Itaú Unibanco Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 7, 2023

There are 8 speakers on the call.

Operator

Hello and good morning, everyone. My name is Renato Lulia, and I'm the Head of Investor Relations and Market Intelligence at Itau Unibanco. Thank you very much for participating in our conference to discuss our earnings for the Q3 of 2023, which As always, we are broadcasting directly from our office at Fadia Lima. Today's event, as usual, will be divided into 2 parts. In the first part, Milton will go through our performance and our earnings for the Q3 of 2023.

Operator

Right after that, There will be a Q and A session during which analysts and investors can interact directly with us. I'd also like to give you some instructions on how to get the most out of today's meeting. For those who are accessing our website, there are 3 audio options on screen. The entire content in Portuguese, the entire content in English and the original audio. In the first two options, there is simultaneous translation.

Operator

To select your option, just click on the flag in the top left corner of your screen. Questions can also be sent via WhatsApp. To do this, just click on the button on the screen for those who are watching on the website or send a message to 1197825 5,707. Our presentation today is available for download on the website screen as well as on our IR website. I'll now hand over to Milton who will start the earnings presentation And then I'll come back to moderate the Q and A session.

Operator

Milton, the floor is yours. Good morning, everyone. Welcome to our earnings call supported by a very objective presentation. I'm going to run through the figures for the quarter and emphasize the Argentina effect, which as you saw, on Friday, we settled the sale of this operation. I'm going to show you how this affects our earnings and how the guidance is kept unchanged except for just an adjustment that removes The effects of Argentina from the 7 months that this operation was part of our earnings and how we've disregarded the remaining 5 months in the guidance That's been published in the Q2.

Operator

So let's get started. We've delivered a recurring managerial result of BRL9 billion, which points to very strong earnings that has grown 3.4% quarter over quarter. We've reached a consolidated ROE of 21.1%. Brazil's ROE, which is the most comparable with market, was 22%, up half a percentage point. It's key to highlight that if we were working with Our capital within the risk appetite threshold approved by our Board, this ROE would be around 24%.

Operator

I'm telling you this just give you an idea of the effect the capital has and how it dilutes ROE by 2 percentage points. In commission and fees and result with Insurance operations, the growth was 3.6 percent quarter over quarter reaching BRL12.9 billion at a cost of credit of BRL9.3 billion. This is the 1st nominal drop we've seen with a 1.9% decrease quarter over quarter. This is very good news from lending. The NPL rate is absolutely stable with no news, which is in line with the message I've been sending you for a few consecutive calls now.

Operator

The level 1 capital ratio, which I mentioned just now reached 14.6%, an increase of 1 percentage point in the quarter. I'll show you in a moment our CET1 running at 13.1%. But there was also a significant increase in the bank's capital. Speaking about the loan portfolio, the individuals portfolio grew by 6% year over year. As for the quarter, the credit card portfolio is still decelerating.

Operator

But I'll emphasize this in a moment. Personal loans portfolio grew by 4.2% in the quarter. Payroll loans portfolio reduced and vehicles Folio increased slightly in the quarter. So the portfolios in general except for personal loans as mentioned grew 6% year over year. The SMEs portfolio grew 3.2% year over year, but we're already seeing a significant pickup this quarter, growing 3.3%, which means that the quarterly effect is already above the trend we had seen for this portfolio.

Operator

And in the credit Portfolio as a whole, after adjusting the Latin America effects, we see a growth of 4.7% year over year and 1% increase this quarter. The message I want to leave you with, which for me is the most important one, is that in the portfolios where we decided to not stop growing, They continue to expand significantly. Thus, if we take the 2 middle and high income segments, Uniklass and Personalite, the portfolio grew 3.7% in the quarter and the individual loans portfolio grew 0.6% on a consolidated basis. Year over year, this portfolio grew 17.5%, while the individual loans portfolio grew 6%. The portfolio of the middle and high income cards grew 3 point 6% in the quarter against a drop of 0.5% on a consolidated basis and by 15% year over year against a drop of 0.8% on a consolidated basis.

Operator

And in middle and high income personal loans, we grew 6% in the quarter and 24% year over year. This shows that we've been increasing our engagement in the middle and high income segments where we've delivered and performed very strongly over the quarters and we've made a portfolio adjustment. We've made a significant de risking in our portfolio. This saved the banks almost 200 NPL points throughout the period. The portfolios where this de risking was more significant were in the credit card portfolio, which already had a significant nominal drop in the period and also in the vehicle portfolio to which we had to make very significant adjustments.

Operator

In the other portfolios, we continue to grow and especially among those clients that are in fact resilient throughout the cycle as we say, Through the cycle that's how we've managed our portfolio. When we look at the payroll loans portfolio for example we have 2 key messages. The first is a drop in the INSS public pension portfolio, which is in line with the information we've been disclosing as febriaban itself has done Due to the limits that have been set, when this happens the access to a cheaper financing facility cannot be made available to pensioners

Speaker 1

who end

Operator

up electing more expensive facilities due to these limits now in place. We can see these portfolios dropping. On the other hand, we've managed to expand government and private companies payroll portfolios, where we've grown by over 12% year over year in both cases. As for credit origination for SMEs, we see that it's continued to grow since the Q1 of this year. For large companies, There was a slight increase up to the Q2.

Operator

And since then, we've seen a growing demand already reaching 118 year over year on a 100 baseline, which shows that we've managed to grow with quality by always focusing on the net interest margin. To focus on generating operating revenue is not enough. We have to look at the generation of operating revenue, the related cost of credit and the return thereon. By analyzing the net interest margin, Therefore, already adjusted for the service cost, which may conclude whether these transactions are adding value to the shareholder in the long term or whether they are simply showing a growth in earnings It does not bring a return on the shareholders capital. This is the type of management and work that we've done consistently each quarter.

Operator

This is our daily work. As for the financial margin with clients, we have good news. The line expanded by 700,000,000 in the quarter, 3.2% growth. It was a well distributed and balanced growth with the effects of volume, the volume of liabilities, number of working days, Some effects in Latin America and others. These are very sound results and for the first time to increase transparency, we've broken down the Argentina effect.

Operator

Argentina and the working capital had an impact of $3,200,000,000 last quarter with $2,900,000,000 from working capital itself and 300,000,000 from the Argentina effect, which contributed with approximately 100,000,000 to our monthly earnings. When we look at the end of the graph, we get 3,100,000,000 with 3,000,000,000 from working capital, which compares to 2,900,000,000. It shows that we've managed to adequately hedge our investments and growing equity. And this quarter, we only have 1 month from Argentina. So we show this result considering July as the earnings of the other 2 months were not affected Because we stopped to account for this asset as a consolidated bank, as the Argentina operation was recorded as an unavailable for sale asset, due to the sale process that was underway.

Operator

When we look at the consolidated margin, it expanded quarter over quarter from 5.1% And we reached 5.6% in the consolidated margin this quarter. And when we look at Brazil, we also see this expansion taking place, reaching 5.9%, 30 basis points in the quarter, which is a very strong result. As for the financial margin with the market, The quarter was in line with the previous quarters reaching around BRL700 1,000,000 after the effect of the cost of the capital index hedge. The effect in Brazil is in line with these figures. We see BRL1 1,000,000,000 in margin with the market and in Latin America, a slightly lower figure.

Operator

Remember that here we only have 1 month of Argentina and 2 months where we've already recognized this investment as available for sale, thus it doesn't impact earnings. This was the effect of the margin with the market with no particular news. I'd like to detail some information in commission and fees and result from insurance operations. First, the strong quarter on quarter income from credit and debit cards as we've managed to expand issuance, which grew 4.5%. The acquiring business grew 2.8%.

Operator

It's worth noting that in light of all the integration work, better management and proximity to the clients, The acquiring business is going through, in short, a process of engaging our clients that has helped us to reprice and adjust our operation as a whole. Year on year growth was 18.9%, a very sound result. Transaction volumes are also sound, growing 5.3% in the quarter while posting good profitability, which is the most important. And in issuance, We grew 2.9% year over year with a volume expansion of 2.7% in the quarter. We remind you that this was the portfolio where we've actually made the most adjustments.

Operator

We've reduced substantially our exposure to the Open Sea and this adjustment of course not only affects revenue but also the portfolio growth. When we look at the advisory services and brokerage line, we see a very strong growth of 22% in the quarter and 21% year over year. In further details, we came first in the Investment Banking ranking in ECM, M and A and DCM, achieving 18% market share in ECM, 15% in M and A and 29% in DCM, which shows that we've been consistent and delivered very solid earnings in this line. When we talk about Asset Management, there was actually a Slightly lower year on year growth with an expansion in the quarter, but the most important thing is to show that the open platform grew this quarter. As a result, we are already seeing a certain migration trend to this platform and the line of own products has been growing a lot throughout this cycle of monetary tightening.

Operator

So the pickup is lower quarter over quarter with an increase of 2.2%. Finally, in Insurance, We grew 19% year over year with a growth of 5.4% in the quarter, which shows that we are consistently expanding our insurance operation and increasing the value of this operation within the bank's balance sheet. In terms of credit quality, our first message is from a global standpoint. When we look at Brazil, at the total and at Latin America, short term delinquency reduced in all three cases. And coincidentally, in all of them fell from 2.5% to 2.3%.

Operator

This shows that short term delinquency is well behaved. When we look at the NPL 90 days on a consolidated basis, the total is fully in line just like in Brazil and Latin America. And when we look at the short term delinquency in Brazil for the Q2 in a row, We have a reduction in the individual loan portfolio from 3.5% to 3.4% and now 3.2%. In fact, the Q1 is usually more pressured by the previous quarter spending and we've seen that in 2 periods we are already returned to the levels we had before the start of the year. In very small and middle market companies, the indicator fell by 10 bps, while in corporate segment, the indicator went sideways without any news.

Operator

When we look at the 90 day NPL in Brazil in line with what I said last quarter, we have an absolutely stable rate and our best expectation for the 4th quarter is a drop in the NPL for individuals. Bearing in mind that this is a portfolio that is decelerated a lot. So there's a much more controlled overdue effect and a denominator effect. Both show that we have a very healthy portfolio and no worries. In SMEs, we are in line with what I said in the last call that we expected an expansion of around 10 bps and that's what happened.

Operator

But our expectation is a drop in the Q4. So we see that the short term delinquency is reducing. Thus, we don't have any specific concerns. Our very small, small and middle market company's operation is posting very strong returns, both in the middle market and in retail. So no specific concerns here.

Operator

We have a very controlled cost of credit. When we look at the nominal cost of credit, in this series, we have the Q1 with a nominal reduction. It's important to remember that in the 4th Quarter, we had the effect of 1 retail company, which ended up changing this figure. If it hadn't been for that, we'd have seen a gradual growth over all the quarters. So this is the Q1 that we've actually seen a nominal decrease and in relative terms it's fallen to 3.2%, which is a very comfortable figure and with a portfolio that is growing.

Operator

In the renegotiated loan operations, we have 2 news. The first is that it appears nominally stable at BRL40.9 billion and 3.5% compared to the portfolio, which shows a very controlled and well behaved portfolio. As far as coverage ratios, there's not much to say. You'll see a certain stability, only small effects, but absolutely stable. In other words, the bank's balance sheet continues to be very well covered and protected with very adequate provisions.

Operator

As for non interest expenses, this quarter is typically subject to stronger effects, such as the collective wage agreement. As a result, personal expenses accelerated from the second to the third quarter, while other Expenses are very much in line. Thus, non interest expenses grew 8.4% in Brazil and with the effect of Latin America, they grew 6.9%. And what are the key messages? The efficiency ratios are quite good, clearly much better than what we've seen in the market as a whole, both in Brazil and on a consolidated basis.

Operator

And these are international benchmarks. We've managed to deliver a very appropriate efficiency ratio with 2 main messages. The first is about the bank's core cost or run the bank, which is in line. In the 9 month period compared to the same period in 2022, We grew only 1.1%. On the other hand, what has actually been expanding this figure is not just cost itself, but the investment that we continue to make.

Operator

Today, our goal is not to manage costs for the quarter. Basically, what we have to do is to make our operation more productive, more efficient, thinking about how we invest in our operation by investing much more in technology, data and business expansion. So we're always looking at the franchise over the long run, always with a longer time horizon. So that's the reason for all these investments, which is still being absorbed by the P and L resulting in the level of profitability I've just mentioned. I believe these are the key messages regarding costs.

Operator

The Bank's efficiency program continues to make a very positive contribution. And in terms of transactional volumes, if the unit cost is the same as lower or rising less than inflation, if we actually increase volumes to do more business, This is a benign cost. So we've still been able to finance all this benign cost expansion with all the efficiency program at the bank. One of the most talked about topics lately is data. We've talked a lot about machine learning, models, generative artificial intelligence among others.

Operator

This is a topic that comes up all the time. So what we wanted to do here was to provide a summary of our various initiatives. This isn't just a topic for a specific department. It's a topic for the whole bank. And we have some data that shows and reinforces how strong our investment and belief in this data agenda has been.

Operator

Starting with our data structure, which has 100% of all the bank's data in the cloud and a very modern data mesh architecture, which makes the data much more democratized within the institution, not being used by just one department as all departments start consuming that data. And not just consume, but adding their own data much more efficiently to the bank as a whole. So we brought you some information that I think is relevant. We have more than 350 data scientists in the organization, more than 200 initiatives using generative artificial intelligence, More than 50 Machine Learning engineers, more than 150 professionals working with generative artificial intelligence and more than 5 70 models currently being used within the organization. One of the cases that I think is relevant in terms of outcomes rather than out put is service.

Operator

For example, we've increased by 45 percentage points the volume of client service that is automatically retained Through our models using artificial intelligence, 72% of all calls made are already handled by artificial intelligence with much greater efficiency, accuracy and speed and with improved NPS. And this is in line with all the investment in technology and efficiency that I've just mentioned. This shows a much more scalable and efficient bank in the long run. And we have a series of other initiatives with greater security for our clients. Since we are able to interact and identify the voice of a fraudster, thus allowing us to protect our clients.

Operator

With regard to productivity and the corporate client We already have a lot of information for every documentation analysis, so that it can be done as accurately as possible. We currently have a 97% accuracy. We've also been using chatbots to interact with our clients. We've used our artificial intelligence models in different businesses And we have no doubt this will be an agenda that has come to stay and will grow exponentially over the coming years. We want to be at the forefront.

Operator

We had no choice but to migrate our systems to the cloud and upgrade them. As for the artificial intelligence agenda, We have everything it takes to lead this process. We want to be at the forefront of this agenda. I'd also like to comment on a few topics about culture and people, which are very important to us. We've recently announced 2 objectives, black representation in the institution and Women in Leadership.

Operator

When we set this objective, we said that by 2025, we wanted to have 27% to 30% Black representation in the organization. We've already reached 27.3% in July. 40% of our hires today are Black people, which naturally means that we can evolve in these indicators. We really believe that it's not just a diversity agenda. It has to be an agenda of diversity and inclusion in order to keep this flow sustainable over time and to ensure that these indicators evolve consistently.

Operator

We are very proud of the work we've been doing and as I always say, it's not a job that has a day and a time to end. This is the new normal And that's the agenda we've been working on. We also had a goal of achieving between 35% 40% of women in leadership by 2025. We've already reached 35% in September 2023. So we are already at the lower end of our 2025 target and will naturally keep moving upward.

Operator

Regarding the hiring flow, our goal was to hire 50% of women in the flow. We've already hired 53.8%. And here we are talking about an indicator of women in leadership. When we look at women in the bank's total workforce, we now have 54.3% women. We brought this indicator just to give you an idea of the importance of this agenda and we have to constantly talk about this ESG agenda.

Operator

Of course, the narrative is important, but the results you can deliver are much more important than the narrative. And every quarter we present some output, Some focus to show how this agenda is part of our DNA and how it is one of the pillars of our culture. Regarding some acknowledgments, for the 2nd consecutive year, we were named the best company to work for by Great Place TO Work. And not just as the best bank, we won the best financial institution and also the best company with over 10,000 employees. What I always say here is that if we have happy and engaged employees, a strong culture, client centricity, Naturally, we will have satisfied clients.

Operator

These are fully connected. We won the Most Amazing Place to Build Your Career And we also won this award for the 2nd year running. That's very good news. And last but not least, also for the 2nd consecutive year, We won the Valor 1,000 award as the top company among banks. This shows a little of the recognition we've achieved.

Operator

We talk about these acknowledgments with our feet on the ground and with a lot of humility. This is very important for us to keep moving in the right direction, but with great care and humility because we still have a lot to do and we believe that this is a longer term agenda. We're not going to be complacent with these results. The bank has a lot to evolve and this is the agenda we will continue to pursue. Now radically changing the subject, I've talked about Culture, I've talked about diversity, I've talked about inclusion, I've talked about awards and now I'm going to talk about capital.

Operator

As I've said a moment ago, we came out from a Set 1 of 12.2 percent last quarter and we've already done a pro form a last quarter showing the positive effects of the regulatory changes which have in fact materialized now with plus 0.9%. As a result, we've reached 13.1% of the CET one capital ratio and our appetite is 11.5% as defined by the board. So there's been an expansion in all consecutive quarters Since the Q1 of March 2020, during the pandemic, when we made those material provisions. Since then, we've been expanding and growing our capital ratio. We have plus 0.4% growth in earnings already adjusted for dividends.

Operator

We have the minus 0.3% of RWAs with the consumption we've had form credit, market and operational and the plus 0.9% I mentioned is basically the evolution of our models and all the regulatory changes, which leaves the bank at a very adequate capital level. Regarding Itau Argentina Bank, I'll try to be very objective, but it's important to emphasize this for you. Considering the earnings that we see on our balance sheet, the 7 month result of R5 R78 million also poses an opposite effect in equity that doesn't go through P and L, which is the effect of inflation and the foreign exchange variation of the equity in Argentina. So if you look at earnings isolated, you get the feeling that it's an accretive investment. But deep down when you consider the economic effect From the stockholders standpoint, we saw a 7 month loss in Argentina of BRL113 million.

Operator

As a result, We made the decision to divest especially in the retail business in Argentina, an operation that we had in this country for many years. We'll keep a very small operation, in this case a representative office focused on a few corporate groups. We have a very close relationship through capital market transactions, Investment Banking, some lending transactions. We felt it was important to carry out this sale. The sale was completed satisfactorily with the regulator's approval and its financial settlement last Friday.

Operator

From the earnings standpoint and the material fact where we announced the sale, we said that we'd post nonrecurring result of approximately BRL1.2 billion. And this is the result that is actually materializing in this quarter's earnings. So this settlement of this impact on equity that has been accumulating over the years, which is the CTA that we disclosed on the balance sheet. And the balance sheet as of September 30 does not include any more the effects of Argentina because from July onwards, We have the effect of only 1 month in the quarter, which is July. We started treating this asset as available for sale and no longer as a bank consolidated on our balance sheet.

Operator

The result excluded was a credit portfolio of BRL4 1,000,000,000 and operating revenues of BRL1.9 billion, a non interest Expenses of approximately BRL650 1,000,000 and earnings of BRL578 1,000,000 reported in P and L, which is the figure I've showed you just now. Thus, we no longer include Argentina in our earning. As a result, we simply took the guidance that had been released to you last quarter And we made the adjustment by excluding the impact of Argentina. How did we make this adjustment? We went back to the guidance and looked at what we had projected line by line for Argentina over 12 months and we simply excluded them from the projection.

Operator

And now we are restating the guidance without any changes. Basically what we're doing is including the effect of Argentina from the last 5 months, 2 months of which are from the last quarter and 3 months from the coming Q4 2023. Thus, here you can see the figures adjusted across the board. The basic message is that our guidance is being reaffirmed. We continue to believe in the projections and we are delivering earnings within these lines.

Operator

Needless to say, geography can always change from one side to the other side, But all ranges described here absorb our best expectation of how we should end 2023. This concludes the presentation and I'll now join Hinata so that we can answer your questions during the Q and A. I'd like to thank you once again for your trust and say that we remain very confident in our agenda. We've been working tirelessly on this Transformation that I've talked about so much, this obsession with the client with expanding all NPSs, ensuring that our business keeps evolving and growing. We still have a lot of opportunity for growth and we're going to continue evolving at the Bank, but always with that Focus in that long term view, creating shareholder value is a mantra for us and it's something we have very strong in our DNA.

Operator

Then we're not going to fight for growth at least to 1 or 2 quarters with better earnings that is not sustainable in the long term. We are going to keep this long term view as we've always done here at Itau Unibanco. Thanks everyone once again for your time. I'll join Hinata and we'll continue our talk. Thank you very much.

Operator

See you in 2 minutes. All the best to everyone.

Speaker 1

Well, Milton is back with us. Thank you very much for being here and for your presentation. And now We will start the second part of our meeting, which is the Q and A session. Remember that this is a 2 language session. We are going to answer the question in either English or Portuguese.

Speaker 1

If you need support with the translation, you can choose the audio You can submit your questions via WhatsApp. The number is 1197825 5,707. The list of participants is long. We have the first question. Without further ado, let's start.

Speaker 1

We have my friend Renato from Autonomous here with us in a video. Thank you for taking part of our call. Good morning, everyone. Thank you for the opportunity. Could you please comment on the improvement on the ROA With the business on retail, regardless of the revenue didn't grow so much, I wanted to understand the drivers behind that improvement and maybe understand the scenarios for the next quarters, if there is a trend And if you can comment on your expectation regarding the meeting with the Central Bank that is scheduled on the credit cards.

Speaker 1

Thank you. Thank you, Renato, for the questions. Welcome, everyone. I would like to start with profitability. In fact, when we look on the quarter on quarter, the result on the retail is stable, But with a composition that is different.

Speaker 1

With the turn of the quarter, we have had a revision of the capital allocation We see regulatory changes and the demand of capital in the retail operation was reduced. Therefore, the capital that was economically Allocated on the operation is dropping, but the operation is stable. Why? Because all the remuneration of capital is inside of the business. You have less capital allocated with the business.

Speaker 1

You have less remuneration of the capital allocated in the business. That's why You remove the effect of the margin of the operation, but the core, the operation has improvement is improving a lot. When you remove the working capital, You have the cost and then you demand less capital. And then you have 2 levers: the operation of the companies that is expanding and growing with greater profitability with more efficient capital allocation and the inflection point that I had said where the business of individuals already happened. And we are improving quarter on quarter The profitability.

Speaker 1

So yes, there is a return. There is an evolution with every return, even though it's flat quarter on quarter, year on year, there is an important growth. And we can see a recovery in the individuals with all the drivers, more client engagement, less Cost of credit, more efficient, less costly operation, we can work without the levers. And the companies have been growing with great profitability and the composition of both. Plus, the insurance has allowed us to improve the profitability of retail and we can believe on an improvement looking up ahead.

Speaker 1

This is one point. Second question, which is the credit card discussion. Our expectation is, well, this is an agenda with a lot of associations. There will be a debate. As usual, the regulator has the capacity and the conditions to understand the different opinions.

Speaker 1

It's important that they hear All of the market, all of the players and the most important here thing here is that we want to solve. What are the starting points For the debate of the credit card and the starting point, the intersection is so that the rate of the installments are Lower than what we work nowadays because today there is a delinquency level that is very high with the credit card Because there is well, those of you when you hired a credit card, when you requested a product, you had the comparison of the rates. You see the programs and you see the experience of the product and you see if the limit is adequate. So when you get into the credit card product, the client Doesn't expect to sell finance because this is not the product. This is not the way that the product was designed.

Speaker 1

And our defense is based on that. How do we transform the credit card that has a penetration of 40% with a platform Turning it to a platform that are finances, they use expanding the offering and making the most vulnerable Products that get into the higher rates to actually pay Their credit cards. This is the regulator along they're going to make the decision. And the commitment here is with FX, is with the consumer. And they might have financed with less competitive conditions and we are making this credit card platform with more Efficiency, this is why just Brazil Brazil is the only country that is different.

Speaker 1

This is an anomaly with the revolving credit, and we have to Deal with it. So we have to we have the understanding, the diagnosis and we hear once again ethics for is non negotiable. So we're not We would like a technical correct discussion that is well done, and this is what we are supporting. Fedraba is the leader of this debate for the institutions as a whole, Financial Institutions, of course. Thank you, Renato.

Speaker 1

2nd question, We have Bernardo Kurnman from XP. Good morning. Thank you. The floor is yours. Good morning, everyone.

Speaker 1

Thank you for the opportunity. I wanted to understand more on the Retail segment. The bank has derisking, Very objective derisking. And now you have the results with the delinquency that stabilized. You talked about the high income and the bank is very well positioned in that segment.

Speaker 1

However, on the other hand, Some competitors already have results pointing out with more appetite, releasing the Trains on the retail. And well, you didn't get out hurt out of the cycle. Would it make sense to expand the composition of the portfolio looking at the segments that are the base of the pyramid that are focused by mainly by the Fintechs? Thank you for the question, Bernardo. Thank you for your time.

Speaker 1

Okay. Let me give you an opinion, an overview. We are very much convinced About the decision, well, looking back, the de risking decision of the portfolio was A very correct decision, not only derisking, but we offer out these quarters, we have grown in our target segment since our portfolio is very Large. You gave the credit card portfolio BRL 120,000,000,000,000, Big numbers. Within that portfolio, we have the high engagement clients, the with the profitability on risk The levels that are adequate.

Speaker 1

You have a big portfolio that we call it, the open ocean not only declines that we acquire digitally, But the finance and the association that we have, this is a very big portfolio. And we've done well, credit card is one of the products, vehicles. We've also had to do adjustments. And just to give you a few numbers that really stand out to me, This is the Q1 consecutive that we have the reduction of the NPL of credit cards. So the market did the first inflection.

Speaker 1

The system as a whole, we are in the Quarter with a relevant reduction in vehicles, we're in the 3rd quarter consecutively doing the inflection of the long delinquency with expressive drops in delinquency and the equation of risk and return. We look at all the production to return all of our models And what we expect of profitability through the cycle. And we've implemented the portfolio management that was very Efficient on the wholesale, we implemented that on retail. So we balanced the portfolios. We have worked with all the publics.

Speaker 1

It's not that we don't work with lower income. We work with lower income with the correct product, with the correct client, in the correct way, with the adequate rate. So we can, through the cycle, have more resilient products. We doubled down the high medium income And we have grown expressively year on year. That has strengthened our position, our leadership in that segment.

Speaker 1

We believe in the importance and we invest in that, but there is a segment, which is a lower income that is still very Relevant in our portfolio, regardless of the de risking, that it was 35% of the portfolio is still 20%, very relevant. But again, with the right product, with the adequate profitability, with a resilient product client, so we can work with the adequate public. In my opinion, the big drivers up ahead so we can grow with more efficiency and quality in those products are, First, the platform, the Itau platform, the capacity to deliver a bank that is a full bank, 1 Itau, for all the clients of the organization. Doesn't matter if they come through real estate or the payroll loans. We want to deliver a full bank experience for the client.

Speaker 1

And here in the bank, just if we just look at the amount of clients that we have on the pseudo Open Ocean, We have the millions of clients that have a record with us that we have a relationship, but that we do not have. We could not deliver Because of the technology issue, our PObank offer, this is what we are going to work in the future. And we can accelerate through that good growth And those clients, we have a few uniclass outside of the full bank, some personality. We have a lot of clients that fit into our target and that we can we could grow with quality. The Last point is the play, of course, we try to be more efficient.

Speaker 1

We try to have an offer that is lean the simplest possible. 1 Itau Well, allow us to do this on the lower income clients where we have an adequate cost and an adequate appetite. Several of these clients, They don't go through the threshold of credit. It's not the cost. The loss the cost of credit over loss is so high There is there are no efficiency that justifies working with this client.

Speaker 1

And you end up with a portfolio that seems to be growing because of the dynamic and the Accounts receivable, but the loss is on the long term. So we are focusing on the net margin through the cycle profitability. It has to be the adequate profitability, And we have the capacity to really balance this portfolio and continue to grow with quality improving the profitability of the business as a whole. We have an efficiency agenda for New Republic. There is an integration that we can grow more and more in these clients That we do not service with our full bank offer and we are going to continue to do what we have always done, which is Reworking the segments with Personal M and K and Uniclets, where we're growing double digits with great quality and generating more engagement and loyalty with these clients.

Speaker 1

So these clients that are more engaged with the Bank, they have lower delay points. And this is our agenda for the future, and we believe that there is a big space yet to be Work with. Thank you, Milton. We have Thiago Batista, UBS. The floor is yours.

Speaker 1

Good morning, everyone. My question? Well, Still working with the second with the previous questions, credit card and low income. Credit card, it was an impressive improvement. You talked about the 2 quarters of the HR, the bps, but you've shown that there was a Change in the mix that was very big.

Speaker 1

The growth strong growth of Uniclass and Personal IT, big drop in the lower income, we don't have the numbers, [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] Credit card, my doubt is if the mix is constant, would we have a better outcome? This is the first point. 2nd, In the lower income, you mentioned a bit, some of the competitors sat down there, they said that they have a deficit in the lower income. So They need a solution for that business. Well, based on your explanation, the solution is Itau 1 or something along that line.

Speaker 1

How are the well, the on-site well, the Would it be viable to have the Well, the question is, well, the bank agency, this Itau 1 I'm sorry for the question, it's very Complicated, but yes, what the Itau 1 would be a solution. Well, if we maintain the same mix, The results wouldn't have improved as we've observed. We estimate that the de risking of the portfolio would be 200 points of NPL in our deal today. So just so you can see the dimension of the rerisking that we've done and the moment that we've done. At the end, these are portfolios that can generate the bank product.

Speaker 1

We talk about the top line. If you don't see the bank product through the adjusted cost of credit net Margin, it induces you to take a decision with the inadequate appetite. Of course, there was an over offering of that product In the market, every new competitor got in with a credit card offer. So a client that today could have had 2 The experience of having a credit card more digit is more difficult. Today, digitally, in one day, they can open and get 5, 6, 7 credit cards.

Speaker 1

Since there is a phenomenon of not charging the fees, it seems like it's free in the pocket of the clients. They use the credit cards Whenever they need. And if they are not a client that is engaged in the organization in the first credit cycle, they get the credit card away and then they go to the next product. And then they try to keep the less credit card with the bank that they have the best relationship. There is a natural trend The engagement leads to lower delinquency, but the credit models were as better as they might be, they do not improve the income of the clients.

Speaker 1

So that's the first point. We are very, very much convinced that the derisking is fundamental. Just so you can understand, our Delinquency on credit cards, quarter on quarter, we show the balance sheet. The delinquency dropped in 6 The vehicle loans also dropped in the quarter. These are numbers that we don't talk about, but all the de risking The portfolio has a result in the well, in the delinquency, the NPLs has dropped And we have improved the profitability, but the credit card operation, monolanger standalone is an operation that is not positive.

Speaker 1

It destroys value as it is. It runs below the cost of capital. So in some businesses, you can have a positive result, But it's diluted on the ROE and on the other businesses which are the most risky, you have a negative sometimes result. So you're dilutive for the income and diluted for the ROE. And still, given the size of our portfolio, we could have absorbed this Importantly, what would have been the ROE that we would have had if we don't have to mix the composition of the credit card in the size that we have?

Speaker 1

I mean, this is the numbers would have been higher if we had the size of the industry as a whole and the lower income I think it really depends on the channel and the product and the client they are working with. Generally, yes, it is a deficit Operation, the cost of service is very high for clients. They do not have their pocket out to their capacity. This is a client that you can operate with a credit With the delinquency rate that is very high sometimes, through credit itself, they do not contribute for the operation for the operation of the bank. So what we believe is that the network of branches will continue to have an important role.

Speaker 1

The remote service, many clients for the high and medium income, they still like to be serviced to talk to the human, to have The on-site service and we believe that the branch network, the way that we reworked with our model, the satellites and all the branches and With adequate footprint, very well coverage in the geography, we work in places that we still have to play an important role. But just the 1 Itau, the platform that we're developing, it will certainly give us the fire Our that is unprecedented because this is a client that I cannot service or that is a def there's a deficit in the on-site, I can make them digital and bring them in on the digital. This is the only way that we can make this client profitable and the capacity of cross sell that I had mentioned that we can do Because we have a full bank offering for these clients. This is our bet. This is a play of cost, a play of efficiency.

Speaker 1

The agency has A very important role. It has a composition that is very relevant for our business model. And we believe in the digital model, and we believe Adjustments in the branches are necessary. We've done an adjustment this year, and we are trying to maximize the efficiency. And in the end, the Branch network will be this size of how our clients want.

Speaker 1

As long as we can add value with the branches, they will be An important place for the interaction with our clients, specifically for some products. We believe and we like in our model, and this is an adequate model. Thank you, Thiago and Milton. 4th question from Rafael Frade from Citibank. Rafael, the floor is yours.

Speaker 1

Good morning, everyone. Two questions. One, well, you commented on the issue of The retail portfolio, but it's very surprising that in fact when we look at the last 12 months, the sell in consolidated goes up Regardless of all of the de risking. So the question is in at which stage are we in Looking up ahead, that is less, let's just say, win against us. And we have a more a better growth in the portfolio.

Speaker 1

We can have a marginal improvement on the portfolio. The second question It is regarding the financial margins with the clients that has have had an expressive growth in the quarter, but when we subdivided Between the retail and wholesale, actually, more than half of that improvement on the credit margin comes from assets of corporations. So can you just to understand, what was the factor? How do you how is this reflected on the others? Well, thank you, Rafael.

Speaker 1

Let me start with the second question and then I can answer your NIN Sure. 2nd question, very simple. If you look at the financial margin in the way that we publish, we separate the working capital effect. So you can see that in the margin, there is no working capital associated to the market, But 97%, 95% is with the capital remuneration by the client because it's a credit risk and operational risk Risk associated to the credit operations. So when you see that we exclude 2.9 $1,000,000,000 in the last quarter in this one.

Speaker 1

It was $3,000,000,000 You can see that in the consolidated remuneration of the working capital is stable. There is an increase in PL in the period. So there is a patrimony growth and our rate continues to be positive And the way that we do the hedge of the working capital. So we still have benefits. That is important information.

Speaker 1

How do we unfold this to the business? And this is where you see the difference. So if we look at quarter on quarter, there is a change in the regulatory Working of the capital, how do we work with our models, business models? I have the necessary capital that has to be allocated in the operations. Since there was a reduction in the risk, for the credit risks For the risk of credit for example, for Basilea 3, for retail and wholesale, there was a reduction.

Speaker 1

What do we do with our business model? We exclude that excess of capital that was still larger and [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] We put it on the corporation. So I don't leave it in the business, the remuneration of the excess of capital. It stays in the corporation. So when I isolate 2.9 and the 3 in that slide, it's already contained Ninsa in there.

Speaker 1

Why? Because it's the whole. That breakdown is just how I look at it between business. When I look at the financial margin, the $700,000,000 which is the core, is the core growth. The other one is just a recalibration between the businesses of the working capital, the access of the capital that I take to the corporation.

Speaker 1

So it's just a way to represent the distribution of allocated capital. I hope that it made sense because it's the way that we work with our business model. So All of the excess, clean excess, I leave it in the corporation. That's why you see the delta in the quarter of $100,000,000 to $550,000,000 in that line of the corporation in the margin rate fee claim. So it's just a redistribution of the working capital between the businesses.

Speaker 1

Going back to your first point On NIN, we believe that the core of the de risking already happened. The negotiated portfolio is very well provisioned, very well negotiated. We've seen an expansion in the line. We've managed that. We've improved our mix.

Speaker 1

And the mix is not just the retail wholesale, it's the Mix and we've improved the profitability and more so. Here is the engagement issue. The Other relationships, other products, all the cross sell is here. So liabilities is here. So we've managed to deepen the relationship with our clients and improve the set of products that we service our clients.

Speaker 1

So the line adjusted to the risk is as QFX there is a top line effect and then there is the derisk and therefore there is a lower cost of credit, which can help us along through the time with an NIN that is better. On the other hand, we did derisking better clients, Lower risk and lower profitability. So even though it's generating value adjusted to the risk, We've had margins that were lower because we've worked with profiles of companies and Individuals with more affluent and a better level of risk, so with contribution margins that are lower. But we are still positive in regards to the NIN We maybe keep what we are operating or maybe this is something that will happen, but it depends on the macro scenario and the future perspectives. Thank you.

Speaker 2

Coming from abroad, we have with us Tito Labarta from Goldman Sachs. Hi, Tito. Good morning. Thanks for joining us.

Speaker 3

Hi, good morning, Milton and Renato. Thank you for the call and taking my question. A couple of questions also. A little bit more to capital, you showed some nice increase in your core Tier 1 above your minimum And you're doing good ROE. How do you think about potentially increasing dividends?

Speaker 3

Also, just thinking about loan growth, right, 6% to 9% is the guidance for this year. How do you see loan growth evolving from here into next year as Asset quality seems to be getting better, interest rates potentially coming down. Can you accelerate the loan growth into next year? And how will that influence Potential dividend payouts, just kind of thinking of capital and loan growth into next year. Thank you.

Speaker 4

Okay, Tito, nice to see you again. Thank you for your question. I start to say that we are taking the full benefit on the interest on capital on a running basis. So we expect this year a minimum Dividend payment of around 30%. This is where we are when we consider the interest on capital.

Speaker 4

On top of that, we are still expecting the regulation on operational risk, Basel III. We should have informations about that in the coming weeks. I would suppose that this month, we would have the view of the new regulation. And with that, we can do our planning of the capital need to run the business because the operational risk will be implemented in 2025. And we still don't know how the phasing will work out.

Speaker 4

The good thing is that our capital generation has been improving, as you know, But we want to approve by the end of this month in November in our Board of Directors what direction we're going to go And what are the alternatives we have? And we have a few. We should or we can increment the dividend. We can repurchase shares. So there is a mix of things that can be done.

Speaker 4

And these discussions, we'll have by the end of this month if the regulation on the operational risk comes up and this is our best guess now. With that in mind, our view is that we could And we should have an increase in our dividend and or repurchase of tariffs will depend on the alternatives that the Board will Taking consideration, we will have and make a proposal by the end of this month. So we believe that in the coming weeks, we should release New information to the market with that respect. And talking about growth, portfolio growth, I would say that we are, right now, planning 2024. We should have the guidance Then releasing the numbers of next quarter by the beginning of next year.

Speaker 4

We're still working on that The same way we did, looking to the portfolios that we want to have in the long term, understanding how to manage the portfolio and to balance that in the long term to be more resilient through the cycle. And this is the discussions we are having now. I cannot anticipate that because we didn't finalize. We still have some work to be done. And so far, whenever we have this information available, we will share with you.

Speaker 1

Going back to Portuguese and now English, we have Rosman from BTG Pactual. Good morning, everyone. I'd like to talk about valuation and your opportunity for M and A. So I wanted to get the opinion of Milton on the valuation of the bank. In the world, the ROEs are positive.

Speaker 1

Most of the geographies nonetheless, the valuations are very cheap because in the past, It was very low and we didn't know what was the real book and what was the ROI. I think that James Diamond had In complaining about the deficiency of capital in the United States, Santander talks about the Unfair competition with players of the non banking players. So what is the challenge for the sector, not only in Brazil? Have you discussed with other CEOs all throughout the world about this? And maybe to understand from you, do you see this as an opportunity to have capital, Excess capital, as you've mentioned, you have a suboptimal operation in Colombia.

Speaker 1

Chile, there is a space that you can be more relevant. So would it make sense to use some of that capital to eventually maybe purchase banks in the region? I think that for the bank, it's always challenging to pay above the booking because of the intangible. But why don't you get your opinion? Thank you, Rosman.

Speaker 1

Thank you for the question. Well, I agree with your initial affirmation. Our vision is that the prices are cheap. We do not manage the business on the price of the share on the short term. There is volatility.

Speaker 1

There is always the effect the bank, there is the effect of the competition. There is the effect of Brazil itself on the activities of the bank. So our share ends up having multiple effects. You can have The multiple bank, but then you have to look at the competition where we can have more upside or less upside. So that's why we look at the Tier S on the long term.

Speaker 1

That's how we deliver the value on the price of the share and the price of the dividend, the value creation, we believe, because of the level of results that we are generating. Up ahead, the prices are low, not only ours, but our other banks outside of Brazil, we've seen that. This is a bank dynamic The issue of the M and A, we've always had it you know of our history of record, the bank is because of a value infusion that happened in 2,008. But we are always looking at opportunities outside of Brazil. The Asymmetries are still very relevant regardless of the price of the assets, whether if it's a fiscal asymmetry, which is I have to pay a tax in difference of the tax, You have an effective rate in Chile, lower in Chile and Colombia, and I have to bring it and recognize it in the books of the bank and capital above all.

Speaker 1

When I consolidate the assets in Brazil, we work with the appetite level of the Board that is CET1 plus 1.5% of 81 with 3% of Level 1, those operations run with the level of capital below that. So when I bring The operation of Chile that is 9% and I consolidated here in Brazil, that Delta Capital, I do not need to reserve it in Brazil because this is the level of capital that my shareholder Expect me to retain any operation. When I allocate that cost of capital to 'fourteen, 'fifteen, whatever the cost of capital it is, It's very difficult for the profitability of that operation at Cerro Verano to generate value for the shareholders. So the logical devaluation, you can see QA that It works with the best profitabilities. When we do the consolidation, we have all the costs, the cost of hedge, the capital index, the capital allocation per se And the tax asymmetry that makes the profitability in division of the shareholder and the 4 is lower.

Speaker 1

So it's positive for the income, but it's alluded on the ROE. So when we look here, we don't have big opportunities outside of Brazil that can change So our objective has been to improve and simplify and gain efficiency in Colombia, which is A subscale operation in Chile, the operation is running in good thresholds of profitability of client centricity. The improvement the investment that was signed is paying off after a few years, and we continue to be very Comfortable with what we have. There is nothing Argentina is something outside of the curve. And in Brazil, I mean, there is always a regulatory competitive issue.

Speaker 1

What are the businesses that we can advance? And of course, we have businesses that complement our offer. We found smaller businesses that complement our Ecosystem, but we haven't seen the opportunities that are relevant. And we've seen other opportunities, and we declined because there wasn't added value. The price wasn't Adequate and we still look at the market in that sense.

Speaker 1

Well, I understand an opportunity that generates value. We are open for that. We have M and A, An M and A area that is dedicated, the team that is highly qualified that is ever looking at the market, the mapping the opportunities. But our opinion is that the opportunity is more a technological platform such as Avenues that was approved recently by the Central Bank and we can And it can complement our offers of investment, the ADL brokerage full digital that complements Also, the partnership with TOTUS, we are still active. Whenever there is a good opportunity, we continue to advance.

Speaker 1

Thank you, Milton. Next question, Daniel Fass. Welcome. Well, I hope that you My question is also on capital. Know that it was commented in the question of Tito, but I wanted to understand.

Speaker 1

In your capital overview and that variation Of the origination of SME that we've just seen SMEs, that represents The additional capital that you have, in your opinion, will it be the What is behind in more originations for the small and medium sized companies? Do you have any real movement seeing An improvement in the perception of the risk score, actually these movements are in the adjustment of the origination, if you consider Well, that's the first question. And last but not least, in the renegotiation, we saw the stability in the quarter. I don't know if there is An effect of the disenroll, but maybe this will be a good indicator looking up ahead. Do you agree with that information of the renegotiations?

Speaker 1

How do you see this from the standpoint of the bank? Thank you, Daniel. 1st and foremost, capital is not an active restriction of the bank for growth. This is the main message that I wanted to leave to you. When we do a capital plan looking at the long horizon, we take into consideration the capacity of growing the portfolio within our appetite And a capacity to generate capital with a profitability level that we've managed to bring to the operation.

Speaker 1

Today, we have the organic capacity for generating capital that is strong, more than enough for growing the portfolios. So I wouldn't say that today Capital is a restriction in and of itself. In the end, the restriction will always be at this moment always appetite Until we well, how do we want to grow in which public the with which product, with which deadline, which portfolio It's the optimal one, so we can at least get volatility through the cycle and this is the way that we're working. Look at the volatility of the portfolio of wholesale in the more volatile moment. This is what we've tried to do with the retail portfolio.

Speaker 1

So we rather have less And having a positive EBITDA with less volatility, this is what we try to do within management of the bank. Capital is not an Active restriction, but we the vision is to have that excess capital. We don't want to retain more of that excess And what we niche for growing an investment, we've talked about the capital allocation in the beginning. If we were working with a defined Capital by the Board of 11.5 percent on CET1, ROE would have been 24% of Brazil. We have an ROE of 22 And with a capital level 1 of 13, and we have managed to act to remunerate and allocate the capital Adequately, we don't want to retain the capital more than necessary.

Speaker 1

This is what we want to do from November onwards. And our expectation is that there is an increase Of the payout and the repurchasing of sales, something will be done. And we're going to go beyond what was done, which is the optimization of JCP, which has brought our payout to closer to 30. So we should improve that payout and flex the payout, again, via The repurchasing our dividends, recommendation of both, we're going to give you more disclosure in the next call not in the next call, the next month, Possibly after the discussion that we're going to have at the Board of Directors. This is the first point.

Speaker 1

The second point on the renegotiation of the portfolio. The impact of Desendrola is very small. We are very engaged. The market was mobilized, very good program, But the impact on the 2nd stage, very small. There's still work to be done.

Speaker 1

The experience of the Client eligible clients, how the pigs are going to work, for the impacts, they do not really move our numbers. This is a very strong work. We have renegotiated what is necessary. If you look at the records of renegotiations at the bank, you're not going to see ups and downs. We never used our renegotiation to administer delinquency.

Speaker 1

We renegotiate with an economic vision. Would it make sense to renegotiate at a correct price For the client that needs and for the client that does not have the conditions to renegotiate, we rather continue with the process of Charging if the renegotiation doesn't make sense for the bank or the client at some point. So we've been very disciplined in the Management of renegotiation, this is our agenda. And well, Charlie and we as we can recover Cash from our operations, this is important. So we continue with the collection billing.

Speaker 1

And Well, this is a question that we should explore. It is understand the renegotiated portfolios. Are they provisioned well? We do the stress test in the renegotiation. They are on the deadline.

Speaker 1

There are renegotiations that are being done. They are paid. Of course, there is some long and short delays. We always look at that portfolio. We do the threshold of stress, always looking at the worst rollouts.

Speaker 1

If it was the Full portfolio, what is the rhythm, how that portfolio is going to work, is there individual suites, are there companies? We always run the stress test. So I can guarantee you that there are generic and specific provisions that are enough To deal with this portfolio in the cycle of what we expect, even in the cycle of stress, looking up ahead, so very well protected portfolios and very well provisioned ones. Our excess of provision today, when you look at the generic, a great deal of that or a great deal of that excess is allocated to those portfolios. So the bank is really well positioned, Provisioned and we don't see relevant effects looking up ahead in the P and L in the sense of deterioration at the portfolio.

Speaker 1

The balance is very well protected, we can go through that cycle. This is not the base case, but we have a great provision, but of course, with the deadline That is longer than what we expected with our portfolios. Next question, We have Gustavo Schroeden from BBI. Good morning. Good morning, everyone.

Speaker 1

I wanted to ask 2 questions. I wanted to be more specific on the A payroll loan, I know that you talked about the retail, but this is a very important product. And while you have the reduction In the INSS portfolio, looking at your material, you have you say that it was intentional the reduction because Profitability, there was a lower. I wanted to understand from you. I mentioned that this experience related to the caps that happened.

Speaker 1

And if we look at the recent records, as the Saliq rate is dropping and well, there will be another drop And the cap of the INSS. So if you can tell us what is the strategy? Because this is a product that when we The derisking happening across the board, all the banks are going through the rhythm. They decrease the appetite In more risky lines and credit cards. So the payroll loans are a product That the banks use as a counterpart against the reductions on the retail.

Speaker 1

So can you explain what is the Strategy on the payroll loan, I think it would be very interesting. And the second question would be on the ROV. You mentioned twice that if we had adjusted as an equity of 1% to 11.5%, We would be talking about 24% of ROE in Brazil. If you operate at that, there is a perspective for profit dividend sharing Dividend distribution, sorry. Of course, according to the decision of the regulator, there is a possibility, I imagine, that the bank Has maybe a gain in efficiency.

Speaker 1

The PDD is dropping next year. So can we look at 2024 and maybe Dreaming of an ROE, 24%, 25% next year? Thanks. Well, I like the dream. I always dream big.

Speaker 1

And this is the path that we will continue to shoot trail. Looking at the ROE, well, clearly speaking, we still See quarters that are very solid, very consistent. You have the turn of the year, another quarter, right? So how do we since we affirmed in the guidance, the guidance has predicted the result of ROE above 20, of course, we are reviewing the numbers for next year. There are elements well known and those that we use because of the budgeting looking up ahead And there are the elements that are unknown.

Speaker 1

There might always have a change, regulatory change that is positive. We are Considering that, we believe I'm not going to anticipate that the profitability level that we are operating seems sustainable Looking at the horizon of 24, I cannot say of course, there are levers on both sides, but ballpark, we can imagine, I would say 20%, Close to 10% seems reasonable. We would have to naturally look. We are tracking the numbers here, so we can have More long term vision, but you said that it was 24%, 25%. I'm not I cannot give you a guidance on that.

Speaker 1

It depends on the FY, the budgeting and the market conditions. But the dream is there, as you mentioned, and if there is an opportunity to improve Without the management that we've done with profitability and value creation, but now remember, I digress. We're going to have a cycle of reduction of the interest rate. And it's important not to look at the ROA. Are we isolated from the cost of capital?

Speaker 1

Because if the interest rates are going to drop, as we mentioned that they're going to drop, What's going to happen is that the cost of capital is going to drop as well, and the level of profitability tends to follow suit. There is Not so big, we see that the sensitivity is less than the select rate. Of course, it doesn't accompany the select, but the cost of capital is dropping. Then you start to work with the price, more competitive and what we see as a delta ROE for the cost of capital, which is the value creation, and we're going to continue to deliver that with our best expectation for 2024, we really believe in that. Now going back to your original question, It was sorry, I oh, okay, payroll loan.

Speaker 1

Let me confirm. Faber Aban stated that the cap problem, 1st, we believe that the market, the rate, whatever, is defined by the competition. There's no need to place a cap because the rates practice on average, they end up being within the caps. And the market is dynamic. I mean, there is a series of players, banks, big banks, medium banks, small banks That work with payroll loan and the market is very competitive.

Speaker 1

Problem is that the cap looks at the Selig rate in an isolated way and it doesn't look at the long term curve. What we've seen over the next few months is that there's a big drop, but because of what happened abroad and the fiscal uncertainty, the interest rates in Brazil increased the long terms. [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] When the long interest rate comes up, you end up losing the capacity of originating new credits because the rates of return are not adequate. Once you get the cap, you remove a population of the banks that stop having access. What Fedraband published, R2 $1,000,000,000 of production, monthly production left the market.

Speaker 1

So R2 $1,000,000,000 less of credit for retirees In the cheaper credit line, so you try to get efficiency in regarding the Selic, but you leave outside a very relevant A public that has access to more expensive credit lines and you hinder them because you had a better Credit offering, you have 2 possibilities for the distribution of the payrolls for the person that are in the bank, But with the correspondent bank, which is important for the payroll loan, the only way that you can make a profitable product is making adjustments and every bank has payments and some offices are going through larger Difficulties and you have to consider when you consider the commission for the corresponding bank and the price you end up reducing The public that you have the capacity to offer the payroll loans. So you have to so the portfolio end up suffering. 40% of our production Here's where the banking corresponding. 60% is in our network. In the past, it was the opposite.

Speaker 1

But with this change in the dynamic, we are Removing a lot of costs that are not paying for itself and not necessarily the cost is dropping for the one that takes the payroll loan. And you end up You end up making them having access to more expensive lines and this is the defense of Fibro Bam. We believe that the cap is not the best way. We have to The long term interest rate and that the reduction of the capital isolated following the Selic rate drop is not the adequate way of managing The cheapest and most access line of foreign directories, there is a success, and the market has always seen with good eyes. So here we need to be very careful with that.

Speaker 1

The government has that clear, that message already arrived, Grubhub positioned. We respect the decision, but the impacts Are presented as we shown. Thank you, Milton.

Speaker 2

So next question, switching back to English. We have with us Jorge Curi from Morgan Stanley. Hi, Jorge. Good to see you. Thanks for joining the call.

Speaker 5

Hi, everyone. Thanks for taking my question. I wanted to go back to the Credit card regulatory inquiry. I appreciate Milton's comments about how this has opened up Discussion about the card industry and the different puts and takes, and it feels that everyone's more educated on how the whole ecosystem works. But at the end of the day, the reason the interest rates are high is because you have all of the parcellados.

Speaker 5

And so it just feels that Any outcome that cuts rates without modifying the parcellados We'll be artificial and not really move the business forward. So and we've gotten mixed signals from the government. The Central Bank has commented that they're open to it, but the Finance Minister has said absolutely not. And so where do you think the current thinking is Among decision makers, the people that ultimately are going to have a say in this on reducing the Regulating the parcelados, phasing them out, tightening them a little bit. And so that's question number 1.

Speaker 5

And the second is, if that just doesn't happen because it's not Palatable from a consumer perspective and the negatives that they may have on consumption and this is a popular government. How does that leave you if then the solution is just as simple as, okay, you know what, we're not going to move any of the different moving parts older than And we're going to put a cap that is equivalent to 100 percent interest rate interest payment over the size of the loan, kind of like what the law Currently stands. What does that mean for you in terms of the growth of that business, the profitability of that business? How many cars you're going to have to cancel because evidently at that those level of rates, some of those are just not good businesses. So I really wanted to get More details rather than just this overview of everyone gets it and we're having this nice conversation.

Speaker 5

But It's a pretty simple thing. Either you got the parcelados or the outcome for the card issuers is going to be bad.

Speaker 4

Yes. Jorge, I'll take you with me in the next meeting with the government because I really believe that you understand that very difficult to explain. I think the government understand, the Central Bank understand, but it's a complex topic. It's not simple. This is something that the country has been working with for many years now and it's very difficult to introduce the concept to show people What are the real impacts as you were saying right here?

Speaker 4

So being very objective, I have nothing to say Different than what you said at the very beginning. So we know that there is this equilibrium. There is a way where the risks are not priced accordingly. We have BRL127 billion credit card portfolio Out of BRL20 billion pay interest, so how come you bear the risk for BRL120 billion portfolio And only BRL20 1,000,000,000 pay interest. Who pays the interest at the end of the day?

Speaker 4

Is that less capable population And the delinquency as you have a selection adverse selection is very high. So you have to charge very high interest rates. So if you ask me what we believe, we do believe that the government needs to understand that the Parcelados in Jura's bare interest. It's only a communicational issue. That's all because it's very interest.

Speaker 4

The acquiring company anticipates to the merchant, the merchant embed the interest inside the good. And so there is no Parcelados and Jules. But people believe that there is no interest at the end of the day. So that's why the communication comes like that, the narrative comes like that. And people believes that Because they don't understand and say, look, I have something and who pays that?

Speaker 4

They issue bears the risk. The acquiring companies anticipate And get the anticipation profitability charging the SMEs a risk that they run at the end of the day that is Itau, Bradesco, Santander, NewBank and all the other banks. So this is the risk that they bear. So our view is that if we don't look to the international market And we do a composition of rebalancing the parcelados in euros, reducing the parcelados in euros, creating the parcelados in euros where you Transform that in a way to finance the clients at a very, very competitive levels, 4% per month. You can do that with the parcelado conjurals.

Speaker 4

And also, you make a way where you can reduce strongly The rate on the rotativo, on the revolving credit, where you can charge from these people are very, very lower Interest rate, so what's the problem we want to solve? We want to help the population and make the transition. Just to give you a few numbers, Let's say that we have a cap in interest rate of 8% in credit cards, the same way we have in the revolving credit in the current account overdraft. If we have this 8%, we have to cut the country as a whole, 60,000,000 credit cards, 60,000,000 credit cards needs to be abandoned. And also, you might have an impact of BRL350 1,000,000,000 in consumption because you take these people out of the consumption market.

Speaker 4

You will have a very huge impact in the population that was included in the financial system. They will be excluded for the financial system, Where they will finance themselves? How they will buy? How they will be part of the system? So this is the impact.

Speaker 4

If we have if the Central Bank, Together with the Minister of Finance, the CMM and the Minister of Planning, if they don't find out a solution that puts everything together and At the end of the day, who is getting benefit of that? It's not the issuers, it's not the acquirers, it's the consumption the consumer, it's the merchant. This is what we defend. And I want to see a discussion that's very technical in that. The rates That are being practiced on the anticipation are clear.

Speaker 4

You can go to any website of any merchant, of any acquiring company, you will see there the level of fees that are being charged for the SMEs. So the narrative is very dangerous and this is what we have. So for me, it's much more a political issue than a technical issue now. And everybody needs to understand that we need to find out a solution that is good for the country and we have to plan a transition. At the end, if we don't do that in 90 days, you are right, we will have this cap that was approved in Congress.

Speaker 4

It will take the rates a little bit down. It won't solve any of the issues that we have today. The client's step base still be the same. They're still going to have Our subsides between publics, we won't be able to increase the portfolio and finance the consumption more than we do. And we will have to cut a lot of clients out of the market because at this level of rate, we won't be able to make this sustainable in the long term.

Speaker 4

So this is the impact that this is simple, but this is not the right way of making the right decision. So for a complex problem, a simple Decision is not the most effective, and I think the Central Bank has all the tools, has the technical teams, and they will have to come up to a solution that is good for the country, that is sustainable. And we don't advocate us as a bank to maintain or to preserve our business lines. And why is that? Because we are the number one issuer and the number one acquiring company in the market.

Speaker 4

We are in both businesses, so there is no conflict. There is no conflict at all. We will be the most impact in either side. So it's not a matter of conflict. It's a matter of delivering to the market what is better to the market in the long term.

Speaker 4

And we believe That informations are available. You made that briefing very clear. And I think the technical people knows that. Let's see what is the appetite to get or to make this discussion happen.

Speaker 5

Thank you very much.

Speaker 2

Thanks, Mito.

Speaker 1

Next question. Mario Piahi, Bank of America. Good morning, everyone. Congratulations on the results. Two questions.

Speaker 1

I lost his audio. You lost his audio? I can hear you. Milton. Okay.

Speaker 1

Milton, can you hear me? No. Okay. Two questions. At the beginning of the year, you do a hedge Of the capital for real for the exchange rate, about BRL2 1,000,000,000 at the beginning of the year.

Speaker 1

Given the sale of the assets of Argentina, Kim, we expect those costs to be lower next year. And can you give me the magnitude of that reduction? 2nd question, Milton, I believe it's very clear that the appetite of the bank To give credit is improving, given the improvements on the delinquency, but I would like to hear from you. How do you see the demand of credit? Do you see the appetite improving With the economy, with the reduction of the interest rates, can you tell us on the side of the demand more stuff?

Speaker 1

Well, thank you. Objectively speaking, Argentina, in the same way that it had a negative CTA For the cost of the hedge of the industry, it would bring up benefits and not something bad because of the difference in the interest rate. What will it What caused the problem to carry over this asset, which was the cost of Brazil with the exchange rate in the Argentina. When I do the hedge of the capital index, The carry of that Argentina peso is positive in regards to the real. So in the last quarter, about BRL70 1,000,000 if we removed the Chulu months would have been the impact positive impact than the cost of hedge.

Speaker 1

So we see on the long term, we have improved Our way of doing the hedge using well, using the hedge Of the strong currencies, while the correlation with the rail is very close to the other countries in Latin America, we have a big And versus in euro and the dollar because there is not a big it's not a good correlation and that helps with the hedge and the interest rate that is dropping That helps with the cost of the hedge. That's why we see a reduction over the last few months. Argentina for that end, out of all the impacts, there was a positive impact. It has well, the carry of the currency was in favor in regards to the cost of hedge. That's the explanation.

Speaker 1

Looking up ahead To the portfolio, we've seen an increase in the demand. I've shown you the origination of the big companies increased over the last quarter. The capital market is coming back. So we see a market that is more active. The company is anticipating the drop in the interest rate.

Speaker 1

There are more positive Prospective GDP growing this year. So we've seen a stronger activity, but we can see that in the Q3, the GDP will be published, Should be weaker GDP because of the monetary policy as expected to control the inflation. But We've seen the increase of demand on the origination and we service it very well with a great conversion level, Favorability, great returns and well priced operations. And when we see an exaggeration of pricing in our market, We rather lose share market share and defend our convictions on the long term. But the demand has grown And we've managed to serve, like I said, in a very relevant way.

Speaker 1

Via Capital Markets, the numbers show that Or the balance sheets are the big companies. We've seen an acceleration in that quarter. Our expectation is that, that will continue to

Speaker 2

The same bank, different analysts. So we have with us Nicolas Riva. Hi Nicolas, good to see you. Thanks for joining the call.

Speaker 6

Hi, Renato and Emilio. Thanks for taking my question. Nice to see you guys. So my first question is a follow-up on the question that Mario just About the Argentina sale, which is really why sell now that business? So you sold for $50,000,000 You had an important loss on the sale BRL1.2 billion.

Speaker 6

I calculate about 0.2 times price to book on the sale. If you can confirm actually that was the price to book on the sale. And again, why sell now that business? I know, Milton, that you referred before to the fact that outside of Brazil for you, it's difficult to generate Perhaps an ROE above your cost of equity and generate value for your shareholders. And then a quick second question, my usual question on the bonds On the Tier 2s, the 29s, if you can kind of I know whatever you do with the call is going to depend also on market conditions and refinancing costs.

Speaker 6

But if you can at least Tell us, confirm Milton that given that the Tier 2s, the 29s start losing capital treatment next year, it's not called, If the inclination would be if you will be more inclined to call even regardless of market conditions to some extent?

Speaker 4

Thanks, Nicolas. Thanks for your question. It's a very simple answer for Argentina. The NPV of this transaction on an economic perspective looking from the shareholder view is positive. And why is that?

Speaker 4

Because even though We don't capture the full book in Argentina between the announcement and the payment that was our relevant evaluation in Argentina And the amount was set in U. S. Dollars, the $50,000,000 what put the transaction at fair value the way we were planning. 2nd, the payment was made outside Argentina. So how can I get the capital out of Argentina without the discussions?

Speaker 4

So the acquiring company had the capability to issue bonds outside, have the approval to pay outside. So we received good dollars, dollars 50,000,000 was not a virtual transaction when we try to make a better price locally. And the most relevant reason why we sold has to do with the CTA that generate this impact. The CTA we've been accumulating for a long period. The net CTA in the balance sheet of the bank is positive when we consider the other operations that we have.

Speaker 4

But in the case of Argentina, due to the level of interest rate, It was a very, very huge impact, and we've been accumulating that for many years now. So what happens if we don't do anything is that we will keep accumulating some negative CTA In the long run and the profitability of the operation together with the CTA was generating a loss Our balance sheet was not remunerating the capital and we have to keep the balance, to keep the bank, to maintain the cap the bank, There is a lot of costs of maintaining the structure. We have regulation aspects. We have to consolidate the operation. So when you put everything together, even the cost of the hedge of the capital index, which was positive, the decision to sell was much less For the amount that we got in the operation standalone, which was at fair value at $50,000,000 in our view, the way we were valuation.

Speaker 4

And the second question, how will you do a DCF in Argentina with the cost of capital in Argentina? So do the banks Trade at book value, what level of profitability you need to have due to the cost of capital, which you are in a DCF, get something better than book. So it was very difficult to do this DCF. So when we do the DCF, the price was fine. But in the other hand, We don't have the CTA anymore.

Speaker 4

So it's a stop loss on the CTA in our balance sheet, which brings us to a very positive NPV. And regarding your second questions about the bonds, we'll keep I know we've been telling that we'll be looking to the efficiency of the capital of our Tier 2, how much it costs, how much benefit brings in terms of capital, what is the cost of a new one and our capital needs. So this is the way we are approaching every single maturity and every single call. And on the economic side, if it makes sense to us to exercise the call, we will. If it doesn't, we won't.

Speaker 4

But we'll give clarity to the market, of course, before in a window where we have the Confident to give you more information. We're going to be very transparent on that.

Speaker 2

Next question coming from Carlos Gomez from HSBC. Hi, Carlos. Thanks for joining the call.

Speaker 7

Hi, Carlos. And thank you for your patience and for trying to reach every single question at length. So briefly, first, I would like to ask you about the wholesale portfolio. Where are the NPLs? Mean, we were expecting to see a normalization of credit cost this year.

Speaker 7

I think that's fair to say for everybody. And it continues to be Better than normal. Is that because they are coming later or they are not coming? And second, could you tell us whether you think the insurance result that you are having today is sustainable or it should be higher or lower in the future? Thank you.

Speaker 4

Yes. Hi, Carlos. Good to see you again. Thank you for your question. I hope we don't see the NPLs.

Speaker 4

So we are not looking for them. But just to let you know, I think it's a mix of things, okay? First of all, we thought this year could be a little bit worsened in terms of cost of credit, and it's been better than what we thought on the wholesale Spectrum. But you have to remember, and you know that better than most of us, that the NPL in the wholesale, it really happens At the very end of the process, it's very difficult. Before you go to the NPL, you do a restructuring, you do a negotiation.

Speaker 4

There are clients that go to bankruptcy Or to Chapter 11, and they are not due with their obligations still. So the NPL is not a very good Index, I don't like the index to look to the healthy of the corporate portfolio. We have to remember that the middle market is in the SME index. So we are talking here basically about large ultra large clients in this NPL. So our view is that The level of provision of that we have in balance sheet is very high.

Speaker 4

That's why we have this level of coverage through NPL in the wholesale portfolio Because you discuss name by name in the credit committees and you apply a rating, you attribute a rating for each client And this rating defines the level of provision that we have to make. So in most of the cases, you will see clients that we have 70% of provision. Let me give you a good example, Americanas, which is a public new name. We have 100% provisions, has not gone through NPL, But we have 100% provision. So part of that whenever if it happens and goes through NPL, Then you will have a concern important conception on the coverage that we have today.

Speaker 4

So the portfolio is very well covered. We look name by name And we have on the single names provisions and also on the generic provisions, we have allocated the level of provisions that we believe are necessary To the most risk clients, to every single client that we need to have additional provisions. So the balance sheet is very covered. We are very confident about the level of provisions we have. We are not seeing a credit crunch, but we are seeing specific names Coming, so far, we've been able to go very positive throughout that scenario.

Speaker 4

And next year, if the interest rate keeps going down, The macro gets a little bit better. The environment gets better. We might not see a relevant normalization, but Some normalization is to happen, and we still believe that this level of NPL should increase in the coming months, maybe increase. But remember, we have the provisions for what we see now, of course, we have the necessary provisions. So you might see some change in the NPL, you won't see some relevant changing the P and L of the bank.

Speaker 1

Now two questions to finish. Next, in Victor Navarro from Santander.

Operator

Thank you

Speaker 1

for the opportunity. Well, it is great to talk to you guys. My question, from what I understand of the conversation itself, Itau starts A cycle of accelerating the credit origination, that origination doesn't appear in the numbers of the 4th Q1 Because there's still a process of derisking of some portfolios, specifically Open Notion. Okay, looking up ahead, Where do you get that credit growth? Because of all the participants in the market that we talk, it seems that All everyone is avoiding the open ocean.

Speaker 1

Everybody is reducing the open ocean. In the existing clients, The inductness of the family is still dropping, but it's still high. But where do you get the growth from? Well, maybe the high income. There's a lot of banks saying that they're going to grow in the high income.

Speaker 1

We see that their high income is with the lines of cryos. We cannot just depend on the high income per se to have the growth. So I wanted to hear from you, Where are you going to get that growth? Thank you, Enrique. First, we're talking about wholesale retail, sorry, with the individuals.

Speaker 1

We've grown consistently and also with the companies with the derisking was done with this process. In the company's retail with great results. So we've worked with the companies that have a high invoice. We didn't focus on the base of the pyramid. Our mix is different from the market.

Speaker 1

This explains a great deal of the performance that we've done that we've obtained. We still have a see a great opportunity and a lot of space for growth in BU for the companies. And we have grown With accelerated at high levels, the portfolio of SME had a great acceleration also, And we see a great increase with the middle market and middle market retail. In the individuals, we've gained share with our clients, which is very important. These are well known clients that we have grown.

Speaker 1

I agree that we cannot imagine that all the growth is going to be in the high income because it's not. And it's not just high income, But our portfolio management has had an important role. Our credit card, dollars 120,000,000,000 twothree is not a high income, And we've still managed to do business with profitability, all the crops that were produced In the quarters with great quality in our segments and we've managed to grow. But there's still some adjustment in the portfolio. And I mentioned The delinquency and the vehicles and credit cards dropping.

Speaker 1

So you have an inertia of a risk high risk Portfolio that is reducing, importantly, renegotiated stable and the portfolio with a better quality growing. This is a combination that makes our growth being less than what we observed in previous years. But still, we've managed to do A positive margin and making the capital profitable. This is our what we're seeking, in my opinion, Welcome back to the discussion of Itau. In the retail individuals, we have millions of clients that we have great Relationship mono product, sold capacity to the cross sell and having a full bank offer is what's going to make The retail improved in the individuals, still being built.

Speaker 1

I don't want to anticipate what we haven't delivered. There's still a lot of challenges in house, But I am convinced, we are convinced that in the moment that we do this, this is going to open an avenue for growth in our segments that are very important. We have another unit class within our bank. We have a fraction of the personality in the bank and other businesses in a relationship that is mono product with this clients. So there's still going to be a great growth here.

Speaker 1

And in the lower income, it's a play of credit, risk management and efficiency Now we're going to continue to deepen in the bank. So for every public, there is a logic, the more efficient, the more appetite. And on the other hand, capacity for Curacao for the products that we have in house certainly will be a great driver for growth looking up ahead. We are very optimistic with the project. Let's see if from next year onwards we can show you more data on the advances.

Speaker 1

And on the other, Well, retail companies, great opportunities there is BUs outside of the market, in the middle market, The same, we've managed to grow with quality. So growth is not it's not of concern to me. Great opportunities. We're still going to deliver growth with quality, sustainable without the volatility of the balance sheet, Which is what we are seeking on the long term. Thank you, Milton.

Speaker 1

Next question from Yuri. Ferlendi said, waited for the well, if you can just wait 2 minutes, I'm going to get back to you.

Speaker 2

From Carlos, there was an answer because Carlos asked you about insurance business as well. I didn't hear that. Yes, because we had an audio issue, Carlos asked about if you see the insurance business being sustainable And going forward, what is your forecast

Speaker 4

for that? Carlos, sorry for that. I didn't hear that question. We had some audio issues. But here I am again.

Speaker 4

So on the insurance side, yes, we believe it's sustainable. We had this acceleration somehow compared to the other periods Because we were growing 50% year on year, so we reduced to 20%, 25% year on year on our coinsurance business, which is 3 quarters. 75% of our business has to do with the core business that we believe, banking assurance. And with this expansion in credit and all the I was making talking right now about the cross sell with this When Itau platform, so on and so forth. This will give us The capability to keep growing insurance in a sustainable way.

Speaker 4

So we're still very positive. We found a way to grow. We are very, very Embedded in the operation, a huge synergy with the commercial team, the insurance companies team. We changed the way we approach clients. So we are very comfortable that this will keep on track and will be sustainable in the long run.

Speaker 4

We are very positive about the insurance. And also, if you look to the P and L on the insurance side, you will see that we've been growing the premium that we receive in reducing The cost of losses. So our combined ratio has been evolving 3 points from 53% to 50%. So it's a very good combined ratio. And also, the open platform has been playing a relevant role, and we will keep pushing that so on So we have the manufacturer, the distribution and the open platform.

Speaker 4

They have a very relevant role in our business. Thank you,

Speaker 1

Silco. Last question. Thank you, Yuri, for your patience. Thank you. The floor is yours.

Speaker 1

Thank you, Miguel John and Julia. It's just one question, Quick question. It's about the digital transformation of the wholesale of the retail, I apologize. So It really brings your attention to the level of the opening of new digital accounts. There is a drop.

Speaker 1

So It was 900,000, 1,000,000 and this quarter it was 700,750 open new digital accounts. Maybe The bank is still cautious with the open ocean, but more than that, the number of the accounts being opened on the table, there is the data Of the share of digital transactions per volume. When we look at the digital transactions of credit, investment, Payments we see stagnation. My doubt is around that by an updated transformation. Do you see well, I wouldn't say that this is an inflection point.

Speaker 1

It's circular. But maybe there will be less Growth in the penetration of the digital channels, well, that's it. Thank you. Sorry that you're the last But you're the last question, not least. First of all, let's start by the second part.

Speaker 1

We Certainly, are working strongly in digital, but we understand that we went through a high level of penetration. Therefore, The new penetrations at the marginal will have a lower speed because most of the space was reached. Now having said that, we are very focused. We are reviewing the client journeys, the access to the digital Channel digit making our clients digital, we even believe that the mix of the clients in the market, you will improve the penetration of the digital Channels and we're going to see an evolution that is maybe slower than what we observed in the previous quarter because the pandemic had an acceleration And after the pandemic was over, the inclination the slope of the curve has changed, you are correct. We're following up on that.

Speaker 1

And the relevance is important, the importance of the network. You it shows not only an issue of the digital channel, but how the other Physical channel is still very important and how the clients still like for credit for investments still to have access to the branch. The on-site, to talk to their managers To understand, it only reinforces the other side of the same coin. If we were a full digital bank, a relevant part of our revenues would go away. And this is the defense of the digital model.

Speaker 1

We have to look at the penetration of the digital channels and we are following up on that. But you also have to look at the relevance of the on-site service for that offering and the delivery of value for the clients. This is the other side of the coin. About the accounts receivable, well, the reduction the accounts, sorry, is the reduction of the filter. One is credit because for you to open an aircraft with decline, you have the low capacity to give credit.

Speaker 1

You have the CIC. You bring the client to the bank. You make decline Frustrated that it's expecting the credit and with a filter, it's not going to have access to credit and it brings the cost to the bank that you're going to have to. So we have tightened that filter so to guarantee that the digital accounts they that we opened, they improved in terms of quality. So We are not going through the quantity, but the quality of the outcomes that we're bringing in.

Speaker 1

So 900 is not better than 700 Because the mix of quality mix is better maybe in the $700,000 than the $900,000 somewhere. We should look at that in all the absolute numbers. So the credit filter and in fact clients that I know that I'm going to be able to engage, That I have a value proposition that I can deliver a product that I can have a long term relationship. This is a win win or decline in any organization. So that's where we get the adjustments.

Speaker 1

Thank you, Milton. Well, that was the last question of the analysts. Can I take part? We have had several questions via WhatsApp. We are going to answer thereafter with the IR team, And therefore, we finish our Q and A session.

Speaker 1

Thank you, everyone, that was connected to us for 2 hours. The floor is yours, Milton, for your final remarks. Once again, thank you very much. It's a pleasure and privilege to be here with you. I believe that the numbers that we've managed to communicate to you, we've been very careful to provide transparency.

Speaker 1

The numbers are always the numbers that you can ask the questions. We are not going to leave without an answer. Maybe I cannot answer at the time, but you're going to get an answer. I can guarantee that we work with transparency. We Understand your questions.

Speaker 1

We always do a debriefing, post call to understand what is the message to conserve, so we can have surely that we do not that we don't have any blind spots. Thank you for your questions. And I hope We hope to meet your expectations, very happy with the results, very trusting in the future. We really believe in our journey, Whether it's digital transformation, efficiency, cultural transformation, and we've managed to Change the value vision for our client. This is the most important thing.

Speaker 1

We've grown in engagement in our clients In all the segments. With that, I finish. I think that I've spoken a lot. We've seen we will see you with maybe in marketing in the next call. Thank you very much

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Key Takeaways

  • Itau Unibanco delivered a recurring managerial profit of BRL9 billion in Q3 2023 (+3.4% QoQ) and a consolidated ROE of 21.1% (22% in Brazil), noting that working within its 11.5% CET1 risk threshold would boost ROE by ~2pp to 24%.
  • The credit portfolio grew 4.7% YoY (+1% QoQ), with a 6% YoY rise in retail loans and a 3.2% YoY increase in SMEs, while targeted de-risking in credit cards and vehicle loans saved nearly 200 bps of NPL, keeping overall delinquency stable and credit cost down 1.9% QoQ at BRL9.3 billion.
  • Net interest margin expanded to 5.6% consolidated (5.9% in Brazil) and financial margin with clients rose 3.2% QoQ to BRL3.1 billion (excluding Argentina), alongside 3.6% QoQ growth in fees & commissions to BRL12.9 billion and double-digit gains in advisory, asset management and insurance.
  • The sale of Itau Argentina closed in Q3, generating a BRL1.2 billion one-off gain and moving the local unit to available-for-sale status from July, with the bank reaffirming its 2023 guidance after stripping out five months of Argentine results.
  • Operating efficiency remains industry-leading despite 8.4% YoY expense growth, backed by a 100% cloud-based data mesh, 350+ data scientists running 570+ ML models, 72% of service calls handled by AI, and steady progress on diversity goals (27.3% Black representation; 35% women in leadership).
A.I. generated. May contain errors.
Earnings Conference Call
Itaú Unibanco Q3 2023
00:00 / 00:00