Q4 2022 Banco Santander Brasil SA Earnings Call
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With that I would like to turn it over to Martin who will begin the presentation on the rationale with Kieran contests. Please Martin.
Good morning, everyone. Thank you very much for joining us for fourth quarter and full year 2022 earnings call subtypes or to be here again with everyone in our life and video format.
I'll start today's presentation by discussing our performance in the past year, given us the contacts and the wrap up of 2022 and outlining my perspective, which is our senior managements perspective on our potential going forward.
First of all I want to emphasize what we've been discussing for a few quarters already which is our ability to effectively anticipate economic cycles.
We've demonstrated this SKU in the past and we believe that our attitude to anticipate market trends has played an important role in bringing yes, where we are today.
While our results are under pressure in the individual segment and consumer finance in part due to the expected deterioration in older vintages and clients to <unk>. We view this as a natural part of the same growth cycle that led us to deliver a streak streak of record breaking results over the past seven years.
In addition to that we had a subsequent event from a large company in our wholesale division that impacted our results in this quarter.
Although our current results may not be within our desired outcome so far.
We are aware off and prepare to address the underlying causes we have several growth opportunities ahead, which we described in our last earnings call and we'll be covering those in our in our session today.
We are entering 2022 with a healthier balance sheet and better positioned to explore our growth initiatives going forward.
With selic rate declining hopefully and consumer spending expected to recover sometime in the second half of 2023, we project a resumption in growth in our consumer finance business, which is the largest in the country.
Although until then we will keep selecting clients.
And selic rates will keep pressuring our results, particularly in markets.
This growth will be achieved by continuing to prioritize business diversification customer loyalty, we're going to talk more about that and cross selling will.
We will accomplish all of this while keeping our focus on efficiency and maintaining our emphasis on reducing our cost to serve obsessively.
On the next page slide five.
We're highlighting our ability to anticipate trends, we have proactively navigated through the credit cycle, resulting in improved loan vintages are provisions and asset quality are compatible with the current scenario and we're in a good position to resume credit expansion as soon as we understand that market conditions are ideal.
We're obviously.
Granting credit.
But we are already in our individuals platform and consumer finance to do that more and.
More rapidly as we see conditions improve as you can see from our figures are cost of risk has been consistently more predictable than our peers throughout the cycles Disney.
This is an indication to the effectiveness of our risk models for sure. We've also witnessed a better trend in our nonperforming loan ratios compared to the industry.
Even though riskier lines of credit lines have experienced a rising npls across the banking sector. Our numbers have remained comparably lower.
Overdraft NPL for example, rose by 180 to 90 basis points in the industry as a whole, whereas we saw a decrease of 37 basis points. The same is true for credit card NPL, which increased by 276 basis points in the overall industry.
And less than half 127 basis points for US. This is a result of our more selective lending approach ending haynesville of our risk models.
Looking at more recent loan vintages, we observe a healthier portfolio and a greater proportion of loans with lower risk levels. In fact, these newer vintages already account for almost half of our overall loan book with 84% being <unk> to be rated loans.
On slide six we remind you of the pillars that will propel our growth in the quarters ahead, we will cover in more details.
Our our continuously in controlling credit costs the franchise growth, we're going to have several different business lines, our DNA in efficiency and productivity, we're going to cover with some data and obviously the expansion of several of our businesses, which have been fostering since last year and some of them already provided strong.
So this year and they will keep growing at a rapid pace.
Moving on to the next page on slide seven we provide some more data regarding our our new vintages in our credit portfolio as a whole.
Our credit quality in new vintages as we can see in the up left side. The new vintages are performing on an NPL basis much better than the old vintages. This is a data we showed already in the last quarter, which means that the.
The more selectivity, we've had in the new portfolio is paying off.
The right hand side, we see the same on the basis of the over 30 entry so different different ways of looking at and underscoring. The way we are approaching credit which is a big machine is a big results a machine for us and we've been more selective and it's paying off our loss absorption of new vintages compare comparing the law.
<unk> of financial margin, we have with our with the cost of credit.
On a basis of 100 by the end of 2021.
Has decrease in personal loans in the first quarter of last year and has since improved back to very decent levels. The same has been seen in auto loans and credit cards. So the main messages, yes, it'd be more selective yes that has caused us to increase less our financial margin then than we would like and with that the related.
Commissions like insurance however, the.
Costs associated with those new vintages will be much lower and thats already been shown by the numbers here.
Moving on to slide eight.
We move to the prospective on clients here represent a few metrics confirming that.
We're on the right track consistently enhancing the customer experience and increasing transaction attitude.
We have great opportunities inside our client base and in 2023, we will focus even more on becoming the main financial service providers to our clients. Our most loyal customers base continues to grow expanding by 5% in 2022, and we hope much more this year.
Additionally, revenues from loyal customers rose by 41% in 12 months, meaning that we will continue to focus on turning more of our total clients, which has achieved 60 million by the way into active customers and more of our active customers in <unk>.
We've also recently innovated by eliminating the minimum income required for set for clients to join our high income our select segment. Our target is to achieve one medium customers in this category by 2023.
As these are most profitable and loyal clients by a wide margin.
Moreover, as you can see on this slide there are remarkable opportunities within our ecosystem and customer base in 2022 alone our consumer finance business was responsible for adding almost 400000, new clients to the overall southern there why Army Corp, Micro finance business called Prospera added more than 300000.
However, a crucial factor in attaining our objectives as customer satisfaction and among the metrics. We track obviously the NPS net promoter score is the most important one our overall NPS among individuals individuals hit 54 points in the fourth quarter, an increase of four basis points with the on boarding reaching 71 and product demos.
Important to client linkage like markets credit cards also increasing during the period.
Although these results are not yet where we would like them to be as we've seen the following slide we're taking a lot of actions by making investments and further integrating our distribution platform.
In slide nine.
We highlight our commitment to providing our clients with convenience 24 hours a day seven days a week through the availability and the integration of our channels, which is really paying off as shown on this page Santander Brasil customers currently have the flexibility to choose the way they want to be served whether it would be through automated our human service.
All <unk>.
Being supported by our analytic analytics driven approach of customer experience 24, seven in line with our strategy to grow our agribusiness portfolio, we're expanding our footprint in Brazil conscious side with 51, New stores opened 2022 alone were observing a significant influx of clients in our stores on a database.
With over 13 million clients visiting our stores months half of those non clients. We're also noticing great opportunities for partnerships with other players in retail and by this increase our presence in Brazilian cities. Currently we are at 44% of the municipalities are result of a 334.
The increase in the number of points of sales during the quarter and we have set a target to reach 40000 points by the end of the year.
Our digital channel has become the primary road for transactions as well as an important sales distribution channel in 2022, the number of contracts increased by 17% with 97% of transactions taking place digitally and finally, our remote channel has also been consolidating as an increasingly.
Crucial touch points for human interaction outside of regular banking hours with 50% of services being delivered during this period.
Tomorrow, we have reached 95% of first call resolutions, representing a 14 percentage point increase over the past two years.
On Slide 10, let me highlight how we are focusing on maximizing efficiency, while generating strong productivity gains.
Although the number of transactions increased two fold in four years, we have managed to do it in an efficient way by reducing transaction unit cost and 40% in the same period.
Our cost to serve fully digital clients decreased 31% in the last 12 months, reaching 18 reais.
We're also making strategic investments in technology with 90% of our business is now running on cloud and 84% of new implementations being done in real time.
This is a result of the consolidation of our technology ecosystem and company under first our technology Company final should close this topic I'm pleased to announce that we recently launched Sx tools and manufacturing company that will be focused on the delivery of products and services with excellence.
On slides 11, and 12, we provide a view of the key highlights from our business ecosystem. During the period. In addition to providing a glimpse into where we believe our growth will come from in the future.
In investments business I would like to point out two major fronts devolution of our AAA model for advisory services.
We are already expanding to 600 advisors by year end and we will reach 1300 by second quarter. This year and our outstanding performance in the digital open platform space through total.
We have ambitious growth plans for the investments segment as a whole.
Credit cards, which act as a vital levered to build customer loyalty featured among the best performance in terms of fees in 2022.
Have attained an all time high turnover, culminating in record setting year for this product borrowed.
Part of this success can be attributed to our commitment to strengthening our ecosystem and are focusing our client ecosystem.
In the insurance business premiums have risen by 28% over the past few years and we've set a target of 15 billion reais by the end of 2023.
In addition, we have achieved a 64% penetration rate in credit life insurance, which is an industry benchmark in.
In payroll loans, we have further enhanced the customer experience by expanding the digitalization of contracts, leading us to originate loans at <unk> and <unk>.
Precedented, great outperforming the industry and consortia another of our top performers showed a 42% growth in total origination in 2022.
This is explained by the progress made in the customer experience and after sales service.
On slide 12.
This year. This year's achievements would not have been possible true without our ability to offer clients the right solutions to our clients, which we expect to enhance even more this year and a half.
Our company segment.
<unk> had an exceptional year as highlighted on slide 12 revenues increased by increased by 32% on a year by year basis in SMS, we achieved a record number of new clients, reaching 43000 per month.
Our overall focus on transaction attitude result, in an increase of 20% and insurance fees in wholesale we have managed to uphold our position as a leading effects bank in Brazil.
We're also proud to have been recognized as the best cash management banking, Brazil, and also by the way Latin America.
We have great opportunities inside the segment and we have set an ambitious target to increase 13% of our company's portfolio in 2023.
In agribusiness, we increase our share to 6% having grown our portfolio to almost 38 billion reais and have set a target of achieving 50 billion reais by the end of this year.
We currently have 300 employees dedicated exclusively to this segment.
Lastly in the auto segment.
We are the market leader as a result of our comprehensive offering true consumer finance, where motors and strategic alliances with major automakers today, we hold a 22% market share in vehicle financing for individuals and our target to increase our credit portfolio by 18% this year.
Finally, with that I'd like to turn it over to Hudson to Domingo on my side, our CFO for our highlights of the fourth quarter in 2020, Q I'll be back for the Q&A. Thank you.
Thank you Mario and good morning, everybody would afternoon for those that are overseas pleasure being here again with you.
So we go into the numbers into the results and specifically starting to slide 14.
We detail these numbers in our P&L main message about our numbers is that they reflect the moment of the cycle, where it is still revenues are impacted by prior decisions and provisions is still have noticed started to improve.
Our net profit as you may see amounted to almost $30 million to $12 9 billion last year.
As we have stated throughout the year. Our 2022 performance continues to be impacted by the more selective lending approach we have adopted in recent quarters.
Our sensitivity to interest rates and also pressured by provisions coming from earlier vintages as Marty stated.
Alongside with these three impacts we have partially provisioned a subsequent event that occurred recently.
With that in mind, let me go over a few of our key figures for the period on the revenue front total Eni NII decreased by six 8% in 12 months with client NII exhibiting strong growth, but being more than offset by market NII due to the mentioned negative sensitivity to interest rates that you will.
No.
In fees the expansion of our customer base and greater transaction related fees to increase by two 3% over the period. Despite some pressure from credit related commissions.
And on the expense side provisions grew in the quarter impacted by these subsequent event.
This is consistent with what I have been stating since our first Q 'twenty one earnings call. That's about one year to something to go on.
Also you can see that our delinquency ratios remain control during the period.
Despite the challenges posed by inflation and salary agreements through 2022.
<unk> expenses of bonds by 7%, which is just slightly above regimes periods inflation rate.
We see continued to remain a priority for us as corroborated by our 37% ratio for the year, 41% in the world.
Leading us to achieve a return on equity for the year of 16, 3%.
Next slide in the slide 15 is where we detail how our net interest income possible.
Customer NII grew by a strong 22, 4% compared to the same period in 2021.
This is a direct reflection of our continued focus on customer acquisition and loyalty.
When comparing 2022 fourth quarter to the previous quarter NII.
NII declined by almost 3% to 6% due to the precautionary risk mitigation measures that we have implemented and we have already commented several times.
However in year on year terms, we continue to benefit from positive volume dynamics and improved funding performance.
Consequently, the spreads on our line to one year ago. The quarterly degrees is primarily attributable again to changes in the mix of our loan portfolio and industrial activities of our production.
On the other hand as I have noted in prior quarters market NII reflects our negative sensitivity to our seats in the yield curve.
As I have been repeating for some time now this trend is expected to persist in 2023 also improving throughout the different quarters.
We continue we will continue to be partially offset by our treasury results in next slide moving to slide 16, our loan origination mix have been affected by these more selective lending starting reflecting our cycle anticipation measures.
Part of this we still managed to go through our loan book, while keeping keeping risk levels under control.
Our portfolio expanded by almost 6%, reaching four almost 490 billion reais.
Large companies, we have had a slightly negative performance due to lower activities in receivables and Forex impact excluding forex this portfolio.
We produced only <unk>, 5% in fourth Q.
The individual segment, so the strongest growth during the quarter asset secured credit lines, such as mortgage and payroll loans drove the expansion of these loan book.
On top of that seasonality contributed to the robust performance of credit cards here, Let me open up our emphasis to highlight that 65 65 of our individual loan book is collateralized.
<unk> segment also performed well in the period, partially due to the pronounced. If these are programs that are set up by the federal government and that we offer to our clients.
Our ability side, our funding had a solid performance during the quarter, enabling us to maintain a strong liquidity position.
Finally, our core equity tier one.
Capital ratio reached almost 11% 10, 8% at the end of the period, indicating that these core capital remains at a healthy level.
It is worth noting that resolution 229 from the Central Bank, which was originally scheduled to be implemented in Germany has been postponed until July this year by the Central Bank.
The changes outlined in this resolution will have a favorable impact on our capital of around 70 basis points.
Slide 17.
Looking at <unk> on the next on this slide you can see that we had a strong quarter with growth of above 7% driven by seasonality that's through influencing training costs and the renewal of any specific clients insurance policy, but also driven by transaction already.
The new consortium rule enacted by the Central Bank, the Brazilian Central Bank had an impact on our figures which were adjusted accordingly.
You, obviously remember in the first quarter.
Underlying growth of this product is strong and will continue like that as we announced in previous slides.
The year on year performance can be attributed in part to our loan origination strategy as previously discussed in terms of expenses. The reported figures keep evidencing that our commitment to cost control of our expenses.
Lately.
Also it is important to remember that the full effect of the salary agreements was felt during this quarter, which added some pressure to our expenses and.
On slide 18, you can observe how our asset quality has our board.
A lot has been already said, but as expected our NPL ratios both for the 15 to 90 days and over 90 days on the left part of the slide remain clearly under control throughout 2022.
The performance of our newer loan vintages has shown a constructive trend.
As these vintages gain greater relevance in our loan book, we anticipate a healthier asset quality evolution.
Finally cost of risk reached <unk> 14, 12 months. This is consistent with our past remarks regarding the impact of older buildings.
Older loan vintages and the subsequent event that we have already mentioned.
Furthermore, our provision and pace has not only covered prior vintages, but also contributed to increasing our coverage ratio, which hit 230% at the end of the quarter higher than both the first Q <unk>.
And Trey pandemic limits.
Obviously this number includes the subsequent event impact.
Lastly, credit recovery once again performed well on an annual basis, and we will continue to be one of our key focus areas as it has been in the past.
So having said all that let me now.
Two you Mario for your closing remarks.
Thank you Juan.
So wrapping up everything we set.
May messages regarding our 2022, so all of our approach to client selectivity, which was assigned already late 2021 and executed throughout 2022.
Aligned to our sensitivity to interest rates impacted total revenues as we noticed before also other loan vintages deteriorated as expected.
And now we find ourselves in one of the challenging periods of our longer credit cycle. So we'd like to say that the credit cycle individuals lasted for six seven years, we had record breaking years in client base topline Bottomline and now 2020 Chu in for some part of 2023, we will be running.
Under the tougher part of the credit cycle, where we expand less our portfolio on a more selective basis that will result in a better asset quality overall, and we will see that throughout the next two quarters for sure.
Along with that talking about our 2023 context. So we start 2023 under the same.
Say restrictions our selectivity in our credit portfolio. So we didn't alter our view on appetite simply due to the calendar.
We will have more and more our strategy focus on client selectivity client loyalty, obviously, we're going to keep growing our client base 60 million is already a very large number we're very proud of that but more importantly than growing to $61 62, which will deliver anyway is bringing those customers to become active and those active to become.
That is one of the key reasons why we're very confident on our 2023 and ahead.
We will keep our culture of efficiency productivity and obsession like like I say on.
Reducing our cost to serve that's the only way we're going to have.
Mass market client base.
Profitable way, so we keep our cultural DNA and looking at every opportunity we have in being more efficient, which means spending but spending in a better way more and more in terms of levers of growth. We have several different ways that keep us in senior management.
<unk> and across the firm as a whole keep us excited about the future we keep being a growth story for several different angles, we have.
Even more enhanced balance sheet than we did in the last quarter our portfolio like I have said is already half represented by new vintages, and they've been performing better and better as we expected.
We continue our rapid growth in several of our portfolios such as companies across the board.
Is mid corporates large corporates corporate and investment banking, we keep expanding those portfolios and there are several layers investments in commissions, which will have more and more representation in our overall portfolio together with that we obviously prefer better results. We obviously prefer a 2022 of <unk>.
More growth, but those results are all expected designed in some sense and while we had a tougher macro context, we were spending a lot of time and energy in building hedges to the portfolio building more seats that will grow and will generate more profits, which already did 2022, and we'll provide more growth.
And Mark good stories to share with the market throughout 2023 and beyond and when markets are better in terms of macro context, we will have the largest consumer finance company to grow even further and a very very strong and streamlined individuals credit platform as well. So we are optimistic about our growth.
Prospects, we keep working very hard to contain the macro context were operating on.
And obviously, we are more and more confident that our decisions taken a year and change ago have been the right ones and we are working.
Towards expanding growth and resuming growth.
Throughout the next quarters, this year and with that I'll pause for questions. Thank you very much again.
Hey, commodity. Thank you Rocco, we will now start our Q&A session. All analysts will have the chance to ask questions. During the Q&A, which will last for about 30 minutes again, if you'd like to ask a question just click the Hanna Ike when they bought off your screen. So our first questions come from the Jorge Kuri from Morgan Stanley Hi.
Hardy.
Hi, Hi, everyone Hi, everyone. Good morning, Thanks for taking the time to answer your questions.
I wanted to ask you.
The numbers that were published in the press about your exposure to americanas.
$3 7 billion are correct is that the exposure that you guys have what type of guarantees you have on the back of those loans what percentage of that exposure has been provisioned already.
What is your expectation for how that is going to turn out in the first quarter results as a fully NPL or will take 90 days to become NPL.
Much of the $1 billion in additional provisions quarter on quarter that we saw this this quarter was for americanas, what percentage of the americanas exposure if provisions and how do you expect to cover the rest of the provisions over the next couple of quarters, that's evidently very important for us and the rest of the market to understand.
And what is your net income power for the next couple of quarters. If you still need to create another 3 billion or saw in provisions.
Hello, Jorge Lastly, nice to host you here. Thank you. Thank you for thank you for participating and for for raising raising questions as well.
<unk>.
The group's Santander as a whole and it is not different Santander, Brazil is the biggest the biggest operation we have in the group.
We have not.
Our comments on specific names that remains our stance towards the market. We understand the market is curious anxious we understand it is relevant we appreciate all of that but we we have had that stance Jorge.
Obviously, it respectfully to you and to others that have questions, we will not comment.
On the particular case of the subsequent events.
Yes, we have made.
One step.
In the direction of provisioning youre going to notice in the numbers and by by looking at the levels are the scores.
That we report to the Central Bank.
Hopefully, we'll be able to understand more about how much we made.
Like everyone like like every provision we have.
In our wholesale and also.
Restart also retail business, we always look at those portfolios as a film is a movie and not as a picture. So we will keep looking at this particular event how it evolves. It is obviously in flux as you are all following through the press.
So we will keep monitoring this throughout the year like I understand most of dangerous who will.
And as we evolve towards one direction or the other we will evaluate how much we provisions versus how much we should keep doing theres no preconceived decision as to how we move ahead.
And again.
The most we will give electric share given our stance of not commenting specific names, which remains the case. Thank you great. Thanks. Thank you.
Our next questions come from travel by <unk> from UBS, Hi, Thiago good morning.
Good morning.
Everyone.
So I have two questions I know that you cannot talk about the medical specifically, but could you give us the size of the supplier finance after the net not only from any kind of this whole the industry.
And what has changed since that gives us maybe kind of so are you changing the.
Prices are changing the process.
Trying to check the central Bank.
As of exposure with other players so what has changed at all.
Second question.
The payroll loans.
You mentioned lease that we would expect an extension of 26% of the payroll loan book in 2003.
This is much stronger than the expansion in the last year and also I would say probably one of the biggest expansion.
A couple of years.
What has changed in this business.
The changes were entirely incident, there or seen any change in the industry to explain this much stronger expectation for growth our corporate goals.
Thank you. Thank you Thiago so I'll kick it off and I know, who will complement so starting with the I wanted to cover firstly the strategy regarding recall, we called the supplier financing business, we call. It confirming pizza. So it's the name we use it here.
There is sakai the right. This is one of our I would say key businesses among wholesale clients, both our corporate banking business and our corporate and investment banking business. The ultra large clients. There are many anchors like we call them.
With whom we operate this product it's a product that has been evolving throughout the years.
<unk> has been reviewed thoroughly by not only regulators auditors and alike.
And we're very proud of the franchise, we've built to be honest regarding the product.
And we have like I said doses of bankers with whom.
We keep operating.
We keep willing to cooperate and expand.
And we keep having a healthy relationship with them as anchors and with their suppliers as those that are anticipating their receivables.
We actually just launched last year, we have here in the presentation.
<unk>, which we call FX Integra, which is a digital channel Twitch suppliers can anticipate their receivables on a self serving.
<unk>, which is already the largest self serving our digital platform for receivables anticipation as supply chain financing. So we not only believe in the business, but we are expanding the waste, which we offered two anchors and suppliers alike.
More facility agility, and obviously capacities to serve and in terms of our risk appetite, we remain committed to the product like we were before.
In terms of exposure.
First question when we do publish and release is our exposure to the retail sector and I think if I remember what is were really around the 3%. So highly diversified diversified portfolio as always with very low exposure as a percentage of the loan portfolio. This is something that it is included in our governance.
In our risk appetite limits and alerts.
We have the principle of highly diversified exposures and risks.
Thank you all right. Thank you Maya so those discoveries.
Hi.
So the macro prospective owner to share regarding the payroll loans is that why why were expanding while obviously, we're expanding because we believe.
In the risk reward proposition, we like the risk reward proposition of all of our products, particularly in the moment, where we have a tougher macro context.
With lower disposable income et cetera, payroll deductible loans are obviously healthier than clean consumer loans like everyone else is looking at <unk>.
So why we have focused on.
Is it because of the risk reward proposition, but also because we believe we have a differentiated product here the digital payroll loan.
<unk> I always say in Portuguese.
A very very efficient offering.
I will say.
Best in class where custom.
Customers that are served through our app payroll customers. They can really through a digital process that takes seconds. They can raise their payroll payroll loans in a digital way. So part of our strategy has been digitalized more and more our contracts last year, we had a record year of hundreds of anchors.
Hundreds of contracts of payroll contracts with anchors, where digitalized and the second part of our strategy to be to be wider as we obviously focus on SaaS on the pension.
The pension.
Our customers, we obviously focus on government related but we have a very strong franchise in private sector payroll loans.
We have very large penetration given our cross selling.
Editor so our wholesale business is strong we have a lot of payrolls.
With our wholesale clients and we've been able to have payroll anchoring contracts with several of those wholesale customers and that has been a very successful part of our strategy. So joining the digitalization.
Effort, plus a private sector oriented.
Cross selling effort with our wholesale business together with a lot of emphasis in terms of our distribution retail network. Those three things together has been a success story for 2022, and we are very confident that with the same pillars. We will have an even stronger 2023 payrolls.
Thank you Marty so moving forward to our next question comes from Eduardo Rosman from BTG, Hi, Eduardo how are you.
Hi, Hi, Hi, everyone. Good morning, So I have one question here related to your capital base.
You ended the year with a core capital of 10, 8%, it's down quarter on quarter and year on year, So trying to trying.
Trying to understand here, what's the minimum level that you would like to work with you know naturally your profitability will likely be under pressure in the next two quarters right. So.
And you have a payout ratio of 50%, which is above average price. So just trying to understand here. How you see your capital if you could see a change in the dividend policy.
It would be interesting to note from you. Thanks.
Thank you Laura.
Okay, let me elaborate a little bit wrong copyrighted payout, yes, we did close.
8% of core equity tier one we have always said that we wanted to be at around 11% and this is where we are and where we have been managing.
Both risk weighted assets growth in payout.
You are right our payout last year has been around 50% to 53%.
Which is a kind of a conclusion of how we see risk weighted asset growth and how we see.
Return on equity on an a structural basis looking to the future so as a reference.
50% payout may work, obviously, we will adjust that according to the border and according to each of the different years, but I mean on the long term. This is where we kind of think about in terms of.
In terms of capital not only we are comfortable with this 11% there was mentioned.
Also said throughout my presentation that we do have a new regulation the famous two nine coming from the Central Bank the Brazilian Central Bank.
Do you start first of January and it has been postponed to first of July . This year 23. Okay. This is a series of kind of advancing and getting closer to Russell three but in conclusion. It means around 70 basis points to our core equity tier one additional <unk>.
90 basis points zero to our core equity tier one ratio so.
Not only by profits and by growth, but also by these new regulation, we will again be well above the 11% that we will probably have to manage that to get closer to deliver this is our starting <unk> copied.
Thank you. Our next question comes from <unk> from Citibank, Hi, Phil.
Hi, guys good morning.
I have basically two questions here related to one related to asset quality. So you have you mentioned that the new vintages are performing better than the shoot has.
Embedded asset quality going forward, but when I look specifically for the quarter.
It seems to me that the NPL creation is in fact accelerating especially when you put together the asset.
Sales in the quarter, so just to understand if it's.
Maybe here is the peak and we should start to see us at NPL.
Creation is specifically to perform better in <unk>.
Coming quarters and also if you could comment on the asset quality for the renegotiated portfolio. If this is one of the reason for this increase in.
Awesome.
NPL creation or if.
There is any change in the asset quality topic.
Thank you.
Yes.
Well, let me let me elaborate.
Terms of quality of risk I mean, I think and we have been quiet.
Tens in this in these remarks.
I think that we all have to starting to understand the through the cycle concept. Okay. So we are managing our bank note for this quarter not for next year next quarter that we are managing our bank through the site and we've got a cycle now that as we have said it is pressure on the revenue side any distinct Hudson.
Better on the provisions on the quality of risk side, but what we are seeing is that that selectivity. This is provoking as you said in your question that the new vintages.
Far better than the ones we have been.
Producing let's say four or five quarters ago.
We saw some numbers Mario mentioned.
The NPL how it compares to the new vintages with the old ones and some cases, you almost half of it or or 70, 60% of what it used to be the dividend ratio the loss absorption ratio et cetera. So yes, we are seeing a quality, where we want it to be and where we are producing with.
Strong growth levels, but with control.
This is basic to understand how the future may may.
It may look like in terms of NPL formation in terms of renegotiation on all these things that you've got the numbers I mean.
The renegotiation portfolio has more or less stable, we have said quite openly since the first Q of this year, Doug we have been proactive with our clients absolutely Brian if we wanted to help them and this is something that is both on our beauty.
But also on an economic side, we made a campaign in January 'twenty, two and we have throughout the year continued to be proactive.
Amortization of these.
So yes, it is something that again through the cycle view in this point of the cycle.
All two to one.
This is done and the NPL formation always leaves our conclusion is you're fairly set of all what I have said in terms of quality sale of portfolios.
Asians et cetera.
Thank you.
Thank you I have now the electrical Pedro Leduc from at all for his quite for his question Pedro.
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Commute.
Alright, Thank you alright.
Thanks for the question again and hosting the call I would like to change subjects, a little bit to client nims okay.
We see it fell again this quarter about 50 bps second one in a row.
Related we see client.
Portfolio changes some funding mix changes here as well I would like to get your help to see how portfolio assignments or renegotiation spreads had something to do with this NIM dynamic. So at the end trying to understand the moving pieces as we look into NIM for 2020.
Three.
Any help here would be much appreciated.
Thanks Pedro.
Great driver here again, so I'll start and then I, who can complement with the actual figure so direction speaking, which I think is an important thing for us to lever.
First angle, we are being more selective so on a marginal basis, the let's call. It healthy are active or even recent portfolio, which is already representing 50% or almost 60% of the overall portfolio like I mentioned before that portfolio because it is stricter in terms of risk.
Our risk appetite.
Rates ratings on the higher end of our scale that means those clients are fewer clients of course, more competitive and clients, which absorb lower rates naturally speaking so the production of new assets and I'm talking about new new assets compare to the maturity of older Vin.
<unk>, both maturities and provisioning of older vintages.
<unk> has a different spread dynamics naturally it's by design and you are seeing here some of the effects, obviously like myself and I have mentioned before the production of cost of credit in those portfolios will be lower and it's already been shown and that more and more will be will be visible in our <unk>.
The second angle as well.
When we look at our renegotiation portfolio, which is one of the portfolios that grew most last year as you can all see that has to do with our attitude towards the credit cycle.
We are proud to say, we have a very strong individuals credit engine here and as we look at this through the cycle, we had to be more proactive last year, we actually had a campaign last year, which was at Davita, one, which you all followed which allowed us to talk to clients on a more proactive basis and earlier into deteriorate.
<unk> cycle that caused our renegotiation portfolio to increase for sure some of that renegotiation well ends up being provision of course, because although we renegotiate in some aspects that buying time works from any clients that he doesn't works for others. So yes. Some of the fact youre seeing here has should.
Due with the spread the effective spread we have in our renegotiated portfolio, which tends to be lower as time passes then as they were.
<unk> as they were before.
Sure absolutely.
Absolutely right I mean, just to add to these activities.
Women you have also the mix.
We have shown to you we are growing in real estate.
Sorry, we are growing the <expletive> and we're going to be growing in payrolls. I mean these types, we have a 65% collateralized exposure in individuals. So we have moved the balance sheet not only to a more solid one but also the more collateralized one which also means obviously that has lowered cost of risk and also means having.
Lower cost of is that the spread is lower but if you remember from the presentation. We are at about one it's happening I think is one year, one year and four or five queues at the same level in terms of our sprint. Okay. I think it was 10 point something which means that.
We maintain.
Gone through an upwards from point, but we are maintaining past spreads in terms of portfolio, but obviously much more comfort in February if I may just quickly complement.
Angle, which we don't talk much because obviously the emphasis is more on individuals and perhaps bemis on our wholesale business. Obviously theres. The subsequent event I won't cover but the overall performance of our mid corporates and large corpus business has been over the credit cycle, including over the last many years has been very very help.
And record by record.
The thing about this is we've been very selective in wholesale in particular, so large corporate and ultra large corporates, we have been very selective not due to credit appetite, but due to.
Marginal ROE so we haven't grown more our wholesale business last year, particularly because not because they don't have the credit appetite, but because the spreads there were lower than we believed were fair for us to place our capital on those deals that has marginally improved this year given the subsequent event.
Let's see how it evolves throughout the year I guess this was also asked before yes, we've seen a marginal increase in at least short term spreads in our wholesale let's look at whether that prevailed throughout the year and obviously, it's going to be positive because we are lighter if you will in our wholesale business because we're more conservative in terms.
Of capital allocation here.
Alright. Thanks, I wanted to thank you I have the next question is coming from Flavio <unk> from Bank of America, Hi, Plaza, Let's see Ya.
Hi, good see you guys. Thanks for the opportunity to ask questions.
I was remembering here and you guys were vocal on the fact that something there was the first bank to become more conservative on the loans.
Turning more selective on origination in September of 2021, right, if I'm not wrong.
However, we are still seeing.
Deteriorating.
Early NPL trends right.
It's even higher than pre COVID-19 levels, we still see high long written renegotiation levels.
And also high provisions. So all of these were some spreads trending down. So it seems that we are only seen the negative effects of this change in strategy.
Just wondering.
If we are yet to see the positive effects of this change in strategy.
And.
So.
Question related to this is is there any signs youre expecting to see in order to improve your credit risk appetite is it like better npls better macro or competitive environment.
Okay. Thank you Flavio, let me I mean, I think we have spoken.
So in terms of our quality et cetera. The 15 to 90 days is much more volatile.
Several times if you go to the 90 days, it's basically stable during last four five quarters. It stable if you compare it with last year with two years ago. So and we have shown the new vintages that we are far more comfortable so all in all again, it's a question of time.
When we opened the pipeline again to order type of risks obviously, we have test and pilot test are continuously being made when we see things become to a profitable level. So that we can reopen re produce in terms of volume growth. Okay. Thank you.
Now we have a question from Yuri Fernandes from Jpmorgan, Hi, Eric how are you.
Gustavo Thank you for asking questions I would like to return to the loan growth I guess on his lifestyle.
Targets, there like a commercial.
Commercial loans growing 13% agribusiness as well as growing 32%.
Consumer finance next basically alcohol is growing 18% year over year and industry is growing at 7% state. So so I would like to return to slightly those questions on loan growth and just understand like the appetite of the bank because sometimes that youre, saying.
Saying that banks too cautious, but those seem really strong right.
To ensure our loan growth. So I would like to ask is like Hollywood casino, how much since then theyre really grow because looking to those segments you shouldnt be growing double digits, each dosing 23, and if I may just on spreads.
So you are saying basically that spreads will be flattish more or less in line with the FERC rates. So if that's the case, maybe NII should grow NII with clients should grow low volume. So is that fair. That's a fair assumption for your inch doesn't penetrate thank you.
Thank you all I'll cover your first bulk of your question, which is more of a strategic one and then I'll ask Scott to cover the numbers per se.
Your question is great.
Thank you for raising this so when we share our ambition here.
It's obviously highlighted as an ambitious set of guidance, but it is where we are directed.
We did it last quarter as you may recall and we're doing this again by the way we're going to keep repeating this because we want to.
Ill tell you how we're doing.
We want to show where were focused on a more accelerated faster than overall.
Are we going to grow so much in.
Consumer loans unsecured probably not are we going to grow so much in other unsecured pieces of the business, although they have higher margins probably not so we highlight here some of the angles at which we're going to grow at a more expedited way and why we are doing this but not because we want to show you just numbers, but we built.
Leave that these portfolios are on a risk reward basis, given the customer base would have given the customer base with whom we have risk appetite. These are the portfolios, which we can grow at a more accelerated pace pace. So companies I mentioned before we have performed our record year last year in all different pieces.
The business, we have a growing but important may business.
But then starting with a lower <unk> mid team is in large penis record year middle corporates large enrolled for a large.
Despite the subsequent event, we had a record year. So we're very comfortable that with without any arrogance, we've evolved our maturity.
And our expertise regarding.
Regarding this portfolio and we are confident we can keep growing at double digit rates argue the same thing and even higher double digit level. We believe we've expanded geographically enough we've understood better.
The cycles the vintages.
The different commodities, we operate in Brazil, and we're very comfortable that among wholesale and retail it's not only a retail agribusiness its wholesale and retail we're going to grow at a higher pace than we did last year and then consumer finance, which is secured of course, because it has the out of there.
But it's up.
Our portfolio, which is always more volatile and has its own credit cost. We believe we have evolved a lot in our risk models last year. We believe we have the right partnerships with the big O&M. We believe we have a very strong distribution network with the retailers the auto retailers, particularly in used cars.
And we are very comfortable yes, we can grow at a double digit rate as well this year.
In terms of volumes and NII and Oems et cetera.
We've got a country that will probably be growing at 1% around 1% GDP plus another five around 5% inflation. So that's in nominal terms, 6% you've called favorite among the bank's expertise and say an 8% growth in terms of volume for 'twenty three you've got the public banks roll et cetera et cetera.
It doesn't look like it's going to be a huge.
In terms of volume growth, but as Mario said, we have clearly.
Annualized in our stated for you, which are the lines in which we want to grow in terms of NII clients et cetera, obviously.
Always say to you, let's calculate the NII net of cost of risk because you always have one part which is where do we produce and the other part is what is the cost of risk that is happening linked to that and obviously in different timings. So is not an easy one but we are confident in terms of both NII clients in IMS.
Thank you. Thank you I have to say commodity so I would like to thank everyone for Athene just offer us call, which was my left as head of Investor Relations as we will be at home and you're positioning the group at this point I would like to take opportunity to thank you all for such great partnership over the last two years and also I would like to introduce Camilla.
Police Camilla.
A new head of Investor relation and we are being charged off the departing moving forward welcome Camille. Thank you Gustavo and thank you everyone who is attending this is your conference. Following this at a conference.
And our entire Investor relations team are going to be available for any further question. You may have I look forward to <unk> coming now.
Personally.
Thank you and have a great day. Thank you all.
Right.
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Okay.
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Okay.
Yeah.
Okay.