Good morning, ladies and gentlemen, and thank you for waiting. We would like to welcome everyone to Badescu's 2nd Quarter 2021 Earnings Conference Call. This call is being broadcasted simultaneously through the Internet in the Investor Relations website, bradesco ri.com. Bren. 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 and further instructions will be given. 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 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.
Hi, everyone. Welcome to our conference call for discussions of our 2nd quarter 2021 results. We have today with us here in our headquarters our CEO, Otavio de Ladari, Jr. Our Executive Vice President, Andre Acarlo our Executive Director and Prior O, Leandro Miranda our CFO, Oswaldo Fernandez the Bradesco Seguro's CEO, Ivan Goncillo and Banco Next's Chief Executive Officer, Renato Enesman. Now I turn the floor to Leandro.
Thank you, Ferreccio. Good morning, everyone. Thank you for your interest and for joining us on our 2nd Q earnings conference call. This quarter, we saw new surge in the pandemic, which unfortunately affected a significant number of Brazilians. However, there was also a great acceleration in vaccinations, which is the only real solution for the COVID-nineteen.
The current pace is good, and it shall accelerate even further. Over the coming months, this should help Brazil achieve the benefits seen in the countries that more advanced vaccination phases. We see continued recovery on the economic fields. Even with the spike in COVID case in the beginning of the year and especially now with vaccinations ramping up, We foresee a growth of 5.2% in the Brazilian economy in 2021. Formal employment is rapidly rising, supporting loan growth and keeping delinquency ratios at historically low levels.
Fiscal risks have visited with GDP growth, leading to a positive surprise in bad GDP ratio and thereby mainly an appreciation of the real. On Page 3, we begin a discussion on our numbers. Our income in the quarter was BRL 6,300,000,000 with the accumulated return reaching 18.2% over 6 months. The loan portfolio expanded 3% in comparison to the previous quarter and about 10% year on year. The Tier 1 ratio reached 14.1%, an increase of 0.5 bps Q on Q and 1.6 bps year on year, which indicates a very comfortable capital level.
So far, this year, we have already distributed BRL 6,000,000,000 in the form of institutional shareholders' equity. This brought our payout to 52%. We feel that our 2nd quarter results at a good level driven by robust performance in banking activity. The insurance income was adversely impacted by the increase in health and life insurance claims due to the impact from new spikes in the pandemic and a lower financial income due to variations in marketing indexes. The fact that we were able to deliver a strong consolidated income despite the hit taken from insurance activities, demonstrates the strength of our balance sheet and our organizational ability diversify our revenue streams.
Moving now to Slide 4, we present our income statement. As we mentioned before, the lower quarterly income primarily reflects the impact on the insurance business, which was heavily affected by the claims related to COVID-nineteen despite the evolution of 20% in revenue year on year. Looking just at income from the banking structure. The growth in the quarter was 16% compared to the 1st Q. In better comparison, the income rose 1.25% as the 2nd Q was the most affected by the pandemic.
It's worth noting that the banking structure's income in the 2nd Q was 23% higher than in the 2nd Q 'nineteen. The total NII was 1% in the quarter and down in the annual comparison because the market NII was rather high in the 2nd Q of 2020, thanks to the robust market recovery in that period. ALL expenses came at a very good level, posting a reduction of 10.7% Q on Q. This comes from the positive performance in defaults and our lower models. We would like to point out the sharp improvement in costs and the solid recovery in fees.
Finally, when we compare our operation this half year with the 1st 6 months we had in 2019, it's possible to notice that we have had significant evolution and that we are expanding. Total revenues are up 6% and reflect the growth in the portfolio and customer base, more than absorbing the drops in spreads. Expenses fell 7.3% even with the high inflation accumulated disputes. And as a consequence, The efficiency ratio reached 45.7%, an improvement of 3.7 percentage points. We will now take a look at Slide 5.
Our funding activities, as you may see, continue to perform well. Funds from clients grew 4.5% in the annual comparison, particularly the demand deposits and savings, the latter being an important source of funding for our mortgage loan operations. On Slide 6, we'll talk about the expanded portfolio, which grew 9.9% in 12 months. We posted a sharp 21% hike in individuals and 28.7% in SMEs. For large companies, the end of comparison was somewhat hampered by the solid growth of working capital lines at the start of the pandemic and greater access to the capital markets at this time.
Sun Life reported impressive levels of growth over 12 months. Real Estate Funding, it grew by 40%. This performance reflects improvements in our contracting process and the strength of our origination channels, which I'd like to highlight our digital journey that originated around 1,700 transactions in the 1st semester of 2021, 4x higher than last year. Therefore, a channel that is increasingly gaining share in our market origination. Payroll deductible loans grew 19.8% with the origination of concentrating our own channels.
Agricultural loans rose 18.2%, an increase of BRL 3,100,000,000 for companies and BRL 1,200,000,000 for individuals. Reflecting the coal regulations, we have with farmers through our regional agricultural platforms, which we have reinforced with agricultural engineers along with the distribution of our branch network, which is present in the major agriculture and municipalities. Investing means the growth of 28.7% year on year reflects the repositioning we made in our business repo structure, in which we tripled the number remainers and also added 600 relationship managers. We also reviewed the small entrepreneurs' resignation journey. We will have more news in the second half.
Finally, I would like to highlight the derivation of Global Studios, which has been already enjoying steady growth, progressed even further and now is 40% higher compared to the same quarter of the previous year. In this quarter, with the recovery of the economy, the origination of companies grew by around 25%. Turning now to Slide 7. Our expanded ALL expenses totaled BRL 3,500,000 in the quarter, representing 1.9% of the portfolio. The level was consistent with our guidance.
The reduction in cost of risk is a consequence of the positive performance in delinquency ratios and the growth in lower risk transactions over the last few quarters, such as real estate financing, payroll deductible loans as we have seen before. The management coverage ratio remains at rather high levels and is expected to continue above pre pandemic levels up to the end of this year. The coverage ratio, including the renegotiated portfolio, remained virtually stable. Turning now to Slide 8. We see that the businesses remained under control, in line with our expectations.
The 90 day ratio remained stable
with a
10 bps improvement in the individual segments. The 15 to 90 day ratio showed signs of improvement in all segments. We believe The delinquency ratios are expected to converge to near pre pandemic levels by early 2022. This positive performance can be explained by an active portfolio management. The progress of our loan models and journeys for gratification as well as renegotiation that are centered on the clients.
I would like to highlight that the NPL creation this quarter is at the same level of 2019. Moving to Slide 9. The extended portfolio continued to improve, falling 26% year on year From a balance of BRL 41,300,000,000, only BRL 3,500,000,000 are in our readers for over 30 days. The possibility of annexation remained available to clients in the 2nd quarter, but the demand was low. Coming to Slide 10.
You can see that our renegotiated portfolio declined by BRL 900,000,000 in the 2nd Q this year after holding a stable position in the 1st Q. This shows a trend towards more normal loan conditions. We maintained a high level of provisions, maybe the highest compared to our peers, equivalent to 62% of the portfolio. The linked cost ratios in the renegotiated portfolio continued to be stable over the quarter, but are expected to climb by the end of the year, returning to pre pandemic levels. Turning now to Slide 11.
The total NII grew 1% over the quarter. Year on year, there was ANZURALCO 5.7 percent, thanks to the strong market NII in the Q2 of the previous year. The quarterly growth in the client MII is mainly driven by the expansion of the individuals portfolio, mainly in personal loans, credit cards and payroll deductible loans, which more than offset the slowdown in spreads motivated by market dynamics. We expect spreads to stabilize. Indeed, they might even improve during the second half due to the COVID improvements.
We now turn to Slide 12. We posted a strong performance increase. We are seeing an intense growth in the volumes transacted in both debt and credit cards, reflecting recovery economy. For checking accounts, we were able to recover the level of revenues from our network of banking correspondents due to a resumption in commercial activity. Revenues were also positively impacted by the annual growth of more than 1,700,000 clients, offsetting reductions in pads and dock revenues.
In Asset Management, the growth over the quarter came out of the strategy to diversify into new products that have a higher added value. In addition, we experienced growth in our net funding, both in our own products as well as on third parties. This comes as a result of the work performed by our team of investment specialists, contributing to a net funding of BRL 17,000,000 in the first half of twenty twenty one and also by higher revenues originated from credit card funds. We also highlight The strong performance in the income from consortium and investment bank benefit from the favorable market window. Operating expenses.
Now on Slide 13. As you can see, our total cost fell by 4.4% over 6 months. The comparison between the quarter and the previous year is impaired by the 4 days of comparison as a number of expenses were not carried out due to the pandemic. Personal expenses were primarily impacted by higher provisions for profit sharing, so it's good expense compared to the previous year given the 60% higher net income this year. The decline in the administrative expenses for the half year reflects our stringent cost control measures and actions to optimize our cost of service, which more than absorbed the high inflation accumulated over the last month.
IPCA 8.3 percent and IGPM 35.8 percent. Turning now to Slide 14. Our insurance operations posted robust growth of 20% in revenues and resilience in terms of income, which was BRL 2,300,000,000 despite the elevated level of claims due to the events related to the pandemic. On this slide, we highlight the COVID-nineteen impact in our insurance operations with costs reaching BRL 1.8 BRL 1,000,000,000 in the Q2 of 'twenty one and BRL 3,000,000,000 in the first half, totaling around BRL 4,800,000,000 the beginning of the pandemic. The financial income in the 2nd Q also was affected by the behavior of the ratios, which had an impact on the performance of financial investments as a whole.
This scenario is temporary with the actual improvements as a consequence of the vaccination, but we decided to revise our insurance guidance as well as we're going to detail further on. Slide 15 gives an overview of weekly events related to the pandemic in our Healthcare business. Here, we show the curves with the volumes of PCR tests that have been administered as well as hospitalizations for our policyholders during the same period. Since the onset of the pandemic, Bradesco Salud's insured clients took more than BRL 1,300,000 PCR exam and approximately 78,000 ended up hospitalizations. As you can see, Transgress is a good indicator for hospitalization levels.
And this chart allows to expect reduction in the short future due to the recent mix trends, although still in high level. We now move on to Slide 16. As you can see, our capital and liquidity ratios. Our Tier 1 capital ratio finished the quarter at 14.1%. And the common equity stood at 13.1%.
It was an increase of 50 bps compared to the previous quarter and 160 bps compared to June 2020. The ratio is well above the regulatory minimums, and it's a fairly comfortable level. Moving now to Slide 17. We provide data that demonstrate the growth in the use of our digital channels. This year, 98% of transactions are already done by clients using our various channels through fluids and intuitive journeys and an ongoing evolution towards transitioning to digital without dependence on the branch.
The most significant projection of volumes are now seen in the mobile channel. The number of financial transactions in the 1st 6 months of this year reached $600,000,000 which is 9% higher than the previous year. We also saw a record number of accounts opened for both individuals and companies, already at volumes that are twice as high as last year. The volume of loans coming from digital channels over the period amounted to BRL 31,000,000,000, 21% higher than last year. Growth in individual segments came to 54%.
The number of credit card requests to digital channels grew 270%. And this year, we issued 3,900,000 new cars. For the insurance company, we managed to sell 1,000,000 products through digital channels in the first half of twenty twenty one, which represents revenues of BRL 700,000,000 an increase of 80% compared to the same period last year. We now move on to Slide 18, where we can see the evolution of our payments. The push we have been giving to peaks through client inventory journey is driving financial inclusion and contributing to increased volumes of transactions.
FICS is responsible for over 50% of the increase in transactions. We witnessed a digitization of minor transactions given the fact that around 40% of the volume in fixed transactions or below BRL 15. As seen in the graphs, only processed checks and ATM withdrawals had decreased in quantity, which contributes to a reduction in our expenses. Turning now to Slide 19. In addition to continually improving our channels, we have also made investments in beer, our artificial intelligence that simplifies our clients' lives by providing increasingly pleasant experience.
I would like to point out that we are pioneers in the use of artificial intelligence in Brazil. In this first half of the year, Digital interaction grew 43%, totaling 275,000,000 interactions with clients, in which $83,000,000 of these interactions were through WhatsApp. I'm pleased to share with you that Bradesco received for the 2nd consecutive year, the award as most innovative bank in Latin America, an award organized by the Banker Magazine, reflecting all the investment objectives we have placed on innovation. Turning now to Slide 20. We can see Agora, Next and BITS.
Our digital business, as you could see throughout the presentation, posted a strong performance. Agora saw nearly 50% growth over 12 months in both the number of clients and in terms of volume under custody. Agora is getting more and more important in funding for us as well as you can see that there is an increase of 81% in net funding. Next is expected to continue its robust growth in the second half, thanks to the member get member program and partnerships. The sign up process has been proven and 70% of our accounts are opened within 24 hours.
Next has also incorporated ShopFast, that now includes a new source of revenue from non financial business. And finally, Beats, the digital wallet that we introduced in last September, has already surpassed 1,000,000 accounts. Turning now to Slide 21. We would like to point out that we are the 1st financial institution in Brazil to announce our goal to achieve a balance in greenhouse gas emissions by our clients and invested companies, reaching what is known as net 0. This is an extension of our climate strategy.
15 years ago, Bradesco was one of the first to measure the amount of carbon generated through its own operations. As of 2019, We have neutralized 100% of these emissions. In 2020, we were also the 1st financial institution in Brazil to join PCAF, the Partnership For Carbon Accounts and Financials.
We have arrived at
a new level of climate management and would like to play a leading role in this transition in the country, engaging and supporting our clients to a better business while promoting a more efficient, clean and climate resilient economy. Moving now to Page 22. Concerning our guidance, we consider we established a well balanced guidance when the year began. And we maintained expectations for all lines with the exception of insurance due to the change in the pandemic of COVID-nineteen. We believe that we will see growth above the center of the range for the loan portfolio as well as for fees and in the center for client MII.
At the bottom, fortunately, costs primarily due to the expected impacts from the collective bargaining agreement for bank employees as inflation accelerated sharply in the first half. In the center of the guidance for ALL expenses, The insurance guidance was reviewed downwards, and we now anticipate a drop from 15% to 20% as a consequence of the drops discussed earlier today. Finally, I would like to thank you so much for making the time to be with us. And now we are going to proceed with the questions and answer sections.
Our first question is coming from Mario Pierry of Bank of America. Mario, your line is open. You may proceed.
Hi, everybody. Good afternoon. I have a few questions. First, related to your insurance operations and especially with your guidance that you've given for the year. Doing the quick math here, you're basically guiding for results from insurance of about BRL 10,000,000,000 in 2021, which means an average rate of only BRL 2.6 BRL1 1,000,000,000 behind the 3rd and 4th quarter.
But when we look back over the last 4 quarters, your results from insurance were averaging almost BRL3.1 billion, even as you already had some big expenses related to COVID in the Q1. So I was wondering why do you expect your loan rate to remain below the last four quarters, So that's my first question. Second question is related to your operating expenses. You are very close to the top of your guidance year expenses on quarter stand. However, we see some significant headwinds already in the second half of the year, especially related to salary negotiations.
Talk a little bit about where banks are in regards to annual salary renegotiations And how can you offset some of this headwind in the second half of the year, especially right when we already closed closed about 1,000 branches over the last 1 year, which is almost 25% of the branch network. Is there more room for you to reduce branches or other efficiency gains that could come from somewhere else? Thank you. Okay. I'm going to ask my colleagues here to help me with the 2 questions.
If I'm not able to answer all of it to you Mario, because the sound was not that clear. As far as I understood, the first question is related to the guidance for insurance, right? So basically, the way we see the peak has passed. And therefore, we shall have better quarters from now on, especially on the Q4. As we continue to grow in terms of premiums that are our revenues and especially in life, the number of debt has also tested source parts.
We expect that this will come along more in line with the previous years. But of course, it's going to come gradually. And it also depends on if we see a new mutation here, how it's going to evolve in terms of vaccination. Regarding to operating expenses, This right contemplates all the employees or personnel adjustment that we shall have in the 2nd semester. We believe that we are going to continue to reduce expenses overall, despite of this increase in salaries because basically, as Otavio was pointing out earlier, we continue to close branches and we continue to transform those branches into points of services or business units.
We continue to reduce our administrative expenses as well. So we understand that we are going to be able to keep the lower part in the guidance. Okay. Sorry about the quality of the sound. It's a little bit hard for us to hear as well.
But So just to go back on insurance, right? If I look at your Q1 results, in insurance, you had like BRL 3,100,000,000 and you already had very elevated costs related to COVID. So but if we think about it, your financial results should improve. And if and if the COVID expenses remain elevated in line with the Q1 numbers, I was just wondering why you shouldn't be able to average BRL 3,000,000,000 per quarter in the second half of the year?
Yes. Mario, Basically, we are assuming in the guidance that we continue in the path to normalization in the second half. For sure, we have to do the disclaimer that, as you know, there's a lot of uncertain, so how it's going to progress. But our view is, in this path to normalization, the 3rd quarter is going to be better than the Q3 that probably got a lot of the cost with claims that came from the peak, but it's still not a normal quarter because there are still costs that should be impacting it. We expect a gradual convergence of the inflation index that impacted the results, so reducing the negative impact in our financial results.
But that's also something that we are cautious on forecast. So I think You should take our guidance as one that takes a view of that we are going to a normalization, but not a total normalization from the beginning of the 3rd quarter. Is something that will happen with some gradualities.
Okay. Thank you. And just follow-up on insurance also, your ability to increase prices going forward for premiums and for your plans. How do you think about that going into next year? Well, I think we are going to have a couple of benefits there.
The first one is that with the improvement of the economy, pretty much companies have Bradesco Seguros as a premium plan for their employees. So we have seen that we have a very high correlation in sales of our plants as the economy is getting better. That's the first one. The second one is that we are the plant that really protects the customers. So the claims that we have seen here hardly ever would be accepted in other insurance companies.
That's the reason why more and more people are buying the plan from us. So it's a matter of the center in the clients. And therefore, we shall be keeping on the increasing revenues. But of course, the market is going to determine the prices. There is no way that you can circle, but the quality is being well appreciated by the markets.
In addition, we are presenting a very important growth through digital channels. In the first half, alone, we have a little bit more than 1,000,000 insurance items that were acquired digitally. We see that trend continue. Also as Leandro pointed, we see the perception of value of insurance for customers increasing, given the uncertainty we have seen and the risks perceived during the COVID crisis. So we see a solid demand for life insurance As Leandro said, health insurance, we have a premium plan.
So I think even if the economy has not really fully recovered. The kind of premium growth we are experiencing already show an encouraging trend.
Yes. It's very interesting to see how the digital channels are improving the sales. Fidec has a very good point there. And we are using digital channels, not only the bank, but all of our platforms. Agora is going to start to sell also to offer insurance products to our clients.
So more and more, we are tapping the different pools of clients that we have. We know that we have a base of more than 7,000,000 clients through digital channels, but from different platforms. So we can seize the best from them. Okay. Thank you everyone for listening.
Yes. Thank you very much, everyone, for making the time to be with us. Have a great day.
That does conclude Bradesco's conference call for today. Thank you very much for your participation. Have a good day.