Banco Bradesco SA (NYSE:BBD) Q4 2022 Earnings Conference Call February 10, 2023 11:30 AM ET
Company Participants
Carlos Firetti – Business Controller & Market Relations Director
Conference Call Participants
Tito Labarta – Goldman Sachs
Mario Pierry – Bank of America
Gilberto Garcia – Barclays
Pedro Leduc – Itau BBA
Operator
Good afternoon, ladies and gentlemen and thank you for waiting. We would like to welcome everyone to Bradesco’s Fourth Quarter 2022 Earnings Conference Call. This call is being broadcast simultaneously through the Internet in the Investor Relations website, bradescori.com.br/en. In that address, you can also find the presentation available for download. [Operator Instructions]
Before proceeding, let me mention that forward-looking statements are based on the beliefs and assumptions of Banco Bradesco’s management and on information currently available to the company. They involve risks, uncertainties and assumptions because they relate to future events and therefore, depend on circumstances that may or may not occur in the future. Investors should understand that general economic conditions industry conditions and other operating factors could also affect the future results of Banco Bradesco and could cause results to differ materially from those expressed in such forward-looking statements.
Now I will turn the conference over to Mr. Eduardo Botero [ph], IR Head. Please go ahead.
Unidentified Company Representative
Hello, everyone. Thanks for joining our call for the fourth quarter 2022. We have here in the room Octavio de Lazari Jr., our CEO; Cassiano Scarpelli, Executive Vice President and CFO; Moacir Nachbar Jr., Executive Vice President in charge of Risk; Oswaldo Fernandes, Executive Director; Carlos Firetti, IRO; and Ivan Contijo, Bradesco Insurance Group CEO.
I move the floor now to Firetti.
Carlos Firetti
Thank you. Hello, good afternoon, everyone. Thank you for joining our conference call for the fourth quarter ’22 results. We posted a net profit of BRL20.7 billion in 2022. BRL23.7 billion excluding the impact of the full provisioning for a specific large client. These numbers are below the levels we want to deliver and below what we consider to be the recurring levels Bradesco is able to show. We are certainly not satisfied with them. Our investors can be sure that we are working to change it as soon as possible. We are confident that we can return to levels of performance we used to produce in the past. Our goal is to return to a sustainable ROE above 18%.
The dip in profit and returns in 2022 can be explained mainly by 3 factors; the negative impact from the fast Selic-rate hikes on our asset liability management positions, an increase in delinquency in the retail segment, both for individuals and small companies, and additionally, provisions amounting BRL4.9 billion in [Technical Difficulty].
Operator
Ladies and gentlemen, please hold while we reconnect our speakers. Speakers, you may now proceed.
Carlos Firetti
Okay. Sorry, we were temporarily disconnected. So returning here, the dipping profits and returns in ’22 can be explained mainly by 3 factors. The negative impact from the facility rate hikes on our asset and liability management positions, an increase in delinquency in the retail segment, both for individuals and small companies and Additionally, provisions amounting BRL4.9 billion in the fourth quarter related to 100% of our exposure to a specific wholesale clients.
In our expected performance for 2023 reflected in our guidance. The main effect on our results still comes from the increase in loan losses provisions. In the Retail segment, credit provisions should be higher in the first half of the year and should decline in the second half, growing full year in line with the loan book. Provisions in the wholesale segment will remain low but we are not going to have reversals as occurred in 2022. Part of the recovery in the bank’s return will occur naturally and gradually up to the end of 2023 with improvements in market NII and cost of risk.
Asset liability management results is rebounding with the renewal of the fixed rate loan portfolio with new loans at rates adjusted to the current scenario, leading to improved results throughout the year. In terms of delinquency, we adopted the necessary measures to control the behavior of the individual and small companies’ portfolios revisiting models and our risk appetite. Consequentially, provision expenses shall reduce in the second half ’23.
Looking back it seems clear that we should have tightened our credit policy and risk appetite earlier on the retail portfolios. Elevated inflation since mid-’21 has led to much faster and stronger income loss for our clients over ’22 than we expected, mainly with the rising food and fuel prices. Bradesco has historically had an important exposure to low-income and small business segments as a result of our regional positioning and by serving all segments of individuals and companies. We believe that this market positioning is correct from a strategic point of view, even if at this point in this cycle, we are suffering more from nonperforming loans. We think that it will prove once again correct in the mid- to long term.
Another part of the improvement in performance and returns will come from implementing measures focused on efficiency and expansion in areas that we consider strategic. We continue with the process of optimizing our branch network and we will maintain our personnel and administrative expenses growth in line or even below inflation.
The bank’s digital transformation continues in a fast pace. Bradesco is now above all, also a digital bank presenting growth in the number of transactions, credit origination and in all products and service we offer digitally. Due to the clear changes in the business environment, we are seeking efficiency in our digital initiatives, promoting higher integration with the bank looking for cost efficiency and potential consolidation of initiatives. Our focus is on client profitability.
We are leaders in wholesale banking and are among the top investment banking market, a business with a high return on capital. We will continue to develop, invest and grow in these areas. In hindsight, we also remain focused on the purpose of delivering the best experience to our clients with a complete portfolio of products and with a pleasant and simple journey. Our investments specialists are focused on advisory, understanding and respect in the moment of life and needs of our customers.
Finally, we highlight our strong focus in all levels of our organization in placing customers at the center of all actions, a strategy that reinforces our purpose and create even stronger links with our clients. We will continue in this path.
Moving to Slide 3, we present our key numbers. We reported net income of BRL20.7 billion in 2022, a decrease of 21.1% compared to the previous year. The expanded portfolio grew 9.8% in the year. Tier 1 capital closed at 12.4%. I will go for more details in these lines ahead.
Turning to Slide 4, we illustrate our main impact in the earnings performance in ’22. The main positive is in client NII, followed by insurance and fees. The negative impact comes from higher credit provisions, market NII and the provision for the large corporate clients.
On Slide 5, the expanded loan portfolio grew 9.8% in the last 12 months, 1.5% in the quarter and companies growth was 7.9% year-on-year, with 9.7% in the corporate portfolio. For SMEs, loan growth reduced to 4.6%, mainly as a result of the slowdown in small companies due to lower risk appetite and focus on lower rate of operations. For cards, quarterly growth can be explained by seasonal effects in the period. The annual growth of 20.5% is still strong but pointing to a slowdown. In credit originations, we can see an increase in corporates and a decrease in individuals and small companies as a result of tighter credit policies to control delinquency.
Turning to Slide 6 now. Credit provisions expenses without the amount related to the client from the wholesale segment reached BRL10 billion in the fourth quarter, representing 4.5% of the portfolio in that quarter. Considering total provisions, it reached BRL14.9 billion in the fourth quarter or 6.7% of the total portfolio. We should remain with high cost of risk throughout the first half of ’23, with reductions expected for the second half ’23. Our night days NPL coverage ratio remains healthy at 204%.
On Slide 7, you can see that our 90 days delinquency ratio showed an increase of 40 bps with 40 bps in individuals and 8 bps for SMEs. Large companies remain with a very low delinquency. 15 to 90 days delinquency ratios rose 50 bps with an impact mainly from small companies. NPL creation in the quarter reached BRL8.1 billion. We continue to provisioning well above the NPL creation. We are now showing delinquency information considering the index without the effect of portfolio sales. As shown in the chart, over 90 days would be higher but the trend is similar to the one without sales.
In fourth quarter, we sold portfolios totaling BRL2.8 billion. The rationale for selling portfolios is purely economic. We are able to sell at values above our recovery estimate and free up time of our staff to work more on portfolios with higher probability of recovery.
Turning to Slide 8. We made material revisions in our risk appetite, making changes in the credit policy throughout 2022 which reduced our approval rates. Comparing to the new loan approval rates, we had a reduction throughout the year of about 33% between December ’21 and December ’22. As a result, 30 days delinquent for cohorts 4 months on the book have already reduced in the last data available by 38% compared to cohorts of December 31. We see similar trends in most of individuals’ credit lines. In our internal estimates, we still expect NPLs under pressure in the first half ’23.
Now we turn to Slide 9 on which we present a breakdown of provisions expenses between retail and wholesale. Total provisions reached BRL32.3 billion in 2022, including BRL4.9 billion related to the provision for the wholesale clients. Without this amount, it would be BRL27.4 billion at the top of our guidance. We had BRL33.2 billion in provisions for retail, while in the wholesale, we had reversals of BRL5.7 billion.
In the last years, the Corporate segment has presented a very good performance in terms of credit quality which allowed the release of part of the excess provisions in the segment. In 2023, we expect a growth of provisions in retail in line with the portfolio growth higher in the first half than in the second half, as we said and partial normalization in wholesale provisions. We expect cost of risk in ’23 to reach 4%, considering the guidance compared to 3.2% in ’22 without the provision for the specific clients.
We turn now to Slide 10. The renegotiated portfolio represented 5.2% of the loan book growing 10 bps in the quarter. Provisions for this portfolio represented 63% of total renegotiated loans. On Slide 9, we show that total NII grew 3.8% year-on-year in 2022 with a strong growth in client NII of 22%. On the other hand, market NII was negative in the year. As we can see in the chart, our total NII has inversed tied to the movement of interest rates, it’s liability sensitive. The current sensitivity points to an increase of BRL1.58 billion total NII for reductions of 100 bps in interest rates and a similar reduction in NII for rate increase. The sensitivity refers to the NII variation in 12 months after a parallel shock interest rates and are based on our Pillar 3 report.
Turning to Slide 12. Our market NII has a history of positive results as you can see in the chart on the bottom left, no net less in ’22, it posted a negative result of BRL1.4 billion due to the effects of rising Selic on our asset liability management positions. Our portfolio has an average maturate of 1.5 years and reprices itself in that period. what contributes for the improvement of this line in ’23, especially in the second half of ’22.
On Slide 13, a we discussed our fees and commission income. It grew 4.7% in the annual comparison, primarily driven by cards, mostly it change. The other lines remain under pressure. We have important initiatives in molding these lines and hope to revert the trends so. Card transactions continued to grow, reflecting the increased penetration of cards in the high-income segments and inflation in client spending. We reached 77.1 million cards, a growth of 3 million cars in the year. We believe that our ongoing strategy of strengthening the high income segment will produce growth in fee lines as one of the key benefits despite other important initiatives.
Turning to Slide 14. Total costs grew 4.7%, well below inflation. The other net operating expenses line contributed to a reduction due to less provisions and some reversals. Our costs have demonstrated growth well below inflation since 2020, as you can see in the chart in the bottom left. In ’23, other net operating expenses will negatively impact total expenses, mostly due to the low base of comparison we had in 2022. On the other hand, personnel and administrative expenses should continue to run in line or below inflation as we will continue looking for gains in efficiency.
On Slide 15, we present data from our insurance group. Premiums grew 16.7% year-on-year with the improved operational performance, income from insurance operations expanded 28.9% and net income grew 27.2% year-on-year despite the claims ratio challenges and service costs. We highlight the performance in administrative efficiency ratio and the financial results. The insurance group continues to grow and improve its operational performance with keeping its disciplined in terms of underwriting.
Now we turn to Slide 16. We bring the discussion on capital. Tier 1 capital remains at 12.4%, a very comfortable level. The reduction this quarter was primarily driven by the normalization of the treatment of trucks credits arising from our hedge of assets abroad, greater prudential measures the payment of interest on capital that amounted BRL10.2 billion. Additionally, the provision for the specific clients reduced earnings and therefore, impacted capital by almost 30 bps. We see capital ratios spending throughout 2023.
On Slide 17, we present figures on our footprint. The growth in digital channels and client service platform helped us to continue our optimization efforts. We have reduced our footprint by 1,400 points of presence since 2018. In 2023, we plan to reduce between 200 and 250 service points. Today, 70% of our clients are predominantly making transactions digitally. We also — we are also focused on optimizing our digital initiatives, making them more connected to ensure that the experience continues evolving.
We turn now to Slide 18. We have created a new structure for the high income segment in Bradesco, what we call which we call Bradesco Global Wealth Management, led by [indiscernible] with extensive experience in this segment. We combine our local and U.S. investment platforms, investment distribution and our banks in U.S. and Europe, aiming to deliver a complete investment and banking experience for our clients. Clients will be covered by relationship managers and financial advisers.
Today, we have close to 2,000 financial advisers and both of them will work together, the relationship managers and financial advisers. We have also advanced in the unification of the content available to our customers with investment recommendations aiming to align risk profile and financial goals.
We turn now to Slide 19. In 2022, we performed within the reviewed guidance range, except for insurance on which we were above. In credit provision expenses, excluding the specific clients, we were at the top of the range. For ’23, we have the following expectations. We expect loan growth between 6% and 9.5%. For NII, we now provide guidance for total NII. We expect growth for the line between 7% and 11%. In fees, we expect a growth between 2% and 6%. Operating expenses should grow between 9% and 13%. But in personnel and administrative expenses, we expect to grow only around inflation or less. The line order should bring the negative impact in total expenses for 2023.
The line of insurance operations will grow between 10% and Finally, for credit provision expenses, we expect to be between BRL36.5 million and BRL39.5 billion. We believe this guidance still implies a return that is below our potential. As we stated before, our strategic objectives to once again reach a level of return on pace with our track record or at least 18%. We understand the bank’s ability to generate recurring returns remain intact. So we believe we can go back to those levels we reached before. As we pointed, part of the recovery in the bank results will come from the normalization some lines. Other parts will come as a consequence of the execution in topics we highlighted such as the expansion in high-income segment, efficiency and innovation initiatives.
Finally, we highlight our focus in all levels of the organization in placing customers at the center of all actions, a strategy that reinforces our purpose and create even stronger links with our clients. We will continue in this path. Placing customers at the center is a key topic in our strategy focused in the long-term sustainability of the organization.
With that, I conclude my presentation. Thank you for your attention and we will now move to the Q&A session. Thank you.
Question-and-Answer Session
Operator
[Operator Instructions] Our first question comes from Tito Labarta with Goldman Sachs.
Tito Labarta
A couple of questions actually. I guess, first, just help us understand what’s — what do you need to see or what needs to happen to get back to that 18% ROE and time frame that it would take to get there? I mean, do you need interest rates to come down? Obviously, some normalization in terms of asset quality, do you need NPLs to come down? Even expenses and I know it’s part of it, the other expenses given the expense guidance above inflation but just to help us think about the path to returning back to those normalized ROEs? What it would take to get there? And then the second question, just to understand a little bit on the provision guidance. You said cost of risk to grow kind of — or provisions grow in line with the retail portfolio growth and I know corporate provisions are kind of normalizing. But does that — do you expect the deterioration that we’ve seen in the retail portfolio to continue at the same pace that we’ve seen sort of the last 2 quarters? I know part of it is your exposure to lower income segments. But when does that — I know you said it will peak in 2Q but when do you think that starts to sort of deteriorate at a slower pace? Just to help us think about the evolution of that.
Carlos Firetti
Okay. Tito, thank you very much for the question. I think the path for the recovery in ROE is the one I mentioned in the presentation. We believe that part of the reduction is related to things that will improve with time for sure, considering the actions we have taken, I mean, the asset liability management results that are included in the NII. This will improve throughout the year with the repricing or renewal of our loan book, especially the fixed rate loan book and it is already happening. The internal rate of our books is improving. And as the time goes by, it will take this rate closer and closer to Selic and this will drive the market NII upwards. It’s — today, the results and the asset liability management are still on the negative and we see them going to close to 0 at some point in the second half.
The other part is the normalization in NPLs. We are at a moment in the cycle where NPLs are already higher than we believe is the more normalized level they should be through the cycles. And the cost of risk is already high. So this is something that will take our ROEs closer to 18%. I’m not — we are not even at this discussion counting on actually going back to material gains in the asset billet management. But also, we think in parallel, we will be running and we are running some initiatives in terms of efficiency. We have been moving many initiatives in business areas like, as I mentioned, the investment initiatives in the high income segment. So I think altogether is behind these views, I would say, a meaningful part are related to the first 2 items I mentioned. In terms of time, I would say we believe we will close the year already with a higher level of return than what we have right now, maybe not exactly the — what we think is the sustainable levels and we’ll keep progressing in ’24. I would say, at some point in ’24 on a quarterly basis, it’s possible we can get to those levels. That’s what we view.
Regarding the deterioration. As we pointed in the presentation, we have already seen the performance of new vintages of loans, especially in the consumer, consumer loans, retail loans improved, improving materially. We believe that keep going with those trends considering we have tightened meaningfully our credit policies, it will lead to a stabilization in NPLs as we pointed probably at the end of the first half, second quarter, let’s call it and I think this is kind of the trend we expect.
Tito Labarta
Okay, great. That’s helpful. Maybe just one follow-up, if I may. And just to understand a little bit on the deterioration and I know part of it is your lower income exposure but just thinking of other peers that have perhaps a similar exposure, the deterioration hasn’t seemed as severe, at least until now. I mean, we’re still getting more data on that. But just kind of curious, if there was anything specific to Bradesco that had your deterioration at least looking worse than peers in the industry?
Carlos Firetti
Tito, we believe we have more exposure to low income. We have — we are — given our presence, given our historical positioning, we think we are fairly well-positioned in this segment. And we think this is a strength and I mentioned even at this moment, we are suffering given the cycle. But it is a segment that we believe have very high prospects in the future. The low-income segment in small companies, in our view, suffered more than any other segment in Brazil and considering that probably we are more exposed with suffered more. We admit that probably we took longer than we should for tightening our credit policies. Probably that made us to suffer a little bit more than we should. But anyway, I think we have more exposure to the sectors than our peers.
I think there are some peers that are expanding their exposure but we are already there. We are already playing with small companies. We have credit limits with low-income individuals. We are a bank that has a strong presence there. I think that’s probably the difference. But again, the message here, Tito, is really that we see the trends in credit quality already improving. And we believe we’re going to make this path soon.
Operator
Our next question comes from Mario Pierry with Bank of America.
Mario Pierry
So 2 questions. Can you share with us the macro outlook that you have for 2023 and what is driving, right, like so that we get a better sense for your guidance, if you can share GDP growth and employment, inflation, that would be helpful. And then finally seeing the impact of that on the corporate. So if you could make some comments on how do you see corporates in general? I know you talked about like you don’t expect to have reversals of provisions but if you can help us understand like if there are any specific sectors that you’re most concerned about or should we get — start getting concerned about like a more significant, more pronounced deterioration in the corporate segment in Brazil?
Carlos Firetti
Mario, regarding our economic forecast, actually, we have recently increased a little bit our forecast. For 2023, we expect 1.5% GDP growth right now, IPCA inflation around 5.7%. Selic at the end of the year at 12.25%. So I think these are the main figures. In terms of unemployment, fortunately, I don’t have it here in front of me but no major changes in the trends in terms of unemployment. I think this — I’d say, even when we talk about unemployment, we can say that over the past year, unemployment has really improved. But what we see is basically in this segment, especially low-income segments and small companies, this was not really a driver that really changed the trends. I would say the low income, the loss of real income was probably the main factor. In terms of the small companies I would say it was possibly a continuation of the trends that started with the pandemic, remembering the lockdowns and all the suffering that some small companies had during that time.
In terms of corporates, we still see what’s going on as more like specific cases than a big trend. We believe companies in general or large companies in general have enjoyed a long period without any major CapEx programs with a big liquidity in the market, in the bond market, actually low spreads for some — for many years and also no Selic for some time during the pandemic. So we think, in general, they are in a healthy position. So most of the cases we see are sometimes cases that somehow we’re already in the radar or had some other best pest problems or in this — in the case of the specific client, it was totally out of the radar. So I think the good news is we have a very strong level of provisions in our balance sheet for corporates. The coverage ratio for corporates, if we dividend put it in the presentation because it’s like 7,000%. Basically, as you know, it’s — it doesn’t make much sense because delinquency in corporates is more based on some one-offs than really something more continues.
So we don’t see a trend. We see some cases after a period and we didn’t have any major case. Some of them might be related more to the kind of reduced liquidity we have seen capital markets for the past year than actually the level of interest, interest rates.
Mario Pierry
Okay. No, that’s helpful. So just let me follow up then on your loan growth guidance of 6.5% to 9.5%. It basically reflects no real loan growth than in 2023. Can you specify or give us a little bit more color on what kind of growth are you expecting for each segment, like broken down between individuals, corporates and SMEs.
Carlos Firetti
We will grow less than the average implicit in the guidance for SMEs, especially because we have tightened the origination model or the credit policies more in small companies. And I would say most of our SME book is made of small companies. We should grow more or less at the same pace in individuals and corporates. But individuals, comparing to the recent test, there is a change. We should grow less in clean credit lines and more in other collateralized lines.
Operator
Our next question comes from [indiscernible] with UBS.
Unidentified Analyst
Actually, I just have one. I was following the conference call in Portuguese and I just wanted basically to shift the conversation here to the regulatory front in Brazil. First, I would like to hear from you about the FGTS loans because A lot of noise emerged during these recent weeks related to the termination of the products. So I just wanted to hear from you about what does the bank, I mean, think about the future of this product, the cash loans? And if you could share with us what is the market share of Bradesco in terms of origination of this product, it would be helpful. And a follow-up on this. I would like to know more about the government program called Disney Hall, I mean I just wanted to hear from you as well what does Bradesco understand about how will be the shape of this program, the format of this program for renegotiating loans from loan income segments?
Carlos Firetti
Okay. Olavo [ph], related to the loan. I’d say, in theory, it was a good product but there is not much at all much to say. I think there was a regulatory change. It will not existing more. We haven’t played in this segment on a material way. We have some loans in Digio but it’s a very, very small portfolio. So it’s not operations which we have done anything in the bank. And as I said, our portfolio considering what Digio was doing and what is very small. Can you remind me about your second question is renegotiation?
Unidentified Analyst
Yes. The government program, call it [indiscernible] related to the renegotiation. Do you have any comments about it?.
Carlos Firetti
Yes. We still have to hear more about what is the final shape of this program. It’s still under discussions. I think the banks are talking with the government. But probably the program involves more than only banking loans. It probably will involve utility bills and other debt. We believe it is potentially a good idea. And the fact that there would be some sort of guarantee to create an incentive for doing it if it is well structured. So we are looking at it and we think it’s an interesting idea but still not much in concrete to talk about, I would say.
Operator
Our next question comes from Gilberto Garcia with Barclays.
Gilberto Garcia
I had a couple of follow-ups, first, on allowances. You mentioned that they should be more firm low higher in the first half. Can you give us a sense of that magnitude like how much should we expect, say, in the first quarter?
Carlos Firetti
Gilberto, I’d say we’re not going to provide quarterly or partial guidance on the provisions. I think, overall, I think it was fair to give this guidance but that view of what would be kind of the flow of these provisions. But as I said, it should be more in the first half than in the second half. Also because, as I said, we believe NPLs might be peaking around the second half [indiscernible] other part of the provisions happening in the first half.
Gilberto Garcia
Okay. No, that’s fair. And on market NII. As you mentioned, it is moving in the right direction. Do you expect it to be positive for the full year?
Carlos Firetti
Again, we moved our guidance to total NII, Gilberto. The idea is really focusing on the total NII. As I said, we have the guidance for total NII between 7% and 11%. What is implicit there and is that market NII improves throughout the year with the asset liability management, getting bad getting improving in the second half but I will not provide guidance for the parts of the margin anymore. But as I said, we are going to continue reporting them. But just for modeling and for the analysts to follow it.
Gilberto Garcia
Okay. Understood. And a last one, if I may, on your guidance for expenses, it’s significantly above what you have been posting the last years. Is this more of a sort of catch up? Or is it more about projects that could help you come back to lower expenses in the next years?
Carlos Firetti
The main reason for the range for the guidance in expenses is the line other net operating expenses. In this line, we have a low base of comparison in 2022, considering that we had some reversions of provisions, mostly related to things like lawsuits and other events. And this reduced the line in ’22. So the causes of its variation in ’23 is a normalization. If we isolated the personnel and administrative expenses line. we would see this group growing like inflation or even below inflation. We have important efforts to reduce costs there. So the driver is the other line.
Operator
Our next question comes from Brad Jones with Sage [ph].
Unidentified Analyst
My question was actually also related to market NII. So you may not be able to answer so maybe let me paraphrase it separately. Can we assume that the negative — the most negative from market was in Q3 and that once we start to see interest rates being cut that will be turn positive just given that sees showed of the 1.5 billion per 100 basis point move? So whatever you can say would be great.
Carlos Firetti
Yes, Brad, the market NII line is composed by a few components. One of them is the working capital of the bank. Also the treasury business like trading, flow trading, mostly flow trading, not really risk-taking positions and the asset liability management. There, this line is based to the net fixed rate exposed of our balance sheet funded by the regular cost of funding of the bank that is mostly floating. That is what makes it liability-sensitive as shown in the sensitive analysis from what we published. So it shows 400 bps reduction in rates. Our NII increases BRL1.58 billion. It’s looking to the trends. We — even if we don’t have a reduction in rates, the market NII should the asset liability management continues repricing, given that old loans mature, new loans come at the rates already adjusted.
So we believe by the end of the year, this component of the asset liability management will be already zero in terms of results on a quarterly basis, looking during the quarters. And it would benefit if interest rates go down at any moment after that.
Operator
Our next question comes from Pedro Leduc with Itau BBA.
Pedro Leduc
Thank you very much for the question here as well. A little bit on OpEx, please. Guidance for 9% to 13% year-over-year. I realize that’s got some other effect in it. But I wanted to see if you guys have given some thought to maybe boosting up the profitability lever via efficiency if there’s room within personnel all the digital bank initiatives that you guys have done to understand your combining brands and looking to downsize some stuff? Anything there that could help us understand a little bit what you can do maybe for profitability via costs, OpEx would be much appreciated.
Carlos Firetti
Thank you for the question, Pedro. We are always very attentive to opportunities in terms of cost efficiency. As you mentioned some, we are really looking to our digital initiatives. We think we can extract some synergies there basically in terms of as I said, combining and even merging some of these initiatives are making especially then closer to Bradesco, taking advantage of marketing of client acquisition and other benefits we can get. But also, we mentioned in some points of our presentation, one of the key things for us going forward is really a reduction of the cost of serving our clients. We think we have to get more and more efficient on that. We have — we still believe the brains are useful, brains are a very good vehicle for doing business to contact clients but they certainly will be different and probably less costly in the future. So that’s where we have a big focus right now in reducing the cost of serve our clients. I think this is really a big point we have been exploring a lot here in the bank.
Operator
Our next question comes from Juan [ph] with Scotiabank.
Unidentified Analyst
My question is related to the competition in the low-income individual segment. So can you talk about how you see the competition in this segment now? And how this compares to what was happening in 2020 and 2021, 2022? And also, what is your expectation for how the competitive environment may evolve in 2023 and 2024? And what opportunities that they have for you?
Carlos Firetti
Okay, Juan. I think the competition in the low-income segment or is very strong. We have not only traditional banks but especially digital banks. We believe we have some advantage. We position ourselves in a more complete way. We still believe that our position with points of contact with the clients with brains has value in that process. We believe also that having corporate relationships and relationships with entities where we can have the payroll of companies, of and have a stronger relationship with these clients from the beginning is an advantage for Bradesco. And also the credit relationship. This is exactly right now is kind of a pain in the sense that we are suffering with NPLs. But we have this relationship through credit as our one of our strengths in the relationship with clients. And we believe this will continue even if we have temporary adjustments in our credit policies. So this is the way we play in positioning ourselves in the market.
Unidentified Analyst
And one more question but this one is related to capital and dividend. So given the current level of capitalization and the expectation for earnings for 2023. What can we expect in terms of the payout ratio in 2023?
Carlos Firetti
Juan, we’re not going to commit specifically with the payout ratio. But as we had said in the Portuguese call, we expect to pay the interest on capital IOC at full. For sure, we’re going to look at capital, we’re going to monitor but we believe, considering our expectations that our capital will grow even with the payment of interest on capital. And that will take the payout to a relatively high level if it happens. We think in our estimate, as I said, even with that event, we would see capital still growing in 2023.
Operator
Thank you. Excuse me, ladies and gentlemen, since there are no further questions, I would like to invite the speakers for their closing remarks.
Carlos Firetti
So, thank you all for the participation in our conference call. Our Investor Relations team is available for any further questions you might have. Thank you very much. Have a good afternoon.
Operator
That does conclude Bradesco’s conference call for today. Thank you very much for your participation. Have a great rest of your day.
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