Cassiano Scarpelli: Octavio, if I may, I’d like to add to your answer. Mario, as we have been saying it’s something important. Our RPS insurance expenses guidance and even AAL — ALL on guidance will achieve the guidance. Like you said, we do have a challenge. And as Octavio mentioned, it is important for credit and client NII as a whole. And Octavio mentioned about this transition. When we adjusted the guidance in the end of the first half, we had a better expectation for SMEs, but this improvement came in October as Octavio mentioned. Then for SMEs, or SME is important for our margin. They had more items in our balance sheet such as insurance, revenues, fees, et cetera. So there’s this movement. Perhaps it was somewhat more detached in Q3 compared to the guidance due to the SMEs. But all other lines overall are moving forward full, almost all of them full.
And this is what we are pursuing to start 2024 in full speed in all lines to increase the credit NII in this new normal. We have to remember that we are starting with a smaller base, but our growth will be according to expectations in 2024. This is what we expect.
Mario Pierry: Thank you. If I may ask a follow up question. What were the changes in the credit model that you have that would give you confidence to again start accelerating growth? Clearly I think there was a problem because delinquency was much higher than expected. But what were the internal changes that you promoted to contain the problem?
Octavio de Lazari: Well, Mario, we are a bank with a footprint all over Brazil. We are present in all states, in all municipalities of Brazil actually. And there are different situations in different municipalities in each one of these different cities where we have clients. Some are more impacted by a higher interest rate. Actually the whole country is impacted by a higher interest rate. Others are impacted by perhaps local issues. So the changes made were not just to the credit model. And I’m referring here to the mathematical model where we had some fine-tuning. But we had changes in our credit policy in terms of the appetite in which we operate, perhaps not operating with this client or operating with this client only if they can provide a guarantee of some sort.
So there are a number of variables. I cannot really list them all here. But we basically had a more adequate adjustment in our risk appetite geographically speaking, also according to sector, so that we can — we could have a greater accuracy in defining the models. It’s hard to mention one variable or another, but the accuracy of the model now is very much directed to the right pricing, adequate guarantees, geo location so that we can be more correct with our model. In addition, we brought many of the operations. When we saw this detachment of the delinquency curve we brought many operations in to be analyzed in the traditional model. In other words, what is it that we need to adjust the model here and there, where do we need to adjust the model.
And that’s the work that we did to it, adjust the credit policy and the credit modeling. And this was solved.
Cassiano Scarpelli: And let me add to what Octavio said. And even the cohorts this year changed. We’ve been speaking about the cohorts. The cohorts already reflected these policies that Octavio mentioned. And the cohorts give us peace of mind that we are on the right track with the exception of SMEs that required more adjustment in Q3, improving in October. But the cohorts give us some peace of mind that now we have the policies coherent to the macroeconomic scenario that we are envisioning for the rest of the year and next year. Of course we have the high interest rates, we have to have the country growing again, credit origination again. And NPO creation is good news. When we had a reduction in almost BRL2 billion in the quarter.
This was very important to show that the right things we did. And these were quite big, both in origination and in credit policy. All of that gives us comfort so that since July we’ve been improving. And as mentioned, in addition to all these specific points mentioned by Octavio, if there is one point where perhaps we went wrong was perhaps maintaining our risk appetite perhaps a little longer during the cycle. I think that perhaps it was the wrong timing to adjust our risk appetite. And we reflected a lot on that. We adapted our processes and reviewed our policies.
Mario Pierry: Thank you.
Octavio de Lazari: Thank you, Mario.
Carlos Firetti: Our next question coming from Tito Labarta with Goldman Sachs. Tito, go ahead.
Tito Labarta: Hi, good morning. Thank you for taking my question. My question is your ability to improve profitability in sort of the current competitive environment, right? You’ve gotten a bit more cautious with lower — in the lower-income segment and you also have digital competitors there with low cost to serve. And then now you’re moving up to higher income. We incumbent competitors with historical advantages and other competitors with the strong investment platforms. So just want to think about how you will fit into this sort of new competitive environment. And when we look at the ROE, not on a consolidated basis, but your insurance ROE has been fairly healthy in the mid-20s banking ROE mid-single digits sort of at best.
How do you think about the ROE of those two segments in particular? You know, ability to improve the banking ROE and then with insurance next year perhaps some headwinds with lower rates, will that insurance ROE kind of normalize a bit? So that could also be a little bit of a challenge. Thank you.
Octavio de Lazari: Thank you, Tito. And as regards profitability and the competitive environment, we are operating in growing on our growing lower income, difficulty to grant loans for this population and cost to serve. There are some important aspects to mention here. This ability of increasing the profitability of our clients in this competitive environment, I think that Bradesco has an important geographic footprint present in all municipalities of Brazil as I mentioned before. We have to adjust this, and we’ve been doing this. In the last two to three years we’ve been working to reduce our cost to serve in the different geographic distribution of our branches. In this presentation, you could observe the size of the adjustment we made in our headcount and also in our physical structures, the physical branches of the bank, rethinking the structure of the branches, their size, whether they should remain open or not in the different locations, vis-a-vis their ability to create results, the GDP of that region, that municipality, that city we are operating in.
