Octavio de Lazari: Thank you, Thiago, for the question. Actually it’s a very good observation you made. When we work at the segments in the financial industry, the financial sector and in the bank, the profitability of the wholesale bank is doing quite well, above the cost of capital, the profitability of the high income bank here including Prime private, also doing well, above cost of capital. The insurance company, we don’t even say it, you observed it yourself. But we have a challenge in retail bank. You see retail here at Bradesco or any other bank historically retail was always a segment providing good results. But this segment went through some processes, some challenges over time. Regulatory challenges, the fact that people are opening checking accounts with no tariffs, the cost to open a bank or branch, having a brick and mortar branch in a certain place in a certain city or region.
So we face additional challenges in retail. But it is a very big volume of people. When we looked two years ago, the segment was given results ROE above the cost of capital. But we entered a phase, a cycle of very fast increase in interest rates. Social benefits provided by the pandemic ended, those government aids, and people got more indebted. And, Thiago, this is very common, you have probably observed this, low-income people today now have two, three, four, five, six credit cards in their wallet because it’s very easy for them to have access to credit, either opening checking accounts in mobile phones or asking for a card digitally. They don’t even have to go to a brick and mortar branch and speak to a manager to get a card. So it became very easy for them to get credit.
And this is a determining factor for this longer delinquency cycle we’ve been observing in addition to the interest rates that grew a lot. Right, having said that, with that scenario in mind, we still aren’t convinced, and this is based on studies, it’s not my personal opinion, that retail is possible to be profitable with a profitability above the cost of capital. However, we have to have a more adequate cost and we have to select our audience to be served. Thus, digital is fundamental at this moment so that we can serve this client without the need to be physically present with a bank branch or even with a physical structure of people. And if we do have a physical structure, you should be very much geared to business than to just, to just have them pay your water bills, electricity bills or [indiscernible].
We cannot do that anymore. Indeed, we cannot be profitable if we have a bank branch just to serve this kind of transaction. So you in saw the presentation, on the right side of the screen you could see the size of the adjustment we’ve made in our physical structure and the size of adjustments in our personnel structure, in our headcount. This adjustment is all well planned out and it will continue, will continue much more vigorously along 2024 because we definitely have to adjust our costs to serve because the sense Thiago that this is the new normal as you observed yourself, Thiago. So this is the new normal in this cost to serve this adverse selection that existed. Well, we had to adjust to that. We and the whole market, that’s the challenge for all incumbent banks, right?
To make adjustments, eliminate the symmetries or mitigate symmetries so that also in the retail bank or we can have a return above the cost of capital. And this is possible because this population needs to be served. Brazil should be growing 3% it’s GDP this year. We have an expectation that the country will be growing in the coming years given everything that has been happening, the tax reform that is coming. So if the country continues to grow for several consecutive years, we’ll have higher income, more income, more people with income available for us to be more profitable, particularly in the retail segment. So there is an important challenge for all of us incumbent banks and especially for Bradesco.
Carlos Firetti: Thank you, Thiago. Our next question comes from Bernardo Guttmann with XP. Bernardo, go ahead.
Bernardo Guttmann: Good morning. Thank you for taking my question. I have one question regarding credit quality. This reduced delinquency perhaps as the big positive highlight for the quarter. But it’s still high. On the other hand, the coverage ratio posted another quarterly reduction, getting to a low historical level. So my question is, what is the space you see ahead of you to reduce provisions even with a lower NPL? If you, perhaps will have to rebalance that equation. And if you will allow me, is there any ideal value that you pursue in terms of coverage ratio?
Octavio de Lazari: Thank you, Bernardo. Indeed the coverage ratio is reduced to 155 now. Credit with 100% covered to the ratios at 240. It was a small reduction, but it is only natural, Bernardo, that at the end of a cycle of slightly higher delinquency that will consume provisions. Actually we provision exactly to use when we go through a different or tighter credit cycle in the company or in the country. And this is exactly what happened. At the moment that we resume our portfolio growth and improvement in the margin, it is only natural that the coverage percentage will be adjusted and will be increased. There’s no magical number for us. I will say okay at this percentage, we cannot be below that magical number. No, with our provisions or according to what we expect because IFRS will kick in, in 2025.
