Q4 2023 Itaú Unibanco Holding SA Earnings Call
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Renato Lulia Jacob: Hello, good morning everyone. I'm Renato Lulia, Group Head of Investor Relations and Market Intelligence at Itau Unibanco. Thank you very much for joining our video conference to talk about our earnings for the fourth quarter of 2023, which we are broadcasting directly from our office on Avenida Faria Lima in So Paulo. This event will be divided into two parts.
Renato Lulia Jacob: In the first part, Mr. Milton Maloui will explain our performance and earnings for the fourth quarter of 2023 and present the 2024 guidance. Right after that, we'll have a Q&A session, during which analysts and investors can interact directly with us. I'd like to give you some instructions to make the most of today's meeting. For those of you who are accessing this via our website, there are three options for audio on the screen.
Renato Lulia Jacob: The entire content in Portuguese, the entire content in English, or the original audio. For the first two options, we'll have simultaneous translation. To choose your option, all you have to do is click on the flag in the top left corner of your screen.
Renato Lulia Jacob: Questions can also be forwarded via WhatsApp. To do so, just click on the button on the screen on the website or simply send a message to the number +5511 93959 1877. The presentation we'll make today is available for download on the Hotsite screen and, as usual, on our Investor Relations website. I now give the floor to Mr. Maloui, who will begin the presentation on earnings. Then I'll come back to you to moderate the Q&A session. Milton, go ahead.
Hello, Good morning, everyone.
<unk> group head of Investor Relations and market intelligence.
Speaker Change: When you bought it could answer thank you very much for joining our video conference to talk about our earnings for the fourth quarter of 2023.
Speaker Change: Which we are broadcasting directly from our office in Avenida Faria Lima in Sao Paulo in most parts of this event will be divided into two parts and also a bit in the first part Mr. Milton Malawi will explain our performance into earnings for the fourth quarter of 2023 and present the 2020 for guidance.
Milton Maluhy Filho: Good morning. Welcome to our fourth quarter of 2023 earnings and the 2024 guidance presentation. I'll go straight to the figures so that I can bring you some more information, and then we'll have enough time for the Q&A. Firstly, our earnings in the quarter totaled R$9.4 billion.
Speaker Change: Right. After we will have a Q&A session during which analysts and investors can interact directly with us.
Speaker Change: Or was it sort of choice, but it may not.
Speaker Change: I'd like to give you some instructions to make the most of today's meeting for those of you who are accessing this via our website. There are three options for audio on the screen the entire contents in Portuguese the entire content in English or in the original audio who thought it was cool.
Milton Maluhy Filho: A growth of 4% from the previous quarter, a growth of 4% from the previous quarter, and a growth of 4% from the previous quarter. As a result, we delivered a consolidated ROE of 21.2%, with a 10 basis points growth in the quarter. In Brazil, ROE reached 22.2%.
Speaker Change: For the first two options will have simultaneous translation.
Speaker Change: You can choose your option all you have to do is click on the flag on the top left corner of your screen.
Speaker Change: What's up.
Speaker Change: <unk> can also be forwarded via Whatsapp.
Milton Maluhy Filho: Moving on to revenue generation, our NII grew 3.3% in the quarter, reaching R$ 23.2 billion. Commissions and fees and results from insurance operations posted strong growth of 4.6%, reaching R$ 13.5 billion for the quarter. All this with sound credit quality indicators. The consolidated NPL over 90 days posted a drop of 20 basis points, and the NPL for individuals dropped 50 basis points.
Speaker Change: To do so just click on the button on the screen on the website or simply send a message.
Speaker Change: Two the number plus five 511 90 39591877 mode.
Speaker Change: The presentation, we will make today is available for download on the hot side screen, well and also as usual on our Investor Relations website.
Speaker Change: I now give the floor to Mr. <unk>, who will begin the presentation on earnings then I'll come back to you to moderate the Q&A session.
Milton Maluhy Filho: These are major results that show an evolution in the credit cycle. We ended the quarter with a Tier 1 capital ratio of 15.2%, an increase of 60 basis points. The individual's portfolio grew 1.9% in the quarter and 4.1% in the same year. DSME's portfolio grew 2.6% in the quarter and 3.5% in the year. The large corporate's portfolio grew 8.7% in the year. Thus, the total growth of the loan portfolio in Brazil was 5.7% in the year. In Latin America, the results were affected by FX.
Milton Malawi: Milton go ahead.
Milton Malawi: Uh huh.
Milton Malawi: Hum.
Milton Malawi: Hum.
Hum.
Milton Malawi: Hum.
Milton Malawi: Good morning.
Milton Malawi: Welcome to our fourth quarter of 2023 earnings moving squad in the 2024 guidance presentation.
Speaker Change: I'll go straight to the figures so that I can bring you some more information and then we will have enough time for the Q&A.
Speaker Change: Firstly, our earnings in the quarter totaled $9 4 billion Brazilian real clinical path a growth of 4% from the previous quarter.
Speaker Change: Okay.
Milton Maluhy Filho: As a result, the total portfolio grew 3.1% in the year, and excluding FX variation, growth was 5.3%. It was a year in which we focused on de-risking the portfolio, and we've been working more intensively on target clients and reducing the portfolio's exposure to non-target clients. We posted sound growth in the segments on which we focused. The Personalité and Uniclass Loanbook grew 16% in the year and 5% in the quarter. In payroll loans, we continue to grow in the private and public sectors, both quarter over quarter and year on year. However, there was a decrease in the public pension segment as a result of the caps that were put in place on interest rates.
As a result, we delivered a consolidated ROE of 21, 2% with a 10 basis points growth in the quarter and Brazil, Roy region, or 22, 2% theater kalugin onto revenue generation for St with our NII grew three 3% in the quarter, reaching $23 2 billion Reals.
Speaker Change: Commissions and fees and results from insurance operations posted strong growth of four 6%, reaching $13 5 billion re hours for the quarter. All of this with sound credit quality indicators. The consolidated NPL over 90 days posted a drop of 20 basis points.
Speaker Change: The NPL for individuals dropped 50 basis points.
Speaker Change: These are major results that show an evolution in the credit cycle professional video the Cold Cup Dog Bowl to doors, we've ended the quarter with a tier one capital ratio of 15, 2%.
Speaker Change: Increase of 60 basis points.
Milton Maluhy Filho: Therefore, we stop serving a population that increasingly demands a social security-based payday due to these adjustments. Another piece of news worth sharing with you is that we had a nominal reduction of 1.9 billion reals in the renegotiated portfolio. A drop of 4.6% quarter over quarter shows that our portfolio is of good quality with sound credit indicators. It was a great quarter for clients NII, up 3.3%, or R$700 million, in the fourth quarter of 2023.
Speaker Change: Joe.
Speaker Change: The individual's portfolio grew one 9% in the quarter and 4.1% in the same year.
Speaker Change: DSM he's portfolio grew two 6% in the quarter imaging prism and three 5% in the year.
Speaker Change: Okay.
Speaker Change: The corporate portfolio grew eight 7% in the year. The total growth of the loan portfolio in Brazil was five 7% in the year in Latin America. The results were affected by FX as a result, the total portfolio grew three 1% in the year and excluding FX variation growth was five three.
Milton Maluhy Filho: This growth was well distributed across our product mix, volume, spreads, and liabilities margin, and Latin America. We've isolated the effect of working capital, which starts the quarter at R$3 billion and ends at R$3.1 billion. The one-month earnings of the operation in Argentina, which was recorded in the third-quarter earnings, were also isolated.
Speaker Change: <unk> it.
Speaker Change: It was a year in which we focused on derisking of the portfolio and we've been working more intensively on target clients and reducing the portfolio's exposure to non target client, we posted sound growth in the segments in which we focus.
Speaker Change: The personality and Winnie class loan book grew 16% in the year and 5% in the quarter.
Speaker Change: In payroll loans, we continue to grow in the private and public sectors, both quarter over quarter and year on year.
Milton Maluhy Filho: Thus, core growth was 3.3% quarter over quarter. Another piece of positive news was the expansion of the consolidated NIM from 8.9% in the third quarter to 9% in the fourth quarter. The risk-adjusted NIM also increased from 5.6% to 5.8% during this period.
There was a decrease in the public pension segment as a result of the caps that were put in place an interest rate.
Speaker Change: Therefore, we stopped serving a population that increasingly demands as social security based payday due to these adjustments.
Speaker Change: It actually makes it to the masses.
Milton Maluhy Filho: The risk-adjusted NIM of the Brazilian operation increased from 5.9% to 6.2% in the quarter, and the total NIM for Brazil reached 9.8%. I believe these are very positive messages for the financial margin with clients. In the financial margin with the market, the fourth quarter was similar to the previous one, with a sound result of R$800 million. (inaudible) The slight expansion in the quarter was due to the lower impact of cost for capital heads. This shows that we've been delivering good risk management, as shown by our solid financial margin with the market performance, despite the scenario of adversities and difficulties throughout the year. The financial margin with the market totaled R$3.3 billion in 2023, versus 2.9 billion reales in 2022, which shows major growth in a year during which we face material challenges.
Speaker Change: Another piece of news worth sharing with you is that we had a nominal reduction of $1 9 billion reals in the renegotiated portfolio.
Speaker Change: A drop of 4.6% quarter over quarter.
Speaker Change: This shows that our portfolio is good quality with sound credit indicators following they'll go out of our margin.
Speaker Change: Thanks.
Speaker Change: Well, Chris Volk, Chris it.
Speaker Change: It was a great quarter for clients NII up three 3% or 700 million reality in the fourth quarter of 'twenty. Three this growth was well distributed across our product volume spreads and liabilities margin in Latin America.
Speaker Change: We've isolated the effect of working capital, which starts to the quarter at 3 billion reality and and the $3 1 billion Reais.
Speaker Change: The one month earnings of the operation in Argentina, which was recorded in the third quarter earnings was also isolated thus core growth was three 3% quarter over quarter.
Speaker Change: Another piece of positive news with the expansion of the consolidated NIM from eight 9% in the third quarter to 9% in the fourth quarter. The risk adjusted NIM also increased from five 6% to five 8% in this period the risk adjusted NIM of the Brazilian operation increased from five 9% to six 2% in the quarter and the total.
Milton Maluhy Filho: It is worth mentioning that we met the 2023 guidance in all the disclosed lines, with the exception of the estimated growth of our loan portfolio, which was below the disclosed expected range. This performance is explained by the difference between the projected FX rate for 2023 used in our budget and the actual FX rate for the period. Commissions, fees, and results from insurance operations were also within guidance, of 5.3% year over year and 4.6% quarter over quarter. The highlight in the fourth quarter was the strong growth in credit cards due to seasonality. We've posted major progress in advisory services and brokerage fees. Net inflows increased 70% quarter over quarter and 7.4% year over year.
Speaker Change: NIM for Brazil reached nine 8% I believe these are very positive messages for the financial margin with client.
Speaker Change: Theodore fog in the financial.
Speaker Change: Margin with the market the fourth quarter was similar to the previous one with a sound result of 800 million reality.
Speaker Change: Packed with similar dynamics, both in Brazil, and in Latin America, Brazil.
Speaker Change: So my mother Incommunicado motor.
Speaker Change: The slight expansion in the quarter was due to the lower impact of cost for capital hedge.
Speaker Change: This shows that we've been delivering good risk management as shown by our solid financial margin with the market performance.
Milton Maluhy Filho: This results from all the work of the last few years and shows that we are moving in the right direction. The latest acceleration is very positive. The transaction volume in the acquiring business grew 17.5% year over year, while revenue was up 20.4%. This performance reflects an appropriate product mix, which has allowed us to increase revenue above the traded volume. In insurance, earned premiums increased 11.2% in the year, with recurring income growing 19.6% in the period.
Speaker Change: Despite this scenario of adversities and difficulties throughout the year.
Speaker Change: The financial margin with the market totaled $3 3 billion realized in 2023.
Speaker Change: Versus $2 9 billion realized in 2022, which shows major growth in a year during which we faced material challenge ourselves.
Speaker Change: Okay.
Okay.
Speaker Change: It is worth mentioning that we met the 2023 guidance and all the disclosed lines with the exception of the estimated growth of our loan portfolio, which was below the disclosed expected range.
Milton Maluhy Filho: It is worth emphasizing that we've seen significant growth over the last three years in this operation. This performance shows that both the course and strategy designed for this operation are being well executed. In terms of credit quality, we draw attention to our short-term delinquency rate, which is absolutely under control and shows its stability both in Brazil and in Latin America. The long-term delinquency rate, measured by NPL 90 days, decreased 20 basis points in Brazil and in total.
Speaker Change: This performance is explained by the difference between the projected FX rates for 2023 used in our budget and the actual FX rate for the period most of them are commissions fees and results from insurance operations were also within guidance.
Speaker Change: You know what.
Speaker Change: Okay stuff in front of Congress somebody put Singapore to today's foreseen.
Speaker Change: Five 3% year over year.
Speaker Change: You're correct.
Speaker Change: 4.6% quarter over quarter.
Milton Maluhy Filho: And in Latin America, there was a slight increase of 10 basis points in the quarter. This underscores that short-term delinquency is under control. The short-term NPL in Brazil remains stable in the individual's portfolio and had a slight growth of 10 basis points in the SME's portfolio in the quarter. For the large corporate portfolio, this is not the most appropriate indicator to monitor, as I always say, but non-performing loans are also well-behaved. After four quarters of stability, the long-term delinquency rate of the individual portfolio decreased by 50 basis points and ended the period at 4.4%, which we consider a sustainable level. The NPL-90 for SMEs and large corporates remains stable.
Speaker Change: The highlight in the fourth quarter was the strong growth in credit cards due to seasonality.
Speaker Change: We've posted major progress in advisory services and brokerage fees.
Speaker Change: Okay.
Speaker Change: For the rest of the mood for food.
Speaker Change: Sure.
Speaker Change: A lot of them.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Net inflows increased 70% quarter over quarter.
And seven 4% year over year.
Speaker Change: Okay.
Speaker Change: This result from all the work of the last few years.
Speaker Change: Shows that we are moving in the right direction.
The latest acceleration is very positive.
Speaker Change: Well.
Speaker Change: The transaction volume in the acquiring business grew 17, 5% year over year.
Speaker Change: While revenue was up 24% this performance reflects an appropriate product.
Has allowed us to increase revenue above the traded volume and insurance earned premiums increased 11, 2% in the year.
Milton Maluhy Filho: Generally speaking, we posted very strong credit indicators, with good developments and stabilization throughout the year, which is very good news for credit quality. Cost of credit reached R$ 9.2 billion this quarter, a nominal amount below the prior quarter. The indicator that measures the cost of credit over the portfolio decreased in the quarter from 3.2% to 3.1%. This was the second consecutive quarter in which there was a drop in the individual's portfolio NPL formation, which shows that the portfolio has reacted favorably. The cost of credit rose from R$32.3 billion in 2022 to R$36.9 billion in 2023, slightly above the best scenario in the guidance range, which was between R$36.5 and R$40.5 billion. There was a nominal drop in the renegotiated portfolio, which now accounts for 3.3% of the portfolio. This performance shows another good development and trend for the portfolio. There were no major highlights in the coverage indexes, which showed a slight increase in total coverage from 209% to 216%.
Speaker Change: Recurring income growing 19, 6% in the period.
Speaker Change: It is worth emphasizing that we've seen a significant growth over the last three years in this operation. Following this performance shows that both the course and strategy designed for this operation are being well executed absolute I mean in terms of credit quality, we draw attention to our short term delinquency rate, which is absolutely under control.
Speaker Change: And shown by stability, both in Brazil, and in Latin America. The long term delinquency rate measured by NPL 90 days decreased 20 basis points in Brazil and in total at this point, Tom I'll Circle.
Speaker Change: And in Latin America, there was a slight increase of 10 basis points in the quarter. It looks when we mark.
Speaker Change: This underscores that the short term delinquency is under control.
Speaker Change: Fast food British.
Speaker Change: Stop you're walking up yourself short term NPL in Brazil remained stable in the individuals portfolio basis points.
Speaker Change: And had a slight growth of 10 basis points in the Smes portfolio in the quarter, but I was just for the large corporate portfolio. This is not the most appropriate indicator to monitor as I always say, but nonperforming loans are also well behaved.
Speaker Change: Okay.
Speaker Change: After four quarters of stability the long term delinquency rate of the individual's portfolio decreased by 50 basis points.
Milton Maluhy Filho: We have a very well-provisioned portfolio, with an adequate level of coverage and sound, consistent results. OPECs, or non-interest expenses, as we call them, are normally under greater pressure in the fourth quarter. In Brazil, this line grew 8.5% year-over-year, and in Latin America excluding Brazil, it fell 4% in the period.
Speaker Change: And ended the period at four 4%, which we consider a sustainable level.
Speaker Change: You can imagine.
Speaker Change: Let me move to stop.
You walked through the NPL 90 for Smes and large corporates remains stable generally speaking, we posted very strong credit indicators.
Speaker Change: With good developments and stabilization throughout the year.
Milton Maluhy Filho: On a consolidated basis, non-interest expenses increased 4.1% quarter-over-quarter and 6.5% year-over-year. In the fourth quarter, we also recorded one-off investments, such as the remodeling of Itau's brand, which will put a little more pressure on this line in 2023. We've been keeping up with our financial discipline, which can be seen in the efficiency ratio trend, which has reached its best historical level. The efficiency ratio was 39.9% on a consolidated basis and 37.9% in Brazil, including all expenses.
Speaker Change: Which is very good news for credit quality.
Speaker Change: Yeah.
Speaker Change: Cost of credit reached $9 2 billion reality this quarter, a nominal amount below the prior quarter the indicator that measures the cost of credit over the portfolio decreased in the quarter from three 2% to three 1%. This was the second consecutive quarter in which there was a drop in the individuals portfolio NPL formation, which.
Speaker Change: Shows that the portfolio has reacted favorably.
Speaker Change: Cost of credit Rose from $32 3 billion realized in 2022 to $36 9 billion realized in 2023.
Speaker Change: Lightly above the best scenario in the guidance range, which was between $36 five and $40 5 billion reality.
Milton Maluhy Filho: This shows the major development, and we've achieved this by reducing core cost, which grew by 1.6% in a year, well below inflation for the period. This is a trend we plan to continue working. We continue to actively work and invest in the business and in the future of our operation. This includes key investments in new businesses and technology, which explains the increase in the year, disregarding Latin America in this analysis. The guidance range for non-interest expenses was between 4% and 8%, and we remained within it by recording growth of 6.5% in the year.
Speaker Change: There was a nominal drop and the renegotiated portfolio, which now accounts for three 3% of the portfolio.
Speaker Change: This performance shows another good development in trend for the portfolio, but there was no major highlight in the coverage indexes, which showed a slight increase in total coverage from 209% to 216% we have a very well provisioned portfolio with an adequate level of coverage and sound consistent results.
Speaker Change: Opex or non interest expenses as we call them are normally under greater pressure in the fourth quarter.
Speaker Change: But I can try that medical action and <unk>.
Speaker Change: Brazil. This line grew eight 5% year over year and in Latin America, excluding Brazil, It fell 4% in the period on.
Milton Maluhy Filho: We have good news on capital. We were able to expand our capital ratio for another quarter, ending December with 15.2% in the Tier 1 capital ratio, of which 13.7% at Common Equity Tier 1 and 1.5% at AT1. The last bar in this chart shows the pro-forma capital for December 2023, considering the dividends that we just announced last night. We have two key messages on this. The first is that we are reporting a material extraordinary dividend amounting to R$11 billion, which will be paid in March along with interest on capital of R$4.3 billion that has already been announced. Meaning there are 15.3 billion reales to be paid in March. This amount of interest on capital is already net of taxes.
Speaker Change: On a consolidated basis noninterest expenses increased four 1% quarter over quarter.
Speaker Change: And six 5% year over year.
Speaker Change: In the fourth quarter. We also recorded one off investments such as the remodeling of Vitaros brand, which put a little more pressure on this line in 2023.
Speaker Change: We've been keeping up with our financial discipline, which can be seen in the efficiency ratio trend, which has reached its best historical level.
Speaker Change: Of course at the Randall I'll keep the efficiency ratio was 39, 9% on a consolidated basis and 37, 9% in Brazil, including all expenses.
Speaker Change: This shows the major development.
Speaker Change: And we've achieved this by reducing core cornerstone, which grew by one 6% in the year, saying well below inflation for the period.
Milton Maluhy Filho: In 2023, we paid R$6.2 billion in interest on capital, also net of taxes. This totals the cash payment of R$21.5 billion in dividends and interest on capital for the year. Thus, the payout for the year was 60.3%.
Speaker Change: This is a trend we plan to continue working the Englishman. It's important we continue to actively work and invest in the business and in the future of our operation.
This includes key investments in new businesses and technologies, which explains the increase in the year Disregarding Latin America in this analysis.
Milton Maluhy Filho: Once this payment is made, the core capital ratio will be adjusted to 12.8%. There are some uncertainties ahead of us, and that is why capital management discipline is needed to conduct our business. Now let's move to the 2024 outlook, and I'll start by sharing our macroeconomic projections. We expect Brazilian GDP to grow 1.8% in 2024, the interest rate, Selic, to reach 9.0% at the end of the year, and inflation to be 3.6%.
Speaker Change: The guidance range for non interest expenses was between 4% and 8% and we remained within it by recording growth of six 5% in the year.
Speaker Change: We have good news on capital, we were able to expand our capital ratio for another quarter ending December was 15, 2% and tier one capital ratio of which 13.7% common equity tier one and 1.5% at 81. The last bar in this chart shows the pro forma capital for.
Milton Maluhy Filho: Unemployment should be slightly stable at 8%, and the exchange rate of 4.9 Brazilian reals to one US dollar should also be slightly stable. I now present to you our consolidated 2024 guidance, which is based on a growth expectation between 6.5% and 9.5% for the loan portfolio and growth between 4.5% and 7.5% for the NII with clients. It's worth noting that we also present the expected growth on a comparable basis, excluding the effect of the sale of the operation in Argentina in 2023. With this adjustment, the expected growth for the NII with clients is between 5.5% and 8.5% on a comparable basis. The financial margin with the market should be between 3 and 5 billion reals. Our expectation for the cost of credit between 33.5 and 36.5 billion reals in 2024 reflects a major decrease when compared to the cost of credit in 2023, which was 36.9 billion reals. Our worst-case estimate for the cost of credit in 2024 is already nominally below the cost of credit in 2023.
Speaker Change: Number 2023, considering the dividend that we've just announced last night.
Speaker Change: We have two key messages on this the first is that we are reporting material extraordinary dividend amounting to 11 billion reale, which will be paid in March along with interest on capital of $4 3 billion reality that has already been announced.
Speaker Change: Meaning there is $15 3 billion reals to be paid in March this amount of interest on capital is already net of taxes. In 2023, we paid $6 2 billion Reals and interest on capital also net of taxes for Basel. This totals the cash payment of $21 5 billion reals in dividend and interest.
Speaker Change: On capital in 2023, that's the payout for the year was 63%. Once this payment is made the core capital ratio will be adjusted to 12, 8%.
Speaker Change: What are your thoughts there.
Speaker Change: There are some uncertainties ahead of us and that is why capital management discipline is needed to conduct our business perspective Us brothers movie.
Speaker Change: I myself don't poke my view.
Speaker Change: Now, let's move to the 2020 for outlook and I'll start by sharing our macroeconomic projections, we expect the Brazilian GDP to grow one 8% in 2020 for the interest rate the leap to reach 9.0% at the end of the year and inflation three 6% unemployment should be slightly stable at 8% and the <unk>.
Milton Maluhy Filho: We tend to look for an even better result. Commissions and fees and results from insurance operations are expected to grow between 5% and 8% and between 5.5% and 8.5% on a comparable basis, with a pro forma adjustment from the sale of Banco Ita Argentina. Non-interest expenses are expected to grow between 4% and 7%, adjusted for the same effect on a comparable basis.
<unk> rate of $4 nine Brazilian reality to one U S. Dollar also slightly stable theater I now present to you. Our consolidated 2024 guidance, which is based on a growth expectation between six 5% and nine 5% for the loan portfolio and growth between four 5% and seven 5% for the NII with clients.
Milton Maluhy Filho: Growth is between 5% and 8%. The goal is for core cost to grow below inflation so that we can continue to invest in our operations. The tax rate is expected to be between 29.5% and 31.5%.
It's worth noting that we also present the expected growth on a comparable basis, excluding the effect of the sale of the operation in Argentina in 2023 with this adjustment the expected growth for the NII with clients is between five 5% and eight 5% on a comparable basis like crazy.
Milton Maluhy Filho: Our goal is to keep delivering ROE above 20%, and these figures reflect that goal. I'm very pleased with the earnings achieved in 2023, the course that the bank has followed, and the way we've mobilized, advanced, and invested in the business. Cultural transformation has had a very material impact.
Speaker Change: The financial margin with the market should be between three and 5 billion Reals our expectation for the cost of credit between 33, five and $36 5 billion Reals in 2024 reflects the major decrease when compared to the cost of credit in 2023, which was $36 9 billion reality, our worst case estimate.
Milton Maluhy Filho: Digital transformation has materialized in several of the figures we presented today. There are challenges ahead. No one is being complacent.
Speaker Change: For the cost of credit in 2024 is already nominally below the cost of credit in 2023, we tend to look for an even better result commissions and fees and results from insurance operations are expected to grow between 5% and 8% in between five 5% and eight 5% on a comparable basis with a pro forma adjustment from the sale of Banca <unk>.
Milton Maluhy Filho: On the contrary, we're very focused on delivering even stronger earnings in 2024, as shown in our guidance. Now I'll be joining Renato for our traditional Q&A session. See you in a little while.
Renato Lulia Jacob: And thank you very much, Milton. Thank you for the presentation. We will start the Q&A session now. And today, besides Milton, we have Roedel, our CFO. He's going to be here with us in the Q&A session. Remember that we have both languages. We will answer the question in English and Portuguese. You can always choose your audio of preference, English or Portuguese. You can submit your questions via WhatsApp.
Speaker Change: Noninterest expense is expected to grow between 4% and 7% as adjusted for the same effect on a comparable basis growth is between five and 8%. What the goal is core cost to grow below inflation. So that we can continue to invest in our operations. So the tax rate is expected to be between 29, 5% and 31, 5%.
Renato Lulia Jacob: Well, there is a long list of questions, Milton and Alexander. Shall we start? Yes. Good morning. First question we have on screen is from Renato Meloni, Autonomous. Renato, welcome to the Earnings Hall. Thank you for the first question. Thank you.
So for commercial objective.
Speaker Change: Kisses luminal stone, but our goal is to keep delivering ROE above 20% and these figures reflect that goal.
Speaker Change: No.
Renato Meloni: Thank you for the opportunity. First, in regards to the guidance, when you look at the interval that you're mentioning the growth and the portfolio of credit and the margin of clients, that might be a reduction, might imply a reduction, is that a real thing because there is an expectation of stabilization for 2024? And how should you, how are you looking at the dividends this year? If the growth in the portfolio goes to 9.5%, can we have a similar payout? Any additional comments are great.
Speaker Change: Uh huh.
Speaker Change: We're finished.
Speaker Change: I'm very pleased with the earnings achieved in 2023, the course that the bank has followed.
And the way, we've mobilized advanced and invested in the business.
Speaker Change: All the cultural transformation that has had a very material impact digital transformation has materialized in several of the figures. We presented today. There are challenges ahead no. One has been complacent on the contrary, we're very focused on delivering even stronger earnings in 2024 as shown in our guidance on all Q&A.
Milton Maluhy Filho: Thank you, Renato. Thank you, Renato. Good morning.
Milton Maluhy Filho: Thank you for the question. Let's clarify the guidance of the portfolio. First message, the portfolio in the guidance is, let's just say, the tip of the portfolio, and the margin is the one that we realized. That means that the average portfolio all throughout 2024, and their information is not in the guidance, it will be lower than the financial margin with the client. So we have to look at the average of the portfolio because that's the margin that you can see in the guidance. That's the first aspect. Second aspect.
Speaker Change: Thanks for calling Michael Mustang Stanford project.
Speaker Change: Now I'll be joining renato for our traditional Q&A session.
Speaker Change: First of all people coming from.
Speaker Change: See you in a little while and thank you very much.
Renato: Little better.
Renato: Got it thank.
Renato: Thank you for the presentation.
Speaker Change: We will start now the Q&A session.
Speaker Change: And today, we have besides Milton.
Milton Maluhy Filho: When we look at the records, we've been growing with a lot of quality, the margin, and it's important to look at the margin not only associated with the Argentina effect, which explains another percentage point of growth. So if we isolate it, we would grow seven percentage points on average. It's important to consider the cost of credit, which has a nominal reduction. That means that our financial margin net cost of credit will have an expansion, the portfolio growing, and the cost of credit dropping. And you asked about the NIN.
Speaker Change: He is our CFO he is going to be here with us.
Speaker Change: Q&A session.
Milton Malawi: For that we have both languages, we will answer.
Milton Malawi: A question in English and Portuguese.
Can always choose your audio of preference English or Portuguese.
Milton Malawi: Submit your questions via Whatsapp.
Milton Malawi: That's it.
Milton Malawi: Well.
Milton Malawi: Well there is a long list.
Speaker Change: <unk> Milton and Alexandre shall we start yes.
Alexandre: Good morning.
Speaker Change: First question, we have on screen Renato Maloney autonomous Renato welcome to the earnings call.
Milton Maluhy Filho: We are expecting, yes, stability throughout the year and adjusted to the risk. We understand that there is an opportunity for some adjustments through the credit cycle. That depends on the mix of the growth of the portfolio that you can see here. That is growing above the average payout of the portfolio in the period. The cost of credit is higher and adjusted by the Argentine effect, which grows by 7%.
Renato Maloney: Thank you for the first question. Thank you.
Renato Maloney: Yeah.
Renato Maloney: Good morning, Thank you for the opportunity.
Renato Maloney: First in regards to the guidance when you look at the interval that youre mentioning the growth and the portfolio of credit and a margin of clients that might be a reduction.
Renato Maloney: Mud, implying a reduction is dead.
Renato Maloney: A real Bang because the there is an expectation of.
Renato Maloney: The stabilization for 2020.
Milton Maluhy Filho: Very important to clarify the dividend. That is of interest to everyone. What was our decision? Let's turn back time.
Renato Maloney: And how should you.
Renato Maloney: Or how are you looking at the dividends and as here if the growth in the portfolio goes through.
Renato Maloney: 5% can we have a similar payout.
Milton Maluhy Filho: Way back when we reduced our appetite for risk management of the bank, we always talked about eleven and a half, that's the amount of the capital approved by the board, that's the appetite for set one for the management of the bank, and we said that twelve would be the observed level for the Policy of Dividends. Let me look ahead. There are some uncertainties or certainties that are calculated. For example, the cost of credit Basilea, operational credit Basilea 3, 2025, which might have an impact of 42 basis points. And there is a second aspect, the tax reform in Brazil. If we look at it, as it is in Congress, as if it were approved, as it was written, we would have to impairment the credit, because when we look at the corporate threshold, we would have to re-evaluate it on the balance sheet of the bank.
Speaker Change: Any additional comments are great. Thank her in Idaho.
Speaker Change: Thank you Renata.
Speaker Change: Good morning, and thank you for the question.
Speaker Change: Let's clarify the guidance of the portfolio first message.
Speaker Change: Portfolio of the guidance is.
Speaker Change: Let's just say the tip of the petroleum and the margin is the one that we've realized that means that the average portfolio. All throughout 2024 and that information is under the guidance that it will be lower than the financial margin with the clients. So we have to look at the average of the portfolio because that's the <unk>.
Speaker Change: Margin that you can see in the guidance that's the first aspect second extract.
Speaker Change: When we look at the records, we've been growing with a lot of quality the margin.
Milton Maluhy Filho: That re-evaluation, even the corporate threshold is evaluated; you reduce an asset, and then you have a capital effect. When you look ahead, the uncertainties, our capacity for growth, we are getting into a year that we expect to be benign, and any opportunity that might make sense through the cycle, we will grow. So considering the growth of the portfolio and considering what's up ahead, Baselayer, operational risk, credit risk, and considering the tax reform and uncertainties, our decision is to pay out the payout, which is added to what was already paid for 4.3 grants, which is the interest on capital in March, plus the extraordinary dividend. So a payout of 60%, we understand that it's adequate, we are distributing 21.5 billion reais between what was already paid and what will be paid in March. It's a very significant distribution, three times the dividends of 2022. What is our policy from now on? It's not to retain access, but that has to be very clear.
Speaker Change: It's important to look at the March not only associated with the Argentina effect, which explains another percentage point of growth. So isolating it would grow seven percentage points on average.
Speaker Change: It's important to consider the cost of credit which has a nominal reduction.
Speaker Change: Means that our financial margin net cost of credit will have an expansion.
Speaker Change: Australia, a growing cost of credit dropping.
Speaker Change: And you asked about the NII and we are expecting yes stability arthralgia and adjusted for the risk we understand that there is an opportunity for some adjustments through the credit cycle.
Speaker Change: Hands on the mix of the growth of the portfolio that you can see here.
Speaker Change: That is a growing above the average payout of the portfolio in the period the cost of credit is higher and adjusted by the Argentina effect growing by 7% very important to clarify the dividend.
Speaker Change: That is of interest of everyone what was our decision.
Milton Maluhy Filho: We will look at the uses throughout and the sources of 2023. How are we generating capital? The result and how we are applying it, whether it's inorganic organic opportunities, portfolio growth, and regulatory changes that are coming up ahead with tax reform. Looking from that standpoint, we will look at the next year, we will do the projections, and if there is an excess, our expectation, our decision is to distribute the capital excess. Don't look at that extraordinary dividend as an isolated event.
Turn back time.
Speaker Change: Way back when we reduced our appetite and the risk management of the bank, we always talks about 11 and a half that's the set of the capital Alger all approved.
Speaker Change: Approved at the board that the appetite for it said one for the management of the bank and we said that 12 with BD observed.
Speaker Change: For the policy of dividends.
Speaker Change: Let me look up ahead, there are some uncertainties or uncertainties that are calculated there.
Speaker Change: Cost of credit policy layer operate.
Milton Maluhy Filho: It's an important dividend, and looking ahead, we have to understand the excess. Well, not taking into consideration the effects that were already mentioned, we are going to continue to distribute an extraordinary dividend with more information and the results and the effects therein. Yes. Second question, Gustavo Schroder, Bradesco BDI. Welcome, Gustavo. Good morning, Bernardo, Milton, Bernardo.
Speaker Change: Operational credit policy layer, three took out about 25% that might have an impact of 42 basis points.
Speaker Change: And there is a second aspect.
Speaker Change: The tax reform of Brazil, if we look at it as it is in Congress as if it was approved as it was written we would have to do an impairment and the credit.
Speaker Change: Because when we look at the corporate.
Speaker Change: Threshold, we would have to reevaluate them into balance sheet of the bank that reevaluation, even the corporate threshold is.
Gustavo Schroden: Congratulations on the results. Not only of the quarter, but of the year. I wanted to talk about the guy then.
Speaker Change: Evaluated you reduce an asset and then you have a capital effect. When you look up ahead the uncertainty our capacity for growth we are getting.
Milton Maluhy Filho: And since Milton already gave us a soft guidance of an ROE above the minimum 20%, that would be the point that we have to start. It seems conservative to me on your side, so I wanted to discuss it with you.
Speaker Change: Getting into.
Speaker Change: Here that we expect to be benign and any opportunity that might make sense through the cycle, we will grow so considering the growth of the portfolio.
Milton Maluhy Filho: Can you go over, please, what should we expect from the guidance, the main lines. Where can we work?
Speaker Change: Considering what's up ahead bus layer operational risk credit risk and considering the tax reform and uncertainties our decision yesterday to pay out.
Milton Maluhy Filho: More as the higher threshold, the medium threshold, should we, well, on my side, we see the upside, relevant upside, NPDD, taking on the NPL trajectory that we've seen. But if you can just give us your two cents on those two lines, and can we work above or below the guidance, and can we assume that 20% that you indicated as the conservative ROE, I want to hear from you. Thank you, Gustavo. I hope that you're right.
Speaker Change: That has added to what was already paid for three grants, which is the interest on capital in March.
The extraordinary dividends.
Speaker Change: So a payout of 60% we understand that it's adequate we are distributing $21 5 billion reais between what was already paid in what will be paid in March it's a very relevant distribution three times the dividend of.
Speaker Change: 2020 true.
Speaker Change: What is our policy from now on it's not to retain the access that has to be very clear.
Milton Maluhy Filho: We're going to work so that you're correct. Well, the guidance in the end is our best estimate. We are coming from a budgetary procedure; we always have a temporary guide. Well, we have The average point of these lines; the medium is always a good reference.
Speaker Change: We'll look at the uses I'll throw out the sources of 2023, how are we generating capital the results and how we are applying it.
Speaker Change: Other effects inorganic organic opportunities portfolio growth and regulatory changes that are coming up ahead worthy tax reform.
Milton Maluhy Filho: If you look at the last quarter, we were running Brazil with 22.2% of ROE, very strong. Had we unloaded the dividends in the way that you're seeing them right now, the results would be 23.4 ROE for Brazil. The effect of the dividend generates a base effect that improves the ROE, reduces the net result of the bank because of the working capital, but it improves the relationship, and it makes the ROE better. So I believe that we have to look at the year for opportunities for growth in the portfolio. The average is reasonable.
Speaker Change: Looking from that standpoint, we will look at the next year, we will do with the protections and if there is an excess of our expectation or our decision extra distribute the capital.
Speaker Change: <unk> don't look at that extraordinary dividend as an isolated event, it's an important dividend and looking at the head we have to understand the excess.
Speaker Change: Well not taking into consideration the effects that are already as I mentioned, we're going to continue to distribute an extraordinary dividend with more information and the results and the effects thereof.
Speaker Change: Thank you Milton.
Speaker Change: Well.
Speaker Change: Oh, there was dividends yes.
Speaker Change: Second question.
Speaker Change: Both established Schroeder.
Milton Maluhy Filho: There is the exchange rate in Latin America, which is uncertain. So taking away that, there might be some opportunities for the growth of strong portfolio growth, depending on the scenario, the perspective, the credit cycle. So I believe that working above 20 is a great reference. We didn't give any guidance on ROE. We are working above 20. Can it be more than 20?
BVI: This call BVI welcome Gustavo.
Speaker Change: Neil.
Speaker Change: And Bernardo Milton.
Speaker Change: Either.
Speaker Change: Congratulations on the results.
Speaker Change: It's not only a quarter, but the year I wanted to talk about the guidance.
Speaker Change: And since Milton already gave us a soft guidance of an Roe.
Speaker Change: Above minimum 20%.
Speaker Change: That would be the point that we have just started.
Speaker Change: It seems conservative Jimmy on the art side. So I wanted to discuss with you can you go over please on what should we expect.
Milton Maluhy Filho: Of course. We're going to work to deliver adequate profitability given the scenario and the opportunities therein. The cost of credit, we've been very successful all throughout the cycle. You've followed the bank for many, many years. We had a difficult cycle.
Jimmy: Of the guidance the main lines, where can we work.
Jimmy: More as the higher threshold the medium threshold should we well on my side, we see the upside rather than outside in PDD.
Milton Maluhy Filho: Some portfolios suffer more. In our case, credit cards, a very relevant portfolio, $135 billion. The vehicles, very important, $33 billion. Those two portfolios, naturally, suffer more. Now, the good news is corroborate your vision with the cost of credit is that the vehicle portfolio fourth quarter consecutive that we have a reduction in the overdue fees and of 90 days. The number of credit cards is the third. In the case of natural persons, it is 50 pay, 6 points reduction.
Jimmy: Taking on the NPL trajectory that we've seen.
Speaker Change: If you can just give us.
Speaker Change: Your two cents on those two lines.
Speaker Change: And can we work above or below the guidance.
Speaker Change: Can we assume that 20% extra indicated as the conservative are way better when they trigger premier.
Thank you Gustavo I hope Youre right were going to work.
Gustavo: So you are correct the guidance.
It's our best estimate we are coming from a bunch of aerie.
Gustavo: Procedure, we always have a temporary.
Milton Maluhy Filho: In credit cards, it's basically doubled the reduction, with the nominal of the portfolios growing less. So it shows that the cost of credit is behaving. What does the guidance have?
Gustavo: Guidance, while we have.
Gustavo: The average point of these lines. The medium is always a good river reference if you look at the last quarter.
Milton Maluhy Filho: It has a level of uncertainty because we have a wholesale portfolio that is very relevant in Brazil and Latin America. You can imagine a normalization of the delays in wholesale. I've talked about this.
Gustavo: We're running Bristow with 22, 2% of Iowa, very strong and we unloaded the dividends and the way that you are seeing it right now the results would be $23 four <unk> of Brazil.
Milton Maluhy Filho: We expect that by 2023, we will have had a benign effect, except for the Americanas event in January. We had a portfolio with a cost of credit that was very well behaved, below the minimum thresholds on record when we look at the long-term cost of credit. Our expectation is that we can always have a normalization if that doesn't happen, and there isn't any case that really concerns us or that we do not have the adequate provision. We don't have that.
Gustavo: The effect of the dividend generates a basis in fact that improves the euro reduces the net result of the bank.
Gustavo: They're working capital, but it improves their relationship and it makes the ROE better.
Gustavo: So I believe that we have to look at the year for the opportunities for growth of portfolio.
Gustavo: The average is reasonable there is the exchange rate in Latin America, which is uncertain so taking away that.
Gustavo: There might be some opportunities for the growth of strong portfolio growth, depending on the scenario of the prospect of the credit cycle.
Mario Lucio Pierry: But we might consume some thresholds of the guidance, but the cost of credit is positive. They are well calibrated, and the costs depend on us. Where I think that we're going to have to follow up is the portfolio, the margin, and the cost of credit, depending on the events that are discussed. And we're going to update you also throughout the next quarters. And I am hopeful that you're right; we will work to deliver an ROE better than 20%. Thank you, Milton. Well, let's. Now we have Mario Pierry, from Bank of America. Hi. Good morning, everyone.
Gustavo: I believe that working above 20 is a great reference we didn't gave.
Gustavo: Guidance of ROE.
Gustavo: We're working above 'twenty can you be more than 20 of course.
Gustavo: We're going to work to deliver adequate profitability, given the scenario and the opportunities therein.
Gustavo: Cost of credit we've been very successful Arthur Arthur cycle, you've followed the bank for many many years, we had a difficult cycle sub portfolios. So far more than our case credit card very relevant portfolio of 135 billion.
Milton Maluhy Filho: Congratulations on the result. Thank you for taking my question. Milton, I wanted to understand your guidance on the growth of credit. Can you give us a breakdown?
Gustavo: The vehicles are very important as 33 billion.
Gustavo: The healthcare portfolio is naturally they suffered more now the good news is corroborating our vision with a cost of credit is that the vehicle portfolio fourth quarter consecutive that we have a reduction in the.
Milton Maluhy Filho: What are the lines that you expect a higher cost? Because when you look, when you see, well, the macroeconomic scenario is positive. The bank has great capital, and the growth, nonetheless, seems timid. You're talking about a nominal growth of the GDP of five and a half, six percent. A portfolio growing eight seems a bit shy. I wanted to understand, how do you see, the product itself. Thank you, Mario.
Gustavo: Overdue fees end of 90 days.
Gustavo: Credit cards.
Gustavo: The third Andy natural persons.
Gustavo: Is 50 basis points reduction in credit cards, it's basically the double.
Gustavo: <unk> doubled our reduction where the nominal of the portfolio is growing less so it shows that the cost of credit is behaving what does the guidance have it has a level of uncertainty because we have the.
Milton Maluhy Filho: Beforehand, thank you for the question. Thank you for being with us today. And I wanted to tell you when we look at the portfolio, I'm going to do a deep dive. We hope that the companies, whether it's retail or the big companies, they will grow above the average point that you observe. So they carry that over. The natural persons, they grow less in that relationship, on average, of the GDP.
Gustavo: The portfolio of wholesale that is very relevant in Brazil, and Latin America.
Gustavo: You can imagine.
Gustavo: Normalization of the delays of the wholesale I've talked about is we expect that by 2023, we had a benign effect, except the americanas event in January we had a portfolio where the cost of credit it was very well behaved below the minimum thresholds on records. When we look at the long term cost of credit.
Milton Maluhy Filho: And there is a relationship there; we expand, we will expand in the products that make sense in the target segments we are growing above two digits. But here, there is a double effect. First effect, the personal portfolio, there is a renegotiation drop, which is good for the overall balance of the cost of credit, but it's a natural offender on the balance sheet. And the second effect is that when we look at the portfolios, we have the decision to reduce nominally some portfolios, important reductions that save About 200 points of delays in the over 90 delay. So if we kept the same mix of growth that we had in the pandemic, we would be running in a natural person at something about 6.4, 6.5 of delay, 200 points above.
Gustavo: Our expectation is that we can always have a normalization if that doesn't happen. Then there is in any case that really concerns us or that we do not have the adequate provision we don't have that but.
Gustavo: But we might consume some thresholds of the guidance, but the cost of credit is positive the other lines.
Gustavo: They are well calibrated and of course dependent on us.
Gustavo: Where I think that we are franchise true follow up as the portfolio of the margin and the cost of credit spending R&D events that I commented and we're going to update you all throughout the next quarters and I am hopeful that you are right. We will work to deliver on our ROE better than 20%. Thank you Milton.
Milton Malawi: Well, let's see.
Mario P: Now we have Mario P entity My Bank of America Hi.
Mario P: Good morning, everyone.
Milton Maluhy Filho: So when you look, you have opportunities for growth; the portfolio of real estate has grown a lot in the pandemic with low interest rates and high demand; with higher interest rates, we see that there is less demand, even though we are keeping a good market share of production, a nominal drop. So we see INSS, and there is pressure, and we have the caps that we already mentioned. So it seems that there are some effects that are against, like payroll loans, but some that are positive. In credit cards, we have a de-risking of the portfolio, and we are growing strongly in the target segments of the bank. In real estate, we can see a deceleration. In the last quarter, we can see a deceleration of personal credit that is very specific. The reduction of the starting salary. Well, that happens.
Mario P: Congratulations on the result, thank you for taking my question Milton I wanted to understand your guidance of the growth of credit.
Mario P: Can you give us a breakdown.
Mario P: The lines that you expect a higher cost because when you look when you see the macroeconomic scenario is positive.
Speaker Change: The bank has a great capital and the growth Nonetheless seems tenet.
Speaker Change: You are talking about a nominal growth of the GDP five and a half 6%.
Speaker Change: Our portfolio growing eight themes.
Speaker Change: Shai.
Speaker Change: I wanted to understand how do you see.
Speaker Change: The product itself.
Speaker Change: Out here.
Speaker Change: Farhan. Thank you for the question.
Farhan: For being with us today.
Farhan: I wanted to tell you when we look at the portfolio I'm going to do a deep dive, we hope that the company's weather.
Farhan: Retail or the big companies they will grow above the average point that you observe so they.
The carryover that the natural parts as they grow less in that relationship.
Milton Maluhy Filho: And there is the effect of the renegotiation portfolio, which tends to continue to drop. That is the overall effect of the mix. There is a capital markets effect. We expect good growth. We are depending on capital markets that are more active. If they're more active, we're going to give preference to those capital markets. This is the cheapest financing of the great corporations, and we lead this market. So we have cross-selling, and it generates engagement with the clients. And there is an effect which is difficult to predict, which is Latin America, which is the exchange rate devaluation in these numbers, which can change all throughout the cycle.
Farhan: And the average equity to be and there is a relationship there we expand we will expand into products that makes sense in the target segments that we are growing above two digits, but here there is a double effect first effect.
Farhan: Natural persons portfolio. There is a renegotiation drop which is good for the overall balance of higher cost of credit, but it is a natural sensor of D.
Farhan: Balance sheet.
Farhan: With respect that when we look at the portfolios, we have the decision of reducing nominally some portfolios important reduction.
Saved.
Farhan: Our 200 points of delays in the over 90 delay if we kept the same mix.
Farhan: The growth we've had an epidemic we would be running at a natural person.
Milton Maluhy Filho: So, breaking down the portfolios, we are very comfortable with the mix that we are going to grow. And if there is an opportunity to grow, we will grow more. And you can see that the NIN has a stability expanding and the risk adjusted line above all, and it shows growth above the average, and it shows the cost of credit nominally dropping, which has a net financial margin that is improving out throughout the year. We are very comfortable with that level of growth.
Farhan: Something about $6 $4 $6 five.
Farhan: <unk> hundred points above.
Farhan: So when you look you'll have the opportunity of growth.
Farhan: <unk> portfolio of real estate has grown a lot and Andy pandemic with low interest rates high demand.
Farhan: With higher interest rates, we see that our Sos demand, even though we're keeping good market share of production the nominal dropped.
Farhan: So we see <unk> and there is a pressure and.
Farhan: We have the caps that we already mentioned so it seems.
Farhan: There are some effects that play out against like payroll payroll loans, but some sort of positive.
Milton Maluhy Filho: And if we have an opportunity, then we are going to seize those opportunities. We are very focused on serving our good clients and continuing with the engagement and customer centricity and the NPSs that are the highest levels of the bank. Thank you, Milton. Next one. We have here.
Farhan: Credit card. So we have a derisking of the portfolio and we are growing strongly in the target segments, our tobacco and real estate, we can see a deceleration.
Farhan: In the last quarter, we can see a deceleration of the personal credit that is very specific.
Farhan: Specific the reduction of the 13th salary well that happens and there is the effect of the renegotiation portfolio, which tends through continued to drop.
Rafael Berger Frade: Rafael Frade from Citibank. Good morning. Thank you for taking my question. I'm doing a follow-up on two points. First, the NIN, making it very clear that we expect stability in the NIN. But all throughout the last few years, you always said that the liabilities margin was an important contributor to the improvement of the NIN and maybe less for 24, but the effect all throughout 24 is that more of a detractor thinking for the end of 24 and for 25. And the second question is a follow-up on the issue of the cost of risk. I think it's very clear the guidance accommodates fluctuations, but we wanted to understand more about retail. When we see the fourth quarter, NPL formations are at the level of 2019-18.
Farhan: That is the overall of the mix there is capital markets' effect, we expect a good growth.
Farhan: Depending on the capital markets that are more active if they're more active recruiting to gift the preference for the capital markets. This is the cheapest financing of the great corporations and we lead this market. So we have the cross sell and it generates engagement with our clients.
Farhan: There is an effect, which is difficult to predict which is Latin America, which is the.
Farhan: The exchange rate devaluation in these numbers.
Farhan: With it and our numbers can change authorized the cycles, so breaking down the portfolios. We are very comfortable with the mix that we are going to grow and if there is an opportunity to grow we are going to grow more and you can see that eni has a stability expanding and the risk adjuster line above all and it shows growth above the <unk>.
Milton Maluhy Filho: But you commented at the beginning that you have an important shift in the portfolio, and it seems that this is a safer portfolio than 18-19. So, specifically in retail, can we see an NPL formation for 2024 maybe below what was the official record? Thank you. Thank you, Rafael. Pleasure to see you again.
Farhan: Rich.
Farhan: And it shows the cost of credit nominally dropping which has a net financial margin that is improving I'll throw out the year, we're very comfortable with that level of growth.
Farhan: And if we have an opportunity then we are going to seize those opportunities and we are very focused through service alright, good clients and continue with the engagement and customer Centricity and the NPS is that are the highest levels of the bank. Thank you Milton.
Milton Maluhy Filho: Let me start by saying D.N.I.N. My abilities are core to us, and we managed to grow in an important way. You can see the net cap grew 70% over the last quarter. We do not talk about the absolute numbers, but these are strong numbers, I can assure you. Therefore, there is always the interest rate effect, but the volume as well. Combination of both generates an effect on the NIN.
Farhan: Right.
Speaker Change: Next one.
Speaker Change: And we have here.
Rafael: Rafael <unk> from Citibank.
Rafael: Morning.
Rafael: Hello, and thank you for taking my question.
Rafael: Turning to follow up on two points first DNA.
Rafael: Making it very clear that we expect in the stability and the NAF, but I'll throw out the last few years, you always said that the liabilities margin has an important contributor for the improvement in <unk> and maybe last for 24 by the effect of throughout 'twenty four.
Milton Maluhy Filho: When you look at the margin for this quarter, the volumes are very relevant. Second, for the financial margin for the clients, we do the hedge, whether it's working capital or liability. We do the hedges with longer vertices, so it shows that in a longer cycle, for better or for worse, we have better stability in remuneration.
Rafael: Is that more of a detractor and thinking for the end of 2004 and 425%.
Rafael: And second question is a follow up on the issue of cost of risk.
Rafael: I think it's very clear the guidance accommodates fluctuations, but we wanted to understand more on the retail when we see the fourth quarter, a fourth fourth quarter NPL formation.
Milton Maluhy Filho: There is a reduction in the margin. We can see the margin of the working capital reducing, but there is an increase in payments, and the liabilities have been growing significantly. And there is demand for the bank's products, which increases this effect. So we believe that 2024 will be a great year for volumes, from the application and the heads of the bank. They tend to be less sensible to the effects of the SELIC rate, and that highlights what I've mentioned.
Rafael: <unk> 2000, 1918th.
Rafael: You commented at the beginning that you have an important and shifting can always impact. This is a safer portfolio than 18 19. So specifically in retail can we see an NPL formation for 24, maybe.
Rafael: Low what was the official records. Thank you.
Thank you Rafael.
Rafael: Pleasure to see you again, let.
Speaker Change: Let me start by DNA and liabilities is core for us.
Milton Maluhy Filho: We've seen some reports that said that our line is very sensitive to the interest rate. This is another proof, seeing the cycle as it is, that our NIN is very stable regardless because we can work with both sides of the equation. The interest rates tend to drop, but they will stabilize at a threshold of nine. We're not going to see a drop in interest rates as we saw way back when, and that is sustainable, and it opens up the growth of the portfolio that compensates at the other end with volumes and growth of assets. So we consider that NIN is stable, regardless of the pressure of the viabilities and the volume, which compensates for the effects of interest rates.
And we managed to grow an unimportant.
Rafael: I can see the net cap grew 70% over the last quarter, we do not talk about the absolute numbers, but these are strong numbers I can assure you.
Rafael: Therefore, there is always the interest rate effect by the volume as well combination of both generates an effect on DNA and when you look at the margin of this quarter. The volumes are very relevant second aspect critical for the financial margin with the clients, we do not hedge whether it's working capital or liabilities.
Rafael: We do the hedges with longer for disease. So I chose that in a longer cycle for better for worse, we have a long better stability and remuneration. There is a reduction in the margin. We can see the margin of the working capital reduction, reducing but there is the.
Milton Maluhy Filho: And this shows that our investment strategy and the review of the offerings and platforms have been very successful. We have an NPS that is measured by an external auditing company that does all the measuring. And we are the best when we compare with the main competition, and we continue to advance naturally to have a better offering in regards to the platforms. The new platform is called Investment. The positive news is that in terms of investment, this was our best year in terms of the relationship with the platform. We had some months of positive capture in regards to some of these players, and we ended up delivering a nominal net cap above what was published by the competition, and it shows that we're doing our homework. This is very important.
Rafael: The increase of the pay of the pace.
Rafael: Andy liabilities have been growing importantly, and there is the demand for the banks products, which increased this effect. So we believe that 2024, we're going to have a great year for volumes the rates.
Rafael: The application under hedge Ulster Bank.
Rafael: <unk> license about through the effects of the Selic rate and then highlights what I mentioned, we've seen some reports.
Rafael: <unk> said that our line is very sensitive to the interest rate. This is another improve seeing the cycle as it is that our NII is very stable, regardless, because we can work with both sides of the equation.
Milton Maluhy Filho: The second aspect of the delay, the delinquency, well, there are better portfolios that are being produced off of the FECO; we see a nominal delay above 90 that is below what we saw in the pre-pandemic period. We continue to be positive. We expected the NPL creation to tend to have, well, stability really looking up ahead. It is a reduction in the two consecutive quarters, so there is a drop in the formation of new natural persons, and we believe that this is a great trend.
Rafael: Interest rates, they tend to drop off but they will stabilize at.
Rafael: Threshold of nine we were not going to see a drop of interest rates as we've seen way back when and that is sustainable and it opens up the growth of our portfolio, they're compensated at the other end with volumes and growth of assets.
Rafael: So we consider that NII is stable.
Rafael: Most of the pressure of the viability and the volume.
Rafael: Compensate the effects of the interest rates and this shows that our investment strategy and a review of the operating and platforms are very was successful. We are in NPS that is measured by an external auditing company that has all been mentioning.
Milton Maluhy Filho: Of course, more access to write-off within the regulatory rules that have to do with the portfolio that was made in the previous periods, and with the renegotiations, we have a balance. And with the renegotiation with the quarters, we see the effects of the write-off. So, yes, we see the formation that is very positive. And the cost of credit that is nominal for retail is reducing step by step.
Rafael: Other than monitoring and it's where the vast when we compare with the main competition.
Rafael: And we continue to advance naturally you'll have a better offering in regards to the platforms.
Rafael: The new platform as sort of investment they are positive news.
Milton Maluhy Filho: And this is great news with the portfolio growing and the margin expanding. So, overall, we can deliver an NIN that is very positive with an expansion in the risk-adjusted line, which is what we have done consecutively over the last quarter. Thank you, Milpen. Next question. From Thiago Batista, UBS.
Rafael: In investments this was our best year with the relationship with the platform. We had some months of positive capture in regards to some of these players and we end up delivering nominal net capital above what was.
Rafael: Published by the competition.
Rafael: It shows that we're doing our homework.
Rafael: This is very important.
Rafael: The second aspect of the cause of the delay their delinquency well there is.
Thiago Bovolenta Batista: Welcome. Good morning to everyone. My question is about efficiency. When we look at bank sufficiency, Milton commented that you are the 40% historical minimum, a good number when you compare it to the bank itself or other banks, but it's still above some digital banks or, you know, traditional banks. Banart is not the same bank, but in Mexico, they operate with a lot with better efficiency. Is it possible to maybe drop from 40 and get to 35%, or not, or 40% is the absolute bottom? And if you'll allow me a second question, the credit card. We see that the level of the payments from Itau increased in 2023. So we had 81%, 85%, and one lump sum payment. When we look at the central bank, that trend didn't happen. Well, the data of the central bank. How? Well, what is the difference? Why is it happening?
Rafael: Bad or portfolios that are being produced all throughout the cycle, we see a nominal.
Above 90% that is below what we saw in the pre pandemic. We continue to be positive we expect that the NPL creation.
Rafael: We'll tend to have.
Rafael: Well stability really looking ahead, we see.
Rafael: See in the natural question is there is a reduction in the two consecutive quarters that there is a drop in information into natural person. We believe that this is a great trend of course more access for write offs within the regulatory rules that has to weigh the portfolio that was.
Rafael: <unk> made in the previous.
Rafael: Periods and we are in negotiations, we have a balanced and with the renegotiation with the quarters, we see the FX Sanjay write offs. So yes, we see the formation that is very positive and the cost of credit that are nominal for the retail are reducing semi fab and this is great news worthy portfolio growing in the margin expanding so on.
Rafael: Overall, we can deliver.
Rafael: There is very positive with an expansion and the risk adjuster line, which is what we are doing consecutively over the last quarters.
Milton Maluhy Filho: Higher income makes a better product. Can you tell us more? Okay, let me start with the second point. Thank you, Thiago, for your presence.
And can we open.
Speaker Change: The next question.
Thiago Batista: From Thiago Batista UBS.
Welcome.
Thiago Batista: Good morning to everyone. My question is about efficiency.
Milton Maluhy Filho: Credit cards. The explanation is mixed. In the end, when you look at our non-financed portfolio, it is higher than the portfolio of the market in the last quarter. We have 34% of the non-financed portfolio. So this is a very relevant number.
Thiago Batista: When we look at the bank's efficiency Milton commented that you are the 40% historical minimum good number when you compare to the bank itself or other banks, but are still above some digital banks or.
Thiago Batista: Traditional banks as well, but not it's not the same but in Mexico, they operate with lower with better efficiency.
Milton Maluhy Filho: I always say the effects of the interest rates on our 135 billion reais credit card portfolio; 115 billion are non-interest, so 20 billion is the financed portfolio. In the last quarter, the last month, there is a seasonal effect with more purchasing and more volume.
Thiago Batista: It's possible to maybe drop from 40 and get your 35% or not or 40% is the absolute bottom and if you'll allow me a second question.
Thiago Batista: The credit card.
Thiago Batista: We see that the level of.
Milton Maluhy Filho: So there's a trend of an increase in one lump sum and in the installment and non-interest, depending on the profile of purchasing of the population. The main explanation is mixed, and there is the de-risking in the portfolio, of course. Since we reduced relevantly the segments of high risk that were destroying value for the shareholders, then we rebalanced the portfolio with more focus on the mixes that are more sustainable in the long-term. And we don't look at credit cards as an isolated product. We look at it as a global relationship with the client, taking away those products that you're a monoliner, an open ocean, but at the bank, we have a relationship with the clients, and we've been growing accordingly. And the fact that our portfolio is more affluent than the average of the market. So it takes our non-interest in regards to the interest to a higher threshold. We should see a normalization. There is a reduction in the propensity, of course, depending on the profile.
Thiago Batista: The payments without increased in 2023, so we had 81% 85% one lump sum payments when we look at the central bank that trend didn't happen.
Thiago Batista: While the data of the Central Bank.
Speaker Change: Well what is the difference why is that happening.
Speaker Change: Here income mix of product can you tell us mark okay.
Mark: Okay, Let me start by the second point.
Speaker Change: Thank you Thiago for your presence.
Mark: Credit cards, the explanation is mix.
Mark: And again when you look at our non financed portfolio is higher than the portfolio of the mark to market in the last quarter, we have 34% of not financed portfolio. So this is a very relevant number.
Mark: Third the effects of the interest rates of our 175 billion Reais of credit card portfolio 115 versus 115 billion our non interest.
Mark: So 20 billion financed portfolio.
Mark: Last quarter.
Mark: There is a seasonal effect with more purchasing in more volume. So there is a trend of an increase in one lump sum and India installment and non interest depending on the profile of purchasing of the population. The main explanation is mixed.
Milton Maluhy Filho: And once propensity comes back, the finance portfolio will grow more in regards to the non-interest because of the seasonality of the last quarter. Efficiency. I'm going to give the floor to Bruno, but I just wanted to make some relevant comments, in general, that we have to look at the bank in the mix. So when we look at the efficiency level of the bank, we are looking at the consolidated. We have a lot of businesses here, and we have efficiency levels when we look at the operation. When you look at wholesale, you see some numbers. When you go to retail, you look at others, and there is deconsolidated LATAM without LATAM, just Brazil.
Mark: And there is the derisking of the portfolio of course since we reduced relevantly the segments of high risks that were destroyed destroying the value for the shareholders. Then we rebalanced our portfolio with more focus and a mix.
Mark: Mixes that are more sustainable in the long term and we don't look at credit card.
Mark: As a product isolated we look at it in a global relationship with a client taking away that those products.
Mark: Mono liner open ocean right Andy.
Mark: Bank, we have a relationship with the clients and we've been growing rather than lease and the fact that our portfolio is more affluent than the average aftermarket. So it takes our noninterest in regards to the interest to a higher threshold.
Milton Maluhy Filho: We are running 37 percent, 37.9 percent in the picture. It shows that in Brazil, we are falling. Relevant, well, directionally, the path has to be efficient. There is no doubt in regards to that. We've made a series of movements in that direction. This has happened for some years, and it has to do with our DNA and culture.
Mark: We should see a normalization there is a reduction in the propensity of course, depending on the.
Mark: Profile and once they once perfect.
Mark: Perfect critical the finance portfolio will grow more in regards to the noninterest because of the seasonality of the last quarter efficiency I am going to give the floor to Bernardo, but I just wanted to make some relevant comments general first.
Milton Maluhy Filho: But there is a space for a deeper dive and a cost. The efficiency level, well, it can get you 30, 35 percent, whatever the threshold is. It's important to say that when you reduce and you become more efficient, part of the efficiency goes to the price. So, imagine that the efficiency level just drops. It's not true because it becomes more efficient, and then you become more competitive, and therefore, that equation of revenue and cost is what we work out in a relevant way in the bank. Our efficiency level is benchmarked globally for a bank of our size. It's a benchmark, a global benchmark, but we have a series of initiatives that we're working to separate. What are the events of wholesale, what is retail, and the investment in technology that we've done? Digitalization naturally goes through all that. The core costs are dropping, growing less in inflation.
Bernardo: So we have to look at the bank in the mix.
Bernardo: So looking at the efficiency level of the bank. We are looking at the consolidated we have.
Bernardo: A lot of businesses here and we have efficiency levels. When we look at the operation. When you look at wholesale Youll see some numbers. When you go to retail if you look at others and there is the consolidated Latam without Congress just first of all we're running 37% 37, 9% in the picture it shows that in Brazil.
Bernardo: We are reducing relevant.
Directionally the path is to be efficient there is no doubt in regards to that we've done a series of movement in that direction.
Bernardo: This has happened for some years and as I alluded to with our DNA and culture.
Bernardo: There is a space for a deeper dive into costs the efficiency level well you can get your 30% to 35% whatever the threshold is.
Bernardo: It's important to say that when you reduce in Europe become more efficient part of the efficiency goes to the price.
Bernardo: I mentioned that the efficiency level, just drops is not true because it becomes more efficient and then you'll become more competitive and therefore that equation of revenue and cost is that what we werent in a relevant way into bank our efficiency level is benchmark in a global.
Milton Maluhy Filho: And that's a trend that will grow less in inflation, knowing that we have an inertia that is very strong, which is a payroll in respect of the collective bargaining agreements higher than the inflation measured by IPCA. Just looking at IPCA, it doesn't translate the banking inflation that is at a higher threshold. Berto, would you like to highlight some of the points that we've been working on? That would be nice.
Bernardo: Of a bank of our size is a benchmark global benchmark well, we have a series of initiatives that we're working to separate.
Bernardo: What are the events of the wholesale what is retail and the investment in the technology that we've done that digitalization naturally goes through all of that.
Milton Maluhy Filho: Thank you, Milton. Yes, we have a concern here, as Milton has mentioned, of looking at an efficiency program that generates effects over the long term, and these are consistent results. We don't want those efficiency levels to be a volatile indicator. We have periods of gains and some periods of losses and some periods. And that's the up and down effect, as we say, if we have a variation. But we don't want that.
Bernardo: Core costs are dropping growing less than the inflation index, a trend, but it will grow less than the inflation knowing that we have and nurture that is very strong which is the payroll in regards to the collective bargaining agreement higher than inflation measured by MPC I, just looking at IPC. It doesn't translate the banking inflation there.
Bernardo: As a higher threshold Britta would you like to highlight some of the points that we've been working that would be nice.
Milton Maluhy Filho: We want gains that are consistent, gains that are recurrent. That point that Milton mentioned, the efficiency is it doesn't depend just on it's not an index. It depends on the mix of business that the bank works with. Structurally, the bank has efficiency indices that are different. Do we have a program that involves a thousand or so initiatives? We have automation, cost reduction, digital processing, migration to the cloud, amongst other initiatives. The important thing is that this is a program from all the organizations. Well, we have an important control of the budget as well, so that the initiatives that we implemented are not, the economies are not eventually used, and more important, which I believe is the relationship between good cost management and efficiency. You can see that the guidance we are not, we're not, not doing the investments that we consider are important to reach a certain level of cost or efficiency. Why am I saying that?
Britta: Thank you Milton Yes, we have a concern here as Milton has mentioned of looking at an efficiency program that generates effects under long term and these are consistent results.
Britta: We don't want those efficiency levels to be in a volatile indicator.
Britta: Have periods of gains in some periods losses in some periods and thats the up and down. The fact is we say if we have a variation, but we don't want that we want gains that are consistent gains at our recurrent that point that Milton mentioned the efficiency is it doesn't depend just it.
Britta: Not an index and it depends on the mix of business that the bank works with structurally the bank has efficiency indices that are different that we have a program that involves 1000 over 1000 initiatives, we have automation re cost reduction.
Britta: Digital processing migration to the cloud.
Britta: Other initiatives. The important thing is that this is a.
Milton Maluhy Filho: Because sometimes important investments, because of an accounting issue, they have costs that come earlier. You have the amortization of the investments in technology as well. So our discipline here is that the program is to be consistent all the time. We don't give specific guidance on efficiency, but we want to have, you know, efficiency that is levels that are sustainable, that are reachable, and they can continue throughout time, keeping the modernization of our platforms, and a higher focus on the client, client centricity, all these initiatives, Thiago, are inserted in the context of management of the bank as a whole It's not an objective that is independent.
Britta: Our program from all the organization there is no silver bullet all the initiatives are implemented and followed up.
Britta: We have an important and controls the budget as well so that the initiatives that we implemented they are not the economies are not eventually used.
Britta: And more important.
Britta: Which I believe is the relationship between the good management of cost and efficiency.
Britta: You can see that the guidance we are not.
Britta: We're not not doing the investments that we considered that are important to reach a certain level of cost where efficiency why am I, saying that.
Britta: Sometimes the important investment because of an accounting issue they have costs that come earlier.
Britta: Have the amortization of the investments in technology as well so our discipline here is that this is a program is to be consistent off at all times, we don't give a specific guidance.
Milton Maluhy Filho: Having said that, we believe and imagine that there are important opportunities for improvement all throughout time. Thank you, Alexander and Milton. Next question. We have Bernardo Guttmann from XP. Thank you, Bernardo. Well, good morning, Alexsandro, and Milton.
Britta: Of efficiency, but we want to have.
Britta: Efficiency levels that are sustainable that are reachable and dirty continue throughout time, keeping the modernization of our platforms.
Bernardo Guttmann: Thank you for the opportunity. I wanted to understand better the strategy for the composition of the funding of the bank in the last quarters. You've had an improvement in the participation of exempt instruments, and with the new regulation, these instruments should be more restricted for issuance. What is the reading of Itau about the impacts on the system? Looking at the businesses of wholesale and retail, what is the market stock that you estimate as well for these instruments post the changes? Thanks.
Britta: And a higher focus on the client client Centricity all of these initiatives and the efficiency level Cabo is inserted in the context of management of the bank as a whole. It is not an objective that is independent having said that we believe and imagine that there there are important opportune.
Britta: So our improvement Altra and thank you Alexander Hamilton.
Speaker Change: Next question.
Speaker Change: We have better narrow douglass from XP.
Speaker Change: When you think about it that well good morning, Alexander Hamilton.
Milton Maluhy Filho: Thank you, Bernardo. This is a new issue. Of course, naturally, the resolution was published last week.
Alexander Hamilton: Thank you for the opportunity.
Speaker Change: I wanted to understand better the strategy for the composition of the funding of the bank over the last quarters, you have had an improvement in the participation of.
Milton Maluhy Filho: We are naturally going over the details. What I can anticipate is, without a doubt, the EXEMPT instruments have a part to play in the funding of the system as a whole. They are growing up all the time.
Speaker Change: Exempt instruments and with the new regulation these instruments should be more restricted for issuance.
Milton Maluhy Filho: There is a creation of LIG, which brings you the double backing of the LIG and LCI, which you could use for the EXEMPT in the interest. They are 15% of our capture. They are important, but they're limited to 15% of all the capturing volume that we have. And in that change, recent change, basically two thirds of our capture volume were not affected. So we are talking about a reduced impact. Let's say four and a half percent of the total funding of the bank. These are the material things, and it doesn't mean that the resources are leaving. There is a natural migration of resources.
Speaker Change: The reading of it out about the impacts where the system.
Speaker Change: King and the businesses of wholesale and retail what is the market stopped that use estimate as well and these instruments post the changes thanks.
Speaker Change: Thank you Bernardo.
Speaker Change: Is a new issue of course naturally the resolution was published.
Speaker Change: Last week.
Speaker Change: Naturally going over the details, but I can anticipate is without a doubt.
Speaker Change: Exempt instruments have a participation in the funding of the system as a whole they are growing up at other time. There is a creation of league, which brought in you had the double backing of the lag in our LCI, which you can use the <unk>.
Speaker Change: In the.
Speaker Change: Interest.
Speaker Change: They are 50% of our capture they are important but they are limited to 15% of all the capturing volume that we have.
Milton Maluhy Filho: When you do not have the exemption from income tax, you do not offer new products, and this is a systemic overview. The system as a whole goes through this. But given the level of relationships with our clients and the capacity for the generation of backing, we don't see the impact of the bank's cost of capture. This is immaterial, and we will substitute with instruments of CDB and banking letters, other instruments that make more sense for the investor and that are going to have some impact on our cost of capture, but it's immaterial. So I believe that for the system, it's difficult to do an assessment.
Speaker Change: And in that change recent change basically two thirds of our capture we're not.
Speaker Change: Factor. So we are talking about are reduced.
Speaker Change: Okay.
Speaker Change: The impact so we are talking about 45% of the total funding at the bank. These are the materiality and it doesn't mean that the resources are.
Speaker Change: Ill leave it there is a natural migration of resources. When you do not have the exempt from the income tax that you do not offer new products and that is a systemic overview the system as a whole goes through that but given the level of the relationship with our clients and the capital capacity for generation of backing we don't see the impact in our cost of capture of the bank.
Milton Maluhy Filho: There is the mapping being done. There is a global level to see what the level of impact is because it depends on the generation of coverage, and the profile of business of each institution. In the event of the capturing of each institution, 50% in our case, we can see another case of less or more. It's very difficult to do an assessment of the market. It's very difficult.
Speaker Change: This is immaterial and we will.
Speaker Change: Subsequent buy instruments our CDB.
Speaker Change: Banking letters other instruments that make more sense for the investor.
Speaker Change: That are going to have some impact in our cost of capture but it's immaterial. So I believe that point the system, it's difficult to do an assessment. There is the mapping being done there is a global level, you'll see what is the level of impact because it depends on the generation of coverage the profile of business of each institution.
Milton Maluhy Filho: Every bank will start to talk about the impacts in their activities. We are in a phase of deepening the norm, doing a deep dive and analysis, but there will be an impact, but it's not relevant or material for the size of our operations. And we continue with a very broad portfolio of investments, 360. Our focus is to offer the best investment for the client in that cycle. As we always say, our executives in the investments all are measured by the profitability of the portfolio of the client and not the selling of products. So, we're going to have funds, rates of interest, income tax, and if there is any migration, then we can retain that asset under management or under custody within the bank. So, we don't see an impact on the relationship with our clients because we expect that we have the capacity to replenish these alternatives in a very efficient way. Thank you, Milton. This question comes from Tito Labarta from Goldman Sachs. Hi Tito.
Speaker Change: <unk>.
Speaker Change: And the events of the capturing of each institution, 50% of our case, we can see another cases less or more.
Speaker Change: It's very difficult to do an assessment of the market. It's very difficult every bank will start to talk about the impacts in their activities.
Speaker Change: We are in a phase of deepening and norm doing a deep dive and analysis.
Speaker Change: There will be an impact, but it's not relevant or material for the size of our.
Speaker Change: Operations, and we continued with the.
Speaker Change: A very broad portfolio the investments $3 60, our focus is.
Speaker Change: The best investment for the client and that cycle as we always say our executives of investments.
Speaker Change: All are measured by the profitability of the portfolio of the clients and not the selling of products. So we're gonna have funds of titles of interest rate income tax well and if there is any migration that we can retain that assets under management are.
Tito Labarta: Good morning. Hi, good morning. Thank you, Renato. Good morning, Milton, and Alexsandro.
Speaker Change: Under custody within the bank. So we don't see an impact in their relationship with our clients because we expect that we have the capacity to replenish these alternatives and a very efficient way for us.
Milton Maluhy Filho: Thank you for the call and taking my question. A little follow-up, I think, to Thiago's questions earlier on efficiency, but a slightly different perspective. When we look at the guidance on expenses, like core expenses, you mentioned below inflation, but you are going above inflation. This year, you had about $3 billion, I think, in business and technology investments. For how long do you think you'll need to continue to do these types of investments? And I'm asking in the context of the competitive environment, just with more and more digital players becoming more and more relevant, just to think about how your position is somewhat related, but like on the credit card, a very strong quarter for credit cards, both on the issuance and acquiring sides, there's been a lot of competition there on both sides. How much of the growth in the quarter was just seasonality? And how much are you maybe given that the credit cycle is looking a little bit better? Are you able to be a little bit more aggressive?
Speaker Change: Milton.
Speaker Change: The next question will come from Tito about for Goldman Sachs Hi, Good morning, Thanks for joining us.
Tito: Hi, Good morning. Thank you Dana good morning, Thank you for the call and taking my question.
Tito: A follow up I think to <unk> question earlier on efficiency, but slightly different perspective, when you look at the guidance on expenses.
Tito: Expenses, you mentioned below inflation, but you are growing.
Above inflation. This year, you had about $3 billion I think in business and technology.
Tito: Mint.
Tito: How long do you think you'll need to continue to do these types of investments and I'm asking in the context of the competitive environment, just with increasingly more digital players, becoming more and more relevant.
Tito: Just to think about how you're positioned and somewhat related but on the credit card very strong quarter for credit cards, both on the issuance and acquiring.
Tito: A lot of competition there on both sides.
Tito: How much of the growth in the quarter was just seasonality and how much are you maybe given the credit cycle looking is looking a little bit better are you going to be a little bit more aggressive there.
Milton Maluhy Filho: And also, a couple of your peers have announced that they're trying to privatize their acquiring business. So, if you can just comment on the competitive dynamics in cards, both on the issuance and acquiring sides, given where we are today, no, sure. Nice to see you. Thank you for coming, Tito.
Tito: And also a couple of your peers announced that Theyre trying to privatize their acquiring business. So if you can just comment on the competitive dynamics in Cogs, both on the issuing and acquiring side given where we are today.
Speaker Change: Oh sure.
See you. Thank you for coming to too good to see what Dan.
Milton Maluhy Filho: Good to see you again. So just follow up here, first of all, on the efficiency ratio. We're always going to be investing in the long term of the bank. So this is our long-term view; we're not looking for one or two quarters' efficiency ratio. And this is the trend, especially on the technology investment. We doubled the force. So we had 8,000 FTEs.
Speaker Change: So just as a follow up here first of all the efficiency ratio.
Speaker Change: <unk> always you're always going to be investing in the long term of the bank. So this is our long term view, we are not looking for one or two quarters.
Speaker Change: <unk> ratio and this is a bit print.
Speaker Change: Specially on the technology investment with double divorce. So we had 8000 ftes Nowadays, we're running with 15000 Ftes. When you look four years ahead.
Milton Maluhy Filho: Nowadays, we're running with 15,000 FTEs when you look four years ahead. But we have stabilized for two years in a row, and we do believe that we have achieved the level of FTEs that we need to do all the digitalization and the modernization of our platform. So our idea here is to keep doing this project. This is very relevant, because we have to finalize what we really need to modernize. We are at two thirds of the journey.
Speaker Change: But we stabilized now two years seen a rule, we do believe that we achieve the level of ftes that we need to do all the digitalization and the modernization of our platform. So our idea here is to keep doing this project. So this is very relevant because we have to finalize what we really need to.
Speaker Change: Most of our lives we are two thirds of the journey. So we still have investments to be done throughout 2024 and over.
Milton Maluhy Filho: So we still have investments to be done throughout 2024 and beyond. But the most important thing is that whenever we do the investments, we amortize the investment in the coming years. So you see a strong pressure coming from the investments we made in the last period coming those years, and we are being able to absorb all this amortization in our P&L. We still believe that there should be another level of increasing the amortization, but then it should destabilize. When we look at the long term, this is very positive, because we're going to be in a cycle where the level of investment will be much more similar in the coming years And we have this curve of increasing investment in technology. So part of the investment in technology is done to get more efficiency and more productivity in our operation.
Speaker Change: The most important is that whenever we do the investments we are more tied to the investment in the coming years. So you will see a.
Speaker Change: Strong pressure coming from the investments we made in the last period coming those years, and we are being able to absorb.
Speaker Change: This amortization in our P&L, we still believe that there should be another level of inquiries and the amortization, but then it should be stopped wise. When we look a long term period. This is very positive because there were going to be in a cycle, where the level of investment will be much more similar in.
Speaker Change: In the coming years as opposed to what you observed in the previous years, where we came from a very low amount of investment and we had this curve of increasing the investment in technology, So and part of the investment in technology is done to get more efficiency and more productivity in our operations. So you will see the call.
Milton Maluhy Filho: So you will see the cost of the amortization of the investments. But on the other hand, you will take pressure from running the bank costs that we are seeing in those periods. So we do believe that the level of FTE is there. We should see a stabilization in the level of investment as well. But the technology score, it's much more than modernizing the platform in that sense. You will see a reduction, but then you have to keep running your business and modernizing the platform every single day to achieve the best level of experience for our clients.
Speaker Change: Cost of the amortization of investments, but in the other hand, you will pick pressure from the run the bank costs that we are seeing.
Speaker Change: In those periods. So we do believe that the level of <unk> there.
Speaker Change: Should see a stabilization in the level of investment as well, but technologist core it's much more than modernizing the palette of forming that since he will reduce but then you have to keep running your business and modernizing the platform every single day.
Speaker Change: The best level of experience for our clients. So this will keeping.
Milton Maluhy Filho: So this will keep being the trend, and we are very focused on that. Talking about credit cards, the quarter is very seasonal.
Speaker Change: The trend and we are very focused on that.
Speaker Change: Talking about the credit cards. The quality is very seasonal okay. So you saw a relevant growth in the credit card portfolio, especially when you see the site payments.
Milton Maluhy Filho: Okay, so you saw relevant growth in the credit card portfolio, especially when you see the site payments. So it's not the buy now, pay later thing. That means that there is seasonality.
Speaker Change: It's not the buy now pay later.
Speaker Change: It means that there is a seasonality.
Milton Maluhy Filho: And we are not here trying to increase the level of risk appetite; we're not running more risk than we should. And I think it's the opposite. We've been de-risking the portfolio, especially in some segments, but we've been growing a lot in the segments like unique class personality and other clients where we do believe that they are very resilient through the cycle. So this is our main focus. On the acquiring side, I think we've been very successful in the Hedges integration, and we are getting benefits from doing that. So a comment for you and for everyone is that you cannot look at the P&L of Hedges the way we have the standalone company balance sheet, the way you have it published. And why is that?
We are not here trying to increase the level of risk appetite will not be running more risk than we should.
Speaker Change: And I think it's the opposite we've been derisking the portfolio, especially in some segment, but we've been growing a lot in the segments like Winnie class personality and other clients, where we do believe that they are.
Speaker Change: <unk>.
Speaker Change: Resilient through the cycle. So this is all remain focused on the acquiring side I think we've been very successful in the hedges integration.
Speaker Change: And we are getting benefits of doing that so.
Speaker Change: Comment for you and for everyone is that you cannot look the P&L of the way we have the stand alone.
Speaker Change: Company balance sheet. The way you have it published and why is that because hedges completely integrated being slightly before when you blend. So when you look to that business, you'll have to look that in the retail business operation and not only the P&L on a separate basis because this won't give you the full vision and how we manage the business for us.
Milton Maluhy Filho: Because Hedges is completely integrated inside Itaunibanco, so when you look at that business, you have to look at it in the retail business operation, and not only the P&L on a separate basis, because this won't give you the full vision of how we manage and view the business. For us, it's a new product that we have in the relationship with the client. So the relationship is key.
Speaker Change: New product that we have and the relationship with the client. So the relationship is key and then you'll have ways to pick the best conversation or the best product Tibet client and hedges. The acquiring business is one of it. So I think we had a very strong year 2023, <unk> had a very strong recovery in the P&L.
Milton Maluhy Filho: And then you have ways to take the best conversation or the best product to that client. And Hedges, the acquiring business, is one of them. So I think we had a very strong year in 2023.
Milton Maluhy Filho: Hedges had a very strong recovery in the P&L, the way we see and the way we measure. Okay, just to give you an idea, when you look at the Hedges P&L, we take the working capital out of it, and we take the working capital, and we take it to the corporation. So in the business model, all the working capital that has been benefiting from the interest rate, it's not in the business model. So this is not the way you see other companies, that they are a standalone balance sheet, and they have a huge working capital. So you have to discount that to compare their business with our business because we don't live in our business model, the working capital inside Hedges' balance sheet. So this is what we take to the corporation level. So this is just one example.
Speaker Change: We see in the way we measure okay. Just to give you an idea when you when you look to the hedges P&L, we think the working capital all of it and we think that working capital and we take it to the corporation. So in their business model to all the working capital that has been benefit from the interest rate is not in the business model. So this is not the way you will see.
The other companies that they are stand alone balance sheet and they have a huge working capital so you'll have to discount that to convert their business with our business because we don't live in our business model the working capital side.
Speaker Change: Inside the <unk> balance sheet. So this will take to the corporation level. So this is just one example, the other one we do a lot of anticipation and business cross sell in the bank's balance sheet not only hedges balance sheet. So that means that if you look all at the peak rate considering hedges balance sheet, you won't see the full picture. So the number we see is completely.
Milton Maluhy Filho: The other one, we do a lot of anticipation and business cross-sell on the bank's balance sheet, not only Hedges's balance sheet. So that means that if you look only at the take rate, considering Hedges's balance sheet, you won't see the full picture. So the number we see is completely different from what the markets are saying.
Speaker Change: From what the market sees.
Milton Maluhy Filho: And for us, it's a business of integration. In the past, I used to be CEO of Hldg. At that time, two-thirds of the P&L came from the open market, clients that didn't have a domicile or a relationship with Itau Unibanco. But when we look today, it's completely the opposite.
Speaker Change: And for US, it's a business of integration in the past so I used to be CEO of hedging that time, two thirds of the P&L came from the open market clients that didn't have the domicile a relationship with you Tony Bronco, but when we look today, it's completely the opposite the relationship has to do with engagement with Brinci quality.
Milton Maluhy Filho: The relationship has to do with engagement, principality, and cross-sell. So this is what we see. That means that the integration was done at the right moment, in the best way possible, and we are getting benefits from doing that. And when we look forward, we see a lot of benefits to reach. And the competition will always be there. So you might see some movement coming from one player or the other player.
Speaker Change: With cross sell so this is what we see that means that the integration was done at the right moment.
Speaker Change: Best way possible and we are getting benefits of doing that and when we look forward, we sell a lot of benefits to reach and the competition will always be there. So.
Speaker Change: To some movement coming from one player or the other play. This is this is life. So we have to keep doing integration. We did and I think we are in a key position very advanced when compared to the market to deliver a unique value proposition to our clients and this is what we're going to pursue in the coming quarters.
Milton Maluhy Filho: This is life. So we have to keep doing the integration we did, and I think we are in a key position, very advanced when compared to the market, to deliver a unique value proposition to our clients. And this is what we're going to pursue in the coming quarter. Thank you. Thank you. And going back to Portuguese, and now in English, we have... [inaudible] Grespan, welcome, and my question.
Speaker Change: Thanks Nicole.
Speaker Change: Both the local Portuguese genome going back to your Portuguese and now in English will be.
Speaker Change: Half.
Speaker Change: From Jpmorgan.
Speaker Change: Welcome.
Speaker Change: Yes.
Jpmorgan: Thank you for taking my call.
Jpmorgan: And my question.
Guilherme F. Grespan: On ROE per segment, it calls for attention retail improving, going back to levels above 20% of ROE, and when we do the decomposition of that result, it seems that it comes from the cost of credit. I wanted to hear from you, Milton. The correct evaluation of that improvement of ROE, is it an issue of mix? You've talked about growing in segments, persona vitae, university class. Because the balance of that segment is higher in the ponderation of the ROE, and the consolidated ROE is higher in that segment, that lower income should improve more in the cost of credit. If you can comment on how you are using these subsegments and do you think it's sustainable that we are above 20%? We had a lot of debate in that period about how much is it structural or not that process, how it's cyclical it is, there were some caps, and along the road and the payroll loans. So how do you see the sustainability of these ROEs? About 20 percent. Thank you, Guilherme.
Jpmorgan: On a row per segment constant attention retail improving going back to levels above 20% Roe.
Jpmorgan: And what do we do the decomposition of that result, it seems that it comes from cost of credit I wanted to hear from you Nelson.
Nelson: Correct evaluation of that improvement or.
Is it an issue of mix.
Nelson: I'm talking about growing in segments peloton everything.
Nelson: Only class because of the balance of that segment is higher than upon duration of the Roe.
Nelson: And the consolidated ROE is higher in that segment.
Nelson: Are we seeing the ROE of the lower income improvement improving we know that the MPL of lower income is three or four times, the higher income and it's fair to say that in the process of improvement of an NPL.
Lower income.
Nelson: Should improve more.
Nelson: Cost of credit.
Nelson: If you can comment on how you are you seeing the sub segment and do you think it's sustainable ROE above 20%, we had a lot of debate in the period.
How much is it structural or not that process, how its cyclical. It is there were some caps.
Yes.
Nelson: Along the road.
Nelson: The payroll loans, so how do you see the sustainability of these.
Nelson: Ro.
Nelson: About 20% think of anatomy, well time is suffering as I say that was down.
Milton Maluhy Filho: Well, time is suffering, as I say. That was your doubt. And we were not satisfied with the level of profitability. We needed to work strongly to recover it. There are issues in the market, structural changes. There's a little bit of everything, and we have to understand what is happening with the big variables. You're talking about the payroll loans, you have the cap on retail, and then there is the structural changes to credit cards, the rotation. So there is a structural change. There is a dynamic of fees changing when you have the offering. You have the fee business, for sure. There is a competition for the margin, and there is an extension of the period of the period.
Nelson: And we were not satisfied with the level of profitability, we needed to work strongly to recover the profitability there are issues.
Nelson: The market structural changes.
Nelson: Here's a little bit of everything and we have to understand what is happening with the big variables you're talking about the.
Nelson: You have the payroll loans.
Nelson: Have the cap.
Nelson: The retail and then there is the structural change.
Nelson: And it's a credit card.
Nelson: The verification. So there is a structural change there is a dynamic of the fees changing when you have the offering.
Nelson: You have the fee business pressure.
Speaker Change: There is.
Speaker Change: The composition of the margin and there is an expansion of the pit.
Speaker Change: The period saw the credit service relationship changed that business has a higher dependency and a credit than they had before it pretty simple overdrafts and we've grown.
Milton Maluhy Filho: So the credit service relationship changed, that business had a higher dependency and more credit than they had before, for example, overdraft. And we've grown in insurance, which has an increasing growth of, Well, insurance. If we look at the three-year window, it grew 93% of profit in our operation. And this year, we will double the results over the last four years.
Speaker Change: In insurance that has.
Speaker Change: Increasing growing of.
Speaker Change: While insurance, if we look at the three year window three stream grew 93%.
Speaker Change: Profit in our operation and this year, we will double the results over the last four years and insurance is cross sell business that that helps with the profitability to explain here.
Milton Maluhy Filho: And insurance is a cross-sell business that helps with the profitability to explain here. I told you that when we were questioned a few quarters ago, we saw that it was the bottom, and then we saw the inflection point. What generates that inflection?
Speaker Change: I told you that when we.
Speaker Change: The.
Speaker Change: Question, a few quarters and below we saw that it was a bottom and then we saw the inflection point what generates that inflection several aspects. There is the plate of the generation of top line, which is important so we have to work with the correct mix, where the correct client in a relevant way we've done that with quality. There is a delay of the <unk>.
Milton Maluhy Filho: Several aspects. There is the play of the generation of top line, which is important. So we have to work with the correct mix, with the correct client in a relevant way. We've done that with quality. There is the play of the cost of credit. You are right.
Speaker Change: Cost of credit you are right at the end of the day with all the de risking that we are doing with the portfolio and all of the credit crisis that we have observed with a higher concentration in some portfolios why we have almost the double of the second place a credit card is that example, our portfolios in average have more relevance of credit card.
Milton Maluhy Filho: At the end of the day, with all the de-risking that we are doing with the portfolio and all the credit crisis that we have observed with a higher concentration in some portfolios where we have almost a double of the second-place credit card, this is an example. Our portfolios, on average, have more relevance to credit cards, and our proportion is more relevant than the market. So it brings a cost of credit that is higher in more difficult cycles. And we were capable of doing that turnover of the portfolio regardless of the size and absorbing those losses on the balance sheet of the bank. And we've produced crops with. It's a mix of margin, cost of credit, and net margin has had a relevant role in that profitability. All of our modal liners are above the waterline, so that thing of losses or operations is all positive, all of them positive.
Speaker Change: Our proportion is more relevant than the market. So it brings our cost of credit that is higher and more difficult cycles than we were capable of doing that turnover of the portfolio, regardless of the size and absorbing those losses in the balance sheet of the bank and we've produced.
Speaker Change: With.
Speaker Change: Positive quantity. So it's a mix of margin cost of credit net margin has had a relevant role in that profitability all of our mono liners are below or above the water line so that thing.
Speaker Change: The losses are operations are all positive all of that all of them positive. The challenge is always isolated our cost of capital for some specific business.
Milton Maluhy Filho: The challenge is always identifying the cost of capital for some specific businesses, and we're working to improve them relevantly. So we understand that it's sustainable, that level of profitability, we understand that we can expand it all throughout the year, so we expect a lighter expansion of the profitability of retail along the lines of what we committed with the turnaround of the operation. All the review of the business model, the structuring of the business model, is the new operational model that we have assembled in the banking sector.
Speaker Change: We're working to improve them relevant.
Speaker Change: So we understand that it's sustainable at that level of profitability, we understand that we can expand it all throughout the year. So we expect a lighter.
Speaker Change: Expansion of the profitability of retail along the lines of what we committed with the turnaround of the operation or the review of the business model. The structuring of the business model is the new operational model that we have some other interbank.
Milton Maluhy Filho: It has a big impact on that, and all of our journey with the super app that is working this year will also help us strongly to have a full bank offering for all the clients that do not have an offer, a full bank in the bank. So that will help in profitability. And on the other hand, our company's retail business has grown with quality. And we are seeing an expansion in the profitability of our company's business, whether if it's, But basically, a value proposition that is very well fitted with a value generation that is very consistent. And we can see all the businesses having an evolution in performance in 23 and in 24. We expect to continue with a lower or higher level than that of expansion.
Speaker Change: It has a big impact on that and all of our journey.
The Super App that is working this year will also help us strongly to have a full bank offering for all of the clients and I do not have and offer a full banking the bank so that will help into profitability.
Speaker Change: The other hand, our company's business.
Speaker Change: Retail has grown with quality and we are seeing an expansion in the profitability of our company's business, whether if it's the management or credit Basel.
Pondering the adjustments that are recent.
But basically a value proposition that is very well fitted with a value of generation that is very consistent and we can see all of the businesses, having an evolution in our performance and 23 and 24, we expect to continue with a lower or higher level that expansion. We are very optimistic that we can have a more balanced portfolio.
Milton Maluhy Filho: We are very optimistic that we can have a more balanced portfolio in terms of profitability. And when we look at the wholesale, the view for 24 is to deliver a profitability level that is strong. We talked about 28 percent of our E27 revenue in the last quarter.
Speaker Change: In terms of profitability and when we look at the wholesale the view for 'twenty four is to deliver a profitability level that is strong we talked about 28% of our 27 and last quarter.
Milton Maluhy Filho: Well, with this margin of one percentage point of mistake, plus or minus, the idea is to deliver a strong result in wholesale. We have a natural rebalancing of profitability, which is healthy for the portfolio as a whole. So we are very positive with that expansion that is happening. Thank you. The next question is from Rosman BTG. He couldn't connect, but he submitted the question.
Speaker Change: With this margin of one percentage point of mistake.
Speaker Change: Plus or minus.
Speaker Change: Ideas too.
Deliver a strong result in wholesale.
Speaker Change: We have a natural.
Speaker Change: Rebalancing of profitability, which is healthy for the portfolio as a whole. So we are very positive with that expansion that is happening.
Speaker Change: Right.
Speaker Change: Thank you.
Speaker Change: Sure.
Speaker Change: No.
Speaker Change: Next question is from Rosman BTG, you Couldnt connect but he has submitted a question.
Eduardo Rosman: Yeah, what's up? I'm going to ask you, Rosman. Your question. He submitted the WhatsApp and the congratulations.
Eduardo Rosman: Yeah Whatsapp.
Eduardo Rosman: I'm going to ask you.
Eduardo Rosman: As many of your questions.
Eduardo Rosman: We submitted a whatsapp congratulations yes.
Eduardo Rosman: Okay.
Eduardo Rosman: Well Rozman asks the credit spread.
Milton Maluhy Filho: The credit spread, it ended up higher than the average, and the working capital is nine and a half percent, and the bank always guided that we should convert it for, so they've given the figures that we use. In that sense, can we say that the guidance is conservative for the NII? The credit portfolio. The credit portfolio is strong, so margin, and yes. Rosman, thank you very much for the question. Certainly, you will see the reporting later.
Eduardo Rosman: Ended up at <unk> and higher than the average and the working capital was nine 5% and the bank always guided that we should concurrent so they've given the volatility that we use.
Eduardo Rosman: Can we say that our guidance is conservative for the NII.
Eduardo Rosman: The credit portfolio.
Eduardo Rosman: The credit portfolio.
Eduardo Rosman: So margin and.
Eduardo Rosman: Rosman. Thank you very much for the question certainly you will see the reporting later.
Milton Maluhy Filho: But the main message for you is that the portfolio, as I told you, we have to look at the mix of the growth; we have to look at the average balance of the growth, and that's what has an impact on our line. Our vision is that the NIN will continue to be stable.
Eduardo Rosman: But the main message for you is.
Eduardo Rosman: The portfolio if I told you we have to look at the mix of the growth we have to look at the average.
Eduardo Rosman: The balance of the growth and that has an impact in our line.
Eduardo Rosman: Vision is that the and again, we'll continue to be stable.
Milton Maluhy Filho: The portfolio of companies tends to pull the NIN for a lower threshold. On the other hand, we have the working capital and the liabilities very well worked out. The volumes are strong.
Eduardo Rosman: The portfolio of companies, thanks to Paul DNA and for a lower threshold on the other hand, we.
Eduardo Rosman: Has the working capital.
Eduardo Rosman: And the liabilities very well worked out the volumes are strong and the overall, we haven't done at the end of this table.
Milton Maluhy Filho: On the overall, we have an NIN that is stable, with a small expansion in the adjusted line to credit. So the portfolio is growing on average. So if we have an opportunity, and we understand that it makes sense in a cycle of the long term, once again, without adventures, we will grow the portfolio. So we will not lose opportunities, and we certainly have the appetite and capital funding, and human capital to continue being very close to our clients. And growing in those segments that we've really focused on, we do not what we want to grow above two digits. When you improve the profile of your portfolio, you're going to want to make sure there's less risk, which has a lower net. But then you know, just that the risk is better.
Eduardo Rosman: With a small expansion in India adjusted line to credit so portfolio and the average growing eight.
Eduardo Rosman: So if we have an opportunity and we understand that it makes sense in a cycle of long term once again without adventures, we will grow the portfolio. So we will not lose the opportunities and we have certainly appetite and capital funding human capital to continue very close to our clients.
Eduardo Rosman: And growing in those segments that we've really focused we then what we want to grow above two digits. When you improve the profile of your portfolio can you go through a mix that is less risky which has let us know.
Eduardo Rosman: But then in adjusted the risk is better that's what we observed through the market.
Milton Maluhy Filho: That's what we observe in the market. That's our dynamic, if we can expand the NIN, the NIA. In regards to the portfolio growing more, we will work diligently for that, but only as long as the opportunities are clear with a clear vision of portfolio management client, and talk with the other clients. Next question. Calling back. Now, Daniel Vaz.
Eduardo Rosman: Our dynamic if we can expand that DNA.
Eduardo Rosman: Yes.
Eduardo Rosman: NII.
Eduardo Rosman: In regards to the portfolio growing more we will work diligently for that but as long as the opportunities are clear with a clear vision of portfolio management client.
Speaker Change: Got it.
Speaker Change: And focusing on our clients next question.
Speaker Change: I'm back.
Speaker Change: Okay.
Danielle: Danielle for us.
Danielle: Yes.
Daniel Vaz: Well, thank you, Renato. Good morning, everyone. Congratulations. [inaudible] Well, in the release, we saw a reduction of 3 million plastics to 38 of credit. So it seems clear the preference for more engaged clients and personality than in a class. I wanted to explore more the strategy for 24 and the math channel and the.
Danielle: Thank you Renato good morning, everyone. Congratulations.
Danielle: The results I wanted to go back to the credit card going forward.
Speaker Change: In the release we saw.
Speaker Change: Reduction of $3 million of classics through 38 of credits.
Speaker Change: So it seems clear that the preference for the more engaged clients and personality Dan unit class I wanted to explore in more of the strategy for 24 in the mass channel and the.
Milton Maluhy Filho: The retail partnerships, the bank understands that the client is stressed; is there just a transfer of risk to the other players or the system? Has reduced the credit for this client? And is there a space in your perception to increase exposure to these clients and increase the consumption of this product? Well, thank you for the question. First, our expectation is that the Credit Card Portfolio will grow this year. It's inevitable. There is the TPV, the invoicing growing, the growth of the market changing in the mix. That always happens.
Speaker Change: The retail partnerships.
Speaker Change: Bank understands that the client is.
Speaker Change: Stress, it's Eric just a transfer of risk or the other players or the system.
Speaker Change: Reduced the credit card declines and is there a space.
Speaker Change: In your perception to exposure increased exposure in days.
Speaker Change: Clients and increase their consumption.
Product: Product well thank you for the question.
Product: First our expectation is that credit card portfolio will grow in this year.
Inevitably there is the TPP the invoicing growing the growth of the market changing on the mix of that.
Product: That always happens when we look at the data we see that the business is growing our business. We tried to subdivided in three big groups.
Milton Maluhy Filho: And when we look at the data, we see that the business is growing. In our business, we try to subdivide it into three big groups. There are those that have the bank, where we have a big penetration in all the segments, above all the higher income, the check-in segments, not only in the existing clients but in the acquisition of new checking accounts. So a big deal in our business is achieving new clients and increasing principality and engagement. The second point is that with the super app, we will have an offering that is easier, more integrated, and simpler for our clients that do not have an offering of the full bank but who have access to the base of clients that can be relevant.
Product: There is the ones that have the bank, where we have.
Product: Big penetration in all the segments.
Product: The higher income.
Product: The checking segment not only in the existing clients.
Product: The acquisition of new checking accounts, so a big deal of our.
Product: Business is achieving new clients and increasing.
Product: Principality and engagement second point is that where the Super App. We will have an offering that is easier more integrated simpler for our clients I do not have an offering a full bank who have access through the basis of clients that can be relevant mono liners, maybe they have.
Milton Maluhy Filho: And monoliners, maybe they have a product and they don't have the credit cards for the product, but we have the capacity to offer with unique experience and the right clients, we know them, they have a credit record, and they have a good model for the offering. What we always call the open ocean has been reduced in a very relevant way because we still see the compromise, a very big compromise of the income of the families, an over-indebtedness in the product. So at the end of the day, there is an over-offering. Over the years, the number of plastics per CPF in Brazil is increasing, more than doubled in the short term. So with a credit card that today is a product that doesn't have a cost to be in a portfolio or in the app, you end up having access to several products with a digital experience where you do the quick onboarding, you don't pay the annual fees, and you leave from 2.2, 2.3, and you have three, four credit cards per CPF on average.
Product: Product and they are you don't have the credit card product.
Product: About 34 offering.
Product: With unique experience and the right clients, we know them they have a credit record and they have a good modeling for the offering but we always called the open ocean.
Product: Reduced and a very relevant way.
Product: Because we still see the compromise or any big compromise of the income of the families and over in depth.
Product: So in the end of the data as an overarching over the years the number of plastics for CBS and Brazil is increasing.
Product: <unk> doubled in the short term.
Product: So with a credit card debt today is a product that doesn't have a cost to be in the portfolio or in the App you end up having having access to several products with a digital experience where you do the quick Onboarding I don't pay the annual fees on Ya Li from two points two to three and you'll have three four corner Clarksburg Cps.
Milton Maluhy Filho: And there are some CPFs with more products, so we have to be careful. It doesn't matter that the client has a degree of financial education, has difficulties, receives a lot of offers, and they have problems.
On average.
Product: There are some Cvs, where more with more products. So we have to be careful there are some.
Product: Men metadata.
Product: The client has the degree of financial education has difficulties receives a lot of offering and they have problems or.
Milton Maluhy Filho: Our role is to help our basis of plans to go through this challenging cycle where we reduce over 90% of the offering for the open ocean, where we get these clients without any records, any knowledge. And the partnerships, we continue with a level of appetite that I would say is adequate for the cycle. We always look at the value proposition because when it's not good in the offering as a whole, the trend is that the client will only go after the product because of the limit and not the value proposition. And we want to get a better value proposition to increase the principality and the engagement. And the super app will help us with integration.
Product: <unk> role is to help our basis of clients through closer to this challenging cycle, but we reduced over 90% of the offerings for the open Ocean, where we are.
Product: Get these clients without any records any knowledge and the partnerships. We continue with the level of appetite that I would say adequate for the for the cycle. We always look at the value proposition for <unk>.
Product: Because when it is not good and the <unk>.
Product: Offering as a whole the trend is in the client will only go after that because of the limit and not the value proposition and we want to get a better value propositions through increased the principality and the engagement and the Super App will help us in that integration.
Milton Maluhy Filho: These are the main components of our credit card offering. And you're talking about partnerships, and you mentioned co-branded. And important information Over the last few months, we did a review of our portfolio, and we closed with our partners. We finished a lot of partnerships that did not have an adequate value proposition for our clients and that generated costs of management. It was a small portfolio that had to be followed by a points program that didn't make any sense. So there was a relevant restructuring, and we are focusing on what is a relevant priority. We prioritize very well, and these are high-level talks with our co-branding partners, and we understand that the product lost its value proposition, so it wouldn't make sense to us and neither the partners to keep those co-branded.
Product: These are the main components of our credit card offering and you're talking about partnerships and you mentioned co branded.
Product: Important enough information over the last few months, we did a review of our portfolio and we closed.
Product: With our partners.
Product: We finished a lot of partnerships that did not have an adequate value proposition for our clients and that generated cost of management. It was a small portfolio. There has to be followed with a points program that doesn't make any sense.
Product: As a relevant restructuring and we are focusing on what is relevant priority, we prioritize very well and these are high level talks with our co branding partners and we understand that the product losses value proposition. So it wouldn't make sense to us and neither the partner.
Product: Those co branded and we kept some co brand thats at our favorite relevance to <unk>.
Milton Maluhy Filho: And we kept some co-branded that are very relevant to the co-branded of air companies, and the value proposition is very robust. And in these, we renewed some partnerships. We renewed with Azul Airlines, which is a product that works very well with co-branded, and we're very excited about the potential of the product.
Product: Air Company.
Product: And the value proposition is very robust and indeed, we renew some partnerships we've renewed with US all airlines, which is a product that works very well with co branded and we're very excited with the potential of the product.
Milton Maluhy Filho: Thank you, Milton, from Jorge Kuri on behalf of Morgan Sturley. Hello, Jorge. Thanks for joining us. I think you're on mute, Jorge. We cannot hear you. Can you hear me now?
Product: And can we open.
Milton Maluhy Filho: We can indeed. Thanks. Oh, sorry, I should have, um, gone back to the numbers. I wanted to maybe shift gears.
Product: The next question from Jorge Kuri from Morgan Stanley Hello, Jorge Thanks for joining us.
Jorge Kuri: I think youre taught him come out here.
Milton Maluhy Filho: I think you've explained in detail the results of the guidance. Maybe shift a little bit to the credit card regulation. Apparently, the 100% cap on interest payments also kicked in in January, and it doesn't seem to me that prices for revolving interest rate cards are going to change at all as a result of that.
Jorge Kuri: Can you hear me now.
Jorge Kuri: Thanks Jorge.
Jorge Kuri: Thanks for that.
Jorge Kuri: The rest of the numbers I wanted to maybe shift gears.
Jorge Kuri: Explain in detail.
Jorge Kuri: The guidance, maybe shift a little bit.
Jorge Kuri: The credit card.
Jorge Kuri: Regulation.
Milton Maluhy Filho: I wanted to get your view on what the impact on business will be of this measure kicking in, and also what the risk is that the sponsors of the bill, six months from today, a year from today, will look at prices and say, well, nothing happened, and the prices are exactly the same, and we did lower prices. And what is the risk that that happens, and then go against and more around, and potentially more aggressive caps will be implemented in order to really deal with that? And what is the industry doing to try to avoid that?
Jorge Kuri: <unk>.
Jorge Kuri: Apparently the 100% of cap.
Jorge Kuri: Interest payments.
Kicked in in January and it doesn't seem to me that.
Jorge Kuri: Prices or revolving interest rates are going up.
Speaker Change: All right.
Speaker Change: I wanted to get your view on what the impact is on the business.
Yes, sure gain and also what is the risk that is.
Speaker Change: Launches of their bill as well.
Speaker Change: They look at price.
Speaker Change: Lovely happen.
Speaker Change: Exactly.
Milton Maluhy Filho: Thanks. Yeah. Well, thank you, Jorge. Good to see you. Thank you for your compliments.
Speaker Change: Is it.
Speaker Change: Lower Brian.
Speaker Change: What are the ways that that happens.
Speaker Change: So again more around and potentially more aggressive.
Milton Maluhy Filho: So just to go through, first of all, give you a little update on the changing law that we saw at the end of last year. We spent, and I've been telling you, for a long period, I would say almost a year, very dedicated as an industry, having conversations with all the possible stakeholders in the market. So the executive, the central bank, the retailers, all the associations. We've been to Congress, talking to a lot of senators and deputies, so we had a lot of discussions about this topic. And we had a very clear and simple diagnosis about what we saw as the main forces that were producing this level of anomalies and asymmetries in the credit card market.
Speaker Change: It will be implemented.
Speaker Change: Really deal with that.
Speaker Change: And what is the industry doing is to try to avoid that.
Speaker Change: Hello, Thank you Jorge good to see you. Thank you for your complements.
Speaker Change: Just to go through first of all.
Speaker Change: To give you a little update about the changing law that we saw at the end of last year.
Speaker Change: We spend and I've been telling you.
Speaker Change: For a low period I would say almost a year.
Speaker Change: Very dedicated as an industry, having conversations with all the possible stakeholders in the market. So.
This active.
Speaker Change: The Central Bank.
Speaker Change: Retailers all of the associations.
Speaker Change: To the Congress talking to a lot of our senators and their produce so we had a lot of discussion about this topic.
Milton Maluhy Filho: So as I said a little bit before on this conference call, I said that we have 135 billion reais in our portfolio of credit cards, out of 115 that have no interest. So that is just to give you an idea how relevant it is, the buy now and pay later in Brazil. So it's very relevant.
Speaker Change: We had a very.
Speaker Change: Clear and simple diagnostic about what we saw as the main forces that.
Speaker Change: We're producing this level of anomalies and assume it producing the credit card market so as almost stunning.
Milton Maluhy Filho: So our view is the following. There were a lot of headlines in the system saying that the banks were charging 450 percent per year in interest rates. And I was always saying to the press and to all the stakeholders that this is a virtual rate. It doesn't exist, at the end of the day, for two main reasons. First of all, no one can stay in the revolving credit for more than 30 days. This is the first reason.
Speaker Change: A little bit before here in this conference call I will save that but we have 135 billion <unk> portfolio and credit cars out of 115 that there is no interest. So that is just to give you an idea how relevant it is.
Milton Maluhy Filho: The second reason is that you have a price amortization profile in the credit card that shows you that at the end of the day, no one's paid much more than 100 percent of the acquisition value of the credit card. So our own principle to say on capital to make it easier. So we were saying that the rates are much, much lower than the rates that were going to be released. The central banks, they released the interest rates on a monthly basis of 12, 13, 14, whatever the rate.
Speaker Change: By now and pay later in Brazil, so its very relevant so our view is the following.
Speaker Change: There was a lot of headlines in the system claimed that the banks are charging 450% per year in interest rate and I was always see too depressed and to all the stakeholders that this is a beautiful right. It doesn't exist at the end of the day for two main reasons first of all no one.
Milton Maluhy Filho: And they do it in a compounded way for 12 months and say that it's 450 percent per year. It's not true. The rate in the mathematical way; it's correct. There's no doubt about it. But it doesn't happen because no one stays at this level of interest rate for 12 months. So our view, and we said that many times to everyone, and I kept repeating that, is that the impact would be very marginal on the interest rate whenever you had this law approved. And why is that?
Speaker Change: Can you stay in the revolving credit for more than 30 days. This is the first reason the second reason because you have a price amortization profile in the credit card that shows you that at the end of there being no one's be much more than 100% owned.
Speaker Change: The acquisition failure.
Speaker Change: The credit card so.
Speaker Change: On principle to show on capital to make it easier.
Speaker Change: So we were saying that the rates are much much lower than the rates that we're getting we're being released the central banks.
Milton Maluhy Filho: Because at the end of the day, no one was paying much more than 100 percent. We were seeing 160, 120, 170, depending on the portfolio. So you have to do, yes, adjustments on the terms and also on the interest rate, but you will have a minor impact inside the limitation.
Speaker Change: We leased interest rate on a monthly basis.
Speaker Change: 12, 13, 14, whatever is the rate than they do on a component wait 12 months and say that it's 450% per year, it's not true.
Speaker Change: The rate on a mathematical way, it's correct, but there's no.
Speaker Change: No doubt about it but it doesn't happen because no one stays at this level of interest rates throughout 12 months. So our view and we said that many times to everyone.
Milton Maluhy Filho: We're going to obey the law. So it is our obligation to follow what is approved. And this is the way we are working in 2024. But, in our view, this is an open discussion because unless someone really tries to understand really what the real impacts are for interest rates on credit cards and when to put in place a long-term agenda, not a short-term agenda, but a long-term agenda, I think this will be an open dialogue that we have to keep. And so our view is that the executive, the central bank, and all the stakeholders will listen to everyone else in the industry as they should.
Speaker Change: I kept repeating that is that the impact would be very marginal on the interest rate whenever you have this law.
Speaker Change: Approved and why is that because at the end of the day no. One was paying much more than 100%. We were seeing 160 to 120 to 170, depending on the portfolio. So you'll have to do yes adjustment on the terms and also on the interest rate.
Speaker Change: We'll be with minor impact inside the limitation, we're going to fulfill the law. So this is our obligation to follow what is what is approved and this is the way we are working in 2024, but in our view. This is not an open discussion because unless someone cries to understand.
Milton Maluhy Filho: They will do another analysis, trying to understand causes and effects and will try to create new discussions about that. So we are always open to that. We have proposals. Everyone else has.
Speaker Change: Really where are the real impact for interest rates and credit card and want to do a long term.
Speaker Change: And a lot of short term ordering but we're a long term a dream, but I think this will be an open dialogue that we have to keep and so our view is that this active the central bank and all the stakeholders will listen to everyone else in the industry as they should they will do another analysis trying to understand calls incentive fact.
Milton Maluhy Filho: So it's part of the business to have those discussions in a democracy, very open to dialogue. And this is what we've been doing so far. So we don't see a cap again, a new cap coming. I don't think it's necessary for what we are seeing.
Speaker Change: And we will try to create new discussions about that so we're always open to that we have proposals everyone else has so it's part of the business to have those discussions in other markets. We're very open.
Milton Maluhy Filho: But if we want to solve that on a structural basis, look in the long term, we have to do things in a different way. Those are not the decisions made so far, but that doesn't mean that they are not open and willing to have that discussion in the mid to long term. So we are very open to doing so as the leader in this market. And what's going on right now is exactly what we've been telling the market. So I think the good thing about that was that we needed to prove somehow that this is what was going to happen. So before that, it was just analysis.
Speaker Change: Two the dialogue and this is what we've been doing so far so we don't see a cap again, a new cap coming I don't think its necessary to what we are seeing but if we want to solve that on a structural basis looking to long term, we have to do things in a different way those were a lot of decisions made so far but that doesn't.
It means that they're not open and willing to do the discussions to the mid to long term. So we are very open to do so as the leader in this market.
Milton Maluhy Filho: So I think real life will show and confirm our thoughts, and this will help to reopen this discussion again. We are very positive that this can happen, and we are very open to that. Thank you, Milton. Thanks, Newton. [inaudible] Back to Portuguese, because now we have... Arnon Shirazi from Sandanari.
Speaker Change: What's going on right now it's exactly what we've been telling the market. So I think the good think of that that we needed to prove somehow this is what's going to happen. So before that was just analysis. So I think the real life Woeful Emco Forum, our thoughts and this will help to reopen.
Milton Maluhy Filho: Arnon, welcome. Good morning Milton, Eduardo, and Renato. Thank you for the opportunity. My question is regarding the vehicle portfolio. We saw that there was an increase quarterly, year on year, when talking to investors and clients. We see that the market, in general, is more excited with that credit line. I wanted to hear from you.
This discussion again, we are very positive that this can happen and we're very open to that.
Speaker Change: Thank you thanks Nicole.
Speaker Change: Both.
Speaker Change: To this <unk> plus of Kodak towards <unk>, because now we have.
Adam: Adam <unk> from Santander.
Adam: Okay.
Adam: Good morning, Nelson Bravado Bernardo.
Adam: Thank you for the opportunity. My question is regarding the vehicle portfolio. We saw that there was an increased quarterly year on year talking to the investors and clients. We see that market in general is more excited with that credit line I wanted to hear from you.
Arnon Orzes Shirazi: What is your mindset in terms of quality growth? What kind of markets are you working with? Thank you, and congratulations on the results.
Adam: What is your mindset in terms of quality growth what kind of markets are you working with us. Thank.
Speaker Change: Thank you and congratulations on the results.
Milton Maluhy Filho: Thank you Arnon, thank you for the kind words. The vehicle business is something that we have had a participation in for many, many years that is very relevant. And with all of this movement that has happened all throughout the market, we've learned a lot. We made new mistakes, and we learn from the mistakes of the past. That's an evolution.
Speaker Change: No. Thank you for the call.
Speaker Change: Words vehicles business.
Speaker Change: Is something that we have for many many years had a participation that is very relevant.
Speaker Change: And with all of this movement that has happened auto market, we've learned a lot.
Speaker Change: Thanks.
Speaker Change: We made new mistakes and we learn with their mistakes of the past that's an evolution.
Milton Maluhy Filho: We have a portfolio that is an adequate size. We've been working, And for more focusing on and servicing well our clients, regardless of the channel that they do the vehicle acquisition and the procurement of the financing, we expect a growth in that portfolio for 24 not very robust, but I would say that is adequate to what we've seen. This is a portfolio that we are in the fourth consecutive quarter that we are reducing our delays above 90 days. There was was a loss there, and then there was a reframing in the market, and we're reducing the delays and the delinquency in this portfolio. This is a scalable business, naturally, to dilute the cost of this activity, and we've been working strongly to digitize the journey so that, regardless of the scale, we can operate more competitively, so within the defined appetite for work, we can define higher volumes depending on the cost of service that we're working on.
Speaker Change: We have a portfolio that is inadequate size we've been working.
Speaker Change: After more focusing and servicing well our clients regardless of the channel that they do the vehicle acquisition, Andy procurement of the financing we expect our growth in that portfolio for 2014, our very robust I would say that is adequate.
Speaker Change: What we've seen this is a portfolio that we are in the fourth quarter consecutive we are reducing our.
Speaker Change: Our delays above 90 days there was.
Speaker Change: Uh huh.
Speaker Change: A loss there and then there was a re trading in the market and we are reducing it relevantly no delays delinquency in that portfolio. This is a scalable business naturally.
Speaker Change: Dilute the cost in this activity.
Speaker Change: We have been working strongly to digitize the journey, so that regardless of the scale.
Speaker Change: We can operate more competitive needs.
Speaker Change: So within the defined that appetite.
Speaker Change: We can define the higher volumes, depending on the cost of service that we're working.
Milton Maluhy Filho: I don't think that this portfolio we're going to see the needle moving all throughout the years. We're looking in detail at the portfolios that make sense, and we are present in the market. We do not see, and we think that this is an euphoria business because the big growth comes from euphoria, and the big losses as well. So this is a very volatile portfolio that is not very resilient. There is a positive aspect I would like to recognize with the insurance that you can recover the vehicle through the detrans or extrajudicially recover the vehicle.
Speaker Change: And I think that this portfolio, we're going to see the needle move me all throughout the year, we're looking at.
Speaker Change: In detail the portfolio if that makes sense that we are present in the market. We do not see and we think that this is for your business because the big growth comes from.
Speaker Change: <unk> losses as well. So this is a very volatile portfolio. There is not very resilient. There is a positive aspect I would like to.
Speaker Change: Recognized with the insurance assurance that you can recover the.
Speaker Change: The vehicle through the <unk> trends or extra judicially recovered vehicles.
Milton Maluhy Filho: This is important. This is a victory for all, and this will improve naturally. But we always talk about how a vehicle is insurance with wheels. So when you recover the asset, it's always difficult.
Speaker Change: It is important this is.
Speaker Change: Victory for all and this will improve naturally, but we always talk about that vehicle as an insurance with we also when we recovered the assay is always difficult, we know that Brazil recovery of assets and assurance is a big challenge will always be and is very strong and it's a big challenge. So we see there.
Milton Maluhy Filho: We know that in Brazil, recovery of assets and insurance is a big challenge, will always be, and is very strong, and it's a big challenge. So we see the evolution in insurance, and that can help us to have a better recovery on LGD in this portfolio. And that allows us to do the expansion and the profiles of risk. Then that's what's limiting. I don't see a good explanation for growth.
Speaker Change: <unk> insurance assurance and that can help us to have a recovery.
Speaker Change: JD better in this portfolio and it allows us to do the expansion A&D profiles of risk then that's what's limiting I don't see a big explanation for growth.
Milton Maluhy Filho: I don't think that the growth is going to be modest. Thirty-three billion; I don't think that it's going to be very relevant. It's going to be in that order of magnitude, maybe a bit above. Thank you, Milton. I'm going to switch back to English again because the next question comes from Nicolas Riva from Bank of America. Hi Nicolas.
Speaker Change: I don't think that.
Speaker Change: The growth is going to be modest $33 billion. I don't think there is going to be very relevant is going to be in that order of magnitude may be a bit bit above. Thank you Milton sharpen working hard goods switchback drill. This again because the next question comes from Nicolas Riva from Bank of America, Hi, Nicholas Thanks for joining us today.
Milton Maluhy Filho: Thanks for joining us today. Renato, thanks guys, thanks Milton, thanks Alexsandro for the chance to ask questions. I have two questions, the first one on dividends and the first... Just to confirm, I'm looking at this, right? The R$11 billion that you announced as extraordinary dividend payments that should come out of equity in the first quarter. So at the end of March, I should take out about 90 basis points of capital from your ratio, just to confirm. And then, in general, on your dividend policy, I remember that in the past, you used to target a common equity tier plan of roughly 12% and a 1.5% 81 bucket. And you said that you would pay in dividends the excess capital on top of that 12% 81. Is that still the way you look at your dividend policy and your target for your capital structure? And then a second question on the perps.
Nicolas Riva: Thanks, guys.
Nicolas Riva: Just last question I have two questions. The first one on dividend.
Nicolas Riva: Just to confirm I'm looking at this right.
Nicolas Riva: 7 billion Reais that you announced.
Nicolas Riva: Payments that should come out of equity in the first quarter and so at the end of March I should take out about 90 or 90 basis points.
Nicolas Riva: Capital from ERO ratios just to confirm.
Nicolas Riva: And then in general on your dividend policy.
Nicolas Riva: I remember that in the past you used to target common equity tier one roughly 12% on a 1.5% 81 bucket and you said that you would pay in dividend excess capital on top of that at <unk> is that still the way you look at your dividend policy and your target capital structure.
Nicolas Riva: And then the second question on the Perps.
Milton Maluhy Filho: So far, you haven't been calling the perps the old 6.18 and the old 6.5, which we said to hire coupons since then. But if I look at market prices, you're basically trading at the call price at par, and you can call them every six months. It seems that the market is assuming that you're going to call them in the short term. Now, you're paying a coupon below 8%. And last week, we saw a Chilean bank, PCI, with better ratings because of the sovereign in Chile than you, issue an 81 non-callable 5 at 8.75, so quite above the below 8% coupon you are paying on your perps. Is it realistic to assume that you're going to call the perps on the next call date?
Nicolas Riva: So far you haven't been calling the burbs.
Nicolas Riva: On one eight in the hubs, which are the higher coupons and then.
Nicolas Riva: But if I look at market prices, so basically trading at the call price at par and you can call them. Every every six months. It seems that the market is assuming that youre going to call them in the short term.
Nicolas Riva: Now we are paying a coupon below 8% and last week, we saw a Chilean banks PCI with better ratings because sovereign in Chile.
Nicolas Riva: Issue on 81, non callable five at $8 three quarters quite above the below 8% coupon that you are paying on your perhaps is it realistic to assume that youre going to call. The perps in the next call date or at least if you can discuss a bit how you are thinking about the collection on the box.
Milton Maluhy Filho: Yeah, sure. Thank you. Thank you, Nicolas. Thank you for coming.
Milton Maluhy Filho: It's good, it's a pleasure to see you here again. So, let me start talking about the dividend policy. So in general, you are right in the direction. So your calculation is precise.
Speaker Change: Yeah sure. Thank you thanks for nickel loss. Thank you.
Speaker Change: For <unk>, it's all good it's a pleasure to see you here again, so let me start talking about the dividend policy. So in general you are writing the direction. So your calculation is precise so when you're thinking closer duration 11 billion the impact we're going to having this headwind it's true we might see something around 100 basis points.
Milton Maluhy Filho: So when you take in consideration the 11 billion reais, the impact we're going to have in Set 1, it's true, we might see something around 100 basis points. We see some volatility in the available for sale security that we have on the balance sheet. So the way we measure and the way we make our positions, we might see some consumption in the beginning of the year. So when you look at one quarter, we're going to have the profits that we made in the next quarter, we might see, we will see the impact of this dividend, and some volatility coming from available for sale that might consume a little bit, maybe 20 basis points in our capital ratio. So this is what you should see.
Speaker Change: We see that some volatility in the available for sale securities that we have in the balance sheet. So the way we measure and then we make our positions we might see some consumption.
The beginning of the year. So when you look one quarter, we're going to have the profits that we made in the next quarter, we might see we will see the impact of this dividend and some volatility coming from available for sale that might consume a little bit maybe 20 basis points and our capital ratio. So this is what you should see.
Milton Maluhy Filho: And when you look in the long term, 12 is a good level; one and a half on the 81 is where we are, and where we have the policies very well established inside the bank. And having and looking forward 12 months or 18 months, depending on the level of information or uncertainty that we have, we're going to be calibrating to define where the best level of distribution that we should do is. So this is roughly 12% where you have to keep your eyes on the uses.
Speaker Change: When you look in the long term 12 is a good level, one and a half on the 81 is where we are and where we have the policies.
Speaker Change: Very well established inside the bank.
Speaker Change: Having and looking forward 12 months for 18 months.
Speaker Change: Pending on the level of information or uncertainty that we have we're gonna be calibrating to define what is the best level of distribution that we should do so this is <unk>.
Speaker Change: Roughly 12% is where youll have to keep your eyes on the users.
Milton Maluhy Filho: And the sources are something that you have to keep the ISIS eyes on, especially when you have some tax reform on capital, when you have discussions coming from the regulatory perspective coming from bezel on the operational side or credit side. So we are always looking for certainty and also things that can happen. That's why we always keep a buffer, the unknown that we don't know, of course. So that's why we keep some buffer on that. So this is basically why you're correct to look the way you are.
Speaker Change: The sources is something that you have to keep the Isis <unk>, especially when you have some tax reform on capital when you have discussions coming from the regulatory perspective coming from Basel on the operational side or credit side. So we are always looking to certainty and.
Speaker Change: Also things that can happen, that's why we always keep a bow for the unknown.
Speaker Change: But we don't know of course, so that's why we keep some buffer on that so this is basically that's how you're correct to look the way you are so we don't want to retain the excess of capital having the opportunity next year, we're going to deliver on the other extraordinary dividend. So this is how we're gonna be a treatment, it's very difficult to access.
Milton Maluhy Filho: So we don't want to retain the excess of capital having the opportunity next year, we're going to deliver another extraordinary dividend. So this is how we're going to be achieving. It's very difficult to define a payout. But the concept behind it, it's very clear.
Speaker Change: The final payout, but the concept behind it is very clear and this is how we're going to be pursuing. So this is the first topic on the perpetual side Youre right I saw the PCI <unk>.
Milton Maluhy Filho: And this is how we're going to be pursuing this. So this is the first topic on the perpetual side. Are you right? I saw BCI 81 coming to the market and the level of prices.
Speaker Change: We're coming to the market the level of prices.
Milton Maluhy Filho: And the idea we have is that when you go to a new issue, as opposed to considering the new issue premium that we might have for perpetual bonds, we believe that today, if we have to assess the market, the level of prices would be much higher than the level of prices embedded in the coupon today that we have. And why is that?
Speaker Change: The idea we have is that.
Speaker Change: When you go to a new issue.
Speaker Change: <unk>.
Speaker Change: Considering the new issue premium that we might have for our perpetual bolt.
Speaker Change: We believe that today, if we have to assess the market the level of prices would be much higher off the level of prices embedded.
Speaker Change: <unk> in the coupon today that we have so.
Speaker Change: That's why we have an exercise the call and why is that because we've been telling the market in advance that we wouldn't exercise the call that we would have a very economic if you will approach and then we have to consider all the alternatives, we have process market international and locally.
Milton Maluhy Filho: Because we've been telling the market in advance that we wouldn't exercise the call, that we would have a very economic view and approach. And then we have to consider all the alternatives, we have to assess the market, international and local, how to keep a curve in the international market, and what would be the new coupon and the new yield if we go to annuities. And it will be much, much higher than where we see it. So we don't plan. This is not on our radar now to exercise the call.
Speaker Change: How to keep a curve in the international market and what would be the new coupon and the new yields. If we go 20 regions and it will be much much higher than where we see so we don't plan. This is not in our radar now to exercise the call and if there is any change in that sense, we're going to.
Milton Maluhy Filho: And if there is any change in that sense, we're going to, with anticipation, provide clear information to the market. But as far as we can see, and if the market keeps the way we are seeing today, it can change tomorrow or the day after. With the information we have today, we are not expecting to exercise this call.
Speaker Change: We participate in to provide clearer information to the market, but as far as risk as we see and if the market keeps that we are seeing today. It can change tomorrow or the day after with the information we have today.
Speaker Change: Not expecting to exercise this call. So this is something that we're going to keep.
Milton Maluhy Filho: So this is something that we're going to keep talking to the market, to all the investors, very closely. Thanks Milton. We're getting towards the end of our call. We have one last question on our list, in English again, and it comes from Carlos Gomez from HSBC. Carlos, great to see you again. Thanks for joining us on the call. So, two simple ones.
Speaker Change: Welcome to the market to bolting fastest very close.
Speaker Change: Okay fair enough. Thanks neutral, we're getting towards the end of our call. We have one last question an hour or less.
Speaker Change: English again and it comes from Carlos Gomez from HSBC.
Great to see you again, thanks for joining us this call.
Carlos Gomez: Thank you for having us congratulations just like everybody else for themselves and for the dividend.
Carlos Gomez: And I. Thank you for making this a long call and allowing a lot of time for questions from the analyst.
Milton Maluhy Filho: You gave us the estimate about the impact of Part 03, which is 42 basis points, as you calculated today. Could you also give us the impact of the tax reform, as you said, as it is described today? What would the impairment of DTAs do to your capital today? And second, in the past, you have told us what your estimate for your cost of equity would be. If I recall correctly, it was around 15%. But I could be wrong.
Carlos Gomez: You gave us the estimate about the impact of a Battle Creek would take 42 basis points to calculate today could you also give us the impact of the equity from I should say as it is described today what would the impediment of Ppas.
Speaker Change: Due to your capital today and second in the past you have told US what's your estimate for your cost of equity would be if I recall correctly. It was around 15% I could be wrong with it they like where do you think it is today. Thank you Carlos. Thank you for your words I can think of procurement told its a pleasure to see you here.
Milton Maluhy Filho: Could you tell us where you think it is today? Thank you. Okay, Carlos.
Milton Maluhy Filho: Thank you for your words. Thank you for coming. It's always a pleasure to see you here, and we will always take the time to talk to the investor, a very relevant stockholder for us. And I will take and invest a lot of time with you, as always. So, coming back to your first question here. Let me talk about the DTA first, which is important. When we talk about 42 basis points, it's important to say that this has two elements.
Speaker Change: And we will take always the time to talk to the vessel or a very relevant stockholder for us, we'll take and invest a lot of time with viewers will always so coming about.
Speaker Change: First question here.
Speaker Change: Of all the effects.
Speaker Change #100: Let me talk to the DTA first.
Speaker Change #100: Which is important when we talk about 42 basis points.
DTA: It's important to say that this has two elements. Okay. The first one is the operational risk operational risk for US, we expect 100 basis point, but we have a phase in four years, so 25 basis points per year in the coming years. This is what we expect so when we add to that on the credit side there were some changes.
Milton Maluhy Filho: The first one is the operational risk. The operational risk for us is 100 basis points, but we have a phase-in for years. So 25 basis points per year in the coming years is what we expect. So when we add to that, on the credit side, there are some changes in the weighted assets. So this together may impact 42 basis points.
The weighted assets. So this together may impact 42 basis points, but on the operational risk, we're talking about 100 basis points 25 basis points per year in the coming years. This is what we are seeing and the second element, which is important is as if the reform was approved.
Milton Maluhy Filho: But on operational risk, we're talking about 100 basis points, or 25 basis points per year in the coming years. This is what we are seeing. And the second element, which is important, is if the reform was approved exactly the way we see, so it's 7 plus 1 corporate tax rate and social contribution, we would see something like 60 basis points in capital if we had to do an impairment. So this would be the size if we had a reform approved exactly the way the reform that is posted today in Congress is approved. So if there was this major reduction in corporate tax and also the social contribution, we could see an impact on the DTA impairment of around 60 basis points.
DTA: Secondly, the way we see so with seven plus was corporate tax rate in social contribution we would see something like 60 basis points in capital. If we had to do an impairment. So this would be the size. If we have a reform approved exactly the way.
DTA: The reform there is posted today in the call. We're so if there was this major reduction in the corporate tax and also the social contribution we could see an impact on the DTA impairment of around 60 basis points.
Milton Maluhy Filho: And the second one was the cost of equity? Well, so, with that... Thank you very much.
Okay.
DTA: Okay.
DTA: And if you don't know what that cost of equity well so with that can you supply of contiguous metropolitan image that doesn't involve.
Speaker Change #102: Well, thank you very much.
Milton Maluhy Filho: Follow-up: There's the second question about the cost of equity. Just to give you the number; we are running the bank for the last quarter. Last month, we were seeing something around 14%, but looking now, the cost of equity that we have approved on the board and that we are managing the bank is $13.75, and this will be the cost of equity that you will observe, especially from February onwards. So you will have, in this quarter, a month with a 14% cost of equity and two months at $13.75, so on the average, you will see something around $13.80 to $13.85 in terms of cost of equity for the first quarter.
Speaker Change #103: Just to follow up the second question about the cost of equity.
Speaker Change #104: Just to give you the number we are running the bank the last quarter less slope, we were seeing somewhere around 14%, but looking now the number of cost of equity that we approved and the board and that we are managing the bank is 13 75, and this will be the cost of equity you will observe it.
Speaker Change #104: Especially from February on so you will have in this quarter, a move with 14% of cost of equity in two months.
Speaker Change #104: <unk> 75 sold average you will see some <unk> 13, 80 85 in terms of cost of equity for the first quarter. This is the cost effect with that we will observe we look of course to our model. We look to the sell side, we talk to the buy side and we make our own this discussion in the committees.
Milton Maluhy Filho: This is the cost of equity that we will observe. We look, of course, at our model, we look to the sell side, we talk to the buy side, and we have our own discussions in the committees to get to this level. So this is where we are now. Thank you, Alexsandro. Thank you, Milton. Thank you, Alexsandro. Thank you, Milton. Well, with that, we will close the Q&A. Remember that we received several questions via WhatsApp.
Speaker Change #104: To get to this level so.
Speaker Change #104: Where we are loyal customers.
Speaker Change #105: Thanks, Brian and thank you, so I'm going to see regard really extended regarding mutual.
Alexandra: Alexandra Thank you Milton.
Speaker Change #107: We will close the Q&A.
Speaker Change #107: Remember that we received several questions Milton and Alexandra.
Speaker Change #108: We are going to answer them all through the IR team and when does that give.
Renato Lulia Jacob: We are going to answer them all through the IR team. And with that, I wanted to give you the floor for your last message to investors and analysts. Thank you, Renato. Thank you, Alexsandro, for your partnership in these discussions. Once again, we close this year that started with important difficulties, January 8th, 11th, January 11th. Then there is the event of the other companies that went through other issues. And we imagine that with all the changes that happened in the country at the beginning of 23, it was difficult to imagine how 20, 24, and 23 would come out.
Speaker Change #108: Give you the floor for the last message for the investors and analysts. Thank you Bernardo Thank you Alexandra.
Bernardo: For the partnership in these discussions.
Speaker Change #109: Once again, we close this year that started with important difficulties January 8th 11 January 11th then there is the defense of the.
Speaker Change #109: The other corporate that went through other issues and we imagine who that with all the changes that happened in the country at the beginning of 'twenty three it was difficult to imagine how 2021 'twenty three with come up.
Milton Maluhy Filho: I'm very happy to talk about these numbers and have this conversation with you about solid results, recurring results, consistent results with good quality, and the important thing is what's inside the result. The result is a consequence of everything that we do in the bank. All the digital transformation, cultural transformation, proximity, client centricity have allowed us to deliver consistent results through long periods. I believe that we must continue to be completely committed to this agenda; the digital transformation, cultural transformation, and all client centricity have to happen every day. We discussed it every second, and we hope to deliver in 24 a solid year with indicators of engagement and principality, client centricity, and a relationship that is very solid. And we've managed to do so with a level of engagement with our collaborators that is higher, very high. Collaboration is high Clients are satisfied. So we have an engaged team, great human capital that is focused on delivering the best bank for our clients every day. This brings us the results.
Speaker Change #109: Very happy to talk about these numbers and having this conversation with you with solid results.
Speaker Change #109: Recurring results consistent results with good quality and the important thing is what's inside the result. The result is a consequence of everything that we do in the bank.
Speaker Change #109: All of the digital transformation of cultural transformation proximity.
Speaker Change #109: Client Centricity has allowed us to deliver consistent results through long periods.
Speaker Change #109: I believe that we continue.
Speaker Change #109: Lee we committed with this agenda, the digital transformation and cultural transformation and other client Centricity has to happen every day.
Speaker Change #109: We discussed that every second and we hope to deliver in 'twenty for a solid year with indicators of engagement.
Speaker Change #109: But its ability and client centricity and relationship that is very solid and we've managed to do so.
Speaker Change #109: With our level of engagement with our.
Speaker Change #109: Collaborators that has higher very high.
Speaker Change #109: Yes.
Speaker Change #109: Collaboration is high clients are satisfied so we have an engaged team a great human capital that is focused and delivering the best bank for our clients every day brings this brings our results.
Milton Maluhy Filho: Second, we have our feet on the ground, we are very humble, and we know that past performance is not an assurance of future performance. Everybody is focused and disciplined so that we can continue to deliver with a lot of quality in a market that is profoundly changing. Doing more of the same is not going to take us where we want to go.
Speaker Change #109: Second aspect, we have our feet on the ground. We are very humble we know that the past performance is not an assurance of future performance and everybody is focused disciplined.
Speaker Change #109: So that we can continue to deliver with a lot of quality in a market that is profoundly changing.
Speaker Change #109: Doing more of the same is not going to take us where we want what we need this will have the capacity to reinvent ourselves every day and this is the year of 100 years.
Milton Maluhy Filho: What we need is to have the capacity to reinvent ourselves every day. And this is the year of 100 years, September 27th of 24th. So this is a symbolically very relevant year for us, where we hope to deliver strong results and be prepared for the next 100 years. This will be our journey with a long-term view of governance that is very well established between the board, the administration, and all the committees. And this level of alignment and engagement has produced relevant results. Thank you for your time, for your presence, of course, and more so for your trust. Trust as a client investor.
Speaker Change #109: September 27th of 2000, and so this is a symbolically very relevant year for us where we hope to deliver strong results and be prepared for the next 100 years. This will be our journey with a long term view governance that is very well established between the board administration and all the committees and this.
Speaker Change #109: Level of alignment and engagement.
Speaker Change #109: Produce relevant results. Thank you for your time.
Speaker Change #109: Your presence of course and more so for your trust.
Speaker Change #109: Just as a client investor.
Milton Maluhy Filho: And we will work hard every day to surprise you and continue to deliver the best bank possible for all of our stakeholders. Thank you very much. We will see you briefly, and we will talk in the meetings. And for those that I only see on the call, see you on the next call. Thank you very much. Have a nice day.
Speaker Change #109: And we will work strongly everyday to surprise, you and continue to deliver the best bank possible for all of our stakeholders. Thank you very much we will see you briefly and we will talk and the meetings and for those that I only see a nickel.
And the next call.
Speaker Change #110: Thank you very much.
Speaker Change #110: Have a nice day.