Executives
Luiz Carlos Trabuco Cappi - Chief Executive Officer, Internal Director and Member of Compensation Committee
Paulo Faustino da Costa - Department Director and Member of the Executive Board
Analysts
Mario Pierry - Deutsche Bank AG, Research Division
Marcelo Telles - Crédit Suisse AG, Research Division
Regina Longo Sanchez - Itaú Corretora de Valores S.A., Research Division
Banco Bradesco S.A. (BBD) Q4 2013 Earnings Call January 31, 2014 9:00 AM ET
Operator
Good morning, ladies and gentlemen. And welcome to -- welcome, everyone to Banco Bradesco Fourth Quarter 2013 Earnings Results Conference Call. This call is being broadcast simultaneously through the Internet in the website http://ift.tt/15Jf1W1. In that address, you can also find a banner through which a presentation will be available for download. [Operator Instructions] Before proceeding, let me mention that forward-looking statements are being made under the safe harbor of the Securities Litigation Reform Act of 1996. Forward-looking statements are based on the beliefs and assumptions of Banco Bradesco's Management and on the information currently available to the company. Forward-looking statements are not guarantee of performance. They involve risks, uncertainties and assumptions because they're related 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 would turn the conference over to Mr. Paulo Faustino da Costa, Market Relations Department director.
Unknown Executive
Good morning, everyone, and thank you, all, for participating on our first quarter conference call. We are here to provide you with all the information you made need about our numbers, and this is in line with our goals of always increasing the transparency of information disclosed to the market.
We have here today, Mr. Julio de Siqueira Carvalho De Araújo, Executive Vice President; Mr. Marco Antonio Rossi, Chief Executive Officer of Bradesco Seguros Group and Bradesco's Executive Vice President; Mr. Luiz Carlos Angelotti, Executive Managing Director and Investor Relations Officer; and Mr. Moacir Nachbar Jr., Deputy Officer.
I will now turn to our Executive Managing Director, Mr. Luis Carlos Angelotti, who will lead our conference call. After his presentation, we will be open to answer your questions. Mr. Angelotti, please go ahead.
Luiz Carlos Trabuco Cappi
Good morning, everyone. And thank you for taking part into this fourth quarter 2013 conference call. Now, please turn to Slide 2.
Slide 2 shows the highlights for the period. Adjusted net income, which amounted to BRL 12 202,000,000. In 2013, 5.9% year-over-year, with ROE of 18%. Fourth quarter net income amounted to BRL 3,199,000,000, 3.8% quarter-over-quarter.
Our insurance operation, which is one of the pillars of our business, has also performed well, with a net income of BRL 3,740,000,000 in 2013 and more than BRL 1 billion in the fourth quarter into premium growth, reinforcing the excellent prospects for this business.
Our net credit margin went up by 12.9% in 2013, mainly impacted by the decline in delinquency costs, underlining the [indiscernible] quality of our loan portfolio. The delinquency ratio over 90 days continue to decline, falling by an additional [indiscernible] basis points quarter-over-quarter and 60 basis points year-over-year, reaching at 3.5%, at the lowest point in the last 5 years. We believe this ratio is becoming stable at this lower level.
Our coverage ratio for overdue loans remain robust, reaching 192.3%, for the loans overdue by more than 90 days, demonstrating the soundness of our financial position.
Fee income was up by 13% in 2013, while our OpEx went up by 4.6%. It will be [indiscernible] for this period. It is also worth noting that the performance of both lines is reaching our expectations. This mix of constant investment and fixed cost [indiscernible] led to an operating coverage ratio of 71.8%, resulting in the highest level of efficiency for the last 5 years. Total assets amount to over BRL 908 million, and our expendable portfolio amounted to over BRL 427 billion.
Slide 3 shows the reconciliation between our book net income and adjusted net income. In this quarter, the main nonrecurring items were the net effect of tax payments to the tax recovery program that is amounting to BRL 1,950,000,000. Second, the recording of tax credits arising from tax investments amounting to BRL 462 million. Third, the net reversal of -- partly of the technical reserves on the rule [ph] issued by SUSEP, determining the use of [indiscernible] rates, as [indiscernible] rates for actuarial liabilities totaling BRL 2,572,000,000.
And fourth, BRL 6,117,000,000 for the adjustments to the rates at the market value of our NTNs portfolio. Part of this amount connect to the reversal of technical business that I mentioned before. And finally, the recognition of impairment loss, amounting to BRL 739 million, with BRL 682 million, of which, from assisting the historical value of shares to the fair value.
Adjusting for EBIT, our net income for the quarter rose to BRL 3,199,000,000. Our annual net income increased to BRL 12,202,000,000 despite these non-recurring events not having significant negative effects, and our results for the quarter and the year. They did cause a major growth in our shareholders' package supporting our Basel III implementation and will result in the increasing future interest income from our NTNs that's now beyond market rates. Also on this slide, you can see a return on average assets which came into 18% in 2013.
On Slide 4, you can see that income growth in this fourth quarter was mainly drive by higher net interest income from the book and non-interest and interest-earning operations and the increased fee income, partially impacted by the collective bargaining agreement, which is reflected in personnel expense and with the seasonal upturn in administrative expenses, mainly coming from advertising expense.
Year-over-year, we have seen that the additional income growth moved up by BRL 679 million or 5.9%, basically due to first, the higher fee income as a result of increasing of the foreign operations, mainly skewed by the extension of the client base and the customer service channels; and second, the use of delinquents; third, the strong cost controls with OpEx growth below inflation. And the fourth, the good performance of the insurance business. The earnings per share increased by 6.2% year-over-year from BRL 2.7 to BRL 2.9.
Slide 5. Turning -- In Slide 5, you can see the breakdown of our net income. In the quarter, it is worth noting the expenditure of insurance operation due to the strong revenue growth, mainly in life and pension plan business. Year-over-year, I will highlight the expenditure of loan operations and fees, boosted by the decline in delinquency and larger customer and credit card base, as well as the expansion of the customer service channels, which helped push up the transaction volume. The reduced share of securities operations in both periods was driven by lower arbitrage gains as a result of market volatility.;
Please turn to Slide 6. Our 12 most efficiency ratio remain at 42.1% in this fourth quarter. The increase year-over-year was mainly driven by the drop in the non-interest portion of net interest income, as well as the impact of 2012 and 2013 collective bargaining agreements.
The stability in the quarterly efficiency ratio was mainly driven by the performance of fee income and net interest income, both of which moved up by 5% in the period. We set our goal of reaching an efficiency ratio of around 39% by the end of this year.
The blue line shows the risk-adjusted efficiency ratio, which stood at 52.1% in this fourth quarter, showing an improvement of 40 basis points quarter-over-quarter and 6 basis points year-over-year, mainly reflected the drop in delinquency.
It is also worth noting that our operating coverage ratio on the top line came to 71.8%. This ratio is a measure of our ability to cover operating expenses with fee income as I've already mentioned. Operating coverage ratio rose to its highest point in 5 years.
Turning to Slide 7, our realized gains amounted to BRL 13.9 billion in the fourth quarter, BRL 3.8 billion both quarter-over-quarter. The increase was basically driven by the adjustments to reach its market value at our NTN and the appreciation of our investments, especially our shares of [indiscernible], which was up by 9.5% this quarter, as these figures do not include BRL 5.2 billion related to the potential surplus value of our properties.
On Slide 8, you can see that the performance of our net interest income from both non-interest- and interest-earning operations. This quarter, we saw increases in the total net interest income, driven by the interest-earning portion, particularly insurance and assembly margins, basically led by the upturn in business volumes and the growth in average expense, as well as the non-interest-earning portion, which reflected the highest arbitrage gain.
On an annual basis, the drop was mainly caused by lower results caused by non-interest portion. And turning to -- due to reduced arbitrage gains, partially offset by the growth in the interest-earnings portion, mainly loans and funding. The annualized interest margin reached to 7.1% in the fourth quarter, 10 basis points up quarter-over-quarter, mainly impacted by the higher insurance margin.
On Slide 9, you can see that in the fourth quarter, the interest-earning portion of net interest income was positively affected in our business lines, especially [indiscernible] due to higher business volumes and the increase in the average spreads, basically reflecting the behavior of both inflation rates. [indiscernible] in Japan in the quarter, and second, the funding, mostly driven by the increase of the foreign operations, the expansion of our [indiscernible] our delinquent higher interest rates.
On an annual basis, I'd highlight [indiscernible] which were positively impacted by upturn in business volumes and also funding, especially due to the field upturn in the interest rates. The drop in the securities margin year-over-year was mostly due to reduced gains from the fixed portfolio.
Please turn to Slide 10. Quarter-over-quarter, our net debt margin, the blue band of the chart, remain mutually stretched and increased by 12.9% on an annual basis, positively affected by higher business volume and the reduced delinquency cost.
The position for loan losses to credit margin ratio showed a slight 70 basis points upturn, mainly due to the increase in provision for loan loss as a result of certain one-off events. For 2014, we expect the delinquency ratios to stabilize at current lower levels or [indiscernible], giving the downward bias of short-term delinquency ratios. Thanks to the levels of consistency of our loan [indiscernible] policies and [indiscernible] obtained, as well as improvements in the loan recovery process.
On Slide 11, we show our BIS ratios in line with Basel II of [indiscernible] and to September 2013 and Basel III as of December, in accordance with the Brazil São Paulo structure that has been enforced in Brazil since October 1, and which provides for, among other events, the strengthening of the [indiscernible] institution. Under this new calculation [indiscernible], our total BIS ratio stood at 16.6% in December, while the common equity and Tier 1 ratio came to 12.3%, remaining at very contractible levels. You can see a simulation of our BIS III ratios on a fully phased in basis. And note that our ratios are robust, therefore, these changes in implementation of the rules will not [indiscernible] our ability to finance our clients. As the [ph] of our shareholders' efforts and the reduced São Paulo [indiscernible] to market risk both contribute to the improvement of this ratio.
In September, our September 13, our BIS III, which [indiscernible] simulation was -- the Tier 1 was 9.3%. Then now we have 10.2%.
Turning to Slide 12. As we have already seen, total assets amounted to BRL 908.1 billion. There's a 3.3% increase over -- year-over-year. The result on average assets stood at 1.4%, 10 basis points up quarter-over-quarter, while the additional return on average equity was 18% per year.
Slide 13 shows that our extended loan portfolio amounted to BRL 427 billion. As of December 13, 3.6% up in the quarter and 10.8% up on an annual basis, led by loans to micro, small and medium companies, SMEs, which increased by 3.3% quarter-over-quarter and 11.5% year-over-year. The quality of our assets remains the same even after the mentioned loan portfolio growth.
In relation to the individual portfolio, the highlights were [indiscernible] mortgage loans and the excise tax. It is worth noting that if the acquired portfolio and the income portfolio individuals were left out, the extended loan portfolio would have gone up by 13.6% in the period, reaching to the range of our guidance.
Slide 14 shows the delinquency ratios. The delinquency ratio over 90 days fell both on a quarter and an annual business. The decline was mainly a consequence of first, the continuously improving loan-granting procedures, and second, the [indiscernible] and the mortgage loans impacting our loan portfolio mix, mainly in the individual portfolio. And third, the improved credit risk monitoring models. And we highlight the drop in the individual ratio, as well as in the micro, small and medium companies delinquency ratio. There was an increase in the large corporate delinquency ratio, but it was due to certain one-off events, and is not indicative of [indiscernible]. It is also emphasized that in terms of total delinquents, this is the lowest level in the last 5 years. Keeping the behavior of the 61 to 90 days and the short-term delinquency ratios, we do expect delinquents ratio to stabilize in the coming years and there's room for improvement.
Slide 15 shows that our provisioning ratios remain robust. Assuming the maintenance 12 months net loss ratios, as of December 2012, we have BRL 12.3 billion of excess provision versus less net of recoveries, the dotted part purple line. Also worth noting on this slide is the increasing the coverage ratio for loans overdue by 90 and 60 days, reflecting the drop in delinquency. Therefore, we believe that our level of provisioning, in accordance with [indiscernible] regulation is in line with our provisioning and the reassessment policy, showing that we are positioned to handle the impact of any potential downturn.
Please turn to Slide 16. The fourth quarter fee income went up by 5% quarter-over-quarter and amounted to BRL 5,227, 000,000, mainly because this quarter was [indiscernible] and the financial advisory and loans operations in [indiscernible].
On an annual basis, income increased by 13%, led by operations such as a cards, consortium and checking accounts. It is important to mention that our continuous investments in technology and [indiscernible] has led to increasing our adjustment and credit card base, in turn, generating a continuous upturn in transactions' volumes and consequences in fee income.
Slide 17 shows that operating expenses for 2013 were up 4.6%, meeting our expectation and below the 12 months [indiscernible] inflation rates. We've reached 5.9% and a 5.5%. The increase was mainly due to payroll expenses arising from 2012 and 2013 collective bargaining agreements with [indiscernible] which is up 7.5% and 8%, respectively. And to administrative expense, which only moved up by slightly 2.5%, despite the increase in operational and business volumes, reflecting the strict cost controls led by our internal efficiency committee.
Fourth quarter OpEx was up 4.8%, mainly driven by higher business volumes and the seasonal upturn in marketing expense. Considering our ongoing pursuit of improved efficiency in our investments in information technology, we believe that we will continue to deliver OpEx growth below the inflation level.
Slide 18 shows insurance written premiums, pension plan contributions and the capitalization bond income, which increases by 30.9% quarter-over-quarter, primarily due to a strong growth in the pension plans segment, which in turn, was boosted by a higher concentration of pension plan contributions during this year. And while on an annual basis, we have seen a 12.3% increase, led by the health issues and the capitalization bonds segments, both of which showing double-digit growth. Fourth quarter net income was up by 14%, exceeding BRL 1 billion, mainly due to first, the higher revenues; and second, improved financial results; third, our claims ratio under control; and finally, the greater administrative efficiency. The annual net income amounted to BRL 3,740 000,000, 4.3% up on [indiscernible], largely driven by revenue growth and improved financial results.
Slide 19 shows some of the main figures of our insurance activity. The combined ratio came to 86.1% in the first quarter, mainly impacted by higher revenues. Financial assets amounted to BRL 146 billion, while technical reserves stood at BRL 136 billion. Also the BRL 136 billion of which, some of their lives and pension plan business.
Slide 20 shows our economic department's GDP interest rate inflation and exchange rates estimates for 2014 through 2016. We believe that the results of economic [indiscernible] in Brazil, in the end 2013 has been supported mainly by the productive investment coming from the recent [indiscernible] concession problem, the improved macroeconomic fundamentals and the institutional achievements. This has actually contributed to stable and higher economic growth for this coming year, coupled with strict inflation and the interest rates also.
On Slide 21, we present a comparison of our 2013 guidance with our actual performance. We managed to meet all of our guidance range, excepts for corporate and the total loan portfolio growth, which we had already revised down when we disclosed our results for the second quarter of 2013, given the business environment at the time.
It is important to mention that at that time, we have revised our guidance upwards for fee income due to the expansion of the personnel and the card fees and also revised our guidance down for operating expense.
Please turn to Slide 22. We believe the loan portfolio will continue to expand in 2014, growing between 10% and 14%, mainly boosted by loans to individuals. Our economic department, they understand that for the total system, the growth in the loan portfolio will be 13.2% in 2014. We expect another year of good performance\ for our fee income, 9% to 13%, and the insurance premiums, 9% to 12%. Concerning to OpEx, we expect, then, to grow at inflation level at the most because of our continuous investments and looking for more efficiency.
It is also worth noting the resumption of the interest earning portion of the net interest income which might increase the business volumes as we expect and the funding contribution because of the high collateral of the semi [indiscernible] that we expect for 2014.
Finally, we believe 2013 was a year of favorable results for Bradesco, especially given the challenging scenarios, we had to face it through the year. The improvement in our loan portfolio [indiscernible] make less provision for loan losses and allowed us to maintain high levels of coverage and provision for overdue loans. Once again, it is worth highlighting the continuous pursuit of efficiency and the growth in our revenues, mainly due to the higher volume of transactions, which in turn, resulted from the investments we made in the infrastructure, information technology, new products and services [indiscernible] over the last few years. Bradesco Group also made substantial contributions to our results being strategically positioned to meet their needs of a society, that's becoming an increasingly aware of the importance of protecting their license, their future and their profits. Given the current economic environment, we are very optimistic towards financial services and the insurance conditions in the coming years. Loss should experience a sustainable pace of growth and the lower risk exposure, leading by income gains and job creation. So this is, therefore, reaffirming its positive outlook for the quarter and guiding the strategy in order to strengthening its positioning in Brazil's banking and insurance industries.
Thank you very much for your attention and we are now available to answer any questions you may have.
Question-and-Answer Session
Operator
[Operator Instructions] Our first question comes from Mario Pierry with Deutsche Bank.
Mario Pierry - Deutsche Bank AG, Research Division
Let me ask you 2 questions. The first one is related to your net interest income growth guidance of 6% to 10% in 2014. This is slower than the growth you're expecting for your loan book, so I wanted to understand from you exactly what do you expect, if you could break down the drivers of your net interest income between the loans, funding, insurance and securities, I would imagine strong performance from your securities portfolios, especially with a higher interest rate environments. The second question, is also kind of related to some guidance that you gave. You don't officially give guidance for asset quality, but you did mention that you see room for asset quality to improve. But I wanted to get from you a sense of what could be the impact of the higher interest rate environments in Brazil, as well as the weaker currency, let's say, if interest rates rise more than what you're expecting, would you be revising your view with respects to asset quality?
Luiz Carlos Trabuco Cappi
Thank you, Mario. Our net interest income guidance of 6% to 10%. We headed some companies in Brazil [ph] the credit contribution is around 70% is a -- 70% to 75%. And we have their other contributions for this goal that we have that came from the funding. And this line, we expect a better goal because of the high-level credit rate that we expects [indiscernible] month including ROE [ph]. We have contributions for the -- our insurance group in the margins that probably, we expect some -- something similar that we had in 2013. Probably we'll beat the expectations for the insurance [indiscernible] we have been in [indiscernible] securities and others. In this line, we have, during 2014, some impacts of the effects of our fixed portfolio. That is -- will be in a negative way. But on the other side, we have some additional contribution because the movement that we did with our end-to-end during the year than our this guidance that we gave you 6% to 10%, we understand that it's very impossible to reach because the condition that we have for this year. This is that as we understand could be a little conservative, but the 6% to 10%, we understand that is possible to retain this in 2014.
Mario Pierry - Deutsche Bank AG, Research Division
Just let me interrupt you really quick here. Sorry, so if you could then describe a little bit of the drivers for the loan portfolio, my understanding then is that you expect further pressure on spreads, is this due to a change in mix? Or how are you seeing the competitive environment, especially from the public sector banks?
Luiz Carlos Trabuco Cappi
We have said at this year probably the competition will be in a more normal spreads to be a highly competition between the banks versus with more normal spreads. Then we expect this year we are working for to trying to maintain the stable this spreads in the portfolio, considering the effects of the increase of favorable loans and the mortgage because they had lower spreads and they affect the mix, but we will continue to grow in SMEs that give us some compensation. Then the means in this case that we finish the year 7.1%, we expect though [ph] during the year some stability. So will be will finish on the 7.1% or 7%, but we expect more stability in our NIMs during the full year of 2014.
Mario Pierry - Deutsche Bank AG, Research Division
Okay. And then the second question...
Luiz Carlos Trabuco Cappi
And about the asset quality, we finished the year 2013 reached 3.5% in our delinquency ratio for 90 days. Probably real asset during 2014, we expect some stability for this ratio, considering in our case the scenario that we gave you, we expect delinquencies that will be during the year stable and 10.75%, we'll finish the year with reduced level. We understand that it is possible to maintain stable this ratio. And they considering the growth that we expects for the [indiscernible] loans and mortgage that has a lower delinquency and then we are investing in our improvements for our instruments for to do [ph] and we understand that's possible to maintain the stability during 2014 in the delinquency ratio and this scenario, we expected -- we understand that the expense we'll see P&L consider that we have some possibilities that to have a better delinquency ratio during the year with some decreasing the ratio. We expect to have some stability there in the expense that we probably the expense for 2014 we will be around the total level that we finished 2013.
Mario Pierry - Deutsche Bank AG, Research Division
Okay, Just and then a final follow-up. When you look at for the outlook for Brazil in 2014 and especially the asset quality, what concerns you the most? Is it the increase in interest rates? Is it the likely pick up in unemployment or is it the FX volatility?
Luiz Carlos Trabuco Cappi
Well, the scenario that we have, result of our economic department [indiscernible] we expect, establishing the Selic rate probably we'll reaching 10.75% and we will stable to the end of the year. The unemployment rate, we have small increase, which finishes 5.4% in 2013, we expect 5.7% for 2014. Then we understand that it is more increasing the unemployment rate, not really affected the delinquents. And for this system, our economic department for this system, they expect stabilities in the delinquency ratio. And then we understand that it is possible to maintain in our delinquency ratio, but the delinquency ratio is stable during 2014, which is some possibility to have some improvement to have some decreasing the ratio, because of the effect of the mix and the our investment in the [indiscernible] our analysis.
Operator
Our next question comes from Marcelo Telles with Crédit Suisse.
Marcelo Telles - Crédit Suisse AG, Research Division
I have 2 questions. The first one, in terms of asset quality, you have talked quite a bit, but can you share with us what your policy has been late? Have you tightened your credit standards versus maybe like 6 months ago or you are pretty much the same credit risk policy or if you could need given this lower economic growth to become more conservative at least at the margin? And my second question regarding still your NII growth. Can you remind us what you think the impact of higher rates could do to your margin? I mean, if you go to 11% Selic rate, you think that you'll be able to follow previous guidance, I asked that because that the NII guidance last year, 2013 was actually fell short of expectations [indiscernible] that your initial guidance at the beginning of the year. So how comfortable are you with that 6% to 10% NII growth?
Luiz Carlos Trabuco Cappi
Okay. About the asset quality, we maintained our policy in the same way we maintain the same procedure that we practice during 2013 with 2012. But something that we continually, we do is improve our models there. And every time we do the analysis of the portfolio that we had before and we analyze the performance in our improvement that we can do in our instruments for to correct something that we understand that we need to correct and we use for to improve for the future our decline [indiscernible]. We maintained the same interest policy, but we continually investing in our instruments for to do the analysis and to approve approve the credit operations. About the NII growth of the guidance, we gave it 6% to 10%. We understand that the -- it's possible to reaching this guidance if we have some improvements in this Selic rates, we understand that we will have some benefits. Because last year, we were more affecting our [indiscernible] fixed portfolio because the faster increase that we have in the Selic rates. This year, the majority of the portfolio, we had some review of this fixed [ph] portfolio and they have now better rates and they can support better the effects of, if we have some increasing in the Selic rates in the ordering, in the funding line, our increasing the -- in the Selic we'll be favorable to improve the margins. And then we understand that feeling. We can support you if we have some increase in the Selic rates will be favorable this year or to improve our margin.
Marcelo Telles - Crédit Suisse AG, Research Division
Just one follow-up on the margin. You sold and bought about BRL 41 billion of securities, right? I think mostly [indiscernible] from the release. And can you share with us what was the rate differential in that of those you bought? Because I believe this will lead to [indiscernible] a positive impact on your NII growth given that I think most of that happened at the very end of the quarter, right? So it's a probably by in that with high yields and probably have an impact on ISO, I was wondering if you could share with us what the average difference in rates?
Luiz Carlos Trabuco Cappi
And when we decide to do spend to market value was in the end of the year. It was in the second part of this -- the second half of the December. Then we did it considering the market rates are in this periods, then we understand now that we have our NTNs in a better end market ratios. And do you have the -- do you gave your contribution for our margins during 2014. And then in the next year, because they might [indiscernible] of this volumes the NTNs as a more long-term they [indiscernible] for the next year and will continue contributing for the results after this.
Marcelo Telles - Crédit Suisse AG, Research Division
But do you think this is --do you think 100 basis points, 200 basis points is a reasonable number to work with?
Luiz Carlos Trabuco Cappi
I think it is something reasonable.
Operator
Our next question comes from Regina Sanchez with Itaú BBA.
Regina Longo Sanchez - Itaú Corretora de Valores S.A., Research Division
I also have 2 questions. I mean, the first one, it's also related to just a change I mean, in the market rate of the NTNs. I would like to know, I mean what drove your decision, I mean, to recognize the losses in the available for sale securities portfolio in the fourth quarter, I mean, why you choose to sell and then bought back the securities instead of, I mean, just selling them in the market. I understand that this is a big position, approximately BRL 40 billion and that it could be difficult to sell securities at once without impacting market prices in a short even for periods of time. But I'd like to know, do you consider to gradually reduce this exposure from now on given that you already absorbed most of the losses? And then my second question is regarding the guidance for administrative expenses and the 3% to 6%, I think think this is very, it's very positive especially considering the wage agreement that was lump sum [indiscernible] around 8%. So if you could comment on initiative I mean, how do you get achieved this very small growth on administrative expenses? I appreciate.
Luiz Carlos Trabuco Cappi
Thank you, Regina for the questions. About the NTNs the decision, one part of the MTN's [indiscernible] that one part is related to insurance business. Then this movement is related to the new regulation of the SUSEP that is our insurance company need to review their rates and their liabilities, changing for new March rate that's now the regulator review gauge the rates so that will give the rates to the companies. The new rates that they use is 5.6% for to do the movements in the liability. And they had a reversal of BRL 2.5 billion in the provisions for two months ending the spreads in the insurance business they did something the reversal position that we did in 2012. They need to NTN portfolio. They need to adjust to the market value, the market rates for the 2 months saying the stability with the liabilities that there are in the insurance business we have because there is the long-term liability, then we need to have the assets, the rates that will be compatible with this costs that we have. And one part of the movement is in the insurance company is because the new regulation that we have that came from SUSEP. In the bank portfolio, the portfolio that we have in the bank that we use for to do the asset liability management. We nothing in this column we did only to do this adjustments in our accounting costs. We did this -- we decide to do these adjustments in the costs and accounting books. During the movement, considering that the in the end of the year, the level of the rate that we have, we understood that was better to do this adjustments, but not in changing in the economy because we continue with the semi [indiscernible] portfolio in the bank. And we maintained this portfolio in the available-for-sale position growth and we maintained this portfolio for to do our asset liability management in our management. Then the decision was because we understood that it was better for the company. We improved our average doing this movement. We have now a better position for to do the Basel III implementation and the profitability of these NTNs for the future increasing, and do you gave the contribution for our NII and for the results of the bank.
Regina Longo Sanchez - Itaú Corretora de Valores S.A., Research Division
Okay. Just a follow-up. So you do not intend to sell this position because it's part of the asset liability management strategy of the bank? And just to confirm, I know it's a follow-up from previous questions. For in this guidance of NII of 6% to 10% growth, it does include this better contribution from the new yields on the NTN, so it's already considered therefore, do you think it might be more towards the upper side of this 6% to 10%?
Luiz Carlos Trabuco Cappi
We consider it possible to retain during the year, we understand that we need to [ph] we could do better, we understand that's very possible to reaching this guidance, considering the position that we have and is the scenario that we have for the economy this year.
Regina Longo Sanchez - Itaú Corretora de Valores S.A., Research Division
Okay. And then about the expenses.
Luiz Carlos Trabuco Cappi
On the expense, our guidance is 3.6%. We expect to finish the year under the inflation ratio, the inflation level. Why we understand that that's possible, if you look we're at the 3 years, since 2011, that we finished with 80%. Because in during 2011, we did have some investments, they have 1,000 branches and we have a strong organic growth. Since then, we are now working in the -- we are improving our efficiencies. We are now, in 2012, we finished the year with OpEx growth was less than 8%. 2013, we finished with 4.6%. And for 2014, we expect to finish it under the inflation level. We have internally our Efficiency Committee, our Purchase Committee. We are involving our areas in the bank, our directors of areas are responsible for areas they're already booked in looking for opportunity inside the bank for, reduced costs are improving revenues because the efficiencies and not only [indiscernible]. And [indiscernible] both looking for opportunities and then we have many products they feel that probably will help us to maintaining costs under control during 2014. And then we have another contribution of our investments in NIT. Our IT restabilization program that some systems that we are finishing they will give in some contribution for to improve the efficiency in the bank and we will help us to retaining this guidance that we are working hard to maintain the level of growth in OpEx under the inflation goal. And we have the another target that is our efficiency rates, that we expect to finish the year in around the 39% and the OpEx will contribute for to reaching this level.
Operator
Since there are no further questions, I would like to invite Mr. Paulo Faustino da Costa to proceed.
Paulo Faustino da Costa
Thank you, all for participating in this conference call. I would like to take the opportunity to remind you that our Market Relation Department is our IR team are at your disposal and that all the content of our fourth quarter 2013 and the other information concerning Bradesco is in our website. Thank you.
Operator
That does conclude Banco Bradesco audio conference for today. Thank you very much for participation and have a good day.
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