Banco Bradesco Sa (NYSE:BBD) Q1 2020 Earnings Conference Call April 30, 2020 12:30 PM ET
Carlos Firetti - Market Relations Director
Octavio de Lazari Junior - Chief Executive Officer
Leandro De Miranda - Executive Director and IRO
Vinicius Albernaz - Chief Executive Officer of Bradesco Seguros Group
Conference Call participants
Mario Pierry - Bank of America
Tito Labarta - Goldman Sachs
Jason Mollin - Scotiabank
Thiago Batista - UBS
Marcelo Telles - Credit Suisse
Henrique Navarro - Santander
Good morning, ladies and gentlemen and thank you for waiting. We would like to welcome everyone to Bradesco's First Quarter 2020 Earnings Conference Call. This call is being broadcasted simultaneously through the Internet in the Investor Relations Web site banco.bradesco/ir-en. In that address you can also find the presentation available for download.
We inform that all participants will only be able to listen to the conference call during the company's presentation. After the presentation, there will be a question-and-answer session when further instructions will be given. [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 the 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. Carlos Firetti, Market Relations Director.
Hello, everybody. Welcome to our conference call for discussing our first quarter 2020 results.
We have today with us our CEO, Octavio de Lazari Junior; our CFO, Andre Rodrigues Cano; the CEO of Bradesco Seguros Group, Vinicius Albernaz; and our Executive Director and IRO, Leandro De Miranda.
After the presentation, we will run a question-and-answer session where you're going to be able to post your questions.
Now I turn the presentation to Leandro.
Leandro De Miranda
Thank you very much Carlos Firetti. Good morning, everyone. I hope you and your families are well and I welcome you on our conference call.
Today, we will discuss the results from the first quarter of 2020. And once again, talk about our position during this rather difficult time. This quarter has hold up quite different from what was taking place up to mid-March and when we were performing very strongly in a number of lines, even above our guidance, as you may see ahead.
The scenario was radically altered by the worsening of the COVID crisis in the second half of March, though, the last we highlighted our balance sheets remains very strong. From the moment that the crisis rose to the scale that it is today, our priorities have changed completely. We focus on maintaining our services to our customers and keeping the bank fully operational along with the well being of our employees. And we are committed to supporting society in overcoming this crisis. All stakeholders are on-board and have a very keen eye on each one of them.
I'm proud to state that through the efforts of our entire team, the bank adapted quickly, above expectations. We continue to operate in such extreme conditions, while always accounted for the status of our people and customer as the primary parameter.
To give you a reference today, more than 90% of our staff that normally work in our offices are now working from home and 50% of the team's from our branch network, which we considered as an essential service are at home. We are also striving to resolve any liquidity issues our customers be experiencing by initiating a process for going over that that is not only for at least 60 days for small companies and individuals. And mostly our direct line of negotiation with large companies. We have also been working jointly with other Central Bank as well as on the MDS on restructuring to finance small business areas, and then we have discussed with managers with the Central Bank and other banks as well.
As mentioned before, Bradesco and all other banks and every industry and new team did to help customers to emerge from the very difficult with the capacity to fulfill their commitments and resume their lives without facing financial ruin. We also like to mention our COVID call [indiscernible] crisis in which the financial sector was mainly responsible for the crisis. This tiny particle is always to have the carry over and over again, we are an important part of the solution and we take these responsibility.
If you want, if you are into any projection at this time, especially considering that we still don't know for sure when the shutdown will end and how the days of the resumption will be. We have decided to suspend our guidance for 2020. We will outline a new guidance when we have the sufficient clarity of the situation and our administration will decide on that.
Meanwhile, we should stress that we do not see our ability to generate sustainable returns from the monthly average, declarations are sounding rich. In addition to the return on revenues and resolving loan issues, which will take place through the recovery of the economy and a return to normality, one of the ways to increase our return which were essential adjustment in costs and we have done it near perfectly.
We have already performed quite well this quarter thanks to the initiatives we took at the beginning of the year to control costs throughout 2020 as well as March due to the fact that the crisis in some lines. Nevertheless, our new experiences in managing the bank during this period should permit -- should allow us to accelerate cost adjustments.
With an even greater aptitude for adjustments in the branch network through the use of new normal format as well as lower cost. The primary focus on conducting business and providing consultation to and providing advisory for our customers and shape and harness and train our talents in a new way to serve our customer base.
Another key focus during this time was on risk management. In order to provide support to the company at this time and to our society as a whole, it was important to keep the bank liquid and very well capitalize it. We headed into the crisis with strong capital position and elevated liquidity levels. We ended the first quarter 2020 which already reflects that period of market stretch with a comfortable 11.4% to one ratio. Furthermore, we saw an increase of 6% in the customer funds a clear attractive quality.
Our expanded portfolio has had a strong growth of 5.1% over the quarter and 17% for the last 12 months, part of this expansion can be explained by the fact [indiscernible] rate and part of this approach is due to a strong increase in demand, mainly from large companies at the beginning of the crisis.
Our delinquency grew by 40 bps, we believe that we are preparing ourselves quite well in terms of credit provisions to face the impacts of the storm that will be chosen by the clients. We have increased our access provision this quarter, posting our provision of R$ 5.1 billion in our balance sheet to face the consequence of the pandemic of the credit. Our objective is to preserve our balance sheet. With measures taken by other global banks specially the largest U.S. and European banks such as ourselves.
As for our first quarter results, we posted an income of R$3.8 billion, a decrease of nearly 40% over the 12-month and 45% in the quarter, with return on equity in the quarter of 11.7%. Income and return for the quarter was adversely impacted by the excess loan loss provision that we made this quarter, along with other effects related to market conditions.
Now, returning to Slide 4, related to the suspension of our guidance for the year. Although it's not usual in order to be more transparent and we created in the table a column with our performance in the month of January and February. I would like to remind you that in the first two months of the year, we didn't have a full capacity as 60% of our General Managers, Account Managers, Investment Advisors, banks are on vacation. You can see that we've had very strong numbers even better than the guidance, except for the insurance business, mainly due to the financial results.
In February, the credit portfolio was growing by 14.4%, NII 11.7%, fees by 3.6%, costs on the other hand were dropping 0.1% and it had a good performance in loan loss provisions.
We decided to suspend the guidance without presenting a new one because pretty much you do not have clarity and vision of all the effects that this virus may have over the economy. The outlook remains rather uncertain and there is no cure for the virus and any sign of recovery for the economy. We have established a new guidance, we have a better capacity to provide announcements on our administration so and so.
Moving ahead going to Slide 5, regarding provision and credit risk, you can see that credit scenario is being stark especially in the second half of March, we voted several areas of the bank to carry out an in depth study of the possible and uncertain future scenarios. And it was clear that the return excess growth which lay down in the delinquencies stood up and in fact increasing numerator and decreasing denominator, true enough will perform when composed by the present recovery teams and the other one by the risk and economic change. They both [indiscernible] submitting the future impacts in the [indiscernible] and revenues, both in retail and corporate credit. Despite using different methodologies, the reserves were pretty much the same and it targeted in our provision measures, it says the COVID crisis.
Now, turning to Slide 6, the behavior of the mass-market NPL in the global crisis of 2008, in the Brazilian crisis of 2016, when we projected a very focus in order for this COVID crisis, which affects all sectors in different scale. Our perception that booking additional tax provisions to face future debt loss was necessary also as confirmed by the other banks that will leave their earnings especially in after years.
Now turning to Slide 7, regarding to the provisions that we took in order to deal with the first economic scenario. In light of the story, we have already set up an excess provision of 4.9 billion, a total of R$5.1 billion to cope with the effects of the pandemic in tight portfolio. And we shall use it through the crisis. We believe this provision is suitable at this point in time and reflects information we have at this moment.
We continually be evaluating the provision for this price, as we monitor the notion of the economy as a whole and especially the health issues that we have here. The provisions loans of R$2.4 is related to what we refer to as provision for an adverse economic situation, which is part of our supplementary division and will be used throughout the crisis.
The new consequence acquisition for an adverse economic of R$2.5 billion is historical and R$200 million of this acquisition carried out, this quarter due to the effect of the crisis.
Moving to the next slide, Slide 8, you can see that we rapidly provided our customers, individuals, families, small business with access to correct instruments with due date extensions, through our digital channels, call centers and through our managers. We used all of our network to help our clients. We also used the first -- we were also the first bank to provide access to payroll funding for our clients.
We have already expanded more than 1 million projections with instruments in the amount of R$1.4 billion. We have been constantly evaluating a particular provision of our customers by offering the best solution for each one of them, either projection or a restructuring of the entire debt. It's worth to highlight that among the measures announced by the Central Bank, we have [indiscernible] of the debt requirements we need. But although the number of [indiscernible] realized we were able to originate R$57 billion new loans between March 16 and April 23, almost doubled, more than doubled than we had in our requirements.
Now turning to Slide 9, we have already spoken about our priority at the beginning of the crisis, taking care of our people, keeping our services running smoothly, assisting and overcoming the crisis and managing the rate, that the nice thing we are having [indiscernible] and keeping the bank capitalizing liquid, reaching the stage that we have been successful and [indiscernible]. And we continue to work hard and we are confident that we are going to continue to be successful in our mission.
We have set up a trade war operation in order to propel our business into our primary home office base. We have a small scale structure in place but we're able to expand and operate. Today, as stated before more than 90% of our employees that do not work that are branches are now working from home. We have to tell all [indiscernible] our senior management and especially our technology staff. We commend our branch teams for continued to serve our customers in this essential situation.
Now moving to the financial results, we start here on Page 11 to discuss the figures of the quarter, in which we have already experienced a major impact from the unfortunate events in March as well as the society as a whole worldwide.
Our net income was R$2.8 billion, a decrease of 39.8% over the last 12 months. Some of the factors that contributed to the drop included a supplementary provision for loan losses of R$2.5 billion to address to provide tax on loan, R$200 million of required provision due to the crisis, a reduction of our margin with the market due to the effects of the price in the market and the mark-to-market effects, a decrease in the performance of our insurance company primarily due to the lower financial results, "acquisitions" in [indiscernible] in the mid-March of inflation in the index situation, namely IPCA and IGPM, among others; lower tax benefits due to a reduced provision for interest and capital in this quarter.
Now turning to Slide 12. Our ROAE in this quarter post had a significant reduction, suffering a 11.7% as a result of everything that we have just presented to you, and the same fact can be seen in our ROA. Our shareholders' equity was reduced by 3.1% in the quarter due to the negative impact of mark-to-market of assets. So as the economy evolves in the market that less we'll acquire, which now has also recover the shareholder equity due to the mark-to-market of the assets.
Now turning to Slide 13. The loan portfolio after an expected growth of 17% year-on-year and 5.1% in the quarter, with 2.6% in individuals, 7.6% in large companies and 4.4% in SMEs. Part of this growth can be explained by the effect of exchange rate fluctuations on the local conversion in dollars, meaning the large company's portfolio. Excluding the effects of exchange rate variations, our portfolios have grown by 3.4%.
In addition, there was a strong increase in demand for loan by large companies in March, notably in the second half. Companies start to set up a liquid at the time that the situation has returned to normal. In the individual to SMEs, the growth in the quarter largely reflects the strong performance we have been posting up to February. We expected a low slowdown in growth in the coming quarters, but it's still very difficult to foresee the size of the demand for loan.
On Slide 14, you can see that the total NII decreased by 6%. The deposit increased by 2.9% year-on-year. The reduction of the deposit related to the performance of the margin with the market. The margin with clients increased by 8.4% over 12 months, primarily as a result of the increasing loan volume, which more than offset the negative impact, the regulatory cap and unit interest rates. The margin of the market decreased 37%, especially due to the impact of market volatility and in the full year our return to market of our trading portfolio.
Turning to Slide 15. We have an increasing NPL creation this quarter, already reflecting impact of the pandemic of the loan portfolio and in the end of March in specific places in our profit segment as well as the growth of the loan portfolio, the shift in the mix. It's worth mentioning that the NPL creation in the third and fourth quarter were widely affected by a large pocket credit that became due NOIs later renegotiated for which we [indiscernible] much easier to make a comparison if you make those adjustments.
Our expanded loan provision amounted to R$6.7 billion, including the impact of the supplementary provisions of R$2.5 billion from the required provisions of R$200 million. We were pretty much done with the reset of the rising credits. The provision in relation to the portfolio that we refer as cost of risk, which stood at 4.1%.
Moving to Slide 16, we regarding to the delinquency ratio we announced today, the market has improved by 12 bps. The reasons are the same as the one we did for the progression of the NPL creation.
On the following slide, you can see that the 90-day NPL coverage ratio was 228% in the quarter. As we mentioned before, we had a provision of R$5.1 billion for the adverse economic scenario. We shall consume these provisions throughout the crisis that may reduce our coverage ratio in the following quarters. In addition to the consumption of the provisional red bracket, we will constantly adjust our [indiscernible] to evaluate the necessity of new provisions.
Now on the Slide 18, we refer to the fee income that we have in our different lines of business. As you can see, the fees decreased in the quarter by 6.2%, an increase over the 12 months and increased by 2.6%. We have expected negative impacts on card income, which reduced by 7.1% quarter-over-quarter and 2.4% year-on-year, mainly impacted by CLO and interchange fees.
We also had negative impact in the lines of asset management and loan operations. The checking accounts, on the other hand, performed very well, growing 7% year-on-year, mainly due to the increase of customer base. Custody and brokerage services was positively impacted by the growth in volume in both institutional, trading as well as the individual trading to Agora, our investment house.
We'd like to highlight the evaluation we had in Agora, because this is a new investment house, which has a complete portfolio of projects with a rich platform, which is very user friendly and a fair selection of the best investment products in the market to each kind of investor profile. In addition, customers have access to specialized investment advisers, content providers by Agora research teams and now the largest JV in the financial coverage with [indiscernible], for the investor channel announcing recommendation by market analysts with support taken by decisions and investment.
By the end of first quarter 2020, we reached 516,000 clients, a growth of 13.4% compared to the last quarter but a strong growth of more than 246% in production volume in the same period.
If you turn on the following slide, Slide 19, you can see that we operate very, very well in terms of operating expenses with a reduction of 0.4% over the last 12 months. As our CEO has repeatedly said, we are aimed at having 0% growth in 2020 as far as operating expenses are concerned. We saw a sharp slowdown in normal growth related to administrative and in personnel expenses and strong reductions in both lines for the quarter. This performance is mainly due to the measures we have taken to reduce costs at the beginning of the year.
Although our guidance for 2020 is from 0% to 4% our goal, as I mentioned, was zero growth. Additionally, the reduction of operation volumes in March has already had an impact on volume, our administrative expenses. We reduced 7 to 8 branches in the first quarter. We expect closing of nearly 200 branches in 2020 and a reduction in the number of employees due to the [indiscernible] program.
As we mentioned earlier, we have lived in the environment of the COVID crisis such as home office, a base in the year that self-serve by customers and remote customer serve have opened a space for a profound restructuring of the way we operate. We continue to expedite the conversion of branches into customer trans points and cut back on traditional branches. For our staff that does not work in the branches is an opportunity to continue using home office and reducing the amount of occupied space.
Now finally, moving to insurance, pension plans and capitalization bonds in our last slide here, you can see that there was a major impact on the financial performance due to the result of market volatility on the portfolios, especially on equity portfolio and investment funds.
In addition, we had the effect of the lower [indiscernible] and negative impact of the mismatch of our GPM that collect our business [indiscernible] that collect part of our joint asset, which should affect our AUM. On the one side, we know that the financial results will be a challenge. On the other side, we continue to see an important improvement in terms of operating performance, with a reduction in the loss ratio compared to fourth quarter 2019, which resulted in the improvement of the combined ratio.
The insurance group has been monitoring the economy and this is, in fact, caused by the new organic effects. We understand that the importance of our product as an instrument to help and support the redemption of the families that are going to be victimized. Several actions were taken to ensure that the best service institution and adjusted to the real event. Through [indiscernible], adjustment of the duration of the primary care units that since the beginning of the pandemic have been operating at expanded hours and even in the weekends from Sunday to Sunday. So this initiative also serves to relieve the demand for emergency period ending in August. In the beginning of the instruction measures [indiscernible]. Changes in the behavioral results and [indiscernible], for example, if on the one hand, there was a stark reduction in the active consumers. On the other hand, it was possible to see a broader growth in emergency and hospitalizations due to the new virus.
It's worth mentioning that this elective procedure should be reserved ahead as [indiscernible]. Although it's premature to make any kind of projection at this time regarding the future of the behavior of the events, we estimated that growth will return to 2 percentage growth in the coming periods. And we were cautious to make provisions on that. And now to ensure the decrease in order circulation caused the monetary change in the [indiscernible] notice, motivated by the closing of repair workshop as well as the beginning of the drop in the sale of years, reflecting the [indiscernible] insurance, directing the [indiscernible] policies.
Having said that, we open for the Q&A session, and we will may update [indiscernible]. Thank you for your attention.
[Operator Instructions] Our first question comes from Mr. Mario Pierry with Bank of America. You may proceed.
Let me ask two questions. Leandro, you mentioned that you expect, I think, in the Portugese call that you guys expect the NPLs in this cycle to be higher than in the 2016 cycle. At the same time, the amount of provisions that you took this quarter, R$2.5 billion, we think that's enough to cover some of this expected increase. But I'm just trying to put in perspective, this R$2.5 billion frankly, because it doesn't seem like that much given the size of the crisis. And if you are trying to anticipate some of the losses, why not take a bigger provision this quarter? So that's my first question. Now is this R$2.5 billion enough? And why don't you take more?
And then my second question is related to your slides on Page 26. We see that NPL creation in the SME segment more than doubled in 1 quarter. So I wanted to understand why are we seeing such an increase in NPL creation before the crisis even hit and if there are any specific sectors or regions where you're seeing this big pickup in NPL creation in the SME segment. Thank you.
Leandro de Miranda
Okay. Mario, first of all, the provision that we consider is not R$2.5 billion but R$5.1 billion because we had previous provisions that were added to this. Otherwise, we have increased even more. We believe that these new crisis, we have never experienced anything like that. And so in this sense, we have been discussing to analysts and to our clients as a whole. And there is a common stance that no one knows when it's going to be managed [Technical Difficulty].
Regarding to SME NPL criteria creation in which you have seen a stronger growth in the West, a couple of things to point out. First of all, we still haven't seen a full program for all the [indiscernible] that we have seen in the past. We have taken care of [indiscernible] individuals. We have made the refinancing of all of our clients for 60 days. But the SMEs did have less liquidity than the large companies, and that's the reason why you see a faster NPL creation here. [Foreign Language]
Octavio de Lazari Junior
Yes. Just on the NPL creation for SME, I'm going to reiterate what I said in the Portuguese call, basically, this quarter, we had about R$500 million in new NPL in the large SMEs -- in the SME portfolio, SMEs up to R$30 million. That is the retail part of the business that basically is running smoothly, but in the -- to R$500 million in annual revenue. Basically, we had 3 cases, one of them amounting R$300 million that moved to 90-day delinquent, all of them fully provisioned. And this is basically the main reason for this jump. The fourth quarter actually was lower, mostly given the realization of some SME loans at the quarter. So the day is low. [Audio Gap]
[Audio Gap] level that you think should be appropriate in the cycle to maintain a coverage ratio of 190%? Or given that this is a worst cycle that you'll be more prudent to be more conservative and maintain the coverage ratio well above 200%?
Octavio de Lazari Junior
Mario, as we always say, in your question, here is a long assumption that we manage the coverage ratio. The coverage ratio is much more enough proof of our provision in [indiscernible]. So basically, we're not going to do anything different because the coverage ratio moved to a level. That said, in the cycles, basically, you have a 1-year consumption of coverage in the sense that in the normal process of provisioning, you end up writing off part of your provisions. And in that process, the phase, the output of coverage tends to get lower.
Our next question comes from Tito Labarta with Goldman Sachs.
A couple of questions also. Following up just on the NPLs. Just to drill down a little bit more, given first quarter was really just the last 2 weeks of March that were impacted by the crisis. So is it fair to assume that this increase in NPLs should be even worse as you see more of the impact of the crisis? Just to understand sort of the magnitude believes or the one-offs that you mentioned and the increase in NPLs? I mean is it fair that that's going to continue to deteriorate, that sort of a similar page or even higher? I guess that's the first question.
And then my second question is on capital. We saw a significant reduction in the Core Tier 1. I know part of it would affect the mark-to-market and the growth in the portfolio. But if you can help us just think about that. I mean your capital is okay now. But if you have another 200 basis points reduction in the Core Tier 1, then it's maybe a different conversation. So given the level of growth that we saw in the quarter, the level of ROE, if you can just help us think about how you're thinking about your capital base, given all these moving parts. Thank you.
Leandro de Miranda
Okay. Tito, let me start in here and then I would like to give you a few sense. Well, first of all, it's very unusual to make comments on the second quarter that is risk on, and we have a crisis that we all over the world we have never experienced before. So it's really difficult to tell you how we see the behavior for Tier 1. But the good part of the second quarter is that we shall start seeing the cancellation of the lockdown by several states and we start to see some clients that invest to the game again. So that will be the most appropriate time to understand how we shall see the behavior of the NPL creation from now on. So we are not in a position to give a very good and clear answer regarding how it's going to be the behavior of the NPL creation from this point on, okay?
Octavio de Lazari Junior
Hi, Tito. So just to complement, basically, we believe -- we understand our skill set, basically, we believe this crisis may be in terms of NPL worse than the 2016/2015 crisis. That implies actually that to reach that NPL unit, we’ll continue to improve for some more time. Basically, the NPL, what I'm saying about the specific cases, there is this R$500 million already provisioned in SMEs. There is also something around R$500 million also fully provisioned that moves through NPL this quarter in Core 3. So we have about R$1 billion for which we already have provisions. And as you know, we have built provisions even in the fourth quarter last year. So this is the kind of change -- made the acceleration in NPLs faster this quarter probably than it would be the normal pace otherwise, but probably the NPL at the end of the cycle should really be higher.
Leandro de Miranda
On the second part of your question regarding our debt structure and shareholders' equity. It's important to highlight that a significant part of this reduction in the shareholders' equity was due to mark-to-market impacts on the strategies that we have. So all you got a broader environment from now on, we shall see a recovery there as well. We do not plan to make any capital increase. We do not plan to make any capital shares buyback. So we believe that as the normal business get back, we shall have the appropriate composition of all tax in the previous levels as we are profitable. And we just are about to distribute the minimum dividends according to the Central Bank provisions and we shall keep it for quite a while.
Octavio de Lazari Junior
Yes. On top of that, we also should consume the tax credit from the hedging generated this quarter, as frankly pointed we have profitability from that. And also, the loan growth should build up. Basically, the size of loan growth we had this quarter is a mix of the good performance that we were presenting until February in terms of loan growth, plus the extra demand we brought from corporate. This level of growth certainly is going to be lower for the rest of the year as we have a correction in loan demand.
Great. No, that's very helpful. And then just one follow-up, I guess, on the first one. I understand the uncertainty and trying to predict where the sales will end up, but you have another month now since the end of the first quarter. So I guess I was also thinking in terms of the evolution from the last 2 weeks of March and into April and how the inventory affirmation [indiscernible] at this point, how that may have evolved exactly, worse or maybe rolled off at some point?
Octavio de Lazari Junior
Yes. At this point, we prefer to not comment on the more recent trends. It's basically, it is -- again, we have the renegotiations of loans of 60 days. This is providing a relief on the delinquent, given that you only devised -- they don't go to NPLs. We also are working on all clients to provide them the best solution possible to be able to meet their obligations. And so I think it's an ongoing process that somehow mitigates the evolution of NPLs. But I think it's still to open to step-up.
Leandro de Miranda
People also have [indiscernible]. If clients need, we are open to support and providing additional review of 6 days or even to restructure that in a way that we can preserve their health and have a long-term relationship with our clients, so this is something that we are wide open to help clients and society as a whole.
Our next question is coming from Mr. Jason Mollin with Scotiabank. You may proceed.
My question is somewhat of a follow-up on the provisioning levels made in the quarter. When you show on Page 7 of your presentation that you had R$2.4 billion in preexisting provisions for adverse economic scenarios, that you created R$ 200 million in provisions that would be required under traditional regulations. And my understanding is that the regulator would have allowed you not to make those because of restructuring in the quarter plus this R$2.5 billion that you've been discussing in new supplementary provisions.
Now I guess I'm trying to understand the decision-making process here. I understand it's not, as you've said many times, about reserve coverage, et cetera. But can you talk about making this decision? What are the implications for taxes, creating deferred tax assets, implications for dividend payments? Obviously, you reported a much lower bottom-line. But in my view, this is a prudent conservative approach going into a crisis where we don't really know the real losses, what they're going to be. And what are the implications for just reversing these going forward?
Leandro de Miranda
I guess we share your view regarding the behavior in a crisis like that. We do have to be conservative to preserve our cash flow in order to serve our clients adequately. And there is a change of event here saying that the banks are not allowed to distribute dividends higher than the minimum amount required. The law is such that the minimum amount required has been [indiscernible] 30%. And we'll keep up, it's behaving and respecting the regulation, so we shall not expect a dividend higher than 10%. We have no internal discussions on reducing the dividends. We believe that we shall have to leave this new environment, this new scenario, to make adjustments in our provision of the case will be the cash flow in short term is extreme, is very, very strong. We remain confident that we can help our clients to get back to the liquidity levels they need, we want to get back to their activities.
I mean maybe I can ask -- I mean, again, it's not a metric. I know this is not how you make provisions or any bank does, but it's an interesting reflection of what's going on. If you look at the loan loss provisions created in the quarter, I think it was something like 46% of the way I calculate the NII, net interest income was provisioned the way. You had been running at around 25%. I looked in my model and I think at the peak levels that I've seen probably in the last 15 years was something like 55% in 1 quarter, but that really doesn't get much above where you provisioned this quarter. So is this kind of a limit when you look at, of course, it's based on what happens in the economy and the ability -- the likelihood of your clients paying and their payment performance, but does this seem like -- when you look at that kind of metric, that this is extraordinary? And the level of...
Leandro de Miranda
Well, first of all, you have to consider that we have established last quarter a provision for adverse market conditions. We did not expect to meet it so soon. But fortunately, we were with a very good protection for that. So the way that it seems that we do have to take into account the whole R$5.1 billion package because that was -- some of the protections that we face, all the delinquencies and losses that we may have from now on. But of course, this amount was, as you have pointed out, the result of the analysis that should be continued here, the credit. And we believe our economic teams that have put together with our senior management, we decided that this is the other case provision at this time according to the information and vision that we have over the economy as a whole. So we do not take into a measure specifically the way that the NPL creation in the last -- fortnight because it's extremely soon to say that. But if you prove to be right with [indiscernible], if we have to be even stronger in terms of capital management and provisions, we are prepared to do so. But keep in mind that we have previously provisions for adverse market conditions such as this.
Our next question comes from Mr. Thiago Batista with UBS.
I had just one follow-up question about the capital position of the bank. It's not wrong for the bank was targeting in the past 2:1 ratio close to 13% or something around this level. It's sad to say that they continue with this former target or with this target of Q1 capital of around 15%. And if the bank, if you start to see that the bank cost ratio will be close to -- in Q and the capital return to this level.
Second question is very small one. Can you comment a little bit, how challenging is nowadays for the Bradesco to sell insurance in the branch and also to sell fees? So how important are the flow of the dividend in the branch that's for sure, right now that we don't have these fiscal to give us?
Octavio de Lazari Junior
Maybe you can start with the second and then answer the -- but regarding this Vinicus, go ahead with the second one.
Hi, Thiago. Vinicius here. The branches are importantly -- very important mostly for the sale of pension-related products, capitalization products in life, okay? They are very important. We have, of course, for life and for auto insurance, the credit of our insurance brokers in our branches. And what we've been seeing, I mean, in March, we didn't see because we have a few months of normal operation. We have gradual decrease in business in the end of March. But what we did see, it's been going through right now, is to be able to give our branch managers, salespeople, financial advisers as well as our insurance brokers, all these tools necessary for them to operate fully on home office spaces, okay? So we didn't see this gradual improvement in sales of our sales force of our digital channel from home office, okay? But there is a considerable investment right now in digital, in CRM tools in order to do support to these sales force.
Octavio de Lazari Junior
Thiago, regarding your first question on capital, basically, I think the level of capital is constantly being evaluated by the bank. As you know, the regulator reduced recently the minimum capital requirement by 125 bps. Any consideration regarding what is the optimal capital surely takes into account the level for the requirements in terms of minimum capital.
On top of that, we have to consider that we are getting to a cycle where actually loan growth should be, for some time, much weaker than it was so far. So it allowed us, actually, we should use less capital going forward. And on top of that, we do believe we're going to consume relatively quickly the tax credits we have generated and are one of the main negative impacts in our capital this quarter. And also, we believe that part of the market-to-market should be reversed.
So in that situation, we let, in that scenario, we think we are in a very good position in terms of capital. We don't have public targets on capital. They haven't been discussed in those terms for some time. But again, I think given what I said, we are in our view in a very, very good position.
Our next question is coming from Mr. Marcelo Telles with Credit Suisse.
Most of my questions have been answered, but I want to understand a little more. What is the risk that you see in the large corporate sector at the start? I know you've been focusing a lot on the SME and individuals. And also what other products that you discussed that the Central Bank published yesterday, and which was, you need to call, if you compare to others, in terms of the results, right, that Central Bank did. In your case, I mean I wonder if you could share, if you have done any stress test in this situation, if you could share with us what your capital position will be in a very, let's say, harsh environment that will be impacted by your cost interest, that will be helpful.
Octavio de Lazari Junior
Marcelo, really, I'm not sure I understood quite well your question, given that your voice was not very clear, but I understand you asked about the health of the corporate loan book and the stress test that the Central Bank have run on the financial stability part we have to do. Were those the questions?
Yes. And my question related to the stress test is that whether you have conducted a stress test as well, and could it be possible to share with us what the results would be in terms of your capital position, [indiscernible] in provisions or anything like that?
Octavio de Lazari Junior
Yes. Unfortunately, we constantly run our stress tests, not only in crisis environment, but basically constantly. But we don't hear that. What I can say is our view that we are in a very comfortable position regarding our capital position. It is related to our stress test. We see, for sure. And at this moment, when we don't know when the economy will be up and running again, it's always hard. But basically, our base case stress test really show that we are in a positive position.
In terms of corporate, I don't know if we like it. In terms of corporate, we see the corporate book in a much better position at this time. What we saw was a run from liquidity in the beginning of the crisis. But companies were -- are mostly held with a leverage. They haven't been investing too much. Some of them surely will face difficult in terms of having their results or revenues cut. But in here, I would say, companies with the appropriate amount of liquidity are going to be able to make it through the process.
And basically, even the most complicated cases through our tax book actually have already been fully provisioned. Most of them we have even written off from our books. Of course, it's always possible we find some cases more difficult situation during the period of the crisis. But I would say it's not going to be a large number as in the other parts. In that sense, we are prepared to help them to renegotiate, to try to improve our position in terms of quarters. I think it's fair to say that the most liquid stagnant this time doesn't seem to be the appropriate time.
Leandro de Miranda
And in terms to -- what I actually I see, much more like due to for us as basically the corporate cost being financed by the capital markets. And therefore, we saw as an opportunity because we are able to charge over spreads and to rebalance our portfolio as a whole.
Our next question is coming from Mr. Henrique Navarro with Santander. You may proceed.
My question is on fees and commission. Regarding the line directly related to the sale of the banking products in both traditional channels and the digital channels. So I would like to hear how the number of branches that are closed right now, when do you expect to reopen the branches? From February to March, how has the impact in sales of banking products on traditional channels? And what was the positive impact on higher sales on digital channels? So anything you could shed a light and help us to understand the impact of the coronavirus on this 6% decline in the commissions on the first quarter. And then maybe you can try to understand what could be the impact for the next quarter.
Octavio de Lazari Junior
In terms of branches, Henrique, we didn't close any branches. During the coronavirus crisis. Only the branches in the malls are the ones that we closed. And we kept all of them open and in the places we could. So we operate with different -- with half of the people in the branches in terms of staff and replace this staff every week.
In terms of reduction in numbers of branches, in the first quarter, we closed 78 branches that actually will be definitely closed. We expect to close this year more than 300 branches. In terms of digital channels, in our case we had already a very high level of penetration of digital channels. I think we had about 17 million clients that were clients either of mobile or internet bank and with a very high level of usage.
Due to the characteristics of the crisis with the economy really slowing down, we noticed actually that even though we see more client in fact is using the digital channels, and usually Internet or mobile, number of transactions actually reduced. Basically, people are buying less and people have transferred less money in business and payments, et cetera. So that's kind of the trend we are seeing. I don't know. I may have lost part of your question.
No, that's great. My question, the 6% decline in fees and commission income quarter-over-quarter, how much of that you believe is related to the coronavirus?
Octavio de Lazari Junior
I would say the reduction in credit card is pretty much related to coronavirus. It is the impact of the lower retail sales on [indiscernible] in our exchange, in our interchange revenue that is basically based on sales. The consortium operation may have some impact. Investment bank, we were expecting a good quarter. Actually, there was -- the performance was not as good as expected, even though it was better than last year. So maybe more clearly on credit cards and maybe investment bank maybe a little bit also on asset management.
Leandro de Miranda
Well, thank you all for your participation. I guess we finish the Q&A session.
Seems there are no further questions. I would like to invite the speakers.
Leandro de Miranda
Okay. Thank you all for your participation in our Q&A session and for making the time to join us in our conference for the first quarter. Have a great day.
That does conclude Bradesco's conference call for today. Thank you very much for your participation. Have a good day.