Itau Unibanco Holding SA

BOVESPA:ITUB4

Earnings Call Analysis

Positive Q4 Performance with Strong 2024 Outlook

In Q4 2023, the company reported BRL 9.4 billion in earnings, marking a 4% growth from the previous quarter, and an improved Return on Equity (ROE) of 21.2%. Growth was driven by a 3.3% increase in Net Interest Income (NII) reaching BRL 23.2 billion. Loan portfolio expansion in Brazil was 5.7% annually, while Latin American growth was 3.1%, excluding FX impact. A decrease in Non-Performing Loans (NPLs) by 20 basis points and a reduction in the renegotiated portfolio by BRL 1.9 billion indicated sound credit quality. Noninterest expenses rose 6.5% year-over-year but remained within the 4-8% guidance. The company announced substantial dividends with a BRL 11 billion payout, and a post-dividend Tier 1 capital ratio of 12.8%. For 2024, the company anticipates loan portfolio growth between 6.5% and 9.5%, 4.5% to 7.5% growth in NII with clients, and a reduced credit cost estimate of BRL 33.5 billion to BRL 36.5 billion.

Modest Quarter-to-Quarter Earnings Growth and Strong Annual Performance

Despite numerous challenges, the company reported commendable results, detailing a 4% growth in total earnings for the fourth quarter of 2023, reaching BRL 9.4 billion. The consistency of their performance is also demonstrated by a slight increase in the consolidated Return on Equity (ROE) to 21.2% and an even stronger ROE of 22.2% specifically in Brazil.

Revenue Growth Driven by Diverse Financial Activities

The company exhibited financial vigor with a Net Interest Income (NII) growth of 3.3%, attaining BRL 23.2 billion. Encouragingly, commissions, fees, and insurance operations increased by 4.6% quarter-over-quarter, signaling robust revenue diversification. Concurrently, credit quality indicators demonstrated improvement, highlighted by a 20 basis point reduction in consolidated Non-performing Loans (NPL) over 90 days.

Portfolio Expansion with Dedication to Client Focus

The company witnessed expansion across all major loan portfolios, growing by 1.9% for individuals, 2.6% for Small and Medium Enterprises (SMEs), and an impressive 8.7% for large corporates annually. Despite the foreign exchange (FX) impact, the overall loan portfolio grew by 3.1% in Latin America or 5.3% when excluding FX variations, reflecting a strategic emphasis on client targeting and portfolio derisking.

Steady Improvement in Financial Margins

Financial margins with clients exhibited progressive growth, with a 3.3% rise quarter-over-quarter in the client NII, and an expansion of consolidated Net Interest Margin (NIM) from 8.9% to 9%. Subsequently, the adjusted NIM further increased for the Brazilian operation, demonstrating the resilience of their financial margin in adverse market conditions.

Capital Ratio Enhancement and Commitment to Shareholder Returns

The company succeeded in reinforcing their Tier 1 capital ratio to 15.2%, showing prudent capital management. Investors were rewarded with significant dividends, including a BRL 11 billion extraordinary dividend to be paid in March alongside BRL 4.3 billion in interest on capital. This payout reflects a disciplined approach to capital allocation, taking uncertainties and future impacts of regulation, such as Basileia III, into account.

Consistent Cost Management and Efficiency Ratio Improvement

Operational efficiency remained a focus, with noninterest expenses increasing by 6.5% year-over-year, which includes one-off investments such as brand remodeling. The company achieved their best historical level in the efficiency ratio, which stands at 39.9% on a consolidated basis and 37.9% in Brazil, showing optimization of expenses in relation to revenue.

2024 Outlook: Positive Growth and Profitability Targets

For 2024, the macroeconomic projections suggest GDP growth, stable interest rates, and inflation in Brazil with the aim to sustain an ROE above 20%. The company's guidance indicates an expected growth of 6.5% to 9.5% for the loan portfolio and 4.5% to 7.5% for NII with clients. Additionally, a reduction in the cost of credit is anticipated, highlighting a strategic focus on preserving credit quality and achieving profitability targets.

Earnings Call Transcript 2023-Q4

[Renato Lulia Jacob, executive]

[Interpreted] Hello. Good morning, everyone. I'm Renato Lulia, Group Head of Investor Relations and Market Intelligence at Itau Unibanco. Thank you very much for joining our video conference to talk about our earnings for the fourth quarter of 2023, which we are broadcasting directly from our office on Avenida Faria Lima in Sao Paulo.This event will be divided into 2 parts. In the first part, Mr. Milton Maluhy will explain our performance and earnings for the fourth quarter of 2023 and present the 2024 guidance. Right after, we'll have a Q&A session, during which analysts and investors can interact directly with us.I'd like to give you some instructions to make the most of today's meeting. For those of you who are accessing this via our website, there are 3 options for audio on the screen. The entire content in Portuguese, the entire content in English or in the original audio. For the first 2 options, we'll have simultaneous translation. To choose your option, all you have to do is click on the flag on the top left corner of your screen.Questions can also be forwarded via WhatsApp. To do so, just click on the button on the screen, on the website or simply send a message to the number, [phone]. The presentation we'll make today is available for download on the hot-site screen and also as usual, on our Investor Relations website.I now give the floor to Mr. Maluhy, who will begin the presentation on earnings. Then I'll come back to you to moderate the Q&A session. Milton, go ahead.

[Milton Maluhy Filho, executive]

[Interpreted] Good morning. Welcome to our fourth quarter of 2023 earnings and the 2024 guidance presentation. I'll go straight to the figures so that I can bring you some more information, and then we'll have enough time for the Q&A.Firstly, our earnings in the quarter totaled BRL 9.4 billion, a growth of 4% from the previous quarter. As a result, we delivered a consolidated ROE of 21.2%, with 10 basis points growth in the quarter. In Brazil, ROE reached 22.2%. Moving on to revenue generation. Our NII grew 3.3% in the quarter, reaching BRL 23.2 billion. Commissions and fees and results from insurance operations posted strong growth of 4.6%, reaching BRL 13.5 billion for the quarter, all this with sound credit quality indicators. The consolidated NPL over 90 days posted a drop of 20 basis points. The NPL for individuals dropped 50 basis points. These are major results that show an evolution in the credit cycle.We've ended the quarter with a Tier 1 capital ratio of 15.2%, an increase of 60 basis points. The individuals portfolio grew 1.9% in the quarter and 4.1% in the same year. The SMEs portfolio grew 2.6% in the quarter and 3.5% in the year. The large corporates portfolio grew 8.7% in the year. Thus, the total growth of the loan portfolio in Brazil was 5.7% in the year. In Latin America, the results were affected by FX. As a result, the total portfolio grew 3.1% in the year. And excluding FX variation, growth was 5.3%. It was a year in which we focused on derisking of the portfolio, and we've been working more intensively on target clients and reducing the portfolio's exposure to nontarget clients.We posted sound growth in the segments on which we focus. The Personnalite and Uniclass loan book grew 16% in the year and 5% in the quarter. In payroll loans, we continue to grow in the private and public sectors, both quarter-over-quarter and year-on-year. There was a decrease in the public pension segment as a result of the caps that were put in place on interest rates. Therefore, we stopped serving a population that increasingly demands the social security-based payday due to these adjustments.Another piece of news worth sharing with you is that we had a nominal reduction of BRL 1.9 billion in the renegotiated portfolio, a drop of 4.6% quarter-over-quarter. This shows that our portfolio is good quality with sound credit indicators. It was a great quarter for clients NII, up 3.3% or BRL 700 million in the fourth quarter of '23. This growth was well distributed across our product mix, volume, spreads and liabilities margin in Latin America. We've isolated the effect of working capital, which starts the quarter at BRL 3 billion and ends at BRL 3.1 billion.The 1-month earnings of the operation in Argentina, which was recorded in the third quarter earnings was also isolated. Thus, core growth was 3.3% quarter-over-quarter. Another piece of positive news was the expansion of the consolidated NIM from 8.9% in the third quarter to 9% in the fourth quarter. The risk-adjusted NIM also increased from 5.6% to 5.8% in this period. The risk-adjusted NIM of the Brazilian operation increased from 5.9% to 6.2% in the quarter, and the total NIM for Brazil reached 9.8%. I believe these are very positive messages for the financial margin with clients.In the financial margin with the market, the fourth quarter was similar to the previous one, with a sound result of BRL 800 million with similar dynamics, both in Brazil and in Latin America. The slight expansion in the quarter was due to the lower impact of cost for capital hedge. This shows that we've been delivering good risk management, as shown by our solid financial margin with the market performances despite the scenario of adversities and difficulties throughout the year. The financial margin with the market totaled BRL 3.3 billion in 2023 versus BRL 2.9 billion in 2022, which shows major growth in a year during which we faced material challenges.It is worth mentioning that we met the 2023 guidance in all the disclosed lines with the exception of the estimated growth of our loan portfolio, which was below the disclosed expected range. This performance is explained by the difference between the projected FX rate for 2023 used in our budget and the actual FX rate for the period. Commissions, fees and results from insurance operations were also within guidance, up 5.3% year-over-year and 4.6% quarter-over-quarter.The highlight in the fourth quarter was the strong growth in credit cards due to seasonality. We've posted major progress in advisory services and brokerage fees. Net inflows increased 70% quarter-over-quarter and 7.4% year-over-year. This results from all the work of the last few years and shows that we are moving in the right direction. The latest acceleration is very positive.The transaction volume in the acquiring business grew 17.5% year-over-year, while revenue was up 20.4%. This performance reflects an appropriate product mix, which has allowed us to increase revenue above the traded volume. In insurance, earned premiums increased 11.2% in the year with recurring income growing 19.6% in the period. It is worth emphasizing that we've seen a significant growth over the last 3 years in this operation. This performance shows that both the course and strategy designed for this operation are being well executed.In terms of credit quality, we draw attention to our short-term delinquency rate which is absolutely under control and shown by its stability, both in Brazil and in Latin America. The long-term delinquency rate measured by NPL 90 days decreased 20 basis points in Brazil and in total. And in Latin America, there was a slight increase of 10 basis points in the quarter. This underscores that the short-term delinquency is under control. Short-term NPL in Brazil remains stable in the individuals portfolio and had a slight growth of 10 basis points in the SMEs portfolio in the quarter.For the large corporates portfolio, this is not the most appropriate indicator to monitor, as I always say, but nonperforming loans are also well behaved. After 4 quarters of stability, the long-term delinquency rate of the individual portfolio decreased by 50 basis points and ended the period at 4.4%, which we consider a sustainable level. The NPL 90 for SMEs and large corporates remain stable. Generally speaking, we posted very strong credit indicators with good developments and stabilization throughout the year which is very good news for credit quality.Cost of credit reached BRL 9.2 billion this quarter, a nominal amount below the prior quarter. The indicator that measures the cost of credit over the portfolio decreased in the quarter from 3.2% to 3.1%. This was the second consecutive quarter in which there was a drop in the individuals portfolio, NPL formation, which shows that the portfolio has reacted favorably. Cost of credit rose from BRL 32.3 billion in 2022 to BRL 36.9 billion in 2023, slightly above the best scenario in the guidance range, which was between BRL 36.5 million and BRL 40.5 billion.There was a nominal drop in the renegotiated portfolio, which now accounts for 3.3% of the portfolio. This performance shows another good development and trend for the portfolio. There was no major highlight in the coverage indexes, which showed a slight increase in total coverage from 209% to 216%. We have a very well provisioned portfolio with an adequate level of coverage and sound consistent results.OpEx or noninterest expenses, as we call them, are normally under greater pressure in the fourth quarter. In Brazil, this line grew 8.5% year-over-year. And in Latin America, excluding Brazil, it fell 4% in the period. On a consolidated basis, noninterest expenses increased 4.1% quarter-over-quarter and 6.5% year-over-year. In the fourth quarter, we also recorded one-off investments such as the remodeling of Itau's brand, which put a little more pressure on this line in 2023.We've been keeping up with our financial discipline, which can be seen in the efficiency ratio trend, which has reached its best historical level. The efficiency ratio was 39.9% on a consolidated basis and 37.9% in Brazil, including all expenses. This shows a major development. And we've achieved this by reducing core costs, which grew by 1.6% in the year, well below inflation for the period. This is a trend we plan to continue working. We continue to actively work and invest in the business and in the future of our operation. This includes key investments in new businesses and technology, which explains the increase in the year, disregarding Latin America in this analysis.The guidance range for noninterest expenses was between 4% and 8%. And we remained within it by recording growth of 6.5% in the year. We have good news on capital. We were able to expand our capital ratio for another quarter, ending December with 15.2% in Tier 1 capital ratio, of which 13.7% at Common Equity Tier 1 and 1.5% at AT1. The last bar in this chart shows the pro forma capital for December 2023, considering the dividends that we just announced last night.We have 2 key messages on this. The first is that we are reporting material extraordinary dividend amounting to BRL 11 billion, which will be paid in March, along with interest on capital of BRL 4.3 billion that had already been announced. Meaning there's BRL 15.3 billion to be paid in March. This amount of interest on capital is already net of taxes. In 2023, we paid BRL 6.2 billion in interest on capital, also net of taxes. This totals the cash payment of BRL 21.5 billion in dividends and interest on capital in 2023. Thus, the payout for the year was 60.3%. Once this payment is made, the core capital ratio will be adjusted to 12.8%. There are some uncertainties ahead of us, and that is why capital management discipline is needed to conduct our business.Now let's move to the 2024 outlook, and I'll start by sharing our macroeconomic projections. We expect Brazilian GDP to grow 1.8% in 2024. The interest rate Selic to reach 9.0% at the end of the year and inflation 3.6%. Unemployment should be slightly stable at 8% and the exchange rate of BRL 4.9 to USD 1, also slightly stable. I now present to you our consolidated 2024 guidance, which is based on a growth expectation between 6.5% and 9.5% for the loan portfolio and growth between 4.5% and 7.5% for the NII with clients. It's worth noting that we also present the expected growth on a comparable basis, excluding the effect of the sale of the operation in Argentina in 2023. With this adjustment, the expected growth for the NII with clients is between 5.5% and 8.5% on a comparable basis.The financial margin with the market should be between BRL 3 billion and BRL 5 billion. Our expectation for the cost of credit between BRL 33.5 billion and BRL 36.5 billion in 2024 reflects a major decrease when compared to the cost of credit in 2023, which was BRL 36.9 billion. Our worst-case estimate for the cost of credit in 2024 is already nominally below the cost of credit in 2023, we tend to look for an even better result. Commissions and fees and results from insurance operations are expected to grow between 5% and 8% and between 5.5% and 8.5% on a comparable basis with a pro forma adjustment from the sale of Banco Itau Argentina. Noninterest expense is expected to grow between 4% and 7% as adjusted for the same effect on a comparable basis. Growth is between 5% and 8%. The goal is core cost to grow below inflation so that we can continue to invest in our operations. The tax rate is expected to be between 29.5% and 31.5%. Our goal is to keep delivering ROE above 20%, and these figures reflect that goal.I'm very pleased with the earnings achieved in 2023, the course that the bank has followed and the way we've mobilized, advanced and invested in the business. Cultural transformation has had a very material impact. Digital transformation has materialized in several of the figures we presented today. There are challenges ahead. No one has been complacent. On the contrary, we're very focused on delivering even stronger earnings in 2024, as shown in our guidance.Now I'll be joining Renato for our traditional Q&A session. See you in a little while, and thank you very much.

[Renato Lulia Jacob, executive]

[Interpreted] Thank you for the presentation. We will start now the Q&A session. And today, we have, besides Milton, we have Broedel. He is our CFO. He's going to be here with us in the Q&A session. Remember that we have both languages. We will answer the question in English and Portuguese. You can always choose your audio of preference, English or Portuguese. You can submit your questions via WhatsApp.There is a long list of questions, Milton and Alexsandro. First question, we have on screen, Renato Meloni, Autonomous. Renato, welcome to the earnings call. Thank you for the first question. Thank you.

[Renato Meloni, analyst]

[Interpreted] First, in regards to the guidance, when you look at the interval that you're mentioning, the growth in the portfolio of credit and the margin of clients, there might be a reduction -- might imply a reduction. Is that a real thing? Because the -- there is an expectation of the stabilization for 2024. And how should you -- or how are you looking at the dividends in this year? If the growth in the portfolio goes to 9.5%, can we have a similar payout? Any additional comments are great.

[Renato Lulia Jacob, executive]

[Interpreted] Thank you, Renato.

[Milton Maluhy Filho, executive]

[Interpreted] Thank you, Renato. Good morning. Thank you for the question. Let's clarify the guidance of the portfolio. First message, the portfolio of the guidance is, let's just say, the tip of the portfolio and the margin is the one that we realized. That means that the average portfolio all throughout 2024. And the information is not in the guidance. It will be lower than the financial margin with the clients. So we have to look at the average of the portfolio because that's the margin that you can see in the guidance. That's the first aspect.Second aspect, when we look at the records, we've been growing with a lot of quality, the margin. And it's important to look at the margin, not only associated with the Argentina effect, which explains another percentage point in growth. So isolating it, we would grow 7 percentage points on average. It's important to consider the cost of credit, which has a nominal reduction. That means that our financial margin, net cost of credit will have an expansion. Portfolio growing, cost of credit dropping.And you asked about the NIN. We are expecting, yes, stability throughout the year and adjusted to the risk, we understand that there is an opportunity for some adjustments through the credit cycle. That depends on the mix of the growth of the portfolio that you can see here. That is growing above the average payout of the portfolio in the period. The cost of credit is higher and adjusted by the Argentina effect growing by 7%.Very important to clarify the dividends. That is of interest of everyone. What was our decision? Let's turn back time. Way back when we reduced our appetite in the risk management of the bank, we always talked about 11.5%. That's the CET of the capital, approved at the Board, that's the appetite for CET1 for the management of the bank. And we said that 12% would be the observed for the policy of dividends.When we look up ahead, there are some uncertainties or certainties that are calculated. The cost of credit Basileia, operational credit Basileia III, 2025, that might have an impact of 42 basis points. And there is a second aspect. The tax reform of Brazil. If we look at it as it is in Congress, as if it was approved as it was written, we will have to do an impairment in the credit because when we look at the corporative threshold, we would have to reevaluate them in the balance sheet of the bank. That reevaluation, even the corporate threshold is evaluated, you reduce an asset and then you have a capital effect.When you look ahead, the uncertainties, our capacity for growth, we are getting into a year that we expect to be benign and any opportunity that might make sense through the cycle, we will grow. So considering the growth of the portfolio, considering what's up ahead Basileia, operational risk, credit risk and considering the tax reform and uncertainties, our decision is to do the payout that is added to what was already paid [ for BRL 4.3 billion ], which is the interest on capital in March, plus the extraordinary dividends.So a payout of 60%, we understand that is adequate. We are distributing BRL 21.5 billion between what was already paid and what will be paid in March. It's a very relevant distribution 3x the dividends of 2022. What is our policy from now on? It's not to retain the excess. That has to be very clear. We will look at the uses all throughout and the sources of 2023, how are we generating capital, the result and how we are applying it. Whether if it's inorganic, organic opportunities, portfolio growth and regulatory changes that are coming up ahead with the tax reform.Looking from that standpoint, we will look at the -- next year, we will do the projections. And if there is an excess, our expectation -- our decision is to distribute the capital excess. Don't look at that extraordinary dividend as an isolated event. It's an important dividend. And looking up ahead, we have to understand the excess. Well, not taking into consideration the effects that we already aforementioned, we are going to continue to distribute an extraordinary dividend with more information and the results and the effects therein.

[Renato Lulia Jacob, executive]

[Interpreted] Thank you, Milton. Well, I thought it was dividends, yes. Second question, Gustavo Schroden, Bradesco BBI. Welcome, Gustavo.

[Gustavo Schroden, analyst]

[Interpreted] Renato, Milton, Broedel. Congratulations on the results, not only of the quarter but the year. I wanted to talk about the guidance. And since Milton already gave us a soft guidance of an ROE above minimum 20%, that would be the point that we have to start. It seems conservative to me on your side. So I wanted to discuss with you. Can you go over, please, on what should we expect of the guidance, the main lines, where can we work more as the higher threshold, the medium threshold? Should we -- well, on my side, we see the upside -- relevant upside in PDD, taking on the NPL trajectory that we've seen. But if you can just give us your two cents on those 2 lines? And can we work above or below the guidance? And can we assume the 20% that you indicated as the conservative ROE? But I wanted to hear from you.

[Milton Maluhy Filho, executive]

[Interpreted] Thank you, Gustavo. I hope that you're right. We're going to work so that you're correct. Well, the guidance in the end, it's our best estimate. We are coming from a budgetary procedure. We always have a temporary guidance. Well, we have the average point of these lines. The medium is always a good reference. If you look at the last quarter, we were running Brazil with 22.2% of ROE, very strong. And we unloaded the dividends in the way that you're seeing it right now, the results would be 23.4% ROE of Brazil.The effect of the dividend generates a basis effect that improves the ROE, reduces the net result of the bank because of the working capital, but it improves the relationship and it makes the ROE better. So I believe that we have to look at the year for the opportunities for growth of portfolio. The average is reasonable. There is the exchange rate in Latin America, which is uncertain. So taking away that, there might be some opportunities for the growth of strong portfolio growth, depending on the scenario, the perspectives, the credit cycle.So I believe that working above 20% is a great reference. We didn't gave a guidance of ROE. We are working above 20%. Can it be more than 20%? Of course. We're going to work to deliver an adequate profitability given the scenario and the opportunities therein. The cost of credit, we've been very successful all throughout the cycle. You've followed the bank for many, many years. We had a difficult cycle. Some portfolios suffer more. In our case, credit card, very relevant portfolio, BRL 135 billion. The vehicles, very important, BRL 33 billion. Those 2 portfolios naturally, they suffer more.Now the good news, it corroborates your vision with the cost of credit is that the vehicle portfolio fourth quarter consecutive that we have a reduction in the overdue fees of 90 days, credit cards is the third. In the natural persons, it is 50 basis point reduction. In credit cards, it's basically the [ double-double ] reduction with the nominal of the portfolios growing less. So it shows that the cost of credit is behaving.What does the guidance have? It has a level of uncertainty because we have the portfolio of wholesale that is very relevant in Brazil and Latin America. And you can imagine a normalization of the delays of the wholesale. I've talked about as we expected, but 2023, we had a benign effect except the Americanas event in January. We had a portfolio with the cost of credit that was very well behaved below the minimum thresholds on record when we look at the long-term cost of credit.Our expectation is that, is that we can always have a normalization if that doesn't happen and there is, in any case, that really concerns us or that we do not have the adequate provision. We don't have that. But we might consume some thresholds of the guidance, but the cost of credit is positive. The other lines, they are well calibrated and the costs depend on us. Where I think that we are going to have to follow up is the portfolio, the margin and the cost of credit depending on the events that I commented, and we're going to update you all throughout the next quarters. And I am hopeful that you're right, we will work to deliver an ROE better than 20%.

[Renato Lulia Jacob, executive]

[Interpreted] Thank you, Milton. Well, let's, now we have Mario Pierry, Bank of America. Hi.

[Mario Pierry, analyst]

[Interpreted] Congratulations on the results. Milton, I wanted to understand your guidance of the growth of credit. Can you give us a breakdown? What are the lines that you expect a higher cost? Because when you look -- when you see -- well, the macroeconomic scenario is positive, the bank has a great capital and the growth, nonetheless, seems timid. You're talking about a nominal growth of the GDP, 5.5%, 6%. Our portfolio growing 8% seems a bit shy. I wanted to understand how do you see the product itself?

[Milton Maluhy Filho, executive]

[Interpreted] Thank you, Mario. Beforehand, thank you for the question. Thank you for being with us today. And we need to tell you, when we look at the portfolio, I'm going to do a deep dive. We hope that the companies, whether if it's retail or the big companies, they will grow above the average point that you observed. So they carry over that. The natural persons, they grow less in that relationship in the average of the GDP and there is a relationship there. We expand -- we will expand in the products that make sense in the target segments that we are growing above 2 digits.But here, there is a double effect. First effect, the natural persons portfolio, there is a renegotiation drop, which is good for the overall balance for the cost of credit, but it's a natural [ offensor ] of the balance sheet. And the second aspect that when we look at the portfolios, we have the decision of reducing nominally some portfolios, important reductions that saved about 200 points of delays in the over 90 delay. So if we kept the same mix of growth that we had in the pandemic, we would be running in the natural persons, something about 6.4%, 6.5% of delay, 200 points above. So when you look, you have the opportunities of growth.The portfolio of real estate has grown a lot in the pandemic with low interest rates, high demand. With higher interest rate, we see that there is less demand, even though we are keeping good market share of production, the nominal dropped. So we see INSS and there is a pressure and we have the caps that we already mentioned. So it seems that there are some effects that play against like payroll loans, but some sort of positive.In credit cards, we have a derisking of the portfolio, and we are growing strongly in the target segments of the bank. In real estate, we can see a deceleration. In the last quarter, we can see a deceleration of the personal credit that is very specific, the reduction of the 13th salary, well, that happens. And there is the effect of the renegotiation portfolio, which tends to continue to drop. That is the overall of the mix.There is a capital markets effect. We expect a good growth. We are -- depending on the capital markets that are more active, if they're more active, we're going to give the preference for the capital markets. This is the cheapest financing of the great corporations, and we lead this market so we have the cross-sell and it generates engagement with the clients. And there is the effect, which is difficult to predict, which is Latin America, which is the exchange rate devaluation in these numbers, implicit, and numbers can change all throughout the cycle.So breaking down the portfolios, we are very comfortable with the mix that we are going to grow. And if there is an opportunity to grow, we are going to grow more. And you can see that the NIN has a stability expanding and the risk-adjusted line above all. And it shows growth above the average, and it shows the cost of credit nominally dropping, which has a net financial margin that is improving all throughout the year. We are very comfortable with that level of growth. And if we have an opportunity, then we are going to seize those opportunities. We are very focused to service our good clients and continue with the engagement and customer centricity and the NPSs that are the highest levels of the bank.

[Renato Lulia Jacob, executive]

[Interpreted] Thank you, Milton. Next one, we have here a Rafael Frade from Citibank.

[Rafael Berger Frade, analyst]

[Interpreted] Doing a follow-up of 2 points. First, the NIN, making it very clear that we expect a stability in the NIN. But all throughout the last few years, you always said that the liabilities margin has an important contributor for the improvement of the NIN and maybe less for '24, but the effect all throughout '24 is that more of a detractor in thinking for the end of '24 and for '25. And second question is a follow-up on the issue of cost of risk. I think it's very clear, the guidance accommodates fluctuations, but we wanted to understand more on the retail. When we see the fourth quarter, the NPL formations are at the level of 2019, '18. But you commented at the beginning that you have an important shift [ in the portfolio ], it seems like this is a safer portfolio than '18/'19. So specifically in retail, can we see an NPL formation for '24 maybe below what was the official records?

[Milton Maluhy Filho, executive]

[Interpreted] Thank you, Rafael. Pleasure to see you again. Let me start by the NIN. Liabilities is core for us. And we managed to grow in an important way, you can see the net cap grew 70% over the last quarter. We do not talk about the absolute numbers, but these are strong numbers I can assure you. Therefore, there is always the interest rate effect, but the volume as well. Combination of both generates an effect on the NIN. When you look at the margin of this quarter, the volumes are very relevant.Second aspect. For the financial margin for the clients, we do the hedge, whether if it's working capital or liabilities. We do the hedges with longer vertices. So it shows that in a longer cycle for better or for worse, we have a better stability in remuneration. There is a reduction in the margin. We can see the margin of the working capital reducing, but there is the increase of the [ payees ] and the liabilities have been growing importantly. And there is the demand for the bank's products, which increased this effect.So we believe that 2024, we're going to have a great year for volumes. The rates from the application and the hedge of the bank, they tend to be less sensible to the effects of the Selic rate and then highlights what I've mentioned. We've seen some reports that said that our line is very sensitive to the interest rate. This is another proof, seeing the cycle as it is, that our NIN is very stable, regardless because we can work with both sides of the equation. The interest rates, they tend to drop, but they will stabilize at a threshold of 9%. We're not going to see a drop of interest rates as we've seen way back when, and that is sustainable, and it opens up the growth of portfolio that compensates the other end with volumes and growth of assets.So we consider that NIN is stable, regardless of the pressure of the liabilities and the volume compensate the effects of the interest rates, and this shows that our investment strategy and the review of the offerings and platforms are very well successful. We have an NPS that is measured by an external auditing company that does all that measuring, and it's -- we are the best when we compare with the main competition, and we continue to advance naturally to have a better offering in regards to the platforms, the new platforms for the investment. The positive news is that in investments, this was our best year with the relationship with the platform. We had some months of positive capture in regards to some of these players, and we end up delivering a nominal net cap above what was published by the competition and it shows that we're doing our homework. This is very important.The second aspect of the delay, the delinquency. Well, there is better portfolios that are being produced all throughout the cycle. We see a nominal delay above 90. That is below what we saw in the pre-pandemic. We continue to be positive. We expect that the NPL creation will tend to have -- well, a stability really looking up ahead. We see in the natural persons, there is a reduction in the 2 consecutive quarters as there is a drop in the formation in the natural persons. And we believe that this is a great trend. Of course, more exit for write-off within the regulatory rules that has to do with the portfolio that was made in the previous periods. And with the negotiations, we have a balance. And with the renegotiation with the quarters, we see the effects in the write-off.So yes, we see the formation that is very positive. And the cost of credit that are nominal for the retail are reducing step-by-step. And this is great news where the portfolio growing and the margin expanding. So on overall, we can deliver an NIN that is very positive with an expansion in the risk-adjusted line, which is what we are doing consecutively over the last quarters.

[Renato Lulia Jacob, executive]

[Interpreted] Thank you, Milton. Next question from Thiago Batista, UBS. Welcome.

[Thiago Bovolenta Batista, analyst]

[Interpreted] My question is about efficiency. When we look at the bank's efficiency, Milton commented that you are the 40% historical minimum, good number when you compare to the bank itself or other banks, but it's still above some digital banks or traditional banks. Well, [ Banorte ] is not the same one, but in Mexico, they operate with better efficiency. Is it possible to maybe draw from 40% and get to 35% or not, or 40% is the absolute bottom? And if you allow me a second question, the credit card. We see that the level of the payment of Itau increased in 2023. So we had 81%, 85% 1 lump sum payment. When we look at the Central Bank, that trend didn't happen, well, the data of the Central Bank. How -- well, what is the difference? Why is it happening? Higher income, mix of product? Can you tell us more?

[Milton Maluhy Filho, executive]

[Interpreted] Okay. Let me start by the second point. Thank you, Thiago, for your presence. Credit cards. The explanation is mixed in the end. When you look at our nonfinanced portfolio is higher than the portfolio of the market. In the last quarter, we have 34% of nonfinanced portfolio. So this is a very relevant number. I always say, the effects of the interest rates of our BRL 135 billion of credit card portfolio, BRL 115 billion are noninterest. So BRL 20 billion is the financed portfolio.In the last quarter -- last month, there is a seasonal effect with more purchasing and more volume. So there's a trend of an increase in 1 lump sum and in the installments and noninterest -- depending on the profile of purchasing of the population. The main explanation is mixed. In -- and there is the derisking in the portfolio, of course. Since we reduced relevantly the segments of high risk that we're destroying the value for the shareholders, then we rebalanced the portfolio with more focus in the mixes that are more sustainable in the long term.And we don't look at credit card as a product isolated. We look at it in a global relationship with the client, taking away those products that you're a monoliner, open ocean, but in the bank, we have a relationship with the clients. And we've been growing relevantly and the fact that our portfolio is more affluent than the average of the market. So it takes our noninterest in regards to the interest to a higher threshold.We should see a normalization. There is a reduction in the propensity, of course, depending on the profile. And once the propensity comes back, the financed portfolio will grow more in regards to the noninterest because of the seasonality of the last quarter. Efficiency, I'm going to give the floor to Broedel, but I just wanted to make some relevant comments in general. First, is that we have to look at the bank in the mix.So looking at the efficiency level of the bank, we are looking at the consolidated. We have a lot of businesses here, and we have efficiency levels when we look at the operation. When you look at wholesale, you'll see some numbers. When you go to retail, you look at others. And there is the consolidated LATAM, without LATAM, just Brazil, we are running 37% -- 37.9% in the picture. It shows that in Brazil, we are reducing.Relevant -- well, directionally, the path is to be efficient. There is no doubt in regards to that. We've done a series of movements in that direction. This has happened for some years, and as with our DNA and culture. But there is a space where a deeper dive and the cost, the efficiency level. Well, you can get you 30%, 35%, whatever the threshold is.It's important to say that when you reduce and you become more efficient, a part of the efficiency goes to the price. So imagine that the efficiency level just drops is not true because it becomes more efficient and then you become more competitive. And therefore, that equation of revenue and cost is that what we work in a relevant way in the bank.Our efficiency level is benchmarking a global bank of our size, it's a benchmark, global benchmark, but we have a series of initiatives that we're working to separate, what are the events of the wholesale, what is retail and the investment in the technology that we've done, the digitalization naturally goes through all that.The core costs are dropping, growing less than the inflation, and that's a trend, but it will grow less than the inflation, knowing that we have an inertia that is very strong, which is a payroll in regards to the collective bargaining agreements, higher than the inflation measured by IPCA.Just looking at IPCA, it doesn't translate the banking inflation that is at a higher threshold. Broedel, would you like to highlight some of the points that we've been working, that would be nice.

[Alexsandro Broedel Lopes, executive]

[Interpreted] Thank you, Milton. Yes, we have a concern here, as Milton has mentioned, of looking at an efficiency program that generates effects on the long term, and these are consistent results. We don't want those efficiency levels to be a volatile indicator. We have periods -- gains in some periods, losses in some periods, and that's the up and down effect, as we say. We have a variation, but we don't want that. We want gains that are consistent, gains that are recurrent.That point that Milton mentioned, the efficiency is -- it doesn't depend just -- it's not an index. It depends on the mix of business that the bank works with. Structurally, the bank has efficiency indices that are different. Do we have a program that involves 1,000 -- over 1,000 initiatives? We have automation, [ recost ] reduction, digital processing, migration to the cloud, amongst other initiatives.The important thing is that this is a program from all the organization. There is no silver bullet. All the initiatives are implemented followed up we have an important control, the budget as well, so that the initiatives that we implemented, they are not -- the economies are not eventually used and more important, which I believe is the relationship between the good management of cost and efficiency.You can see that the guidance, we're not doing the investments that we consider that are important to reach a certain level of cost or efficiency. Why am I saying that? Because sometimes the important investment, because of an accounting issue, they have costs that come earlier. You have the amortization of the investments in technology as well.So our discipline here is that this is a program is to be consistent all throughout time. We don't give a specific guidance of efficiency, but we want to have efficiency that has levels that are sustainable, that are reachable and they continue throughout time, keeping the modernization of our platforms and a higher focus in the client, client centricity, all these initiatives and the efficiency level, Thiago, is inserted in the context of management of the bank as a whole.It's not an objective that is independent. Having said that, we believe and imagine that there are important opportunities for improvement all throughout time.

[Renato Lulia Jacob, executive]

[Interpreted] Thank you, Alexsandro, Milton. Next question, we have Bernardo Guttmann from XP. Thank you, Bernardo.

[Bernardo Guttmann, analyst]

[Interpreted] Alexsandro, Milton. I wanted to understand better the strategy for the compensation of the funding of the bank over the last quarters. You've had an improvement in the participation of exempt instruments. And with the new regulation, these instruments should be more restricted for issuance. What is the reading of Itau about the impacts for the system? Looking at the businesses of wholesale and retail, what is the market stock that you estimate as well in these instruments post the changes?

[Milton Maluhy Filho, executive]

[Interpreted] Thank you, Bernardo. This is a new issue. Of course, naturally, the resolution was published last week. We are naturally going over the details. What I can anticipate is, without a doubt, the exempt instruments have a participation in the funding of the system as a whole. They are growing up throughout the time. There is a creation of league, which brought in. You had the double backing of the league and LCI, which you could use, while the exempt in the interest -- they are 15% of our capture. They are important, but they are limited to 15% of all the capturing volume that we have. And in that change, recent change, basically 2/3 of our capture were not affected. So we are talking about a reduced impact. So we are talking about 4.5% of the total funding of the bank. These are the materiality, and it doesn't mean that the resources are leaving. There is a natural migration of resources. When you do not have the exempt from the income tax, you do not offer new products. And this is a systemic overview. The system as a whole goes through that.But given the level of relationship with our clients and the capacity for generation of backing, we don't see the impact in the cost of capture of the bank. This is immaterial. And we will substitute by instruments of [ CDB ] and banking letters, other instruments that make more sense for the investor, and that are going to have some impact in our cost of capture, but is immaterial. So I believe that for the system it's difficult to do an assessment. There is the mapping being done. There is a global level to see what is the level of impact, because it depends on the generation of coverage, the profile of business of each institution, relevance in the events of the capturing of each institution; 50% in our case, we can see in other cases less or more. It's very difficult to do an assessment of the market. It's very difficult.Every bank will start to talk about the impacts in their activities. We are in a phase of deepening in the norm, doing a deep dive and analysis, but there will be an impact, but it's not relevant or material for the size of our operations. And we continue with a very broad portfolio, the investments 360. Our focus is to offer the best investment for the client in that cycle. As we always say, our executives of the investments, all are measured by the profitability of the portfolio of the clients and not the selling of products. So we're going to have funds, titles of interest rate, income tax, and if there is any migration, then we can retain that asset under management or under custody within the bank. So we don't see an impact in the relationship with our clients because we expect that we have the capacity to replenish these alternatives in a very efficient way.

[Renato Lulia Jacob, executive]

Next question comes from Tito Labarta for Goldman Sachs.

[Daer Labarta, analyst]

[Interpreted] A bit of a follow-up, I think, to Tiago's questions earlier on efficiency, but a slightly different perspective. When you look at the guidance on expenses, like core expenses, as you mentioned, below inflation, but you are growing above inflation this year. You had about BRL 3 billion, I think, in business and technology investments. How long do you think you need to continue to do these types of investments? And I'm asking in the context of the competitive environment, just with increasingly more digital players becoming more and more relevant just to think about how you're positioned?[Interpreted] And somewhat related, but like on the credit card, a very strong quarter for credit cards, both on is and acquiring. There's been a lot of competition there on both sides. How much of the growth in the quarter was just seasonality? And how much are you maybe -- given the credit cycle is looking a little bit better? Are you able to be a little bit more aggressive there? And also, a couple of your peers announced that they're trying to privatize their acquiring business. So if you can just comment on the competitive dynamics in cards, both on the issuance and acquiring side, given where we are today?

[Milton Maluhy Filho, executive]

No, sure. Nice to see you. Thank you for coming, Tito. Good to see you again. So just a follow up here, first of all, on the efficiency ratio. We always -- we are always going to be investing in the long term of the bank. So this is our long-term view. We are not looking for 1 or 2 quarters efficiency ratio, and this is the trend. Especially on the technology investment, we doubled the force. So we had 8,000 FTEs. Nowadays, we're running with 15,000 FTEs when you look 4 years ahead. But we stabilized now 2 years in a row. We do believe that we achieve the level of FTEs that we need to do our digitalization and the modernization of our platform. So, our idea here is to keep doing this project. So this is very relevant because we have to finalize what we really need to modernize. We are 2/3 of the journey. So we still have investments to be done throughout 2024 and over.But the most important is that, whenever we do the investment, we amortize the investment in the coming years. So you see a strong pressure coming from the investments we made in the last period, coming those years, and we are being able to absorb all this amortization in our P&L. We still believe that there should be another level of increasing the amortization, but then it should stabilize when we look at long-term period. This is very positive because there -- we're going to be in a cycle, where the level of investment will be much more similar in the coming years as opposed to what we observed in the previous years where we came from a very low amount of investment, and we had this curve of increasing the investment in technology.So -- and part of the investment in technology is done to get more efficiency and more productivity in our operations. So you will see the cost of the amortization of the investments. But on the other hand, you will take pressure from the run, the bank costs that we are seeing in those periods. So we do believe that the level of FTE is there, we should see a stabilization in the level of investment as well. The technology is core, it's much more than modernizing the platform. In that sense, you will reduce. But then you have to keep running your business and modernizing the platform every single day to achieve the best level of the experience for our clients. So this will keep being the trend, and we are very focused on that.Talking about the credit cards, the quarter is very seasonal, okay? So you saw relevant growth in the credit card portfolio, especially when you see the site payments. So it's not the Buy Now Pay Later. That means that there is a seasonality. And we are not here trying to increase the level of risk appetite. We're not be not running more risk than we should. And I think it's the opposite. We've been derisking the portfolio, especially in some segments, but we've been growing a lot in the segments like Uniclass, Personnalite, and other clients where we do believe that they are very resilient through the cycle. So this is our main focus.On the acquiring side, I think we've been very successful in the Rede's integration, and we are getting benefits of doing that. So a comment for you and for everyone is that you cannot look at the P&L of Rede, the way we have, the stand-alone company, balance sheet, the way you have it published. And why is that? Because Rede is completely integrated inside the Itau Unibanco. So when you look to that business, you have to look at in the retail business operation and not only the P&L on a separate basis, because this won't give you the full vision in how we manage and view the business. For us, it's a new product that we have in the relationship with the clients. So the relationship is key, and then you have ways to take the best conversation or the best product to that client.And Rede, the acquiring business is one of it. So I think we had a very strong year 2023. Rede had a very strong recovery in the P&L, the way we see and the way we measure, okay? Just to give you an idea, when you look to the Rede's P&L, we take the working capital out of it, and we take the working capital and we take it to the corporation. So in the business model, all the working capital that has been benefit from the interest rate, is not in the business model. So this is not the way you see the other companies that they are a stand-alone balance sheet, and they have a huge working capital. So you have to discount that to compare their business with our business, because we don't live in our business model, the working capital inside his balance sheet. So this we take to the corporation level. So this is just one example.The other one, we do a lot of anticipation and business cross-sell in the Bank's balance sheet, not only Rede's balance sheet. So that means that if you look only the take rate, considering Rede's balance sheet, you won't see the full picture. So the number we see is completely different from what the market sees. And for us, it's a business of integration in the past. I used to be CEO of Rede in that time, 2/3 of the P&L came from the open market, clients that didn't have the domicile relationship with Itau Unibanco. But when we look today, it's completely the opposite. The relationship has to do with engagement with principality with cross-sell. So this is what we see. That means that the integration was done at the right moment at the best way possible, and we are getting benefits of doing that. And when we look forward, we see a lot of benefits to reach.And the competition will always be there. So you might see some movements coming from one player or the other player. This is life. So we have to keep doing the integration we did, and I think we are in a key position very advanced when compared to the market to deliver a unique value proposition to our clients, and this is what we're going to pursue in the coming quarters.

[Renato Lulia Jacob, executive]

Going back to Portuguese, and now in English, we have from JP Morgan. Grespan, welcome.

[Guilherme Grespan, analyst]

[Interpreted] On ROE per segment, it calls for attention. Retail improving, going back to levels above 20% of ROE. And when we do the decomposition of that result, it seems that it comes from cost of credit. I wanted to hear from you, Milton, the correct evaluation of that improvement of ROE. Is it an issue of mix? You've talked about growing in segments Personnalite, Uniclass, because of the balance of that segment is higher in the ponderation of the ROE and the consolidated ROE is higher in that segment, or are we seeing the ROE of the lower income improving? We know that the NPL of lower income is 3, 4 times the higher income. And it's fair to say that in the process of improvement of an NPL, that lower income should improve more in the cost of credit.If you can comment on how are you seeing these subsegments and do you think it's sustainable that ROE above 20%? We had a lot of debate in that area of how much is it structural or not, that process, how it's cyclical. It is. There were some caps along the road and the payroll loans. So how do you see the sustainability of these ROEs above 20%?

[Milton Maluhy Filho, executive]

[Interpreted] Well, time is sovereign, as I say, that was your doubt and we were not satisfied with it, the level of profitability, we needed to work strongly to recover the profitability. There are issues of the market, structural changes -- there's a little bit of everything, and we have to understand what is happening with the big variables. You're talking about the -- you have the payroll loans, you have the cap of the retail and then there is the structural changes to credit card, the rotation. So there is a structural change.There is a dynamic of the fees changing. When you have the offering, you have the fee business pressure, there is competition of the margin and there is an expansion of the period. So the credit service relationship change, that business has a higher dependency in credit than they had before. For example, overdraft. And we've grown in insurance. That has an increasing growing of insurance. If we look at the 3-year window, grew 93% the profit in our operation. And this year we will double the results over the last 4 years. And insurance is cross-sell business that helps with the profitability. To explain here, I told you that when we were questioned a few quarters below, we saw that it was the bottom and then we saw the inflection point.What generates that inflection? Several aspects. There is the play of the generation of top line, which is important. So we have to work with the correct mix, with the correct client in a relevant way. We've done that with quality. There is a play of the cost of credit. You are right. At the end of the day, with all the derisking that we are doing with the portfolio and all the credit crisis that we have observed with a higher concentration in some portfolios, where we have over the double of the second place credit card is that example. Our portfolios in average have more relevance of credit cards and our proportion is more relevant at the market. So it brings a cost of credit that is higher in more difficult cycles.And we were capable of doing that turnover of the portfolio, regardless of the size, and absorbing those losses in the balance sheet of the bank. And we've produced [ crops ] with positive quality. So it's a mix of margin, cost of credit, net margin has had a relevant role in that profitability. All of our monoliners are below the -- are above the waterline. So that thing of losses, our operations are all positive, all of them positive. The challenge is always isolated, the cost of capital for some specific business. And we're working to improve them relevantly. So we understand that it's sustainable, that level of profitability. We understand that we can expand it all throughout the year.So we expect a lighter expansion of the profitability of retail along the lines of what we committed with the turnaround of the operation. All the review of the business model, the structuring of the business model is the new operational model that we assembled in the bank. It has a big impact in that. And all of our journey of the super app that is working this year will also help us strongly to have a full bank offering for all the clients that do not have an offering, a full bank in the bank. So that will help in the profitability. And on the other hand, our company's business, retail, has grown with quality. And we are seeing an expansion in the profitability of our company's business, whether if it's the management or credit Basileia pondering the adjustments that are recent.But basically a value proposition that is very well fitted with a value generation that is very consistent. And we can see all the businesses having an evolution and a performance. In '23 and in '24, we expect to continue with a lower or higher level that expansion. We are very optimistic, so we can have a more balanced portfolio in the terms of profitability. And when we look at the wholesale, the view for '24 is to deliver a profitability level that is strong. We talked about 28% of ROE, 27% in last quarter. Well, with this margin of 1 percentage point of mistake, plus or minus, the idea is to deliver a strong result in wholesale. We have a natural rebalancing of profitability, which is healthy for the portfolio as a whole. So we are very positive with that expansion that is happening.

[Renato Lulia Jacob, executive]

[Interpreted] Next question is from Rosman, BTG. He couldn't connect, but he submitted a question via WhatsApp, I'm going to ask to you. Rosman, on your question.He submitted the WhatsApp and the congratulations. Yes, well, Rosman asks, the credit spread. It ended up at the end higher than the average and the working capital is 9.5%. And the bank always guided that we should convert for [ sale ], given the vertices that we use. In that sense, can we say that the guidance is conservative for the NII? The credit portfolio is strong, so margin and yes.

[Milton Maluhy Filho, executive]

[Interpreted] Rosman, thank you very much for the question. Certainly you will see the recording later, but the main message for you is, the portfolio as I told you, we have to look at the mix of the growth, we have to look at the average balance of the growth. And that's what has an impact in our line. Our vision is that the NIM will continue to be stable. The portfolio of companies tends to pull the NIM for a lower threshold. On the other hand, we have the working capital and the liability is very well worked out. The volumes are strong on the overall we have an NIM that is stable with a small expansion in the adjusted line to credit.So portfolio in the average growing 8. So if we have an opportunity and we understand that it makes sense in a cycle of long term, once again, without adventures, we will grow the portfolio so we will not lose the opportunities, and we have certainly appetite and capital funding; human capital to continue very close to our clients and growing in those segments that we've really focused. We want to grow above 2 digits. When you improve the profile of your portfolio, you go to a mix that is less risk, which has less NIM. But the NIM adjusted to risk is better. That's what we observe to the market. That's our dynamic. If we can expand the NIM -- the NII, in regards to the portfolio growing more, we will work diligently for that. But as long as the opportunities are clear, with a clear vision of portfolio management, client -- and focusing on the clients.

[Renato Lulia Jacob, executive]

[Interpreted] Next question. Going back Daniel Vaz.

[Daniel Vaz, analyst]

[Interpreted] Thank you, Renato. Good morning, everyone. Congratulations on the results. I would like to go back to the credit card. Well, in the release, we saw a reduction of BRL 3 million of plastics to BRL 38 million of credit. So it seems clear the preference for the more engaged clients, and Personnalite then Uniclass. I wanted to explore more the strategy for '24, and the mass channel and the retail partnerships.The bank understands that the client is stressed. Is there just a transfer of risk to the other players or the system has reduced the credit for this client? And is there a space in your perception to increase the exposure in these clients and increase the consumption in this product?

[Milton Maluhy Filho, executive]

[Interpreted] Well, thank you for the question. First, our expectation is that credit card portfolio will grow in this year. It's inevitable. There is the [ TPV ], the invoicing growing, the growth of the market, changing on the mix. That always happens. And when we look at the data, we see that the business is growing. Our business, we try to subdivide it in 3 big groups. There is the ones that have the bank where we have big penetration in all the segments, above all the higher income, the checking segments, not only in the existing clients, but in the acquisition of new checking accounts. So a big deal of our business is achieving new clients and increasing principality and engagement.Second point is that with the super app, we will have an offering that is easier, more integrated, simpler for our clients that do not have an offering of full bank who have an access to the basis of clients that can be relevant. Monoliners, maybe they have a product and they don't have the credit card for the product. We have the capacity for offering with unique experience and the right clients, we know them, they have a credit record and they have a good modeling for the offering.But we always call the Open Ocean, we reduced in a very relevant way because we still see the compromise, very big compromise of the income of the families, an over indebtment in the product. So in the end of the day, there is an over offering over the years. The number of plastics per CPF in Brazil is increasing more than doubled in the short-term. So with a credit card, that today is a product that doesn't have a cost to be in the portfolio or in the app, you end up having access to several products with a digital experience where you do the quick onboarding, you don't pay the annual fees and you leave from 2.2, 2.3 and you have 3, 4 credit cards per CPF on average. And there are some CPFs with more products. So we have to be careful.Doesn't matter that if the client has the degree of financial education, has difficulties, receives a lot of offering and they have problems. Our role is to help our basis of clients to go through this challenging cycle, but we reduced over 90% of the offering for the Open Ocean where we get these clients without any records and any knowledge and the partnerships we continue with the level of appetite that I would say adequate for the cycle. We always look at the value proposition for -- because when it's not good in the offering as a whole, the trend is that a client will only go after the product because of the limit and not the value proposition. And we want to get a better value proposition to increase the principality and the engagement. And your super app will help us in the integration.These are the main components of our credit card offering and you're talking about partnerships and you mentioned co-branded. An important information. Over the last few months we did a review of our portfolio and we closed with our partners. We finished a lot of partnerships that did not have an adequate value proposition for our clients and that generated cost of management. It was a small portfolio that had to be followed with a points program that didn't make any sense. So there was a relevant restructuring and we are focusing on what is relevant.Priority. We prioritize very well and these are high level talks with our co-branding partners and we understand that the product lost its value proposition so it wouldn't make sense to us and neither the partner to keep those co-branded. And we kept some co brandeds that are very relevant to the co-brands of air companies and the value proposition is very robust in these. We renew some partnerships, we've renewed with Azul Airlines, which is a product that works very well with co-branded and we're very excited with the potential of the product.

[Renato Lulia Jacob, executive]

The next question comes from Jorge Kuri from Morgan Staley.

[Jorge Kuri, analyst]

[Interpreted] Can you hear me now?

[Renato Lulia Jacob, executive]

[Interpreted] We can indeed Thanks, Jorge.

[Jorge Kuri, analyst]

[Interpreted] I wanted to maybe shift gears. I think, you've explained in detail the results and the guidance, maybe shift a little bit to the credit card regulation. Apparently the 100% cap interest payment principal kicked in, in January. And it doesn't seem to me that prices for revolving interest rates on cards are going to change at all as a result of that. So, I wanted to get your view on what the impact is on the business of this measure kicking in.[Interpreted] And also, what is the risk that the sponsors of the bill, 6 months from today, 1 year from today, you look at prices and say, well, nothing happened and the prices are exactly the same and we did this precisely lower price, and what is the risk that happens? And then, we go again to another and potentially more aggressive caps would be implemented in order to really deal with that. And what is the industry doing to try to avoid that?

[Milton Maluhy Filho, executive]

Yes. No, thank you, Jorge, good to see you. Thank you for your compliments. So just to go through, first of all, give you a little update about the changing law that we saw at the end of last year. We spend, and I've been telling you for a long period, I would say almost a year, very dedicated as an industry, having conversations with all the possible stakeholders in the market. So [ the executive ], The Central Bank, the retailers, all the associations, we've been to the Congress talking to a lot of senators and deputies. So we had a lot of discussions about this topic. And we had a very clear and simple diagnostic, about what we saw as the main forces that were producing this level of anomalies and asymmetries in the credit card market.So as I was telling a little bit before here in this conference call, I was saying that we have BRL 135 billion hais in portfolio in credit cards out of BRL 115 billion that bears no interest. So that is just to give you an idea how relevant it is, the By Now and Pay Later in Brazil. So it's very relevant. So our view is the following. There was a lot of headlines in the system saying that the banks are charging 450% per year in interest rate. And I was always saying to the press and to all the stakeholders that this is a virtual rate. It doesn't exist at the end of the day for 2 main reasons.First of all, no one can stay in the revolving credit for more than 30 days. This is the first reason. The second reason, because you have a price amortization profile in the credit card that shows you that at the end of the day, no one pay much more than 100% on the acquisition value of the credit card on principal, to say on capital to make it easier. So we were saying that the rates are much, much lower than the rates that were being released. The central banks, they release the interest rate on a monthly basis of 12, 13, 14, whatever is the rate. And they do on a compounded way, 12 months and say that it's 450% per year. It's not true.The rate on the mathematical way, it's correct, there's no doubt about it. But it doesn't happen because no one stays at this level of interest rate throughout 12 months. So our view, and we said that many times to everyone, and I kept repeating that, is that the impact would be very marginal on the interest rate whenever you had this law approved.And why is that? Because at the end of the day, no one was paying much more than 100%. We were seeing 160%, 120%, 170%, depending on the portfolio. So you have to do, yes, adjustments on the terms and also on the interest rate, but you will be with minor impact inside the limitation. We're going to fulfill the law, so this is our obligation to follow what is approved and this is the way we are working in 2024. But in our review, this is an open discussion because unless someone tries to understand really what are the real impacts for interest rates in credit card and when to do a long term agenda, not a short term agenda, but a long term agenda, I think, this will be an open dialogue that we have to keep. And so, our view is that the executive, the Central Bank and all the stakeholders will listen to everyone else in the industry, as they should.They will do another analysis, trying to understand causes and effects, and we'll try to create new discussions about that. So we are always open to that. We have proposals everyone else has. So it's part of the business to have those discussions in a democracy, very open to the dialogue. And this is what we've been doing so far.So we don't see a cap, again, a new cap coming. I don't think it's necessary to what we are seeing, but if we want to solve that on a structural basis, looking the long term, we have to do things in a different way. Those were not the decisions made so far, but that doesn't mean that they are not open and willing to do that discussions in the mid- to long-term. So we are very open to do so as the leader in this market and what's going on right now, it's exactly what we've been telling the market. So I think the good thing of that, that we needed to prove somehow that this is what was going to happen. So before that was just analysis. So I think the real life will show and confirm our thoughts and this will help to reopen this discussion again. We are very positive that this can happen and we are very open to that.

[Renato Lulia Jacob, executive]

[Interpreted] Back to Portuguese because now we have come Arnon Shirazi from Santander. Arnon, welcome.

[Arnon Shirazi, analyst]

[Interpreted] My question is regarding the vehicle portfolio, we saw that there was an increase quarterly, year-on-year. Talking to the investors and clients, we see that the market in general is more excited with that credit line. I want to hear from you -- what is your mindset in terms of quality, growth? What kind of markets are you working with?

[Milton Maluhy Filho, executive]

[Interpreted] Thank you for the kind words. Vehicles business is something that we've, for many, many years, had a particulation that is very relevant. And with all of this movement that has happened throughout the market, we've learned a lot -- we made new mistakes and we learned with the mistakes of the past. That's an evolution. We have a portfolio that is an adequate size. We've been working ever more focusing and servicing will our clients regardless of the channel that they do the vehicle acquisition and the procurement of the financing, we expect a growth in that portfolio for '24, not very robust. I would say that is adequate to what we've seen.This is a portfolio that we are in the fourth quarter consecutive, that we are reducing our delays above 90 days. There was a loss there, and then there was a reframing in the market, and we're reducing it relevantly the delays delinquency in this portfolio. This is a scalable business naturally to dilute the cost in this activity, and we've been working strongly to digitize the journey, so that regardless of the scale we can operate more competitively. So within the final appetite of risk, we can define the higher volume depending on the cost of service that we are working.I don't think that in this portfolio, we're going to see the needle movement throughout the years. We're looking in detail the portfolios that make sense. We are present in the market. We do not see indices. We think that this is an euphoria business because the big growth comes from euphoria, the big losses as well. So this is a very volatile portfolio that is not very resilient.There is a positive aspect I would like to recognize with the assurance that you can recover the vehicle through the [ deTrans ] or extrajudicially recover the vehicle. This is important, this is a victory for all. And this will improve naturally. But we always talk about that vehicle is on insurance with wheels. So when you recover the asset is always difficult. We know that in Brazil, recovery of asset and insurance is a big challenge, will always be and is very strong and it's a big challenge. So we see the evolution in the assurance and that can help us to have a recovery on LGD better, in this portfolio. And that allows us to do the expansion and the profiles of risk. Then that's what's limiting.I don't see a big explanation for growth. I don't think that the growth is going to be modest BRL 33 billion. I don't think that it's going to be very relevant. It's going to be in that order of magnitude, maybe a bit above.

[Renato Lulia Jacob, executive]

We're going to switch back to English again because the next question comes from Nicolas Riva from Bank of America.

[Nicolas Riva, analyst]

I hust have 2 questions. The first one on dividend. First, just to confirm, I'm looking at this right, BRL 11 billion that you announced BRL 300 billion payments, that should come out of equity in the first quarter. So at the end of March, I should take out about 90 to 90 basis points of capital from your ratios? Just to confirm.And then in general, on your dividend policy, I remember that in the past, you used to target a common equity Tier 1 of roughly 12% and a 1.5% AT1 bucket, and you said that you would pay in dividends, the excess capital on top of that 12% CET1. Is that still the way you look at your dividend policy and your target for your capital structure?And then second question on the perps. So far, you haven't been calling the perps, the old 6.18%s and the old 6.5%s, which we said to higher coupons since then. But if I look at market prices, you're basically trading at the call price at par, and you can call them every 6 months. It seems that the market is assuming that they are going to call them in the short term. Now we are paying a coupon below 8%. And last week, we saw a Chilean Bank BCI with better ratings because of the sovereign in Chile than you issue an AT1 non-callable 5 at 8.75% quite above the below 8% coupon you are paying on your perps. Is it realistic to assume that you're going to call the perps in the next call date? Or this if you can discuss a bit how you're thinking about the call option on the purpose?

[Milton Maluhy Filho, executive]

Yes, sure. Thank you, Nicolas. Thank you for coming. It's a good -- it's a pleasure to see you here again. So let me start talking about the dividend policy. So in general, you were right in the direction. So your calculation is precise. So when you take in consideration the BRL 11 billion, the impact we're going to have in the CET1, it's true we might see something around 100 basis points. We see that some volatility in the available-for-sale securities that we have in the balance sheet. So the way we measure and the way we make our positions, we might see some consumption in the beginning of the year. So, when you look on quarter, we're going to have the profits that we made in the next quarter. We might see -- we will see the impact of this dividend and some volatility coming from available for sale that might consume a little bit, maybe 20 basis points in our capital ratio. So this is what you should see.And when you look in the long term, 12% is a good level, 1.5% on the AT1 is where we are and where we have the policies very well established inside the bank and having and looking forward 12 months or 18 months, depending on the level of information or uncertainty that we have, we're going to be calibrating to define where is the best level of distribution that we should do. So this is roughly 12% is where you have to keep your eyes on, the uses and the sources is something that you have to keep the eyes on, especially when you have some tax reform on capital, when you have discussions coming from the regulatory perspective, coming from Basel on the operational side or credit side. So, we are always looking the certainty and also things that can happen. That's why we always keep a buffer. The unknown that we don't know, of course. So that's why we keep some buffer on that.So this is basically, that's how you are correct to look the way you are. So we don't want to retain the excess of capital having the opportunity next year we're going to deliver another extraordinary dividend. So this is how we're going to be achieving. It's very difficult to [ accent ], define a payout, but the concept behind it, it's very clear and this is how we're going to be pursuing. So this is the first topic.On the perpetual side. You're right. I saw the BCI AT1 coming to the market, the level of prices and the idea we have is that when you go to a new issue as opposed and considering the new issue premium that we might have for a perpetual bond. We believe that today if we have to assess the market, the level of prices would be much higher of the level of prices embedded in the coupon today that we have. So that's why we haven't exercised the call. And why is that? Because we've been telling the market in advance that we wouldn't exercise the call, that we would have a very economic view and approach, and then we have to consider all the alternatives. We have to assess market international and locally, how to keep a curve in the international market and what would be the new coupon and the new yield, if we go to our [ new issuance ] and it will be much, much higher than where we see. So we don't plan.This is not in our radar now to exercise the call. And if there is any change in that sense, we're going to -- with anticipation to provide clear information to the market. But as far as we see, and if the market keeps the way we are seeing today, it can change tomorrow or the day after. With the information we have today, we are not expecting to exercise this call. So this is something that we're going to keep talking to the market, to all the investors very close.

[Renato Lulia Jacob, executive]

[Interpreted] We're getting towards the end of our call. We have one last question in our list. In English again, and it comes from Carlos Gomez from HSBC, Carlos, great to see you again.

[Carlos Gomez-Lopez, analyst]

[Interpreted] Congratulations, like everybody else for the results and for the dividend. And thank you for making this a long call and allowing a lot of time for questions from the analysts. So 2 simple ones. You gave us the estimate about the impact of Basel 3, which is 42 basis points as you calculated today. Could you also give us the impact of the tax reform, as you said, as it is described today, what would the impairment of DTAs do to your capital today?And second, in the past, you have told us what your estimate for your cost of equity would be if I recovery was around 15%? I could be wrong. Could you tell us where do you think it is today?

[Milton Maluhy Filho, executive]

[Interpreted] Okay, Carlos, thank you for your words. Thank you for coming. It's always a pleasure to see you here, and we will take always the time to talk to the investor a very relevant stockholder for us and I will take and invest a lot of time with you as always. So coming about your first question here.

[Renato Lulia Jacob, executive]

[Interpreted] About the impact on the DTAs.

[Milton Maluhy Filho, executive]

[Interpreted] Let me talk to DTA first, which is important. When we talk about 42 basis points, it's important to say that this has 2 elements, okay? The first one is the operational risk. The operational risk for us, we expect 100 basis points, but we have a phase in 4 years. So 25 basis points per year in the coming years. This is what we expect. So when we add to that on the credit side, there is some changes in the weighted assets. So these together may impact 42 basis points. But on the operational risk, we are talking about 100 basis points, 25 basis points per year in the coming years. This is what we are seeing.And the second element, which is important is as if the reform was approved exactly the way we see, so with [ 7 plus was ] corporate tax rate and social contribution, we would see something like 60 basis points in capital if we had to do an impairment. So, this would be the size if we have a reform approved exactly the way the reform that is posted today in the Congress. So, if there was this major reduction in the corporate tax and also on the social contribution, we could see an impact on the DTA impairment around 60 basis points.

[Carlos Gomez-Lopez, analyst]

[Interpreted] And the second one was the cost of equity?

[Milton Maluhy Filho, executive]

[Interpreted] Well, so with that... [Foreign Language]

[Renato Lulia Jacob, executive]

[Interpreted] Thank you very much.

[Milton Maluhy Filho, executive]

Just to follow up. There's the second question about the cost of equity. Just to give you the number, we are running the bank the last quarter. Last month, we were seeing something around 14%. But looking now, the number of cost of equity that we approved in the Board and that we are managing the bank is 13.75%, and this will be the cost of fact you will observe especially from February on. So you will have, in this quarter, a month with 14% of cost of equity and 2 months at 13.75%. So on the average, you will see something around 13.80%, 13.85% in terms of cost of equity for the first quarter. This is the cost of equity that we'll observe.We look, of course, to our model. We look to the sell side. We talk to the buy side, and we make our own discussions in the committees to get to this level. So this is where we are now, Carlos.

[Carlos Gomez-Lopez, analyst]

[Interpreted] That's very transparent. [Foreign Language]

[Renato Lulia Jacob, executive]

[Interpreted]. Thank you, Alexsandro. Thank you, Milton. Well, with that, we will close the Q&A. Remember that we received several questions, Milton and Alexsandro via WhatsApp, we are going to answer them all through the IR team. And with that, I wanted to give you the floor for the last message for the investors and analysts.

[Milton Maluhy Filho, executive]

Thank you, Renato. Thank you, Alexsandro. For the partnership in these discussions. Once again, we closed this year that started with important difficulties, January 8, 11 -- January 11, then there is the event of the other corporate that went through other issues. And we imagine that with all the changes that happened in the country at the beginning of '23, it was difficult to imagine how 2024 -- 2023 would come up. I'm very happy to talk about these numbers and having this conversation with deal with solid results, recurring results, consistent results with good quality. And the important thing is, what's inside the result.The result is a consequence of everything that we do in the bank. All the digital transformation, cultural transformation, proximity, client centricity has allowed us to deliver consistent results through long periods. I believe that we continue -- completely committed with this agenda the digital transformation, cultural transformation and all the client centricity has to happen every day. We discuss this every second, and we hope to deliver in '24 a solid year with indicators of engagement and principality and client centricity and a relationship that is very solid. And we've managed to do so with a level of engagement with our collaborators that is higher -- very high the collaboration is high. Clients are satisfied. So we have an engaged team. A great human capital that is focused in delivering the best bank for our clients every day brings -- this brings the results.Second aspect, we have our feet on the ground. We are very humble. We know that the past performance is not an assurance of future performance. Everybody is focused, disciplined so that we can continue to deliver with a lot of quality in a market that is profoundly changing. Doing more of the same is not going to take us where we want. What we need is to have the capacity to reinvent ourselves every day. And this is the year of 100 years, September 27 of '24. So this is a symbolically very relevant year for us, where we hope to deliver strong results and be prepared for the next 100 years. This will be our journey with a long-term view, governance that is very well established between the Board administration and all the committees, and this level of alignment and engagement has produced relevant results.Thank you for your time, for your presence, of course, and more so for your trust. Trust as a client, investor, and we will work strongly every day to surprise you and continue to deliver the best bank possible for all of our stakeholders. Thank you very much. We will see you briefly, and we will talk in the meetings. And for those that I only see you on the call, see you in the next call. Thank you very much. Have a nice day.