Good afternoon, ladies and gentlemen and thank you for waiting. We would like to welcome everyone to Bradesco's Third Quarter 2022 Earnings Conference Call. This call is being broadcast simultaneously through the internet Investor Relations website, bradescori.com.br/en. In that address, you can also find the presentation available for download. We informed that all participants will only be able to listen to the conference called 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 mentioned that forward looking statements are based on the beliefs and assumptions of 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 their future results of a 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 Carlos Firetti, Business Controller and Market Relations Director. Please go ahead, sir.

Thank you. Good afternoon, everyone. Welcome to our conference call for the discussion of our third quarter 2022 results. We have today with us in the conference call our CEO, Octavio de Lazari Jr; Andre Rodrigues Cano, Executive Vice President and CFO, Casionis Carteli, [ph] Executive Vice President; Eurico Fabry [ph], Executive Vice President and [Indiscernible], Executive Vice President of Bradesco. Also we have with us, Osvaldo Fernandez, Executive Director; Ivan Gontijo, Bradesco Seguros Chief Executive Officer; Curt Zimmermann, Banco Next and Bitz, Chief Executive Officer and Carlos Giovannis Navis [ph] Banco [indiscernible] Chief Executive Officer. I turn now the floor to Leandro Miranda, Executive Director and IR of Bradesco.

Thank you, Firetti. Thank you all once again for taking part in our earnings conference call. The third Q earnings reflect the current economic moments in a market that goes through cycles. We have to reverse at various points in the credit cycle. When the pandemic began bringing longer known threats and expectation of a worsening economy, we made significant credit provisions. As the economy improved in 2021 and the beginning of 2022, we were able to release part of the excess provisions, especially in the medium large companies industry. Right now, we are moving to a cycle of increasing provisions that is expected to continue throughout 2023 due to the loans that have been granted in the mass market. We are now at full speed into reforming the bank. As of today, we are undoubtedly one of the largest Digital Bank in Brazil, while maintaining the greatest physical presence among the peers. We transformed our way of serving clients according to their preferences and needs. Customer centricity is behind our motto, between us, you always come first. We hold that unique positioning with the largest investor insurance company in Brazil, and in Latin America, I capillarity that unites the physical and the digital, certainly define us financial products offering Brazil from individuals to corporates. As you know with Bradesco has extensive operations, serving all segments of clients, either individuals or companies and that came all over Brazil. As a result of the strategy with a broad position in the market, our activities in loans and banking are correlated with the performance of the Brazilian economy and disposable income. The economic scenario, high inflation and interest rates lead to a deterioration in the client's payment capacity, and the constant increase in non-performing loans make unnecessary great provision expenses above our…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Thank you. Our first question comes from Jason Mollin with Scotiabank.

Hello, everyone. Thanks for the opportunity to ask questions. I just wanted to clarify some comments you were making previously on the conference call and in Portuguese. You talked about the material change in your outlook for provisions in the loss allowances now versus the second quarter. I just wonder if you can clarify and you talked about the outlook is change. And when we look at the macro forecast from Bradesco at the end of the second quarter versus today, if it doesn't-- you're seeing something that we don't see in the top down numbers, just the inflation looks better than you were expecting in the second quarter, the general price index looks better. So I'm just trying to understand I mean, clearly, you're telling us and we saw in delinquency that there was a worsening. And I'm just trying to understand how the provisioning outlook changed so much in one quarter to the next? And then my second question is related to loan sales that you've been doing. But if we calculate that, that you sold more loans BRL2.8 billion in the third quarter up from BRL2 billion in the second. And we wanted to understand how that impacts your asset quality metrics. Were those loans 90 days past due or what could you tell us about how if we consider those loan sales how that would impact asset quality? Thank you.

Hi, Jason, thank you for the question. This is [indiscernible]. Regarding your first question on the outlook. Basically, I would say more than the change in the outlook what changed was kind of the impact we saw in our loan book in term and also in the evolution in terms of credit quality. In the second quarter results, basically, we advise that we were seeing provision expenses probably coming a little bit above our guidance already. And the trend actually materialized in our view. It is more fair to provide revised guidance that brings our best view for the moment on that line. So basically, in a nutshell, I would say that was what drove us to do this revision. The evolution in terms of quality we're seeing more the next big change in the outlook, but actually the outlook, the high inflation, and is one of the things that hit defiance. And that is really the driver for the situation considering our position in the markets. Even though there wasn't a big change in the outlook numbers itself. I don't know if you would like to say something. Okay. Yeah, considering the sale of loans or NPL, basically these loans were basically in our book than more war mostly loans that were negotiated portfolio, retail loans. Basically, in the kind of segments, we were pointing as the ones that were have been more affected by the increase in delinquency as I said credit cards, personal loans. And the impact of this sale is something around 30 bps in terms of 90 days NPS.

Hi, Jason. It's Enrico Pareto [ph]. Just to clarify about credit performance, I think it's important to highlight that the events are performing much better than the vintage before. Especially the vintage before 2019, 2018 and 2017, especially due to the fact that Leandro highlighted about the approval rates and all the adjustments that we proceed in the portfolio after December 2021. So we start, by tightening the policies since then. And we continue with a tightening process. So our approval rate before the crisis in 2019, reached the level of 68%. During the pandemic, it went up to 58%. And then after December 2021, has decreased gradually to 48%. So it's been at 20 points, percentage points below what we experienced before the credit. And according to that our through the door profile has improved a lot. So just to mention, one big sized portfolio, as the current portfolio, we used to have at a very low risk, and through the door, in average 60% of the new acquisitions. And today we are above 80%. And we're gonna end up the year with more than 90%, between very low risk and low risk through the door acquisition. These kinds of indicators also highlight a better performance in the first book of collections that we see that we are performing. We know what do we have in the first bucket in 2019, I'm highlighting 2019 because it's before the crisis. So and we also experienced a decrease on the indicator in the last few months. Of course, when you talk about portfolio over 30 days there, the growth rates are higher than it used to be before and that's the reason why we still believe that delinquency is going to go up a little bit in the first quarter of…

That's very helpful. And I do appreciate that when you see the risk rising, that you are acting appropriately and making the provisions. Thank you. I appreciate the answers in color.

Thank you. Our next question comes from Chuck Batista with UBS.

Yes, we will discuss the positive on call and the expectation on our call that most of the Declaration of equality was completed in the low income segment. I look at those questions on this point. The first one, if, but this will show already in impact of the higher checks that have been paid last month, they are flagger view for instance? The second one, if you are seen in kind of, if you believe in any kind of adverse selection of the low income clients, so maybe the good low income clients are going to be fintachs and this goes is staying with a bad loan compliance. And the third one is defining the final one. If you see any difference in the profile, on after quality of that discuss traditional clients, or traditional low income clients, in next, loan compliancy if the way the client went to the Bradesco, or Bradesco [indiscernible] Next, explain any differences in the actual performance you're doing there?

Chuck, it's Leandro speaking. Well first of all, Max has its own clients, and there is an overlap of 25% of clients. Therefore, the strategies are pretty much different. And we just have our lion's share, as we would have in any digital banks or other income as banks. Regarding to adverse selection, we don't think so basically, we at times like that we try to work the more we can with existing clients with clients that we know the most with clients that we do understand their profile, their track record of payments, and we have increased it by more than 60% our penetration into high income segments. So we do not think that there was an adverse selection in terms of choosing those clients. And by the end of your day, as above you said in our first conference call. It's natural that the delinquents came from the low income segments pretty much rates a racing C, D, and E. Because basically, we have the highest bid in Brazil. We are the only bank and every single municipality that's pretty much different from those banks that have clients basically mainsheet as capital. So I think that's much more like a profile of the bank that has its bad times and good times and anything else. And of course, we are talking to small and micro companies as well, because basically they share the profile of the low income, individual clients.

Chuck, this is Jualito [ph]. I agree with Leandro. I don't see any kind of adverse selection. The good way to see that is that through their application profile that hasn't changed before the pandemic during different and after pandemics. So we see clearly that is the same profile we used to have. But of course these profiles, and it's our profile is linked to the class, the class C, D and E that has been affected by inflation and higher interest rates. So that's why we see days increase in the liquids rates that we are seeing right now. But in terms of adverse selection, I don't see any indication of that.

Yeah, maybe you could share with him the ratings in origination, how much they have improved it for all time.

Okay, you made that day in terms of acquisition. As I mentioned before and for current portfolio, we used to have around 60% of low risk and very low risk new cards. And now we're going to hope actually 80% from low risk and very low risk. And we believe that we're going to close the year over 90% of new card customers on these profiles.

So by the end of the day, basically, when you see the proportion, we are working with better clients than before, but their situation -- their financial situation has deteriorated heavily. That's pretty much the point

Because very connected to the portfolio. So you'll have an upward pointer that has a credit erratic and has a performance before but the severity of the crisis, the performance has deteriorated. So with these equity portfolios can do something about it's an extremely worthwhile anyway.

Okay, okay. In the back from the checks, the fee review.

Actually, Chuck we hadn't seen any impact? We did we perform some analysis on that, and to see if there was any impact in terms of collections, and recoveries and even credit performance. But to be honest, we haven't seen anything that would be significant.

Got you. Thanks.

Thank you.

Thank you. Our next question comes from George Cody with Morgan Stanley.

Hi, good morning, everyone. I wanted to clarify something that was said. Did I understand correctly that the portfolio sales were on loans that are already been written off? Is that 100% of the assault loan sold were original or just a portion? Because I believe, fit at the center the impact on NPLs were 30 basis points from the sales. But if they will read the novel, or don't understand why there was there will be an impact. Just clarify --

Basically, there were BRL2.9 billion in loans that had already been written off and BRL2.7 billion involve that we're still on our books.

The impact the NPLs come from the 2.7 bps.

Got it. And the impact is 30 basis points. Is that the correct number?

Yeah. Yeah.

Just a minute, sorry. It's important to highlight that both correspond with, they have the same profile. So very low probability of recovery. And that's the reason why they have been sold. So our strategy is really to understand that population that has a low probability of recovery, and then we sell these portfolio, regardless that they stage of the language of the people even though we know that even if pre-written off workflow is very high net interest rate as I pointed out a few minutes ago.

Thank you. And can you comment on what percentage of that portfolio was individuals versus SMEs versus I'm guessing not corporates. But what is the composition of what you've sold?

Vast majority as individuals.

And is there a particular product that you're seeing more defaults isn't? I mean, you've been talking about credit cards, credit cards, is that is that sort of like the Achilles Heel, the credit card book?

They are concentrated on the product. That are concentrated on the low income segments. So basically, installment loans and --

Personal loans.

Okay, got it. Thank you.

Thank you.

Thank you. Our next question comes from Daer Labarta from Goldman Sachs.

Thank you for taking my questions. I guess one follow up on Thiago's earlier question about the consideration versus some of the digital banks. We saw digital banks, some been holding up a bit better in terms of NPLs. Any color you can give within those lower income clients, we've seen the deterioration in terms of fines that came from digital channels versus clients coming from the branches. And do you think your growth there was maybe too aggressive to some extent that now it's hurting you on the NPL side or why do you think your NPLs are looking worse than what we've seen from some other peers in the industry, thank you.

Thank you, [Indiscernible] speaking. Then Enrico is going to add to answer. Well, basically, we do not see any sort of difference between the group of clients that came through digital channels, as well as from when compared to the group of clients that came from the traditional channels. So there was no difference among the groups as far as statistics are concerned. When you make reference to the digital business, and then we are referring to max, these you not where they score itself is a different strategy. We grew as a strategy, the base of clients. And now as you thought who point out the morning, we are focused on monetizing those clients, and trying to select the best ones of them and focus on getting better results from them. So we are talking about two different worlds. But regarding to Bradesco, there was no difference between digital and physical channels.

Just to complement the point and that Leandro just made. It's important to say that even though the performance within the profile is not much different between the channels, that mix the profiles within the generals are different. So what happens, when we have a digital channel will normally attract more a Class C, D, and E, we very, very attract A and B, in general. So it's very different from our ranks for essence because we have two different channels. So techniques within the channel change a lot. Even though the profile itself, it doesn't change much between two different channels, just to be clear. So when you combos and the deliquents of the channel itself, it safe to be worse, just on general that our partition or brand channel, mainly because of the mix inside the channel than the difference within the provider.

Okay, great. No, that's helpful. Thank you. And maybe, I guess, a follow up question. More in terms of we've seen sort of loan growth in these unsecured segments pretty sure not just that Bradesco, but for the system. In general, I guess, two-point question. I mean, given that growth, do you think how systemic could this issue potentially become and do expect to slow down the growth significantly in those segments from here? I mean, we've already seen some deceleration, but should that flowed significantly or are you still seeing opportunities for them?

Okay, well, first of all, I guess when you compare ourselves among the other banks, we are the ones with the most adherence as far as the geography is concerned. So, we are -- we have the largest CDLE-rated clients profile. Other banks are more concentrated in main cities and capital. when compared as a percentage. The second thing is that we do want to slowdown and we are reducing on an ongoing basis, our origination and have been more and more conservative regarding to the approval process to those clients.

Okay, perfect. Thank you very much.

When they're going to try to focus it even though it's going to be what Leandro said, we're going to have, we have reduced appetite for both portfolio, any portfolio and concentrated on CDLE classes [ph]. Where did you improve the models and continues to improve and try to reach out that better a discrimination, we constantly work on that if there is any new information or something that could upgrade the separation between good and bad. There is a lot of good happened it will leverage on other ways. But the general thinking of that we're going to reduce that advice in general terms.

Makes sense. Great. Thank you.

Thank you, [Operator Instructions] Our next question comes from Geoffrey Elliott Autonomous.

Hello, thanks very much for taking the question. I really wanted to follow up on one of the questions on the Portuguese call earlier, where you were asked about why now, in terms of this big change in the outlook for provisions/ And on that call you mentioned inflation as being an issue, but inflation over the last few months has actually been bit lower. So just struggling to understand in the context of inflation coming down a bit fuel tax cuts, some more support to low income people through the [indiscernible] Brazil program, unemployment falling. What's happened over the last three months to make the outlook now, so different from the Outlook back in August?

Geoff, this is [indiscernible]. As I said, in a question in the English call, which saw a continued trend in terms of increasing NPLs, especially in the segments we have already mentioned, I'd say in the second quarter call, we had hoped that the provisions in the year maybe wouldn't be much higher than the top range of the call. But when became clear to us that actually the difference was material, we thought it would be more transparent, really to change the guidance instead of just guiding for a range above the top of the range of the former call, former guidance.

Okay, so it sounds like maybe there was a bit of upside to the old range as of 2Q But you kind of left those numbers hoped it improved, and then it went the other way. So that's why we've got the adjustment now.

Yeah, that's correct. Right.

Okay. All right. Thanks very much.

Thank you.

Thank you. Our next question comes from Jason Mollin with Scotiabank.

Hi, thanks for allowing me to ask another question. I also wanted to follow up on a question from the prior call about the other income. And there seems to be a provision that was -- if you can explain what the movements were in the other income line, that would be helpful. They were large.

Okay. It is related to a tax discussion we had in the administrative body of the Brazilian IRS. We won that discussion recently, and due to that we had to revert to the provisions we had made.

So that was a reversal of tax provisions to pay a tax dispute. What was the size of that reversal?

BRL600 million.

Thank you very much. Appreciate that.

Yeah, it was a definitive decision. So we really had to revert that we treated that as a recurrent expense when it happened, and kept it as a recurrent when we reverted.

Okay. I appreciate that.

Thank you. Excuse me, ladies and gentlemen, since there are no further questions, I would like to invite Leandro Miranda for his closing remarks. Please go ahead, sir.

Well, thank you all for making the time to be here. Our IR team is ready to to clarify any additional questions you may have. And you can send it by email follow us we are ready to answer at any time. Thank you so much. Have a great week.

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