Q1 2015 Banco Bradesco S/A Earnings Call

Apr 30, 2015 AM EDT
BBDC4.SA - Banco Bradesco SA
Q1 2015 Banco Bradesco S/A Earnings Call
Apr 30, 2015 / 02:00PM GMT 

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Corporate Participants
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   *  Carlos Firetti
      Banco Bradesco SA - Director, Market Relations Department Director
   *  Luiz Carlos Angelotti
      Banco Bradesco SA - Investor Relations Officer

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Conference Call Participants
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   *  Mario Pierry
      BofA Merrill Lynch - Analyst
   *  Tito Labarta
      Deutsche Bank - Analyst
   *  Jorge Kuri
      Morgan Stanley - Analyst
   *  Thiago Batista
      Itau BBA - Analyst
   *  Saul Martinez
      JPMorgan - Analyst
   *  Victor Galliano
      Barclays - Analyst
   *  Marcelo Telles
      Credit Suisse - Analyst
   *  Philip Finch
      UBS - Analyst
   *  Boris Molina
      Santander - Analsyt

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Presentation
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Operator   [1]
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 Good day morning, ladies and gentlemen. We would like to welcome everyone to Banco Bradesco's First Quarter 2015 Earnings Results Conference Call. This call is being broadcasted simultaneously through the internet, in the website www.bradesco.com.br/ir. In that address, you can also find a banner through which the presentation will be available for download. (Operator Instructions)

 Before proceeding, let me mention that forward-looking statements are being made under the Safe Harbor of the Securities Litigation Reform Act of 1996. Forward-looking statements are based on beliefs and assumptions of Banco Bradesco's management, and on information currently available to the Company.

 Forward-looking statements are not guarantees of performance. 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, Market Relations Department Director.

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 Carlos Firetti,  Banco Bradesco SA - Director, Market Relations Department Director   [2]
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 Good morning, everybody. Welcome to our conference call for discussing our first quarter 2015 results. We have today with us here in Sao Paulo our Executive Vice President, Alexandre da Silva Gluher; our Executive Managing Director and Investor Relations Director, Luiz Carlos Angelotti. It's a pleasure to host this call today. I'll turn the call now to Mr. Angelotti.

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 Luiz Carlos Angelotti,  Banco Bradesco SA - Investor Relations Officer   [3]
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 Good morning, everyone. I would like to thank you all for attending the first quarter 2015 earnings call. We will now take a closer look at Bradesco results for the first quarter of 2015.

 In slide number 2 we have here the highlights. The adjusted net income reached actually BRL4.274 billion, 23.1% year-over-year growth.

 The ROAE reached 22.3%, 180 bps increase from the first quarter 2014. Some assets contributed for this performance is the NII, interest-earning portion increased 22.1% in the period. This increase is related to the increase in the volume of business, and in particular we had some additional earnings from the asset liability management that our [security and audit] company team. We had there some benefits from the inflation, inflation rates in our assets that's improving the earnings in this period. And additionally we had some other benefits from the assets and liabilities that we had under management.

 The fees and commission income increased 8.7% year over year. Probably during the year, we expect to reach double-digit growth probably. And the cards and the segmentation grew healthily to improve this fees, commission and fee commission growth.

 The operating expenses went up by 4.7% when we compare with the same period last year. This growth is below the inflation that now is running at 8.1%. This shows the strong commitment of the company with efficiency.

 The total assets amounted to BRL1.035 trillion. The expanded loan portfolio reached BRL463 billion, up 7.2% year over year.

 The net income from insurances reached an amount of BRL1.283 billion, 23.4% year-over-year growth. And the ROAE of the Company in the [written assets] are 27%. The insurance written premiums grew in this period 19.4%.

 On the negative side, in this period we had the increase of expense provisions for loan loss. And this increase that we had is more related as the downgrading in some specific clients in the corporate fund, and this ballpark of the growth is related to the seasonal effect of the growth in the delinquency ratio in the period, normally in the first quarter that we expected. For the next three quarters we will return to the historical level that we had delivered.

 Then our expectations for the year for the growth in the expenses with the P&L is now around 8% to 12%. But this increase in the expectations for these expenses, we understand that (inaudible) was interfering with the expansions for the ROAE that we have to maintain, are growing around 20% level over the 10% levels. Because the other lines that we have, the diversification of the earnings that came from insurances, the fees and the efficiency improvement that we are having.

 Then the performance of the Company is now at one of the best levels, our efficiency ratio is running at 38.3%. This is the lowest level of our history. And the operating coverage ratio reached 77.4%. This is in combination with the fees, revenues, how much this covered the operating expense, best now in (inaudible).

 Now Carlos will present to you, tell about the next slides. Then after, at the end we will get to the Q&A session.

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 Carlos Firetti,  Banco Bradesco SA - Director, Market Relations Department Director   [4]
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 Okay. From now on we proceed with our detailed explanations on our results. So going to page 3, the adjusted net income, basically we only have a small adjustment this quarter related to provisions for federal lawsuits, amounting to BRL50 million. We closed the quarter with BRL4.274 billion earnings. That represents an adjusted ROAE of 22.3%.

 Adjusted net income growth in the quarter, basically in the quarter the main drivers for the expansion of our earnings came from margins, especially the interest portion of our net interest income, reductions in the expenses in the quarter mostly related to seasonal factors, and compensated partially by provisions for loan losses that increased in the quarter, and other operating expenses that where we had a provision for-- [provision issues] amounting a total of BLR475 million.

 In the annual comparison, the drivers for the variation of earnings were higher NII, the good performance in fees, and compensated also by loan losses provisions and the same effect in other operating expenses.

 Our net income breakdown, basically insurance remained representing 30% of our total net income, the same amount, same state compared to the past few quarters. We highlight the [securities item] that increased its share this quarter, especially influenced by the impact of the EPCA inflation index on our portfolio of inflation-linked bonds, plus the impact from our assets and liability management, and also interest rates. Interesting to notice that loan-products related activity represent 67% of our earnings.

 In page 6 we highlight the main efficiency ratios we track here in Bradesco, the efficiency ratio and the operating coverage ratio. Basically we reached our lowest level in terms of efficiency ratio this quarter, with an index of 38.3%. And also considering the efficiency ratio, adjusted by risk, also a very low level in our history, 46.9%.

 Another efficiency indicator we track, the operational coverage ratio that is fees divided by costs, reached 77.4%, also a very good level. This is a result of our constant investments in technology, our strong cost control, and a good performance in terms of revenues. Our program of investment in technology is already maturing, but we still have the implementation of a big part of the new system that is still due and should continue, bringing a positive impact in our efficiency ratios going ahead.

 In page 7, net interest income, basically our net interest income in the quarter, total net interest income increased 4.7% Q-on-Q. So it's 4.1% year-on-year. Our net interest margin from the interest portion of our margin increased 20 bps in the quarter.

 Going to slide 8, the net interest income analysis, the early portion of our net interest income, just a comment here. Last week we released a note communicating that we changed the methodology we would present our net interest income. Before we broke it out in [focuses]. The credit, the funding, insurance, securities and others.

 We made a change where we put the credit and funding portion of the margins together where we added a line that was previously in interest margin. That is the cost related to the property insurance. And this forms what we call now credit intermediation margin.

 Basically analyzing the confidence of this margin, we had a growth of 13.2% on an annual basis, with a very good performance in terms of funding. We still present the former methodology this quarter. We should discontinue it going ahead. So you can see that. And also this line grows with volumes.

 There is also a good performance in terms of insurance that is due to the increase in our premium volumes over the last 12 months, but also the impact of higher interest rates and the high EPCA inflation this quarter that impacted our portfolio of inflation-linked bonds.

 In the securities and others, [a final] explanation, volumes impact from the EPCA and our asset liability management results. The net interest income grew 4.6% in the quarter, 22.1% year on year.

 In slide 9 we analyze the credit intermediation margin. Basically our credit intermediation margin grew 13.2% in the last 12 months, 1.8% in the quarter, while our net credit margin dropped 1.4% in the quarter as a result of higher loan loss provisions and is growing at a rate of 7.7% year on year due to the expansion in volumes mostly.

 Our spread from credit intermediation grew 20 bps in the first quarter, a very good performance. Looking to the last 12 months, we have an expansion of 30 bps. The net spread is flat, mostly impacted by the increase in loan loss provisions.

 In slide 10 we show our BIS ratio. We are in a very comfortable position already with some [excess] of capital. That should increase over the next few years. Looking to the schedule of implementation of BIS, this quarter we had two changes. Now the deduction from our assets, about 40% of the total deductions, and there was a change in the calculation from the financial consolidated to the Prudential consolidated index.

 Basically there was also a reduction in the ratio that is due to the intangible assets that comes from the consolidation of Cielo, and were created in the deal, (inaudible) deal Cielo.

 Considering our fully loaded BIS ratio, we have a ratio of 12% that is basically based on common assets. This is very strong and as I said at the beginning, we should continue to see in our view in the next few years, an expansion of this number as our capital base grows more than the consumption of capital in credit operations.

 And as a last highlight on this slide, our ROAE considering a target common equity ratio of 11%, is now at 25.3%. This chart shows that actually we already have an even better ROAE because we carry some excess of capital.

 Total assets and shareholder's equity evolution, total assets grew 12.2% year on year. Our return on assets reached 1.7%, coming from 1.5% 1st Q 2014. Our shareholder's equity grew 14.5%, with our ROAE reaching 23.3% compared to 20.5% in the 1st Q 2014.

 And now discussing our loan portfolio based on our expanded loan portfolio. Our total loans grew 1.8% in the quarter and 7.2% in the annual comparison. In terms of the main lines, we have an expansion of 4.6% in the corporate loan group, and 10.4% on an annual basis. This stronger growth with corporates is partially explained by the effect, the appreciation in the quarter.

 Payroll loans grew 6.6% in the quarter, 16.2% year on year. Real estate financing and mortgage grew 4.8% Q-on-Q, and 29.3% year-on-year. These two lines and individuals should be one of the main drivers of our growth for this portfolio. We have a guidance for the loan group growing in 2015 between 5% and 9%. We believe that the lower portion of guidance is achievable.

 Another highlight that looking to our individuals portfolio, 52.3% of the total loans to individuals are related to loans that have some sort of collaterals, meaning lower risk, what is the base for what is the strength of our portfolio at this moment.

 The delinquency ratio in page 13, basically this quarter we have an impact of seasonality, as happens most of the years. Basically in terms of 90 days NPL, we have an increase of 10 bps in the total NPL. Our NPL for corporates remains flat. Our NPL for individuals increased 10 bps, and in our view mostly due to seasonality. And our NPLs for SMEs 20 bps; that is mostly due to the lower loan growth in the SME portfolio. Actually the SME portfolio reduced 1.4% in the quarter. That effect, the (inaudible) of the NPL index, and also some impact from the weaker economic activities.

 Last year some people may question that we didn't have this increase in NPLs. And the explanation is related to the fact that we had a bigger change in the mix of loans in 2013, and some changes in the internal procedures for recovery of loans that led to actually a reduction index instead of having the traditional seasonal impact.

 In terms of 15 to 90 days NPLs, we had an increase of 50 bps in the first quarter compared to 40 bps in the first quarter 2014. This is in our view mostly due to seasonality and looking to our [intermittent] indicators, we have already been seeing some improvement in the short term (inaudible).

 In terms of provisioning and coverage ratio, we have a very strong level of provisioning. Our 90 days coverage ratio-- our coverage ratio of 90 days NPLs reached 187%, for 60 days 149.8%, what is a very strong level. And it gives us confidence that we have a very strong balance sheet. We believe that coverage ratios should remain floating around the same levels going forward.

 We also like to track here at Bradesco what we call effective coverage ratio. That is how much our provisions cover our actual losses. In this case, our coverage of actual losses amounts to 223%, an even higher coverage ratio compared to the traditional ones.

 And as a final comment, as we have already mentioned, we have a soft guidance for provision expenses this year, growing from 8% to 12%. Already including that, our perception of evolution of loan quality through this year.

 In terms of fees and commissions, we are going to focus mostly on the annual comparison, since the quarterly comparison is affected by the calendar effect. We had less business days in the 1st Q 2015. Our fee revenues grew 8.7% year on year. The highlight comes from the consortium management that grew 22.6%, credit card, checking accounts, and loan operations and asset management. We have our guidance for this line growing from 8% to 12%. And we believe that through this year we will go back to the middle of guidance at least.

 In terms of drivers for the growth, in fees we have the constantly investing in our distribution channels, our branch network. We have focus areas deepening our segmentation of services, giving our clients the right service they need. And this has been the main driver for the expansion in our fees.

 Operating expenses, also a big strength for our operation. We expanded our costs only by 4.7%, much below inflation that in the same period grew 8.1%. We believe this performance comes from our investments in technology, our improvement in terms of efficiency and very strong cost control. We are very focused though with our guidance that goes from 5% to 7% for 2015.

 Now talking about insurance, basically we had an expansion in our total premiums in the quarter by 19.4%. [I will focus you now on] the annual comparison, due to the fact that the quarter is affected by seasonality. Life and pension grew 26.5%, health grew 19.7%, and capitalization bonds grew 11%.

 Our net income expanded in the period 23.4%, and our ROAE is at 27.3%. Insurance is a core business for Bradesco. We have a very strong focus on it. And we have been implementing improvement in our sales structure over the last one year, or year and a half that has already been resulting in positive impacts, and explains in our view, the strong performance in terms of premiums.

 In the last slide we have some ratio indicators for the insurance business. Our combined ratio reached 86.8%. And we had over the past few quarters a constant increase in our technical reserves that are the base for our profitability.

 So now I turn the presentation to Luiz Angelotti again.

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 Luiz Carlos Angelotti,  Banco Bradesco SA - Investor Relations Officer   [5]
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 In conclusion, even with the challenged scenario we faced in the first quarter of the year, we consider our results very good. And they allowed us to reach 38.3% efficiency ratio. And we maintain the ROAE above 20%.

 Our results reflected the actions associated with our strategic planning, which provides consistent and sustainable results, mainly maximizing the returns to our shareholders. As we are confident on Brazil's economy this year, we are doing additional investments around the BRL1 billion to expand and modernize our branch network, and we expect to open around [180] more branches through country.

 Thank you all for taking part in our earnings call. And we would be glad to take your questions.

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Questions and Answers
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Operator   [1]
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 (Operator Instructions) Mario Pierry, Bank of America Merrill Lynch

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 Mario Pierry,  BofA Merrill Lynch - Analyst   [2]
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 Good morning, everybody. Congratulations on your results. Let me ask you two questions, please. The first one is related to your guidance, especially for net interest income. When we annualize your first quarter numbers, we get to growth of 11% for the year, which is above your guidance range of 6% to 10%. Do you see a scenario where your net interest income could be lower than what you already reported, especially considering the higher interest rate environment in Brazil, as well as less competition from the public sector banks?

 Also with regards to your guidance, last quarter you had provided some soft guidance with regards to provision charges, saying that they should be growing about half of the rate of loan growth. However, when we take also your provision charges this quarter, and we annualize them, we get to 13% growth for the year. So this is my first question, if you could comment then on your guidance for net interest income and for provision charges. And then I'll ask a second question, please.

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 Carlos Firetti,  Banco Bradesco SA - Director, Market Relations Department Director   [3]
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 Okay, Mario. In terms for the guidance for NII, what we have been saying is that we should be in the top of our guidance that goes from 6% to 10%. We are still in the 1st Q. It's too early to review our guidance at this moment. We are comfortable that we can deliver the top of our guidance at this moment. So I think that's how we feel on that.

 Related to our guidance from provision expenses, basically it goes from 8% to 12%. If you look to the composition of our provision expenses, it is [net] from the coverage. The coverage were lower this quarter, mostly due to lower number of working days and also vacations in the first quarter. So the provisions should also recover-- may also improve going ahead.

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 Luiz Carlos Angelotti,  Banco Bradesco SA - Investor Relations Officer   [4]
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 And an important thing for provision expenses this quarter, we had another-- that I think the most important effect is that we did some-- we downgraded some corporate clients. And then we had some additional expense according to our internal ratings. And think the most important effect that these wide expenses reached a number (inaudible) we had this last part of 2014. All of these next quarters, these effects are waiting downgrade-- we could continue. But probably it will not affect too much the expense, and the recovers that we expect to have to return to the normal level. So our guidance reached (inaudible) the better levels to consider now.

 And about the NII, the highest level that we are having on the NII, we gained compensation for these additional improvements in the expense for P&L. And this is why we (inaudible) it's possible to maintain the ROAE running at a higher levels. And it's too early to revise the guidance now, but this is probably is [safe] working with the top of the guidance for NII growth for this year.

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 Mario Pierry,  BofA Merrill Lynch - Analyst   [5]
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 Okay. That's clear. Let me ask you then my second. You showed a slide where you're still very comfortable with your capital ratio. You're still generating a 20% ROAE. You're only growing in loan book single digits. So what we have seen over the first quarter, you were buying shares of Cielo in the market. I wanted to understand then the strategy for buying Cielo shares and why not buy your own shares, which appear much more attractively valued. Why not be more aggressive in our buyback program of our Bradesco shares, rather than buying shares of Cielo in the market? Thank you.

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 Carlos Firetti,  Banco Bradesco SA - Director, Market Relations Department Director   [6]
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 The acquisition of shares of Cielo is an investment from Bradesco focused in our credit card business. We are-- it's part of our core business. We have been buying shares mostly looking to as an investment and considering that it is part of our credit card operation. We don't have any further commitments in terms of what we are going to do next. But it's a strategic decision on that front.

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 Mario Pierry,  BofA Merrill Lynch - Analyst   [7]
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 And why not buy your own shares?

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 Luiz Carlos Angelotti,  Banco Bradesco SA - Investor Relations Officer   [8]
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 We have an open program to buy. If we feel that we need to buy, we will buy. But now there's not much to do.

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 Mario Pierry,  BofA Merrill Lynch - Analyst   [9]
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 So you don't expect to be buying your own shares in the short term?

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 Luiz Carlos Angelotti,  Banco Bradesco SA - Investor Relations Officer   [10]
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 We don't (inaudible) that. It's not necessary.

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 Mario Pierry,  BofA Merrill Lynch - Analyst   [11]
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 Okay. Perfect. Thank you very much.

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Operator   [12]
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 Tito Labarta, Deutsche Bank

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 Tito Labarta,  Deutsche Bank - Analyst   [13]
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 Hi. Good morning, and thanks for the call. A couple of questions also. Just in terms of asset quality, we saw a pick-up in early NPLs and also we saw it in the total NPLs a small pick-up. I just want to [get a sense if] you remain somewhat confident because of the outlook for asset quality. I just wanted to get a little bit of a sense going forward. How comfortable are you with the economy likely declining this year, so that you can't control the NPLs?

 And now that we're getting some more color with Petrobras reporting results, this has maybe given you some more confidence that asset quality can remain stable, and particularly on the [Baltic] side. You mentioned you downgraded some corporate clients. Could there be some more impacts from that going forward? I just want to get a little bit more sense on why the pick-up in the early NPLs and how confident you feel for the rest of the year.

 And then my second question in terms of loan growth, you're growing pretty much in the middle of your guidance of 5% to 9% at 7% this quarter. But with the economy declining this year, do you think you'll probably end up at the lower end of the range, or could there be some downside to that? I just want to get a sense on how you feel for loan growth for the rest of the year. Thank you.

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 Carlos Firetti,  Banco Bradesco SA - Director, Market Relations Department Director   [14]
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 In terms of asset quality, early in delinquency, as we have been saying, we have already seen some improvement in short-term delinquencies and we believe it will retreat throughout this year. Basically we have been promoting now in the past few years a big change in terms of our mix. We have a better mix, a safer mix, and not only the mix between the lines, but if you look inside the lines the quality of the credit we have there are better due to the improvement in our credit [origination] systems. And we believe that this would performance the future, a particularly good performance in loan quality comes from that. It is a challenging environment. But we are confident that NPLs will most likely slow to around the current level.

 In terms of loan growth, basically we have been saying we currently are targeting at this point the bottom of the guidance. The economy is weak. Our economists estimate the GDP falling this year. But we will still have a nominal growth for GDP, about 6%, excluding considering inflation, the real growth. We have the carry of interest and we believe that there are opportunities in some segments. So in our view we should be able to deliver the bottom of the guidance. That's it.

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 Luiz Carlos Angelotti,  Banco Bradesco SA - Investor Relations Officer   [15]
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 You asked about Petrobras. We can't talk about the specific-- about the current situation. What we can talk is that our (inaudible), the loan operations, we report our internal-- the credit department and the internal credit policy that we have. Then we are comfortable with our operations to deliver now well on the currencies. And for the year, and our expectations for the expense P&L, we consider a possible adjustment in the internal rate that we can do in the Company. Then we understand that is more-- now more our efforts has reduced 8% to 12% growth in the P&L expenses.

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 Tito Labarta,  Deutsche Bank - Analyst   [16]
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 Great. Thank you, very helpful. Just maybe one follow-up on the NPLs, when we look at just say your large corporate NPLs, it's kind of stabilized at 0.8%. That is the highest level over the last couple of years, well above the 0.2% in 2013 that we saw. So as sort of the Petrobras issues sort of seem to get handled, do you think that that can begin to improve maybe sometime later this year, or how do you feel about the corporate NPLs? Or could there be some more downside risk (inaudible)?

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 Luiz Carlos Angelotti,  Banco Bradesco SA - Investor Relations Officer   [17]
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 This level, this 0.8% is now our delinquency ratio for 90 days. We expect for this year that probably in the second half the year we probably will return to normal level. That is something around the 0.5%, 0.04%. That is probably the level that we essentially will have, considering the situation that we have now in our economy and in the portfolio.

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 Tito Labarta,  Deutsche Bank - Analyst   [18]
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 Great. So you think already by the second half of the year you can begin to see some improvements there?

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 Luiz Carlos Angelotti,  Banco Bradesco SA - Investor Relations Officer   [19]
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 This is the companies where we have the delay in the payments, we don't expect any new situations for the corporate portfolio. Probably the clients that we have there, do you have some solution, or we'll do the write-offs or we'll do a renegotiation. Then during the year we will have this one-off solution, and probably if we have a new price that you have some delay in the payments, you'll see in a more lower level these volumes tentatively return to this 0.5% to 0.4% until the end of the year.

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 Tito Labarta,  Deutsche Bank - Analyst   [20]
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 Great. Thank you. That's very helpful.

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Operator   [21]
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 Jorge Kuri, Morgan Stanley

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 Jorge Kuri,  Morgan Stanley - Analyst   [22]
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 Hi. Good morning, everyone. I have I guess a clarification more than a question. So you're saying that the deterioration in asset quality this quarter was seasonal. If I look at-- I mean unfortunately you haven't been providing long-term ceilings for NPLs. I think you began in 2008. So if I look at the last seven years, from 2008 to today, first quarter versus fourth quarter, you've had three years of deterioration and four years of improvement. So it's difficult to say that there's any seasonality. If I look at your each weight loan as a percentage of total loans as a proxy to NPLs which you have provided for a long time, since 2000. If I look at this year since 2000, first quarter versus fourth quarter, you had nine years of improvement, six years of deterioration. So if anything, there seems to be a seasonality that helps asset quality first quarter.

 If I look at industry data, which goes back NPLs back to 2000, out of the 16 years we've seen nine years of asset quality improvement in first quarter versus the fourth quarter, where there's only six years of deterioration. So I guess the clarification is, so what are you seeing now that makes you think that the seasonality has completely changed or is very marked now versus what clearly there is no real seasonality in the data if we look at the last 15 years? So what's changed now? I just want to understand why you feel so comfortable that this is only seasonal. Thanks.

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 Carlos Firetti,  Banco Bradesco SA - Director, Market Relations Department Director   [23]
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 Jorge, the problem is when you look at these past years, and you go to years where growth was very strong, actually the seasonal impact doesn't appear that much. I think the seasonal impact becomes more clear in the recent years when we had the deceleration.

 And actually as in fact, in the presentation, looking to 2014 specifically we had a stronger change in the mix during 2013, and also we had some improvements, mature improvements in our recovery procedures in 2013 that end up basically not leading to the same seasonality in the beginning of 2014. I think that can better lead you to your question.

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 Luiz Carlos Angelotti,  Banco Bradesco SA - Investor Relations Officer   [24]
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 It's not comparable to the situation where during this period-- that's probably we have different movements seeing in the loan portfolio, and now we have a different mix in the portfolio.

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 Jorge Kuri,  Morgan Stanley - Analyst   [25]
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 All right. And I'm looking-- I mean I'm looking at 15 years' worth of data, so that seems pretty meaningful to me. But anyway, if I look at second quarter seasonality, it actually is the other way around. There is a very marked seasonality in the second quarter for a deterioration in NPLs versus the first quarter if you look at your data or Itau's data over the last 8-9 years, or if you look at the industry data going back 15 years.

 So given that there is a seasonality in which NPLs deteriorate in the second quarter, can you let us know what you're seeing now? I know the quarter just started, but what are you seeing in April versus March?

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 Luiz Carlos Angelotti,  Banco Bradesco SA - Investor Relations Officer   [26]
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 We have now a different portfolio that I think is more comparable 2014-2015. And we have no information about Itau, and the information that we have in our portfolio is that we can contribute the reduction in the overdue of the payments in our-- talking about our individual price. This is why we are responding that probably the majority of these movements we return for the normal situation, as we had last year. That's why we--probably this movement returns at a normal level. We will consider this happening during the quarter. And we expect to have a very similar situation that we had last year.

 Comparing 15 years movement, we have a different mix. We have different growth in the portfolio. So we consider now the growth that we having here growing at a very lower level. There is more (inaudible) stable situation in the delinquency ratio nowadays in our case. But at this point we don't sell any portfolio, we didn't have any (inaudible) sell the portfolio that can change the situation that we have. And the delinquency ratio, these are now the things that you need to consider when you analyze our numbers.

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 Jorge Kuri,  Morgan Stanley - Analyst   [27]
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 All right. Thank you. Thanks for the clarification.

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Operator   [28]
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 Thiago Batista

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 Thiago Batista,  Itau BBA - Analyst   [29]
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 Hi, guys. Thanks for the opportunity. I have two questions again. The first one is relating to the credit standards for the household segment. For sure other banks were more selective in their originations in the last years. Do you see any change in the standards for Bradesco? So are you becoming more restrictive or less restrictive in your credit origination standards for individuals because of market scenario?

 And my second question is about tax credit. In your slide 24 you show the evolution of tax credits. The bank showed a-- the bank posted a big tax credit almost BRL5 billion Q-over-Q, especially in temporary difference. Could you explain to us this movement in the tax credit?

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 Luiz Carlos Angelotti,  Banco Bradesco SA - Investor Relations Officer   [30]
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 Okay, about the first question about the origination, we are not changing any credit policy for the-- in our portfolio. What we have is some [products] have a more high (inaudible) then a simple payroll loan and a mortgage that have a lower risk. In this case, the first four that we have, and more than this in individuals' portfolio, the niche is moving for a more lower risk. But we have a simple [outlook].

 We are now in negotiations. We are having more improving the phases of approvals, because we have I think in our-- better quality in the clients. The normal down-payments nowadays running [actually] 40%, 45%. But we didn't change any procedure in our credit policy.

 For us the credit products are one of the most important. We expect them to grow in the highest level in our portfolio. But we have (inaudible) write-off the payments, according to the characteristics of each product.

 And what we see is it probably in the long term, we are migrating far more in lower level, we see the total portfolio, because as I told you the mix of the individuals, the corporate portfolio is growing more than the SMEs. That is the corporates has a lower risk. And our long-term [view] is the same issues that we had, which is moving to a more lower risk in the portfolio.

 About the tax credit, we had an increase this quarter, this number around this BRL5 billion, and actually 40% is related to provisions for-- we are looking one year movement here. Now in the quarter, we had-- and that 40% is related to provisions for loan loss, and in the other part, sort of related to derivatives that we did for the hedge for exposures in other currency.

 These derivatives, some of them, we had mark-to-market in some products. But the tax credit, this is according to the next three periods. These are normal operations and we had some increasing tax loss more related to another derivative that we used to do this, a similar hedge that we had. And we expect in the next periods after this, [our tax] we'll reduce. Probably in three years we will have the (inaudible) operations.

------------------------------
 Thiago Batista,  Itau BBA - Analyst   [31]
------------------------------
 Those hedges are related to the overheads?

------------------------------
 Luiz Carlos Angelotti,  Banco Bradesco SA - Investor Relations Officer   [32]
------------------------------
 One part of the tax is the overhead. Because we don't have any currency exposure. And in this part, we have a higher dollar increase in the currency. Then the structure of the hedge that we have effected internal tax results. But probably now one part of the year, one part of this tax will reduce. Because we had the increase in the dollar price after the balance sheet. And then probably this effect will be-- will return to something normal situation. Because the profitability of the bank and the structure of the derivatives that we have this additional tax credit will turn back to the normal level in the next periods.

------------------------------
 Thiago Batista,  Itau BBA - Analyst   [33]
------------------------------
 Okay. Thanks for the answers. Thank you very much.

------------------------------
Operator   [34]
------------------------------
 Saul Martinez, JPMorgan

------------------------------
 Saul Martinez,  JPMorgan - Analyst   [35]
------------------------------
 Hi guys. I have two questions, also. One, I wanted to follow up, Angelotti, on something that you said, to understand it a little bit better. In response to an earlier question you said that loan loss provisions obviously were impacted by downgrading some corporate clients. That could continue. But you also said that you don't expect it to impact the expense line too much. Why? It would seem to me, especially in larger companies where you have some larger exposures, downgrading additional corporate credits could have a pretty meaningful impact on your loan loss provisioning line. So if you could give more color as to why you think that the corporate-- why you think corporate downgrades are not going to impact your loan loss provision line. That would be helpful.

 The second question, the BRL475 million provision for taxes, can you explain that a little bit better what that was for? And just reiterate or confirm that this is more of a one-off type of event and that the other increase in expense line, which is was BRL1.9 billion negative this quarter is going to come back down to something of a more normalized level in the coming quarters.

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 Luiz Carlos Angelotti,  Banco Bradesco SA - Investor Relations Officer   [36]
------------------------------
 About the effect of the downgrading in the expense of the P&L, what we said is that we had I think a more high impact this first quarter in this revising process. Looking through our portfolio, we know very well the clients, and as we told you, we have some other additional events similar events during the next quarters.

 But we don't expect it will affect so much the expense. We have another additional effect that is compared with this quarter that is the recovers, and (inaudible), what effect is for the last business day that you had in this first quarter. And probably we expect to have a normal level along the BRL150 million or BRL200 million over recovers in the next quarter.

 And then we understand that probably now to grow-- expectations running 8% to 12% is more reasonable we think for our portfolio and the indication we have about the price of the clients (inaudible) that we need to do.

 Another question there on the provisions. We did one provision. This number is BRL475 million. The majority is a tax provision. It was litigation-- pension plan contribution related to pension plan contribution. It's something that is a little tax requirement that we had. And we understand that we need to discuss, then we have this provision, but we need the provision to protect the normal accounting policy that we have.

 And it's something that we cannot-- it (inaudible) happen in the year, this year, then it's something specific, which you need consider about as recurring results, according to your understanding. But we decide not to do the adjustments in the results. (Inaudible)

 It doesn't have any guidance for the expenses. We probably-- we need to consider that the level that we had in December, we introduced some of these exclusive of the effects that you had in the first quarter. Probably it will continue running net to this level, with the adjustment excluding this tax provision that we did. Probably the normal level, but I expect (inaudible) for this line.

------------------------------
 Saul Martinez,  JPMorgan - Analyst   [37]
------------------------------
 That's helpful. Thank you very much. I'll let you move on to your next question.

------------------------------
Operator   [38]
------------------------------
 (inaudible)

------------------------------
Unidentified Participant - Analyst   [39]
------------------------------
 Hi. Good morning, guys. Thank you for the call. The first has to do with the-- I noticed that on tier increase in the risk-weighted assets from operational risk went up 26% quarter over quarter, and 31% year over year.

 And the second question is on the renegotiated loans which have continued to grow at a much higher pace than the loan portfolio. So for instance, they grew 11% for individual loans, and 9% for corporate loans. So the question is, what would prevent these renegotiated loans to eventually becoming non-performing loans? And also what trend do you see in renegotiated loans going forward? And could you provide some color on which-- on the details of the renegotiated in the individuals or probably in the corporate portfolio? Thank you.

------------------------------
 Luiz Carlos Angelotti,  Banco Bradesco SA - Investor Relations Officer   [40]
------------------------------
 About the question, we (inaudible) for accounting rules, the grow up that we had in the renegotiated portfolio, normally this portfolio grows at a similar level that we have in our loan portfolio growth. And this is what you expect to have. Sometimes you have some specific situation that you can have some concentration, some fees that you can have a small increase or a different movement when you compare with total portfolio. But the expectation normally is that the renegotiated portfolio will move in a very close movement that will continue growing with the loan portfolio.

 The-- personal?

------------------------------
 Carlos Firetti,  Banco Bradesco SA - Director, Market Relations Department Director   [41]
------------------------------
 I can answer that. It's related to the Prudential consolidation. You know that in the first few, we moved from the financial consolidation to the Prudential consolidation. In the Prudential consolidation it was we take other companies that are non-financial companies like Cielo and others. So there's the explanation for that, the Prudential consolidation.

------------------------------
 Luiz Carlos Angelotti,  Banco Bradesco SA - Investor Relations Officer   [42]
------------------------------
 More of it's Cielo that now we are doing the consolidation. Then you need to consider the aspects of the operational risk that we have now in Cielo. Then these affected the first quarter compared to another criteria.

------------------------------
Unidentified Participant - Analyst   [43]
------------------------------
 Thank you. May I ask one more question? So if you look at the essential bank data we're seeing a materially improvement in credit spread for the system. So I wonder if you guys are expecting a continuing improvement in credit spreads going forward, or you think given your loan portfolio, you're in kind of a lagging credit state level for credit margin.

------------------------------
 Luiz Carlos Angelotti,  Banco Bradesco SA - Investor Relations Officer   [44]
------------------------------
 I'm thinking it probably will continue grow accordingly with the average of the system than not. Because normally we will try to be very competitive, and we're really running according to the average of the system. Then in order to have a difference-- to expect to have a different expectation, then in some products probably you will have some additional increase. But it's according to each product in the environment. And we cannot tell you about now what we expect for the future.

 We are working for to have the best balance in our products, according to risk for each product.

------------------------------
Unidentified Participant - Analyst   [45]
------------------------------
 All right. Thank you very much, guys.

------------------------------
Operator   [46]
------------------------------
 Victor Galliano, Barclays

------------------------------
 Victor Galliano,  Barclays - Analyst   [47]
------------------------------
 Hi there. Thank you. Just a couple of questions. Already my main questions have been answered. But a follow-up here. I'm talking, following on from margins from my colleague. If you look at the sort of retail loan book and the way that's re-pricing, and given the move that we've had in Selic obviously. So sort of where are we down the line in terms of the re-pricing of that book? Do you see another sort of six months, two quarters, three quarters down the line where you could still the kind of positive effect there in terms of the re-pricing of that book, even if Selic doesn't rise any further, which it shouldn't?

 And the other thing was just looking at your presentation, you've got in there your macro expectations. It's your in-house view that now after yesterday's increase that we're done in terms of the Selic hiking? Or do you feel there's a chance there for further hiking?

------------------------------
 Luiz Carlos Angelotti,  Banco Bradesco SA - Investor Relations Officer   [48]
------------------------------
 This is affecting our portfolio. This increase in the Selic was included in the expectations of the rates-- the (inaudible) rates that we have in the mark-to-market that are normal operations. That has a normal term daily-- they considered this effect in our rates.

 Then this is why did expect that are [fixed-rate] portfolio will be too much affected, because the rates are now and probably some (inaudible) ago was considered these expectations for the Selic increase. The normal portfolio, so to do a total-- to run at around 18-months that is the real average term that we have.

 And probably, the Selic has a 60% to 75% of the total portfolio are related to these expectations for Selic increase.

 About the other effects of Selic, could it help or could it improve a little the margins in the-- probably in the funding and the assets and liability management. But our guidance was considering this increase, one part of this increase when we gave the guidance, actually the center was 8%. Now with this additional (inaudible) the volume of transaction, the expectations that we have is probably to finish the year in the top of the guidance at 10%. But probably this is a conservative expectation. But we understand now to change the guidance is very early for us to do this. Probably we need to revise this position in the second quarter when we announce the results.

------------------------------
 Victor Galliano,  Barclays - Analyst   [49]
------------------------------
 Okay. Thank you.

------------------------------
Operator   [50]
------------------------------
 Marcelo Telles, Credit Suisse

------------------------------
 Marcelo Telles,  Credit Suisse - Analyst   [51]
------------------------------
 Hello, everyone. Thanks for your time. I have two questions. One is a follow-up on the earlier question regarding your customization ratio. If I look at the slide number 10 where it talks about the fully loaded Basel III, the common equity tier 1 of 12%, if I compare that number with the one you had in your presentation in your fourth quarter, you had 12.4%. And maybe I'm wrong. But I believe they are apples to apples. So in theory, you did have a decrease on an apples-to-apples basis in your common equity tier 1 from 12.4% to 12%. Is this correct? And what drove that decline?

 And the second question that have is regarding your provisioning growth in the quarter. You mentioned that the growth was mainly related to some changes in risk ratings [in your] portfolio. But when I look in terms of the amount of new NPLs that were created in the quarter, and I can look at that NPLs including the renegotiated credit as well, we see that you actually-- the amount provision are very much in line with the probably this changing in risk rating were not that meaningful. And that in fact, this increase in provisions had a lot more to do with the real increase in NPLs, other than changing in risk categories. Am I too off on that? Thank you.

------------------------------
 Luiz Carlos Angelotti,  Banco Bradesco SA - Investor Relations Officer   [52]
------------------------------
 About the first question, the attrition, we are now decreasing, when you do the full application, these are related to Cielo. Because now we did the consolidation of Cielo. And then we had the intangible assets in Cielo. Because the acquisition that the company did. In theory, the situation, we had 30% of Cielo, then Cielo has a one-off effect that we had around the BRL3 billion is what we now have in the consolidation debt in the intangible assets we need to deduct for the Basel III calculation, the tier 1 cash-out.

 And now there is now parts of this share that we bought sitting in Cielo. But this is a small effect, and we consider that the (inaudible) of the banking for the next quarter, will return to the normal levels. And the 12% is a higher level, when you consider the maximum requirement with our buffer is 9.5%. We are very comfortable with this 12%.

 About the provisions growth, you need to consider that one thing is the increased ratio, another into the rating adjustment. When we talk about the rating adjustment, we don't have any affecting the NPL, only (inaudible) in the risk for the client that we have adjusted, so it will affect the expense, but not to affect the delinquency ratio.

 The increase in the delinquency ratio, when you talk about the 90 days, we are running at normal level according to our expectation. But in the early delinquency ratio, we had an increase in the NPL, because we told you it was more related to seasonal effects that (inaudible).

------------------------------
 Marcelo Telles,  Credit Suisse - Analyst   [53]
------------------------------
 I was actually referring to your provisioning growth, vis-a-vis the amount of new NPLs that were created in the quarter. Where you had the--

------------------------------
 Luiz Carlos Angelotti,  Banco Bradesco SA - Investor Relations Officer   [54]
------------------------------
 But in the provisioning growth, we had the normal movement of the write-offs. Then we have some new clients that is (inaudible), and then we have to do the provisions to have in the impact in provisions. But we had the write-offs. [We had] normal movement, then the growth is reflecting the situation of the portfolio. One part of the growth is the credit criteria we did a downgrade and we improved the provisions and these provisions will continue during the period the clients will maintain operation with us.

 The provisions that we have for the clients that are overdue or they have some things that are overdue, we see they will have the normal movement upon the central bank rules. And we do the normal write-offs. And these are-- the level of provisions normally reflect these movements. And I think one part of this effect on the provisions will be reduced, because as we mentioned, seasonal movement that will return for the normal level.

------------------------------
 Marcelo Telles,  Credit Suisse - Analyst   [55]
------------------------------
 Okay. Thank you.

------------------------------
Operator   [56]
------------------------------
 Philip Finch, UBS

------------------------------
 Philip Finch,  UBS - Analyst   [57]
------------------------------
 Good afternoon, everyone. I'm sorry I joined the call halfway through. So my question may have been asked already. If HSBC were to sell its Brazilian business, would you be interested in acquiring any of their assets? Thank you.

------------------------------
 Luiz Carlos Angelotti,  Banco Bradesco SA - Investor Relations Officer   [58]
------------------------------
 Our main strategy is to maintain a focus on Brazilian country, our retail operations really are centered in Brazil. There are now opportunities that we have in Brazil, in making this-- growing the insurance business. We analyze it, and if you really understand it, that could (inaudible) grow, and add value for the company for the shareholders, we would-- nobody probably would-- everything is possible, but too early to answer to your question. We don't now have any news. But our operations in Brazil in retail, we'll analyze it, and see if it's according to our core business.

------------------------------
 Philip Finch,  UBS - Analyst   [59]
------------------------------
 Okay. Thanks very much.

------------------------------
Operator   [60]
------------------------------
 Boris Molina, Santander

------------------------------
 Boris Molina,  Santander - Analsyt   [61]
------------------------------
 Yes, good morning. How much have you got into your guidance for premium growth? You started the year with around 19% year-on-year growth, and following an acceleration in premiums in the second half of last year. So could you give us some color on how you expect the different segments to perform? Because obviously your [auto and RCFS] is slowing down. And you're seeing some acceleration in your life and (inaudible) also. Can you give us some color? What are the drivers? Could you expect for instance a health insurance to sustain the current pace of growth? And how are these you're going to converse to your guidance in terms of premium over the year?

------------------------------
 Carlos Firetti,  Banco Bradesco SA - Director, Market Relations Department Director   [62]
------------------------------
 Basically we have a very focused view in insurance and our (inaudible) have been promoting change in its (inaudible) structure to the last year and a half, and that's not due to strong growth. Fortunately the strong growth comes from the fact that we have now in our view a sales structure that is more perfected. We have basically centralized the management of the sales structure in a single unit. And this has been in our view, translated in this result.

 In terms of say for financing, remember that protection plans were actually weak in the first quarter 2014. The market has normalized since then. And we are basically growing according what we view is more the potential we reach on that.

 We have our guidance for premiums in insurance that grows between 12% and 15%. And we feel confident that we'll do that.

------------------------------
 Boris Molina,  Santander - Analsyt   [63]
------------------------------
 Would you consider the guidance to conservative, or you think that-- looking forward you think it'll probably be closer to the top rather than the bottom of the range in premium, given the momentum you have?

------------------------------
 Luiz Carlos Angelotti,  Banco Bradesco SA - Investor Relations Officer   [64]
------------------------------
 Not conservative, but you can work with the medium-high level of the guidance. We always say that the company right now has a very strong structure for sales, and it is running very well. The margin will grow around the-- right at the 12%. Then the guidance is not high. It's not above the average of the market. Then the guidance is very challenging. But we understand that this probably-- we can work with the medium-high level of the guidance.

------------------------------
 Boris Molina,  Santander - Analsyt   [65]
------------------------------
 Wonderful. And my final question is regarding the gap that you're having in terms of the different inflation that exists to see how we can forecast the performance of your financial results in insurance operations. Because they have been growing really well in recent quarters. And we understand that it has to do with the difference with the first of your assets and liabilities in the insurance operations. So is there a way from the financial your financial statements to be able to calculate what the effects of that gap is how could we forecast the spread you're paying from insurance operations into the future? Do you expect it to be sustained at current levels or do you think it could decline towards the second half of the year?

------------------------------
 Luiz Carlos Angelotti,  Banco Bradesco SA - Investor Relations Officer   [66]
------------------------------
 We think it's sustainable, the current level. I think we had some improvements in the structure of the company, because one part related for this new structure that we had some benefits in our-- the (inaudible) sales in the [course], because we reduced a (inaudible).

 And the portfolio that we have in assets according to the reserves that we have, the margins are very-- could maintain this actual level that we have, excluding (inaudible) that we had in this quarter specifically one additional set of the more higher level of inflation index. But when we look for (inaudible) I think the margins that we have, which is for the assets and the liabilities is actually sustainable to maintain the ROAE of the Company.

 And normally the corporate book is for to work with the long-term vision, doing the asset liability management and the security that we have in the portfolio. We work to maintain our good hedge position according to the risk that we have in the liabilities.

 Also, the mismatch between [our GPN] and ECPA is not the major source of gains in that line. In total leans to the higher Selic, and basically the insurance company has its portfolio with EPCA-linked bonds that is necessary for hedge the liabilities from [ITPN] actually the relevance of this has reduced sizably.

------------------------------
 Boris Molina,  Santander - Analsyt   [67]
------------------------------
 Okay. Wonderful. Thank you very much.

------------------------------
Operator   [68]
------------------------------
 Excuse me. Ladies and gentlemen, there's now no further questions. I would like to invite Mr. Carlos Angelotti to proceed.

------------------------------
 Luiz Carlos Angelotti,  Banco Bradesco SA - Investor Relations Officer   [69]
------------------------------
 Okay. Thank you all for your participation in our call. If you guys have any other doubts, please feel free to contact me or any other people in our Investor Relations Department. Thank you all again.

------------------------------
Operator   [70]
------------------------------
 That does conclude the Banco Bradesco investor conference for today. Thank you very much for your participation. Have a good day.




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