Banco do Brasil S.A. (BBAS3.SA) Q4 2024 Earnings Call Transcript

Good morning, everyone. I'm Janaina Storti, General Manager of Investment Relations at Banco do Brasil and it's a pleasure to have you here with us on our Fourth Quarter 2024 Earnings Live Stream. Our event will be held in Portuguese with simultaneous translation into English and you can choose between three audio options, original Portuguese or English. Today, we have the presence of our President, Tarciana Medeiros, our CFO, Geovanne Tobias and our CRO, Felipe Prince. We will start with Tarciana's speech followed by the question and answer session. Please remember that already for some quarters, we've been providing the video of the commented results by our CFO in the night before our call on our Investor Relations website. So, now I turn the floor to our President, Tarciana.

Good morning, everyone. It is a pleasure to be here again to share with you the results achieved in the last year and present our perspectives for 2025. In 2024, we completed two years of our management and reaffirmed our ability to honor what we set out to do, delivering for the second consecutive year on our guidance as a result of the quality and discipline in the execution of our strategy. We delivered our commitments to generate value with diversified operations and responsible credit growth based on the proximity and specialization in digital service to our customers. We also advanced the technology and innovation agenda and consolidated ourselves as the most sustainable bank in the world for the sixth consecutive time. We'll address all of these points in more depth during the presentation. We achieved an adjusted net income of R$37.9 billion, an increase of 6.6% in the year. This action made it possible to pay out more than R$85 billion of added value to society. We advanced in loans exceeding R$1,278 trillion at the end of 2024, an increase of more than 15%. We supported our clients, strengthened our leadership and we're ready to reach new heights, attentive to the challenges and opportunities of the scenario. The balance between our main portfolios built over the years is a strength of BB and it's the only bank in this industry with such a balance in the formation of portfolios. It was essential for us to go through the year in a harmonious and healthy way, considering the best relationship between risk and return. In loans to individuals, we've reached R$336 billion in the portfolio, an increase of 7% in the year. And despite all the competition in payroll loans, we have increased our market share to more than 20%. I highlight here our performance in the INSS payroll loan with a disbursement of R$37 billion, since we declared that we would seek our fair share of the market. In 2024 alone, disbursement in this line grew by 53%. On our corporate portfolio, we showed significant growth of 18% in the year. We believe in entrepreneurship as the driving force of the Brazilian economy. The portfolio for SMEs exceeded R$125 billion and we evolved in the specialized model for companies, with revenues between R$15 million and R$50 million, bringing to the market a new segmentation of high retail companies, High Varejo Pejota, which already has seven dedicated branches. We also advanced in the specialization of wholesale customer service, expanding the segment's NPS and exceeding R$ 258 billion in the credit balance for large companies. Working with these customers strengthens the value chains which is in our strategy, making the entire wheel of the economy turn with investments and capital markets, especially favoring small companies that supply large ones. Also part of our growth strategy with companies is the disbursements in lines of government programs that have guaranteed funds such as FGO [indiscernible], FGO ProCred 360 and PEAC-FGIwhich together reached disbursements of R$ 12.4 billion in the year. I also highlight the growth in the government portfolio which reached R$ 78 billion, especially in investment operations which contribute to the development of the country and are also guaranteed by the national treasury. Now, let's talk about agribusiness which closed the year with a growth of almost 12% and which in January already reached the mark of R$ 400 billion. In 2024, we saw the delinquency of this portfolio rise and we intensified our support remaining close to farmers who seek a seat at the table with us for negotiations. We continue to see an increase in cases of in-court reorganization which already represent almost 20% of non-performing loans in agribusiness in more than 250 customers. The mechanisms present in the Rural Credit Manual support producers who were impacted by the challenges of the field in the last harvest. We have reaffirmed here our commitment to offer technical and financial support to our partners at all times. Our capital remains at robust level, closing the year at 10.89%. Here, we had an impact from the mark-to-market effects on private securities due to the strong movement of the opening of the interest rate curve in the last quarter of 2024. As the curve returns, this mark-to-market impact tends to recede. We understand that the 11% range is our optimal point where we find efficiency in the use of our capital and support for our growth ambition. In this context of greater volatility and considering our capital plan with a three-year horizon, the Board of Directors established a range between 40% and 45% for the 2025 payout. Within our purpose of being close to our customers, we are focused on offering the best experience, promoting and further accelerating our digital transformation and ensuring business sustainability. In the last two years, we have more than doubled our investment in technology with advances in the digital journey of our customers and the development of our employees' digital skills. We are reinforcing our agile teams and I want to highlight here the call for another thousand colleagues still in the first half of the year to reinforce the areas of technology and cybersecurity. They will join the more than 65,000 employees who have already been trained in the past two years in artificial intelligence, data science and other aspects of technology and who are increasingly prepared to innovate. These investments also deepen the use of artificial intelligence and analytics. There are already more than a thousand use cases in AI ranging from credit risk models to our CRM platform which is increasingly more powerful, with hundreds of millions of insights and business recommendations. Thus, our relationship and offers become more fluid and assertive. This platform doubles our business effectiveness, increasing productivity of our sales team. The hyper-customized service that we've been talking about to you for at least two years is reflected in the positive perception of our customers, considering the significant evolution of our service metrics. We achieved the highest NPPS in our history with growth in all segments, positioning us as one of the largest in the industry. Our overall satisfaction is in the level of excellence. These indicators are confirmed by the Central Bank's ranking of complaints where we achieved the unprecedented mark of 10 consecutive quarters with the best result among the main financial conglomerates, which reflects our continuous commitment to excellence in customer service. We are already a reference in how to combine the best of digital with the proximity of human service and we will continue to reinforce and expand our synergy differential between the channels such as Ponto BB, which perfectly integrates physical and digital channels in an environment of innovation, business and reinforcement of BB's brand attributes. The first Ponto BB at Porto Digital in Recife has already received more than 72,000 visitors since it opened and we have seen a 7% increase in the new customer base. This successful experience makes us believe that having Pontos BB exploring the potential of each region in a customized way is the path to be even closer to our customers, reinforcing our purpose. And when we talk about relationship and proximity, I emphasize that we are far in expanding specialized service and our ambition this year is to reach 10 million assisted customers. In addition to bringing proximity and resolution, these customers have a higher principality index with BB and a 10 times higher profitability. BB has always been at the forefront of the creation of high-income service models. Today, we have the network with the largest capillarity in Brazil. We are present not only in large centers but in cities throughout the country where the generation of wealth and new businesses emerge all the time at an impressive speed. In 2025, we will further strengthen the service to BB Estilo customers. Our focus will be to intensify the proximity and offer of exclusive solutions for this public by expanding the performance of the high Estilo segment to more cities after the success of our pilot program in three capitals. This year, we made strong progress in sustainable business. We were pioneers back in early '24 in declaring the sustainable portfolio in our guidance, reaching the high end of the target with growth of almost 13% reaching R$ 387 billion. We also stood out in the volume of sustainable funding which exceeded R$ 6.6 billion with investors and technical cooperation agreements with multilateral bodies this year alone. We are leading players in the carbon credit business and we see it as an important line of growth. We have already reached 755,000 hectares preserved or recovered with a goal of 1 million by the end of this year and we will not stop there. In 2025, Brazil will host COP30 in Belem and you can already expect a performance as great as the bank that carries the country in its name. We have been present at the main forums on the subject from New York to Cali and I'm sure that Belém will be a milestone for an increasingly sustainable world. Now, I want to bring you our macroeconomic assumptions which are important markers in the construction of our projections and ambitions for 2025. The Brazilian economic scenario this year, although challenging, presents elements that allow us to maintain resilient economic activity. The projections indicate GDP growth of 2.2% reflecting a favorable business environment even in the midst of a context of monetary tightening. The agricultural sector is one of the main drivers of the economy and in 2025 we forecast a growth of 6% from a record percent and inflation at 5.6%. These factors combined with historically low levels of unemployment should lead Brazil to go through 2025 with resilience mitigating the effects of a tighter monetary policy. Based on this scenario, I'd like to share with you our strategic vision and the opportunities we are embracing this year. Banco do Brasil's credit growth will continue to be sustainable and balanced with an origination mix that is consistent with our role in Brazilian society and benefiting from the opportunities of our operations in every corner of Brazil. We will continue to be leaders in payroll loans in all its verticals with public servants from INSS and private payroll loans with the opportunity of E-Social. Now, on non-payroll credits, there are two growth verticals. The first for strategic professionals and the second is on credit cards. On credit for companies with a higher interest rate scenario, we must be cautious in management of our business and we know how much financial expenses impact the results of companies, especially smaller companies, and that's why we have efficient strategies to mitigate these effects and guarantee sustainable growth. As I mentioned, we also have lines of government programs with emphasis on FGO ProNumpy in which we are leaders. As for agribusiness, we see a scenario of normalization of the pace of growth in a context of risk that requires us to make a more prudent stance. We will continue to honor the relationship with our agribusiness customers who have been growing with us and with the country for generations. In the dynamics of revenues and expenses, we will continue to invest in the relationship and proximity with customers with integrated solutions beyond credit. The scenario is constructive for asset management at BB Asset for the growth of consortia and the insurance, pension plan, and premium bonds businesses. I must also mention the movement with Cielo's delisting where our focus is on the possibility of the SME customer with a comprehensive look at their needs. In 2024, we have already put some innovations to work such as step on phone and contactless PICS payments. And in 2025, we will accelerate this movement. In other words, the group's companies continue to be relevant in the diversification of revenues, acting in synergy and complementarity with our branch. And we'll continue to be strict in controlling expenses without neglecting investments in technology, which are crucial for the modernization of our business. I conclude by thanking each one of our 125,000 employees of the Banco do Brasil conglomerate who built this result and sought this result every day. You were the force that drive the company. And I also thank our customers, shareholders, and partners. Banco do Brasil remains firm, solid, and ready to build an increasingly better future. Thank you very much. And we'll now begin our question and answer session.

Thank you very much, Darcy. We will now begin the Q&A session. And the questions can be asked both in Portuguese and in English. And I would like to ask the analysts to just ask one question, please, so that we can have everyone participating here with us. Our first question comes from Daniel Vaz from Safra. Daniel, please.

Good morning, Jana. Good morning, everyone, Tarciana, Geovanne, and Prince. Thank you very much for this opportunity. I would like to talk about your guidance. You have a loan portfolio of 7.5%. And there are some differences. According to the different segments, we have more of individuals and less of ag and corporate. I would like to go over that area. You ended the year at 15% of growth year-on-year. And I would like to understand, what is your focus to grow in 2025? For this portfolio, if you can break that down between wholesale and SME and the lines that you are going into in your guidance, that would be great for us to understand where you aim to get at wholesale loans.

Thank you, Daniel. Yes, the growth was significant by the end of the year in our companies' portfolios. And here, we have SMEs, large and corporate. And we are carrying all of them in there. We did have an increase of over 30% and these were opportunities that we foresaw in the capital market. But it's important to mention that we have a more challenging environment for companies. And we believe that we have companies, for instance, exporting companies that will be benefited, and then they could be working closer to us. We fund the Brazilian markets in exports. And about SMEs, we are also working very specifically with government lines such as [indiscernible], as Tarciana mentioned. And we intend to keep that proximity to these clients, but always watching for the risk-return equation considering really our NII. You saw an increase of our NPS, in 2024 we were able to control it. And that's why when you look at companies' segment, it's different. But we will see a few companies, especially the large ones with opportunities in the capital market that’s where we want to grow more. And as small medium companies we will have that growth in the middle of the guidance, and that is because of these specific funds that we have access to with the government. I don’t know if Prince would like to shed more light on this company's portfolio. Yes, we can add. Here the value chain this is very robust. Important that you have in mind that there is a small share of that CET1 that was basically affected by the volatility that we had in December. If it were not by that, we would have been at 11%. We already discussed that. What would be a CET1 level that could be more sustainable for us? We started '23 with a robust capital level, and we were able to increase our payout for 2024, but there were adjustments that would happen in the regulation today. We have more visibility with the 4966, and we have a payout working in the range from 40% to 45%, and 24% to 45%, but we have that vision in the medium term already looking at the next three years and aiming the CET1 of a balance around 11%. As we generate the organic results, we then will have that flexibility to be able to distribute or to pay out more dividends, and we are also aiming the high end of 45%. We have, though, to take into consideration here the rural portfolio. We need to be careful about it. There is the phenomenon of in-court reorganization with around 300 clients with R$ 3 billion rails of impact and this delinquency rate. We are transitioning the balance sheet for incurred loss, for expected loss, so we are being very cautious here. We chose to bring to you this range where we have the flexibility to optimize the capital structure and at the same time correctly pay our shareholders, keeping the soundness of a sustainable results over time. So, I don't know if Prince would like to add anything else regarding this topic, but this is our strategy to manage the capital.

Perfect. This is also good to understand how constructive we are. As Geovanne mentioned, we did have the impact of volatility by the end of the year. Obviously, as you realize that the market balanced itself and this balance of the market brings with itself a recomposition, it rebuilds the capital and it's very similar to the funding of the 4966 implementation. So, we start 2025 with a robust balance sheet and it's very well reinforced. This transition bill, so to speak, is balanced out again and it comes back with the normalization of the market, both effects and interest rates. And obviously, now we are working with our capacity of organic generation so that we can correctly pay out our shareholders as well as to fund the growth of our own activities. So, we are very confident that we are starting from a relevant point so that we can run our business as we have stated in our guidance. It’s very clear.

Now, turning to the next question, Labarta from Goldman Sachs.

Hi, thanks, Janaina. Good morning, everybody. Thank you for the call and taking my question. My question is on the provisioning levels and coverage. You mentioned that the 4966 should have about a 4.6 increase in expected losses. Just to put that in perspective, because you've been provisioning a bit less than the NPL formation, your coverage has been declining to about 170%. How should we think about this going forward? Will the implementation of 4966, should that increase your coverage? And then also just thinking about the NPLs as rural NPLs have gone up, that's impacted the coverage. Do you expect the rural NPLs to begin to improve at some point? So, just to think about provisioning, given your level of coverage and the impact of 4966, if you can give some more color on that would be helpful. Thank you.

Thank you, Tito. Definitely NPLs for the agri book, we expect to see a decrease throughout the year. We have already reached the 2.5% delinquency ratio. 0.5% of that comes from the litigation from some farmers, as I mentioned. And you should take a look in terms of provision level, the whole provisioning that we have already accounted with the 4966. So, you should expect our coverage to be above 200%. As we mentioned before, we used to provision according to past due loans. After, with this adjustment, we are in a transition period. Banco do Brasil didn't have an expected loss provisioning policy. So, we are implementing it according to 4966. And because of that, we had to account roughly R$17 billion of provisioning. So, that's why Prince mentioned that we have now a robust balance sheet, in our view, with a very strong coverage for provisions to face these expected loss methodology throughout the years. As long as we continue increasing our individual's portfolio, and according to our forecast, we're expecting to have an increase of double digits in that portfolio with a risk-adjusted return improvement in terms of the payroll loans, not only for civil servants, but also for the private sector employees as well, as has been mentioned by the government that will be implemented. We will be able to increase that part of the book that brings less risk, and as a forward-looking, we should expect an improvement in the agri book as well. We're expecting for 2025 the best harvest ever in Brazil. So, the outlook for that sector is extremely positive. In the meantime, we are facing these difficulties, this increase in provision for the book, but we should expect this to start decreasing. Okay?

Great. Thank you, Geovanne.

Okay. So, going back here to the questions in Portuguese, our next question, Antonio [indiscernible], Bank of America. And I can see Renato on my screen, not Antonio. So, the question, is it from Renato or from Antonio? Okay, here's Antonio.

Good morning. Thank you for your time. My question is more of a follow-up from what Tito asked, but the idea was to understand a little bit more about the rural or the agri business sector. Looking at the quarter, the messages, I mean, we see two sides, positive messages and some negative messages in this segment. So, on one hand, a more positive side, we see this message of a strong harvest, provisions going down quarter on quarter, inspiring a more positive light for the segment. But on the other hand, we see a guidance focusing on a slowdown of the agri business portfolio, NPL going up, and cases of in-court reorganization. So, the idea would be to understand a little bit about the growth and delinquency of the rural side in particular.

Excellent, Antonio. I think first, let's just reinforce about the in-court reorganizations. They're responsible for 0.5 of this delinquency that we presented now in the fourth quarter. So, the in-court reorganizations, we have been working very strongly, not only in terms of media actions and relationship with governmental agencies and the legal system, but we're also been doing a lot of contact with our customers showing how harmful this type of instrument is for farmers, for producers, because farmers, unlike other segments, the land is there. If they have the resources to run a new crop, they can recover their payment capacity. And then at some point, if you go apply for in-court reorganization, your credit capacity simply dries out and you're not able to run the next crop and set your coming cycles that could lead them to the recovery of solvency. So, we see positive signs we had in-court reorganizations in this period, but at a much smaller volume compared to previous quarters. And we credit that to a lot of the contact we're getting, the interactions with their customers and the results coming to the growth of our renegotiated portfolio, because we present to rural producers, to farmers solutions, and we show them that renegotiation with the maintenance of their credit capacity is what's going to lead us to recover, not only they recover their activity, but we recover credit over time. So, I believe this is a positive indication, a positive sign, and we'll continue to work on it in 2025. On the other hand, as Geovanne mentioned as well, and Tarciana was also -- it also included in her introduction, we do see an expansion hired on the fields. This is not only based on market numbers that we see. We have a series of technical rural analysts that are part of our workforce who are there on the day-to-day visiting our customers, and they are seeing that we will, in fact, deliver a record harvest, and with that, we can open space for the revenue growing on the field. The revenue is not always margin. Now, we had the context of a price pressure in two of the main commodities of soybean and corn, where often, especially for farmers who have expended a lot in the Midwest, the margin that these crops bring are not sufficient to deleverage these farmers. So, that's what we call, first, being close to them, and second, offering the best solutions to provide or to enable the repayment of those debts. So, we must deliver solutions to farmers where this payment fits within the margin that they'll be able to deliver this year, with a perspective of an improvement in these margins for the following crops for us to be able to close the cycle as we always have throughout our history, being paid by these customers and stabilizing our non-performing loans. And, of course, these operations, unlike traditional credit, they are not paid on by installments, for example, the costing that must be paid upfront after the harvest. So that, of course, we must structure solutions that allow for the payment of those costing that guarantee the cycle of activity for the next, the capital operation, working capital operation, that guarantee for the next harvest and help us reduce leverage for that farmer. So, there's no magic trick. It's not going to happen overnight, but on the medium and long term, we are seeing it as a constructive with the control of delinquency from agribusiness and we have the full capacity to resume the delivery of successive record earnings as we did in ‘24 and we propose to do in 2025. I'd also like to point a statistical aspect here as well. We have already reached the portfolio in January of R$400 billion in the portfolio, Antonio. So, if you look from '23 to '24, we went from R$ 355 billion to R$ 397 billion. So, it's R$ 40 some billion and in our estimate there that we're considering single digits, we're talking about an additional R$ 40 billion in growth as well within this scenario. So, of course, that we're being cautious and the guidance is our compass. That's what we're seeking and as the environment improves, we also have an important side that is funding that's been determined already to be allocated to this industry. We're talking about five to nine from a base of close to R$ 400 billion and it's important for you to also know that it's not only the financial sector that funds the agribusiness. We represent about a quarter of the funding needs. They're also funded with their own chains. They have barter with the seed providers, the input providers, but these farmers, especially in soybean, that were showing high margins, a lot of them went beyond their capacity of indebtedness. They made investments and leased more land. So, they'll have to do a de-risking there. So, we're going through this process at their side, helping them work on this extension in some way. We actually disagree with those who choose to go to in-court reorganization. We believe that they should seek a negotiated solution because we've been around for more than 200 years. Banco do Brasil has always been the main partner of agribusiness. Agribusiness today is what it is thanks to their partnership with Banco do Brasil and will remain like that, will stay like that. So, we believe it's a proposal for growth in line with the capacity and the size of this sector with our market share. We know that there's an increase in competition in this segment and the co-ops and private banks, but we do intend to maintain growth. That's what expands our NII. If you see the growth of our NII of close to 12% this year that reflects the expansion of our loan portfolio, very much in line with our overview.

That's very clear.

Thank you, Antonio. So, moving to the next question now, Renato Meloni from Autonomous.

Great to see you. Thank you for taking my question. Good morning. My question is about the guidance. If we think about the middle point, the growth in NII slightly above the portfolio growth, so that would imply an increase on the net financial margin, but I believe in the SELIC level your market NII should grow significantly and I imagine that that could be a compression of your client net margin. And I wonder if you see that and where that comes from considering the change in the portfolio for individuals, mentioning here for the credit card next year. And in this context, if you can include it in the answer, this year they seem to be more conservative, more safe investments and now you have a different view. What do you see in the market that's different now?

Without a doubt, Renato, our focus will be on payroll loans. That's our flagship. I mean, almost half of our individual's portfolio is on payroll loans. We have more than 20% of market share payroll, especially for the public sector. And as we bring greater growth of the individual's portfolio, it is to be expected that we'll see better margins for Banco do Brasil, because the agribusiness margin is stable, their NII, and we could keep that, especially considering the equitable revenues and margins. We will still start to discuss the 2025-2026 harvest, but we still have an avenue of growth that is very safe. Fishing in our fishbowl, as we say, to recover some of the share in credit cards and payroll loans, and we're very optimistic with the possibility of further expanding the private payroll loans. Today, there's a market reserve, so to speak, for private payroll loans, where the big private banks have established agreements with main corporations, with the human resources departments, to offer private payroll loans for those workers. The proposal that's coming to is to open this market, where we'll definitely have a much bigger volume. It's R$ 40 billion. It can get to as much as R$ 300 billion. So, of course, that we're aiming at what we consider the fair share for Banco do Brasil. INSS, we had payroll, but we had 10% of payroll loans, and now we're getting close to 15% of market share. If I seek 10% market share in private payroll loans, I'm talking about an additional R$ 30 billion added to my portfolio. So, at least 10% of a portfolio of more than R$ 30 billion of individuals. So, that will definitely reflect at a better NII client, NII with my individual client here. Of course, the Treasury had a great performance, and we made the most of those volatilities to be able to generate great gains in Treasury. We'll still see this more stressed scenario during 2025. So, our Treasury will remain active, but there is an opportunity for us to improve our client NII a little bit. Client NII grew 1% or a quarter view, but we are able, as we improve our mix, we will be able to bring more margin and better client NII.

I would like to add that we're not going to against the -- that's actually a strategy that considers the formation of our loan portfolio. I believe that the more conservative growth in agribusiness and what Geovanne and Prince have explained so well, our perspective for future growth in agribusiness considers, when we look at the growth of our renegotiated portfolio for 2024-2025, this renegotiated portfolio at this time does not impact our guidance. But as this customer recovers in 2025-2026, we'll see an impact of this customer again. So, keeping closed tabs on our agribusiness customers, something will remain doing. Geovanne mentioned that it is a more stable growth of agribusiness portfolio. When I go to the SME segment, we have been growing strategically in lines that are backed by federal government programs. We had record disbursements considering the lines that bring risk mitigators with those guarantees. So, when we look at individuals, this is very healthy growth, very safe in lines that we know well, we know how to do them. So, payroll with the public sector that I mentioned in the opening will remain our focus. There's always room to growth in public payroll loans. INSS payroll loans, we have not yet adjusted our market share. There's room to seek more. We grew in 2024 and have perspectives of growth in 2025 and there's a lot of other individuals lines. For example, equity, that's a line where we have a small portfolio but it is a market to win over. It is in our radar for consumer loans in 2025 and it's an opportunity for the E-Social payroll loans. It's a safe line and as I talked about in an interview at a press conference for Banco do Brasil, the E-Social private payroll loans is like blue ocean. It's our best loan portfolio and the model that's being designed, that's coming close is a credit line that comes very close to what Banco do Brasil knows how to do, that meets in the model of the payroll loans for the public sector. So, it's very secure and with a contracting system that allows us to be very optimistic with the growth potential of this line. So, in the individual's market, we have on our guidance a declared growth that is slightly higher but it's not reflected in a much bigger risk exposure, quite the opposite. We do have the perspective for growth in very safe lines in the individual's market. So, I'd say that we're not going against the market but in line with the strategy to compose our portfolio.

Renato, just adding in terms of NII, you talked about the spread, NIM. Again, we like to guide you looking at the total NII and when we look at the NIM, we tend to see some stability in the level of NIM. And now, to reinforce the dynamics for you, we are in a scenario where there's an increase of interest rates that has a positive impact in our treasury as we have the payment of the excess liquidity and that mostly in public securities. I saw this quarter an increase in liquidity that also influences the numbers of treasury. We sue apart for clients, apart for market. So, in positive terms, also credit revenue. We have a diverse portfolio and that will happen over the years as we turn the portfolio around. And in the size of the funding expenses, we have the effect of the savings cap at half of my funding. So, that also limits the growth of expenses. And all of that brings and is reflected in the guidance that we provided. Also adding that Patagonia contributes less this year. Patagonia is at the market NII contributing less this year than what we saw in '24. But still, it is important margin or NII growth for Banco do Brasil overall. Janaina, we showed this capacity, right, of recomposing the drop on NII that came from Patagonia. It was smaller in '24 compared to 23 and we showed the capacity to recompose this NII with the business here in Brazil. In '25, we'll be no different. Once considering all of the scenario in Argentina, the perspective is for us to have a smaller contribution of Patagonia compared to 2023. But our capacity was rectified in '24. And we were indeed capable of recomposing that NII even with the reduction from Patagonia.

Excellent. Thank you.

Our next question is from Marcelo Mizrahi from Bradesco BBI. It's good to see you on the south side now, Mizrahi. Unfortunately, we cannot hear you. No, we cannot hear you. Just a quick second. We are going to check what happened to Mizrahi's audio. In the meantime, we could turn to the next analyst and go back to Mizrahi later. So, now, I will turn to Guilherme Grispen from JP Morgan.

Good morning, everyone. Thank you very much for the presentation and for taking my question. I just would like to go over, if you can give me more visibility about the renegotiated portfolio. There has been a significant increase here in the renegotiated portfolio. It was up 5% quarter on quarter. And in the rural one, there was a leap from 38 to 45 in the new flow going away from the inventory. Looking at the new flow, there's a significant leap here of almost 30% quarter on quarter in the new hirings. So, if you can give me more color, it looks like this is coming a lot for individuals. And what are the types of products or programs that are pressuring this portfolio? And if you can talk also about the resolution 4966, how you are tackling this portfolio? And if your provision that you mentioned in terms of impact of this resolution will have a greater or lower impact here in this renegotiated portfolio in terms of provisioning?

Perfect, Guilherme. Great question. As I said before, the renegotiated portfolio has a growth-based and renegotiations from the agribusiness. As I said, this is part of our portfolio of solutions to mitigate the risk of the agribusiness. And this is also forecasted in the rural credit manual. We have to be very careful. And we have to know that whatever is allocated in the renegotiated portfolio is related to operations where we have the possibility of rebuilding the capacity, the ability of payment coming from these clients. This is an interesting metrics to take into consideration is that NPL is controlled. We are, again, the lowest NPL for renegotiated portfolios on the market. And obviously, it does have an impact with 4966 because I'm leaving the provisioning model by incurred losses. And now, this is going to provision by expected loss. Once again, going back to the agribusiness, if you look at the environment in the short and medium term, it's still challenging. And although from the mid and the long term, it's better. But as you have to implement this model and the situation, it is only natural that in terms of expected losses, it will attract more provisions. And this is a relevant component when we work with the provisions that we have for our starting balance sheet for 4966. We know we are confident that we have been very cautious, very prudent. And obviously, here, it has involved our ability to deliver the recovery of these loans. So, we have the risk. And obviously, this scenario, once it's improved, all the provisions will move around. And naturally, the scenario improves and the perspective of delinquency comes down. It is natural that will be released in provisions and that would then be moved to the results. So, it will depend on the market's dynamics from now on, as you well mentioned there. There is also a component of individuals and companies here. But I think those two are under control. What we need now is really to bring in the solutions of the renegotiated portfolios for the agribusiness clients to minimize the risks. And then, we might have good surprises to bring to you after the second half of the year. This is what we have in our flight plan. And that's what we pretend and we intend to deliver over 2025. Thank you very much.

So, now, let's go back to Marcelo Mizrahi from Bradesco.

Can you hear me now? Great. Okay. So, it's a pleasure to be here. Thank you very much. It's great to be with you, talking to you in a call, not in closed meetings. And this is a great responsibility to talk to my former colleagues and also to the Southside colleagues. And they do a great work. So, now, going straight to the point and talking about the increased growth of the individual's portfolio, you talked about delinquency and if the product of payroll loan is possible, that you're interested in doing it. And the bank has the technology and knowledge to work on that. And how much of the guidance do you have of that or you are the upside for the guidance, right? So, I just would like to understand the dynamics. This is my first question. My second question is related to the agribusiness. It is really important for us to understand what is the turning point here. Well, what will be the turning point? But you seem to be very constructive regarding your perspectives. So, my question is, if we really are going to have a record harvest, maybe the guidance is too low. If we are going to have a recovery of the payment conditions from growers and farmers and you see that possibility of NPLs, at least the central bank data in December showed that there was a drop there. So, if that turns around, don't you think the agribusiness growth is maybe too low? And another question, the Patagonia in the past few years was a problem. It was a swear word. So, what are we going to do with Patagonia? And now, all of a sudden, it turned out to be a nice business. So, Argentinian banks are talking about to have their loan portfolio grow four times and expanding the business. And we have not talked about Patagonia anymore. Are we going to be talking in our next year that Patagonia doubled its size? So, what is your mindset for this asset?

All of a sudden, it's an interesting asset again. Very well. Since you were opening your position as Bradesco sell side, we'll be nice to you because we had asked everyone to ask one question and you asked three. But starting with the private payroll loans, yes, we are already considering that expectation and at least this is what we hear. We and all the banks and Freiburg as well is that they should in the first quarter to start this process and Dataprev is working on the tech side and we are just waiting to adjust to that and to serve that way. Of course, we are going to start with a small base and so growth rates should be large. We do have some private payroll loan, like R$ 1 billion or so, but it's not much and we'll be able to grow a lot and fast. But, yes, our focus is still on the public sector payroll loans. Don't forget the wages adjustment and for the minimum wage and this has an impact in the payroll loans, whether in the INSS or the public servants. And then, we intend to continue growing in that portfolio. For 2024, we had individuals from six to 10 considering that the interest rates increased. We are more constructive for individuals here because especially in the segments where we have lower margins here, but adjusted by the risk of a better return and that's where we are going to be delivering this growth. We rather have the under promise and over delivery as we execute this budget and this budget is a compass to the whole organization. And if we see that there is a need to go beyond, for instance, for companies, we delivered more than what we had committed to. So, we do have this constrictive point of view for individuals considering a higher interest rate scenario. But for the agribusiness, we should still expect more deteriorated risk in the beginning and also in the second quarter. And Prince already talked about that and his answer, but the second half of the year, we expect to have nice surprises to bring to the market in regards to agribusiness. So, you may expect maybe a stabilization in the first half of the year and an improvement by the second half of the year. And finally, Patagonia. Yes, investment banks are knocking at our doors with crazy ideas and what we realize is that the environment there in Argentina is improving a lot. The pricing of the financial agents there is better. There is a large number of financial institutions and payment institutions in Argentina. It is expected that there is a consolidation in the market and we are looking at that. We have our own team there working as CEOs and the top management. We do have the control of this bank over 80% of share. And so, yes, we do expect that as the opportunity arises to increase loans to do that in a very controlled fashion and always focusing on risk. There are opportunities on the table and we are seizing them. We do have data from Patagonia in our financial statements. The loan portfolio is increasing. There is a legal framework that makes it easier to finance vehicles and it's a quick recovery and even more agile than here in Brazil. So, we are analyzing our opportunities and we do believe this is an important arm of our global strategy that we are close and relevant to our clients and all of the geographies. We fund foreign trade and Argentina is a great foreign partner with Brazil and Patagonia is our representative there in the market and with that, we have great opportunities. So, yes, you will be hearing us talking more about Patagonia and the guidance for individuals and talking about the payroll loan and it's interesting to mention one thing that the market will start looking at when they start hiring payroll loans based on the ASO show. Maybe we will see a migration from personal loans for the payroll loans coming from the ASO show. So, we have an expectation to see a reduction of the financial risk in the personal and consumer credit here. So, those today that access consumer credit at a very high rate but they are the employees from private companies, they will have access to a credit aligned with a better interest rates for this payroll loan because it's much safer. So, yes, there is a trend here. Once this line is confirmed, what we expect is that we will have greater stability in terms of individuals NPL in terms of consumer finance. So, here in this guidance, we are also forecasting a migration in our portfolios as well for those that have this personal loan that they will migrate to payroll loans and will migrate from one line to the other and we will bring down the risk although it does look like a blue ocean to the bank and so why don't we have a greater guidance than because if we can go from 40 to 300 because we have other loan lines or credit lines that in a very responsible way we will try to offer those the migration from a more expensive and riskier credit line to a cheaper and easier to pay credit line. So, I do believe that the second half of the year that we'll have a better view of what's going to happen with these two portfolios but this guidance interval is very much adjusted to individuals considering that this really is launched. The product is really launched now from the first to the second quarter and yes, if I may add, I think Tarci was very much sharp on this because this line will bring deleveraging to the system and once we have the deleveraging, we will rebuild the ability of payment coming from families and we do trust in our ability of execution. So, just to give you an idea, the clients that we have here that are clients that receive their payments here in the bank, we have products here that are 10 times higher than clients that do not receive their payments coming from their institutions here, these income dependent individuals. So, as they start receiving their income here in the bank, my possibility and ability to leverage business with this base is great and this is not in our guidance yet but this is a positive fact that will stem from the ESO show of a payroll loan and considering the agribusiness, you asked if we would have a shy growth and the growth for the agribusiness should be 6%. So, this range from 5 to 9 is not shy at all considering if you analyze a consecutive base growth always of two digits that we have seen now since 2023. And finally, and we don't want to seem as opportunistic but about Patagonia since we took it over, we have been working with a strategy, what we could do for that bank and our strategy is being executed by our colleagues with a lot of discipline there at the bank in Argentina. Of course, we have a special focus in treasury for the first years because that's where the opportunity arose but now, we already find that opportunities in loans will arise and that's how we want to expand to seize these opportunities but in a safe fashion. Today, against the comparable peers, Patagonia is listed in Argentina and we have the lowest NPL. So, the idea is to leverage the business, having NPL under control, generating satisfactory NII for us so that we can provide a complementary support to our clients especially those that are in the wholesale segment and they have this two-way business with us with Argentina. When we talk about capacity, it's interesting to say that in this example that we have the ability to use the payroll loan margin and a few days ago, we announced the extension of increase for INSS. This week, in these first days, we have already gone over 50,000 contracts already and renegotiated under this new term of the INSS. So, that shows our ability to do this very fast. This example shows us the capacity that we have. Thank you all very much.

Okay. So, moving to the next question, Gustavo Schroden from Citi.

Good morning, everyone. Thank you for the opportunity. A lot of my questions have been answered but I think here on the guidance, there's something that caught my eye that wasn't discussed yet which is about the growth in fee income. If we look at the middle of the guidance, we're talking about pretty much zero growth. If we consider the low point, it could be a decrease. Normally, this line doesn't have a perfect correlation but it moves along with the credit activity, right? And we have this slight correlation but it always moves around the same line and there's portfolio growth that you mentioned. I'd like to understand, is there anything here that we should pay attention to? What's behind this guidance of fee income that's more conservative? And here, we also look at efficiency because operating expenses tend to grow slightly above inflation and the middle point according to our math. So, I'd like to discuss that, please. Thank you.

It's a good point, Schroden. And so, what happens here? 4966, the revenues related to credit loans will not be accounted here anymore. It must go to margin. So, and those revenues, the tariffs from loans that we received here has to be differentiated throughout the life of the contract. So, that was also something we discussed when putting the guidance together. And how we were going to guide you, what to expect and looking at fee income is that income coming from loan operations, ex-loan operations income. So, if we were to compare, we'd have a range from minus 3% to 4% positive growth. So, we even changed the way we evidentiate that. So, we're talking about the value range of R$ 34 billion to R$ 36 billion. So, that would be basically income from investment funds, insurance companies, means of payment. And we're talking about the means of payment. It's an important part from Cielo and everything that's going through the equity. So, we don't reallocate it here. And basically, this means tariffs, the fees of checking accounts, consortium that contributes here, the capital market. So, even in terms of comparison, if we look at the guidance of '24 compared to '24, we kind of lose this possibility to compare those two. So, that's why we chose to put it here. But without a doubt, if we were to try and neutralize them, we're talking about growth around 4% to 5%. We look at this line here as an important line to cover our administrative expenses. And that would be at the level of around 90% to almost 100%. That's our target to have 100 percent growth. And in administrative expenses, in fact, we have been working constantly to improve processes, investing in technology, but at the same time, controlling costs. This is a mantra that we have at Banco do Brasil. We need to learn how to do more with less. We have an efficiency ratio, a cost to income ratio that's competitive of 25%. We were able to bring down the guidance since that was worsening the credit risk. We decided to tighten up to try and get some gain from cost savings. And we delivered a growth in expenses at the lower end of our guidance. So, that's what we're going to continue monitoring in 2025. That already includes the salary adjustment of the category. There's the natural turnover in the bank's customer base of around 1,500 employees every year that leave the bank. We're hiring a thousand now specifically for technology, always with that aim of seeking efficiency improvements, efficiency gains. So, if you look at these two lines that way, the administrative expenses line will probably be in line with the inflation. And since there are slightly higher expense in technology, we will be seeking to control that, keep it under control. That's what we're going to do.

Very clear. Thank you.

Thank you, Shroden. Next question. Eduardo Nishio, Genial.

Good morning, everyone. My question is a follow-up about the E-Socio private payroll loans. If you can talk about and the discussions with the government in Brasilia. I'd like to know a little bit more detail about this product. What happens, for example, when the employer stops paying? How do you address NPL? What happens with NPL, for example, when the employee is getting out of one company, getting to another? How are you going to deal with that in the product itself? And whether or not you have an idea of what the NPL of this product could be, if we consider a good cruising level, it's probably higher than the INSS payroll loan or the payroll loans overall. But if you can give us an idea for us to have a better understanding of this product. Thank you.

So, about the details of this product. Regulation is being developed. It is about to be released, but we would say this is a payroll product that very much in line with the public sector payroll loans. So, the details that will come in the regulation will be in line of guiding or steering how this compactuation and payroll deduction and the margins will have in this regulation all of the details. I don't have all of the details of this product. It's still being discussed and built with the Ministry of Labor and Economy with Dataprev that is the company, the government's technology company that will operate this. But I would say it's very much in line with the product details that we already have for the public sector payroll loans. In terms of NPL, I don't know. I can't really tell you for the future what the NPL percentage would be, because this will be a very new product that opens possibilities to a whole new market. But definitely, at least talking about Banco do Brasil, it will be a product in line with the NPL levels that we see for the private sector payroll loans. The expertise, when I say that Banco do Brasil will get in strongly in this market, is taking the expertise we have with the relationship with employers in the public sector. So, understanding the employer and the constancy of their payments of [Indiscernible] and understanding there'll be no delays in the relationship of the employer and governments when paying social benefits there, FGTS, INSS. These are important indicators that we will evaluate as well as for the employers to evaluate the risk of granting those loans. So, I believe that considering this type of analysis, the NPL will be very much in line with what we see in the private payroll loans that we already have at the bank. In terms of guarantees of receiving in case of dismissal of those employees, just as in the public sector, if an employee leaves, there is a debit of the balance too from those loans. So, I believe that with [Indiscernible] it's going to work the same way. But I can't bring you any details of the regulation because it hasn't been finalized yet. So, we need to wait for that to be concluded so that I can give you certainty in the answers. But you can be confident of one thing, the same analysis that we do in terms of risk for granting payroll loans for the public sector and analysis of the employer's risk will be replicated for granting payroll loans on the [Indiscernible] model. Tarci, if you can add a little bit more to the debate, it's important and even the people developing that should consider that if they want a line that allows access to more affordable loans, these guarantees of liquidation must be there, they must be in place. Otherwise, it's almost like it's not payroll deductible.

Yes, and Geovanne, I think that we can say confidently that we cannot forget that it's the same administration, the same government that launched private payroll loan, public sector payroll loans 20 years ago and that evolved over the years and today we have the best payroll loan model with the registration of images online and providing the credit online and I believe that the legislation, this regulation that's being designed now will be in line with the product that already exists for 20 years with such success. So, we cannot forget it's the same government who designed the product in the past and it is successful, that completely changed the dynamics of credit granting for individuals in the Brazilian market and that now comes with the regulation of the payroll deductible loans for the private sector. So, this system that will allow to access this directly through [Indiscernible] without a need for direct relationship with the employer will make a huge difference for the granting of these type of loans.

Clear, thank you.

Thank you, Nishio. Our next question is from Pedro Leduc from Itau. Hello, Pedro. We can see you already.

Good afternoon, everyone. Thank you very much for taking my question. I would like to go back to CET and the decision to change the dividends payout. I ask that because around a year ago, there was a decision of increasing the payout from 40 to 45 and you always have that horizon for a few years where you map the capital, what's going to be accumulated and when I look a year back, I have not seen that many surprises. The net income was in line, the portfolio was in line. So, I would like to know what were the changes in the last 12 months that allowed you or that made you bring down this range and to work with the payout range more cautiously and also because I want to think about 2025 here and as we move towards the end of the year with a more comfortable capital level, if we can think about a full payout in 45 or if you're going to reinvest that in growth opportunities. Thank you.

Thank you for your question, Leduc. All of that is going through our minds. When we established the payout of 45, we were acknowledging what the market was saying. We have our main capital, principal capital over 12. So, in addition to improving remuneration to our shareholders, we had the delisting of Cielo. We bought back BB Seguridades. So, there was a reinvestment of that capital of CET1 and some firms that were important in addition to paying out the dividends. We also had that expectation of the operating risk. So, we were very conservative because we do not want -- the bank does not want to start with restrictions in the future. We want to expand our business to bring sustainable earnings. Looking back at '24, there was the deterioration of the agribusiness risk. We could be delivering even better results if that was not the case of elevated risks at the agribusiness and increase of provisions for that portfolio because that portfolio was in a 0.5% of risk and now it's up to 2.5%. So, considering we are transitioning to 4966 and we have the implementation of expected loss. In 2026, we will have an adjustment in the market risk. So, all of that is on the equation. Of course, we are aiming at paying the 45, but we will be more conservative now in the beginning. That's why we opened the range so that we could be more flexible and we could look for the optimization of our CET, looking at interest on equity of 11%. In December, it was lower because of the volatility, because the curve was wider and because of the effects. But we talked about that. We're coming back to 11% and depending on those results and the control of the rural NPL and then we will be able to pay the 45. But we will see how the first half of the year goes and this is our commitment to you between 40 and 45. And we will keep on paying EHACD. There are other variables that we are considering here in the next three years and we do have a limit that we consider to be as prudent. It's higher than the regulatory one and all of that then brings us to this conservative estimate, always looking at opportunities. If we do have opportunities, eventually we can grow in a non-organic fashion. We'll take that into consideration, but we do not want to have problems in the CET because we do not have room to increase the CET1 and the capital market perfect.

That's very clear.

I also have a comment, Pedro, because I do not want to convey the impression that we did not know what was ahead. All of that was part of our CET plan and Geovanne mentioned all the strategic issues that we took into consideration in 2024. It was not letters. We do have a payout of 45. We bought back BB security. There was the delisting of Cielo. The operating risk was implemented at the base of 2024. This was already there. So why did we bring to our Board of Directors this flexibility so that we could run the bank and the operations since then. That is our ambition. That is to generate organic capital to finance RWA. We now have a robust starting balance from 14966 and our ability to mitigate risks, especially in the NPL portfolio such as agro. So our organic CET composition needs to be enough to finance our RWA and that's what we intend to work on from now on. Yes, we have a discussion regarding our FTB and we don't know if this is going to be for January of 2026. If we are postponing it, but considering all these issues and as soon as we see a better scenario and opportunities that arise, we chose to follow this strategy and our idea is to get to the end of the year and probably pay the 45.

Thank you very much and congratulations on the year.

So we are coming to the end and I would like to bring to the floor for the next question, Carlos Gomez-Lopez from HSBC. Carlos Gomez-Lopez: Portuguese or English? This quarter, R$1.6 billion. We know that you have another year of provisions for economic years. You have an increase of almost 41% in 2024. How much will be provisioning for 2025? And that will be the last year that we will have that kind of expenses in the bank.

Great question, Carlos. Geovanne is our representative at [Indiscernible] and we have had negotiations there so that we are still under the agreement with the Supreme Court. So the idea is that either we have an extension of that agreement or that the issue has its final ruling, which also would allow us the possibility of celebrated agreements or create a trigger so that we could also be there with all the stakeholders to solve these demands. And in the short and the medium term, at least for the next two years, we will see some pressure related to economic plans because we either maintain the provision levels to face an agreement that might be postponed or that are what we would like to have. And we have already stated that we re-establish a strategy to foster the agreements and to end this demand. And that's what we are looking for. Our intention here is to remove that obviously as fast as possible, respecting all the economic conditions to do it and establish these agreements so that we can solve that and to be able to bring to our investors the full remuneration of the results that we deliver. Carlos Gomez-Lopez: So you're going to have an extension?

Well, the extension is being discussed at FEBRABAN, Carlos, along with the federal, the Supreme Court and the Court of Accounts. And they should end these discussions and this agreement in June. But I know that FEBRABON is already talking to these other agents to define the economic plans. Okay?

Thank you, Carlos. I said that this was the last question, but there's another one. Another analyst is on the line. So we'll close with Nicolas Riva, Bank of America.

Great. Thanks very much, Janaina and team, for the chance to ask questions. I just have one question, as usual, on the 81 bond, on the 8.74%, given that you can call it every six months. My conclusion from everything you said in this call and also looking at the guidance and how results have been doing and 20% plus ROE and the dividend payout, 40% to 45%. And also what I think Rafael said about your idea is to generate capital organically in order to finance the growth in risk weighted assets. My impression from all of that is that there is no rush really from the bank to call the 8.74%. Also, given that if you were to issue, perhaps you wouldn't be able to issue significantly below the coupon that you are paying. But I wanted to know your thoughts about that bond? Thanks.

Hi, Nicolas. Thank you for the question. This is an issue that we have been looking for. We are analyzing the opportunities. We had April to call this 81. We won't call it in April. We might call it in October. The level of coupon that the investment banks have shown me are not as attractive as I would like to see. And I have been able to issue 81 here domestically at a very attractive rate and in a very strong volume. So this is something that we are paying attention to. And depending on how our capital performs throughout 2025, maybe the second semester, we will be analyzing the opportunity to call it. And if the market is there and if there is a financial opportunity for us to issue new 81s abroad, we will consider. But in the meantime, we don't see that happening. Okay.

I see. Thanks, Geovanne. One follow-up on that. Would at some point, would you consider just calling that 8.74% and just keeping all your 81 in the local market instead of the global market?

Yeah, it's possible. As long as it's more attractive, financially speaking, to issue domestically, I can call it definitely an issue domestically. Okay. And just for the financial point of view. Okay.

Thanks.

So now we conclude the questions and answers session. I'd like to thank everyone for attending. And I'd like to say that we remain available for any additional clarifications with the IR team. Thank you very much, see you next time. Thank you.