Itaú Unibanco Holding S.A. Q1 2023 Earnings Call
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Sure.
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Hello. Good morning, everyone. My name is we're not the lumi annuities group and head of Investor Relations and market intelligence edit that we know about.
Body. That's all thank you for participating in our video conference to talk about our earnings for the first quarter of 2023 of which we are broadcasting live from our office at five year Lima, Sao Paulo spots today's event will be divided in two parts I'll also pitiful first Milton will explain our performance in earnings for the first quarter of 2023 doses sold.
You pick with dizziness, Boston's next we'll have a Q&A session during which analysts and investors will be able to interact directly with us what sort of your password Obama's eastern shore now.
Now I'd like to give some instructions to make the most of this meeting today, but he's got his team with the law. So those of you watching via our website. There are three audio options on the screen.
The entire contents in Portuguese for the entire content in English and I was looking at it.
Original audio who thought it was going from the first two options. We will have simultaneous translation I can kind of bring data to choose your option just click on that a flag on the top left corner of your screen. When he said if you I'll just put a lot questions can also be sent via Whatsapp I think is coming.
Though starting to do so for those of you watching on the website just click on the button on the screen or simply send a message that the member Morgan the arbiter as only.
5511 up in the 90, 890, 93113 T I'm, telling them, what's the presentation, we'll be making today is available for download on the hot side screen and as usual on our Investor Relations website, who thought I now hand over to Milton will begin the earnings presentation, then I'll be back to moderate the <unk>.
<unk> session.
Milton the floor is yours.
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Yeah.
[noise], regardless and auto both born dropped all those plus it if it was like you're doing well. Thank you Hannah and good morning, everyone pretty much. It's a pleasure to have you here for our first quarter of 2023 earnings presentation.
Our goal is to make an objective presentation focusing on earnings what message. We'll go I'll go out on <unk> since on June 15th we will Jose <unk> day, 2023, and we'll see which will be the right occasion to share with you a lot more about our strategy and our business development muscle injury Telco Buddha, we will talk about client centricity and digital and cold.
<unk> transformation.
We will go deeper on several topics that we've been talking a lot about with the recurring managerial results was $8 4 billion Brazilian real this quarter.
On quarter increase of 10%.
And which pushed us to a consolidated ROE of 27%, representing an increase of one four percentage point and ROE.
One 1% in Brazil.
Margin with clients was 24 billion Reale, Atmos down 0.7 percentage point quarter over quarter, but it is worth mentioning the seasonality of the first quarter as we can see in the historical series since it has fewer calendar days clinical part of the cost of credit was $9 1 billion Reals down 7%.
Quarter over quarter thought process and one of the positives that are nonperforming loans over 90 days remained stable at two 9%.
Which is consistent with what I've been talking about for the last few quarters loan book might have a couple I'll provide more details on this topic in the next slide we'll go fully Bob finally, the efficiency ratio on a consolidated basis was 39, 8% was a drop of one seven percentage points remaining below 40%.
The first time in history Carnival season won't of course these things. So therefore this clearly shows that our journey has been consistently around Leucoma automotive show sustainable performance and top notch result, and all indicators carpet undergraduates.
How can we help them anything fallen a troubled.
The credit portfolio showed signs of a slowdown also in line with what I've been saying about the individuals loan portfolio grew 0.9% in the quarter below what we had been growing in previous quarters, but still posted a year on year growth of 16%. The SME loan portfolio grew nine 2% in the first quarter of 'twenty.
Three versus the first quarter of 'twenty, two fund was down slightly by two 2% on a quarter on quarter basis in line with the bank's risk management measures. The total portfolio in Brazil grew 11, 2% in the first quarter of 2023 versus the first quarter of 2022, and <unk>, 6% on a quarter on quarter basis for the corporate law.
Loan portfolio grew one 8% in the quarter in Latin America. The portfolio grew 11, 7% or 10, 4%, excluding the FX effect, it's still a solid growth, but at a slower pace than we had been posting in previous quarters.
Since we have been more cautious in light of the current macro scenario in the last quarter as we've talked a lot about the individuals and retail portfolio.
Okay, but I know that the market concern now is the corporate loan portfolio Affordable book Alright, there are.
Turns amount the prolonged interest rate cycles and its effects on the banks portfolios and trustful casino with important competitor and how prepared the bank is to face the more adverse macro scenario when we look into the future you called Orca. So we brought some figures that we felt would be important to share with your support so bullish in Venezuela.
We classify our loan portfolio into industries. According to their volatility through my article actually the Dodge corner I can throw out at the point of view the technicals in Crossville English in 2014, which was the snapshot taken just before the credit Crunch event of 2015 and 2016 from week during which we faced a very complex time in the market, especially for large <unk>.
But client is interesting I think this is.
36% of our portfolio was concentrated in higher volatility segments, which are shorter cycle segments, such as commodities, and therefore generate higher risk and adverse scenario Sakata theater subtle thing throbbing today, only 17% of our portfolio is concentrated in higher volatility industry.
And we've achieved this by rebalancing the portfolio over the past year.
The wholesale portfolio has grown by more than 100 billion Reals in recent years. This growth has been focused on clients with higher risk and quality in the industry diversification, which has produced important results in portfolio manage crossville. The second indicators shows the concentration ratio of the 10 largest debtors to the stockholders equity.
In 2014, the 10 largest debtors accounted for 46% of stockholders equity and today the ratio was down to 25%.
Also achieved a major reduction by diversifying the portfolio, which is quite healthy, especially in times. They may bring some additional volatility clinical theres lots of finally in 2014, 68% of our portfolio was made up of investment grade clients historically, while today the share of investment grade clients in the portfolio.
<unk> is 75% White chocolate Aquaman, which also shows all the work we've done to adjust our portfolio mix to improve its quality and therefore, lower it's risky north remastered Omar in terms of financial margin with clients in the first quarter, we posted a drop of 200 million reals or 0.7% comparable.
The first quarter of the year is impacted by seasonality basically explained by the lower number of calendar days and there is also a seasonality factor impacting Latin America, which we should continue to observe over the next quarter soup portfolio Cup. We present the product mix effect two zero to show that we had no mix impact.
Working capital, we gained 100 million reals since it grew from $2 7 billion Reals in the last quarter to $2 8 billion Reals in this quarter as a result, the big effect on the margin with clients was on the core margin, which is in line with our historic performance as this is a quarter where typically this happens.
We have no specific concern to this regard.
I am in both consolidated figures and in Brazil remained flat compared to last quarter eight 7% on a consolidated basis and nine 4% in Brazil and risk adjusted figures the NIM increases on a quarter on quarter basis, I'll remind you that in the fourth quarter last year, we had that big retailer event and we recognized a <unk>.
Vision for 100% of the exposure that part was already recovered this quarter, which is the main effect.
Looking at the financial margin with the market again, the highlight is consistent is difficult and volatile as the environment is a risk and balance sheet management capabilities have proven to be successful in America. If you look at the historical series you can see that we continued to deliver a positive financial margin with the market quarter after quarter Mauro.
In this quarter financial margin with the market was stronger for Brazil, reaching 1 billion reality, while Latin America had a weaker quarter, especially in Chile due to inflation of taxes on the capital ratio hedging cost was $500 million reality. So the financial margin with the market is very much in line with what we had been posting in previous quarters once.
Again, proving to be solid and consistent in general I would use the word consistent and all the tables of our presentation slot moving over to commissions fees and insurance result, we posted a slight quarter on quarter drop in credit card business, but is it still up 16, 9% year over year in which refinery and services stands out by posting.
On a year on year growth of 37% revenue from advisory services and brokerage dropped to eight 1% in the quarter, but still posting revenue of 0.7 billion rehab I was look this has been a rough year with less investment banking activity, even for a diverse bank, we offer DCM ECM and M&A services.
There is a certain seasonality affecting these operations, but we cannot deny that it was a more challenging quarter in Latin America ex Brazil revenue has come in as expected growing 10, 9% year over year, and five 5% quarter on quarter.
Another business that I draw attention to our insurance operations, which revenues are down one 5% on quarter on quarter basis.
Up by 10, 9% year over year and the highlight is the core insurance results earned premiums were up 16, 9% year on year in the core insurance earnings grew 39% over earnings that had already been growing strong because we continue to be very pleased with our insurance business strategy.
The results of a lot of processes.
Sure.
Acquiring activities as I was saying earlier the transaction volume went up 21% while revenue went up 30%. This shows our ability to manage client repriced the portfolio increased the penetration of financial products and promote the growth of the acquiring business. Thus, we continue to extract a lot of value from the.
Operation and earnings have been keeping up with our development is Y and card issuance business. The transaction volume was up 10% a much lower growth than in previous years, but the main message here is that our client portfolio mix is quite favorable, especially from a risk standpoint card issue.
<unk> revenues continue to grow in the internal channels, which consists of clients with whom we have a longer term relationship. They are checking account holders and they are key for our cross sell strategy doesn't where credit cards or just one product in our relationship with those clients.
We foresee a lower growth in revenues and a reduction in our client base and the channels with the lower income client profile, both in the external channel and the consumer Finance credit channel. This is very much in line with the adjustment to the portfolio that I have been commenting on as part of the risk management strategy that we've been doing.
But just because.
The number of active cards of account holders grew 14%, which shows that the risk diversification strategy has been very successful.
Speaking about credit quality, we can see a totally expected growth in the short term delinquency rate NPL 15, 90, but I always remind you that in the first quarter of every year. If you look at a longer historic Npls series. The first quarter is always seasonally more pressure. This is due to people's higher year end spending.
And Bill's admit which explains why you couldn't fault increases in the first quarter historically, the short term delinquency rate for individuals Rose 30 bps in the first quarter of 2023, we'll see the growth of this rate in the first quarter over the last five years has been between 35 bps and 42 bps 30 bps.
It's the lowest growth rate in recent years, what happened in the last two years that this rate went up in the first quarter and it did not go back down in the second quarter, because we were in the process of gradually normalizing the cost of credit and we expected NPL to continue to go up which we do not expect to happen in the.
Next quarter anymore. The key point is that we normalized NPL rates for individuals the delinquency rate for Smes was up 20 bps and the good news is that the NPL 90 days has stabilized as I've been telling you for several quarters now and it fits precisely into our expectations.
For this quarter with these results, we deliver risk management capacity predictability and consistency as we've been signaling to you Crazy Moscow Macau Theater, if you dance things off the NPL 90 days rate for Smes in Brazil fell from two 4% to two 3% plus I think it's clear.
There are challenges that the scenario may change over time, but we've been able to deliver and demonstrate a very efficient management capacity Oh My God.
It's hard to track the NPL rate for large corporate because usually in this portfolio. When delinquency occurs the client already has an issue. So coverage ratio may be more adequate and I'll talk about it in the next slide.
Portfolio cost of credit reached three 2% and if it weren't for the subsequent event last quarter's ratio would have been 3%. So there was a sliding crude hoffmann who put up on the EMEA I've been saying for several quarters now that we should normalize the cost of credit loss at a pre pandemic level and that is what is in fact happening.
Current cost of credit is at three 2% and pre pandemic. It was three 3% last quarter due to the subsequent event. It was three 5% of the cost of credit was $9 1 billion, Reals, which would be more comparable to the cost of credit of $8 5 billion realized in the fourth quarter of 2020 to me the.
Difference to the $9 8 billion Reals posted in the fourth quarter of 2022 is explained by the subsequent event involving the retailer for which we provisioned 100% of the exposure in the fourth quarter of 2022.
Total coverage ratio was flat when there was a slight increase of one percentage point in retail the average retail coverage for the last four years pre pandemic from December 2015 to December 2019 was 167% and we are running at 182%. We continued to provision our formation and maintain our expected credit loss management.
Which is key to have a sound balance sheet with adequate provisions and prepared for the challenges that lie ahead.
I think that in terms of credit despite the challenges in the current scenario, we have good news to share with your noninterest expenses in Brazil drop of three 5%, but we have the seasonal effect in this line since the first quarter is typically weaker in terms of cost, which explains the drop in the quarter and the 9% growth year over year for the first.
Time in history, we achieved an efficiency ratio below 40% on a consolidated basis.
Was 39, 8% in a quarter, where non interest expenses grew seven 7% year over year.
L 3.5% quarter over quarter, the efficiency ratio in Brazil was 37, 9%, which is also down from the last quarter, which had already been a good quarter. So these are the lowest efficiency ratios in the industry. When we consider all expenses without any reclassification and calculate it.
In a manner, we believe to be the most correct. They are the lowest efficiency ratios in the history of the bank program was about the cost base our quarter on quarter core costs fell by $700 million Reale, a drop that is mostly explained by our efficiency program, which fostered cost discipline and focus on cost.
And it has a volumetric effect, which is the good cost the cost that we would like to have more out as the business generates more activity and more importantly, we continue investing in our businesses and in technology delivering sound and consistent earnings is taking care of the bank of today, while investing in the bank in the future.
Sure.
Michelle.
It's worth noting that we are not delivering these efficiency ratios by cutting off investments all in we are at full speed with our digital transformation, we are expanding businesses focusing on capital discipline and in value creation and continuing to invest in the bank.
But that's coming.
At this point, our CMO looking for Ya moving onto capital, we were practically 10 basis points above common equity tier one we presented in the previous quarter. We increased earnings already adjusted for the distribution of interest on capital. There were also the effects from risk weighted assets and Prudential adjustment and so we ended the fourth.
Quarter of 2022 with common equity tier one at 11, 9% and reached 12% in the first quarter of 2023.
<unk> H T. One we reached 13, 5% tier one capital in other words, our CET one of 12% is 50 bps above our 11, 5% appetite, which was approved by the board of directors no minerals as we can see the bank is well capitalized and points to a very positive trend safety and finally.
I'd like to extend to you an invitation to attend <unk> 2023, which will take place on June 15 to put us. During this event, we will have the opportunity to have a very open and transparent chats to share with you a clear view of what our strategy has been and how we are taking care of our clients of our culture, how we have been.
Carrying out the digital transformation process, and how we have expanded and been able to deliver these sound consistent earnings I'm counting a lot on your participation it'll be a pleasure to have you with us in this event.
And with this I wrap up the presentation I hope that you've been able to understand the main drivers to deliver our earnings. So in fact, I think that during challenging times soundness and consistency should be of great value and our earnings show it all.
I'll now joined Renato for the Q&A session, where we can share more detail.
But I have confidence that you know how youre thinking about conversion rate.
You said, if I make sprinkled amongst those English of doors at Vodafone.
Fly Tonight to attend our conference in New York, and I will surely meet with many investors. Thanks and see you soon but that's what I wish you all the best.
[noise] pull off this fall.
Hello, everyone.
Milton is right here with us. Thank you for your wonderful presentation and now we would like to start the Q&A session.
It will be in two languages.
If you ask a question in English, we're going to answer in English and.
In Portuguese will answer in Portuguese we have.
Both options therefore available for you.
In English or in Portuguese.
You can also submit your questions via Whatsapp.
11, 90, 899, 311% to be true.
Thank you for your questions.
Without further Ado.
I would like to recall.
Through the screen Pterygote budgets.
Hello.
Welcome.
Sure call of the first quarter.
Good morning, Milton and good morning.
Graduations on the result.
Strong it seems like the bank is operating in different countries.
The question is not about that it's about profitability of the business areas.
We follow up on the wholesale or retail post pandemic, maybe it's a coincidence or not but it really changed the.
While the portfolio we are talking.
The retail 30% wholesale 17% now it's inverted.
Last the aforementioned well at retail.
Well 30 wholesale.
17 retail how do you imagine the returns is there a structural change in the business is the competition from the Phanteks, what justifies that change and how can we I mentioned the profitability. So let's just say.
Looking at the future well. Thank you for the question Chicago.
Thank you for the compliments, it's always a pleasure to have you here.
I believe that the question.
A legitimate.
Excellent well that's it.
When we see it a longer series, where I'm going to take a look at that there are some relevant effects.
Taking over the last few years.
Mentioned, the pandemic had an important effect as the bank.
Right now so a lot of revenue service, well and help our clients to know well that credit program Travis here crossovers.
With the small companies and medium sized company issue goes to weather This storm.
We had a few regulatory.
The facts the cap of the.
<unk>.
Some loans remove the profitability of <unk>.
Also we have the liquidity has recurred, we've got we've had chu.
Great years, and delinquency has climbed over the last few years, specifically credit cards, where our operation is very large we have an enormous portfolio we have.
A significant share of the market.
It made the profitability of retail should drop.
Now, even though we've had a few improvements over the last few quarters, we've had a benefit in the seasonal cost that's why profitability increases a bit.
In the retail what we've done is it depends more on credit than independent independence was very relevant for credit, but we had a generation capacity to generation of fees and revenues, which is very.
Aligned with our credit and it's an operation Brito has grown.
Then a capacity to expand the business earn fees, which is a profitability. Therefore, the tens to the return of credit to a return of credit more than credit and <unk> and how that's all debated captures Dee valley and when we do a deep dive at zoom and <unk>.
Retail as a whole we can see very good with the company is doing very well delinquency very control that you've seen in the credit indicators.
The.
India into persons into natural persons.
There are more dependent on credit, but are more resilient and our cost of credit and when we talk about the market. The open market, where we operate credit cards or some other segments that we operate with vehicles and other.
Other balloons in vehicles, we see profitability pressured.
Have the work of repositioning our portfolio. We also changed the level of profitability of portfolio My doing a migration to a more insured portfolio and therefore, we have a lower profitability, but more much more resilient.
In a scenario that is.
Showing anniversary so the repositioning of the portfolio.
Clients that are.
We're working with the incomes of the client so a third of the portfolio in low income, we reduced and 10 percentage points over the last few years, our management capacity has made us to weather. This storm better so looking at retail as a whole our expectation is to continue.
It's a work strong nature improve the profitability and I believe that theyre going to return to the upper mentioned thresholds.
Thresholds.
There is an efficiency agenda that is very strong so what we can.
It's why we control and this is where we have to highlight the efficiency specifically.
The natural persons.
The direct lines, we're looking at them as an integrated business units.
Also in wholesale we've had great.
Great incomes and we have the investment bank the commercial area of asset management.
<unk> Latin America operations are always vendor.
Within this umbrella of wholesale we had a bit of a drop in the group and the previous quarter because of that ability. There was various particularly we have a normalization of the cost of credit which is normal it should bring profitability lower than we would have less activity in the investment banking and asset.
In performance fee and there sure. Therefore, we should get some pressures on profitability, but the numbers in what we are.
Expect to end the expectation of guidance, we're going to have delivered the guidance.
Okay.
Thank you Milton.
Okay.
The second question.
Most of it should I then bradesco.
Welcome.
All of them and all are welcome Milton Thank you for the opportunity.
Congratulations on the results very strong across the board.
Now I would like to.
Well.
Yes, well it should take Milton words, and expanding on that efficiency.
It's below 40%, specifically, if we consider the size of the bank.
That has 4100 branches and points of sales a 100000 employees.
Ask that question before to Milton and I am going to ask it again.
And my reading according to my reading it would be a game changer profitability with all of that infrastructure, which is heavy demand.
The bank can work with an ROI of 20, 21% at the efficiency level below 40%.
Milton.
Well.
Taking into consideration of the interim analysis, we've gone through the pandemic period, which we had.
That everybody needed to do with how it would be the post pandemic behavior of people.
Have a great scenario, we have a great visibility of how people are behaving and therefore it is there any space to reduce.
Significantly speaking the number of branches and points of sale.
Rental service.
Ethan.
The structure of the staff needed to support and maybe I'm talking about optimization here.
And that can.
Brings us to a different threshold of profitability, which is already high sorry, what nature here.
From here once again I think that there is a space.
We can have a change in ROI, but maybe it is already high but maybe changing the threshold of that ROI that is already high.
Gustavo Thank you.
Let's just say once again.
It's always got received a question because I remember that there is a lot of employees are watching nicol. Besides the investors and this gives me a great opportunity to communicate every one.
The agenda of efficiency is fundamental.
In fact to reach the efficiency levels, increasing leverage operational leverage of tobacco of course, there was a space for that and we're gonna be dosing. If you are talking about the branches over the last few years since 2015, when we start to do a few movements for reducing we've reduced 1500 branches Arthur Arthur.
Jim maybe this is not an isolated objected what we want to service our clients.
And it was right in the right way, we believe in the original model. We are trying to resolve understanding the channels. The digitalization of the class the demands of the clients and the products well and this quarter. We've closed if you seen 55 branches as we reached the volume of 415.
Digital branches, which is a different model of lower cost, where we have extended hours for servicing our clients. This is very important and we've been working with the business space, where these are later branches. We have hubs in satellite we concentrate the operations in one Brian and Nokia branches.
Leave these business areas are lighter to service to bring should provide consultancy to talk about more sophisticated products.
Her care an equilibrium that we have here when we reduce structurally the land base, we've reduced the top line because the digital model is working and in essence. It right. Therefore, the care that we have true pad is.
Our clients know the demand is so go to the branch there's still a flow of payments that is very important even though the flow of payments drops it grows nominally even though.
It reduced the share in our branch networks in regards to payment as a whole. So we continue to work strongly on inefficiencies.
Specifically at the moment, where there is more diversity to more uncertain. The future is a more intense our efficiency agenda is here at the bank.
As a rhythm that we're going to implement in 2023, 'twenty four 'twenty 'twenty four and if we have to do additional adjustments we will do so.
As that is necessary to service our clients correctly and since we have digital integrated model.
Central Challenge there is space for us to evolve we will continue to dedicate our.
Over the efficiency agenda, you talked about a few of the levers and these are very important levers.
For us to continue to grow and deliver this level of efficiency top line is very strong and our help center index, but we need to have.
I look forward for the future Nevertheless needs.
It needs to be given if that top line is certainly the cost of certain and we will do a deep dive on that thank you Milton and the third question that is here Rafael welcome Rafael.
Well Jim.
But again, thank you Milton Thank you Bernardo.
Thank you for the.
Opportunity well one question about credit cards.
And as you commented we've.
We've seen a stabilization of the quality of credit of the portfolio as a whole, but if you look at the credit cards, specifically, it's worsening we have a worsening of the marginal.
Well the margins if you can tell us more about credit cards, regardless of all the measures that were implemented there.
Are there still some lagging.
Some stuff that we get from the previous origination.
Another question I thought that it was different from the other players we have you had.
An increase in <unk> and how much is that of the demand of the client the proposal of funding.
Coming from other companies.
Companies, if you can discuss funding.
Rafael.
Well I'm going to start talking about credit card scratch cards remember our portfolio is very large we have practically 30% of the market share. We continue when we took a celebration of the car for a bank.
When we look at the portfolio as a whole.
These segments have had different performances.
Well the there was a great performance from the natural persons.
Banks Bank accounts. This is a portfolio we continue to grow and this is.
The high income profile.
Of course, we have.
Asian.
But this is more balanced.
And then there is a two portfolios the.
Finance Andy open.
Open Ocean wherever you work with the brands without going through the regular.
Irregular.
Channels Endesa has been reducing the concessions specifically industrial portfolios, Andy if I know you'll have the value proposition of the partners do not necessarily have the same quality of credit you can you can see through that and you can have a better quality in the open ocean or the client that comes through the.
Digital channel and looks for a credit you have more difficulty. So you would have an adjustment in the portfolio, we've reduced the concessions and we've done the general review of the limits and the exposure of the riskier groups. They were reduced in a more relevant way. So I can tell you that the short delay.
It's not only.
Is this.
No.
And this year it has improved.
Performance, but there is a portfolio that has a lagging.
To it when we compare the numbers or the SSM and numbers that were published and there was a delay in there sure.
There was an opening.
The DNA, there's a lower threshold and we do the correction at the end.
<unk> done the system as a whole so I believe that their capacity and how dynamic. It is it's what makes a difference. So we are very comfortable we've done the necessary interventions.
Limits.
We can see a reduction in the higher threshold.
This in the <unk>.
We removed the account holder there is lower capital cost and we have a different performance.
In regards to the cross sale.
The records that we have of the client itself. So this is a central point.
The credit cards.
Funding your second question.
I believe that the bank has managed to perform very strongly and capture and deposits not only for what we call. The traditional deposits. We have a open platform multi products and asset management that is very competitive and a distribution channel that is very solid so we've managed to work with.
Either the investment Andy credit analyzers and capacity that our private bank has been growing we are gaining market share and the private 29%.
Market share according to the Bema data is.
<unk> is our largest one in terms of share and it's growing sorry.
Sorry funding has captured value well of course, when we see more adversity more in a moment, we see the flight to quality and the bank has always seen as a safe harbor in terms of investments given the solidity. So.
Its capitalization of the bank and with the movement of the interest rates. There is a reduction in the funds and assets. So what we talk about the open platform the multi mark at the industry as a whole performance.
Industry was very poor in the first quarter across the board and with the level of interest rates. The treasury products. They tend to grow that's why we've seen that that influence that is very important of course, some volatility of course when funding comes from great corporations are great clients, it's a more institutional funding and.
We've lost a few deposits over the last quarter more than we observed specifically concentrated in great corporations.
And that is distributing the result in more cash flow due to the reducing in our.
Cash flow so we've seen the volatility and the funding of big corporations, but the account holders natural persons is very resilient and assets.
Outstanding and outperforming the market. So the bank has managed to work with our liabilities with a lot of solidity our indicators are.
Stable much higher than the regulatory limits and if you look at our deposits from the account holders over the portfolio of account holders natural person as you can see that we have the better ratio.
<unk> market the funding one for one.
So we can see the capacity of attracting deposits with quality.
Servicing our clients always with.
Vision of consultant.
That's investment for the client and it's not the best provider for the bank. So we.
We have the point with adequate spreads for the adequate to the client that really need doesn't it make sense to it makes sense to invest in the product. Okay. Thank you. Thank you Milton.
The next question has rosman from BTG.
So welcome.
Thank you for the opportunity congratulations on the numbers.
I need to change the theme here I think that the result was very.
Clear.
I think the Milton mentioned that you are going to be in New York Conference.
I returned from a visit to foreign investors and the general reading is that the shares are very cheap.
But they are very worried about the risks.
We have.
The IAC a change the change in the rotary credit many others. So we need to get your reading how do you see the risks are they real exaggerated.
We'll work with the day to day of the bank of course, taking into consideration these risks.
Thank you rosman always Rachel heavier here.
Thank you for the questions in fact.
Something that we do not do hearing tobacco strict northern Ray So we really face.
<unk>.
Head on all of the challenges that up here in fact, there are some uncertainties you've mentioned a few.
Credit card is something that is recurrent.
For many many years.
And the work that we've done had issue manage to educate and show in a very didactic way all the stakeholders how their credit card market works in Brazil, I remember when I was working on credit cards and opinion. So whenever we're sitting there as a chair I'll just cover a different world.
And many people do not know it because it is a very complex environment vehicle system of credit card fees.
<unk> issuance.
The muscles as well.
And all of the equation and between how its close so Andy because credit cards. So it's 40% of the usage of 21% of GDP Penetralia arise.
Credit cards, they move to Trulia reais per yard, but we have our own idiosyncrasies, if you're a C.
<unk>.
The payment in installments.
A large percentage of it so if you pay interest rates and rotary, it's very small at three 8%, 4% Rhodri. So when you look at the threshold that pays the interest rates are substantially higher than that.
The part that doesn't pay and you know that the bank carries over or other risks or it's important to repeat it's going through.
Via an educational and also a cultural issue to the market.
Emerging economies, we can see clearly in other countries, we've realized that our unbalance of the interest rates on payments.
It's very high in Brazil, So I say that with a lot of tranquility. We are we have the acquirer and we have the issuer, we own 100% of both of them. So there is no conflict in defending motto.
I defend their technique and the understanding of the whole thought this is clear for the market or the stakeholders, whether if it's a central bank you know them very well the ministry of the economy has worked with a few debates and we're discussing alternatives and paths to make the market evolve of course this does.
<unk> been on an isolated or play area has to be a multi discipline area and it would be ideal that you'll have through the south.
Self regulation that would be a model that will be self sustainable attacking structurally in transit and <unk>.
The root cause of the.
The problem I am not alone in this agenda. There are several people setting up a work group and we are advancing Ed we should see how it's evolving but always taking a look at sustainability of the business now that JCB. It's a reading there is still no clear proposal.
We are reading actually we've seen recently.
Well, we have seen a few comments about the fracs.
<unk> noticed that was done in a relevant value in a company of our defenses.
Somebody operated in a wrong way and I don't know what the cases I'm not going to judge because I believe that.
Neutral packet.
In.
There was.
And X saturation in excess of creativity.
You have to remember that the interest over the one capital is true substitute the loss from 95 and efforts to keep on inflationary countries such as ours, you can keep the parity power of value economic value of your patrimony up your assets. So it has about a year, but you have to remember that our sector is a sector that has the high.
Taxes in the country, we paid 45%.
<unk> contribution social contribution we have.
ISS taxes that we have.
<unk>.
The Texas over purchases of state taxes, we have the short term agenda as we have to be careful with them because they can compromise the growth of the credit.
Portfolio as I needed to increase the spread in Brazil, where we need to attack on the other hand.
Same way that we attack the cost of the spread in Brazil, We took the great work here.
So the idea that your comment that has its nuances.
Financed intermediation tax at $4 65.
And no other country of the world there might be an exception, India idea or big Tech.
If we just apply that to the income of intermediation and services, we are increasing the load on the sector and then make sure your way specifically, making credit more expensive for the natural person of the account holders. When we went to work to reduce it the taxation to reduce the spread and not increased.
Fred So I believe that our country government has.
But as we've seen some official obligations and some things that are being worked.
But we don't know what the definitive actions will be on the SME trees and the third element, we still have a lot of tax asymmetries in the sector. The companies in the sector to pay less taxes did not pay as much of a contribution tax and there is such a great. So there is definitely probably the same level playing field the racecar.
There you mentioned a few we are working in the best way in a constructive way.
Give visibility on Hu explain the impact so we can avoid an agenda that is the short term might make sense.
But you generate structural problems for the economy, the society and for the population as a whole that once you pay and have once you have access to credit is more competitive. So I believe that these levers that we are working with them and having any news we will communicate to you. Thank you Milton.
New York and foreign investors. The next question will come from Tito <unk> from Goldman Sachs Hello, too. So good to see you soon.
In New York.
Sure, Yeah, Hi, mumps anhydride not to thank you for the call and taking my call My question in English.
My question is on the financial margin.
A little bit weaker in the quarter, but still overall pretty strong, particularly financial margin with clients still growing at above the top end of your guidance for the full year.
And your volumes doing okay spreads up a little bit in the quarter, while the financial margin with the market a bit weaker in the quarter. So just help us think about the rest of the year how that should evolve also in the context of when you expect rates to come down and what the impact could be on both of those lines from here.
Thank you.
Okay.
Good to see you again, thank you very much for a question. So I'll start talking about the clients the financial margin.
With clients.
<unk> seen.
As you know there is this seasonal effect.
On the first quarter, we have less current base in.
In the first quarter. So this is expected we still believe that the guy those fees.
Feasible, although we believe there is more challenge as well.
Worse in the very beginning of the year when we released.
For you to the market the guidance. So our view is better talents are bigger mill.
We still believe that the guidance the way it is set up it can accommodate all of our performance in 2023, but with a downward trend. So this is my first view over here.
Pricing won't be working capital off the bank, we still have room to do so so the way we released on the MD&A you will see that we still running 400 basis points below the selic rate. So this repricing that its done throughout the time on the interest rate should be done.
Throughout the year. So we still have some benefits to get from there. Okay. We've been working with more guarantee.
Although we had some increasingly clean lines in the first quarter due to the seasonal reasons as well.
And then also.
<unk> been seen of course, some products that are capped.
Due to the regulation that's true for overdraft, that's true for payroll loans.
So we have to keep an eye on that so this can put a little pressure oldest spreads as well. So this is all reviewed we still believe we can do that all the financial market required, but if I could choose a line to say the geography, even though we believe it is too early to say, though I believe that the financial margin with the clients.
Have a talent had.
But are you still confident with the guidance okay.
Talking about the financial market with the market.
We've been able to deliver good decent quarters, although were challenging as you'll know we.
Had a very good quarter poor trading, especially good for banking that shows the way we've been dynamic in hedging our positions our a O L and mismatch in the balance sheet. So we've been able to do so guaranteeing good level of margins quarter by quarter and financing the cost of hedge of the capital Windex us.
Well, so we still believe that it's difficult to predict these line as you know, but we still believe that the guidance is reasonable.
Be able to deliver the margin with the market. We think the guidance that we released the very beginning where we are seeing more challenges coming from blocking American operation with specialty productivity as you know Oh Chili just reviews and had the conference call as well so what vishal various other financial margin with the market in the first.
<unk> was very challenging, especially due to the low inflation environment that we've been seeing there that shows that as the banks are long in U F. Local inflation whenever you have lowering inflation, you'll have other benefits, but the financial margin with the market you will suffer a little bit more so Chile and the region should be more volatile.
And in Brazil, We still believe we can post decent quarters for the coming quarters.
Thanks, Nita will go into more comprehensive order close approval given the sluggish you did a bunch of very much now we have bank of.
California Oshita welcome.
Hello, Hello, Nelson Hello, everyone.
Hi, My question has to do with the risk appetite here that we have we noticed the NPL is stable.
After.
Okay stable period of time, but the growth.
Portfolio for individuals and companies in Brazil, and dropping so we see that some of the lines.
So Julian for individuals have been more resilient, which is the case.
Let's take for instance.
Well first of all I wanted to understand.
Consign credit as well so we wanted to understand what the future scenario is in your opinion, how do you think we can maybe.
Accelerate that growth. Thank you.
Thank you Sylvia.
Good to see thank you for that question.
It is true we've been working with the portfolio, we have been working with changes in your concessions for a couple of quarters already because it's going to be challenging. We believe that we are data driven and we have the ability to.
Manage these risks.
Whenever things get more volatile so that's the good news, we've been able to have stable.
Trends for individuals I think our levels are very good right now and we expect things to be more normal I would say more neutral over the next few quarters. So I think naturally that shows the quality of the portfolio also we have the mathematical effect here in your denominator effect as you were saying.
There is that.
Your line installation in the portfolios and that makes the growth.
Oh, John in terms of the cars would tell you the indicators and we'll have more of a pressure as far as the appetite. We're still very focused we're looking at engagement, we're looking at our medium and high income.
You don't want a couple of clients.
Clients and we have a very good scaffold, I think we know which channels with which client which ones have a higher risk appetite risk.
We wont stop growing we might grow in a decelerating fashion, but we will still grow I think that's what we're looking for over the next few quarters. We will continue with the same chair Andy target clients in terms of risk appetite.
Appetite and we are losing share and I would say clients that we understand are not in the cards that we watch it were in the trend and we want to follow up.
We know that that.
That demand has changed over the next few quarters, so that drop.
And more relevant.
From a demand standpoint, we see that there is lower demand so in middle market, we have a lower portfolio and that's because of a lower demand, they're usually working capital inflow.
And there's also also in exchange rate change.
So when we think about the exchange rate for it last year and for this quarter again was it changed the demand is going down around 25% on average and for individuals.
We've also had to adjust a few things. So there was a cap and you can find credit lines and we had to adjust because like 197. Some of the targets that we had were not sustainable we had to adjust that and we're reducing the.
Outlines for vehicles and real estate as well it is still growing but it's.
At a lower pace.
And we think that of course when this level pricing there is a lower demand. So there is a lower gross cards, but that's our expectation for 2023 to continue to grow and invest in our main clients. We have a very large portfolio at the bank. So naturally there is going to be any effect on.
Whenever we are working with that transition.
Again, we are still growing and with the right appetite and the middle market and also high income lines.
You got it.
Thank you.
Milton.
Now we have Danielle Vos from D C. Hello, Daniela Okay.
And I suppose if they want to put him in that too.
Hello, everyone. Thank you for the conference well Milton.
I think last time I asked you a question you told me that usually have a range.
Collateral crowded.
53% and you are actually looking at the higher part of this range. So no thinking about the current scenario thinking about a strategy that you're working with do you have what do you have in terms of.
Trends for the next semester and unsecured lending I mean.
But where do you see there is a possibility for a higher spread.
Our balance sheet.
Got boxes don't once again thinking about the organic growth that you have right now.
What's your opinion on that.
Collateral.
Couple of months.
Your portfolio.
Any opinions on that.
Thank you for that question Danielle.
Yes.
I think in practical terms that is happening we see a deceleration.
The guaranteed credit, especially against the past few years that is going to decelerate. We also see yeah.
A reduction in general, but that's balanced somehow if you think about the first quarter, we've been able to grow our overdraft for instance has been better there is usually a reduction in that because we have people receiving bonuses at the end of the year et cetera.
Also.
A minority.
We've been earning more share.
And the best rating.
And we've been able to also.
Look at the target clients in a better way. So we are growing in terms of share with those clients, but there is a lower demand as I was saying before.
Nowadays when these interest rates and these levels there is a lower demand that's natural and that's why we have this monetary strategy whenever there is a deceleration so even the middle or high income clients. They don't need as much credit at these times because the interest rates are higher and then they.
Just wait a little bit longer term spend.
It's been an important amount so yes, there is a lower demand.
We believe that it's going to be okay to continue to focus on these client and still adjust the balance sheet.
We're going to continue with the lower rating.
Clients and also focus on the middle and high income clients, which is what brings really sustainability for our company. So if we have the opportunity. We will continue to grow well, we need is really more demand and we have to see what the right mix is.
And now for the next one we're going to switch back.
Because now we have with us Jorge Kuri from Morgan Stanley .
Welcome and good to see you and hope to see you Tomorrow in New York. Thank you. Thanks, everyone and congrats on the numbers on the CFO as well I wanted to ask about.
The details on slide.
16 of your presentation, where you have the return on equity by.
The different business lines, and you were showing for the first quarter on the credit business.
10, 4%.
Our return on equity and I wanted to get your perspective on how do you feel this thornberrys relative to their potential.
Identity when risk free rate is 13 75 I'm guessing. This is not a result that you wanted to see and so what are the different levers.
Our effective this number and how do you see them going forward.
And in general.
Longer term, what do you think would be the fair.
Attractive return on equity for your credit business.
Jorge Thank you for your question and good to see what the MCU you hope to see in New York in the coming days.
So my sense is they're falling so if we go to a historic Historic series you will see that your return on equity of all the credit was always.
Very close to their cost of capital so.
The sense is that well we saw a huge.
Growth in the cost of equity of the bank.
Becoming the last quarters, so that put a little bit more pressure in the level of prepayments and also we saw the level of delinquency growing, especially on the credit card portfolio and I think this is the big impact when we look quite a bit in terms of returns. So if we separate the credit card portfolio look to the other portfolios.
We are generating a return on equity above the cost of capital that means that we create value and credit and also the credit doesn't cross sell doesn't make sense to be bolt credits. So the reason why we deliver the most relevant part of our Ah VAT.
Value creation has to do with the credit and the cross sell.
Our relationship with our clients in all segments and that means I'm talking about retail I mean about prepay, what I mean about our corporate clients in general. So this is what we've been seeing so my sense is that coming close to the cost of equity would be reasonable because they may drill more of value creation of the bank comes.
From services and also in <unk>, we are able to deliver a little bit more than cost of capital. Historically. So this is my view, we have to work towards the cost of capital and I think there is room to do so, especially when we have the delinquency normalized.
So we expect to have a better returns, especially on the credit card and auto loans portfolio. Those are the two portfolios that so for a little bit more and brought the level of return a little bit though so we folded measures that we took the adjustment it's not in one quarter that you will see that but.
Looking forward I think it's reasonable to expect cost of equity.
Return on credit coming in in the same direction. This is my best expectation all of this would be my appetite in terms of horizontal ought to be good.
Good expectation of having something that is reasonable for us.
Thank you Michael regardless.
Is it still mostly most who've been ingo could you woke up roughly perfect.
We have our next question here from Eduardo knee she'll from Jennie O.
Hello, Good morning.
Hello.
Thank you for the conference.
Congrats on the results going back to what she has the one thing about every time.
Retail.
See you're making adjustments in your businesses you have this.
Perspective on clients and products and.
Considering he's done the rollout and wholesale.
And as a consequence, we see that wholesale has seen that effect has noticed that change in return and profitability. So <unk>.
So during all of that I would like to know what your perspective is for it.
The future of rollout for retail.
We're working on that now.
I understand retailers probably more complicated.
Let me answer that I mean.
He was an IMAX they might departments will have something.
Special.
Sentence, I think it's probably difficult to change that perspective completely so I would like to know more about this initiative.
What do you expect in terms of outcomes do you think you can improve the top line the profitability.
Yeah.
Also as.
Since two when do you think.
You're going to see that Earl I going up basically at current getting better.
Thank you for that question Eduardo.
Okay.
Well, we have a project here that's probably.
One of the main challenges that we have.
<unk>.
Started this year with this new structure with new leadership and we're using this as a new operational model.
The MMO as we call it now.
So we do have very important challenges in terms of reorganizing and revisiting the expectations of our clients, we understand that mutually banks are based on.
Productivity, usually you focus on the product on the system on the structure, what we're trying to do now.
It has to do with two effects, we have more of a modern platform right now which is very important you're not oh.
A victim of the old systems anymore, and also we have the agile way of working where you have communities that are designed to understand the needs of our clients. It's easy to talk about it but in practical terms it is very challenging.
Saying this is a simple thing we have dedicated teams we have a very high government level or follow up for execution. So.
How concept has been defined already.
We have started to implement on that already we're looking at a very important execution phase right now and we're thinking about the different business units as well. So we talk about different business units for individuals smart companies from retail et cetera et cetera. So we do have a very good P&L very soon.
Truck charge view on that.
We are organizing our teams right now and we want to continue to work with these opportunities as I was saying structurally speaking we're no longer going to have those return levels that we had in the past because the market has completely changed in terms of regulations or competitors as well.
And we also have changes in credit levels. So the retiring levels are going to be lower but.
We are focusing on the different units to have more profitability again for individuals and also for the company. So we've had a very good catch up I would say we've seen a good profitability right.
So again, we started with the results when individuals' thought were the right leadership and with the right allocation.
Believes that we're going to see get resolved, it's not going to happen overnight not in this first quarter, but our expectation is for that change to really have a good effect.
Overtime, and that's going to change profitability MTS, that's going to change the opinion or the experience of clients as well. So we are going to have more engagement.
And that's going to be way more relevant because people will see that their needs are.
We're looking at their needs.
We're adapting to that so.
So I am sure that again, we've done a few reviews on that process and we want to continue to do so.
Want to focus on clients and the sum of all these factors is going to maximize everything not just on our side, but also for our clients.
I have a long way ahead, but so far so good and we have very high expectations and we started to see some good results.
Sure.
Thereafter, we have Enrique Navarro he is from Santander welcome.
Welcome.
Well everyone. Thank you for the opportunity to address that question. Congratulations on the results now India show provisions you already started the year, if we annualize the bottom of the guidance.
This is a dynamic that we can consider for the rest of the year maybe.
Maybe working from the standpoint of the guidance for provisions.
Hi, Thank you. Thank you for the question and thank you for your participation.
Still early to talk about geographies.
Our opinion is that we still have important challenges in the next quarter. If you annualize the first quarter.
So naturally higher.
A higher threshold.
Bottom floor, but when we normalize.
The wholesale that isn't that is contained in the guidance there might be seasonality in our cost of credits or the expectation is that it will grow over the last few next quarters without any big events nothing too.
Expected, but since our wholesale.
We still are cautious because events might happen throughout the year and they might bring volatility through the cost of credit which is something that we haven't observed over the last few quarters.
Now at the bottom of the guidance were still comfortable with the guidance we had no problems.
Delivery that that's where the cost of credit that depends on scenario per sector. So cautiousness is welcome.
If we have more news we will update you.
Thank you Milton.
I'm not sure whether it's going to.
I'm going to ask unfortunately sort of an even split.
Welcome what you're seeing here, though are more meaningful.
Feel free to ask the question in whatever language you prefer thank you.
Hello from GM Milton with Nashville.
Well good morning. Thank you for the result, and thank you for this great opportunity of my question is on the business.
While of M&A.
The transactional acquiring a business is growing year on year.
Much higher than the industry. So I would like to know what would be the drivers for growth.
What type of clients.
Are driving this.
That's correct.
It's a hybrid question right.
Hybrid question, but thanks for the acquiring.
This acquisition.
Oh.
Business acquisition, we have been for many years adjusting the operation. This is a clear change in the service value proposition and the results are.
Our following suit so from the standpoint of market share we've been growing in these segments.
We really have the target segments, and remember that the diamide dynamic of market share and profitability. The endy business acquisition is inversely proportional so on the same hand from the standpoint that we have the market share debate. The same the big clients are driving the two thirds of the macro check the small ones are driving two thirds of the prop.
Whatever they start looking at the sure sure in a broad way is not a good metric ive been saying that for many years.
In growing their market share in those target segments, where we believe that we have more opportunity and we have profitability impact.
<unk> been ultra disciplined and a big company isn't a big corporations. So we do not operate.
Contribution margin that is negative because of India. Today. If you do that you don't have any big challenge to operationally lever there well there is some but if the contribution margin is negative as we see some players operating in some cases, you, though you cannot have operational leverage and what youre doing is renting market share and there is a cost.
This is another place that we believe.
We've managed to reprice in a very important way. This increase in interest rates has Brett has brought a repricing challenges for the industry as a whole the closer proximity to the challenges to the channels of the year, so having a and acquiring that is closer than ours. So we don't have true.
As for excuse me and we can create more cooperation.
Well all of the operators are politically connected so we can bring more value. So that the acquiring is more of a product and the value proposition and that's just a part of the business and we've manager.
Greater penetration in the business.
Finance products that are helping our clients SSD cheaper receivables that they have to discount so our clients when they have a situation of the demand that we've had a great capillarity and all of the segments, so that repricing and the capillarity of the pricing and other financial products and the changes in the package has made our profitability.
Ingo.
And global art market share is stable and in the segments, where we in fact have more of an emphasis we've managed to gain market share once again, we're not going to.
Get into the spirit of the REIT of renting the market share we are competitive in pricing. The NPS of the client is fundamental to the operation has been evolving in that sense.
Very good in that sense and.
This is the result of the acquiring is substantially larger than the last year, having a contribution that is good for the balance sheet of the car.
Bank as a whole.
Yeah.
The next question next question.
Nicholas.
For America, Hi, Nicholas Richard and Thanks for a question.
Hi, Renato.
Thanks very much.
My first question I have one question about your bonds hybrid bonds.
With the of course, you didn't call it.
<unk> 601, eight and the six hubs in December and March and at the time, you clearly emphasized the economics as the criteria for making the call.
I wanted to ask.
With the tier twos with a 29% with a 31.
Given that the structures have been different from the 81, she can only call one.
If they don't you don't call the bonds, they start losing capital treatment given all of that.
Great.
Can you say, whether or not to call them tier twos is gonna be a bit different from from the <unk>. What are you going to say, it's going to be helpful.
Yeah.
Thank you very much Nicholas good to see you again, so very clear so when you look to the yield or the coupon that we reset from day one.
We said something around seven and a half and 8% ballpark.
If we had to go and access the market for a new 81, although we know that the market's different well after what we saw at the credit Suisse event.
Might see more challenging on new issuance premium, but what we see now and the price that we are that we could reset the bones of 250 basis points below what would be a new wafer and so this is pretty relevant for us. So this is basically why we made the decision not to exercise the call and this will be the case.
As always we're going to be not only taking a look on the price we have to take a look in other situations that level of capped off the bank alternatives that we have locally or offshore but this was the case with tier two that we have the pure TUI is the old pier true. So we don't have any benefits in KEPCO anymore, but they still have a cough.
<unk> of our tier two so we are always discussing our liability management and the capability to refinance bolt with Ross senior bond or even in the local market depending on the yield and we have the capability to issue locally or issue offshore depending on the yield. So this will be a price cut.
Considering that we don't have the benefit of doing that they are old tier two we don't have the capital benefit anymore, and we have fulfilled with our 81 as well we have one and a half which is the regulatory space that we have to issue a tier one. So this would be basically the reason and how we're gonna be deciding and accessing the mark.
Moving forward and we have a very good liquidity situation our base, so we might decide to repay or not depending on the yield and the <unk>.
<unk>.
But we see in the market in the moment of making this decision.
Alright clinical thanks, Thanks again.
The profit per voltage Volta Don next question now we have right now for millennia from Autonomous school.
Welcome.
Okay.
If you are muted.
Yeah.
Once you have the sudden thing.
Good morning, everyone.
Can hear you.
Hello, everyone.
Well. Thank you for the opportunity can you talk about the dynamic.
I know corporate lending for the rest of the year. So.
Npls.
They've increased Budd.
We're at a level that is very reduced.
We have the expectation that that's going to increase also growth.
Is there still going to be difficult to grow or continue to drop.
Thank you Ronaldo for the question.
Starting with the ideal in this specific segment.
Wholesale we don't look at the NPL, because it's misleading in terms of the quality of the portfolio. We're looking at the coverage level because since we have an access to the client or clients or client. We the final level of rating provisions name a name so 99% at the times of your provision before the event. So the coverage index speaks better of the law.
Our protection that we have in the portfolio and it is they are really comes at a moment that you couldn't find a solution for the for the client and then there is delinquency.
It consumes on that coverage so the cost of credit in that segment is very low we have gone through a scenario of normalization in the us.
Since we came from a very strong prices in 2015 16.
And our clients.
Alright, well recovered all throughout the years.
Yeah.
Cost of credit, yes, but also some reversals.
We got to a very low thresholds in general what we've seen the portfolio is very healthy in terms of quality.
The process of management of portfolio that we've grown throughout the year Thats grown I gave you a few highlights on.
And how we concentrated our portfolio how we adjusted for the more sensitive.
Sector reduce exposure diversifying the portfolio and its effect that that has a strong portfolio strong performance over the last three years, our expectation is to have a lower demand. This is what we've observed.
That has taken place on the other hand.
Show that on the side of capital markets origination drop was brutal when we compare this year to the previous year.
So the capital market is very closed we see a good liquidity volume in the credit funds over it truly a man.
These funds, but with a price dynamic and the opening of.
Interest rates are today makes us have more cash than appetite. So that means that the capital markets closed there's a lot of refinancing a lot of companies are we'll access the market at all throughout the year.
Their bonds debentures or.
You name it they don't have the capacity to rolling this out so the balance of the bank is the most important right now in that sense. So on the other hand, you have a.
Dropping the mic, but there is opportunity.
Refinance Andy sort of absorb as of these capital our operators with good levels of return.
We will have great opportunities in the segments that excess less capital markets yes.
Those we have less demand and we're growing on those and improving the quality of the portfolio all throughout the year.
This is a challenge, but once again I am talking about the gradual normalization, we hope that the cost of credit will grow and the previous thresholds were unsustainable, we know that and that will happen.
In the next few years, but we are not foreseeing a credit crunch that will be as relevant as we've seen in 15 16, well there are some.
Chapter Elevens here and there, but all the cases were published we don't have exposure.
Or are there, where we don't have exposure that we're well provisioned.
Our portfolio is well defined and our provisions are very solid so are we.
How to investors we are in our work we are doing well and we are not.
Waiting for the delay.
Work on the expected loss, so any deterioration scenario, we will call those provisions as we've always worked with the balance sheet here. Thank you Milton.
Actual true English because we have with us <unk> from Barclays.
Good to see you at.
Thanks for joining our call.
Hi, good morning, and thank you for the opportunity.
Had a question on credit cards.
You have mentioned that your your clients.
Given the rates are high are reducing their demand for granted in some of your peers have also said that they are going to try to refocus on these higher income segment, which presumably that means more competition for you and ultimately there was also the matter of seasonality.
In most years, the first quarter has a bit of a sequential decline in credit cards and so I was wondering if you could give us some color on what the the main driver is in your view are you seeing more competition or is it just you know back to normal in terms of seasonality. Thank you.
Yeah. Thank you very much Robert for your question I think the first quarter is pure seasonality.
Due to the high amount of protection in the last quarters, you'll know.
But yes, we've been making adjustments relevant adjustments in our portfolio, our showing a little before that we were growing much more in the clients not only in volume of splitting credit per car.
The products that we have.
More off with clients and we've been reducing in the other segments. So this is an important information.
We'd all of that we've been able to maintain a good level of revenues, we still have some entities fees paid so there are less volatile due to the PPV.
Our portfolio.
Yes, we've been able to grow the portfolio with the more affluent clients, we don't see a different level of competition, we seem to see but in the other hand as a whole I feel that a bit.
Credit card was the selected product for many newcomers in the market. So that we're that's where we saw an overwhelming offer off credit car and somehow many clients are over leveraged nowadays with the income very compromised due to the amount of credit quantity of credit.
But of course, they have no. This is very easy to have three or four or five and credit cards, because we don't pay fees for that so it's a free option to have you back to have a credit card and there is a lot of lack of education and this is something that we are working a lot to help our clients to understand their trailing just when he has or she has.
Or the client has.
Many credit cards in their wallet. So this is different nominal but we saw so there is a huge adjustment been learning the market we've been seeing.
Current levels of returns in this operations you know the balance sheets are public you can have the assessment, but I can tell you right now there is no one making or creating value in a portfolio like that due to the cost of equity.
So we will see an important reduction yes.
As I said we.
We are growing the office portfolio, where we believe there is still a lot of opportunity to do so a lot of cross sell to be done and we've been able to grow our portfolio, our client base and to enhance the.
Our penetration of credit card with a good product good UX very focus on NPS. This has been our mango in a we've been achieving that but we don't see a different competition, but what we saw but yes, we might see more competition, but we are ready to do so it's part of the game.
Thanks Nathan.
Capital separate wound care.
Our next question comes from.
And of course <unk> from JP Morgan.
They gather people will take anything going with them. Thank you for accepting my question now I am going to go back to the tier two that Nicholas has mentioned.
I believe that he is talking about the Basel III tier two that we have a call next year. The 2029, if I'm not wrong in November of 'twenty four.
Don I think so sabra hobby, just so I can understand how you're thinking about the call of that bond, giving that a lose lose.
The capital treatment after the call gradually but it will lose losers and there is just one call which is the next year's call.
Somebody else is thinking that about that specific one it gets into the regressive period of capital utilization after the exercise or not of the call. We it's a long time before it's difficult to talk about today, if we're going to do a call next year in November we're going to wait for the market conditions of the markets might change we're going to look at.
At.
Local or turn that is external alternate answer a good luck at rise what is a return visit the new operations of the bank is very active in the capital management and liquidity and therefore, we understand that the panamax are there and we can finance ourselves in a more efficient way the exercise of the call can be.
Done.
We think that the run off and we.
So.
Have the capital level and losing efficiency.
This is adequate.
The bond is becoming senior.
And on the market condition. So it's very very difficult with one year and a half of anticipation one year and a half and dissipation Maiden me 18 months do you have any assessments.
So as we get closer to the call are ahead as we did with the 81, we're going to be very transparent and we're going through.
And in the Windows and what is the following direction.
And the last question.
Carlos Gomez HSBC, Hi, Carlos could you see that diminish connect.
A question on here via Whatsapp as though just in case.
In Harper lesson here, but rich you again in June .
Please go ahead.
Thank you very much for taking the question and since it is the last one let's try to be a bit more.
Optimistic.
We are in the middle of the first year of this administration and we've been talking about what happened in 2023.
The evolution of credit lending less what do you expect for the next three and a half.
Of course, these entities realistic for the bank and for the industry for the rest of the current administration.
Thank you Carlos it's a good question to be the last question. So.
My view is that Oh, we still as you know we're gonna, making 100 years next year. So we run the bank with respect of the scenario and the challenges that we see in Brazil, you might have longer or shorter cycles. So our view is that we still have challenges ahead.
There is a lot of things going on in Congress right. Now there is always discretion soft effects the fiscal frame, which is very important to understand how it's going to be approved in the Congress. This is very very relevant for the future of the country sustainability after that.
There was a lot of discussions to be done in Congress, the fiscal tax reform, which needs to be.
Could be very disruptive.
Disrupt or be disrupted or Brazil.
Because at the end of the day.
The company pursue you'll need to simplify the fiscal frame you need to get more productivity and we have to talk about growth and long term growth. So I think we still have some structural a dreamer a we have to pay attention in all the discussions about how the tax.
Reform will succeed in Congress, and what will be the key indicators looking forward.
We believe there is still room to work in expenses and also revenues, we have to take care not to increase the level of taxation in Brazil, because one third of the GDP is I'll read text. So you need to be very efficiency and understanding where to do so to guarantee that we create the environment for companies and individuals.
In Brazil to succeed to prosper. So this is what we really expect so we don't talk about noise or political noise. I think this is part of the journey.
But we do believe that the Congress in the Gulf of month, and we've been having lots of conversations with the finance Minister and we are very positive on the way they want to lease them. The way. They are crying withhold the political challenges that they have trying to move forward with a relevant part dreamed up so we'll be here for the law firm.
Difficult to say what will be the next three years and a half but we are positive that we have the best conditions to succeed Brazilian is in a unique position.
Due to the deferral policy without political.
Discussion so we have a huge opportunity to outgrow in Brazil is doing very well the energy segment has a lot of opportunity. So we have all the assets we need.
Including the geography.
But we are to succeed we cannot take and look this opportunity, but we have a lot of homework homework to do it's not easy.
Easy and I think we have believers to do so but it depends a lot on our capability to coordinate and to work as a country to fix it. So this is our hope and we are.
It depends from at all when you're Bronco, we will do our part to help the country.
Government to succeed.
Thank you so much.
It's a neutral with regard to property.
Excellent. Thank you so much.
Thank you to everyone who participated in center questions.
I think well this is the wrap up of our Q&A session.
This is the end of our conference call for the first quarter of 2023, I would like to thank you everyone and thank you to all of the participants and I agree enforced that invitation. He told a day on June 15th.
You will see a QR code here on the screen you can register already you can start sending your questions actually.
No.
Well, we have in terms of a change against the last year or this year you can already send your questions before our meeting so I'll see you all on June 15th.
You have the floor now for any final message.
Thank you thank you Renato.
Thank you for being the mediator Q&A.
Q&A session I would like to thank everyone. Once again for participating for being here and I am very happy with the results I think we know we all know there are challenges ahead, but our management capacity, our risk management our value proposition.
All of the transformation digital transformation cultural transformation and so many other elements that we have in place right now.
Guarantee that we'll have good outcomes so.
Again on June 15th as we're not at all what I'm, saying, we'll be here talking about digital transformation culture.
Mrs.
Processes without talking about the nitty gritty at that.
Really it's going to be more of a P&L perspective, it's going to be a more broad perspective, so I would like to invite all of you to.
Connect on June 15th and again it is here where all of US. This is for investors for clients and stakeholders. We appreciate we value your feedback.
I want to be cautious.
We want to continue working hard to have the best outcomes possible.
Once again.
And I'll see you at the conferences over the next see days, probably some of you otherwise I'll see you on June 15th.