Good afternoon, ladies and gentlemen, and thank you for waiting. We would like to welcome everyone to Bradesco's Second Quarter 2022 Earnings Conference Call. This call is being broadcast simultaneously through the internet in the Investor Relations website at bradescori.com.br/en. In that address, you can also find the presentation available for download. [Operator Instructions]. 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.

Good afternoon, everybody. Welcome to our conference call for the discussion of our second quarter results. We have today with us our Chief Executive Officer, Octavio de Lazari Jr.; our Executive Vice President and CFO, Andre Cano; the Executive Director and IRO, Leandro Miranda; Osvaldo Fernandez, Executive Director; Ivan Gontijo, Bradesco Seguros CEO; Renato Ejnisman, Banco Next's Chief Executive Officer; Curt Zimmermann, Bitz Chief Executive Officer; and Carlos [indiscernible] Navis, Banco [indiscernible], Chief Executive Officer. Now for starting the presentation, I'll turn the floor to Leandro Miranda.

Thank you very much, Firetti. Good afternoon, everyone. Thank you for taking part in our second Q '22 earnings conference call. The scenario has remained quite complex in this quarter with persistent high inflation and the need for monetary tightening in major global economies. Initial concerns turned into risk of global recession at the end of the quarter. In Brazil, high inflation, the consequent impact on income were part of the dynamics that affect the economy during the period, including generating new physical pressures. Despite this outlook, the Brazilian economy is a bit better, which led us to increase our GDP growth expectation to 2.3% in 2022. The cycle of rising interest rate in Brazil has already advanced rapidly. This has led us to report a less optimistic view for 2023 with a 0 gross projection for GDP. We saw a solid result in second Q 2022 with a net income of BRL 7.041 billion and an increase of 3.2% compared to the previous quarter, representing an ROE of 18.1%. The loan portfolio also posted an evolution, expanding by 2.5% compared to the first Q '22 and 17.7% compared to the second Q '21. The more expressive annual advance occurring portfolio for individuals with a 20.2% rise over 12 months. Within this portfolio, credit cards expanded by 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. We point out of the performance of client NII that grew 7.1% in the quarter. The market NII continues to be pressured by the impact of Selic increase on our ALM position. This pressure is expected to continue throughout 2022. But in 2023, we expect market NII to resume growth. The insurance business posted a BRL 3.7 billion…

[Operator Instructions]. The first question comes from Thiago Batista with UBS.

I have two questions. The first one about the capital position of Bradesco. The bank ended the first Q -- the second Q with a Tier 1 ratio of 13.3%, if I'm not wrong, more or less in the meet of the bank's indication between 13% and 20%. When you look ahead, do you see any chance to reduce these Tier 1 targets that Bradesco has, if I'm not wrong, 13% to 14%? And the second question is more a follow-up for the Portuguese call. But in the end of the Portuguese call, Octavio mentioned that NPL ratio would not achieve or not be above the 4% threshold. I want to confirm if this is the bank's expectation for the end of the year? Or if this is more a kind of a peak that we can -- we probably will see in '23. So only to trying to have a little bit of more color of this 4% NPA ratio target or for iteration that the bank should achieve.

Thiago, in terms of capital. I think we have been operating at a level we think it's very comfortable. I think we have a level of capital that is even slightly above what we see as the internal targets. For the time being, we should continue operating with some comfortable levels of capital, we should keep our dividend policy in line with what we have been doing in the last few years, probably paying interest on capital that will naturally take our pay out to something around 40%. So for the time being, we foresee this will remain as our policy. In terms of NPLs, what part referred is 4% as a reference, basically, we had -- we don't believe it's going to be above this level by the end of the year. It was more like a reference.

Yes. Just to add to your sense here, Thiago. Although we expect some small deterioration until the end of the year, as inflation gets controlled and the interest rates is starting to decline, we shall also benefit as far as NPL is concerned.

Just a complement on capital. This quarter, given the adjustments related to the end of the Central Bank waiver on the treatment tax credit, we had this reduction in capital. That also was caused by the market to markets we have seen given the interest rate movement. We believe that with the monetary policy probably already reaching -- with interest rates reaching the peak we foresee less market to market. So even though there is another round of adjustments related to the end of this waiver, we don't foresee further reductions in capital probably, earnings retention will allow us to more than compensate this event until the end of the year according to our [indiscernible].

Yes. And it's important to highlight that we shall just have an extra event in December. And from that point on, we're just going to see the capital increasing by accumulated profits. So we believe that we are on a very comfortable position as far as cap is concerned.

The next question comes from Tito Labarta with Goldman Sachs.

A couple of questions also. First, I guess, following up a little bit on the credit quality. Because the NPL ratio went up 30 bps. You sold about $2 billion in loans probably would have gone up another 30 bps. So you would have been at around 3.8%. So you're already above kind of the pre-COVID levels. Just to understand, what gives you comfort that it won't go above that 4% level just given some of the deterioration that we've seen over the last 2 quarters? And also, combined with that, on the loan growth, I know you mentioned you're going to kind of slow down a bit for the rest of the year, but you're still growing pretty quickly in unsecured credit, right? Like credit cards of 46%, personal loans of 20%. How much one is -- is the growth in those segments impacting the NPL ratio? Like how much of it is just mix? And what gives you comfort also to grow in those segments with the sort of decelerating credit quality? Just to get a sense of how you see that going forward.

Thank you very much for your question. Well, first of all, the deterioration that we see in credit cards as well as in personal loans, they are pretty much natural and expected. Therefore, what is really important for us to see the net spreads. And the net spread is not only positive, but it's growing. Therefore, this is something that still makes sense for us. Of course, if we do not see a GDP growth, if you do not see unemployment rates decline as well as a mass of salaries growing, this line shall start to get riskier. And if it's -- for any reason, jeopardizes the expectations we have, we are going to reduce the growth. We do not have a magic number regarding to how much it might increase until year-end, but we do not expect to be dramatically high. And in terms of the 29 bps that you have pointed out, considering an occasional sale of the portfolio in the way we did, this is something that we do every quarter. And you shall have this effect by the end of the day. And we do that because basically, we believe that either we are selling the portfolio at a much higher price than what we have in our books or because we are going to spend much, much more in terms of cost and time attention from our team in terms of origination. So we just make that whenever it makes sense. Most of it we are talking about individuals portfolio. So we are not in a position that is not controlled or different from what we have done in the last quarters. And as our CEO has pointed out, we do expect to keep in with this practice because by the end of the day, maximize return and we have a much better use of our time in our teams.

Yes. Just to complement with a few points. In terms of the growth we have seen in NPLs, we believe it's related to the normalization of the credit conditions we have seen in the beginning of the pandemic, where we had more renegotiations. We had loan extensions and also families accumulating savings. I think the normalization of these conditions answers for part of the increase. On top of that, we have kind of a mix effect. We were growing in interest until early 2021 in lower-risk credit lines with mortgage leading the growth. And since then, we start to see growth in consumer finance lines comparing, for instance, the mix of loans we have today with the mix we had in 2019. Basically, this change of mix answers for something around 40 bps in terms of increasing the 90 days NPLs. So only by the change in mix in the last 12 months where we had this more strong growth in consumer finance lines. In terms of loan growth itself, we have this deceleration throughout the year. Part of it is because we had a big growth in the second half of last year and this base of comparison naturally leads to this deceleration. That's why our guidance goes from 10% to 12%. We were already expecting this kind of growth. We have already done some adjustments in our origination and our models, especially on the consumer finance lines. But anyway, we, as Leandro pointed out, we still see opportunities. As you can see in our net interest margin after provisions as Leandro said, we are still growing margins after provisions. And that said, it makes sense to continue originating good quality credits that are profitable.

Yes. And just opposite to that, our NII grew by 130 bps. So by the end of the day, it was accretive to our results.

Great. And that's helpful. And just to clarify, you said the mix impact was 40 bps over the last 12 months. Is that correct?

Yes. No, 40 bps comparing year-end 2019 portfolio to now.

2019.

Yes, year-end 2019 to the current portfolio.

Yes. Basically, we are just making reference to the change in mix because at that time, with lower interest rates to have longer-term financing such as mortgage, more corporate loans and less short-term financing to individuals and SMEs. So just trying to show you that the increase in the NPL was much, much lower than the net NII that we got.

Yes. Okay. No, that's helpful. And one other follow-up, if I may. Just -- have you tightened your credit standards at all? I mean, I understand you see opportunities and credit spreads are there. But I mean, do you are you tightening a little bit like how much you lend at all? Or are you still kind of comfortable? Has that changed at all?

Yes, sorry, I...

Well, basically, our model is pretty much automatic. It sees how much we have in inflation, how much we see we have in interest rates, in unemployment rates, how much is the salaries, earnings of our clients, and it adjusts. So of course, as long as inflation goes on and interest rates remains high, there is less appetite normally from our organization to provide loans to risk in riskier securities to riskier individuals and small companies. So this is something that we keep an eye on an ongoing basis. And for us, it's important to see a growing and positive NII, net NII.

The next question comes from Carlos Gomez with HSBC.

Two questions. Are you interested in the sale of? And second, on the waiver for capital, is there any other additional waiver that we should know about for the future?

Sorry, Carlos, regarding the first question, we are not looking at. We do have interest. The second question, can you repeat it Sorry, we lost it.

Yes. I'm sorry for the background noise. You had this waiver for the capital that has resulted in a total cost of 80 basis points. It's -- we didn't know about it. Is there any other waiver that we should be aware of for the future that could affect your capital positively or negatively?

No, there isn't anything else. I think this is something that was related to the big volatility we had in the beginning of the pandemic. And we don't have any other extraordinary band like that.

Just to make a -- two sentence here after Firetti, for any reason, is willing to discuss business with us, we are more than happy to listen to it. We are wide open to business opportunities all the time.

[Operator Instructions]. The next question comes from Thiago Batista with UBS.

Just as my follow-up about the credits that you saw, the BRL 2 billion. Do you have the profile of these loans is more retail or any type of retail loans let's say, consumer and credit card, do you have any color that you can share with us?

Yes. Most of it was retail, consumer and credit cards.

And also loans in these categories that were renegotiated previously renegotiated sometimes second renegotiation.

Excuse me, ladies and gentlemen, since there are no further questions, I would like to invite the speakers for the closing remarks.

Well, thank you all for making the time to be with us. We are going to be more than happy to address any questions you may have from now on. Our Investor Relations team is ready to answer you by e-mail, phone calls, whatever is easier for you. And with that, I would like to wish you a very nice weekend. Goodbye.

That does conclude Bradesco's conference call for today. Thank you very much for your participation. Have a good day.