Inter & Co Inc

NASDAQ:INTR

Earnings Call Analysis

Record High Performance and Strong Momentum for Inter's Business Plan

Inter is making stellar progress on its ambitious 60-30-30 business plan, already achieving 30 million clients, an efficiency ratio of 51%, and ROE of 9%, surpassing year one targets. A robust financial Super App with seven verticals has propelled client engagement, with a record-breaking BRL 851 billion TPV, 3 million e-commerce clients, and 2 million global vertical clients as highlights. Cost discipline and asset quality improvements, alongside fee income, reinforce profitability. Pix Credit's promising launch and an unparalleled focus on efficiency through disciplined expense management bode well for 2024, as the company enjoys low funding costs and has hit a record 8.5% ROE, gearing up for an even more successful year two of the 60-30-30 plan.

Client Growth and Engagement

The company successfully expanded its client base to 5.4 million active clients in the fourth quarter, a rapid addition of 1.5 million in just three months. Their strategy for enhancing client profiles has been effective, with Loop clients spending an average of 60% more on cards than the average. They continue to innovate rewards programs, such as point conversion into U.S. dollars within their global accounts, which suggests a focus on customer loyalty and internationalization.

Product Innovation and Market Position

This year, the company launched several new offerings including PIX Credit, Buy Now Pay Later, overdraft, and Loop. A refashioned version of their financial Super App was also introduced, reflecting a commitment to user experience and personalized services. They emphasized their early-stage position in every market they operate, highlighting the balance between gaining a substantial market share and the potential for future growth.

Credit Performance and Portfolio Growth

The company's credit segment accelerated, with loan portfolio growth of 10% in the fourth quarter, reflecting strong momentum as they enter 2024. Their gross loan portfolio reached BRL 31 billion, outpacing the Brazilian market fourfold, and achieved stability in the all-in rate of their portfolio. They have focused on growing their most profitable credit product lines, such as FGTS and home equity, while strategically increasing the credit card portfolio by nearly 40% and maintaining asset quality.

Asset Quality and Risk Management

The quarter was marked by improvements in several asset quality metrics, which combined with a disciplined cost of risk management, enabled the company to begin 2024 on a positive note. The cost of risk increased by 70 basis points, attributed to enhanced underwriting and collection processes, and a stable coverage ratio at 132% reflected a lower average risk profile due to the collateralized nature of most of their portfolio.

Financial Highlights and Efficiency Gains

Revenue reached impressive numbers, with the fourth quarter recording BRL 2.2 billion and the year totaling BRL 8.1 billion, translating into a 31% growth. The company also highlighted an increase in net revenue and expense efficiency, with a record-low efficiency ratio of 51.4%. These figures embody their advanced operational leverage and disciplined expense management, indicating that the company is investing wisely and keeping costs under control.

Client Profitability and Workforce Productivity

The average revenue per active client (ARPAC) was reported at BRL 46 per month, with the company enhancing gross margins per active client to BRL 17.7. Active clients per employee, a metric indicating workforce productivity, stood at 3.1 thousand, underscoring efficient resource utilization.

Interest Margin and Anticipated Continuity

Risk-adjusted net interest margin (NIM) reached the highest level in the year and the second highest since 2020, demonstrating a balance between prudent repricing, cost of funding efficiency, and loan portfolio mix changes. The company predicts the continuity of this upward trend into 2024, spurred by the scale-up of products like PIX Credit and Buy Now Pay Later.

Strategic Focus on Competitive Advantages

The company has established what they refer to as the 'compounding phase,' during which they focus on delivering value while reaping the benefits of their digital banking model, such as scalability and diversified revenue streams. They surpassed their year-one expectations on the 60-30-30 plan, showcasing stronger-than-expected competitive advantages like fee income and funding mixes.

PIX Credit: A Potential Game Changer

PIX Credit has been a focal point of excitement, capitalizing on their 8% market share in Brazil's PIX transactions. With superior user experience and better economics than traditional credit card schemes, this product is anticipated to be highly profitable and transformative for the payment industry in Brazil.

Proactive Approach to Margin and Cost Improvement

The company's approach has led to a decrease in cost of risk and an impact on NIM, resulting in a 5.0% risk-adjusted NIM. The approach has been to proactively renegotiate delinquent loans, a strategy that is expected to continue without further incremental changes. This, combined with a robust funding franchise and favorable market conditions as the SELIC interest rate decreases, positions them well for cost management and maintaining competitive funding levels.

Ahead of Schedule on Efficiency Targets

The efficiency improvements have exceeded expectations, with the company aggressively managing expenses through initiatives such as 'Project Alz' or 'Coruja,' which involves senior leadership actively analyzing and controlling costs. While future incremental improvements may be challenging, the focus remains on sustainable efficiency above target levels.

Earnings Call Transcript 2023-Q4

[Operator]

Good afternoon, and thank you for standing by. Welcome to the Inter & Co's Fourth Quarter Earnings Conference Call. Today's speakers are Joao Vitor Menin, Inter's CEO; Alexandre Riccio, Senior Vice President of Retail Banking; and Santiago Stel, Senior Vice President of Finance and Risks.Please be advised that today's conference is being recorded and a replay will be available at the company's IR website. [Operator Instructions]Throughout this conference call, we will be presenting non-IFRS financial information. These are important financial measures for the company, but are not financial measures as defined by IFRS. Reconciliations of the company's non-IFRS financial information to the IFRS financial information are available in Inter & Co earnings release and earnings presentation appendix.Today's discussion might include forward-looking statements, which are not guarantees of future performance. Please refer to the forward-looking statements disclosure in the company's earnings release and earnings presentation.Now I would like to yield the floor to Mr. Joao Vitor Menin. Sir, the floor is yours.

[João Vitor Nazareth Teixeira de Souza, executive]

Thank you, operator. Good morning, everyone. I will start with a quick overview of our strategy, to then pass this to Xandre and Santi to cover the operating and financial performance of Inter. As in prior calls, I will close with some final remarks, and then open it for the Q&A section.At our Investor Day held in Belo a year ago, we introduced our 5-year business plan known as the 60-30-30. This North Star means that Inter's goal for 2027 is to achieve 60 million clients, 30% efficiency ratio, and 10% ROE. When we announced it, it was received as a highly ambitious plan.I'm glad to say that the first year of our plan was a resounding success, much better than many imagined. Aside from being an important direction to the market, the point of the plan was to engage and drive our organization to our that goal. In sum, as Armstrong famously said, a small step for man, one giant leap for mankind. We're both humble and proud of our progress. This is a first step towards profitability.But more importantly, it validates how sustainable our business model is. To illustrate better the progress in year 1, as we can see, we achieved 30 million clients, right on track; an efficiency ratio of 51%, significantly ahead of schedule; and an ROE of 9%, also ahead of the plan.As you can see, our metrics are stronger than expected, demonstrating our strong execution towards the plan. We have been able to combine growth and operational leverage and profitability while staying true to our core principle of always putting the clients first, by innovating and bringing new solutions in our financial Super App.This is only possible thanks to our unmatched set of products that are organized across seven verticals. These are banking, credit, insurance, investments, shopping, global, and loyalty. This powerful engine, that is our financial Super App, is continuously evolving and improving day-by-day. Our wide set of products and services complement each other, creating a flywheel that brings together a complete ecosystem of financial solutions.When I say clients connect to our solutions, I really mean it. For instance, we see strong acceleration in the adoption of new products. Today, we have more than 12 products with more than 1 million active clients.At this pace, it is highly likely that by the end of this year, we will have a new product that we didn't even launch yet, and with more than 1 million active clients by year-end. This is what happened this year, for example, with Inter Loop and Meu Porquinho. This is the consequence of having what we believe is the best Super App in the Americas, with over 30 million clients, more than 4 million individual daily logins per day, and a run rate, TPV, of over BRL 1 trillion.With all that said, I have no reason to doubt that the only possible direction in our profitability and growth trend is up. We have reached and surpassed the inflection point.And in 2023, we presented 4 consecutive quarters of consistent growth in net income, EBT, ROE, and many other metrics. We are on the right track towards our long-term plans. And we are thrilled to announce that we are on track to deliver an even better year 2 of our 60-30-30 plan.Now, Xandre will walk you through our business updates. Thank you very much. Xandre, please go on.

[Alexandre De Oliveira, executive]

Thank you, Joao. Good afternoon, everyone, and thank you for joining us today. I would like to discuss 4 topics as we go along the presentation. First, clients and engagement. Second, the performance of the different business verticals. Third, our innovation capabilities. And fourth, our potential for further growth.Before going through the numbers, I'd like to quickly reflect on what we said a little over a year ago in our 60-30-30 Investor Day. At the event, we said our mission to deliver the 60-30-30 plan was relatively simple but not easy, and that the most uncertain part of building Inter was already delivered from 2018 through 2022. Having a lot of focus and discipline is the key. And the results we're about to share demonstrates our team's commitment to getting there.Moving to the results. When we look at clients, besides surpassing the impressive mark of 30 million, we're happy to announce a 135 bps improvement in our activation rate, which now stands at 54%, the highest level in 8 quarters. Our efforts to boost activation include, but are not limited to, improving onboarding; personalizing the Super App; streamlining customer lifecycle strategy; and offering by engaging new products, such as Loop; along with overall UX fine tuning.This combined with the lowest CAC since 2020, brings us confidence in the future and in our ability to keep the flywheel going with low CAC and by engagement, building stronger relationships for a seamless and complete experience.Moving to Page 13, we start talking about business, looking at day-to-day banking. It makes us proud to see the robustness of our transactional business, and that despite the materiality achieved, we see accelerated growth.The fourth quarter was of strong acceleration in our TPV, surpassing BRL 250 billion. We see a consistent growth in PIX, which grew 45% in 2023, and an important 36% growth in the credit card volume, continuing our focus on gaining credit share against debit in cards. When we look at the full year, we achieved amazing BRL 851 billion in TPV, with over 1 trillion TPV at the fourth quarter run rate.On a cohort basis, as presented in the right chart, we see another quarter of improvements on both new and old cohorts. New cohorts' performance shows the consistency of our client growth strategy, that starts with higher levels of engagement and grows faster.I'd like to finish saying that the new cohort performance on top of the older cohorts that keep accelerating engagement, puts us in a confident position for future revenue growth and margin expansion. The current clients alone can keep us growing for many years to come.Moving to Page 14, I'll talk about 3 verticals that are a great representation of the powerful numbers the financial Super App ecosystem can generate. On e-commerce, we reached 3 million clients and surpassed 10 million transactions in the quarter, another record.We also surpassed BRL 1 billion of GMV, leveraged by our Orange Friday and the holidays. Launched recently, we're scaling our Buy Now Pay Later partnerships with our app. Now, we have nearly 150 merchants with which we offer these new payment methods. This is likely the engine that will fuel the beginning of personal loans in Inter.On insurance, we also had another great quarter, reaching more than 388,000 sales and 1.7 million active clients. Combining this, we reached a record-breaking net revenue in this vertical of BRL 47 million. A successful product to highlight is consortium, which grew 21% on a yearly basis, surpassing 38,000 sales.Finally, on investments, our cutting-edge product offering resulted in an impressive 66% year-over-year client growth, the highest adoption amongst our verticals beyond day-to-day banking. With increasing clients, our AuC reached BRL 92 billion, with BRL 9 billion being third-party fixed income products distributed within our Super App. We also innovated by launching Meu Porquinho, or Piggy Bank, an incredible product that surpassed BRL 1 billion in AuC and 1 million clients in just 1 quarter.On Global, as we move to Page 15, we see another quarter of strong success and some early signals that our global vertical is a big driver of value creation. We achieved more than 2 million clients and more than $360 million in AuC and deposits, a 4x growth compared to 2022. The clients that are active in our global products have better profiles, are more engaged, and adopt 3x more products than the average client.To continue having this great success, our branding strategy included some investments in the U.S. We became, in 2023, the official financial institution of Orlando City and Orlando Pride U.S. soccer teams, and now have the naming rights of their stadium. We believe being in Orlando and connecting through soccer will not only bring awareness, but also create an emotional connection between Inter and the Brazilian and Latin community living and traveling to Orlando. It is worth mentioning that per year more than 900,000 Brazilians visit Florida and that more than 400,000 Brazilians are U.S. residents in the state.Jumping into our seventh vertical, loyalty, we achieved 5.4 million active clients in the fourth quarter, adding 1.5 million in these last 3 months. As we observe with our global clients, Loop clients also create better profiles, spending on average 60% more than average on cards. Positive engagement trends have been observed in gamification initiatives as well.As we move along, we're adding other ways to earn and burn points, with one of the last additions being allowing our clients to convert their points into U.S. dollars in their global accounts. This week, we made available an option to pay with points for products in our marketplace. As you can see, our Loop allows us to unlock the value from all the other verticals in our financial Super App. Very excited to see the results of it.Moving to Page 17, we see that 2023 demonstrated our unique capability to combine innovation in a year focused on efficiency. We launched many products, such as PIX Credit, Buy Now Pay Later, overdraft, and Loop. We also created a brand new version of our financial Super App to deliver an even better UX with personalized home screens to optimize our clients' lives.As Santiago will show in the financial performance section, we didn't stop innovating while continuing on the path to deliver operational leverage. We're confident that our valuable proposition is best-in-class and that our next moves will keep us in the frontier. We need to keep delivering.Finally, and before I pass the word to Santi, I'd like to say that the best of all is we're still in the early stages in every market we operate. On one hand, we were able to achieve material market share in multiple segments. In the other, there is a lot of room to grow in every one of these markets.We remain confident that we're well-positioned to reach our long-term North Star and continue to drive growth and profitability in the years to come as we increasingly deepen our relationships with our clients. The team is ready, and our financial Super App is adaptable and is capable to navigate into those challenges.Now, I'll pass the word to Santi to present our financial performance.

[Santiago Stel, executive]

Thank you, Xandre. Hello, everyone. Now, let me walk you through our financial performance section. Jumping into Page 20, here we can see strong acceleration on the credit side. We're growing our portfolio in 2 consecutive quarters at 5% to 7% and 10% in the third and fourth quarter respectively, therefore entering 2024 with strong momentum.Our gross loan portfolio reached an impressive BRL 31 billion mark, which is a result of growing 4x more than the Brazilian market average. Therefore, gaining significant market share across products, as Xandre mentioned before.Moving to interest rates on the top of the page, you can see personal, FGTS, and real estate rates growing sequentially; while SMB, the all-in rate of the portfolio remains stable. We go deeper into the full impact on rates on the next pages.Going to Page 21, here we go a bit deeper on growth by loan product. As you can see in the chart, we remain disciplined on growing the most profitable lines of best credit products. FGTS and home equity presenting the highest growth levels in a significant scale within our loan portfolio.For credit cards, our successful approach of prioritizing credit limits to existing and strong-performing clients enabled us to increase by nearly 40% the portfolio, while improving asset quality trends. Finally, on real estate and payroll, we balanced growth with repricing to ensure that profitability continues to improve.Jumping on to Page 22, we had a great quarter for asset quality, with all of the metrics improving this quarter. Starting with a 15 to 90 day NPL ratio, we saw an improvement of 30 basis points quarter-over-quarter. We also improved the 90-day NPL metric, as well as the NPL and Stage 3 formation metrics, each of them by 10 basis points.Finally, when we look at the delinquency of credit cards by the cohorts, we continue to see strong performance and better quality in recent cohorts.Jumping on to Page 23, we can see significant increase of cost of risk, about 70 basis points. This dynamic was driven by underwriting and collection processes, producing cohorts with stronger performance.Our coverage ratio remains stable at 132%. It is always worth reminding that 70% of our portfolio is collateralized, presenting lower average risk profile. Overall, asset quality front, we see that the strong work done on [indiscernible] underwriting and risk management is paying off and enabling us to start 2024 with a positive trend.On Page 24, we can see once again our leading funding franchise, which has almost 15 million clients trusting us with their deposits. Moreover, our transactional deposits represent 33% of our total funding, which is one of the best mixes of funding with Brazilian financial entities.Funding accelerated 10% this quarter, reaching almost BRL 44 billion. At the product level, it is [Technical Difficulty] 17% growth in transactional deposits, which reached BRL 14.4 billion. Finally, we experienced growth in the average deposit balance per active client, reaching BRL 2,000, with a 6% growth versus the prior quarter.On Page 25, we can see how our cost of funding continues to be one of our key competitive advantages. This quarter, we reported 59.2% of CDI cost, once again below the 60% mark that we aspire to have. In terms of the all-in cost, the improvement was 100 bps, going down from 8.2% to 7.2%. As Selic further decreases, we should continue to benefit from this dynamic given the structure of our balance sheet that makes [indiscernible] sensitive.In terms of revenues, we had a great year, reaching record-breaking numbers in all the quarters. We achieved BRL 2.2 billion in revenue in the fourth quarter and BRL 8.1 billion in the year. On net revenues, [Technical Difficulty] NII to deliver an impressive growth of 31% in the year.In terms of fee income, we were able to keep practically the same level as the prior quarter, with a healthy growth to the main fee income lines, such as interchange, banking, and investments.Moving to the unit economics page on Page 27, our gross monthly ARPAC reached BRL 46, a great mark as we continue adding a strong number of active clients every quarter. This, combined with the stable cost-to-serve, allows us to keep enhancing our gross margin per active client, we reached BRL 17.7 on a net basis, which is our second-best quarter ever.Finally, in terms of active clients per employee, which is a good metric for our workforce productivity, we are closing the year at 4.9 thousand [Technical Difficulty] 3.1 thousand active clients per employee.On Page 28, we present our NIM evolution net of cost of risk. We do this because it helps capturing the full picture of our repricing and risk management practices. In the fourth quarter, risk-adjusted NIM reached the highest level in the year and the second highest level since 2020.This strong expansion is a consequence of, one, improvement on repricing of legacy real estate and payroll loans; two, changing the loan mix towards the most profitable mix; three, lowering cost of funding; four, efficiency in the reserve requirements as a result of our [Technical Difficulty].For 2024, we see a continuation of this dynamic, plus the scale-up of new product launches such as PIX Credit and Buy Now Pay Later.Going on Page 29, we see the expenses that had an impressive year. With most of the breakdown items remaining roughly in line with prior periods, we achieved a 1% reduction in the overall number in relation with the prior year. This is a consequence of disciplined focus on expense management. We still see a strong opportunity to continue delivering operational leverage.Moving on to Page 30, here we can see our efforts on the operational leverage in more detail. In the next chart, it's clear that in the fourth quarter of 2023, we were able to further increase the gap between the growth in net revenues and growth of expenses.On the center, we had another impressive quarter of improvement in our efficiency ratio, leading us to end 2023 with a record low level of 51.4%. On the right side, we can also see the efficiency ratio net of cost of risk, which is similar to the risk-adjusted NIM, also perceived as the cost of risk element. In such metrics, we had another 5 percentage points of improvement in this quarter.On Page 31, as we can see in the chart, our net fees continued to cover a good percentage of our SG&A base, which is currently at 70%. It is worth to remind again that the fees [Technical Difficulty] in the third quarter of this year, and now will continue roughly in the same level with no change in banking investment lines. We track this metric closely as it is a key component to achieve our current [Technical Difficulty].And last but certainly not least, we couldn't be prouder of what we achieved in terms of profitability. We delivered a record ROE of 8.5%, reflecting our best-ever run rate net income of BRL 160 million, which on an annual basis translates to a BRL 640 million run rate net income.On a pre-tax basis, we reached BRL 208 million, reflecting a remarkable 23% increase over the third quarter. These results show that we are working full steam with the [Technical Difficulty] for maintaining this momentum going forward.Now I'll pass it back to Joao for his closing remarks. Thank you.

[João Vitor Nazareth Teixeira de Souza, executive]

Thank you, Santi. Thank you, Xandre. So, since we launched our digital bank back in 2016, we have been focused on creating a unique platform that attracted tens of millions of clients who engage with us every day and transacted over BRL 1 trillion last year.For the past 2 years, we've entered what we call the compounding phase. This is nothing else than continuing to innovate and deliver the best to our clients, while starting to see the benefits of our digital banking model. These benefits are: scalability, strong weight on fee income, strong NIM risk-adjusted margins, best-in-class funding mix, and also a highly diversified revenue base.We think that this year this competitive advantage became clearly visible and allowed us to deliver even more than what we expected for our year 1 on the 60-30-30 plan. We are highly proud of what we achieved this year, both from a business and financial performance, and could not be more excited for what's coming in 2024 and beyond. Thank you for joining our call today.Now, we will start the Q&A session.

[Operator]

[Operator Instructions] Our first question comes from Mr. Thiago Batista from UBS.

[Thiago Bovolenta Batista, analyst]

I have one question about the PIX finance. I know that this is -- this product is still in kind of early stage on Inter. But can you comment your initial impression? And how relevant this product can achieve?

[João Vitor Nazareth Teixeira de Souza, executive]

Yes. Joao Vitor speaking. Actually, we are very excited with PIX Credit. And just to put things on a context, we have 8% of the market share in PIX in Brazil. Everyone knows that. But most importantly, the UX, UI for our PIX Credit is amazing. So most likely, we believe that we can outpace this market share for this product in Brazil going forward. A 100% of our clients use our app to transact. This is a good advantage for us.And last but not least, the economics for PIX Credit are amazing. They are better than the current credit card scheme in Brazil. So we don't have the interchange, we don't have the MDR for the merchant, so it's a win-win situation. I do believe that it's going to be a very profitable product for us going forward. We're very excited. The first [ results ] on delinquency are good, similar to the credit card. The rates are better. It's a way more efficient product. So I really think it's going to be a game changer for the payment industry in Brazil, mostly for the digital banks.

[Thiago Bovolenta Batista, analyst]

Congrats for the results.

[Operator]

Our next question comes from Mr. Tito Labarta from Goldman Sachs.

[Tito Labarta, analyst]

My question is that there was some margin pressure in the quarter. I think it was related to renegotiations and discounts that you did that also helped the cost of risk. Should we expect more of this going forward? How should we think about, I guess, both the margin and the cost of risk going forward from here?

[Santiago Stel, executive]

Tito, it's Santiago taking the question. So what we continued doing this fourth quarter was -- or we did in the third quarter, which was to be a bit more proactive towards renegotiating the delinquent loans. And we did that additional 30 million -- or we have an impact of additional BRL 30 million from the NII into the cost of risk.Remember that we had a similar impact in the third quarter relative to the second quarter. So it was BRL 30 million on the third quarter and now, BRL 30 million plus BRL 30 million, BRL 60 million versus the second quarter now in the fourth quarter. That impact drove cost of risk lower and it also impacted NIM, which is the reason why we incorporated this new metric, which we call the risk-adjusted NIM that captures both variables together. And we think it's the proper way to see that. We recorded a 5.0% risk-adjusted NIM, the highest in the year and the second highest in the last 4 years.Going forward, we expect the level that we've reached now to continue. We don't think we have more incremental changes in the levels, but we would expect to keep it as a percentage of the portfolio roughly at this size. We also incorporated new disclosure regarding the stocks of the renegotiated portfolio, which is a feedback that we got from investors and research analysts. And that's providing the press release for people to go a bit deeper on how that compares relative to the market.

[Tito Labarta, analyst]

Great. Maybe just one follow-up. We did see some improvements on the funding cost in the quarter. Is there room to improve that more from here?

[Santiago Stel, executive]

So in the fourth quarter, there is seasonality to be honest. So we took the level below 60%. But around 60% is the level that we want to operate at. As we always say, the structure of our funding base or our funding franchise, it is a key competitive advantage. We will try to defend that as much as we can. We do think that the worst moment of stress with SELIC being at almost 14%, which could have had a shift towards the higher-yielding deposits didn't happen. We continue having a strong funding mix and a 60% cost of funding. With the SELIC going down, we think we'll be in a downhill or with tailwind in the front of cost of funding.

[Operator]

Our next question comes from Mr. Mario Pierry from Bank of America.

[Mario Pierry, analyst]

Congratulations on the quarter. A quick question on efficiency. As you showed, right, you have made significant improvements to your efficiency ratio, a lot of that because you were able to keep your costs flat, especially personnel expenses. So going forward, how should we see -- clearly, your target is for efficiency to continue to improve. But I wanted to understand from your perspective is this improvement coming from revenue generation? Or can you do more to reduce your cost structure? Do you have any initiatives that should reduce costs? Or are we just talking about maintaining costs, relatively growing in line of inflation, but revenue generation coming through?

[João Vitor Nazareth Teixeira de Souza, executive]

I'll start taking that one. So what we saw throughout 2023 was at the beginning, we had certain low-hanging fruits, so to speak, which we went very aggressive towards capitalizing them. If we look at the graph of the index of expenses and revenues, in the second half both grew, but the growth on the revenue side was materially steeper than the growth on the expense side. That is what we expect to see in 2024. We will invest more to continue growing, but the growth will be at a much lower rate, half or less than half the growth in revenues.And for that, we have a fixed side and the variable side. The fixed side is mainly the personnel expenses. That is a number that will also grow at inflation plus a few percentage points, but not too far from that. And then on the variable side, those are expenses that are more tied to the volume growth, and those will grow at a higher level. But the growth -- the improvement in efficiency will mainly be driven by revenues growing significantly higher than the expense growth.

[Mario Pierry, analyst]

Okay. That's clear. And Santi, just to -- like you showed that slide that you are almost halfway to your target for efficiency. And this was like a 5-year target. Do you think you are ahead of schedule on efficiency? Or was that the expected trajectory when you gave the guidance?

[Santiago Stel, executive]

We are definitely ahead. We are ahead the most. We went a lot more aggressive on expenses. And to be more specific, we have a project, which we say project [ Alz ] or [ Coruja ] in Portuguese. We launched this project at the end of April. That was [ Coruja ] 1.0. Meaning every Friday morning the senior leadership of Inter attacking all of the mainline items in the [ company ]. We had our first meeting of [ Coruja ] 2.0 of 2024 the first Friday of the year. So we are starting a lot earlier.Obviously, now it will be tougher to deliver incremental improvements, but the focus is there because we want to continue being above the level. We're not going to have 20 percentage points improvement like we have this year, but we think that the concept of the digital bank, like we have, has a strong competitive advantage from the cost side. And that is something we want to continue delivering as we go along. So this is a front where we will -- we expect to continue excelling.

[Operator]

Our next question comes from Mr. Yuri Fernandes from JPMorgan.

[Yuri Fernandes, analyst]

I had one regarding recoveries, loan loss recoveries. It was a good quarter. We track this, and it was BRL 80 million. It used to be tracking around BRL 40 million. So just asking what happened there? Like if this level is sustainable, if there was any kind of onetime recovery, because it was a good quarter for this line?

[Santiago Stel, executive]

Yes. So recoveries, typically, the fourth quarter has better performance as there is more money in people's pockets. And we see that on the funding side as well, as we mentioned earlier. So there is a bit of seasonality. But we are a lot more effective, and the work being led by the underwriting team and recovery team, [ Morin and Angel ], has been spectacular.We expect to continue improving that metric. But the growth in the fourth quarter did have some seasonality. So we had to compare the quarter versus the prior quarter of the prior year in order to make it apples to apples. But we think this is a front where there's a lot to continue evolving.

[Yuri Fernandes, analyst]

If I may -- a different topic, but quickly one on the marketplace on Inter Shop. The net take rate was slightly down. Should we see this recovering ahead? Is this like promotions, I don't know, a Black Friday, Christmas? And should we see the net take rate moving up back again? Or what is the message for that line?

[João Vitor Nazareth Teixeira de Souza, executive]

Yuri, Joao Vitor speaking here. Just to complement Santi on the previous question, and then I'm going to answer about the marketplace. I think that most of the analysts, I remember, are always talking about 3 key elements for the credit card. So good underwriting; good products/good UX, good UI; and good collection. And the renegotiation is a very important part of a good collection. We're doing that seamless for the client through our app in a very wise way, and therefore, we have been improving the flow, the type that we make the collections. It's a win-win situation. It's very important.Going to the marketplace. Also, I mentioned in the past that we're always trying to do the best balancing, trying to find a sweet spot between growth and profitability. And the good news is we have been able to shift from one to the other quite easily. Every single week I have a meeting with Rodrigo. All of you know Rodrigo, the CEO of the marketplace. And then we can decide, "Do we have a strong time of the year coming in? So should we put the take rate" -- "the cash back," sorry, "less competitive? Should we be more competitive because it's a low season?" So we use that quite often to adjust growth versus profitability.Having said that, I believe that I don't see a major change on the trends going forward for 2024. But if we have a good recovery on the retail in Brazil, we can improve the growth -- I mean the GMV, but also the net take rate going forward. So pretty much stable for 2024. That's what we foresee for the net take rate. But again, we can adjust that very easily and very often.

[Yuri Fernandes, analyst]

Congrats for the results.

[Operator]

Our next question comes from Ms. Neha Agarwala from HSBC.

[Neha Agarwala, analyst]

Congratulations on the results. A quick one on the revenue side. So you mentioned the cost-to-income improvement will be driven more by revenue growth. What are the main levers in your view that is going to drive revenue growth for 2024? What kind of loan growth should we expect for this year, which will further translate into stronger interest income and fee income growth? And probably you can touch upon the BNPL product that you mentioned on your platform. Maybe that could be one of those new levers on the revenue side?And the second question very quickly. What kind of ROE should we expect for 2024? Something like a 12%, 13%, 14% seems reasonable? Any color on that, if not a number, that would be very helpful.

[Alexandre De Oliveira, executive]

This is Alexandre speaking. I'll start with the BNPL and then I'll go to the growth part. So the BNPL is a new payment method that we incorporated into our marketplace. We see it as the consumer finance 2.0. So bringing more of the pool of revenues of the system into Inter. And we see that as super positive. We're fine-tuning the model as we grow and believe this could be in the ballpark of BRL 250 million by the end of the year.The context of the partnerships is a driver to reduce risk. So at the end of the day, we get take rates that range from 30% to -- from 20% to 30% from our partners. And that helps financing the delinquency that we may get in the model and with the clients. The nice thing about the BNPL is that given the take rates from the partnerships, we can open it for a wider range of customers. So several million customers that don't have credit cards can buy with the Buy Now Pay Later within the app. We're excited. And it is one of the drivers of margin expansion as we drive through 2024.When you think about growth...

[Neha Agarwala, analyst]

Can I pause over there and just ask something very quickly?

[Alexandre De Oliveira, executive]

Sure.

[Neha Agarwala, analyst]

So it seems like for the BNPL product, you'll do part on your own balance sheet and part with the partners, which allows you to get a fee income from the partners. Could you talk a little bit about what kind of proportions we can expect, 10% on balance sheet, 90% with partners or more like 50-50? And what kind of partners are we talking about? If you can name some that would be helpful?

[Alexandre De Oliveira, executive]

Yes. So Neha, in terms of balance sheet, it all goes through our balance sheet. So in practice what happens is -- for example, let's say, somebody is buying a phone from Samsung for BRL 1,000. Instead of disbursing BRL 1,000 to pay for this phone and making this a loan in Inter's balance sheet, the disbursement may be of only BRL 750 because Samsung is providing this take rate of BRL 25 -- BRL 250. So we have a collection balance of BRL 1,000, but a disbursement of only BRL 750. That's the mechanics of how it works. And we'll keep on expanding the partnerships so that the product can grow.Thinking about...

[Neha Agarwala, analyst]

Okay. So it's essentially just the take rate. You are not -- the loan will still be -- everything will be in your balance sheet?

[Alexandre De Oliveira, executive]

Everything in our balance sheet, correct. Moving...

[Neha Agarwala, analyst]

Okay.

[Alexandre De Oliveira, executive]

Yes. And on the growth aspect, we expect to grow beyond 30% this year. We're excited. Like the last -- the fourth quarter was positive at around the 10% growth. So we're excited about 2024. The core portfolios will keep on growing. So home equity, FGTS, we're excited about those. And a good start of the year so far.And it's also nice to mention the expansion on the non-collateralized, right? Joao talked a bit about the PIX Credit. And we launched them last year. So overdraft, Buy Now Pay Later, which we've discussed, PIX Credit, as Joao discussed. We also have Bill Pay using the credit card limit. And we're also allowing customers to put cash in their accounts using their credit card limit. We have a potential of BRL 1 billion portfolio by the end of the year in these lines. And they are definitely going to be a margin expansion product for us. So we're excited about it.

[Neha Agarwala, analyst]

Super helpful. Anything on the ROE front?

[Santiago Stel, executive]

I can take that one, Neha. So on ROE and net income, we don't provide guidance. But what we said last year on the Investor Day was that we agreed with the sell side consensus of 5% for 2023, and we delivered that. What we can say now, exactly a year after, is that the flow -- or the curve of buildup both in net income and ROE that we saw throughout the year should continue into 2024. We can't get too much specific on that because then it will become guidance and we don't intend to provide. But we see a continuation of the trend that we've had last year coming into what is year 2 of the 60-30-30.

[Operator]

Our next question comes from Mr. Pedro Leduc from Itau BBA.We have apparently lost connection with Mr. Leduc. Mr. Pedro Leduc apparently is no longer in the room. So we're moving on to the next question coming from Mr. Brian Flores from Citi.

[Brian Flores, analyst]

Just a couple of follow-ups on the answers that you provided. You mentioned you were excited about FGTS loans. So the contribution to gross loans is around 6%. This has been increasing steadily. So I just wanted to get a sense on how are you thinking about this segment? Any insights on the dynamics of the segment? And how should we think about the contribution going forward? So I think this is my first question. The second one, Santiago, you mentioned that in terms of the strategic plans you intend to defend your deposit base. Can you share with us like what are any ideas on how to do this would be really helpful.

[Alexandre De Oliveira, executive]

Brian, this is Alex speaking. May I ask you to repeat the question, please? We have a technical problem, and I couldn't hear you.

[Brian Flores, analyst]

Sure. No problem. The first one was on FGTS loans. The contribution is around 6% has been steadily helping in terms of the total portfolio. So I just wanted to get a sense on how are you thinking about this segment? Any insights on the dynamics would be really helpful. And then the second one was on how are you planning to defend your deposit base?

[Alexandre De Oliveira, executive]

Great. So starting with the FGTS, it's a product that we like a lot, 100% digital underwriting, good margin, high engaging product, and we've been able to do continuous improvement also operationally to make it easier for our customers to obtain their loans. We have a lot of returning customers. Having said that, we expect to keep on growing. It's at 6% of the portfolio, as you mentioned, and we believe it could get to around 10% by the end of 2024 as we move forward. So we are excited about it.From deposit -- in terms of defending the deposit, it's all about defending the transactional business, right? So we've been consistent on keeping PIX around the 8% market share. We were going to work heavily to increase this market share as we move towards 2024. And with the transactional business, we're going to be indirectly defending the deposit franchise, right? That is one of the strengths of Inter, the massive transactional platform we've been able to bring in along with also the investment platform, it's super nice. But that's the defense. The defense is to keep growing on the transactional business.

[Operator]

This concludes our question-and-answer session. The conference has now concluded. Inter IR area is at your disposal to answer any additional questions. But first, I'd like to yield the floor to Mr. Joao Vitor Menin for his closing remarks. Sir, the floor is yours.

[João Vitor Nazareth Teixeira de Souza, executive]

Thank you very much. So first of all, I would like to thank our employees for the great year we had on 2023. We work a lot. We work hard and we work with the right strategy, with the right focus, with the right North Star, which is our 60-30-30 plan. And I really feel that it's no longer different on 2024. I see a [ red ] for the first month. Our team engaged, motivated to also deliver another positive year on our 60-30-30 plan.We were chatting this morning about the priorities for the year, and I would like to say that I have 2 priorities for 2024. The first one to make sure that we also deliver another year ahead of the budget of the 60-30-30 plan, and the second, guys, to make sure that I'm going to stick with the first one. So that's about that. Be focused, engaged, motivated, and I'm sure that we can keep delivering good results, both on a profitability basis, but also, very important, on a growth perspective as well. We are still a growth company. But combining these 2 elements, we could deliver it on 2023 and we will deliver it on 2024 again. I'm sure about that.Thank you all the employees. Thank you all the shareholders that support us for a while, that will keep supporting us. See you soon. Thank you very much. Have a good day.

[Operator]

The conference has now concluded. Inter IR area is at your disposal to answer any additional questions. Thank you for attending today's presentation. Have a nice day.