Good morning, ladies and gentlemen. Welcome to Itaú Unibanco Holding Conference Call for the 2019 second 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 broadcast live on the investor relations website at www.itau.com.br/investor-relations. A live 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 Private Securities Litigation Reform Act of 1995. 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 on 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 Finance Director and Head of Investor Relations. First, Mr. Candido Bracher will comment on 2019 second 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 second quarter 2019 earnings conference call. I will start the presentation on slide two, where I will show the main highlights of our performance for the quarter. Employing net income of BRL 7 billion, which represented a 2.3% growth when compared with the previous quarter and resulted in a 23.5% ROE. The key drivers of this performance were the acceleration of our financial margin, both with clients and with the market, as well as a stronger fee revenue generation. These effects were partially offset by two expected events: seasonally higher non-interest expenses and a higher cost of credit. The latter is the result of a continuous growth of the origination of credit to individuals.
Lastly, our effective tax rate increased 70 basis points as a result of lower TJLP, low fund interest rate, in the period, which we've used to calculate the tax shield from our interest on debt. In the next slides, we will provide a more in-depth view of these figures. On slide three, we show that our value creation increased 9% in the second quarter and reached BRL 3.2 billion, a record figure, which was a result of our performance in the quarter as well as due to our lower cost of debt. Moving now to slide four, we show that our Brazilian credit portfolio grew 7.9% over the last 12 months, driven by individuals and SMEs, which have grown 14% and 19% respectively. Origination continues to accelerate in both portfolios, resulting in a richer credit mix, as will be shown in the next slide.
On the other hand, our credit portfolio in Latin America remained practically stable compared to the previous year, which is a consequence of the appreciation of the real against other currencies in the region. If we discounted the fact, the portfolio would have grown 7% when compared to the same period in 2018. The portfolio as a whole would have grown 7.7%. Now I want to draw your attention to slide five, which portrays a crucial element of our results dynamics. It is in the bottom of slide five. Financial margin with clients is composed by two distinct elements. One is related to working capital, which is mainly affected by its own volume and the Selic rate. The other, which is the core element of NII and emanates from spread sensitive operations.
The spread sensitive NII grew around BRL 800 million as a result of the credit portfolio expansion and the continuous change of mix towards higher spread bearing products. This amount was partially offset by a lower working capital NII, which was a result of two effects. One, lower average balance after dividends payment. Two, lower interest rate. Consequently, we are observing a robust increase in the spread sensitive NII. On slide six, we show that our financial margin with the market increased 26.4% this quarter. This performance was largely attributed to higher accruals in the foreign investment of our hedge strategy and in our insurance reserves management. We consider those gains to be structural, as they are an integral part of our core banking activity. Going to slide seven now, we show our credit quality.
Short-term delinquency remained stable in the quarter, while the NPL 90-day ratio decreased 10 basis points. The latter was a result of loans written off from specific large corporate clients and a further improvement in the SME NPL ratio, which reached 2.5%, the lowest level since the merger between Itaú and Unibanco. The NPL 90 days coverage ratio remains stable at 108%. The cost of credit ratio increased 10 basis points, as would be expected given the acceleration of the change in credit mix in the period. Slide eight shows that our revenues from services and insurance grew 5% in the quarter. This performance was mainly driven by asset management and investment banking fees. It is worth to highlight the growth of almost 50% in the year of the funds from our open platform initiative, which reached BRL 155 billion.
Also of note is our credit and debit card issuer fees, which continue to grow consistently. Lastly, the acquiring business fee revenues declined 12.8% on the quarter, mainly as a result of the new commercial initiative, which consists in us no longer charging interest rates on the prepayment of credit card transactions, which are now paid in T+2. In the next page, we examine in more detail the initial results of this initiative. Right now, we show that after the T+2 initiative, our acquiring operations had a much stronger demand. New client acquisition increased 73%, while new clients choosing Itaú Unibanco as their bank beneficiary more than doubled in the same period. More importantly, net promoter score increased eight points in the year. These KPIs reinforce our perception that this was the right move.
Passing to slide 10, we show that our non-interest expenses grew 4.3% in the quarter. This growth was largely expected as expenses in the first quarter are seasonally lower than the rest of the year, but it is important to highlight that the growth was more subdued this year than in 2018, when our expenses grew 5% in the same period. It is worth pointing out that the quarter concentrated the closure of almost 200 branches just in Brazil, which added further pressure in our immediate OpEx but will positively impact our efficiencies from now on. Finally, our first half expenses grew 3.7% when compared to the same period in 2018, roughly in line with the inflation for the period. Another important message, yesterday, we announced a voluntary severance program. This program affects a potential population of 6,900 employees, potentially.
They will have from 1st to 21st of August to decide whether they will join or not the program. As we have more confirmed information about this, we will inform the market. Slide 11 illustrates the organic capital generation of the bank as we finish this quarter with a tier 1 ratio of 14.9%, an increase of 30 basis points compared to March 2019. It is worth mentioning that we announced the distribution of BRL 7.7 billion as a complementary dividend to be paid in August 23rd, 2019. Finally, I want to discuss our expectations for the remaining of the year. On slide 12, we show that the actual performance of the economy so far makes it clear that the original forecast for economic growth was too optimistic, with the interest rates forecasted on a higher level than the one we foresee now.
Lastly, it is worth mentioning the appreciation of the Brazilian real against the Chilean and Colombian pesos. Bearing these effects in mind, I now want to comment on our guidance, and go item by item here. We still abide by our guidance for the year, but it is convenient to situate our base scenario for each line. Total credit is well within the interval in Brazil, but the changes in exchange rates for LatAm places our base scenario around the lower end of the range for the consolidated portfolio. The forecast of a lower Selic rate and a narrower future yield curve have a negative impact in the expectations for our liabilities margin and for our working capital NII. Therefore, we anticipate our financial margin declining to finish the year close to the lower end of the guidance.
We expect our financial margin with the market and our cost of credit to be around the midpoint of their respective ranges. As for the commission and fees, we anticipate to finish the year between the mid and lower part of the guidance. Finally, we expect our non-interest expenses to finish the year around the lower end of the guidance. With this, we conclude this presentation and are now open to any questions you may have.
Ladies and gentlemen, we will now begin the question-and-answer session. The questions will be limited to two per participant. Our first question comes from Jorg Friedemann, Citibank.
Thank you for the opportunities. I have two questions. The first question, thank you very much for sharing your impression on where we should be in terms of the guidance for each line. Here, I just want to understand a bit better why you are so conservative in terms of the financial margin with the market, because if you look into the run rate so far, you are already above the upper end of the range. Just wondering if there is anything that might negatively impact the results for the coming quarters that you already were, or this is just a matter of being really conservative there. The second question, I understand that you are still looking for additional clarity about the early dismissal program. Just a couple of points here.
First, I understand that the 6,900 employees that are eligible for the program are all based in Brazil. So it is approximately 7,000 out of the 85,000 that you have. Is that correct, or this could be also extrapolated to other regions? The second point, just wondering if you had already contemplated such an early dismissal program when you put together the OpEx guidance and how the potential effects of such a program will be contemplated in the guidance. You mentioned that you believe that you are going to be in the midpoint of the OpEx guidance here. This is already contemplating or not the potential effects of the layoffs for this year. Thank you very much.
Hi, Jorg. Thank you very much for your questions. First, on guidance. On guidance, I must say, I think you are right. The financial margin with the market is probably the line is more difficult to forecast. We had a positive semester, two positive quarters in the beginning of the year above our initial guidance. So we were relatively conservative when forecasting the end of the year. I think it can be better, but we cannot be certain about it. Now concerning the early dismissal program. First, you are right, and it only concerns Brazil. So the eligible population is 6,900 employees in Brazil. The costs of this program, of course, will fall into the non-recurring costs, so do not affect our guidance. As to the benefits, we will wait until we have a clearer picture of how much adherence to the program there is.
So far, we have not included any of these inputs when we guide the non-interest expenses to the lowest point of the guidance.
Okay, perfect. By the way, could you just give us some kind of initial ideas about what could be the impact if you have, I don't know, 20% or 50% adherence or are you still working on the numbers? Thank you very much.
You know, Jorg, last time we made a program like this was already 10 years ago. So we really have no statistic evidence to make any kind of forecast here. It depends very much on the adherence, in which level the adherence will happen. So it's too soon to tell as our expectations.
Okay. Thank you for the answers and congratulations on the results. Thank you.
Thank you very much.
The next question comes from Otávio Tanganelli, Credit Suisse.
Hi, good morning. Thanks for taking my question. I have only one question, if I may. I wanted to ask about the asset management fees. We saw an acceleration from previous quarter. It was growing at about 5% year-on-year, and this quarter is accelerated to almost 15%. I wanted to get a little more color on what's driving this because the assets under management continue to grow at a similar pace than what we saw in the previous quarter. But the average rate, if you divide the revenues by the assets under management, they increase as a percentage of the AUM. So I wanted to understand a little better. Thanks.
Thank you, Otávio, for your question. I have a very direct answer. What drove this improvement in the margin were the performance fees. They had a good quarter in terms of performance of the more sophisticated funds, and this improved this line, the margin. Okay.
The next question comes from Mario Pierry, Bank of America Merrill Lynch.
Good morning, everybody. Let me ask you two questions as well. The first one is related to these 6,900 employees that you think are eligible for this. If you can give us some color, what kind of functions are you targeting? What kind of jobs these people have and related to your costs also, like this quarter, you closed closely to 200 branches, laying off 1,000 people. Can you disclose to us the costs that you had related to these branch closings and layoff of people? Then I will ask a second question related to something else.
Okay, Mario, thanks for your question. These 6,900 employees, they are above 55 years of age, and they must become 55 before the end of this year. They are people who enjoy, or not and, above this part, yes, of age or people who enjoy some kind of stability, which according to Brazilian legislation happens when you have a health license or were a member of a syndicate or a director of a syndicate or things like this. They are not divided by functions specifically. They cover all the spectrum of functions in the bank. As to the 200 branches we closed, I do not have a figure of the cost involved, but of course, there is some cost involved, as there always is when you have to lay off people, and we can expect the benefits to come along the time.
You said you had another question?
Yeah. Just one follow-up then on these 6,900 people. It's fair to assume then these are people that have an above-average salary in the bank. It's just that we're trying to understand here what could be the potential benefits of this plan. If you look at average salary, but it seems to me that these would be people earning well above the average salary.
Yes, I think this is a reasonable assumption, Mario.
Okay. Second question is related to your net interest margins, right? You show on page five the ability of the bank to maintain net interest margins relatively stable over the last few years, even though this NII has contracted quite a bit. Can you discuss. I understand, right, a big chunk of this is related to improved mix. But can you discuss a little bit the type of pressure these credit spreads, especially, in specific segments, if you're already seeing rent spreads coming down, looking at some public data, we've seen mortgage rates going down. Pretty much every interest rate that you're charging on your loans has been coming down. The question then becomes about your ability to maintain the financial margins of clients stable for the foreseeable future.
Well, Mario, the Central Bank calculates and divulges an item, an index called ICC, Índice de Custo de Crédito, which is a compound weighted average of all the financings in the bank. During the past year, our ICC dropped 0.1%. It would have dropped, but the mix made it increase 0.6%. Spreads alone had a negative impact of 0.7%. I see this as a continuous trend, especially with the improvement in the economy that we expect from the pension reform and so on. I think that competition will increase and that there will be pressure on spreads. This may still be somehow offset by a richer mix in terms of portfolio, but there can be a limit to where you can go in terms of mix. I think that the general trend is for more pressure on spreads.
Okay. That is very clear. Thank you. Thank you very much.
Thank you, Mario.
The next question comes from Andrew Boskey, Goldman Sachs.
Hello? Hi, is that for Tito?
Hello?
Hi. Not sure if that was for Tito Labarta at Goldman, or is there somebody else from Goldman on?
Andrew Boskey. Yes, I hear you.
Sorry, I am not sure where you got Andrew, this is Tito Labarta from Goldman Sachs. I am sorry for that. Good morning.
Thanks for calling.
Good, thanks. Thanks for the call. A couple questions also. First, just a little bit of color on Rede. We saw the volumes only grew about 0.9% in the quarter despite the price reductions and the free prepayment and receivables. Just curious why it looks like you're still losing market share in Rede despite the price reductions. Then I have a follow-up question on expenses after that.
Okay. Tito, thank you for a very good question. If you pay attention, our tip was to offer targeted the market with net revenues up to BRL 30 million a year. We think that this is the richest segment of the market, where there's more profit to be made. But this is not the segment that makes the most of the market share. Most of the market share is made by the large corporations, well above BRL 30 million a year. In this segment, we have been losing market share for quite some time already. This is why, despite our offer and despite our improvement in that segment up to BRL 30 million, in the overall figure we grow very little in our total volume.
Okay. That's helpful. Do you think you'll continue to lose share overall given these trends that you're seeing?
Well, it depends on the willingness of our competitors to go below cost on the larger corporations segment, because that's something we are not doing.
Okay, got it. Makes sense. Great. A follow-up question on expenses. I know you're giving some color there, but maybe thinking a bit longer term, do you think the expense growth can remain around the 3%-5% guidance that you're giving for this year, particularly with some of the initiatives that you're announcing? So, around inflation, is this a good level of cost growth for the next few years? Are these sort of initiatives, is it because of the pressure you're seeing on spreads and competition to sort of forcing you to reduce costs, or is it something else?
Okay. As I said, I see no interest in expenses in the bottom of the range this year, and we'll certainly keep a strong hand on that in the time coming ahead. I don't see this as a result of pressure. I see this as an opportunity. As you remember, we started the year with a much higher guidance, 5%-8%. Then, when we saw that the economy would have a weaker performance, we decided to make a big corporate effort around efficiency and costs. We are happy with what we are discovering and with the opportunities we are seeing. We certainly think they did not finish this year, and that this will be a trend.
Okay, great. Thank you, Candido .
Thank you, Tito.
The next question comes from Eduardo Nishio, Banco Plural.
Thank you for the opportunity. Good morning, Candido. Two questions as well. First, on the guidance, if you can go back again. I think there are two items that are either missed or you didn't talk about. Cost of credit, if you can give us your views on that and also effective taxes, I appreciate it. Then I have my second question. Thank you.
Okay. Thank you, Nishio. Cost of credit will be in the middle of the range as it's going very well along the lines we had forecasted. Effective tax rate will also be in the middle of the range this year.
For cost of credit, BRL 4 billion posted this quarter, a little bit more than that, and last quarter was BRL 3.8 billion. More or less the same level. No changes probably to reach the BRL 16 billion, right? My second question is concerning your digitalization, your digital transformation, if I will. You've been reducing staff. This quarter was about quite a lot. It's 1,200 people. Reducing branches, and we cross-checked here across all regions. What will be the ideal size? What are your ideal bank size in this digital transformation? By when do you expect it to reach? By the way, you've been hiring IT folks as well, so what will be the ideal mix of people, and if you can give us some color on the future of your digital transformation, I appreciate it. Thank you.
Okay. Thanks, Nishio. Here we have two conflicting forces. On one hand, we expect growth in the economy and coming after the pension reform approval to put some pressure in growth in terms of absolute growth, and this also implies people. On the other hand, digital transformation has been enabling us to reduce people at a faster pace. When you combine those movements, I would think that reduction will still more than compensate the economic growth factor, but not quite sure about it. In terms of digital transformation, we are increasing the opening of accounts. Some companies, we now are using facial recognition in many assets, including vehicle financing. There are many progresses being made and that will be made in the future. In the closing of branches, it is not only the digital.
Of course, it is an effect of digital transformation because the digital transformation is driving less people to our branches. We are not closing branches which are isolated geographically. We are only closing branches so far that are very close to one another. When two branches are very close, less than 500 m distance, and one of them is capable of absorbing the population of both the branches, these are the cases when we are closing. We still have some room for that in our portfolio.
Thank you.
You are welcome.
The next question comes from Domingos Falavina, JPMorgan.
Good morning, Candido, and everyone. Thanks also for taking the question. Candido, my question is a bit more structural. When we look at the fee composition this quarter, it looks very good to us, like the evolution. Investment banking and brokers growing 45%. Above all, it seemed to us that the bank is not really pushing hard current account fees, which, in our view here at least, it seems like a smart decision given the competitive threats. My question is, when we look at these fees, is this kind of reading correct? Basically, do you also share this view that current account fees are unlikely going to grow substantially and it makes sense to hold back on some of these adjustments or not? Is that something we are reading in the wrong way? Then I'll ask the second question.
We take these decisions on a decentralized manner, Domingo. But I think your reading is right. We are preferring to grow in the areas where we can grow volumes more significantly, as in investment banking and asset management. We are not stressing on the fee level. We are very more in growing volumes than the level of fees, which we tend to keep as low growth as we can.
Understood. Second question is on Rede. I'm sorry if I missed any specific comment there. But volumes came in at first, it seems some additional deceleration, but when we look at the industry in general, Getnet decelerated massively to 6%, Cielo, 9%. So versus the big players, Itaú still did well. But it kind of left us with the question here, what's happening to volumes? Are we not seeing one big player, I'm not sure if PagSeguro or someone else growing and taking away volumes? Did you guys notice an overall industry deceleration maybe in credit and debit volumes? What kind of effect did your D+2 have in NII, in fees? If you could comment a little bit, given that quarter has passed.
In relation to D+2, the effect for those, NII have described to you. 73% increase in new accounts, more than double the increase in companies choosing us to be the bank where they receive their commissions and so on. I am not sure I understood your doubt about the type of volume, given what I explained in the last question. It is really linked to the large operations. This is where we are losing market share. You can see there are some competitors which are very aggressive in this segment and looking specifically for market share. But at prices which, in our experience, leave a negative margin. This is why we are not going there. Nothing new about it either.
No, my question was more like, do you believe you are losing share? Because when we look at Getnet in grew six, we look at Cielo grew nine. You do more than those two. My question was more like, do you believe you are losing share, or do you believe the industry in general is growing below 14%?
I am not sure about the answer here. Sorry, Domingo. But I will have to go back to answer you this. Thank you.
The next question comes from Olavo Arthuzo, Santander.
Hi, everybody. Good morning, and thank you for taking my question. Actually, I wanted to shift a little bit discussion to other topics that have been calling the attention of the market. I would like to understand the bank's digital strategy. In other words, I just wanted to have a clear view on Itaú's approach as a digital bank. Because Bradesco has their own feature called Next that has few service free of charges and other that the client must pay a fee. Banco do Brasil has another digital solution that is free of charges for some services.
But different from Banco is within the bank, and we know it as Conta Fácil. My two questions are, first, what is exactly the Itaú perception on these approaches from your main competitors in light of a lot of other initiatives and digital banks that target Itaú customer base? The second question is, in a few words, what is the main focus of Itaú digital strategy? Thank you, Candido.
Thank you, Olavo. A very good question. To your first question, I think we can come back to something I've been saying for some time, which is, there is a basic decision to be made in terms of digital strategy, which is do you separate a new bank from an old bank and you concentrate your digital efforts in a new venture? Or do you work, I mean, to transform the existing bank, the legacy systems, and so on, and to modernize the incumbent bank, so to say. Here, our strategy is completely the second one. We are working hard in order to digitalize Itaú, and not a new bank. We have new initiatives like Iti, for instance, which is quite a new product. It's a platform, but it's integrated into Itaú.
We have, as you know, Cubo Itaú, which is a hub of co-working and foreign companies, I mean, which is the largest in Latin America, and we learn a lot from them there. We are leaders in digital wallets in Brazil, RappiPay, Personal Pay, and all the others. We have now just launched an app for people to buy foreign exchange in the app. We are opening more than 200,000 accounts a quarter exclusively by app. So, we are digitizing the bank as a whole and not in some separate initiative. Our digital strategy here, I mentioned this in an interview recently. I like that phrase that incumbents must find innovation before innovators find distribution. I started as an incumbent, used to see it as an incumbent finding innovation was basically meaning being first in replicating the initiatives of fintechs and so on.
I have changed my view on this point. I think it's not simply replicating what they do, but it's learning to do it differently. It's producing technology in an integrated way between the technology area and the business area, which, by the way, I think that in a few years from now, we will not be talking anymore about technology and business area. This will be one and only thing. I mean, this is the path we are taking and I think we are making consistent progress there.
Okay. That's very interesting. Thank you, Candido.
Thank you.
Excuse me. As a reminder, if you would like to pose a question, please press the star key followed by the one key on your touchtone phone now. Our next question comes from Marcelo Telles, Credit Suisse.
Hi. Good morning, Francisco. Thanks for our time. I have two questions. My first one is a follow-up on your comment about credit spreads. I think you mentioned earlier that you would expect some pressure in credit spreads down the road. My question to you is, in which segments you think that this should happen? Because when you look at the credit spreads evolution, at least as per the Brazilian Central Bank data, we actually see spreads fairly resilient, particularly on the retail side. So if you could elaborate, what would be the timing, which segments, what would be driving that? Maybe it is more the fintechs or the competition could come among the big banks. Just to understand what would cause that spread compressions to take place. My other question is regarding costs.
I think it's very good to see the bank so much focus on reducing costs through the service program. My question to you is, going forward in 2020 and on, does the bank have some sort of goal of not growing operating expenses at all and try to become more competitive? I'll offer some fee decline or use OpEx as an operating leverage to leverage earnings growth down the road. Because with this program, it could be that maybe your OpEx next year could not grow at all or even decline. Is that a reasonable assumption you think, considering the efforts that you've been undertaking? Thank you.
Thank you, Marcelo. First, on the spreads, I am expecting the competition to come more from traditional competitors. Maybe from, as is usually the case, when the economy starts to perform well, you have more appetite also from foreign banks even in the local markets and in the corporate sector faces quite a significant pressure in this situation. So I am not seeing the pressure on spreads coming in any specific segments. I'm just thinking that with a better economic environment, there will be more people willing to take credit risk, and this will possibly generate some extra pressure on spreads. Spreads have been already under pressure for quite some time. Not too much pressure, but some pressure, and I think this may increase. In what relates to costs, we certainly intend to keep a very strong focus on that.
I think that cost reduction is a fundamental thing in order to enable the bank to be more competitive in pricing. I think we will need to be more competitive in pricing. Everybody will need to be more competitive in pricing going forward. Therefore, a strong active cost is fundamental there.
Candido, just one follow-up on your answer. Being very competitive on cost and be able to have better pricing, does that mean that you think you could sustain your current ROE levels where they are today? Do you think that they are sustainable, let's say, in the short to medium-term at least, with all these efforts you are undertaking?
As you know, we guide very much our efforts in the bank on value creation. I look at the ROE always in relation to the average cost of capital. I see a clear trend of decline in the cost of capital in Brazil. I think that there may be some pressure also on ROE.
Okay. That's very clear. Thank you, Candido.
Thank you very much, Marcelo.
Our next question comes from Neha Agarwala, HSBC.
Hi. Thank you, Candido, for taking my question. I wanted to understand that for your Rede business, acquiring business, you made recent cuts in prices. Apart from competing in pricing, any other changes that you are making, structural changes that you are making in Rede, which would improve its competitiveness given the evolving dynamic of the sector? My second question is, can we have any update on Iti? Is the platform operational? How is the uptake been? How do you see it integrating with the bank? Any update there would be very helpful. Thank you so much.
Thank you, Neha. On the acquiring business, you are right. It is not only at pricing that we are looking. We have been investing a lot in improving the quality of our services, the quality of our machines, of our support service to the clients and so on. We are seeing improvement in the levels of satisfaction, which are not only derived from the pricing activity. As I have mentioned in another question in relation to competitors, I think we have really good examples. We are looking at the competition, and it keeps us under pressure to improve even more the quality of our services. In relation to Iti, I would say it is too soon to say more about this product. It has just been opened to some groups of clients, the smaller groups of clients. I think we will know more next quarter and the quarter after that.
If I can follow up on the acquiring business. Have you adopted any other distribution model apart from the bank channels, especially for the micro merchant segment? I believe you have been spending a little bit more on marketing and advertising, but any other specific changes in your model or the way you reach clients that has been made for Rede? Thank you.
Yeah. We have been focusing also in more the segment of non-current account holders, and we are investing a lot in the support for these clients.
Okay. Thank you so much.
You are welcome.
As a reminder, if you want to pose a question, please press star one. The next question comes from Luiz Fernando Azevedo, Banco Safra.
Hi, Candido. Good morning, everybody. My question is a follow-up on the ROE dynamics. Looking ahead, if you look in the appendix, there is a breakdown of ROE per segment. That is a very good chart. We can see a big improvement in the ROE of the credit situation. On the other hand, the service has been under pressure. I would like to know from you, how do you see the ROE per segment moving ahead? Of course, the idea is, do you think that the ROE, the consolidated ROE is already in a peak at this 20.6%? If you could go through how is the effect of the cost of capital that we are seeing now. Thank you.
Thank you, Luiz Fernando. Yeah, I think this chart refer to the business model. It shows the convenience, the advantages of having a wide portfolio of products, I mean, services and credit. Over time, we have seen services performing better. Now we are seeing credit improving in the past one year, and so on. It shows specific pockets here for these areas. Even within the groups of insurance and services, you have products which improve during the time and others which face more competition. As to the general, I just say that I feel comfortable in having such a wide portfolio of products where one tends to compensate the other. In terms of the ROE, what I can tell is that the distance now between ROE and cost of credit is, I think, probably the widest in our historical series.
Let's see if we can keep these present levels. You asked me what's my take on how cost of capital is going to evolve. Here I am a bit appalled, let's say, because I see a cost of capital in 13 and with a reducing trend. On the other hand, I see the cost of capital used in developed economies remaining around 10, way above the interest rate increase in this market. I would expect at some moment in time, there would be a convergence. I mean, not they go to the same level, but that this wide margin would reduce in the developed economies.
That's not what we are seeing so far, and while we don't see a reduction in the cost of credit of 10% in the developed economies, it's difficult to imagine that Brazil, you have a cost of capital which is only 2% above what you have in developed economies. I see this as a resistance for a drop in the cost of credits in Brazil. Cost of capital in Brazil, sorry.
So you think that we are already stabilizing the cost of capital?
Unless we see a drop in cost of capital in developed economies, I think yes, that we are already around the bottom, around the narrowest margin, reasonable margin between cost of capital in developed economies and in Brazil.
Okay, great. Thank you so good.
Thank you so much.
This concludes today's question- and- answer session. If you attend to the usher at this time, you may proceed with your closing statement.
Just to thank you all for the very good questions and for the interest in our results. Thank you. Have a good day.
That just concludes our Itaú Unibanco Holding earnings conference for today. Thank you very much for your participation. You may now disconnect.