Good morning, ladies and gentlemen, and thank you for waiting. We would like to welcome everyone to the Bradesco's Second Quarter 2020 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 the beliefs and assumptions of Banco Bradesco's management and on information currently available to the Company. They involve risks uncertainties and assumptions because they relate to future events and therefore, depend on circumstances that may or may not occur in the future. Investors should understand the 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, Director and Head of IR.

Hello, everybody. Welcome to our conference call for a discussion of our second quarter results of 2020. We have today with us here in our headquarters our CEO, Octavio de Lazari; our Executive Vice President and CFO, André Cano; Vinicius Albernaz, the CEO of Bradesco Seguros; Leandro Miranda, our Executive Director and IRO. Before starting the call, let's the turn floor now to Leandro.

Thank you very much, Firetti. Good morning, everyone. Welcome to our conference call and the results for the second quarter 2020. The second quarter was certainly one of the most challenging quarters that we have experienced in the recent history of the bank, with the pandemic causing a strong impact on the economy and a loss of income by part of our clients and from the Brazilian families as well. In a scenario like this, that we have never seen anything like that before, our strong balance sheet, the right provisions and liquidity are essential. And those were the key pillars that we addressed this quarter. We worked intensively in the adaptation of the bank to the new operating conditions, facing dfthe uncertainty as to the evolution of the pandemic on the pace of the reopening of the economy. From May on, possibly with the contribution of the emergency aid and the beginning of the reopening in other countries, we have seen a significant improvement in the activity and the confidence of our people. Today, we face an economic scenario that remains challenging, but apparently, the worst moment has already passed. This week, our economy has upgraded GDP for expectations to a decline of 4.5% from the previous forecast of a decline of 5.9%. In the quarter, we had a credit growth of 0.9% and 14.9% in 12 months, impacted mainly by the segment of companies. Among the various measures adopted by the Central Bank of Brazil, we had a release of coupons and reserve to the sum of BRL24 billion. However, between April and June, we released BRL129 billion in new credits. One of the major highlights of the quarter was the process of extension of loan operations for clients who were not delayed at the end of February.…

[Operator Instructions]. Our first question is coming from Mr. Jorge Kuri of Morgan Stanley.

Two questions, if I may. What evidence, what estimates? What data are you looking at to have that view that we've seen the people NPLs and provisions well, specifically the peak of provisions in this quarter and that the second half should have lower provisions, especially in the context of that large amount of loans that are under the different programs that have been restructured. And we still don't know how that's going to turn out once they expire and your coverage ratio is not that high, really. I mean it's 124% if you look at including the renegotiated loans. So can you share with us how are you coming out with that conclusion that we're seeing the worst. And the next half, we should see lower provisions. And then my second question is on -- my second question is on expenses. Where your minus 7.6% decline in the first half of this year is quite impressive and so congrats for that. Can you help us understand, as you discussed, you expect nominal decreases this year in the next few years is minus 8%, sort of like probably above what could be a normal run rate over the next couple of years given that you have some emergency costs in this period and maybe some low-hanging fruit or it is kind of like what we could see for 2020 and 2021?

Leandro speaking. Well, please mention your first question, we have seen the behavior of our portfolio. And now the basic delinquency ratio is around 3.5%, it has been the worst month. And from that point on, we pretty much have seen that the behavior of family payments is really good. So unless we have a second wave of the pandemic that is much, much strong than what we have seen all over the world, especially in China and others, we are confident that the peak has already passed us. Regarding to expenses, we are committed to reduce expenses into nominal terms. And what allows us to believe that, we are able to do so is pretty much the process that we are going through, with a lot of reduction in expenses due to home office, less use of the branches, change branches into point of services and have been able to reduce transportation. We have been able to reduce safety in the branches too. Therefore, we are really committed to that and confident that we're going to be able to do it at least in 2020, 2021. There is a slide here regarding to the levers that we are using to reduce expenses I think can give you a very good outline of the several measures that we intend to implement.

Jorge, only a complement on the first answer from Leandro regarding your comment that the 124% coverage, including renegotiated loans plus and NPLs is not that high. We are including here the loans, basically we are excluding the NPLs that are in both portfolios, 90 days and also in the renegotiated portfolio. But I remind you, we have about 68% of coverage with provisions in the renegotiated portfolio. If I remove loans that are already fully provisioned, and we have a lot. If you look at that chart, we present the renegotiated portfolio. We're going to see that at BRL4.8 billion came from the write-off recovered loans. At least these ones are fully provision and actually more than that, since we have 68% provision. If you adjust for this 100% provision loans. Actually, on the loans where we are not fully provisioned, this coverage will be much, much higher. So in that sense, 124% is pretty good considering what I just told you.

Our next question is coming from Marcos Assumpção of Itaú BBA. Marcos Assumpção: My question is on the role of branches going forward. More of a long-term view here. As you mentioned a lot of KPIs on increased digitalization trend. So how do you see -- and also, you mentioned the levers in terms of efficiency, a couple of them are related to branches. So how do you see the potential to reduce or to improve the efficiency on eliminating some branches as the client is becoming increasingly digital.

Marcos, Leandro speaking. Basically, as Octavio was pointing out, we have been able to change the regional branches into business offices. And therefore, when you have such a model you do not have to spend money with security. Security represents 1/3 of the cost is on an expense. Despite of that, you are able to increase the amount of transactions that we have in our branch network. We also have already closed near 400 branches, and this number may increase even further this year. So home office, the use of digital channels as you have seen in our presentation, have increased dramatically. And it gives us all the confidence that our customer base is changing its behavior. Therefore, we have plenty of room to that. Marcos Assumpção: All right. And a quick question here on the fintech side. If you could comment after this pandemic, if you see them more at risk than before? And also, if you were able to tap some opportunities in this market during the pandemic. There were a couple of news mentioning that you could be interested in some players. If you could mention about that would be great.

Well, we have a private equity and venture capital arm, so we are always open to good opportunities that can enhance our ecosystem as well as with very good returns. We have invested heavily in all segments of technology with very good return so far. And we are good in the way the bank is structured to date. The organization is in a very good shape but we will continue to make future investments as opportunities come by. As you can see, we have all kinds of investments regarding to the industry. It goes from metal rail to our cloud solutions, goes to weather, to technology, to platform. So basically, we are wide open to that, and we do not plan to make any strategic acquisitions implying controlling interest so far.

Our next question is coming from Mr. Nicolas Riva of Bank of America.

I only have one question, and it is about your NPL ratio, which improved quite a bit, 70 basis points quarter-on-quarter. That came, I think as a surprise given the environment. And I know that you talked about a lot of the relief measures you are doing for clients and restructuring a lot of loans. I wanted to ask you like for example, in this case, did you restructure loans that were actually nonperforming as of March? And then given that you restructured the loans, then it began performing as of June? Or otherwise, why don't you explain such a big improvement in the NPL ratio in the second quarter given the very challenging economic environment?

Nicolas, basically, as you said, this quarter, we have extended loans. They amounted BRL61 billion, loans that basically were not late in March or were not late in February 29. Basically, we also renegotiated, in this case, recall, we renegotiated loans, the ones that were already late before March. So we also renegotiated. We can see -- you can see in the renegotiated portfolio. When we renegotiate these loans, basically, they become performing loans. I think that's the definition of a renegotiation. But also this quarter, we had write-offs. Some of the write-offs that impacted our NPL last quarter, sorry, some of the loans that impacted our NPL last quarter went naturally to write-off this quarter. And also a relatively small loan portfolio, something like BRL500 million that were already fully provisioned. So basically, that's the driver for that. We are very confident that the quality of the renegotiation of the extended loans are very good. I think we presented that in the presentation. And in the case of the renegotiated loans, this portfolio is covered with 68% of provision. So basically, 68% of the entire renegotiated portfolio is covered by provision. So it's a pretty sound coverage.

Yes, just to add to [indiscernible] what [indiscernible] has said, you have to consider that pretty much we also sold from portfolios. And the clients that decided to refinance, they represent around 96% of clients that we used to pay their debt timely, which ranges from AA to C and with over 14 years of relationship with us. So pretty much, we are confident on the quality of the portfolio.

Okay. Just one quick follow-up. The latest release measures, did you restructure any loan that was nonperforming as of March. And therefore, you were able to reclassify that as performing? Or did you also, or do these relief measures only applied to claims that were performing before the pandemic began?

As I explained, Nicolas, the loans that were performing until March are the extended loans as part of the BRL61 billion in extended loans. And we also restructured loans for clients that were already late before March, did not in the renegotiated portfolio. And as I said, this portfolio is covered with 68% of provisions.

Our next question is coming from Mr. [indiscernible] on [indiscernible].

It wasn't clear for me in the previous Q&A. When do you believe NPLs to peak? I mean how big is the 4Q or first quarter 2020 story? That's my first question. The second question is on the strong improvement on medical loss ratio. In Bradesco insurance and also on vehicle loss ratio. How sustainable is that looking forward? It was a very strong number, but looking forward, what shall we expect mostly for the medical operation? That's it.

Yes, we think the peak should be around the first quarter. Basically, we have this extended loans, renegotiated loans. The extended loans will become -- they will return payments probably by October. And basically, also we shouldn't keep renegotiating loans or loans that were already renegotiated. So, I think the timing seems to be something around the first quarter. It could be maybe fourth quarter. It depends on a lot of variables. But I think 4, maybe more to the first is a good guess at this point. Can you repeat your second question? I didn't hear properly part of it.

Okay. My second question was on the improvement in the medical loss ratio for Bradesco insurance. How sustainable is that looking forward?

I think I'll pass that to Vinicius Albernaz.

Thank you for your question. In regards to the medical loss ratio, we have to take into consideration that the second quarter, we had -- in the second quarter, we had the full effect of the pandemic and the social distancing measures, and we definitely don't think this radical drop in medical loss ratio is going to be the normal or is going to be the recurring situation going forward. That's precisely why -- and even though we don't have yet the visibility to tell you how this is going to come back, I mean, we certainly believe that there is significant backlog of procedures that will have to be addressed. Also, I mean, we have to take into account that at the average cost of even the COVID procedures are high in relation to others. So we think that going forward, there's definitely going to be an increase, and that's precisely why we were strengthening our balance sheet by creating these reserves that are reserves that are not captured by your typical mathematical or actuarial models, but we understand that the current visibility, the right procedure is to create these reserves in order to have a more normalized medical loss ratio, more normalized results for this current quarter, okay.

Our next question is coming from Mr. Jason Mollin of Scotiabank.

I have a question related to the first comment that you made in your presentation that the economic scenario remains challenging, but the worst moment apparently has passed and that the bank has improved its outlook for economic growth or lack thereof for real GDP of minus 4.5, I think it was 5 something before. And I think the Focus Survey, the consensus is close to minus 6. So, not just in terms of the provisioning because you made a lot of provisioning and you're saying that, that could peak. But what are you seeing for the economy that gives you confidence that the worst has passed? And if you could put that the worst has passed? And if you could put that into context of what will control economic growth in 2021? Again, the survey by the Central Bank, the Focus Survey has -- the last week -- from last week, I think was 3.5%. So if you can talk about what's giving you confidence that the worst has passed and what kind of scenarios, what -- I mean, clearly, COVID is a wildcard, but what are you seeing is giving you this confidence? And what could derail this expectation?

Thank you, Jason. This is Leandro speaking. The best person to answer that should be our Chief Economist. But unfortunately, he's not here, so I'm going to try to give a flavor of the main concepts that -- what we have seen so far. But pretty much, as we have also noticed all over the world, the economies are getting back on track much, much faster than initially imagined. And all the indexes that we use to measure confidence, production, consumption and sales in Brazil, they have surpassed our best expectation so far. That's the reason why he has improved his view on GDP for this year, and he kept the view of GDP in next year. But he's not alone. If you consider that the opinions of most of the Chief Economists on the other banks, you're going to see that they are pretty much alignment. Therefore, we use those numbers to align our budgets and the way we see the economy improving. So far, we have been able, since May because April was a very tough month to see that the behavior in loans has been pretty much well. What allow us to be confident that the Brazilian economy is going to get back on track. Of course, no one knows if they're going to have a second wave of the pandemic, how strong will that be, what should be the impact. So pretty much, we are aligning with the rest of the world regarding to expectations.

And what about the expectations for next year? What are you -- what is your economist looking for? And is the rebound in line with that consensus of around 3.5% of GDP growth?

Yes. Next year, Jason, basically, you have these comps. Basically, part of the -- we have a drop pretty much caused by the interruption of activity, a lockdown as we have never seen before. Basically, I think the assumption there for the 3.5% is that we're not going to have a hard second wave that will actually harm this natural recovery that in our view is going to happen. So remember, we are shrinking 4.5% this year. We are growing 3.5% next year. We are not really going back to the same position with that. So I think it's not hard to see that. The variable, as I said, is we don't have a bad second wave happening.

And with that anticipation -- reform coming through, tax reform? What is the bank looking for in terms of tax reform and other potential reforms in the upcoming quarters?

We understand that the tax reform will pass-through. Of course, there are a lot of elements to be still discussed in the Congress. We have seen that pretty much the politicians are in favor of the simplification of the reform. The deal shall be paid by the wealth people and companies in the society. And I guess the general levels that we have been discussing so far, this seems to be acceptable.

Thank you, Jason.

Thank you very much for your attention, Jason, and other colleagues. Have a great day.

Excuse me, ladies and gentlemen, since there are no further questions, I would like to invite the speakers for the closing remarks. Please wait while we reconnect speakers line. Ladies and gentlemen, that does conclude Bradesco's conference call for today. Thank you very much for your participation, and have a good day.