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Edited Transcript of BBDC4.SA earnings conference call or presentation 31-Oct-19 4:30pm GMT

Q3 2019 Banco Bradesco SA Earnings Call

São Paulo Nov 9, 2019 (Thomson StreetEvents) -- Edited Transcript of Banco Bradesco SA earnings conference call or presentation Thursday, October 31, 2019 at 4:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Carlos Wagner Firetti

Banco Bradesco S.A. - Department Officer

* Leandro de Miranda Araujo

Banco Bradesco S.A. - Deputy Executive Officer, IR Officer & Member of Board of Executive Officers

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Conference Call Participants

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* Daer Labarta

Goldman Sachs Group Inc., Research Division - VP

* Jason Barrett Mollin

Scotiabank Global Banking and Markets, Research Division - MD of LatAm Financial Services

* Jorg Friedemann

Citigroup Inc, Research Division - Director

* Jorge Kuri

Morgan Stanley, Research Division - MD

* Marcos Assumpção

Itaú Corretora de Valores S.A., Research Division - Sector Head

* Nicolas Alejandro Riva

BofA Merrill Lynch, Research Division - Research Analyst

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen, and thank you for waiting. We'd like to welcome everyone to Bradesco's Third Quarter 2019 Earnings Conference Call. This call is being broadcasted simultaneously through the Internet in the Investor Relations website, banco.bradesco/ir-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 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 will turn the conference over to Mr. Carlos Firetti, Market Relations Director.

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Carlos Wagner Firetti, Banco Bradesco S.A. - Department Officer [2]

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Good afternoon, everybody. Welcome to our third quarter 2019 earnings conference call. We have today with us here, Mr. Octavio de Lazari, Bradesco's Chief Executive Officer; André Cano, Executive Vice President and CFO; Vinicius Albernaz, Bradesco Seguros Chief Executive Officer; and Leandro de Miranda, Executive Director and Investor Relations for Banco Bradesco. Now I turn the floor to Leandro.

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Leandro de Miranda Araujo, Banco Bradesco S.A. - Deputy Executive Officer, IR Officer & Member of Board of Executive Officers [3]

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Thank you very much, Firetti. Good afternoon, everyone, and thank you for your participation on our third quarter 2019 earnings conference call. We'd like to start sharing our view on the Brazil's macro environment. Pretty much we have a positive view about the environment of inflation that Brazil is currently experiencing, which finally indicates to -- indicate a good path of gradual, more consistent and healthy growth with inflation under control, that's the best part of it.

We noticed that the presence of a correct [profit experience] ensures Brazil's business needs has allowed the approval to the [indiscernible] reform, which is fundamental to the long-term sustainability of the country for public finances.

And finally, the favorable environment for a [approval] of a positive agenda for the Brazilian economy. The combination of an adequate and clear fiscal monetary policies has made it possible to effectively control inflation and has enabled the continuous reduction of interest rates. This should definitely contribute to improved growth.

And as a consequence, the credit then shall benefit the most. In this context, we can pursue the lower-risk scenario that is beginning to motivate investments or job creation and consumption by private economic agents, leading to a more gradual economic activity recovery. And this is very positive for our organization as a whole, which got prepared and is beautifully positioned to capture the benefits of a positive economic cycle.

In Slide 3, we bring a few highlights of the third quarter we would like to share with you. First of all, the expanded loan portfolio keeps growing in a very healthy and well-diversified manner in the higher growth and return segments. [As well for] Individuals and SMEs, while at the same time, it's requiring lower provision for loan losses. The new loan vintages are still improving. Our loan book increased about 3.2% in the quarter and by 10.5% year-on-year comparison.

We especially highlight the performance of the Individuals segments, which grew 19% in 12 months. Our fee revenues, which has been under pressure, has been adjusted in the previous quarters and already show signs of improvement with growth in major lines. We believe it should keep the recovery.

Our expenses, which presented -- represented a relatively strong increase due to a planned strategy of ours, have already start to return to the regular pace and we believe that is going to continue this way. After a [series] and comprehensive program of expenses reductions and controls that we [prepared] ahead for yourselves. We are determined to keep them under control. Now that we have made all the necessary adjustments.

We have been able once again to present a very strong quarter with a new record in our net income that reached BRL 6.5 billion, growing 19.6% in annual comparison. In the 9-month period of '19, our net income of BRL 19.2 billion grew 22.3% and operational income, 11.6%. As a result, our return on equity in the 9 months remains above 20%, and that's the way we want to keep it.

Our Level 1 BIS ratio reached 14.7%, a 250 bps growth in the last 12 months. Finally, it's worth highlighting the extraordinary dividend of BRL 8 billion that we have recently announced and paid in order to keep an active momentum of our capital, considering growth opportunities and our perception of an optimal capital structure, given the economic momentum.

Now I'm going to jump to Slide 5 in order to present to some details on our figures. Our net income -- or net interest income grew 5.7% in the 9-month period year-on-year and 5.9% year-on-year in the quarter. The performance in this line indicates that we can stay at the center of the guidance, that's our belief. The risk profile of new loan vintages continue to be very good. Our expanded loan loss provision expenses decreased by 4.3% in the quarter, a cumulative reduction of 4.9%, considering the 9-month comparison. As a result, our net income recorded 19.6% year-on-year growth in the third quarter and 22.3% in the 9 months comparison. We bring more details in the figures in the following slides.

Moving to Slide 6. Our ROAE reached 20.2%, considering the third quarter. However, for analysis purposes, adjusting our equity by BRL 8 billion extraordinary dividends, as I have mentioned before, the ROAE in the quarter would have been in the range of 21.5%. The ROAA was 1.9%. And as we have affirmed throughout the last quarters, we believe that we can keep the ROAE above the 20% level.

Despite the impact from lower interest rates in spreads, a slight decrease [envisaged] ahead, our future returns benefits from a stronger loan volume growth, a more favorable portfolio mix and definitely scale. As the economy grows and develops itself, we shall reach a very good level of scale.

Looking at the longer term, considering the maintenance of low interest rates and forward spread scenario, we could see a reduction in returns but we also believe they will still remain at high levels, especially because of the lower level of risk that demand less provisions as we have seen in the last quarters.

Going to Slide 7. Our loan portfolio growth reaccelerated as we have aforementioned closing the third quarter at 10.5%. The highlight was the segment of Individuals. We recorded a 5.5% growth in the quarter and 19% year-on-year, with all lines showing a good performance. It's worth to highlight the personal loans, which [improved] in the product journey, mainly in the digital channel, 62% growth, competitive rates, longer tenure and increased use of analytics led to the portfolio record of 9.7% growth in the quarter and 36.2% in the year-on-year comparison.

In payroll loan, we grew 24.1% year-on-year, and we have a unique position discovered due to our distribution network. Our CEO mentioned a little bit earlier that we are doing around 74% of all the payroll loans from public entities that has come to the market so far.

Public sector payroll agreements and public pension system processing, we are the leading bank. At 78% of our origination is carry out at our branches without commissions.

In mortgage, we grew 16% and 21% in vehicle financing. It's also worth noting that the growth in cards -- credit cards, which accelerated to the 12.5% year-on-year. And in the company's portfolio, there was an acceleration in SMEs, which grew 8.3% year-on-year, 12.9% adjusted for the migration of customers between segments and a slowdown in [deposits,] the increase is stronger in and small companies than mid-sized company. So basically, we still keep on focusing on Individuals and SMEs, that's going to be our main position going on.

Jumping to Slide 8, we show that the evolution of our [credit] origination remains strong, both in Individuals and Companies. With Individuals growing in the quarter, 35.5% year-on-year and the Companies, 40.8%.

Now if you allow me to take you to Slide 9, we discuss our net interest income. Our total NII grew 5.9% year-on-year with the acceleration in the credit margin growth to 5.2%, while the margin in the market remained practically flat in the quarter. And that's how we see the following month. The positive effect of the mix and volume growth during the quarter has outweighed the negative effect of falling spreads. Our net spread is going very well. We believe that the effect of the positive mix and volume growth should continue to offset the front book in spread reduction and the [renewal] of the back book.

Moving to Slide 10, where we have the delinquency. You can see that it remains flat in Individuals, has an increase within SMEs and a higher increase in large companies as a result of a few specific cases. So we are not concerned at all in this line of business. However, this has not affected the loan loss provision expense as the cases were mostly fully provisioned. Overall, we see delinquency under control and aligned with our product mix strategy.

Now on Page 11, we have -- you can see that we have maintained a good performance in terms of provision expenses, with a reduction in the quarter in nominal terms as the cases that led to the increase in NPL creation were well provisioned. The cost of risk ratio dropped 20 bps to 2.3%.

On Slide 12, we show the NPL creation per segment. The increase in the quarter is concentrated pretty much in specific corporate cases.

Moving to Slide 13, you can see that in our fees, our performance improved in the third quarter, as we expected, since our presentation and talks to the market. With a 3.7% growth year-on-year and 2.5% in a 9-month comparison. It's worth noting the good performance in the annual comparison of the custody and brokerage house. Consortium management, checking accounts and also loans operation lines. Asset management fees start to show good results, growing 4.8% in the quarter despite a reduction in the private pension [management] fees. We have additional initiatives being implemented in the wealth management segment, which should certainly produce increasing results in the coming months.

Now as far as operating expenses are concerned, and you can see that on Page 14. The increase of costs above the guidance, so it's mainly due to important decisions taken early this year that we have somehow shared with you throughout the year, such as the implementation of the midrange network compensation program, increased amount of labor suits settlements, reinforcements in some teams, such as the Next -- Next, and the hiring of data scientists. We understand we have to improve our performance in expense. Even we have already taken measures for that, which I'll describe in the following slides. We believe that we have made all the good work in terms of revenues. And now we are really committed to reduce costs from now on as we have reached our best levels in terms of execution as a whole.

In Slide 15, we highlight the measures which should allow us to have a much better performance in costs in 2020. We expect to close a total of 150 branches in 2019. Therefore, as we have closed 50 branches this year, we still have 100 more to come until the end of the year. And we do intend to close at least 300 branches in '20.

In future periods, we should have a lower number of employees as a result of the new voluntary dismissal program that is ending today. We shall release some figures ahead. But so far, we have 3,000 employees that have joined the voluntary dismissal program. It's a little bit higher than we initially thought but it's good for our expenses control. And finally, we believe that the labor suits expenses in 2020 will be lower than this year.

Going to Slide 16, if we can see that the third quarter was very good for the Insurance on -- the net income reached BRL 1.89 billion, a 2.8% growth in the quarter and a 28.9% year-on-year. The ROAE reached 24.1% in the third quarter. And it's also worth noting the acceleration in premiums growth, which reached 12.3% year-on-year, highlighted the strong performance in life and pension, which grew by 8.3% in the quarter and 18.2% year-on-year. It's doing -- we are doing a very good job there.

On the following slide, that is Slide 17. We highlight the 20.1% evolution in 9-month net income from Insurance in 2019 with 23.6% ROAE. The health and P&C segments stood out in terms of earnings performance. In the 9-month comparison, which eliminated seasonality, we recorded the improvement in the group's consolidated combined and claims ratio. That's the best way to consider the Insurance growth, if you look even at a 12-year period and you shall see all the seasonality being equalized.

Going to Slide 18, we closed the quarter with a quite comfortable BIS ratio of 14.7%. The impact on the BIS ratio of BRL 8 billion extraordinary dividends distribution will be partially mitigated by the reallocation of Insurance groups' resources that came through dividends. The extraordinary dividend should lead to a reduction in BIS of 110 bps and the Bradesco Seguros dividend should have a positive impact of 60 bps. So net-net, we have here 60 bps to come. We need to -- as you can see here, such a drop should be fully mitigated by the fourth quarter cumulative profits.

Going to capital management, I would like to stress that, as we have mentioned on October 7, we are now [already] paid on October 23, the BRL 8 billion extraordinary dividends. That pretty much represented a yields of 3%. And we find that our distribution of the excess capital generated in our operation. We'll be considering the following aspects: business opportunities, environmental risk level and a view of an optimal capital structure for the moment. That's the best to add value to our shareholders.

In relation to our guidance for 2019, we can say that we should remain in the mid of the guidance in the expanded portfolio, in the mid of the guidance or slightly higher in the net interest margin, in the lower part of the guidance in fee revenues, above the guidance in operating expenses, above the guidance in earnings from Insurance operations. And finally, in the upper part of the guidance in expanded loan loss provisions.

Thank you very much for your time and I'm going to be more than happy to address any questions you may have.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Jorge Kuri from Morgan Stanley.

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Jorge Kuri, Morgan Stanley, Research Division - MD [2]

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I was wondering if you could share with us the thinking behind the branch rationalization program that you talked about, which is an acceleration from what you've been doing. What is the scope for -- if you think a little bit longer term, what is the scope for branch reduction a few years down the road? And what specifically cost savings do you think that 400 branches that you're going to close in the fourth quarter plus next year could represent for your P&L? And my second question is on the outlook for credit growth in 2020. I know you provide formal guidance with the fourth quarter numbers. But if you can just talk about just overall big picture thoughts of how 2020 could fare, vis-à-vis, this year? What are the conditions that could drive faster growth next year versus this year? And where do you think you could see better numbers among the different categories that you provide?

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Leandro de Miranda Araujo, Banco Bradesco S.A. - Deputy Executive Officer, IR Officer & Member of Board of Executive Officers [3]

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Thank you, Jorge. This is Leandro speaking. I'm going to speak here regarding the rationale behind our branch-reduction program. And then Firetti may add some points here regarding to how much money we can save from that.

First of all, all of our branches has to be profitable. That's the first rule. And we do see how much profit each one of them are regarding to the business coming and to all the clients that we do have. We have seen that we have small branches that are very close to big ones. And so we can be flexible. We can reduce costs to then serve our clients even better. So the way we see that is that our advancements in IT, as we are in the age of technology and a better rationale behind, a better use of our branches and considering that all the time, we shall be profitable, allow us to see that we shall see at least 300 branch reduction for the coming year. And again, answering your questions regarding to the coming year, we are going to see if the clients are using our branches then we have to consider that Brazil is a country -- different countries. So that means we have different regions with different features, different kind of clients and so in this sense, if we have a proper use of our branches, we shall keep it. Otherwise, we shall change it to digital channels.

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Carlos Wagner Firetti, Banco Bradesco S.A. - Department Officer [4]

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Jorge, unfortunately at this point, we don't have a number to share. This 300 branches represent roughly 6.5% of total branches we have in Bradesco. We think -- and that adds -- the 300 branches in 2020 and that adds to some 150 we are closing this year. This is actually, we can say, this is not an isolated movement. Basically, it's part of our rationalization that we will keep taking the opportunities we find in coming years. But at this point, we don't have the numbers to share.

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Leandro de Miranda Araujo, Banco Bradesco S.A. - Deputy Executive Officer, IR Officer & Member of Board of Executive Officers [5]

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Yes, let me get back here to your second question regarding to our guidance. Of course, we have not provided our guidance for the coming year. But I just would like to give you a flavor regarding to where we should go, right? We are pretty much well positioned in Individuals and SMEs. That's the place where we want to stay. We see a natural leadership of ourselves in these segments. We have an aggressive [data] regarding to Brazil. So as long as Brazil economy grows and develops, we shall see, because of the high unemployment rates, more and more Individuals and SMEs could come into the system. And we are the leading bank in this segment. So we shall see ourselves more and more positioned in Individuals and SMEs.

The second point is regarding to the provisions, [indiscernible] our portfolios. We see the new vintages extremely healthier than the previous ones. We shall consider that it shall be -- shall come, as well as indiscernible for quite a while. And then in the coming year, we shall see the provisions coming along with the growth of the portfolio. But the more important part of that is the net spreads. The net spreads, we are -- despite of all the competition that we see in the country, due to this deleverage in the weak environment that we're seeing in Brazil, we have been able to increase it. And as we get scale, and as we get new clients in the system, we shall continue to perform very, very well.

Fees and commissions. We believe that we are on some sort of a changing point here pretty much we have from a trend in the first quarter -- in the first semester that we are not happy with. We have made all the adjustments regarding to that, especially because of the new interest rate scenario. And then we have been able to harvest all the profits this quarter, but [it's still] a trend and pretty much believe that we are in an inflection point here. And as we get new clients in the coming year, this fees shall grow.

Operating expenses, that's our focus for the moment. We do believe that we are going to be able to keep them below inflation for the coming year, especially because this year, we have 2 different lines of costs. We have the [PD] and that we have all the labor suit settlements that are things yet we did not use to do in the past. So in the following year, we're going to have a base of comparison as well as you're going to have the ability to see that we shall be coming according to inflation.

And then on the Insurance business, especially in health, we are able to grow [in this process as the economy goes by.] We have a very prime plan. And overall, we expect to see good years ahead.

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Operator [6]

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Our next question, Nicolas Riva from Bank of America.

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Nicolas Alejandro Riva, BofA Merrill Lynch, Research Division - Research Analyst [7]

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Only one question on these corporate cases that you say, drove the increase in the 90-day NPL ratio by 40 basis points. It looks like you [moved] them from 50 -- 90 days overdue to 90-plus days overdue. If I look at Slide 11 of the earnings call slides, you say that BRL 1.1 billion of the new NPL creation was because of these large corporates. Should I interpret then a bit, exposure that you have to these corporate clients is BRL 1.1 billion or roughly $300 million? And also, can you give some color on these corporate clients, if you can say which sectors they are in, what's the level of coverage on exposure to these clients? And if you expect to book more provision for these clients in the fourth quarter.

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Carlos Wagner Firetti, Banco Bradesco S.A. - Department Officer [8]

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Yes, Nicolas. Thank you for your questions. As usual, we don't open the name and sectors of this case when they -- they happen. These are companies that are basically fully provisioned. It is -- it's not really something very new, things that have been -- we have been dealing with for some time. So they are fully provisioned. They turned into NPL this quarter, but since they were already provisioned, this is one of the reasons our corporate ratios suffered a big reduction this quarter. So you have higher NPLs but not more provisions because we already had it. The other things on coverage was the sale of a big loan that we had recovered in the fourth -- in first quarter this year from court recovery. When it came back to our portfolio, it is a performing loan. We brought it back with 100% provisions of its face value. And as a performing loan, we sold it this quarter without major impact on revenues. And the provisions actually were -- the provisions [indiscernible] so this also had impact in coverage. But basically, it's not going back to the specific case that we pointed amounting BRL 1.1 billion. It's not a single case. There are a few cases and as I said, fully provisioned.

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Operator [9]

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Next question comes from Marcos Assumpção from Itaú.

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Marcos Assumpção, Itaú Corretora de Valores S.A., Research Division - Sector Head [10]

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First question, there was a news that Lazari commenting that it would be harder for the banks to post 20% ROAE levels in the future. If you could comment or talk a little bit about the main trends that you see that could impact long-term profitability of the banking business in Brazil, it will be helpful.

And the second question, on the cost side, we understand that the big portion of the cost performance can be explained by the non-structural factors. But looking at your structural cost, it also increased 6% in the first 9 months of the year. So can you comment a little bit also on the main drivers that impacted the structural cost in 2019, please?

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Leandro de Miranda Araujo, Banco Bradesco S.A. - Deputy Executive Officer, IR Officer & Member of Board of Executive Officers [11]

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Marcos, Leandro speaking. Let me just start by the first comment that you have made regarding to our CEO statement. Pretty much, it was out of context in the way it was printed in the newspaper. What Lazari has mentioned is that as Brazil evolves throughout the years and as the economy evolves and we see a lack of a decline in interest rates in a world, that is -- you have either 0 or negative interest rates, you should not be able to keep 20% ROAE because the banks all over the world in development -- developing countries will not have 20% ROAE. That's what [he means]. Lazari had pointed out in the 2 calls that he did this morning, that we are confident on keeping the 20% ROAE for the coming years. We are well adjusted in the segments that grow the most and with the higher spreads and with lower provisions that are the Individuals and SMEs in the country. We are on an inflection point regarding to our fees. And now we are extremely committed and focused to reduce our expenses. So far, we want to keep these levels. And as he also pointed out, we are going to keep an optimum capital structure, depending on the economic environment, on the opportunity that we see, also the risks that we have to consider in our provisions. And therefore, at that time, we shall take a decision in order to see how we're going to treat excess capital as the case may be.

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Carlos Wagner Firetti, Banco Bradesco S.A. - Department Officer [12]

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Okay, Marcos. So now going to costs. As a point -- they stressed -- we have breaking down the personnel -- personnel expenses been restructured and those structure as you point, basically, the structure is growing by 6.4% year-on-year. We had some hirings this year. Basically, most people related to the data science, commercial people, people for -- investment consultants, Next. So this is -- it's not a big number of hirings, but we had some in these areas. And also these structural costs grow with the annual salary readjustments we have every year. So this is the driver for this 6.4%. We did have major reductions, as I said, a number of people. So that's why it's growing above inflation.

On the structural part, we have, first, the implementation of a bonus program for the branch network employees. Bradesco, until this year, didn't pay any bonus for the account managers in the branches. We based the compensation and the benefits on the [current] career evolution we have here in the bank. And we adopted that. I think it's a very important move from the bank in a number of aspects. So we have this basically coming from 0 to the size of our bonus program that reaches roughly something like 35,000 people roughly. So next year, basically, the growth certainly is not going to be the same. It's [not] going to be much more based on the evolution of the achievement of the targets that are proposed to these people.

The second thing, the provision for labor lawsuits. Bradesco historically haven't been doing agreements on lawsuits. We used to litigate, defending our rights again. And considering the cost of carrying litigations here in Brazil, they are corrected by an indexation factor plus inflation -- indexation factor plus 1% per month. We decided to change the approach and we started to work on this agreement. So we have a big inventory, a big number of cases given the fact we didn't do this agreement. So this is the reason we have this increase. It was at this [figure,] in the beginning of this year that should ease the cost in the future but brings higher costs right now. So for next year, we believe these labor lawsuits are going to be more well-behaved. I think part of the agreements we have been doing. We already have some [facts] for the behavior of this line next year. And in the -- also looking to the structural part, given the fact we had the voluntary dismissal program finishing this quarter, where until the day before yesterday, we had 3,000 people enrolled in the program. It closes today. So basically, 3,000 is a little bit more than 3% of the personnel, the current base of people we have in the bank. So it should have an impact and didn't stress so far going forward. And off of that, we have the branch network's restructuring and reduction. As I said, 150 this year, 300 next year. This also will have a positive impact in our costs.

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Operator [13]

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Next question, Tito Labarta from Goldman Sachs.

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Daer Labarta, Goldman Sachs Group Inc., Research Division - VP [14]

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A couple of questions also. First, in thinking about your margins, looks like -- performed well in the quarter. But if we look at the -- the spreads were down about 276 basis points. Partially offset by the mix but also the number of days, right? So if it wasn't for an increase in the number of days, your margin could have been down a bit. So how do you think about that, I guess, going into next year, you have lower interest rate, hearing more competition? Do you think there could be some pressure on margins for next year? And second question in terms of your cost of risk, they came down a bit, even though asset quality deteriorated. I understand you already provisioned for the increase in NPLs and the corporates. But we did see a slight increase in SME NPLs. Consumer NPLs were basically stable, but the mix is shifting towards higher-risk loans. So how should we think about the cost of risk going forward? Has it bottomed here? Is there more room for improvement? Or should it begin to pick up a bit going into next year?

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Leandro de Miranda Araujo, Banco Bradesco S.A. - Deputy Executive Officer, IR Officer & Member of Board of Executive Officers [15]

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Hey, Tito. Leandro speaking. Let me start with the margins for the coming year. I guess, going forward, we shall keep on seeing a very good behavior. As long as we are focused on Individuals and SMEs, the margins are there. We believe that we are [under] the risk scenario. And the Individuals [indiscernible] and SMEs still have plenty of room to leverage themselves so we keep on doing that. Regarding to corporate [names,] we believe that they are going to [act] more and more indiscernible capital markets, either local and international, as the case may be. And we have a leading investment bank. So it shall benefit our fee lines. That's the way we see it. And regarding to cost of risk, you have seen that we have been able to grow the net spreads and the reason for that are our provisions. We believe that they shall keep on the same pace to the end of the year. And for the following years, especially on the second semester of 2020, we shall see it growing according to the portfolio as a whole.

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Daer Labarta, Goldman Sachs Group Inc., Research Division - VP [16]

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Okay. That's helpful. Maybe just a follow-up, I guess, in terms of the margins and the mix. Because we think about the mix, you're growing consumer loans already 20% year-over-year, even the economy is still going, well, less than 1%. So although the economy should pick up next year. So is there room for that mix to continue to shift the way it's been shifting? I know corporate lending should be kind of continue to be weak, but maybe that picks up from the low -- so maybe you don't get that mix benefit as much. I don't know, it just kind of how you feel about the mix as well, just given you've had very strong growth in consumer and very weak growth in corporate and maybe that shifts a little bit now?

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Carlos Wagner Firetti, Banco Bradesco S.A. - Department Officer [17]

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Tito, we believe the mix will look like the same. Basically, the segment that is very dynamic -- the segments that are very dynamic are Individuals and SMEs. So far, corporates are not demanding much. They are not investing. They haven't entered so far in a big investment case. We do believe it will happen probably next year. But we believe the Brazilian capital markets is very liquid. The rates, very competitive, so probably they will take part of the needs of corporates. But it's not that, basically our role in this relationship is being [dangerous] for our clients and providing them the best access to funding where they find it. So we think that's going to be the profile. Lower growth in corporates, even though we might find a lot of other business in the corporate segment.

In terms of Individuals, we still have 12% unemployment. We think the economy will still go through an improvement. We haven't seen strong growth for almost 5 years, we don't have seen almost any growth actually for the last 5 years, and that -- the return on our growth actually should have some -- some impact. So I think there are new [rounds,] in our view, coming from Individuals. And also, there's also a lot of things we are doing internally in terms of credit modeling, use of analytics. We can see better, understand better the risk of clients and this is for instance, one of the key things behind the very strong growth in personal loans. That is basically we're growing almost 36%.

In SMEs, we are doing okay. We are doing well in the -- in small companies especially. I think there are some good dynamics there. The SME is still about to see the best days. They have -- they probably -- they -- we will accelerate with the economy. So we think the profile next year, I'll say, would be more or less similar of this year and maybe even for the coming few years.

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Operator [18]

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Next question comes from Jorg Friedemann from Citibank.

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Jorg Friedemann, Citigroup Inc, Research Division - Director [19]

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I have 2 questions. First, you highlighted in the presentation that you're going to do a more proactive management of the capital, taking into consideration the growth opportunities and the level of risk. So considering the coming year, would you like to be in terms for your common equity [actual ratio?] So this is the first question. And the second question regarding the voluntary dismissal program, I understood you have already achieved approximately 3,000 employees, and could be even a bit higher as the program closes today. But could you give us a bit more color about how many employees were eligible to the plan so we understand the hit ratio that you had? And just to recover here because I think I lost the part where you discussed this on the part of this call. Could you just go over this math? You are like -- dismissing 3% of the bank's headcount, the average income of these people is higher than the bank's average. So recurring savings could be 4% or so in terms of staff expenses, is this a fair assumption?

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Leandro de Miranda Araujo, Banco Bradesco S.A. - Deputy Executive Officer, IR Officer & Member of Board of Executive Officers [20]

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Jorg, Leandro speaking. Regarding to capital structure, we do not have a magic number. And we wouldn't like to provide so because we are living in a country that's an emerging economy. We do have a very good perception that the economy is on track, that we shall see a very good scenario. But if you do -- the environment gets worse, we're going to change it. We're going to need more capital. And in order to be conservative in respect the value of our shareholders. On the other hand, if the economy really happen in the way we may see, we shall meet the adequate capital for that. So we would not like to provide an exact number. Otherwise, you shall not be able to make the right projections. The best way to understand it is that we do have a very good feeling, a very good perception of where the business is. And as long as we identify the business opportunities, we see the risks that we have to be provisioning. We are going to consider if there is any sort of excess capital to release it. Otherwise, we shall keep it. So we prefer to state on the concept than with numbers. That provides us flexibility and the best way to handle the bank and the business as a whole.

Regarding to eligible employees. I would say that should be between 9,000 and 10,000 employees that were eligible to enroll in the program. We had 3,000 -- around 2,000 employees, maybe a bit higher than that, it was better than our initial forecast. You have seen that the competitors of ours has released numbers of 2,000 employees, and they have a very close size of ours. So we are happy with that. And now we have to understand and make our calculations because we have until the end of the day, to see everyone that has enrolled to the program. In order to see their level, their compensation and how many -- how much savings we are going forward. We can follow-on on you in our usual meetings as we have and help on that matter.

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Jorg Friedemann, Citigroup Inc, Research Division - Director [21]

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Okay. Perfect. But the assumption that the average salary for those employees is higher than the bank's average seems correct? Right?

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Leandro de Miranda Araujo, Banco Bradesco S.A. - Deputy Executive Officer, IR Officer & Member of Board of Executive Officers [22]

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Yes, correct. Because of the years that they have here in this situation. If you consider that, they shall be above 15 years, initially 20 years and then 15, pretty much they shall be above average, above the average of this situation as a whole. But just a -- as Marco mentioned, sometimes [indiscernible], we have also to consider that some positions, they have to be replaced. Not necessarily improving the number of employees, but promoting someone for that position. For instance, the manager of a bank. So calculations are a little bit more complicated than it seems at the beginning.

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Operator [23]

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Next question, Jason Mollin from Scotiabank.

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Jason Barrett Mollin, Scotiabank Global Banking and Markets, Research Division - MD of LatAm Financial Services [24]

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My question is related to the lending market in the Individuals segment. The 3 largest types of loans that are I see in your portfolio are payroll, real estate or mortgage financing, and credit cards. Can you talk about the current lending spreads in general terms for those 3 segments versus CDI? And then also kind of compare where those spreads are today versus a year ago? And where are we going here? I'm just trying to understand better how the shift in mix, clearly, the lending yields are higher in Individuals, et cetera. But I'm just trying to understand how this market is evolving and what the outlook is like.

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Carlos Wagner Firetti, Banco Bradesco S.A. - Department Officer [25]

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We don't provide the spreads for the specific lines. As you know, the Central Bank provides us a weekly survey on spreads. Basically, this is a very good base for seeing the average spreads we provide there and even the average spreads for [the line.] I think I would prefer to refer you and the other investors to that to talk about numbers. But basically, as a proportion, we are growing we are growing 16% in mortgage. And basically, this is clearly one of the lowest spreads among Individuals, but have other benefits in terms of client retention, cross-selling and other relationships we have with these clients. Payroll loan, it is a good product. I think we play with rates that are, on average, below the market average because we are very competitive. I think we have very good channels for origination, since we are big -- a bank where -- that is one of the biggest payers for social security retirees. They receive their salaries in our branch. We have the relationships with them. We also have quite a large number of payroll relationships with [CPs] in state that have provided capacity to have a good origination with this. So 78% of our origination in payroll loans are not subject to commissions to credit agents on which you can see, on average, commissions like 15% or so. So we are very competitive in that -- in that business. So we can actually be more competitive even in rates.

Personal loans certainly comes above payroll loans, but we have been very proactive and very -- and exploring the opportunities with our clients in terms of pricing. I think that's part of the analytics we mentioned, actually analyzing more detail the offers and having the capacity to do that. So I think this is the best answer I can provide you on this.

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Jason Barrett Mollin, Scotiabank Global Banking and Markets, Research Division - MD of LatAm Financial Services [26]

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But maybe just to talk a little bit. I understand that, and we do have those public numbers, but I'm just thinking, in general terms, if you see spreads, I mean, are spreads -- we know that on some of these products, we've seen the loan yields coming down. But is there actually an effort to reduce spreads here, like what is an average mortgage rate now in the market? They've been obviously coming down in the last year or two. And I think that could free up. I mean, is there the need? I'm just trying to think about absolute rates, how do you see that? Are the rates within more than -- are we seeing some spread compression or rates just coming down with the base rate or not even as much?

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Carlos Wagner Firetti, Banco Bradesco S.A. - Department Officer [27]

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No. They have been gradually -- they have -- They have been going down gradually over the last...

(technical difficulty)

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Unidentified Company Representative, [28]

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Thank you very much for everybody's participation. We don't have any other question on the list. So if you have any other questions, please contact the Bradesco's Investor Relations department. We are available to answer them. Thank you very much.

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Operator [29]

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