Good morning, ladies and gentlemen. Welcome to Banrisul video conference to discuss results relative to the second quarter of 2022. This video conference is being recorded and the replay may be accessed in the company's website, banrisul.com.br/ri. This presentation will also be available for download. We would like to inform you that all participants will be only watching this video conference during the presentation and after that, we'll start our Q&A session when further instructions will be provided. Before moving on, I would like to reinforce that forward-looking statements are based on assumptions and beliefs of the company's management. These statements involve company's business outlooks involving risks and uncertainties because they are based on future events and therefore depend on circumstances that may or may not occur.
Investors, analysts and journalists should be aware that events related to the macroeconomic environment, industry and other factors could cause results to differ materially speaking from those expressed in the respective forward-looking statements. We have with us Mr. Cláudio Coutinho Mendes, CEO, Mr. Irany Sant'Anna Júnior, Deputy CEO and Risk Officer, Mr. Marcus Vinicius Feijó Staffen, CFO and IRO, Mr. Wagner Lenhart, Institutional Officer, Mr. Nathan Meneguzzi, Head of Investor Relations, and Mr. Werner Köhler, Head of Accounting. I would like now to turn the floor over to Mr. Cláudio Coutinho Mendes, CEO of Banrisul, who'll start his presentation. Please, Mr. Coutinho you may carry on
Good morning, everyone. I would like to thank you all for your presence in this video conference. Let me start my presentation to you. Thank you very much. Well, as you know, we rebranded Banrisul's brand last May, and this is our new brand.
This shows the evolution of our brand since the founding of our bank in 1928. This brand was adapted to new social and economic environment that we faced. Next. This is our brand. It has a lighter lettering, which is more adequate to new times. Our symbol, which is in fact a continuity of the three cubes that composed our brand. This is an evolution of that first brand, if you will. It has to do with the sturdiness of this bank, and it's also a symbol of what Banrisul has become. Here you have the three colors representing this brand. Blue, that has to do with history and the strength of Banrisul and its essence. Purple, which translates into modernity and technology. Banrisul is an extremely technological bank which counts on digital tools.
81% of transactions are done digitally nowadays. This is a picture of our app, of our application with several functionalities. Turquoise, green, which represents sustainability. Banrisul has been trying to be more and more environmental. We've been buying carbon credits in the market. We entered the bio energy market, and we'll be working with renewable energy in the future. We have a policy for solid waste. We have a commitment towards sustainability. Regarding this new brand, this translates what the bank has become, and it shows this image to clients and employees. This is a picture of one of our branches located in Porto Alegre, and we are in an accelerated way transforming all the other branches, which will have this visual communication that mirrors this concept of Banrisul. Next.
Well, the main highlight of this quarter, obviously, is the evolution of our loan portfolio. We've been managing to grow in a robust way. We believe we will be able to reach the guidance, which was an extremely challenging one. This past six months, we can say that we are keeping up with the guidance. We have growth of rural credit, which grew annually in 61%, very good growth. In real estate, a very steady growth, 18.5% annually speaking. Working capital for companies, more than 30%. Credit cards and debtor accounts also show growth as well as payroll loans. Also, we have new credit, new loans. BRL 21 billion will be granted this semester in credit. We are re-managing our portfolio.
This will be important for what we see ahead, to have better costs for our portfolio vis-à-vis what we see with Selic, which is growing in accelerated fashion and which has impact on the on credit fees. In this new, loans are given under adequate fees now. The main highlight is the growth of our portfolio of almost BRL 95 million. In the second semester, we believe we'll keep on in this pace. All of this growth maintain the credit quality of our portfolio. Our default ratio above 90 days is 1.8%. Very good, a very good rate, maybe a record in terms of Banrisul credit quality. We believe never in our history we had below 1.8%. This is exceptional, and it also is a statement of our robust growth.
The robust growth of our portfolio on an annual basis. It has to do with credit granting, approval, and constitution and guarantees. Besides that, we also have a coverage ratio which is probably one of the largest in the market, 319.7%. This is ultra-conservative for over 90 days coverage. Our portfolio is improving in terms of ratings. In two years, we went from 88% in AAC ratings, and now we are in 92.2%. In the area below, we also show the portfolio diversification. Even if you consider the fifty largest debtors, it's lower than the market average. We have 7.6% of our fifty largest debtors. In the market, this rate is 12.4%.
This is also a statement of the quality of our portfolio. Now, rural loans, it has grown 61% in the past 12 months. This is our new crop plan for 2022 and 2023. We allocated BRL seven billion in credit for the crop plan, and this translates into a 35% growth considering the previous plan. We estimate that possibly we'll be able to overcome this goal, also considering what we saw in the year that finished in June. NPL rate over 90 days is 0.36%. We have over 50,000 farmers who will be reached in this crop plan. This is a very good marker of growth, very good for credit granting, and also a possibility to open new businesses with rural clients. Now, the highlights of our figures.
Our adjusted net income for the second quarter was BRL 227.8 million, which is better than last year. Loan portfolio with almost 22% growth, BRL 44.6 billion. Payroll loans, 50% growth, BRL 19.7 billion. Rural credit, BRL 5.4 billion, 61% growth. We also had a good growth of 7.5% in fees and services revenues, but we still have way to grow in this in the segments, especially considering regulatory framework. Default ratio in 90 days is a record, as I told you, 1.78%. Coverage ratio in 90 days, 319.7%. Our cost of risks is 2%.
Now, looking at our net income, adjusted net income in the second quarter was BRL 227 million. If we consider our ROI was 10% for the quarter. These are the contribution for this result. Positive results from credit provisions and taxes, and negative contributions regarding the previous quarter, regarding operational expenses and also administrative expenses which have grown. Here is our financial margin, our NII, drop of 0.6%. Here we believe that we are reaching the end of our recycling process. During the semester, we believe we'll be able to stabilize our margin in the sense of recycling what we still have in our portfolio with lower taxes, in lower fees.
Selic rate means that we still have some repricing of the portfolio to be more adequate to the new Selic rates. In this slide, we have one of the main strengths of Banrisul, which is our robust and diversified funding portfolio. The cost of funding for Banrisul on average is maybe one of the lowest in the market. In terms of CDBs, our average is 87% in CDI. Considering the total of funding cost with financial letters and bills and savings, it's 88% of CDI. Very low rate and decentralized. 12% are the for the top 100, very diversified and low cost, with a very broad range of individuals and also companies, small and medium-sized companies as well. It's very, very decentralized and diversified.
The total funding shows a drop starting on December, basically because we paid the euro bond issued in 2012 with a balance of $526 million, and we paid that, and we took this from the cash of our bank. This is why we had this drop. Even making this important payment of over $500 million, our funding is moving up and about to reach the levels of December, previous December. Here is the evolution of our expenses and banking fees. We have a very good control regarding the total expenses of our bank. Our expenses grew 6.9% below IGP-M and IPCA, which were about 12%. Our expenses only grew 7%, four or five points below inflation. This is what it means.
The growth of personnel expenses in 12 months was only 4.9%, very much lower than IPCA and IGP-M. In aggregated expenses, administrative expenses growing 7.5%, basically because we have several contracts, such as renting contracts, which are connected to IPCA. In overall, we can have a very good control of total costs. We've been appropriating our staff, and we let go of some of our employees in the previous month. Also we had what we call PDV, which is a program in which the staff leaves the company. Now we will have a new recruitment process for the IT area to hire 274 new IT professionals.
IT, as you know, is the main challenge of all organizations in the world, not only in Brazil. We need to train our IT department, our IT staff, to deliver the projects that we want and so we become more and more digitalized in our processes. We are opening 274 spaces for new employees. We have over 3,000 candidates, and by the end of this year, we'll have a test. In the beginning of next year, we hope to have these new professionals in our IT department. We also highlight that we announced recently we will have a new PDV for some employees to leave the company so we can implement new plans.
This will be a very important provision, which is the provision to settle the whole employment agreement. We are still discussing this with the union, employees union, but this, for us, is very important. We have a important 7.5% in revenues from fees and services, which is very important too. This is our loan loss provisions, around 2%. By the end of next last year and beginning of this year, we have operated with policies which are guaranteed constant monitoring rural clients with real guarantee operations with small and medium-sized companies, guaranteed by FGI, BNDES or other lines of PIAC, also guarantee. Recently, we have an agreement with SEBRAE. I mean, many lines of guarantees.
We look for structuring our credit, so we have a low credit risk associated to a low index of delay under 90 days. These are solid basis to make our portfolio grow. Here, this is a theme or topic we decided to discuss in detail. It's important to understand the whole move regarding assets. All the liabilities regarding labor provision. Since 2019 to the first semester of 2022, we have 1.9 billion in provisions made. The amounts paid was 795 million, and they were paid. We paid almost 800 million in labor lawsuits. These numbers, these figures affected us during this period, affecting the result of our bank. The news is that we've had...
I mean, in this period, we approved two credit provision policies. One policy to make provision on individual lawsuits, and another one is a policy to evaluate probable losses for collective lawsuits. We started doing that in 2019, this project, and we completed this by June 2022. These numbers are priced. We know about these numbers regarding these two approved policies, all individual lawsuits and all collective lawsuits as well. This resulted in this provision of 1.9 provisions made and a balance of 1.6. Out of these 1.9 billions or out of these 1.6 or 0.7, 1.4 billion refer to provisions made for lawsuits filed before 2018.
By the left area of the slide, we have the provisions balance by filing date in millions. In 2019-2022, it was this difference, BRL 111 million, reaching BRL 129 million. These numbers make up this BRL 1.4 billion. What we've been dealing with now and provisioning now and affecting our balance are referring to lawsuits filed before 2018. They compose the majority of these provisions we made, just to make it clear. Regarding collective lawsuits, the result was BRL 912.5 million in provisions. It was very important in our 2020 PDV, our voluntary severance program, we need to negotiate this agreement with unions.
This is what we did for our voluntary severance program or PDV, as we call it, created by 2020. In a way, we are attacking the root causes and avoiding new lawsuits in the future. In the previous voluntary severance programs, the number of post-voluntary severance program lawsuits was almost 60, sometimes 70%. 70% of people who left the company based on this voluntary severance program would file a lawsuit against this bank. Now, only 13% of these employees filed lawsuits. Out of these 13%, 85% lost in the first decision, the first sentence. We are still waiting for the final and binding decision.
In this first stage of, in the labor court, most of them lost in this lawsuit. We are still waiting for the final sentence, but we believe that we will maintain this rate, this good rate. 3%, 4% or 2%-3% of them, we hope to decrease. We still are waiting to decrease the number of successful lawsuits. The root causes that gave cause for these provisions were already treated. Almost 70% of provisions, 69.2%, refer to lawsuits discussing overtime, I mean the seventh and the eighth hour. This was already dealt with in the previous labor convention. This is no longer a source of new lawsuits. This has been dealt with. We also approached variable compensation issue.
We extinguished this form of payment, and we instituted a PPR for profits participation program by the end of last year. This is the first year of profit participation program. We are paying this regarding also a new law which was passed. We also have 3.7% of litigations regarding meal vouchers. This is an attribution of an indemnity in nature in 1990. This is a risk limited to employees hired before 1990. Most of the root causes that would give rise to lawsuits have been dealt with. Our hope, our estimate is that the number of lawsuits is reduced.
In the previous 3.5 years, we paid almost BRL 800 million in indemnities regarding this present lawsuits with the provisions of one point b. We need to take this into consideration. Now, talking about capital, there are some numbers regarding issued bonds 10 years ago. Even with these bonds, we still have room to grow in terms of credit. This is our guidance, which was reviewed. We are changing some aspects in terms of. Our corporate credit has grown 30%. We will continue growing for companies. We are adhering to the center of guidance to this expectation of 30%, so 33%-38%. We are also growing in terms of rural loans to almost 50%.
This is our revision. We are reviewing our guidance for provision expenses, moving it from 2% to 3% and reducing it. We expect to reduce these provision expenses to 1.5%-2.5%. Our funding will remain unchanged as administrative expenses and return on average equity. Our NII will also be changed, as you see on the slide. Thank you for your attention.
Now we'll start our Q&A for investors and analysts. If you have any questions, press the reaction button and raise your hand. If your question is answered, you can click on lower hand. We have a question by Flavio Yoshida from Bank of America.
Hello, good morning everyone?. Thank you for this opportunity to make a question.
I would like to understand, what about the appetite to make credit grow in more risky lines? I mean, looking forward, because you have a very low default rate, and this is the lowest in history and a high coverage rate. We can make your margin grow and think about more risky credit. Thank you very much.
Well, this is an excellent question. I mean, we have been discussing this since the previous quarter. We will probably address the possibility of operate in lines with more risks and more return. We have a very comfortable balance, which allows us to marginally operate with more profitable lines and more risky lines. I mean, this is what we've been doing, and we hope to implement this in the near future. Thank you very much.
Well, regarding labor provisions, as far as I understood, we no longer have provisions for older lawsuits, right? Do you see a reversion in this provision or a change in this provision? Can you envision that? Well, let me make a disclaimer here. We created labor provisions policies for individual lawsuits and collective lawsuits. According to this new policy, we measured, I mean, we also hired external law firms to help us with that, to understand the expectation or the estimate, the loss. We wanted to estimate our losses with these lawsuits. This number I showed you is our best hope for these lawsuits. This is not rocket science. This is not exact science like math or physics.
It depends on the courts and the court's judgment and sentences, the final sayings. But we hope that these legal sentences will be according to our expectations. This is our best expectations today. Just let me complement. It's important to stress that before 2017, there was an anticipated demand in the judiciary due to labor reform, which was passed in Brazil. This stock of lawsuits we try to provision this based on our methodology, it can be reviewed, but I would say that the stock right now is understood. Thank you very much, everyone.
Our next question is by Eric Ito from Bradesco.
Good morning, Coutinho and Marcus, and team. Thank you.
I have a first question regarding, I mean, regarding your NPA and this increased risk due to the comfortable level of provisioning you have. What about the NPL for the end of the year, 1.8%? What do you think? Maybe in the future, what would be a comfortable and sustainable or sustained NPL rate for Banrisul? By the end of this year, what do you expect? I mean, what about the dynamics? Thank you.
Well, regarding NPL, we are in a very comfortable level. I mean, associated to more profitable lines that could support this level of NPL, yes, we could work 2.5%-3%. 2.5%-3% would be comfortable. Yes, it's closer to a historical average of Banrisul, of the bank, I mean.
1.8, this rate is somewhat lower than the average. I mean, this is virtually, of course, but it's below the historical average. Yeah. Could you repeat the second part of your question, please?
Well, sure. Regarding dynamics of deferred prices, what do you expect for this year? What about this 2.5-3? Is it for this year or in the long term? I mean, this expectation that you have. Well, 2.5-3 would be long-term.
This year, I think it's impossible. I mean, according to the portfolio dynamics, and if you look at a table we presented on the concentration based on risk, it moves up to 92% in a short period of time. The portfolio will not be changed in such a short space of time.
NPL, I mean, there is no concentration on borrowers. We had more, a bigger participation of these clients before, but not today. Regarding the deferred income statement, we have these provisions that were constituted, especially the labor provisions and also credit based on deductibility of operations that completed that cycle of the deductibility. These two items provoke or lead to the increase of tax credit and also the issue that the bank approved up to 50% of the results in owned equity, and this generated in the last line tax loss in the current income statement, but it can be compensated in the next few years. They also generated tax credit.
By looking at this in this set of issues, the subsidiaries, I mean, this is the first year in which you have a full year of Banrisul Seguridade. In the first semester of last year, it had its portfolio transferred to Banrisul Seguridade, Banrisul Seguridade. Taxation is more robust now in our subsidiaries. Regarding the bank, we had this issue. I mean, we've had the constitution issues based on the variations, the additions, the intertemporal additions, and the tax laws generated in the income statement area.
Let me remind you that if you want to make question, please click on that button that says Raise Hand. Now, Mr. Pedro Leduc, how do you see the rhythm of origination for the second semester of next year in these lines? Low default is giving rise to an acceleration of the portfolio growth.
Payroll regarding payroll credit, regarding Auxílio Brasil. Is it something Brazil or Sorry, Banrisul should take part in? Well, we believe we will reach the guidance this year. This is a very positive scenario for us. We believe that regarding Auxílio Brasil payroll loan, we are not going to do that.
Now, Eduardo Nishio from Genial Investimentos will make a question. Nishio, we cannot hear you. Maybe your mic is off. Let me read Mr. Pedro Leduc's question. The financial margin continued dropping. Does this have to do with the funding, a more expensive funding as you pointed? So with Selic going up or stopping going up, can we say that the funding is already pressuring less than, I mean, in the second semester?
Is there a space to reprice portfolios in a way that this helps the financial margin?
Well, with portfolio management and this Selic issue, even payroll loans, in practice, we have two-year periods for them. I believe that this repricing of the portfolio will continue during this next semester. With the repricing and the Selic stopping going up, we can help the financial margin. We believe that this repricing will help the financial margin, yes. An additional thing is that when you look at one of the charts presented, the evolution, showing the evolution of the financial margins in the past quarters, it showed that it was being reduced in the level of BRL 40 million-BRL 50 million per quarter. In this last quarter, we have a drop of BRL seven million.
This clearly shows that we are almost reaching a stability, and we remain confident in this guidance that was published that talks about the growth of financial margin annually. This has to do with the management we did on the portfolio and also with the Selic change. I mean, it's 3.75% now. Maybe we could adjust it a little bit. Also the relative cost of funding, which was changed. This Selic moving close to 14% will also help.
Please wait until we collect more questions. If you have any questions, please raise on that button that says Raise Hand. Again, if you want to make a question, raise hand.
This is Yuri from JP Morgan. Can you hear me now?
Yes. Yes, Yuri. Go ahead, please.
Thank you. I managed to unmute my microphone. Thank you.
I have a question about ROI. You had a guidance, I believe it was removed. I mean, NII got worse, but maybe will get better for the second semester. I mean, maybe there was an improvement regarding this estimate, this expectation for 2022. I know that you removed the ROI guidance, but does the new guidance shows an improvement, a ROE improvement for you? Now, talking about financial margin, I mean, Selic is reaching its top. I mean, its ceiling now. Maybe we'll have an inflection point for NII for the next semester. What about 2023? I know it's early, but if the interest curve remains to or becomes stable, and if you grow your portfolio, maybe 2023 will be a good year for NII. What do you think? Thank you.
Yuri, thank you for your questions. Just let me tell you one thing. In fact, we maintain the ROE guidance. It's between 9% and 13%. We believe this is a guidance that we'll be able to reach through the year. We've had these changes when we talk about credit risk reduction and growth of financial margin during the year, but we believe this will give us a neutral impact when we consider the ROE estimates. Now, regarding NII, for this year, I believe the guidance and the reviewed guidance better translates what we consider. We expect NII growth during the second half of the year, the second semester, and this will help the margin too for the year.
For next year, 2023, when we look at the growth in credit portfolio, the maturation of credit portfolio, the repricing of assets, and the movement of the interest rate curve, it grew during the second quarter, but with inflation being reduced, there was a reduction in this curve in these past few days. We can imagine there will be a growth, a NII growth in around two digits. Now, the size of this growth, I don't know. Maybe next quarter we'll have a better idea, a clearer idea, even considering the behavior of the market per se and the portfolio. Just let me complement. Well, regarding lawsuits, labor lawsuits, we need to update the demands regarding these labor lawsuits, but we needed to measure the collective lawsuits with a very important number.
I mean, a very... That would be very expensive. We respected, we complied with the policy regarding this provision, and we don't need to measure this anymore regarding the past, regarding provisions for the past. All the mitigations regarding root causes related to labor lawsuits were defined and were worked on. There will be a normalization space that will probably help us.
Thank you very much. The ROI guidance had a different name, I guess, in English, but this is why I couldn't see it, I mean, on the slide. Thank you very much for your clarification.
Next question by Dr. Eduardo Nishio from Genial Investimentos.
Hello, can you hear me?
Yes, Nishio.
Thank you. I'm sorry. Thank you for your presentation. I have a question regarding the agribusiness.
You've been growing in the rural area with surprising numbers. Historically, Banrisul had low connection with the rural business, and all rural results were more volatile in your state if compared to the rest of Brazil, with a big impact on the economy regarding individuals and also companies. What are you doing that is different to grow in rural with rural clients? Are you relying on insurance, and what percentage? My second question regarding a follow-up on the funding aspect and your NII. Let me tell you that we have seen in the results of other banks, which have a presence in payroll loans. They are recovering based on funding and savings, which has reached a cap by the end of last year. What about you? When you
With a recovery in your revenues coming from interests. Thank you.
Well, regarding rural credit, we have said, I mean, we have seen in the state a change in the entrepreneurs mindset. With maybe crop losses, I think crop losses do not scare investors as much as it did in the past. They learned that they need to save resources. There was a crop loss or almost crop losses regarding some droughts that happened, and we are having some impacts from renegotiations, but renegotiations are regular and with clients would have a potential to pay. We believe that we are starting our strong movement with rural client. We are relearning, and those clients that establish a relationship with the bank show a high profitability because they do not demand rural credit alone.
There is a whole line of products that complement our relationship with this client and which impact on profitability. Just to complement, what Cláudio said, and also talking about funding, this is really a process in which the bank has been qualifying itself and we've been maturing our ideas regarding that. Our structure to capture fundings, to attract funding, for the agribusiness, needed to be redeveloped. We needed to find resources from the market, from the financial market to subsidize and fund this operation. It has been a very interesting learning process. In this crop plan, we grew in 50% in terms of funding, which shows that this market is expanding or has been expanding, and we'll be able to extract a very important value or amounts from this.
Regarding the NII, as we said before, the second semester, the second half of this year will mean an inflection point with an expansion of NII. We believe in our guidance that was published regarding NII for 2022 as a whole, and this more robust expansion is expected from 2023 on. Regarding a funding structure in other banks, maybe this funding that they use for payroll loans. We have other operations, like real estate operations that need it. I can allocate my savings funding for payroll loans operations.
Thank you, Nishio. In the chat, we have several questions about dividend distribution, especially from our individual shareholders. They are concerned regarding a possible dividend policy change, and they ask if the results we have today can impact dividend distributions ahead or in the near future. Can you talk more about that?
It will cover some of the questions that we have on the chat box.
Well, regarding this year, we have 50% for distribution, dividend distribution. There is a discussion, an ongoing discussion regarding that JCP will not continue. This institute has a fiscal importance. If we no longer have this advantage of interest on owned capital, we would go back to our 40%, which is our regular payout. I mean, this is feasible for the next few years. In 2023, we will reevaluate if JCP will continue on or not to maintain 50%, for 2023, I mean. We do not think about less than 40%, which is our standard. It's not in our statutes or in our bylaws, but this is the regular.
Maybe, but maybe we reach 50% next year if our balance sheet allows that. Sorry, cannot hear. His microphone is off.
Well, the Q&A session is hereby closed. Now, Mr. Cláudio Coutinho will make final considerations on behalf of the company. Thank you.
Well, I'd like to thank you all for your participation in this call. I hope this was an interesting presentation. We'll continue following and working to achieve our goals in all of our goals we shared with you. We'll continue working to reach these goals and to meet our expectations. Thank you very much. We're sorry for the technical issues that we had in this call today. Soon, the recording will be available. Have a nice day, and thank you.