Itau Unibanco Holding SA

BOVESPA:ITUB4

Earnings Call Transcript 2019-Q4

[Operator]

Good morning, ladies and gentlemen. Welcome to Itaú Unibanco Holding conference call to discuss 2019 Fourth Quarter Results. [Operator Instructions]

As a reminder, this conference is being recorded and broadcast live on the Investor Relations website at www.itau.com.br/investor-relations. A slide presentation is also available on this site.

Before proceeding, let me mention that some forward-looking statements are being made under the safe harbor of the Securities Litigation Reform Act of 1996. Actual performance could differ materially from that anticipated in any forward-looking comments as a result of macroeconomic conditions, market risks and other factors.

With us here today in this conference call at Sao Paulo are Mr. Candido Bracher, President and CEO; Mr. Milton Maluhy Filho, Executive Vice President, CFO and CRO; and Mr. Alexsandro Broedel, Group Executive Finance Director and Head of Investor Relations.

First, Mr. Candido Bracher will comment on 2019 fourth quarter results. Afterwards, management will be available for a question-and-answer session. It is now my pleasure to turn the call over to Mr. Candido Bracher.

[Cândido Bracher, executive]

Good morning, everyone, and welcome to Itau Unibanco's Fourth Quarter and 2019 Earnings Conference Call.

As you see this year, we broke down this presentation in 4 parts: strategic initiatives, highlights of the fourth quarter, 2019's results and our forecast for 2020.

Moving straight to Slide 3. We present some key performance indicators from our 4 strategic initiatives. As you may recall, we launched this agenda 2 years ago with customer centricity as the main piece supported by 3 fundamental levers: digital transformation, people and efficiency.

We understand that these initiatives are the road map of our transformation journey. Although they are long term focused, we are already experiencing impressive results. Net Promoter Score, or NPS, improved in a meaningful way across our operation and this reflects directly into our client acquisition and retention as we are opening more bank accounts while reducing bank accounts closures. On the digital transformation front, we continue to invest heavily in IT, and we more than doubled our capacity in 4 years. As a result, we see important productivity gains since we doubled the projects that delivered with an increase of 24% in the net present value. Also of note, the delivery time was reduced by 27%.

As for efficiency, in 2019, we had the best annual cost-to-income improvement in the last 4 years. Finally, our employee satisfaction levels continue improving from an already high standard as we evolved in implementing new ways of working in the bank, giving our teams more flexibility and agility in the way they work.

These results are just the tip of the iceberg, and we believe we are just in the beginning of this journey. We believe these results speak for themselves. It's not by accident that we placed this slide also within our strategic initiative session. ESG absolutely core to what we do. We believe that having good governance, taking care of the environment and being positively engaged with the society in general and the communities we are part of is essential. It is good business.

We have incorporated 8 specific and measurable goals into our core businesses, out of which we show 4 of them year-to-date.

Let me highlight, we are already offsetting 100% of our direct and indirect carbon emissions since 2017, but that's not enough. And that's why we are moving towards creating positive impacts, for instance, earmarking substantial financial resources to finance positive impact sectors and clean energy.

On Slide 6, we now move into the second part of the presentation with the fourth quarter highlights. Our recurring net income was 1.9% in relation to the previous quarter, reaching BRL 7.3 billion. And with that, we managed to achieve 23.7% ROE, the highest we had in the past 17 quarters. In Brazil, net income increased by 3.3%, which less 1 ROE of 25.1% in the fourth quarter. The results from fees on insurance were particularly strong this quarter, growing 11.3%. This performance was mainly driven by our asset management and investment banking area. Our financial margins with clients or NII continued to show a positive trend, growing 2.9%.

This is the result of our robust credit portfolio growth in Brazil of 4.3% as well as of the positive change in credit mix. First, the NPL in Brazil remained stable, the consolidated figure increased by 10 basis points as a result of a couple of corporate cases in our current portfolio. This impact can also be seen in the cost of credit for this specific portfolio. Lastly, but by no means less relevant, we managed to keep our noninterest expenses at bay, posting a growth of only 1.7% despite the seasonally higher administrative expenses and the full impact of the annual wage agreement of 4.3% with the unit.

And now talking about 2019 full year results. On Slide 8, to share some of the main highlights of 2019. We reached a very solid consolidated ROE of 22.7% on the back of a net income growth of 10% year-on-year. In Brazil, we posted a return of 24.9% with net income growing 10.6%. This performance was driven by a robust credit expansion of 10.9%, with positive impact on our net interest income, and our fee income also grew substantially above inflation. On the same token, our cost control initiative and constant investment in modernizing our infrastructure generated our biggest efficiency gain over the last 4 years. Non-interest expenses contracted to 1.7% year-on-year on real terms.

All right. Page 9 now. These positive results were attained despite the fact that the economy performed differently from what we expected at the beginning of the year. The diverse impacts on our business, [ IT ] headline growth came below expectations, but with a healthier breakdown.

Private investment and consumption growing 3.6% and 2.1% in the year, respectively. Therefore, partially offsetting the contraction on the project side. The low inflation and overall macroeconomic conditions allow us for further cuts in the base interest rate, which reached its lowest level ever. This translates a positive dynamic to our present portfolio, both in terms of portfolio growth and NPLs, even if at the same time, it had a negative impact on the NII.

Moving to Slide 10. You see we posted our highest value creation ever, BRL 12.8 billion, which represents a 38.3% growth over 2018. This reflects 2019 strong financial performance when operating revenue grew 7.1%, and expenses only grew 2.5% as well as an efficient capital management and lower cost of capital.

Now on Slide 11, we show that the Brazilian portfolio expanded on every single line of business. 13.5% in individuals, 26.6% on SMEs and 10.1% on corporates. Credit origination continues strong in Brazil and presents good prospects for the future. In Latin America, growth was more subdued as a result of ForEx variation in the period, especially in our operations in Chile and Colombia.

On Slide 12, we'll discuss net interest margin or NIM and the NII. Our consolidated risk-adjusted NIM decreased 70 basis points in the quarter, mainly due to a couple of specific cases in the Lat Am portfolio that required later provision. Excluding this effect, risk-adjusted NIM decreased 30 basis points in the quarter. In Brazil, the growth NIM contracted 30 basis points due to seasonal effects in our credit card portfolio, which dilutes NIM as it was the case in the same period in previous years.

Despite the impact of lower interest rates on our working capital as well as lower asset spread, the NII grew 8.6% this year. This performance was achieved by the combination of the credit portfolio growth with a positive change in the product mix.

On Slide 13, we show that our financial margin with the market remained practically stable when compared to 2018. This was mainly due to higher trading gains and a conservative asset and liability management, which offset margins pressure from the lower interest rate.

Now for the next 3 slides, we will discuss the cost of credit and credit quality. Starting on Slide 14. Our short-term delinquency remains at the lowest level since the merger between Itau and Unibanco for the consolidated portfolio. Our consolidated NPL 90 days ratio remained relatively stable throughout the year with different behaviors and different segments. The change in private mix for individuals, led to an expected LIBOR increase in its NPL ratio. On the SMEs portfolio, we continue to see improvement in quality and we are at the lowest delinquency level ever in this portfolio. In the large corporate book, there is more volatile behavior as expected, as I discussed in previous earnings calls. Therefore, although we saw an important improvement here, we should still experience some level of volatility, but always in our expectations.

Finally, our Latin American credit portfolio had a 50 basis point increase in NPL due to a couple of coverage increases in our Lat Am portfolio. NPL coverage ratio increased 21 percentage points in the quarter, mainly as a result of the higher provision charges in the fourth quarter related to changes in our expected loss model. Lastly, the cost of credit increased 29.1% in 2019, which we will further detail on the next slide.

On Slide 15, we break down the growths of cost of credit, half of it was a direct effect of the credit portfolio expansion in the period. The rest can be linked to higher provision charges for a couple of corporate increases in our Lat Am portfolio.

And on Slide 16, we show an evolution over time of the divisions of the retail bank portfolio growth, which are perfectly within our expectations. It is important to mention that we are moving towards the third consecutive year of credit portfolio growth, and it is natural to expect nominal provision to expense increase.

When we look at our key revenues for 2019 on Slide 17, which grew substantially above inflation, we can clearly see part of the benefits of being a universal bank. Itau Unibanco's asset management and investment banking operations had the best performances ever, showing very strong growth of 25% and 79%, respectively.

Not less important were the results achieved by our credit card issuing business, which continued to grow its client base and revenues despite the fierce competition. Things were not as wide though on acquiring revenues, which declined 20.8% in the year. Clients especially improved their loss this year as well as initiatives like the T+2 were implemented.

Turning now to Slide 18, we show that our noninterest expenses contracted in real terms, meaning that we grew only 2.5% in 2019, therefore, way below inflation and our guidance. This was achieved by a strong and continuous investment in technology of automation and process efficiency. Despite this very positive performance, we understand efficiency as the main lever for improving profitability, and we are focused on delivering further, more structural gains in the coming years. Our cost-to-income ratio had the highest improvement in a single year since 2014 and finished the fourth quarter at 44%.

On Slide 19, we present Itau Unibanco's 2019 dividends, and net interest in capital will reach BRL 18.8 billion. This represents a payout of 66.2% over our recurring net income, or 77.6% over our accounting net income and a dividend yield of 5.5%.

On Slide 20, we present a summary of our 2019 guidance. In Brazil, we reached or delivered better figures than the guidance in all the range which we've provided. As for the consolidated, we missed the mark in 4 lines, being 2 of them better than forecasted and 2 worse than expected. The latter due to unfavorable ForEx in our Latin American operations as well as due to a couple of corporate delinquency cases in Lat Am. Despite this deviation, we have, in the year, our recurring net income despite these deviations we have in the year. Our recurring net income was well within the entire range of the guidance.

Now about 2020. On Slide 22, we present our expectations for the macroeconomic scenario for this. Generally speaking, we expect a positive year for the country with a higher GDP growth with higher investments from the private companies. Inflation should remain under control, which allows the cuts in interest rate in Brazil. And employment level should continue its downward trend, but at a slow pace. Nevertheless, formal job creation should continue to evolve positively, and we expect to have in 2020 the highest formal jobs creation of the last 6 years.

On Slide 23, we present our guidance for 2020. Starting with the credit portfolio. We forecasted growth between 8.5% and 11.5% on a consolidated balance sheet. It's important to highlight, though, that the Lat Am portfolio is negatively affected by ForEx variations, which means that the Brazilian portfolio will expand at a higher pace of 10.5% to 13.5%. The financial margin with clients should post a more conservative performance during 2019 due to a negative impact from the interest rates cap in overdraft loans and an average lower Selic rate. Despite this important negative effect, we expect the financial margin with clients to grow up to 3% on the back of the credit portfolio growth and a somewhat stable credit origination mix. Our cost of credit should end 2020 between EUR 18.5 billion and BRL 22 billion. This growth is driven basically by credit portfolio expansion. Commissions, fees and results from insurance operations should continue to grow strongly above inflation, expanding between 4.5% to 7.5%.

Finally, the midpoint of our guidance for noninterest expense of 0.5% contraction. It is the first time we provide that guidance indicating cost contraction in nominal terms, which in real term could represent cost savings in the magnitude of 4% year-on-year, depending on the inflation. This guidance is a clear sign of our commitment to improve the firm's operational efficiency, mainly supported by increasing IT investments and tight control management. This search for increased efficiency should be seen as a long-term multiyear effort and not as a one-off.

Lastly, we expect a higher effective tax rate due to the hike of social contribution tax for financial institutions. The guidance for our Brazilian operation should closely follow the trends forecasted for the consolidated figures.

With this, we conclude this presentation and may I start the Q&A session.

[Operator]

[Operator Instructions] Our first question comes from Jason Mollin, Scotiabank.

[Jason Mollin, analyst]

My question is related to the operating a regulatory environment for the Unibanco and your peers. I guess I'd be interested in your views on the cap that was implemented on interest rates on overdraft lines? And if this was anticipated, it looks like -- it clearly looks like the impact is material, especially, in particular, on your outlook for financial margins with clients in 2020. If you could provide some color about why you think this was implemented, if you expect further interest rate caps?

[Cândido Bracher, executive]

Thank you, Jason. Well, yes, the cap really represents a significant impact on our financial margin with clients. We estimate an impact of around 5%. Yes. It's really important here. We do not expect further caps on interest rates. I think in this overdraft lines where specialties in Brazil were very criticized in general by society who failed to see that. I mean the very high level of interest rate charge on overdraft was a direct consequence of the fact that overdraft taxes -- overdraft is another amount to be charged in Brazil. As the resolution came out by the Central Bank, they also allowed for overdraft fees to be charged. But in a manner which we do not think it's feasible or it's adequate to charge them. Charging them on the limit and not at the moment when the client exceeds its line and enters into the negative terrain. So we have taken the decision not to charge this commission, this fee from our clients.

[Jason Mollin, analyst]

Maybe a second question on the outlook that you described. On our calculation, if we put in your guidance, we come up with low single-digit earnings growth for 2020 versus 2019. If we look maybe 2%, 3% on our numbers. But if you -- if we go out farther, 2021, would you think that this kind of earnings growth rate would stay the same, accelerate or decrease?

[Cândido Bracher, executive]

Jason, well, I cannot confirm your forecast on earnings growth since we don't deliver enough supply earnings growth. But I think it's fair to say that we expect 2021 to have a higher earnings growth than 2020. And the reason being that in 2020, we have pretty significant half sprints, which are once and for all of that, the cap on the overdraft, the interest rate, which is more than 1.5% of the average, includes 2020 will be more than 1.5% lower than in 2019, and the higher tax in social terms. So these 3 effects, which are once and for all, we don't expect them to go worse in 2021. So 2021 should have a growth clean of these negative effects, which we will experience in 2020.

[Operator]

Our next question comes from Jorg Friedemann, Citibank.

[Jorg Friedemann, analyst]

I have 2 questions as well. The first one related to the guidance of cost of credit. In the midpoint of the range, you expect loan growth of 12% and cost of credit of 11.3%. So cost of credit is slightly below at the midpoint of the range of loan growth, which in my understanding implies or per long mix under the expected loss. I understand that you provision more towards riskier loans or some consumption of coverage. So could you elaborate a bit on those 2 topics, coverage and on mix related to your guidance of cost of credit? This is the first question and then I come with my next one.

[Cândido Bracher, executive]

Thank you, Jorg. Concerning cost of credit, I mean our estimation is that it will grow approximately in line with the portfolio growth. I do expect portfolio to grow a bit more in lines which have a smaller default rate, such as market and payroll loans. So this could explain in part of what you mentioned. The rest is the normal dynamics of cost of credit and portfolio of growth. We are now entering our third year of strong growth in portfolio. And this -- we expected that cost of credit should grow according to portfolio more or less in more detail.

[Jorg Friedemann, analyst]

Okay. Could you -- just a follow-up here. I understand the points on mortgage in payroll but they are still retail. Should retail continue to out space the rest of the portfolio as we saw and in the financial system, actually, in your particular case, in contract on the corporate book in the fourth quarter versus retail, but just wondering what to expect going forward in terms also of SMEs and the other retail lines versus large corporates?

[Cândido Bracher, executive]

I think as you can see, and in SMEs, and it has been growing more than the individuals. I mean growing origination of SMEs of 31%, whereas the individuals have been growing at 23%. I think these are sustainable figures of -- not of portfolio growth but origination growth. In the corporate, I see 33% of that origination was here, I don't think this is quite sustainable. I mean I think we'll see lower figures here. And not because of lack of demand, but because capital markets will supply most of this additional demand by larger corporates. So yes, I think in that imbalance, SMEs and individuals portfolio will overgrow the large spot rate.

[Jorg Friedemann, analyst]

Perfect. That's very clear. And then my second question, we see, related to the guidance of the financial margin with the market, differently from last year. I understand that the consolidated guidance for this year between BRL 5.7 billion and BRL 6.7 billion, take us into consideration implicitly that a bigger portion of these results will be derived from the international operations versus last year. And just wondering here if -- what does this rely upon, maybe some unrealized gains that you have in the Itau CorpBanca operations? Or what else is driving this strong margin with the market outside Brazil?

[Cândido Bracher, executive]

So I mean there's no unrealized sort of gains in the Latin book. We do expect some more volatility in the Latin books than in our Brazilian portfolio. And this volatility normally presents having better possibilities of gains in the financial margin with the market [indiscernible] some improvement more in Latin America than in Brazil.

[Operator]

Our next question comes from Otávio Tanganelli, Crédit Suisse.

[Otávio Tanganelli, analyst]

I have 2 questions, if I may. The first one is we saw a very good performance on the asset management fees. I just wanted to understand how much of it do you think is recurring because the market performed really well in the fourth quarter? I would assume that there's a sizable chunk of performance fees, which are arguably nonrecurring? And secondly, on the guidance for operating expenses, how confident are you that you can reach your guidance? And what you think are the -- that you can do inside the bank to reach the guidance? Is it closing more branches, optimizing the personnel structure? If you could give us a little more color on that, it would be great.

[Cândido Bracher, executive]

Otavio, well, on asset management fees, I mean we are seeing a considerable growth in our seasonal management. As you can see, we had a 20% growth in the traditional assets under administration. And on the open platform, 46.9% growth. So this growth is mainly what drives the results. There was an important contribution from performance fees.

And this cannot be considered recurrent. We -- and in fact, set a very ingenious, in my opinion, way of having multiple asset management teams in our high-end funds which are producing very good results ahead of our plans. And so -- I mean we're seeing a very good flow of performance fees so far.

In operating expenses. Here, there's no silver bullet. And as it has been mentioned, this is a multiyear effort. We are gearing our efficiency index lower. We are investing a lot in technology to do it, and as we did investments in technology are the main generator of economics here. We will close more branches this year. We still have not decided exactly how many, but we -- it will be less than in 2019, for sure. The main aspect here of savings is process automation. Process automation and a reduction in complex support functions in the bank due to this process automation.

[Operator]

Our next question comes from Eduardo Rosman, BTG.

[Eduardo Rosman, analyst]

I have 2 questions as well. The first one is a follow-up on the NII team. I just wanted to understand if we should expect to see kind of a pressure from funding costs, given that you are accelerating a lot of the loan book? We can see that the bank has been a lot more proactive

in offering deposits at 100% of the CDI to its customers. So besides the lower Selic, you've got the capital overdrafts. Do you expect to see some pressure on funding as well? So this is my first question.

Second question, it's on 2 assets that you have, Itau has stakes in 2 relevant liquid assets or the minority stakes, which is IRB and XP. So I wanted to know how do you see these investments? Is it just a matter of price valuation for you to sell? Or do you see them as quarterly strategy? I want to know what could make you decide to eventually sell? While these assets continue to deliver stronger earnings growth at Itau, is it fair to say that you have no reason to sell? So these are the 2 questions.

[Cândido Bracher, executive]

Okay. Thank you, Eduardo. As to the first question, I think you're right. I think -- I mean funding has -- is becoming more tight in the market, as the economy grows and the demand for credit grows. I mean we are seeing more competition for funds. Also as interest rates comes down and the trend of investors tend to move more towards funds. There has been a concentration in the sources of funding, which explains, I mean more competition for them. So yes, we do take into consideration the scenario and the possibility that funding will be -- may be a bit costlier in 2020 when compared to 2019, as it was costlier in 2019 when compared to 2018.

Always in relation to the basic level of the interest rates, of course. I mean in nominal terms, we reduced because the interest rate reduced.

As to IRB-MF deal, I think these are both

participations that we have because they make sense in our balance of income in the bank. So XP, basically, for the participation, XP basically increases the balance -- the income flow from spending products, from investment products and I think it's an excellent company, and so we consider this a long-term participation. The same thing may be said about IRB in relation to insurance. I mean insurance is a segment where we definitely think we are underrepresented in the market. We strive to grow the participation of insurance in our business. And so here, it makes every sense for us to keep this participation for -- on the longer-term as well.

[Operator]

Our next question comes from Victor Schabbel, Bradesco BBI.

[Victor Schabbel, analyst]

I just wanted to make a follow-up on IT and how Itau is seeing its initiative in digital banking? How things are going? What are the lessons learned so far? What could be, let's say, improved going forward? So just some color on the strategy of the bank for the digital space?

[Cândido Bracher, executive]

Thank you, Victor. There are many lessons learned this -- each year as we evolve in this platform. And this platform that was created was received as mainly a payment platform. It's a platform to which we intend to add many different features, broadening the set of services that we offer. Here we are in learning mode. We are expanding, first, the number of members in IT, whereas the monthly active users are progressing at a slower pace because we think -- I mean we need to add more features to the platform.

We are enthusiastic about IT, about the way it will develop in the future. But it's fair to say that we are at the very beginning of this journey.

[Operator]

Our next question comes from Eduardo Nishio, Banco Plural.

[Eduardo Nishio, analyst]

I have 2 questions as well. First one is if you could comment on cost of credit that spiked 70% year-on-year on the fourth quarter? And also give a little bit of color of -- you said that cost of credits will grow in line with credit in 2020, but when we see fourth quarter, it's kind of the opposite, right? You have a big spike in the fourth quarter and your 2019 numbers point to 29% growth year-on-year on cost of credit. So if you could comment and give a little more color on that, I'll appreciate it.

And my second question relates to your ability to grow earnings. And if you step back a little bit a longer period, despite you being the most profitable bank in the industry, at least in the large banks, you've been running below peers in terms of earnings growth. And like or not, valuations, stock prices do follow earnings growth. And if you could comment a little bit on why you think Itau is running below peers in terms of earnings growth and in potential measures that you could potentially do in coming years to propel earnings a bit faster growth? I appreciate it as well.

[Cândido Bracher, executive]

Thank you, Nishio. So with relation to cost of credit, I think that the point out of the curve was 2019 and not 2020. So when we look at the 29% growth in cost of credit in 2019. And then we see specific cases which we can clearly identify as well as, also I mean even in smaller companies, I mean specific [indiscernible], specific vintages of credit, which were -- have problems, problems which were tackled and had been dealt with and are now producing normally, normal results. So this is the main reason for us to expect that in 2020, we will come back to the trend of cost of credit evolving in line with the growth in the portfolio. So we are seeing no exceptional reasons why it should not be this way and these exceptional factors, which we can clearly locate in 2019.

With respect to earnings growth, I think there is a limit to what -- to the way you can run a bank looking only at your competitors. I mean we should create a way for long-term strategy and follow. So on the first slide of this presentation, we've talked about our long-term strategy, which is basically centered in the client in improving our customer satisfaction and supported by the 3 pillars of digital transformation, people and efficiency. I'm very satisfied to see that the good results, which we presented in 2019, were obtained in the same focus. I mean as we have improved in every one of these structural lines, and the results there, I think they are impressive.

I mean to gain 27% efficiency, shorter time in our technology deliveries, to improve 9 points in NPS, to have a 2.1-point improvement in efficiency index. And these are not short term movements. I mean these are movements which continue over time. And I think that these are the movements that will grant us increasing earnings over the next years. I already mentioned in 1 or 2 questions why I think that the earnings growth in '21 will be bigger than the one in '20. I cannot comment about our competitors' evolution. But what I can say is that I'm pretty confident on the positive evolution of the earnings growth of Itau Unibanco.

[Operator]

Our next question comes from Carlos Gomez, HSBC.

[Carlos Gomez-Lopez, analyst]

I wanted to ask you about the cost control. As you say, this is probably the most drastic guidance that we have seen from Unibanco bank ever. And I wonder, I mean that must mean that you are more conservative in terms of how the market can grow? Like how is it possible for you to lower the costs with a growing loan portfolio when you have to do IT investment sale, whatever main driver is for discovered action and how sustainable is it? The second, in the long run, I just -- clearing the bank for the future. In the next 5, 6 years, where do you see the ROE of this business can be for Itau, and what would be a normalized payout that you can expect in those circumstances?

[Cândido Bracher, executive]

Thank you, Carlos. So as the cost control, we have been delivering expenses growth below inflation for sometime now and this year was very good in this sense. These savings, they come mainly from process automation, some closing branches, from the [ OFF ] program that we made. And from changing the way of working in the bank, changing the structure of the bank cleanly, relaying less support functions. I mean saving and support functions. It's not doing less, it's trying to do better what we do, more efficiently and so on. We have big help from technology. And we are seeing significant progress here. Let me tell you, I do not think this is not a challenging value, it is a challenging value.

Looking as unspecific challenge to stimulate the bank, but I think it's quite a good guidance, it's quite a perfectly feasible one, is one of cost control. You asked about ROE and payout. We do not give guidances on this slide. And for very simple reasons, Carlos. ROE, it's very much dependent on the market evolution and competition and so on. We have this highest ROE in the last 17 quarters, the last quarter of 23.7%, and somewhat priced quite better. I think that with low interest rates scenario, cost of capital being lower, I mean there should be a downward trend in ROE and -- but I'm not seeing this very radically in the near future.

But as to payout, we have a clear stated policy where the variables are now. And so I mean it depends a lot on ROE. It depends a lot on the evolution of RWA. And so I mean how we can grow with the market. And all the changes, regulatory changes, tax changes definitely happens. So this is the reason why we supply in [indiscernible]. Having said that, if in the future, we see a downward trend in ROE, and we see portfolios growing strongly, it should be expectable that payout should be reduced.

[Operator]

[Operator Instructions].

This concludes today's question-and-answer session. Mr. Candido Bracher, at this time, you may proceed with your closing statements.

[Cândido Bracher, executive]

Just to thank everybody for participating and for the very good questions. Thank you.

[Operator]

That does conclude our Itaú Unibanco Holding earnings conference call for today. Thank you very much for your participation. You may now disconnect your line.