Itaú Unibanco [ITUB] Conference call transcript for 2025 q1
2025-05-09 00:00:00
Fiscal: 2025 q1
Renato Lulia: [Interpreted] Hello. Good morning, everyone. I am Renato Lulia and it is a pleasure to have you joining us at another Ita� Unibanco Quarter Earnings Conference. Milton will explain our performance and earnings for the First Quarter of 2025 in a new format from Ita� BBA's auditorium at Faria Lima headquarters in S�o Paulo. Then we will host a Q&A session, in which analysts and investors will be able to interact directly with us from the studio, which is right next door to the auditorium. I would 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 three options for audio on the screen. The entire content in Portuguese, the entire content in English or in the original audio, and we will have simultaneous translation in the first 2 alternatives. To choose your option, all you have to do is click the flag at the top left corner of your screen. [Operator Instructions]. Today's presentation is available for download on the hot side screen and also, as usual, on our Investor Relations website. That is it for now from me. Now I will hand over to Milton, and we will meet later next door in the studio for the Q&A session. Milton, over to you.
Milton Maluhy Filho: [Interpreted] Good morning. Welcome to yet another earnings presentation. Let's talk about the earnings for the First Quarter of 2025 with two key changes. First, we have changed the presentation format itself to make it easier for you to understand it and to deep dive. And I will also talk about some disclosure changes we have made, both in the credit portfolio chart and the service and insurance revenue breakdown. In addition, throughout the presentation, I will also highlight the impacts of implementing Resolution 4966 in the Brazilian GAAP accounting practice, and I think I will be sharing good news. Now I will get straight to the point, starting with the results highlights. This traditional chart shows the managerial recurring earnings, ROE, both in Brazil and on a consolidated basis, pretax earnings, NII with clients and efficiency and capital ratios. Moving forward, this quarter, we delivered a recurring managerial result of BRL 11.1 billion, a very sound result with a 2.2% growth compared to the last quarter and almost 14% year-over-year when we translate this result into profitability. In the first quarter of 2025 we delivered a return on equity of 22.5% on a consolidated basis and 23.7% in the operation in Brazil. Both indicators grew on a quarterly and annual basis. By adjusting ROE by risk appetite capital, which is 11.5% for the operation in Brazil, we get a 25.9% ROE. This indicator is more comparable with our peers, given that our capital ratio is still slightly above our risk appetite. On a consolidated basis, our ROE is 24.4%. So we continue to deliver very sound profitability, very high returns, and very positive earnings for the quarter. Even more importantly, we should look at the quality of our result, it's composition. I mean, the results from the inside out. EBIT grew 6.5% in the quarter compared to the fourth quarter of last year and 16% year-over-year, reaching BRL 16.7 billion. This means that EBIT grew more than BRL 1 billion quarter-over-quarter. Our margin with clients was BRL 29.4 billion, also a very sound result, growing 3% compared to the last quarter of 2024 and almost 14% year-over-year. In addition, we were able to deliver the lowest efficiency ratio threshold in the bank's history at 36% and naturally taking into consideration first quarter seasonality. This is also the best first quarter in the bank's history in terms of efficiency ratio. We closed at 38.1% on a consolidated basis, a major improvement compared to the fourth quarter and a slight year-over-year improvement. As for the operation in Brazil, this represents a 240 basis points improvement and we also posted an improvement of almost 100 basis points year-over-year, all this while maintaining a very sound capital base. We closed the quarter with a 12.6% CET1 by offsetting absorbing regulatory impacts and the payment of the additional dividends incurred in the quarter, which consumed 110 basis points of capital. Therefore, on a pro forma basis, by adjusting for the impact of the additional dividends in the fourth quarter, we posted an expansion of 30 basis points compared to December 2024. Compared to March 2024, we posted a lower CET1. I will now present to you the credit portfolio performance. As you can see, the individuals loan book grew 8.6%. The SME credit portfolio grew 17.7% and the large corporate loan book grew 13%. I am going to make some comments to explain some of the changes we have made to the credit portfolio chart so that you can understand them better. There was no change in the individuals loan book whatsoever. This portfolio grew 8.6%, driven by the growth in credit cards, personal loans, vehicle financing and mortgage, while payroll loans are still under pressure due to the interest cap for the INSS beneficiaries portfolio. The payroll loan origination for INSS beneficiaries has naturally reduced given the level of funding costs. Further, the finance credit card portfolio in the quarter grew 8%. In the last quarter, there was an increase in the volume of transactions due to end-of-year shopping. And now at the beginning of the year, part of this portfolio begins to be financed, thus starting to yield interest, and this affects our margin significantly as well. Now I will put a little more emphasis on some changes. The first point is that we have also adjusted past figures for comparable reasons. Let me now comment on the most relevant changes. We had an important agribusiness portfolio, which we had always classified as large corporates because this was the segment where this business was managed. However, over time, this portfolio has been segmented into different companies. We reclassified these companies to the SMEs portfolio based on their annual revenue. We have disclosed all the details in the footnote to the credit portfolio chart. We have also included in the chart the receivables investment funds, which, at the end of the day, our securities established for credit purposes. We have also included the exposures to financial institutions when we have these banks as clients. This does not consider the certificates of interbank deposits or CDIs to manage liquidity in the system. Here, we consider credit-like instruments with these banks. We have also included in this chart the credit-like transactions operated by our trading. Again, you have all the details disclosed in the footnote to the credit portfolio chart. So if you analyze the portfolio, you will see that the SMEs loan book posted a drop of 2% in the quarter. The portfolio of large corporates drops 1.8%, and the total of Brazil dropped 0.8%. However, it's important to exclude the FX effects on the portfolio as a whole. Instead of falling 1.7%, the total portfolio would have fallen 0.2%, excluding FX impacts. This shows the portfolio sensitivity to foreign exchange fluctuations. Instead of falling 2%, the SMEs portfolio would have fallen 0.6%, excluding FX impacts. And the large corporates portfolio would have dropped 0.5% and not 1.8%. Instead of falling 5.5%, the Latin America portfolio would have fallen 1.3%, excluding FX impacts. The average balance of the credit portfolio is what impacts NII for the period. The chart that I will show you next highlights this message. So when we look at the average balance of the credit portfolio, individuals posted growth of 2.1%, SMEs grew 5.5% and large corporates was up 2.1%. So the average balance for the period grew 2.3%. And this is what generates revenue and consequently, net interest margin. This takes away a little of the seasonality and the FX rate effects that I explained in the previous chart. The average balance, therefore, is the best information available to analyze the NII. Next, we present the traditional margin chart where we show the NII figures in billions of reais at the top and below the NIM, which is the annualized average margins. I will start by focusing on the NII with clients in which we have two major effects. The first one is the working capital, which posted results of BRL 3.2 billion in the previous quarter. And now for the first quarter of 2025 it has generated results of BRL 4.0 billion. When we look at the spread sensitive margin related to the loan portfolio, that is the core margin, we have a few effects. The higher volume had a positive impact of BRL 300 million out of BRL 900 million in total growth, as shown here on this slide. As regards to the product mix, for example, the increase in finance credit card portfolio, which I showed earlier affects the mix because this is a portfolio with a higher spread. The segment's mix between large corporates, SMEs, and individuals, also impacts this line along with the product mix within these segments. All of these affect this line and resulted in a positive result being posted for the quarter. We have consolidated the spreads and the liability margin impacts. By spread here, we considered both credit portfolio spreads and also the liability margin spread from which we have also obtained a positive effect. A key issue to be considered in the NII is the calendar effect. This quarter, we had fewer working days and fewer calendar days. This has affected both the asset side or the credit side and the liability side of the business, depending on the metric used and how we manage and monitor them. The calendar effect shows that this seasonality removes BRL 500 million from our earnings. We would have posted very strong growth, if not for this seasonality due to the calendar effect. Analyzing the impact shown in the bar, Latin America and others, we have had both positive and negative effects. This line also recorded the positive effect of about BRL 100 million due to the stop accrual change with the implementation of Resolution 4966. This effect is included in this line named others, and I will detail it soon when we talk about the margin. We have always been very disciplined in managing the stop accrual. Therefore, the effect of the change in stop accrual from 60 to 90 days was positive for our margin, not negative. This is a key point to be taken into consideration. Moving on to the annualized average margin. Here are some highlights. First, there was a significant increase in the consolidated NIM that reached 9% and a significant increase in the risk-adjusted NIM that reached 6.1%. This dotted line in the 5.8% is just to remind you that in the third quarter of last year, there was a credit provision reversal amounting to BRL 500 million before tax related to the case of that retailer currently under Chapter 11. This layout helps you analyze the trend over time. This is the best risk-adjusted margin we have ever posted since the fourth quarter of 2019, which is the quarter immediately preceding the first quarter of the pandemic. The story is no different for the operation in Brazil. We have reached NIM of 9.8% and risk-adjusted NIM of 6.6%. The one-off effect from the retailer we just talked about stands out more because the transaction is booked in Brazil, which again shows an important margin recovery trend. I always tell you that the way the bank is managed is reflected in the risk-adjusted margin. Growing revenue generating margin is challenging with a certain degree of difficulty. Our focus is on making the risk-adjusted NIM grow because that is what remains at the end of the day, net of the cost of credit. Moving on to the NII with the market. We can see a steep increase for the first quarter to BRL 900 million in total, broken down into BRL 1.2 billion in Brazil, BRL 200 million in Latin America and a capital ratio hedge cost with a negative impact of BRL 500 million. The next question would be "Come on Milton," the midpoint of the guidance release for the 2025 earnings is BRL 2 billion. In the first quarter, you made practically half of this total. Were you conservative in your guidance for 2025 results on NII with the market? What is your view on it? Well, we reiterate the 2025 guidance. We had an exceptional trading result in the first quarter, which may not be repeated going forward. We monitor our ability to create value and generate alpha in trading and this quarter was above average. So obviously, we are working hard to deliver better results. In addition to that, the capital ratio hedge cost is expected to rise a lot over the next few quarters. Therefore, we will still see these effects on the NII with the market, which leads us to expect that we should end the year a little above the midpoint of the guidance, which is BRL 2 billion based on our best current projection. This is still our best expectation, we continue to work on it. Projecting the margin with the market is hard. Despite our track record, we anticipate that some effects, especially the capital ratio hedge cost will widen given the interest rate spread, but we reiterate our guidance. I know this question will come up, but I wanted to anticipate this issue while presenting the NII with the market. Next, we present the commissions, fees and results from insurance chart, where we have made some changes. I have been telling you for several quarters now that we have been reconsidering the way we disclose the acquiring business results since it makes no sense to disclose them separately from payments results. Let's not forget that part of the acquiring business revenue is recorded in this chart, and the other portion is recorded as NII with clients. The portion of acquiring results recorded as NII has not changed, but we have consolidated the acquiring results recorded in the commissions and fees chart under payments and collections. As of now, the credit and debit cards results consider only the issuance operation. In addition to the acquiring business, we also consolidated under payments and collections, the revenue from tariffs collected from corporate clients as packages. Before, it was consolidated in the current account services line. This change was made to better reflect the way we manage the bank. All in all, we brought to the payments and collections line the acquiring business results that were considered in the credit and debit cards line and also the tariffs collected from corporate clients packages, which were in the current account services line before. Therefore, card issuance business results were isolated and the same to current account results for individuals. These are the main disclosure changes. We have also a second order effect, which I already anticipated when we disclosed the 2025 guidance at the beginning of the year. Regarding some deferrals that would be made in some of 2025 these lines when applying Resolution 4966. If we excluded this effect from Resolution 4966, we would have grown 6.5% year-over-year instead of growing 5.6% as presented in the chart. Revenue growth depends a lot on the economic activity. We posted a weaker DCM since it was record high last year. We have been able to deliver earnings from asset management, but the performance fee is only recorded in the second and fourth quarters. So there is a seasonal effect in the first quarter when we compare it with the fourth quarter. Our growth in commissions, fees, and insurance is well within expectations and very sound, in line with what we have been seeing in terms of activity momentum. Better momentum in the capital market and even the asset management business itself will certainly create more opportunities. The insurance operation has been at a very sound growth level and after several years of expansion, we continue to find opportunities to improve our results and the insurance business. Next, I am going to talk about the cost of credit and the delinquency rates. I will first address the short-term NPLs, both on a consolidated basis and in Brazil, and then we will talk about the long-term NPLs. And here, we already have some adaptations emerging from Resolution 4966. Starting with the short-term NPLs. When we look at the consolidated figure, we see that it is very well behaved. Let's not forget that usually this quarter shows greater pressure on short-term NPLs, especially because this is a period when households have more taxes to pay, school tuition, and some end-of-year shopping payments are pushed forward to the first quarter. As a result, seasonally this quarter puts a little more pressure on short-term NPLs. I'm going to show you the breakdown of the figures for the operation in Brazil. And you will see that our short-term NPLs are very well-behaved when compared to previous quarters. Here, we introduced the short-term NPL ratio by also including securities in the denominator. This is the new methodology introduced by Resolution 4966 and shows that the ratios also continue to be well behaved. When we look at the short-term NPLs of individuals, we see the increase by 26 basis points. Last year, this increase was lower, and we have still observed some effects of the portfolio derisking. However, when we compare this ratio to the historical average, this increase is at a level below this average, which is very sound and consistent. It was no different for SMEs. The NPL was very well-behaved, and I will show you details of it in a moment. And the ratio adjusted by securities also shows a very low short-term NPL ratio. Naturally, the figures for large corporates are lower. I always tell you that it is much better to analyze the credit portfolio considering loan by stage instead of the NPLs, especially for large corporates. Probably you would ask me about the long-term NPLs, so I'm going to answer it right away. We continue to have very well-behaved NPL ratios, the best in the bank history in all segments. And here, we also show the ratios adjusted by securities. When we zoom in the operation in Brazil, you will see that there was a drop in the 90-day NPL ratio for individuals. This is the best ratio ever. In the SMEs business, we also see a major improvement in this ratio adjusted by securities. And you see that there was a discontinuity since we had been operating between 2.3% and 2.5% levels. And here, we have two relevant pieces of information. This ratio at these low levels between 1.6% and 1.8% is not sustainable for two reasons. First, because of the production volume, both in the fourth quarter of 2024 and the first quarter of 2025 boosted the denominator and also because of the portfolio mix, which was built up mainly with government programs with grace period, therefore, the denominator is affected by a higher credit portfolio while the numerator overdue loans is not. This effect will normalize throughout the year, and our best expectation is that it will return to the levels of the third quarter of 2024 and back, absolutely well-behaved and within our appetite without any kind of specific concerns naturally considering today's data and market inputs. But just to make it clear to you, over the next few quarters, we will see a normalization of this ratio, which, in fact, due to this effect is much lower than our actual expectation. In terms of cost of credit, it reached BRL 9 billion in nominal terms. The cost of credit over the total loan book reached 2.6% considering the new credit portfolio, which is flat when compared to the previous quarter. For comparison purposes, it is best to consider 2.7% in the first quarter of 2025, which considers the same criteria for the loan book as the historic series. When we go to the write-offs, we can also see a relevant effect resulting in a drop. We have done the derisking process over the years. So first, you go through the short-term NPLs then the long-term NPLs and then you get to the write-offs. Therefore, we have not changed any criteria, and this is very important to keep in mind. Resolution 4966 currently effective, allows some additional degree of freedom, especially to address the write-offs and to recognize a provision of 100%. Our vision remains exactly the same. Despite the degree of freedom, we have kept our logic unchanged since this is our best expectation of recoverability or actual loss on a given loan. Therefore, as a general rule, we continue to use 360-day terms. Resolution 4966 breaks down by product clusters, but the main message for you is that there has not been any change in criteria. Had we changed the criteria, the write-off would have been longer, it would take more time. And the NPL ratios would have gone up, but we would have had a momentary benefit from better credit costs. So by doing a back test, if we had applied the degree of freedom of Resolution 4966 to our 2024 credit cost, we would have had a cost of credit 10% lower than last year's, which is not small. Therefore, we didn't change the criteria. We continue to be very disciplined and to manage the bank based on expected losses and not on incurred losses. We continue to take into consideration our best expectation of loss materialization and therefore, 360 days is the statistically best input we have to support the write-off criterion that we have been using and it is much more consistent with our management. At this point, I'd like to take a break since this is a new chart, and I have some messages to pass on to you. From now on, we will start tracking credit quality for Stages 2 and 3. So I'm going to zoom in on each of these stages, not only to show how our portfolio is distributed, but also to show the coverage by stage. Let's start with Stage 2. We see that 8% of the individuals portfolio in Brazil is classified in Stage 2 as well as 1.8% of corporate portfolio, 4.6% of Latin America and 4.3% of the total portfolio. And the additional data introduced is what we call coverage by stage, which is a very important indicator. It's the balance of allowances for expected loss for the portfolio classified at that specific stage. In this case, we have an allowance balance for the individuals portfolio of 26% classified in Stage 2, which was 24.5% last quarter. The first message to get across is that this is a major change in the way we handle the stages, and we have some degree of freedom or discretion in how to carry out this rating. Since the bank has always worked with expected losses and this is why at the end of the year, there was no impact on the cost of credit and on stockholders' equity. Because of the change in methodology, we just maintained the expected loss and not the incurred loss approach. This difference is very important. And how do you observe this? If we add up the Stage 2 portfolio and the Stage 3 portfolio, which I will show in a moment, and compare the outcome with our NPL ratios, which apply either to short-term or long-term, regardless of the analysis you want to make, you will see that both in Stage 2 and 3 are virtually double our actual NPL. This shows how rigorously we measure these stages if it was only by NPL and therefore, the figures observed here were identical to the NPL figures, it wouldn't make much sense to have the stages. In much simpler terms, we have the short-term NPLs in Stage 2 and the long-term NPLs in Stage 3. In addition, we also include in Stage 3 any credit deterioration, renegotiations, problematic assets and restructured assets, which are those renegotiated after becoming 30 days overdue or those renegotiated twice, even if not overdue. When we acknowledge a change in the client's credit risk, even if it refers to performing loans, and there are no overdue payments, which is particularly the case for companies, we classify it in Stage 2, and depending on how steep the movement is it goes to Stage 3. Stage indicators are very important, and I think it is going to greatly improve comparability to see that we have provisioned for expected loss, which is why our stages are higher than our current NPL ratios. Another key issue is what we are calling coverages, which ends up depending a lot on the mix, I will give you an example. If we have a mortgage loan payment overdue by more than 90 days, it goes automatically to Stage 3. But because the loan is guaranteed by the property, we do not need a 100% allowance balance just because it's in Stage 3. This is why it's very important to understand the underlying mix. A company whose rating is downgraded is automatically classified in Stage 2 before going to Stage 3 because it did not become a problem asset. I may have collaterals so my allowance may be lower than the balance classified in this stage. In individuals, we have 26.1% coverage in Stage 2. While for companies, the coverage is 22.9%. And in Latin America, at 16.6%. In stage 3, we have 5.8% of the portfolio of individuals, 3.5% of the portfolio companies and 4.3% of the portfolio of Latin America, that is 4.4% of the total portfolio is classified in Stage 3. And when we look at the coverages, we see that they are already higher coverages because they refer to problematic assets, which underwent more renegotiations or restructured assets that automatically end up in this stage. And bear in mind, the comments I have made about coverage, mix and type of product. Another important point is that despite the change in the standard, we have not changed the way we manage the bank using the expected loss model. So deep down, this is a consequence of everything we have already been doing over the years. In other words, if we had to reprocess that traditional coverage ratio, which took into account the allowance balance for payments past due more than 90 days, you would see stability because nothing has changed. This is a consequence of the changes and not because we have to change the way we manage the bank's allowances and loan portfolio. This strengthens our suitable risk management criteria rigor and discipline, in particular, when compared to the rest of the market. You can see this in our figures, whether in the change of the stop accrual approach with a BRL 100 million positive impact on our margin, or in the reclassification of portfolios, as I have commented previously. In the end, all this is a reflection of better risk management. As regards to non-interest expenses, we have also changed the disclosure to be more in line with the way we manage the bank. This is an interesting chart, and I would like to give you some insights from it. First, we classify in the personnel expenses line, all expenses in the commercial and administrative areas. Next, we have the transactional expenses related to the entire bank infrastructure and operation that is the entire portion of expenses on fixed assets, branches and infrastructure to run the bank. In the technology expenses line, we are including all expenses on IT personnel and infrastructure. In other words, this line includes all those technology employees allocated to the community. Finally, we have the other expenses line. Year-over-year, non-interest expenses grew 8.2% in Brazil and 9.8%, considering also the Latin American operations. In other words, everything is absolutely within what we had already expected, and this line will converge within the guidance range throughout the year. But the most interesting thing is to observe the time series that we have included in this presentation despite the baseline comparison effect. When we look at personnel expenses from the commercial and administrative areas, we see that the actual growth of these expenses has been only 0.6% per year over the last 10 years. In a deflated series, that is very much in line with what we have been doing with regard to the management of the bank's teams. As for transactional expenses, we also have an interesting fact. We have posted a drop of 12% per year over the last 10 years. This translates into a deflated development equivalent to a 68.5% decrease in the period with the exponential effect of a negative change over time. This shows that we are managing to obtain an important reduction in transactional and infrastructure expenses, while we have invested in technology and good team management, therefore, increasing the bank's operating leverage. And this is reflected in that efficiency ratio of 36% in Brazil, which you have seen just now. And when we look at technology expenses, it is very clear that we have been posting growth of 5.3% per year in expenses over the last 10 years. This considers all the systems modernization, all the investments in our platform and all the investment in product and digital actions, among others. In other words, we are perfectly consistent with our strategy of having a completely modernized and much more agile bank, with incredible experience and with a much better operating scale and leverage. This is why I think this chart perfectly summarizes our strategy. Let's move on to the efficiency ratio that I was commenting on. We have reached a consolidated efficiency ratio of 38.1% and an efficiency ratio of 36% in Brazil, which is the best ratio in the time series. And in a series not as long, from the first quarter of 2019 to today, we can see exactly how we have been able to make progress in terms of efficiency ratio whether through a more efficient operating leverage management with more investments in technology or through our ability to generate revenues. Our figures are very good, and we are very pleased, but we still have a lot of work to do. The good news is that we still have a lot of opportunities to chase, and we will continue to be very disciplined in the bank's cost management. In closing, let's talk about capital. Here, we show that we came out of a CET1 of 13.7% in the fourth quarter of 2024. We had the payment of additional dividends with an impact of 110 basis points and as a result, we reached a CET1 of 12.6%. We had a contribution of 60 basis points to net income for the quarter, showing that our ability to generate capital with profitability remains very strong and this made it possible to neutralize the impact of risk-weighted assets such as market operational and credit risk, and to absorb all regulatory impacts with this increased capital generation capacity. We have dedicated teams in-house that are always looking for opportunities to increase capital efficiency. Therefore, all the operational risk capital and all the credit risk capital and structured operations that increased in this quarter were absorbed with the capital generation for the quarter itself. Thus, we reached a CET1 of 12.6%, which is a very sound threshold. With everything remaining constant, we will work hard to be able to pay more additional dividends. As we always say, our goal is to pay recurring additional dividends, and that is what we have been working on. All the planning we do is carried out with a lot of discipline while monitoring the existing scenario, our growth capacity, regulatory impacts, et cetera. All these factors are taken into consideration while the bank continues to have a very sound capacity for generating capital. With that said, I end my presentation here. I'd like to end with two takeaways for you. First, as you have seen, this quarter, we posted very sound results of a high quality. I think it is important to look not only at our bottom line, but also to understand the entire mix and the effects that have led to it. We have posted significantly higher revenue, a major growth in EBIT and efficiency ratio at its best levels and a reduction in the cost of credit. In short, a quarter with very well-behaved indicators. As I have always said, we have never been so well-prepared to face whatever challenges lie ahead whether for the quality of our portfolio, the level of provisions in our balance sheet, and a huge level of compliance with the new standards, which shows that at the end of the day, managing lending using the expected loss approach, as we have been doing for many years, has generated consistent results. There were no transfers among line items. There was no discontinuity in the financial margin and all the other effects I have already mentioned were taken into consideration, which is very positive. As you can see, I am in the auditorium, and I'm going to need a minute to join Renato, who is waiting for me in our studio for our Q&A session. In the meantime, we will show you our new campaign that we are launching, which basically reflects everything you have seen in this presentation, especially regarding the investments we have made so far. Over the years, we have invested a lot in the bank. We always talk about institutional marketing and large institutional campaigns, but we have made an important change. We are increasingly talking more about our products and our business lines while naturally being very careful in what we say and backing all the investments made by our brand, which is the most valuable brand in Latin America. This new campaign has some very important attributes. The first is to communicate to the public what our activity and our daily life is, that is working to simplify people's lives, provide good product experience and good business experience and solve client problems. This new campaign shows this and you will be able to see the number of products that we have been launching as a result of our capacity for innovation and modernization achieved over the years. Also, we reclaim a word that has been very important to us for many years, which is done. We used to talk about Made For You, then we evolved to Made With You, and then we launched Made a Future. And now we think that to make it simpler and make this delivery tangible, the time has come to use, it's done. And this is what you will see in this campaign. I hope you like it because here at Ita�, when we deliver a product, we deliver a solution. It is done. Thank you, everyone. Now I'm going to join Renato, and we will talk in a little while. See you later.
Renato Lulia: [Interpreted] Thank you Milton. Well, I think that it was very nice the format of the presentation. And for those of you that have watched it, it's a very nice value of the new campaign. So as we continue with the Q&A, we have Milton and Gabriel, our CFO. Welcome Gabriel. And this session is bilingual so we answer the question in the language that is asked. If you -- should you need any translation, you can always choose the audio in English or Portuguese. [Operator Instructions] So we have a lot of questions, people have raised their hands. Without further ado, let's start. First question, we have on the screen, Daniel Vaz from Safra Bank. Good morning. Welcome to our earnings call.
Daniel Vaz: [Interpreted] Congratulations on the results. I have two questions on my side. I wanted to ask about growth. I mean it's easy to say that a bank of your size should have more defense of market share and then you have discussions with investors. And we can hear the argument that it's difficult that you can compete in the massified segments against new events. But in another point, the bank does want to be attacker in some fronts. I mean, you referenced that. And given the great level of quality of assets and capital generation, should we expect a more bold position in 2025? And how can we expect the workings of Ita� and niches where you have less market share, looking up ahead?
Milton Maluhy Filho: [Interpreted] Thank you, Daniel. Thank you for the question. So it's two questions, I'm going to start first by credit. We cannot forget that we are in the highest interest rates of the last 19 years, 14.75%. It's not just an issue of offering, but demand that reduces as we see the different businesses. As we have had great opportunities, we've grown the portfolio in many of the segments, very diligently and we have personnel that is focused in our risk management and portfolio management. Of course, this is a dynamic process. But the public, the clients that we want to grow, we've managed to grow two digits, and we gained the market share. So the boldness comes from that. We have a lot of strength in growing in those publics that we understand are resilient in longer cycles. From the standpoint of opportunities, we are optimistic but cautious. Optimistic because, as I told you, we are maybe at the best moment for the balance sheet of the bank for any scenario that we should face, whether if it's a scenario for opportunities, we are ready to rapidly grow our adjustments. We are also prepared with a very resilient portfolio. This capital allocation portfolio with a long-term vision is very important regardless of the fact that we have indicators that are well behaved because these are decisions that we made today that will sustain the balance for the medium to long term. So we are very disciplined. The capital structure is key with the quality of balance sheet that is very strong, seizing the opportunities, and growing in the segments that we believe that we should continue to grow, growing 2 digits. But what you see in the aggregate is the effect of the growth and the derisking, which we closed basically last year in the portfolio, but in those publics that are not target publics, well, we chose to lose some market share. So when we look the addressed market, we've gained or maintained the market share in the businesses and where we've maintained and gained the share within the publics that we consider that are not part of a strategy, losing the share is the best decision that we can take. So we're going to see the market moving. It's a lot of businesses. The bank has a very complex portfolio of businesses. So that philosophy is worth for all the business lines. We are -- we have the guidance with the best expectation. We are comfortable, and we are focused on the adequate returns with the capital allocation, not only looking at the credits but also the completeness of the relationship with our clients. So we're optimistic, we're happy with what we've done and cautious because of the scenario, which is global or local inspires cautious because of the interest rates that I just mentioned. About the network, the decision to integrate this network, which is not simple. I've been there when the company was listed, I was closed in the capital. This is an integration that has been done in an impeccable manner. I don't like to self complement but in the end, this was a well-conducted process for the teams in the bank, and this integration was so soft, so seamless that today, we can see this as another service for receivables. So we have another offering of flows and our packages. So this integration of the network in the bank, the way that the managers of the bank of all the segments discuss the issue of acquiring within the package of flows and receivables and payments, we have unbelievable synergies. And we lead the monoproduct, monoliner discussion to have a holistic overview of the client, which is correct, but I'm not going to talk about the acquiring clients. I'm going to talk about the client in the discussion that they want to have about the credit, the receivable that is important, whether if it's a discussion on the service that the network is the best discussion, it starts there. So this integration of the commercial teams along with the network and the unification has brought important results. We're very happy with the evolution. And naturally, we will advance in the different segments. This is our opinion, and the EMPS, which is a platform that we have digital of the company to talk to the digital smaller company, smaller client has an embedded solution already embarked. So we cannot -- so we have looked not only at more clients, but we've deepened the relationship with the existing clients and with the competitiveness of our offering.
Renato Lulia: [Interpreted] Thank you, Milton. Let's go to the second question with Thiago Batista from UBS.
Thiago Bovolenta Batista: [Interpreted] Well, it's another result that is constant, and we've grown in -- you have grown in a quarter. My question is about the private consignado. So two topics on this. But you had the list of the six biggest players, and we have two states, three or four niche and the six would be 80% of the private market share. And we don't see any of the incumbent, the traditional amongst the players. So how do you position this product? Why you and the other big players, how do you position yourself in this business? What do you imagine that would be -- there would be a cannibalization maybe the exchange for the more expensive income for the other one, so they can pile up the debt. So I wanted to understand how do you see this small market, I understand, but how do you see it?
Milton Maluhy Filho: [Interpreted] Well, thank you. Thank you for this initial consideration. Well, talking about 2 minutes on this consignado payroll loan. So our product unlocks a value. There was always an operational limitation on how to do the agreements with the companies on a large scale. We have the solutions via CTPS that is unified via the eSocial, and that's a change that is relevant and it makes the market to have a relevant growth. Let me give you a few numbers that can help you in your analysis. First information, this is a market of BRL 40 billion, I'm not talking about the EUR 10 billion that were disimbursed over the last weeks. No. Out of the BRL 40 billion, Ita� Unibanco has BRL 12 billion. So about 30% of that market we have it today because we have a strong penetration in the segment and big agreements. So we have used that strategy of the private payroll loan for a long time. So this consignado, if you've seen with the incumbent banks, it has been since the inception, Banco do Brasil Caixa. But we've been in the private since the inception of the concession because we -- and we've learned -- this is very important. We've learned all throughout these weeks. And why do we think it's important that we do this counterpoint? The private payroll loan is completely different from any other consignado that exists. We leave from an anticipation of the withdrawal at the birthday, which has less risk and then you drop down in the chain on the risk. And then you have INSS and then you have public companies. It depends whether if you're working with the municipality or a company and the private payroll loan is no different. You have a company and the risk of the payer, you have to, of course, take a look at the risk, but you have to work with a combination of the company that do not improve the -- the combination of the risk does not improve on the performance that is expected for the portfolio. So the massive salary man in Brazil, it's a BRL 120 billion. So in the private consignado, it's BRL 40 billion. So the other BRL 80 billion is private credit that exists for this basis of salary man. So what I'm saying is that if you do the same analysis for the consignado of the INSS and the public companies, the leveraging of the jump in credit divided by the salary man monthly is 46x -- 4 to 6x. So that BRL 120 billion can become BRL 300 billion can become BRL 400 billion in ultra optimistic, but it has a portfolio that -- has portfolio -- has a -- they might -- this portfolio might even have a share in the GDP, it can grow a lot very -- if you are optimistic. So we have to migrate the clients so we don't lose the risk of that client becoming over with too much debt and the program allows that. And number two, you are not subordinate to somebody once you provided that payroll loan, you are under somebody that will have until 35% of their salary being used, you're going to tied down to that. So when you look at the risks and you do the testing with all the production that we've done, I would say that 70% of what was produced are people that -- clients that do not have a bank account with our bank, either we don't have a relationship or we don't have an appetite. For the other 30%, we have our funnel. And remember that one of the rules is to check the ICRC to see if they have a personal loan because then you cannot provide the loan because of the risk of overindebtedness. So it's a big drop in the funnel when you do that. And then the third fund, which is risk, which is a matrix that combines the risk of the company, with the risk of those that take the payroll loan. And we define clearly what is the public that we want to operate and we do not want to operate. So by a decision of risk, we decided not to subscribe a lot of the credits that we're taking in the market. I'm not saying that this is right or wrong. Our appetite of our risk management is like that. And remember that many of the players that are getting in with a lot of appetite, they know less of the risk of the companies, which is our core business for a long time for many years. Since we know a lot of -- about the companies and the good risk management of the companies, if you take a look at our risk management through the cycles, I think that this is the competitive differential because we're going to lose operations, of course. But by a decision, our decision because we do not think that the risk compensates because of the risks that are being practiced. So this discipline will be very important. Our comparative advantage is the know-how that we've developed all through our time on the management of risk of companies. That provides you capacity for decision-making process that is different. I think that there is operational challenges that are imported that we have to observe in the next months when the first payments are going to be done, I think that there is natural evolutions of the platform that will occur. There is the risk of the credit itself. We think that losses will be materialized and the delays -- delinquencies will be the same one as the private, but with lower rates, practice, so there is the government. The two biggest public banks. So to highlight the program, and I understand that this is an agenda of growth. Everybody has their own policy. Everybody has their own appetite. And I think that the fintechs that have been working, you have to subdivide them into two publics. So those are subscribing and taking the more risk because of a lack of knowledge, clearly, but time is to tell. We're going to see and there is regulatory aspects because one of the rules is for you to check the SCR, the Central Risk Management of the Central Bank before providing credits. And we've seen a lot of people taking credits and they were in that database. But that's a regulatory base, and that's up to Dataprev and the government to take a look at that and see how they're going to treat that because they are operating outside of the rule. So I think that there is a mix of everything. And I think that the final message is that we've done portfolios, you're going to see Ita� Unibanco. We have a great expectation about that. We think that the BRL 40 billion are going to grow a lot. And we would have a fair share, possibly less than 30% that we have today, probably larger than the BRL 12 billion of portfolio that we have today, but with a net financial margin that is stable throughout time.
Renato Lulia: [Interpreted] Thank you, Milton. Complete result -- complete answer to this recurring questions. Third question now also with us. Eduardo Rosman from BTG Pactual. Rosman?
Eduardo Rosman: [Interpreted] Congratulations on the numbers, strong quality. You have digital transformation that has been paying out. My question is what is now? What about now? I think that the threshold is getting ever higher. They are very relevant in a sector that is well-penetrated in an economy that does not grow a lot, unfortunately. So how do you generate value? Where is it going to come from? One Ita� closing all banks, it's going to come from abroad. Help us to -- with your 2 cents on that?
Milton Maluhy Filho: [Interpreted] Well, thank you, Rosman. Always great to see you. Congratulations on the report. And this has to do all the reports as they are published. We read all of them. Thank you for the feedback. I would like to say the following, Rosman. You mentioned many of the points. When we look ahead, we still see a lot of opportunities. This opportunity, we have a breakdown in several segments that we work with. Since the bank in the end of the day, is a big holding of capital allocation with a portfolio that is very diverse with businesses that are non-correlated, some correlated, we can have a portfolio that is very well-balanced and we can find opportunities in all fronts. So when we talk about the business unit PF, you mentioned One Ita�, the natural persons, we are very excited. In the next quarter, I'm going to show you some early indicators of what we've managed to do through One Ita�, is very exciting to see the results -- the initial results. First, the migration of the 15 million clients that we can -- that we migrated until the end of the year, we've migrated already 8 million. So until the end of the year, we should finish the total migration, 99.1% migration, that's the rate precise. So 0 attrition and the NPS of those are migrated above 85%. So you changed, you migrated, no attrition. And the customer experience is 85%, that's very encouraging. And then you get into a stage of offering a full bank for the client that had a monoliner experience, and that full bank experience has had great value in the penetration of products, accounts payable, opening new relations. And now we start to advance in the breadth of the portfolio of the bank, we segmented all the bases. We have clients in all the segments. And in the next quarter, me and Renato, we already discussed of bringing some indicators or you can have an idea of what we are discussing. A great deal of the growth in the natural persons PF comes from that and gaining market share. We are more competitive, this is -- we have all the conditions of continuing to grow. Of course, the GDP is important, growth of activities, but we continue with opportunities of occupying buying the market and gaining market share in the segments that we really understand that we can have a differential, a value of proposition that is different. And for that, we are moving. We are in constant movement. Just to give you an overview on the digital transformation, we mobilized 300 journeys in the bank, experiences and in the business unit for natural persons and the companies. We launched over 18 products, new products. These are inserted in the journeys of our clients. And all of them with a great output, level of engagement, increasing level of adoption, very high. So we are very excited with our new capacity to develop solutions and solving the pains of the clients with the speed that we never had. We are surprised every day with our capacity of generating impacts, 300 journeys modernized, 18 products launched. If you get into our Superapp, you're going to see the campaign that we've just seen that. And in the companies, BU, we've gained market share in also the wholesale, we've had great opportunities. We had a great penetration. We -- our business of agribusiness has grown very solidly. We've opened new fronts at Ita� BBA, all of them performing very well. So I think that there is still opportunities. And the central point here and now welcoming Gabriel here as the CFO official and all the calls present from now on, Gabriel besides his great CV, he's going to be the leader of our agenda of cost efficiencies, also looking up ahead. And we see here that there is an opportunity that is very big to continue to advance. I think that we needed to go through this modernization process. I discussed this what we have to turn off that mainframe, the discussion that the big bank operates in the mainframe, we see that being closed in the future, but we are in this process of closing cycle, and so that we can have a modernized bank, 100% online, running on the cloud or a few things, something that doesn't make sense to the cloud, of course, continuing with the mainframe and with efficiencies, which is the last stage that is very relevant, especially on the natural persons clients. And this is the next stage. So we can service the clients in the different segments with the value proposition that is adequate, but with the cost of service that is correct. And with that we can service our current clients, the Superapp is not even a pilot anymore. I mean it's a lot of clients of those that migrated, and those other clients of the banks, this is going to be a new lever of growth with an efficiency level that is lower. Part of the evolution of the bank has to do with that. So we are optimistic with everything that we've achieved of course, correlated with the activities and the -- we have the nominal GDP growing, but still with a lot of opportunities to be captured.
Renato Lulia: [Interpreted] Thank you, Milton. For the next question, we're going to switch to English as we always do because that comes from Tito Labarta from Goldman Sachs. Tito great to see you. Thanks so much for joining the call today.
Daer Labarta: Great. My question is on the financial margin with the clients. I think very good performance, particularly in a seasonally tough quarter and also given the high base you already have there. Just looking at the year-over-year rates running a bit above the guidance. I mean, you sounded a bit constructive, Milton a bit before on the potential growth outlook. So could there be potential upside? Or just help us think about the continued growth of the financial margin with clients and also maybe beginning to think about, well, maybe we saw the last rate hike earlier this week and maybe the market is beginning to price in potentially lower rates later in the year. So just help us how do you think about that financial margin with the clients given sort of the current environment and potentially the rest of the year?
Milton Maluhy Filho: Thank you, Tito, good to see you, too. Always a pleasure to have you here with us. Let me start saying that we are very positive with the financial margin with clients, of course. When we do our budget, we take in consideration the level of interest rate, we had planned or budget those hikes that we've seen so far. Let's see what happens in the next meeting. But at the end of the day, all of them somehow are incorporated in our guidance that we released in the beginning of the year. So we are positive. I still believe that the guidance is the best information that we have today. But if I had to choose a geography, I would say that we would be much more close to the top of the guidance with the financial margin with the clients that in the average or the midpoint of the average -- of the guidance. So my view is that the range still absorbs our best expectation, but we are positive that we can deliver a near to the top of the range. This is our best estimative expectation, I would say, today. A lot of opportunities. As you saw, the average balance of our portfolio has been very positive in this quarter. We had those seasonal effects of last calendar days, business days and also current days. But in general, all the operations performing very, very well. Of course, the interest rate has an impact as well, being on the spread of the investments and the deposits that we have in the bank, but also on the working capital of the bank that has been increasing quarter-over-quarter. So overall, positive, and I believe we can deliver the top of the range by the year-end.
Renato Lulia: [Interpreted] Thanks, Milton. Now going back to Portuguese. We have Marcelo Mizrahi. Good luck, you're in BBI. Welcome to the call.
Marcelo Mizrahi: [Interpreted] Well, it's an honor to be here after so many -- 20 years as an investor, analyzing the bank on the other side. So my question, a lot of them were answered, but when we think that One Ita� -- the market opportunities that One Ita� can bring, we think about the segments where Ita� can have an increase of market share. So credit card is a big market share. We have an opportunity for growth. But maybe the question for -- I would be thinking about the platform of investment. How do you think the platform of investment in a sense that if One Ita� with the type of client that One Ita� will bring, will be opening an opportunity for growing in the retail, what would be possible to develop so that Ita� can bring a client for the platform of investments that already exists, already was a discussion of what was the lessons learned during the development of �on. So how do you think about this business segment once that the bank is not a shareholder of XP. And I think that there is an issue that can be identified that is very different.
Milton Maluhy Filho: [Interpreted] Well, thank you, Marcelo. Congratulations, on of the challenges. Thank you for the questions. Well, first of all, One Ita� is very important to say since we have it being born from the origin of credit cards in each which are the two big publics that are being migrated. We don't think that is necessarily in the credit card, there's always going to be an opportunity because it's always the same client operating with us and sometimes they come through a specific product, and we have the capacity of broadening the offering of credit cards for this line. Number two, when you segment this space of 50 million clients, you can see that there is clients from all the segments. We have a low income Ita� ag�ncias, we have the average income on the class, and we have the affluent of the Personnalit�. Of course, evident one or the other clients from private. But I would say that this is concentrated in PF in the natural person segment. So the opportunity not only goes through the evolution of the credit relationship of that client, but products and solutions. So you can evolve in the transactions, accounts payable, you can bring a flow to the bank all the features that we launched for the clients to seize our resources, anticipation of the fix credit, you start to lever within the platform itself and investments and the model of attention of Uniclass. Personnalit�. It is also something that we can offer for these clients, all the programs and advantages for the clients. So we see an opportunity for cross-sell, now solving the pains of the clients and increasing operations with this client and investment is one of them. And here a link with �on. We are very satisfied with the evolution of �on throughout the year. It has an extraordinary result, so when we see in the natural person is very strong and the �on has always worked with managers, which is a specialized sales force, specifically in Personnalit� and Uniclass. And they also talk about investments in other products, banking credit, real estate credit, and all the other clients. That composition and that logic of the specialist has brought really results that are very strong. We're very excited with all the evolution when we compare it to the market, and our capacity for generating value, we are very satisfied. When we measure the flow, it's very positive. �on has a scalability that is limited because that model where you have the human attention, it works for a specific public of clients, but for a more scalable public, which is a great deal of what is being migrated to One Ita�. We need to have a solution that is more intelligent for servicing the scalable client. And I was at the Web Summit last week, and I was discussing that we're launching, we're with a pilot, with a wealth specialist of investment powered by artificial intelligence. So this is something that we've been working for a long time. We've turned the year with pilots and testing. We scale -- we've done the scalability of the test. And this is a question, well, what about the models of LLM and all the artificial intelligence that is available for everything? What is your edge? I think that there is a combination that is powerful in the bank, which is the combination of all the know-how that we've acquired because we are a platform that is very strong and the investments in Brazil. The main platform of investment in Brazil when you look at the know-how and the management of investment and all the learnings that we have of the open platform combined with the artificial intelligence, you can train our agents in artificial intelligence with data that sometimes you're not going to have in the market. Somebody that can have a great technology, but doesn't have the behavior or the expertise of allocating and curatorship of the clients. This combination is very powerful, and it will allow us to scale our relationship with the clients in the world of investment. So we are in an early stage. We are -- have to learn about what are important when you discuss investment you have to create the guardrails, so you can be careful, but the results have been very encouraging. And we hope to scale this solution all throughout the time. It's connected all throughout the Superapp. It's not a chatbot. It's an artificial intelligent experience that will give you creatorship and consultancy and will help you with the management of your investments with all the training and the -- that we've acquired all throughout the year. And this will help us scale the platform of One Ita� and other relationships that we've had with the clients that are at the bank that need a more specialized service.
Renato Lulia: [Interpreted] Now the next question. Mario Pierry from Bank of America.
Mario Pierry: [Interpreted] Congratulations on the results, very predictable. We see an improvement quarter-on-quarter, and the market appreciates that. So Milton, a question for you, more about expenses. You've shown that the bank has done a great job, and we have the lower threshold, but when we look you closed almost 0% of your branches all throughout the year. And your number of employees, excluding technology, dropped just 2%. So today, where we see the number of employees per branch is 32 a year later it was 29. So I wanted need to understand, how do you see that metric evolving and if there is still space for building branches because every call we hear, investment in technology, why that? I wanted to understand from you, how do you see the function of the physical branches from now on? We have a survey we see that the people still have a value of going to the branch. So what would be the ideal number of branches and number of employees per branches.
Milton Maluhy Filho: [Interpreted] Thank you, Mario. Always great to see you in our calls as well. I think that the question is very good, Mario. And let me give you a few data that can help you in your train of thought. Well, first of all, we don't have an objective before we don't think about we're going to close so many branches. Of course, we do the forecasts, we do the analysis, and it's a very complex algorithm. It's not simple. We want to close, we want to close. We look at a lot of variables, the geography clients, penetration of the branch in the region, the result of that branch, the capacity of doing the scalability of that agency or now the distance between the branches, can we service that client in a central branch and have a business branches more satellite. So this is an analysis that we've done daily by our team. And this is an important point. Well, there is a point that there's a great deal of these branches, we are migrating to digital branches. It's a completely different model of servicing. The cost of service is much lower and with the scalability and the capacity of adjusting the account loads in a very important way. Second aspect, when we close the agencies that we close, we always look at the distance, how many kilometers we are from the next agency, will that generate attrition with the clients that will service us or not. So in the end, depending with the distance, we have a reduction when we close an agency because a great deal of the managers of relationship given that the account loads are finite, we can transfer the commercial teams that service these clients. We decreased the work of those teams, maintaining quality, measuring NPS, and we are just as necessary. So in fact, this quarter, if you take a look, there was a reduction of 100 branches. We know that the model digital has an important -- it's important for the medium high income, low income is less efficient to service and all the work that we've done to make our journey digital and making the Superapp digital makes us have a more competitive value proposition because once again, our objective is to service the client in a way that they want to be serviced. So we don't close the branch by brute force simply because we want to adjust the cost and we reduce structure, because when you do that you are taking away top line as well, relevant top line and you're leaving the clients without service. Well, we need to service the clients with the right price. So that these models of attention are sustainable in the long term, and this is the work that we've been doing on throughout time. The digitalization will allow us to adjust the business model, so we can be competitive with an efficiency level that is adequate so we can service the different publics. And to be, in fact, take on more credit losses in the more vulnerable publics is not the very low income. This is not a public that we have a target objective, but the low-income clients that are resilient in a long credit cycle. So there is a shuffling that we've been doing. And the important is to see the evolution, the direction of the evolution and the work has been built from the base upwards. So now you're going to see in the future evolutions in these indicators, I will give you more clarity naturally of what is our strategy. But it's one step at a time. We are aware of the challenges. But we want to do things well done. We want to take care of the clients, the people in the bank and all the transition has to be done in the best way possible. We're in the process. This is a process that will be picking up speed throughout the next years.
Renato Lulia: [Interpreted] Thank you, Mario. And now Renato Meloni from Autonomous. Welcome to the call.
Renato Meloni: [Interpreted] Good morning, everyone. Thank you for the opportunity, congratulations on the consistency of the results. First of all, let's go back to your answer on the financial margin of clients. If we -- well, you're running well above the guidance now. So the issue of the deceleration of growth has been clear. But if we take that margin with the end of guidance okay, you're still running above what you already mentioned. So I wanted to understand, within that implicit compression, where do you see the biggest risk and among the segments that we are decelerating, how will that influence the mix? Or will that come from the increase of the cost of funding? And secondly, can you mention the evolution of the sector of credit? Where is the biggest risk? And how is the bank positioning itself for that?
Milton Maluhy Filho: [Interpreted] Thank you, Renato. Thank you -- and what I wanted to tell you is that when we look at the margin, well, first of all, portfolio, this is a central point. We've seen the portfolios perform within what we expected, average income coming up. We have a volatility in -- because of the exchange, but the exchange, Gabriel is always there monitoring the effect. So this is an outlook that we have a constant on look, so we have to look at the average numbers that I just presented to you. Second aspect that I wanted to mention to you. The interest rate itself. It's a pass through for margin that is slower. And why is it slower? Because we do hedging of those positions. So with the interest rate, it's a low cycle and the interest rate drops very a lot. We take longer to proceed this drop because the portfolio works in a very ruled way. So that increase in the interest rate, there is a pass-through, we predicted it. So we can observe in the working capital, that effect of the CDI generalized, you can see an annualized margin that is relatively stable with small oscillations. The adjusted margin to the risk is relevant to the capital because at the end of the day, we published and you've seen that our margin adjusted to the risk is the best one of this year since the fourth quarter of 2019. So when we look at the projections of the margin adjusted for the risk in the payroll loan, it can have in consolidated -- sorry, these are small effects with a very solid effect. This is the important thing. The risks, I think that we understand that the portfolio will continue to perform as we expected. We don't see a risk in spread in our portfolio. The increase in the interest rate somehow reprices capital markets less competitive, even though we had a quarter with good activity less than last year. So we have more operations for the balance sheet and the demand that naturally with this level of interest rates, tends to be less. The companies and the people do less consumption and less decisions on purchasing and we feel that, but we are constructive in regards to the financial margin with the clients, positive that we will have a solid year in the value delivery. And you did a complement on the first question. It was just about the margin -- it was about the credit cycle. Yes. How do I see the credit cycle? The credit cycle is the following. We can see good indicators that are favorable. We wanted to open the short delays because since we are in an expected loss and we are -- have been working with expected loss for a long time, we have to look at the dynamics of the short delays because it gives you the tips of what's up ahead. And if it's a short-term, those short delays that will bring the provisions in a model that is very sensible with the expected loss. When you see delinquency in natural persons growing in 26 basis points and what we wanted to show with 2 decimal points is that we follow this factor with the average rate. And that's about 30, 40, I would say, more than 40 than 30 because there were a few years that, that logic was discontinued post-pandemic in the past was very low. But we see a process of derisking that was very high in the portfolio. So this is a quarter that is more typical with the quality of portfolio that is very good. So that's why we're running in those thresholds. That's the big indicator, so that's why we -- when we look about the provisions of other formation, that ends up being higher than 100%. It has to do with the double effect. The formation is very good because the portfolio is performing very well. All the work of credit that we've been doing throughout the years. But with an expected loss that is since the short-term, with the natural person that happened in this quarter, it brings more provisions. So that's why we provision 120% of the formation in this quarter. And now throughout the time, we imagine that there's going to be a reduction that is natural. That's why we pay attention to the short term. When you see the segments and then you see the natural persons, PME -- the SMEs, the big effects of denominator with the big companies and any change that you do in the methodology of write-off can lead you to have distorted indicators. So since we didn't change the criteria, the indicators are comparable, and that's for all the products. So the cycle is benign, but we are cautious because we see indicators of utilization, a little bit of consumption of liquidity using the working capital of the companies. This is a quarter that is pressured. When we project our indicators of credit up ahead, we have a comfortable stability, except with the SMEs that we mentioned that there's going to be a normalization over the last 2 quarters, but they were below what we expect that is reasonable. So I don't foresee -- well, but the market is more nervous. We see more clients that want to discuss. But as I told you, our portfolio has never been so resilient. For a challenging scenario, if it's up to see, we don't see a credit crunch. The liquidity in the capital markets is still strong, and we're going to see the evolution. Our portfolio is very healthy. The delinquencies are well-behaved, and we are very excited with the perspectives.
Renato Lulia: [Interpreted] Next question. Matheus Guimaraes from XP. Welcome to our earnings call.
Matheus Guimarães: [Interpreted] Congratulations on the results. I want to ask a question about the cost of funding. I think that the financial margin is still very strong, and we see a few competitors with strategies of cost of funding. I wanted to understand if you foresee that there is a space for some improvement in that indicator or if eventually some changes that the competitors are doing, and they're going to be opening opportunities for you, that would be more aggressive in that point. That would be the first. And if you allow me, follow-up on the question early on about the private payroll loan, and it's clear the subordination issue, whether if it's credit loan with our guarantees or the payroll loan that already existed. So my question is about the subordination in the credit card because with the launching of the private payroll loan with the app, cart�o virtual, the client could take a debt in the bank, maybe they didn't even have a relationship the day before. So can it affect the appetite in the segment of the credit card?
Milton Maluhy Filho: [Interpreted] Well, thank you, Matheus. Great to see you. Thank you for the question. Now starting about the cost of funding, depends on how you see the cost of funding and a strong statement. In the end, of course, we have a cost of funding that is optimized in the bank because of all the business lines that we operate, these are products of treasury, et cetera. So our cost of funding all the flow of clients that we have in the bank, the cash management. Well, the -- we are centered in the relationship with our natural persons clients and so the cost of funding is optimized. So if you see the deposits in the portfolio of natural persons, we have the best relationship in the market. So it shows that we are a solid franchise for our investment in a solid alternative for our clients. But the most important thing to see is that there is a client on the other side. So here is where we do the segment of franchise. We want and we will continue to be a strong franchise of investment for our clients. So our objective is not to optimize the cost of funding. So the cost of having a client that will not engage on the other hand, with the bank and you'll lose the vision of lifetime value. When we launched Cofrinhos, the piggy bank, where the client has the alternative of taking the money and do a savings account or doing a value reserve and then we pay 100% of the CDI. It shows that our vision is -- of client is not the optimization of the cost of funding, this is a part of the story. So I see this as an opportunity, because naturally reducing in a relevant way, of course, you can have volatility and the cost of capturing. That's part. We have LCR, close to 200, we had it higher. We had the payment of extraordinary dividends. We didn't follow up on that because if it was for that, we had to reduce in a very relevant way, the cost of capturing deposits in the end, we will lose deposits by design, but we will lose the client as well. So in the end, what we want to do is service the clients in the best way possible with a franchise of investment that is very robust. So to answer that question, it depends on the opportunity of serving our clients better and showing that regardless of the cycle, Ita� Unibanco is a great place to invest. It's a great place so that the clients can service whether in the platform and opportunities and alternatives for investment. We're not going to do changes in our structure of force capture. I'm not going to say that we're not going to fit in with it, but that we're never going to change the rates of -- well, it depends on the transfer price, the management of liabilities, as far as the business dynamic. But the important thing is to strengthen the franchise of investment and the relationship with our clients. That's our main strategy. About the private payroll loan and the subordination, my vision is that the credit card, it was never in a way that it was conceived. I've discussed that before, a good platform for financing the consumption. It's great for transactions. It helps with the experience of the client day-to-day because of the loyalty program or the simplicity of the transaction. But when the client needs to finance that consumption, today, 86% of our portfolio of BRL 140 billion do not have interest rates that's the phenomenon of the parceladourouro. So at the end of day, what we have for finance portfolio, we've tried to -- the PIX in the credit card, the other products is a smaller part. Even though that portfolio has grown, the finance portfolio grew in the quarter and it helped with the margin. The feeling is that when you give the private payroll loan for that client, you have a better product for financing, limited to the 35% of the salary, of course, but probably will be the best alternative. To offer to the client the best alternative and the cheapest one and complement their needs with other products, where we need to leave from the more competitive to the less competitor because the delinquency in credit card specifically in the rotation products are very high. So this is going to be a natural way whether if it's by the credit PIX or private payroll loan, et cetera, of the finance that was done in the credit card and the rates that are practiced they tend to converge for a healthier dynamic. But let's remember that the base of salary man in the public of credit cards, it has a size, but it's not so relevant when you look at the total public. So when you look at the capacity of offering, it's not exclusively in the salary man, you can service other publics as well. So I think it's constructive. Certainly, the market will be accommodated, but it's a step at a time, but we are going in the right direction. More adequate rates with adequate risk, less delinquency, and we can defend the net financial margin and taking the product -- the client to the right product of consumption that clearly is not a credit card where that usually happens.
Renato Lulia: [Interpreted] Next question also with us Guilherme Grespan from JPMorgan.
Guilherme Grespan: [Interpreted] Thank you for the presentation. So great quality of the results. I think that they asked a big debate of the case. I wanted to clarify 2 dots that are more specific on this quarter that we are in now in the results. First of all, it's working capital, you mentioned on your presentation, but we noticed a strong performance of that line in this quarter. It's longer duration, it's not a spot and then you have the vertices of the investment when you see the yield of that line, it was very representative. We had gradual increases and the implicit yield went from 8.7% to 11.2%. So since this is a line of working capital and others, I just wanted to understand if it's working capital or there is another others that are influencing? And if it's sustainable, more it's important that level of yield that we've seen from this quarter ahead. And the second question, just to the taxes were higher in this quarter, should we expect the taxes conversion for the credit? And if you can explain, what led to the increase of the taxes in this quarter?
Milton Maluhy Filho: [Interpreted] Thank you, Guilherme. Thank you for the questions. Working capital of the bank and others, as you've seen, what are the others? Just to give you some more visibility. Well, investments that we have in companies that we do not necessarily consolidate and we do by having the patrimonial consolidation. Well, the investment is within the working capital. So if we have an activation -- purchasing of a payroll, and we have to do the activation of that payroll that's in the working capital. So there are some effects that are there that can have some seasonalities. So the part of the effect is the result itself of the rate in the capital that comes in the quarter and a part are effects that are relative to the previous quarter. So these are deltas of effects that are happening or of the variation of [HAP] or intangibles of payrolls than we had in the previous quarters that were higher or we didn't have negative effects in this quarter. So it's a bit of a combination of both that lead you to bring this effect in the working capital. So I think that now, Gabriel, this -- well, our expectation is more normalized, of course, this volatility can happen by the effects that I mentioned, but these are adjustments that are done in between quarters that show a bit of a discontinuity and this is the level of working capital and the rhythm seems adequate, right?
Gabriel de Moura: Yes, I think that the yield that you mentioned is the yield that makes sense. With other disclaimers that Milton mentioned on the volatility that we had quarter-on-quarter, whether if it's a basic effect, things that happened in the previous quarter or by the yield of the portfolio of what we are investing, looking up ahead.
Milton Maluhy Filho: And about the rate of taxes, very simple explanation. In fact, we have two effects that will explain this al�quota. Well, first, because the bank is conglomerate with several vehicles, we have financial and non-financial vehicles. And we have three types of al�quotas in conglomerate. We have companies that pay 34, corporate al�quota. There are companies that pay 40 and there are companies that pay 45. Depending on where the result was generated, you change the mix. In this quarter, we had more generation of results in companies with higher al�quota so naturally you have the al�quota is growing effectively. The second aspect is more layer you generate less is the benefit of the interest rate on the -- on our own capital. So the higher the profitability of the bank, the JCP is lower because it's limited to PL and TGLP. You have a benefit that is defined for a higher net income. So the benefit of the interest of our capital is divided at the higher your result is. So the result is higher diluted the interest of our capital JCP. And the second one is the mix of the businesses that we have where the businesses with a higher al�quota had bigger results. So we pulled up the higher al�quota. The expectation is to try to converge to the guidance and maybe more close to the roof of the guidance and below. Whether it would be different? No, I think that's it.
Gabriel de Moura: When we look at the bank, I mean there is the effect portfolio that Milton mentioned, 120 companies that we have in the conglomerate different profitability, different income, different sizes. Depending on the seasonality of all this, you generate fluctuations in that tax rate, and that should converge with the guidance that we've seen in the beginning of the year. That information is the guidance, any difference in the next quarters, we will do the adjustments. But it's good cholesterol in the end of the day, good cholesterol and diluting the effect of JCP interest of our capital. Thank you.
Renato Lulia: [Interpreted] And now also Gustavo Schroden from Citibank.
Gustavo Schroden: [Interpreted] Congratulations on the strong results. Swiss watch, high quality. Question is about the mass. We see the ROI per segment is that you see the retail 25%, wholesale 25%, 30%, that order of magnitude. But in the previous quarters, you shared with us that the massified still had a challenge of profitability. The bank has been doing investments we've seen the efficiency level improving, of course, there is the cost. But I wanted to know how do you see the profitability of the massified? Is it improving to the point that you're getting to a stage that you can be higher in the massified? Have you got to a level of profitability or there is still some space just so we can understand when the bank or what is the stage that the bank is diversified? And does the bank believe that we can get to a profitability rate level that is higher in this segment?
Milton Maluhy Filho: [Interpreted] Great to see you. Congratulations Gustavo. Thank you for the initial words. Remember, the third quarter of '22, when I was discussing that we've reached 16.4% of profitability in the retail, and we were not happy. This is a process cycle of credit that is tougher, but we had a relevant work for this portfolio. And today, I'm happy to look that some quarters later, we are running at 25% of profitability in the retail, but whether if it's a natural persons or company. So we need to break down this vision. The two businesses are running above cost of capital. So we don't have the sensation and there is a composition. Profitability in companies is even higher than the clients, natural persons, but we still with the monoliners, which is where we had a cycle of credit that was tougher with the credit card and vehicles, we did a strategy for revision that is relevant in the way that we work and the appetite of risk and that process was very salutary for the portfolio. There was a derisking combined with a better management penetration and increase of engagement of the target clients that would make the -- bring more profitability for this threshold. So when we look back to the profitabilities that we had many years ago, several circumstances. First, the regulatory caps did not exist at that time, it didn't have the cap of the credit card, it didn't have the cap of many things. So the regulatory changes generated impact. And this is a market that is more penetrated in credit than it was at that time. So you have a cost of credit that is more preponderant and the profitability of credit that pulls the profitability of everything lower, but massified. I think that we are still very far away from what we wanted to have in terms of profitability. So we have a great opportunity. When I see the segments of high, medium income, Uniclass, Personnalit� running with profitabilities that are very solid and very good and with critical mass. So you have to have volume for the generation of revenue basis of clients. So the segments have been performing very well and they're growing. When they look at the low income, the opportunity is enormous because we have a model of service, so we can have a more adequate profitability for our appetite. Of course, the basis, there is a series of elements. The clients that are migrated from one segment to the other. So the attention to the client penetration and the increase of engagement, but there is also a model where that has to be optimized and should be optimized all throughout time. Answering your question, if -- what we are not optimizing in the attention of massified, we have a homework, all the digital evolution of the bank and the evolution of the app and the migration will service that, my expectation is short term. So, in the next quarter, I will ask you a question, well, I don't think that this is an evolution happens in a quarter, but it's an evolution 3 to 4 years that is relevant. So the expectation is that we have an opportunity that is enormous and we are ready to execute this path in the correct way, taking care of our clients, improving the experience in servicing the clients in their segments with the model of attention correct at the right cost, so we can absorb and accept more losses in the portfolio. So there's a change in the appetite, a lot of work of improving the experience and evolution of the platform.
Renato Lulia: [Interpreted] Next question from Morgan Stanley, Jorge Kuri. Jorge, Good to see you. Thank you so much for joining us today.
Jorge Kuri: Congrats on the results. Let me go back to rates. And this is a bit of a longer time frame question beyond your guidance for the year. Evidently, rates are at a 10-year high roughly. And so I wanted to ask you, what do you think the windfall that you had benefited from rate in your record ROE today is? And look, if we go back to when rates were below 10%, the ROE of the bank was around 18%, 19%. Today, it's at 22%, 23% and there are so many moving parts. So I'm not -- in no way suggesting that there's a regression analysis for rates and ROE. But I guess that's the question I'm asking you, which is how do we quantify how much of the very high level of profitability that you have today is due to this very excessive level of rates. And then as we hopefully normalize rates in Brazil to hopefully stop 10% or around 10% within the next 2 to 3 years, what does that do to your ROE? And what are the things that you can still do over the next 2 to 3 years to make sure that, that level of ROE that we're seeing today doesn't dilute over time? Or maybe it will, and it's fine as well. So yes, that's what I'm trying to get to.
Milton Maluhy Filho: Okay. Thank you, Jorge. Thank you for your question, your words. Low time, no see you in our call. So thank you for joining us today. And I would say that we have a slide I think for you, Jorge. And sometimes we bring this slide in our presentations here, where we try to show how sensitive is the margin of the bank and the profitability due to interest rate in Brazil. I think it's not a simple question because, as you said, there are many moving parts when you look to that impact. What I can tell you is that in the short-term, the benefits are working capital and also deposits. Those are the two more relevant impacts that we have. But at the end of the day, we hedge those effects. So it doesn't come in the same speed as we see the hike or the reduction on the interest rate. So it's less sensitive due to the level of hedge we do to maintain more stability in our figures, this is one point. The second one, I think when the interest rate starts to go down, we see more activity, more activities, more portfolio growth. More portfolio growth is more business with our clients, more engagement, more penetration of product, services, derivatives, cash management, effects, all the products that we serve our clients. And so we have some compensations in the portfolio in different lines due to different reasons. We have impact in the financial margin with the market. We have impact in the financial margin with the client. We have more portfolio growth, less delinquents, especially on the individual side. So it's difficult to give you one number. So the good thing to see is in the long-term, when we see all the volatility of the interest rate, and we see our NIM, you will see it much more stable than your expectation. And this is due to the broad portfolio that we have, very well-balanced in all lines of businesses. This brings us a good portfolio sensitivity and gives us a lot of natural heads inside the portfolio of the bank. So those are the short-term impacts and they are positives, you are right. But on the other hand, we have costs under control, and we have to deepen the agenda on that. If we believe there is no revenues coming for any reason, we have to go deeper in costs, so on and so forth. So that's why we look to the efficiency ratio all the time. We're looking to revenues, but we are looking over cost as well. So this is a general answer I don't have a key point to tell, this is what happens because the portfolio is very broad. But this dynamic is very positive, and the balance sheet of the bank is very less sensitive to the interest rate than people usually expect. In generally speaking, I prefer to work in an environment where the interest rates are lower than the interest rates that we are seeing today. And why is that? Because you might see a hike that could be beneficial in the short-term for the banks. But if it stays for long, the delinquency will go up very strongly, and you lose the capability to grow the portfolio. And of course, the activity, DCM, investment banking, everything is impacted. So our view is that for the long-term, we prefer to work with the structure of interest, much lower single digit, if possible, is much better for us in the long-term that 2-digit interest rate that we are seeing today. Any comment here, Gabriel, additional comments?
Gabriel de Moura: No, I think as Milton told you, Jorge, there is a portfolio effect on the bank, right? So with the different cycles of interest rates, when you take a look at the short-term, you're going to have more of the liability income from us, from capital and everything. But the flip side to that is asset growth, right? And we see that in other countries that we operate, right? So the experience in Chile, for example, with much lower interest rates, you see the penetration of credit to the GDP, much higher than we have in Brazil. So yes, of course, some of the lines of business that we have on lower interest rates will be a little bit lower than we have nowadays. But on the flip side, if you take a look at the fees, transactions, investments, and asset growth will be much different. So I think that the portfolio effect at the end of the day is positive for us.
Milton Maluhy Filho: And you have also the cost of the hedge of the capital index as well, Jorge -- sorry this has an impact as well. And this is why we believe that the financial margin with the market for the next quarter might have more impact because as high is in the interest rate and it's bigger is the difference between the interest rate that we have here compared to the countries where we operate, higher the cost to have the capital index. So this is one of the reasons why we are seeing, we expect to have a guidance more aligned to our expectation than to have four consecutive quarters in line with this quarter that we had. This is the reason why because the cost of hedge, we paid BRL 500 million this quarter. We expect this to grow in the coming quarters. And also, you will see some effect on the banking book, even though we do a very dynamic hedge on the book, we might see some impact with the expected results coming from the banking book to be lower in the coming quarters. So this is also the flip side of working with a high interest rate in Brazil.
Renato Lulia: The only minor comment I was going to make is that they're Brazil-specific topics as well. So we have products that have caps, right? So payroll loans and [indiscernible] for overdrafts. And then every time that the cost of funding goes up because Selic goes up, your spread is compressed. So whenever Selic goes down, you might see also the spread [indiscernible].
Milton Maluhy Filho: I agree 100%. We said on the retail operations, as I was saying, you have caps on a credit card, you have kept on Consignado, the payroll loans, you have caps on overdraft. So it puts pressure as well on the profitability of the retail whenever the rates are high. So as I said, many effects, we have to take all of them in consideration, but that's why I always say and we try to show, as I said Jorge, we are less sensitive to interest rate than it seems like.
Jorge Kuri: So if we bring it all together...
Renato Lulia: [Interpreted] Thank you, Jorge. And we are warm up in English. So let's keep that language because now we have Carlos Gomez with us from HSBC. Carlos, great to see you. Thanks so much for joining.
Carlos Gomez-Lopez: Congratulations everybody else for the results. And thank you for the reference to taxes as good cholesterol, we will use that. That's very good. My questions. First, you have made a [indiscernible] for showing us the new classification of loans by stages and new provisioning. I think that gives a new insight about how the profitabilities for each type of lending. Do you think that we will see a change in the market going forward when the data points when everybody start to look at things this way? Do you expect perhaps some products to become more -- to become bigger, some products to become smaller in the future? And completely and related to that, we haven't heard about any possible changes in taxation on IOC or of your subsidiaries abroad. Do you think anything like that is in the works for the coming months?
Milton Maluhy Filho: No. Thank you, Carlos. Thank you for coming. Thank you for the initial words. It's a good cholesterol whenever you have the same corporate tax, right? When it goes up for legal decisions or regulatory decisions, this is not necessarily it's the good cholesterol because at the end of the day, we know that if you have a hike in interest rate, in tax rates, what happens is that the cost of credit in Brazil increases. And of course, the payers the ones that are depending on lending and needs to finance their needs have to pay more whenever it happens. So it's always important to remember this is how we see whenever we have a hike on the corporate tax rate. So my view is that these stages the way we are showing now reflects the way we manage the bank. So we don't expect any change because now we have the local or the BR GAAP IFRS local. So we don't expect to change the way we operate inside the bank because of that. This will give us, in our view, we'll be more transparent, more comparable. It will be easier to show, reflect better what we do inside the organization. So I don't expect any change in the way we operate the products and the businesses especially, because as I said in the very beginning, we haven't changed any method, any criteria compared to the BR GAAP when linked to the write-offs, for instance. So as we keep exactly the same way, it shouldn't change the way we manage the organization. Your second question on IOC. No, we don't see any discussions coming from there. I know there is a discussion now in the Congress. There is a proposal coming from the government that have to be analyzed by the Congress that is increase the corporate rate withholding tax with -- for dividends, they take out some exempted products above specific income that the people have. So that's what we could see in terms of change. But this is a discussion that it's still very open. Let's see how the Congress will react to that. We don't have any discussion related to increasing tax. We don't have any discussion regards to the IOC, and I think this is what we have now. Of course, things can change. And if you change, we're going to give you more color on that, but still waiting to see how the Congress will deal with this tax exemption for people that has up to BRL 5,000 in monthly income. So let's see what happens. Let's keep very -- follow very close.
Carlos Gomez-Lopez: If I can follow up your assessment...
Renato Lulia: [Interpreted] Next question is from Henrique Navarro, Santander. Great to see you.
Henrique Navarro: [Interpreted] Congratulations on that result. I think that the performance is solid. And my question is, well, talking to some of the participants in the market, not that there is a concern, but there is care with delinquency in the second quarter. The increase in Selic, you can have the lagging. So there is carefulness when we discuss the second quarter. Since we have several segments, I wanted to hear from the horse's mouth. Is there something that we should really monitor for the second quarter for delinquency? How do you see this evolution? And anything that you can share would be great.
Milton Maluhy Filho: [Interpreted] Thank you for the initial comments. You know that I don't look at the price of the share during the call. So you updated me. I only see it after the call is done because we're looking at the long-term and we are less sensitive to the spot price, but it's always a great feedback. So thank you for the initial words. About delinquency. So let's separate the discussion. For our portfolio, we have a stability in the delays or it's a big concern, and I was discussing small companies there should be normalization throughout the second quarter. So I think that this is the best expectation. I don't see something a lot different. But I look at some market indicators, credit cards, vehicles, national financial system. We've seen movements that are bigger in the portfolio in the market than what we've seen in ours. So an example, credit card. We have been for 7, 8 quarters with relevant reductions. And we have 25% -- we're almost 30% depending on the division with Carrefour that we have in the portfolio. So in the end ex Ita�, we've seen a performance in some products that is much worse than what we've seen in our own portfolio, this is for vehicles as well. So it's important to see that our vision is constructive regardless of a very challenging scenario. So to believe that the interest rates are going to be dropping there is not going to be an impact in delinquency, it's not reasonable. But the portfolio of the bank is very resilient. So that's why we don't see a lot of changes in delinquency, everything being constant. So there is a lot of dynamic of portfolio, but this is a portfolio that is very challenging. So the indicators of the market are sovereign, it's not what I think. So it's important to look at these delays, the short-term delays, the breakdown per segment, the CFN indicators, you're going to have a challenging scenario for the semester. I don't think it's a scenario that we observed, it's a scenario that we've looked for many years. So we have to follow that closer and the portfolios in several banks, companies in system they will perform according to their appetite and the risk profile that they have in their portfolio. We have a base that is very solid of clients, we give the derisking that is very relevant in the business of companies. We have a solid portfolio with the credit performance that is good. And in big companies, a portfolio that is distributed less concentrated in sectors with adequate volatility, so it's very well established. So I tell you again, we don't foresee. I'm not saying that it doesn't happen. Wholesale is events. We are subjected to events the whole time. So we work with the expected loss in other segments. We don't do the cross subsidy of the segment. We are always looking at the right level of provisioning. So our balance is -- the portfolio is very well protected. We have to follow this up.
Renato Lulia: [Interpreted] The last question, last but not least, Eduardo Nishio from Genial. Welcome.
Unknown Analyst: [Interpreted] Congratulations on the results, Milton Gabriel, and Renato. Quick question about the hedge of your capital index, which you've been group managers of capital of the cycle. The hedge has been a competitive advantage in this interest cycle. And my question is what the other banks -- we're not going to be able to replicate if you have a competitive advantage in this segment with the hedge, is there a difficulty to do this or not? And your vision, the hedge of the capital index versus the NII, what is the advantage and disadvantage because there's a cost.
Milton Maluhy Filho: [Interpreted] Thank you for the initial words. Well, first of all, there are a few answers, a few idiosyncrasies for Ita� Unibanco. First, the relevance of the operations outside of Brazil. When we compare it to other players, we are the bank the other Brazilian players that have a bigger exposure of activities outside of Brazil. Now when we got the portfolio of Chile and Colombia, it's very relevant in our assets. So we have a portfolio in foreign -- well, dollar, Chilean peso, but we have the banks in Uruguay and Paraguay. And we -- you have to take care of the portfolio that is sensitive to euro and dollars, and these are Brazilian clients that are taking resources and other currencies. In the past, we were very sensitive to the exchange because of the overhead. Remember that we had a positive result with the strategy, but depending on the level of the -- you would have to manage the liabilities of the strategies of how you did the hedge, but it generated dangerous tax effect. So when we don't have the overhead, our sensitivity to the stock exchange -- to the exchange rate, it drops in the capital because whether if it's CTTF or CTTT, it consumed the capital index in a different way. Afterwards, the big effect that we had is the variation of the portfolio. The hedge is dynamic, we're always looking at the cost of opportunity. So we have clearly a policy that has been approved, giving visibility to the regulator on how we do this, but we are always looking to try and optimize this hedge. So it's dynamic up until certain point because these are long-term strategies, and we try to bring a stability of the capital index in the end because that gives you surety to grow, to pay dividends, it gives you surety to advance. We now have capital index that is so important for our volatile activity, you have to be conservative by definition. So a bit of the risk appetite that we had way back where is higher than what we have today, it was because the buffer was higher to absorb the movement in exchange rate. When our capital index is less sensitive to the exchange rate, we have lower buffers and more leveraged. And with a dividend policy distributing more dividends because we define a lower appetite for risk. So we see this cost. It's lower than what we talked about the quarter with BRL 300 million. So the cost of opportunity is some what we've left the capital [indiscernible] with a currency with the growth of these portfolios in Brazil, so it's a natural hedge. The counterpart of that is that you do not bring this capital and you apply it to the coupon or the interest rates in the countries that you are. So it's -- you can replicate this. We were less sensitive than -- we are still more sensitive to the exchange rate because of the participation that we have in operations in Brazil, but we are less sensitive now. And we're always looking at the cost benefit. What is the level of volatility that we are ready to accept vis-a-vis the cost of carrying over these hedges.
Renato Lulia: [Interpreted] Thank you, Milton. Thank you, Nishio. That was the last question. With that, we finish our Q&A session. And just to remind you that the questions -- we had a lot of questions via WhatsApp by the investors, the IR team will answer. Thank you, Gabriel. Thank you, Milton. I'm going to give you the floor so you can close the call.
Milton Maluhy Filho: [Interpreted] Thank you, Renato. Thank you, Gabriel. We will be together with all the publications, all the calls up ahead. So thank you to -- by the support, the feedbacks and the recognition and the positive and constructive feedbacks that we received we're very satisfied with the evolution of what we managed to deliver in values, and these are values for the clients, the collaborators, the investors, and value to the society in the end of the day. Thank you for taking part. Active part, the questions are always good, so we can understand what you're looking at, what are your concerns to see if there is a blind spot for some additional hallmark on our culture, we don't know everything and we're very excited. I think that we're very excited structurally with the evolution of the bank and all the transformation that we've experienced with the amount of solutions that we've gotten with more strength and excited with the perspective, the macro challenges for everyone, the micro, it depends on how you do your homework and delivering more value for our stakeholders. So we are very humble. Everybody with two feet on the ground, working hard, knowing that the past performance is not going to guarantee of future performance. So we need to continue to be consistent because this is an infinite work, infinite game. I hope to be here in the next quarter. See you next time. And for those of us that are in the conference in New York, it will be the best conference of all the series, over 130 CEOs confirmed, incredible lineup. It will be a great opportunity for you, investors that are here to take part and have high-quality discussions. We will see you in New York. See you next time. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]
