Itaú Unibanco Holding SA Q4 FY2023 earnings call

Key Points

• Earnings for the quarter were R$ 9.4 billion, up 4% QoQ. Consolidated ROE was 21.2%, with Brazil's ROE at 22.2%.
• NII grew 3.3% to R$ 23.2 billion, commissions/fees/insurance operations grew 4.6% to R$ 13.5 billion.
• Credit quality: NPL 90 days dropped 20 basis points in Brazil, short-term delinquency under control. Cost of credit was R$ 9.2 billion, with a nominal drop. Noninterest expenses grew 6.5% YoY, efficiency ratio at 39.9% consolidated and 37.9% in Brazil.
• Capital: Tier 1 capital ratio ended at 15.2% in December 2023. An extraordinary dividend of R$ 11 billion to be paid in March along with R$ 4.3 billion interest on capital.

In the fourth quarter of 2023, Itaú Unibanco's earnings totaled R$ 9.4 billion, a 4% growth from the previous quarter. NII grew 3.3% to R$ 23.2 billion. Commissions, fees, and results from insurance operations posted a 4.6% growth, reaching R$ 13.5 billion. In Brazil, the loan portfolio growth: individuals portfolio grew 1.9% QoQ and 4.1% YoY; SMEs portfolio 2.6% QoQ and 3.5% YoY; large corporates portfolio 8.7% YoY. Total loan portfolio growth in Brazil was 5.7% YoY. Latin America's portfolio grew 3.1% YoY, excluding FX variation it was 5.3% YoY. Personalite and Uniclass loan book grew 16% YoY and 5% QoQ. Renegotiated portfolio had a nominal reduction of R$ 1.9 billion, a 4.6% QoQ drop.

2024 Guidance

• Loan portfolio growth expected to be between 6.5% and 9.5%.
• NII with clients growth between 4.5% and 7.5% (comparable basis 5.5%-8.5%).
• Financial margin with market expected to be between R$ 3 billion and R$ 5 billion.
• Cost of credit projected to be between R$ 33.5 billion and R$ 36.5 billion.
• Commissions, fees, and results from insurance operations expected to grow between 5% and 8% (comparable 5.5%-8.5%).
• Noninterest expenses growth between 4% and 7% (comparable 5%-8%).
• Tax rate expected to be between 29.5% and 31.5%, with goal ROE above 20%.

Risks

• Uncertainties related to Basel operational and credit risk, which could impact capital.
• Tax reform in Brazil could lead to impairment in credit and affect capital.
• Exchange rate variation in Latin America affecting portfolio growth.

Q: In regards to the guidance, when looking at the growth in the portfolio of credit and margin of clients, what does it imply? And about the dividends?

A: Milton Filho clarified that the portfolio guidance is about the tip of the portfolio and margin. The average portfolio throughout 2024 is lower than the financial margin with the client. Regarding dividends, the bank's decision is based on capital appetite, Basel requirements, tax reform, and uncertainties, with a payout of 60% being adequate.

Q: Gustavo Schroden asked about the guidance and ROE above 20%.

A: Milton Filho stated that the guidance is the best estimate, and the bank is working to deliver an ROE above 20%, with opportunities for growth in portfolios and margins.

Q: Mario Pierry wanted to understand the guidance of credit growth breakdown.

A: Milton Filho explained that the bank expects companies and segments to grow above average, with considerations of renegotiation drops, portfolio reductions, and effects of interest rates and market conditions on different portfolios.

Q: Rafael Frade asked about NIN stability and retail NPL formation.

A: Milton Filho said liabilities are growing, and the bank has managed to grow volumes, with NIN stable. In retail, the portfolio is safer than pre-pandemic, with NPL formation expected to be below historical records.

Q: Thiago Batista asked about efficiency and credit card.

A: Alexsandro Lopes and Milton Filho discussed efficiency programs with over 1,000 initiatives, and on credit card, it's about derisking the portfolio, rebalancing, and seasonality effects.

Q: Unidentified Analyst asked about funding composition and new regulation impacts.

A: Milton Filho said the impact of new regulation on exempt instruments is immaterial, with the bank able to substitute with other instruments.

Q: Tito Labarta asked about efficiency investments and credit card competition.

A: Milton Filho and Alexsandro Lopes talked about long-term technology investments and credit card competition being managed through integration and client relationship focus.

Q: Unidentified Analyst asked about ROE per segment and sustainability.

A: Milton Filho explained that ROE improvement is due to mix of top line growth, cost of credit, and business model rebalancing, with sustainability expected.

Q: Daniel Vaz asked about credit card strategy in mass channel and retail partnerships.

A: Milton Filho discussed credit card growth expectations, derisking, super-app integration, and restructuring of partnerships for better value proposition.

Q: Jorge Kuri asked about credit card regulation impact.

A: Milton Filho said the impact of credit card regulation is marginal, with the bank following the law and open to long-term dialogue on interest rates.

Q: Unidentified Analyst asked about vehicle portfolio quality growth.

A: Milton Filho said the vehicle portfolio has seen improvement in delays, digitization efforts, but is a volatile and challenging portfolio.

Q: Nicolas Riva asked about dividend impact on capital and perps call option.

A: Milton Filho said the dividend will impact capital by around 100 basis points, and the bank is not planning to call perps in the short term.

Q: Carlos Gomez asked about tax reform impact on capital and cost of equity.

A: Milton Filho said tax reform could impair DTA by around 60 basis points, and the cost of equity is around R$ 13.75 currently.