Good morning, ladies and gentlemen and thank you for waiting. We would like to welcome everyone to Bradesco's First Quarter 2020 Earnings Conference Call. This call is being broadcasted simultaneously through the Internet in the Investor Relations Web site banco.bradesco/ir-en. In that address you can also find the presentation available for download.We inform that all participants will only be able to listen to the conference call during the company's presentation. After the presentation, there will be a question-and-answer session when further instructions will be given. [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 will turn the conference over to Mr. Carlos Firetti, Market Relations Director.

Hello, everybody. Welcome to our conference call for discussing our first quarter 2020 results.We have today with us our CEO, Octavio de Lazari Junior; our CFO, Andre Rodrigues Cano; the CEO of Bradesco Seguros Group, Vinicius Albernaz; and our Executive Director and IRO, Leandro De Miranda.After the presentation, we will run a question-and-answer session where you're going to be able to post your questions.Now I turn the presentation to Leandro.

Thank you very much Carlos Firetti. Good morning, everyone. I hope you and your families are well and I welcome you on our conference call.Today, we will discuss the results from the first quarter of 2020. And once again, talk about our position during this rather difficult time. This quarter has hold up quite different from what was taking place up to mid-March and when we were performing very strongly in a number of lines, even above our guidance, as you may see ahead.The scenario was radically altered by the worsening of the COVID crisis in the second half of March, though, the last we highlighted our balance sheets remains very strong. From the moment that the crisis rose to the scale that it is today, our priorities have changed completely. We focus on maintaining our services to our customers and keeping the bank fully operational along with the well being of our employees. And we are committed to supporting society in overcoming this crisis. All stakeholders are on-board and have a very keen eye on each one of them.I'm proud to state that through the efforts of our entire team, the bank adapted quickly, above expectations. We continue to operate in such extreme conditions, while always accounted for the status of our people and customer as the primary parameter.To give you a reference today, more than 90% of our staff that normally work in our offices are now working from home and 50% of the team's from our branch network, which we considered as an essential service are at home. We are also striving to resolve any liquidity issues our customers be experiencing by initiating a process for going over that that is not only for at least 60 days for small companies and individuals. And mostly our direct…

[Operator Instructions] Our first question comes from Mr. Mario Pierry with Bank of America. You may proceed.

Let me ask two questions. Leandro, you mentioned that you expect, I think, in the Portugese call that you guys expect the NPLs in this cycle to be higher than in the 2016 cycle. At the same time, the amount of provisions that you took this quarter, R$2.5 billion, we think that's enough to cover some of this expected increase. But I'm just trying to put in perspective, this R$2.5 billion frankly, because it doesn't seem like that much given the size of the crisis. And if you are trying to anticipate some of the losses, why not take a bigger provision this quarter? So that's my first question. Now is this R$2.5 billion enough? And why don't you take more?And then my second question is related to your slides on Page 26. We see that NPL creation in the SME segment more than doubled in 1 quarter. So I wanted to understand why are we seeing such an increase in NPL creation before the crisis even hit and if there are any specific sectors or regions where you're seeing this big pickup in NPL creation in the SME segment. Thank you.

Okay. Mario, first of all, the provision that we consider is not R$2.5 billion but R$5.1 billion because we had previous provisions that were added to this. Otherwise, we have increased even more. We believe that these new crisis, we have never experienced anything like that. And so in this sense, we have been discussing to analysts and to our clients as a whole. And there is a common stance that no one knows when it's going to be managed [Technical Difficulty].Regarding to SME NPL criteria creation in which you have seen a stronger growth in the West, a couple of things to point out. First of all, we still haven't seen a full program for all the [indiscernible] that we have seen in the past. We have taken care of [indiscernible] individuals. We have made the refinancing of all of our clients for 60 days. But the SMEs did have less liquidity than the large companies, and that's the reason why you see a faster NPL creation here. [Foreign Language]

Yes. Just on the NPL creation for SME, I'm going to reiterate what I said in the Portuguese call, basically, this quarter, we had about R$500 million in new NPL in the large SMEs -- in the SME portfolio, SMEs up to R$30 million. That is the retail part of the business that basically is running smoothly, but in the -- to R$500 million in annual revenue. Basically, we had 3 cases, one of them amounting R$300 million that moved to 90-day delinquent, all of them fully provisioned. And this is basically the main reason for this jump. The fourth quarter actually was lower, mostly given the realization of some SME loans at the quarter. So the day is low. [Audio Gap]

[Audio Gap] level that you think should be appropriate in the cycle to maintain a coverage ratio of 190%? Or given that this is a worst cycle that you'll be more prudent to be more conservative and maintain the coverage ratio well above 200%?

Mario, as we always say, in your question, here is a long assumption that we manage the coverage ratio. The coverage ratio is much more enough proof of our provision in [indiscernible]. So basically, we're not going to do anything different because the coverage ratio moved to a level. That said, in the cycles, basically, you have a 1-year consumption of coverage in the sense that in the normal process of provisioning, you end up writing off part of your provisions. And in that process, the phase, the output of coverage tends to get lower.

Our next question comes from Tito Labarta with Goldman Sachs.

A couple of questions also. Following up just on the NPLs. Just to drill down a little bit more, given first quarter was really just the last 2 weeks of March that were impacted by the crisis. So is it fair to assume that this increase in NPLs should be even worse as you see more of the impact of the crisis? Just to understand sort of the magnitude believes or the one-offs that you mentioned and the increase in NPLs? I mean is it fair that that's going to continue to deteriorate, that sort of a similar page or even higher? I guess that's the first question.And then my second question is on capital. We saw a significant reduction in the Core Tier 1. I know part of it would affect the mark-to-market and the growth in the portfolio. But if you can help us just think about that. I mean your capital is okay now. But if you have another 200 basis points reduction in the Core Tier 1, then it's maybe a different conversation. So given the level of growth that we saw in the quarter, the level of ROE, if you can just help us think about how you're thinking about your capital base, given all these moving parts. Thank you.

Okay. Tito, let me start in here and then I would like to give you a few sense. Well, first of all, it's very unusual to make comments on the second quarter that is risk on, and we have a crisis that we all over the world we have never experienced before. So it's really difficult to tell you how we see the behavior for Tier 1. But the good part of the second quarter is that we shall start seeing the cancellation of the lockdown by several states and we start to see some clients that invest to the game again. So that will be the most appropriate time to understand how we shall see the behavior of the NPL creation from now on. So we are not in a position to give a very good and clear answer regarding how it's going to be the behavior of the NPL creation from this point on, okay?

Hi, Tito. So just to complement, basically, we believe -- we understand our skill set, basically, we believe this crisis may be in terms of NPL worse than the 2016/2015 crisis. That implies actually that to reach that NPL unit, we’ll continue to improve for some more time. Basically, the NPL, what I'm saying about the specific cases, there is this R$500 million already provisioned in SMEs. There is also something around R$500 million also fully provisioned that moves through NPL this quarter in Core 3. So we have about R$1 billion for which we already have provisions. And as you know, we have built provisions even in the fourth quarter last year. So this is the kind of change -- made the acceleration in NPLs faster this quarter probably than it would be the normal pace otherwise, but probably the NPL at the end of the cycle should really be higher.

On the second part of your question regarding our debt structure and shareholders' equity. It's important to highlight that a significant part of this reduction in the shareholders' equity was due to mark-to-market impacts on the strategies that we have. So all you got a broader environment from now on, we shall see a recovery there as well. We do not plan to make any capital increase. We do not plan to make any capital shares buyback. So we believe that as the normal business get back, we shall have the appropriate composition of all tax in the previous levels as we are profitable. And we just are about to distribute the minimum dividends according to the Central Bank provisions and we shall keep it for quite a while.

Yes. On top of that, we also should consume the tax credit from the hedging generated this quarter, as frankly pointed we have profitability from that. And also, the loan growth should build up. Basically, the size of loan growth we had this quarter is a mix of the good performance that we were presenting until February in terms of loan growth, plus the extra demand we brought from corporate. This level of growth certainly is going to be lower for the rest of the year as we have a correction in loan demand.

Great. No, that's very helpful. And then just one follow-up, I guess, on the first one. I understand the uncertainty and trying to predict where the sales will end up, but you have another month now since the end of the first quarter. So I guess I was also thinking in terms of the evolution from the last 2 weeks of March and into April and how the inventory affirmation [indiscernible] at this point, how that may have evolved exactly, worse or maybe rolled off at some point?

Yes. At this point, we prefer to not comment on the more recent trends. It's basically, it is -- again, we have the renegotiations of loans of 60 days. This is providing a relief on the delinquent, given that you only devised -- they don't go to NPLs. We also are working on all clients to provide them the best solution possible to be able to meet their obligations. And so I think it's an ongoing process that somehow mitigates the evolution of NPLs. But I think it's still to open to step-up.

People also have [indiscernible]. If clients need, we are open to support and providing additional review of 6 days or even to restructure that in a way that we can preserve their health and have a long-term relationship with our clients, so this is something that we are wide open to help clients and society as a whole.

Our next question is coming from Mr. Jason Mollin with Scotiabank. You may proceed.

My question is somewhat of a follow-up on the provisioning levels made in the quarter. When you show on Page 7 of your presentation that you had R$2.4 billion in preexisting provisions for adverse economic scenarios, that you created R$ 200 million in provisions that would be required under traditional regulations. And my understanding is that the regulator would have allowed you not to make those because of restructuring in the quarter plus this R$2.5 billion that you've been discussing in new supplementary provisions.Now I guess I'm trying to understand the decision-making process here. I understand it's not, as you've said many times, about reserve coverage, et cetera. But can you talk about making this decision? What are the implications for taxes, creating deferred tax assets, implications for dividend payments? Obviously, you reported a much lower bottom-line. But in my view, this is a prudent conservative approach going into a crisis where we don't really know the real losses, what they're going to be. And what are the implications for just reversing these going forward?

I guess we share your view regarding the behavior in a crisis like that. We do have to be conservative to preserve our cash flow in order to serve our clients adequately. And there is a change of event here saying that the banks are not allowed to distribute dividends higher than the minimum amount required. The law is such that the minimum amount required has been [indiscernible] 30%. And we'll keep up, it's behaving and respecting the regulation, so we shall not expect a dividend higher than 10%. We have no internal discussions on reducing the dividends. We believe that we shall have to leave this new environment, this new scenario, to make adjustments in our provision of the case will be the cash flow in short term is extreme, is very, very strong. We remain confident that we can help our clients to get back to the liquidity levels they need, we want to get back to their activities.

I mean maybe I can ask -- I mean, again, it's not a metric. I know this is not how you make provisions or any bank does, but it's an interesting reflection of what's going on. If you look at the loan loss provisions created in the quarter, I think it was something like 46% of the way I calculate the NII, net interest income was provisioned the way. You had been running at around 25%. I looked in my model and I think at the peak levels that I've seen probably in the last 15 years was something like 55% in 1 quarter, but that really doesn't get much above where you provisioned this quarter. So is this kind of a limit when you look at, of course, it's based on what happens in the economy and the ability -- the likelihood of your clients paying and their payment performance, but does this seem like -- when you look at that kind of metric, that this is extraordinary? And the level of...

Well, first of all, you have to consider that we have established last quarter a provision for adverse market conditions. We did not expect to meet it so soon. But fortunately, we were with a very good protection for that. So the way that it seems that we do have to take into account the whole R$5.1 billion package because that was -- some of the protections that we face, all the delinquencies and losses that we may have from now on. But of course, this amount was, as you have pointed out, the result of the analysis that should be continued here, the credit. And we believe our economic teams that have put together with our senior management, we decided that this is the other case provision at this time according to the information and vision that we have over the economy as a whole. So we do not take into a measure specifically the way that the NPL creation in the last -- fortnight because it's extremely soon to say that. But if you prove to be right with [indiscernible], if we have to be even stronger in terms of capital management and provisions, we are prepared to do so. But keep in mind that we have previously provisions for adverse market conditions such as this.OperatorOur next question comes from Mr. Thiago Batista with UBS.

I had just one follow-up question about the capital position of the bank. It's not wrong for the bank was targeting in the past 2:1 ratio close to 13% or something around this level. It's sad to say that they continue with this former target or with this target of Q1 capital of around 15%. And if the bank, if you start to see that the bank cost ratio will be close to -- in Q and the capital return to this level.Second question is very small one. Can you comment a little bit, how challenging is nowadays for the Bradesco to sell insurance in the branch and also to sell fees? So how important are the flow of the dividend in the branch that's for sure, right now that we don't have these fiscal to give us?

Maybe you can start with the second and then answer the -- but regarding this Vinicus, go ahead with the second one.

Hi, Thiago. Vinicius here. The branches are importantly -- very important mostly for the sale of pension-related products, capitalization products in life, okay? They are very important. We have, of course, for life and for auto insurance, the credit of our insurance brokers in our branches. And what we've been seeing, I mean, in March, we didn't see because we have a few months of normal operation. We have gradual decrease in business in the end of March. But what we did see, it's been going through right now, is to be able to give our branch managers, salespeople, financial advisers as well as our insurance brokers, all these tools necessary for them to operate fully on home office spaces, okay? So we didn't see this gradual improvement in sales of our sales force of our digital channel from home office, okay? But there is a considerable investment right now in digital, in CRM tools in order to do support to these sales force.

Thiago, regarding your first question on capital, basically, I think the level of capital is constantly being evaluated by the bank. As you know, the regulator reduced recently the minimum capital requirement by 125 bps. Any consideration regarding what is the optimal capital surely takes into account the level for the requirements in terms of minimum capital.On top of that, we have to consider that we are getting to a cycle where actually loan growth should be, for some time, much weaker than it was so far. So it allowed us, actually, we should use less capital going forward. And on top of that, we do believe we're going to consume relatively quickly the tax credits we have generated and are one of the main negative impacts in our capital this quarter. And also, we believe that part of the market-to-market should be reversed.So in that situation, we let, in that scenario, we think we are in a very good position in terms of capital. We don't have public targets on capital. They haven't been discussed in those terms for some time. But again, I think given what I said, we are in our view in a very, very good position.

Our next question is coming from Mr. Marcelo Telles with Credit Suisse.

Most of my questions have been answered, but I want to understand a little more. What is the risk that you see in the large corporate sector at the start? I know you've been focusing a lot on the SME and individuals. And also what other products that you discussed that the Central Bank published yesterday, and which was, you need to call, if you compare to others, in terms of the results, right, that Central Bank did. In your case, I mean I wonder if you could share, if you have done any stress test in this situation, if you could share with us what your capital position will be in a very, let's say, harsh environment that will be impacted by your cost interest, that will be helpful.

Marcelo, really, I'm not sure I understood quite well your question, given that your voice was not very clear, but I understand you asked about the health of the corporate loan book and the stress test that the Central Bank have run on the financial stability part we have to do. Were those the questions?

Yes. And my question related to the stress test is that whether you have conducted a stress test as well, and could it be possible to share with us what the results would be in terms of your capital position, [indiscernible] in provisions or anything like that?

Yes. Unfortunately, we constantly run our stress tests, not only in crisis environment, but basically constantly. But we don't hear that. What I can say is our view that we are in a very comfortable position regarding our capital position. It is related to our stress test. We see, for sure. And at this moment, when we don't know when the economy will be up and running again, it's always hard. But basically, our base case stress test really show that we are in a positive position.In terms of corporate, I don't know if we like it. In terms of corporate, we see the corporate book in a much better position at this time. What we saw was a run from liquidity in the beginning of the crisis. But companies were -- are mostly held with a leverage. They haven't been investing too much. Some of them surely will face difficult in terms of having their results or revenues cut. But in here, I would say, companies with the appropriate amount of liquidity are going to be able to make it through the process.And basically, even the most complicated cases through our tax book actually have already been fully provisioned. Most of them we have even written off from our books. Of course, it's always possible we find some cases more difficult situation during the period of the crisis. But I would say it's not going to be a large number as in the other parts. In that sense, we are prepared to help them to renegotiate, to try to improve our position in terms of quarters. I think it's fair to say that the most liquid stagnant this time doesn't seem to be the appropriate time.

And in terms to -- what I actually I see, much more like due to for us as basically the corporate cost being financed by the capital markets. And therefore, we saw as an opportunity because we are able to charge over spreads and to rebalance our portfolio as a whole.

Our next question is coming from Mr. Henrique Navarro with Santander. You may proceed.

My question is on fees and commission. Regarding the line directly related to the sale of the banking products in both traditional channels and the digital channels. So I would like to hear how the number of branches that are closed right now, when do you expect to reopen the branches? From February to March, how has the impact in sales of banking products on traditional channels? And what was the positive impact on higher sales on digital channels? So anything you could shed a light and help us to understand the impact of the coronavirus on this 6% decline in the commissions on the first quarter. And then maybe you can try to understand what could be the impact for the next quarter.

In terms of branches, Henrique, we didn't close any branches. During the coronavirus crisis. Only the branches in the malls are the ones that we closed. And we kept all of them open and in the places we could. So we operate with different -- with half of the people in the branches in terms of staff and replace this staff every week.In terms of reduction in numbers of branches, in the first quarter, we closed 78 branches that actually will be definitely closed. We expect to close this year more than 300 branches. In terms of digital channels, in our case we had already a very high level of penetration of digital channels. I think we had about 17 million clients that were clients either of mobile or internet bank and with a very high level of usage.Due to the characteristics of the crisis with the economy really slowing down, we noticed actually that even though we see more client in fact is using the digital channels, and usually Internet or mobile, number of transactions actually reduced. Basically, people are buying less and people have transferred less money in business and payments, et cetera. So that's kind of the trend we are seeing. I don't know. I may have lost part of your question.

No, that's great. My question, the 6% decline in fees and commission income quarter-over-quarter, how much of that you believe is related to the coronavirus?

I would say the reduction in credit card is pretty much related to coronavirus. It is the impact of the lower retail sales on [indiscernible] in our exchange, in our interchange revenue that is basically based on sales. The consortium operation may have some impact. Investment bank, we were expecting a good quarter. Actually, there was -- the performance was not as good as expected, even though it was better than last year. So maybe more clearly on credit cards and maybe investment bank maybe a little bit also on asset management.

Well, thank you all for your participation. I guess we finish the Q&A session.

Seems there are no further questions. I would like to invite the speakers.

Okay. Thank you all for your participation in our Q&A session and for making the time to join us in our conference for the first quarter. Have a great day.

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