Good morning, ladies and gentlemen. Welcome to Itaú Unibanco Holding conference call to discuss 2019 third quarter results. At this time, all participants are in a listen- only mode. Later, we will conduct a question-and-answer session, and instructions will be given at that time. If you should require assistance during the call, please press the star key followed by zero. As a reminder, this conference is being recorded and broadcasted live on the investor relations website at http://www.itau.com.br/investor-relations. A slide presentation is also available on this site. Before proceeding, let me mention that forward-looking statements are being made under the safe harbor of the Securities Litigation Reform Act of 1996 . Actual performance could differ materially from that anticipated in any forward-looking comments as a result of macroeconomic conditions, market risks, and other factors.
With us today in this conference call in São Paulo are Mr. Candido Bracher, President and CEO; Mr. Milton Maluhy Filho, Executive Vice President, CFO, and CRO; and Mr. Alexsandro Broedel, Group Executive Financial Director and Head of Investor Relations. First, Mr. Candido Bracher will comment on 2019 third quarter results. Afterwards, management will be available for a question-and-answer session. It is now my pleasure to turn the call over to Mr. Candido Bracher.
Good morning, everybody. Welcome to our third quarter 2019 earnings conference call. I will start the presentation on slide two, where we show the main highlights of our performance for the quarter. The recurring net income was BRL 7.2 billion, representing a 1.7% growth when compared to the previous quarter, and resulting in a 23.5% ROE. The key drivers of this performance were the acceleration of our financial margin with clients, as well as a stronger fee revenue generation. An expected higher cost of credit partially offset these effects. Lastly, our non-interest expenses grew only 1%, despite the seasonal effects of the collective wage agreement, which increased wages 1% above inflation. In the next slide, we provide a more detailed view of these figures. On slide three, we show the value creation for the period.
In this quarter, we created BRL 3.3 billion in economic value, resulting from the difference between our ROE of 23.5% and the estimated cost of capital of 12.5%. Moving on slide four, we show that our total credit portfolio in Brazil grew approximately 4.9% in the quarter, and 11.7% over the last 12 months. The SMEs and individuals' portfolios led the growth as in previous quarters, b ut we had an important change as our corporate book grew annually for the first time in more than three years. Also important is the increase in corporate securities deals that we advised and structured for our clients, as more than half of the total accumulated volume for the year was originated this quarter. Lastly, the credit portfolio in Latin America increased around 3% in the third quarter, boosted by the Chilean operation.
Also worth mentioning, credit origination continued strong in all segments, as you see in the left part of the chart. On slide five now. On the bottom, we show that the positive effect from the change in the credit portfolio mix continues to offset the impact of lower interest rates and spreads, leading to a stable net interest margin. The credit portfolio growth was the main driver behind the BRL 0.8 billion increase in our core net interest income in the quarter. On slide six, we present the financial margin with the market, which decreased 8% in the third quarter as an effect of the lower interest rate on our foreign investments overhead strategy, as well as the lower financial margin in Latin America. Turning to slide seven, we show the key credit quality indicators.
Short-term delinquency reached the lowest level since the merger between Itaú and Unibanco, both for the consolidated and the Brazilian credit portfolio. The NPL 90-day ratio remained stable with an improvement in the credit quality of the SMEs and corporate portfolios, whilst the ratio deteriorated 20 basis points in the individual's book as a natural effect of the change in mix of the credit portfolio and expansion within our risk appetite. As expected, higher loan origination, especially in the retail bank, caused an increase in cost of credit. Delinquency and provisions are responding to the natural dynamics of the higher-than-expected portfolio growth in the retail bank in Brazil. On the next slide, we present a more detailed view of this dynamic.
Now, the graph on slide eight shows that the loan loss provision grew at a higher rate than the credit portfolio, except on periods of economic contraction when provisions grow even when the portfolio contracts. The gray bars in this chart are the loan loss provisions. For the first time since the merger between Itaú and Unibanco, macroeconomic conditions allowed two consecutive years of credit growth in the retail bank, as you see in the blue line. Therefore, we can observe that provisions are increasing along with the expansion of the credit book. We expect this dynamic to continue under normal macroeconomic circumstances. As you see in the chart, in the green line and in the red line, the ratios of NPL and of provisions over total portfolio remain stable. Now, on slide nine, we present a breakdown of our commissions and fee revenues.
As in previous quarters, the main highlights are our investment banking and asset management operations. Our investments open platform continues to accelerate, reaching BRL 172 billion in assets distributed. This represents a 50% growth in the last 12 months. The higher client base caused current account services to grow 3% in the quarter. We have also seen the credit and debit card operation continue to grow consistently. Lower fees in the acquiring business diluted these effects. On slide 10, we will invest a few minutes talking about our most important asset, our clients. We have 55 million clients, and in the last 12 months, our current account holders base increased 9%, reaching 21 million. In the same period, we opened more than 4 million new accounts, of which more than half were individuals under 30 years of age. Not all bank accounts are equal.
At Itaú, we open bank accounts that create value for the bank. Finally, showcasing the efficacy of our clients' increased strategy, our global net promoter score increased 8 points in just one year, and current account closures reduced more than 29% in three years, a n important achievement, albeit this is only the early stage of this journey. Turning to slide 11, we show that our non-interest expenses continues to be managed with focus and discipline. This is highlighted by its accumulated growth of just 2.8%, which is below the inflation rate for the period. This was achieved by a continuous investment in technology and optimization of our processes, which enabled our cost-cutting measures. This effort led to a cost-to-income ratio of 45.5%, the lowest in the last 10 quarters. This quarter, we concluded the Voluntary Severance Program. About 3,500 employees adhered to the program out of 7,000 eligible.
This result is slightly above our initial expectation and led to a non-recurring expense of BRL 2.4 billion before taxes. On slide 12, we show that the bank finished the third quarter with a Tier 1 ratio of 14.1%, a decrease of 80 basis points in the period. This effect is related to the growth of the risk-weighted assets and the distribution of BRL 7.7 billion as complementary dividends this quarter. Finally, on slide 13, we reaffirm our guidance for the year and continue to be comfortable with the ranges provided. Just like we did last quarter, it's convenient to situate our base scenario for each line, and we are changing the indications for the credit portfolio and for the cost of credit.
We now expect our credit portfolio in Brazil to finish the year around the top of the guidance and our consolidated credit portfolio to finish the year around the midpoint of the range. These higher expectations are related to a stronger demand for credit from individuals and SMEs. As a result, we expect our consolidated cost of credit to finish the year between the mid and the higher point of the guidance. As for the rest of the lines, our expectation remains unchanged with our financial margin as clients to finish the year close to the lower end of the guidance. We expect our financial margin with the market to be around the midpoint of the range.
As for the commissions and fees lines, we anticipate to finish the year between the mid and lower part of the guidance, and we expect our non-interest expenses to finish the year around the lower end of the guidance. With this, we conclude this presentation, and we may start the Q&A session.
Ladies and gentlemen, we will now begin the question-and-answer session. If you have a question, please press the star key followed by the one key on your touch-tone phone now. The questions will be limited to two per participant. If at any time you would like to remove yourself from the questioning queue, press star two. Our first question comes from Eduardo Rosman, BTG.
Hi, everyone. I have two questions. The first one is on asset quality. I want to know if you could comment a little bit more about the NPL increase on your retail book. I want to know if this is a yellow flag or it is just like a mix effect, you know, because I think the pick-up in provisions was pretty large quarter-on-quarter. I ask that because when we look to income commitment, that level at the Central Bank, we are able to see already a small deterioration, despite the much lower Selic. Probably, I would assume that this has to do because wages have been lagging. So, I just want to know if this is a concern, you know, for you, and if this is a concern for your growth on the individual book, you know, thinking about next year. Then, I will ask my second question later.
Hi, Eduardo. Thanks for the question. I would not say this is a concern, but it is of course, an item to which we pay a lot of attention and we follow very closely. We understand this small NPL increase in the retail book to be a normal effect of the change in mix of these lines. We, as I said, follow it closely, and we see nothing extraordinary there. We understand it is an expected effect. I understand what you mentioned about the Central Bank report, which points to a worsening in the credit quality in the credit cards, specifically. Our own indices are better than those pointed by the Central Bank. So, we did not see in our portfolio that worsening, which is represented in the Central Bank portfolio.
Perfect. Thanks a lot. My second question, I know we still do not have, you know, the budget or guidance for next year, but we are already at the end of 2019. I wanted to know if you could share a little bit your initial thoughts about next year. I know that you expect, I think everybody expects a better economy, right, so I want to know if you could share, you know, some thoughts about, look, does it make sense to expect loans to be a little bit better next year? Your NII has been recovering pretty nicely. Does it make sense to believe that it could grow a little bit faster next year than this year, at least the current portion fees, which has been a big challenge? You know, w e did a pretty good job over the past couple of quarters, right?
So, do you still think it's possible to grow above inflation next year? Insurance, on the other hand, you've been restructuring, but it's still kind of a drag on the results. Obviously, it's a very big line. So, when do you think that could improve? Costs, you've been very vocal about it. If you, because we have also tax rate increasing, right, so i f we add everything up, do you still think that we could see bottom-line expansion next year? If you could share some brief thoughts, you know, it'd be very interesting. Thanks a lot.
Okay, Eduardo. I will give you a brief overview, the general scenario for next year, but I will not go into detail in each of our lines of business since we haven't studied them in detail yet. We see a strong economy next year, at least strong compared to this year. Our economists forecast GDP growth at 2.2%. I even think it can be more than this. We expect the credit portfolio and services to keep on growing. Of course, we also expect the competitive scenario, competition, to increase as we've seen in recent quarters, and there may be some pressure on spreads and on fees in general. We will have this positive effect of the economic growth in our results, but we have some significant headwinds also, and I mention two.
First, the higher social contribution, which with the approval of the pension reform, is to increase from 15% to 20% again. Second, the lower interest rates scenario. We think that the interest rates may be even lower than 4.5% next year, the over-90 interest rates, and t his affects many lines in our balance sheet: the earnings on our own capital, the earnings on our floats generated by services, and the results of our overhead book. There's a mix for next year of positive expectation with the economy and some specific headwinds, which will definitely have an impact on our results.
Okay. Thank you very much, Candido.
Excuse me. Our next question comes from Jorg Friedemann, Citibank.
Thank you for the opportunity to make questions. I have two questions as well. Starting with the first, we noted that in the quarter, risk-weighted assets increased BRL 40.5 billion, well above the growth in loans. In addition, your Tier 1 is now running after the dividend at 14.1%, which is just 60 basis points above the target that you guided to the market at 13.5%. My first question, taking all of this into consideration, is first to understand if the RWA increase is transitory or if, you know, this should be recurring ahead, and i f you see room to continue paying dividends, the payout at the average of the last three years above 70%. Th en, I make my second question. Thank you.
Okay, Jorg. Thank you for the question. As we have been stating for quite some time, dividends are the consequence. Dividends are not a target. We do not target a specific dividend distribution on a proportion of our profits. I mean, dividends are the capital, which is idle around 13.5% of Tier 1 capital. So, I expect RWA to continue to grow. I expect that we will have profitable opportunities of using capital in credit and in other areas of the bank. Having said that, I think our capacity to generate capital is way above the possibilities of use of capital that we see on the short term. As a consequence, I think that dividend distribution will still be significant looking forward.
Perfect. Clear. Thank you very much, Candido. My second question, I see that you have approximately BRL 37 billion in net tax credits in your balance sheet as a result of the tax increase implied in pension reform. I think this is expected to be reassessed at a new rate, thus generating an extraordinary profit, right? In my numbers, this accounting profit I know could be approximately BRL 4.5 billion. Just wondering if this makes sense for you and what should you do with these additional profits? I am not sure if you are going to pay any dividends on that, but if you see any lines of the balance sheet that you would like to reinforce. Thank you.
Thanks, Jorg. Yes, you are right. Judging from past experiences, this lifting up, not lifting, this elevation in the taxes, will generate a profit over this BRL 37 billion, and I mean, w e still have not decided on how to apply this profit. This is a decision that we will take during next quarter and announce together with the last quarter results.
Perfect. Sorry, I just couldn't hear exactly your estimates of the profit generated. Could you please repeat, Candido? Thank you.
You didn't hear because I didn't say it, Jorg. We still didn't calculate it .
Okay, perfect. Thank you.
Thank you.
Our next question comes from Jason Mollin, Scotiabank.
Hello, everyone. My first question is on Itaú's focus on cost efficiency. Could you provide more color on the Voluntary Severance Program? You disclosed already that 3,500 employees participated, around half of those that were eligible. What are the expected cost savings versus the BRL 1.4 billion after-tax charge? Do you see more programs like this in the future? That's my first question. Thanks.
Hi, Jason. Milton Maluhy will take this question.
Hi, Jason. How are you?
Hi. Good, thank you.
Okay, great. About the effects of this program, what we can say is that we don't foresee in the near term any program like that. This is something that, the last time we offered a program like this to our employees was in 2010, one year after the merge. At this time, we thought we could do another one to achieve specific publics and employees from our bank, providing them the opportunity to do a transition in their career, and s pecifically because important part of this public were stable, s omehow, they were protected by law, so the only way they could achieve or move or do a career transition was with this program. This was the main reason why. We had 7,000 people and we had the adoption by 3,500 employees.
When we say that we had this major impact of BRL 2.4 billion before tax, I would say that some of it is for labor discussions in the future. We know the history of this specific public, t hat's why we made some provisions according to that. Some are costs that we had when you dismiss the people, so a regular cost of that. Some are some fines that you have to do as well as regular cost of this program. What we did is anticipate some of the costs we would incur in the coming years, especially because important part of that was stable employees. With that, we have this important impact in this quarter. We have a positive expectation of the benefits of this program in the coming years.
Of course, w e don't have exactly the numbers, but we are working at this moment with 3,000 employees below what we had by the year-end of 2018 in Brazil. We expect to be very focused on that in the coming quarters, so v ery disciplined in terms of headcount, in terms of growth. So, the idea is to keep this trend .
That's helpful. My second question is on Itaú's international presence and strategy. Could you provide an update on the outlook for Chile, which represents, the last calculation I did was around 17% of the loans for the group, and how Itaú views its exposure in Chile? And maybe, you can also talk briefly about, its small, but about Itaú's position in Argentina and exposure there. Thank you.
Okay. Thank you, Jason. As for Chile, I mean, it's 17% of the loans, as you know. I mean, our ownership of the bank is slightly above 30%, around 35% of total capital, and the m inority participation is 38%, no, sorry, minority participation is 62%. We see the bank evolving well in an economy which is replacing its difficulties, b ut, you know, we are progressing consistently in perfection, I think, in the management of the bank, of implementing new technologies, which we have in Brazil, evolving the technology area, which is the bank's results of mergers and so on. So, we see a positive evolution in our Chilean operation. Naturally, we were concerned now with the political events in Chile, the social unrest. We had a few branches closed because of that. But the worst seems to be behind us now, and we expect a normal evolution for the bank in Chile.
As for Argentina, as you know, is a much smaller operation, and we've been in Argentina for quite some time. Argentina represents less than 1.3% of our book. Given the long time that we've been there, we've grown accustomed to the volatility in the market and try to avoid it. Earlier this year, because of fears that we had that the situation could worsen in Argentina, we have reduced significantly our risk appetite for that market, which places us now in a more comfortable position to wait and see the evolution of the economy under the new government.
Thank you very much.
Our next question comes from Otávio Tanganelli, Credit Suisse.
Hi, everyone. Congratulations on the results. Thanks for taking my question. I also have two questions. The first one is on the NII with clients. Maintaining the 9%-12% growth for the year would imply a material acceleration in the last quarter. I would just double-check with you if you still think that the bottom end of the guidance is still feasible for the year. Second one, I wanted to get a little more color on the fees sustainability, particularly on the asset management segment, where we saw a very nice increase on assets under management, around 21% as per your disclosure. But even so, fees increased a little more than 28%.
So, I wanted to understand what is driving this very, very good increase on revenues, if there is migration for funds that charge a little higher management fee, or if some funds performing very well on the Itaú assets. If you could give us a little more color on that, it would be great. Thank you.
Thank you, Otávio, for your questions. Two very good questions. The first one is exactly as you say, I mean, we expect an increase in our NII in this last quarter, as has been happening already. In the third quarter, we have seen an increase in the growth in this margin compared to the quarters before. This is what makes us believe that we will be able to reach the bottom of the guidance interval, which we provided. As to the fee sustainability, as you see, the major growth in fees has been coming from investment banking, and this activity we expect to continue very intense going forward. With the growth in the economy, we are seeing an intensification in offer and demand of fixed rate and equities in the local market. Our investment bank has a leading position in this market in Brazil, also in the M&A market.
And in asset management, the fees’ growth, I mean, it derives mainly from higher volumes, especially in the open platform, and from performance fees, you are right. So, the funds which earned a performance fee are performing positively, and this has been granting an increase in fees, along with a higher volume invested in these parts. So, the volume is easier to forecast, the performance of the funds, I mean, we invest our best talents in managing this, but, I mean, they are more difficult to anticipate.
Very clear. Thank you.
Thank you, Otávio .
Our next question comes from Thiago Batista, UBS.
Hi, guys. I have one question about the quality of the clients that are opening bank accounts in the banks nowadays. We are seeing , in Brazil, a boom of the number of bank accounts, so a ll the players, fintech, large banks, so e veryone are opening, let's say, thousands or even millions of clients during the year. Can you give your view about this trend and the quality of those new clients? Is the bank seeing a kind of cannibalization in its client base or not? Those guys are more unbanked clients. How you guys are seeing this boom in the number of bank accounts in Brazil?
Hi, Thiago. Well, I don't see a boom in opening accounts in Brazil. I see a lot of competition and so on, but I mean, I think we've been increasing the number of accounts we open based on really investing in this activity. As I mentioned here, we are satisfied with the projects of accounts. As a general trend, I can say that accounts opened physically tend to have a better quality than accounts opened digitally. We are working very intensely on our digital products in order to narrow this gap, but the accounts opened at the branches still show a significantly better quality than the ones opened through apps. Sorry, what else did you ask?
It is pretty much if you are seeing a kind of cannibalization of your client base.
Cannibalization. Not yet cannibalization. We may experience some cannibalization now from iti, which we are launching, as you know, and which has a payment account, right, so, and it 's a cheaper product than the regular accounts that we have, so t here, we may experience some cannibalization. It's almost sure that we will, though these are complementary publics. I mean, I think we will have a lot of accounts opened by a new public, which we are not reaching today, and we will start reaching with iti. But some cannibalization is inevitable, and we are not especially worried about that. I mean, we are fully aware that we are not the only player in the market, so i f we don't launch products that compete with our own products, certainly others will. And we'd rather lose these clients to ourselves than to new competitors.
Okay. Thank you, and congratulations for the results.
Thank you.
Our next question comes from Jorge Kuri, Morgan Stanley.
Hi, good morning, everyone, and congrats on the numbers. My question is on credit growth. Candido, if you could please provide some color on what you are seeing on the credit market on the different key categories. Your credit card business is growing up 20%, your car loans are up 19%, personal loans also, 20%+, SMEs, and you saw for the first time a recovery in corporate lending. So, how do you characterize what is happening in each of those buckets, and what is your outlook for the next 6- 12 months? To what extent this pace of growth can continue, and is it needed to have a strong economic recovery or not? Employment, are you seeing this growth come from much better financial conditions as rates are lower and the consumer has leveraged, SMEs have deleveraged?
Just help us understand what is happening and what is driving all of this and what the sustainability of it is going forward. Thanks.
Thank you, Jorge. I think we have two main tailwinds behind this higher demand for credit. It is the economic growth and the lower interest rates. I think the lower interest rates are a very powerful stimulus for borrowing. I was just looking at the figures today. The Central Bank divulges an index called ICC, which is the cost of credit, the global cost of credit. They divulged this ICC for Recursos Livres, for the resources which are not designated to someone specifically, and s ince the interest rates started to fall in September 2016, the Selic has fallen by 8.8%, while the ICC has fallen by 22.8%.
So, there is a real decrease in rates, which is slowly reaching the client, and I think this encourages growth in some lines, specifically in, I think, mortgage loans and payroll loans, I mean, will benefit a lot from this, the other lines as well. And, of course, higher market activity, we expect employment to improve, and this also increases demand. So, I do not think that the rate of increase in demand for loans will increase. Actually, I expect it to taper a little bit. But we will have a positive growth, and we may have positive growth for quite some time yet. In the corporate market, it is much more difficult to forecast because the demand for funds is there, we see the investment appetite really increasing in the economy.
But if these companies will borrow from banks or from capital markets, it will depend very much on more specific conditions. I think this quarter, capital markets were a bit tired of fixed rate loans. There was a bit of oversupply in the capital markets. We saw some credit funds specifically having to sell some assets. So, I think that this provoked a turn in the demand towards the banks, and this is why our portfolio in the banks grew. I mean, it's not certain that these situations will continue in the next quarters.
Thank you.
You're welcome.
Our next question comes from Victor Schabbel, Bradesco BBI.
Hi, good morning, everyone. Thanks for the opportunity. Just a follow-up on Jorge's question. You guys have been growing quite well in some retail lines. Could you provide us with better visibility on a product-by-product basis? Which one would you see as more promising going forward, given the strong growth Itaú had in credit cards, for example, while other lines have been lagging, like payroll, like mortgages, which are usually safer lines, but lower yielding? Just a brief comment, if you might make, about what you expect in terms of the type of loans that should be, let's say, driving growth in the retail lending market in the coming quarters and coming years. Thanks.
Thank you, Victor. Very good question. As a matter of fact, we have been growing more in credit card loans and personal loans than in mortgage, vehicle, or payroll loans. This, I think, is one of the reasons behind the mild increase in NPL 90 in the individual's portfolio. Looking forward, I wish we would grow more than we've been growing in these safer lines of credit, like mortgage and portfolio loans. Here, I mean, there are more limits to growth than in the credit card market, mortgage loans, which are more open and don't depend so much on you having specific access to retirees and special situations like this.
Thank you. Thank you for that.
Thank you.
Our next question comes from Henrique Navarro, Santander.
Hi, thank you for the opportunity to ask some questions. My question is more on the acquiring business. This revenue line has been down 20% year-over-year. I believe we might expect some continued pressure for the 4Q. My question is, when do you believe we are going to see this declining path to stabilize? I mean, is it going to be during 2019 or it might continue throughout 2020? That's my first question. The second one is, if you could shed a light on the new commercial proposal from Redecard on the acquiring business when you establish the end of the prepayment rates on credit card transactions, we know the evolution of a Pop credit card , any news you could share with us, I mean, market share you are targeting, if having successful or not, I would appreciate. That's it. Thank you.
Okay, Henrique, thanks for your question. You're right. I mean, the acquiring business has been decreasing, and I wish I could tell you when I think it will stabilize, but I don't know. As I see it, this is a trend that may continue indefinitely. We've seen this with other types of products in the past. I make some mental comparison between the acquiring business and what once were current accounts. Current accounts have always been a product which was not especially profitable. On the contrary, i t was very frequently a drag on results, but it was a very important product in order to distribute other financial products. So, you must see it under a portfolio view rather than a specific product.
As a result of our initiative on the D+2, D plus two, in May, we have gained market share in the companies with earnings up to BRL 30 million a year, which was our goal. We are satisfied with this growth. I think it really responded to our expectations, and we keep on growing there. But we lost more market share in the large corporations than we gained in the small ones. In the large corporations, as you may know, competition has been very intense and at prices which are not reasonable, are loss leaders. So, we have not been participating in this competition at the cost of losing global market share in this segment. We persevere with our initiatives in the lower segments and in Pop credit card , which is also evolving positively.
And it's a very difficult market. It is one of the most difficult markets in which we participate, and we must play the game here, and this is what we are doing. We are working quite intensely on cost control in this area so as to be able to reduce prices even more.
Okay. Thank you very much.
You are welcome.
Our next question comes from Domingos Falavina, JPMorgan.
Hi, Candido and team. Thank you all for taking the question. My question is, I know you're not guiding to 2020, but just sort of what kind of sensitivities you have run internally, if I may say that? When I was trying to update our models here, we're getting basically two counterintuitive bottom lines. The first one is that, and it's not a perfect metric with the data we have on Central Bank, but when we try to decompose your NII and see the mix shift, we actually see a scenario where 2020 may have either no spread compression on clients or even somewhat increase given the mix shift is so strong, and that tailwind might even help the NII.
So, my first question is, I'm sure you have better data and you look at your average book, and you look at the new book and the mix change, i s that a scenario where we could see no margin compression? The second is more negative on cost. We have only cost of risk as disclosed by you on IFRS, not on Brazilian GAAP, b ut when we decompose and we change the mix, we're getting scenarios where no cost of risk could increase, provisions could grow 20%+ year-on-year. How does your data indicate those two figures?
Domingos, we are really not guiding, so I'll be very generic in what I say. But I see during this year, we had a pressure on specific spreads. You see in the financial margin risk clients base, we decompose the effect of the asset spreads, which has been negative throughout the year, but it has been compensated by the mix of products, which has happened in every quarter this year. We think some of this may continue during next year, but there is a limit to it. As I said in a previous answer, I would expect that we would grow more now in lines which have a lower spread, but also better quality of credits, like mortgages or payroll loans. But yes, you are right. This effect, there is a changing mix which counterbalances even if only partially the pressure on spreads.
As to cost of risk, as I have shown on page eight, on slide eight, you see that, yes, the cost of the provisions, which are in the gray bars, they increase along with the growth in portfolio and maintain the same 90-day, this is only for retail banks, maintaining the same rate, NPL rate and provisions over average portfolio. When the portfolio grows, it is to be expected that provision should also grow.
Yeah, but I think what I meant is that you had a lot of reversals on the corporate, and those reversals should not happen next year. So, if we apply, I don't know, a [inaudible] cost of risk to large corporates, which is not high, we get more than 20% provision growth in the year. I understand retail looks okay, but just the support from wholesale won't be there. Do you do any analysis on that that you could share?
Yes. You see, in this quarter, we had no reversals at all. I mean, there were no effects in the complementary provisions, and I think, I mean, there will, you're right, there will, in the future, be less movements to the complementary provisions than there has been in the past.
Okay. Thank you.
You're welcome.
Our next question comes from Eduardo Nishio, Banco Plural.
Good morning. Thank you for taking my question. Good morning, Candido. Two questions as well. It's a bit of follow-up on the previous questions but just want to make sure I get the right message here. Interest rates are at very low levels now, strictly changing the composition, and we're seeing probably real rates going to 1%. I think it was an unthinkful scenario a few years ago. If you could share with us your general thoughts on how you see the economy evolving, the competition, you know, how the bank is preparing itself, and how you see credit volumes, mix, spreads, fees, expenses moving forward the next few years, going beyond 2020, and your general thoughts on how the bank is preparing itself. Also, the second question is related to the complementary allowances, as you said in the previous question.
We see no change in the balance, so I was just wondering how you see that evolving going forward. Probably, you didn't have any reversals this quarter on complementary allowances. If you could give some thoughts or give us some visibility on how you see those numbers going forward. Thank you.
Thank you, Eduardo, for the questions. You're right. On your first question concerning the interest rates and the scenario, we are on uncharted waters here. We have not seen interest rates that low in Brazil, and with reasons to believe that they will remain low for quite some time. The inflation does not show any pressures, and t here is, as you know, still high unemployment in the country, which, with all the bad things that come with it, has one positive side effect, which is the fact that the inflationary pressures are much lower. I think we may be looking at a longer-term scenario of low interest rates in Brazil. My expectations in relation to this are very positive. We've seen this in other countries in the past.
I mean, when you can look at a sequence of years of growth, albeit modest growth, but stable and growing growth with low interest rates, I think the economy thrives, and the financial system thrives with it. I think there will be possibilities for increasing the loan books, and to put capital to work more. As in the previous question, I think RWA is bound to increase, and we will be able to work in different lines of credit, improve in different lines of credit. All this while facing more competition, which I think is also a natural consequence of a scenario in which people feel more secure to lend because the quality of loans improves. So, I see this as a positive for the financial sector and especially for the banks established in the market.
In relation to the complementary provisions, we do not make forecasts here because these things depend very much on individual means and are volatile and so on. But it is a fact that the inventory of bad loans which can be recovered has been reducing over the last two years. We have a smaller inventory going forward. It would be natural to expect less movement on the complementary provisions going forward.
Thank you so much. Just a follow-up here. Any guesstimate for how much the private banks can grow loans? If we can refer back to historical levels like 2007, 2008, where you had also a structural change in interest rates and loans grew 30%, 40%. Is there any chance to have that loans going back to, I don't know, 20% or so for private banks?
This is not what I am seeing, Eduardo. I think not a growth as high as 20%. I do not expect demand to increase that much. I would see probably more low to mid-teens, l ow to mid-teens for individuals and SMEs. For corporations, it is even more difficult to forecast, but certainly lower than this.
Great. Thank you so much.
Thank you.
Ladies and gentlemen, as a reminder, if you would like to pose a question, please press the star key followed by one. Our next question comes from Neha Agarwala, HSBC.
Hi. Thank you for taking my question and congratulations on the results. Two very quick questions. First, on iti. You recently launched the product formally, and there already seems to be good uptake in the market. What is your plan with the product? How would you incentivize consumers and merchants to use the iti application? Are you giving any rewards or cash backs, or what is the strategy to increase the usage? My second question is on fee income. Is it fair to say that we should see low single-digit fee income growth in the coming years? You mentioned that acquiring is going to be under pressure for maybe some more time, and it is really hard to say when that is going to stabilize. We have seen pressure on other sources of any fee income as well.
So, would it be fair to say single-digit fee income growth in the coming two, three, four years, maybe? Thank you so much.
Thank you, Neha. Well, on iti, we are living important days as we speak. We are now on the public launch of the product. It's having a good reception by the public. We are increasing the number of accounts first, and we are starting to divulge it more. The product still has few features, and more features are going to be added to it as we develop. But I think it has a very good proposition, especially to small merchants who are able to sell and collect at a much lower rate than the alternatives. Yes, there will be more stimulus going forward to the project. We are still in the first days of this offer . I think next quarter, we will be able to talk in more detail about the evolution of iti. In relation to fee income, yes, you're right.
In the acquiring business, we see a lot of pressure, as I mentioned. In other businesses, we have projects which are evolving well, and which make us optimistic when we look at the future. The open platform in insurance is evolving positively now, and we are seeing a good evolution there. Investment banking and assets management are also, it's good perspectives. Cash management, in general, has been evolving well and tends to evolve well in line with credit growth. As credit grow, we traditionally see an increase in the demand for cash management products and an increase in our penetration in cash management products. So, we are positive about the perspectives of fee income behavior in the future.
Thank you so much. That's very helpful.
Thank you.
As a reminder, if you would like to pose a question, please press the star key followed by one. This concludes today's question- and- answer session. Mr. Candido Bracher , at this time, you may proceed with your closing statement.
Well, just to thank you all for your presence and the interest and the good questions. Thank you very much. Bye.
That does conclude our Itaú Unibanco Holding earnings conference for today. Thank you very much for your participation. You may now disconnect.