes on, because if it's better for us to collect, we better have internal team. Just adding to what he said.
When we do assessments in the portfolio, we have a very clear picture of what we see in terms of probable statistics and internal recovery. This evaluation compares what we can recover, bring back to the market, and we try to go beyond what we could recover internally. How easy is it for these players to buy? Well, they use these portfolios in their strategy to work on debt composition, and that's how they can bring some value. We don't leave money at the table considering what we can recover already, considering that the recovery process is already quite good.
Got it. Thank you. Crystal clear. I have another question about the insurance business. If we check the results of the second quarter, if we do simple math and replicate it over Q3 and Q4, the result for the year exceeds the guidance.
My question is, maybe why did you two change the guidance? Because you're being conservative or should we see expected surprises over the second half?
Flavio, nothing that might add pressure to the results, quite the opposite. We expect to see things better. That's why Ivan said that it's the top of the guidance, because that's our true expectation. We should remember the comparative base of last year. The fact that we had a deflation in July and now in August we're going to have deflation again, possibly. That's why we are considering the top of the guidance. It wouldn't make sense to revisit the guidance now because there is uncertainty about interest rate and inflation rate. However, we're very comfortable when it comes to the top of the guidance for our insurance operation.
Great. Thank you.
Marcelo Telles from Credit Suisse.
Good morning, everybody. Thank you very much for the call. I have a follow-up on the previous question about provisions. You have already reiterated that we expect provisions to reach the top of the guidance. In this expectation, do you believe it will be more positive for the next few quarters because of the debentures? Could we expect this for the second half? What about your risk appetite in this environment? Do you still see opportunities to grow in the individual segment? Thank you very much.
This is Leandro. Thank you for your question. We believe that our level of provision should be reaching the top of the guidance, as we said before. We also see some pressure coming from delinquency on our models. This leads us to believe that this is the correct provisioning. Regarding the segments with a higher delinquency, we have individuals and the micro and small companies, very small companies in the short lines, more under pressure. What guides us is the net spread, and the net spread has been growing about 0.1% per quarter.
Okay, having said that, we continue to have a positive reading in terms of our provision, and if we see that there is a reversal in the trend, then of course, we will be decreasing the intensity of these lines so that we have always a very positive management of our added value. Regarding the longer lines, this happens in a more favorable macroeconomic environment, where you see a higher demand from clients and a lower specific risk assessment.
Thank you very much, Leandro.
The next question comes from Henrique Navarro with Santander. Henrique, you may ask your question.
Thank you for taking my question. My question is in line with Flavio's question. I would like to understand the trend for delinquency in the future. Could we consider 20-30 bp s for delinquency over the third quarter? And the second question is about the scenario.
Considering the strong growth in portfolio today and 30 bp s increase in the third quarter, it doesn't match what will happen next year. Things will have to change. Either GDP will go up or we will have to lower loan origination considering the flat delinquency and stability in Q4. When should we expect to see a change, a stronger change in Bradesco's levels? Would it be in Q4 or are you going to lower origination? I would like to have a better understanding in the macro scenario considering 2023.
Henrique, thank you. That's an excellent point. Actually, we have already reduced origination. If you check the originations we performed compared to previous quarters, it was slightly higher, but not so much this quarter. But for individuals, origination is already lower, and this has an impact on the credit models.
Naturally, when you have an increase in interest rates, as we see now in Selic rate, naturally the model already excludes part of those customers who are asking for credit, naturally owing to the higher interest rates and any debt-to-income ratio. That's about it. We keep on working on this and putting pressure on this. I don't think we need to squeeze any more. Like I said before, sometimes we seem to be improving delinquency. It's a fact. We expect to see some worsening over Q3 and Q4 with a better outlook next year. However, that's something that we have to consider on a daily basis because there's not another way out. Every day, every month, whenever we have new information on delinquency and growth in NII, we have to make it happen, working on the capital of the bank.
That's the most important thing we should keep our eyes on constantly. That's it. By the way, if there is no growth in GDP and no reduction in employment and no increase in income, naturally our models will show a reduction in higher risk lines.
Thank you. My question, my first question was about 20-30 basis points for delinquency in Q4. Is it right to assume that? We prefer not to give any guidance because as we speak, we are reversing our trends. Like Octavio said, 15-90 has performed well. We believe we're very cautious right now. For the moment, what really matters is that we have a positive growth in net spread. We expect not to reach that level, Henrique.
Perfect. Thank you. My last question, covered ratio 180%. I think it's close to historical levels.
Do you believe this is going to be flat or should we have a chance to go for 200%? We expect to get close to 200% of coverage by year-end. Historically, you already reached 180. As a reminder, we had already mentioned last quarter that we should close between or around 200 or 220. Excellent. Thank you.
Good morning, everybody. Thank you for the question. Delinquency going up gradually, close to 4% already. The level that we had before the pandemic went up to 90 stable. Maybe this is not so good. I see that it always drops in the second quarter. The portfolio has already decelerated a little bit, but I would like to know the behavior of your portfolios in all the portfolios. Do you know already about the Pronampe? Do you have any information about the levels?
Basically what we have been seeing is that the concentration of delinquencies in the individuals area, personal loans, credit cards, and in our very small companies up to 50 million BRL, that sometimes is mixed up with the individual one and working capital. We have been seeing a drop in delinquency in the medium-sized company and the large corporations.
They are very comfortable, and we believe that this is a trend that will be maintained. As you said yourself, as we see a reduction in interest rate and the inflation rate, when the trend is kept from 15-90, we will see a lower pressure. We believe that these are the major trends. In relation to Pronampe, do you have any expectations regarding Pronampe? Well, it will start on Monday.
This is Octavio. Good morning. It will be as of Monday, but the volume should be lower than last year because of the available volume. We will be operating the same way as we did already pre-approving the operation for the client, so that he can contract directly on the internet banking, so that he doesn't have to go through all the bureaucracy at the branches.
I can say that it will be lower than last year. Your answer has been very useful. I would like to mention that we have observed regarding delinquency. We are looking at delinquency here, but we need to extend the spectrum of our vision. We see 3.5%, but we are talking about the Selic of 3.75%. If we look back when we had the very high Selic, the delinquency rates were higher than we have today. You have to look at the wider picture. We always see changes in the scenario. Interest rate went from 2% to 13.75% in less than 12 months. It has an impact on people's lives. As I said before, our loan portfolio was much more real estate loans, and the mix of the portfolio has changed ever since.
The characteristic of delinquency is different now. 0.4 percentage points come from the difference in the mix from 2019 to today. This is what we, Octavio said about our NII. A very quick follow-up here. It has to do with credit card. Your focus is more on the growth of internal client. When you talk about Next and Digio, and thank you for explaining the performance, do you consider them as internal client as well? No. No, they are separate companies. Next, Digio, and Next are separate companies, and we look at them as separate companies. They're not included in this calculation. Okay?
Thank you very much.
The next question comes from Domingos Falavina with J.P. Morgan.
Good morning, everyone. Thank you for taking my question. Two questions about provisions, and I would like to understand other accounting lines. One of them is other revenues at Bradesco. This is growing a lot, almost BRL 4 billion. More specifically, a provision line, reverse provisions, operating reversal of provisions, something that was around BRL 700 million or BRL 800 million, now it's BRL 1.7 billion this quarter. I would like to better understand what exactly is driving this reversal and what about this line for the future, be it consolidated or not. The second question, I don't know if you addressed it before, but long-term interest rates is going up. So how do you consider an effective rate or a soft guidance, a reasonable guidance toward considering this highest interest rate?
Oswaldo speaking. Hi, Domingos. How are you doing?
Let me begin by answering your first question. I imagine you're using the explanatory note of other operating revenues. For us, ideally, if you check, you should consider both other revenues and other expenses. For instance, on page 25, we have this jointly assessed. Considering the explanatory note, it's important to see that the daily operations of the bank bring reversals and provisions that match in the accounting line. However, we have other provisions that also hit another accounting line. If you check, for instance, page 24, which is condensed, and then other and other operating numbers, you can see that the four lines had a drop. Commercialization of cards was reduced. If you compare Q2 of 2022 with the second quarter of 2021, the number is nearly the same, 446. Contingencies also had a drop.
Tax contingency, if you consider year-over-year, it's nearly the same, BRL 103.88. The next part, claims or fraud, this quarter vis-à-vis the previous quarter, there was a drop. If you compare to the same quarter of the previous year, a slight drop. As for others, which brings together other expenses, this was positive, but basically allocation of provisions for insurance and technical provisions at the top. In this case, these are our moves this quarter vis-à-vis others. Another point that you mentioned about TJLP increase in the first quarter from 6.08% to 6.82%. We improved our tax benefits here. It has an impact on our tax rate, just to give an idea, around 1 or 1 point percentage points. Our tax line was benefited from that.
This quarter it's already 7.01, another positive impact vis-à-vis tax benefits for IOE. Up to three percentage points would bring a benefit to the tax rate. Our soft guidance vis-à-vis the tax rate, vis-à-vis this change, is from 30%-32% now. Obviously, for the year, obviously, we don't know what it will be in the Q4. Our estimate is a slight difference owing to the change in interest rates.
Crystal clear. For accounting purposes and about insurance, in this line, it's close to BRL 1 billion. Does it include in reverse provisions? Does it include insurance as well, or is it labor or tax?
Well, insurance is included because that's a consolidated balance sheet. It include our companies, including companies that are consolidated, like Cielo, the Alelo Group, and all companies of the Bradesco Group.
Perfect. Crystal clear. Thank you.
Luciana Devito from Safra Bank. About delinquency, you said that the trend would be worsening. Oswaldo said that if the mix of the portfolios goes back to normal, it would go to the levels of 2019. What would be a more normal delinquency from now on? This is the first question.
We can barely hear the analyst.
This is Octavio. Delinquency of corporations is at minimum levels, and it should continue. There is no perspective of change. When there is a problem in the large corporations, we already know, and this is published, it makes the headlines. We see no problem for the large corp in a scenario, let's say, up to the end of this year or something like that. For smaller companies, the ones that create more difficulties, I would say.
When you have generation of jobs and income and the interest rates stop going up, which is the expectation that we all have for next year, this improves. For individuals, the lines that have a higher delinquency are the ones that you have a better profitability, such as credit line and personal loans, credit card and personal loans. The others like real estate loans and vehicles, et cetera, they are in line. There has been no increase in these lines. If we see a growth, I think you have a very good perspective because the delinquency for the end of the year and beginning of next year, it could maybe reach 4%, tops. I believe that the models and the agility that we have in terms of adjusting our credit models, bringing this to a lower delinquency level, is much better than we had in the past.
Just to do a comparison, in 2017, when the interest rate was 13%-14% and delinquency for 90 days was 4.75%, and today we have 3.5%. The range that you gave, 3.5%-4% is adequate. Payout is my second question. If we consider the dynamic that you mentioned. In order to consider interest on equity, it could be 40% maybe. Do you believe it could be higher than 40%? We will reach the 40%, which is what we have been doing for a few years. Since 2020, around 40%. Thank you.
Thank you. This concludes the Q&A session. Now I give the floor back to the final remarks.
Thank you all. Ladies and gentlemen, thank you for your time here in this call. We'll be here at your service, our whole investor relations area and market relations, Firetti, Oswaldo, Leandro, Joyce, Poterio, they are all here for you. Even André Cano, we're all here for you for any additional questions about more details. Thank you very much. Have a great day and a great weekend.
This concludes Bradesco's earnings conference call. Thank you all for joining us. Have a great day.