Prepared remarks
Good day, everyone. I am Marcelo Noronha, and I am at the headquarters of Banco Bradesco Cidade de Deus on Thursday, May 8, 2025. It is now precisely 10:31. It's a pleasure to share Bradesco's earnings for the first quarter of 2025. Thank you all for joining us. I'll begin with our net income. You may have read the earnings release from last night, which reported a recurring net income of nearly BRL5.9 billion, growing over 39% year-on-year and 8.6% quarter-on-quarter, resulting in a ROAE of 14.4%. This net income reflects a significant increase. I'll discuss the drivers of this growth shortly, with the primary driver being revenue from three key pillars, which I'll elaborate on in a moment, along with a solid portfolio and extensive use of technology to enhance our productivity, along with strong performance from our insurance group. Total revenue reached BRL32 billion, marking a 15% year-on-year growth.
The details show total net interest increased by 13.7% year-on-year and 1.4% quarter-on-quarter, while fee and commission income rose by 10.3% and insurance revenue surged by 32.7% year-on-year. Looking at our NII, net of provisions, the expanded loan portfolio totaled BRL1 billion, reflecting a 4.9% increase year-on-year and a 2.4% quarter-on-quarter growth excluding John Deere Bank. Without this exclusion, the growth would still be robust at 11%. Our charts illustrate the growth in various segments of the loan book: individuals grew by 16.2% and micro, small, and medium-sized enterprises approached a nearly 30% year-on-year increase, while wholesale banking grew by 1.2%. Excluding currency depreciation, these figures would be higher. In the wholesale sector, activity varies, with some quarters showing significant growth while others may show declines. Nevertheless, we're seeing increased loan activity in the capital markets, and we are actively participating in issuances and secondary markets as well.
Regarding the ROA of 14.4%, it's noteworthy that when we reported our results on February 8, 2024, our cost of equity was below 14%. Now we are above our cost of capital, but we remain focused on our greater ambitions, which we believe we will realize gradually. Our loan book shows growth across all business units, driven substantially by our credit business unit. We have expanded our workforce, invested in machine learning, improved credit modeling, and enhanced credit policies. Our approach to risk appetite remains moderate for 2025, supported by excellent coordination among our teams to ensure a balanced risk-adjusted return. We're also witnessing substantial growth in collateralized portfolios. Significantly, individual loans have grown by 16.2%, especially in rural financing which is fully collateralized. We see steady growth in payroll-deductible loans, where we hold a leading market share.
Our personal loans are performing well, and we have been meticulous with our vintage analysis. In credit cards, we target the high-income segment. Our approach to open market loans for CDC has been conservative, yet we report significant growth in other collateralized portfolios. Our micro and SMEs segment reported a 3.5% quarter-on-quarter growth and nearly 30% year-on-year, with working capital being fully collateralized through various instruments. Our consistent growth with a strong risk-adjusted return approach ensures we are well-positioned. With a solid client base and strong commercial capabilities supporting our operations, our net interest income grew by almost 14% year-on-year, complemented by a stable risk cost of 3%. As a result, our NII net of provisions reached BRL9.6 billion, marking a 30% year-on-year increase. In the market, our ALM operations were significant, capitalizing on recent market volatility.
High activity within our wholesale bank has created great opportunities for our client desk, boosting trading activity. We also have a developing energy trading desk, though its impact is currently smaller compared to trading and ALM. Client NII totaled BRL16.8 billion, growing 15.5% year-on-year, with both consistent growth in client NII net of provisions and high quality maintained in our loan book. We maintain rigorous control over our portfolio quality, with over 90-day delinquency rates under control. Our portfolio shows 92% in stages one and two, with much of the stage three portfolio remaining up to date. Collateralized loans hold a substantial percentage with guarantees. Another key area this quarter is our restructured portfolio, which has seen a significant reduction over the past year. Our fee and commission income has been a strong growth driver, with notable increases across numerous areas, particularly in our consortium and asset management businesses.
Our investment banking division saw a 76% year-on-year growth and continues to build a strong pipeline that adds traction to revenue. Operating expenses increased by 12% year-on-year but reduced by 8.6% quarter-on-quarter as we've undertaken a disciplined review of our operations. The insurance group also shows strong performance, with ROAE at 22.4% and significant revenue growth from premiums and contributions. Our technical provisions have grown to BRL414 billion. As for capital ratios, the Basel ratio increased to 13%, and we aim to distribute the JCP limit throughout the year. Looking ahead, we have delivered consistent results and trending guidance for 2025. Our growth strategy includes expanding our Bradesco Principle initiative and increasing our presence in the middle market segment, particularly with small and medium-sized enterprises. Our technological advancements have led to significant improvements in productivity, reducing delivery times and enhancing our development capabilities, especially through the incorporation of GenAI technology.
Finally, I want to highlight recent promotions within our legal department, which strengthen our team as we continue to ensure solid legal support across all facets of our operations. In conclusion, our net income growth is closely tied to diversified revenue streams and controlled expenses. Our loan book remains strong, and we are committed to maintaining high asset quality. I appreciate your presence today and will now invite my colleagues Cassiano Ricardo Scarpelli and Andre Carvalho to join in addressing your questions. Before we open the floor, I would like to reiterate that while we have outperformed guidance recently, we will maintain this trajectory while remaining open to revising our guidance in the second half of the year if necessary. We envision steady, consistent growth moving forward, particularly in individual loans and collateralized lending. Our outlook for the investment bank remains optimistic, bolstered by a robust pipeline. Overall, our secure loan portfolio, strong credit management, and increased revenues from the insurance group position us well for a successful year ahead.
Thank you, Marcelo. Thank you, Cassiano. Good morning, everyone. Let me tell you, the CEO of our insurance group is also with us. He is online. So you can ask your questions in Portuguese or English. You can send us your questions in writing using the WhatsApp number on screen now, or you can send us your question using this email address.
Questions and answers
Hi. How are you doing? Good morning. Congratulations on the results. I think it was very strong across the board. My question is about the ROI of the bank. Not only you mentioned an ROAE of 14.4%, and you said that you naturally aim for a much more robust return for the bank. At the beginning, two or three years ago, you had said that the initial metric was to achieve the cost of capital. But now you said you want to fly even higher. So my question is, when we look at it by segments, we see the insurance group and ROAE of 20%, which means that the banking operation has returned close to 10% or slightly under 10%. So what's what do you still have to normalize? What are the main segments? Is it retail, wholesale, SMEs? I mean, what are the big boxes that you have where you still see some room to bring the ROAE to a higher level?
I'll ask Cassiano to answer, but I'll start. Thiago, thank you for the question. It's a pleasure to have you on board. Well, it's basically mass retail. This cost to serve is something we've been correcting. Over time, this will bring us a different level of return. For example, the wholesale bank. The level of RER is high in all client segments that we have. I'm not talking about IB or global markets because that requires much loss capital. Global private is high 30s to 40s. High income segment, the same. The principal clients, I mean, they are impressive in terms of level of return we have. And that applies to prime as well. With SMEs, we reversed the trend, and it's increasing. So that's what we are working on. And, of course, we're investing to gain productivity. As I mentioned, Cassiano, you can compliment.
No. That's exactly it. These are the levers. Productivity is one of them. And, of course, the effect of our cost to serve in our mass retail. This is what's going to give us the final leap to improve our ROE.
Good morning, Andre, Noronha, Cassiano. Congratulations on the excellent result. It's clear that the bank has traction with good indicators. I'd like to take this moment with you to hear a bit about what we didn't read in the release, which is the part on private payroll deductible loan. A lot of people are discussing products. I'd like to get your take on this because you have a big market share, about 15% in the traditional payroll deductible loan. So what will be the position of the bank? Would you have portability of everything? Or how are you planning to operate in this segment?
Thank you for the question. I’d like to share my thoughts on this. Apologies, Daniel, for mixing up your name. It's great to have you here. Regarding our review, we see a significant opportunity for Bradesco. We currently hold a 14.3% market share in payroll deductible loans across the public sector at various government levels, including INSS and private sectors. However, our share in private deductible loans is notably lower, representing only about 6% of that total. Despite this, we are the leading provider among private payroll deductible loans, indicating substantial growth potential. It raises the question of why private banks or mainstream banks have not been more active in this space. Several key factors contribute to this. First, the client base for payroll deductible loans grew between April 16 and April 21, reaching BRL8 billion in origination. Initially, we adopted a defensive strategy, while other organizations may have relied on existing agreements but used new channels.
Additionally, many did not target clients who already had payroll deductible loans. For example, if someone applies for a loan with Bradesco after having an agreement with us, and they receive offers from other organizations, the increasing client base reduces profit margins. This type of loan carries low risk, which is why some smaller, more focused organizations have been offering slightly higher rates on smaller amounts. Recently, there was another meeting with FEBRABAN regarding the portability of these loans, indicating movement in this direction. We are now shifting towards a more aggressive strategy in terms of our client base and market engagement. We anticipate good growth starting around June or July when everything is streamlined. I also want to mention that we still have room for growth in public payroll deductible loans. The delinquency levels in these segments are considerably low, with the general market indicating that the over 90 days non-performing loans (NPL) rate is about 2%.
In contrast, our private payroll deductible loans have a delinquency rate that's more than double that figure. Approval involves analyzing not just the individual but also the employer responsible for their salary. While larger banks maintain low delinquency rates, they might experience closer to a 9% delinquency rate. We are focused on utilizing effective models that consider both the individual and their employer for accurate pricing. Daniel, we are committed to competing for our market share. Thank you very much.
Good morning. Congratulations on the earnings. Now I'd like to hear a bit more from you about the insurance group. I believe the market does not yet appreciate the value of the insurance company, growing 25% year-on-year and accounting for almost 40% of the net income. We've seen lots of improvements. The level of claims has fallen. The claim ratio has fallen. So I'd like to hear from you whether you believe you can keep the same level of growth and the same level of claim rate. So, I mean, to what extent are these results sustainable?
Yes. Ivan is also here, but when we look at the insurance earnings, two-thirds came from production and one-third came from the financial portion. But production had a bigger weight, and that's what provides us more confidence that this is sustainable. So, also, you spoke about the improvement in the claim rate. So, of course, you have some seasonal effects and a bit of volatility, but it's trending down because of investments we've been making for a number of years to improve the claim rate. And we are now harvesting the benefits of this initiative, especially in health insurance. So we trend toward a lower claim rate. Actually, the first quarter was not even so favorable, and we do have noise along the path. But there is a very good trend down the claim rate. And because we have a lot of traction in sales, again, that is good for the insurance group because that will drive sales, that will drive the premium, and bringing the claim rate down. So that's the improvement we expect both in production and also in the financial portion with a higher basic interest rate. So we believe the performance will remain consistent. So we could see the ROAE 2.6% above the first quarter last year. After many years of improvement, we continue to improve. So insurance is one of the lines that Marcelo highlighted. We want to be closer to the top of the guidance, at least above the midpoint.
Mario, let me add. And, also, Ivan is here, and he can also add if he wants. But here, we see also our strategy, you know, the associations we now have with hospitals to improve the efficiency of our health insurance. We're growing our network of health care providers, and that also helps us control the claim rate and the cost. So the combination of these figures give us excellent earnings. And our concern in each one of the verticals, we want to always work to improve our operation and a very strong distribution. I mean, if you look at the future, we do see room for more improvement. Also, look at the penetration of insurance in the Brazilian GDP. We have a lot of room for growth, and I do believe we can have a higher penetration of insurance products. And of course, we will continue to work hard to improve this rate of insurance over the GDP. And all our colleagues are working towards the same goal. Now, Ivan, do you want to add to this answer?
Thank you, Marcelo. No. I believe Andre provided a very thorough answer to Mario. But if Mario has any further questions, I shall be available to help.
Hello. Good morning. Congratulations on the earnings. It's very good to see this traction that the bank currently has. Now, Marcelo, what is the level of comfort that you feel in terms of more growth in your loan portfolio? We can see the bank clearly has capacity to manage risk. And as you mentioned, delinquency is lower. The quality of the loans is a mantra for you as you as you said. But I'm also looking at the country's economy. Inflation up, a high interest rate. So what do you expect in the next 12 months looking outside the bank's borders? Because that may lead to a slower growth in in the bank. So how do you view these aspects so that we can also feel confident that the macroeconomic factors will not go against your very well-done work?
Thank you, Gustavo, for your question. I'll be very candid. Loan portfolio growth, as I said, our risk appetite remains moderate since the last quarter of last year, we said that. So one thing is risk appetite. The other thing is model adjustment, credit policy adjustment. So if you look at the concentration of loans, it is down. In the in the largest customers, the concentration has fallen. So although we have a moderate risk appetite, we see great opportunities because we have a large customer base, because of our penetration capacity, but we want to grow in secured loans. In payroll deductible loans, we have 14% market share, so we have an opportunity to continue to grow regardless of macroeconomic factors. So private payroll deductible loans are also an opportunity. But in public payroll deductible loans, we still have lots of opportunities to grow. Let me remind you, our book is now about a BRL100 billion in payroll deductible loans.
The second front would be working with agribusiness, always customers with good credit ratings. I mean, in this segment of the economy, either cattle breeding or agriculture, when you look at the different segments, for example, corn, corn prices went up. They are now down closer to 50, but farmers are well compensated. As well, sometimes we do see issues, but not now. We don't see any problems in terms of these prices now. So this market can bring us a lot of opportunity to grow, to grow our relationships with the current customer base. Even the Zhuang Diaz Bank, we are now you know, the two teams are now working together. We're reviewing the guidance for this year. And in terms of small companies, Gustavo, in fact, I've shown you a ranking while this information is open to the public. So looking at FGO and Pronamp, why don't you check the ranking of financial institutions? You will see Bradesco currently has a lot of traction, so we keep a close eye in this market.
And we're working with receivables, FGO, FGI, in terms of collaterals. And the same thing, we want to grow agricultural loans, but always with collaterals. So what do I see? I see that we have a great potential ahead of us. Obviously, when the economy grows slower, and that may happen in the second half of the year, so a few demands will be lower. But in these specific lines that I've mentioned, I have great confidence that this is the right track for us to deliver good margins and good net income even in the second half of the year without having any interruptions. So that's why I say the drivers are these three main lines. So always secured loans, loans with the right collaterals, and all the activities that will be related to that. NPS, for example, these are the fees generated by our robust pipeline, which we've had even in the first quarter. So I do feel very confident. Why don't you have a look at the FGO ranking?
Last year, FGO plus FGI, these two collateral lines, these two guaranteed lines, we've had an origination of BRL89 billion. I mean, that that's what the market did last year. So these are numbers that you should watch and monitor, and then you will understand what I say and possibly feel the same level of comfort as I feel looking at the quality of our loan book, which again is not negotiable for us. So thank you, Gustavo, for the question. Good to see you.
Thank you. Good morning. Congrats on the results. My question is about LLP. LLP in the quarter increased at the same level of the quarter about 2% quarter-on-quarter with a very stable cost of credit. The question is that the pace of LPs, compared to NPL formation was much smaller, but it's not easy to get this conclusion. So I'd like your help on this because some things changed and the NPL formation is not in the release, 15 to 90 NPL is no longer in the release. So I'd like you to elaborate and to help us consolidate this because these slight changes or perhaps doesn't make any sense to look at NPL formation the way we used to because 15 to 90 day change then perhaps that's why you're not communicating this. But I just want to understand the pace of loan loss provision versus NPL formation Stage 3, what is more relevant, what should we be looking at looking forward?
Pedro, thank you for the question and I'll ask my colleagues to answer that. But I'd like to stress one thing that you mentioned which is important. Indeed, we were not going to mention NPL creation in the 15-to-90-day NPL, but we did include it in the presentation. NPL formation or NPL creation went from 109 to 98. And our 15 to 90 day in bill, which was 3.4% last quarter, continued flat 3.4%. And a year ago, I think it was a little over 4%, 4.1% down to 3.4%. So, indeed, this doesn't have a lot of sense. It doesn't make a lot of sense. So I'll let Cassiano and Andre complement the answer.
It is exactly what you said, Marcelo. With Resolution 4966, we will have to adapt and look at this new concept. So Stage 3 is super important. I liked Andreas' explanation of Stage 3. He will mention this. But Stage 3 is our main topic to pay attention to. There's not much comparability with 109 against 98 in the last quarter. That shows the robustness of our loan book. The Legacy WO Model can no longer be done. So this leads to a new way of looking at our loan book. So we have to look at Stage 3 quality. Our LLP compared to the portfolio, which has remained stable around 3%. So that attest to our ability to grant loans. Andre will comment on this. I just want to add something. You see, Pedro, I think that in the complete publication, there is a table where they reconcile what were Stages 1, 2, 3, what was included, what was excluded. And I think that this reconciliation is crucial for me, and I think that you should monitor that from now on. So what was done with 4966 regarding write offs? Because we can have a more lengthened term. We can change over 90. We don't lose portfolio because we are no longer writing it off, which did not happen to us, by the way. Okay, Pedro. We kept exactly the same concept we had with 2682, same write off period. So you can compare apples to apples. Andre?
In terms of changes to our accounting processes regarding asset quality, until the fourth quarter, we focused on operations that had non-performing loans over 90 days. We announced a 98% coverage in provisions for Q4 based on those loans. Previously, under the 966 standard, we categorized these as Stage 3, which includes a broader set of troubled operations, effectively doubling the amount of assets deemed problematic. While the number of problematic loans over 90 days increased, we saw a decrease in such assets in the first quarter. On page 18 of our economic financial analysis report, there’s a table illustrating the movements in Stage 3, showing the transitions from Stages 1, 2, and 3, as well as cured operations and new introductions. This allowed us to arrive at a 109% coverage ratio based on total provisions in comparison to expected losses. We identified a 9% provision for Q1 2025, which we believe is adequate. Assuming we reach expected loan loss provisions of around BRL 8 billion, we will maintain this 109% coverage level. It's important to review our explanatory notes, as we have clearly documented these adjustments since last year. The focus should be on the expected loss divided by Stage 3 assets. We have detailed all criteria related to Resolution 4966 in the presentation notes. Thank you for your question, Pedro.
Thank you. Good morning, everyone. Thanks for the presentation. Congrats on the number. Can you hear me?
Yes.
Yeah. Thank you. So I wanted to, explore part of the answer that Noronha gave, at the beginning of the presentation. Why you don't think you can get closer to the top end of the guidance, which was basically on the market NII. Noronha, I believe you said that with rates now peaking, you think that the next few quarters are going to be more challenging. So could you please maybe elaborate on what that means exactly in terms of numbers? You're expecting a negative result of market NII for the next couple of quarters because if it's just a bit smaller than the first quarter, which was BRL462 million. It's just really hard to see how your net income is not going to continue to grow from the first quarter number because of operating leverage, it said that much better seasonality as we move forward. And then that gets you to BRL24 billion BRL25 billion in net income, which is not far from that BRL26 billion which I believe is the upper part of the guidance. So maybe drill down a little bit of that, if you will. Thank you.
Okay. So let's speak about market NII, which is super important. Marcelo kind of touched on this, on the work that we do with our treasury. It is very focused, strong work. We were seeking the best opportunities and it was not different in this Q1. It was very important to consolidate our ALM, a market that was very volatile in the last six months, but we could work strongly on this concept of protecting our ALM or prefix portfolio. Indeed, we see Q2 being tighter. We talk about market NII between BRL0 and BRL1 billion which we confirm. We think it's very feasible throughout the year and this will lead us to have a certain robustness in managing the ALM. Treasury, as Marcelo mentioned, trading, there are a number of opportunities. So we understand that the soft guidance is valid. It is sufficiently well protected by this protection work that we did, work to create value in our prefixed portfolios.
And this has worked on by our treasury. So I think that in that regard, we are doing very well. And looking our guidance, we normally are at the middle of the guidance. And that's how you evaluate us. Marcelo is talking about the upper range. So when we look at both ends of the guidance, it includes the potential of looking above the middle of the guidance. I think that this is fundamental to keep us attractive. We consider this as a very positive trend for the next nine months. And Marcelo mentioned, if there is a need for adjustments, we'll make adjustments to the guidance and we'll communicate that. Would you like to add Andre?
And also the income tax rate to do the implicit calculation in our guidance. We were talking about a rate between 19% and 23% for this year. But in the March, the National Monetary Council increased TJLP, potentializing the payment of interest on capital. We understand that for our stakeholders, we have to enjoy this benefit to the most. Increasing the benefit, we reduce the rate. The most probable range would be between 1821%. So at the mid portion, it would fall from 21% to 19.5% and with that we kind of adjust the opt implicit income in the guidance that you can calculate. But I would like to stress what Cassiano said. Jorge, we are more optimistic. Okay? Looking at client NII, the expectation was to grow 14% in the full year, right? Yes, to be in the middle of the guidance.
Hello. Good morning, everyone. Congratulations on the earnings. My question is about the profitability or the income growth. You said the recovery will happen, but it's gradual. So sometimes when you look at just one quarter, it's difficult to have a general view because maybe in this quarter, you are building the foundation. And on the following quarter, you may have a higher net income. But we saw a leap between the Q4 2024 and Q1 2025. Today, I feel you are more optimistic. So was there any surprise internally? I mean, did you have a better reaction to change? Did the loan book grow more profitable? Or maybe you were talking about lower income customers that are more active again, or was it funding? I mean, can you help us understand this leap between Q4 and Q1?
Thank you, Rosman, for your question. No, these customers have not become more active; our growth is due to our deeper penetration of the customer base. Without that, we wouldn't have experienced such traction. Even if we introduced new investment groups or processes, lacking a solid origination level and customer penetration makes selling more challenging. We are focused on sales growth through quality, including quality in credit lines, models, and policies, whether related to automated loan approvals or other methods. When preparing our budget for 2025 back in October or November 2024, we anticipated market volatility in Brazil and changes in the U.S. market, particularly higher interest rates, which might lead to slightly lower market net interest income. Nevertheless, we decided not to halt our transformation initiative, as we believe in its potential both in the short and long term.
We were pleasantly surprised by productivity gains from our technology teams, which exceeded our expectations. These developments may not always be new applications, but they are significant for the company. We are closely reviewing our key performance indicators and modernizing legacy systems to enhance customer experience. We have substantial traction and a high penetration across various customer bases, with continued growth potential in secured loans. Last year, we ranked second in the FGI and FGO lines, holding around 18% of an overall origination of BRL 89 billion. I recommend checking the details on these two lines for insight into our traction. Additionally, our Bradesco Expresso has nearly 300 islands, which significantly enhances productivity compared to traditional points of sale. We are witnessing remarkable growth in our loan book, and although we've taken a defensive stance on growth, we see significant potential moving forward, focusing on the right ratings and collateral for both individuals and small businesses.
This success is a result of strategic investments in our loan book and commercial initiatives, including the expansion of our investment banking team, which has grown our pipeline and boosted fee income by over 70% year-over-year in the first quarter. While we've had pleasant surprises, they stem from our hard work. I believe our level of engagement is crucial, as is our new cultural model that fosters connection among leaders and associates in our salesforce during this transformation. We've had four strong balance sheets, and we must maintain this momentum, as we truly value our franchise and brand. Recently, I attended a town hall in Miami related to our transformation initiative for our private banking and principal segment for high-net-worth individuals, where I saw significant engagement. I also visited several locations in Brazil and noted a high level of engagement among our teams. We are all aligned in our goals, which is why we are seeing improved earnings. Thank you for your question, Rosman.
Hello. Good morning, everyone. Noronha, congratulations on the earnings. My question is about capital. In the last few months, we've received a number of questions about Bradesco Capital. I'm sure you've also received questions about this. Actually, two questions. The quality of common equity, the quality of the capital, and the other question from investors is that in a new moment of growth, maybe Bradesco will be more fragile in terms of capital compared to other competitors. From everything we heard, we could see that in the first quarter, Bradesco is at a higher level of income with quality, and that should continue in the second and third quarters, maybe not with an expansion but with stability. But then in the second half of the year, we may have tailwinds. And then so maybe Bradesco will have another leap in terms of quality and income. But now do you have the right capital structure to face a growing demand that may happen in 2026 in in Brazil? So I'd like to hear from you because this has been a frequent question from investors. But now, of course, looking at the great results that you are presenting, this concern is not so present. But I'd like to hear a bit more from you. Thank you.
Thank you for the question. I think Cassiano can answer your question. But let me tell you, I would love to have a problem of, you know, having to face such a relevant growth because the fact is that we feel very comfortable looking at the plans we have. In terms of capital structure, I mean but we're growing our revenue so quickly that that maybe we have questions about the capital structure, which we don't, really.
We began a project last year with a strong conviction that we need to maintain. As we look at 2024 and 2025, we anticipate improved cost of capital, which is significant and encourages us to adhere to our plan meticulously. This plan spans four crucial years, and we are on track with our expected level of capital, which is vital. Historically, Bradesco Capital has maintained this level, honoring our dividend payouts to investors as we have always done. There has been no deviation from our plan. In 2025 and 2026, we aim to stay closely aligned with the new market and enhance our appeal to customers. Our customers have remained loyal, and we continue to work with our banking partners. We feel confident looking ahead to 2026, and we hope that Brazil's macroeconomic conditions will support growth, allowing us to maintain a comfortable capital level. As Marcelo mentioned, this could present us with beneficial challenges. As for our capital, it will continue to grow. Regarding tax credits, higher income positively impacts everything since our primary capital source is net income, although a specific capital call isn’t in view currently. Therefore, increasing our net interest income will enable more effective use of tax credits, which is also part of our four-year strategy. Thank you, Navarro.
Good morning, everyone. Congratulations on the results. My question is more linked to retail. According to you, this is still the detractor of profitability. So how are you executing the strategy, unifying the brands, systems, the timing for launch. For the launch I have basically four verticals to work with, Classic, Next and DigiU and Bits. So if you could talk about your expectations regarding profitability, growth, and with this focus on digital transformation in mass retail. If you can comment on the size of your network. At the beginning of the year, you said that you intended to reduce points of service by 1,000. You did 222 in Q1 alone. So perhaps you could speak a little about that linked to costs and the size of your workforce. Because in terms of headcount, the headcount has not changed a lot. So if you could speak about these two perspectives, network cost and mass retail. Thank you very much.
I'll ask Cassiano to start answering. But I before that, Nishio, thank you for the question. Thank you for joining us in this call. And you spoke about different brands, and you're talking about Next and DigiU. So bits well, bits is something that was absorbed. It does not exist as a business unit any longer. So it was absorbed. But DigiU, DigiU is a separate unit. It continues to operate. But we'll speak later about the movement for next over time. And, Cassiano, you can comment on retail, mass retail.
Thank you, Nishio. Good to see you here. Well, I think an important part, throughout the year, we'll be bringing a new value proposition for the mass retail. That's a value proposition. We'll touch these three brands that you mentioned. So this will be important in the future. Marcelo and I will be communicating this value proposition to the market, and we'll be speaking to you about this. It will be an interesting one. So I think that that is the take home message. This is clear to us and this is added to our cost to serve, which is one of the main points of action in retail. The cost to serve these 30 million clients are very good clients, but we have to adapt them to the best cost to serve. So this will entail some adjustments. On the other hand, the footprint adjustment is linked to this. Adjusting the footprint is fully linked to the way in which we will serve the mass retail tale in a more digital way, in a user-friendly way, in almost a tailor-made way to serve.
So this is our vocation. We have a reduction of the footprint, but this is going to be done carefully and cautiously, testing possible attrition because we'll spread all over this continental country that Brazil is. So we cannot lose our presence there. So this is important. We are growing clients even closing 1,400 branches because we have Bradesco, Espresso that is very strong in the front line, 30,000 offices of Bradesco Express, almost 39,000 banking correspondents. So we have to make all of these connections. Bradesco Expresso, reduction of the footprint, bringing clients to a new value proposition in digital retail. With this, we will rebuild our profitability because this is the detractor segment in the sector of our ROAE. So that's why it is important to move in that direction. In regarding costs, it is important to look at the efficiency ratio. Our efficiency ratio was 49.7% in Q1.
This year, we shouldn't expect a significant change from that level because there is a lot of investments to be made in the transformation plan. But we should see more significant reduction in the efficiency ratio starting in 2026, moving towards 40% which is our ambition by 2028.