Q1 2025 Itau Unibanco Holding SA Earnings Call
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Renato Luria: Hello, good morning everyone, I am Renato Lulia, and it is a pleasure to have you joining us.
Renato Luria: From Itaipu Bba's auditorium, Faria Lima headquarters in Sao Paulo, then we will host a Q&A session in which analysts and investors will be able to interact directly with us from the studio.
Renato Luria: Which is right next door to the auditorium.
Renato Luria: I would like to give you some instructions to make the most of today's meeting for those of you who are accessing this via our website.
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Renato Luria: Today's presentation is available for download on the hot side screen and also as usual on our Investor Relations website that does it for now from me.
Milton: Now I will hand over to Milton.
Milton: And we will meet later next door in the studio for the Q&A session Milton over to you.
Milton: Hmm.
Milton: Yeah.
Milton: Yeah.
Milton: Hum.
Milton: [music].
Milton: Uh huh.
Milton: [music].
Speaker Change: Good morning, welcome to yet another earnings presentation, let's talk about the earnings for the first quarter of 2025 with two key changes first we have changed the presentation format itself to make it easier for you to understand it and to deep dive.
Speaker Change: And I will also talk about some disclosure changes we have made both in the credit portfolio chart and the service on insurance revenue breakdown.
Speaker Change: In addition throughout the presentation I will also highlight the impact of implementing resolution 40 966 in the Brazilian GAAP accounting practice, and I think I will be sharing good news.
Speaker Change: Now I will get straight to the point.
Speaker Change: <unk> with the results highlights.
Speaker Change: Please traditional chart shows the managerial recurring earnings our O E.
Speaker Change: Both in Brazil, and on a consolidated basis pre tax earnings.
Speaker Change: And II with clients and efficiency and capital ratios.
Speaker Change: Moving forward this quarter, we delivered a recurring managerial results of $11 1 billion. We always are very sound result, with a two 2% growth compared to the last quarter and almost 14% year over year. When we translate this result into profitability in the first quarter of 2025, we do.
Speaker Change: With a return on equity of 22, 5% on a consolidated basis and 23, 7% in the operation in Brazil, both indicators grew on a quarterly and annual basis by adjusting ROE by risk appetite topical which is 11, 5% for the operation in Brazil, we get to 'twenty five.
Speaker Change: 9% ROE this indicator is more comparable with our peers given that our capital ratio is still slightly above our risk appetite on a consolidated basis. Our ROE is 24, 4%. So we continue to deliver very solid profitability very high returns and very positive earnings for the quarter, even more importantly, we should look at the <unk>.
Speaker Change: <unk> of our result, its composition I mean, the results from the inside out EBIT grew six 5% in the quarter compared to the fourth quarter of last year, and 16% year over year, reaching $16 7 billion Reais. This means that EBIT grew more than 1 billion reais quarter over quarter.
Speaker Change: Our margin with clients was $29 4 billion Reais also a very sound result.
Speaker Change: Growing 3% compared to the last quarter of 2024, and almost 14% year over year.
Speaker Change: In addition, we were able to deliver the lowest efficiency ratio of threshold in the bank's history at 36% and that's really taking into consideration first quarter seasonality. This is also the best first quarter in the bank's history in terms of efficiency ratio. We closed at 38, 1% on a consolidated basis, a major improvement compared to the <unk>.
Speaker Change: Fourth quarter, and a slight year over year improvement as for the operation in Brazil. This represents a 240 basis points improvement and we also posted an improvement of almost 100 basis points year over year. All this while maintaining a very sound capital base, we closed the quarter with a 12, 6% CET one by offsetting absorbing regulator.
Speaker Change: Barry impacts in the payment of the additional dividends incurred in the quarter, which consumed 110 basis points of capital. Therefore on a pro forma basis by adjusting for the impact of the additional dividends in the fourth quarter. We posted an expansion of 30 basis points compared to December 2024, compared to March 2024, we posted.
Speaker Change: The lower CET, one I will now present to you the credit portfolio performance as you can see the individuals loan book grew eight 6%.
Speaker Change: Semi credit portfolio grew 17, 7% and the large corporate loan book grew 13% I am going to make some comments to explain some of the changes we have made to the credit portfolio chart. So that you can understand them better there was no change in the individuals loan book whatsoever. This portfolio grew eight 6% driven by the growth in credit cards personal loans vehicles.
Speaker Change: Financing and mortgage while payroll loans are still under pressure due to the interest cap for the NSS beneficiaries portfolio. The payroll loan origination for Ins's beneficiaries has naturally reduced given the level of funding costs.
Speaker Change: Further the finance credit card portfolio in the quarter grew 8%.
Speaker Change: In the last quarter, there was an increase in the volume of transactions due to end of year shopping.
Speaker Change: And now at the beginning of the year part of this portfolio begins to be financed thus.
Speaker Change: Thus starting to yield interest and this affects our margins significantly as well.
Speaker Change: Now I will put a little more emphasis on some changes.
Speaker Change: The first point is that we have also adjusted fast figures for comparable reasons.
Speaker Change: Let me now comment on the most relevant changes.
We had an important agribusiness portfolio, which we had always classified as large corporates.
Speaker Change: Because this was the segment where this business was managed.
Speaker Change: However over time this portfolio has been segmented into different companies.
Speaker Change: We reclassified these companies to the SME portfolio based on their annual revenue.
Speaker Change: We have disclosed all the details in the footnote to the credit portfolio chart.
Speaker Change: We are also included in the chart the receivables investment funds, which at the end of the day our securities established for credit purposes. We have also included the exposure to financial institutions. When we have these banks with clients. This does not consider the certificates of interbank deposits or cdi's to manage liquidity in the system here, we consider credit like <unk>.
Speaker Change: <unk> with these banks.
Speaker Change: Also included in this chart the credit like transactions operated by our trading again, you have all the details disclosed in the footnote to the credit portfolio chart. So if you analyze the portfolio you will see that the SME loan book posted a drop of 2% in the quarter the portfolio of large corporates drops one 8% and the total of Brazil drops zero.
Speaker Change: 8%. However, it is important to exclude the FX effects on the portfolio as a whole instead of falling one 7%. The total portfolio would have fallen 0.2%. Excluding FX impacts. This shows the portfolio sensitivity to foreign exchange fluctuations instead of falling 2%, the Smes portfolio would've fallen 0.6% excluding.
Speaker Change: FX impacts and the large corporate portfolio would have dropped 0.5% and not one 8% instead of falling five 5%. The Latin America portfolio would have fallen one 3%, excluding FX impacts the average balance of the credit portfolio is what impacts NII for the period. The chart that I will show you next highlights this message so when we look.
Speaker Change: At the average balance of the credit portfolio individuals' posted growth of two 1% Smes grew five 5% and large corporates was up two 1%. So the average balance for the period grew two 3% and this is what generates revenue and consequently net interest margin.
Speaker Change: Takes away a little of the seasonality and the FX rate effects.
Speaker Change: That I explained in the previous chart. The average balance therefore is the best information available to analyze the NII next we present the traditional margin chart, where we show the NII figures in billions of <unk> at the top and below the knee, which is the annualized average margins I will start by focusing on the NII with clients and which we have two major.
Speaker Change: Effects. The first one is the working capital, which posted results of $3 2 billion reais in the previous quarter and now for the first quarter of 2025. It has generated results of 4.0 billion Reais. When we look at the spread sensitive margin related to the loan portfolio that is the core margin. We have a few effects the higher volume had a positive impact of $300 million.
Speaker Change: Is out of 900 million Reais and total growth as shown here on this slide as regards to the product mix. For example, the increase in finance credit card portfolio, which I showed earlier affects the mix because this is a portfolio with a higher spread the segment's mix between large corporates Smes and individuals also impacts this line along with the product mix.
Speaker Change: Within these segments all of these affect this line and resulted in a positive results being posted for the quarter.
Speaker Change: We have consolidated the spreads on the liability margin impacts.
Speaker Change: Why spread here, we considered both credit portfolio spreads and also the liability margin spread from which we have also obtained a positive effect a key issue to be considered in the NII is the calendar effect. This quarter, we had fewer working days and fewer calendar days. This has affected both the asset side or the credit side and the liability side of the business depending on the.
Speaker Change: <unk> used and how we manage and monitor them. The calendar effect shows that this seasonality removes $500 million realized from our earnings we would have posted very strong growth if not for this seasonality due to the calendar effect analyzing the impact shown in the bar Latin America and others. We have had both positive and negative effects. This line also recorded a positive ifs.
Speaker Change: Of about 100 million Reais due to the stop accrual change with the implementation of resolution 496. Six. This effect is included in this line named others and I will detail. It soon when we talk about the margin we have always been very disciplined in managing the stop accrual. Therefore, the effect of the change in stop accrual from 60 to 90 days was positive for our margin not negative. This is a key point to be.
Speaker Change: Taken into consideration moving on to the annualized average margin here are some highlights first there was a significant increase in the consolidated NIM that reached 9% and a significant increase in the risk adjusted NIM that reached six 1%. This dotted line in the five 8% is just to remind you that in the third quarter of last year there were.
Speaker Change: Our credit provision reversal amounting to 500 million Reais before tax related to the case of the retailer currently under chapter 11. This layout helps you analyze the trend over time. This is the best risk adjusted margin, we have ever posted since the fourth quarter of 2019, which is the quarter immediately preceding the first quarter of the pandemic. The story is no different for the operation in Brazil.
We have reached NIM of nine 8% and risk adjusted NIM of six 6%.
Speaker Change: The one off effect from the retailer, we just talked about.
Speaker Change: Stands out more because the transaction is booked in Brazil, which again shows an important margin recovery trend.
Speaker Change: I always tell you that the way the bank is manage as reflected in the risk adjusted margin.
Speaker Change: Growing revenue generating margin is challenging.
Speaker Change: With a certain degree of difficulty.
Speaker Change: Our focus is on making the risk adjusted NIM grow.
Speaker Change: Because that is what remains at the end of the day net of the cost of credit move.
Speaker Change: Moving on to the NII with the market.
Speaker Change: We can see a steep increase for the first quarter to 900 million Reais in total broken down into $1 2 billion Reais in Brazil $200 million realized in Latin America, and the capital ratio hedge cost with a negative impact of 500 million Reais. The next question would be come on Milton the midpoint of the guidance released for the 2025 earnings is.
Speaker Change: 2 billion Reais in the first quarter you made practically half of this total where you're conservative in your guidance for 2025 results on NII would the market what is your view on it well we reiterate the 2025 guidance. We had an exceptional trading result in the first quarter, which may not be repeated going forward, we monitor our ability to create value and generate.
Speaker Change: Alpha in trading and this quarter was above average.
Speaker Change: So obviously, we are working hard to deliver better results.
Speaker Change: In addition to that the capital ratio hedge cost is expected to rise a lot over the next few quarters. Therefore, we will still see these effects on the NII with the market.
Speaker Change: Which leads us to expect that we should end the year, a little above the midpoint of the guidance.
Speaker Change: Which is 2 billion reais based on our best current projections. This is still our best expectation, we continue to work on it projecting the margin with the market as hard despite our track record, we anticipate that some effects, especially the capital ratio hedge cost will widen given the interest rate spread but we reiterate our <unk>.
Speaker Change: Guidance I know this question will come up but I wanted to anticipate this issue while presenting the NII with the market.
Speaker Change: Next we present, the commissions fees and results from insurance chart.
Speaker Change: Where we have made some changes.
Speaker Change: I have been telling you for several quarters now that we have been reconsidering the way we disclose the acquiring business results since it makes no sense to disclose them separately from payments results, let's not forget that part of the acquiring business revenue was recorded in this chart and the other portion is recorded as NII with clients. The portion of acquiring results recorded as NII has not changed but we have consolidated the <unk>.
Speaker Change: Wiring results recorded in the commissions and fees chart under payments and collections as of now the credit and debit cards results consider only the issuance operation. In addition to the acquiring business. We also consolidated under payments and collections. The revenue from tariffs collected from corporate clients as packages before it was consolidated in the current account services lines. This change was made to better reflect the way we manage the bank.
Speaker Change: All in all we brought to the payments and collections line. The acquiring business results that were considered in the credit and debit cards line and also the tariffs collected from corporate clients packages, which were in the current account services line before therefore card issuance business results were isolated in the same two current account results for individuals. These are the main disclosure changes. We have also a second order effect, which I've already.
Speaker Change: When we disclosed the 2025 guidance at the beginning of the year regarding some deferrals that will be made and some of 2025. These lines when applying resolution 40 906, if we excluded this effect from resolution $49. Six we would have grown six 5% year over year instead of growing five 6% as presented in the chart.
Speaker Change: Revenue growth depends a lot on the economic activity, we posted a weaker DCM since it was record high last year.
Speaker Change: We have been able to deliver earnings from asset management, but the performance fee is only recorded in the second and fourth quarters. So there is a seasonal effect in the first quarter when we compare it with the fourth quarter.
Speaker Change: Our growth in commissions fees and insurance as well within expectations and very sound in line with what we have been seeing in terms of activity momentum better momentum in the capital markets and even in the asset management business itself will certainly create more opportunities. The insurance operation has been at a very sound growth level and after several years of expansion, we continue to find opportunities to improve our results.
Speaker Change: And the insurance business next I am going to talk about the cost of credit and the delinquency rates I will first address the short term npls both on a consolidated basis and in Brazil, and then we will talk about the long term npls and here, we already have some other patients emerging from resolution 496 six.
Speaker Change: Talking with the short term npls when we look at the consolidated figure we see that it is a very well behaved, let's not forget that usually this quarter shows greater pressure on short term npls, especially because this is a period when households have more taxes to pay school tuition.
Speaker Change: And some end of year shopping payments or push forward to the first quarter.
Speaker Change: As a result seasonally this quarter puts a little more pressure on short term npls I'm going to show you the breakdown of the figures for the operation in Brazil, and you will see that our short term npls are very well behaved when compared to previous quarters. Here. We introduced the short term NPL ratio by also including securities in the denominator.
Speaker Change: This is the new methodology introduced by resolution 496, six and shows that the ratio has also continued to be well behaved. When we look at the short term npls of individuals we see the increased by 26 basis points last year. This increase was lower and we have still observe some effects of the portfolio Derisking. However.
Speaker Change: <unk> when we compare this ratio to the historical average this increase is at the level below this average which is very sound and consistent it was no different for Smes the NPL was very well behaved.
Speaker Change: And I will show you details of it in a moment.
Speaker Change: And the ratio adjusted by Securities also shows a very low short term NPL ratio.
Speaker Change: Naturally the figures for large corporates are lower I always tell you that it is much better to analyze the credit portfolio considering loan by stage instead of the Npls.
Speaker Change: Especially for large corporates.
Speaker Change: Probably you would ask me about the long term npls, so I am going to answer it right away.
Speaker Change: We continue to have very well behaved NPL ratios the best in the bank history in all segments and here. We also show the ratio of adjusted by Securities. When we zoom in the operation in Brazil, you will see that there was a drop in the 90 day NPL ratio for individuals. This is the best ratio ever and the SME business. We also see a major improvement in this.
Speaker Change: Ratio adjusted by Securities and you see that there was a discontinuity since we had been operating between two 3% and two 5% levels and here, we have two relevant pieces of information.
Speaker Change: This ratio at these low levels between one 6% and one 8% is not sustainable for two reasons first because of the production volume both in the fourth quarter of 2024, and the first quarter of 2025 boosted the denominator and also because of the portfolio mix, which was built up mainly with government programs with Grace period, therefore that.
Nominate there is affected by a higher credit portfolio, while the numerator overdue loans is not this effect will normalize throughout the year and our best expectation is that it will return to the levels of the third quarter of 2024 and back absolutely well behaved and within our appetite without any kind of specific concerns naturally considering today's data.
Speaker Change: Market inputs, but just to make it clear to you over the next few quarters, we will see a normalization of this ratio, which in fact due to this effect is much lower than our actual expectation.
Speaker Change: In terms of cost of credit it reached 9 billion reais in nominal terms the cost of credit over the total loan book reached two 6% considering the new credit portfolio, which is flat when compared to the previous quarter for comparison purposes. It is best to consider two 7% in the first quarter of 2025, which considers the same.
Speaker Change: Criteria for the loan book as the Historic series when we go to the write offs. We can also see a relevant effect, resulting in a drop.
Speaker Change: We have done the derisking process over the years. So first you go through the short term npls than the long term Npls and then you get to the write offs. Therefore, we have not changed any criteria and this is very important to keep in mind resolution for 966 currently effective allow some additional degree of freedom, especially to address the write offs and.
Speaker Change: So recognize a provision of 100% our vision remains exactly the same despite the degree of freedom. We have kept our logic unchanged. Since this is our best expectation of Recoverability or actual loss on a given loan therefore as a general rule. We continue to use 360 day terms.
Speaker Change: Resolution four 966 breaks down by product clusters, but the main message for you is that there has not been any change in criteria.
Speaker Change: How do we change the criteria the write off would have been longer it would take more time and the NPL ratios would've gone up but we would've had a momentary benefit from better credit costs. So by doing a back test. If we had applied the degree of freedom of resolution 40, 966 to our 2020 for credit cost, we would've had a cost of credit and 10%.
Speaker Change: <unk> lower than last year's which is not small.
Speaker Change: Therefore, we didn't change the criteria, we continue to be very disciplined and to manage the bank based on expected losses and not on incurred losses, we continue to take into consideration our best expectation of loss material <unk> and therefore 360 days is the statistically best input we have to support the write off criteria that we have been used.
Speaker Change: And it is much more consistent with our management.
Speaker Change: At this point I'd like to take a break since this is a new chart.
Speaker Change: And I have some messages to pass on to you.
Speaker Change: From now on we will start tracking credit quality for stages, two and three.
Speaker Change: So I'm going to zoom in on each of these stages.
Speaker Change: Only to show how our portfolio is distributed but also to show the coverage by stage let's.
Speaker Change: Let's start with stage two.
Speaker Change: We see that 8% of the individual's portfolio in Brazil is classified in stage two.
Speaker Change: As well as one 8% of corporate portfolio.
Speaker Change: Four 6% of Latin America.
Speaker Change: And four 3% of the total portfolio and the additional data introduced is what we call coverage by stage, which is a very important indicator.
Speaker Change: The balance of allowances for expected loss for the portfolio classified at that specific stage.
Speaker Change: In this case, we have an allowance balance for the individuals portfolio of 26% classified in stage, two which was 24, 5% last quarter.
Speaker Change: The first message to get across is that this is a major change in the way we handle the stages and we have some degree of freedom or discretion in how to carry out this rating.
Speaker Change: Since the bank has always worked with expected losses and this is why at the end of the year. There was no impact on the cost of credit and on stockholders equity because of the change in methodology. We just maintained the expected loss and not the incurred loss approach. This difference is very important and how do you observe this.
Speaker Change: If we add up the stage two portfolio into stage three portfolio, which I'll show in a moment and compare the outcome without NPL ratios, which apply either short term or long term regardless of the analysis you want to make you will see that both in stage two and three are virtually double our actual NPL. This shows how rigorously we measure these stages if it was.
Only by NPL and therefore, the figures observed here were identical to the NPL figures it wouldn't make much sense to have the stages.
Speaker Change: And much simpler terms, we have the short term NPL and stage two and the long term npls in stage III. In addition, we also include in stage III any credit deterioration.
Speaker Change: Renegotiations problematic assets and restructured assets.
Which are those renegotiated after becoming 30 days overdue or those renegotiated twice, even if not overdue when we acknowledge a change in our clients' credit risk even if it refers to performing loans and there are no overdue payments, which is particularly the case for companies.
Speaker Change: We classify it in stage, two and depending on how steep the movement as it goes to stage III.
Speaker Change: Stage indicators are very important and I think it is going to greatly improve comparability to see that we have provision for expected loss, which is why our stages are higher than our current NPL ratios.
Speaker Change: Another key issue is what we are calling coverages.
Speaker Change: Which ends up depending a lot on the mix.
Speaker Change: We'll give you. An example, if we have a mortgage loan payment overdue by more than 90 days it goes automatically to stage III.
Speaker Change: But because the loan is guaranteed by the property, we do not need a 100% allowance balance just because it's in stage III. This is why it's very important to understand the underlying mix of company, whose rating is downgraded is automatically classified in stage two before going to stage III because it did not become a problem asset I may have collateral so.
Speaker Change: Allowance may be lower than the balanced classified in this stage and individuals we have 26, 1% coverage in stage two while for companies. The coverage is 22, 9% and in Latin America at 16, 6% in stage III, we have five 8% of the portfolio of individuals.
Speaker Change: Three 5% of the portfolio companies and four 3% of the portfolio of Latin America that is four 4% of the total portfolio is classified in stage III and when we look at the coverages, we see that they are already higher coverages, because they refer to problematic assets, which underwent more renegotiations or restructured assets that automatically end up in this.
Speaker Change: Page and bear in mind, the comments I have made about coverage mix and type of product. Another important point is that despite the change in the standards, we have not changed the way we manage the bank using the expected loss model. So deep down. This is a consequence of everything we've already been doing over the years in other words, if we had to reprocess that traditional coverage ratio, which took into account the allowance balance.
Speaker Change: Payments past due more than 90 days you would see stability because nothing has changed this is a consequence of the changes and not because we have to change the way, we manage the bank's allowances and loan portfolio.
Speaker Change: This strengthens our suitable risk management criteria.
Speaker Change: Rigor and discipline in particular, when compared to the rest of the market.
Speaker Change: You can see this in our figures.
Speaker Change: Whether in the change of the stop accrual approach with a $100 million realized positive impact on our margin or in the reclassification of portfolios as I have commented previously.
Speaker Change: In the end all of this is a reflection of better risk management.
Speaker Change: As regards the noninterest expenses.
We have also changed the disclosure to be more in line with the way we manage the bank. This is an interesting chart and I would like to give you. Some insights from it first we classify in the personnel expenses line all expenses in the commercial and administrative areas next we have the transactional expenses related to the entire bank infrastructure and operation that is the entire portion of.
Speaker Change: On fixed assets branches in infrastructure to run the bank in the technology expenses line, we are including all expenses on it personnel and infrastructure in other words. This line includes all those technology employees allocated to the community. Finally, we have the other expenses line year over year noninterest expenses grew eight 2% in Brazil, and nine 8% considering also the Latin American operations.
Speaker Change: In other words everything is absolutely within what we had already expected and this line will converge within the guidance range throughout the year, but the most interesting thing is to observe the time series that we have included in this presentation. Despite the baseline comparison effect when we look at personnel expenses from the commercial and administrative areas, we see that the actual growth of these expenses.
Speaker Change: Has been only <unk>, 6% per year over the last 10 years in a deflated series that is very much in line with what we have been doing with regard to the management of the bank's teams.
Speaker Change: As for transactional expenses, we also have an interesting fact.
Speaker Change: We have posted a drop of 12% per year over the last 10 years.
Speaker Change: This translates into a deflated development equivalent to 68, 5% decrease in the period with the exponential effect of a negative change over time.
Speaker Change: This shows that we are managing to obtain an important reduction in transactional and infrastructure expenses, while we have invested in technology and good team management, therefore, increasing the bank's operating leverage.
Speaker Change: And this is reflected in that efficiency ratio of 36% in Brazil, which you have seen just now.
Speaker Change: And when we look at technology expenses. It is very clear that we have been posting.
Speaker Change: Growth of five 3% per year.
Speaker Change: And expenses over the last 10 years. This considers all the systems modernization all of the investments in our platform and all the investment in product and digital actions among others. In other words, we are perfectly consistent with our strategy of having a completely modernized and much more agile bank with incredible experience and with a much better operating <unk>.
Speaker Change: Rail and leverage this is why I think this chart perfectly summarizes our strategy.
Speaker Change: Let's move on to the efficiency ratio that I was commenting on we have reached a consolidated efficiency ratio of 38, 1% and an efficiency ratio of 36% in Brazil, which is the best ratio in the time series and in a series not as long from the first quarter of 2019 to today, we can see exactly how we have been able to make progress in term.
Speaker Change: Of efficiency ratio, whether through a more efficient operating leverage management with more investments in technology or through our ability to generate revenues.
Our figures are very good and we are very pleased.
Speaker Change: But we still have a lot of work to do.
Speaker Change: The good news is that we still have a lot of opportunities to chase and we will continue to be very disciplined in the banks cost management.
Speaker Change: In closing, let's talk about capital.
Speaker Change: Here, we show that we came out of our CET one of 13, 7% in the fourth quarter of 2024, we had the payment of additional dividends with an impact of 110 basis points and as a result, we reached the CET. One of 12, 6%. We had a contribution of 60 basis points to net income for the quarter showing that our ability to generate capital.
Speaker Change: With profitability remains very strong and this made it possible to neutralize the impact of risk weighted assets, such as market operational and credit risk.
Speaker Change: And to absorb all regulatory impacts with this increased capital generation capacity.
Speaker Change: We have dedicated teams in house that are always looking for opportunities to increase capital efficiency.
Speaker Change: Therefore, all of the operational risk capital and all the credit risk capital and structured operations that increased in this quarter.
Speaker Change: Were absorbed with the capital generation for the quarter itself.
Speaker Change: Thus, we reached the CET one of 12, 6%, which is a very sound threshold.
Speaker Change: With everything remaining constant.
Speaker Change: We will work hard to be able to pay more additional dividends.
Speaker Change: As we always say our goal is to pay recurring additional dividends and that is what we have been working on all of the planning. We do was carried out with a lot of discipline, while monitoring the existing scenario our growth capacity regulatory impacts et cetera. All of these factors are taken into consideration while the bank continues to have a very sound capacity for generating capital with that.
Speaker Change: Said I end my presentation here I'd like to end with two takeaways for you first as you have seen this quarter, we posted very sound results of our high quality I think it is important to look not only at our bottom line, but also to understand the entire mix and the effects that have led to it we have posted significantly higher revenue.
Speaker Change: Major growth in EBIT and efficiency ratio at its best levels and a reduction in the cost of credit in short a quarter with very well behaved indicators as I have always said, we have never been so well prepared to face whatever challenges lie ahead, whether for the quality of our portfolio the level of provisions in our balance sheet and a huge level of compliance with the new standards.
Speaker Change: Which shows that at the end of the day managing lending using the expected loss approach as we have been doing for many years has generated consistent results. There were no transfers among the line items. There was no discontinuity in the financial margin and all the other effects I have already mentioned were taken into consideration, which is very positive as you can see I mean, the auditorium, and I'm going to need a minute.
Speaker Change: Joined Renato, who is waiting for me and our studio for our Q&A session. In the meantime, we will show you our new campaign that we are launching which basically reflects everything you have seen in this presentation, especially regarding the investments we have made so far over the years, we have invested a lot in the bank, we always talk about the institutional marketing and large institutional campaigns.
Speaker Change: We have made an important change.
Speaker Change: We are increasingly talking more about our products and our business lines.
Speaker Change: While naturally being very careful in what we say and backing all the investments made by our brand which is the most valuable brand in Latin America.
Speaker Change: This new campaign has some very important attributes.
Speaker Change: The first is to communicate to the public what our activity in our daily life is.
Speaker Change: That is working to simplify people's lives.
Speaker Change: Provide good product experience and good business experience and solve client problems.
Speaker Change: This new campaign shows this.
Speaker Change: And you will be able to see the number of products that we have been launching as a result of our capacity for innovation and modernization achieved over the years.
Speaker Change: Also we reclaim award that has been very important to us for many years, which is done we used to talk about made for you.
Speaker Change: Then we evolve to meet with you.
Speaker Change: And then we launched made a future.
Speaker Change: And now we think that to make it simpler and make this delivery tangible the time has come to US. It's done and this is what you will see in this campaign I hope you like it because here at <unk> when we deliver a product we deliver a solution. It has done. Thank you everyone now I'm going to join <unk> and we will talk in a little while to you later.
Speaker Change: <unk>, Thank you give us a basis.
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Speaker Change: View is all the <unk> might be double team. This past few weeks.
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Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Thank you Milton.
Speaker Change: I think that it was very nice to the format of the presentation.
Speaker Change: And for those of you that have watched it.
Speaker Change: Very nice attempting.
Speaker Change: Tempting.
Speaker Change: So.
Speaker Change: As we continue with the Q&A.
Speaker Change: Milton <unk>, our CFO welcome Gabriel.
Speaker Change: This session is bilingual so we answer the question.
Speaker Change: And the language that is asked if you should you need any translation you can always choose the audio in English and Portuguese.
Speaker Change: No.
Speaker Change: As always you can submit their questions via Whatsapp.
Speaker Change: Number 11, 93 to 190 883 five.
Speaker Change: So we have a lot of questions.
Speaker Change: People have raised their hand without further Ado, let's start first question.
On the screen Daniel Bartus from Santander Bank.
Speaker Change: Welcome to our earnings call.
Speaker Change: Good morning, everyone. Congratulations on the results I ask you questions on my side, whether its you asked about growth.
Speaker Change: I mean, it's easy to say that a bank your size should have more defense of market share and then you have discussions with investors.
Speaker Change: Again here the argument that it's difficult is that.
Speaker Change: Ken.
Speaker Change: And the massive side segments against in USA.
Speaker Change: <unk>.
Speaker Change: The bank does want to be a doctor in some fronts I mean.
Speaker Change: You referenced that and given the great level of quality of assets and capital generation should.
Speaker Change: Should we expect a more bold positioning in 2025.
Speaker Change: And how can we expect that Z.
Speaker Change: Workings.
Speaker Change: Hello.
Speaker Change: Nishu, its where you have less market share guidance looking at the head. Thank you.
Speaker Change: Cool.
Danielle: Thank you Danielle.
Speaker Change: No further question with your question.
Speaker Change: Mississippi.
Speaker Change: So it's two questions I'm going to start first by credit.
Speaker Change: We cannot forget that we are in.
Speaker Change: Interest rates of the last 19 years.
Speaker Change: <unk> 75.
Speaker Change: It's not just an issue of offering but demand.
Speaker Change: Reduces as we see the different business as we have had great opportunities we've grown the portfolio in many of the segments Mary.
Speaker Change: Lee.
Speaker Change: And we have personnel that is focused in our risk management and portfolio management.
Speaker Change: Morris this is a dynamic process, but the public the clients that.
Speaker Change: We want to grow we've managed to grow two digit level and we gained in market share. So the boldness comes from that we.
Speaker Change: We have a lot of strength in growing and dose publix and we understand our resilient in longer cycles from the standpoint of opportunities.
Speaker Change: We are optimistic but cautious.
Speaker Change: Optimistic because as I told you we are maybe not the best moment towards the balance sheet of the bank.
Speaker Change: For any scenario that we should face why there is such a scenario for opportunities. We are ready to rapidly grow alright adjustments. We are also prepared with a very resilient portfolio.
Speaker Change: Capital allocation portfolio with a long term vision is very important regardless of the fact that we have indicators that are well behaved. Because these are decisions that we made today that will sustain the balance on the medium to long term. So we are very disciplined in the capital structure. Its key with the quality of balance sheet that is very strong.
Speaker Change: Seizing the opportunities in growing in this segment that we believe that we should continue to grow growing two decades, but what you see in the aggregate as the effect of the growth and the Derisking.
Speaker Change: Closed basically last year in the portfolio, but in those public said are not target Publix we.
Speaker Change: We chose to lose some market share. So when we look at the address markets, we gained or maintained our market share in the businesses, where we've maintained and gained a share and then the publics and we consider.
Speaker Change: No theyre not part of our strategy, losing this year is the best decision that we can take so we're going to see the market moving it's a lot of business as the bank has a very complex portfolio of businesses. So that philosophy is worth for all the business lines. We are.
Speaker Change: We have the guidance with the best expectation, we are comfortable and we are focused on the adequate returns with the capital allocation not only looking at the credits, but also the completeness of the relationships with our clients. So we're optimistic we're happy with what we've done and cautious because the scenario which is.
Speaker Change: Global or <unk>.
Speaker Change: Local inspires cautious because of the interest rates that I just mentioned about the network.
Speaker Change: The decision to integrate this network, which is not simple.
Speaker Change: Been there when the company.
Speaker Change: It was lifted out was.
Speaker Change: Closing the capital. This is an integration that has been done and an impeccable matter.
Speaker Change: Unlike yourself complement but indeed this was a well conducted a process for the teams in the bank and this integration was so soft so seamless that today, we can see that as another service for receivables. So we havent note offering.
Speaker Change: Flows in our packages. So this integration of the network and the bank the way that the managers of the bank of all of the segments discuss the issue acquire ends within the package.
Speaker Change: Flows in receivables and payments, we have unbelievable synergies.
Speaker Change: <unk> lead the mono product mono line of discussion to have a holistic overview of decline, which is the correct, but im not going to talk about the appointment.
Speaker Change: <unk>.
Speaker Change: I'm going to talk about the client in the discussion that I went ahead above the credit the receivable that is important whether if it's a discussion on the service that the network is the best discussion it starts there.
So this integration of the commercial teams along with our network and unification has broad imports and the results. We're very happy with the evolution and naturally we will advance into different segments.
Speaker Change: It is our opinion Andi NPS, which is the platform that we have digital.
Speaker Change: The company to talk to the digital small smaller company smaller client has a NIM benefit solution already embarked so we cannot so we have looked at not only at more clients, but we deepen the relationship with the existing clients and with the competitiveness of our offering.
Speaker Change: Thank you Matthew.
Speaker Change: Let's go to the second question.
Speaker Change: Thiago Batista from UBS good morning.
Speaker Change: Can you give us.
Speaker Change: Good morning, everyone.
Speaker Change: Alright Thats helpful.
Speaker Change: Well.
Speaker Change: Another result that.
Speaker Change: Is constant and we've grown in <unk>.
Speaker Change: In the quarter. My question is about the private brand snack nuts.
Speaker Change: So two topics on this but you had the list of the sixth biggest players and we have to stage three or four in niche.
Speaker Change: Andy six would be 80% of the present market.
Now, we don't see any of the incumbent traditional amongst.
Speaker Change: <unk>.
Speaker Change: The players so how do you how do you position that product.
Speaker Change: Hi, Hugh.
Speaker Change: The other big players.
Speaker Change: How do you position yourself in this business why do you imagine that would be.
Speaker Change: And there will be cannibalization maybe.
Speaker Change: The exchange for the more expensive income for <unk> or for the other one so they can pile up debt. So I wanted to understand how do you see that.
Speaker Change: A small market I understand but how do you see it.
Speaker Change: Thank you.
Speaker Change: Thank you for that.
Speaker Change: Yes.
Speaker Change: Consideration when we're talking about.
Speaker Change: Two minutes.
Speaker Change: Pretty well.
Speaker Change: So I think the other payroll loan.
Speaker Change: So our product did lots of value that was always.
Speaker Change: And operational.
Speaker Change: Limitations on how to do.
Speaker Change: The agreements with the companies on the large scale, we have the solutions. He I think Ips that is unified via the E. Social and this is a change that is relevant and it makes it.
The market you have a relevant growth let me give you a few numbers that can help you in your analysis.
Speaker Change: Thank you so much.
Speaker Change: This information this is a market.
Speaker Change: 40 billion Reais I'm, not talking about the $10 billion.
Speaker Change: Diesel burst over the last weeks no question, how did the $40 billion.
Speaker Change: <unk> has 12 billion, so about 30% of that market.
Speaker Change: We have it today, because we have a strong penetration in the segment and big agreements. So we have used that strategy of deep Friday payroll loan for a long time.
This will see none of those.
Speaker Change: As you've seen.
Speaker Change: We're the incumbent banks has been since the inception of Banco do Brasil cashed yet but.
Speaker Change: We've been in the private since.
Speaker Change: Since the inception of the concert concession because we and we've learned this is very important and we've learned after all these weeks and why do I think it's important that we do this counterpoint deep Friday zero loan is completely different from any other currency that exists.
Speaker Change: Leave from in anticipation of the withdrawal on them at the birthday, which has less risk and then your dropdown Andy.
Speaker Change: The chain on the risk and then Youll have an annual have public companies it depends whether if youre working with a municipality or a company enterprise it.
Speaker Change: Zero loan is no different.
Speaker Change: Accompanied by Endo.
Speaker Change: And the risk of the theme of the payer you have to of course take you take a look at the risks, but you have to work with a combination of.
Speaker Change: The company that do not improve the combination of the risk does not improve on the performance that is expected sorry, they're quite volatile. So the massive salary men in Brazil, It's 120 <unk> failure.
Speaker Change: So Andy private closing under its 40.
Speaker Change: So the other $80 billion is credit that exist for the basis of salary meant so what I'm, saying is that if you do the same analysis willing to concede neither of the public companies de leveraging of the jump in credit divided by the salary Med monthly is 46 times.
Four to six times, so that $120 million can become $300 billion can be becomes more of a $400 billion in ultra optimistic, but it has a portfolio of the hedge portfolio.
Speaker Change: This first of all it might even have a share in the GDP. It can grow a lot.
Speaker Change: We are optimistic so we have to migrate to clients. So we don't lose the risk of that client, becoming over and with too much debt and the program allows that and number two you are not subordinate to somebody once you provided that the payroll loan you.
Speaker Change: And there is somebody that we will have until 35% of their salary being used.
Speaker Change: Youre going to be tied down to that so when you look at the races, and you do that testing with all the production that we've done I would say that 70% of what was produced.
Speaker Change: Our people clients I do not have a bank account with our bank either we don't have a relationship where we don't have enough and thats, where the other 30% we have our funnel and remember that one of the.
Speaker Change: The rules.
Speaker Change: Would you check the Icrc Youll Cfd have a personal loan because then you cannot provide the loan because of the risk of over indebtedness. So it's a big.
Speaker Change: When you drop in the funnel when you do that ended the third one which is risk which is a matrix that combines the risk of the company with our risks.
Speaker Change: Does that take the payroll loan and we defined clearly what is the public that we want to operate and we do not want to operate.
Speaker Change: I'll buy you a decision of risk, we decided not to subscribe a lot of the credits that were taken in the market.
Speaker Change: I'm not saying that today is right around our appetite.
Speaker Change: Our risk management is like that and remember that many of the players that are getting in with a lot of appetite. They know less of the risk of the companies, which is our core business for a long time for many years since we know a lot of other companies that have good risk management of the company.
Speaker Change: If you take a look at our risk management through the cycles and I think that this is the competition the competitive differential because we're going to lose operation support but by a decision.
Speaker Change: Decision, because we do not think that the risk compensated because of the rates that are being practice.
Speaker Change: This discipline will be very important in our comparative advantage is the know how that we've developed.
Speaker Change: On the management of risk of companies.
Speaker Change: That provides you a capacity for decision making process that is different and I think that there is some operational challenges that are important that we have to observe it in the next months.
Speaker Change: When the first payments are going to be done.
Speaker Change: There is a natural evolution of the platform that will occur there is the risk of the credit itself, we think that losses will be materialized and the delays delinquencies will be the same one as the private.
Speaker Change: But with lower rates practice. So there is the government.
Speaker Change: The two biggest public banks.
Speaker Change: So to highlight.
Speaker Change: The program and I understand that this is an agenda of growth.
Speaker Change: Everybody has their own policy everybody has their own appetite and I think that the fintech side have been working to subdivide them into two public.
Speaker Change: Our subscribing and taking more risk because of a lack of knowledge clearly, but time is to tell we're going to see.
Speaker Change: And there is regulatory aspects because one of the rules for you to check the CRD central risk management of the Central Bank before providing credits and we've seen a lot of people taking credits I think we're in that database, but that's a regulatory.
Speaker Change: And that's up to the brand and the government should take a look at that and see how they're going to treat that because they are operating outside of the rule. So I think that there is a mix of everything and I think that the final messages that we've done portfolios.
Speaker Change: So youre going to see it our knee bancorp.
Speaker Change: Do you think.
Speaker Change: We have a great expectation about that we think that the <unk> 40 billion. They are going to grow a lot and we have a fair share or possibly less than 30% that we have today.
Speaker Change: Probably larger than the $12 billion of portfolio that we have today, but.
Speaker Change: Nick with a net financial margin that it's the same loss at all times. So we see that this is a great opportunity to be good and we are expanding and we're generating credited with good economic conditions for the takers of these payroll loans and this has to do with our lifetime value strategy and reducing delinquency on the long term.
Speaker Change: Thank you Milton complete result, complete questions complete answer to this question.
Speaker Change: Third question now also with us.
Speaker Change: A lot of divestments from BTG Pactual.
Speaker Change: Thank you Bob.
Speaker Change: Hello, Hello, everyone.
Speaker Change: Congratulations on the numbers.
Speaker Change: <unk> quality.
Speaker Change: You have a digital transformation that has been paying out. My question is what is now what about no I think that the threshold days getting up or higher.
Speaker Change: They are very relevant.
Speaker Change: You make one sector that is well penetrated in the economy, an economy that does not grow a lot of unfortunately, so how do we generate value.
Speaker Change: Yes.
Speaker Change: Where is it going to come from <unk>.
Speaker Change: Closing all banks its.
Speaker Change: It's going to come from abroad help us too.
Speaker Change: With your two cents on that well. Thank you Roslyn always great you're seeing here.
Speaker Change: Okay.
Speaker Change: Congratulations on the report and as we do all the reports.
Speaker Change: They are published we read all of that and thank you for the feedback I would like to say the following rosman.
Speaker Change: You mentioned many of the points when we look at.
Speaker Change: We still see a lot of opportunities.
Speaker Change: This opportunity is heavily you have a breakdown in the several segments that we work with.
Speaker Change: Since the bank and the end of the day is a big holding of capital allocation with a portfolio that is very diverse with businesses that are non correlated some correlated.
Speaker Change: We can have a portfolio that is very well balanced.
Speaker Change: We can find opportunities in all trends so when we talk about the business unit.
Speaker Change: You mentioned.
Speaker Change: The natural question, we're very excited in the next quarter I'm going to show.
Speaker Change: Show you some early indicators of what we manage to do it through one one.
Speaker Change: <unk> is very exciting to see the results.
Speaker Change: The initial results firstly migration of the 50 million clients that we can manage that we migrated until the end of the year. We've migrated already 8 million. So until the end of the year, we should finish the total migration 99 plane.
Speaker Change: 1% migration Thats the right precise.
Yes.
Speaker Change: Zero attrition and the NPS of those that migrated above 85. So you changed your migrated no attrition in the customer experience is 85.
Speaker Change: It's very encouraging and.
Speaker Change: And then Youll get interest staging of offering a full bank for the client that had a mono line or exteriors and Thats full bank experience has had great value in the penetration of products and accounts payable opening new relations in now.
Speaker Change: We start to advance in the breath.
Speaker Change: The portfolio of the bank lease segmented all the basis.
Speaker Change: <unk> and other segments in the next quarter EMEA right now, though we already discussed bringing some indicators. So you can have an idea of what we are discussing a great deal of the growth in the natural persons.
Comes from that and gaining market share we are more competitive.
Speaker Change: Yes.
Speaker Change: We have all the conditions are continuing to grow of course, the GDP is important growth of activities, but we continue with opportunities of our combined market and gaining market share in the segments that we really understand that we can have a differential.
Speaker Change: Do you have a proposition that is different and for that.
Speaker Change: We are moving we are in.
Speaker Change: In constant movement, just to give you an overview on the digital transformation, we mobilized 300 journeys in the bank.
Speaker Change: Theory.
Speaker Change: And the business unit for natural person and the companies, we launched over to 18 products new products.
Speaker Change: These are inserted in the journeys of our clients and all of them with.
Speaker Change: A great output.
Speaker Change: Level of engagement increasing level of adoption very high. So we're very excited with our new capacity to develop solutions and solving the pains of the clients with the speed that we never had were surprised every day with our capacity of January getting impact.
Speaker Change: 300 journeys modernized 18 products launched if you get into our Super App Youre going to see that campaign that we've just seen that.
Speaker Change: And they'll.
Speaker Change: So companies Bu.
Speaker Change: We've gained market share.
Speaker Change: Also the wholesale we've had great opportunities, we had a great penetration.
Speaker Change: Our business of agribusiness is growing very solidly we have opened new fronts at <unk> all of them performing very well.
Speaker Change: I think that theres still opportunities and the central point here and.
Gabrielle: No welcoming Gabrielle here.
Speaker Change: The CFO of <unk>.
Speaker Change: All of the calls present from now on <unk> B sides is great.
Speaker Change: He is going to be the leader of our agenda of cost efficiencies.
Speaker Change: So looking up ahead and we see here that there is an opportunity that is very.
Speaker Change: <unk> continued to advance.
Speaker Change: I think that we needed to go through this modernization process.
Speaker Change: <unk> discussed is what we have to turn off that mainframe the discussion that the big Bank operates in the mainframe that we see that.
Speaker Change: Being close in the future, but we are in this process of closing cycle.
Speaker Change: And so that we can have a modernized bank 100% online.
Speaker Change: Running of the cloud or a few things.
Speaker Change: That doesn't make sense youre, taking that to the cloud of course, continuing with our mainframe and with efficiencies, which is the last page that is very relevant, especially on the natural persons.
Speaker Change: Our clients and this is the next stage.
Speaker Change: So we can service to clients in the different segments with a value proposition that is adequate but with the cost of service that is correct.
Speaker Change: I mean.
Speaker Change: And with that we can service our current clients the Super App is not not even highlight anymore.
I mean, it's a lot of clients of those that migrated in dose other clients of the banks that is going to be a new lever of growth with an efficiency level that is lower.
Speaker Change: I mean part of the evolution of the bank. It has to do with that so we are optimistic with everything that we've achieved of course correlated with the activities and the.
Speaker Change: We have the nominal GDP growing bud.
Speaker Change: With a lot of opportunities to be captured.
Milton: Thank you Milton.
And the next question, we're going to switch English as we always do.
Speaker Change: It comes from particular about there for Goldman Sachs just to Orient you to you. Thank you so much for joining the call today.
Milton: Great. Thanks, Renato Thank Milton.
Speaker Change: Good to see you guys. Thank you for the call and taking my question Mike.
Speaker Change: My question is on the financial margin with the clients I think very good performance, particularly in a seasonally tough quarter and also given that high base you already have there.
Speaker Change: Just looking at that the year over year rate running a bit above the guidance I mean, you sounded a bit constructive note than before and the potential growth outlook.
Speaker Change: So could there be potential upside or just help us think about.
Speaker Change: The continued growth of the financial margin.
Speaker Change: With clients and also may be beginning to think about well maybe we saw the last rate hike earlier this week and maybe the market is beginning to pricing potentially lower rates later in the year. So just help us think how do you think about that financial margin with declines given sort of the current environment and potentially the rest of the year.
Yeah. Thank you Justin good to see you too are always a pleasure to have you here with us.
Speaker Change: Let me start saying that we are very positive.
Financial margin with clients of course when.
Speaker Change: When we do our budget, we thinking closer to raising the level of interest rate, we have plan or budget.
Speaker Change: Those hikes that we've seen so far let's see what happens in the next meeting but at the end of the day all of them somehow are incorporated.
Speaker Change: We released in the beginning of the year.
Speaker Change: So we are positive I still believe that the Guy Bill says the best information that we have today.
Speaker Change: If I had to choose a geography I would say that we would be much more close to the top of the guidance with the financial margin with the clients batting average.
Speaker Change: The midpoint of the average of the of the Guy had been so my view is that the range is to absorb our best expectation, but we are positive that the weekend to LIBOR.
Speaker Change: So the top of the range.
Speaker Change: This is a robust 60 months.
Speaker Change: Our expectation I would say to be a lot of opportunities as you saw the average balance for our portfolio has been very positive in this quarter. We had the seasonal effect of less calendar days business days and also current today's.
Speaker Change: But in general all the operations performed very very well of course, the interest rates has an impact as well being on the spread of the investments.
Speaker Change: The deposits that we have in the bank, but also the working capital of the bank that has been increasing quarter over quarter. So overall positive and I believe we can deliver at the top of the range by the year end.
Speaker Change: Thanks, and good luck.
Speaker Change: You've often will go up.
Speaker Change: Now going back to Portuguese we have Marcello.
Speaker Change: As I.
Speaker Change: Good luck your MDI.
Speaker Change: Come to the call.
Speaker Change: Well, it's an honor to be here. After so many 20 years to do it as an investor.
Speaker Change: Annualized in the bank on the other side. So my question.
Speaker Change: A lot of them were answered, but when we think now module puts you in that score and adult but let me tell you the margin of opportunity.
Speaker Change: With that we can bring as we think about the segments, where <unk> can have an increase of market share. So credit card is a big market share we have an opportunity for growth.
Speaker Change: But maybe the question for me.
Speaker Change: It would be thinking about the platform of investment how do you think the platform of investment.
Speaker Change: That if one is with the type of client and winning.
Speaker Change: <unk>.
Speaker Change: We will be opening.
Speaker Change: And if we're growing in.
Speaker Change: The retail what would be possible.
Speaker Change: Two develop until that <unk> can bring our clients deploy the platform of investment.
Speaker Change: That already exists already was that discussion on what was that lessons learned during the development of high end niche Michael So how do you think about this business segment.
Speaker Change: That the bank is not shareholder.
Speaker Change: Oh gosh.
Speaker Change: But I think that there is an issue that can be identified.
Speaker Change: Do you have a range that is very different.
Marcelo: Well, thank you Marcelo.
Marcelo: Congratulations on the challenges thank you for the questions.
Marcelo: Well first of all one is though is very important since we have is being born from the origin of credit cards, and each which are the shoe big publics that are being migrated we don't think that necessarily in the credit card. There is always going to be at an opportunity because it's always the same client operating with us in.
Marcelo: Sometimes they come through a specific product and we have the capacity of broadening the offering.
Marcelo: Credit cards for this client number two when you segment. This space because I think about 50 million clients you can see that there is clients from other segments. We have a low income it I will let Jean says we have the average income on the class and we have excellent of deepest tonality of course evident one or the other clients from private but I.
Marcelo: I'd say that this is concentrated in the <unk>.
Marcelo: And the natural person segment, so the opportunity not only goes through the evolution of the credit relationship of that client, but products and solutions are you Ken is bulb.
Andy transactions accounts payable you can bring a flow to the bank. All the features that we launched in central Florida.
Marcelo: For the clients too.
Marcelo: Seized our resources anticipation.
Marcelo: Fixed credit Youll start to lever within the platform itself it investments and the model of attention that with Nicolaisen personal. It is also something that we can offer for these clients all of the programs and advantages for our clients. So we see an opportunity for cross sale now solving the pains of the climb.
Marcelo: It's an increasing operations with this client and investment is one of them in here.
Marcelo: Liquid iron we are very satisfied with the evolution of Ireland all throughout the year.
Marcelo: It has an extraordinary.
Marcelo: <unk> results so when we see.
Marcelo: In the natural persons is very strong and.
Marcelo: Ion has always worked with managers, which is a specialized sales force specifically in personnel it and in the class and they also talk about the investments and other products banking credit and real estate credit and all the other clients.
Marcelo: That composition and the logic of the specialist has brought.
Marcelo: Really results that are very strong.
Marcelo: I'm very excited with all the evolution when we compare to the market and our capacity for generating value. We're very satisfied when we measure the flow is very positive.
Marcelo: And it has the scalability that is.
Marcelo: Yeah.
Marcelo: There is limited because that model, where you have the human attention.
Marcelo: Sure.
Marcelo: It works for a specific public of clients.
Marcelo: More scalable public which is a great deal of what is being migrated to one if.
Marcelo: We need to have a solution that is more intelligent or servicing the scalable claim and that was as a web summit last week and I was discussing that we are launching.
Marcelo: With a pilot with a wells, especially the investment powered by artificial intelligence.
Marcelo: This is something that we've been working for a long time, we've turned a year with our pilots and testing.
Marcelo: We scale, we've done the scalability of the test and this is a question.
Speaker Change: What about the models of L. L M and all the artificial intelligence that is available for everything what is your edge.
Speaker Change: There is a combination that is powerful in the bank, which is the combination of all the knowhow that we have acquired because we are a platform that is very strong.
Speaker Change: And the investments in Brazil. The main platform investment numbers are when you look at the Knowhow and the management of investment and all the learnings that we have of the open platform combined with the artificial intelligence you can train our agents in artificial intelligence with data that sometimes they are not going to have in the market somebody that can.
Speaker Change: Have a great technology, but doesn't have the behavior or.
Speaker Change: The expertise of allocating <unk> readership of the clients.
Speaker Change: This combination is very powerful and it will allow us.
Speaker Change: Hugh.
Speaker Change: Scale, our relationship with the clients and the world of investment. So we are in an early stage. We are happy to learn that pilots are important when you discuss investment you have to create a at the guardrails. So you can be careful but the results have been very encouraging and we hope to scale. This solution also Jonathan it's connected also.
Speaker Change: It all done.
Speaker Change: So, perhaps it's not a chatbot.
Speaker Change: No. It's an artificial intelligence and experience that will give you greater chip in consultancy and we'll help you with the management of our investments with all the training and the debt.
Speaker Change: We've acquired all throughout the year and this will help us scale the platform of one eight hour and other relationships that we've had with our clients that are of the banker that need.
Speaker Change: A more specialized.
Speaker Change: Yes.
Speaker Change: The service now the next question.
Speaker Change: Mario <unk> from Bank of America, Mario Good morning.
Speaker Change: Yes, good morning, everyone and thank you for the opportunity congratulations on the results.
Very predictable.
Speaker Change: See an improvement quarter on quarter in the market.
Speaker Change: Appreciate that.
Speaker Change: So the question for you.
Speaker Change: We're about it.
Speaker Change: You've shown that the bank has done a great job.
Speaker Change: And we have the lowest price, but when we look.
Speaker Change: Youll closed almost zero percent of your.
Speaker Change: Of your branches all throughout the year.
Speaker Change: And your number of employees, excluding technology dropped just 2%.
Speaker Change: So much so today when we see the number of employees per branch is 32, a year later was 29.
Speaker Change: Understand.
Speaker Change: How do you see that metric evolving and if there is still space for building branches because every call we hear investment in technology why not.
Speaker Change: I wanted to understand from you how.
Speaker Change: Do you see the function of the.
Speaker Change: <unk> branches from now on.
Speaker Change: A survey we see that.
Speaker Change: People still have a value of going to the branch.
Speaker Change: So what would be.
Speaker Change: Deal number.
Speaker Change: Branches.
<unk> released our branches.
Speaker Change: Thank you Mario.
Speaker Change: Always great to see you at muscle Shoals.
Speaker Change: In our calls as well.
Speaker Change: I think that the question is very good and let me give you a few data that can help you.
Speaker Change: Our train of thought well first of all we don't have an objective before.
Speaker Change: Don't think about we're going to close so many branches. So of course, we do the forecast.
Speaker Change: It says.
Speaker Change: And it's a very complex algorithm, it's not simple we went it closely and whether clubs.
Speaker Change: We look at that.
Speaker Change: A lot of variables geography client.
Speaker Change: Penetration of that branch in the region. The result of that bridge the capacity.
Speaker Change: Doing this because of the scalability of that agency or not the distance between the branches.
Speaker Change: We service that client in our central brands and have a business branches more satellite. So this is an analysis that we've done daily.
Speaker Change: By our teams and this is an important point there is a point that they are a great deal of these branches. We are migrating to digital branches. It's a completely different model of servicing the cost of service is much lower and with the scalability and the capacity of adjusting the account loads and a very important way.
Speaker Change: Aspect when we close the agencies that we closed.
Speaker Change: Always look at the distance how many kilometers we are from the next agency well that generated attrition with the.
Speaker Change: Clients that will service us or not so in yen, depending where the distance.
Speaker Change: We havent reduction.
Speaker Change: When we close an agency because a great deal of the managers of relationship given that the account loads are finite weekend trends for the commercial team.
Speaker Change: Service these clients.
Speaker Change: Decreased.
Speaker Change: Work of those teams maintaining quality measuring NPS and we adjust as necessary.
Speaker Change: This quarter, if you take a look there was a reduction of 100.
Speaker Change: Brian says, we know that the motto Vigital has in.
Speaker Change: And importantly, it's important for the medium high income low income is less efficient to service and all the work we've done to make our journey digital and making the Super App digital makes us to have a more competitive value proposition because once again, our objective is to service our clients in a way that they want to.
Speaker Change: <unk> service. So we don't close the branch by brute force simply because we want to adjust the cost and we reduced debt structure, because when you do that you're taking away topline as well relevant topline and you're leaving our clients without service, while we need to service the clients with the right price.
Speaker Change: So that these models of attention are sustainable in the long term and this is the work that we've been doing also at all time that digitally <unk> will allow us to adjust the business model. So we can be competitive with an efficiency level that is adequate. So we can service a different public sense, you'll be in fact.
Speaker Change: Take on more credit losses in the more vulnerable publics if not the very low income this.
Speaker Change: This is not a public that we have a target objective, but the low income.
Speaker Change: Clients that are resilient in a long credit cycle. So there is a shifting that we've been doing.
Speaker Change: Importantly, <unk> CD evolution, the direction of the evolution and the work that has been built from the base upwards.
Speaker Change: So youre going to see in the future evolutions in these indicators that will give you more clarity naturally of what is our strategy.
Speaker Change: It's one step at a time, we are aware of the challenges, but we wanted to do things well done.
Speaker Change: Take care of the clients the people in the bank.
Speaker Change: The transition has to be done in the best way possible. We are in the process. This is a process that will be picking up speed offered all day next year. Thank you Mario.
Speaker Change: No.
Speaker Change: And it was not the right number maloney from out on the most welcome to the call.
Speaker Change: Good morning, everyone. Thank you for the opportunity and congratulations on the consistency of the results.
Speaker Change: First of all so his thoughts and let's go back to your answer on the financial margin of clients.
Speaker Change: If we.
Speaker Change: You are running well above the guidance now so the issue of the deceleration of growth.
As Dan clear.
Speaker Change: If we take that margin within that guidance, Okay, Youre still running.
Speaker Change: Above and why you already mentioned this so I wanted to understand within that improve implicit compression.
Speaker Change: Where do you see the biggest risks.
Speaker Change: And among the segments that are decelerating, how will that influence to make for so many difficult to find deals that he come from the increase of the cost of funding and secondly can you mentioned the evolution of this sector of credit where is the biggest risk and how is the bank positioning itself for that.
Speaker Change: Thank you Renato Thank you.
Speaker Change: Yes.
Speaker Change: And what I wanted to tell you is that when we look at the margin.
Speaker Change: Well first of all portfolio.
Speaker Change: Central point, we've seen the portfolios perform.
Speaker Change: Then what we expected.
Speaker Change: Our age income coming up we have a volatility in because of the exchange.
Gabriel: The exchange Gabriel.
Speaker Change: Derek.
Speaker Change: Monitoring the effect.
So this is an all looked at we have a constant envelope.
Speaker Change: So we have to look at the average numbers that I just presented <unk> second aspect is that I wanted to mention to you.
Speaker Change: The interest rate itself, it's a pass through for our margin that is slower and why is it slower because we do hedging.
Speaker Change: Those positions so with the interest rates are low cycle and the interest rate drops very.
Speaker Change: A lot.
Speaker Change: Longer to perceive this drop because the portfolio works.
Speaker Change: Very rude way, so that increasingly in the interest rate.
Speaker Change: Through we predicted it so we can observe in the working capital that effect of Dci General lines.
Speaker Change: You can see an annualized margin.
Speaker Change: It is relatively stable with smaller escalations.
Speaker Change: The adjusted margin should the risk is relevant to the capital because at the end of the day, we we publish and you're seeing that our margin adjusted to the risk is the best one of the serious since the fourth quarter of 2019. So when we look at the projections of the margin adjusted for the risk.
Speaker Change: Payroll loan it.
Speaker Change: Can have.
Speaker Change: The consolidated sorry. These are small effects with a very solid. This is the important thing the risks I think that we understand that.
Speaker Change: The portfolio will continue to perform as we expected we don't see a risk in spread in our portfolio to increase in the interest rate.
Speaker Change: Somehow re prices capital markets.
Speaker Change: Less competitive even though we had a quarter with good activity less than last year. So we have more operations, where the balance sheet and the demand.
Speaker Change: <unk>.
Speaker Change: Naturally with this law.
Speaker Change: Level of interest rates tends to be.
Speaker Change: Be less the companies and the people do less.
Speaker Change: Sharon.
Speaker Change: Less decisions on purchasing.
Speaker Change: We feel that but we are constructive in regards to the financial margin with the clients positive.
Speaker Change: We will have a solid year indeed value delivery.
Speaker Change: And.
Speaker Change: You did a complement on the first question.
Speaker Change: It was just about the margin Oh, it was about the credit cycle.
Speaker Change: How do I see the credit cycle. This credit cycle is the following.
Speaker Change: We can see good indicators that are favorable.
Speaker Change: We wanted to open the short delays because since we are in that expected loss have been working with expected loss for a long time, we have to look at the dynamics of the short delays because it gives you the tips of what's up what's up ahead and it's a short term.
Speaker Change: Those short delays that will bring the provisions and a model that is there any sense about where the expected loss run you'll see delinquency.
Speaker Change: Natural persons growing in 2006 basis points and what we wanted to show with two decimal points is that we follow the sector with the average rate.
Speaker Change: It's about 30, 40, I would say more than $40 30, because there were a few years that logic was discontinued weighted post pandemic. It in the past was very well, but we see a process of de risking that was very high in the portfolio. So this is a quarter that is more typical with the quality of portfolio.
Speaker Change: It is very good so that's why we are running in those thresholds.
Speaker Change: That's a big.
Speaker Change: To cater so that's why we when we look about the provisions of other formation.
Speaker Change: That ends up being higher than the 100%. It has to do with a double effect of formation is very good because the portfolio is performing very well all the work of credit that we've been doing throughout the year, but with an expected loss that is.
Speaker Change: Since the short term, where the natural presence they happened in this quarter. It brings more provisions. So that's why we provisioned 120% of the aforementioned in this quarter and also other time, we imagine that there's going to be a reduction that is natural.
Speaker Change: Got it.
Speaker Change: That's already you pay attention to the short term when you see the segments and then Youll see the natural persons.
Speaker Change: I mean, the Smes the big effects of denominator with the big companies and any change that you do in the methodology of write off.
Speaker Change: Can lead you to have distorted indicators. So since we didn't change the criteria of the indicators are comparable and that's for all the products. So this cycle is benign, but we are cautious because we see indicators.
Speaker Change: You know I was little.
Speaker Change: A bit of consumption of liquidity.
Speaker Change: Using the working capital of the company. This is a quarter that has pressured when we project our indicators of credits before up ahead, we have.
Speaker Change: Comfortable with stability, except with the Smes.
Speaker Change: And then we had mentioned that theres going to be a normalization of the last two quarters that were below what we expect that is reasonable. So we add on I don't foresee.
Speaker Change: But the market is more nervous.
Speaker Change: We see more client that wants to discuss but as I told you.
Speaker Change: Our portfolio has never been so resilient.
Speaker Change: Four.
Speaker Change: Challenging scenario.
Speaker Change: Up to see we don't see a credit crunch and liquidity in the capital markets are still strong and we're going to see the evolution of our portfolio is very healthy.
Speaker Change: Currencies are well behaved.
Speaker Change: We are very excited with the perspectives.
Speaker Change: Neutral.
Ross: Ross I'll take the question you answered my next question.
Speaker Change: My name is from <unk> welcome.
Ross: To our earnings call.
Gabriel: Good morning, Renato Milton Gabriel Thank you for the opportunity of asking a question and congratulations on the results.
Ross: Wanted to ask a question about the cost of funding.
I think that the financial margin is still very strong and we see a few competitors with strategies of cost of funding I wanted to understand if you foresee that there is a space.
Ross: For some improvement in that in the theater.
Speaker Change: <unk> is eventually some changes that the competitors are doing and theyre going to be opening opportunities for you that would be more would be more aggressive in that point that would be the first and if you'll allow me.
Speaker Change: So a follow up on the question early on about the private payroll.
Speaker Change: It's clear the subordination issue, whether it's crowded.
Speaker Change: Loan without guarantees or the payroll loan that already existed and my question is about the coordination and the credit card because.
Speaker Change: With our launching of the private paper alone with the ads, what I'm really kind of day to day.
Speaker Change: <unk>.
Speaker Change: It could take a debt and our bank debt.
Speaker Change: Maybe they didn't even have a relationship with.
Speaker Change: The day before so came into effect in the appetite.
Matteo: The segment of the credit card well. Thank you Matteo is great to see you.
Matteo: Thank you for the questions now starting about the cost of funding.
Matteo: Got it.
Matteo: It depends on how you see the cost of funding and a strong statement India.
Matteo: Of course, we have a cost of funding that is optimizing the bank because of all the business lines that we operate.
Matteo: These are products of treasury et cetera, So our cost of funding of the flow of clients that we have in the bank to cash management.
Matteo: Oh.
Matteo: Well.
Matteo: We are the same.
Matteo: Centered in the relationship with our natural persons clients and so the cost of funding is optimized. So if you see the deposits and the portfolio of natural persons we had the best relationship with the market. So it shows that we are a solid franchise foreign investment and a solid alternative for our clients, but the most important thing to see is that.
Matteo: There is a client on the other side. So here is where we do the same in our franchise, we won and we will continue to be.
Matteo: Strong franchise sales investment for our clients. So our objective is not to optimize our cost of funding so the cost of having a client.
Matteo: That will not engage on the other hand with a bank and you lose the vision of lifetime value. When we launched a premier the Piggy bank, where the client has the alternative is taking the money and do a savings account.
Matteo: Our value reserve and then we pay 100% of the CDI. It shows that our vision is.
Matteo: Client is not the optimization of the cost of funding.
Matteo: This is a part of the story. So I see this is that's an opportunity an opportunity because.
Matteo: Naturally reducing in a relevant way of course, you can have volatility in the cost of capturing.
Matteo: Thus far we have LCR close to 200, we had it higher we had the payments of an extraordinary dividend.
Matteo: We don't we didn't follow up on that because if it was for that we had to reduce in a very relevant and weigh the cost of country in deposits in the end, we will lose deposits by design, but we will lose the client as well.
Matteo: And what we want to do is service to clients in the best way possible with a franchise of investment that is very robust.
Matteo: So.
Matteo: To answer that question is it depends on the opportunity of serving our clients better.
Matteo: And showing that regardless of the cycle.
Matteo: When the bank is a great place to invest.
Matteo: They play so that our clients can service within the platform and opportunities and alternatives for investment.
Matteo: Gonna do changes in our forecast in a.
Matteo: Structure of forest capture I'm, not going to say that we're not going to fit in with it where they were never going through.
Matteo: I think it will change the rates up.
Matteo: Well it depends on the transfer price the management of liabilities, it's part of the market the business dynamic, but the important thing is.
Matteo: The strengthened the franchise of investment in the relationship with our clients.
Matteo: That's our main strategy about the.
Matteo: Favre alone and determination.
Matteo: My vision is that the credit card it was never in the way that it was conceived I have discussed that before a good platform for financing.
Matteo: Cutting some consumption, it's great for transactions it helps with the experience of decline in day to day because of the loyalty program or the.
Matteo: Simplicity of the transaction by when the client needs to finance that consumption today, 86% of our portfolio of 140 billion do not have interest rates.
Matteo: That's the phenomena of the patent Edison judo.
Matteo: So at the end of the day, what we have.
Matteo: For finance portfolio, we've tried to the action in the credit card. The other products, it's a smaller part even though that portfolio has grown.
Matteo: The finance.
Matteo: Portfolio grew in the quarter any help with the margin the feeling is that when you give them.
Matteo: The private payroll loan for that client, you'll have a better product for financing limited should the 35% of the salary of course.
Matteo: But probably it will be the best alternative.
Matteo: In order to.
Matteo: <unk> offered to the client the best alternative in the cheapest one and complement our needs with other products. So we need to leave from them the more competitive to the less competitive because the delinquency and credit card specifically in the rotation products are very high. So this is going to be a natural way, whether it's by the credit <unk>.
Matteo: Private Pedro alone et cetera of the finance that was done in the credit card and the rates that our practice.
Matteo: They tend to converge for healthier dynamic, but lets remember that the base salary men and the public of credit cards. It has a size, but it's not so relevant when you look at the total public. So when you look at the capacity of offering it's not exclusively in the salary man.
Matteo: And in service.
Matteo: Other publics as well so I think its constructive certainly the market will be accommodated.
Matteo: It's a step at a time, but we're going into right direction.
Matteo: More adequate rates with adequate risk less delinquency and weekend event, the net financial margin and then taking a product declines should the right.
Matteo: Product consumption and that clearly is not a credit card that.
Matteo: That usually happens.
Matteo: Thank you you have to also pretty won't goes up that question also with us.
Matteo: To make any spend from JP Morgan.
Matteo: When you're a lawyer.
Matteo: We also have available but isn't that I think are part of the presentation.
Matteo: So great quality on the reserve.
Matteo: I think that as a big debate.
Matteo: All of that went into this.
Matteo: Clarify two docks that are more specific on this border.
Matteo: We are in now isn't there isn't let's first of all it's working capital you mentioned on your presentation.
Matteo: We noticed strong for our strongest performance of that line in this quarter.
Matteo: Longer duration is not a spot and then you had the <unk> of the investment when you.
Matteo: The yield of that lending was very representative we had gradual increases and the implicit yield went from eight seven through 11.
Speaker Change: Working capital and others I just wanted to understand if there's some working capital or if there is another others that are influencing it.
Matteo: It's sustainable most important at this level of yield that we've seen from this quarter. If I had a second question just to the.
Speaker Change: Taxes were higher in dose.
Matteo: This quarter should we.
Matteo: Expect the taxes converging for the guidance.
Matteo: If you can explain what led to the increase of the taxes in this quarter.
Matteo: Thank you again, you're adamant.
Thank you for the questions.
Matteo: <unk>.
Matteo: Working capital of the bank and others as Youll see what are the others just to give you some more visibility.
Matteo: Investments that we have in companies that we do not necessarily consolidated and we do by half in the patrimony consolidations.
Matteo: <unk> is within the working capital so if we have an activation.
Purchasing of our payroll and we have to do the activation of that payroll that's in the working capital. So there are some effects that are there.
Matteo: That can have some seasonality.
Matteo: So the part of the effect is the result itself of the rate free in the capital that comes in the quarter and apart are effects that are relative to the previous quarter. So these are deltas of effects that are happening or hope the variation of half or intangibles of payrolls that we had in the previous quarter.
Matteo: Orders that were higher or do we didn't have negative effects in this quarter.
It's a bit of a combination of both that lead you to bring this effect in the working capital. So I think no company. All this while our expectation is more normalized of course, there's volatility can happen by the effect that I mentioned.
Matteo: But these are adjustments that are done in between quarters that show a bit of a discontinuity in.
Matteo: This is the level of working capital and the rhythm it seems adequate right. Yes, I think that the yield that you mentioned is a yield that makes sense with other disclaimers add Milton mentioned on the volatility that we had quarter on quarter, whether if it's a basic things that happened in the previous quarter or by the yield of the portfolio.
Matteo: What we are investing looking up ahead.
Matteo: And about the rate of taxes very.
Matteo: A very simple explanation.
Matteo: In fact, we have two effects that will explain this aliquots well firstly because the bank is a conglomerate with several vehicles, we have financial and nonfinancial vehicles.
Matteo: And we have three types of aliquots NV conglomerate, we have companies that beneath our report.
Matteo: Corporate aliquot.
Matteo: There are companies that the 40 and there are companies that pay 45, depending on where the result was generated you change that mix.
Matteo: This quarter, we had more generation of resulting companies.
Matteo: Companies with higher I look whitestone that truly you have.
Matteo: The other part is growing effectively.
Matteo: The second aspect is more like you generate less is the benefit of the.
Matteo: The interest rate on the working on our own capital so the higher the profitability of the.
Matteo: Of the bank the GCB is lower because it's limited limited should be LNG G. L. P.
Matteo: Yes.
Matteo: You have a benefit that is defined for higher net income so the benefit of the interest of our capital is divided the higher. Your result is so the result is higher diluted the interest of our capital JCB.
Matteo: The second one is the mix of the businesses that we have where the business towards a higher one.
Matteo: Had bigger results.
Pulled up the higher outlook, what's the expectation is to try to converge to the guidance I may be more close to the roof on the guidance and below we would be different I think I'd say when we look at the bank.
Speaker Change: The effect portfolio, then Milton mentioned, the 120 companies that we have in the conglomerate.
Speaker Change: Current profitability of different income different sizes, depending on the seasonality of all that you generate.
Speaker Change: Look <unk> and.
Speaker Change: Tax rate and that should converge with the guidance that we've seen in the beginning of the year.
Speaker Change: Okay.
Speaker Change: That's information that the guidance any difference in the next quarters, we will do the adjustments, but its good cholesterol and the end of the day.
Speaker Change: That's true.
Speaker Change: Diluting the effect of JCB.
Speaker Change: The interest of our capital.
Speaker Change: You.
Speaker Change: Also gustava sure then from Citibank welcomed <unk> Milton <unk> Renato Thank you for the opportunity.
Speaker Change: That was about a base dividend.
Speaker Change: Laurence Congratulations on the strong result, Swiss watch high quality.
Speaker Change: I think his question is about the mess, we see the ROI per segment.
Speaker Change: Do you see.
Speaker Change: The retail 25 wholesale 25 30.
Speaker Change: The order of magnitude, but in the previous quarter as you shared with us that the mass side.
Speaker Change: We still had a challenge of profitability.
Speaker Change: <unk> has been doing investments.
Speaker Change: We've seen the efficiency level improving of course, there is the cost, but I wanted to know how do you see the profitability of Demassify is it improving to the point that you are getting to a stage that you can.
Speaker Change: <unk> higher than the Massify GW has it got to a level of profitability or theres still some space just so we can understand why.
Speaker Change: When the bank are what is the stage that the bank is a diversified and thus the bank believes that we can get to a profitability rate level that is higher in this segment.
Speaker Change: Yeah.
Richard: Richard Thank you congratulations Gustavo.
Speaker Change: Thank you for the initial words.
Speaker Change: Cool.
Speaker Change: Remember the third quarter of 2002, and it was discussing that we've reached $16 four of profitability.
Speaker Change: The retail and we were not happy with is a process cycle of credit that is.
Speaker Change: But we had a relevant work for this portfolio.
Speaker Change: I'm happy to look.
Speaker Change: Some quarters later, we're running at 25%.
Speaker Change: <unk> ability.
Speaker Change: The retail Buddy.
Speaker Change: If it's a natural persons of our company. So we need to break down this vision.
Speaker Change: The two businesses are running above cost of capital.
Speaker Change: So we don't have sensation.
Speaker Change: Competition profitability and companies that have been higher than the clients natural persons, but we still.
Speaker Change: The mono liners, which is where we had a cycle of credit that was tougher with the credit card and vehicles and we did a strategy for a revision that is relevant in the way that we work.
Speaker Change: And the appetite of risks.
Speaker Change: And that process was very solitary for the part for the ones that the risking combined with our batter management penetration and increase of engagement of the target clients that would make the it bring more profitability for days.
Speaker Change: Sure. So when we look back to the profitability that we had many years ago.
Speaker Change: Several circumstances first deregulatory caps did not exist at that time, you didn't have the.
Speaker Change: The cap of the credit card.
Speaker Change: It didn't have the cap of the.
Speaker Change: Ian of many things so the regulatory changes generated impact.
Speaker Change: This is a market that is more penetrated in credit than it was at that time.
Speaker Change: So you have a cost of credit that is more of a preponderant and a profitability of credit.
Speaker Change: The profitability of everything lower this coming summer.
Speaker Change: But the Massify.
Speaker Change: We are still very far away from what was one that you'll have in terms of profitability. So we have a great opportunity.
Speaker Change: Okay.
Speaker Change: When I see the segments of high medium income only class medicine anytime running with profitability is at a very solid.
Speaker Change: And very good.
Speaker Change: Critical mass.
Speaker Change: So you have to ask volume for the generation of revenue basis of clients. So the segments have been performing very well and they're growing.
Speaker Change: Okay.
Speaker Change: And then look at the low income the opportunity is.
Speaker Change: Enormous because we have a model of service.
Speaker Change: We can have a more adequate profitability.
For our appetite.
Speaker Change: Of course of business.
Speaker Change: There is a series of elements.
Speaker Change: The clients that are migrated from one segment to the other.
Speaker Change: So the attention to the client penetration and the increase of engagement.
Speaker Change: But there is also a model where that has to be optimized and should be optimized all throughout time answering your question, but.
Speaker Change: But we are not optimizing.
Speaker Change: In the attention of math divide we have homework.
Speaker Change: All the digital evolution of the bank and the evolution of the App and immigration will service that my expectation is short or I'm sorry in the next quarter I will ask you a question.
Speaker Change: Well I don't think that this is an evolution happens in a quarter.
Speaker Change: But it's an evolution three to four years that is relevant.
Speaker Change: The expectation is that we have an opportunity that is enormous.
Speaker Change: Great.
Speaker Change: And we are ready to execute there.
Speaker Change: This path in a correct way taking care of our clients improving the experience in servicing our clients in their segments with a model of attention correct with at the right cost. So we can absorb and and accept more losses in the portfolio.
Speaker Change: There is a change in the appetite a lot of work of improving the experience and evolution of the platform.
Speaker Change: Thank you.
Speaker Change: Next question.
Speaker Change: Mortgage study Jorge Kuri Jorge would you see you. Thank you so much for joining us today.
Speaker Change: Thanks, everyone.
Speaker Change: Gabrielle.
Speaker Change: Congrats on the results.
Speaker Change: Let me go back to rates and this is a bit of a longer.
Speaker Change: Timeframe question beyond your guidance for the year.
Speaker Change: Gently.
Speaker Change: Rates are.
Speaker Change: A 10 year high roughly and so I wanted to ask you what are you seeing them windfall.
Speaker Change: Now that you have benefited from rate in your record ROE today is.
Speaker Change: <unk>.
Speaker Change: If we go back to when rates were below 10%.
Speaker Change: ROE of the bank was around 18%.
Speaker Change: 19% today for 'twenty two 'twenty three.
Speaker Change: And there are so many moving parts.
Speaker Change: I am in no way, suggesting that.
There is a regression analysis where rates on our OE, but I guess, that's the question I'm asking you, which is how do you how do we quantify how much of the very high level of profitability that you have today is due to these very access is the level of rates.
Speaker Change: And then as we hopefully normalized rates in Brazil to hopefully solve 10 or around 10 within the next two to three years.
Speaker Change: What does that do to your ROE.
Speaker Change: One of the things that you can still do over the next two to three years to make sure that.
Speaker Change: What level of ROE that we're seeing today doesn't.
Speaker Change: Dilute over time, or maybe maybe it will and it's fine as well so yeah, that's what I'm trying to get to.
Speaker Change: Okay. Thank you Jorge Thank you for your question your words long time, no see you in our call. So thank you all for joining us today.
Speaker Change: I would say that we have on slides three and four you Jorge and sometimes we bring this is light.
Speaker Change: In our Presentation's here, what we tried to show how sensitive is the margin off the bank and the profitability due to interest rates in Brazil.
Speaker Change: I think it's it's not a simple question because as I said there are many moving parts when you look to that impact.
Speaker Change: What I can tell you is bad in the short term the benefits our working capital and also deposits those are the two.
Speaker Change: More relevant impact that we have.
Speaker Change: But at the end of the day, we hedge those effect.
Speaker Change: So it doesn't come in the same speed as we see the hype or the reduction of the interest rate. So it's less sensitive to the level off how do we do to one thing more stability in our figures business. One point the second one I think when the interest rates starts to go do we see.
Speaker Change: More activity more activities more portfolio growth more portfolio growth.
Speaker Change: As more business with our clients more engagement more penetration of product services cash management effects all the products that we serve our clients and so we have some compensations in the portfolio in different lines due to different reasons, we have impacts.
Speaker Change: The financial margin with the market, we have impacting the financial margin with the client.
Speaker Change: We have more portfolio grow less delinquency, especially on the individual side. So it's difficult to give you one number so the good thing to see is in the long term when we see all the volatility of the interest rate and we see our <unk> you will see a much more stable than yours.
Speaker Change: Spectation and this is due to the broad portfolio that we have very well balanced in all lines of businesses. These brings us a good portfolio sensitivity and gives us a lot of metro hubs inside the portfolio off the bank. So those are the short term impacts and they are positive.
Speaker Change: So you are right, but in the other hand, we have cost under control and we have to deepen our bedroom down on that if we believe there is no revenues coming for any reason.
Speaker Change: We have to go deeper in cost of one and so forth. So that's why we looked for the efficiency ratio. All the time, we were looking to revenues, but we are looking over cost as well. So this is a general answer.
Speaker Change: I don't have a key point to this is what happens because the portfolio is very broad, but this dynamic is very positive and the balance sheet of the bank is very less sensitive to the interest rate then people usually do you expect in generally speaking I prefer to work in an environment, where the interest rates are lower than the interest rates.
Speaker Change: But we are seeing today and why is that because you might see a hike, but could be beneficial in the short term.
Speaker Change: For the banks, but if it stays for long did they will go up various program and you'll lose the capability to grow the portfolio and of course the activity this year.
Speaker Change: First one banking everything he is in fact it so our view is that for the long term we prefer to work with this drug for a week for us.
Speaker Change: Lower single digits.
Speaker Change: Possible is much better for us in the long term debt provision for interest rate that we are seeing today.
Gabriele: Any comments here Gabriele.
Speaker Change: No I think as Milton.
Speaker Change: There is a portfolio effect on the bank right. So with the different cycles of interest rates and when you take a look at the short term youre going to have more of the liability income from us from capital and everything but the flip side should that is asset growth right and we see that any other countries, where you operate right. So they experiencing Chile four.
For example, with much lower interest rates you can see the penetration of credit to GDP much higher than we have in Brazil. So yeah of course, some of the lines of business that we have on lowering interest rates I'd be a little bit lower than we have nowadays, but on the flip side. If you take all of these transactions and investments and asset growth would be.
Speaker Change: Much different so I think that'd be a portfolio effect at the end of the day, it's positive for us.
Speaker Change: Also the cost of the hedge off the capital Ebix as well Oh, sorry, Hello.
Speaker Change: Has an impact as well and this is why we believe that the financial margin with the market.
For the next quarter.
Speaker Change: Might have more impact because as hires in the interest rate.
Speaker Change: And it's bigger.
Speaker Change: Difference between the interest rate that we have here compared to the countries, where we operate hired the cost to have that they kept going books. So this is one of the reasons why we are seeing we expect to have a guy that's more aligned to our expectation then to have four consecutive quarters are in line with this quarter that we had this is bill.
Speaker Change: Reason why because the cost of hedge.
Speaker Change: We paid 500 million.
Speaker Change: This quarter, we expect this to grow in the coming quarters and also you will see some effect on the banking book, even though we do a very dynamic.
Speaker Change: Hedge on their book, we might see some impacts with the expected results coming from their banking book to be lower.
Speaker Change: Coming quarter. So business also the flip side of working with a high interest rate.
Speaker Change: In Brazil.
Speaker Change: Joining me on our call when I was working for me because that says there, Brazil specific top because as well so we have products that have caps.
Speaker Change: Right, so payroll little ones and and.
Speaker Change: Corporate in Q4.
Speaker Change: For draft Overdrafts, and then every time that the cost of funding goes of course illegals up your spread.
Speaker Change: It's compressed so whenever city goes though you might see also lower spreads and sort of figure out in Oslo agree, 100%. We said I don't do repay operations as I was saying you'll have caps on a credit card you have kept Hong Kong singing Aldo.
Speaker Change: Payroll loans, you'll have caps on overdraft, so it puts pressure as well on the profitability of the repay whenever the rates are high.
Speaker Change: As I've said many effects, we have to take all of them in consideration.
Speaker Change: But that's why I always say and we tried to show as I said.
Speaker Change: We are less sensitive to interest rates than it seems like.
Speaker Change: So if we bring it all together Houghton Thank you Jorge.
Speaker Change: Are we a warm up so let's let's keeping that language because now we have Carlos Gomez with US from interest me say Carlos where interest you. Thanks, so much for joining.
Speaker Change: Thank you for taking my question and congratulations for the results and thank you for the reference to taxi says good cholesterol, we will use that that's very good.
Speaker Change: My questions.
Speaker Change: And firstly.
Speaker Change: You have made it became for showing us the new classification of loans nine stages in new provision I mean, I think that gives a new insight about how the profitability piece for each type of blending do you think that we will see a king in the market going forward when that happens when everybody is looking at things at this point that you expect to have some products to become.
Speaker Change: More.
Speaker Change: To become because I'm privileged to becoming smaller in the future and completely unrelated to that and we haven't heard about any possible changes in taxation IOC or L. P of subsea things have you seen anything like that they seem to work for the coming months. Thank you no. Thank you. Thank you Carlos Thank you for coming Thank you for the initial awards.
Speaker Change: It's a good cholesterol whenever you have the same corporate tax rate when it goes up for legal decisions or a regulatory decisions. This is bob necessary that the good cholesterol because at the end of the day, we know that if you'll have a hike in interest rate.
Speaker Change: In tax rates, what happens is that.
The cost of credit in Brazil increases and of course with the payers.
Speaker Change: The once that are depending landing and needs.
Speaker Change: Finance their needs have to pay more whenever it happens so it's always important to remember.
Speaker Change: This is how we see whenever we have a lot of height on the corporate tax rate. So my view is that these stages. The way we are throwing all rich.
Speaker Change: It reflects the way we manage the bank. So we don't expect any change because now we have a local hold a b or a gap for us local so we don't expect to change the way we operate inside the <unk>.
Speaker Change: Because of that.
Speaker Change: This will give us an overview will be more transparency more comparable.
Speaker Change: It'll be easier to full reflect better what we're doing inside the organization. So I don't expect any change in.
Speaker Change: And the way we operate the products in their businesses, especially because as I said in the very beginning we haven't changed any method any criteria compared to the BR GAAP.
Speaker Change: When linkage to the write offs for instance, so as we keep exactly the same way you shouldn't change the way we manage the organization.
Speaker Change: Your second question on IOC and no. We don't see any of these cushions coming from there I know there was a discussion all are in the Congress there was a proposal crummy.
From the government that have to be analyzed by the Congress that is increase.
Speaker Change: The corporate.
Speaker Change: Right now withholding tax.
With four dividends, a big take off some exempt.
Speaker Change: Products are above our ice machines income that people have so that's what we could see.
Speaker Change: In terms of change, but this is a discussion that it's too very open let's see how the Congress will react to that.
Speaker Change: We don't have any discretion related to increasing tax we don't have any discretion.
Speaker Change: Guards, the IOC and I think this is what we have now of course things can change.
Speaker Change: And if you change we're going to give you more color on that.
Speaker Change: But are you still waiting.
Speaker Change: We'll see how the Congress will do.
Speaker Change: With this tax exemption for people.
Speaker Change: Up to 5000 here is Ah in MAU monthly.
Speaker Change: Income so let's see what happens, let's keep very follow very close.
Speaker Change: I can pull it out.
Wendell: Thank you Wendell.
Speaker Change: No surprises on critical water.
Speaker Change: The way he can all votes with into the next question is from indicative at Santana.
Speaker Change: Great to see you.
Speaker Change: Yeah, so I'll be alternative everyone.
Speaker Change: Congratulations on that result, I think that the performance is solid.
Speaker Change: Okay.
Speaker Change: Yeah Man.
Speaker Change: My question is when I was talking to some of the participants in the month, it's not that there is a concern but there isn't here.
Speaker Change: With delinquency in the second quarter.
Speaker Change: The increase in Philly.
Speaker Change: It has.
Speaker Change: The lagging.
Speaker Change: So there is.
Speaker Change: Careful next when we discuss the second quarter since you have several segments.
Speaker Change: Here from the horse's mouth.
Speaker Change: Is there something that we should really monitor for the second quarter point delinquency. How do you see this evolution and anything that you can share would be great.
Speaker Change: So thank you for the initial comments you know that I don't look at the.
Price of the share during the call. So you updated me.
Speaker Change: I only see it after the call has done because we're looking at the long term and we are less sensitive to the spot price, but it's always a great feedback. So thank you for the initial work.
Speaker Change: But the liquidity has hit bottom.
Speaker Change: So lets separate the discussion.
Speaker Change: Our portfolio, we have stability in the deal.
Speaker Change: The laser is a big concern and I was discussing small company.
Companies that should be normalization I'll throw out the second quarter. So I think that this is the best expectation I don't see.
Speaker Change: Something a lot different but I look at some market indicators credit card vehicles.
Speaker Change: National financial system, we've seen movement that are big.
Speaker Change: Bigger in the portfolio on the market than what we've seen in hours. So an example credit card.
Speaker Change: We have been floors, seven eight quarters with relevant reductions.
Speaker Change: And we have 25.
Speaker Change: Almost 30% depending on division.
Speaker Change: Got affordable that we have in the portfolio So Indiana.
Speaker Change: We've seen the performance in some product that is much worse than what we've seen in our own portfolio. This is where vehicles as well so.
Speaker Change: It's important to see that our vision is constructive.
Speaker Change: That's sort of a very challenging scenario.
Speaker Change: Got it.
So do you believe that the.
Speaker Change: Interest rates are going to be dropping.
Speaker Change: So there's not going to be an impact and delinquency is not reasonable.
Speaker Change: But the portfolio of the bank is very resilient. So that's why we don't see a lot of changes in delinquency everything being constant.
Speaker Change: Okay.
Speaker Change: So there is a lot of <unk>.
Speaker Change: <unk> portfolio.
Speaker Change:
Speaker Change: But this is a portfolio that is very well.
Speaker Change: Challenging.
Speaker Change: So the indicators of the market.
Suffered.
Speaker Change: Thanks.
Speaker Change: So it's important to look at these delays.
Speaker Change: Short term delays the breakdown per segment.
Speaker Change: The CFM indicators youre going to have.
Speaker Change: A challenging scenario for the semester.
Speaker Change: I don't think it's kind of a scenario that we observed.
It's a scenario that we look for many years. So we have to follow that closer in the portfolios in the several banks companies in the system.
Speaker Change: Will perform according to their appetite and their risk profile do they have in their portfolio. We have a base that is very solid.
Speaker Change: Clients, we did that the risking that is very relevant in the business of companies.
Speaker Change: We have a solid portfolio with our credit performance.
Speaker Change: Good and in big companies a portfolio that is distributed less concentrated in sectors with adequate volatility. So it's very well established site tell you again, we don't foresee I'm not saying that it doesn't happen.
Speaker Change: Uh huh.
Speaker Change: Wholesale is events, we are subjected to events the whole time so we.
Speaker Change: Workmen's affect the loss in other segments we.
Speaker Change: We don't do the cross subsidy of the segments. We are always looking at the right level of provisioning.
Speaker Change: So.
Speaker Change: No.
Speaker Change: Our balance.
Is the portfolio is very well.
Speaker Change: Protected.
So.
Speaker Change: We have to follow this up.
Speaker Change: Yes.
Speaker Change: Regarding your tone you showed the perspective.
Speaker Change: No one's importantly, the last questions Lee.
Speaker Change: Lease issue Edouard and each year from Danielle welcome.
Speaker Change: Good afternoon, congratulations on the result.
Milton Gabriel: Milton Gabriel and Renato.
Speaker Change: Quick question about the hedge of your capital index, which you've been as stewards of your capital.
Speaker Change: Good managers of capital of the cycle the Hague.
Has been a comparative advantage in their interest.
Speaker Change: It will cycle, so and my question.
Speaker Change: Is what the other banks.
Speaker Change: Sure.
Speaker Change: And then be able to replicate.
Speaker Change: If you have a competitive advantage in this segment with a hedge.
Speaker Change: Is there a difficulty.
Speaker Change: Do this or not.
Speaker Change: And your vision.
Speaker Change: The hedge of the capital index versus the NII.
Speaker Change: What is the advantage and disadvantage.
Speaker Change: There is a cost and that cost and the way, we see it Andy NII market how much.
Speaker Change: If you can.
Speaker Change: Can you tell us about that thank you.
Speaker Change: Thank.
Speaker Change: Thank you for the initial words well.
Speaker Change: Well.
Speaker Change: First of all.
Speaker Change: There are a few answers.
Speaker Change: A few idiosyncrasy storytelling.
Speaker Change: First the relevance of the operations outside of ourselves when we compare it to other players we are the bank.
Speaker Change: The other Brazilian players that have a bigger exposure of activities outside of Brazil.
When you've got a portfolio of Chile, and Colombia, it's very relevant in our assets. So we have a portfolio in <unk>.
Speaker Change: While dollar chill.
Speaker Change: Chilean peso, but we have the banks in Uruguay, and Paraguay and whatnot.
Speaker Change: Take care of the.
Speaker Change: Portfolio that is sensitive to euro and dollars and he's our Brazilian clients that are taking resources in other currencies in the past we were very sensitive to the exchange because of the overhead.
Speaker Change: Remember that we had a positive result, with the strategy, but depending on the level yes.
Speaker Change: You would have to manage the liabilities of the strategies of how you did the hedge but it generated.
Speaker Change: Dangerous.
Speaker Change: Tax effect, so when we don't have the overhead alright sensitivity to the stock exchange to the exchange rate.
Speaker Change: Draws.
Speaker Change: The capital budget.
Speaker Change: Whether if it's <unk> it consumed a couple over the next in a different way.
Speaker Change: Afterwards, the big effect that we had is the variation of the portfolio. The hedge is dynamic we're always looking at the cost of opportunity. So we have clearly a policy that has been approved giving visibility each of the regulator on how we do this.
Speaker Change: But we are always looking to try and optimize their hedge.
Speaker Change: It's dynamic up until a certain point because these are long term strategies. So let me try to bring stability to the capital index Indian because.
Speaker Change: That gives you a surety should grow to pay dividends. It gives you a surety to advance we now have the capital and et cetera. So important for our volatile activity you would have to be conservative by definition, so a bit of the risk appetite that we had.
Speaker Change: Way back where it is higher than what we had today it was because the buffer with higher to absorb the movements in the exchange rate when our capital is less sensitive to it.
Speaker Change: The exchange rate, we have lower buffers and more leverage and with a dividend policy distributing more dividends because you define a lower appetite for risks. So we see that cost is lower than what we well we talked about the quarter. It's worth 300 million so the cost of opportunities.
Speaker Change: What we have left the capital.
Speaker Change: Looser with currency.
Speaker Change: With the growth of these portfolios I mean, it's also it's a natural hedge.
Speaker Change: Part of that is that you do not bring those capital.
Speaker Change: And then.
Speaker Change: You apply it should've coupon or the interest rates.
Speaker Change: And in the countries that you are so.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: You can replicate this we weren't.
Yeah.
Speaker Change: Less sensitive than.
We are still more sensitive to the exchange rate because of the participation that we have in operations in Brazil, but we're less sensitive now.
Speaker Change: And we're always looking at the cost benefit what is the level of volatility that we are ready to accept vis vis the cost of carrying over these hedges.
Speaker Change: Thank you Milton thinking this year.
Speaker Change: What's the last question with that we finish our Q&A session.
Speaker Change: Hello.
Speaker Change: And just to remind you that the questions that we had a lot of questions via whatsapp by the investors the IR team.
Speaker Change: Thank you <unk>, Thank you Milton and I'm going to give you the floor. So you can close the call.
Speaker Change: Okay.
Renato Luria: Thank you Renato Thank you Gabrielle.
We will be together with all the public issues all the calls up ahead. So.
Speaker Change: Thank you Richard by the support of the feedbacks and the recognition.
Speaker Change: E positive and constructive feedback that we received.
Speaker Change: We're very satisfied with the evolution of what we manage to deliver and values and these are values for the client to collaborators.
Speaker Change: Investors and value to the society, Indiana today.
Speaker Change: Thank you.
Speaker Change: We're taking part active hard questions are always good. So we can understand what you're looking at what are your concerns to see if there is a blind spot for some additional homework on our culture, we don't know everything.
Speaker Change: We're very excited I think they were.
Speaker Change: Very excited structurally with the evolution of the bank and all the transformation that we've experienced with the amount of solutions that we.
Speaker Change: <unk> gotten and with more strange.
Speaker Change: Excited lazy perspective, the macro challenges for everyone in the micro it depends on how you do your homework and deliver even more value for our stakeholders.
Speaker Change: We are very humble.
Speaker Change: Everybody with two feet on the ground working hard knowing that the past performance does not guarantee of future performance. So we need to continue to be consistent consistent consistent because this is an infinite infinite game.
Speaker Change: I hope to be here in the next quarter see you next time.
Speaker Change: And for those of us that.
Speaker Change: And the conference in New York.
Speaker Change: We'll be the best conference.
Speaker Change: All of the series over 130 Years' confirm incredible lineup it.
Speaker Change: It will be a great opportunity for you investors that are here to take part and have high quality discussion I just want to say it.
Speaker Change: We'll see you in New York next time.