Itau Unibanco Holding SA

BOVESPA:ITUB4

Earnings Call Analysis

Solid Growth with Healthy Portfolios and Controlled Costs

The company reported a robust year-on-year revenue growth of 18.9%, with transaction volumes increasing by 5.3% for the quarter, indicating sustainable profitability. Advisory services and brokerage lines notably soared, demonstrating an impressive 21-22% growth. Asset management witnessed modest expansion, but the insurance segment showed impressive gains with a 19% yearly surge. The firm showcased financial prudence by maintaining controlled short-term delinquency rates, which decreased from 2.5% to 2.3%. The NPL rate remained stable, while nominal credit costs were reduced for the quarter to 3.2%, highlighting a growing yet healthy portfolio. Renegotiated loans were stable, showing sound risk management. Noninterest expenses increased mainly due to personnel expenses but efficiency ratios are favorable, suggesting the company has judiciously controlled core expenses while investing in long-term growth initiatives.

Robust Growth and Solid Profitability

The company has sustained year-on-year growth of 18.9% and a transaction volume increase of 5.3% in the quarter, pointing to a robust performance despite market challenges. Issuance grew 2.9% year-over-year with a volume expansion of 2.7% in the quarter, even after strategic exposure reductions. Advisory services and brokerage surged with quarter growth of 22% and year-over-year growth of 21%, placing the company at the top in investment banking rankings for ECM, M&A, and DCM, boasting market shares of 18%, 15%, and 29% in respective fields.

Stable Credit Quality and Risk Management

The bank reported stable short-term delinquency rates, with a reduction from 2.5% to 2.3% across all regions, showcasing prudent risk management. Notably, individual loan portfolio delinquency in Brazil decreased from 3.5% to 3.2%. SMEs experienced only a slight rise, in line with expectations, but projections indicate a decline in future quarters. Overall, credit quality remains healthy with no significant concerns, demonstrated by a nominal decrease in the cost of credit and stable renegotiated loan operations.

Fiscal Discipline and Strategic Investments

Operational efficiency enhancements have been a focus, with noninterest expenses growing only 8.4% in Brazil and 6.9% across Latin America. The bank emphasizes a strategic approach to managing core costs of the bank, which grew a restrained 1.1% over nine months compared to the previous year. Contrarily, positive investments in technology, data, and business expansion are driving growth, suggesting a long-term approach to enhancing productivity and efficiency.

AI and Technological Frontier

Continued investment in data science is clear, with over 350 data scientists and an array of projects leveraging artificial intelligence — indicative of the bank’s commitment to service enhancement and operational scalability. These initiatives are reflected in improved client service metrics, with artificial intelligence handling 72% of all calls, which aligns with the bank's technology-driven strategy for long-term growth.

Commitment to Diversity, Equity, and Inclusion

Progress on diversity and inclusion initiatives is evident, with the bank already exceeding its targets for black representation and women in leadership, reaching 27.3% and 35%, respectively. This progression underscores the company's sustained focus on creating a diverse and inclusive culture that is ingrained in its DNA and recognized by various awards.

Strategic Divestiture and Capital Strength

The divestiture of the retail operation in Argentina due to an unfavorable economic impact resulted in a nonrecurring result of approximately BRL 1.2 billion, reinforcing the focus on financial health and prudent capital allocation. Consequently, the bank's CET1 capital ratio has reached 13.1%, well above the regulatory appetite of 11.5%, which emboldens future growth prospects.

Guidance Reaffirmed minus Argentina's Impact

Post the strategic exit from Argentina, the bank's financial guidance remains unchanged, albeit excluding Argentina's influence from projections. This move reaffirms confidence in the existing operational trajectory and the company's ability to meet its year-end expectations.

Earnings Call Transcript 2023-Q3

[Unknown Executive]

[Interpreted] Hello, and good morning, everyone. My name is Renato Lulia, and I'm the Head of Investor Relations and Market Intelligence at Itau Unibanco. Thank you very much for participating in our conference to discuss our earnings for the third quarter of 2023. which, as always, we are broadcasting directly from our office Faria Lima.

Today's event, as usual, will be divided into 2 parts. In the first part, Milton will go through our performance and our earnings for the third quarter of 2023. Right after that, there will be a Q&A session during which analysts and investors can interact directly with us. [Operator Instructions] Our presentation today is available for download on the website screen as well as on our IR website.

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

[Milton Maluhy Filho, executive]

[Interpreted] Good morning, everyone. Welcome to our earnings call, supported by a very objective presentation. I'm going to run through the figures for the quarter and emphasize the Argentina effect, which, as you saw on Friday, we settled the sale of this operation. I'm going to show you how this affects our earnings and how the guidance is kept unchanged. Except for just an adjustment that removes the effects of Argentina from the 7 months that this operation was part of our earnings and how we've disregarded the remaining 5 months in the guidance that's been published in the second quarter.

So let's get started. We've delivered a recurring managerial result of BRL 9 billion, which points to very strong earnings that has grown 3.4% quarter-over-quarter. We've reached a consolidated ROE of 21.1%. Brazil's ROE, which is the most comparable with the market, was 22%, up 0.5 percentage point. It's key to highlight that if we were working with our capital within the risk appetite threshold approved by our Board, this ROE would be around 24%. I'm telling you this, just to give you an idea of the effect the capital has and how it dilutes ROE by 2 percentage points. In commission and fees and result with insurance operations, the growth was 3.6% quarter-over-quarter, reaching BRL 12.9 billion at a cost of credit of BRL 9.3 billion. This is the first nominal drop we've seen with a 1.9% decrease quarter-over-quarter. This is very good news from lending.

The NPL rate is absolutely stable with no news, which is in line with the message I've been sending you for a few consecutive calls now. The Level 1 capital ratio, which I mentioned just now reached 14.6%, an increase of 1 percentage point in the quarter. I'll show you in a moment, our CET1 running at 13.1%. But there was also a significant increase in the bank's capital. Speaking about the loan portfolio, the individuals portfolio grew by 6% year-over-year. As for the quarter, the credit card portfolio is still decelerating. But I'll emphasize this in a moment. Personal loans portfolio grew by 4.2% in the quarter. Payroll loans portfolio reduced and vehicles portfolio increased slightly in the quarter. So the portfolios in general, except for personal loans, as mentioned, grew 6% year-over-year. The SMEs portfolio grew 3.2% year-over-year, but we're already seeing a significant pickup this quarter, growing 3.3%, which means that the quarterly effect is already above the trend we had seen for this portfolio.

And in the credit portfolio as a whole, after adjusting the Latin America effect, we see a growth of 4.7% year-over-year and 1% increase this quarter. The message I want to leave you with, which for me is the most important one is that in the portfolios where we decided to not stop growing, they continue to expand significantly. Thus, if we take the 2 middle and high-income segments, Uniclass and [ personallate ] the portfolio grew 3.7% in the quarter, and the individual loans portfolio grew 0.6% on a consolidated basis. Year-over-year, this portfolio grew 17.5%, while the individual loans portfolio grew 6%. The portfolio of the middle and high-income cards grew 3.6% in the quarter against a drop of 0.5% on a consolidated basis and by 15% year-over-year against a drop of 0.8% on a consolidated basis. And in middle and high-income personal loans, we grew 6% in the quarter and 24% year-over-year.

This shows that we've been increasing our engagement in the middle and high-income segments, where we've delivered and performed very strongly over the quarters. And we've made a portfolio adjustment. We've made a significant derisking in our portfolio. This saved the bank's almost 200 NPL points throughout the period. The portfolios where this derisking was more significant. We're in the credit card portfolio which already had a significant nominal drop in the period and also in the vehicle portfolio to which we had to make very significant adjustments. In the other portfolios, we continue to grow and especially among those clients that are, in fact, resilient throughout the cycle as we say, through the cycle. That's how we've managed our portfolio.

When we look at the payroll loans portfolio, for example, we have 2 key messages. The first is a drop in the INSS public pension port which is in line with the information we've been disclosing as Febraban itself has done due to the limits that have been set. When this happens, the access to a cheaper financing facility cannot be made available to pensioners who end up electing more expensive facilities due to these limits now in place. We can see these portfolios dropping.

On the other hand, we've managed to expand government and private companies payroll portfolios, where we've grown by over 12% year-over-year in both cases. As for credit origination for SMEs, we see that it's continued to grow since the first quarter of this year. For large companies, there was a slight increase up to the second quarter. And since then, we've seen a growing demand, already reaching 118 year-over-year on a 100 baseline, which shows that we've managed to grow with quality by always focusing on the net interest margin. To focus on generating operating revenue is not enough. We have to look at the generation of operating revenue, the related cost of credit and the return thereon, by analyzing the net interest margin, therefore, already adjusted for the service cost, which may conclude whether these transactions are adding value to the shareholder in the long term or whether they are simply showing a growth in earnings that does not bring a return on the shareholders' capital. This is the type of management and work that we've done consistently each quarter. This is our daily work. As for the financial margin with clients, we have good news.

The line expanded by BRL 700 million in the quarter, a 3.2% growth. It was well distributed and balanced growth. With the effects of volume, the volume of liabilities, number of working days, some effects in Latin America and others. These are very sound results. And for the first time, to increase transparency, we've broken down the Argentina effect Argentina and the working capital had an impact of BRL 3.2 billion last quarter with BRL 2.9 billion from working capital itself and BRL 0.3 billion from the Argentina effect, which contributed with approximately BRL 100 million to our monthly earnings. When we look at the end of the graph, we get BRL 3.1 billion with BRL 3 billion from working capital, which compares to BRL 2.9 billion. It shows that we've managed to adequately hedge our investments and grow in equity.

In this quarter, we only have 1 month from Argentina. So we show this result considering July as the earnings of the other 2 months were not affected because we stop to account for this asset as a consolidated bank as the Argentina operation was recorded as an unavailable for sale asset due to the sale process that was underway. When we look at the consolidated margin, it expanded quarter-over-quarter from 5.1%, and we reached 5.6% in the consolidated margin this quarter. And when we look at Brazil, we also see this expansion taking place, reaching 5.9%, 30 basis points in the quarter, which is a very strong result. As for the financial margin with the market, the quarter was in line with the previous quarters, reaching around BRL 700 million. after the effect of the cost of the capital index hedge, the effect in Brazil is in line with these figures. We see BRL 1 billion in margin with the market. and in Latin America, a slightly lower figure. Remember that here, we only have 1 month of Argentina and 2 months where we've already recognized this investment as available for sale. Thus, it doesn't impact earnings. This was the effect of the margin with the market with no particular news.

I'd like to detail some information and commission and fees and results from insurance operations. First, the strong quarter-on-quarter income from credit and debit cards as we've managed to expand issuance, which grew 4.5%. The acquiring business grew 2.8%. It's worth noting that in light of all the integration work, better management and proximity to the clients, acquiring business is going through in short, a process of engaging our clients that has helped us to reprice and adjust our operation as a whole. Year-on-year growth was 18.9%, a very sound result. Transaction volumes are also sound, growing 5.3% in the quarter. while posting good profitability, which is the most important. And in issuance, we grew 2.9% year-over-year with a volume expansion of 2.7% in the quarter. We remind you that this was the portfolio where we've actually made the most adjustments. We've reduced substantially our exposure to the open sea, and this adjustment, of course, not only affects revenue, but also the portfolio growth. When we look at the advisory services and brokerage line, we see a very strong growth of 22% in the quarter and 21% year-over-year.

In further details, we came first in the investment banking ranking in ECM M&A and DCM, achieving 18% market share in ECM, 15% in M&A and 29% in DCM which shows that we've been consistent and delivered very solid earnings in this line. When we talk about asset management, there was actually a slightly lower year-on-year growth with an expansion in the quarter. But the most important thing is to show that the open platform grew this quarter. As a result, we are already seeing a certain migration trend to this platform, and the line of own products has been growing a lot throughout the cycle of monetary tightening. So the pickup is lower quarter-over-quarter with an increase of 2.2%.

Finally, in insurance, we grew 19% year-over-year, with a growth of 5.4% in the quarter which shows that we are consistently expanding our insurance operation and increasing the value of this operation within the bank's balance sheet. In terms of credit quality, our first message is from a global standpoint. When we look at Brazil at the total and at Latin America, short-term delinquency reduced in all 3 cases, and coincidentally, in all of them fell from 2.5% to 2.3%. This shows that short-term delinquency is well behaved. When we look at the NPL 90 days on a consolidated basis, the total is fully in line, just like in Brazil and Latin America. And when we look at the short-term delinquency in Brazil for the second quarter in a row, we have a reduction in the individual loan portfolio from 3.5% to 3.4% and now 3.2%. In fact, the first quarter is usually more pressured by the previous quarter spending, and we've seen that in 2 periods, we are already returned to the levels we had before the start of the year and very small, small and middle market companies, the indicator fell by 10 bps. While in Corporate segment, the indicator went sideways without any news. When we look at the 90-day NPL in Brazil, in line with what I said last quarter, we have an absolutely stable rate. and our best expectation for the fourth quarter is a drop in the NPL for individuals. Bearing in mind that this is a portfolio that has decelerated a lot. So there's a much more controlled overdue effect and a denominator effect. Both show that we have a very healthy portfolio and no worries.

In SMEs, we are in line with what I said in the last call that we expected an expansion of around 10 bps and that's what happened. But our expectation is a drop in the fourth quarter. So we see that the short-term delinquency is reducing. Thus, we don't have any specific concerns. Our very small, small and middle market companies operation is posting very strong returns, both in the middle market and in retail. So no specific concerns here. a very controlled cost of credit. When we look at the nominal cost of credit in this series, we have the first quarter with a nominal reduction. It's important to remember that in the fourth quarter, we had the effect of one retail company, which ended up changing this figure. If it hadn't been for that, we'd have seen a gradual growth over all the quarters. So this is the first quarter that we've actually seen a nominal decrease and in relative terms, it's fallen to 3.2%, which is a very comfortable figure and with a portfolio that is growing.

And the renegotiated loan operations, we have 2 news. The first is that it appears nominally stable at BRL 40.9 billion and 3.5% compared to the portfolio, which shows a very controlled and well-behaved portfolio. As far as coverage ratios, there is not much to say. You'll see a certain stability, only small effects, but absolutely stable. In other words, the bank's balance sheet continues to be very well covered and protected with very adequate provisions. As for noninterest expenses, this quarter is typically subject to stronger effects such as the collective wage agreement. As a result, personnel expenses accelerated from the second to the third quarter, while other expenses are very much in line. Thus, noninterest expenses grew 8.4% in Brazil, and with the effect of Latin America, they grew 6.9%.

And what are the key messages? The efficiency ratios are quite good. Clearly, much better than what we've seen in the market as a whole both in Brazil and on a consolidated basis. And these are international benchmarks. We've managed to deliver a very appropriate efficiency ratio with 2 main messages. The first is about the bank's core cost or run the bank, which is in line. In the 9-month period compared to the same period in 2022, we grew only 1.1%. On the other hand, what has actually been expanding this figure is not just cost itself, but the investment that we continue to make. They -- our goal is not to manage costs for the quarter. Basically, what we have to do is to make our operation more productive, more efficient. Thinking about how we invest in our operation by investing much more in technology, data and business expansion. So we're always looking at the franchise over the long run, always with a longer time horizon. So that's the reason for all these investments, which is still being absorbed by the P&L, resulting in a level of profitability I've just mentioned.

I believe these are the key messages regarding costs. The bank's efficiency program continues to make a very positive contribution. And in terms of transactional volumes, if the unit cost is the same as lower or rising less than inflation, if we actually increase volumes to do more business, this is a benign cost. So we've still been able to finance all this benign cost expansion with all the efficiency program at the bank. One of the most talked about topics lately is data. We've talked a lot about machine learning models, generative artificial intelligence, among others. This is a topic that comes up all the time. So what we wanted to do here was to provide a summary of our various initiatives. This isn't just a topic for a specific department. It's a topic for the whole bank. And we have some data that shows and reinforces how strong our investment and belief in this data agenda has been. Starting with our data structure, which has 100% of all the bank's data in the cloud in a very modern data mesh architecture, which makes the data much more democratized within the institution, not being used by just 1 department as all departments start consuming that data and not just consume but adding their own data much more efficiently to the bank as a whole. So we brought you some information that I think is relevant. We have more than 350 data scientists in the organization, more than 200 initiatives using generative artificial intelligence. More than 50 machine learning engineers, more than 150 professionals working with a generative artificial intelligence, and more than 570 models currently being used within the organization.

One of the cases that I think is relevant in terms of outcomes rather than output is service. For example, we've increased by 45 percentage points the volume of client service that is automatically retained through our models using artificial intelligence. 72% of all calls made are already handled by artificial intelligence, with much greater efficiency, accuracy and speed and with improved NPS. And this is in line with all the investment in technology and efficiency that I've just mentioned. This shows a much more scalable and efficient bank in the long run. And we have a series of other initiatives with greater security for our clients. since we are able to interact and identify the voice of a fronter, thus allowing us to protect our clients. With regard to productivity and the corporate client experience, we already have a lot of information for every documentation analysis so that it can be done as accurately as possible. We currently have a 97% accuracy. We've also been using chatbots to interact with our clients. We've used our artificial intelligence models in different businesses, and we have no doubt, this will be an agenda that has come to stay and will grow exponentially over the coming years. We want to be at the forefront. We had no choice but to migrate our systems to the cloud and upgrade them.

As for the artificial intelligence agenda, we have everything it takes to lead this process. We want to be at the forefront of this agenda. I'd also like to comment on a few topics about culture and people, which are very important to us. We've recently announced 2 objectives: black representation in the institution and women in leadership. When we set this objective, we said that by 2025, we wanted to have 27% to 30% black representation in the organization. We've already reached 27.3% in July. 40% of our hires today are black people, which naturally means that we can evolve in these indicators. We really believe that it's not just a diversity agenda. It has to be an agenda of diversity and inclusion in order to keep this flow sustainable over time. And to ensure that these indicators evolve consistently, we are very proud of the work we've been doing. And as I always say, it's not a job that has a day and a time to end. This is the new normal, and that's the agenda we've been working on. We also had a goal of achieving between 35% and 40% of women in leadership by 2025. We've already reached 35% in September 2023. So we are already at the lower end of our 2025 target and will naturally keep moving upward.

Regarding the hiring flow, our goal was to hire 50% of women in the flow. We've already hired 53.8% and here, we are talking about an indicator of women in leadership. When we look at women and the bank's total workforce, we now have 54.3% women. We brought this indicator just to give you an idea of the importance of this agenda, and we have to constantly talk about this ESG agenda. Of course, the narrative is important but the results you can deliver are much more important than the narrative. And every quarter, we present some output. Some focus to show how this agenda is part of our DNA. And how it is one of the pillars of our culture. Regarding some acknowledgments for the second consecutive year, we were named the best company to work for by Great Place to Work. And not just as the best bank, we won the best financial institution and also the best company with over 10,000 employees. What I always say here is that if we have happy and engaged employees, a strong culture, client centricity, Naturally, we will have satisfied clients. These are fully connected. We won the most amazing place to build your career and we also won this award for the second year running. That's very good news. And last but not least, also for the second consecutive year, we won the Valor 1000 award as the top company among banks. This shows a little of the recognition we've achieved.

We talk about these acknowledgments with our feet on the ground and with a lot of humility. This is very important for us to keep moving in the right direction. But with great care and humility because we still have a lot to do, and we believe that this is a longer-term agenda. We're not going to be complacent with these results. The bank has a lot to evolve. And this is the agenda we will continue to pursue. minnow radically changing the subject, I've talked about culture. I've talked about diversity. I've talked about inclusion. I talked about awards and now I'm going to talk about capital. As I've said a moment ago, we came out from a CET1 of 12.2% last quarter, and we've already done a pro forma last quarter, showing the positive effects of the regulatory changes which have, in fact, materialized now with plus 0.9%. As a result, we've reached 13.1% of the CET1 capital ratio, and our appetite is 11.5%, as defined by the Board. So there's been an expansion in all consecutive quarters since the first quarter of March 2020 during the pandemic when we made those material provisions. Since then, we've been expanding and growing our capital ratio. We have plus 0.4% growth in earnings already adjusted for dividends. we have the minus 0.3% of RWAs with the consumption we've had for credit, market and operational and the plus 0.9% I mentioned is basically the evolution of our models and all the regulatory changes, which leaves the bank at a very adequate capital level.

Regarding Itau Argentina Bank, I'll try to be very objective, but it's important to emphasize this for you. Considering the earnings that we see on our balance sheet, the 7-month result of BRL 578 million also poses an opposite effect in equity that doesn't go through P&L which is the effect of inflation and the foreign exchange variation of the equity in Argentina. So if you look at earnings isolated, you get the feeling that it's an accretive investment. I deep down when you consider the economic effect from the stockholder standpoint, saw a 7-month loss in Argentina of BRL 113 million. As a result, we made the decision to divest, especially in the retail business in Argentina, an operation that we had in this country for many years. We'll keep a very small operation, in this case, a representative office focused on a few corporate groups, we have a very close relationship through capital market transactions, investment banking, some lending transactions. We felt it was important to carry out this sale. The sale was completed satisfactorily with the regulator's approval and its financial settlement last Friday.

From the earnings standpoint and the material fact where we announced the sale, we said that we post nonrecurring results of approximately BRL 1.2 billion. And this is the result that is actually materializing in this quarter's earnings. So this settlement of this impact on equity that has been accumulating over the years, which is the CTA that we disclosed on the balance sheet and the balance sheet as of September 30 does not include any more of the effects of Argentina because from July onwards, we have the effect of only 1 month in the quarter which is July. We started treating this asset is available for sale and no longer as a bank consolidated on our balance sheet. The result excluded was a credit portfolio of BRL 4 billion and operating revenues of BRL 1.9 billion, and noninterest expenses of approximately BRL 650 million and earnings of BRL 578 million reported in P&L which is the figure I've showed you just now. Thus, we no longer include Argentina in our earnings. As a result, we simply took the guidance that had been released to you last quarter, and we made the adjustment by excluding the impact of Argentina.

How did we make this adjustment? We went back to the guidance and looked at what we had projected line by line for Argentina over 12 months, and we simply excluded them from the projection. And now we are restating the guidance without any changes. Basically, what we're doing is excluding the effect of Argentina from the last 5 months. 2 months of which are from the last quarter and 3 months from the coming fourth quarter 2023. Thus, here, you can see the figures adjusted across the board. The basic message is that our guidance is being reaffirmed. We continue to believe in the projections, and we are delivering earnings within these lines. Needless to say, geography can always change from one side to the other side. But all ranges described here absorb our best expectation of how we should end 2023. This concludes the presentation, and I'll now join Renato so that we can answer your questions during the Q&A.

I'd like to thank you once again for your trust and say that we remain very confident in our agenda. We've been working tirelessly on this cultural transformation that I talked about so much, this obsession with the client with expanding all NPSs, ensuring that our business keeps evolving and growing. We still have a lot of opportunity for growth, and we're going to continue evolving at the bank, but always with that focus and that long-term view, creating shareholder value is a mantra for us, and it's something we have very strong in our DNA. Then we're not going to fight for growth at least to 1 or 2 quarters with better earnings that is not sustainable in the long term. We are going to keep this long-term view, as we've always done here at Itau Unibanco.

Thanks, everyone, once again for your time. I'll join Renato and we'll continue our talk. Thank you very much. See you in 2 minutes. All the best to everyone.

[Renato Lulia Jacob, executive]

[Interpreted] Milton is back with us. Thank you very much for being here and for your presentation. And now we will start the second part of our meeting, which is the Q&A session. [Operator Instructions] Without further ado, let's start. We have my friend Renato from autonomous here with us in video. Thank you for taking part of our call.

[Unknown Analyst]

[Interpreted] Could you please comment on the improvement on the ROA with the business on retail regardless of the revenue didn't grow so much. I wanted to understand the drivers behind that improvement. And maybe other extended scenarios for the next quarters. If there is a trend and if you can comment on your expectation regarding the meeting with the Central Bank that is scheduled on the credit cards.

[Milton Maluhy Filho, executive]

[Interpreted] thank you, Renato, for the question. Welcome, everyone. I would like to start with profitability. In fact, when we look on the quarter-on-quarter, the result on the retail is stable. But with a competition that is different. With the turn of the quarter, we have had a revision of the capital allocation with the regulatory changes. And the demand of capital in the retail operation was reduced Therefore, the capital that was economically allocated on the operation is dropping, but the operation is stable. Why? Because all the remuneration of capital is inside of the business. You'll have less capital allocated with the business, you have less remuneration of the capital allocated in the business. That's why remove the effect of the margin of the operation, but the core, the operation is improving. It's improving a lot. When you remove the working capital, you have the cost and then you demand less capital. And then you have 2 levers. The operation of the companies that is expanding and growing with greater profitability with more efficient capital allocation and the inflection point that I said with the business of individuals already happened. And we are improving quarter-on-quarter the profitability.

So yes, there is a return. There is an evolution with the return, even though it's flat quarter-on-quarter, year-on-year, there is an important growth we can see a recovery in the individuals with all the drivers, more client engagement, less cost of credit, more efficient, less cost -- less costly operation. We can work with all the levers. And the companies have been growing with great profitability and the composition of both. Plus the insurance has allowed us to improve the profitability of retail, and we can believe on an improvement looking up ahead. This is one point. Second question, which is the credit card discussion. Our expectation is, well, this is an agenda with a lot of associations. There will be a debate. As usual, the regulator has the capacity and the conditions to understand the different opinions. It's important that you hear all of the market, all of the players. And the most important here thing here is that we want to solve. What are the starting points for the debate of the credit card and the starting point, the inception is so that the rate the installments are lower than what we were nowadays because today, there is a delinquency level that is very high with the credit card because there is -- well, those of you when you hired a credit card when you request that the product you had the comparison of the rates, you see the programs and you see the experience of the product, the new CFD limit is [indiscernible] So when you get into the credit card product, the client doesn't expect to sell finance because this is not the product that this is not the way that the product was designed. And our defense is based on that, how do we transform the credit card that has a penetration of 40%.

With our platform -- turning into our platform, the finances, they use expanding the offering and making the most vulnerable products that get into the into the higher rates to actually pay their credit cards. This is the regulator along. They're going to make the decision and the commitment here is with ethics is with the consumer. And they might have financed with less competitive conditions, and we are making this credit card platform with more efficiency. This is why just Brazil is the only country that is different. This is an anomaly with the revolving credit, and we have to deal with it. So we have to deal with it. We have the understanding the diagnosis, and we hear once again, [ ethics ] for is not negotiable. So we're not -- we would like technical correct discussion that is well done. And this is what we are supporting. [ Febraban ] is the leader of the state for the institutions as a whole -- financial institutions, of course.

[Renato Lulia, executive]

[Interpreted] Second question, we have [ Bernardo Gurman ] from XP.

[Unknown Analyst]

[Interpreted] I wanted to understand more on the retail segment. The bank has derisking very objective derisking. And now you have the results with the delinquency that stabilized. You talked about the high income, and the bank is very well positioned in that segment. However, on the other hand, some competitors already have results pointing out with more appetite, releasing the strains on the retail. And Well, you didn't get out [indiscernible] out of the cycle. Would it make sense to expand the composition of the portfolio, looking at the segments that are the base of the pyramid that are focused by -- mainly by the fintech.

[Milton Maluhy Filho, executive]

[Interpreted] Thank you for the question. Renato, thank you for your time. Okay. Let me give you an opinion on overview. We are very much convinced about the decision. Well, looking back, the derisking decision of the portfolio was a very correct decision, not only derisking, but we often know out these orders, we have grown in our target segments. Since our portfolio is very large, you get the credit card portfolio, [ BRL 127 million ] big numbers within that portfolio we have the high engagement clients with the profitability and risk levels that are adequate. You have a big portfolio that we call it [indiscernible] not only declines that we acquired digitally, but the finance and the association that we have, this is a very big portfolio. And we've done -- well, credit card is one of the product vehicles, we've also had to do adjustments. And just to give you a few numbers, I really stand out to me. This is the first quarter consecutive that we have the reduction of the NPL of credit cards. So the market the first inflection, the system as a whole, we are in the second quarter with a relevant reduction in vehicles -- we're in the third quarter consecutively during the inflection of the delinquency with expressive drops in delinquency and the equation of risk and return. We look at all the production that is on all of our models, and what we expect of profitability through the cycle. And we've implemented the portfolio management that was very efficient on the wholesale, we implemented that on retail.

So we balanced the portfolios -- we have worked with all the [indiscernible] It's not that we don't work with lower income. We work with lower income with a [ correct ] product with a correct credit correct way with an adequate rate. So we can, through the cycle, have more resilient products. We doubled down the high medium income, and we've grown expressively year-on-year. that has strengthened our position, our leadership in that segment. We believe in the importance and we invest in that. But there is a segment which is the lower income, but is still very relevant in our portfolio. Regardless of the derisking, it was 35% of the portfolio is still 20%, very relevant. But again, with the right product with the adequate profitability with a resilient client, so we can work with the adequate public.

In my opinion, the big drivers of our heads can grow with more efficiency and quality in those public are first, the platform, the Itau platform, the capacity to deliver a bank that is a full bank, 1 Ita, Well, the clients of the organization. It doesn't matter if they come through real estate or the payroll loans, we want to deliver a full bank experience the client. And here in the bank just peak, if we just look at the amount of clients that we have on the pseudo open ocean we had the millions of clients that have a record with us, that we have a relationship, but then we do not have -- we could not deliver because of the technology issue of or bank offer. This is what we are going to work on in the future. And we can accelerate through that -- the growth in those in those clients. So we have a few unit class outside of the 4 banks, some personality -- we have a lot of clients that fit into our target and that we could grow with quality.

The last [indiscernible] is the [ play ], of course, we try to be more efficient. We try to have an offer that is lean as simply as possible. 1 Itau will allow us to do this on the lower income clients, where we have an adequate cost in an adequate appetite. So for all these clients, they go through the threshold of credit. It's not the cost, the loss -- the cost of credit over loss is so high. There is -- there are no efficiency that justifies working with this client. And you end up with a portfolio that seems to be growing because of the dynamic and accounts receivable, but the loss is on the long term. So we are focusing on the net margin through the cycle profitability. It has to be [indiscernible] profitability and we have the capacity to really balance this portfolio and continue to grow with quality improving the profitability of the business as a whole. So we have an efficiency agenda for new public there is an integration that we can grow more and more in these clients that we do not service with a full bank offer. And we are going to continue to do what we have always done, which is reworking the segments with [ Personallate ] and [ Uniclass ] where we're growing double digits with great quality and generating more engagement and loyalty with these clients. So these clients that are more engaged with the they have lower deliquency. And this is our agenda for the future, and we believe that there is a big space yet to be worked with.

[Renato Lulia, executive]

[Interpreted] we have Thiago Batista, UBS.

[Thiago Bovolenta Batista, analyst]

My question. we still working with the second -- with the previous questions, credit card and low income. Credit card, it was an impressive improvement. You talked about the 2 quarters of the HR, the [ bids ]. But you've shown that there was a change in the mix that was very -- the growth -- strong growth of [ Uniclass ] [indiscernible] a big drop in the lower income, we don't have the numbers. Credit card my doubt is if the mix is constant, would we have a better outcome. This is the first point. Second, in the lower income, you mentioned a bit. Some of the competitors Santander, they said they have a deficit in the lower income. So they need a solution for that business. Well, based on your explanation, the solution is to Itau 1 or something along the line. How are the -- well, the on-site -- well, the would it be viable to have the -- well, the question is, well, the bank agent there's Itau 1 -- I'm sorry for the question, I'm sorry, complicated. But yes, what to Itau 1 would be a solution.

[Milton Maluhy Filho, executive]

[Interpreted] Well, if we maintain the same mix, we improved -- the results wouldn't have improved as we've observed. We estimate that the derisking of the portfolio would be 200 points of NPL in our delivery. So just so you can see the dimension of the derisking that we've done and the moment that we've done. At the end, these are portfolios that can generate the bank product. We talk about the top line, if you don't see the back [indiscernible] through the adjusted cost of credit, net margin, it induces you to take a decision with the inadequate appetite. Of course, there was an over offering of that product in the market, every new competitor [indiscernible] with the credit card offer. So a client that today could have had 2 credit cards, the experience of having credit card it's more difficult. Today, digitally in 1 day, they can open and get 5, 6, 7 credit cards on there is a phenomenon of not charging the fee, it seems like it's free in the pocket of the class. They use the credit cards whenever they need. And if they are not a client that is engaged in the organization in the first quarter cycle, they get their credit card away and then they go to the next product. And then they try to keep the less credit card with the bank that they have the best relationship. There is an natural trend that the engagement leads to lower delinquency, but the credit models for as better as they might be, they do not improve the income of the clients. So that's the first point.

We are very much convinced the derisking is fundamental, just so you can understand, our delinquency on credit cards. Quarter-on-quarter, we show the balance sheet the delinquency dropped in 6%. The vehicle loans also dropped in the quarter. These are numbers that we don't talk about, but all the derisking in the portfolio has a result in the -- well, in the delinquency, the NPLs has flow up, and we have improved the profitability. But the credit card operation monoline standalone is an operation that is not positive. It destroys value as is it runs below the cost of capital. So in some businesses, you can have a positive result. But it's diluted on the ROE and on the other businesses which are most risky, you have a negative sometimes result. So you diluted for the income and diluted for the ROE and still where we given the size of our portfolio, we could have -- we could absorb this importantly. What would have been the ROE that we would have had if we don't have the mix of composition of the credit card in the size that we have. I mean this is -- the numbers would have been higher if we had the size of the industry as a whole and the lower income ratio, I think it really depends on the channel and the product and the client they are working with.

Generally, yes, it is a deficit operation. The cost of service is very high for clients. I do not have the pocket out [indiscernible] capacity [indiscernible] client that you can operate with the credit with a delinquency rate that is very high, sometimes through credit itself, they do not contribute for the operation of the bank. So what we believe is that the network of branches will continue to have an important growth. There is remote service with many clients for the high medium income, they still like to be serviced to talk to the human, to have the on-site service. And we believe that the branch network, the way that we rework with our model, the satellites and all the branches and with an adequate footprint, very well coverage in the geography. We work in places that we still have to play an important role. But just the 1 Itau -- the platform that we are developing it will certainly give us the fire power that is unprecedented because this is a client that I can not service or that has a deficit in the on-site, I can make them digital and bring them in on the digital. This is the only way that we can make this client profitable. And the capacity of cross-sell that I'd mentioned that we can do because we have a full bank offering for these clients. This is our debt. This is a play of cost, a play of efficiency. The agency has a very important role. It has a compensation that is very relevant for our business model, and we believe in the digital model, and we believe Adjustments in the branches are necessary. We've done just in this year. and we are trying to maximize the efficiency. In the end, the branch network will be the size of how our clients want as long as we can add value to the branches, there will be an important an important place for the interaction with our clients, specifically for some products. We believe and we like in our model, and this is an adequate model.

[Renato Lulia, executive]

[Interpreted] Fourth question, from Rafael Frade from Citibank.

[Rafael Berger Frade, analyst]

[Interpreted] Two questions. One well, you commented on the issue of derisking of the retail portfolio, but it's very surprising that, in fact, when we look at the last 12 months, the selling consolidated goes up. regardless of all of the derisking. So the question is in -- at which stage are we in looking up ahead, that is less, like you say, win against us and we have a more -- a better growth in the portfolio, and we can have a marginal improvement on the portfolio. The second question is regarding the financial margin with the clients that have had an expressive growth in the quarter, but when we subdivide between the retail and wholesale Actually, more than half of that improvement on the acquired margin comes from assets of corporation. So can you -- just to understand, what was the factor -- how do you -- how is this reflected in the others?

[Milton Maluhy Filho, executive]

[Interpreted] Well thank you, Rafael. Let me start with the second question. Then I can answer your [ Kenayan ] issue. Second question, very simply. If you look at the financial margin in the way that we publish, we separate the working capital effect. So you can see that in the margin, there is no working capital associated to the market. But [ 90 75% ] is with the capital remuneration with the client because it's a credit risk and operational risk associated to the credit operations. So when you see that we exclude [ BRL 2.9 ] billion in the last quarter and in this one, it was [ BRL 3 billion ]. You can see that in the consolidated remuneration of the working capital is stable. There is an increase of NPL in the period. So there is a petromoney growth, and our rate continues to be positive. And the way that we do the hedge of the working capital. So we still have benefits. That is important information. And how do we unfolds to the business. And this is why you see the difference.

So if we look at quarter-on-quarter, there is a change in the regulatory [indiscernible] of the capital, how do we work with our models -- business models, I have the necessary capital that has to be allocated in the operations. Some time was a reduction in the risk for the credit risk for the risk of credit for example, for [ Basilea 3 ] for retail and wholesale, there was a reduction, what do we do with our business model. We exclude the excess of capital that was still larger and we put it on the corporation. So I don't leave it in the business, the remuneration of the excess of capital. It stays in cooperation. So we're not isolate [ 2.9 ] and the [ 3 ] in that slide, it's already containment in there. Why? Because it's the whole -- the breakdown is just how I allocate it between business. When you look at the financial margin, the [ BRL 700 million ] margin is the core is the core growth. The other one is just a recalibration between the businesses on the working capital, the access of the capital that I take to the corporation. So it's just a way to represent the distribution of allocated capital. I hope that it made sense is the way that we work with our business model.

So all of the access -- clean access, I leave it on the corporation. That's why you see the delta in the quarter of BRL 100 million to BRL 550 million in that line of the preparation in the margin with the client. So it's just a really distribution of the working capital we do in the businesses. Going back to your first point on NIN, we believe that the core of derisking already happened. The negotiated portfolio is very well provisioned, very well negotiated we've seen an expansion in the line. We've managed that we've improved our mix. And the mix is not just the retail wholesale is the mix, and we've improved the profitability and more so. Here is the engagement issue. The other relationships, other products all the cross-sell is here. So liabilities this year. So we've managed to deepen the relationship with our clients and improve the set of products that we service our clients. So the line adjusted to the risk is as [indiscernible] the top line effect and there is the derisk and therefore, there is a lower cost of credit, which can help us along through the time with an NII that is better. On the other hand, we did with risking better clients, lower risk and lower profitability. So even though it's generating value adjusted to the risk, we've had margins that were lower because we've worked with profiles of companies and individuals with more affluent and a better level of risk. So with contribution margins that are lower. But we are still positive in regards to the maybe keep what we are operating or maybe this is something that will happen, but it depends on the macro scenario and the future perspectives.

[Renato Lulia, executive]

[Interpreted] coming from abroad, we have with Tito Labarta from Goldman Sachs.

[Tito Labarta, analyst]

[Interpreted] A couple of questions also shifting a little bit more to capital, right? You showed some nice increase in your core Tier 1 above your minimum and doing good ROE, how do you think about potentially increasing dividends also just thinking about loan growth, right, 6% to 9% guidance for this year. How do you see loan growth evolving from here into next year as asset quality seems to be getting better, interest rates potentially coming down? Can you accelerate the loan growth into next year? And how will that influence potential dividend payouts just kind of thinking of capital and loan growth into next year?

[Milton Maluhy Filho, executive]

[Interpreted] okay. Tito. Nice to see you again. Thank you for your question. I'll start to say that we are taking the full benefit on the interest on capital on a running basis. So we expect this year a minimum dividend payment of around 30%. This is where we are when we consider the interest on capital. On top of that, we are still expecting the regulation on operational risk, [ Basel III ]. We should have information about that in the coming weeks. I would suppose that this month, we would have the view of the new regulation. And with that, we can do our planning of the capital need to run the business because the operational risk will be implemented in 2025. And we still don't know how the phasing we work out. The good thing is that our capital generation has been improving, as you know, but we want to approve by the end of this month in November in our Board of Directors, what direction we're going to go and what are the alternatives we have. And we have a few, we should or we can increment the dividend. We can repurchase shares. So there is a mix of things that can be done. And this discussion we'll have by the end of this month, if the regulation on the operational risk comes up. And this is our best guess now.

With that in mind, our view is that we could and we should have an increase in our dividend, and our repurchase of charge will depend on the alternatives that the Board will take in consideration. We will have and make a proposal by the end of this month. So we believe that in the coming weeks, we should release new information to the market with that respect.

And talking about growth -- portfolio growth, I would say that we are right now planning 2024. We should have the guidance, then releasing the numbers of next quarter by the beginning of next year. We're still working on that. The same way we did, looking to the portfolios that we want to have in the long term, understanding how to manage the portfolio and to balance that in the long term to be more resilient through the cycle.

And this is the discussions we are having now. I cannot anticipate that because we didn't finalize. We still have some work to be done. And so far, whenever we have this information available, we will share with you.

[Unknown Executive]

Thanks, Tito. [Foreign Language] We have [indiscernible] from BTG Pactual.

[Unknown Analyst]

I'd like to talk about valuation and the opportunity for M&A. So I want to get the opinion of Milton on the valuation of the bank in the world, the ROEs are positive. Most of the geographies, nonetheless, the valuations are very cheap because in the past, it was very low, and we didn't know what was the real book and what was the ROI.

I think that Jane Diamond had complained about the efficiency of capital in the United States. Santander talks about the unfair competition with players -- or the nonbanking players. So what is the challenge for the sector, not only in Brazil? Have you discussed with other CEOs, all throughout the world, about this? And maybe to understand from you, do you see this as an opportunity to have capital -- excess capital?

As you've mentioned, we have a suboptimal operation in Colombia. Chile, there is a space that it can be more relevant. So would it make sense to use some of that capital to eventually may be purchase banks in the region? I think that, for the bank, it's always challenging to pay above the booking because of the intangible. I wanted to get your opinion.

[Milton Maluhy Filho, executive]

Thank you, [indiscernible]. Thank you for the question. So I agree with your initial information. Our vision is that the prices are cheap. We do not manage the business on the price of the share. On the short term, there is volatility. There's always the effect of the bank. There is the effect of the competition. There is the effect of Brazil itself on the activities of the bank. So our share ends up having multiple effects.

You can have the multiple bank, but then you have to look at the competition where we can have more upside or less upside. So that's why we look at the TRS on the long term. That's how we deliver the value on the price of the share and the price of the dividend, the value creation because of the level of results that we are generating.

[indiscernible] prices are low, not only ours, but other banks outside of Brazil. We've seen that. This is a bank dynamic of the shares.

The issue of the M&A. We've always had it. You know our history of records, the bank is because of a relevant infusion that happened in 2008, but we are always looking at opportunities. Outside of Brazil, the asymmetries are still very well. And regardless of the price of the assets, whether if it's a fiscal asymmetry, which is I have to pay tax -- difference on the tax. You have an effective rate in Chile -- lower in Chile and Colombia, and I have to bring it and recognize it in the books of the bank and capital above all.

When I consolidate the assets in Brazil, we work with the appetite level of the Board, that is CET1, plus 1/2 of 81, with 3% of level 1, those operations run with the level of capital below that. So when I bring the operation of Chile, that is 90% and that's consolidated here in Brazil, that delta capital, I do not need to reserve at them Brazil because this is the level of capital that my shareholder expect me to retain in the operation.

When I allocate that cost of capital through 14, 15, whatever the cost of capital it is, it's very difficult for the profitability of that operation outside of Brazil to generate value for the shareholders.

On the logical evaluation, you can see Chile works with the best profitability is when we do the consolidation, we have all the cost -- the cost of hedge, the capital allocation per se, and the tax asymmetry that makes the profitability in the vision of the shareholder [indiscernible] 4 is lower. So it's positive for the income, but it's alluded on the ROE.

So when we look here, we don't have big opportunities outside of Brazil that can change that trend, not even in Colombia or Chile. So our objective has been to improve and simplify and gain efficiency in Colombia, which is a subscale operation in Chile. The operation is running a good threshold of profitability of client centricity.

The improvement -- the investment that was not paying off after a few years, and we continue to be very comfortable with what we have. There is nothing -- Argentina is something outside of the curve. And in Brazil, I mean, there is always a regulatory competitive issue.

What are the businesses that we can advance? And of course, we have businesses that complement our offer. We found smaller businesses that complement our ecosystem, but we haven't seen the opportunities that are relevant. And we've seen other opportunities, and we declined because there wasn't at a value, the price wasn't adequate and we still look at the market in that sense.

Well, I understand an opportunity that generates value. We are open for that. We have M&A -- an M&A area that is dedicated. A team that is highly qualified that is ever looking at the market -- the mapping the opportunities. But our opinion is that the opportunity is more technological platforms, such as avenues that was approved recently by the Central Bank, and we can complement our offers of investment, the [indiscernible] brokerage, full digital that complements also the partnership with [indiscernible]. We are still active. Whenever there is a good opportunity, we continue to advance.

[Unknown Executive]

Thank you, Milton. Next question, Daniel Vaz.

[Daniel Vaz, analyst]

My question is also on capital. I know that it was commented in the question of [indiscernible], but I wanted to understand in your capital overview and that vibration of the origination of SME that we've just seen SMEs. That represents the additional capital that you have.

In your opinion, will it be the -- what is behind and more originations for the small and middle-sized companies? Do you have any real movement -- seen an improvement in the perception of the risk? Or actually these movements are in the adjustment of the origination if you consider -- well, that's the first question.

And last but not least, in the renegotiation, we saw the stability in the quarter. I don't know if there is an effect of the [indiscernible], but maybe this will be a good indicator looking up ahead. Do you agree with that information of the renegotiations? How do you see this from the standpoint of the bank?

[Milton Maluhy Filho, executive]

Thank you, Daniel. First and foremost, capital is not an active restriction of the bank for growth. This is the main message that I wanted to leave to you. When we do our capital plan, looking at the long horizon, we take into consideration the capacity of growing the portfolio within our appetite and [indiscernible] to generate capital, with our profitability level that we've managed to bring to the operation.

Today, we have the organic capacity for generating capital that is strong, more than enough for growing the portfolio. So I wouldn't say that capital is a restriction in and on itself. In the end, the restriction will always be -- at this moment, always appetite.

Until we -- well, how do we want to roll, in which publicly -- with which product, with which deadline, which portfolio is the optimal balance, so we can at least get volatility through the cycle? And this is the way that we're working, look at the volatility of the portfolio of wholesale and the more of a volatile moment.

This is what we've tried to do with the retail portfolio. So we rather have less cycles of up and down and having a positive [indiscernible] with less volatility. This is what we try to do with the management of the bank capital. It's not an active restriction, but we -- the vision is to have that excess capital.

We don't want to retain more of that access than what we niche for growing an investment. We've talked about the capital allocation at the beginning. If we were working with a defined capital by the Board of 11.5 on site, ROE would have been 24% of yourself. We have an ROE of 22%. And with a capital level 1 of 13, and we [indiscernible] to remunerate and allocate the capital adequately. We don't want to retain the capital more than necessary. This is what we want to do from November onwards.

Our expectation is that there is an increase of the payout and the repurchasing of [indiscernible], something will be done, and we're going to go beyond what was done, which is the optimization of JCP, which has brought our payout to closer to 30.

So we should improve that payout and flexi payout. Again, via the -- well, repurchasing our dividends, combination of both. We are going to give you more disclosure in the next call. Not in the next call, the next month, possibly after the discussion that we're going to have with the Board of Directors. This is the first point.

The second point is on the renegotiation of the portfolio. The impact of Desenrola is very small. We are very engaged. The market was mobilized. A very good program. But the impact on the second stage, very small. There is still work to be done. The experience of the client -- eligible clients, how the place are going to work, the impact, they do not really move our numbers.

This is a very strong work. We have renegotiated what is necessary. If you look at the records of the negotiations of the bank, you're not going to see ups and downs, we never used the renegotiation to administer delinquency. We renegotiated with an economic vision when it makes sense to renegotiate at a correct price for the client needs. And for the client, just do not have the conditions to renegotiate, we rather continue with the process of charging if the renegotiation doesn't make sense for the bank or the client at a point.

So we've been very disciplined in the management of renegotiation. This is our agenda. And well, [indiscernible] as we can recover cash from our operations, this is important. So we continue with the collection billing and -- well, this is a question that we should explore, is understand the renegotiated portfolios.

Are they provisioned well? We did the stress test in the renegotiation -- on the deadline, there are renegotiations that are being done under paid. Of course, there is some long and short delays. We always look at the portfolio. We do the threshold of stress, always looking at the worst rollout, if it was the full portfolio. What is the rhythm? How that portfolio is going to work? Is there individual [indiscernible] or companies?

We always run the stress test. So I can guarantee you that the generic and specific provisions that are enough to deal with this portfolio in the cycle of what we expect, even in the stock of stress looking up ahead. So very well protected.

Portfolio has been very well provisioned once. Our excess of provision today, when you look at the generic, a great deal of that or a great deal of that access is allocated to those portfolios. So the bank is really well positioned, provisioned, and we don't see relevant effect looking up ahead in the P&L in the sense of deterioration of the portfolio.

People balance is very well protected. So we can go through that cycle. This is not the base case, but we have a great provision. But of course, with the deadline that is longer than what we expected with our portfolios.

[Unknown Executive]

Next question, we have Gusto Schroden from BBI.

[Gustavo Schroden, analyst]

I wanted to ask two questions. I wanted to be more specific on the payroll loan. I know that you talked about the retail, but this is a very important product. And will you have the reduction in the INSS portfolio.

Looking at your material, you have -- you said that it was intentional the reduction because of profitability that was lower. I wanted to understand from you. I mentioned that this is in late [indiscernible] happened. And if we look at the recent records, as this like rate is dropping and -- while there will be another drop and cap of the INSS.

So if you can tell us, what is the strategy? Because is a product that when we see that derisking happening across the board, all the banks are going through the rhythm. They decrease the appetite in more risky lines and credit cards. So the payroll loans are products that the banks use as a counterpart against the reductions on the retail. So can you explain what is the strategy on the payroll loan? I think it would be very interesting.

And the second question would be on the ROE. You mentioned twice that if we had adjusted as an equity of 11.5, we would be talking about 24% of ROE in Brazil. If you already advanced, there's a perspective for profit, dividend sharing -- dividend distribution sorry.

Of course, according to the decision of the regulator, there's a possibility, I imagine, that the bank has maybe a gain in efficiency. The PDD is dropping next year. So can we look at 2024, may be dreaming of an ROE 24%, 25% next year?

[Milton Maluhy Filho, executive]

Well, I like the dream. I always dream big. And this is the path that we will continue to trail.

Looking at the ROE, well, clearly speaking, we still see quarters that are very solid, very consistent. You have the turn of the year, another quarter, right? So how do we -- since we affirmed in the guidance, the guidance that has predicted the result of ROE above 20%, of course, we are reviewing the numbers for next year.

There are elements well known and zones that we use because of the budgeting, looking up ahead, and there are the [indiscernible] that are unknown. There might always have change -- regulatory change that is positive. We are considering that.

We believe I'm not going to anticipate that the profitability level that we are operating to seem sustainable. Looking at the Horizon '24. I -- of course, there are levers on both sides. But ballpark, we can imagine. I would say 20% -- close to 20% seems reasonable. We would have to naturally look. We are tracking the numbers here, so we can have more long-term rotation.

But to say that it was 24, 25, I'm not -- I cannot give you a guidance on that. It depends on the FY, the budgeting and the market conditions. But the dream is there, as you mentioned. If there is an opportunity to improve without the management that we've done with profitability and value creation.

But now remember, [indiscernible] we're going to have a cycle of reduction of the interest rate. And it's putting a natural look at the ROE isolated from the cost of capital. Because if the interest rates are going to drop, as we mentioned, that they're going to drop, what's going to happen is that the cost of capital is going to drop as well. And the level of profitability tends to follow suit.

There is a correlation of [indiscernible] today, we see that the sensitivity is less than the [indiscernible] rate. Of course -- our company set the cost of capital is dropping, then you start to work with the price more competitive. And what we see as a delta ROE for the cost of capital, which is the value creation, and we're going to continue to deliver that with our best expectation for 2024. We really believe in that.

Now going back to your original question, it was -- sorry, okay, payroll, payroll loan. Let me affirm. [indiscernible] stated that the cap problem -- first, we believe that the market, the rate, whatever, is defined by the competition. There's no need to place that because the rates practice, on average, they end up being within the caps. And the market is dynamic. I mean there is a series of players, banks -- big banks, medium banks, small banks that work with payroll loan, and the market is very competitive.

Problem is that cap looks at a [indiscernible] rate in an isolated way and it doesn't look at the long-term curve. What we've seen over the last few months is that there's a drop. But because of what happened abroad, the fiscal uncertainty, the interest rates increased in the long term.

When the long interest rate goes up, you end up losing the capacity of originating new credits because the rates of return are not adequate. Once you get the cap, you remove a population of the banks that stop having access.

What [indiscernible] published BRL 2 billion of production -- monthly production left the market. So BRL 2 billion less of credit for the retirees in the cheaper credit lines. So you try to get efficiency regarding the Selic, but you leave outside a very relevant public that has access to more expensive credit lines.

And you hinder them because you had a better credit offering. You have two possibilities for the distribution of the payrolls. For the person that are in the bank -- but with the correspondent bank, which is important for the payroll loan, the only way that you can make a profitable product is making adjustments.

Every bank has payments, and some offices are going through larger difficulties. And you have to consider -- we consider the commission for the corresponding bank and the price to end up reducing the public that you have the capacity to offer the payroll loans.

So you have to -- so the portfolio end up suffering. 40% of our production is way banking corresponding. 60% was -- is in our network. In the past, it was the opposite. But with this change in the dynamic, we are removing a lot of costs that are not paying for itself and not necessarily the cost is dropping for the one that takes a payroll.

In the end of -- you end up making them having access to more expensive lines. And this is the defense of Febraban. We believe that the cap is not the best way. We have to look at the long-term interest rate, and that the reduction of the cap isolated following the [indiscernible] rate drop is not the adequate way of managing the cheapest and most access line for the retirees.

There is a success, and the market has always seen with good eyes. So here, we need to be very careful with that. The government has that clear the message already arrived on positioned. We respect the decision, but the impacts are presented as we showed.

[Unknown Executive]

We have with us Jorge Kuri from Morgan Stanley.

[Jorge Kuri, analyst]

I wanted to go back to the credit card regulatory inquiry. I appreciate Milton's comments about how this has opened up discussion about the card industry and the different puts and takes. And it feels that everyone is more educated on how the whole ecosystem works.

But at the end of the day, the reason the interest rates are high is because you have all of the parcel labels. And so it just feels that any outcome that cut rates without modifying the [indiscernible] will be artificial and not really move the business forward.

So -- and we've got the mixed signals from the government. The Central Bank has commented that they're open to it, but the Finance Minister has said, absolutely not. And so where do you think the current thinking is among decision-makers, the people that ultimately are going to have a say in this on reducing the parcelados, regulating the parcelados, phasing them out, tightening them a little bit? And so that's question number one.

And the second is if that just doesn't happen because it's not palatable from a consumer perspective and the negatives that, that may have on consumption. And this is a popular government. How does that leave you if then the solution is just as simple as, "Okay, you know what, we're not going to move any of the different moving parts other than rates. And we're going to put a cap that is equivalent to 100% interest rate -- interest payment over the size of the loan."

Kind of like what the law currently stands? What does that mean for you in terms of the growth of that business, the profitability of that business? How many cars you're going to have to cancel? Because evidently about those level of rates, some of those are just not good businesses.

So I really wanted to get more details rather than just this overview of everyone gets it and we're having this nice conversation. But it's a pretty simple thing. Either you got the parcelados, or the outcome for the card issuers is going to be bad.

[Milton Maluhy Filho, executive]

Yes. Jorge, I'll take you with me in the next meeting with the government because I really believe that -- you understand that it's very difficult to explain. I think the government understand, the central bank understand, but it's a complex topic. It's not simple. This is something that the country has been working with for many years now.

And it's very difficult to introduce the concept that to show people what are the real impacts as you were saying right here. So being very objective, I have nothing to say different than what you said at the very beginning.

So we know that there is an equilibrium. There is a way where the risks are not priced accordingly. We have BRL 127 billion credit card portfolio out of BRL 20 billion pay interest.

So how come how can you bear the risk for BRL 120 billion portfolio and only BRL 20 billion pay interest? Who pays the interest at the end of the day? Is there less capable population and the delinquency as you have an adverse selection is very high. So you have to charge very high interest rates.

So if you ask me what we believe -- we do believe that the government needs to understand that the parcelado [indiscernible] bear interest. It's only a communication issue. That's all. Because it bear interest.

The acquiring company anticipates to the merchant, the merchant embed the interesting side, the good. And so there is no parcelado in [indiscernible]. But people believe that there is no interest at the end of the day. So that's why the communication comes like and the narrative comes like that.

And people believe that because they don't understand and say, "Look, I have something. And who pays that? The issue better the risk, the acquiring companies anticipate and get the anticipation profitability, charging the SMEs, a risk that they run at the end of the day, there is Itau, Bradesco, Santander, new bank and all the other banks. So this is the risk that they bear.

So our view is that if we don't look to the international market and we do a composition of -- we balance the parcelado injures, reducing the parcelados, creating the parcelado Conjur, where you transform that in a way to finance the clients at very, very competitive levels, 4% per month. You can do that with the parcelado Conjur.

And also you make a way where you can reduce strongly the weight on the [indiscernible] on the revolving credit, where you can charge from these people are very, very lower interest rates. So what's the problem we want to show? We want to help the population and make the transition.

Just to give you a few numbers. Let's say that we have a cap in interest rate of 8% in credit cards, the same way we have in the revolving credit in the current account overdraft. If we have this 8%, we have to cut the country as a whole, 60 million credit cards. 60 million credit cards needs to be abundant.

And also, you might have an impact of BRL 350 billion in consumption because you take these people out of the consumption market. You will have a very huge impact in the population that was included in the financial system. They will be excluded from the financial system.

Where they will finance themselves? How they will buy? How they will be part of the system? So this is the impact. If we have -- if the Central Bank, together with the Minister of Finance, DCM and the Minister of Planning, if they don't find out a solution that puts everything together, and at the end of the day, who is getting benefit of that?

It's not the issuers, it's not acquirers, it's the consumer. It's the merchant. This is what we defend. And I want to see a discussion that's very technical on that. The rates that are being practiced on the anticipation are clear. You can go to any website of any merchant -- if any acquiring company, you will see the level of fees that are being charged for the SMEs.

So the narrative is very dangerous. And this is what we have. So for me, it's much more a political issue than a technical issue now. And everybody needs to understand that we need to find out a solution that is good for the country. And we have to plan a transition.

At the end, if we don't do that in 90 days, you are right, you will have this cap that was approved in Congress. You will take the rates a little bit down. It won't solve any of the issues that we have today. The client [indiscernible] still be the same. They're still going to have a subsidized between publics.

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

So for a complex problem, a simple decision is not the most effective. And I think the Central Bank has all the tools, has the technical teams, and they will have to come up to a solution that is good for the country. That is sustainable. And we do not vacate us as a bank to maintain or to preserve our business lines.

And why is that? Because we are the #1 issuer and the #1 acquiring company in the market. We are in both businesses. So there is no conflict. There is no conflict at all. We will be the most impact in either side. So it's not a matter of conflict, it's a matter of delivering to the market what is better to the market in the long term.

And we believe that information are available. You made that briefing very clear, and I think the technical people knows that. Let's see what is the appetite to get or to make this discussion happen.

[Unknown Executive]

[Foreign Language] Next question, Mario Pierry, Bank of America.

[Mario Pierry, analyst]

Congratulations on the results. Two questions. I lost his audio. I can hear you. Okay. Milton, can you hear me?

Okay. Two questions. At the beginning of the year, you do a hedge of the capital for real -- for the exchange rate about BRL 2 billion at the beginning of the year. Given the sale of the assets of Argentina, can we expect those costs to be lower next year? And can you give me the magnitude of that reduction?

Second question, Milton, I believe it's very clear that the appetite of the bank to give credit is improving given the improvements on the delinquency. But I would need to hear from you, how do you see the demand of credit? Do you see the appetite improving with the economy, with the reduction of the interest rates? Can you tell us on the side of the demand more stuff?

[Milton Maluhy Filho, executive]

Well, thank you. Objectively speaking, in Argentina, in the same way that it had a negative CTA for the cost of the hedge of the index, it would bring them benefits and not something bad because of the difference in the interest rate.

What will it cost a problem to carry over this asset, which was across to Brazil with the exchange rate in the Argentina. When I do the hedge of the capital index, the carry of that Argentina peso is positive in regards to the real.

So in the last quarter, about BRL 70 million, if we remove the 2 months, would have been the impact -- positive impact that the cost of hedge. So we see, on the long term, we have improved our way of doing a hedge using -- well, using the hedge of the strong currencies, while the correlation with the real is very close to the other countries.

In Latin America, we have a big emphasis in euro and the dollar because there is it's not a good correlation, and that comes with the hedge. And the interest rate that is dropping, that helps the cost of the hedge. That's why we see a reduction over the last few months.

Argentina, for that end, out of all the impacts, there was a positive impact. It has -- well, the carry of the currency was in favor -- in regards to the cost of hedge. That's the explanation.

Looking up ahead to the portfolio, we've seen an increase in the demand. I've shown you the origination of the big companies increased over the last quarter. The capital market is coming back. So we see a market that is more active. The company is anticipating dropping the interest rate. They are more positive. Prospective GDP growing this year.

So we've seen a stronger activity, but we can see that in the third quarter, the GDP will be published should be weaker GDP because of the monetary policy as expected to control the inflation, but we've seen the increase of demand in the origination. And we serviced it very well with a great conversion level, favorability, great returns and well-priced operations.

And when we see an exaggeration of pricing in our market, we rather lose share -- market share and defend our convictions on the long term. But the demand has grown, and we've managed to serve us it in a very relevant way. Via capital markets, the numbers show that or the balance sheet or the big companies, we've seen an acceleration in that quarter. Our expectation is that, that will continue to do so in the long-term future.

[Unknown Executive]

[indiscernible] same bank, different analysts. So we have with us Nicolas Riva.

[Nicolas Riva, analyst]

So my first question is a follow-up on the question that Mario just asked about the Argentina sale, which is really why sell now that business? So you sold for $50 million. You had an important loss on the sale, BRL 1.2 billion. I calculate about 0.2x price to book on the sale.

If you can confirm actually that was the price to book on the sale. And again, why sell now that business? I know Milton that you referred before to the fact that outside of Brazil for you, it's difficult to generate perhaps an ROE above your cost of equity and generate value for your shareholders.

And then a quick second question, my usual question on the bonds, on the Tier 2, the 29s. If you can kind of -- I know whatever you do with the [indiscernible] is going to depend also on market conditions and refinancing costs. But if you can at least tell us -- confirm Milton that given that the Tier 2s, the 29s start losing capital treatment next year, if not call, if the inclination would be if you will be more inclined to call even regardless of market conditions to some extent?

[Milton Maluhy Filho, executive]

Thanks, Nicolas. Thanks for your question. It's a very simple answer for Argentina. The NPV of this transaction, on an economic perspective, looking from the shareholder view is positive. And why is that? Because even though we don't capture the full book in Argentina between the announcement and the payment, that was our relevant evaluation in Argentina. And the amount was set in U.S. dollars, the $50 million, was put the transaction at fair value the way we were planning.

Second, the payment was made outside Argentina. So how can I get the capital out of Argentina with all the discussions? So the acquiring company had the capability to issue bonds outside, have the approval to pay outside. So we received good dollars. $50 million was not a virtual transaction when we try to make a better price locally.

And the most relevant reason why we sold has to do with the CTA that generate this impact. The CTA, we've been accumulating for a long period. Then that CTA in the balance sheet of the bank is positive when we considered the other operations that we have.

But in the case of Argentina, due to the level of interest rate, it was a very, very huge impact. And we've been accumulating that for many years now. So what happens if we don't do anything, is that we will keep accumulating some negative CTA in the long run and the profitability of the operation, together with the CTA, was generating a loss in our balance sheet. It was not remunerating the capital.

And we have to keep the balance, to keep the bank, to maintain the cap, the bank. There is a lot of costs of maintaining this structure. We have regulation aspects. We have to consolidate the operation. So when you put everything together, even the cost of the hedge of the capital index, which was positive.

The decision to sell was much less for the amount that we got in the operation stand-alone, which was at fair value at $50 million in our view, the way we were valuation. And the second question, how do you do a DCF in Argentina with the cost of capital in Argentina?

So do the banks trade at book value? What level of profitability you need to have due to the cost of capital? DCF, get something better than book. So it was very difficult to do this DCF. So when we do the DCF, the price was fine. But in the other hand, we don't have the CTA anymore. So it's a stop loss on the CTA in our balance sheet, which brings us to a very positive NPV.

And regarding your second question about the bonds, we will keep -- I know we've been telling that. We'll be looking to the efficiency of the capital of our Tier 2. How much it costs? How much benefit brings in terms of capital? What is the cost of a new one and our capital need? So this is the way we are approaching every single maturity and every single call.

And on the economic side, if it makes sense to us to exercise the call, we will. If it doesn't, we won't. But we'll give clarity to the market, of course, before in a window where we have the confidence to give you more information. We're going to be very transparent on that.

[Unknown Executive]

Next question coming from Carlos Gomez from HSBC.

[Carlos Gomez-Lopez, analyst]

So briefly, first, I would like to ask you about the wholesale portfolio. Where are the NPLs? I mean we were expecting to see a normalization of credit cost this year. I think that's fair to say for everybody. And it continues to be better than normal? Is that because they are coming later or they are not coming? And second, could you tell us whether you think the insurance result that you're having today is sustainable or it should be higher or lower in the future?

[Milton Maluhy Filho, executive]

Yes. Carlos, good to see you again. Thank you for your question. I hope we don't see the NPLs. So we are not looking for them. But just to let you know, I think it's a mix of things, okay?

First of all, we thought this year could be a little bit worse in terms of cost of credit. And it's been better than what we thought on the wholesale spectrum. But you have to remember, and you know that better than most of us, that the NPL in the wholesale, it really happens at the very end of the process. It's very difficult.

Before you go to the NPL, you do a restructuring, you do a negotiation. There are clients that go to bankruptcy or to Chapter 11, and they are not due with their obligations still. So the NPL is not a very good index. I don't like the index to look to the healthy of the corporate portfolio.

We have to remember that the middle market is in the SME index. So we are talking here basically about large -- ultra-large clients in this NPL. So our view is that the level of provision that we have in balance sheet is very high. That's why we have this level of coverage through NPL in the wholesale portfolio because you discussed name by name in the credit committees, anyone apply a rating, you attribute our rating for each client, and this rating defines the level of provision that we have to make.

So in most of the cases, you will see clients that we have 70% of provision. Let me give you a good example. Americanas, which is our public name. We have 100% provision. Has not gone through NPL, but we have 100% provision.

So part of that, whenever if it happens and goes through NPL, then you will have a important consumption on the coverage that we have today. So the portfolio is very well covered. We look name by name, and we have on the single names provisions and also on the generic provisions, we have allocated the level of provisions that we believe are necessary to the most risk clients -- to every single client that we need to have additional provisions.

So the balance sheet is very covered. We are very confident about the level of provisions we have. We are not seeing a credit branch, but we are seeing specific names coming. So far, we've been able to go very positive throughout that scenario.

And next year, if the interest rate keeps going down, the macro gets a little bit better, the environment gets better, we might not see a relevant normalization, but some normalization is to happen, and we still believe that this level of NPL should increase in the coming months, maybe increase.

But remember, we have the provisions for what we see now, of course, we have the necessary provision. So you might see some change in the NPL. You won't see some relevant change in the P&L of the bank.

[Unknown Executive]

Two questions to finish. Next, Henrique Navarro from Santander.

[Henrique Navarro, analyst]

It's great to talk to you guys. My question, I want to understand of the conversation itself, Itau starts a cycle of accelerating the credit origination. That origination doesn't appear in the numbers of the first quarter because there's still a process of derisking of some portfolios, specifically open notion.

Okay, looking up ahead, where do you get that credit growth? Because of all the participants in the market that we talk, it seems that all -- everyone is avoiding the open notion. Everybody is reducing the open notion. In the existing clients, the indebtedness of the family is still dropping, but it's so high. But where do you get the growth from?

Well, maybe the high income. There's a lot of banks saying that they're going to grow in the high income. We see that the high income is with the lines of credit. We cannot just depend on the high income per se to have the growth. So I wanted to hear from you, where are you going to get that growth?

[Milton Maluhy Filho, executive]

Thank you, Henrique. Nice to see you. Of course, we're talking about wholesale -- retail, sorry, with the individuals. We've grown consistently and also with the companies with the derisking was done with this process in the company's retail with great results.

So we've worked with the companies that have a high invoice. We don't focus on the base of the prepared. Our mix is different from the market. This explains a great deal of the performance that we've done -- that we've obtained. We still have seen a great opportunity and a lot of space for growth in BU for the companies. And we have grown with accelerated high levels.

The portfolio of SME had a great acceleration also, and we see a great increase with the middle market and -- middle market retail. In the individuals, we've gained share with our clients, which is very important. These are well-known clients that we have grown.

We agree that we cannot imagine that the growth is going to be in the high income because it's not. And it's not just high income, but our portfolio management has had an important role. Our credit card 120 billion, 2/3 is not a high income. And we've still managed to do business with profitability.

All the crops that were produced in the quarter with great quality in all segments, and we've managed to grow. But there's still some adjustment in the portfolio. And I mentioned the delinquency in the vehicles and credit cards dropping. So you have an inertia of risk -- high-risk portfolio that is reducing, importantly, renegotiated stable in the portfolio with better quality growing.

This is a combination that makes our growth being less than what we observed in previous years. But still, we've managed to do a positive margin and making the capital profitable. This is our -- what we are seeking.

In my opinion, we go back to the discussion of [indiscernible]. In the retail individuals, we have millions of clients that we have great relationship with mono products, sold the capacity to the cross-sell and having a full bank offer is what's going to make the retail improved in the individuals still being built.

I don't want to anticipate what we haven't delivered. There's still a lot of challenges in-house, but I am convinced -- we are convinced that in the moment that we do this, this is going to open an avenue for growth in our segments that are very important.

We have another unit class within our bank. We have a fraction of the personal debt in the bank and other businesses in a relationship that is mono product by these clients. So there's still going to be a great growth here. And in the lower income, it's a player of credit risk management and efficiency that we're going to continue to deepen in the bank.

So for every public, there is a logic. The more efficient, the more appetite. And on the other hand, the capacity for cross-sell for the public that we have in-house certainly will be a great driver for our growth looking up ahead.

We are very optimistic with the project. Let's see next year onwards we can show you more data on the advances. And on the other while retail companies, great opportunities there is [indiscernible] outside of the market.

In the middle market, the same. We've managed to grow with quality. So growth is not of concern great opportunities. We're still going to deliver growth with quality sustainable without the volatility of the balance sheet, which is what we are seeking in the long term.

[Unknown Executive]

Next question from Yuri. [indiscernible], waited for the -- well, if you can just wait 2 minutes, I'm going to going to get back to you.

[Unknown Attendee]

Carlos asked you about the insurance business as well. Yes, because we had an asset called about if you see the insurance business being sustainable going forward? What is your forecast for that?

[Milton Maluhy Filho, executive]

Carlos, sorry for that. I didn't hear that question. We had some audio issues, but here I am again. So on the insurance side, yes, we believe is sustainable. We had this acceleration somehow compared to the other periods because we were growing 50% year-on-year.

So we reduced to 20%, 25% year-on-year on our core insurance business, which is 3/4. 75% of our business has to do with the core business that we believe banking assurance. And with this expansion in credit and all the expansion I was making, talking right now about the cross-sell with this winter platform, so on and so forth.

This will give us the capability to keep growing insurance in a sustainable way. So we're still very positive. We found a way to grow. We are very, very embedded in the operation, a huge synergy with the commercial team, the insurance company's team, we changed the way we approach clients. So we are very comfortable that this will keep on track and will be sustainable in the long run.

We are very positive about the insurance. And also if you look to the P&L on the insurance side, you see that we've been growing the premium that we received and reducing the cost of losses. So our combined ratio has been evolving 3 points from 53% to 50%. So it's a very good combined ratio. And also, the open platform has been playing a relevant role, and we will keep pushing that and so forth. So we have to manufacture, the distribution and the open platform. They have a very relevant role in our business.

[Unknown Executive]

Last question. The floor is yours.

[Unknown Analyst]

A quick question. It's about the digital transformation of the wholesale -- of the retail, I apologize. So it really brings your attention to the level of the opening of new digital accounts. There is a drop. So it was 900,000, 1 million and this quarter, it was 700,000, 750,000 open -- new digital accounts.

Maybe the bank is still cautious with the open notion. But more than that, the number of the accounts being opened on the table, there is the data of the share of digital transactions per volume.

When we look at the digital transactions of credit investment, payments, we see stagnation. My doubt is along that line of digital transformation, do you see -- well, I wouldn't say that this is an inflection point. It's circular, but maybe there will be less growth in the penetration of the digital channels.

[Milton Maluhy Filho, executive]

Sorry that you're the last, but not least. First of all, let's start by the second part. We certainly are working strongly in digital, but we understand that we went through a high level of penetration. Therefore, the new penetration -- the marginal will have a lower speed because most of the space was reached.

Now having said that, we are very focused. We are reviewing the client journeys, the access to the digital channel, making our clients digital. We even believe that the mix of the clients in the market, you will improve the penetration of the digital channels, and we're going to see an evolution that is maybe smaller than what we observed in the previous quarter because Americana, the acceleration [indiscernible]. And after the pandemic was over, the [indiscernible] -- the swap of the curve has changed.

You're correct. We're following up on that. And the relevance is important. The importance of the network. You -- it shows not only an issue of the digital channel, but how the other physical channel is still very important and how the clients still like for credit for investments still to have access to the branch.

The on site, you talk to their managers, to understand that only reinforces the other side at the same point. If we were a full digital bank, a relevant part of our revenues would go away. And it is the defense of the physical model. We have to look at the penetration of the digital channels, and we are following up on that, but you also have to look at the relevance of the on site service for that offering and the delivery of value for the clients.

It's on the other side of the point. About the accounts receivable? Well, the reduction -- the accounts, sorry, is the reduction of the filter. One is credit because for you to open a we decline, and you have the loan capacity to give credit. You have the CIC. You bring the client to the bank. You make the client frustrated that is expecting the credit and with the filter is not going to have access to credit. And it brings a cost to the rent that you did in have to.

So we've tightened that filter to guarantee that the digital account state that we opened the improve in terms of quality. So we are now going through the quantity, but the quality of the accounts that we're bringing in.

So 900 is not better than 700 because the mix of the -- quality mix is better maybe in the 1,700 and 900,000, so we're -- we should look at that in the absolute numbers. So the credit filter and in fact, clients that I know that I'm going to be able to engage, that I have a value proposition that can deliver products, that I can have a long-term relationship, this is a win-win for the client and the organization. So that's where we get the adjustments.

[Unknown Executive]

Thank you, Milton. Well, there was the last question of the analyst. [indiscernible] We have had several questions as we're going to answer thereafter with the IR team. And therefore, we finish our Q&A session.

Thank you, everyone, that was connected to us for 2 hours. The floor is yours Milton for your final remarks.

[Milton Maluhy Filho, executive]

Once again, thank you very much. It's a pleasure and privilege to be here with you. I believe that the numbers that we managed to communicate to you, we've been very careful to provide transparency. The numbers are always -- the numbers so you can ask the questions. You're not going to leave it to an answer.

Maybe I cannot answer at a time, but you're going to get an answer. I can guarantee that we work with transparency. We understand your questions. We always do a debriefing post call to understand what is the message, the concern. So we can have surety that we do not -- that we don't have any blind spots.

Thank you for your questions. And I hope -- we hope to meet your expectations. Very happy with the results. Very trusting in the future. We really believe in our journey, whether it is digital transformation, efficiency, cultural transformation. And we've managed to change the value vision for our clients. This is the most important thing. We've grown in engagement and our clients in all the segments.

With that, I finished. I think that I've spoken a lot. We've seen -- we will see you with -- may be in the marketing in the next call. Thank you very much. and have a nice day.