Q3 2024 Itaú Unibanco Holding SA Earnings Call
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The New York Times, The New York Times, Unknown Executive, and the New York Times,
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Speaker Change: Hello, good morning everyone and thank you very much for taking part in another quarterly earnings conference this time to talk about the third quarter of 2024 which we are broadcasting as always.
Speaker Change: from our office in Avenida Faria Lima in Sao Paulo.
Speaker Change: The event will be divided into two parts. In the first part, Milton will take you through our performance and earnings for the third quarter of 2024 and then we will have a Q&A session. During which analysts and investors will be able to interact with us directly.
Speaker Change: I would like to provide some guidance to help you make the most of our meeting today.
For those viewing this through our website, there are three audio options on the screen. You can choose to listen to the entire content in Portuguese, the entire content in English or just the original audio.
Speaker Change: For the first two options we will have simultaneous translation.
Speaker Change: To choose your preferred option, just click on the flag at the top of your screen.
Questions can also be sent via WhatsApp. For those viewing through the website, just click on the button on the screen. Or simply send a message directly to the number plus 55, 11961768561.
Today's presentation will be available for download on the website screen and as always on our Investor Relations website.
Speaker Change: That's it for now. I will now hand over the floor to Milton, who will begin the earnings presentation and then I will come back to you at the end to moderate the Q&A session.
Speaker Change: Milton, the floor is yours.
Milton: Good morning everyone. Welcome to another earnings presentation to talk about the third quarter earnings.
Milton: I will try to keep my presentation brief so that we have more time for our Q&A chat.
Milton: I will talk about earnings, ESG, digital, technology, transformation, and at the end a little more about our guidance. Starting with the earnings for the third quarter of 2024, we saw quarterly managerial recurring results of 10.7 billion Reais.
Milton: Which is a very strong result, growing 6% quarter over quarter and almost 20% year over year on a comparable basis.
Milton: This result leads us to a consolidated return on equity of 22.7% and a return on equity in Brazil of 23.8%. These are very important results. That being said, it is always important to pay attention to capital.
Milton: In this quarter, we delivered a common equity tier 1 ratio of 13.7% with a growth of 60 basis points in the period and we are substantially above our capital approved by the board within the risk appetite.
which is a common equity tier 1 ratio of 11.5%. If we were to simulate what the ROE would be adjusted by the minimum capital ratio approved by the Board of Directors
Milton: We would be running at 24.6% in the consolidated ROE and in Brazil at 26.4%. So this shows you the level of profitability that is most comparable in relation to the numbers that have been released.
Milton: An ROE of 26.4% in Brazil is truly a very strong profitability with significant growth.
Milton: In the loan portfolio we grew 1.9% quarter over quarter, with a growth of almost 10% in the year. Later on I will give more details about the portfolio and present the delinquency levels, which are within acceptable thresholds, with drops in both short and long term indicators.
Milton: We also have very positive news concerning the financial margin with clients, which has grown 4.5% quarter over quarter and 8.2% year over year on a comparable basis
Milton: So, this is the summary that I always bring to you and the numbers speak for themselves. I think we are succeeding in delivering a very solid performance, with good profitability and the capacity to generate capital, while at the same time investing in the bank's growth.
We added an additional column to the Loan Portfolio presentation this quarter, which I think is important for us to conduct the presentation in the best possible way.
The individual loan segment grew 2.5% quarter over quarter, which is a very important growth. This happened throughout the quarter, which shows that the average balance for individuals...
Milton: Transcription by CastingWords
Milton: The SME portfolio posted a quarter over quarter growth of 4.1%. This is slightly lower in the average balance, which shows that much of the growth occurred toward the end of the quarter.
Milton: Transcription by CastingWords
Milton: But the most important thing for this picture is to look at what happens with the portfolios of large corporates and Latin America. In large corporates, despite a growth of only 0.7% in the period,
Milton: We must remember that an asset that left the balance sheet in this quarter had a significant effect.
Milton: We saw the recovery of a credit case at the end of the period, which we mentioned a lot in the last presentations.
Milton: which shows that the average balance grew 5.9% in the quarter.
Milton: And it is this growth that affects the banks and even NII.
Milton: In the Latin America portfolio, this effect is even stronger.
Milton: Transcription by CastingWords
Milton: The portfolio grew 1.2% quarter over quarter, excluding the effect I mentioned, it grew 8.2% in the average balance.
Milton: So we could say that when we talk about gross NIM, that is without the risk adjustment, the main effect of this 10 basis points drop was due to the average portfolio of Latin America having grown more than the average portfolio of large corporates and more than the average portfolio of individuals and SMEs.
Milton: So this is the mathematical effect of the mix on the average balance of the portfolios.
Milton: When we remove the cost of credit, we see an expansion in the risk-adjusted NEM, going from 5.7% to 6.0% in the consolidated.
Milton: When we look at Brazil's risk-adjusted NIM, which naturally does not include the Latin America effect, and can be explained by the mix between large corporate SMEs and individuals, we see a 30 basis points expansion, going from 6.2% to 6.5%.
www.unc.org.au
Speaker Change: During this presentation, I will go into a little more detail about the dynamics of the cost of credit. I would also like to present another number that is also relevant to you. The financial margin with clients grew by 1.2 billion Ries quarter over quarter, which represents 4.5% growth.
Milton: Considering the financial margin with clients ex-Argentina, which was present during seven months of 2023. We had a comparable growth of 8.2% or 2.1 billion Reais, which shows a very significant result in this line.
Milton: The financial margin with the market did not show any major highlights.
Milton: In the period, but we can say that we had a good result considering that we started from an exceptional second quarter Which shows that the bank was still able to grow its earnings with a dynamic of greater financial margin with clients
Milton: Better cost of credit and lower financial margin with the market. So, I understand that this trend is positive for the mix. In Brazil we are performing well, not the same as the previous quarter, but substantially better than in 4th quarter 2023 and 1st quarter 2024.
Milton: Everything remains constant in the financial margin with the market with no major changes with the exception of the cost of capital index hedge, which has been slightly higher due to the interest rate differential. I don't have anything major to highlight when it comes to commissions, fees and results from insurance, but I do want to pass on some important messages.
Milton: We grew 7% year-over-year, which is very significant, and some lines attract more attention, such as asset management.
where we had 5.2% growth in the quarter.
Milton: and 16.9% growth year over year. In advisory services and brokerage, despite observing a drop in the quarter, it is important to remember that the previous quarter was exceptional, especially in fixed income, which posted the best result in the bank's history.
Speaker Change: Thank you for watching. I hope you enjoyed the video. I'll see you in the next one.
Speaker Change: Very sorry about that. We have posted very consistent results in all lines of commissions and insurance operations, and that we continue with the very trend.
Milton: www.unc.org.au
Speaker Change: has showed a positive evolution. So when we look at the indicators for NPL 15 to 90 in Brazil total and Latin America, we can see that they are all improving. And we continue with the same dynamic in NPL 90, with an improvement of more than 10 basis points in the quarter in Brazil, which is the best indicator in the series, even considering the pre pandemic period. We have very good news in NPL 15 to 90, both in individuals and SMEs with a drop of 20 basis points in both segments, which shows that we managed to grow and what's more with quality, which is reflected in this improvement in credit indicators.
Speaker Change: Transcription by ESO. Translation by —
Speaker Change: NPL 90 also shows a significant drop of 20 basis points in individuals.
Speaker Change: and 10 basis points in SMEs. So this picture shows how we have managed to navigate more challenging cycles with great quality.
Speaker Change: and we have managed not only to grow in terms of quality, but also to generate engagement and principality with good results in the bank's balance sheet and good profitability.
Speaker Change: This has ultimately created value and generated capital to finance the bank's expansion.
Speaker Change: Transcription by CastingWords
Speaker Change: In cost of credit, we see that nominally we had a better quarter than the previous one.
Speaker Change: Having gone from 8.8 billion Riyais to 8.2 billion Riyais.
Speaker Change: Transcription by CastingWords
Speaker Change: But I would like to draw your attention to one point.
Speaker Change: In December 2022, we had a subsequent event involving a credit case from a retail company that led us to make a significant provision on the bank's balance sheet. At the time I told you that we had made a provision of almost 3 billion Reais.
Speaker Change: Part of this impacted that court's result.
Speaker Change: and the other part was related to additional provisions that we had and that we allocated to this case, leaving it 100% provisioned.
Milton: www.unc.org.au
Milton: Thus, most of it was achieved through the provisions that were made during that period.
Milton: Transcription by CastingWords
Milton: This quarter we made an important recovery that shows our ability to reverse such provisions.
Milton: We recovered 500 million reais in the result.
Milton: which is part of a total recovery of around 900 million Reais in the bank's balance sheet.
Milton: If you look at how much we reversed in relation to the mix of what was provisioned in the past.
Milton: Proportionally, we went through more in the result now than when we made the provision in December 2022. The cost of credit is 500 million Reais.
Once again demonstrating the strength of the balance sheet and our ability to reverse the provision in the same way as we originally provisioned.
When we look at the renegotiated portfolio, we can see excellent progress, with a continuous drop in the renegotiation indicator over the total portfolio, both in percentage and nominal terms, which shows that we continue to manage this portfolio excellently.
Milton: The coverage ratio fell in only one segment, related to the effect of this company, which had a significant balance of provisions on the bank's balance sheet, but which was not in overdue. Naturally, when we remove the provision balance, the coverage ratio drops.
Milton: So the coverage ratio dropped in the large corporate's portfolio.
Milton: However, if it weren't for this effect, the ratio would stand at 1146% in large corporates and at 215% in the total portfolio, which shows that this drop of 10 percentage points is related to the specific case in which we had provision, but it was not overdue.
Milton: On this slide you will see two topics that I think are important to provide transparency and visibility for you, as we always seek to anticipate the news. Much has been said about the new CMN Resolution 4966.
Milton: which is the implementation of IFRS 9 for banks and MP 1261 which is the provisional presidential decree related to DTAs So I think it's important to highlight two very relevant messages The first is that this change will not have any impact on us
Milton: Neither on the capital ratio, nor on equity, nor on the bank's cost of credit. We will make this transition as smooth as possible.
Milton: First, because we have been working with the Expected Loss Model since 2010.
Milton: Second, because we have had this public consultation in 2018
Milton: www.unc.org.au
Milton: Thirdly, because the bank's management model has always included the model for making provisions for expected losses on securities and other financial assets.
Milton: www.unc.org.au
Milton: The message to you is that this migration will not have any impact on the bank.
Milton: www.unc.org.au
Milton: It will not affect the cost of credit, the capital ratio or the bank's equity. That's the first bit of good news. The second bit of good news concerns...
Milton: MP 1261, which is the provisional measure that allows the amortization of the allowance for loan losses to no longer take place in three years.
Milton: Transcription by ESO. Translation by —
Milton: As was the case with the original law, but rather in seven or ten years.
Milton: Therefore, with the current deadlines, we will be able to absorb all of this tax credit expense over time, amortizing it without any impact on the capital ratio.
Milton: Transcription by CastingWords
Milton: So this news is also related to C.M.N. Resolution 4966.
Milton: Let's talk about non-interest expenses.
Milton: We saw an accumulated growth of 6.1%.
Milton: and a quarterly growth of 5.8%.
Milton: The main effect here is the collective wage raise agreement. This is where the biggest impact on this line comes from.
Milton: When we look at the accumulated efficiency ratio over nine months.
Milton: We are running at 37.5% in Brazil and at 39.1% in the consolidated with a very positive trend and very solid indicators.
Milton: The most important thing here is something I always talk about when we presented the 2024 guidance at the beginning of the year
Milton: I indicated that we would grow the bank's core costs below inflation, and that has been the case. The bank's core costs have grown 4.0% in this period compared to 12-month inflation measured by the APCA of 4.4%. It's important to bear in mind that bank inflation is higher than the IPCA.
Milton: However, we do not give up on making the necessary investments to expand the bank, strengthen our different segments, invest in technology, modernize our platforms, or improve our value proposition and the delivery of value to our clients.
Milton: So, when we look at investments, the variation was 1.8 billion Riyas, with core costs growing 1.1 billion Riyas in the period.
Milton: That is to say, the big offender of non-interest expenses are the investments we have been making, but it is precisely these investments that have allowed the bank to deliver this value and the profitability we have been achieving, increasing the top line, improving our clients' experience and expanding the organization.
Milton: These are conscious decisions focused on the future.
Milton: and the Bank's next 100 years.
Milton: Transcription by CastingWords
Milton: Allow me to give you an example of what these investments are. We have just talked about investments in technology, platform modernization, and artificial intelligence. But let's give an example of what value is being delivered by all that is already being done.
Milton: https://www.kenhub.com
Milton: All the modernization we did on the platform has brought benefits.
Milton: From 2018 to 2024 we reduced high-impact incidents by 99%. That is to say it brought quality to the client's experience. It also brought speed. Today we can implement solutions 15 times faster than we could in 2018.
Milton: This shows that we can not only solve clients' demands much faster, but also generate value much more efficiently.
Milton: With a much lower cost per transaction, so you can see that our cost on transactions have dropped by 55%.
Milton: This is all combined with a powerful agenda of artificial intelligence, machine learning and models. We have over 430 data scientists.
Milton: Over 360 initiatives using generative AI, over 60 machine learning engineers, 450 skilled professionals working with generative AI.
Milton: and over 1,000 AI models being used in the organization.
Milton: This means that the bank is moving from the era of transformation and modernization that we have talked about so much.
Milton: to the era of value delivery, hyper-personalization, value delivery at the client level, improved user experience, much greater speed and a far greater capacity to react to clients' demands and needs.
Milton: I would like to give you an example of a project that we have talked about a lot here. In all previous calls we have been questioned about it, so we wanted to provide a clearer view of this initiative.
Milton: We are transitioning from seven apps, which had completely different login methods, to two apps, the Super App and Eon, with a single login method.
Milton: If we had tried to do this without having gone through all the modernization with centralized data management and everything running in the cloud
Milton: It would not have been possible to deliver value at this speed.
Milton: The most important thing here is that there will be 15 million clients who now have a single product experience with Itauni Banco
Milton: That is, while they did not have a full banking experience before, now they will.
Milton: To bring some more concrete data, by the end of October we had already migrated 2 million clients, exceeding the original plan.
Milton: We expect to migrate 5 million clients by the end of the year. This is not a goal, it is an objective because we will always put our clients' experiences first.
Milton: If there is any risk that the transition will not be done well...
Milton: or that the experience will not be good for the client, we will slow down the pace so that we can do it with high quality. But the fact is that we have been managing to achieve both things, speed and quality, based on everything I mentioned earlier. We expect to complete this migration next year and reach the transition for 15 million clients.
Milton: www.unc.org.au
Milton: In practice, this means that in addition to having a full banking offer, we are able to improve all our clients' journeys.
Milton: The login journey time dropped by 54%.
Milton: and the PIX journey improved the transaction time by 16%.
Milton: We are managing to do this with a unified, consolidated methodology and a unified design language within the bank so that the client experience, in terms of its look and feel, remains exactly the same for all of the organization's businesses.
In this way, we have managed to deliver 33 new products this year alone, developed with the speed I mentioned earlier. This is always part of a journey, always with a view to solving a client's problem. This places us at another speed and another capacity to compete.
Milton: Talking about capital, the news is super positive.
Milton: We went from a common equity tier one of 13.1 percent and grew with results in 50 basis points already adjusted for the dividends.
Milton: Transcription by CastingWords
Milton: Reaching 13.7%
Milton: This is a very important accumulation of capital.
Milton: I have no doubt that the first question will be about dividends. We will talk about that in a moment. But this shows our ability to create value for shareholders. Naturally, I have talked a lot about our clients and the business, but in the end, it all translates into the capital ratio of the organization. So this is super positive news for Capital Two. For us, ESG has three pillars. We have the pillars of sustainable finance, diversity and development.
Milton: and Climate Transition
Milton: Let's focus here on sustainable finance. You may remember that at the end of 2019
Milton: We made a public commitment to reach 400 billion reais in structuring capital markets operations and individual loans in sectors with a positive impact on the economy and society.
Milton: Transcription by CastingWords
Milton: The good news is that we met that goal a year and a half early. The goal was to end 2025 with 400 billion riyals and we surpassed that in June this year.
Milton: So, the message I wanted to bring is that, as a result of this, we have set ourselves a new goal that is in line.
Milton: with what we believe can actually generate an impact on society, the country.
Milton: and the economy. We are now proposing not only to make the 400 billion already achieved, but to expand this goal to reach 1 trillion Riyais by the end of 2030.
Milton: Therefore, in a decade, we aim to be able to structure and develop operations that will sum R1 trillion in total in the various sectors and result in activities with a positive impact on society and the economy.
Milton: We are very excited about this new challenge and are already working hard to make it happen.
Milton: Transcription by CastingWords
Milton: Finally, I will talk about the consolidated guidance that was released at the beginning of the year, which also provides a view on a comparable basis, which excludes the effect of the sale of Itaú Argentina that impacted seven months of 2023.
Milton: www.unc.org.au
Milton: When we look at the current guidance, we are maintaining all expectations except for total credit portfolio growth. I would like to give you some more details about this change.
Milton: You may recall that after the guidance was released and after the first quarter results, there were many doubts as to whether we would be able to achieve the guidance for growth in the credit portfolio.
Milton: Some analysts thought that we could fall below the guidance lower range and in that first quarter earnings presentation.
Milton: I reinforce to you that we would indeed deliver that credit portfolio growth as the biggest hurdle to that was the de-risking process of the high-risk portfolio that we were conducting.
Milton: Transcription by CastingWords
Milton: However, we expected to finish this process in the third quarter, as indeed it happened.
Milton: So, when we look at the current scenario, we can see growth in the credit portfolio with a guidance between 9.5% and 12.5%. I would like to make an additional comment on this.
Milton: If we look at the original 2024 guidance and exclude these changes from the FX rate variations, we would probably reach the end of the year with a credit portfolio growth closer to the guidance upper range.
Milton: www.unc.org.au
Milton: That is what we were monitoring based on the growth rate that I mentioned to you just now.
Milton: What is new is that the Brazilian real is not weakening against the US dollar alone, but also against several currencies such as the Chilean peso, the Colombian peso, and others. There are several other currencies that have an impact on the loan portfolio, both a positive and negative one.
Milton: So, when we only look at this implicit FX rate effect on the various currencies...
Milton: www.unc.org.au
Milton: We see the need to adjust the guidance to a range of between 9.5% and 12.5%.
Milton: Transcription by CastingWords
Milton: Which means that what was previously the top of the range is now the bottom of the guidance.
Milton: The positive news is that, very importantly, we have been able to secure a good quality loan portfolio and generate value at the right price.
Milton: With adequate profitability generating capital for the organization with the correct mix and at the same time expanding our capital base therefore we made this adjustment to the guidance as a result of this specific FX rate volatility event
Milton: With that, I finish the earnings presentation with the message that we had a very strong, solid, positive quarter with many opportunities.
Milton: As usual, we have a lot of work ahead of us.
Milton: Now I will join Renato so we can start our Q&A session to answer your questions.
Milton: Transcription by CastingWords
Milton: I would like to thank you once again for your time and attention.
Milton: www.unc.org.au
Milton: Conference.
Milton: www.unc.org.au
Speaker Change: Milton, thank you for the presentation. It was very complete, right? It brought important messages.
Milton: Well, besides the regulatory changes in technology, we are talking about the ESG strategy.
Milton: So now let's start with a Q&A session.
Milton: Remembering
Milton: And to remind you, this is going to be in two languages. You can ask your questions in your native language, English or Portuguese.
Milton: Should you need any support, you have the option of choosing to hear the entirety of the content in Portuguese or English, and you can submit your questions via WhatsApp. Remember that the number is plus 5511 96176 8561.
Milton: Let's get started.
Milton: Let's start the Q&A session and for the first question we have Eric Ito from Bradesco BBI.
Milton: Welcome. The first question is yours.
Eric Ito: Thank you this morning Milton, Renato, congratulations on the results. Milton, I think that my first question is going to be about capital and dividends.
Eric Ito: The Extraordinary Dividend is going to get your SIP-1 to close to the internal level of 12.5% in the last quarter, or do you see any other capital needs that will leave some buffer for the higher level? Well, thank you for the question. Thank you, Eric.
Eric Ito: Well, the term of capital and dividends is very important to discuss, since we're discussing capital. Over the last 12 months, we closed the sales of our participation at XP.
Eric Ito: So today we don't have any shares. We've done the communication at the market saying that there was 1.54% in class B shares and in that time we converted to class
Eric Ito: a shares and we sold them 100% so it was an important information to level the playing field. So, talking about capital, I think it's important, it's positive for the capital and the dividends. First, we have the capacity to
Eric Ito: Roll the bank with quality, creating value and generating capital. The capital has been more than enough.
Eric Ito: for the finance of the expansion of the portfolios, the credit of the bank and all the activities therein.
Eric Ito: So what do we have today? And what do we have 12 months ago when we did the extraordinary dividends? Well, last year we had a larger capital base this year.
Eric Ito: in comparison to last year, and we have less regulatory uncertainties than last year. What were the uncertainties? The Basel III operational risk, we are in a phase-in now, which is 25 bases per year for four years. We have an increment.
Eric Ito: and a part of Baselea Ponderer for the credit risk. So there is a marginal increase close to 25 basis points. So both.
Eric Ito: 4950 basis points of capital consumption, $4.99, which was a theme for attention and the DTA has no impact whatsoever in the index of capital.
Eric Ito: FRPB
Eric Ito: The Fundamental Review of the Trading Book. Also, no impact.
Eric Ito: should be generated on a capital deals or a public consultation, the sole basis that we understand that as a conglomerate we can go.
Eric Ito: Through smooth sailing without capital impact, the shares that I just commented that could generate a swing in the asset spectrum on the other bank are not in the assets of the bank anymore. So we have less uncertainties and a capital base that is larger.
Eric Ito: So, following up on the policy that we just published.
Eric Ito: My expectation is that we're going to have a capital.
Eric Ito: in Capital Index, Dividend and Capital Index Distributed that is higher than the extraordinary dividend of last year.
Eric Ito: But where we're going to calibrate
Eric Ito: The second one is to have the bank well capitalized. Remember that the appetite of the board is eleven and a half, but it's a minimum.
Eric Ito: of Capital Index. So, it doesn't determine the board what should be the Capital Index of the organization, but what is the minimum. Of course, when you're working with a minimum, you want to have a buffer.
Eric Ito: Foreign Insurgencies, Volatility, Decision-making process, Capacity of growth, Investing, Capital allocation. So, since we managed to allocate the capital adequately and throughout the cycles, we're very comfortable.
Eric Ito: with the capital level, but we understand that it's not in our best interest to retain the capital more than necessary.
Eric Ito: The best information I can provide to you is that the extraordinary dividends of this year It's the same level of the capital index that we distributed 0.9 last year that would be nominally
Eric Ito: The dividend would be nominally larger than last year. The expectation is that we can distribute more capital index and nominally more thereafter.
Eric Ito: So we should close that at the beginning of the year when we have more clarity on the projection scenario and me
Eric Ito: On the next earnings call, I'm going to talk about the guidance, results of the fourth quarter, and I'm going to announce the returning dividend. But you can expect a larger dividend than what was paid and declared last year.
Speaker Change: Thank you Milton, if you'll allow me.
Eric Ito: There is a doubt from the market in regards to our call of the 81. Is there going to be any impact in the decision of paying dividends?
Speaker Change: This is a great question. The answer is no. No impact in the policy of distribution of dividends of the bank. We've been working with an AT1, close to a 1.5.
Eric Ito: Given the Sat I level of the bank, we got to 13.7 in this quarter. This shows that the bank has a core equity that is very strong. It doesn't mean that we can't work with an 81-level lower...
Eric Ito: We're always going to look at economically at the cost of the debt.
Eric Ito: We've done a liability management that is very important of those that we have the call of the 81. So the
Speaker Change: It was published yesterday, that 81 of 1 billion children
Speaker Change: 4 delivers people with a mind that makes actions work Public service is a great way to get involved That is the partnership
Eric Ito: 3.8 billion subordinate perpetual, which are very competitive, competitive prices. So we've done that management, active management of the 81. But all the decision making on the payment of the dividend is going to be restricted to the base of that one, which is much higher than the comfort that we have.
Eric Ito: and the limits that are approved by the board. So even though D81 is going to be lower than 1.5, it's going to be 141.
Eric Ito: It's not going to impact.
Speaker Change: Distribution policy for the dividends. Thank you, Milton.
Speaker Change: Next question. We have Daniel Vaz from Safra Bank.
Eric Ito: Welcome.
Daniel Vaz: Good morning, Renato, Milton. Congratulations on the results. Thank you for the opportunity. I wanted to focus on the portfolio. You've displayed great growth.
Daniel Vaz: The spread before the cost of the risk is a bit lower than year-on-year, but that spread adjusted to the risk is doing well. So if you can comment on the lines.
Eric Ito: that the bank has focused the growth on. We've seen your competitor that is directing a lot of effort in the high income. I think that, you know, with collateral investment, FGTS, also talking about Pranab.
Speaker Change: Unknown Speaker 05.
Speaker Change: The small businesses. So what are the lines that have the best return for the growth and the strong rhythm that the bank is going to focus its efforts?
Speaker Change: Thank you, Daniel.
Speaker Change: This is an important question.
Eric Ito: and we have to clarify a few issues. Our management is based on NIN adjusted to the risk.
Eric Ito: That's how it's always been throughout the years.
Eric Ito: World.
Eric Ito: Generating higher NINs and growing in a relevant way.
Eric Ito: way in the short term generates a very gross NIN that is important. We focus on a clean natural person spending the long term, the cost of credit comes and then you have a line adjusted to the risk with lower thresholds. So if you look at our records,
Eric Ito: More important, we've generated growth and all the segments are in the mix. If I'm growing more wholesale in Latin America, it affects the NIN growth, and you have to adjust it for risk as well.
Eric Ito: If you look, it's very important to have that, well, it's the overall income that generates.
Eric Ito: the income and that impacts the NIN of the bank. And if you look at this quarter, even though the portfolio of the wholesale has grown just 0.7% at the end, the overall balance is above 5%.
Eric Ito: In the Latin American portfolio, we've seen a balance growing 8.2%.
Eric Ito: for a portfolio that grew 1.2% in a quarter. So when you look at the portfolio of natural persons, which is a portfolio that grows 2.5% and the small SMEs that is growing close to 4.1, we had a balance of 3.3.
Eric Ito: On average, which shows that on the margin, the average balance is the one that is generating the impact on the NIN, the growth and adjusted to the risk. If you look at Brazil, the NIN growth is stable. So it shows that we've been growing with quality. A few messages that are important here.
Eric Ito: First, all the de-risking that we've done all throughout the portfolio, throughout the years, we've finished. This process is never-ending. De-risking is part of the activity.
Eric Ito: but in a relevant way in the portfolio that we understood that is not resilient in cycles that are longer the management of the portfolio we could do this for this process in this quarter and the third quarter. So what you're seeing now is all the inertia of the of the ever-growing high income that we are growing two digits in the in all segments. So the first message is we never stop growing we continue to grow with quality in resilient clients.
Eric Ito: in longer cycles.
Eric Ito: And why? Because we saw an opportunity of doing assets with quality, with adequate returns, once again looking at the long-term cycle and the capital markets that is very active. So the buffer for the big companies is the capital markets. When you have capital markets that are very active, we are probably going to see credit portfolios that are lighter in big companies.
Eric Ito: is, well, if you're efficient, better for our clients to finance through the capital market, and then we will direct them. We have a relevant share of origination and distribution that is higher than our fair share of credits.
Eric Ito: in this segment. So it shows the importance of having this capacity of developing and structuring and distributing operations for the capital market. So looking up ahead, I can see that the portfolios are going to continue to grow.
Eric Ito: Some portfolios
Eric Ito: that just started to work out what we did to the risk into the stronger credit cards.
Eric Ito: We should see personal credit expansion with quality, that's what we've seen. SMEs, we continue to grow at an adequate rate. So there is no portfolio that is growing more or less. We see growth in all segments, but a relevant point here.
Eric Ito: The issue of the return of capital that is allocated is the mantra of the bank. So there is no hypothesis that we're going to grow a portfolio without having the right price and the adequate return. So when we realize...
Eric Ito: The scenario of competition where the price and return is not necessarily the main driver.
Eric Ito: Then we are very careful when we choose our operations and taking the decisions of credit. Well, growing portfolio without doing an adequate price and with the return on capital is always easier. We're not going to forego growing with quality and good profitability, and I think that the NIN shows how we've done that and the returns on capital as well.
Eric Ito: So this is the mantra, and we will not...
Eric Ito: Let it go. We are going to do the growth with profitability and quality. It's not positive spread. It's a return on allocated capital that remunerates the cost of capital looking at the client's vision, kind of client-centric vision. Very important point. Well, next question.
Eric Ito: Autonomous, Renato Melone.
Eric Ito: Clire is yours.
Renato Melone: Good morning and congratulations on the results.
Renato Melone: Thank you for the opportunity.
Renato Melone: I need to go back to the issue of guidance. You commented during the call on the exchange rate here.
Eric Ito: Was it just the exchange rate influence, or is there a potential more appetite for risk looking up ahead, and then if you can reconcile that with the maintenance of the guidance of growth of financial margins. Once again, this is an issue of the exchange rate, or this is an expectation of compression of NIN.
Speaker Change: Thank you, Renato. Thank you for the question.
Speaker Change: First of all,
Speaker Change: This question is important. If it wasn't for the exchange rate, we would be very close to the high end of the guidance with the growth of the portfolio. When we did the guidance at the beginning of the year, first quarter, we still had a process that was very intense of the reduction of the risk.
Speaker Change: Natural Person's portfolio, so we saw a portfolio that didn't grow.
Eric Ito: And the feeling was that mathematically we couldn't fulfill even the lower threshold of the guidance at the beginning of the year. And I reinforce that we would, because there was a portfolio that was very relevant, that was growing, but it was masked, so to speak, because of the reduction in the portfolio.
Eric Ito: When we finish the third quarter, we can see clearly the natural persons are growing two and a half in the quarter, SME is growing 4.1 in the quarter. So, it's not that we changed the appetite, I think that we were working with the appetite, the appetite for risk. It's important to highlight, this is dynamic.
Eric Ito: It doesn't change, it changes every day.
Eric Ito: We look at our models.
Eric Ito: The loss is on the record, but more important than that is the perspective visions of the scenarios. These scenarios are volatile because of everything that we've seen happening throughout the world and here. So we are always paying attention to that. More important than the appetite is the tempestiveness with which we take the correct decisions.
Eric Ito: We are there if it's to concede to change the policies always taking care with the cycles looking at the longer cycle. So once again
Eric Ito: We never look at the growth, looking at growth in the short term that will generate margin, because the margin comes at the beginning, because of the dynamic of the P&L. And we know that the cost of credit comes later. We can see what happens in the previous cycle. So the vision is growth with quality in a sustainable way.
Eric Ito: So growth that is resilient regardless of the adverse cycle. This is the first message
Eric Ito: Now, to answer.
Eric Ito: Regarding
Eric Ito: The representativeness at the exchange rate in all the lines of the currency is more in the portfolio than in the margin. Since the portfolios on the foreign currency have a lower margin than the local currency, naturally, when I look at the portfolio, the weight is the same. When I look at the margin, the weight of the exchange rate is lower.
Eric Ito: and lines where I have results that are proportionally much higher. And the growth of the effect of the exchange is at the end of the cycle. It shows that since the guidance shows the average portfolio, you have the mechanical effect of the exchange rate, of the devaluing of the rail. So you are at the higher threshold of the guidance, and with the devaluation of the rail, we needed to open a new range. If you look at the range, it's the same size.
Eric Ito: as the previous one, but we have last month.
Eric Ito: In the end, the reason for that is that the exchange rate is a variable, is an important variable. When we run the same exchange rate for the same lines with our P&L plus devaluing, it generates a positive impact on the last line. It's not material and relevant in the distribution of the lines.
Eric Ito: So it doesn't... we don't have to change the ranges that are defined. The ranges that are there can absorb any effect of devaluing.
Eric Ito: But we've been working with most of them above the mid-range, which lets these lines being closer to the higher threshold than the medium point and those that are positive being higher than the medium. Thank you, Milton.
Speaker Change: Well, next question, also with us, Yuri Fernandes, JP Morgan. The floor is yours.
Speaker Change: Andr Rodrigues,
Yuri Fernandes: Hello, everyone. IFRS, very important. Congratulations on the flight.
Speaker Change: I wanted to understand, well, it's very clear, but...
Speaker Change: Is that related to the system? Can you comment on how do you read that?
Speaker Change: and the point that I wanted to explore was competitive advantages of it all because if it's neutral for you and it's not non-neutral for your peers
Eric Ito: Then you have capital conditions that are better. My doubt is, for 2025, maybe the peers are going to have to focus on profitability and grow more with seasonality. And wouldn't that be good for Itaú? So, it's more about the industry than Itaú, but I wanted to get your two cents.
Speaker Change: Well, I'm going to be very careful here because, obviously, we always try to avoid to talk about the market and every bank has their motto, their policies.
Eric Ito: And the banks have published their results and they've discussed that, the doubts on the Q&A, etc. So every bank is going to do their own positioning all throughout time.
Eric Ito: I can see a few points. First, the expected loss is something that we've worried for many, many years, since 2010.
Eric Ito: There's always a cost of working with the expected loss, specifically if the alternative is working with the incurred materialized losses.
Eric Ito: We thought that for sustainability of the risk and the decision-making process, the expected loss will give you more surety on the decision-making and having long-term and the recurrent loss. This is our own decision for 10 years.
Eric Ito: We've, 14 years actually, communicated that there is a cost for the management, but we understand that this brings benefits for the capital allocation and profitability, and we think that the numbers speak for themselves.
Eric Ito: Second aspect, very relevant.
Eric Ito: In the corporate clients, we also work with the expected loss, and we've been working for many years. We always try to have a level of provision that is adequate, regardless of the results. So our management of provisions is not of the result for the provisions. From the provision to the result, we look at the case, we revisit all the credits every day, and the decision, first of all, is do the provision regardless of the result.
Eric Ito: Why? Because this is an active, proactive management that shows to the market the best information that is available and that we leave the balance without surprises. So what we try to do is to remove the surprise event and lack of predictability. So predictability for us is something very important when we do the provisioning of the balance. So the example of Americanas is a great example of that. And I talk about Americanas because the wholesale, everybody knows the credit, the public information is public. So what we did, the provision we published, and when we did the recovery, we reverted. We could have reinforced here and there, but why did we reverse the 500 million against the result? Because we had the balance provisioned.
Eric Ito: Correctly, regardless of other specific cases, if you work with a level of provision that is adequate, when you have a reversal, it's natural that that reversal will go through the results, and I think that the numbers are public.
Eric Ito: Every bank has their own exposure and the level of recovery is relatively the same amongst all the banks, but again, it's up to every bank to have their own models.
Speaker Change: How do you manage them? This is our way of managing, about 4-9-9-6. We thought that it was important to talk about it because you have a strong balance while provisioned.
Eric Ito: Regardless of the level of capital, so creation of value and allocation of capital is a mantra here. And as always, whenever they ask me, what is the differential of the organization? This is the differential.
Eric Ito: We work with capital allocation and creation of values.
Eric Ito: It's not a positive spread in all the segments of the organization. There is no decision that we make of investment credits given operations. So we always take capital in consideration. So looking at management, looking at impact, whether it's the return on the capital that is allocated in our opinion, if you don't look at that, it's not adequate for the risk management. And we've done that risk management. So it depends on the level of capital. The return on capital has to be as relevant in management as if we are running by the capital index that is below the appetite. So we are at 13.7. We do not forego making decisions to return on capital when we have access to capital. It's not that we're going to destroy the value of operations.
Eric Ito: This is a relevant message. So rationality is always good for everyone. And rationality, being rational, is looking at a system that grows in an ordained, in a correct...
Eric Ito: Return and correct organization. The risk is when you do that is that you bring operations for the balance that are not accretives for the ROI. They don't create value for the shareholders and for the organization. They do not allow you to expand your capital index. And therefore, they compromise your future capacity of growth. It's simple as that. This is the mechanics and this is the way that we do the piloting in the bank.
Eric Ito: So every bank will publish their own. Of course, being rational is the word, but we've always defended the travel and rational market.
Speaker Change: Correct. Application of capital competition is healthy.
Speaker Change: Various competitors, very competent, capable of developing their business models, but if we are rational from the standpoint of capital allocation, it's going to be good for everyone. A healthy system that grows with quality, generating value for the clients and shareholders.
Speaker Change: Thank you, Milton.
Eric Ito: Thank you Milton. Next question, also with us, Thiago Batista, UBS. Thiago, the floor is yours.
Thiago Batista: Hi. Thank you, Milton.
Thiago Batista: So congratulations on the result and on the slide.
Thiago Batista: I think that it's going to be great, very explanatory. When we look at credit card, when we look at that business 6.5...
Eric Ito: Quarter on quarter. So the losses on the quarters on COVID, that was very close to 2015.
Eric Ito: My question is...
Eric Ito: have you done the adjustment that the change of mix that you're doing do you think that it went through the point
Eric Ito: Or no.
Eric Ito: There is.
Speaker Change: It's just a quick follow-up about the impact of the select rate.
Speaker Change: Well, before twenty five.
Speaker Change: There's going to be a change in threshold. Okay. Thank you, Thiago. Good to see you. Thank you for the questions. Credit Card was the portfolio that we've done the biggest adjustment of risk and we've talked about that.
Speaker Change: of income for the families and the product of credit card. So our decision was to do an important reduction.
Speaker Change: Maybe look at the financial system in Brazil. We see the delay.
Eric Ito: shareholders.
Eric Ito: that all the risking that we've done was adequate in clients and operations that do not generate value.
Eric Ito: The issue of value creation is a mantra here.
Eric Ito: The spread is positive, but the ROI is below the cost of capital in clients where the capacity of extracting value, the capacity of generating other businesses is reduced in those monolinear clients, where you just have the credit card, the only product of relationship with the client. But here, there is a series of information that is relevant.
Eric Ito: We understand that the chassis of the credit card is very important for the relationships, frequency, engagement of these clients. So in all those segments where we have a relationship that transcends the product, we've managed to grow 20% in voicing year-on-year.
Eric Ito: Unknown Speaker 05.00.00
Eric Ito: much higher than the market has grown, which shows a value proposition that is adequate.
Eric Ito: which shows a high level of engagement and the clients that are growing at the base. So a growth of the base is always important.
Eric Ito: Second important information, which is relevant for your question, is about the appetite. I think that we are now going through the biggest migration of apps in the history of the bank, where we are migrating approximately 15 million clients that were...
Speaker Change: you up.
Eric Ito: primarily in apps of credit cards or in IT going to the super app. We deliver 2 million clients on the new platform. We should at the end of the year, migrate 5 million and at the end of next year, complete the 15 million. This is very relevant. Why? Because we start to have a relationship with the client that goes beyond the
Eric Ito: The product credit card, we see an offering for the client that is hold bank. We have the capacity of offering for the client many other products that are beyond the credit card. And all of that is done within the super app.
Speaker Change: Thank you so much for the call. You may exit now.
Eric Ito: Adequate and with a hyper-personalization that is very important.
Eric Ito: So understanding the need of every client, if you are a client that is more of a transactor, how you are going to experience the super app, if you take credit and you need other products, if you are an investor. So we can, with the data of the market and with information here and available, we can understand and service our clients in a more holistic way. This is very relevant.
Eric Ito: Second, with our capacity of, well, we've discussed that slide that I just presented.
Eric Ito: We have the capacity of delivering new products and new solutions. So the super app today is what we have the best in the monoliner app and the credit card.
Eric Ito: So, we start to have it in the Super App, and those that were in the Mono App, they start to have access to all the other products. This is a relevant change in the way that we deliver value for our clients.
Eric Ito: So when we talk about the PIX credit within the journey, all of those are done within the chassis of the credit card. They are a new transactional way for the clients. Our expectation is that once we finish those migrations, is to increase the level of engagement and relationship with these clients, looking at being the main one. This is the name of the game and this is what we focus. Credit card will be taken into consideration less as a product as we look at as acquirements. We look at less as acquirements as a product, but it's a part of a solution.
Eric Ito: of a complete offering for the client. We talk about the numbers of the credit card by the importer.
Eric Ito: It's important to look at the result of the segment, where credit card is relevant, where we see the completeness of the relationships that go beyond the credit card. We are comfortable, we've grown the base. We continue to believe that this is a portfolio that grows.
Eric Ito: More probably next year than this year, from what we expect, given that the relevant adjustment happened in 2014. It's happened throughout the years, but we concluded in 2014.
Eric Ito: This is the first point. Second question, Felipe Reis. I'm going to give you an overview.
Eric Ito: I discussed this, interest rate high for the bank in the medium long term, not good.
Eric Ito: Lower interest rates, more economy growing, more businesses, more capital markets, less delinquency. But throughout this volatility, what are the lines that are more impacted by the civic rate?
Eric Ito: working capital of the bank so when we do the hedge of the working capital and longer deadlines
Eric Ito: In the same way that the select drops, we don't capture the immediate value when select
Eric Ito: Unknown Speaker 07.02.13 Transcription by CastingWords Transcription by CastingWords
Eric Ito: So working capital effects, all the liability management of the organization, the strength of the bank and investment and management of liabilities and higher interest rates have a natural migration for products of treasury. Many clients leaving the multi-market in...
Eric Ito: them why
Eric Ito: So the effects and these are the two impacts and the negative impact of the interest rates going up is the length of sales.
Eric Ito: We see for the companies the companies
Eric Ito: are indexed to the CDI, they're, that's...
Eric Ito: CDI plus or a little bit of a percentage of CDI depends on the client the fixed rate
Eric Ito: So, the increase, the decrease of the spreads for the portfolios with the rates of capital. So, this is for the real estate credit, it generates a negative.
Eric Ito: In fact, the INSS reconciled, there is a cap of interest rate, so a reduction of cap as the interest rate goes up, the interest rate goes up, and there is no change in the cap. So we do not produce credit for the INSS or the clients because we are capped by the interest rate.
Eric Ito: You have to look at the credit, the working capital and the liabilities and delinquency specifically for the segment of clients, companies, higher interest rates, pressure.
Eric Ito: in a relevant way, the delinquency. So there is impact of all the natures. We have to look at the intensity of the effect and the duration of the cycle. Thank you, Milton.
Speaker Change: for the next question.
Speaker Change: We're going to switch to English as we have with us Tito Labarta from Goldman Sachs. Hello Tito, great to have you with us today.
Speaker Change: www.unc.org.au
Tito: Hi Renato, I'm open, thank you for the call and thank you my question.
Tito Labarta: I just wanted to get your thoughts on sort of the credit cycle, right? I mean, you know, loan growth seems to be picking up overall asset quality, you showed further improvement, provisioning coming down.
Eric Ito: A little bit. I mean, everything looks healthy.
Eric Ito: But, you know, when you think of the macro, you know, inflation is still above the target rates.
Speaker Change: Yeah, well, thank you, Tito. Good to see you.
Speaker Change: Thank you for your question. Well, let me go through this topic. As I was saying previously, our risk appetite is dynamic and we are always looking for the perspective on interest rate, unemployment, inflation, GDP, so on and so forth.
Speaker Change: We still have seen a positive cycle and the numbers we've been dealing with.
Speaker Change: show how we've been able to deliver a good growth in our portfolio in a very healthy way.
Speaker Change: with a lower and low cost of credit, a low delinquency ratios and improving significantly even compared to the period before the pandemic. So this is one topic. The second, yes, we are looking forward and see that we might have more challenges.
Speaker Change: that we are right now planning the 2025, we don't have yet.
Speaker Change: All the numbers absolutely approved internally. We are discussing the details.
Speaker Change: So, I believe at the beginning of the year, we'll be able to show you our guidance.
Speaker Change: and talk better about our perspective in about growing the portfolio. But yes, we have some attentional signs. We have to keep an eye on that. We are not going to grow.
Speaker Change: without taking into consideration the prospective scenario.
Speaker Change: So, we might see more and less acceleration in certain portfolios depending on the prospective scenario, and this will naturally be released and informed to you by the beginning of next year. So how, so far, we feel comfortable with the pace.
Speaker Change: We are not estimating or expecting any downturn.
Eric Ito: strong downturn, we still have a GDP growing, we still have a very solid
Eric Ito: Unemployment rate, which is positive. We've been seeing the wages increasing.
Speaker Change: We see some leverage, yes.
Speaker Change: in some segments of the economy, in some companies.
Speaker Change: and those are the places where we're going to be more cautious. In other segments, we see a lot of investments, improvement in infrastructure, and those are the segments we're going to keep.
Renato Jacob: Renato Jacob, Unknown Executive
Renato Jacob: And Tito also asked if you see any room for further improvement on NPLs. Yeah, I believe so. Tito Dono on the short term we might see still room to improve our NPL ratios.
Renato Jacob: The cost of credit related to portfolio is still decreasing or is getting there to the minimum, so I think it's reasonable to expect.
Renato Jacob: And the second topic is in a nominal basis, with the amount of the portfolio and the portfolios that we are growing, we might see some increase in the nominal numbers of cost of credit, but not in the relative numbers, which is much more important now. But we still see improvement in the NPL.
Renato Jacob: and the only segment that it's difficult to say that is on the big companies, large companies because we are working with a very, very low
Speaker Change: Indicator, showing that there is no room to improve, but of course it depends on the scenario, interest rate.
Speaker Change: That might have any effect if that happens, but the good news about that is that the provisions on the expected losses that we do are done before we have any delinquency in the NPL. So that's why we have that cover ratio so big.
Speaker Change: on the companies in general, large companies, is because we do provisions before the cycle. It doesn't have a relation with the delinquency in the indicator.
Speaker Change: Transcription by CastingWords
Speaker Change: Now going back to Portuguese and our question now, Brian Flores from Citibank.
Speaker Change: Welcome.
Floris Ferreira: Floris Ferreira. Obrigado.
Floris Ferreira: Thank you, Renato. Thank you, Milton. A question about Latin America. It seems to improve.
Speaker Change: But I wanted to get your two cents on what is the driver behind this improvement? What should we expect? Can we dream an ROI of 15% maybe as last year?
Speaker Change: And if you can remind us, the hedging policy, as you said, the exposure to exchange rate is very relevant for this operation. Thanks.
Speaker Change: Thank you.
Speaker Change: First, Latin America, we've managed to improve.
Speaker Change: all of the operations.
Speaker Change: with solid results. But it's important to realize that in our business model, the way that we publish...
Speaker Change: We do the allocations, fiscal and capital allocations, looking at the consolidated overall. So the two biggest symmetries that we have in the operations abroad are the tax effect, so we have that logic of universal taxing in Brazil. So all the...
Speaker Change: That is also relevant when we do the hedging of the capital index, we also allocate the cost of the hedge.
Speaker Change: and the shareholder vision for that operation that generated the effect. So, the cost of opportunity of the hedge of the capital index we allocated at the end in the business model.
Speaker Change: I think that running with this level of return, even though it's below 14, which is what we published on the cost of capital calculated by our methodology, are operations that if you look at Chile, the cost of capital allocated,
Speaker Change: The COE, the cost of equity, should be lower than 14, but since the Ambassador today, you know...
Speaker Change: The Itaunibank doesn't give a COI that is different because of the funderation of our balances and the size of the portfolio in the different countries.
Speaker Change: We end up, therefore, by simplification, do the same thing where we look at the profitability because we always look at the shareholder vision. I go back to the issue of management by the capital allocation and return on the allocated capital. This is the way that we measure.
Speaker Change: Having said that, there is a criteria for the results if we had to adjust the cost of equity in a country that would be much closer to the cost of equity and possibly some countries would generate value as the case of Chile.
Speaker Change: Clearly, Chile generates value if we see the cost of capital locally, if we do all the adjustments for the vision of the shareholder in Brazil, it generates the effects that I just mentioned. But it's the correct vision. That's why we measure it this way and this is the reason why we do not do the expansion that is larger abroad because it's not, it doesn't seem to be a good capital allocation beyond what we already have and we've managed to improve relevantly and with profitability.
Speaker Change: But we will continue to follow up on the second question, which is the cost of hedge of the index, what happens is...
Speaker Change: We end up, we define for each currency, we do that for every currency. So we have the patrimony indexed to the currency and the RWA indexed to the currency. So if there is a variation with the currency, the patrimony walks along with the same proportion. So we do the hedge of the cost of index of the capital. But the cost of opportunity is to bring this capital back and invest it with a higher interest rate in reals. So the cost of hedge of index is the difference between the pre-rate and what I could apply that capital.
Speaker Change: with a rate free in the currencies of the other countries. So, that goes through P&L, this effect.
Speaker Change: and we see a growing effect for the cost of hedge. So if you ask me, for 2025, the cost of hedge of the index is going to be higher? Yes, it's going to be higher than 2024 because the differential of the interest rate is going to increase.
Speaker Change: The other side of the same coin is that we have an effect in the patrimony that in this case because of the devaluing is positive. When we look at what happens through the result is a hedge, is an insurance so that we have less volatility in the capital index so we can have a policy of dividends that is much clearer and that we can do the distribution that is higher so we don't have to be provisioning capital for volatility in the index in the future. So this brings a great capacity of management as a cost but we see that this is an insurance that is important for the economy.
Speaker Change: Capital Management of the Operation. Next question, Mario Pierre, Bank of America. Welcome.
Mario Pierre: Good morning, everyone. Congratulations on the results.
Speaker Change: Unknown Speaker Thank you.
Speaker Change: Very predictable, high profitability. Milton, focusing on profitability.
Mario Pierre: of the Retail Business, DROI, you improved it 19% to 24% now from last year, but a great deal of the improvement is the reduction of the cost of credit. When we look at the index...
Speaker Change: of Efficiency, you'll see this number and it worsen from 45 to 47.
Speaker Change: What would you tell us about Mudan?
Speaker Change: about structural changes that you need to do to improve this index. I imagine that this is an index that you're not satisfied and with all these changes that you've discussed of the one app, RANITAU.
Speaker Change: This is one of being.
Speaker Change: The benefits are going to come in cost or just benefits in revenue. Thank you.
Speaker Change: Mario, excellent question.
Speaker Change: Thank you for the initial words, great to see you.
Speaker Change: First, we managed to consistently expand the ROI of retail. This ROI is materializing in two ways.
Speaker Change: at the operation of retail in the companies and retails and the natural persons. So we got the well at a low of 16.4 which is when you asked me if I was satisfied with this profitability level and my answer was no.
Speaker Change: but in fact because of the cycle of credit that was more difficult and given the relevance specifically of the portfolio credit cards and the balance of the bank, specifically on what we call the open ocean and among the liner channels, we felt the cost of credit much stronger.
Speaker Change: which affected the profitability of the business as a whole. So we are little by little expanding. If you look at the profitability of retail, it's aligned with the ROI of the bank.
Speaker Change: So it's not diluted for the run and it starts to be neutral and contributing and generating value when we look at the cost of capital of the bank. So we look at results that are very healthy, the operation performing and evolving in a very important way, and all of them generating value in the aforementioned months.
Speaker Change: This is the big news that we don't have a profitability that is just concentrated in the portfolio and below the cost of capital and the other ones. Everyone is generating value in different magnitudes.
Speaker Change: but all are generating value. The first information. The efficiency index, you are correct. We did the de-risking. There is an important work of sanitization of this portfolio. It was positive.
Speaker Change: for the growth in profitability because regulatory changes, more competition, less fees. So how do we see the evolution of this operation?
Speaker Change: that were placed specifically in the overdraft fees, they removed profitability points. The cross-sell that was done and the way that the products were priced, there was a relevant change with the change in the market.
Speaker Change: So today you have less dependency of fees, the fees that are known, the tariffs, and so on.
Speaker Change: And you end up having a higher dependency of credit, the relationship with the client, which leads this operation to have a lower ROI level than what you had historically. The name of the game is efficiency, scalability.
Speaker Change: And of course, for you to do this, you need to have capacity in generating engagement value proposition so that the client will engage with you in a model that is more efficient than the model that is traditional.
Speaker Change: We've managed to work with the digital model. We are adjusting our footprint throughout these years, always doing this in a very careful and coordinated way.
Speaker Change: because
Speaker Change: Just doing the process for the reduction of costs.
Speaker Change: It's a process that if you're going to do it in an intelligent way and careful way, in the end what you're doing is you're telling your customers to go away and this is not what we want to do. We want to do the transition and having a value proposition in the business model for every profile of clients. So high income, we see profitabilities that are positive and a capacity of growing that is important.
Speaker Change: All the businesses being reviewed, all of them working with repositioning. Nobody is resting under laurels, everybody is running, working diligently. But the cost of service in some of these businesses change thresholds, an example.
Speaker Change: We, in the past, worked in the high-income segment with a vision that the management was the only point of relationship with the client. With the open platforms, the autonomous agents, we saw that it was important to specialize more and more and have consultants in these operations.
Speaker Change: Transcription by CastingWords
Speaker Change: to serve as the same client to defend the profitability but with the cost of service that is higher because now I have besides the manager in the relationship.
Speaker Change: I have the consultant of insurance, investment, so you start to have a cost of service that is higher, which affects...
Speaker Change: Obviously your efficiency level.
Speaker Change: What is our logic in management? First of all, if we don't have the digital platforms that are state-of-the-art, with a value offering that is state-of-the-art, to imagine that we're going to work with an efficiency level that is better, it's going to be in the brute force. And we know that in brute force, you only get short-term results. You improve the cost, you adjust the structure, but you reduce substantially the lifetime value of your clients in the organization.
Speaker Change: So our focus all throughout these years was in modernization of the platform, migration for the cloud.
Speaker Change: The evolution of generative AI and we increase even the headcount in technology to accelerate even more this process of digitalization of the bank.
Speaker Change: The 33 new products that I just mentioned are for that. And what we are working diligently is to understand what is the model of business, what is the efficiency level.
Speaker Change: for me to work with the different publics. Structurally...
Speaker Change: There is a lot of work to be done and we hope to get the results at the end of all these next years so we can improve the efficiency level of this segment that really needs to be more efficient so we can generate value.
Speaker Change: With this level of efficiency for some segments, we have profitabilities that are high.
Speaker Change: For others, the profitability is suppressed specifically for the low-income. And then there is the super app to tie all that down. If we look at the monoliner operation and compare to any new bank, we see our efficiency level is very similar. The results are similar. What changes is the size of the portfolio of credit and the appetite for risk.
Speaker Change: If we remove that, we have the capacity today of growing and servicing these clients. And the super app will be the most efficient way for us to service these clients through an app that has the completeness that it should have so that the client that doesn't have the capacity, doesn't have the pockets.
Speaker Change: to be serviced by the high-medium income, they start to have a value proposition that is more efficient. This is the work of the super app that services not only the base of the mono-app clients, but services for the clients that are going to have a completeness of offerings that are much better through a super app in a more efficient way with a capacity for generation revenue that is better with an experience that is much better. This is our strategy, this is the path moving forward, but we've never been so advanced and doing so well to take the next steps.
Speaker Change: Mutual.
Speaker Change: Next question, Bernard Gutmann from XP, welcome.
Speaker Change: and I'm
Bernard Gutmann: Good morning, Renato, Milton. Thank you for the opportunity and congratulations on the results. You had an evolution in the sequential.
Bernard Gutmann: In the credit orientation at the beginning of the year because of the expansion of the guidance, but the appetite is more cautious.
Bernard Gutmann: and the lines that are for the natural persons, even though there is a quarterly growth. The question is...
Bernard Gutmann: Will the rollout of ITAU-1 and their potential of cross-sale, would it contribute for an acceleration in the origination? The review of the guidance already predicts implicitly an acceleration that is stronger in this segment, now that this process of risk-off has begun.
Bernard Gutmann: Finish. Can we expect the portfolio of natural persons converging for a higher threshold, maybe closer to the total portfolio in the next three, in the next quarters? Thank you. Thank you for the questions.
Bernard Gutmann: Well...
Speaker Change: No, there is no impact on the growth of the portfolio of the SuperAPP in the review that we just conducted.
Bernard Gutmann: It was exclusively the effect of the currency that I commented, it was a mechanical effect.
Bernard Gutmann: But we believe that the super app is and will be a great avenue of growth, specifically in the natural person. Why? Because it's not OpenOcean, because these are known clients.
Bernard Gutmann: These are clients that we have a record of credit. We have the behavior of this client. And looking across the capacity of delivering other products for this client, is the completeness of relationships and engagement that is different.
Bernard Gutmann: This one makes the client to have more, to be the main, we are going to be the main ones. You have the return allocated per client, which...
Bernard Gutmann: will allow you to expand the credit portfolio and you can with that have less delinquency because of the time, the engagement that we have with the client because we are the main bank.
Bernard Gutmann: This is the strategy. Now, we are moving on this path, but to expect, to administer this expectation, everything that we propose ourselves to do, we are over our expectations, but the crucial step, which is the cross-sell and growth, our portfolio has just started. We are learning with this process. It's a continuous evolution. We are very positive and optimistic on the projects that we discuss the most and the ones that get the most updates. We are very positive in regards to that.
Bernard Gutmann: I speak but
Bernard Gutmann: We're closing the expectation of the growth of portfolio and looking up ahead in the scenarios fundamental. So this catch-up that we've done this year is a catch-up that we've done for many, many years.
Bernard Gutmann: www.unc.org.au
Bernard Gutmann: Growing the portfolio and target clients, which are matched by the reduction of the portfolio, naturally, in vehicles and credit cards, some things that we had to do strongly in the portfolio. Looking up ahead, our expectation is to grow in an adequate level.
Bernard Gutmann: Well, we tend to have a growth in the margin, so we expect to have a growth.
Bernard Gutmann: and we are going to generate top line. But the most important thing here, then generating the growing, generating top line as a cost of credit that is well behaved.
Bernard Gutmann: which allows our financial margin to continue to expand and evolve looking up ahead. So growing the top line more than the cost of credit and the cost of credit will always have a natural relationship with the growth of the portfolio. We see the capacity of growth in the portfolio. I wouldn't want to have an implicit review on guidance from 9 to 9.5. It's not a point of lining for the next year. That's not the message.
Bernard Gutmann: We haven't closed the numbers.
Bernard Gutmann: We can see growth in all the segments, but we are not here saying or anticipating that our guidance of growth of portfolio is going to be from 9.5 to 12.5. I'm not anticipating the guidance for 25, and we are going to discuss this at the beginning of the year with more data, more information, and more information on the scenario. So I believe that there's going to be the elections today in the US.
Bernard Gutmann: All of that discussion in the fiscal, tax, interest rate, inflation, exchange rate, very relevant variables that impact naturally the appetite for growth of the portfolios. In the beginning of the year, we're going to have more information to be more precise. Interesting, I'm with you guys.
Speaker Change: Perfect. Thank you, Milton.
Speaker Change: Because we have with us now, to make the next question, Carlos Gomez from HSBC. Hola Carlos, welcome, thanks for joining us. Thank you very much and congratulations again on the results.
Carlos Gomez: Technical questions. One is on your provisions for labor claims. I noticed that they have increased almost 70% this year versus last year. I wanted to know if there is something...
Speaker Change: Special that has changed or this is voluntary given that you are having a good result, what is the reason and what we can expect in the future? And second, in regards to the provisional measure 1261, could you give us the details as to when it starts being applied and which period you are taking between seven and ten years? Thank you. Yeah, thank you very much, Carlos.
Speaker Change: About your first question, it's a great question. I'd like first to highlight that if you look to the level of provisions we have for labor,
Bernard Gutmann: with respect, with the payments we made.
Bernard Gutmann: in 2024, look in nine months, you will see that we have a ratio of 3.5.
Bernard Gutmann: That means that we have a level of provision 3.5 times higher than in the past.
Bernard Gutmann: the level of payments we made.
Bernard Gutmann: Cash.
Bernard Gutmann: in 2024.
Bernard Gutmann: So I think this shows you...
Bernard Gutmann: How
Bernard Gutmann: how strong is the level of provisions we have
Bernard Gutmann: and the same way we do for credit, we do for other risks, we do for labor provisions, the expected loss provisions.
Bernard Gutmann: So, we are always anticipating the cycle and making provisions almost in our expected loss for labor discussions, labor claims.
Bernard Gutmann: Talking about the growth, I think the most relevant information is that we see that the decisions are much faster in 2024 than it was in 2023. So we are seeing an increase in decisions being made by the court, being 15 to 20% more than what we saw last year. So this is one of the effects.
Bernard Gutmann: The second one, we had positive effects in 2023. So some reviews that we did, some reversals we did in our balance sheet. So there is a baseline comparison that it's not exactly the same. The third good information is that our cost...
Bernard Gutmann: Sharp in making those
Bernard Gutmann: decisions and discussions.
Bernard Gutmann: in the court. So, in general, I think it's a baseline comparison and the most relevant impact has to do with more cases.
Bernard Gutmann: has to do with some restructurings we've been doing in the bank throughout the year, so we have more cases rising and also much more processes.
Bernard Gutmann: being discussed in the court, so that's the most relevant impact that I see. This is the first topic. The second question was...
Bernard Gutmann: So my view here is that we haven't made the decision yet.
Bernard Gutmann: I believe, as I was saying, that if it's for 7 or 10 years, we wouldn't have any capital index impact.
Bernard Gutmann: But we are right now making these discussions because we have by the beginning of the year to make the election and this will be applied beginning in 2026 on
Bernard Gutmann: So 2025, it's like a grace period, and then from 26 on, we'll have this impact, but by the beginning of the year, we'll make this decision. Of course, it depends on many things, but as it's a long cycle.
Bernard Gutmann: We have to make the decision according to those projections. So, we haven't finalized yet. We should be releasing this information by the beginning of next year.
Speaker Change: Very clear. Thank you. Thanks, Milton. Thanks, Carlos. And we're going to remain in English as the next question comes from Andrew from Morgan Stanley. Hello, Andrew. Thanks for joining us.
Andrew: Hi, Milton. Hi, Renato. Thank you for the opportunity to ask questions. I was hoping you could explain what you're seeing right now in the acquiring business. You know, there was a nice quarterly improvement in revenues.
Bernard Gutmann: how that is impacting the business and Kind of curious on what you think will likely happen as the leak increases whether you might see some other players try to increase Prices whether you may try to do the same just anything you can share on on that side of the business would be helpful Thank you
Speaker Change: Okay, thank you. Thank you Andrew for your question First first of all when you take peaks in consideration, you will see that is specific on the debit side
Bernard Gutmann: PIX has a huge impact. That's for credit cards or debit cards and that's for acquiring business on the debit side as well.
Bernard Gutmann: We've been able, the way we show the acquiring business is not brilliant because
Bernard Gutmann: It's separate in many lines of the mDNA.
Bernard Gutmann: Part of the results is in the financial margin with the client, the cost of funding is there.
Bernard Gutmann: the FLEX or the MDR in the services margin.
Bernard Gutmann: So we are thinking about how to give a better information for you for the market from 2025 on.
Bernard Gutmann: But the most relevant information I need to give you is that we don't look to the acquiring business as a product anymore as we used to look in the past.
Bernard Gutmann: I think at that time we had many companies, all of them competing on the acquiring business the same way we had a separate company. We had public companies, so everyone, everybody with an eye on that specific business. For us, we look for payments. We don't look for acquiring anymore.
Bernard Gutmann: So the business of payment is ten times.
Bernard Gutmann: the business of acquiring if we consider all of them together.
Bernard Gutmann: and this is just another value proposition that we have.
Bernard Gutmann: when we're talking about payments and receivables with our clients. So it's part of the portfolio, the huge portfolio that we have. We have the acquiring business as another product that we offer to our clients.
Bernard Gutmann: We've been very cautious in pricing. The TPV is basically flat. We've been increasing the capability to increase more financial products.
Bernard Gutmann: and of course looking at the relationship with the client as a whole, not only looking at the relationship with the client.
Bernard Gutmann: on a product.
Bernard Gutmann: view.
Bernard Gutmann: So this is basically what we are seeing. We've been able to defend market share somehow.
Bernard Gutmann: We are the leading company in the market, we see a lot of efforts going on, but the way we see sometimes the market putting more people to sell, this is not the way we believe is the right way to move forward, because at the end of the day you can sell a lot.
Bernard Gutmann: but you don't guarantee and you don't reduce necessarily the churn. The cost of acquisition is very high and you don't generate engagement. And for us the name of the game is engagement long time.
Bernard Gutmann: lifetime value and long-term relationship with the client.
Bernard Gutmann: That's why for me acquiring business is one product that we have.
Bernard Gutmann: in a very broad portfolio of payments and receivables. So, even though you are seeing this grow being a little bit lower, on the credit side it's been higher, and we have to look the other payment methods together in this portfolio to have a more broader view and the client view, of course. So, this is my view on that.
Speaker Change: Good morning. Thank you for taking my question. It's related to capitalization and the call of the 81 that was announced yesterday.
Speaker Change: I am assuming that 81 will be totally substituted by local 81. And I wanted to know if I am correct. And I wanted to know what led you to do this call. What happened? What went through your mind?
Bernard Gutmann: and what led this decision, and how do you see the balance in 81 locals and 81s that are international?
Speaker Change: Well, thank you, Natalia. Thank you for the question. Great to see you.
Speaker Change: Thank you.
Speaker Change: First of all, going back to what I always say in the calls, the decision to take on a call of 81 is an economic decision. Of course we take into consideration other factors.
Speaker Change: But mainly this is an economic decision.
Speaker Change: First information. Second information, we don't have the obligation and not even the directive. We don't, we don't, we didn't self-impose a directive of...
Speaker Change: riding with a full tank. So what do I say? We don't necessarily want to walk around with a full lid because it depends on the capitalization level of the bank. With a set one of 13.7, if we don't have a capacity of allocating in the market very efficiently, it doesn't make sense for us to carry debts with a threshold of coupon of interest rates that are so high. So the decisions are not necessarily 100% correlated. Of course, we exercise the call because we saw the opportunity of issuing locally with more competitive conditions than simply doing the reset and continuing.
Speaker Change: with that perpetual open. That was the main decision. Now, not necessarily I'm going to access the local market in the same volume that I exercise, in the exercise of the call, because we have the tolerance to go below one and a half if necessary. If there is an opportunity of capturing a volume that is equivalent to what we exercise in the foreign call exercise, then we are going to look for that opportunity locally. But for us to have the price and opportunity is more important than the volume of the offering.
Speaker Change: And just to give you numbers, from September to October, 3.8 billion in perpetuals, and we exercised that call, 1,250,000. So we have less risk than the call that we exercise now, and we are very comfortable with that, even though the 81 is going to go to a threshold that is...
Speaker Change: lower than one and a half, which is the maximum regulatory net. Go back to the original point that that does not impact the dividend policy and the organization. So when I, let's just say the call of the 81 and I reduce the level of 81 and the balance and the capital indexes of the bank, that doesn't mean that I am repurchasing as if it's a repurchasing of shares and therefore reducing the payout of the dividend. No, we are always going to look at the capital set one.
Speaker Change: and the way that we publish, and this is where we have the decisions.
Speaker Change: for the payment of dividends. So the decision was economic. We understood that in the current price it's more efficient to issue locally than continue to carry over that operation, even though we could issue a lower volume than the call that was exercised.
Speaker Change: and this will always be the logic on our decisions. So, there's going to be a call in March of next year, how are you going to decide? Same rationale, depending on the market conditions and looking at the domestic market, looking at the foreign market, maybe you're going to issue new or we don't know, we don't have the need, that's the main information. What's difficult is when you go to the market is when you have the need because that price is not a variable that you control. We've managed to do this with anticipation so we can do this at the best price and the best opportunity possible so that economically this is a decision of capital management that is adequate.
Speaker Change: to bring
Speaker Change: Thank you, Milton.
Speaker Change: English.
Speaker Change: For the last question of the day, the last but not least, with Nicola Riva from Bank of America. Hello, Nicola. It's great to have you here. Thanks for your question.
Nicola Riva: Hi Renato, thanks very much for the generous questions and hi Milton as well.
Speaker Change: Natalia has before, so she asked about the 81s and your point was clear that
Speaker Change: You can have less than 150 basis points of 81 capital, so we shouldn't expect anything unusual in the international market, at least of 81.
Speaker Change: Regarding the Tier 2s, you have also announced recently you're going to be calling the 29s in November.
Speaker Change: In that case, should we assume there's no plans ready to issue Tier 2?
Speaker Change: in the international market, but that's my question on the Tier 2s. And the second question on IFRS 9, so you had a slide in the presentation and it seems that your message is...
Speaker Change: There's not going to be any significant impact on provisions for loan losses on capital ratios
Speaker Change: I understand you are already using expected losses to calculate provisions for loan losses. In terms of the way you disclose asset quality, I believe you're going to be breaking out the loan portfolio in three stages based on the number of delinquency days. I want to confirm that stage three loans are going to be defined as 90 plus day NPLs as well.
Speaker Change: First of all, the same comments I made for the 81 applies to the 82, to the tier 2, not 82.
Speaker Change: So, that means that, on an economic perspective, we're going to be looking to the market, what are the market conditions, the price. Of course we know the relevance of having an international curve for our debt, so we always try to have a mix.
Speaker Change: in the way we fund the balance sheet of the organization.
Speaker Change: but at the level of price.
Speaker Change: in the Spanish market.
Speaker Change: Unknown Executive
Speaker Change: and to have, of course, investors being served by this debt. So, we take all of this in consideration and this is...
Speaker Change: the way we're going to pursue.
Speaker Change: So, about the second question on the IFRS 9
Speaker Change: We have to remember that it's not exactly the way we see the IFRS 9 approved in Basel.
Speaker Change: The guideline is pretty much the same, but we have a few adaptations for the Brazilian view. And this has to do with many topics, so it's not exactly the way we provide the IFRS line today. It's a different way.
Speaker Change: So we are very comfortable about the level of the stages we have. You won't see many changes.
Speaker Change: There is some changes in accrual, today we have to do in 60 days, it's going to be changed for 90 days.
Speaker Change: So, in the other hand, the provisions for security, we have to do an expected loss.
Speaker Change: As soon as we have all the balance sheet consolidated there, you won't see a very different
Speaker Change: Big difference in what we released today, but there is some adaptations for local laws.
Speaker Change: local regulation that we have to take in consideration.
Speaker Change: and those adjustments will be made and will be released.
Speaker Change: as soon as possible. I think the key message is that when you mentioned at the beginning of your question is that there is not going to be any impact for us in the capital of the organization, in the index, capital index.
Speaker Change: Neither on the cost of credit. So this I think it's the key message
Speaker Change: that I need to release. Other adjustments may be seen but not relevant at all.
Speaker Change: Thank you, Milton, and with that, we have the last question from the analysts, but remember, we received a lot of questions via WhatsApp. They're all going to be answered directly to you by the IRC.
Speaker Change: team. If you can finish the call with the messages for our audience. Thank you, Renato. Well, thank you, everyone. It's been a great pleasure to be with you once again. This was a very solid quarter with a lot of quality, adequate mix.
Speaker Change: and positive perspectives and we can deliver a better bank, a larger bank and with good profitability. Challenges are...
Speaker Change: are always there. We are humble facing these challenges. We cannot.
Speaker Change: the past performance is not an assurance of future performance, we have to work with the higher engagement and higher level of energy and organization and as a company that is centered in the client. We are a company that has transformed itself all throughout the years and this has been our purpose, daily purpose. So I would like to thank you for your trust, all the questions, quality questions, your questions make us
Speaker Change: Thank you.
Speaker Change: Maybe there is something that we can do differently, and as we say in our culture, we do not know everything, but we are going to work on it, and we have a positive energy, positive attitude, and optimistic. We are optimistic. It's another hundred years in the future, so we have a lot of work to do, and I wanted to thank you.
Speaker Change: for taking part in this presentation, and we will see you briefly. It is always going to be the guidance, the dividends, it's going to... We're going to discuss the dividends, where I expect positive news.
Speaker Change: prevalence of COVID-19 in our society.