Itaú Unibanco Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
February 6, 2024

There are 8 speakers on the call.

Operator

Hello, good morning, everyone. I'm Henato Lulia, Group Head of Investor Relations and Market Intelligence at Itau Unibank. Thank you very much for joining our video conference to talk about our earnings for the Q4 of 2023, which we are broadcasting directly from region. We are also very pleased with the progress

Speaker 1

we

Operator

made in the Q4. We explain our performance and earnings for the Q4 of 2023 and present the 2024 guidance. Right after, we'll have a Q and A session, during which analysts and investors can interact directly with us. I'd like to give you some instructions to make the most of today's meeting. For those of you who are accessing this via our website, There are 3 options for audio on the screen.

Operator

The entire content in Portuguese, the entire content in English or in the original audio. For the first two options, we'll have simultaneous translation. To choose your option, all you have to do is click on the flag on the top left corner of your screen. Questions can also be forwarded via WhatsApp.

Speaker 1

To do

Operator

so, just Click on the button on the screen on the website or simply send a message to the number plus 5511 939591877. The presentation we'll make today is available for download on the hot site screen and also as usual on our Investor Relations website. I now give the floor to Mr. Malue, who will begin the presentation on earnings, Then I'll come back to you to moderate the Q and A session. Milton, go ahead.

Operator

Good morning. Welcome to our Q4 of 2023 earnings and the 2024 guidance presentation. I'll go straight to the figures so that I can bring you some more information and then we'll have enough time for the Q and A. Firstly, our Earnings in the quarter totaled BRL9.4 billion, a growth of 4% from the previous quarter. As a result, we delivered a consolidated ROE of 21.2 percent with a 10 basis points growth in the quarter.

Operator

In Brazil, ROE reached 22.2%. Moving on to revenue generation. Our NII grew 3.3% in the quarter, reaching BRL 23,200,000,000. Commissions and fees and results From insurance operations posted strong growth of 4.6 percent, reaching 13,500,000,000 rials for the quarter. All this with sound credit quality indicators.

Operator

The consolidated NPL over 90 days posted a drop of 20 basis points. The NPL for individuals dropped 50 basis points. These are major results that show an evolution in the credit cycle. We've ended the quarter with a Tier 1 capital ratio of 15.2%, an increase of 60 basis points. The individuals' portfolio grew 1.9% in the quarter and 4.1% in the same year.

Operator

DSME's portfolio grew 2.6% in the quarter and 3.5% in the year. The large corporates portfolio grew 8.7% in the year. Thus, the total growth of the loan portfolio in Brazil was 5.7% in the year. In Latin America, the results were affected by FX. As a result, the total portfolio grew 3.1% in the year.

Operator

And excluding FX variation, growth was 5.3%. It was a year in which we focused on derisking of the portfolio, and we've been working more intensively on target clients and reducing the portfolio's exposure to non target clients. We posted sound growth in the segments on which we focus. The Personalite and Uni Class loan book grew 16% in the year and 5% in the quarter. In payroll loans, we continue to grow in the private and public sectors, both quarter over quarter and year on year.

Operator

There was a decrease in the public pension segment as a result of the caps that were put in place on interest rates. Therefore, we stopped serving a population that increasingly demands a social security based payday due to these adjustments. Another piece of news worth sharing with you is that we had a nominal reduction of BRL 1,900,000,000 in the renegotiated portfolio, a drop of 4.6% quarter over quarter. This shows that our portfolio is good quality with sound credit indicators. It was a great quarter for clients NII, up 3.3% or R700,000,000 in the Q4 of 'twenty three.

Operator

This growth was well distributed across our product mix, volume, spreads and liabilities margin and Latin America. We've isolated the effect of working capital, which starts the quarter at BRL3 1,000,000,000 and ends at BRL3.1 billion. The 1 month earnings of the operation in Argentina, which was recorded in the 3rd quarter earnings, was also isolated. Thus core growth was 3.3% quarter over quarter. Another piece of positive news was the expansion of the consolidated NIM from 8.9% in the 3rd quarter to 9% in the 4th quarter.

Operator

The risk adjusted NIM also increased from 5.6% to 5.8% in this period. The risk adjusted NIM of the Brazilian operation increased from 5.9% to 6.2% in the quarter and the total NIM for Brazil reached 9.8%. I believe these are very positive messages for the financial margin with clients. In the financial margin with the market, 4th quarter was similar to the previous one with a sound result of BRL 800,000,000 with similar dynamics both in Brazil and in Latin America. The slight expansion in the quarter was due to the lower impact of cost for capital hedge.

Operator

This shows that we've been delivering good risk management as shown by our solid financial margin with the market performances despite the scenario of adversities and difficulties throughout the year. The financial margin with the market R3.3 billion dollars in 2023 versus R2.9 billion dollars in 2022, which shows major growth in a year during which we face material challenges. It is worth mentioning that we met the 2023 guidance in all the disclosed lines, with the exception of the estimated growth of our loan portfolio, which was below the disclosed expected range. This performance is explained by the difference between the projected FX rate for 2023 used in our budget and the actual FX rate for the period. Commissions, fees and results from insurance operations were also within guidance.

Operator

Up 5.3% year over year and 4.6% quarter over quarter. The highlight in the Q4 was the strong growth in credit cards due to seasonality. We've posted major progress in advisory services and brokerage fees. Net inflows increased 70% quarter over quarter and 7.4% year over year. This results from all the work of the last few years and shows that we are moving in the right direction.

Operator

The latest acceleration is very positive. The transaction volume in the acquiring business grew 17.5% year over year, while revenue was up 20.4%. This performance reflects an appropriate product mix, which has allowed us to increase revenue above the traded volume. In insurance, earned premiums increased 11.2% in the year, with recurring income growing 19.6% in the period. It is worth emphasizing that we've seen a significant growth over the last 3 years in this operation.

Operator

This performance shows that both the Course and strategy designed for this operation are being well executed. In terms of credit quality, we draw attention to our short term delinquency rate, which is absolutely under control and shown by its stability both in Brazil and in Latin America. The long term delinquency rate measured by NPL 90 days, decreased 20 basis points in Brazil and in total. And in Latin America, there was a slight increase of 10 basis points in the quarter. This underscores that the short term delinquency is under control.

Operator

Short term NPL in Brazil remained stable in the individuals portfolio and had a slight growth of 10 basis points in the SMEs portfolio in the quarter. For the large corporates portfolio, this is not the most appropriate indicator to monitor, as I always say, but non performing loans are also well behaved. After 4 quarters of stability, the long term delinquency rate of the individual portfolio decreased by 50 basis points and ended the period at 4.4%, which we consider a sustainable level. The NPL90 for SMEs and large corporates remain stable. Generally speaking, we posted very strong credit indicators with good developments and stabilization throughout the year, which is very good news for credit quality.

Operator

Cost of credit reached

Speaker 1

to BRL

Operator

9,200,000,000 this quarter, a nominal amount below the prior quarter. The indicator that measures the cost of credit over the portfolio decreased in the quarter from 3.2% to 3.1%. This was the 2nd consecutive quarter in which there was a drop in the individual's portfolio NPL formation, which shows that the portfolio has reacted favorably. Cost of credit rose from BRL 32,300,000,000 in 2022 to BRL 36,900,000,000 in 2023, slightly above the best scenario in the guidance range, which was between BRL 36,500,000,000 and BRL 40,500,000,000. There was a nominal drop in the renegotiated portfolio, which now accounts for 3.3% of the portfolio.

Operator

This performance shows another good development and trend for the portfolio. There was no major highlight in the coverage indexes, which showed a slight increase in total coverage from 209% to 216%. We have a very well provisioned portfolio with an adequate level of coverage and sound consistent results. OpEx or non interest expenses, as we call them, are normally under greater pressure in the Q4. In Brazil, this line grew 8.5% year over year.

Operator

And in Latin America, excluding Brazil, it fell 4% in the period. On a consolidated basis, non interest expenses increased 4.1% quarter over quarter and 6.5% year over year. In the Q4, we also recorded one off investments such as the remodeling of Itau's brand, which put a little more pressure on this line in 2023. We've been keeping up with our financial discipline, which can be seen in the efficiency ratio trend, which has reached its best historical level. The efficiency ratio was 39.9% on a consolidated basis and 37.9% in Brazil, including all expenses.

Operator

This shows a major development. And we've achieved this by reducing core costs, which grew by 1.6% in the year, well below inflation for the period. This is a trend we plan to continue working. We continue to actively work and invest in the business and in the future of our operation. This includes key investments in new businesses and technology, which explains the increase in the year, disregarding Latin America in this analysis.

Operator

The guidance range for non interest expenses was between 4% 8%, and we remained within it by recording growth of 6.5% in the year. We have good news on capital. We were able to expand our capital ratio for another quarter, ending December with 15.2% in tier 1 capital ratio, of which 13.7% at common equity tier 1 and 1.5% at AT 1. The last bar in this chart shows the pro form a capital for December 2023, considering the dividends that we just announced last night. We have 2 key messages on this.

Operator

The first is that we are reporting material extraordinary dividend amounting to BRL 11,000,000,000, which will be paid in March along with interest on capital of BRL 4,300,000,000 that had already been announced. Meaning, there's R15,300,000,000 to be paid in March. This amount of interest on capital is already net of taxes. In 2023, we paid R6,200,000,000 in interest on capital, also net of taxes. This totals the cash payment of R21,500,000,000 in dividends and interest on capital in 2023.

Operator

Thus, the payout for the year was 60.3%. Once this payment is made, the core capital ratio will be adjusted to 12.8%. There are some uncertainties ahead of us, and that is why capital management discipline is needed to conduct our business. Now let's move to the 2024 outlook, and I'll start by sharing our macroeconomic projections. We expect Brazilian GDP to grow 1.8% in 2024, the interest rate, Selic, to reach 9.0% at the end of the year and inflation, 3 point 6%.

Operator

Unemployment should be slightly stable at 8%, and the exchange rate of 4.9 Brazilian reals to 1 US dollar, also slightly stable. I now present to you our consolidated 2024 guidance, which is based on a growth expectation between 6.5 percent 9.5 percent for the loan portfolio and growth between 4.5% 7.5% for the NII with clients. It's worth noting that we also present the expected growth on a comparable basis, excluding the effect of the sale of the operation in Argentina in 2023. With this adjustment, the expected growth for the NII with clients is between 5.5% 8.5% on a comparable basis. The financial margin with the market should be between BRL 3,000,000,000.

Operator

Our expectation for the cost of credit between BRL 33,500,000,000 and BRL 36 R500,000,000 in 2024 reflects a major decrease when compared to the cost of credit in 2023, which was R36,900,000,000. Our worst case estimate for the cost of credit in 2024 is already nominally below the cost of credit in 2023. We tend to look for an even better result. Commissions and fees and results from insurance operations are expected to grow between 5% 8% and between 5.5% 8.5% on a comparable basis with a pro form a adjustment from the sale of Banco Itau Argentina. Non interest expenses expected to grow between 4% 7% as adjusted business.

Speaker 1

We have

Operator

a very strong financial position in the U. S. And we have a very strong financial position in the U. S. And we have a very strong financial position in the U.

Operator

S. And we have a strong The tax rate is expected to be between 29.5% 31.5%. Our goal is to keep delivering ROE above 20% and these figures reflect that goal. I'm very pleased with the earnings achieved in 2023, the course that the bank has followed, and the way we've mobilized, advanced, and invested in the Cultural transformation has had a very material impact. Digital transformation has materialized in several of the figures we presented today.

Operator

There are challenges ahead. No one is being complacent. On the contrary, we're very focused on delivering even stronger earnings in 2024 as shown in our guidance. Now I'll be joining Renato for our traditional Q and A session. See you in a little while and thank you very much.

Speaker 1

Milton, thank you for the presentation. We will start now the Q and A session. And today, we have besides Milton, we have Roedel. He is our CFO. He is going to be here with us in the Q and A session.

Speaker 1

Remember that we have both languages. We will answer the question in English and Portuguese, you can always choose your audio of preference, English or Portuguese. You can submit your questions via WhatsApp. Well, there is a long list of questions, Milton and Alexander. First question, we have on screen Renato Meloni, Autonomous.

Speaker 1

Renato, welcome to the earnings call. Thank you for the first question. Thank you. Good morning. Thank you for the opportunity.

Speaker 1

First, in regards to the guidance, when you look at the interval You're mentioning the growth in the portfolio of credit and the margin of clients that might be a reduction might imply a reduction. Is

Speaker 2

that

Speaker 1

a real thing? Because the there is an expectation of the stabilization for 2020. And how should you how are you looking at the dividends in this year? If the growth in the portfolio goes to 9.5 Can we have a similar payout? Any additional comments are great.

Speaker 1

Thank you, Renato. Good morning. Thank you for the question. Let's clarify the guidance of the portfolio. First message, The portfolio of the guidance is, let's just say, the tip of the portfolio and the margin is the one that we realized.

Speaker 1

That means that the average portfolio all throughout 2024 and the information is not in the guidance, it will be lower than the financial margin with the client. So we have to look at the average of the Portfolio because that's the margin that you can see in the guidance. That's the first aspect. 2nd aspect, When we look at the records, we've been growing with a lot of quality, the margin. And it's important to look at the margin, not only associated with the Argentina effect, which explains another percentage point net growth.

Speaker 1

So isolating it, we would grow 7 percentage point On average, it's important to consider the cost of credit, which has a nominal reduction. That means that our financial margin net Cost of credit will have an expansion, portfolio growing, cost of credit dropping. And you asked about the NIN. We are expecting, yes, stability throughout the year and adjusted to the risk, we understand that there is an opportunity for some adjustments Through the credit cycle, that depends on the mix of the growth of the portfolio that you can see here. That is growing above the average payout of the portfolio in the period.

Speaker 1

The cost of credit is higher and adjusted by the Argentina effect growing by 7%. Very important to clarify the dividends That is of interest of everyone. What was our decision? Let's turn back time. Way back when we reduced our appetite in the risk management of the bank, we always talked about 11.5%.

Speaker 1

That's the set Of the capital, Agia approved the Board that's the appetite for CET1 for the management of the bank. And we said that 12 would be the observed for the policy of dividends. When we look up ahead, there are some uncertainties or certainties that are calculated: The cost of credit Basilea, operational credit Basilea 3, 2025, that might have an impact of 42 basis points. And there is a second aspect, the tax reform of Brazil. If we look at it As it is in Congress, as if it was approved as it was written, we would have to do an impairment in the credit Because when we look at the corporate threshold, we would have to reevaluate them in the balance sheet of the bank.

Speaker 1

That reevaluation, even The corporate threshold is evaluated, you reduce an asset and then you have a capital effect. When you look up ahead, the uncertainties, our capacity for growth, we are getting into A year that we expect to be benign and any opportunity that might make sense through the cycle we will grow. So considering the growth of the portfolio, Considering what's up ahead, Basilea, operational risk, credit risk and considering the tax reform and uncertainties, Our decision is to do the payout that is added to what was already paid for ZAR4.3, which is the interest on capital in March, plus the extraordinary dividends. So a payout of 60%, we understand that it's adequate. We are distributing BRL 21,500,000,000 between what was already paid and what will be paid in March.

Speaker 1

It's a very relevant distribution, 3x the dividends of 2022. What is our policy from It's not to retain the access. That has to be very clear. We will look at the uses on throughout And the sources of 2023, how are we generating capital, the results and how we are applying it, whether if it's inorganic organic opportunities, portfolio growth and regulatory changes that are coming up ahead with the tax reform. Looking from that standpoint, we will look at the Next year, we will do the projections.

Speaker 1

And if there is an excess, our expectation or this our decision is to distribute the capital Excess, don't look at that extraordinary dividend as an isolated event. It's an important dividend. And looking up ahead, we have to understand the excess. Well, not taking into consideration the effects that were already. As I mentioned, we are going to continue to distribute an Extraordinary dividend with more information and the results and the effects therein.

Speaker 1

Thank you, Milton. Well, I thought it was dividends, yes. Second question, Congratulations on the results, not only of the quarter, but the year. I wanted to talk about the guidance. And since Milton already gave us a soft guidance of an ROE above minimum 20%, That would be the point that we have to start.

Speaker 1

It seems conservative to me on your side. So I wanted to discuss with you. Can you go over please on what should we expect of the guidance, the main lines? Where can we work more as the higher threshold, the medium threshold? Should we Well, on my side, we see the upside relevant upside in PDD taking on The NPL trajectory that we've seen, but if you can just give us your $0.02 on those two lines And can we work above or below the guidance?

Speaker 1

And can we assume the 20% that you indicated as the conservative ROE? But I wanted to hear from you. Thank you, Gustavo. I hope that you're right. We're going to work so that you're correct.

Speaker 1

Well, the guidance and It's our best estimate. We are coming from a budgetary procedure. We always have a temporary Guidance, well, we have the average point of these lines, The medium is always a good reference. If you look at the last quarter, we were running Brazil with 22.2% of ROE, very strong. Had we unloaded the dividends in the way that you're seeing it right now, the result would be CHF 23.4 percent ROE of Brazil.

Speaker 1

The effect The dividend generates a basis effect that improves the ROE, reduces the net result of the bank because of the working capital, but it improves The relationship and it makes the ROE better. So I believe that we have to look at the year For the opportunities for growth of portfolio, the average is reasonable. There is the exchange rate in Latin America, which is uncertain. So taking away that, there might be some opportunities for the growth of strong portfolio growth, depending on the scenario, the perspective of the credit cycle. So I believe that working above 20% is a great reference.

Speaker 1

We didn't gave our guidance of ROE. We Are working above 20? Can it be more than 20? Of course, we're going to work to deliver an adequate profitability given the Scenario and the opportunities therein. The cost of credit, we've been very successful all throughout the cycle.

Speaker 1

You've Followed the bank for many, many years. We had a difficult cycle. Some portfolios suffer more. In our case, credit card, very relevant Portfolio, dollars 135,000,000,000 The vehicles, very important, dollars 33,000,000,000 Those two portfolios naturally, they suffer more. Now the good news corroborates your vision with the cost of credit is that the vehicle portfolio, 4th quarter consecutive that we have a reduction In the overdue fees of 90 days, credit cards is the 3rd.

Speaker 1

In the natural persons, It is 50 basis points reduction in credit cards. It's basically the double double digit reduction with the nominal of the portfolios growing less. So it shows that the cost of credit is behaving. What does the guidance have? It has a level of uncertainty because we have The portfolio of wholesale that is very relevant in Brazil and Latin America.

Speaker 1

And you can imagine a normalization of the delays Of the wholesale, I've talked about that, we expect that, but 2023, we had a benign effect except the Americas event in January. We had a portfolio with a cost of credit that was very well behaved below the minimum thresholds on record when we look at the long term cost of credit. Our expectation is that we can always have a normalization. If that doesn't happen and there isn't any case that really concerns us or that we do not have the adequate provision. We don't have that.

Speaker 1

But we might consume some thresholds of the guidance, but the cost of credit is positive. The other lines, they are well calibrated and the costs depend on us. Where I think that we are going to have to follow-up is the portfolio, the margin and the cost of credit depending on the events that I commented. And we're going to update you all throughout the next quarters. And I am hopeful that you're right.

Speaker 1

We will work to deliver an ROE better than 20%. Thank you, Milton. Well, let's now we have Mario Piededi, Bank of America. Hi. Good morning, everyone.

Speaker 1

Congratulations on the result. Thank you for taking my question. Milton, I wanted to understand your guidance of the growth of credit. Can you give us a breakdown? What are the lines that you expect higher cost?

Speaker 1

Because when you look, when you see, well, the macroeconomic scenario is positive, The bank has a great capital and the growth nonetheless seems timid. You're talking about a nominal growth of the GDP of 5.5%, 6%. A portfolio growing 8% seems a bit shy. I wanted to understand how do you see the product itself? Thank you, Mario.

Speaker 1

Beforehand, thank you for the question. Thank you for being with us today. And I wanted to tell you, when we look at the portfolio, I'm going to do a deep dive. We hope that the companies, whether if it's retail or the big companies, they will grow above the average point that you observed. So they carry over that.

Speaker 1

The natural persons, they grow less in that relationship in the average of the GDP, and there is a relationship there. We expand we will expand in the products that make sense in the target segments that we are growing above 2 digits. But here, there is a double effect. First effect, the Natural Person's portfolio, there is a renegotiation drop, which is good for the overall balance of the cost of credit, but is a natural offense of the balance sheet. And second aspect that when we look at the portfolios, we have the decision of reducing nominally some portfolios important reductions that saved about 200 points of delays in the over 90 delay.

Speaker 1

So if we kept the same mix of growth that we had in the pandemic, we would be running in a natural persons, Something about 6.4%, 6.5% of the range, 200 points above. So when you look, you have the opportunities of growth. The portfolio of real estate has grown a lot in the pandemic with low interest rates, high demand. With higher interest rate, we see that there is less demand. Even though we are keeping good market share, our production, the nominal dropped.

Speaker 1

So we see INSS and there is a pressure and that we have the caps that we already mentioned. So it seems There are some effects that play against like payroll loans, but some sort of positive. In Credit cards, we have a derisking of the portfolio, and we are growing strongly in the target segments of the bank. In Real Estate, we can see a deceleration. In the last quarter, we can see a deceleration of the personal credit that is very specific, the reduction Of the 13th salary, well, that happens.

Speaker 1

And there is the effect of the renegotiation portfolio, which tends to continue to drop. That is the overall of the mix. There is a capital markets effect. We expect a good growth. We are depending on the capital markets that are more active.

Speaker 1

If they're more active, we're going to give the preference for the capital markets. This is the cheapest financing of the great corporations and we lead this market. So we have the cross sell and it generates engagement with the clients. And there is an effect which is difficult to predict, which is Latin America, which is the exchange rate devaluation in these numbers implicit And numbers can change all throughout the cycle. So breaking down the portfolios, we are very comfortable with the mix that we are going to grow.

Speaker 1

And if there is an opportunity to grow, we are going to grow more. And you can see that the NIN has a stability, expanding and the risk adjusted line above all. And it shows growth above the average. And it shows the cost of credit normally dropping, which has a Net financial margin, that is improving all throughout the year. We are very comfortable with that level of growth.

Speaker 1

And if we have an opportunity, then we are going to seize those opportunities. We are very focused to service our good clients and continue with the engagement and customer centricity And the NPSs that are the highest levels of the bank. Thank you, Milton. Next one, we have here Rafael Froude from Citibank. Good morning.

Speaker 1

Thank you for Taking my question. Doing a follow-up of 2 points. First, the NIN, making it very clear that we Expect a stability in the NIN. But all throughout the last few years, you always said that the liabilities margin has an important contributor for the improvement of the NIN and maybe less for 2024, but the effect also throughout 2024 is that more of a detractor Thinking for the end of 'twenty four and for 'twenty five. And second question is a follow-up on the issue of Cost of risk, I think it's very clear the guidance accommodates fluctuations, but we wanted to understand more on The retail, when we see the 4th quarter, the NPL formations are at the level of 2019, 2018.

Speaker 1

But you commented at the beginning that you have an important shift in the portfolio.

Speaker 3

It seems

Speaker 1

like this is a safer portfolio than 'eighteen, 'nineteen. So specifically in retail, can we see an NPL formation for 2024 maybe below what was the official records? Thank you, Rafael. Pleasure to see you again. Let me start by DNIN.

Speaker 1

Liabilities is core for us, And we managed to grow. In an important way, you can see the nat cap grew 70% over the last Quarter, we do not talk about the absolute numbers, but these are strong numbers I can assure you. Therefore, there is always the interest rate effect, but the volume as well. Combination of both generates an effect on the NIN. When you look at the margin of this quarter, the volumes are very relevant.

Speaker 1

2nd aspect, for the financial margin for the clients we do the hedge, whether if it's working capital or liabilities. We do the hedges with longer vertices. So it shows that in a longer cycle, for better or for worse, We have a long better stability in remuneration. There is a reduction in the margin. We can see the margin of the working capital reducing, But there is the increase of the pay of the pays and the liabilities have been growing importantly.

Speaker 1

And there is the demand for the bank's products, which increased this effect. So we believe that 2024, we're going to have a great year for volumes. The rates from the application and the hedge of the bank, they tend to be less sensible to the effects of the sale liquid rate And that highlights what I've mentioned. We've seen some reports that said that our line is very sensitive to the interest rate. This is another proof, Seeing the cycle as it is, that our NIN is very stable regardless because we can work with both sides of the equation.

Speaker 1

The interest rates, they tend to drop, but they will stabilize at a threshold of 9%. We're not going to see a drop of interest rates as we've seen way back when. And that is sustainable and it opens up the growth of portfolio that compensates at the other end with volumes and growth of assets. So we consider that NIN is stable regardless of the pressure of the liabilities and the volume compensate the effects of the interest rates and this shows that our investment strategy and the review of the offerings and platforms are very well successful. We have an NPS that is measured by an external auditing company that does all the measuring, and it's We are the best when we compare with the main competition, and we continue to advance naturally to have a better offering.

Speaker 1

In regards to the platforms, the new platforms of investment, the positive news is that in investments, this was our best year With the relationship with the platform, we had some months of positive capture in regards to some of these players, and we end up delivering a nominal net cap above what was published by the competition and it shows that we're doing our homework. This is very important. The second aspect of the delay, the delinquency. Well, there is Better portfolios that are being produced all throughout the cycle, we see a nominal delay above 90 that is below what we saw in the pre pandemic. We continue to be positive.

Speaker 1

We expect that the NPL creation will tend to have, well, stability really looking up ahead. We see in the natural presence, there is a reduction in the 2 consecutive quarters that there is a drop in the formation in the natural presence. And we believe This is a great trend. Of course, more access for write off within the regulatory rules that has to do with the portfolio that was made in the previous periods. And with the renegotiations, we have a balance.

Speaker 1

And with the renegotiation with the quarters, we see the effects in the write off. So yes, we see the formation that is very positive. And the cost of credit that are nominal for the retail are reducing step by step. And this is great news with the portfolio growing and the margin expanding. So on overall, we can deliver an NIN that is very positive with an expansion and the risk adjuster line, which is what we are doing consecutively over the last quarters.

Speaker 1

Thank you, Milton. Next question from Thiago Batista, UBS. Welcome. Good morning to everyone. My question is about efficiency.

Speaker 1

When we look at the bank's efficiency, Milton commented that You are the 40% historical minimum, good number when you compare to the bank itself or other banks, But it's still above some digital banks or traditional banks. Well, Banar is not the same one, but In Mexico, they operate with better efficiency. Is it possible to maybe draw from 40% and get to 35% We're not or 40% is the absolute bottom. And if you allow me a second question, the credit card. We see that the level of the payments of Itau increased in 2023.

Speaker 1

So We had 81%, 85%, 1 lump sum payments. When we look at the Central Bank, that trend didn't happen Well, the data of the Central Bank. How well, what is the difference? Why is it happening? Higher income, mix of product, Can you tell us more?

Speaker 1

Okay. Let me start by the second point. Thank you, Thiago, for your presence. Credit cards, the explanation is mix. In the end, when you look at our non financed portfolio, it's higher than the portfolio of the market.

Speaker 1

In the last quarter, we have 34% of non financed portfolio, so this is a very relevant number. I always say the effects of the interest rates of our BRL135 billion of credit card portfolio, €115,000,000,000 are noninterest. So €20,000,000,000 is the finest portfolio. In the last quarter in the last month, There is a seasonal effect with more purchasing and more volume. So there's a trend of an increase in 1 lump sum and And the installments and non interest depending on the portfolio of purchasing of the population, the main explanation is mix in And there is the derisking in the portfolio, of course.

Speaker 1

Since we reduced relevantly the segments of higher risk that were Destroying the value for the shareholders, then we rebalanced the portfolio with more focus in the mix Makes us that are more sustainable in the long term. And we don't look at credit card as a product isolated. We look at it in a global relationship with a client, Taking away those products that you're a monolineer, Open Ocean, but in the bank, we have a relationship with the clients And we've been growing relevantly and the fact that our portfolio is more affluent than the average of the market. So it takes our non interest in regards to the interest to a higher threshold. We should see a normalization.

Speaker 1

There is a reduction in the propensity, Of course, depending on the profile and once propensity comes back, the finance portfolio will grow more in regards to the non interest because of the Seasonality of the last quarter. Efficiency, I'm going to give the floor to Bruno, but I just wanted to make some relevant comments general. 1st Is that we have to look at the bank in the mix. So looking at the efficiency level of the bank, we are looking at the We have a lot of businesses here, and we have efficiency levels when we look at the operation. When you look At Wholesale, you see some numbers when you go to retail, so you look at others.

Speaker 1

And there is the consolidated LATAM without LATAM versus just Brazil, we are running 37.9% in the picture. It shows that in Brazil, we are reducing. Relevant well, directionally, The path is to be efficient. There is no doubt in regards to that. We've done a series of movements in that direction.

Speaker 1

This has happened for some years and as I should do with our DNA and culture, but there is a space for a deeper dive and a cost, The efficiency level. Well, we can get you 30%, 35%, whatever the threshold is. It's important to say that when you reduce And you are become more efficient part of the efficiency goes to the price. So imagine that the efficiency level just drops, It's not true because it becomes more efficient and then you become more competitive. And therefore, that equation of revenue and cost is that what we work in a relevant way in the bank.

Speaker 1

Our efficiency level is benchmarking a global of a bank of our size It's a benchmark global benchmark, but we have a series of initiatives that we're working to separate what are the events of the Wholesale, what is retail and the investment in the technology that we've done, the digitalization naturally goes through all that. The core costs are dropping, growing less than the inflation, and that's the trend that it will grow less than the inflation, knowing that we have an inertia that is very strong, Which is okay, Ro, in regards to the collective bargaining agreements, higher than the inflation measured by IPCA. Just looking at IPCA, It doesn't translate the banking inflation that is our higher threshold. Would you like to highlight some of the points that we've been working? That would be nice.

Speaker 1

Thank you, Milton. Yes, we have a concern here, as Milton has mentioned, of looking at an efficiency program that generates effects on the long term, and these are consistent results. We don't want those efficiency levels to be a volatile indicator. We have periods or gains in some periods, losses in some periods, And that's the up and down effect, as we say. We have a variation, but we don't want that.

Speaker 1

We want gains that are consistent, Gains that are recurrent, that point that Milton mentioned, the efficiency is it doesn't depend just it's not an index, it depends on the mix of business that the bank works with. Structurally, the bank has efficiency indices that are different. We have a program that involves 1,000 over 1,000 initiatives. We have automation, cost reduction, digital processing, migration to the cloud amongst other initiatives. The important thing is that this is a program from all the organization.

Speaker 1

There is no silver bullet. All the initiatives are implemented, Followed up, we have an important control of the budget as well so that the initiatives that we implemented, they are not The economies are not eventually used and more important, which I believe is the relationship between the Good management of cost and efficiency. You can see that the guidance, we are Not doing the investments that we consider that are important to reach a certain level of cost or efficiency. Why am I saying that? Because sometimes the important investment because of an accounting issue, they have costs that come earlier.

Speaker 1

You have the amortization of the investments in technology as well. So our discipline here is that this is a program, is to be consistent all throughout time. We don't give a specific guidance of efficiency, but we want to have efficiency that are levels that are sustainable, that are reachable And they continue throughout time, keeping the modernization of our platforms and higher Focus in the client, client centricity, all these initiatives and the efficiency level, Thiago, is inserted in the Context of management of the bank as a whole, it's not an objective that is independent. Having said that, we believe and imagine that There are important opportunities for improvement all throughout time. Thank you, Alexander Milton.

Speaker 1

Next question, we have Bernardo Gutmann from XP. Thank you, Bernardo. Well, good morning, Alexandro, Milton. Thank you for the opportunity. I wanted to understand better the strategy for the composition of the funding of the bank over the last quarters.

Speaker 1

You've had an improvement in the participation of Exempt instruments and with the new regulation, these instruments should be more restricted for issuance. What is the reading of Itau about the impacts for the system looking at the businesses of wholesale and retail? What is the market stock that you estimate as well And these instruments post the changes. Thank you, Bernardo. This is a new issue.

Speaker 1

Of course, naturally, the resolution was published last week. We are naturally going over the details. What I can anticipate is, without a doubt, the exempt instruments have a participation in the funding of the system as a whole, they are growing Throughout the time, there is a creation of LIG, which brought you had double backing of the LIG and LCI, which you could use Well, the extent in the interest they are 15% of our capture. They are important, but they're limited to 15% of all the capturing volume that we have. And in that change, recent change, Basically, twothree of our capture were not affected.

Speaker 1

So we are talking about a reduced Impact, so we are talking about 4.5% of the total funding of the bank. These are the materiality and it doesn't mean that the resources are leaving. There is a natural migration of resources. While you do not have the exempt from the income tax, you do not offer new products, this is a systemic overview. The system as a whole goes through that.

Speaker 1

But given the level of relationship with our clients and the capacity for generation Backing, we don't see the impact and the cost of capture of the bank. This is immaterial. And we will substitute by instruments of CTV and banking ladders, other instruments that make more sense for the investor and that are going to have some impact in our cost of capture, but it's immaterial. So I believe that for the system, it's difficult to do an assessment. There is the mapping being done.

Speaker 1

There is a global level to see what is the level of impact because it depends On the generation of coverage, the profile of business of each institution, relevance In the events of the capturing of each institution, 50% in our case, we can see in other cases less or more. It's very difficult to do an assessment of the market. It's very difficult. Every bank will start to talk about the impacts in their activities. We are in a phase of deepening in the norm, doing a deep dive and analysis, but the there will be an impact, but it's not relevant where material for the size of our operations.

Speaker 1

And we continue with a very broad portfolio, the investments 360, our focus is to offer the best investment for the client in that cycle. As we always say, our Executives of the investment, all are measured by the profitability of the portfolio of the clients and not the selling of So we're going to have funds, titles of interest rate, income tax. Well, and if there is any migration, then we can retain that asset under management or under custody within the bank. So we don't see an impact in the relationship with our Thank you. Milton?

Speaker 4

Next question comes from Tito Rabada from Goldman Sachs. Hi, Tito. Good morning. Thanks for joining us.

Speaker 5

Hi, good morning. Thank you, Renato. Good morning, Milton, Alessandro. Thank you for the call and taking my question. A bit of a follow-up, I think, Thiago's questions earlier on efficiency, but slightly different perspective.

Speaker 5

When you look at the guidance on expenses, Like core expenses, you mentioned below inflation, but you are growing above inflation. This year, you had about $3,000,000,000 I think in Business and Technology Investments, for how long do you think you'll need to continue to do these types of investments? And I'm asking in the context of Become better environment, just with increasingly more digital players becoming more and more relevant, just to think about how you're positioned. And somewhat related, but like on the credit card, very strong quarter for credit cards, both on the issuance and acquiring there's been a lot of competition there on both sides. How much of the growth in the quarter was just seasonality?

Speaker 5

And how much are you maybe Given the credit cycle is looking a little bit better, are you able to be a little bit more aggressive there? And also, a couple of your peers announced that they're trying to privatize their acquiring business. So if you can just comment on the competitive dynamics in cards, both on the issuance and acquiring side, given where we are today.

Speaker 3

Sure. Nice to see you. Thank you for coming, Tito. Good to see you again. So just follow-up Here, first of all, on the efficiency ratio, we always going to be investing in the long term of the bank.

Speaker 3

So This is our long term view. We are not looking for 1 or 2 quarters efficiency ratio and this is the trend. Especially on the technology investment, we doubled the force. So we had 8,000 FT feet feet

Speaker 1

feet feet feet feet feet feet feet feet

Speaker 3

feet feet feet Es. Nowadays, we're running with 15,000 FT feet feet

Speaker 1

feet feet feet feet feet feet feet feet feet feet feet feet Es.

Speaker 3

Nowadays, we're running with 15,000 FT feet feet feet feet feet feet feet feet feet feet feet feet Es. When you look 4 years ahead, but we stabilized now 2 years in a row. We do believe that we achieved the level Of FTEs that we need to do all the digitalization and the modernization of our platform. So our idea here is to Keep doing this project. So this is very relevant because we have to finalize what we really need to modernize.

Speaker 3

We are 2 thirds Of the journey, so we still have investments to be done throughout 2024 and over. But the most important is that Whenever we do the investments, we amortize the investment in the coming years. So you'll see a strong pressure coming from the investments we made in the last period coming those years and we are being able to absorb all this amortization in our P and L. We still believe that there should be another level of increase in the amortization, but then it should destabilize when we look Our long term period, this is very positive because there we're going to be in a cycle where the level of investment will be much more similar in the coming years As opposed to what we observed in the previous years where we came from a very slow amount of investment and we had this curve of increasing the investment in technology. So and part of the investment in technology is done to get more efficiency and more productivity in our operations.

Speaker 3

So You will see the cost of the amortization of the investments. But in the other hand, you will take pressure from the run the bank costs that we are seeing in those periods. So we do believe that the level of FTE is there. We should see a Stabilization in the level of investment as well. But technology score is much more than modernizing the platform.

Speaker 3

In that sense, you will reduce. But then you have to keep running your business and modernizing the platform every single day to achieve the best level of experience for our clients. So this will keep being The trend and we are very focused on that. Talking about the credit cards, the quarter is very seasonal, okay? So you saw Relevant growth in the credit card portfolio, especially when you see the site payments.

Speaker 3

So it's not the buy now pay later. That means that there is a seasonality. And we are not here trying to increase The level of risk appetite, we're not running more risk than we should. And I think it's the opposite. We've been derisking the portfolio, especially in some segments.

Speaker 3

But we've been growing a lot in the segments like Uniclass, Personalite and other clients where we do believe that they are Very resilient through the cycle. So this is our main focus. On the acquiring side, I think we've been very successful in the hedges integration And we are getting benefits of doing that. So a comment for you and for everyone is that you cannot look the P and L of Rege The way we have the standalone company balance sheet the way you have it published. And why is that?

Speaker 3

Because hedges completely integrated inside Itau Unibanco. So when you look to that business, you have to look that in the retail business operation And not only the P and L on a separate basis, because this won't give you the full vision in how we manage and view the business. For us, it's a new product that we have in the relationship with the client. So the relationship is key. And then you have ways to take the best conversation or the best product to that client.

Speaker 3

And hedgi, the acquiring business is one of it. So I think we had a very strong year 2023. Hedgi had a very Strong recovery in the P and L the way we see and the way we measure, okay? Just to give you an idea, when you look to the hedges P and L, We take the working capital out of it and we take the working capital and we take it to the corporation. So in the business model, all the working capital That has been benefit from the interest rate.

Speaker 3

It's not in the business model. So this is not the way you see the other companies that they are a standalone balance sheet And they have a huge working capital. So you have to discount that to compare their business with our business because we don't live in our business model the working capital inside Heid's balance sheet. So this we take to the corporation level. So this is just one example.

Speaker 3

The other one, we do a lot of anticipation and business cross sell In the bank's balance sheet, not only hedges balance sheet. So that means that if you look only the take rate considering hedges balance sheet, You won't see the full picture. So the number we see is completely different from what the market sees. And for us, it's a business of integration. In the past, I used to be CEO of hedging that time.

Speaker 3

2 thirds of the P and L came from the open market, clients that didn't have The domicile relationship with Itau Unibanco. But when we look today, it's completely the opposite. The relationship has to do with engagement, with Principality with cross sell. So this is what we see. That means that the integration was done at the right moment The best way possible and we are getting benefits of doing that.

Speaker 3

And when we look forward, we see a lot of benefits to reach. And the competition will always be there. So You might see some movements coming from one player or the other player. This is life. So we have to keep doing The integration we did and I think we are in a key position very advanced when compared to the market to deliver a unique Value proposition to our clients and this is what we're going to pursue in the coming quarters.

Speaker 1

Going back to Portuguese and now English, we have from JPMorgan, Wissman, welcome. Thank you for taking my call. And my question, On ROE per segment, it calls for retention retail improving, going back to levels above 20% of ROE. And when we do the decomposition of that result, it seems that it comes from cost of credit. I wanted to hear from you, Milton.

Speaker 1

The correct evaluation of that improvement of ROE, is it an issue of mix? You've talked about growing in segments per tonne avitae, only class Because of the balance of that segment is higher in the foundation of the ROE and the consolidated ROE is higher in that segment Or are we seeing the ROE of the lower income improving? We know that the NPL of lower income is 3x, 4x the higher income. And it's fair to say that in the process of improvement of an NPL, that lower income should improve more in the cost of credit. If you can comment on how you are you seeing these subsegments?

Speaker 1

And do you think it's sustainable that ROE above 20%. We had a lot of debate in that period of how much is it Structural or not that process, it's cyclical it is. There were some caps along the road and the payroll loans. So how do you see the sustainability of these ROEs above 20%? Well, time is sovereign.

Speaker 1

As I say, that was a year of doubt, and we were not satisfied with it. The level of profitability we needed to work strongly to recover the profitability. There are issues The market, structural changes, there's a little bit of everything, and we have to understand what is happening with the big variables. You're talking about the you have the payroll loans, you have the Cap of the retail and then there is the structural changes to credit card, the verification. So there is a structural change.

Speaker 1

There is a dynamic of the fees changing When you have the offering, you have the fee business pressure. There is Competition of the margin and there is an expansion of the period. So the credit service relationship changed. That business has a higher dependency in the credit than they had before, for example, overdraft. And we've grown in insurance that has An increasing growing of, well, insurance, if we look at the 3 year window, grew 93%, the profit in our operation.

Speaker 1

And this year, we will double the results over the last 4 years. And insurance is cross sell business that helps with the profitability. To explain here, I told you that when we where question a few quarters below, we saw that it was a bottom and then we saw the inflection point. What generates that inflection? Several aspects.

Speaker 1

There is the play of the generation of top line, which is important. So we have to work with the correct mix with the correct client In a relevant way, we've done that with quality. There is a play of the cost of credit. You are right. At the end of the day, with all the de risking that we are doing with the portfolio and all the credit crisis that we have observed with a higher concentration in some portfolios where we have always a double Of the 2nd place, credit card is that example.

Speaker 1

Our portfolios, in average, have more relevance of credit card, And our proportion is more relevant than the market. So it brings a cost of credit that is higher in more difficult cycles. And we were capable Of doing that turnover of the portfolio regardless of the size and absorbing those losses in the balance sheet of the bank, then we've produced crops with positive quality. So it's a mix of margin, cost of credit, net margin has had a relevant role in that profitability. All of our model liners are below the or above the waterline.

Speaker 1

So that thing of losses, our operations are all positive, all of that all of them positive. The challenge is always isolated the cost of capital for some specific business, and we're working to improve them relatively. So we understand that it's sustainable at that level of profitability. We understand that we can expand it all throughout the year. So we expect a lighter Expansion of the profitability of retail along the lines of what we committed with the turnaround of the operation.

Speaker 1

All the review of the business model, the structuring of the Business model is the new operational model that we assembled in the bank. It has a big impact in that. And all of our journey of the super app that is working this year will also help us strongly to have a full bank offering for all the Clients do not have an offer of full bank in the bank, so they will help in the profitability. And on the other hand, our company's business Retail has grown with quality, and we are seeing an expansion in the profitability of our company's business, whether if it's the management or credit, Basilea, pondering, the adjustments that are recent, But basically, a value proposition that is very well fitted with a value generation that is very consistent, and we can see All the businesses having an evolution and a performance in 'twenty three and in 'twenty four, we expect to continue with a lower or higher a level that expansion, we are very optimistic. So we can have a more balanced portfolio in terms of profitability.

Speaker 1

And when we look at the wholesale, The view for 2024 is to deliver a profitability level that is strong. We talked about 28% of ROE, 27% in last quarter. Well, with this margin of 1 percentage point of mistake, plus or minus, the idea is to deliver a strong result in wholesale. We have a natural rebalancing of profitability, which is healthy for the portfolio as a whole. So we are very positive with that expansion that is happening.

Speaker 1

Next question is from Rosman, BTG. You couldn't connect, but he submitted the question via WhatsApp. I'm going to ask to Rosman your question. He submitted the WhatsApp and congratulations. Well, Rosman asks, the credit spread, it ended up at the end higher than the average and the working capital is 9 point Percent.

Speaker 1

And the bank always guided that we should convert for SABIC given the urgency that we use. In that sense, can we say that the guidance is conservative for the NII? The credit portfolio is strong, so margin and yes. Rosman, thank you very much for the question. Certainly, you will see The reporting later, but the main message for you is the portfolio, as I told you, we have to look at the mix of the growth.

Speaker 1

We have to look at the average balance of the growth and that's what has an impact in our line. Our vision is that the NIN will continue to be stable. The portfolio of companies tends to pull the NIN for a lower threshold. On the other hand, we have the working capital and the liability is very well worked out. The volumes are strong.

Speaker 1

On the overall, we have an NIN that is stable with a small expansion in the adjusted line to credit. So portfolio in the average growing 8%. So if we have an opportunity and we understand that it makes sense in a cycle of long term, Once again, without adventures, we will grow the portfolio, so we will not lose the opportunities and we have certainly appetite and capital funding, Human capital to continue very close to our clients and growing in those segments that we've really focused. We do not but we want to grow above 2 digits. When you improve the profile of your portfolio, you go to a mix that is less risk, which has less NIN.

Speaker 1

But the non adjusted risk is better. That's what we observed to the market. That's our dynamic if we can expand the NII. In regards to the portfolio growing more, we will work diligently for that. But as long as the opportunities are clear with a Clear vision of portfolio management, client and focusing on the clients.

Speaker 1

Next question, Going back. Now, Daniel Vas. Well, thank you, Renato. Good morning, everyone. Congratulations on the results.

Speaker 1

I wanted to go back to the credit card. Well, in the release, we saw a reduction of DKK3 1,000,000 of plastics to DKK38 1,000,000 of credit. So it seems clear the preference for the more engaged clients and personality in the Uniclass. I wanted to explore more the strategy for 2024 in the mass And the retail partnerships, we the bank understands that the client is Stress, is there just a transfer of risk to the other players? Or the system has reduced the credit for this client?

Speaker 1

And is there a space And your perception to exposure increased exposure in these clients and increase the consumption in this Product. Well, thank you for the question. First, our expectation is that credit card portfolio will grow in this year. It's inevitable there is the TPV, the invoicing growing, the growth of the market changing on the mix. That always happens.

Speaker 1

And when we look at the Data, we see that the business is growing. Our business, we try to subdivide it in 3 big groups. There is the ones that have the bank where we have a big penetration in all the segments Above all the higher income, the checkings segment, not only in the existing clients, But in the acquisition of new checking accounts, so a big deal of our business is achieving new clients and increasing Principality and engagement. 2nd point is that with the super app, we will have an offering that is easier, more integrated, Simpler for our clients that do not have an offering of full bank, who have an access to the basis of clients that can be Relevant monoliners maybe. They have a product and they don't have the credit card for the product.

Speaker 1

So we have the capacity for offering with unique experience and the right clients. We know them. They have a credit record and they have a good modeling for the offering. What we always call the open ocean, we reduced in a very relevant way because we still see the compromise, very big compromise of the income of the families An overindeplment in the product, so in the end of the day, there is an overoffering over the years. The number of plastics per CPF in Brazil is increasing and more than doubled in the short term.

Speaker 1

So with the credit card that today is a product that doesn't have a cost to be in the portfolio or in the app, you end up having access to several products with A digital experience where you do the quick onboarding, you don't pay the annual fees and you be from 2.2, 2.3, and you'll have 3, 4 Credit cards per CPF on average. And there are some CPFs with more products. So we have to be careful. It doesn't matter that if The client has the degree of financial education, has difficulties, receives a lot of offering and they have problems. Our Role is to help our basis of clients to go through this challenge in Saiccorp, but we reduced over 90% of the offering for the Open Ocean, where we get these clients without any records, any knowledge.

Speaker 1

And the partnerships, we continue With the level of appetite that I would say adequate for the cycle, we always look at the value proposition for Because when it's not good in the offering as a whole, the trend is that the client will only Go after the product because of this limit and not the value proposition. And we want to get a better value proposition to increase The Principality and the engagement and the Super App will help us in the integration. These are the main components of our credit card offering and you're talking about partnerships and you mentioned co branded. An important information, over the last few months, We did a review of our portfolio, and we closed with our partners. We finished a lot of partnerships They did not have an adequate value proposition for our clients and they generated cost of management.

Speaker 1

It was a small portfolio that had to be followed with a points program that didn't make any sense. So there was a relevant restructuring and we are focusing on what is relevant. Priority, We prioritize very well, and these are high level talks with our co branding partners, and we understand that the product Lost its value proposition, so it wouldn't make sense to us and neither the partner to keep those co brandets. And we kept some co brand nets that are very good elements, the co brand nets of air companies. And the value proposition is very robust.

Speaker 1

And in these, we renewed some partnerships. We renewed with Azul Airlines, which is a product that works very well with co branded, and we are very excited with the potential of the product. Thank you, Milton.

Speaker 4

[SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] From Jorge Curi from Morgan Stanley. Hello, Jorge. Thanks for joining us. I think you're in mute, Jorge. We cannot hear you.

Speaker 6

Can you hear me now?

Speaker 4

We can indeed. Thanks, Jorge.

Speaker 6

Good morning. Thanks, Jorge. I wanted to maybe shift gears. I think you explained in detail the results on the guidance. Maybe shift a little bit to the credit card regulation.

Speaker 6

Apparently, the 100% cap Interest payments, printed out, kicked in, in January. And it doesn't seem to me that prices for revolving Interest rates from cards are going to change at all, I respond to that. So I wanted to get your view on what the impact is on the business of this Yes, sure. Keeping in. And also, what is the risk that the sponsors of the bill, this month from today, a year from today, Look at prices and say, well, nothing happened and the prices are exactly the same.

Speaker 6

And we did it precisely lower price. And what is the reason that happens and then we go against the more around and potentially more aggressive caps will be implemented in order to really deal with that. And what is the industry doing to try to avoid that? Thanks.

Speaker 3

Yes. Well, thank you, Jorge. Good to see you. Thank you for your compliments. So just to go through, 1st of all, give you a little update about the changing law that we At the end of last year, we spent and I've been telling you for a long period, I would say almost a year, Very dedicated as an industry having conversations with all the possible stakeholders in the market.

Speaker 3

So this active, The Central Bank, the retailers, all the associations, we've been to the Congress talking to a lot of senators and So we had a lot of discussions about this topic. And we had a very clear and simple diagnostic about what we saw as the main forces that were producing this level of anomalies and asymmetries in the credit card market. So as I was telling a little bit before here in this conference call, I was saying that we have BRL135 1,000,000,000 in portfolio in credit cards. Out of BRL115 1,000,000,000 that There's no interest. So that is just to give you an idea how relevant it is the buy now and pay later in Brazil.

Speaker 3

So it's very relevant. So Our view is the following. There was a lot of headlines in the system saying that the banks For charging 4 50 percent per year in interest rate. And I was always saying to the press and to all the stakeholders That this is a virtual rate. It doesn't exist at the end of the day for two main reasons.

Speaker 3

First of all, no one can stay In the revolving credit for more than 30 days. This is the first reason. The second reason because you have a price amortization profile In the credit card that shows you that at the end of the day no one's pay much more than 100% On the acquisition value of the credit card, so our own principle to say on capital to make it easier. So we were saying that the rates are much, much lower than the rates that were being released. The central banks, They released the interest rate on a monthly basis of 12%, 13%, 14%, whatever is the rate and they do on a compounded way 12 months and say that it's 50% per year.

Speaker 3

It's not true. The rate on the mathematical way, it's correct. There's no doubt about it. But it doesn't happen because no one stays at this level of interest rate throughout 12 months. So our A view and we said that many times to everyone and I kept repeating that is that the impact would be very marginal on the interest rate Whenever you have this law approved.

Speaker 3

And why is that? Because at the end of the day, no one was paying much more than 100%. We were seeing 60, 120, 170 depending on the portfolio. So you have to do, yes, adjustments on the terms and also on the interest rate, But you will be with minor impact inside the limitation. We're going to fulfill the law.

Speaker 3

So this is our obligation to follow what is approved. And this is the way we are working in 2024. But in our view, this is an open discussion Because unless someone tries to understand really what are the real impacts for interest rates in credit card and when to do a long term Agenda, not a short term agenda, but a long term agenda. I think this will be an open dialogue that we have to keep. And so our view is that the executive, the Central Bank and all the stakeholders will listen to everyone else in the industry as they should.

Speaker 3

They will do another analysis trying to understand causes and effect and we'll try to create New discussions about that. So we are always open to that. We have proposals, everyone else has. So It's part of the business to have those discussions in a democracy very open to the dialogue and this is what we've been doing so far. So we don't see a cap again, a new cap coming.

Speaker 3

I don't think it's necessary to what we are seeing. But if we want to solve that on a structural basis looking the long term, we have to do things in a different way. Those were not the decisions made so far, But that doesn't mean that they are not open and willing to do that discussions in the mid to long term. So we are very open to do so as the leader in this market. And what's going on right now, it's exactly what we've been telling the market.

Speaker 3

So I think the good thing of that, that we needed to prove somehow That this is what was going to happen. So before that was just analysis. So I think the real life will show and confirm our thoughts and this will help to reopen this discussion again. We are very positive that this can happen and we are very open to that.

Speaker 6

Thank you, Milton.

Speaker 4

Thanks, Milton.

Speaker 1

Back to Portuguese because now we have Ardon Shirazi from Santander. Ardon, welcome. Good morning, Milton, Broedel, Renato.

Speaker 2

Thank you

Speaker 1

for the opportunity. My question is regarding the vehicle portfolio. We saw that there was an increase quarterly year on year. Talking to the investors and clients, we see that, that market in general is more excited with that credit line. I wanted to hear from you What is your mindset in terms of quality, growth?

Speaker 1

What kind of markets are you working with? Thank you and congratulations on the results. Thank you for the kind words. Vehicles business is something that we for many, many years had That is very relevant. And with all of this movement that has happened all throughout the market, we've learned a lot.

Speaker 1

We made new mistakes and we learned with the mistakes of the past. That's an evolution. We have a portfolio that is an adequate size. We've been working evermore focusing and servicing well our clients Regardless of the channel that they do the vehicle acquisition and the procurement of the financing, we expect A growth in that portfolio for 2024, not very robust. I would say that is adequate to what we've seen.

Speaker 1

This is a portfolio that we are in the 4th quarter Consecutive that we are reducing our delays above 90 days. There was A loss there and then there was a reframing in the market and we're reducing it relevantly, the delays, delinquency in this portfolio. This is a scalable business naturally to dilute the cost in this activity, and we've been working strongly to digitize The journey so that regardless of the scale, we can operate more competitively. So within the defined appetite of risk, we can define the higher volumes depending on the cost of service that we're working. Don't think that this portfolio, we're going to see the needle movement throughout the years.

Speaker 1

We're looking in detail the portfolios that make sense. We are present in the market. We do not see and this is we think that this is an euphoria business because the big growth comes from euphoria, the big losses as well. So this is a very volatile portfolio that is not very resilient. There is a positive aspect I would like to recognize With the insurance assurance that you can recover the vehicle through the D trends or extra judiciously recover the vehicle, This is important.

Speaker 1

This is a victory for all, and this will improve naturally. But we always talk about that vehicle is an insurance with We also when you recover the asset, it's always difficult. And we know that in Brazil, recovery of asset and assurance is a big challenge, will always be And it's very strong and it's a big challenge. So we see the evolution in the insurance and that can help us to have a recovery On LGD, better in this portfolio and that allows us to do the expansion in the profiles of risk, then that's what's limiting. I don't see a big explanation for growth.

Speaker 1

I don't think that the growth is going to be modest. Dollars 43,000,000,000 I don't think that is going to be very relevant. It's going to be in that order of magnitude, maybe a bit above.

Speaker 4

I'm going to switch back to Indus again because the next question comes from Nicolas Riva from Bank of America. Hi, Nicolas. Thanks for joining us today.

Speaker 7

First questions, I have 2 questions. The first one on dividend. First, just to confirm I'm looking at this right, BRL 11,000,000,000 That you announced as extraordinary dividend payments. That should come out of equity in the Q1. So at the end of March, I should take out about 90 basis points Of capital from your ratios just to confirm.

Speaker 7

And then in general on your dividend policy, I remember that in the past you used to target a common equity tier And roughly 12% and a 1.5% 81 bucket. And you said that you would pay in dividends The excess capital on top of that was percent CET1. Is that still the way you look at your dividend policy and your target for your capital structure? And then second question on the perps. So far you haven't been calling the perps the old 6.18 and the old 6.5 percent which we said to higher coupons since then.

Speaker 7

But if I look at market prices, you're basically trading the coal price at par and you can call them every Every 6 months, it seems that the market is assuming that they are going to call them in the short term. Now we are paying a coupon below 8%. And last week we saw a Chilean bank PCI with better ratings because of the sovereign in Chile than you Issue an 81 non callable 5 at 8.75, so quite above the below 8% coupon you are paying on your perps. Is it realistic to assume that you're going to call the perps in the next call date? Or at least if you can discuss a bit how you're thinking about the call option on the perps?

Speaker 3

Yes, sure. Thank you. Thank you, Nicolas. Thank you for coming. It's a good it's a pleasure to see you here again.

Speaker 3

So let me start talking about the dividend policy. So in general, you are right in the direction. So your calculation is precise. So when you take in consideration the BRL 11,000,000,000 is the impact we're going to have in the CET1, it's true we might see something around 100 basis points. We see that some volatility in the available for sale securities that we have in the balance sheet.

Speaker 3

So the way we measure And the way we make our positions, we might see some consumption in the beginning of the year. So when you look 1 quarter, We're going to have the profits that we made in the next quarter. We might see we will see the impact of this dividend And some volatility coming from available for sale that might consume a little bit maybe 20 basis points in our capital ratio. So this is what you should see. And when you look in the long term, 12% is a good level, 1.5% on the 81 It's where we are and where we have the policies very well established inside the bank.

Speaker 3

And having and looking forward 12 months or 18 months, depending on the level of information or uncertainty that we have, We're going to be calibrating to define where is the best level of distribution that we should do. So this is roughly 12 Where you have to keep your eyes on the uses and the sources is something that you have to keep the eyes on, especially when you have Some tax reform on capital when you have discussions coming from the regulatory perspective, coming from Basel on the operational side or Credit side, so we are always looking the certainty and also things that can happen. That's why we always keep A buffer, the unknown that we don't know, of course. So that's why we keep some buffer on that. So this is basically that's how you're correct to look the way you are.

Speaker 3

So we don't want to retain the excess of capital having the opportunity next year. We're going to deliver another extraordinary dividend. So this is how we're going to be achieving. It's very difficult to accent define a payout. But the concept behind it, it's very clear and this is how we're going to be pursuing.

Speaker 3

So this is the first topic. On the perpetual side, You're right. I saw the BCI 81 coming to the market, the level of prices. And the idea we have is that When you go to a new issue, I suppose and consider the new issue premium that we might have for a perpetual bond, We believe that today if we have to assess the market, the level of prices would be much higher of the level of prices embedded in the coupon today that we have. So that's why we haven't exercised the call.

Speaker 3

And why is that? Because we've been telling the market in advance that we wouldn't exercise the call, that we would have a very economic view and approach. And then we have to consider all the alternatives we have to assess market international and locally, how to keep a curve In the international market and what would be the new coupon and the new yield if we go to new issuance and it will be much, much higher Then where we see so we don't plan. This is not in our radar now to exercise the call. And if there is any Change in that sense, we're going to with anticipation to provide clear information to the market.

Speaker 3

But as far As we see and if the market keeps the way we are seeing today, it can change tomorrow or the day after with the informations we have today, We are not expecting to exercise this call. So this is something that we're going to keep talking to the market, to all the investors very close.

Speaker 4

Thanks, Milton. We're getting towards the end of our call. We have one last question in our list in English again, and it comes from Carlos Gomez from HSBC. Carlos, great to see you again. Thanks for joining us in the call.

Speaker 2

Thank you for having us. Congratulations like everybody else for the results and for the dividend. And thank you for making this a long call and allowing a lot of time for questions from the analysts. So 2 things for 1, you gave us the estimate about the impact of Paco 3, which is 42 basis points as you calculate today. Could you also give us the Impact of the tax reform, as you said, as it is described today, what would the impairment of DTAs do to your capital today?

Speaker 2

And second, in the past, you have told us what your estimate for your cost of equity would be if I recall correctly goes around 15%, I could be wrong. Could you tell us where do you think it is today? Thank you.

Speaker 3

Okay, Carlos, thank you for your words. Thank you for coming. It's always a pleasure to see you here. And we will take always the time to talk to the investor, a very relevant Tookholder for us and we'll take and invest a lot of time with you as always. So coming about your first question here.

Speaker 4

About the impacts

Speaker 3

on this initiative. Let me talk to DTA first, which is important. When we talk about 42 basis points, It's important to say that this has two elements, okay. The first one is the operational risk. The operational risk for us, we expect 100 basis points, But we have a phase in 4 years.

Speaker 3

So 25 basis points per year in the coming years, this is what we expect. So when we add to that on the credit side, there is some changes in the weighted assets. So this together may impact 42 basis points. But on the operational risk, we're talking about 100 basis points, 25 basis points per year In the coming years, this is what we are seeing. And the second element which is important is, as if the reform was approved exactly the way we see.

Speaker 3

So it's 7 plus was corporate tax rate and social contribution. We would see something like 60 basis Points in capital if we had to do an impairment. So this would be the size if we have a reform approved exactly the way the reform that is posted Today in the Congress, so if there was this major reduction in the corporate tax and also on the social contribution, we could see an impact On the DTA impairment around 60 basis points.

Speaker 1

Thank you very much.

Speaker 3

Just to follow-up, there's the second question about the cost of equity. Just to give you the number, we are running the bank the last quarter. Last month, we were seeing something around 14%. But looking now, the number of cost of equity that we approved in the Board and that we are managing the bank is 13.75 And this will be the cost of equity that you will observe, especially from February on. So you will have in this quarter a month With 14% of cost of equity and 2 months at 13.75%.

Speaker 3

So on the average, you will see something around 13.80%, 85% In terms of cost of equity for the Q1, this is the cost of equity that we observe. We look of course to our model, We look to the sell side, we talk to the buy side and we make our own discussions in the committees to get to this level. So this is where we are now, Carlos.

Speaker 2

Very, very transparent. Thank you so much.

Speaker 1

Thank you, Alexander. Thank you, Milton. Well, with that, we will close the Q and A. Remember that we received several questions, Milton and Alexandro. Via WhatsApp, we are going to answer them all through the IR team.

Speaker 1

And with that, I wanted to give you The floor for the last message for the investors and analysts. Thank you, Renato. Thank you, Alexandro, for the partnership and these discussions. Once again, we closed this year that started with important difficulties, January 8, 11 January 11, then there is the event of the other corporate that went through other issues. And we imagine that with All of the changes that happened in the country at the beginning of 2023, it was difficult to imagine how 2024 with 2023 would come up.

Speaker 1

I'm very happy to talk about these numbers and having this conversation with you with solid results, recurring results, consistent results With good quality and the important thing is what's inside the result. The result is a consequence of everything that we do in the bank. All the digital transformation, cultural transformation, proximity, client centricity has allowed us to deliver consistent results through long periods. I believe that we continue Completely committed with this agenda, the digital transformation, cultural transformation and all the client centricity has to happen Every day, we discussed it every second, and we hope to deliver in 'twenty four a Solid year with indicators of engagement and profitability and client centricity and relationship that is very solid. And we've managed to do so With a level of engagement with our collaborators that is higher very high, the Collaboration is high, clients are satisfied.

Speaker 1

So we have an engaged team, a great human capital that is focused in delivering the best bank for our clients every day brings this brings their results. 2nd aspect, we have our feet on the ground. We are very humble. We know that the Past performance is not an assurance of future performance. Everybody is focused, disciplined so that We can continue to deliver with a lot of quality in a market that is profoundly changing.

Speaker 1

Doing more of the same is not going to take us where we want. What we need This will have the capacity to reinvent ourselves every day. And this is the year of 100 years, September 27, 24, so this is a symbolically very relevant year for us where we hope to deliver strong results and be prepared for the next 100 years. This will be our journey with a long term view, governance that is very well established The Board, administration and all the committees and this level of alignment and engagement has produced relevant results. Thank you for your time, For your presence, of course, and more so for your trust.

Speaker 1

Trust as a client investor And we will work strongly every day to surprise you and continue to deliver the best bang possible for all of our stakeholders. Thank you very much. We will see you briefly, and we will talk in the meetings. And for those that I only see in the call, see you in the next call. Thank you very much.

Speaker 1

Have a nice day.

Powered by Quartr

Key Takeaways

  • Itau reported Q4 earnings of BRL9.4 bn, up 4% QoQ, delivering a consolidated ROE of 21.2% and a Brazil ROE of 22.2%.
  • Net interest income rose 3.3% to BRL23.2 bn; commissions & fees grew 4.6% to BRL13.5 bn, while NIM expanded from 8.9% to 9.0% on solid spread and volume growth.
  • Credit quality strengthened as NPL over 90 days fell 20 bps (individuals down 50 bps), the renegotiated portfolio shrank 4.6% QoQ and cost of credit declined to 3.1% of the loan book.
  • Capital ratios improved, with Tier 1 at 15.2% (+60 bps) and CET1 at 13.7%, supporting a total 2023 payout of BRL 21.5 bn (60.3%); an extraordinary dividend of BRL11 bn will be paid in March.
  • 2024 guidance targets loan book growth of 6.5–9.5%, NII with clients up 4.5–7.5%, cost of credit of BRL 33.5–36.5 bn and maintaining ROE above 20%.
A.I. generated. May contain errors.
Earnings Conference Call
Itaú Unibanco Q4 2023
00:00 / 00:00