Itau Unibanco Holding SA

BOVESPA:ITUB4

Earnings Call Analysis

Record Quarterly Earnings and Strong Loan Growth

In the first quarter of 2024, our bank reported earnings of BRL 9.8 billion, an increase of 3.9% compared to the previous quarter. The return on equity rose to 21.9%. Costs fell, with credit costs decreasing by 3.9% and OpEx dropping by 6.2%, resulting in a record efficiency ratio of 38.3%. Our loan portfolio showed strong year-over-year growth: SME loans increased by 10.2%, and large corporate loans by 9.3%. We reaffirm our 2024 guidance, projecting credit portfolio growth between 6.5% to 9.5%.

Summary of Earnings

In the first quarter of 2024, the company's earnings totaled BRL 9.8 billion, representing a 3.9% growth from the previous quarter. The consolidated recurring return on equity (ROE) rose to 21.9%, marking an increase of 70 basis points quarter-over-quarter, and specifically for Brazil, ROE reached 22.7%. This impressive growth demonstrates the company's robust profitability, driven by high-quality portfolio and significant cost reductions.

Operational Efficiencies

Operational expenses saw a notable decrease of 6.2%, bringing them down to BRL 14.4 billion. This reduction led to a record efficiency ratio of 38.3% on a consolidated basis, which means a 200-basis point improvement compared to the previous quarter. The ongoing effort to streamline operations is evident and crucial for maintaining competitiveness.

Credit and Delinquency

The cost of credit dropped for the third consecutive quarter, reaching BRL 8.8 billion, a decrease of 3.9% quarter-over-quarter. Delinquency indicators remained stable, with consolidated non-performing loans (NPL) over 90 days declining by 10 basis points. The company’s strategy of derisking its credit portfolio has evidently paid off, resulting in a high-quality and more resilient credit book.

Loan Portfolio Performance

The individual loans portfolio grew by 2.6% year-over-year, despite a 0.6% decrease in the first quarter due to seasonal effects in the credit card portfolio. There was significant growth in personal loans, vehicle loans, and SME loans, showcasing the company’s ability to cater to a diverse clientele effectively. Specifically, the SME portfolio grew by 1.9% in the quarter and 10.2% year-over-year.

Capital Markets Performance

The company retained a strong position in the capital markets, significant for both debt and equity. They ranked number one for debt capital markets with a 32% market share and second in M&A with a 39% market share. This highlights the company’s prowess and influence in capital advisory services and brokerage activities.

Insurance and Fees

Insurance, pension plans, and premium bonds continued to grow, increasing revenues by 6.7% year-over-year. Despite the usual first-quarter slowdown, the performance indicates a strong base for these services, contributing to overall stability and revenue diversification.

Strategic Guidance

Looking ahead, the guidance for 2024 projects a credit portfolio growth between 6.5% and 9.5%. The company also expects to maintain a healthy level of profitability and efficiency. Despite regulatory uncertainties, there is a strong confidence in achieving and possibly exceeding the set targets by the end of the year.

Technological Investments

The company is heavily investing in digital transformation aimed at reducing operational costs and enhancing client experience. This strategic move is expected to further improve efficiency ratios and provide a competitive edge in offering digital banking services.

Focus on Sustainable Growth

The management emphasized the importance of sustainable growth driven by disciplined risk management and balanced capital allocation. This strategy is poised to yield long-term benefits, ensuring healthy returns while mitigating risks.

Conclusion and Future Outlook

The company's performance in the first quarter of 2024 reflects solid growth, efficient operations, and successful strategic initiatives. The continued emphasis on digital transformation, risk management, and portfolio diversification positions the company well for sustained future growth.

Earnings Call Transcript 2024-Q1

[Renato Lulia Jacob, executive]

[Interpreted] Good morning, everyone. And thank you for joining this video conference to talk about our earnings for the first quarter of 2024. We're broadcasting directly from our office in Avenida Faria Lima in Sao Paulo. As usual, today's event will be divided into two parts.

First, Milton will take you through our performance and earnings for the first quarter of 2024 and then we will have a Q&A session during which investors and analysts can ask us questions and get into the details with us.

Before we get started, I'd like to give you a few corners to help you make the most of today's meeting. For those of you who accessed this via our website, there are three audio options on stream. The entire content in Portuguese, the entire content in English or just the original audio. For the first two options, you have simultaneous translation. To choose your preferred option, just click on the flag on the top of your screen. Questions can be submitted via WhatsApp. Just click on the button on the screen we or simply send a message to [phone]. The presentation we'll be making today is available for download on the website screen and as usual, on our Investor Relations website.

I'll hand over the floor to Milton, who will begin the earnings presentation, and then I'll be back to moderate the Q&A session. Milton, the floor is yours.

[Milton Maluhy Filho, executive]

[Interpreted] Good morning or good afternoon to those who are in a different time zone. Thank you for joining us, and welcome to our earnings call for the first quarter of 2024. I'll begin with a high-level presentation, outlining the bank's earnings and providing more detail for certain items. At the end, I'll also be making a special invitation for our Itaú day which is just around the corner. So let's get straight into the figures.

Our earnings for the first quarter of 2024 totaled BRL 9.8 billion, representing growth of 3.9% compared to the previous quarter. Our consolidated recurring return on equity was 21.9%, meaning 70 basis points of growth quarter-over-quarter. It reached 22.7% in Brazil, growing 50 basis points quarter-over-quarter. This ROE takes into account 13% of common equity Tier 1, which exceeds our capital appetite.

This means that we would be posting even higher profitability if we calculated it with our capital target. The cost of credit dropped nominally in the third consecutive quarter, reaching BRL 8.8 billion, a 3.9% decrease quarter-over-quarter. Our delinquency indicators remained stable with consolidated NPL over 90 days, dropping 10 basis points quarter-over-quarter in the 90-day NPL for individuals falling [ 3 ] basis points in the same period. I'll bring you more detail about the cost of credit a bit later.

OpEx fell by 6.2% in the quarter to BRL 14.4 billion in the first quarter of 2024, meaning another record quarter for the consolidated efficiency ratio which reached 38.3%, a decrease of 200 basis points in the quarter for the consolidated figures and 36.8% in Brazil, a decrease of 130 basis points during the same period. This is a very sound set of results with a good overall portfolio quality, strong profitability and above all high predictability. The individual loans portfolio grew by 2.6% year-on-year, that decreased by 0.6% in the first quarter due to the normal seasonality of the credit card portfolio.

We posted significant growth of personal loans portfolio and 11.3% for the year, while the payroll loan was flat, growing 0.1% in the quarter. In vehicle loans, we grew 1.7% during the quarter. and 5.4% during the year. We also saw flat growth in the mortgage portfolio in the quarter, 3.1% growth in the year. I'll go into more detail about the individuals loan portfolio later in the presentation. We saw a 1.9% growth in the SMEs portfolio in the quarter and 10.2% growth year-over-year. The large corporate's portfolio grew by 9.3% during the year, posting sound growth of 3.6% in the quarter. This was a strong and very active quarter for the capital markets.

As we have a significant market share, we've ranked very high in the capital market rankings. Our credit portfolio, excluding FX variations, grew by 5.6% year-over-year. And taking into account FX variations, the portfolio grew by 2.8% in the same period. I'll share further details in the next slide. I'd now like to draw your attention to the growth of the loans to individuals. I'm sure this is a topic of general interest that we'll talk about in depth in our Q&A.

If we look at the December 2022 to March 2024 series, our portfolio grew by roughly 4%. Adjusting the loan book to reflect the derisking of the portfolio. which we've carried out proactively. The portfolio has grown by 7%. This derisking strategy involved reducing credit to some segments that did not prove resilient. This 7% growth is slightly below the market growth for the period. It's worth noting that the credit card portfolio accounts for a significant share of our total portfolio.

Thus, any appetite adjustment efforts have a major impact due to the credit card portfolio share in terms of the overall portfolio mix. We'd like to provide some additional clarification about this derisking strategy, which we proactively implemented for clients who are less resilient to credit cycles. We believe that at this point, we have roughly reached the valley of the curve for this portfolio is downsizing. Since December 2022, we've reduced this portfolio by 83%, so there is little left to do to achieve a full reduction, which is expected to happen by the end of the third quarter of 2024. This derisking strategy may have an additional negative impact of only 0.5% on our portfolio.

And this is already taken into consideration in the 2024 loan portfolio guidance that we've disclosed. Looking back, we see that the derisking actions helped us reduce our delinquency ratio measured based on the 90 days NPL by 103 basis points. Given the prudential adjustments that were made to the bank's balance sheet to enable us to face this credit cycle. We were able to avoid delinquencies accounting for between 170 and 200 basis points of NPL 90 depending on the period analyzed. We were also able to make savings of BRL 3 billion per year in provisions for loan losses.

I'd also like to point out that while growing the portfolio indiscriminately generates earnings via NII and operating revenue in the short term. In the long run, these earnings could be entirely canceled out through the cost of credit. We track our NIM and profitability very closely. These are two very important metrics in terms of our management and that have proven effective during the current period. This derisking strategy has had a positive impact on 300 basis points on the profitability of the individual business measured based on the risk-adjusted return on capital.

These results for profitability and earnings clearly indicate that our decision to reduce our exposure to clients who are less resilient to the credit cycle was the right one. Now looking to the future growth of the credit portfolio. There remains very little left to do. complete this derisking process. And as such, we will start to experience a positive inertial effect from the growth of portfolios made up of clients who are more resilient to the credit cycle, which have never stopped growing.

This includes all individuals in all segments, all channels and for all products. So we're going to start to see growth within the range indicated in the 2024 guidance. Now as regards to the client NIM, we have great news. First, I'd like to explain the adjustment made to exclude the results of our operation in Argentina from our earnings for the first quarter of 2023. Given that the operation in Argentina was sold and was excluded from the balance sheet for the last 5 months of 2023, the first quarter still included the operations figures.

If we compare margin for the first quarter of 2024 with the margin for the first quarter of 2023 excluding the results for Argentina, you will see that we posted steep growth of 9.4%, equivalent to an additional margin of BRL 2.2 billion. This is very positive news in terms of the clients' NIM momentum with top line growth and the lower cost of credit, indicating good credit quality, and disciplined capital allocation. The drop in core clients NII was 1.7% quarter-over-quarter. If you take a look at the bank's historic series, you'll notice that this trend often occurs in the first quarter.

On the other hand, we saw a minor effect of the change in product mix where the average volume is positive. And we also saw wider spreads and higher margins on liabilities. In terms of negative effects, we would note that around half of the drop can be explained by the lower number of calendar days in the quarter and the other half by the results for Latin America and from structured wholesale operations.

Aside from these effects, we're managing to deliver high-quality clients NII, especially if we look at our performance relative to comparable quarters. NIM remained virtually flat with a slight decrease due to the effects I mentioned earlier. And when we analyze the risk-adjusted NIM, which is the most important metric, it was flat compared to the previous quarter, reaching 5.8% on a consolidated basis. and saw a slight drop of 10 basis points in the operations in Brazil, which is where the structured wholesale operations effect I've mentioned is accounted for.

Thus, our clients NIM is extremely promising and we still believe we'll be able to maintain a good development pace for the coming quarters. Our numbers for market NII in the quarter are sound without any major highlights. We've been able to take into exit positions when this makes sense quarter-on-quarter. And we always make such moves based on predictability, risk management and proper positioning.

Our market NII has remained very consistent. As a result, we posted yet another sound quarter in Brazil, reaching BRL 1.1 billion. In Latin America, we also had a good quarter, posting an increase of BRL 100 million quarter-over-quarter and a flat cost of hedging capital ratio. Capital index hedging has had a diminishing impact on our earnings due to our management strategy due to the decrease in the interest rate differential. Core market NII was BRL 1.3 billion but the total market NII was slightly lower due to the allocation of the cost of capital index hedging, as shown in this chart.

We've presented the figures in this way for full transparency. In terms of commissions, fees and results from insurance operations, we posted growth in the credit card portfolio of 4.6% year-over-year. It's worth noting that the first quarter of the year tends to be weaker in both the issuance and acquiring businesses due to seasonality factors and the way we allocate these results for recording purposes. In current accounts, we noted a more stable result for the quarter with a 5.8% drop year-over-year. But this is not a significant proportion of the bottom line. We had a very strong quarter for advisory services and brokerage, which grew 7.1% quarter-over-quarter, and 70.6% year-over-year.

The first quarter of 2023 was affected by the poor performance of the capital market as a whole due to the fraud event that occurred during that quarter, which ended up cooling down capital market activities in Brazil. In 2024, we managed to grow investment banking results and to maintain our leading position in a good number of the investment banking rankings. We are #1 for debt capital markets with a market share of 32%. In M&A, we are in second place with 39% market share as this is a market concentrated on a few player. The capital markets with a market share of 13%. Another item worth drawing attention to is the results of insurance, pension plans and premium bond products in which we continue to post growth. Every year, we've managed to expand the results in this line. Structurally, we continue to grow 10%. So we practically more than doubled the results of our insurance operations over a relatively short period.

Commission fees and insurance thus grew by 6.7% during the year compared to the results excluding Argentina. Disregarding Argentina adjustment in the first quarter of 2023, growth was 5.8% for the period. In terms of the cost of credit, we had a very stable quarter. As you may recall, in the first quarter of the year, it's common to see higher levels of delinquency as a reflection of the expenses at the end of the last year and the beginning of the next.

Historically, we've seen some seasonality in the first quarter, where shorter delinquencies in particular, are more common. If you analyze the numbers from a consolidated perspective on Itaú Unibanco as a whole, increase was only 10 basis points. I'd also remind you that this series saw some aberrations in the post-pandemic period, and thus, some normalization can be seen in subsequent quarters. analyzing a longer period, it can be seen that we are at the lowest delinquency level. Remember that there is also some negative inertia because the loan portfolio did not grow significantly due to all the adjustments we've made to the portfolio.

And yet, we have still delivered very healthy indicators. In Brazil, we saw an increase of 10 basis points. Over longer time frames, we've previously seen increases of between 30 and 40 basis points. So this slight increase in the first quarter of 2024 when the credit portfolio has already been normalizing for a reasonable period of time is good news. The same analysis holds true for SMEs. When we analyze our historical series of NPLs, it's possible to see the last year, the indicators were stable in line with what we've already been saying in 2022. And now we've seen a decrease for the second consecutive quarter in NPL 90 for individuals and NPL for SMEs of 2.6%, and not increasing during the period.

This shows once again our ability to manage these portfolios through adverse scenarios and how well we've been able to control the risk management process and delinquency level. As a result, this is the third consecutive quarter posting a nominal decline in the cost of credit. And in the cost of credit as a percentage of the overall credit portfolio, which reached 3%. The renegotiation of the portfolio has also pulled the portfolio down. It's worth remembering that the individual loans portfolio includes the renegotiated portfolio. And since our strategy has been to ensure disciplined risk management, the portfolio was renegotiated to the right level and not excessively. We can, therefore, see that this portfolio has also been dropping nominally year-over-year.

The ratio of the renegotiated portfolio to the total credit portfolio was 3.2%, following a nominal decrease. There were no surprises in terms of the coverage ratio with a small increase overall, but some variations by line of business reflecting everything we've been doing to protect our balance sheet with good credit quality.Going forward, we expect healthy indicators with good coverage by provisions at a healthy level of 90 days NPL.

I think a noninterest expenses, excluding the effects of the deconsolidation of Argentina, increased by 6.4% year-over-year. There was a 6.2% drop compared to the last quarter of 2023 as noninterest expenses for the first quarter of 2024 totaled BRL 14.4 billion. It's worth noting the improvement in our efficiency ratio, which reached 36.8% in Brazil. and 38.3% in the consolidated in this first quarter of the year. This meant that we had yet another record quarter in terms of our efficiency ratio, both for Brazil and on a consolidated basis.

In the 2024 guidance, we reported that we expected to grow our core costs at less than inflation. The 12-month headline inflation rate was 3.9%, while our core costs grew by 2%, which is half of the inflation rate for the period. This result was delivered without stopping investing in the growth of our business and in our technology platform. Therefore, the growth in our total noninterest expenses is due to investments in our business. It's also important to demonstrate that we have maintained strict cost discipline.

For banks, inflationary pressures go beyond just interest rates. We are parties to collective agreements that put a lot of pressure on costs, but we have made major investments in the business and in the future of the bank. And we don't abdicate our responsibility for actively managing our costs every day. We also have very positive news regarding capital. We announced the payment of extraordinary dividends and that reduced our capital base during the last quarter. Since then, we've generated both more earnings and more capital.

This quarter, we reported capital consumption by risk-weighted assets and due to regulatory changes that increased the risk weighting on some operations. Therefore, we had some nonrecurring impacts that caused the CET1 ratio to reach 13%. It's worth noting that our dividend policy establishes a CET1 level close to 12%. So how this excess capital affect the dividend policy in the coming periods? We're still grappling with some uncertainties, whether related to regulatory changes or future implementations of regulatory updates. Including the new operational risk regulation and credit weighting that have been impacting the RWA, the impacts of the IFRS 9 and how it will affect tax credits and consequently capital.

For this reason, we're always careful to maintain a capital buffer to anticipate future events. In order to ensure proper capital management and avoid any issues. Any excess capital beyond that will be distributed. And the closer we get to the end of the year, the greater our visibility on this. Our goal is not to retain capital beyond what is required to run the bank and grow our operations.

Considering a horizon of 12 to 24 months, which gives us considerable security regarding our current and future capital generation in the coming quarters. We do not release the guidance on a quarterly basis, and this is already known to the market. The idea of bringing the guidance framework is to share with you our view of the year of 2024 and the bank. The first relevant piece of information is that the 2024 guidance estimates the growth of the credit portfolio between 6.5% and 9.5%. The year-over-year growth of the credit portfolio was 2.8%, but adjusting for FX, it impacts the Latin American credit portfolio. Growth is 5.6%, which is still below the 2024 guidance.

As we are currently in the valley of the derisking portfolio adjustment curve, we remain very comfortable with the 2024 credit portfolio growth guidance that was released at the beginning of the year. We believe that we'll recover to a position in the range of the loan portfolio growth throughout the year and are reaffirming our 2024 loan portfolio growth guidance. Our clients NII grew by 7.4% year-on-year. But when we exclude Argentina from 2023 results, we grew by 9.4% in the period. This growth of 9.4% is above the guidance range. However, this is not an indication of where we'll be at the end of the year. We are simply sharing with you as evidence that we have been able to grow close to the ceiling set out in our 2024 guidance.

As such, we remain comfortable with our clients' NII guidance. The market NII is a simplification because we take the result of the first quarter and multiply it by four since this is only a nominal guidance. We know that the unpredictability level of the margin is high, but we also know that we must work hard throughout the year and deliver results within the established guidance. The cost of credit follows the same rationale with the first quarter of 2024 amount being multiplied by four. The guidance supports this credit cost momentum.

Commission and fees, excluding Argentina grew by 6.7% during the year, which is also within the guidance. We disclosed the guidance figures both including and excluding Argentina from 2023 results to better understand the performance in the period. Noninterest expenses increased by 4.3% during the year, while inflation was 3.9% for the period. If we exclude the figures for Argentina, growth is 6.4% for the year, also within the range of the guidance. The tax rate is also within the guidance range. We believe that the predictability is as important as good guidance for the market to calculate earnings expectations. So it's important to share how we are managing the bank.

Let me say once again that we are reaffirming our 2024 guidance, and we are very comfortable with the numbers we're achieving. Going forward, we believe we'll deliver the expected earnings and that the guidance range accommodates potential changes. We're very confident that the growth of the credit portfolio will be within the guidance range by the end of the year. This is the general message. We will not track the guidance during every quarterly presentation, but we think it's important to share our views at this time.

Finally, I'd like to take the opportunity to extend an invitation. This has been a very high-level executive presentation only with some updates on our credit portfolio, NII, capital costs and guidance details. But on June 19, from 9 to 11:30 a.m. Sao Paulo Time, we will host Itaú day. The event will have the same format as previous years with the participation of the Executive Committee, Pedro and Roberto at the beginning and also myself, although I promise not to take up much of your time and to give the executive committee the opportunity to explain our strategy and what's behind the headline numbers.

Of course, the numbers are important. Behind them, there is a lot going because appropriate, we will organize with great care and dedication. And it will also be the time for you to understand how we've conducted our business and the vision we have for the future.

This concludes my presentation. I'd like to I'll now join Renato to start our traditional Q&A session.

[Renato Lulia Jacob, executive]

[Interpreted] Thank you very much, Milton. Thank you for the presentation. So let's start the second part of our meeting, which is a Q&A -- so this is a bilingual session. So we're going to answer your question -- if you need any either English or portuguese or ou can submit as well your questions on WhatsApp. The number is 1113591877.

Milton, we have a list of questions to address for both of you. But before, I would like to give message for everyone here.

[Milton Maluhy Filho, executive]

[Interpreted] Thank you very much, Renato. [indiscernible] Well, guys, once again, thank you for your participation.

I'd like to break the protocol of our call and that the bank is going through so we wanted to also seize the moment to bring our solid -- of the state of real -- difficult moment is and to the press, a lot of initiatives that we've done to help the population of Rio Grande do Sul, but the -- but it's in a trench warfare that it is, the city, the capital, the cities and the -- the moment of solidarity, and we have to work -- Citizens as a company, and it well, we want to do the best that we can. We subdivided with our actions with the collaborators.

We have 170 branches in the agency. 52 are closed and impacted, 16 [indiscernible] -- our collaborators and associated companies, is in good conditions, family members are impacted. So this is the moment of the strength of the -- because in the end, we have to be together in a moment of difficulties and also joy so that our employees -- can also to the community and our clients. So we have a series of actions that we are -- we've been very proactive in the offering of insurance for our clients.

We know that there is a policy that protects them. We've proactively called our -- we are -- at the granularity at the individuals to see what are the processes that we need to help them in this great moment of pain. We did initially donation to Union, Brazil and NGO. But the big -- it's not only resources but mainly -- the war plan at this very difficult moment.

So yesterday at the invitation of -- as [indiscernible] John, the CEO of Azul, talked to me -- in the morning, we closed at that moment, our partnership, so we can capture our friends, colleagues, citizens of submitting plans to the region where we can land taking to the first responders as well to help them. We have an internal resource allocation in the back. So -- and one, there is the pairing of the nations. This is a problem that hopefully will be ending soon, even though it's long term, there is a rebuilding work, but I have to start by expressing my deep set -- best the most solidarity to the population -- that we can -- Itaú Unibanco, we're going to take two steps ahead to do whatever we can. Renato?

irst of all, I think that we have a tool work of risk management that is very much developed all throughout many years. This is a core system in our culture, risk management is very strong capital allocation -- [indiscernible] institution. So when we do projections of the guidance and projects, we can with a predictability degree that is very accurate to project our numbers. And we can see that we are developing now throughout the years both n finance and also risk. And this tool box allows us to do great decisions with the prospective vision and not the short [indiscernible] . Of course, we have teams that are high quality. We cannot delegate this to the models because the models were built by high-quality teams people that are dedicated to understand the journey of the client. And we've recently been planting in a very structured way with the retail. The management of the portfolio. We have to prioritize and make decisions, and you have to make choices. So as important as it is growing, you have to choose your battles from the capital allocation standpoint with a long-term view. We saw that there is an over offering of credit over the years. We cut it in inventories that are presented, but there is a series of December from '22 to March of '24.

If you see that series we didn't grow BRL 17 billion in the portfolio. Maybe this is a good number, so you can keep in mind. Why? Because these are plants with the compromise of their income, very high. Their indebtedness, they're now resilient on the long term, but we have to remember the numbers. So we have periods of high volatility. So I cannot look at a short cycle and make decision looking at the next 3 to 6 months. We're aiming for the results of the next quarter. VPL of the client is negative and not in the credit overview, we look at the overview client, not the credit overview. So in an institution such as ours that we want to bring and build a strong franchise of great engagement of the clients having a management of the client and looking at that client on a longer cycle is fundamental, so we can take -- make the decisions.

So we realize a certain increase of delinquency with everything that we lived after the pandemic increase or the inflation increase of the interest rates, and we knew at the time to make the adjustments that are necessary for the portfolio. I believe that looking from now looking to the numbers that I've just commented, we made decisions that are very accurate. Why? Because of management through equity and growing portfolio and bringing revenue is not difficult. On the short term, the revenue will come. I mean for growing the portfolio, you just have to open the credit filters, you're going to grow the portfolio.

But thereafter the problem is that you're going to spend many years paying for that bill. And that's not how we want to manage the bank. We want a branch not just looking at the -- naturally, there is an issue of value proposition. where we've done adjustments that are very relevant. It wasn't a credit card portfolio. There was an over offering of the portfolio of the product on the market. The client had 1.4 credit cards per CPF number. Now we see a credit cards per CBS. We have an [indiscernible] over product without annual fees -- [indiscernible] that you can hire digitally and no client when they hire a credit card, they ask the interest rate of the installments and the payments. They just think that this is a payment method -- client NII given some of that derisking of the portfolio.

[Unknown Analyst]

But when you think about growth from here and some of the competitive dynamics, are happening, right? I mean, you have some people competing on the lower income segment, but are they talking about going more with higher income clients. So I mean, how comfortable are you in your ability to maybe accelerate loan growth from here to be able to deliver on the guidance for the full year. Just -- and just digging in a little bit on the loan growth in particular, right? I mean credit cards, are we did see a pickup in personal loans, just to understand a little bit the dynamics there, if you go through the loan growth by the individual client segment, like where you see the opportunities and where there still may be some competitive pressures.

[Milton Maluhy Filho, executive]

I'll start saying that we see a lot of opportunities looking forward. So we are very positive about the size of the opportunity that we have in terms of growing the portfolio. Of course, we had to deal with this derisking process for the past, I would say, 2 years. And we are very happy we've been through that, delivering a very good level of profitability. But we are, yes, working in all segments, and we see opportunities throughout all the publics that we have inside the bank from Itau BBA to the individuals.

On the wholesale side, we've been able to deliver 2-digit growth. But you have to remember and take in mind in consideration that the debt capital market is very strong, especially in this first quarter. So you have to add at the end of the day, we are serving our clients not only with the balance sheet, but also with the debt capital market with for the client is a financing solutions and very important. And we opened [indiscernible] to support the clients that don't have access to the debt capital market. When we look to the SMEs, we've been able to post a very decent growth many years in a row.

So if you go back, we've been growing for many years now, and we've been growing two digits this year as well, and we still see opportunity to keep growing this portfolio. Where we made the most relevant adjustment was on the individual side. I just mentioned a few reasons why. But we see that we are at the end of the tunnel. So we won't see that pressure coming from this derisking from the next 2 quarters. We just have just a little bit more negative pressure but on the other hand, we've been growing 2 digits in the target clients that we define.

So mid income, high income, we are growing 2 digits in all those segments. And we believe that with this platform, this app, fully integrated with a full bank experience, we will be able to grow not only in the mid- and high-income clients, but also in the low-income clients. You have to define very clear what type of public you can access with what type of product in which channel? And what is your expectation in expected loss you can have with these clients.

So you can define the lifetime value, the VPN of this relation, but taking into consideration, of course, the risk models that we run inside the bank. So we do believe we have more than a winning class outside the bank, more than one personality outside the bank and we do have the low income, a lot of opportunity, having the correct value proposition. And this is our main goal for this year to find out the value proposition with the app completely integrated, and we will be able to grow the relationship with low income, mid- and high-income clients without -- with this strategy.

And also, we have -- of course, all the retail operation running very well, growing the business. The client base of all those segments is growing almost 2 digital year, so just to give you an idea that we've been able to grow personality in [indiscernible] not only growing the size of the number of clients, but also growing the share of wallet of those clients. So we still have a lot of room to increase the relationship with clients that are already very good clients of the bank. So we don't see any limitation, of course, in terms of growing. We do see, of course, that we have to keep in mind the scenario and how we will manage the scenario depending on the variables that we see looking forward.

So we have to look to the unemployment rate. We have to look to the GDP. We have to look to the geographic to the demographic of our clients. We have to understand the level of leverage the clients have. So despite of all these tools that we use for risk management, we are very confident that we can grow the portfolio. You will see us growing in the coming quarters. and we are very confident with the guidance that we made.

So there is no need to change. If you look at Brazil, only Brazil, we are growing 6.6% year-on-year. Then you have LATAM, which is having a major impact a negative 12%. And why is that? Because the portfolio without this FX variation, the valuation we would be having a 2.6% portfolio year-on-year. This is what we see nowadays, 2.6%, 2.8%, on the way you cut it. So at the end of the day, my most relevant information here, yes, we'll be able to deliver the guidance. And you have to look to us with two other optics.

One of that is that if you take out Argentina of our numbers, we are growing at 9.4% top line. So the financial margins with clients is growing 9.4%, which is very, very relevant. But then you look to our cost of credit is diminishing on a nominal basis. So our financial margin met is very positive. So we are growing the portfolio, growing the financial margin with clients and reducing the cost of credit on a nominal basis. So -- and also, we've been able to deliver a very good efficiency ratio. So this is the way we've been managing the balance sheet and we believe that we can keep delivering the level of profitability that we've been delivering looking to a longer period. So we are very confident and very positive about the opportunities, of course, always having a huge discipline in capital allocation, huge discipline in risk assessment. So this is -- it's our mantra and we'll keep that very strongly.

[Renato Lulia, executive]

The last question is from New York coming from Jorge Kuri from Morgan Stanley.

[Jorge Kuri, analyst]

I wanted to maybe shift to expenses where you've done a really good job certainly well ahead of what your incumbent peers have done. As you think about the banking system moving more and more to the digital front and some of your better digital competitors now moving into bigger products like payroll loans, for example, how can you compete effectively with players that have cost income ratios, efficiency ratios of 20%, 25% and are using that to translate into much lower prices for consumers.

And I'm asking this in the context of your guidance for expenses, growing expenses with inflation is just not going to get you there because revenues are going to grow a little bit above inflation. They're not going to grow 5x inflation. Your NII, for example, is growing 2x inflation. And so the efficiency seems to be lagging where I think financial institutions are going to have to be in order to compete with the pure digital players. So when can you do that? When can you start to provide us guidance of expenses are going to be down 5% next year, down 10% next year.

And within the next x number of years, we should be at sub-30% efficiency ratio or maybe I'm wrong and you disagree and you don't think that you need to run the bank at 20 plus 20%, 30% efficiency ratio to be competitive. So just wanted to get your overall take on this.

[Milton Maluhy Filho, executive]

[Interpreted] We start talking about that, and I'll give you a few messages. Thank you. Good for -- to see you, Jorge, again, and thank you for the compliment. Let me start saying that, of course, efficiency for us, it's key. And that's why we've been delivering quarter-on-quarter reduction in our efficiency ratio. We've been delivering this quarter, the best ratio that we had so far, and we keep very positive about all the actions we are taking inside the bank. Our business model is a little different. We are not a full digital bank.

And we have to understand that is in this index, we are looking at the whole bank, okay? So this is a full banking index. We come from wholesale, global markets, LATAM, you have Brazil, you have everything. So you have the 2 index right there, the consolidated index and also you have the Brazilian ratio. My message to you is, first of all, we've been investing a lot in the digital transformation. That was the first best decision we had to make to be able to deliver a digital experience to our clients with a completely different user experience, completely different efficiency ratio.

At this point, we believe that the app, the way we're going to be integrating that will be a huge achievement in terms of providing a much cheaper cost to our clients to be able to deliver a much better price at the end of the day and to be more competitive and have a more operational scale coming from technology. So this is something that we're going to be very, very, very focused. The second thing you have to look to our model, digital model, but the same way, you don't have the same level of costs, but you don't have when you look to the digital banks, the same level of revenues when we look at the capability that we have to have a full bank relationship with those clients and creating engagement not only for the day-by-day product, which is always the case, but also to more sophisticated product, you really need this remote approach to access our clients to offer to be consulted to your clients.

We're not, I would say, happy because we believe that we still have a lot of work to do in that front. So I'm not saying that we got there, and we are happy that we don't have anything else to do. Yes, we have to keep pushing that. And we have to find a way to serve our clients the way he went but with a much lower efficiency ratio. Of course, we do have asymmetries in this discussion. So we talk a lot about asymmetries.

We have regulatory asymmetries that are always being discussed, but we have some tax asymmetries as well. So if you look to us, we are paying 45 tax on the income corporate tax and social contribution, the payment institutions are paying $34 million. So there is some tax asymmetries, and I'm pretty sure that this in the mid- to long term needs to be solved. It doesn't make any sense. All the time, you lose a client here, you lose at the end of the de-collectionfor the government as well. because you reduce the tax income. So there is a lot of asymmetries that will be solved in time being. But at this moment, we have to be focused in our agenda to deliver a much better experience to our clients to be much more efficient and of course, if you look to the numbers we're delivering, there is restructuring costs, the impact there.

So you have -- that's why we separate what is the core cost is being much less. So if we had inflation of 4% in this period, we are running at 2% in the core cost, but we still are investing in the enablers to have a much more digital bank. So on the other hand, we have to finance this investment period. So at a certain time, we're going to be much more efficient. We're going to be much more scaled in terms of technology, much more product driven in terms of offering the best digital experience to our clients. And this will help us to be much more efficient in the way we have a value proposition for our clients.

So this is the way we look. We are in this space. We have a lot of work to do, but the job will be done.

[Alexsandro Broedel Lopes, executive]

So Brad, I don't know if you want to add something on that I think it's quite clear. I quite agree with the direction that you mentioned, but I wouldn't focus so much as you said, on 5% reduction in cost because as Milton mentioned, maybe 5% reduction in cost normally means that I will not achieve a lower efficiency ratio because the easiest way to reduce costs is to reduce investments. And we are clearly not on the business. So we are fully committed to reducing the efficiency level, but not necessarily to have nominal cost reductions when -- because we consider investments in this on this whole matter. So we fully agree the direction. But I think that distinction between core costs and investment that Milton mentioned, for us is quite crucial.

[Renato Lulia Jacob, executive]

Going back to Portuguese. The next question is from Gustavo [ Schroder ] BBI.

[Gustavo Schroden, analyst]

[Interpreted] Good morning, everyone. Renato, Milton, Broedel. I would like to speak dividends. Did you anticipate some -- well, you anticipate some questions, some words, Milton, but can you give us some color. First, the items that you were analyzing the waiting regulatory IFRS 9, you commented as well over the last calls about the tax reform. We've had the indication recently in my reading, maybe it's more easy going from the standpoint of adjustments given the time.

But maybe am I reading it would give more space for us to think in these extraordinary dividends that you've commented, but I wanted you to comment first. What are the items? Regulatory items that you have in mind, operational risk, IFRS 9, I think that an issue of the tax reform but maybe can you qualify and can you give us some expectations on what would be the impact of these items that you have approximately. So you well, doing the math, what would be the dividend -- extraordinary dividend in potential? Could you give us a number for the second semester?

[Unknown Executive]

[Interpreted] And you. It's a pleasure to see you, Gustavo. Thank you for the words. But let me give you an overview. In-depth overview on this issue. Well, from the end to the beginning, our expectation is that we should get to the end of the year with everything that we have in projections with the capacity of paying the extraordinary dividends.

That's our best expectation to announce an extraordinary dividend, and we've been discussing this on the second semester, at the moment of doing it, and the dimention but for that, we need a few premises. Now we are facing some relevant uncertainties well estimated, but these are uncertainties nonetheless. I think that on the positive side, the capital generation capacity is very solid, very strongly with the profitability level that we have. We've been generating a capital that is organically generated provisioning the dividends in a very robust way.

This quarter wasn't different. And it's been this way through the quarters. Now when we look up ahead in this quarters. Now we've had the first event of the responder or for the credit for the structured operations of the of the wholesale, they had a big increase. In fact, the 34 basis that we said 19 basis points approximately came from the bond raters impact. The rest is just risk-weighted assets the increase we've managed not only to finance the organic growth of the bank, but also pacing these adjustments and these bond raters. Second aspect is that looking up ahead, what do we see in terms of uncertainties. We had an expectation of the reform -- the tax reform of the income. What is the tax reform point.

[Unknown Executive]

[Interpreted] You have a discussion, you had a discussion if you have interest over own capital and how that compensates on the corporate tax adequate, if you have a lower adequate. The corporate level, you have to do very well this process you have to do an update. Re-evaluation of your tax credit. So we had an expectation that depending on the magnitude of the reevaluation, maybe it would cost us 60 basis for the bank. This is the number that we had with our projections.

The fact is that the reform of the income, it's probably the tax reporting is going to happen next year. This is the base scenario because we're focused on government Congress in doing the norms and finding the IVA reform and all the impact in the segments that in and on itself is a very complex reform to do.

We don't foresee this discussion for this year. Now for the next year, what are the impacts that we see -- we did -- we see a discussion of the fundamental review of the trade book. This is [indiscernible]. This is coming from the market as a whole correct, I think that it's in the right direction. I think that it's ever more clear that the most risk for the results in the institution is in the banking book. And we've seen this happening in several banks and in the United States as well. This is a regulation that is necessary. We are very comfortable with what we've seen thus far. We've done risk management and adequate management very adequate of these books. So I don't foresee big impacts. We have a discussion of solar basis which is to work on the capital at the individual level and not consolidated and then you define economic groups in conglomerate, higher potential. Therefore, this is a debate that is ongoing.

[Unknown Executive]

And we need to define what is the type of impact. There is an impact of Basilea risk, operational risk, So looking up ahead, our estimate is 100 basis points for Banco 4 years, phase-in starts next year. So 25 basis per year 4 year, so we are very comfortable that with our projections we can observe absorb these 25 basis at the beginning of next year without any difficulties. There is a discussion of IFRS 9 or the norm, the law that was created. And I think that you know this is something that you should measure the impacts in the several institutions because the as you necessarily have to deduct all of your loss of credit in the -- in this FY and [indiscernible] stock, you have 3 years to do the deductibility the risk of a process such as this is that some institution is going to lock in a liability of tax.

And then you have the old effect. First, you lose upon the radar of the PDD and then it becomes TPF, the tax of the loss of tax reform and then you reduce the base of the capital. There is a transition that is being broadly discussed in the Central by government but we do not know exactly what is going to be the outcome of this debate. So I think that we have to, by policy, be very cautious facing the uncertainties because events take place. there are several regulatory changes. So these are the main ones, the main changes that I see, but our capacity to generate capital has been very strong. which means that we continue to be comfortable and we are capable of financing these impacts and finishing the year with a CET1 with the level of and -- so we can make a decision for the extraordinary dividend that is being paid.

And I rather do some extraordinary dividends throughout the year. then rather do one-off just once and just do this with the tight capital. And we have a buffer in our risk appetite for the Board. We're always going to discuss the convenience of 125, 11.5%, and what is the size of capital that we've seen ahead given our projections on most important, is if we can continue to allocate to revocate the capital for growing the bank organically and organically for we can bring a great return for the shareholders. This is our central objective. But we don't want to retain the capital above a certain level. So therefore, distributions are going to be done in that sense. I hope that I gave you a general overview of the issue.

[Renato Lulia Jacob, executive]

[Interpreted] The next question, we have Mario Pierry from Bank of America.

[Mario Pierry, analyst]

[Interpreted] Good morning, everyone. Congratulations on the results. Thank you for the opportunity to ask a question. Milton, I wanted to explore more on the issues, the opportunities on the we've discussed a lot of natural persons. But I wanted to think how you see the opportunities, the growth. You talked about the other projects. What is the process of implementation of the timing of the [indiscernible] project and how is this project helping you differentiate your service to the companies in a digital way?

[Unknown Executive]

Thank you, Mario. Thank you for the report and for your kind words. Now this segment is super strategic for us, very relevant for us for many years. This is a segment that the bank has focused a lot. We've had a lot of learnings in the segment. And we managed in a relevant way to deliver value for the segment -- for the clients of the segment and creating value based on our value proposition and based on the business model that is developed in the retail.

We've grown 2 digits in the segment for many years. If you see the indicators of credit indicators absolutely controlled behaving well with our prospective concerns, of course, there are more difficult cycles, better cycles for the credit, but the fact is, is that we can grow with a lot of engagement. With a lot of increase of relationship with the clients and growing the base and increasing the penetration of these -- in these clients. And important, with the credit and the risk in well managed in our hands. We went through this process very well in the long term, and we are growing with a lot of quality.

So this is a value proposition that fitted very well with us. with a lot of training, human capital that is differentiated and always with an overview of the client, not product with an overview of the relationship with the client and long-term view. So we can always have and not just look at 1 quarter, but looking at the long-term view. We integrated the network and ready, and we were very well successful. [indiscernible] is not a business that we observe stand-alone. It starts to be a part of the value proposition of this segment. And once again, with the overview of the product but with a client.

And we are very happy with the integration and with all the benefits that has brought with the operation. At last which will be rebaptized is the internal project. We have a name, we are going to announce the new name of Atlas project. It is at a [indiscernible] lounge project. Friends or family. We have a lot of projects friends and family, but this is a family that's been growing. The feedbacks have been very positive thus far. We've learned a lot we've evolved with the platform. We've applied technology, everything that is available in terms of technology, and we've grown with our clients and learn with them. Our overview is that for the second quarter, we will have -- we will get the long-hanging fruits and then we can more share the concrete data with you. We are very happy with the advances.

And we continue to believe in the success of Atlas, an offering that is completely different for digital, focusing really in the paying and needs of the clients. of what they really need to work with their business. And we are going to work with clients and publics that are different, but companies that I see that have a value proposition and a solution that services their needs.

We're very happy with the evolution I would say, second quarter I'm going to give you more details. I hope to give you more details. In Itaú, we're going to discuss the evolution of Atlas. And our expectations ut our business companies is growing very well and very healthy. And with the profitability much higher than the profitability of the bank. So it's a high-performance segment, very well managed all throughout the year.

[Renato Lulia, executive]

And now to the next question. We have Bernard Goodman from XP.

[Unknown Analyst]

[Interpreted] To ask a question on congratulations for the results. I have a question about profitability per segment.

Well, it seems that retail is going on a recovery trajectory that is very important, left an ROI for end of first quarter of last year to 23%. Now what can we think about the elements that brought in this recovery. How can you project these returns on investment looking up ahead, the bank seems to be adjusting very well to the cost of serve service, and it's a very assertive movement of the risk offering the portfolio that melt and explore very well. And on the opposite side, when we look at wholesale, the ROI is still very high, 28%?

When we look at the competition per operation, given the reduction in inventories and spread and capital markets, the scenario seems a bit more challenging. How can we think about this dynamic of the wholesale as well?

[Milton Maluhy Filho, executive]

[Interpreted] Thank you, Bernardo. Thank you for the initial words. Great to see you. Thank you for taking part in our call. Well I remember a few quarters ago, was question about retail, I was -- I said that I wasn't happy with the profitability of the retail, not even the management, not even the CEO. At that moment in the past, we were doing a strong work of renewal of the value proposition, renew what we review of the business model. So we can get a profitability level that is more sustainable.

We weren't -- we didn't want to go back to what we saw in the past. There's regulatory changes down the line. It's a segment that grew more credit than the income of services, revenue service, what brings the profitability, let's just say, to a lower threshold because of the credit in general it brings a profitability level and it's closer to the cost of capital, but without foregoing the exploration and going -- getting closer to the clients and in relationship.

Here, the retail there is the individuals and the companies I mean the companies are growing. This is a business that is improving year-on-year. But where we had a big turnaround. And it's still not done completely, but we've done a great part is in the individuals, the natural persons. I said that I wasn't happy with that business. But now our bottom was 16.5%, we delivered in the results of profitability of the individual time we got to '23 now. They're still space for increasing this profitability. And there isn't a silver bullet.

There is a series of initiatives. We changed the business model. We did all the review of Uniclass. We did a review of [indiscernible] but we also did a review depth and depth of our mono liners. We had, in fact, a derisking -- important derisking to do in this portfolio, specifically credit card vehicles, even with the loans that we had to do -- and we've done very well. We did a sanitization very well of the credit and the portfolio for this segment. So we can work with better profitability level. So there is a value proposition business model here. generation of top line reduction of cost of credit and with an operation that is more efficient. So this evolution is the one that we've observed and we are very positive in regards to this evolution. We tend to continue to advance in profitability.

As I told you, we are not going to -- we're not going back to the threshold, but we didn't get to the peak of profitability, and I think that we can wait for this in this business. We are very satisfied with the evolution, and we continue to have the retail working with profitability is close to the profitability of the bank. It was dilutive for the [indiscernible] short time ago. but now it's aligned with the ROI of the bank that is very positive, creating value in a consistent way and sustainable way.

Wholesale, we had a small expansion in this quarter on the profitability. So we managed to operate with a strong profitability. And this is a business, of course, credit is important and has a very strong weight but it goes beyond the credit and the balance sheet stand-alone. Our capacity to work with the clients in several businesses and several needs in the way that we say with Itaú [indiscernible] the d-day until the most important day, the day-to-day to the day of our clients. So we leave from a cash management that we have a share of cash that is very relevant of our basis of clients going through the cross-sell with several products with investments and derivatives there is a penetration of other credits that is supporting the clients, but with the capacity enormous capacity of working both in fixed income and variable income where the M&A market we have a strong participation there, but remember -- but when we talk about profitability of the wholesale, I'm not talking about I'm talking about Itaú BBA.

All of our agenda of asset management, the individuals, all the business of investment that we have in the bank, the brokerage, the custody management, we are working with a profitability level that is very high within efficiency. There is services, there is less leverage in efficiency is the higher, but we can deliver relevant returns when we compare to other players, the magnitude of our assets, the investment business, the relevance of our business. The private banking with 30% of market share is contained in this profitability, and we've managed to gain markets month after month, day after day.

We're very satisfied with the evolution of this business. And now we have a bank that is outside of Brazil. all of our operation in LatAm also in this quarter, had an ROI that is close to 14.9%, close to 15% it was 14.9% to be precise to showing that our LatAm operation also has managed to grow and increase the profitability. So it's true that we've seen higher pressure in the market -- in the capital markets is very active in this first quarter to positive side is that we are the best -- the main player, and we have the big the origination market share for the fixed income.

The primary one - so this is a relationship with the company that's cross-sell, being closer to the client, delivering to the client the best solution and the best structure for financing at that time. We've worked with relevant projects as well. And I would say, we are satisfied. The issue of more pressure in price [indiscernible] let's just say, we have a mantra in the bank, and we use it very well. When we see any rationality when it exists we have two paths, either we lose market or we just try value.

And our decision is to lose market in situations such as these. But we also understand that these are unsustainable in the long term. So when we see an anomaly in the pricing in the capital allocation vision and the return innovation in certain segments, we take a step back. In the sense that saying this is not sustainable. This is a poor capital allocation is dilutive for the ROI and when we look at our models of capital allocation, we always work with our cost of funding that is lower. Our model for capital allocation with our efficiencies, tax efficiencies and still, these are operations when we realize that these operations have destroyed value and are much below the return on the cost of capital, then we decided to stay away in to define [indiscernible] intelligent solutions for our clients.

But we don't get into that dispute. That's why I'm not worried about profitability. I think that the biggest driver for profitability on the medium, long term, and it has been a lever that is very positive for us is the cost of credit. In this segment, we've been running much below to what was the price dynamic and we, for some years, had a cost of credit that is very is behaving well. There will be a normalization and this normalization has been slow.

And the most important thing is that in relevant cases of credit that we've seen in the market, we usually with a disciplined management of risk and concentration and allocation of capital we've managed to do very well. I'm going to hit wood three times. But we're going to be -- we find it very well through these moments. So the segment of medium and small companies, we to started to realize there is a pre-pressure here and there, but absolutely something within what was expected, normalization very slight one. And we haven't seen big events that we somehow are exposed. So I believe that wholesale, we see a good capacity to deliver value and good results of ahead. Competition is part of the game, and we are here on the long term and not just the next quarter.

[Renato Lulia Jacob, executive]

Next, Thiago Batista, UBS.

[Thiago Bovolenta Batista, analyst]

I have a question about how -- how transformational can it be the one Itaú thing and it's this transformation? What is the focus? Is efficiency having a better credit control is having access to a client that you didn't have before? What can transform the bank in [indiscernible] Itaú?

[Milton Maluhy Filho, executive]

Okay. Thank you, Thiago. Also very nice to see you. Thank you for the words I have a question for a question that wasn't asked before answering. That event that we launched in the nonrecurring in the balance sheet, of the selling of the participation of the company is selling of [indiscernible] , which is a company that we had 5.4% in participation. And we -- the company was sold to Visa -- we had taken a company. It generated a result for the bank of BRL 180 million in the last line but to keep our consistency in the recurring nonrecurrence regardless of it being a positive result, we have the discipline of being positive or negative.

We launch in the recurring one is nonrecurrent. This is a classical case of a positive that we launched in the nonrecurrent in the balance sheet of the bank and not the result that I would say recurrent. Otherwise, invest the information and you lose the capacity to understand what is operational and what is events. So just to give you that information for you and the market of that transaction that we are talking. That we're talking about. What I wanted to discuss with you about the [ Super Ad ] platform, I think that is transformational. At least with this, we believe that this is the way that we're going to run the project. I believe that, first, there is a maximum mobilization of the entirety of the organization, the most [indiscernible] , most important project of wholesale -- of retail, sorry, that is -- I mean, everybody is involved [indiscernible] ordinate, analysts, everybody is involved and dedicated. This is a project that has to be done together.

The coordination level is deep but we are very happy with everything that we've done thus far. Our best expectation is that this is an evolution of the platform of which we had a quality, the best technology with indicators and KPI of clients that are very solid with digital experience that is incredible, and we can use a great deal of these components to lever a platform that before dependent on several products and systems. So we couldn't break the monolines and create the solutions into the product in between the businesses because really the platform -- that platform wouldn't allow for.

So here, there is a confluence of 2 events. The digital transformation of the bank and the evolution and investments of everything that we've done with which platform. Joining these two initiatives, we can get to the solution, which has a super app. The Turbo app, which is a full bank offering for the clients. Well, I don't want to do any type of projection because as any project, there is a risk for the execution. I mean there are many challenges looking up ahead, but my expectation is that this will be transformational.. Transformational for the experience of the client. It's not just this. We have an accelerated program for digital transformation in the retail, improving the value offering, the offering of credit being improved in the context of journey.

So there are several fronts all the safety because safety is the experience of the client. We are certain that offering a safe offer for the client is generating value at the end. So we are working with a lot of focus on this. Our overview is that if we are making this work, and we are very trusting that it will work, we will unlock in fact, a very big value in individuals in natural persons and that means working with a generation that is strong business with clients that we have relationship. But -- it's a very limited relationship, and we can do that at a cost of service that is better with ex and a value proposition that is better and we're going to have to learn to generate cross-sell.

And we've made an effort throughout the years to learn how to do businesses with platforms that are uniquely only digital. And we can service the for a public that is below the threshold of the water light when you place in cost of service in the equation. So we're going to be more efficient, more digital first, in this business, and the expectation is very high. So we are working in the bank and this can be transformational for the for the retail, and it can be a relevant growth lever for the future. And you talk about the cost of credit. A great deal of these clients, we have a relationship. We know the behavior. We have appetite for credit and it's not quite a low income. When you talk about our platform, which had an approach that was focused on the lower income in the younger product.

This is a solution that goes through all the segments. Yes, it goes on the low income, and it can be a value proposition for us to service exclusively the clients and that way, but it goes on all segments. And the big advantage of this solution is that you can customize for the need of each client. So you don't have the one size fits all, you're going to have a customization depending on the need and we will be able to attack the medium and high income with the known behavior with clients that we know and I can deliver the concessions that are very important and the share.

So I believe that there is a lot of talk. It's not our start. What we prefer is over delivery under promise. I'm not overpromising, but we are very confident with the future and I will give you more details as time goes by.

[Renato Lulia Jacob, executive]

Next question, Brian Flores Citi Bank.

[Unknown Analyst]

[Interpreted] I wanted to talk about Latin America. On the 1 side, we are seeing a contribution with less, but on the other hand, the profitability is improving. So I wanted to ask you, how -- what are the trends that you talk amongst themselves from now, from that one? And what is the level of profitability that you are foreseeing for this operation in LatAm?

[Milton Maluhy Filho, executive]

Thank you for the questions. And your action shows the importance of looking outside of Brazil, not just talking about Brazil, right? This is a very important agenda for us the agenda of regional Latin America on the long term. And we've managed to perform in a very strong level in all the countries that we are present in. What happened is that on the year-on-year, there is a negative impact, which is the exit from Argentina, which impacts the numbers. This shows a smaller result in regards to the results, the result of Brazil is growing.

Importantly, I would say that Latin America now represents ballpark, about 7% of the result of the conglomerate but with 20% of the assets. Why? Because these are countries where the ROI is -- the results are lower. The profitability is lower. So you have a larger portfolio, but a representativeness in the last line, smaller. What can I tell you? Well, first of all, Argentina, it's misleading when we just look at the line of the top line and the RE of the balance sheet of the bank because it was positive in the generation of results. and reduce my cost of hedge for the capital index.

So it brought a series of effects with the margin of the market and had a positive result. Problem of our continuous that we had the CTA famous that was in the better money that all throughout the time it accumulates the difference between the interest rates between [indiscernible] in Argentina had a negative number and reduce the patron of the bank. So I do think I had a positive effect in profitability and a better result when you look at the ROI because it decreased appeal by the wrong reason. So when we looked at the shareholder, the [indiscernible] was a detractor of value of the bank.

So our vision of selling the operation, and I think that the timing was very adequate we saw other foreign banks leaving the operation thereafter. I think that the decision was correct. -- in consolidation for the local banks. What we kept in Argentina is an operations servicing the corporate clients for a very senior group of the bank and even the CEO [indiscernible] that has been the leader of the operation in Argentina.He is leading all of that front and we keep the relationship with the big economic groups in the region, booking the offshore vehicle operation. The other

countries, [indiscernible] Paraguay, we've seen important growth with profitability that is very solid. Growth of the business in several countries. Now these are businesses that even though we have a great profitability and they grow. And the whole, they're less relevant given the dimension Continental dimension, geographic dimension of these countries, populational size, et cetera. And in Chile, we had last year, we had very good years, and this is a year that we go back to operating to what Gabriel and myself many years, we said there was a profitability of expectation of profitability for [indiscernible] term, which was a royalty of 16%.

So that's where Chile has been running on the local level when we did the adjustments here, taking into consideration the tax issue and the capital issue and the hedge of the net capital, the profitability goes to a lower threshold. But even so Latin America is accretive and very close to the cost of capital, which generates value in the bottom line result, but it's a bit dilutive in the ROI given our ROI. So we think that these countries are going to grow. The countries are reacting economically. There are opportunities. And Colombia has been the big challenge, whether it is by macro factors macro factors, our bank there is small sized. So you cannot work with a subscale bank on the retail.

We have an allocated team trying to do the best doing the structure adjustment, working strongly in efficiency so we can have within what is possible, the best possible operation given the [indiscernible] local operations. So we're pretty positive in regards to the region. We've delivered the result. It's a very strong position. Nonetheless, it will now represent more than 7%, 8% of the results of the bank. And if we continue to expand in that speed, it will be that ballpark that we should observe, but this is a very solid result and quality result.

[Operator]

[Interpreted] Next question, Renato Meloni.

[Renato Meloni, analyst]

Congratulations on the consistency of the results, let's go back to the issue of growth in the individuals, natural persons portfolio. I mean, you see the inflection point on the growth of the portfolio with the industry. Even with the quality of credit that is better --

Just at this point, you're more likely than not to call the [ AT1s ]? Second question, yes, on the 29th. And then third, on the senior bonds, other than potentially refinancing the '25 in the offshore market. I would assume that at this point, you don't have any relevant needs to issue senior bonds in dollars. But just to check your thinking regarding AT1, Tier 2 and senior bonds in dollars. .

[Unknown Executive]

Perfect, Nicolas. Good to see you again. It's always good to have some fixed income questions just to go through the three of them. So the first one, the answer is yes. We have the same approach for the AT1. I know it's callable with 6 months, and we're going to take the same approach that we did in the past one. We look a few metrics before making the decision with the information we have today the reset or to call this bond and to access the market would be much more expensive than simply don't exercise. So we have an economic approach for the AT1. For the AT2, we don't have the AT2. But the Tier 2, we see it by the year-end, we didn't make the decision yet, either or not, we're going to call that. But it's -- as you said, it's important to know that we have this 5-year term that we go year-by-year losing the benefit of capital. So we do a lot of calculation here to make sure that we are optimizing in the best way our capital base. considering the price and that you lose 20% per year in terms of capital benefit.

On the senior bond, yes, you are right. We don't have any need to do or to tap the market with a senior bond. Of course, we are always going to do that if we find out it's a good opportunity to access funding. But we have a lot of funding as well in the local market. Despite all of that, we always want to maintain some yield curve market in the offshore market. So whenever we have the opportunity, we try to keep some bonds outstanding. But the main decision that we make all the time is look to the bond and see if the price they yield and what are the alternatives. We have a very strong Level 3, Basel III indicator of liquidity. Our LCR is very, very strong at this moment. NSFR, it's very strong at this moment. So we don't have any liability issue, any big discussion. We'll have -- will be much more price-oriented than a liquidity need to put this way. So thank you again for the question.

[Renato Lulia Jacob, executive]

Now let's go to the last question on the call, [indiscernible] JP Morgan.

[Unknown Analyst]

Thank you for the question. Thank you for taking part. Congratulations on the consistency. I wanted to ask about deposits. It's very difficult to compare the dynamic -- we end up calling these different numbers. So one thing might mean something for me and something for the other banks, but it's very good even adjusting for the exchange rate Chile, It's a very good quarter. And you have great initiatives. I mean high income. So I wanted to get from the conglomerate, where is the growth in funding coming from? Is it more corporate I mean there is a great DCM quarter. Is it more high income? I wanted to understand in your franchise, what is helping in this performance versus the peers? And congratulations.

[Milton Maluhy Filho, executive]

Thank you, [indiscernible] . It's great to see you. Well, the issue of deposits is -- there are several explanations. The deposit in this quarter, we see a variation that is slightly positive year-on-year. We lose the basis, but it's important to qualify this post the local deposit in reais, we've grown, and we've increased the penetration and engagement with our clients. where we've seen higher volatility was relevant tickets of deposits in foreign currency because of the increase in the interest rates in the U.S. So these are clients that typically have the deposit without remuneration or with the remuneration of the day-to-day, and they started to do their cash management, realizing that the interest rate naturally increase and the cost of opportunity changed.

So here, we felt a volatility of great tickets, big corporate clients with concentrated volumes ended up in the deposit. So you migrate from the one lump sum and it goes through the long term, and there is the migration. Another phenomena that we realize with the deposits, specifically for treasury products, which is the risk call that we observed in the market over the last few times. You remember the event of the retailer that impacted the credit industry and the funds. And we saw the movement for -- given the interest rate for the titles that are exempted for letters and so on. So the idea, the advantage of being a full bank and working with all the products because that at the moment, such as this wealth migration, we end up absorbing a great deal of these resources when they migrate from one trategy to the other.

This is a decline overview that we had ever more. So you have a consultant of investment that is looking at the client and look taking care of the relationship, and it doesn't matter if the product being offered as CDB or a fund, it's important to the client is being serviced given the context of the market and the profitability expectation of that portfolio. So there is a migration. Yes, for treasury products that has an impact. We have worked with a high discipline of prices because we have cash and we have a liquidity level that is very high. I wouldn't say that these are big tickets of the you have to look at the prices that we practice.

We are progressing the prices that are fair given the liquidity moment of the bank, but where we managed to grow and penetrate more is in the capture of wholesale of retail, sorry, they have the big private bank, the big fortunes natural but until the high income -- medium income, which is where we have more relevant pockets for investment. So we've grown relevantly in the last quarter of last year. It was a very strong growth of capture we continue to see this dynamic.

So this shows, first, is a correct product right price, experience naturally of investment and the value proposition with a consultancy of investments and the managers are working strongly in this capture. So I believe that this coordination has worked very well. And we have over 100% of our portfolio of retail finance with deposits of retail itself, which shows that we've managed to naturally have a ratio and the deposit and assets very strongly, and this brings longevity, brings engagement. It has a long-term relationship, and we are very happy with the advancement and lots to do. Nobody is comfortable here with what was done.

[Renato Lulia Jacob, executive]

Last question, and then we can close our session of Q&A, and also we closed Milton and Broedel. Thank you for the partition our video conference or the results of the first quarter of '24. Before giving the floor to Milton, I would like to inform once again the invitation to Itau Day on June 19, the -- you can enroll and you can submit the questions for Itaú Day . Enrollment is open, you can take part in this day. As Milton said, we're going to bring more details of what is behind the bank. With that, Milton, I will give the floor to you so you can close our call.

[Milton Maluhy Filho, executive]

Well, once again, I would like to finish thanking once again, all of you. Thank you for the participation reinforce the invitation to let me note, thank you for Renato, Broedel and another quarter, we're very happy with the results. We are growing 20% year-on-year. Bottom line growing 15%. Profitability, very solid, but more than that, is that behind these numbers, there is an enormous volume of business of relationships being developed and improved and 100,000 [indiscernible] that are in love for what they do, and they make us deliver this value for you, for our shareholders, for our clients, for our community.

This is our long-term overview. We are celebrating the 100-year anniversary, but we're thinking about the next 100 years. I would like to thank you for the support the feedback is always well seen. The transperformance is not a guarantee of the future performance. We are going to do the [indiscernible] to deliver the best bank impossible to deliver the best bank for the society and the community.

I leave you with my respect and my words of solidarity the entirety of [indiscernible] and thank you to all the collaborators for everything that we built together all throughout these years. With that, I close, we will see you soon the New York conference next week. We will certainly meet several of you personally. So we will see you in the next conference or in next week's conference. Thank you very much.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]