Good afternoon, ladies and gentlemen, and thank you for waiting. We would like to welcome everyone to Bradesco's third quarter 2022 earnings conference call. This call is being broadcast simultaneously through the Internet on the Investor Relations website, bradescori.com.br/en. In that address, you can also find the presentation available for download. We inform that all participants will only be able to listen to the conference call during the company's presentation. After the presentation, there will be a question and answer session when further instructions will be given. Should any participant need assistance during this call, please press star zero 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 their future results of Banco Bradesco 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, business controller and market relations director. Please go ahead, sir.
Thank you. Good afternoon, everyone. Welcome to our conference call for the discussion of our third quarter 2022 results. We have today with us in the conference call our CEO, Octavio de Lazari Junior, André Rodrigues Cano, Executive Vice President and CFO, Cassiano Scarpelli, Executive Vice President, Eurico Fabri, Executive Vice President, and Marcelo Noronha, Executive Vice President of Bradesco. Also, we have with us Oswaldo Fernandes, Executive Director, Ivan Gontijo, Bradesco Seguros Chief Executive Officer, Curt Zimmermann , Banco Next and Bitz Chief Executive Officer, and Carlos Giovane Neves, Banco Digio Chief Executive Officer. I turn now the floor to Leandro de Miranda, Executive Director and IRO Bradesco.
Thank you, Firetti. Thank you all once again for taking part in our earnings conference call. The 3Q earnings reflect the current economic moment in a market that goes through cycles. We have traversed at various points in the credit cycle. When the pandemic began, bringing along unknown threats and the expectation of a worsening economy, we made significant credit provisions. As the economy improved in 2021 and the beginning of 2022, we were able to release part of the excess provisions, especially in the medium large companies industry. Right now, we are moving to a cycle of increasing provisions that is expected to continue throughout 2023 due to the loans that have been granted in the mass markets. We are now at full speed in transforming the bank.
As of today, we are undoubtedly one of the largest digital bank in Brazil, while maintaining the greatest physical presence among the peers. We transform our way of serving clients according to their preferences and needs. Customer centricity is behind our motto, "Between us, you always come first." We hold a unique positioning with the largest and best insurance company in Brazil and in Latin America, a capillarity that unites the physical and the digital. Certainly, the finest financial products offered in Brazil, from individuals to corporate. As you know, Bradesco has extensive operations serving all segments of clients, either individuals or companies, and acting all over Brazil. As a result of this strategy, with a broad position in the market, our activities in loans and banking are correlated with the performance of the Brazilian economy and disposable income.
The economic scenario, high inflation and interest rates led to a deterioration in the client's payment capacity and in the consequent increase in non-performing loans, making necessary credit provision expenses above our initial expectations. The delinquency ratio grew in the low income mass market segment for individuals in micro and small companies. Observing the delinquency of recent vintages, which already indicate improvements and all the adjustments we made in 2022, we project that delinquency should stabilize and improve in the course of 2023. In the last two quarters, we have made provisions above the NPL formation, which should continue into the 4Q 2022. The brisk hike in the Selic versus the natural speed of renewal in our pre-fixed loan portfolio has also affected results of the market and NII.
As we point out in the previous quarter, this effect will probably continue in the 4Q and throughout the first six months of 2023. Our profit is expected to remain under pressure for a few quarters, but this should change more consistently in the second half of 2023. We believe that the bank will continue to be able to operate with an improved level of return. We will pursue this and continue making the needed adjustments to return to the level of profitability. The drivers of our recovery and performance includes improved delinquency ratio, which should peak between first quarter 2023 and second quarter 2023 and improve thereafter, which will allow us for gradual reductions in credit provisions. A significant improvement in market NII, mainly from the second half of 2023.
The evolution of the income from insurance group, maintaining a strict cost control and the continuity of the good results in the wholesale bank with the high return level and that even record the lowest historical delinquency rates over 90 days. With respect to this quarter's earnings, we saw a drop in the recurring net income of 25.8% compared to the previous quarter, primarily due to credit provision expenses, market NII and income from insurance. The loan portfolio rose by 13.6% in an annual comparison, which, associated with the origination mix, benefiting the client NII, which grew 24.7% over the same period. Finally, we closed out the quarter with a 13.6% Tier 1 capital, a level that points to the strength of our balance sheets. Now we move to slide three.
We compare the net income accumulated over the first nine months of the year with the same period from last year. The main items that made the positive contribution to the profit were client NII, which presents an increase of BRL 9.5 billion, reflecting the growth in the loan portfolio and spreads, in addition to the origination mix that has been more concentrated in the short term lines that have higher margins. Income from insurance, which grew BRL 2.5 billion, benefited by higher premiums and increased financial income despite the increase in the claims ratio. We also have two items that reduced profit by nearly the same magnitude. Market NII, which posted a reduction of BRL 6.8 billion as a result of the impact of the accelerated increase and high-level maintenance of the Selic rate on our ALM.
BRL 6.6 billion, higher credit provisions reflecting the portfolio growth, origination mix, and increase in delinquencies. This amount includes BRL 1 billion that we made as a supplementary provision this quarter. Now we turn to slide four. Let's talk about loan portfolio, which grew 2.7% compared to the previous quarter and 13.6% compared to last year. Origination for individuals is 10% lower than last year, but with a superior credit quality. The adjustment was made mainly to the low income mass markets, which presents more credit risk, as we restricted the criteria for approval given the scenario for high delinquencies. An example of this is that today we approved 48% of credit proposals, compared to 58% a year ago and 68% in the pre-pandemic period in 2019.
The 38.8% growth in credit card reflects the increased penetration of cards among our high income clients. In addition to the increase in average expenses after the pandemic and inflation over the periods. Here, we are also very restricted with the low income segments. In agri credit, the 3.5% surge is due to our focus on agribusiness through our 14 agro platforms. The crop year began over this third quarter, and this portfolio should expand even further. The renegotiated portfolio remains stable as a proportion of the loan portfolio. Turning now to slide five. As we said, the delinquency over 90 days was affected by the economic cycle. The ratio grew 0.4 percentage points with an increase concentrated the mass market lines, individuals and micro and small companies, segments that were most affected by inflation.
Early delinquency has remained stable for two quarters, reflecting the adjustments we made in origination. This quarter, the gross credit provision was once again higher than the NPL formation, and as a result, the cost of risk reached 3.3%. The coverage ratio for the 90-day NPL remained at a very strong level of 201%. Now we go to slide six to talk about NII. Overall, NII has risen by 5.7% in the accumulated nine months. Client NII continues to expand, benefiting from portfolio growth and favorable spreads given the product mix, in addition to the positive impact on the deposit margins due to the increase in the Selic rates. The increase over the year is 23.4%.
The charts at the bottom of the slide, we highlight the client NII net of credit provision, which is 10% higher compared to 2021, and 25% higher than what we had in 2019 pre-COVID. Client NIM also continues to evolve, up 10 basis points in the quarter, while the net NIM impacted by the higher provisioning posted a reduction. In market NII, the ALM portion continues under pressure. We can say that the performance in the fourth quarter should be better than the third quarter, although it's still negative. The recovery of this line should be gradual during 2023, with the second half better than the first one, considering the current expectations of interest rates and portfolio with pricing. Now let's move to slide seven. Let's talk about insurance group results.
Accumulated net income expanded by more than 28% with a major contribution from the operating results, which offset the financial results influenced by the dynamics of the financial indexes. We highlight the growth in revenues across all business lines, 18.9% in the 3Q and 17% higher in the year overall. Therefore, the income from insurance. Our guidance continues with a very positive performance, growing 32% in the year with an emphasis on operational performance. The volume of claims directly related to COVID in the 3 Q reached BRL 289 million, the lowest in the series, and BRL 1.1 billion in the year, around 73% less than the same period last year. Our loss ratio is already showing a reduction from the previous quarter and from the 3 Q 2021.
The insurance group continues to grow and improve its operating performance with an expansion in the number of insurance clients and items, thus reinforcing our strategy and confidence in the segment. Turning now to slide eight. Fees grew 4.8% for the year. Card income increased by 3.8% in a quarterly comparison and 22.2% for the year. The transaction volume has demonstrated a progressive growth, and it's worth mentioning we have increased our base, especially in the high income segments, which reached 39% share, a group with lower risk and higher return. We reached 76.8 million clients, an annual growth of 4.3 million clients, which contributed in maintaining the level in the checking account line, offset a substantial part of the drop in revenue from service packages and from the use of Pix.
Continuing the service items, slide nine outlines our performance and growth in the private banking segment. We are currently the second largest private bank in Brazil, with around 22% share in the local market and a notable growth in recent years. Since 2019, we have grown the volume of managed resources by 52%, arriving at BRL 389 billion. We have also continued to advance our specialization and increase our bankers and consultants team with a solid value proposition, which was reinforced with the acquisition of Bradesco Bank, formerly Bradesco BAC Florida Bank. We will continue on with our strategy of observing acquisition opportunities and signing agreements and partnerships such as those with JP Morgan, BNP Paribas in the independent wealth management with Banco BV, with a view towards increasing our share in the industry by providing the best offer to our clients.
We will now take a look at slide 10. Operating expenses posted a 4.6% growth in the year, a mark below inflation for the period, IPCA at 7.2% and IGPM at 8.3%. The personnel line grew by 11.6%, impacted by the collective bargaining agreements of 2021 and 2022. We also continue to invest in enforcing and improving our investment advisory, technology, data science teams in an effort to enhance our processes and provide a better experience to our clients. We continue our focus on optimizing the physical presence and investments in digitalization of client services. This action and trends have helped to contain the increase in the administrative expenses at 6.2% for the year.
Bradesco Expresso, our banking correspondence network, complements our physical presence with great clarity and convenience for customers in a structured base on variable costs. We now discuss capital and liquidity on slide 11. Profit generation and the positive mark-to-market on securities over the quarter more than offset the distribution in the form of interest on shareholders' equity and the consumption by weighted assets, increasing our Tier 1 capital by 30 basis points, which continues in a very strong level. Our estimates for the fourth quarter suggest that we'll finish the year with a level closer to the current one, even with the impact of nearly 40 basis points in December with the completion of the application of the rule for handling tax credits originating from the hedge of investments abroad. We closed out the quarter with a high level of LCR. Turning now to slide 12.
Making sure our clients' digital experience is always improving. We are committed to keeping them at the heart of our decisions. This is a strategy that provides increased autonomy and a better experience for them and results in a lot more business. Currently, 71% of our account holders are now digital and 98% of all transactions take place via digital channels. In an annual comparison, the opening of accounts directly through the app grew by 62% for individuals and by 66% for micro entrepreneurs. The frequent upgrades that we perform in the app, which introduce new features and experiences based on data and align with the needs of our clients, have been an enormous success with clients, evidenced by the 90% level of overall satisfaction with our app with official stores NPS. Turning now to slide 13.
With respect to the sustainable business agenda, we remain committed to carrying out our activities with a positive social and environmental impact, and we have already achieved 63% of the goal. We have over 20 products that boast social and environmental benefits in our portfolio, and two solutions should be highlighted for their growth within the last two years. First of all, financing for the purchase of solar panels, which reached BRL 1.2 billion, and financing for hybrid and electric vehicles, which rose 4.5 x. For environmental issues, we would like to point out the importance of our historical partnership with the SOS Mata Atlântica Foundation, an initiative that we are proud of. We have supported SOS since 1989, and over 34 million native trees have been planted in nine Brazilian states over the years.
Finally, at this time, the 27th UN Conference on Climate Change is taking place in Egypt, which we are participating in. We include the climate agenda and the sustainability strategy and follow all major trends to ensure that Bradesco is maintaining its pioneering spirit in this very significant and relevant issue. We now move on to slide 14, our last slide today. Considering our performance up to the 3 Q, we believe that we'll be able at the lower part of the range for loan growth and fees. At the top of the range for costs, insurance and client NII. With regards to credit provisions, we decided to revise the guidance. According to our projections, the credit provisions for 2022 will be in the range from BRL 25.5 billion to BRL 27.5 billion.
This performance reflects the points recovered on the credit cycle in the mass market, despite a further strong performance in loan quality in the wholesale market. On market NII, as we mentioned earlier, we should return to positive levels in 2023. In the fourth quarter, this line shall remain negative, but better than the level of the third quarter. Thank you very much for your attention, and now we'll begin the Q&A session.
Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star one. If at any point your question has been answered, you may remove your question from the queue by pressing star two. Please hold while we assemble our roster. Thank you. Our first question comes from Jason Mollin with Scotiabank.
Hello, everyone. Thanks for the opportunity to ask questions. I just wanted to clarify some comments you were making previously on the conference call in Portuguese. You talked about a material change in your outlook for provisions and loan loss allowances now versus the second quarter. I just wonder if you can clarify. You talked about the outlook has changed. When we looked at the macro forecast from Bradesco at the end of the second quarter versus today, it doesn't, you know, you're seeing something that we don't see in the top-down numbers. Just the inflation looks better than you were expecting in the second quarter. The general price index looks better.
I'm just trying to understand. I mean, clearly you're telling us, and we saw it in delinquency, that there was a worsening, and I'm just trying to understand how the provisioning outlook changed so much in one quarter to the next. Then my second question is related to loan sales that you've been doing, but we calculate that you sold more loans, BRL 2.8 billion in the third quarter, up from BRL 2 billion in the second. We wanted to understand how that impacts your asset quality metrics. Were those loans 90 days past due? Or what could you tell us about how if we consider those loan sales, how that would impact asset quality? Thank you.
Hi, Jason. Thank you for the question. This is Firetti. Regarding your first question on the outlook, basically, I would say more than the change in the outlook, what changed was kind of the impact we saw in our loan book and also in the evolution in terms of credit quality. In the second quarter results, basically we advised that we were seeing provision expenses probably coming a little bit above our guidance already. The trend actually materialized. In our view it is more fair to provide revised guidance that brings
Our best view for the moment on that line. Basically, in a nutshell, I would say that was what drove us to do this revision. The evolution in terms of credit quality we were seeing, more than a big change in the outlook, but actually the outlook, the high inflation and is one of the things that hit the clients, and that is really the driver for the situation considering our position in the market, even though there wasn't a big change in the outlook numbers itself. I don't know. Would you like to say something, Eurico?
No, go ahead.
Okay. Yeah, considering the sale of loans or NPLs, basically, these loans were basically in our book, they were mostly loans that were in the renegotiated portfolio. It's retail loans, basically in the kind of segments we were pointing as the ones that have been more affected by the increase in delinquency, as I said, credit cards, personal loans. The impact of the sale is something around 30 basis points in terms of 90 days NPLs.
Hi, Jason. This is Eurico, how are you? Just to clarify about the credit performance, I think it's important to highlight that the new vintage are performing much better than the vintage before, especially the vintage before 2019, 2018, and 2017. Especially due to the fact that Leandro highlighted about the approval rates and all the adjustment that we proceed in the portfolio after December 2021. We start, you know, tightening the policies since then, and we continue with this tightening process. Our approval rate before the crisis in 2019 reached the level of 68%. During the pandemic, it went up to 58%. Then after December 2021, it has decreased gradually to 48%.
It means 20 percentage points below what we experienced before the crisis. According to that, our through-the-door profile has improved a lot. Just to mention, we're gonna end with more than 90% between very low risk and low risk through-the-door acquisition. These kind of indicators also highlight a better performance in the first bucket of collection, that we see we are performing below what we have in the first bucket in 2019. I'm highlighting 2019 before the crisis. This indicator in the last few months.
Of course, when you talk about portfolio over 30 days, there, the roll rates are higher than it used to be before, and that's the reason why we still believe that delinquents is gonna go up a little bit in the first quarter of 2023, and we stabilize in the second quarter. Then gradually, we'll decrease in the second half of 2023. Regarding your question about the asset sales strategy, it's important to say that our asset sales strategy is focused on the clients with low probability of recovery. So what do we do? We analyze every quarter the clients with low probability of recovery, and we tend to focus our collection team on the new delinquents, because there we can, you know, recover the clients.
With this portfolio, this segment that we identify a low probability of recovery, then we use that for the sales, the asset sales strategy. It's important to say that most of this portfolio is already written off. The portion of this portfolio that is non-performing, in other words, before written off, 90% of this portfolio is fully backed by provisions. The average delinquency of this portfolio is over 230 days. We are talking about really, you know, a specific portion of the portfolio, and it's part of our strategy. We're gonna continue to do that in order to release our collection team to focus on what makes sense for us on recovering relationship with customers and protecting our assets on the new delinquents. That is the most important for us.
Those delinquents that we don't see any high probability or a very low probability of recovery, we are gonna continue with our sales strategy.
That's very helpful. I do appreciate that when you see the risk rising, that you are acting appropriately and making the provisions. Thank you. I appreciate the answers and color.
Thank you. Our next question comes from Thiago Batista with UBS.
Yes. Hi, guys. We were discussed in the previous morning call that most of the deterioration of the quality was concentrated in the low-income segment. I have a couple of questions on this point. The first one, if Bradesco saw already any impact of the higher checks that have been paid last month, the Auxílio Brasil, for instance. The second one, if you believe in any kind of adverse selection of the low-income clients, so maybe the good low-income clients are going to the fintechs and Bradesco is staying with the bad low-income clients.
The final one, if you see any difference in the profile on the quality of Bradesco's traditional clients or traditional low-income clients and Next low-income clients, if the way the client went to Bradesco so or Bradesco to Next, explain any difference in this asset quality performance for the low-income guys.
Thiago, this is Leandro speaking. Well, first of all, Next has its own clients, and there is an overlap of 25% of clients. Therefore, the strategies are pretty much different and we just have our lion's share as we would have in any digital banks or other incumbent banks. Regarding to adverse selection, we don't think so. Basically, we at times like that, we try to work the more we can with existing clients, with clients that we know the most, with clients that we do understand their profile, their track record or of payments. We have increased by more than 60% our penetration in the high income segments. We do not think that there was an adverse selection in terms of choosing those clients.
By the end of the day, as Otavio said in our first conference call, it's natural that the delinquents came from the low-income segments, pretty much rating C, D, and E, because basically we have the highest footprint in Brazil. We are the only bank in every single municipality. That's pretty much different from those banks that have clients basically in main cities and capitals. I think that's much more like a profile of the bank that has its bad times and good times than anything else. Of course, we are talking to small and micro companies as well because basically they share the profile of the low-income individual clients.
Thiago, this is Eurico . I agree with Leandro. I don't see any kind of adverse selection. You know, the good way to see that is that through the door application profile that hasn't changed from before the pandemic, during the pandemic and after the pandemic. We see clearly that it's the same profile we used to have. Of course, this profile, and it's our profile, is linked to the class C, D, and E that has been affected by inflation in high interest rates. That's why we see this increase in delinquency rates that we are seeing right now. In terms of adverse selection, I don't see any indication of that.
Yeah. Maybe Eurico, you could share with him the ratings in the origination, how much they have improved throughout time.
Okay. You mean in terms of acquisition, right? As I mentioned before, for current portfolio we used to have around 60% of low risk and very low risk new cards. Now we're close to above actually 80% of low risk and very low risk. We believe that we're gonna close the year over 90% of new card customers on this profile.
By the end of the day, basically when you see the proportion, we are working with better clients than before.
Yes.
Their financial situation has deteriorated heavily. That's pretty much the point.
Because there is an existing portfolio. You have a portfolio that has the credit already and had a performance before, but with the severity of the crisis, the performance has deteriorated. With this existing portfolio, you can do something but, you know, it's an existing portfolio anyway.
Okay, any impact from the checks, the Auxílio Brasil?
Actually, Thiago, we haven't seen any impact. We performed some analysis on that to see if there was any impact in terms of collection, recoveries and even credit performance. To be honest, we haven't seen anything that would be significant.
Right here. Thanks.
Thank you.
Thank you. Our next question comes from Jorge Kuri with Morgan Stanley.
Hi, good morning, everyone. I wanted to clarify something that was said. Did I understand correctly that the portfolio sales were on loans that had already been written off? Is that 100% of the loans sold were written off or just a portion? Because then I believe Firetti said that the impact on NPLs was 30 basis points from the sales, but if they were written off, I don't understand why there would be an impact. Just clarify more about that.
Basically, there were BRL 2.9 billion in loans that had already been written off and BRL 2.7 billion in loans that were still on our books.
Okay.
The impact, the NPLs come from the BRL 2.7 billion.
Got it. The impact is 30 basis points. Is that the exact number?
Yeah. Yeah, roughly. Yeah.
If you...
Jorge, just a minute. Sorry. It's important to highlight that both portfolios, they have the same profile. There are very low probability of recovery. That's the reason why they have been sold. Our strategy is really to understand the population that has a low probability of recovery, and then we sell this portfolio. Regardless of the stage of delinquencies of these people, even though we know that even the written-off portfolio is a very high delinquency rate, as I pointed out a few minutes ago.
Thank you. Can you comment on what percentage of that portfolio was individuals versus SMEs versus, I'm guessing not corporates, but, in what is the composition of what you've sold?
Yeah. Vast majority is individuals.
Is there a particular product that you're seeing more defaults? Is it on? I mean, you've been talking about credit cards. Is that sort of like the Achilles heel, the credit card book?
They are concentrated on the products that are concentrated on the low-income segment. Basically, installment loans and cards.
Yeah, personal loans and...
Personal loans and cards.
Okay. Got it. Thank you.
Thank you.
Thank you. Our next question comes from Tito Labarta with Goldman Sachs.
Oh, you're taking my questions also. I guess one follow-up on Thiago's earlier question about the deterioration here versus, you know, some of the digital banks. You know, we saw digital banks somewhat holding up a bit better in terms of NPLs. Any color you can give within those lower income clients where you're seeing the deterioration in terms of clients that came from digital channels versus clients coming from the branches. And, you know, do you think your growth there was maybe too aggressive to some extent that, you know, now it's hurting you on the NPL side? Or, you know, why do you think your NPLs are looking worse than what we've seen from some other peers and from the industry? Thank you.
Thank you, Tito. Leandro speaking, and then Rico is gonna add two cents here. Well, basically, we do not see any sort of difference between the group of clients that came through digital channels, when compared to the group of clients that came from the traditional channels. There was no difference among the groups, as far as statistics are concerned. When you make reference to the digital business, and then we are referring to Next, Digio, not Bradesco itself, is a different strategy. We grew, as a strategy, the base of clients. Now, as Otavio point out in the morning, we are focused on monetizing those clients and trying to select the best ones of them and focus on getting better results from them.
We are talking about two different worlds, but regarding to Bradesco, there was no difference between digital and physical channels.
Just to complement the point that Leandro just made, it's important to say that even though the performance within the profile is not much different between the channels, the mix of the profiles within the channels are different. What happened? When we have a digital channel, we normally attract more at class C, D, and E. We very rarely attract class A and B in general. And it's very different from our branches, for instance, to compare two different channels. The mix within the channel change a lot, even though the profile itself, it doesn't change much between two different channels. Just to be clear.
When you compare the delinquencies of the channel itself, it seems to be worse digital channel than a traditional branch channel, mainly because of the mix inside the channel and the difference within the profile.
Okay. Great. No, that's helpful. Thank you. Maybe I guess a follow-up question, more in terms of, you know, we've seen sort of loan growth in these unsecured segments, you know, pretty strong, not just at Bradesco, but for the system, in general. I guess the two-part question, I mean, given that growth, do you think? Yeah, how systemic could this issue potentially become? And do you expect to slow down the growth significantly in those segments, from here? I mean, we've already seen some deceleration, but should that slow significantly or are you still seeing opportunity to grow there?
Okay. Well, first of all, I guess when you compare our sales among the other banks, we are the ones with most difference as far as the geography is concerned. We have the largest C, D and E rated client profile by far. Other banks are more concentrated in main cities and capital when you compare as a percentage. The second thing is that we do want to slow down and we are reducing on an ongoing basis our origination and have been more and more conservative regarding to the approval process to those clients.
Okay, perfect. Thank you very much.
Therefore to try to compensate even though it's gonna be, you know, what Leandro said. We have reduced the appetite for those portfolios, lending portfolios, and concentrated on C, D and E classes. We are working to improve the models and to continue to improve and try to reach a better discrimination. We constantly work on that. If there is any new information or something that could upgrade the separation between good and bad in the model could, you know, have a little leverage on the approval rates. The general thinking is that we're gonna reduce the appetite in general terms.
Makes sense. Great. Thank you.
Thank you. Ladies and gentlemen, as a reminder, if you wish to ask a question, please press star one. Our next question comes from Geoffrey Elliott, Autonomous.
Hello. Thanks very much for taking the question. Really wanted to follow up on one of the questions on the Portuguese call earlier, where you were asked about why now in terms of this big change in the outlook for provisions. On that call, you mentioned inflation as being an issue, but inflation over the last few months has actually been lower. Just struggling to understand, you know, in the context of inflation coming down a bit, fuel tax cuts, some more support to low income people through the Auxílio Brasil program, unemployment falling. What happened over the last three months to make the outlook now so different from the outlook back in August?
Geoff , this is Firetti. As I said, even in a question in the English call, we saw a continued trend in terms of increasing NPLs, especially in the segments we have already mentioned. I would say in the second quarter call, we had hopes that the provisions in the year may be wouldn't be much higher than the top range of the call. When became clear to us that actually the difference was material, we thought it would be more transparent really to change the guidance instead of just guiding for a range above the top of the range of the former call, former guidance.
Okay. It sounds like maybe there was a bit of upside to the old range as of 2Q, but you kind of left those numbers and it improved, and then it went the other way. That's why we've got the adjustment now.
Yeah
That's correct.
Great. Okay. All right. Thanks very much.
Thank you.
Thank you.
Thank you. Our next question comes from Jason Mollin with Scotiabank.
Hi. Thanks for allowing me to ask another question. I also wanted to follow up on a question from the prior call about the other income, and there seems to be a provision that was. If you could explain what the movements were in the other income line, that would be helpful. They were large.
Okay. It is related to a tax discussion we had in the administrative body of the Brazilian IRS . We won that discussion recently and, due to that, we had to revert the provisions we had made.
It was a reversal of provisions to pay a tax dispute. What was the size of that reversal?
800.
BRL 800 million.
Thank you very much. Appreciate that.
Yeah. It was a definitive decision, so we really had to revert that. We treated that as a recurrent expense when it happened, and kept it as a recurrent when we reversed it.
Okay. I appreciate that.
Thank you. Excuse me, ladies and gentlemen. Since there are no further questions, I would like to invite Leandro Miranda for his closing remarks. Please go ahead, sir.
Well, thank you all for making the time to be with us. Our team is ready to clarify any additional questions you may have. You can send it by email or call us. We are ready to answer you at any time. Thank you so much. Have a great week.
That does conclude Bradesco's conference call for today. Thank you very much for your participation. Have a good day.