Banco Bradesco S.A. (BBD) Q3 2019 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen, and thank you for waiting. We would 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 a presentation available for download [Operator Instructions]. Before proceeding, we would like to 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, industrial conditions and other operating factors could also affect the future results of Banco Bradesco and cause results to differ materially from those expressed in such forward-looking statements. Now I will turn this conference over to Mr. Carlos Firetti, Market Relations Director.

Good afternoon, everybody. 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; Andre Cano, Executive Vice President and CFO; Vinicius Albernaz, Bradesco Seguros, Chief Executive Officer; and Leandro Miranda, Executive Director and Investor Relations for Banco Bradesco. Now I turn the floor to Leandro.

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 for the moment of inflection [ph] that Brazil is currently experiencing, which finally seems to indicate a good part of gradual, more consistent and healthy growth with inflation under control, that's the best part of it. We notice that the presence of a correct political environment [ph] ensures Brazil's needs has allowed approval to the [indiscernible], which is fundamental to the long-term sustainability of the country for public finances, and final, the favorable environment for approval of 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 should 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 individual segments, which grew 19 [ph] 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 represented a relatively strong increase due to our planned strategy of ours have already started to return to their regular pace and we believe that's going to continue this way. After a series and comprehensive program of expense reductions and controls that we prepared ahead for ourselves. 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 BRL6.5 billion, growing 19.6% in annual comparison. In the 9-month period of '19, our net income of BRL19.2 billion grew 22.3% and operational income, 11.6%. As a result, our return on equity in the nine months remains above 20%, and that's the way we want to keep it. Our Level 1 BIS ratio reached 14.7%, 250 bps growth in the last 12 months. Finally, it's worth highlighting the extraordinary dividend of BRL8 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 nine 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 extended loan loss provision expenses decreased by 4.3% in the quarter, accumulated reduction of 4.9%, considering the nine month comparison. As a result, our net income recorded 19.6% year-on-year growth in the third quarter and 22.3% in the nine 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 BRL8 billion extraordinary dividends, as I have mentioned before, the ROAE in the quarter, it has 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'll keep the ROAE above the 20% level. Despite the impact from lower interest rates and spreads, a slight decrease envisaged ahead, our future returns benefits from a stronger loan volume growth, a more favorable portfolio mix and definitely its 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 overall 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 entities, which 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 carried 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 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 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 companies, 40.8%. Now if you allow me to take you to slide 9, we discussed our net interest income. Our total NII grew 5.9% year-on-year with 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 months. The positive effect of the mix and volume growth during the quarter has outpaced the negative factor of the falling spreads. Our net spread is growing very well. We believe that the effect of the positive mix and volume growth should continue to offset the front book, spread reduction and the review of the back book. Moving to slide 10, where we have the delinquency, you can see that it remains flat in individuals, had an increase in the mezzanines 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 our good performance in terms of provision expenses, with the 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 30 bps to 2.3%. On slide 12, we show the NPL creation per segment. The increase in the portfolio 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 nine month comparison. It's worth noting the good performance in the annual comparison of the custody and brokerage accounts, consortium management, checking accounts and also loan operation lines. Asset management fees started 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 was mainly due to important decisions taken more in 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 settlements, reinforcements in some teams, such as the Max, Max and the hiring of data scientists. We understand we have to improve our performance in expense, and we have already taken measures for that, 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 plan. 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, which we can see that the third quarter was very good for the insurance on. The net income reached BRL1.89 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 premium growth, which reached 12.3% year-on-year, highlighting 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 nine month net income from insurance in 2019 with a 23.6% ROAE. The health and P&C segments stood out in terms of earnings performance. In the nine 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, which looked in at 12-year periods and we 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 BRL8 billion extraordinary dividends distribution will be partially mitigated by the relocation 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 6 bps. So net-net, we have here 60 bps to come. We need to -- as you can see here, such drop should be fully mitigated by the fourth quarter cumulated 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 31, the BRL8 billion extraordinary dividends. That pretty much represented our yields of 3%. And we find that our distribution of the excess capital generated in our operation, will 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 on earnings from share 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.

[Operator Instructions] Our first question comes from Jorge Kuri from Morgan Stanley. You may proceed, Mr. Kuri.

Hi, good morning, everyone. 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 on the road? And what specifically cost savings do you think that 400 branches that you 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?

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 have to be profitable. That's the first rule. And we do see how much profit each one of them are, regarding to the business 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 and 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 a 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.

Jorge, and finally, at this point, we don't have a number to share. These 300 branches represent roughly 6.5% of total branches we have in Bradesco. We think, in that adds [ph] -- the 300 branches in 2020 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.

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 years. 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, the results that we keep for our portfolios. We see the new business is extremely healthier than the previous ones. We shall consider that it shall be short-term also as 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 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 for this quarter, but we see a trend and pretty much believe that we are at an inflection point here. And as we get new clients in the coming year, this 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 two different lines of costs. We have the PDE 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 come in according to inflation. And then on the Insurance business, especially in health, we are able to grow in the process as the economy goes by. We have a very prime plan. And overall, we expect to see good years ahead.

Great, thanks for the detail. Appreciate it.

Our next question, Nicolas Riva from Bank of America. You may proceed.

Yeah, thanks for taking my question. Only one question on these corporate cases that you say drove the increase in the 90-day and duration by 40 basis points. It looks like you moved them from 15, 90 days overdue to 90-plus days overdue. If I look at slide 11 of the earnings call slides, you say that BRL1.1 billion of the new NPL creation was because of these large corporates. Should I interpret them as the exposure that you have to these corporate clients is BRL1.1 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? Thanks.

Yes, Nicolas. Thank you for your questions. As usual, we don't open the name and sectors of this stage when they happen. These are companies that are basically fully provisioned. It is 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 ratio 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 the first quarter this year from cost 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 lagged [ph] the balance so this also had impact in coverage. But basically, it's not going back to the specific case that we pointed amounting BRL1.1 billion. It's not a single case. There are a few cases and as I said, fully provisioned.

Thanks very much, folks.

Next question comes from Marcos Assumpcao from Itau.

Hi, good afternoon, everyone. First question, there was a news of Lazari commenting that it would be harder for the banks to post 20% ROE 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 a 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 nine months of the year. So can you comment a little bit also on the main drivers that impacted the structural cost in 2019, please?

Hi, Marcos. Leandro speaking. Let me just start by the first comment that we 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 declining interest rates in a world, that is -- you have either zero or negative interest rates, you should not be able to keep 20% ROE because the banks all over the world in development -- developed countries do not have 20% ROE. That's what this is. Lazari has pointed out in the two calls that he did this morning, that we are confident on keeping the 20% ROE for the coming years. We are well-adjusted in the segments that were 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, of the risks that we have to consider in our provisions. And therefore, at the time, we shall take a decision in order to see how we're going to treat excess capital as the case may be.

Hey, Marcos. So now going to costs, as a point in case we have breaking down the personnel -- personnel expense has 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 didn't have major reductions, as I said, on the 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 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 or the achievement of the targets that are proposed to these people. The second thing, the provision for labor law suits. Bradesco historically haven't been doing agreements on lawsuits. We used to litigate depending 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 generally 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 yield 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 on top 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 on our costs.

All right. Thank you very much.

Next question, Tito Labarta from Goldman Sachs. You may proceed.

Hi, good afternoon and thanks for the call. A couple of questions also. First, in thinking about your margins, looks like performed well in the quarter. But if we look at the spreads were down about 276 basis points. So that was partially offset by the mix but also the number of days, right? So if 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, a lower interest rate, hearing more competition? Do you think there could be some pressure on margins for next year? And the second question in terms of your cost of risk, they came down a bit, even though last call, we deteriorated. I understand you already provisioned for the increase in NPLs in 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 room for improvement? Or should it begin to pick up a bit going into next year?

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 individual family and SMEs still have plenty of room to leverage themselves. So we keep on doing that. Regarding the corporate names, we believe that they are going to have more and more. They are in different 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 positions. 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.

Okay. Thank you. That's helpful. Maybe just a follow-up, I guess, in terms of the margins and the mix. As 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?

Tito, we believe the mix will all 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 answered so far in a big investment case. We do believe it will happen probably next year. But we believe the Brazilian capital market 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 its relationship is being dangerous for our clients in 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 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 visits. For instance, one of the key things behind the very strong growth in personal loans, that is a business we are growing almost 36%. In SMEs, we are doing okay. We are doing well in the -- is more open, 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 I would 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.

Okay, thank you for that.

Next question comes from Jorg Friedemann from Citibank. You may proceed.

Thank you very much for the opportunity. I have two 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 final risk. So considering the coming year, where would you like to be in terms for your common equity actuation? So this is the first question. And the second question regarding the voluntary dismissal program, I understood this has 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've had? And just to recover here because I think I lost the part where you discussed this, on the Portuguese call. Could you just go over this math? You are like -- is missing 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? Thank you.

Jorg, Hi, Leandro speaking. Regarding the 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 at all 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 happens 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 number 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 that 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.

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

Yes, correct. Because of the years that we 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 deleverage of this situation as a whole. But just, as Mark mentioned, sometimes, we have also to consider that some positions, we have to be replacing, not necessarily improving the number of employees, but promoting someone from that position, for instance, the manager of a branch. So calculations are a little bit more complicated. I mean it seems like beginning into it.

Okay, thanks.

Our next question, Jason Mollin from Scotiabank. You may proceed

Hello everyone. Thank you. My question is related to the lending market in the individual segment. The three largest types of loans that are seen in the portfolio are payroll, real estate or mortgage financing, and credit cards. Can you talk about the current lending spread in general terms for those three 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. And I'm just trying to understand how this market has evolved and what the outlook is like. Thank you.

Jason, we don't provide the expense for the specific lines. As you know, the Central Bank provides us a weekly survey on its branches. 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 this client's favorable loan. It is a good product. I think we are playing 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 cities and states 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 business. So we can actually be more competitive even in rates. Personal loans certainly comes above first payroll loans, but we have been very proactive and very -- and exploring the opportunities of 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.

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, our spreads. We know that on some of these products, we've seen the loan yields coming down. But if they're 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?

No. They have been gradually -- they have grown. They have been going down gradually over the last... [Technical Difficulty]

… you may proceed.

Hi. 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.

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