Q3 2023 Itaú Unibanco Holding SA Earnings Call

Thank you.

[music].

Yeah.

Okay.

Hello, and good morning, everyone. My name is an absolute Liam and I'm, the head of Investor Relations and market intelligence at Ito when he bought clubs.

Thank you very much for participating in our conference to discuss our earnings for the third quarter of 2023, which has always we are broadcasting directly from opposite fight the LMI spots.

Today's event as usual will be divided into two parts and the first part Milton will go through our performance in our earnings for the third quarter of 2023 bosses.

Right after that there will be a Q&A session during which analysts and investors can interact directly with us.

Probably not appropriate on their traditional single to George I'd also like to give you some instructions on how to get the most out of today's meeting.

For those who are accessing our website there are three audio options on screen the entire content in Portuguese the entire content in English and the original audio in the first two options there as simultaneous translation.

Select your option just click on the flag in the top left corner of your screen.

Questions can also be sent via Whatsapp, but to do this just click on the button on the screen for those who are watching on the website.

Or send a message to 11 978 to 5570 70.

Thanks, Paul.

Our presentation today is available for download on the website screen as well as on our IR website.

Did I just shut up.

I'll now hand over to Milton who will start the earnings presentation, and then I'll come back to moderate the Q&A session.

Milton the floor is yours.

Good morning, everyone welcome to our earnings call supported by a very objective presentation.

Wanted to run through the figures for the quarter and emphasize the Argentina effect, which as you saw on Friday, we settled the sale of this operation.

Mike.

I'm going to show you how this affects our earnings and how the guidance has kept unchanged.

Except for just an adjustment that removes the effects of Argentina from the seven months that this operation was part of our earnings and how we've disregarded the remaining five months in the guidance that's been published in the second quarter.

Okay.

So let's get started we've delivered a recurring managerial result of 9 billion reality, which points to very strong earnings that has grown three 4% quarter over quarter.

We've reached a consolidated ROE of 21, 1%, Brazil's Aro <unk>, which is the most comparable with market was 22% of half a percentage point, it's key to highlight that if we were working with our capital within the risk appetite threshold approved by our board. This ROE would be around 24% I'm telling you. This just to give you an idea of the effect.

The capital has and how it dilutes our ROE by two percentage points in commission and fees and result, with insurance operations. The growth was three 6% quarter over quarter, reaching $12 9 billion reality at a cost of credit of $9 3 billion reality. This is the first nominal drop we've seen with a one 9% decrease quarter over quarter.

This is very good news from lending.

The NPL rate is absolutely stable with no news, which is in line with the message I've been sending you for a few consecutive calls now.

And as you know.

The level, one capital ratio, which I mentioned, just now reached 14, 6% an increase of one percentage point in the quarter I'll show you in a moment our set one running at 13.1%, but there was also a significant increase in the bank's capital speaking about the loan portfolio. The individuals' portfolio grew by 6% year over.

A year as for the quarter the credit card portfolio is still decelerating, but.

But I'll emphasize this in a moment.

Personal loans portfolio grew by four 2% in the quarter payroll loans portfolio reduced end vehicles portfolio increased slightly in the quarter. So the portfolios in general except for personal loans as mentioned grew 6% year over year.

The SME portfolio grew three 2% year over year, but we're already seeing a significant pickup this quarter growing three 3%, which means that the quarterly effect is already above the trend we had seen for this portfolio.

And in the credit portfolio as a whole after adjusting the Latin America effects, we see a growth of four 7% year over year and 1% increase this quarter.

The message I want to leave you with which for me is the most important one is that in the portfolios, where we decided to not stop growing.

They continue to expand significantly.

Thus, if we take the two middle and high income segments, when he class and personnel. It there the portfolio grew three 7% in the quarter and the individual loans portfolio grew 0.6% on a consolidated basis year over year. This portfolio grew 17, 5%, while the individual loans portfolio grew 6% the portfolio of.

The middle and high income cards grew three 6% in the quarter against a drop of 0.5% on a consolidated basis and by 15% year over year against a drop of 0.8% on a consolidated basis and in middle and high income personal loans, we grew 6% in the quarter and 24% year over year. This shows that we've been increasing our engagement.

In the middle and high income segments, where we've delivered and performed very strongly over the quarters and we've made a portfolio adjustment. We've made a significant derisking in our portfolio. This saved the banks almost 200 N P. L points throughout the period the portfolios, where this derisking was more significant we're in the credit card portfolio, which already has.

A significant nominal drop in the period and also in the vehicle portfolio to which we had to make very significant adjustments in the other portfolios, we continue to grow and especially among those clients that are in fact resilient throughout the cycle as we say through the cycle. That's how we've managed our portfolio.

When we look at the payroll loans portfolio. For example, we have two key messages. The first is the drop in the eye NSS public pension portfolio, which is in line with the information we've been disclosing as February Bun itself is that due to the limits that have been set when this happens the access to a cheaper financing facility cannot be made available to pensioners, who end up.

And more expensive facilities due to these limits now in place.

We can see these portfolio is dropping.

At this point.

On the other hand, we've managed to expand government and private companies payroll portfolio, where we've grown by over 12% year over year in both cases.

Okay.

For credit origination for Smes, we see that it's continued to grow since the first quarter of this year.

Large companies there was a slight increase up to the second quarter.

And since then we've seen a growing demand already reaching 118 year over year on a 100 baseline which shows that we've managed to grow with quality by always focusing on the net interest margin to focus on generating operating revenue is not enough. We have to look at the generation of operating revenue the related cost of credit and the return there on.

By analyzing the net interest margin therefore already adjusted for the service cost, which May conclude whether these transactions are adding value to the shareholder in the long term or whether they are simply showing a growth in earnings that does not bring a return on the shareholders' capital. This is the type of management and work that we've done consistently each quarter. This is our daily work.

As for the financial margin with clients. We have good news the line expanded by 700 million in the quarter, a three 2% growth. It was a well distributed and balanced growth with the effects of volume the volume of liabilities number of working days some effects in Latin America and others. These are very sound results and for the first time to.

<unk> transparency, we've broken down the Argentina effect, Argentina, and the working capital had an impact of $3 2 billion last quarter with $2 9 billion from working capital itself and 0.3 billion from the Argentina effect, which contributed with approximately 100 million to our monthly earnings.

When we look at the end of the graph, we get $3 1 billion with 3 billion from working capital, which compares to $2 9 billion. It shows that we've managed to adequately hedge our investments in growing equity.

Mr.

Yes.

And this quarter, we only have one month from Argentina. So we show. This result, considering July as the earnings of the other two months were not affected because we stopped to account for this asset as a consolidated bank as the Argentina operation was recorded as an unavailable for sale asset due to the sale process that was under.

Wei.

When we look at the consolidated margin expanded quarter over quarter from five 1% and we reached five 6% in the consolidated margin this quarter.

And when we look at Brazil, We also see this expansion taking place, reaching five 9% 30 basis points in the quarter, which is a very strong result.

As for the financial margin with the market the quarter was in line with the previous quarter's routine around 700 million reals. After the effect of the cost of the capital index hedge the effect in Brazil is in line with these figures, we see 1 billion reals in margin with the market.

And in Latin America, slightly lower figure remember that here, we only have one month of Argentina, and two months, where we've already recognized this investment as available for sale. Thus it doesn't impact earnings.

This was the effect of the margin with the market with no particular news.

I'd like to detail, some information and commission and fees and result from insurance operations first the strong quarter on quarter income from credit and debit cards as we've managed to expand issuance, which grew four 5%. The acquiring business grew two 8% it's worth noting that in light of all the integration work better management and <unk>.

Similarly to the clients the acquiring business is going through in short our process of engaging our clients that has helped us to reprice and adjust our operation as a whole.

Year on year growth was 18, 9% a very sound result.

Singapore transaction volumes are also sound growing five 3% in the quarter, while posting good profitability, which is the most important.

And in issuance, we grew two 9% year over year with volume expansion of two 7% in the quarter. We remind you that this was the portfolio, where we've actually made the most adjustments we've reduced substantially our exposure to the open seat in this adjustment of course, not only affects revenue, but also the portfolio growth.

When we look at the advisory services and brokerage line, we see a very strong growth of 22% in the quarter.

And 21% year over year in further details we came first in the investment banking ranking in ECM, M&A and DCM, achieving 18% market share in ECM, 15% in M&A and 29% in DCM.

Boston.

Which shows that we've been consistent and delivered very solid earnings in this line.

When we talk about asset management, there was actually a slightly lower year on year growth with an expansion in the quarter, but the most important things to show that the open platform grew this quarter.

As a result, we are already seeing a certain migration trend to this platform and the line of own products has been growing a lot throughout this cycle of monetary tightening. So the pickup is lower quarter over quarter with an increase of two 2%.

Finally in insurance, we grew 19% year over year with a growth of five 4% in the quarter.

Which shows that we are consistently expanding our insurance operation and.

An increase in the value of this operation within the bank's balance sheet.

Okay.

Yeah.

In terms of credit quality, our first message is from a global standpoint, when we look at Brazil at the total and add Latin America short term delinquency reduced in all three cases and coincidentally in all of them fell from 2.5% to two 3%. This shows that short term delinquency as well behaved when we look at the N P O.

90 days on a consolidated basis.

The.

The total is fully in line just like in Brazil, and Latin America.

Okay.

And when we look at the short term delinquency in Brazil for the second quarter in a row, we have a reduction in the individual loan portfolio from three 5% to three 4% and now three 2% in fact, the first quarter is usually a more pressured by the previous quarter spending and we've seen that in two periods. We are already returned to the levels. We had before this started the year.

And very small small and middle market companies. The indicator fell by 10 bps, while in corporate segment. The indicator went sideways without any news when we look at the 90 day NPL in Brazil in line with what I said last quarter, we have an absolutely stable rates and our best expectation for the fourth quarter is a drop in the NPL for individuals Barry.

In mind that this is a portfolio that has decelerated a lot. So there is a much more controlled overdue effect and a denominator effect. Both show that we have a very healthy portfolio and no worries.

In Smes, we are in line with what I said in the last call that we expected an expansion of around 10 bps and that's what happened, but our expectation is a drop in the fourth quarter. So we see that the short term delinquency is reducing thus we don't have any specific concerns our very small small and middle market companies operation has posed.

And very strong returns both in the middle market and in retail so no specific concerns here, we have a very controlled cost of credit when we look at the nominal cost of credit in this series, we have the first quarter with a nominal reduction it's important to remember that in the fourth quarter. We had the effect of one retail company, which ended up changing this figure if it hadn't been for that.

That we would have seen a gradual growth over all the quarters. So this is the first quarter that we've actually seen a nominal decrease and in relative terms, it's fallen to three 2%, which is a very comfortable figure and with a portfolio that is growing and the renegotiated loan operations. We have two news. The first is that it appears nominally stable at.

$40 9 billion, Reals, and three 5% compared to the portfolio, which shows a very controlled and well behaved portfolio as far as coverage ratios theres not much to say, you'll see a certain stability only small effects, but absolutely stable in other words, the bank's balance sheet continues to be very well covered and protected with very adequate for.

Visions.

As for noninterest expenses. This quarter is typically subject to stronger effects such as the collective wage agreement.

Okay.

Yes.

Our troops.

As a result personal expenses accelerated from the second to the third quarter. While other expenses are very much in line does noninterest expenses grew eight 4% in Brazil, and with the effect of Latin America. They grew six 9%.

And what are the key messages the efficiency ratios are quite good it's clearly much better than what we've seen in the market as a whole.

Okay.

Both in Brazil, and on a consolidated basis and these are international benchmarks, we've managed to deliver a very appropriate efficiency ratio.

With two main messages. The first is about the bank's core cost or run the bank, which is in line and the nine month period compared to the same period in 2022, we grew only one 1% on the other hand, what has actually been expanding this figure is not just cost itself, but the investment that we continue to make.

Yes.

Say our goal is not to manage costs for the quarter.

Basically what we have to do is to make our operation more productive more efficient thinking about how we invest in our operation by investing much more in technology data and business expansion.

So we're always looking at the franchise over the long run always with a longer time horizon. So that's the reason for all of these investments, which is still being absorbed by the P&L, resulting in the level of profitability I've just mentioned.

I believe these are the key messages regarding costs. The bank's efficiency program continues to make a very positive contribution.

And in terms of transactional volumes if the unit cost is the same as lower or rising less than inflation, if we actually increase volumes and do more business. This is a benign cost. So we've still been able to finance all this benign cost expansion with all the efficiency program at the bank.

Okay.

One of the most talked about topics lately is data.

We've talked a lot about machine learning models generative artificial intelligence among others.

This is a topic that comes up all the time. So what we wanted to do here was to provide a summary of our various initiatives.

This isn't just a topic for a specific department, it's a topic for the whole bank.

And we have some data that shows and reinforces how strong our investment and belief in this data agenda has been.

Starting with our data structure, which has 100% of all the banks data in the cloud in a very modern data mesh architecture.

Which makes the data much more democratized within the institution.

Not being used by just one department is all department start consuming that data and not just consume but adding their own data much more efficiently to the bank as a whole.

So we brought you some information that I think is relevant we have more than 350 data scientists and the organization more than 200 initiatives using generative artificial intelligence.

More than 50 machine learning engineers.

More than 150 professionals working with degenerative artificial intelligence and more than 570 models currently being used within the organization. One of the cases that I think is relevant in terms of outcomes rather than output is service. For example, we've increased by 45 percentage points the volume of client service.

That is automatically retained through our models using artificial intelligence.

Yeah.

72% of all calls made already handled by artificial intelligence with much greater efficiency accuracy and speed.

And with improved M. P. S and this is in line with all the investment in technology and efficiency that I've. Just mentioned this shows a much more scalable and efficient bank in the long run.

And we have a series of other initiatives with greater security for our clients.

Since we are able to interact and identify the voice of a fraudster, thus, allowing us to protect our clients.

With regard to productivity in the corporate client experience, we already have a lot of information for every documentation analysis. So that it can be done as accurately as possible. We currently have at 97% accuracy. We've also been using chat bots to interact with our clients.

We've used our artificial intelligence models in different businesses.

And we have no doubt this will be an agenda that has come to stay and will grow exponentially over the coming years.

Awesome.

So.

We want to be at the forefront, we had no choice, but to migrate our systems to the cloud and upgrade them as for the artificial intelligence agenda. We have everything it takes to lead this process, we want to be at the forefront of this agenda.

I'd also like to comment on a few topics about culture and people, which are very important to us.

Great.

We've recently announced two objectives black representation in the institution and women in leadership when we set. This objective we said that by 2025, we wanted to have 27% to 30% black representation in the organization. We've already reached 27, 3% in July.

40% of our hires today, our black people, which naturally means that we can evolve in these indicators.

Thanks, so much.

We really believe that it's not just the diversity agenda. It has to be an agenda of diversity and inclusion in order to keep this flow sustainable over time.

And to ensure that these indicators evolved consistently.

We are very proud of the work we've been doing and as I always say, it's not a job that has a day and a time to and this is the new normal and that's the agenda. We've been working on we also had a goal of achieving between 35 and 40% of women in leadership by 2025, we've already reached 35% in September 2012.

<unk> three.

So we are already at the lower end of our 2025 target and we will naturally keep moving upward regarding the hiring flow. Our goal was to hire 50% of women and the flow we've already hired 53, 8%.

And here, we are talking about an indicator of women in leadership when we look at women and the banks total work force, we now have 54.3% women.

Thank you.

We brought this indicator just to give you an idea of the importance of this agenda and we have to constantly talk about this ESG agenda of course, the narrative is important but the results you can deliver are much more important than the narrative and every quarter. We present some output some focus to show how this agenda as part of our DNA.

And how it is one of the pillars of our culture.

Regarding some acknowledgements for the second consecutive year, we were named the best company to work for by Great place to work.

And not just as the best Bank, we won the best financial institution and also the best company with over 10000 employees, what I always say here is that if we have happy and engaged employees a strong culture of client centricity naturally we will have satisfied clients.

These are fully connected.

We won the most amazing place to build your career and we also won this award for the second year running that's.

That's very good news and last but not least also for the second consecutive year. We wont have a lower 1000 award has the top company among banks.

This shows a little of the recognition we've achieved.

We talk about these acknowledgements with our feet on the ground and with a lot of humility.

This is very important for us to keep moving in the right direction.

But with great care and humility.

Because we still have a lot to do and we believe that this is a longer term agenda.

We're not going to be complacent with these results. The bank has a lot to evolve and this is the agenda, we will continue to pursue.

Hi.

Yeah.

Now radically changing the subject I've talked about culture, I've talked about diversity I've talked about inclusion I talked about awards and now I'm going to talk about capital as I've said, a moment ago. We came out from a set one of 12, 2% last quarter and we've already done a pro forma last quarter showing the positive effects of the regulatory.

<unk>, which have in fact materialized now with a plus 0.9% as a result, we've reached 13, 1% of the set one capital ratio and our appetite is 11, 5% as defined by the board.

So there's been an expansion in all consecutive quarters since the first quarter of March 2020 during the pandemic. When we made those material provisions. Since then we've been expanding and growing our capital ratio.

We have plus 0.4% growth in earnings already adjusted for dividends, we have the minus 0.3% of our W. As with the consumption, we've had formed credit market and operational and the plus 0.9% I mentioned is basically the evolution of our models and all the regulatory changes, which leaves the bank in a very adequate capital.

<unk>.

Regarding Ito, Argentina Bank I'll try to be very objective, but it is important to emphasize this for you considering the earnings that we see on our balance sheet. The seven month result of 578 million re ounce also poses an opposite effect in equity that doesn't go through P&L, which is the effect of inflation and the foreign exchange variation of the.

Equity in Argentina. So if you look at earnings isolated you get the feeling that it's an accurate investment deep down when you consider the economic effect from the stockholders standpoint, we saw a seven month loss in Argentina of 113 million real.

As a result, we made the decision to divest, especially in the retail business in Argentina and operation that we had in this country for many years.

Keep a very small operation in this case, a representative office focused on a few corporate groups. We have a very close relationship through capital market transactions investment banking some lending transactions.

But we felt it was important to carry out this sale the.

The sale was completed satisfactorily with the regulators' approval and its financial settlement last Friday.

From the earnings standpoint in the material fact, where we announced the sale. We said that we'd post nonrecurring result of approximately 1.2 billion reals.

And this is the result that is actually materializing in this quarter's earnings.

So this settlement of this impact on equity that has been accumulating over the years, which is the Cta that we disclosed on the balance sheet and the balance sheet as of September 30th does not include any more of the effects of Argentina because from July onwards, we have the effect of only one month in the quarter, which is July we started treating this asset as available for sale and no longer.

As a bank are consolidated on our balance sheet. The result excluded was a credit portfolio of 4 billion Reals and operating revenues of $1 9 billion Reals, a noninterest expenses of approximately 650 million re ounce and earnings of $578 million Ryals reported in P&L, which is the figure I've showed you just now thus we no longer include.

Argentina in our earnings as a result, we simply took the guidance that had been released to you last quarter and we made the adjustment by excluding the impact of Argentina. How did we make this adjustment we went back to the guidance and looked at what we had projected line by line for Argentina over 12 months, and we simply excluded them from their projections.

And now we are restating the guidance without any changes basically what we're doing is excluding the effect of Argentina from the last five months two months of which are from the last quarter in three months from the coming fourth quarter 2023 does here you can see the figures adjusted across the board.

The basic message is that our guidance has been reaffirmed we continue to believe in our projections and we are delivering earnings within these lines Needless to say geography can always change from one side to the other side, but all ranges described here absorb our best expectation of how we should end 2023.

Okay.

This concludes the presentation and I'll now join Hanaq those so that we can answer your questions during the Q&A.

I'd like to thank you once again for your trust and say that we remain very confident in our agenda.

We've been working tirelessly on this cultural transformation that I've talked about so much.

This obsession with the client with expanding all N. P. S is ensuring that our business keeps evolving and growing we still have a lot of opportunity for growth and we're going to continue evolving at the bank, but always with that focus and that long term view, creating shareholder value is a mantra for us and it's something we have very strong in our DNA.

Then we're not going to fight for growth that leads to one or two quarters with better earnings that is not sustainable in the long term, we're going to keep this long term view as we've always done here at Ito when you're Banca.

Mitch.

Thanks, everyone once again for your time.

Joined hidden auto and we will continue our talk thank you very much and see you in two minutes all the best to everyone.

Okay.

Well.

Milton is back with us. Thank you very much for being here and for your presentation and now we will start the second part of our meeting which is the Q&A session. If you remember that this is a two language session. We're going to answer the question in either English or Portuguese if you need support with the translation.

You can choose.

Audio.

That unique.

You can submit your questions via Whatsapp their number is 11 978 to 55707.

The list of participants.

As long we have the first question without further Ado, let's start.

We have my friend Renato Autonomous view here with us in a video.

Thank you for taking part of our call.

Yeah.

Good morning, everyone and thank you for the opportunity.

Could you please comment on your improvement on your way.

The business on retail.

Regardless of the revenue didn't grow so much I wanted to understand the drivers behind that improvement and maybe other extended scenarios for the next quarter or if there is a trend.

And if you can comment on your expectation regarding the meeting with the Central Bank scheduled on the credit cards. Thank you.

Thank you Ronaldo for the questions.

Okay.

Welcome everyone.

I would like to start with profitability.

In fact, when we look on a quarter on quarter. The result on the retail is stable.

With our competition that is different.

With the turn of the quarter, we have had a revision of the capital allocation Wednesday regulatory changes and the amount of capital in our retail operation was reduced and therefore, the capital that was economically allocated on the operation is dropping but the operation is stable right.

Because all the remuneration of capital gains inside of the business, you'll have less capital allocated with the business that you have less remuneration of the capital allocated in the business. That's why you remove the effect of the margin of the operation but of course, the operation was improved me, it's improving a lot.

Remove that working capital you'll have the constant and any other man less capital and then you'll have two levers be operation of the companies that are expanding and growing with greater profitability.

More efficient capital allocation.

Flexion point that I had said.

Where the business of individuals' already happen.

And we are improving quarter on quarter.

The profitability. So yes, there is a return that there is an evolution with a return even though it's flat quarter on quarter year on year. There is an important growth and we can see.

Our recovery.

The individuals with all the drivers more quiet engagement last.

Cost of crowded more efficient.

<unk> cost.

We operation we can work with all the levers.

And the companies have been growing with great profitability and the composition of both lost insurance has allowed us to improve the profitability of retail and we can't believe on an improvement looking ahead that says this is 1.2nd question.

The credit card discussion our expectation as well this is an agenda with a lot of associations there will be a debate.

As usual the regulator has the capacity and the conditions to understand the different opinions, it's important to note here.

Here all of the market all of the players and the most important here.

Thing here is that we want to solve what are the starting points.

Before the debate of the credit cards, and the starting point of the infection.

So is that a rate.

The installments are lower than what we work nowadays because today there is a delinquency level is very high with the credit card because there is well those of you when you.

Credit card when you requested the product you.

The comparison of the rates you see the programs and you'll see the experience of the product menu CFT limit is adequate so when you get into the credit card product the client.

Expect to self finance because this is not a product that this is not the way the product works and our defenses based on that how do we transform the credit card that has a penetration of 40%.

With our platform turning neutral platform their finances.

US expanding the offering and making the most vulnerable products that get into the.

And should the higher rates to actually pay there.

Their credit cards. This is a regulator along theyre going to make the decision and the commitment here is with ethics is with the.

Consumer.

And then they might have financed with less competitive.

Conditions, and we are making their credit card.

With more efficiency.

This is why not just Brazil.

It's the only sensor the reason for this is that an anomaly, where the revolver and crowded and we have to deal with it.

So we have to we have the understanding the diagnosis and we hear once again ethics floor.

Nonnegotiable so they are now.

We would like.

Technical correct discussions that is well done and this is why we are supporting you talked a bit about is the leader of this debate for the institution as a whole.

Financial institutions of course.

Thank you in Idaho.

Sure.

Second question.

We have been in and out of the equipment from XP.

Good morning. Thank you the floor is yours good morning, everyone.

Thank you for the opportunity.

We need to understand more on the retail segment the bank has.

Derisking.

Objective the risking and now you have the results with the delinquency that stabilized and you talked about the high income and bank is very well positioned in that segment. However on the other hand.

Some competitors already have results pointing out with more appetite releasing the strains on the retail as well.

Well you didn't get hurt out of the cycle, whether it be would it make sense to expand the composition of the portfolio looking at the segments that are the base of the pyramid.

I meant that our focus by mainly by the Fintech.

Thank you for the question, but I don't know thank you for your time.

Okay. Let me give you an opinion that over here, we are very much convinced about the decision.

Well looking back the Derisking decision of portfolio was a very correct decision not only the risking but we often are at these waters, we have grown in our target segments. Since our portfolio is very large yoga the credit card portfolio of 120.

127.

Variant pick.

Big numbers within that portfolio, we have.

The high engagement clients, the product with a profitability and risk levels that are at it because you have a big portfolio that we can call. It he opened the ultra not only.

Clients that we are a player digitally but their finance and the association that we have difficult very big portfolio and we've done well credit card is one of the products vehicles. We've also hedged to adjustments and just to give you a few numbers I really.

It would stand out to me. This is the first quarter consecutive that we have the reduction of the NPL of graduate cards.

Yeah.

So the market, Dave the first inflection that system as a whole we are in the second quarter with a relevant reduction in vehicles, where in the third quarter consecutively doing the inflection of the long delinquency with expressive drops in delinquency and the equation of risk and return.

Look at all of the production to return all of our models and what we expect of profitability through the cycle and we've implemented the portfolio management that was very.

Sufficient on a wholesale we implemented that on retail so we balanced the portfolios we have.

Have worked with all of the public's it's not that we don't work with lower income we've worked with lower income where the colorectal product with a correct client in a correct way with the adequate rates. So we can through the cycle have more retail oriented products, we double down the high medium income and we have grown expressively.

The year on year.

That has strengthened our position our leadership in that.

In that segment.

Leave any importance and will invest in that but there is a segment, which has a lower income, but it is still very relevant in our portfolio regardless of the de risking.

It was 35% of the portfolio is still 20 very relevant but again with the right product with the adequate profitability with a recently.

So we can work with the public.

My opinion, the big drivers up ahead, so we can grow with more efficiency and quality in those public are first the platform.

At our platform you the capacity to deliver a bank that is a full bank run it out for how the clients of the organization. It doesn't matter if they come through regular stage or the payroll loans, we want to deliver a full bank experience for the client and you're hearing about Chesapeake.

If we just look at the amount of clients that we have on the pseudo open ocean. We have millions of clients that have a record with us that we have a relationship. But then we do not have we could not deliver because of our technology is a full bank offer and this is what we're going to work on in the future.

We can accelerate through that third growth Ngos.

And those clients that we have a few clients.

Outside of the full Bang some personality.

We have a lot of clients that fit into our target.

We can we could grow with quality.

The last point is the play of course, we tried to be more efficient when you try to have an offer that is lean the simplest possible one at our <unk>.

Allow us to do this on the low income clients wherever we have.

Adequate cost than another but several of these clients digital golar further threshold.

Credit, it's not the cost of the loss the cost of credit over loss is so high.

There are no efficiency that justifies working with this client and you'll end up with a portfolio that seems to.

It should be growing because of the dynamic Andy.

Counts receivable by the loss is on the market. So we are focusing on the.

Under the net margin through the cycle profitability after be the adequate profitability.

The comparative nature really balanced portfolio and continuing to grow with quality improving the profitability of the business as a whole. So we opened the efficiency agenda.

Neil public there is an integration that we can grow more and more of these clients that we do not service with a full bank offer and we're going to continue to do what we've always done.

Which is a reworking the segments, where it persimmon and unit costs, where we're growing double digits with great quality and generating more engagement and loyalty with these clients. So these are clients that are more engaged with the bank. They have lower delinquency and this is our agenda for the future.

We believe that there is a big space.

Space yet to be.

Workplace. Thank you Milton.

We have chuckled Batista UBS the floor is yours.

Good morning, everyone.

My question.

Yeah.

We want to start well they were working with the second with the previous question. It's a credit card and low income credit card it wasn't an impressive improvement.

You talked about the two corridors.

The HR the bits, but you've shown us that there was a change in the mix there was very big the growth strong growth of unit costs and vaccinated.

The big drop in the lower income when you don't have the number of credit cards. My doubt is if the mix is constant would we have.

Better outcome. This is the first 0.2nd and a lower income you mention of it.

Some of the competitors and their data that they have a deficit in the lower income so.

They need a solution for that business.

Well based on your explanation is the solution. They are at a one or something along that line how are the.

Well the on site while the.

Would it be a viable to have.

Sure.

Yes.

Well the question is while the bank the Bank agency.

The.

Is it a one I'm sorry part of the question is sorry.

Complicated, but yes, one would be a solution.

Well, if we maintain the same mix be improved the results whether it has improved as we've observed.

We estimate that the risking of the portfolio would be 200 points of NPL and our view of the way. So just so you can see that the dimension of the Derisking that we've done and the moment that we've done.

These are portfolios that can generate the bank product, where you talk about the top line. If you don't see the bank provided a through D. Adjusted Crawford for cost of credit and net margin. It induces you should take a decision with the inadequate appetite of course, there was an over offering of that product in the market every new competitor got in with their credit card offer.

So a client and extra day, because that could have had two credit card to the experience of having a credit cards mortgages, it's more difficult today to just digitally and one day. They can open and get 567 critical transistors are a phenomena of not.

Charging the fees it seems like the three in the pocket of the clients they use their credit cards whenever they need.

If they are not our clients that is engaged in the room.

One of the first credit cycle, they get their credit card away and then they go to the next.

Product and then they try to.

The less credit card with the bank that they have the best relationship. There is a natural trend that the engagement leads to lower delinquency, but the credit models for it as better as they might be there.

Do not improve the income of the clients.

So that's the first point.

We are very very much convinced that the derisking fundamentals just so you can understand our.

Delinquency on credit cards quarter on quarter, we show the bank balance sheet.

Delinquency dropping 6%.

Vehicle loans also dropped in the quarter. These are the numbers that we don't talk about but all the brisking than the portfolio as a result.

Andy.

The Liberty the Mpls has dropped and we have improved the profitability, but the credit card operation Mono liners Standalone is an operation that is not positive it destroys value.

Is it runs below the cost of capital and.

In some business that you can have a positive result.

But if I alluded on the ROE.

The other business, that's where you start the most risky you havent negative sometimes result.

I alluded for the income and diluted for the ROE.

Whether he gave them the size of our portfolio. We could have we could absorb that importantly, what are the what would have been zero. We would have had if we don't have the mix of composition of their credit card and the size that we have I mean this is the.

Nobody's would've been higher if we had the size of the industry as a whole and the lower income issue I think it really depends on the channel and the product and the client. They are working with generally yes. It is debt sits at opt.

Operation the cost of service is very high for clients I do not have that bucket out there about what he does the declines at <unk>.

You can operate with a credit where the delinquency rate that a very high sometimes through credit itself. They do not contribute.

Or the operation for the operation of the bank, So what will it be relief.

Network of branches will continue to have an important role.

Are there any motor with many clients.

The high medium income they still like to be service should tortured the humans, who have the onsite service and we believe that the branch network. The way that we reworked with our motto of the satellite and all the branches and weather.

With the adequate for footprint very well coverage in the geography, we work in places that we still have played an important role, but just the one eight out of the platform that we are developing it will certainly give us the fire power that is unprecedented because this is a client that I cannot service, where there is a death.

The deficit in the onsite I can make them digital and bring them in under digital. This is the only way that we can make this client profitable and become an athlete of cross sell direct mentioned and we can do because we have a full bank offering for these clients. This was our bet. There is a plenty of cost per play of efficiency. The agency has.

A very important role.

Has the competition that is very relevant for our business model and we believe in the digital model and we believe adjustments into branches are necessary. We've done definitely next year.

We are trying to maximize the official figures in India.

Branch network will be the size of that.

How.

Our clients want it as long as we can add value by the branches there will be an important.

An important place for the interaction with our clients specifically quite some products.

Belief and we like in our model indexes inadequate model.

Thank you Thiago Milton.

Question.

From Rafael rather from Citibank.

The floor is yours.

Good morning, everyone Q2.

Two questions.

One you commented on the issue of Derisking.

The retail portfolio, but it's very surprising that in fact, when we look at the last 12 months.

All in consolidated goes up regardless of all of the de risking. So the question is at which stage are we in.

Looking up ahead that is less.

Let's just say.

Win against Us and we.

Have a more a better growth in the portfolio and we can have.

A marginal improvement on the portfolio. The second question is.

Regarding the financial margin with the clients that has have had an expressive growth in the quarter, but when we subdivided between the retail and wholesale actually more than half of that improvement on the climate margin comes from assets.

Corporation. So can you just to understand what was the factor how do you how do you if that's reflected on the others, but I think the Ralph let me start with the second question.

And then I can answer your NII.

And issue second question very simple if you look at the financial margin in a way that we publish we separate the working capital effect. So you can see that in the margin there.

There is no.

Working capital associated to the market, but 90, 795% is where the capital remuneration with the claim because there's a credit risk and operational risk associated to the credit operations.

So when you see that we exclude $2 nine.

In the last quarter and then this one it was $3 billion you can see.

In the consolidated the remuneration of the working capital is stable there.

Is an increase of NPL in the period.

Patrimony growth and our rate continues to be positive in a way that we do the hedge of the working capital. So we still have benefits.

That is important information how do we.

This took the business.

What do you see the difference.

So if we look at quarter on quarter, there is a change in the regulatory.

Working capital how do we work with our models business models.

They have the necessary capital that has to be allocated in the operations Center plus a reduction in the risk.

Go ahead.

Or the credit risks.

The risk of credit.

For example of a buzzy layer, three or retail and wholesale the rest of reduction what do we do with our business model.

We exclude the excess of capital that was still a larger and we.

Put it on the corporation, so I don't need it in the business the remuneration of the excess of capital it stays in our corporation.

We're not isolated <unk> nine in the three and that Frye, it's already contained inside in there right because it's the whole.

The breakdown is just how I look at it between business when I look at the financial margin. The 700 million matches. The core is the core growth. The other one is just a recalibration between the businesses on the working capital the excess of the capital that I take care of the corporation. So it's just a way to represent the distribution of allocated capital I hope that it.

<unk>.

Because it's the way we've worked with our business model. So all of the access clean access I leave it ended a compression and Thats why youll see that the delta in a quarter of a 100 million to $550 million in that line of the preparation in the margin with the client. So it's just a redistribution of the working capital between the businesses.

Going back to your first point on <unk>.

We believe that the core of the de risking or already happened to negotiate the portfolio is very well provisioned very well negotiated we've seen an expansion in the line. We've managed that we've improved our mix and the mix is not just the <unk>.

Retail wholesale is the mix and we've improved the profitability and more so here is the engagement issue.

The other relationships other products all of the cross sell is here. So liabilities. This year. So we've managed to deepen the relationship with our clients and improve the set of products that we service our clients. So the lines adjusted to the richer the.

Two effects there it's a top line effect and then there is the de risked and therefore, there is a lower cost of credit, which can help us along through the times when it doesn't I end. It is better on the other hand, we did whether they're risking batter clients lower risks.

Lower profitability so.

Even though.

It's generating value adjusted for the risk we have had margins that were lower because we've worked with profiles.

Companies and individuals with more affluent and a better level of risk. So with contribution margins that are lower but we are still positive in regards to the <unk>.

And maybe keep what we are operating or.

This is something that will happen, but it depends on the macro scenario and the future perspective.

Thank you.

Our first question coming from abroad, we have with US she too Lavazza from Goldman Sachs Hi, Good morning, Thanks for joining us.

Hi, Good morning, Milton and Turner to thank you for the call and taking my question.

A couple of questions also.

They want to capital where you showed some nice increase in your core tier one.

Above minimum.

Doing good Roe.

How do you think about potentially increasing dividends also just thinking about loan growth rate to 9% guidance for this year.

How do you see loan growth evolving from here into next year as asset quality seems to be getting better interest rates potentially coming down can you accelerate the loan growth into next year, and how will that influence potential dividend payout just kind of taking a capital loan growth into next year. Thank you.

Okay trip to nice to see you again, thank you for your question.

I started to say that we are taking the full benefits of all the interest on capital on a running basis. So we expect this year are minimal.

The dividend payment of <unk>, 30%.

This is where we are we are when we consider the interest on capital on top of that you're still expecting the regulation on operational risk basal III we.

We should have.

Information about that in the coming weeks I would suppose that this month.

It would have the view of the new regulation and with that we can do what we're planning.

The capital needed to run the business because the operational risk will be implemented in 2000, and 2025 and we still don't know how the phasing we work out the good thing is that our capital generation has been improving as you well know, but we went to approve by the end of this month if I remember.

Our board of directors.

What direction, we're going to go and what are the alternatives, we have and we have a few.

We should or we can increment to the dividend. We can report chase shares. So there is a mix of things that can be done and these discussions. So it will have by the end of this month, if the regulation on the operational risk comes up and this is al.

Best guess well with that in mind, our view is that recruit.

And we should have an increase in our dividend and repurchase of shares will depend on the alternatives that the board will taking closer duration, we will have and make a proposal by the end of this month. So we believe betting the coming weeks, we should release, a new information to the market with that respect.

And Ah poking about growth portfolio roles.

I would say that we are right Bell planning 2024.

Should have the guidance than releasing.

So for next quarter by the beginning of next year, but we're still working on that the same way we did looking through the portfolios that we went through having the long term understanding how to manage the portfolio to balance that in the long term to be more resilient through the cycle and this is the discussions we're having now I cannot anticipate that because.

We didn't finalize we still have.

Some work to do to be better.

And so far.

Whenever we have this information available.

Share with you.

Thanks Peter.

Both of them a lot of what we think it gives you an overview to still coming back to origin <unk> English.

We have roslyn from BTG Pactual.

<unk> good morning, everyone.

I'd like to talk about valuation and the opportunity for M&A.

So I don't think you're going to be up in northern and evaluation of the bank.

The <unk> are positive.

Most of the geographies and nonetheless, the valuations are very cheap.

Because in the past.

It was very low and we didn't know what was the real book MLR Cri.

<unk> that Jamie Diamond.

Uh huh.

And complain about the.

Fisher for per capita in the United States Santander talks about the unfair competition with players that are non banking players. So what is the challenge for the sector not only in Brazil.

You discussed with other Ceos, all sort of on the world of others and maybe to understand from you do you see this as an opportunity to have capital access capital as your pension.

However, suboptimal operation in Colombia.

There is a space that you can be more relevant so what it makes sense.

To use some of that capital going to eventually maybe purchase banks in the region.

I think that for the bank is always challenging.

Above the booking because of the intangible.

If you go to your opinion, thank you rosman.

Thank you for the question.

So I agree with your initial observation our vision is that the prices are cheap.

We do not manage the business on the price of the share on the short term there is volatility.

There is always the effect of the bankers the effect of the competition. There is the effect of Brazil itself on the activities of the bank. So our share ends up having multiple effects you're going to have the multiple bank. But then you have to look at the competition, where we can have more upside or neither.

Nice upside so that's why they look at their tier us on a long term that's how we deliver the value on the price of the share and the breadth of the dividend value creation, because we believe because of the level of results hopefully are generating upper had the prices are low not only ours, but all other banks outside of Brazil, we've seen that.

This is a bank dynamic.

Of the shares.

Each of the M&A.

We've always had it.

You know our history a record so back is because of a rather infusion that happened in 2008, but we are always looking at opportunities outside of Brazil.

Asymmetry rates are still very relevant regardless of the price of the assets, whether if it's a fiscal asymmetry, which is all have to pay a tax in different soda taxes.

The effective rate in Chile lower.

Chile, and Colombia, and I have to bring it and recognize it in the books of the bank and capital above all.

When our consolidated assets in Brazil, we work with the appetite and the level of the board that is set one plus one and a half of 81 with 3% of level one those operations.

Ron with the working.

Capital below that so when I break the operation in Chile that is 90% and our consolidated here in Brazil that Delta capital I do not need to reserve in Brazil. Because this is the level of capital there might shareholder expect me to retain in the operation we now allocate.

That cost of capital of <unk> <unk>, whatever the cost of capital it is.

Difficult for the profitability of that operation et cetera, et cetera generate value for the shareholders. So all the logical devalue Christian you can see deteriorated and works with the best profitability. When we do their consolidation we have all the costs the cost of hedge.

Capital NXT capital.

<unk> per se.

And the tax asymmetry that makes the profitability and the vision of the shareholder.

<unk> is lower.

For the.

For the income per diluted on the row. So let me look here.

We have big opportunities outside of Brazil that can change that trend not even in Colombia, or Chile. So our objective has been to improve and simplify and gain efficiency in Colombia, which is a subscale operation in Chile. The operation is running in good thresholds of profitability.

Centricity the improvement.

The investment that was done is paying off after a few years and we continue to be very clear.

But with what we have there is nothing.

Argentina is.

Is something outside of the curve.

And in Brazil, I mean, there is always a regulatory competitive issue what are the businesses that we can.

Yes.

Of course, we have businesses that complement our offer.

We've found.

Smaller businesses that complement our ecosystem, but we haven't seen the opportunities that are relevant.

And we've seen other opportunities and we decline because there wasn't at a value of the price wasn't adequate and we still look at the market in that sense.

I understand an opportunity to generate slightly we are open for that we have M&A and M&A area that has dedicated a team that is highly qualified that as ever and looking at the market.

D mapping the opportunities, but our opinion is that the opportunity is as more of our technological platforms such as avenues that was approved recently by the Central Bank and we can and they can complement our offers of investment.

<unk>.

Brokerage full digital that complements also the partnership with total.

We are still active whenever there is a good opportunity we continue to advance.

Thank you Milton.

Next question Daniel Boss.

Welcome.

Well I hope that you have a great time in your house, the Florida carriers good morning.

My question.

Also on capital I know that it was commented in the question of detail, but I wanted to understand in your capital overview and fabrication of the origination of asks me that we've seen.

That represents.

The additional capital that you have in your opinion.

Will it be the.

One is behind us.

More origination for the small and medium sized companies do you have any real movement Athene and.

An improvement in the perception of the risk or accuracy is moving fine the adjustment of the origination.

If you consider that.

That's the first question and last but not least in the renegotiation.

Saw the stability in the quarter I don't know if there is.

And in fact of the dividend.

Maybe this will be a good indicator looking at the head do you agree with that information of the renegotiations.

Do you see those from the standpoint of the bank.

Thank you Danielle.

First and foremost.

Capital is not an inactive restriction that other bank for growth. This is the main message that I wanted to leave to you when we do our capital plan looking at the long horizon, we take into consideration the capacity of growing the portfolio within our appetite.

Our furniture generate capital.

With a profitability level that we've managed to bring through the operation.

And then we have the organic opposite capacity for generating capital that is strong more than enough for growing the portfolios. So I wouldnt say that <unk> capital is a restriction.

And the only restriction will always be at this moment always appetite.

Until we well how do we going to rural.

In which public the with which.

With which deadline, which per our portfolio is the optimal balance. So we can at least get volatility through the cycle and if that's the way they are working with looking at the.

80 of the portfolio.

Also in the more volatile moment.

What we've tried to do with the retail portfolio.

Rather have less cycles of our personnel and having a positive EPS with less volatility.

This is why we tried to do with it management out of the bank capitalized.

Active restriction, but the vision is to have that excess capital, we don't wanted to retain more of that.

That access and what we niche for our growing investment we've talked about the capital allocation in the beginning if we were working within a defined capital by the board of 11 or have us at one hour and we would have been 24% in Brazil, we have an ROE of 22.

And with a capital level, one of 13, and we've managed through that.

To remunerate and allocate the capital.

Definitely we don't want to retain the capital more than necessary. This is when we went from November onwards, and our expectation is that there is an increase of the payout.

Repurchasing of sales something will be done and we're going to go beyond mobile has done which is the optimization of JCB, which has brought our payout to closer to the authority. So we should improve that payout and tricks that payout again video.

The.

Repurchasing our dividend recommendation of both we're going to give you more disclosure in the next call.

Not in the next months, possibly after the discussion that we're going to have their borders.

At the board of Directors. This is the first point the second point on the renegotiation of the portfolio the impact of that as an ROA is very small.

We are very engaged the market was mobilized very good program, but the impact on the second stage very small.

There is still work to be done on the experience of the client eligible clients how the bids are going to work.

The impacts they do not.

We really move our numbers. This is a very strong work we have renegotiated what is necessary. If you look at our records are in negotiations on the back here and not going to see ups and downs.

Dominion.

We never used that renegotiation to administer delinquency, we renegotiated with uneconomic vision when it makes sense to renegotiate at the correct price for the client needs and for the client that does not have the condition to renegotiate.

We rather continue with the process of charging if the renegotiation does it make sense for the bank or the client at several points. So we've been very disciplined A&D management of renegotiation that says our agenda and.

<unk> chartered in.

As we can recover our cash from operations. It is important so we continue with the collection building.

And.

Well. This is a question that we should explore is understand the renegotiated portfolio already provisioned well.

We did our stress test and the renegotiation.

On.

The deadlines renegotiations that are being done there.

Of course, there are some long and short delays, we always look at the portfolio and we do the thresholds of stress always looking at the worst rollout if it was the.

Overall portfolio what is the read them how that portfolio is going to work is our individuals Vista outdoor companies.

We always run the stress.

Stress test so I can guarantee you that the generic and specific provisions that are enough to deal with its portfolio.

The cycle of what we expect even in the so called stress looking at it so very well protected portfolio, it's been very well provisioned once our excess of provision today when you look at the generic.

A deal of that or a great deal of that access is a look at each of those portfolios are the bank is really well positioned.

And we don't see relevant FX looking up ahead in the P&L.

Defence a deterioration of the portfolio the balance sheet very well protected so he can go through that cycle. This is not the base case, but we have a great provision but of course with the deadline.

That is longer than what we expected our portfolio. Thank you.

Next question.

We have customers rather than from BPI.

Morning, Scott.

Yeah.

Well.

The floor is yours good morning, everyone.

Yes.

I wanted to ask two questions.

I wanted to be more specific.

On the payroll loan I know that you talked about the <unk>.

Retail, but if it is a very important product and well you'll have the reduction.

Ins's portfolio you.

You will see looking at your material you will have you will say that it was intentional the reduction because of profitability. There wasn't a lot where we will see I wanted to understand from you I mentioned that this is translated to the capsid to happen.

If we look at the recent records as the Selic rate is dropping.

There won't be another drop.

And in the cap of the NSS.

So if you can tell us what is the strategy because this is a product that when we see that derisking happening across the board all the banks are going through the rhythm they decrease the appetite.

More risky.

Lines and credit card. So the payroll loans are a product that the banks use as a counterpart against the reductions on the retail. So can you explain what is the strategy on the payroll loans.

I think it would be very interesting.

Second question would be on the road.

Q I mentioned twice that.

We had had adjusted as an equity of 111 and a half we wouldn't be talking about 24% of Iowa in Brazil, if we.

Alright, etcetera, it's a perspective for profit dividend sharing.

Dividend distributions.

Of course.

When you showed the decision of the regulator regulator there is a possibility I imagine that the bank has.

Maybe a gain in efficiency. The PDD is dropping next year. So can we look at 2024 and it may be dreaming.

Dreaming of INR 24, 25% next year.

Well I liked the dream I always dream Big.

And this is the path that we will continue to trigger should trail.

Looking at the row, well clearly speaking we still.

See quarters that are very solid very consistent.

You have determined the year another quarter right.

So how do we since we affirmed guidance predicted the result of ROE above 20 of course, we are reviewing the numbers for next year, there are elements well known.

Yeah.

Those that we use because of the budgeting looking up ahead and there are the elements that are unknown.

There might always have change regulatory change that is positive we are.

Considering that we believe 11 in Pennsylvania.

The profitability level that we are operating it seems to seems sustainable looking at the horizon 24.

Of course, there are levers on both sides, but ballpark, we can imagine I would say, 20% close to 5% seems reasonable with Hudson.

Touching that true look we are tracking the numbers here. So we can have.

More long term vision.

Just any thought about 'twenty four 'twenty five I'm not.

I cannot give you a guidance on that but depends on the fly the budgeting and the market conditions, but the dream is there as you mentioned and if there is an opportunity to improve without the management that was done with profitability and value creation, but now remember I said we're.

We're going to have a reduction of the interest rate and it's important not to look at the <unk> are isolated from the cost of capital because thats. The interest rates are going to drop as we had mentioned that theyre going to drop.

Is that the cost of capital is going to drop as well and the level of profitability tends to follow suit. There is a correlation that so big we see that our sensitivity is less.

Then the Selic rate of course, it doesn't accompany the predicted by the cost of capital is dropping and you start to work with the price more competitive and what we see is the delta row.

The cost of capital, which are the value creation, and we're going to continue to deliver that with our best expectation for 2024, and we really believe in that now.

No.

Going back to your original question.

Sorry.

Oh, okay payroll payroll alone.

Let me confirm favorite a bun.

Aided led E tap problem weak first we believe that the market there.

<unk> whatever.

Your line is defined by the competition.

There is no need to place a cap because the rates practice on average they end up being within the caps and the market dynamics I mean, there is a series of players.

Banks Big banks medium banks small banks that work with payroll alone and the market is very competitive problem is or the cap looks at the selic rate in <unk>.

Isolated and it doesn't look at the long term curve, we've seen over the last few months is that Italy drop, but because of what happened abroad and the fiscal uncertainty that the interest rates in Brazil increased the long terms when the long interest rate consult you end up losing the capacity of originating new credits because the rates of return on.

Not adequate.

Once you get to the cap you remove a population of the banks that stop having access when favorable published 2 billion Reais of production monthly production unless the market. So 2 billion less of credit for retirees.

Cheaper credit lines. So you tried to get efficiency regarding the clinic, but you leave outside a very relevant public that has access to more expensive.

Credit lines and you.

Hinder them, because you had a better offer.

Credit offering you'll have shoe possibilities for the distribution of the payrolls.

For the year.

The person that are in the bank, but with the correspondent bank.

<unk>, which is <unk>.

And I think it rolls off the only way that you can make a profitable product is making adjustments every bank has payments and coupons.

Offices are going through larger difficulties and you have to consider.

Considered the commission for the correspondent bank and the price you end up reducing the public they will have the capacity to offer the payroll loans. So you'll have two.

So the portfolio end up suffering 40% of our production is weighted to the banking corresponding 60% is in our network and in the past it was the opposite.

But with this change in the dynamic we are removing.

A lot of costs that are not paying for itself and not necessarily the cost is dropping for the one that takes a payroll on Indiana.

You end up making them.

Access to.

More expensive lines.

This is the defense are favorable and we believe that the cap is not the best way we have to look at the long term interest rate and that the reduction of the kind of isolated following in the selic rate drop is not the adequate way of managing.

Cheapest and most access.

Line of for the retirees.

There is a success and the market has always seen with good eyes. So here, we need to be very careful with that the government has that.

That message.

Already arrived favorable position.

With respect the decision by the impacts are presented as Sean. Thank you. Thank you Milton next question switching back to English, we have with US Jorge Kuri from Morgan Stanley Hi, Jorge glitches here, thanks for joining the call.

Everyone. Thanks for taking my question.

Wanted to go back up to the.

Credit card regulatory inquiry.

I appreciate Milton <unk> comments about how this has opened up.

Discussion about the card industry and know the different puts and takes in it feels that everyone's more educated on how the whole ecosystem works.

But at the end of the day. The reason the interest rates are high is because you have all of the pulse of laterals.

And so it just feels that.

Any.

Outcome.

That cuts rates without modifying the parts allow those will be are deficient and not really moved.

The business forward so.

And we've gotten mixed signals from the government.

Central Bank has commented that they are open to it but the finance Minister has said absolutely not and so where do you think the current thinking is among decision makers that people that ultimately are going to have a saying on reducing the Paris allow those regulating the banks allowed those facing them.

While.

Tightening them a little bit.

And and so that's question number one.

Second is <unk>.

If that just doesn't happen because it's not palatable for them or a consumer perspective, and the negatives are that it may have on consumption.

It is.

A popular government.

How does that leave you. If then the solution is just as simple as okay. You know what we're not going to move any of the different moving parts order run rates and we're going to put a cap that is equivalent to 100% interest rate interest payment over the size of the loan is kind of like what the law currently stands.

What does that mean for you in terms of.

The growth of that business the profitability of the business.

How many cars are going to have to cancel because evidently about those level of rates. Some of those are just non core businesses. So I really wanted to get more details rather than just these overview of everyone gets it and we're having this nice conversation but.

It's a pretty simple thing either you've got the parser laterals or the outcome for the card issuers is going to be bad.

Jorge.

With me in the next meeting with the government because.

I really believe you understand that it's very difficult to explain I think the government understand the central bank understand but it's a complex topic. It's not simple. This is something that the country has been working with for many years ago.

And it's very difficult to introduce the coal shipped it to show people what are the real impacts as you were saying right here, so being very objective.

I have nothing to see different that what you said at the very beginning so we know that the resort this equilibrium.

There is.

A way where the risks are not priced accordingly.

We have 427 billion.

Credit card portfolio.

Out of 20 billion Reais pay interest so how come how come you bear the risk for 120 billion <unk> portfolio and only 20 billion has been increased co pays being for studying of debate.

Less.

Capable population.

Delinquency is you'll have a solution the first selection.

Is very high so you have to charge a very high interest rate. So if you ask me what we believe we do believe that the Gulf of them needs to understand that the parcel other syncrude is very interest.

It's all a component of homeowner carcerano issue.

That's all because it bear interest.

The acquiring company anticipates to the Marshall the Morrison embed the interesting side the growth. So there is no parcel out those things.

But people believed that there was no interest at the end of the day. So that's why the communication comes like that in there or what if it comes like that and people believes that because they don't understand and say look I have something and hoping that bayshore bears the risk they are acquiring companies anticipate.

GAAP.

Anticipation profitability.

The Smes.

That they run at the end of the day there is with Oprah This was something that no bank and all the other banks. So this is the risk that they bear so our view is that if we don't look to be international market and we do a composition of rebalancing the parcel all of those things rules, reducing the personnel obviously insurers.

Creating the parcel arbuckle routes, where you first formed that way to finance that.

Our clients are very very competitive levels, 4% per month, you can do that with the Pops illogical.

And also you made a way where you can reduce strongly the rate on the hopper achievable.

The revolving credit.

Ken charged from these people are very very lower interest rates. So what's the problem. We want to so we want to help the population and make the transition just to give you a few numbers, let's say that we have a cap interest rate of 8% and credit costs. The same way, we having to revolving.

Credit in the current buckled overdraft, if we have this 8% we have to cut the country as a whole 60 million credit cards 60 million credit cards needs to be a bundle.

And also you might have an impact of 350 billion Harrison consumption.

Does he will take these people out of the construction market you will have.

A very huge impact in the population that was included in the financial system. They will be excluded for the financial system, where they will finance themselves.

They will buy how they will be part of the system. So this is the impact if we have if the central bank together with the Minister of Finance, the chairman and the Minister of planning if they don't find out a solution that.

Everything together and at the end of the day, who is getting benefit of that it is not the issue is there's lots of acquired is nichole. So the consumer is the merchant business, what we defend and.

I want to see a discussion that's very technical that the rates that are being practice on the anticipation of the year you can go to any website off any motion.

Acquiring company you will see there the level of fees that are being charged for the Smes. So then relative is very dangerous and this is what we have so for me it's much more a political issue than a technical ratio low and everybody needs to understand that we need to we need to find out a solution that is good for the country.

And we have to plan a transition.

And if we don't do that in 90 days, you're right. We will have this cap that was approved in Congress. It will take the rates a little bit though it also any of the issues that we have today the clients that still be the same they still going to have a superstar dies between publics.

We'll be able to increase the portfolio and finance the construction more than we do and we will have to cut a lot of clients out of the market because of this level of rate, we won't be able to make this sustainable in the long term. So this is the impact that this is simple, but this is not the right way of making.

The right decisions so far a complex problem a simple decision is not the most effective and I think the central Bank has all the pools.

The technical teams and they will have to come up to a solution that is good for the country very sustainable and we do not book Cape Central Bank too.

One thing or to preserve our business lines and why is that because we are the number one issue and then number would've acquiring a company in the market regarding both businesses. So there is no conflict.

There is no conflict at all will be the most impact in either site. So it's not a matter of Gulf conflict as a matter of delivering to the market what is better.

Two the marketing the long term and we believe that information sorry available you made that.

A better briefing very clear and I think the technical people knows that let's see what is the appetite to to get to work to make this discussion happens.

Thank you very much thank you Peter.

Petra Nova kept us off but it would be another.

Question Myopia.

Bank of America.

Yeah.

In the fall.

Everyone.

Congratulations on the results.

Two questions.

Lots is audio.

As audio.

Yeah.

I can hear you.

Okay. Milton can you hear me.

No.

What does happen.

Okay two questions.

At the beginning of the year, you do a hedge of the capital for.

A real.

For the exchange rate.

About 2 billion Reais at the beginning of the year given the sale of the assets of Argentina can we expect those costs to be lower next year.

Can you give me the magnitude of that reduction second question Milton I believe it's very clear that the appetite of the bank.

To give credit is improving given the improvements on the delinquency, but I wasn't it shouldn't hear from you.

How do you see the domain of credit.

So youll see the appetite improve mean, improving with the economy with the reduction of the interest rates can you tell us on the side of the demand more stuff.

You mean.

Objectively speaking.

In Argentina in the same way that it had a negative cta.

The cost of the hedge of the Brigham benefit and not something bad because of the difference in the interest rate when will it cause a problem.

Carryover this asset which has a cost of Brazil with the exchange rate and the Argentina when I do the hedge of the capital index Macquarrie of that.

I think that's always.

It's positive in regards to the rail so in the last quarter about 70 million barrels if we remove the two months would have been the impact positive impact that the cost of hedge. So we see on the long term, we have improved our way of doing the hedge.

Using well using the hedge of the strong.

The strong currencies, while the correlation with the rail is very close to the other countries.

Latin America, we have a big emphasis in euro and the dollar because of there is not a bigger.

It's not a good correlation and that helps with the hedge and the interest rate that is dropping.

That helps with the cost of the hedge necessarily see a reduction over the last few months, Argentina for that and all the impacts that it was a positive impact.

Sure.

It has.

While the carry of the currency was in favor.

So the cost of hedge.

As the explanation and looking ahead to the portfolio, we've seen an increase in the demand I've shown you the origination of the big companies increased over the last quarter. The capital market is coming back. So we see a market that is more active the companies anticipating that dropping interest rates that are more positive.

Prospective GDP growing this year, so we've seen a stronger activity, but we can see that in the third quarter.

GDP will be published should be weaker GDP because of the monetary policy is affected to control the inflation.

Right.

We've seen it.

The increase of demand on the origination and we service them very well with a great culture conversion level favorability, great returns and well priced operations and when we see an exaggeration of pricing or market.

Rather lose share market share and defend our convictions on the long term, but the demand has grown and we've managed to service. It in a very ground up anything like via Mar capital markets.

Numbers show that or the balance sheets or the big companies, we've seen an acceleration in that quarter. Our expectation is that that will continue to be so.

Long term short term question is the same bank different analysts. So we have with US Nicoletta Hugo Hi, Nicholas Thanks for joining the call.

Hi.

And thanks for taking my question nice to see you guys.

So my first question is a follow up on the question that might've just asked about the Argentina sale, which is really why why sell now that business. So you sold for $50 million.

You've cut up on import on loss on the sale of $1 2 billion Reais I calculate about two times price to book on the sale.

If you can confirm actually that was the price to book on the sale and again why sell now.

I know that you referred to before I talk about it.

Outside of Brazil for you.

Difficult to generate.

Are we above your cost of equity and generate value for your shareholders.

And then a quick second question on my usual question on the bonds on their tier twos 29, you can kind of I know what whatever you do with the call. He is gonna depend also on market conditions on our refinancing cost, but if you can at least.

Tell us confirm Milton that given that the tier twos. The 'twenty nine start loosing company like Friedman next year, if not called the inclination would be if it will be more inclined to call you're gonna regardless of market conditions to some extent.

Nicolas Thanks for your question.

So very simple answer for that I think the NPV.

Of this transaction on our economic perspective, looking from the shareholder view.

Positive.

Is that because even though we don't capture the full book an auditing ciena.

<unk> done all spent and the people there was a relevant devaluation in Argentina and there are multiple set in U S dollars, so that $50 million what could the transaction at fair value.

We were.

Planning cycle. The payment was made outside buffing, Sheila so how can I get the capital out of auditing ciena with all the discussions.

The acquiring company had the capability to issue bonds outside have the approval to payout type. So we received good dollars $50 million was lot of youthful transaction when we try to make a better price locally and the most relevant reason why we sold has to do with the CPA.

Generate these impact the Cta, we've been accumulating for a long period, then SEPA in the balance sheet of the bank is positive when we considered the other operations that we have but in the case of Argentina due to the level of interest rate. It was very very huge impact and we've been accumulating that for many years now so what happens if we.

Don't do anything is that we will keep accumulating some negative <unk> in the long run and the profitability of the operation together.

With the CPA was generating a loss in our balance sheet was left remunerating the capital and we have to keep the balance to keep the bank to one thing that kept the bank. There is a lot of costs of maintaining the structure. We have regulation aspects, we have to consolidate the operation. So when you put everything together.

The cost of the hedge of the capital we index, which was positive the decision to sell was much less for the amount that regarding the operation has turned a law, which was at fair value at $50 million and I'll review the way we were evaluation and the second question. How do you do a DCF and other things you know with the cost of capital were not drink Gina.

Do the banks.

Trade at book value, what level of profitability you need to have due to the cost of capital to our DCF get something better than book. So it was very difficult to do this DCF. So why don't we do this after price was fine.

But in the other hand, we don't have the Cta anymore. So it's a stop loss on the city and our balance sheet, which brings us to a very positive NPV.

And regarding your second questions about the bolt.

We will keep I know, we've been telling that we'll be looking to the official soft the capital of our tier two how much it costs how much benefit it brings in terms of capital what is the cost of a new one and our capital needs. So this is the way we are approaching every single maturity and every single call and on the economics.

Syed if it makes sense to us to exercise the call. We will if it doesn't we won't but we'll give clarity to the market of course before in a window, where we have the confidence to give you more information, we're going to be very transparent pulled up.

Thanks very clear.

Next question coming from Carlos Gomez, HSBC, Hi, Carlos Thanks for joining the call Hi, Hello, and thank you for your patience and for trying to reach every single question I think.

Breaking.

First I would like to write about.

Our wholesale portfolio and where are the mpls I mean, we were expecting to see a normalization of credit cost, yes, I think that's fair to say for everybody and it continues to be.

Better than normal is that because they're coming later or they are not coming.

And second.

Could you tell us what you think the insurance result that you are having today is sustainable or it should be higher or lower in the future. Thank you.

Yes, Hi, Carlos good you'll see what again. Thank you for your question I Hope, we don't see the Npls, so real up looking for them, but just to let you know I think keeps telling me coughing. Okay. First of all we thought this year could be a little bit forceful in terms of cost of credit.

And it's been better than what we thought on the wholesale.

But you have to remember and you know better than me.

Most of us.

That the NPL in the wholesale.

Really happens.

And of the process, it's very difficult before you go to the NPL, you'll do a restructuring you'll do a negotiation there are clients that go through bankruptcy or chapter 11, and there are a lot of.

Do with their obligations as deals will then you're always a lot of very good index I don't like the index to look to the healthy off the corporate portfolio.

We have to remember that the middle market you seem to SME index. So we are talking here basically a bulk large ultra large clients in this NPL. So our view is that the level of provision that we have in balance sheet is very high. That's why we have this level of coverage through NPL in the wholesale portfolio because.

First name by name and their credit committees and he will play a rating you attribute a rating for each client and these rating defined to the level of provision that we have to make so in most of the cases, you will see clients that we have 70% of provision. Let me give you a good example of Medicare on US which is a public your name.

100% provisions.

Has not go through NPL.

Well, we have 100% provision so part of that whenever if it happens then goes through NPL. Then you will have a cold so important consumption on the coverage that we have today. So the portfolio is very well covered we look name by name and we have all the single names provisions and also they are generic provisions.

We have allocated the level of provisions that we believe are necessary. So the most risks clients to every single client that we need to have additional profusion. So the balance sheet is very cohort. We are very confident about the level of provisions. We have we are not seeing a credit crunch, but we are seeing specific names.

So far we've been able to go very positive throughout but that's an audio and next year. If the interest rate keeps going though the macro gets a little bit better if the environment gets better we might not see a relevant normalization, but similar to monetization is to happen and we still.

We believe that this level off.

NPL should increase in the coming months, maybe inquiries, but remember we have the provisions for what we see now of course, we have the necessary provisions. So you might see some change in the NPL you won't see some relevant change in the P&L of the bank.

But faith neutral gross but it moved us to a partner.

Now two questions to finish next and they can Nevada from Santander.

I got it but it has to look at the more gradual.

Every opportunity.

And it's great to talk to you guys.

My question.

I'm wondering I understand.

Of the conversation itself.

It all starts.

Our cycle.

Accelerating the credit origin origination that origination doesn't appear in the numbers of the fourth first quarter because there is still a process.

The risking of some portfolios, especially specifically open notion okay looking at going ahead.

Where do you get that credit growth.

Because of all the participants in the market that we talk.

It seems that all everyone is avoiding the open ocean and everybody is.

Just in the open Ocean, India existing clients.

<unk>.

Currently still dropping but it's so high but where do you get the growth from.

Well, maybe the high income there's a lot of banks, saying that theyre going to grow in the high income we see that that high income is with the launch of <unk> we.

Cannot just depend on the high income per se to have the growth. So I wanted to hear from you where you're going to get that growth.

Thank you Enrique.

HSA Ya.

Okay.

Yes.

First we're talking about.

Wholesale.

Retail sorry, whereas the individuals we've grown consistently and also with the companies with the de risking was done with this process.

The company's retail with great results. So we've worked with the companies that have a high end point, we did have because of the base of the prepayment or makes it different from the market. This explains a great deal of the performance that we've done that we've obtained we still have a great opportunity.

A lot of space for growth.

Bu private companies and we have grown.

Accelerated.

At high levels the portfolio of SME had a greater acceleration also and we see great increase with the middle market and.

Middle market retail in the individuals we've gained share with our clients, which is very important. These are well known clients that we have grown I agree that we cannot imagine there are other growth is going to be in the high income because it's not and it's not just high income portfolio.

But our portfolio management.

Reported MRO.

Our.

Credit card 120 billion two thirds is not a high income and we still manage to do business with profitability all of the crops that were produced.

In the quarters with great quality in all segments and we've managed to grow.

Theres still some adjustment in the portfolio and I mentioned.

The delinquency in the <unk>.

Vehicles and critical dropping so you'll have an inertia of.

High risk portfolio that is reducing importantly, renegotiated stable A&D portfolio with a bigger better quality growing. This is a combination that makes our growth potential.

Being less than what we observed in previous years, but still we've managed to do.

A positive margin and.

Making a capital profitable. This is our what we're thinking in my opinion when I go back to the discussion on <unk>.

The retail individuals we have millions of clients that we have great.

<unk> relationship mono product some of the capacity to your to the cross sell and having a full bank offer is what's going to make.

The retail improve in the individual's still being built.

Anticipate where we haven't delivered.

There's still a lot of challenges in house, but I am convinced we are convinced that in a moment that we do this this is going to open an avenue for growth segments that are very important we have another unit class within our bank, we have a fraction of the personnel.

In the bank and other businesses in a relationship that is mono product with this.

So theres still going to be a great growth year.

And in the lower income it's.

To play a credit risk management and efficiency now we're going to continue to deep.

Deepened in the bank.

Republic, there is the logic, the more efficient and more appetite and on the other hand that capacity for a cross sell for the public that we have in house. It certainly will be a great driver for our growth looking at Manhattan.

Very optimistic with the project let's.

Nics from next year onwards, we can show you more data on the advances and on the other.

Sure.

Retail companies great.

Great opportunities there is be used outside of the markets and the metal market.

Same we've managed to grow with quality. So growth is not just one of concern that Jimmy great opportunities, we're still going to deliver growth with quality sustainable.

Without the.

The volatility of the balance sheet, which is what we are seeking under long term.

Thank you Milton.

Next question from Yuri Fernandes, if that weighted for the well if you can just wait a few minutes and then I've got to get back to you.

From Carlos There wasn't answer of course, Carlos asked you about insurance business as well.

I didn't hear that yes of course that we have.

The larger issue callers asked about if youll see that the insurance business being sustainable.

Going forward what is your forecast for the car.

Sorry for that I didn't hear the question we had some older issues.

Yeah. So on the first part yes, we believe is sustainable.

We had this acceleration somehow compared to the other periods, because we were growing 50% year on year. So we reduced the 20% to 25% year on year on all recall insurance business, which is three quarters.

75% of our business has to do with the core business.

We believe banking assurance.

With this expansion in credit and all the expansion always make talking right now about the cross sell with this win at old platform. So on and so forth. This will give us the capability to keep growing insurance in a sustainable way. So we're still very positive, but we found a way to grow we are very very embedded in the operation.

Synergy.

With the commercial team.

The insurance company steam.

We've changed the way we approach clients. So we're very comfortable that this will keep on tracking will be sustainable in the long run they're very positive about reinsurance and also if you look to the P&L and insurance side, you will see that we've been growing the premium that we receive and reducing the cost of our losses. So.

Combined ratio has been evolving three points from 52, 3% to 50%. So it's a very good combined ratio and also the open platform has been play a relevant role and we will keep pushing that so and so forth. So we have the manufacturer of the distribution and the open platform. They have a very relevant thrown in our business.

Thank you Nicole.

Youre going to see which are now for the.

The last question. Thank you for your patience.

Okay.

The floor is yours, thank you Milton and earlier.

Just one question.

Quick question, it's about the digital transformation of.

The wholesale or the other.

So I apologize so he didn't really bring to your attention to the level of the opening of new digital accounts. There is a drop so it was 900000 million dollars in this quarter. It was 700750 opened New York.

And maybe the bank is still cautious with that notion.

But more than that the number of the accounts being opened on the table there as the data of the share of digital transactions per volume when we look at digital transactions of credit investment payments, we see stagnation.

I doubt it is along with that.

<unk> digital transformation.

Youll see but I wouldnt say that this is an inflection point.

Its circular.

But maybe there will be less rose and the penetration of the digital channel as well that said thank you.

Sorry that you are the last year.

The last but not least.

Okay.

First of all let's start by the second part.

Certainly our working strongly in digital but we understand that we went through a high level of penetration. Therefore, the newer penetrations of the marginal well have a lower speed because most of the space was reached.

Now having said that we are very focused.

We are reviewing the client journey the access to the digital channel digit, making our clients visit or we even believe that the mix of the clients in a margin you will improve the penetration of the digital.

Channels, and we're going to see an evolution that is maybe.

Slower than what we observed in the previous quarter Vishal deepen image kind of an acceleration ROA and after the pandemic was over the information.

<unk> of the.

Currency has changed that you are correct.

And we are following up on that and the relevance is important the importance of the network you. It shows not only an issue of the digital channel, but how do you another physic.

Physical channel is still very important and how the client still like for credit for investments total have access through the branch side.

<unk> talked to their managers.

Understand that only reinforces the other side of the same coin. If we went to a full digital bank a relevant part of our revenues would go away.

And it is the defense of the physical model, we have to look at the penetration of the digital channels and we are following up on that but you also have to look at their relevance.

The on site service.

Or that offering and the delivery of value for the clients. So I think the other side of the point about the accounts receivable well.

The account sorry is the reduction of the filter one is credit because for you to open in ERCOT, where the clients have the lab capacity to give credit you have the CIC, you'll bring the clients of the bank.

Decline frustrated that is expecting to credit and where that filter is not going to have access to credit and brings of course should the venting it doesn't have to.

Heightened that filter so to guarantee that the digital accounts now we open to improve in terms of poverty. So we're now going through the quantity, but the quality of the accounts that we're bringing in.

So 900 is not better than 700.

Does the mix.

Quality mix is better maybe in the 700 and 900000 per week.

We should look at that and not the absolute numbers. So the credit filter and in fact clients that I know that I'm going to be able to engage that have a value proposition that it can deliver in a product that I can have a long term relationship. This is a win win or decline in any organization.

That's where we get the adjustments I think of ethane.

Thank you.

Well that was the last question of the analysts I think park.

Sure.

Sure.

We have had several questions via Whatsapp, we're going to answer thereafter, with the IR team and therefore, we finish our Q&A session.

Thank you everyone that was connected to us for two hours the floor is yours Milton.

Sure your final.

Remarks.

Once again, thank you very much it's a pleasure and privilege to be here with you I believe that the numbers.

We've managed to communicate to you.

We've been very careful.

To provide transparency the numbers are always a number so you can ask the questions. They are now going to leave with that and that's why maybe I cannot answer at the time, but youre going to get an answer.

Okay.

I can guarantee that we work with transparency.

We understand your questions, we always do a debriefing post call.

Then what is the message to concern. So we can have surety that we do not.

Then we don't have any blind spots. Thank you for your questions.

I hope, we hope to meet your expectations very happy with the results very trusting in the future, we really believe in our journey.

Whether it is digital transformation efficiency cultural transformation and we've managed to change the value.

Victory for our clients. This is the most important thing, we've grown and engagement and our clients and all of that.

With that I finish I think that I spoken a lot we've seen we will see ya.

It may be in the market in the next call. Thank you very much and have a nice day.