Banco do Estado do Rio Grande do Sul SA

BOVESPA:BRSR6

Earnings Call Transcript

[Nathan Meneguzzi, executive]

Good afternoon, ladies and gentlemen. Welcome to our video conference on the earnings results for the third quarter of 2024 and also the annual public meeting with market analysts together with APIMEC. This video conference is being recorded, and the replay can be accessed on our Investor Relations website right after this event.

Today's event will be divided into 4 parts. First, we will start with a presentation of our CEO, Mr. Fernando Lemos, who will present on how Banrisul is preparing for the coming years. Next, our CFO, Mr. Gonzaga, will present the main figures and performance information for the quarter. Afterwards, we'll have an interaction with APIMEC's CEO, Ricardo Martins, and then we'll end with the traditional Q&A with market analysts. The presentation that will be given today will be available for download on this platform's chat, and it is already on our IR website.

Having said that, now I would like to give the floor to our CEO so that he can deliver his presentation.

[Fernando De Lemos, executive]

Good afternoon. Welcome to our third quarter earnings release of 2024 and our annual public meeting with market analysts. Before going over our figures for the quarter, I would like to give you an update on my first year as a bank CEO. Our strategy is defined by 3 pillars. Pillar 1 is a publicly traded bank. Pillar 2, this is a smart bank. And the third pillar, a bank towards 100, the next 100 years. And today, we'll focus on the third pillar because Banrisul celebrated its 96th anniversary in September. And throughout our history, we've been through countless challenging situations from economic and financial crisis to the pandemic, now most recently, the May floods that affected the state of Rio Grande do Sul. And we have always been able to face the challenges brought by each of these issues in the best way possible.

With this in mind, I would like to discuss some actions and initiatives that show how we are preparing to take Banrisul into the next 100 years. We know future challenges will be focused on technology, and this is the path we have chosen. As an example, we have already implemented biometrics, which is an opportunity to position Banrisul as a modern and up-to-date bank. It brings more security and protection to operations and improves customer experience. Our digital signature is an important step forward in improving our efficiency and cost management. We launched a new feature in our app called Minhas Financas, My Finance. With straightforwardness and security, customers can bring their funds from other institutions into Banrisul accounts using information shared on open finance. The solution gives customers autonomy and freedom over their information and facilitates day-to-day financial management.

We also modernized the Banricompras product making it easier to manage and use the card. Now the card features contactless NFC technology. We have enhanced user experience by grouping together various functions in a single area of the application, such as bank statements, management of credit limits and purchases made, card settings, and personalization, among others.

We are also moving forward in offering life insurance in a 100% digital journey. Soon, other insurance products will also be available on the app allowing us to expand cross-selling with our customers. To make it easier for people to access the banking system, whether for services, information or credits, we have Banripontos, our network of banking correspondents. Banripontos expand the range of face-to-face services on offer, providing customers with more convenience and practicality. Banrisul has invested efforts in the use of generative AI in an internal solution with the aim of facilitating customer service.

On another front, we have been testing AI in initiatives that aim to personalize the offer of products and services, identify consumption patterns, and support credit scoring models. We participated in the construction of Drex together with Serpro, the federal data processing service. This partnership enables the development of new products and services aimed at a new era of asset tokenization and smart contracts. The new digital account is one of the semester's major launches for individuals. We have developed a new 100% digital experience for opening accounts via the app. It's fast, simple, and intuitive.

We started in a very controlled way in June without much publicity testing and evaluating the journey and performance. Now in September, given the good results of the pilot project, we decided to expand it, allowing account opening throughout the state of Rio Grande do Sul and some locations in Santa Catarina. Since the expansion, we have opened more than 50,000 digital accounts, in line with our strategy of expanding the customer base. So far, I've commented on projects and solutions that are already up and running, but we still have solutions on the drawing board that are expected to be launched soon. As part of our strategic focus on regaining prominence in the individual segment, opening 100% digital business account integrated with Vero payment solutions will be an important step forward. As with individuals, we should launch it as a pilot project and evaluate the results before expanding. We will soon officially launch our global account. This product further strengthens our relationship with our customers and brings versatility to our product offering. We opened the presale in October via the app, and we already have received over 23,000 requests.

Finally, I'd like to outline the main highlights of this quarter's performance, which Gonzaga will detail next. We achieved a net income of BRL 197 million this quarter with a strong year-on-year growth. The net interest income remains on a path of annualized growth, reflecting the expansion of the portfolio with expenses with credit provisions remaining within the expected levels. Fees and services revenues grew at an annualized rate above inflation in the period, and covered 102.8% of personnel expenses. Total assets grew 15% in 12 months with a contribution of 9.9% from the loan portfolio, performing above the top of our projections. The delinquency or default rate over 90 days closed the quarter at 2%, which is lower than the last quarter.

I would like to thank you all for your participation. But before turning over to Nathan, I would like to show you the video of our digital account campaign already featuring the main media outlets.

[Video Presentation]

[Nathan Meneguzzi, executive]

Thank you for the presentation, Mr. President. Well, these and other media campaigns I've just seen have been featured on TV, radio, and social media. I believe in the last video, you could see how the account opening journey has become simpler and faster, improving the customer experience. And within 5 to 6 minutes, it's possible to open a Banrisul account right now.

But now I'd like to hand over to our CFO, Mr. Gonzaga, who will share with you the main performance highlights for the quarter. Mr. Gonzaga, the floor is yours.

[Luiz Gonzaga Mota, executive]

Good afternoon, everyone. First of all, let me make a brief introduction on the state of Rio Grande do Sul economic scenario. Almost 90% of our business are in this state. Last year, we've had a major flood that affected the state's economy in September '23. This delayed crops, harvest, and this is the main -- one of the main business of the state, agribusiness, soy, corn, rice for the crop of -- in October '23. And then in the next year, in this year, in '24, by the end of April and the beginning of May, there was another flood, a tragedy in Rio Grande do Sul and then crops -- some crops were lost because the planting was delayed in '23. So it led to these effects in the crop harvesting in '24, also affected by the flood. But the state of Rio Grande do Sul has been extremely resilient. And this has been seen in the economy of the state. The data show that the state has been growing with surprising figures considering year-on-year and also considering previous years.

Another point that shows improvement, very positive growth is -- are in means of payments. We follow our competitors and means of payment have positively developed, surprising us. And this shows how resilient the economy of the state is, which brings a direct reflect to our -- or impact to our business in the companies we work with in the agribusiness and all the other segments.

Well, to present some of our results, if you consider the last quarter, we've had a positive result, 11% regarding the third quarter of '23, 11.5% and in the percent in Rio Grande do Sul, which also is reflected by the economy, the second and the fourth quarters are usually or traditionally, they have better results than the first and the third quarters. In January, and February, many people are on vacation. And then in the third quarter, we go through winter in the state. And this is reflected in the negative results of the first and third quarter. But in the second quarter, and the fourth quarter, too, there is recovery in loans and credit because in the first quarter, in January and February, people are on vacation, as I said, so we don't collect so much. And in our -- according to our business model and management model, we try to keep up to meet the demands of our performance.

In the second quarter, it's a little slower. We could see that in June, July, some people in the state, they go to the Northeast or they travel abroad. So it also affects us. And in the fourth quarter, there is an improvement of -- in the bank's finance to the better economy. So the second quarter was not as good as the third quarter, but according to our evaluation, considering all the climatic challenges faced by the state of Rio Grande do Sul, we have been reasonably good. Our ROE in the past 12 months, if you compare it to the third quarter of '23 to this third quarter, it's reasonably good. It could be better. It should be better. But also, if you measure or compare the third quarter of '23 to the third quarter of '24, there was a positive impact of 2.4%. And as I said before, the third quarter of this year had a better performance if compared to the third quarter of '23.

We had BRL 193 million in this third quarter. Financial margin was good. Loans provision recovery was on average. It wasn't as good as we expected, but we've had some recovery of loans because there were some adjustments regarding the flood that happened. And in other expenses, we are in line with the market in inflation. We had some administrative expenses and others and taxes and others are in the order of BRL 125.1 million, which led to a result of BRL 190 million in the third quarter of '24.

Regarding our net interest income is BRL 12.3 million. If we consider the year, it's BRL 11.6 million, a little lower the second quarter of -- the third quarter of '24. The second quarter of '23 and the third quarter of '24 shows this event we've had in the individuals portfolio. It was given. But when we checked the payroll loans, we had 3 months of interest as a grace period. So we -- I mean, the clients could wait for 6 months before starting to pay. And then we added this to the other installments he had to pay or they had to pay. There were other social actions. A part of these clients came down to 4 months, and they didn't pay interest rate over this capital for these 4 months. And by the end of the agreement, these installments were placed with no interest. This led to a phenomenon that had been discussed in the previous video with the market analysts showing around BRL 50 million. This was in the BRL 38 million -- they are related to other phenomena in the overdraft. Some people didn't pay -- some clients didn't pay their installments. It was accrued in our agreements, both the no-interest 4-month installments and in the -- sorry, agreements and in the 6-month agreements, too. People kept their money and they reduced their debt in the overdraft service.

This led to almost BRL 50 million, BRL 100 million, both areas. And we didn't accrue credit card for 2 months during that period. This was all due to the flood. This has been all accounted for. And moving forward, this will be a new situation and portfolios are very healthy. Customers will start paying the installments normally, but the loans -- the payroll loans are very good and default rate is very low, as I'll show you.

We also had a specialized phenomenon with some adjustments of this BRL 29 million that had an impact on the net interest margin and the cyclic area of loan recovery, credit recovery due to this changed seasonability -- seasonality in quarters. I believe that in this fourth quarter, we will improve in this area that had this almost -- this decrease of almost BRL 30 million. In treasury, we are conservative, as you know, the CLF, the operations of AAA business and the others are government bonds.

So this has to do with the effect of the flood -- the floods that affected -- the effects that are already accounted for. I can tell you that we will be in the center -- not in the center, but moving towards the right of our guidance. Our expectation is to have a performance as we have estimated. We also have our loan portfolio here with -- had an increase that was good. One portfolio was a little better than the other. There was some problems with figures. The rural portfolio, this happened in all banks in this market included in Rio Grande do Sul operations due to this climatic event. Then the Central Bank increased the period, always making promises, not the Federal Bank, but the government saying there will be money from BNDES and all of this, I mean, many clients who needed funding for their crops, we ended up providing these loans to them so they could plan, and we refinanced this operation for 3 or 4 years -- 3 or 4 additional years. This led to a growth that was not expected for this portfolio.

Here in '23, if we didn't have the flood, we would be '19, '20 maximum. But due to these effects, this portfolio showed this growth. And through time, this will be corrected or leveled with the payment of the operations which were financed. And according to the periods that were given, this is not BNDES. This is -- and this portfolio, our estimate -- we estimate there will be 20 throughout the year of 2025. Obviously, this -- we will have a growth in this percentage in retail for individual accounts. We want to improve our margins and also the retail in as for individual accounts.

If you look in another point, we were always at ease according to the calculations of [ 49.66 ]. We see no impact coming from the methodology for the previous year net equity and provisions and capital. The impacts will be residuals if they come, either positive or negative. This is what we expect. In terms of companies, our performance is this, we have important products, the unique account, Conta Unica with good performance. The working capital default was decreased in our daily routine and our payroll loans shows the increase we've had. We have a good participation in the Rio Grande do Sul market. And our core is in Banricompras with Vero company. This also led to an increase both in cards, especially overdraft. But this is an operation that has space and room to grow. So we can improve our margin in the retail for company accounts and overdrafts for companies with this margin, which is known. There will be no problems for us to expand in this credit or loans. These are customers and clients that are known to us. We want to focus more on this portfolio.

In terms of asset quality, our company is safe. After all the adjustment period coming after the flood, this was 2.1%, 2.8% in the individuals, 3.3% in the companies. The impacts of defaults over 90 days improved our cost for this period. These are the days, 299 for the third quarter of '24. And the coverage ratio is in line, 215%. This is a reasonable mix considering the credit risk in our portfolio.

As for administrative expenses, you can see all the figures on the slide. We've been working in the HR with the agreement, the employees' collective agreements. We had to do some adjustments. Human resources are under -- processes are under control. In banking correspondence, we do not see a lot of appetite. The margin is tight in this area. We want to renew this -- we've been working to renew this portfolio. In '25, this area will disappear. This will be divided into new operations from January on. This expense will be considered in the next few years as the portfolios renew.

Regarding service fees, we have good performance, reasonably good performance, especially focused on the group Vero and insurance business with good revenues. And this revenue has followed the payroll 100%, 108% of revenue. We expect to deliver a good performance in spite of the current exchange currency. We have explored the services of this exchange rate. We had a leverage of over BRL 1 billion. This is important for us for our business. This brings in many businesses in spite of the contributions of the Federal Bank that has been intervening in this market with the relationship with the consumer.

As to funding, this is really our cash cow, our main business. We say that we have very strong funding ability with great performance. And sometimes credit and loans are a little bit behind that. Sometimes we cannot have a very good penetration in the market, but we need to improve our performance to increase our penetration in the loan market. Cost is very well leveled in terms of funding for time deposits, we have BRL 64 billion. So we have BRL 10 billion at this point that have been prefixed with an automatic CDB with a prefixed rate.

So in addition to the margin and the Selic margin is going up, we also have a good balance because of a good balance between assets and liabilities, because of the good balance between pre-rated and post-rated fees. We have a good performance here, 16%. The Selic rate is about 10%. So that's very positive. This is an actual growth. And we have a very well-diversified portfolio and the top 100 customers account for almost 15% of our portfolio. The top 10, 7%. So it's very well-distributed, diluted among different branches in the state of Rio Grande do Sul. This is really a reference in terms of funding.

What about capital? 17.92%, so 3.31% and 14.61%, which is for Tier 1. And for Tier 2, that we will be doing 2026 and 2027, still, we are very comfortable. We do not know whether we are going to the market for more capital or not, but that's something that has not been defined yet because of credit expansion. So we have cash, we have capital. So we expect to reach our targets for growth in loans, especially for corporate accounts. We have enough space for that. We have market for that, good companies, but we need to work more on these aspects.

[Nathan Meneguzzi, executive]

So that's basically it. And now we are open to entertain your questions. But I think that before that, we have APIMEC's words. So before we move to the Q&A session, I would like to invite APIMEC President, Ricardo Martins, to join us.

Hello, Ricardo.

[Ricardo Martins]

Hello, Nathan.

[Nathan Meneguzzi, executive]

Welcome to our earnings call. So you follow up the strategic plans that were told us by our CEO. You followed up our performance, our figures presented by Gonzaga. So I think now, it is a good moment for us to highlight this partnership with APIMEC that has lasted 17 years so far.

[Ricardo Martins]

Thank you, Nathan. Our partnership is a good example. So for our [Foreign Language], which is a seal of attendance, you already have it at the platinum level. Not many institutions have that. And this seal is intended to highlight the value of information.

First, I'd like to congratulate you for your 96th anniversary. Again, not many institutions or companies in Brazil can celebrate this type of anniversary, the long-standing companies like your own. And I would like to thank Fernando for his participation, although I understand that he could not attend this meeting in person because of conflicts in his agenda. But I would like to thank him for being here -- for leaving a message. I'd like to thank Gonzaga for the work he has done. And Irany, Ivanor and you, Nathan, and also Werner, I would like to thank all of you for your dedication to this event. We always try to reinforce this message. The more executives are in the market, the better these appraisals and evaluations can be.

So we are at your disposal. We are at the disposal of analysts and the market to clarify any questions you may have and also to improve our modeling and to show the value of the institution.

I would like to briefly reinforce that APIMEC was created in 1970 through ABAMEC, which was an association of analysts. And after we created APIMEC, investment professionals joined this group. So our association was created in a meeting like this one. Analysts and market agents were looking for information, while companies and institutions wanted to give their information to the market to make the market understand those information more clearly to be able to assess and to [ specify ] and the strategy of the company. So 17 years of this partnership, so congratulations once again.

Next year, APIMEC will celebrate its 55th anniversary. So 55 years dedicated to transparency, good practices, and governance.

I would like to congratulate you for the celebration of 96 years of existence and over 17 years of partnership with APIMEC. We feel very honored to be a partner with Banrisul, and the market, of course, will benefit from that.

So thank you very much. I hope that we can hear very good questions from our audience because in these interactions, we can always find more details and more thorough information.

[Nathan Meneguzzi, executive]

Thank you, Ricardo. Thank you for your comments. And thank you for encouraging analysts to ask us questions because that's what we are here for. We want to show our data and -- in a way that is more transparent as possible.

Now let's move to the last part of our meeting, the Q&A session. So let us start with the first question from Olavo Arthuzo from UBS.

[Olavo Arthuzo Duarte, analyst]

My first question is about the margin, the NIM, so -- and also more specifically on the rural market. Calculating with the financials you provided, so ex-individuals and ex-corporate customers, I think that rural producers will be the most representative group. And there was a drop for this group in this quarter. Could you please give us more details on that?

And I have a follow-up question again on margin. I was calculating here, and I believe that NIM, net interest income should grow by 16% through 18% quarter-on-quarter so that we could reach the bottom of the guidance for the year. So that will be the expectations for the fourth quarter. Could you please confirm your expectations for the fourth quarter? What do you expect in terms of NIM guidance?

[Luiz Gonzaga Mota, executive]

As to Vero, credit Vero loans, we know that you need to follow a table. It is a fixed price and fixed interest rate. This is determined by the government. So first, there was a delay until September 15, then October, then the end of October. So those loans were postponed. We have closed the context that are -- contracts that are going to be refinanced through BNDES resources, almost BRL 100 million. Because of that, we are taking resources from MCR 6.2. And that reduces the money that I could allocate for next year. That was done with a part of the money. And the other part comes from government transfers either from National Treasury or BNDES. And as there's another part of credit loans for which we have a reasonable margin of 2.75%. And that's better than the Selic rate, [ MS63 ]

Now the portfolio itself has a margin that requires some work to be more elastic. This is not like overdraft or a credit card where you can gain more money or even working capital. You can get better margins over 6%. So this portfolio you're talking about has a very tight margin. And you have to avoid default. And as you saw, this was a little bit high, as you could see in our figures because of the measures taken by the government that caused confusion throughout the market. Many banks like Banrisul believe that rolling these loans or these status because of the floods. We are trying to be very selective in these loans. But if you funded a rural producer in the previous year, you cannot remove that from them the next year. Otherwise, you're going to have loan problems. That's their business. This is like owners of restaurants. They need to sell food every day. That's true for supermarkets as well. And rural producers need to plant every year. That's their business. That's their company.

So I agree, it is a tight margin, and that portfolio was a little bit beyond what we expected because of these events, but we are managing that portfolio to control the levels of default to a minimum level. So these portfolios are doing fine. We have a good relationship with our customers.

As to the 16%, or to 18% of NIM that you mentioned, yes, your calculation is correct. We are working to deliver 18% in the next quarter. We are renegotiating with some customers. And some -- we [ re-specify ] all portfolios, expecting a Selic rate at 14% or 15%. So we've been working on that. So we are following the expectations of the market. Yes, we have chances of reaching 18%. It is a tight target, but it's feasible. I think it's probable that we will reach 18%. But yes, it's a tight margin. It's not what we expected in the beginning of the year. So that's what I can tell you, very honestly.

[Olavo Arthuzo Duarte, analyst]

Great. Nathan, if you allow me, just like to give a follow-up, maybe a more general question for us to understand the profitability of the bank, because there was this growing trend and then there was this drop. Can we see the ROAE of the bank of 14% to 16% by 2026?

[Fernando De Lemos, executive]

I'm sorry, I cannot answer this question. Maybe after some time, when we get closer to this timeline, we'll be able to do that. But we are working on that.

[Nathan Meneguzzi, executive]

Thank you, Olavo. So now let's move to our second question. I would like to call Mateus Raffaelli of Itau BBA.

[Mateus Raffaelli, analyst]

I would like to continue talking about financial margin and NIM. And I would like to listen to your expectation for next year margin. Considering interest rates for next year, maybe the bank will have more lines compensating for the credit effects or it could compress the spread for next year.

[Luiz Gonzaga Mota, executive]

We have been remodeling our businesses, specifically in retail, we have in operation that is pretty optimistic. We've been working with our card. Our card is called Banricompras. It's the accountholder card. They can buy -- use it like a credit card or make purchase in site. This is Banricompras. And also use this as a -- in the form of predated purchase for installments. This give us a pretty competitive position in the market. So, our 3.5 million users who have this card can make these operations with installments. They have a good limit in overdraft, credit limit. And also, we have Vero an MDR at Vero, part of this -- of this turnover is in AR, the advancement of receivable accounts.

I still work at Vero as a Chairman. And within the bank, always the margin is around 10%. There is a leverage in overdraft. And then you can imagine all the accounts we've been making. So, we are pushing the companies to start using this card. We will launch Banricompras Empresas for corporate company -- for corporate clients, we want to leverage small retail. There is margin to do that. There is also some margin for losses to account for this losses. And in the medium retail of corporate clients also coming from the warranties that will be produced in the Banricompras Vero receivables to give liquidity to a debt account in this single account for our customer base, which is the average, we will leverage credit centered on medium retail and lower.

We have some big companies and smaller companies. But these big companies, they have loads of money, but their margin is low, the number is small, so that our focus remains on the small and medium-sized retail customers. There's margin to grow in this business. We will leverage less volume, but we will leverage much more margin. Risks are more diversified, and this is what we've been doing. Our credit and loans manager, he can talk about that if he wants to. But that's what we've been doing

[Fernando De Lemos, executive]

Mateus, well just to acknowledge what was said, we've been working hard looking towards retail, trying to improve products and operations with lower volume -- lower value, sorry, to qualify small-sized companies.

For individuals, we do not see right now such a large expansion of loans and credits. On the opposite, we want to maintain this portfolio qualified at the same levels as they are, working very hard on receivables, qualifying Banricompras because it brings a possibility of business for companies as a guarantee of credit operations, intensifying and potentializing a profitability at Vero.

On the other hand, we've launched Conta Unica single account, and we have a business level -- an expressive level of business. If you consider the bank's corporate accounts, this is good. And we also launched the digital discount for receivables and other documents with good -- which is being well received by the market. In the past 90 days, we produced equivalent to the whole year of '23. We've been looking to our credit models for corporate clients in the sense of taking advantage of the best opportunities and then identifying those clients who have better -- or better qualified, who need working capital to maintain them in the bank and also attract new clients, new market players.

With receivables, another product that is very strong in our portfolio, which has a very interesting performance is exchange rate, ACC and ACE. We're looking at the clients' receivables portfolio and looking for opportunities to make the bank's business more profitable.

In sum, that's the direction we're taking, we're following. The bank's credit strategy always tries to qualify more and more our portfolio so much so that our level of default remains low, and our provisioning -- our provision is maintained at a lower level, if -- considering what we expected in the beginning of the year.

As Mr. Gonzaga has said, we do not see major impacts for next year. Our portfolio is better and better in terms of default indicators, and we've been keeping it within very conservative limits in terms of provision, which has to do with the new premises set by [ 49.66 ]. In terms of opportunities to make balance more profitable, we have opportunities in credit recovery. We've been modernizing the collection department collective score and our recovery curves are below the market curves. We have the opportunity of making it the same as in the market, we have a consulting company working on that especially in credits that are already ongoing. In terms of collection scores, we'll be working with law firms. There is an opportunity to increase our results by doing that.

Just to comment, those BRL 38 million in the individuals portfolio in our NIM, we're talking about this cycle. It has happened. It has been accounted for. All the losses were accounted for. And now we expect to have BRL 70 million positive. This was BRL 220 million regarding the adjustments for the flood or connected with the flood. So we'll be above this semester.

[Nathan Meneguzzi, executive]

Is that it, Mateus?

[Mateus Raffaelli, analyst]

Yes.

[Nathan Meneguzzi, executive]

Well, moving now to Ricardo, Ricardo Buchpiguel from BTG.

[Ricardo Buchpiguel, analyst]

We've seen a more challenging environment to grow in payroll loan. There is spreads that are more related to this increase in interest rate curve and competition for new participants like [ FedEx ]. And considering this context, I'd like to listen to you about your appetite to grow with this product. You've talked about more appetite to grow in PMR portfolio. What is the relevance of this portfolio right now? And what's your target for this in the next few years? Just to have an idea of the size you're planning for that.

[Fernando De Lemos, executive]

In terms of payroll, loans in INSS, we have an operation that we've been working with a partner of ours Pay and market takes commodities with very low margin. The margin -- the government intervening the rate, and now they intervened downwards, but they do not want to make -- to intervene upwards.

But with the market, if you go one way, you have to go the other. But with a Selic 13.5%, 14%, 15%, well the market will stop. We are operating while we still have a margin. There's another side, the technological side of this operation will take this operation -- will take it down. At least this is what we see. This operation will be fully digital with rates bids.

I hope the government stops intervening with the market rates and lets the market operate freely. At the same time, we do not want to make this portfolio growth right now with pre-fixed rates. But we do have a reasonably good operation, which is the operation in the -- with the operation with the retired clients of Banrisul in the state.

In Rio Grande Sul, we have a large number of retirees. So, in our bank, we've been operating with relationship -- good relationship with the clients. But these clients will always take -- will always work with overdraft. They are -- they've been our clients for years. They have financial operations. So this is not for any other players of Rio Grande do Sul.

We at Banrisul can deal with these retirees. That's why we have this battle with INSS bids. We were in the fourth place in this bid in Rio Grande do Sul. But even with this fourth place, we have almost 40% in the market due to the availability of network in the state. In the countryside, there is no Ita. There's no bank there, but there is a Banrisul branch. So we cover this payroll -- this part of the payroll in the bid.

So this is the good part of the market. And then we work to migrate our clients. They will cost more to our competitors. So we will come -- if they come from the payroll into the bank, they will cost half of the price. So in the last bid, we went wrong, but this is over. They can leave the INSS loan in other bank, and they can come to our bank and they will get a cash back. This is a pretty -- I'm being a little ironic, but that's true. We cannot play with the market.

We can -- we must be serious about the market. In some, this market has not -- doesn't have a lot of appetite for Banrisul. But I believe that for all banks, I mean, the situation is the same for all banks. It's about give and take. One bank takes from the other and so on. Unfortunately, this category of workers will be a little affected and the market, the main banks will take hold of them. Maybe it's a bank specializing buying and selling portfolios, not the commission margin due to the sales. But there is space for that. There's room for that. We are working on some allocation of this nature.

[Nathan Meneguzzi, executive]

Okay? Ricardo also had a second question about the corporate segment per month and the relevance of our portfolio. Yes, and where this relevance could take you, because you have a bigger focus on this segment.

So, [ Julio ], would you like to jump in?

[Unknown Executive]

Ricardo, in the corporate segment, we see a major potential for the bank's growth. In the previous year, we didn't find -- we couldn't find the appropriate growth. So we've been working to do that, qualifying our teams, training our teams, directing them with products that make sense due to the bank's characteristics, focusing on receivables.

We have a customer portfolio that has room to grow. We see a very good opportunity given that our share is low. So it's a given opportunity. We should have proper products that can compete with the products of other banks. Our focus is on receivable -- operations connected to receivables. This is why we created the single account Conta Unica with a digital discount. We're looking to Vero as a growth opportunity through the Banricompras transactions and also providing credit for companies and company's accounts and looking to other operations with better margins so we can improve our KPIs and financial margin results.

This is basically our focus, and we do see a good growth opportunity to leverage market in the segment of companies. We have a very strong appetite regarding this value in this corporate segment. If you look at the numbers, they are public in the Central Bank in Rio Grande Sul, there must be BRL 195 billion in credits for the corporate segment.

Our numbers are public, are known. We have a very low share of this segment. We want to make it grow, especially in the small retail. We have capillarity. Our clients are within the bank, are with us. It's about taking them from other banks, competing with other banks and also summing them with Vero. We are placing some targets. We are directing our sales team to go for it.

But this appetite to make a portfolio grow, but there's another thing, which is the quality of the portfolio. We are experienced. So we do not want to make the portfolio grow without quality, but we do want to do that. We really want to do that.

[Ricardo Buchpiguel, analyst]

That's clear enough. Just one quick follow up question. If you could talk about the time to -- of the postponements made for the payroll loans due to the effects of the flood. What about these postponements?

[Fernando De Lemos, executive]

Well, part of the portfolio, there was a suspension of 4 installments, and the maturity date was in -- after May, June, July and August, in September, we started to debit from these accounts in the payroll. And the maturity date was in October. In the November payroll, the 6 month period will end for this payroll operations with regular interest payments and more -- or additional 6 months of period that will end in this payroll of November. Maturity date on December 2. So we're about to close this period.

I would like to make it clear that the big volume that was postponed was postponed with taxes. And a small part of this portfolio was due to legal orders, judicial orders with 4 months of suspensions or 4 installments with no taxes. It's important to make it clear -- to make clear here that the remaining portfolio balance of these operations that had 4 installments postponed. It continues yielding interest rates. Just those 4 accrued installments in the agreement, by the end of the agreement, they will not -- there will be no charge of interest for these 4 installments.

[Luiz Gonzaga Mota, executive]

Well, the largest part of this portfolio, about 70% of that, and that's how it statistically works will -- people will contact the bank to get more money because the payroll [ allowance ] where customers work like that, they want maybe a little bit more in 5 months. So it's renegotiated. So, the interest rates that will take longer to be received will be negotiated again. So this is what we did with a prefixed rate, adding the inflation rate or a Selic rate expansion of 15%.

[Nathan Meneguzzi, executive]

Thank you, Ricardo. So now let's move forward in our list of analysts. Now we will hear from Antonio Ruette from Bank of America.

[Antonio Gregorin Ruette, analyst]

I think you made it very clear what your strategy is for next year in terms of expansion of portfolio and your focus on small and medium-sized companies. I'm not sure -- apparently, you have not established the guidance yet and probably preparing those figures for next year. But could you give us an overall idea for the main lines of our balance sheet for treasury? Will anything change in terms of strategy, in terms of provisioning, efficiency?

[Fernando De Lemos, executive]

Well, in terms of credit lines or loan lines for real estate loans, our operations are suspended. So these operations are suspended for retail, even with the measures taken by the market, and this is a determination from Caixa Federal. Some companies still had their loans approved. So we are going to assess whether we're going to defer loans for civil works, okay?

But for civil works of companies that may be the building is still going up, so to speak. For those, we're going to increase liquidity so that our customers can sell their apartments, and it's going to simply disconnect or to cancel those contracts. But suppose it was an apartment that a customer had, a used apartment, maybe switched for a new one. We're also going to provide loan for that.

Credit letters, they are not so valuable. We are going to honor all our commitments. But for new contracts, for retail of the high ticket, for purchase and sale of apartments, we are going to be out of this market, and we're going to do that by -- until 25' or 26'. That portfolio is going to be frozen. There is going to be a small growth because of these leftovers that we had, and then there will be some liquidity of PMTs in a month, and that is due to some of the operations.

But the portfolio is going to be stopped. And over time, it's going to be reduced. We have a strong appetite for foreign exchange. We have double the portfolio for that, and we want to double that twice or 3x -- to increase to -- by BRL 600 million because today it's BRL 2 billion. For rural loans, we're also going to stop for some time. We're going to work with resources from the national treasury and from resources of BNDES.

Some sort of transfer, for example, for equipment loans, but very slowly, no rush at all. And as I mentioned, the -- we want to double the portfolio for other types of loans. It's difficult to deliver that over time by 2026 or at least until 2025, go up to 50%. This is what we are working on. Not sure whether we're going to be able to deliver that, but that's what we expect. And also small retailers with a large margin, both for individuals and more specifically for corporate accounts for small companies.

[Antonio Gregorin Ruette, analyst]

Okay. I think the portfolio strategy is very clear. Could you share with us some information as to the other lines, such as treasury, operating costs, provisioning? In overall terms, I understand it's too early to talk about figures.

[Fernando De Lemos, executive]

Provisioning, we don't have problems with provisioning. We do not expect any impacts. As to operating costs, of course, the Board is concerned with that because costs are like nails. You have to keep trimming it because they grow too fast. So we need to manage that human resources. We don't expect anything at this point, but we could implement a voluntary dismissal program if we feel it's important.

Trying to manage costs, costs that are under our control because, of course, if you have a collective bargaining agreement, you need to pay for that increase that was decided in a bargaining agreement. We are also trying to rationalize some of our branches. We are studying the reduction of the number of branches in Porto Alegre.

The timing for that has not been determined yet because there is room for that. We do not need so many branches because the digital banking is really growing, but we have not fully -- not decided that yet. There are many measures related to costs. Trying to avoid growth of costs, trying to hold it below inflation levels.

[Nathan Meneguzzi, executive]

Thank you, Antonio. Now we are going to open from Nishio from Genial.

[Eduardo Nishio, analyst]

I have 2 questions. The first one relates to the Selic rate, which is in an upward trend. You've talked about some of the measures that you plan to implement and having Selic pegged growth for assets, for liabilities, you have prefixed lines that are growing. But in overall terms, what will be those measures that would protect you from the high Selic rates? What about maybe a 1 percentage point increase in that rate? How much would that impact you? I would like to hear about your potential exposure you would have if there was any mismatch for assets, the previous amount, current amount. So that would give us some visibility over that.

And I have a second question that you've already covered, but I would like to hear your take on what is that the bank needs to have to go back to the levels it had before the pandemic. Some banks have running above 20% ROI. So in the medium or long term, what do you expect? What would you need to do to be able to reach that? Would you need to reduce the size of the bank in the state where you operate and maybe move to different states, such as closed states like Santa Catarina or Parana? Because when we look at Banrisul results since the pandemic, we've seen that they've been very volatile and under historic levels, usually at 9% or 10%. In your opinion, is it related to leverage, efficiency, costs? And what are you doing to improve this profitability?

[Fernando De Lemos, executive]

It's a very complex question. So many points to be covered there. Well, let me talk about balancing of interest rates between assets and liabilities. Rest assured, because we are well balanced, and we tend to be positive. We have some costs at time deposits, in liabilities with a portfolio of BRL 11.5 billion by 2025. We have already changed the prices in our portfolio and pre-fixed rates so that we can work with an accumulated Selic level of about 13.5% so that our margin will be about 15%.

I hope Selic rate does not increase so much. But that's what we hear from the government every day in terms of appetite for inflation, and that will -- it's something that depends on the government.

You talked about treasury operations. We have some assets, they are selling well in treasury. And what was the other part? There's so many questions that you asked at the same time.

[Luiz Gonzaga Mota, executive]

ROI. You've been following Banrisul operations for many years. You've been a partner for so many years. How many years you've been following up Banrisul's operations?

[Eduardo Nishio, analyst]

I don't know. Lost track of it. I don't think I should even mention it.

[Luiz Gonzaga Mota, executive]

We've had a much better ROI performance. We've had some drops there. But as I mentioned before, we are doing everything to put the bank back on track, focus on retail, focus on operations that are more profitable, focus on our core business in individuals, working on overdraft, credit cards, Vero, also payments in installments and also for corporate accounts, something similar to that. That's the path to take. We need to do what we know how to do best.

As to expanding to other states, yes, we are considering that but through Vero and the digital account. Maybe to have that -- well, we already operate in Santa Catarina. We plan to move to Sao Paulo and other states in Brazil with a very safe operation, well-structured with a POS that is conducted by third parties. And that's our business. We work a lot of technology at Vero, and we plan to work with Vero and digital accounts but we want to do this in a safe way. I don't know if I covered all your questions.

[Eduardo Nishio, analyst]

Yes, you did. But just another question related to exposure or sensitivity to a change of a 100 bps. Are you familiar with that? Or the mismatch levels that you have today?

[Luiz Gonzaga Mota, executive]

Mismatch between the volume of liabilities and volume of assets, you mean?

[Eduardo Nishio, analyst]

Yes.

[Luiz Gonzaga Mota, executive]

Well, with the BRL 10 billion that we have of funding in time deposits and also for LCA to [ LLLs ] CDB. So the figures are quite similar. So we want to have margins for that, and there will be some money left.

[Eduardo Nishio, analyst]

So now with a higher Selic rate, probably you are not going to have a lot of impact, right?

[Luiz Gonzaga Mota, executive]

Only if Selic rate goes up to 20%, but at 13%, there is even a positive impact. We can put this difference and move it to treasury.

[Nathan Meneguzzi, executive]

Now let's move to the last question. We've been holding this meeting for over 1 hour. Last question is from the chat, Yuri Fernandes from JPMorgan. He is asking for more details related to our NIM pressure and how do we think about it in 2025, considering higher rates outlook and payroll caps?

We also talked about both questions during this call. And finally, his last question relates to judicial deposits. Could we provide more details about how relevant this line is for Banrisul? It will be interesting to learn more about that because the bank manages some of these judicial deposits.

[Fernando De Lemos, executive]

Did he work at BTG Pactual? No, I understand he's at JPMorgan today, but did he work for BTG Pactual in the past? I had a friend there who was also called Yuri.

Well, judicial deposits is a market in Brazil. That's an important market in the country. In Rio Grande do Sul, this portfolio totals about BRL 17 billion, BRL 10 billion is in the hands of the state, BRL 7 billion is managed by the judicial court system. And this is already accounted for in our time deposits. So BRL 7 billion in total, a small part of that will also be to municipalities.

We have an administration fee on that. It's a contract that we have with the judicial court. They are responsible for that. So we charge an administration fee to manage this portfolio. We manage the liability. So individuals who made judicial deposits and the cost for the judicial courts is the cost of a savings rate, and this money is allocated at a Selic rate. So that is this difference, about 7% a year. That is the margin that stays with the judicial branch. We take 10% of that, and that's our administration fee to manage these liabilities. So that's it. That's basically it. It's as simple as that.

[Nathan Meneguzzi, executive]

That's great. Thank you. I would like to thank our officers, our participants here. And now we will wrap up the earnings call of the third quarter of 2024 and our annual public meeting. We would like to thank everyone for sending the questions. The Investor Relations team will answer all the questions. Thank you very much, and I wish you a good afternoon and a good week. See you next time.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]