Q3 2021 Itau Unibanco Holding SA Earnings Call
[music].
Good morning, ladies and gentlemen, welcome to E L F.
Our holding conference call to discuss 2021 third quarter resolved.
At this time, all participants and all that.
On the note.
Later, we will conduct a question and answer session.
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As a reminder, this conference call is being recorded and broadcast live on the Investor Relations website at Www Dot <unk> Dot com dot.
E are flashing back to bash relation.
A slide presentation is also available on this site.
Before proceeding let me mention that forward looking statements are being made under the safe Harbor.
Charities Litigation Reform Act of 19 nineties.
Okay.
Actual results actual performance could differ materially from that anticipated in any forward looking comments.
A result of macroeconomic conditions market risks and other factors.
With us today in this conference call in Sao Paulo are Mr. Malcolm gloomy.
<unk> CEO.
Okay, Dahl, CFO, and Ronaldo and Dr. Jacobs group head of Investor Relations and marketing intelligence.
Mr. Matthew <unk>.
I'll comment on.
2021 third quarter result, afterwards management will be available for a question and answer session.
My pleasure to turn the call over to Mr. Melton, Missouri.
Thank you good morning, everyone and thank you all for joining our third quarter 2021 earnings conference call.
First of all I would like to talk about.
Our numbers are our managerial result was $6 8 billion.
With a goal of three 6% in the quarter.
We had a 38, 8% year on year, increasing our profits, but when we look to our managerial return on equity on the consolidated basis, we are posting a 19, 7% return on equity and in Brazil. We are having 25, which is an increase of 1.1 point.
In the return on equity.
Relevance highlights I would say on the credit portfolio. We grew five 9% in the quarter, we especially had a very good quarter in credit cards, 9.8% Roes on a individuals' mortgage 12 points to SME standpoint, three so we delivered a very good growth.
And the general portfolio off the bank and that's resulted in a very good margin with clients roll off 4.7%, where we got to 17 point seems to be done.
On the issue cards, we achieved $4 7 million credit cars. It's unimportant inquiries are even comparing to the last quarter, which was a very good one.
On commissions in insurance, we grew two points one achieving 11 6 billion here is and our efficiency ratio calculated in the way we believe it's the proper way of doing that.
We achieved the most.
42, 1% in Brazil, which is the best in the segment with comparable banks.
She is a very good achievement.
Looking about talking about each of our digital bank, we achieved 10 million total clients, saying September 'twenty, one, but we still have a challenge to achieve 15 million by the year end.
Knowing that in this last quarter, we achieved $2 2 million new clients, but it's worth to mention that 85% of those clients are no account holders.
In the older hand, we grew 199% credit car sales quarter on quarter.
Another important figure is that we are acquired $5 7 million clients digitally.
Digitally in the third quarter of 2000 and win.
We had a very good quarter last one putting these when we still increased 21%.
And what we call O to O. We choose online to offline, we achieved 14 billion housing volume.
In the nine months of this year and this is has to do with hours Trotter G of our investing a lot in what we call a fish at the winter Omni channel, we experienced better will give more detail later on.
On the next is light, it's very relevant to mention the numbers and the achievement we've been having on digital sales now with digital channels. So when you look in terms of share you will see on the left hand side that we have achieved a 62% market share in.
In our digital channel growing 2.8 times, what we had in the third quarter of 2019, and our engagement heats and user per month, it's increasing that as well. So clients are using more per month, our digital channels than they used to get about 30% to 30% increase in two years.
When we look to see Youll see no digital channels in credit we grew 2.5 times insurance and premium bonds, we increased 2.6% at times.
Third quarter of 2019 and investments two times eight adding carts 5.2 in all of them. As you can see we are achieving are very important sharing the digital channels more important than that is that we say that we are a one stop shop and we should have by the year end 2000 and win.
100% off product in mobile. So this is how we see that and it's very relevant for all risk strategy on the next slide talking about fish. It. Though this is the way we believe we shoot a half relate to our serve our clients and having a footprint of physical.
Bricks and mortar branches and also having the digital channels. So this is very relevant for our off reduces by conviction. So when we look out we were talking about a new way of serving our clients single point of contact to access all product and service offer at the branches are more modern.
And tech based environment, and new way of being present as you can see here, we have a click to human so any time, a client is going through navigating our digital channels. He can clique.
And migrate and they start talking to a human we have 100% of the channels capturing an automated leads and then we are whenever we know are the information about the clients, where he is going through and.
And what channels, what he's simulating a we have an important conversion when we transferred these leads to the manager sales we have on a <unk> ratio of 25%, which is very relevant now.
Nowadays, we have 75% of our products, we've seen omnichannel experience.
50% reduction in manager's time to action and a 75 reduction in new offers a lunchtime. So this is how we are serving new enough tissue, though we our clients.
When we go to the next two slides.
You can see this is if there'll be a at a glance. So the idea here is to share with you a little bit more about I'll read there'll be be wholesale operation.
First of all we support a 20000 clients in this segment, we have four major segments corporate investment banking of large corporate middle market, they're not gonna business.
And we have some industry some niches like real estate finished with institutions multinationals and tech companies the value proposition of it there'll be a long term relationship complete offer of products and services specialized service model.
And a few highlights that I think it's important to share first off our bottom line grew 50% when we look nine months of 2000, and when 2000 and when compared 2020.
The cash management, when we leave our we had an important growth of 35% on volumes of payments and receipts, which is very relevant as well and the credit portfolio grew 11.9%. When we look to agribusiness segment. There is an important group of 25 27.5.
It's important to say that on the investment banking side, we've been leading the three ranks so equity capital markets. We had a grow we achieved the first position managers, a mergers and acquisitions the same way around and local fixed income or the same as well. So as you can see you have the volume.
N D. There for volumes M. D. D D distributed in all of those products investment banking, but the most relevant information here is that we are doing that and we still increasing the customers increase it that we have very focused on the last two years. So we achieved 77 points on the NPS.
It's 10 points above what we had in the same period looking on September 20.
And the next is light are talking a little bit more about our credit portfolio. We have an important grew.
Any individuals as you can see credit cards personal loans payroll and more relevant stealing auto loans and mortgage.
And this is important for the way we manage our portfolio.
When you look only the total off Brazil, we had a 6.6% growth and when you take out the foreign exchange rate variation, we had a four point to eat in a 15.7 group it's important to mention that our re profile portfolio.
That used to be $53 5 billion here is up in September 20 had an important reduction 34% throughout this year and 57% of the portfolio our call up the realized.
We had in the quarter a reduction of $13, two which is very good.
Knowing the reason why we made these portfolio Uh huh.
When they make a connection but when we look to the Grace periods, we had only 1.2% in gray spirit. So it's basically all the credits are due.
And we have the delinquency ratios 15, 90 off $4 four in the over 90 days Oh at 88.3.
When we look now on the right hand side.
We have the lowest average balance it's important to mention that the personalized spread it has to do with just rip profile of the portfolio as well there was not an important decrease of 7.7.
When we look to 2019 as steel are above the figures we used to have but this has a relation to all the program that we are putting place last year to help our clients to go through the crisis.
In the other hand, the overdraft and unsecured loans are growing.
Even though the overdraft is still behind.
The average balance that we had in 2019, but in the other hand unsecured loans are now above what we had in 2019. So there is a new dynamic in terms of growing portfolio as you can see here.
And the next is light it's important to say that we believe this is a very sustainable growth in the individual portfolios. When we compare the third quarter of 2000 and went through the third quarter of 2020, you can see on the credit card 25 point when growth <unk>.
20% growing the payroll, but as you can see in all of them, we are growing the portfolio and increasing our NPS. The net promoter score that we the clients evaluate our service or our journey. So the credit card we increased six points on the pre hope we increased five points in personal auto and 60.
Points, and we grew 80% in Alto launch, we increased 12 points and we grew 38%. The overdraft. We grew $13 two in the NPS increased 15 point into mortgage we grew four pointing down if you asked me increased and we had a we grew 50 254 point too.
In the portfolio it.
It's important to say it's worth it to mention that when you looked at don't payments and Delta launch and.
And we still working with a very is more oh, if a very relevant on payment I used to be 37, now it's 41 and the average term. It's still the same 45 to 46 months and the loan to value are showing how healthy you saw our portfolio.
When we look on the vintage the average LTV of 55 now used to be 61, one year ago and also on the portfolio basis, we have 46% now it used to be 39, so its theyre very good figures when we look at this way.
And also on the individual portfolio. These major growth that we had on the secured portfolio made.
Two we increased the security portion of our portfolio to 56 used to be 49, two years ago and they will secure it.
He can consequence, it's 44 buses.
But as you can see we are growing the portfolio as a whole. So this is our portfolio a way of managing.
The secured and unsecured and you can see the NPL delinquency over 90 days and a very good figure of three 6%.
When these next two slide it's important to highlight the margin with clients as you can see you in a normal annualized base are.
We are pretty much flat.
With respect to the other quarter, but when we look to the NII you can see an important growth here of 88.
800 billion, a 800 million Hey, ice as you can see most related to the average volume that I just showed to you and also we have a.
A small growth and are these should increasing the next quarters will come from the working capital and the heat. These has relation with the interest rates high can also with the accumulated capital that we have throughout this period.
On the next two slides.
It's I'm talking here about the financial margin with the market as you can see we have three very strong quarters. When we look to the average that we had in 2020 in 2019.
We still had a few changes in mix when we look at them and also Brazil, but as you can see Brazil was delivery three quarters of very strong base much higher than we used to have looking to the previous quarters. There last quarter, it's more difficult to still have two months I had but I have been.
Seen more volatility in the market.
So maybe we shouldn't have a not so relevant quarter in margin with marketing. The last one is you've been we've been seen here in these last three quarters moving to the next two slides.
We give here on a highlight in our credit card portfolio. So we've been growing the credit cards and debit cards, 17% went for several of the other when compared to September of 2020.
The other hand, we grew grew 4.7 medium car T shrink third quarter of 2021, 280, 18% nine months against nine months and 138 quarter on quarter and you as you can see our N. P. S. Global N P. S achieved 70 points brewing sixth.
Six points when compared to September 20, So we are growing with a lot of.
Quality and clients increase city in volumes, we are seeing important volumes on the credit card.
Quarter on quarter, we are growing.
Credit and debit to 11.7% when we look third quarter 2001 in third quarter 2000 2026, 6%.
The credit card portfolio achieved 97 billion here is it's very important to mention that out of these 90, 785% is doesn't bear interest and when we look the installment we see interest in revolving we are talking about 15% of the portfolio.
But this is how the dynamic.
That we have in Brazilian market, we are growing the issuing income a 17% quarter year on year, which is very important but with a different mix on the interchange we're growing 31% and the annual fees we are decreasing.
The 22.4% and this is all restaurant did you to keep increasing them to either change and we we we made an important change in our portfolio recently I talked about that in the last quarter and we believe that we should have less anywhere fees are in the mid to long term.
And then we have interchange. So this is all restricted you to increase the lifetime federal former clients reduce the churn that we have with those clients as well.
On the next is light.
Talking about page, it's very important to say that we believe we have a unique position to the leave value from hatred. The acquiring business is also the banking business current accounts credit payments cards. So this combo, it's very relevant for us and we are working through this direction and we do believe that.
In one side, we have a very good acquiring business to deliver but also we have all the capability, especially on the credit side to deliver very strong kombu to this segment that knowing models experiencing the segment, it's very important for credit.
On the growth side, what we show here is that we have a 25% reduction in churn.
More than 100 software houses and the partners having clinics.
We've been delivering more than 3000, new smart P O S machines per month.
We've been leading the prepayment team receive off receivables in the third quarter, we achieved 50 billion Harris chief topped 55% went off retail prepayments.
And the penetration of prepayment of sales in installments, we had an increase of 10 percentage points and 35 percentage points and new clients, which is very relevant.
And the satisfaction, we see 80% of the P. O S machines delivering up to two plus 140.
49%, we are delivering people acero, 80% of the legible customers are taking out the ventures update people as to that we've been delivering to our account holders beneath our or others.
Best market approval rate in E Commerce, which is very important knowing that we have 30% of market share on the issuing side combined we felt we're acquiring plaid of forming the E Commerce, we have.
The most relevant approval and it's very important for the clients to comfort sales are we are the acquirer now with the lowest number of complaints per active basing hick luminaire key and on the efficiency side, we have 14 points percentage points growth in the customer using digital channels.
And we had a reduction of 17% of the Cogs cost of acquisition of new customers.
The 110 hubs that we have distributed throughout Brazil as well.
The next discharge I make mention I mention here that our transformation in the investment journey are.
We have around 53 regional walks us up to date, we should have around 90 by year end, where we have the specialist dedicated.
To be assessing or help.
Helping our clients to make better investment.
It's a new arena for us somehow we used to have only the manager taking care of the client now we have the manager and also these specialist.
We should have by the end of 2022 around 2000 people.
Taken care.
Of all of our clients are around 500000 clients with these dedicated service and.
And also since we launched the <unk> deal that we just very recent we had more than 400000 downloads 20000 portfolios aggregated into months 5000 clients feedback and its the idea is not only to be a consult with the app, but we can do all of the transactions inside app from transaction.
Fixed income we're gonna be open for non account holders by the beginning of 2022. So this is a new journey for us and we are very happy to what we achieved up to now and also we've been working to our journalist campaigns plateau for a focused pretty much on investment we.
We had a partnership with phage interact globally in Brazil, there are three fundamental pillars.
The first off one first one it's a we have an exclusive jordan or at least new rule.
With group Grupo Global content are very independent content production than we have done that work off digital influence we are bringing digital influenced that talk about the investment that it's very diverse talking to our society and also we have a wide dissemination and distribution of content.
We not only will have these in the channels of Grupo Globo political Nuomi Cool Globe would you one also and do social me just now we have Facebook Instagram Twitter Linkedin Youtube and also on commercial breaks off global news on the TV. So it's a new way of delivering content.
Our clients and also to increase our the old games of eel delivering enough very good roll off content inside this platform as well.
And the next page I comment here on the commission and insurance, we had a very good quarter as well as you can see here we grew.
At 2.1.
Same thing in the quarter, 4% year on year.
But when we take out the X be remembered that the spin off was made when I counted beast.
May 31st that means that we had in the last quarter two months with XP and wind months without XP that explained the 300 million. How is that you can see here on the second quarter of 2000 and when when you look result of investment in X P. In this quarter, we didnt have XP, even though we grew in the quarter, but when we exclude.
XP, we grew 4.8% and 8.883 year on year. So we have in a very strong year in <unk>.
The insurance side. The good news is that we start to see.
A relevant change hearing the dynamic we believe we still have a lot of room to increase our business insurance.
We had a six point to increasing nerd earned premiums 21.5, and under writing margin Ah I ate blip for declining the combined ratio, which is good news and I 8.9 percentage points in claims ratio as well and it's important to say that the financial margin.
For the surest was lower than we used to having the last quarter that means that the operational margin off insurance who's growing more suites.
So it's good news and we still believe we have a lot of room to work here.
Well go next to page I'm talking a little bit more about the credit quality first of all I would like to highlight that we had a cost of credit of 2.2%. It's a very good figure and even seen line. We've I've been telling you in the previous quarters, our expectation above the cost of credit it's natural to increase and.
This has to do with the group that we had in the portfolio that I just mentioned.
And also the average balance.
After delinquencies, it's nominal basis, it's a little bit higher that means a little bit more of cost of credit, but when you compare to the portfolio, it's absolutely healthy.
On the other hand, it's important to explain the Covid Rachel NPL 90 days, so coming from a book from below.
You can see on the retail Brazil, we are pretty much flat in terms of coverage and when we look to that to re profile portfolio. We are talking about 176 coverage, which is very good as well.
The two major impacts that we had when the Latina America has to do with one specific client as I've been mentioning in the previous quarters.
This client.
It's a client where we have and activity we have shares gave us and guarantee and we've been making provisions to these clients in the previous quarter. So what's happened is that as the whole say always the same movie anticipate.
Our provision on our expected loss model and whenever we have the delinquency you havent impacting Colbert as you can see over here. So in the Latina America. It's only one client is not booked in any of our entities outside Brazil.
It's booking in our branch.
In in Cayman.
But it's important to mention that this is completely it's a completely provision on the clean part of the credit which is completely are fine.
And we don't have any P&L impact on these profusion here and the wholesale in Brazil, something very similar three clients that are completely provision.
In the clean part and we are very comfortable with the level of provision that we have.
But those clients. They are now on delinquency over 90 days. This is the reason why they consume the corporate Rachel.
When we look at delinquency in the short term.
The good news is that one being the view those we still being reduction and it's important to mention that we didn't sell any portfolio anything.
Active portfolio. So this is a life as it is.
And also on the very small small and middle market companies, we've been seen a reduction as well. So those are the two good news.
He was here when we look the short term delinquency when we looked through the long term delinquency.
You can see on the individuals whose two performing very good and also one D. A.
They are very small and middle market companies, we are pretty much flat, 2.6%, which is good news as well what.
What is important to mention that when we exclude these only specific play in Latina America. Our total delinquency 90 days would be 2.4%.
When you look at the American Latina America figures would be 1.2, instead of 2% that shows that the only one case has this impact but that is as I was saying before it's there is no impact in the P&L. It's a claim that is being provisioned for a long time.
On the next two slides talking about non interest expenses up two message for you.
First of all total Brazil, when we look at the nine months of 2000, and when compared to compared to the nine months of 2020, we had only one point when growth almost flat.
But we cannot forget that we had a salary readjustment.
On inflation index of 10 points to another inflation index, which is a G. P. M of 24.9, even though we've been able to deliver a 1.1% and when they look to our efficiency ratio to 42 point when is the best indicator in the industry when we compare to <unk>.
Parable banks I would say is the correct way of publishing the number because we include all expenses here, we don't make a cut here only to show a better figure. So this is the most important figure as you can see them and then when we look here in terms of.
Investment costs, what why do we opened the figures the way you are seeing here because we are investing in the future a lot. So when you look to investment in technology and investment in business, we are growing when points to beat in her eyes.
And it's blue because it's right way is to have a much better bank to have a much more efficient bank a much more digital bank.
In the other hand on the efficiency program, we've been opening room for this investment. So we decreased 141 4 billion. He is hearing costs ended transactional one what I used to say the good cholesterol Ah it's because the volumes are coming very strong when compared to.
Nine months of last year of course, we take care of the unit cost.
But while we being seen here is much more volumes related then your unit costs increase which is good news. So the idea here is to show that we are delivering a very strong.
Efficiency ratio.
Investing a lot in the future of the bank.
In the next page.
On the capital side, you can see here that we had an increase of 0.4% of net income of the quarter. After dividend and also we had a consumption of 0.4%.
Risk weighted assets in the portfolio as well so the message here is that we generate capital enough to grow the business.
In the other hand, we had the acquisition of immuno straight O P row reaches an investment important went up $2 6 billion Reais that means that we had we have these keating capital at site I would say, but in five years. We have these capital back and also we will have the Rev.
The news of this portfolio more than 600000 employees a lot of providers suppliers. So it's very important for the business and there is also this 0.3%.
The decrease on the capital this is much more related to the effects for aviation.
This has two main effects when as the the cost the fixed cost of our credits that we generate in our overhead just Friday that we are in run off by the year end and also we have the risk weighted assets of the portfolio the abroad. The audio.
Currencies portfolios that are in part impacted by the foreign exchange variation. So this is why we come to 11.3 capital our core equity tier one bodies to you a good level of 12.9% level one.
Oh, and then ex this page page I talked to you about Ethernet zero, we will reduce this is something that we.
We agreed very recently to reduce total emissions by 50% by 2030 and become caramel carbon neutral by 2050.
Our emission targets will be certified by science based target initiative.
What we call here S. P T I E.
It is important to highlight that always scope, one and two we are already carbon neutral in the scope three represents 99% of total emissions. There there was a lot of ways of measuring it but it's important you'll see the approach it's very inclusive to our clients. So we will support our clients position process.
Fostering a climate transition plan, new product and team dedicated to support clients transition agribusiness. This recover a fast jurors ecological restoration and dual fuel production and also encouraging voluntary carbon markets. So this is the way we are approaching 35 of the 55%.
Of the emissions.
Measuring about economically groups out.
Out of those 25 have already signed up to the de carbonization commitments. So that means that this is something that is happening not only throughout the banks, but the whole industry. The market declines are moving throughout these direction, which is very positive for the world.
And for all sustainable Walgreens.
The next is light I could not end this presentation without talking about the cultural transformation, which is I believe it's very relevant.
What we are doing here. So this iceberg you can see two ways. What it's all tied to water are the results of this cultural transformation. So now we have 62% share and saves for individuals through.
Through digital channels, 81% products for individuals and companies had their NPS improved which are relevant figures.
We achieved the best banked working Brazil. According to Great places to work and the second in the whole industry of companies in Brazil. So we are very proud of that I mentioned already the old tool more than 14 billion here is.
You know many channel when physical approach, 100% of our products in the mobile channel by the year end, when we say one stop shop and a very availability on digital channels of 99.6 what.
What is behind that it's under the water as you can see here very focus on customers. So customers increase city waste of working off the bank. We are working in communities already 10000 people. We should had behalf by the year end of 2020 to 21000 people working in communities very integrated much less.
Hi, Archie and more agility so we.
We don't have more the titles, we used to having the bank executive Vice President Executive director. So we only have directors everybody has the same title.
We have this active community its the only difference this 11 draft of people in this active community.
We have a very different risk managed approach.
Where we believe we have a lot of capability installed capability. There are competitive differential for us when we look throughout the years, but we still have room to increase to be more innovative to create the environment for people to innovate to create new products more M. G P's best.
Fast learn and fail fast so approach like these are very important for the digital transformation that we are making throughout the bank.
We changed the incentive so much more linked to the stock price appreciation.
And the expansion of the partnership program is something that we are doing all we used to have 195 partners. We are moving to 450 now.
I've been telling you about the technology transformation, we had a chat about that in the last quarter, but we emphasize here that we are modernizing our legacy systems. We fully stack is state of the art and the technology base. We are modernized the services of the bank more than three 800 services to Denmark.
Great to cloud and we expect to have keep the percent of those already in cloud by the end of 2022 and last but not least we are reformulating here I'll also sativa, Jada M&A acquisition integration, a more agile and flexible model.
And we should have results on that in the coming months and also we cannot.
Uh huh.
We have to mention here that global network that we have that we have more than 350 high grocery starts up when they are becoming clients of the bank and also where we have alliances opportunities here to work with those companies. So this is an approach that we are doing very focused as well in the digital transformation of the <unk>.
So with this I finish the presentation and then I open for the Q&A. Thank you very much.
Ladies and gentlemen, we will now begin the question and answer session. Thank.
Do you have a question. Please press the star followed by the one.
It's Tom.
The question before.
Purple.
Well that any time, you would like to amazing stuff from the questioning queue.
Cool.
Our first question comes from.
Sorry, Paul.
Uh huh.
Good morning, everybody. Thank you for your presentation and thanks for taking my question. Let me ask you two questions Milton.
Just one.
It is we're getting some concerns from some investors about your strategy ranked the accelerating loan growth now, especially in non collateralized products.
When the outlook for the economy is deteriorating right I think your economists had wanted the most bearish outlooks for next year.
So we were getting some concerns from investors about the outlook for asset quality, then next tier input provision charges. So if you can discuss a little bit the strategy.
Why what are you seeing that makes you comfortable in that.
Accelerate.
Our growth in Europe.
Congrats rise products at this time on the cycle and then the second question I have is related to your net interest income.
<unk> ranked that.
Bulk of the growth in net interest income with clients is coming from volumes.
That credit spreads are stable so.
Wanted to understand from you.
Is your ability.
Due to improved credit spreads going forward.
Especially right now your rising rate environment.
Some of your competitors I would assume is going to be having a bigger challenge with funding costs. So if you can talk a little bit about you know how do you see the competitive environment.
And your ability to increase our spreads as rates rise. Thank you.
Thank you very much Mario for your questions first of all talking about the growth of the portfolio.
It's very important to see.
That as I said.
Last year.
We had a very important loss in terms of production and market share.
Due to the pandemic crisis, so if you'll remember that.
We were predicting just to give you figures here 11, 7% of market share in the production of some products, we moved to 6% to 7%. So the market's view was delivering good growth and we were producing 7% to 8%. So we lost market share as you'll remember and here there.
Dia is not to grow the portfolio just for the sake of growth.
We have been evaluating a lot about our clients what is the portfolio what type of clients. We are growing so we didn't change our risk appetite, it's very relevant to mention that.
What we are doing it's two real cool by D space I would say this share or our fair share in many segments. So when you compare our we've been we had four to five quarters. When we were decreasing our margin with clients and we <expletive> rose much behind.
Our Oh, the marketing general so what we did is.
Clients that we have more than two years in terms of relationship clients that have more than meet to high income so relevant clients. We've.
We've been able to reoccupy. These space that we lost last year well by design I would say so of course, we are forecasting if you. If you go back to our our perspectives for the economy for 2022.
Even though now we believe that the economy should go flat or including a decrease a little bit on the GDP when.
When you go back three or four months he wouldn't see a much different figure. So we were not very positive about the growth of next year.
Anyway. So there is no there is not a major change in the economic projections.
That.
Caught us.
<unk> thought about that so it's a very healthy grow we are very confident about that of course, we have challenges in Brazil, while the economy, but we believe that these groceries very healthy due to the type of clients level of relationship and historical information that we have from them. So this is how we are viewing that so this is on the gross side.
Talking about the margin and the NII.
We don't believe there is room for increase a lot the spread so we may see that specific portfolio, but in general basis. There was up of competition. We don't believe that the portfolio should grow the same way that we grew in 2021 are we believe there should be.
The reduction in gross naturally but.
But we believe that we won't be able of course there.
There are some portfolios that are impacted by the increase of <unk> in the first moment. So when we look to the payroll are cool Sugimoto I N S. S.
You have a regular fee.
You cannot charge more than a specific rate.
Because it's a rig late regulated line in the other hand your cost of funding start to grow.
So you have to wait for some changes on these markets will Dan you can catch catch up any spread oh.
On the on the mortgage side, we know that the new what we call our account is being.
Being 70% of the silicon.
When we look.
To the to the other.
Just a second.
Are you listening to me.
Yes.
We're here we're here yet.
Oh, sorry, sorry about that so we see some pressure here.
Yeah on the on the funding side, but whenever we are able we make the reprice of those credits to the client. So I don't believe there is going to be a lot of room to increase the spread by mid year by next year. So this is my view.
Okay.
That's very clear thank you.
Thank you very much.
Our next question comes John Corey.
<unk> with Morgan Stanley.
Hi, good morning, everyone and congrats on the results for the quarter hope everyone's doing well I wanted to maybe drill down.
A little bit more on on the previous question.
Your credit portfolio will decelerate in 2022 versus 2020, one that's kind of like what you are suggesting probably not a meaningful deceleration, but certainly a deceleration.
On the flip side, you could potentially get better and net interest margins given them and doubling of the average selic rate next year versus this year and so I wanted to see if.
How do those two things at all Tom in your NII will probably end up growing around 10%. This year. So when you put those things together.
Lower growth next year, but better.
Selic rates potentially better margins, how do you think your NII could perform and next year relative to this year. So that's the first question and then the second one is is as related which is on the on the expense side.
And I'm guessing and I and I read from some of the news articles about the comments you made in their port Dewey skull that you expect expenses to be flat four for next year. So so if if you are able to grow.
NII.
And hopefully in the low double digits on expenses are flat.
Is it reasonable to anticipate your operating profits to be up in the high in the high teens, maybe so so that's that's sort of like the equation I wanted you to help us figure out. Thank you.
Q think who should I should thank you very much for your question. So just to go through so I think you were pretty much right. Many of the topics. You mentioned so we do believe that there'll be a big reason the portfolio will not be growing the same way we are but as to you we're going to be growing portfolio for next year. It's one part.
The second one the silica, yes will impact our working capital.
And these will bring impacts here in the financial margin with clients, but not only this but also the average balance of our portfolio will be difference in 2022 than it was in 2021. So this will be positive for the margin with clients as well. So it's important to highlight that you are correct.
Not going to anticipate here the guidance, we should be discussing this in the next quarter, but I believe we're going to be growing the margin with clients for the two reasons I just mentioned here one is the silicon. The other one is that average balance of the portfolio to see if you're thinking consideration that we had an important acceleration these less water.
We're going to have at least 12 months next year.
Portfolio that were billed in these last two quarters. So this is very relevant for the margin with clients. We do believe there should be an increasing the cost of credit. It's a we believe that this is reasonable to expect to be very honest, but also you cannot forget that we had some provisions made.
Last year to the Covid you that were not consumed.
By now so that means that if there is an increase and if there is an increase in the delinquency. We still have a very good laugh off provision that will be.
<unk> bye.
Throughout the year of 2022, so I'm not going to anticipate next year in terms of costs. What I can tell you is that.
When we talk about flat I'm talking much more on the core.
Core costs off the bank. Okay. As you can see here, we are having a one point winning Brazil grew.
But when you look the core costs. There is an important reduction of 700 billion high 700 to meet him.
When you look at nine months two to 2022 nine months of 2000, and then win but we keep investing in the bank we have a very inflationary pressure as in many other places, but here are very strong numbers, but we still have the full was to deliver a flat or why not a reduction in the core cost by next year. So.
This will compensate and important part of the investments we are making I'm not saying that's going to be zero at all what I'm going to say that we're gonna be delivering a cost below inflation next year on a consolidated basis. This is this is I'll review.
I'm positive somehow about all those elements that I just mentioned the only topic is that we're gonna be facing a different and a challenging microeconomic environment and this is important.
We are in Brazil for many years, but he's not going to be the first time, but it's an election year. So we may see more volatility in the market next year and this is how we are preparing ourselves. If there is a oh I would say.
Worsening economic environment and the impact it may bring but in general we are more positive than negative.
Thank you Milton Congrats again, thank you very much.
Okay.
Our next question comes from.
Wow.
I understood.
With UBS. Please go ahead.
Hello, moot or let somebody go hang out and good morning, everybody and thank you for taking my question.
I would like to hear more from you about E G.
Because the digital bank had about 3 million clients at the end of the last year and the transportation educating our presentations for reaching at a 15 million clients at the end of the next month.
So it is basically a net addition of 12 million clients and he is a member.
There are debt equals loud chip at the beginning of 2019, if I'm not real.
So could you please share more information of what has been done during this nine months.
To recording some remarkable expansion.
It was related to Faisel, a cashback the launch of a large variety of broad it's more like expenses.
Nothing to share with us abolishment bench and during this period. Thank you.
Yeah.
Thank you we'll have a look at the resort.
New important change in the value proposition of each throughout the period. So we were.
At the very beginning talking about a payment account then we decided that it should be a digital bank much more than a payment account and we've been working a lot.
In the fundamentals of this new business.
Business, especially on the technology side client experience user experience.
Investing a lot on that and then we start to invest a naturally on our marketing performance marketing are also new marketing to.
To give you much more awareness to EG and what is the value proposition. So each one has an important role we seem to be the only bump is not only a business where we can achieve low income oriented people, but also he has this ROE as well for our segments of the branches of the bank wide.
Because for many clients, it's a much more cheaper way of serving the clients and we can of course offer. These two clients that today, we don't have a very at.
Cheap way of serving some clients of the pyramid. So this is basically the strategy, but we were delivering new functions and new products to EG.
Throughout this period, which is very important and we've been invest money and client acquisition as well.
Even though we've been investing in our cost of acquisition is very cheap when compared to many others. So we are very happy to the achievements we've been making we.
We have the member get member his strategy and it's working very fine.
It's a new product a new business that we've been able to deliver.
And to grow a lot we have yes 15 million. It's the challenge by the year end I'm not sure if we're going to get to the 50 million, but this is not a is a.
A hard goal and where we should get there whatever it costs. We are always evaluating the cost of acquisition the activation the loyalty the new functions the new product that we offer to the client and this is what will generate the stickiness in the long term. So we are happy to what we deliver up to now, but we still have a lot of work to do in many fee.
<unk> to be delivered to all to this platform not only for the clients. The new clients. We didn't five per cent of the clients are new customers for the bank, but also it will have an important role to our client base actual client base of the bank as well.
This was very very helpful, especially to understand this transformation.
Considering 2019 total training changing for a payment plan for it to use the wallet.
Banquet floods.
Just to make a follow up of this transformation of the bank, but now.
Shifting the topic to IL <unk>.
Last one I had asked.
These lines of the bank that is a large 16 show EBITDA.
<unk> two <unk>.
By default, especially considering.
The increase in the guidance for specialists.
The last quarter I believe that you guys mentioned about $1 5000 specialists.
The next year and do this presentation Creek, two thousands fashion equal to the next year or so so I have two aspects to understand here about first would you like to share with us.
For customers with dedicated servers or the next year and confirmed to me if I'm not wrong, but in this quarter there were more than 500000 customer using the app.
And my follow up question on this.
It's about the market positioning up yet within this scenario with a bunch of the bathroom flight apps.
That's a good relief.
We'll tell the IFC causes landscapes thinking up all the Christmas for firewall market share.
Items, although the matrix.
What you think.
G.
Thinking itself.
I don't know look we made this decision to have a different value proposition to the clients that invest with us.
We used to have their manager their relationship manager. They can cook got taken care off all the relationship so where he was talking about the banking credit and investment.
And we thought that with the new changing the investment environment that those clients need it.
Very unique.
Investment consultants.
So that's the reason why we brought so many specialists to the bank. We have now up to date 50 553.
Regional offices, where we have.
Assessment and investment teams dedicated we should have around 500000 customers that are going to be using.
This service.
This investment approach, but.
But we still are I would say, it's not a pilot because we already growing a lot.
The results encourage us to keep growing these are these are business.
But we still learning a lot and how and how many clients should be have under these I would say this area.
Well, we know is that we also have need to have a platform when the client will serve himself without the need of especially because the level of investment that the client needs and he's needs or.
Are not relevant enough that justify having this unique assessment or investment service. So the idea here is to have E. O S. A platform serving much more than 500000 clients. At this moment, we have 500000 clients working with a specialist and in the near future.
We want our lives if we have to scale up and generate more we are not looking to our market share in terms of outgrowing almost comparable yourself to the industry. We are much more looking to the kpis and okay. Okay ours that we defined here to guarantee that we actually are achieving what we are what we wanted to.
If this is the case, we're gonna be scaling that the the model N.
The business, but we are very happy to what we have up to now. This is the reason why we are still increasing their offices and growing our bay area.
Okay. Thank you very much.
Very helpful thing can do with them.
Our next question comes from Keith and Roberto.
Please go ahead.
Hi, Good morning, everyone and thank you for the call and taking my question and follow up on expenses.
Alright, we look at expense growth.
Noninterest expenses up 2% in the quarter, but yeah personnel expenses were up 6% admin.
Abate and you had a big decline in provisions for lawsuits and labor clean and then to think about this growth for next year. You mentioned you want to keep expense growth below inflation.
Get the full impact of the salary of gasoline, which you don't want money this quarter.
How do you think you'll be able to keep cost growth below expenses next year.
Cutting back on the third party and marketing expenses that picked up a bit in the quarter do you expect this does provisions to fall a lot more again.
What levers can you pull.
What's going to drive.
The reduction in cost growth next year or keeping the Kaufmann Nancy.
A second question after that.
Okay, Hi Chi to thank you for your question look effecting this third quarter, we have some seasonal events.
The salary readjustment, yes. It has an impact as you were talking about the provisions. We have we are only doing the ones that were finalized and judge. It. So there is no risk of discussing here. So we are being very conservative I would say in terms of a reversion in those provisions.
So whenever we have a process that it's finalized we don't have any reason why we shouldn't keep a month in the level of provisions. We had previously. So this is what we are doing in.
In terms of the program efficiency programs, we have 1300 initiatives under this program just to give you an idea. So there is not the only one bullet silver bullet.
It's very difficult to tell you what but.
But we are working throughout the whole bank. So seeing some very small tactical activities that are two very structural changes.
Just to give you an idea we have a change in our retail model of operation that we used to have to.
Two separate these structures taking care of the branches. So there was no operational Guy and also the commercial guy responsible for client sales and so on and so forth.
What happened is that we integrated those forces.
And these had an important reduction also in deploy employees. We have also throughout the pandemic. We made many decisions about footprint. We made decisions about the buildings, we have we made decisions to reduce reduce.
The number of buildings in places that we had so there's a lot of things being done Brad that was very focused on that and this is how his main.
Go, but we are doing.
Very small things to big things.
But we still bill.
Believe that even with this inflation pressure, we should be delivering at least one the core cost zero.
Or including a negative base are.
What we used to be doing it's investing in technology investing in business somewhat off those investments came not in the January so we're going to have the full year of those costs. So we still believe we have to on the investment side on the retail side on the wholesale side Theres a lot of opportunity of growing the business and we are doing.
But on the core cost I'm still very confident that we can deliver a zero cost point next year and our brothers. He's here by my side. So it's much more than an impression eats up task that he will take the first person.
Okay, great. Thank you.
For.
If I can ask my follow up question somewhat related maybe a little bit more conceptual though.
Given sort of the competitive landscape and all the investments in Nike and becoming more digital if you were to start from scratch and you got the opportunity to build a bank starting today.
How would you go about doing that I mean would it be for digital would you still be branches.
Yes, certain products that you would go into are not going to get to.
Think about the sort of evolving competitive landscape.
See that.
Do it.
It's a good question I think the way we would approach it the same way we are doing each so you first start with a very digital platform a very unique customer experience you learn how to work with those clients and then you start to scale up I believe in the past you know that footprint was very relevant for our business.
This when you didn't have all those digital channels.
So it's impossible for anyone to replicate what we have but we've been seeing many digital companies increasing their footprint physical footprint not only in Brazil, but in many places and we do believe that this is a competitive advantage why I believe that.
Because we've been having good results the clients when we measure declined the openness on account you know bricks and mortar.
Our branch and opens on our digital channel, even though you have the cost of the physical branch.
We still have and you have much more results with those clients. Then you have when you're doing a digital channel. So it's very relevant to us is more than twice.
The number just to give you an idea.
So it's a completely different way to talk to to interact with declined so it would be very impossible for us as a digital if I would create from scratch a digital bank to have a footprint because it depends a lot of investment you have to it's difficult to scale it but we have this already.
So now we can optimize that in the best way. We believe so if there is any need to adjust.
The number of branches, we will do it but it's still going to be more relevant and we have much more capability of cross selling have the branches.
Then don't having their branches so the advantage that each has.
It will be working with our clients or segments.
That don't need necessarily to go to a branch, but whenever they need to do a much more complex product. They will for sure need some individual attention and then we're going to have a very good footprint to help those clients as well. So I believe that these digital approach is much more relevant and.
You can you can see by profitability you can see the digital profitability and the bank's profitability and I think this has to do with Oracle capability to cross sell and to penetrate more products and more relationship with the clients.
Okay great.
So if I understood you you would start digitally.
Eventually you kind of maybe having granted you do see benefit did that sort of.
Yes.
It depends on how much you can invest but if you can invest I do believe that the physical branches will be relevant is to be relevant in the long term.
We have that capability already so I think this is an advantage either in the <unk>.
Understood great. Thanks, a lot and everything thank you bye bye.
Our next question comes from Yuri Fernandes.
J P. Morgan. Please go ahead.
Rob.
I knew Tom. Thank you I had a question regarding deposit outlook, if you will.
This quarter the positive growing about pets off loan growth right like seven versus 14 or less and I know you had a very good funding in 2000 and plenty.
And tired.
But looking ahead for 2022, how do you see a funding growth.
You still have an advantage on brick and mortar relationship with companies, but hopefully can moving up and I guess the message you are providing that maybe loans will decelerate a little bit, but even inflation. We may continue to see strong loan growth and normal terms. So my question is I guess more like a topic.
For the industry as a whole like how do you see funding in Brazil, like disposable income come down with higher inflation higher rates and I don't know everybody growing so what should we see it for funding in 2020. Thank you.
Okay. Thanks for your question look as you perfect Bankshares in 2020, Yes, we had this phenomenon we had a huge increase in.
In our deposits is coming especially from the wholesale as well, but many companies were.
Asking for credit lines, but they were not using their credit lines. So what really happened at the end of the day, they got the credit, but they invest the credit.
We think the bank. So the reason why is that whenever they needed. The funding if there was any need in the future they could redeem that investment and use that as working capital whatever they need. So this is a strong phenomenon in 2020 when it looked through 2021.
We see and then twin 2020 on the retail side, especially with the low interest rate there was an important migration of portfolio.
To fund too.
To equities to Walter investment, so everybody looking for yield as.
As we see now and in this quarter, you'll see these phenomenal we see important change. So we start to see migration from equities to other funds that has more risk to more fixed income products and the banks and treasury products, we will make.
An important role in that.
You can see our figures in terms of liquidity as a whole by the hour LCR N D. N S. F. R and you can see both ratios that we are well above the rule of Tory and the minimal.
Regulatory level. So we are very confident about the liquidity, we have but we should see on a migration to fixed income product as the interest rate increase in the coming months. So this will be and also with more are we trying to election coming more uncertainty more volatility we should see clients being.
Lean more safe and the corporate side I don't believe there was a there's going to be a huge increase in investment.
But not necessarily that they will be redeeming and all the investments they have but and asked to put a photo should grow a little bit less or less than what we had in observed in 2021 I think this ratio.
We work much more in line than we used to looking at their best.
Oh Super clear, but it seemed like for the industry as a whole.
I guess you as a big bank you have some advantage that not sure if everybody test. So do you think like this is going to be the things start for everybody or do you see like funding costs. In addition to this unique silicon moving up.
Expenses, yes.
I think it will depend a pretty much in the growth of the portfolio as I believe there's going to be a reduction in portfolio as a whole for the system, maybe it will put less pressure.
On the funding cost and also there is gonna be migration natural Oh, My group, because you need to be more whenever you need.
To migrate more from equities and other funds, so you need to be more to the market.
I believe there's going to be a reduction in the credit in general and also in the other side of the natural migration I think these won't put so much pressure and the funding cost for next year. This is my view on that.
Super clear. Thank you very much thank you very much.
Thank you bye bye.
Our next question comes from Carlos Gomez with HSBC. Please go ahead.
That's kind of them too.
Two very separate questions. One if you could comment on your relationship with a Corp group.
Kidney.
If you haven't really kind of exposure you said provision.
How you see your investment in core Pankaj if.
He said, we have made a lot of capital contribution.
Do you expect to have more of the company and they think that you can have too.
Do you expect to continue to have a partnership with Coke.
Does it come first to get loan growth and what do you expect for the next year.
Well, yes, I mean.
It's a really difficult prediction that we have seen so much growth over 20% in.
Yeah sure I mean, you've got really expect any slowdown.
Next here and how do you see excuse me growth in D. C is thankfully it for you to expand the portfolio or do you see that one offering you would have less loan growth.
Yes. Thank.
Thank you.
Thank you a catalyst for a question talking about the first one.
I cannot go into specific clients and I cannot tell you specifically about the relationship with core group, what I can say that is.
Commercial relationship we are partners, we run our bank together and it's all fine. So this is what I can tell you right now there is a public.
Event going on it's the chapter 11, as you know from core group and whenever they have a public information they will be releasing that providing to the market, but I cannot go through that right now talking about the third quarter bunker. We're very positive about the banks are we are supporting the increase of capital as you know we oh.
Wed announced to the market that we're gonna be not only subscribing our shares are the 40% roughly that we have but we also acquired.
From core group, the 16 and a half that are discharged having guarantee for the bank.
And we are as well subscribed the 16 and I have a we don't have the book, we're gonna have a I would say a director's meeting board of directors by the end of the day today and they're all will be S. I director, who haven't the information about the book and what will be the new.
If there is any change one D. New participation that we have in adult court of bunker whenever we have this information we should release to the market that information failing.
But there is still discussions about this process that they are conduction on a local level I will have more details by the year end today, but.
But we are positive and Oh.
I believe the bank is doing the homework.
He is very focused we are having a very good year in 2021, we have challenges in Chile economy as we have many other places in Latvia, and as you know, but we are positive about the D. D E enhance.
And the benefits that we've been seeing for the transformation we've been doing for many years in Chile now. So this is how I see talking about.
The credit portfolio.
It will depend about many fink. So next year I think it should be there should be a slow down in general.
At Phibro has been seen that so it's a tough year economic.
Growth won't be there there was an election year talking about 2023, and 24 will depend on the new government Dinoire Chamber didn't you economy approach. So as you know in Brazil in many other countries, we should be cautious.
We do believe in the long term, we should be growing the business as we always did but we should be paying nothing should to economic cycles. There are good ones not so good ones. So these will somehow.
Impact the pace of growing the bank for the coming year. So it's very difficult to give you a guidance looking for three years, but I believe we should be more positive than negative.
Well, we still have to wait and see.
What are the news coming from the coming months.
Thank you very much.
Okay Carlos Thank you.
This concludes today's question and answer session.
At this time you May proceed with your closing statement.
Okay gentlemen, thank you very much very happy here to do this call with you today. We are positive I think we delivered a very good quarter solid quarter, I would say and for the coming quarters that we'll be meeting individually or in the next quarter.
And I hope to be talking more about our cultural transformation the digital transformation of the bank, but a good level of energy here and everybody.
Very positive about the future and the challenges we have so thank you very much for coming.
That does conclude our call.
One car holding earnings conference for today. Thank you very much for your participation you may now disconnect.
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