Good morning, and thank you for standing by. Welcome to Inter & Co Second Quarter 2022 Earnings Conference Call. Today's speakers are João Vitor Menin, CEO, Alexandre Riccio, VP of Finance, Helena Caldeira, CFO, and Santiago Stel, Strategy and IR Officer. Please be advised that today's conference is being recorded, and the replay will be available at the company's IR website. At this time, all participants are in listen-only mode. After the prepared remarks, there will be a question-and-answer session. For the Q&A session, we ask you to write down your question via the Q&A icon at the bottom of your screen. Your name will then be announced, and you'll be able to ask your question live. At this point, a request to activate your microphone will appear on your screen.
If you do not wanna open your microphone live, please write down "no microphone" at the end of your question. In this case, our operator will read your question aloud. All questions will be answered in the language we receive. Please note that there is a translation button in the right side of your screen, where you can choose the language you wanna hear. Now, I would like to welcome one of your speakers for today, Mr. João Vitor Menin, CEO. Sir, the floor is yours.
Thank you, operator. Good morning, everyone. Santiago Stel, Chief Financial Officer here, starting. Jumping directly to slide two, this is our first earnings call with Inter & Co as the listed entity in the Nasdaq. We have a profound pride and sense of accomplishment by having achieved this major milestone of moving our listing venue from Brazil into the U.S. We're the first-ever Brazilian company to execute this transaction, and hopefully we pave the way for many others to follow. It's important to mention that this achievement is a result of a strong effort that took two years to materialize. As most of our strategic decisions, it is meant to create long-term value to all our stakeholders in our mission to simplify people's lives. Moving to page three, I'd like to highlight some of our main achievements of the quarter.
We surpassed the 20 million clients mark with approximately BRL 1.5 billion in gross revenues. Our loan portfolio and our funding base reached BRL 19.5 billion and BRL 25.9 billion respectively, delivering strong year, strong growth YoY. We continue improving our unit economics with our monthly ARPA, net of cost of funding, expanding to BRL 32 in the quarter. Our cost income ratio reached 72%, reflecting the strong focus on operational leverage. As we'll mention later, under IFRS, we use provisioning under the methodology of expected credit losses, which impacts our PNL as we perform provisions upfront. Despite that, we were able to deliver a profitable quarter with BRL 16 million of net income. I now pass the mic to João Vitor Menin, our CEO, who'll provide an overview of our strategy and recent developments.
Okay, Santiago. Thank you. Good morning, everyone. Great to be with you on this new earnings call. The phrase we choose to describe this quarter is staying away from the comfort zone. Though always true at Inter, particularly in this quarter, having listed in Nasdaq and launched our Global Account, the phrase could not be more timely. As mentioned many times before, our goal has always been to eliminate the friction people suffer while transacting, and as a result, simplifying people's lives. This is consistent with our history since we started as a digital bank. Just a few examples on that. We were the first bank to become 100% cloud-based. First to launch a free, complete, and digital account in Brazil. We were also the first financial institution to launch the first full e-commerce platform back in 2019.
Finally, the first Brazilian entity to migrate from B3 to U.S. We are convinced that we are still at the early days of our history, and expect to continue delivering innovative solutions to our clients. The result of this amazing journey has been that we have attracted over 20 million clients so far. We achieved a funding base of almost BRL 26 billion. We delivered gross revenues of almost BRL 4.7 billion during the last 12 months. The natural consequence of this disruptive growth is seen on our market shares, which though still very far from our goals, we're starting to see the benefits of our consistency and dedication. As it can be seen on the right-hand side of the page, our market share across product is becoming meaningful and relevant, which as we will show later, starts translating into positive operational leverage.
On page eight, now I will comment how I see the future of the business. There are a few strategic guidelines I'd like to share today. We expect to, first, continue delivering disruptive growth, which will translate into increasing market share. Second, growth will continue to be diversified across product, both on the fee and interest income streams. Third, we expect to continue improving our operational leverage as we gain more scale and become more efficient. Fourth, we aspire to have a self-funded business plan from a capital perspective using our excess capital plus the organic capital created with our positive profitability. Last but not least, from business perspective, we aspire to maintain our cutting-edge innovative mindset and look forward to maturing our business in the US, a market where we see a massive growth potential for our platform.
Finally, on page nine, we do all of this with a strong focus on maintaining world-class ESG standards. This is not new for us at Inter. We've done so since our very first days. We were born ESG, as I mentioned before. The reflection of this commitment is on our MSCI ESG rating. We have been upgraded twice, from B in 2019 to BB B recently. Details of our ESG initiatives can be found on our annual report. With that said, I'll pass the word to Alexandre, who will cover the business section.
Thank you, João, and good morning, everyone. I'll talk about the highlights of our business verticals during the second quarter. We're proud to say that every vertical evolved well, and I'll give some color to this evolution. Starting on day-to-day banking, we have stellar growth on cards. Total processed volume increased by 70% YoY, with credit cards having a stronger growth than debit cards. In terms of number of cards used, we reached 6.4 million in the quarter, which represents a 56% increase YoY. On credit, our gross portfolio increased by 55%, reaching BRL 19.5 billion. Our originations during the second quarter were nearly flat from a year ago, at BRL 4.7 billion. We strategically decided to decelerate credit underwriting, monitoring the performance of the portfolio and the macro environment.
We expect to re-accelerate once we see the proper conditions to do so, leveraging on our expertise and significant excess capital. Moving to page 12, I'll talk about insurance and investments. On insurance, we achieved revenues of BRL 35 million in the quarter. That's a record again, and a growth of 64% year-on-year. On active insurance policies, we surpassed the 1 million mark, nearly doubling from a year ago. From an innovation perspective in the insurance front, this quarter we launched a product called Doutor Inter, or Doctor Inter in English. It's a product that enables our clients to have easy and fast online doctor's appointments through our app. Moving to investments, we've reached BRL 36 million in revenues in the quarter. That's a 116% increase year-on-year.
We ended the quarter with BRL 53.4 billion in AUC. Very good number again. From a product standpoint, this quarter we launched the Inter Invest portal, bringing more financial and investment education to our clients. Moving to page 13, I'll talk about Inter Shop, our e-commerce vertical, and about cross-border services. On Inter Shop, our gross revenues more than doubled as compared to one year ago, reaching BRL 113 million in the quarter. We achieved these revenues with GMV growing 56% YoY. The impressive gross revenues growth came as a result of a significant expansion in our take rates. On a gross basis, take rates expanded to 11.4%, meaning a 4.2 percentage points expansion. On a net of cashback basis, take rates expanded by 3.6 percentage points.
We continue expanding our network of retailers that are selling through our platform, having finished the quarter with more than 900 active sellers. On cross-border services, we ended the quarter with more than 141,000 active Global Accounts, reaching $383 million in volumes transacted. We're truly excited with this vertical, as we think it has the potential to become a truly special and distinctive business. We see immigrants in the U.S. very underserved and overcharged, similar to clients in Brazil when we started our digital retail bank. We see our Super App as a very strong product fit to simplify these clients' transacting needs and therefore simplifying their lives. Additionally, we're also encouraged with the early success of our Global Accounts as it is used by our Brazilian customers that use the accounts for traveling and investing abroad.
With that said, I'll pass the mic to Helena, our CFO, who will cover the financial section.
Thank you, Alexandre.
Jumping straight into page sixteen, here you can see that our gross credit portfolio reached BRL 19.5 billion. This represents an expansion of 56% on a year-on-year basis. On the quarterly basis, the growth has been intentionally more modest as we have tightened our underwriting models. As Alexandre said, we expect this deceleration to be temporary and we will re-accelerate towards the beginning of next year and when we see a better macro scenario. It is worth noting that consistently through time, our loan mix continues diversified across multiple products, decreasing concentration and risk. Moving to page 17, our asset quality remains strong. Starting from the left, you can see from the total credit portfolio that 73% remains collateralized. It is either by real assets, invoices or payroll flows.
In the center of the page, our coverage ratio shows a healthy and stable trend, standing currently at 129%. When we see NPLs on the right, our total NPL ratio is 3.9% of the total portfolio. A slight increase mainly explained by the increase on card NPLs that reached 7.9%. Going to page 18, we show that our funding reached BRL 25.9 billion, increasing 47% year-on-year. On a quarterly basis, it grew 12%, nearly double the growth of the loan book. Worth mentioning that we have more than doubled the distribution of third party CDs during the past twelve months, with the balance now standing at nearly BRL 4.4 billion.
Given the rate environment with our clients naturally more focused on higher yielding assets such as time deposits, LCIs, and income products from our investment platforms. Our share of demand deposits remains very strong and it is a key competitive advantage, particularly in an environment of increasing rates. This is only possible thanks to being a fully licensed bank, which allows us to take on demand deposits. On the right side, you can see our ongoing funding cost as a percentage of Selic that reached 61% in the quarter, still one of the lowest in the industry. On page 19, in terms of revenues, I'd like to mention the following highlights. Our total gross revenues were close to BRL 1.5 billion, which would mean a run rate of BRL 6 billion in a year.
YoY, the gross revenues grew 130%, and in net terms, 88%. Growth in fees continued to outpace growth in NII, having grown 91% and 73% respectively in year-on-year terms, and 9% and 6% respectively in quarter-on-quarter terms. On the right-hand side graphs, you can see how our revenue streams continue to be highly diversified. We consider this another competitive advantage as being highly diversified instead of being a mono or dual liner allows us to be resilient by not depending on a short list of products. Going to the following page, we show here our unit economics analysis from the revenue side. Starting from the left, the longevity of our clients show how our client base is still very young at Inter.
On the orange bar, on the orange part of each column, you can see that a year ago, only 49% of our clients have more than one year at Inter. Now this ratio stands at 58%. In the center of the page, we have our ARPAC analysis by cohort. Please note that we show ARPAC net of cost of funding, given that we think this better reflects the revenue producing capacity of our clients. From the cohort of Q1 2018 to Q2 2022, clients are producing monthly net revenues from BRL 5-BRL 10 in an initial quarter to around BRL 50 on the latter quarter.
We see that on a cohort-by-cohort analysis, it takes shorter amount of time to produce a given level of revenues, which we see as a reflection of our clients adopting our products at a faster pace. On the right-hand side, you can see our ARPAC, not cohorted, but instead on a quarter-on-quarter basis. ARPAC grew well relative to the same quarter last year by 16%, and we see that this compression of the last two quarters has mainly to do with the increasing cost of funding. Moving to page 21, you can see here that our cost per active client now stands at BRL 13 on a monthly basis. On the right-hand side, you can see that our cost-to-income ratio improved over the last quarter from a peak of 93% to about 72%.
As mentioned before, we are highly focused on improving operational leverage as we continue gaining economies of scale from the investment done thus far in our platform and teams. On page 22, this quarter we started seeing the result of the repricing of our loan portfolio. Despite still increasing reference rates, we were capable of increasing our net interest margin by 20 basis points when compared to the first quarter of this year. We look forward to continue increasing NIM as the repricing of the longer duration portfolios also materializes. Finally, on page 23, on net income, Inter & Co delivered a positive result with BRL 16 million in gains in the quarter. We also added the slide, as a ref, Banco Inter's net income under GAAP. Please note that this is no longer the listed entity, and this is now Inter & Co. That is now Inter & Co.
We provide in our earnings release report a detailed table on how to convert and reconcile the financials from Banco Inter to Inter & Co. I'll pass the word back to João for some final remarks.
Okay. Helena, Xande and Santi, thank you for joining me on this call. I'm very excited with what we have ahead for the business, and I would like to comment on three specific aspects of the business going forward before we jump to the Q&A section. First of them, operational leverage. This is a major priority for me personally. I would say that we have the scale, we have the tech, and we have the team in place to absorb a much larger bottom of business. Second, despite of the macro, again, despite of the macro, I'm highly positive on credit cards. I'm convinced that we mastered the secret sauce in cards by improving three key factors. First, the underwriting and the pricing. The second, a very good UX and UI for our clients using this product. And lastly, collections.
We have improved a lot our collections for the past quarter. I have personally spent lots of time on this product and can now say that I'm highly confident this is a very good one for our business. Its profitability and the potential to add value to our ecosystem is huge. Last but not least, the Global Account. We have the best products for Brazilians, both living and traveling to the U.S. That was another of our innovations and again, being the first bank to launch this product. With that said, I'd like to open for questions. Many thanks to all the audience.
We will now begin the question and answer session. Once again, for this Q&A session, we ask you to write down your question via the Q&A icon at the bottom of your screen. Your name will then be announced, and you'll be able to ask your question live. At this point, a request to activate your microphone will appear on your screen. If you prefer not to open your microphone live, please write down "no microphone" at the end of your question, and our operator will read your question aloud. Our first question comes from Yuri Fernandes, Sell Side Analyst from J.P. Morgan. We are now opening the audio so that you can ask your question live. Yuri, please go ahead.
Hello, João, Helena, Santiago, everybody. Thank you and congrats on the better than expected results. Very solid trends on fees and we really like it. I have a first one regarding NPLs. My question is the worst behind for you? NPLs in GAAP, they are up about 20 basis points QoQ, I guess. Under IFRS it's up about 40 basis points. We still see, you know, some worsening on the credit cards, maybe 100 or 130 basis points we're seeing. I guess given the level of expectations, this was good. When we check for renegotiated loans, portfolio sales, all those things seems to be very low this quarter, right? My question again is, what is your view for NPLs? What is your view for cost of risk?
What should we expect for the coming quarters? That's the first one. If I may, a second one regarding margins. We have been talking a lot about loans repricing. We see your credit card repricing, your personal loans like payroll and things like that. My question is, what should we expect for NIMs going forward for NII for you in the second half, and more importantly for 2023? Thank you, and again, congratulations.
Yuri, João Vitor speaking. Thank you for the question. I'll cover the first one, Helena will cover the second one. Actually, you stole my phrase. I do really believe that the worst is behind. On NPLs, important to mention first, as you, most of you know, we have a very collateralized portfolio, so this is very good for the business, for Inter itself. Going to the unsecured credit portfolio, which are basically credit card, we don't have personal loans. I would say that you mentioned a 20 basis points increase on the NPL 90 days plus. On a growth adjusted basis, we would have printed a 6.5, roughly 6.5% NPL. We stopped growing at the same pace and therefore the NPL 90 + spiked a little.
It would be a very good quarter in the growth adjusted base. This is one thing. The other thing, we like to say that the NPL is about the NPL formation. We're still getting this NPL from older cohorts for older underwriting. But more importantly, we like to track very real time KPIs such as the first payment default and the early 30 and 60 days. We believe that is a better measure for the ability of our clients to repay their credit cards. The good news for the past 40-60 days, we see improvement on these two specific metrics, which make us comfortable that as we mentioned, the worst is behind. Of course, we don't have an alpha here against the market.
If everything goes really bad, which I don't believe so, we might see some deterioration. If things go better, faster on the macro, we might improve even faster than we imagined. We're excited with what lies ahead in terms of NPL and in terms of delinquency for our credit portfolio. This is about NPLs. Now Helena is gonna cover the new trend.
If I measure, just before we go to NIMs, the message is the new NPL formation should somewhat remain stable from this quarter, right? In the very short term and potentially improving forwards, right? Like, so BRL 180 million-BRL 200 million, this is the level for formation gap.
Okay.
Perfect. Again, the good news on that is the first payment default and the early 30 and 60 days, which really measure the capacity of the current clients to repay or actually to pay our credit card statements.
I imagine this is the trend you are seeing in July and August, right? This improving on a-
Yes. Mostly.
Okay.
Yeah, for the last.
Okay.
Let's say 30-45 days.
Okay. Thank you. Go ahead, Helena. Sorry to interrupt you.
No, no problem. Thank you, Yuri. On margins, yes, as you said, we've been repricing the loan book. We repriced the credit card, as you mentioned. We increased rates from 7.7% in the revolving rate in the first quarter to 14.7% in July. We will only see the effect of this last increase in the revolving credit only in this third quarter. Our expectations is that NIMs will continue going up as we reprice the remaining of the loan book. Of course, the short-term duration ones such as credit cards, SMEs, and agribusiness, it's faster to be seen.
With the real estate loans and payroll loans taking a little longer for us to actually see the increase in NIMs as we increase the rates there. Specifically for next year, we also understand that with an improvement of the macro scenario, with inflation slowing down in the second half of the year, there is. The market is already forecasting a start of decreasing in interest rates from next year onwards. That could also be very positive for our NIMs in 2023. That's what. That's our outlook for NIMs and improvement in general going forward.
Perfect. Thank you very much, Helena and João.
Thanks for your question. Now the next one comes from Pedro Leduc, sell-side analyst from Itaú BBA. We are now opening the audio so that you can ask your question live.
Yeah, great. Thank you so much for hosting the call and taking the question. First, just as a follow-up on the credit card, João Vitor, you mentioned the worst seems to be behind, you cited some data. Wondering what the lessons learned were here, and once you're more comfortable in expanding this line again in maybe 2023, how should you tackle it differently? Be it new models, new segmentation, new client approach, more targeted. Just like to hear your lessons learned here from this credit rollout that you're now taking more carefully, but definitely wanna expand it again probably next year.
Okay, Leduc, thank you for the question. First, we do like the credit card business. This is one thing. We don't dislike it. It's important, portfolio, credit portfolio. It's important for engagement, for retaining the clients, and it can also be a profitable business. Of course. When you have a headwind such this one that we have and still have, due to the macro, we need to be more cautious to attack the business. We are a disruptive bank, so we're gaining market share, gaining it fast. At this time, we need to slow down a little bit. The good news, I'd say that despite this macro and this delinquent trend, we learn a lot in the past two years or so.
As I mentioned during the presentation, I'd say that we see today three very important factors for you to master this credit portfolio. Again, of course, the underwriting, the model is very important. Having doing that for a while and with the right team in place, we believe that we have. Also with a big chunk of clients in our platform, we believe that we can underwrite in a very good way this product. The second, it's very important, the right UX and UI for the product. I mean, the right product. You cannot have churn on that product. You need to have a very good way for your clients to pay, to do, to renegotiate their credit card bill.
This is very important to have this good UX and UI. Last, about collection. We learned a lot, I would say, on 2022. We set up a specific committee to go through the collection. We know that the right collection makes a lot of difference on the NPL. I believe that we. This is the one improved more on 2022. With these three things combined, we get more comfortable with the credit card business. We believe that when we realize that the market is in a good shape, we can keep growing that in a faster pace than we did for the past six months or so. That's my sentiment on this specific product going forward.
Super, João Vitor. If I may have a follow-up, more strategic. Obviously, you have a lot of capital. You're self-funding growth. Not the truth for many other fintech players around, starving of cash, starving of cross-selling like you've achieved. Is this an opportune moment for you to step in, further consolidate new avenues or capabilities? Or on the other side, would you be open to see players who can add value to the, like one acquisition in the past was supposed to? Are you open to both sides of the table? Thank you.
Okay, Leduc. I would say that we're focused on just improving and growing our business. We do have I mean, maybe we are the only player, the only digital player on the market that have this full service, this full array of products in one single app. We don't see M&A strategy to just put new products on the market or to gain momentum. I believe that we can gain momentum across our 20 million+ base of clients. We have the products, we have the clients, so it's a matter of time for us to get more momentum and therefore more revenue. We don't see M&A activity as an edge for us, despite having a good base of capital.
We're gonna keep focused on improving our business, gaining more market share, as I told you in the beginning. We want to be a relevant player in most of the verticals: insurance, investment, shopping, credit. Anyway, that's our view for the future. We don't see M&A as a bridge for us to get there.
Super. Thank you. Thank you very much for the clear answers.
Thank you, Leduc.
Perfect. Now our next question comes from Geoffrey Elliott, sell-side analyst, Autonomous. We're gonna be opening your audio so that you can ask your question live.
Hello. Thanks very much for taking the question. Maybe if I could ask on Inter Shop, you have seen this nice improvement in both gross and net take rate over the last few quarters. What's behind that? Is there kind of an easing of the competitive environment there? Or do you have to kind of proactively go out and push to get a better take rate? And then how much further can that improvement continue? Where do you think the gross and the net take rate can get to in the long term? Thank you.
Okay, Geoffrey, João Vitor speaking. As you might know, I love Inter Shop. We designed that only two and a half years ago. It's still a baby. Anyway, we're very excited with the performance of it. I would say that we have been learning a lot how to negotiate with the merchants. We have diversified the merchants as well. Today I have 900 different merchants over there. And not only that, when we started, we had only the affiliate programs in our Inter Shop. We were just referring clients to the checkout in the merchant's website, and therefore the take rate was much lower.
I would say that in the last maybe six months, nine months or so, we have been able to increase the volume on the end-to-end platform, where you have the client doing the checkout inside our app, our Super App. We have also improved Inter Foods, which is a subscription for a food platform. It's going very well. We also launched Intertravel, our end-to-end capability also for travel, lodging, and so on. A combination of all of this has improved our take rates, our gross take rate, and therefore our net take rates. I would say that we would be growing more than we did in the past 12 months. Of course, we have some macro. The inflation hit the consumer, and we saw also the consumer consuming more services than goods.
If that didn't happen, we would be growing even more on GMV. The trend is very good. We're very comfortable growing 50%, around 50% YoY as we did on the first two years of the business. I believe that we have a very well-balanced platform as of today. Very excited with the outcome of that. We still have many levers to pull in order to improve the volume, to improve the take, the gross take rate, and also the net take rates. Just to finalize, I'd like to say that the Inter Shop is all about a more modern consumer finance platform, and we're going to deliver that YoY. Thank you very much.
In terms of where the take rate ought to normalize in the longer term, any thoughts there?
Yes. I think that with this same mix of end-to-end affiliates, food, travel, I would say that we're gonna be on the same range on the same number. We might improve going forward. For that, we need to try to get, I would say, almost. Let's think about that. 100% of the sales through the end-to-end, so we should do everything on board inside our app. With that, we can improve the take rate even further. I don't think that's something that we will see a material increase on the next quarter or the next two quarters.
It's a midterm project in order to have 100% of the sales inside our app, and therefore to get more take rates from the merchants.
Thank you.
Perfect. Now our next question comes from Tito Labarta, sell-side analyst from Goldman Sachs. We are gonna be opening the audio so that you can ask your question live. Please go ahead.
Hi, good morning. Thank you for the call, taking my question. My question is on your ARPAC, on slide 20 in the presentation. Yes, it's come down a little bit the last two quarters, I imagine just from the higher interest rates and higher interest expense. But maybe you can help us think about the evolution of that. You know, when do you think that starts to increase again? You know, looking at some of the more mature cohorts getting to, like, the 40 or even 50 VI level. Is that a good sort of target that we should consider about where that ARPAC can get to over time?
Thank you, Tito. Santiago here taking that question. On ARPAC we have two views. The static one, which we have historically provided to the market, and the cohorted one, which is the new one. Both are net of cost of funding. We continue showing net of cost of funding after having done strong analysis and collecting the feedback from recent investors that is a better metric to analyze the revenue capacity for our clients. The main difference is, as you are anticipating, it has to do with the net of cost of funding impact, which was pronounced in the past two quarters. If we would see it on a gross basis or without the action of interest expense, the exact opposite would have happened.
We'll be roughly at BRL 45 per quarter, BRL 21 each of the last two quarters, instead of compressing one H1 each of the last two quarters. On a cohort basis, which is the new ingredient that we brought in for this call, we can see that the cohorts continue in a relatively steep manner despite being net of cost of funding. If you would redact the cost of funding impact, the steepness would be even more pronounced. We think that the BRL 50 that we see on this cohort analysis is the minimum that we aspire to have even though we have many other products that have been recently launched and are still in the process of maturing.
In addition to that, when we compare the ARPAC to the large incumbent banks, which are much higher, we think the room to grow is still significant. At the very minimum, we aspire to having a 50 ARPAC net of cost of funding going forward.
Great. Thanks. That was very clear, Santiago. Thanks. I mean, just one quick follow-up. How about, you know, just thinking of the higher interest rate environment, when do you think we get an inflection point in that and it starts to increase again? Is that next year, next couple of quarters? Just to get some, you know, context on when that.
I would say it will take a few quarters. On the cohorts, the most recent ones start with a higher weight on fee income than the older ones that start more heavy on credit. These younger cohorts, they have a steep growth at the beginning. As that happens, we will see the ARPAC improving quarter by quarter. I would say the beginning of next year that increase should be more pronounced as we see the maturity of the cohorts combined with the re-pricing of the portfolio.
Okay, that's very clear. Thanks, Santiago.
Perfect. Our next question comes from Mario Pierry, sell-side analyst from Bank of America. We are gonna be opening your audio so that you can ask your question live. Mario, please go ahead.
Good morning, everybody. Congratulations on the quarter. I actually have two questions. First one is on client engagement. Right? We're seeing that you are adding new clients at a good pace. However, when I look at the percentage of active clients, it's actually declining. I think it was 52% this quarter versus 58% one year ago. I understand part of this is explained by the fact that you're more cautious in granting credits. But is there something else that we should be concerned about, especially as you have been adding new products to your base? I'm a bit surprised that the engagement has been declining. Then the second question is related to your customer acquisition costs. It went up again this quarter. I think you mentioned about some supply chain issues on your press release.
Can you give us a little bit more color why your CAC is going up? Thank you.
Oh, Mario. Thank you. João Vitor Menin speaking. First of all, about the engagement. We're not concerned with the engagement at all. I mean, we don't think that it's a trend that's going down. We have to realize that 50% of the clients onboarded maybe 12 months ago. The pace of growth that we experienced for the past 12 months or so was really big, and therefore the engagements take a hit. You have to think that it takes a while for us to engage the new clients. They need to receive their cards. They need to get a credit limit, as you mentioned. Every time that we start to be more conservative, we have a hit on that engagement. Also, when you grow faster, the new adoption of clients, we also take a hit.
At the beginning, when we're growing at a lower pace, let's say by 2020, 2021, we grew a lot, we had 60%-65% activation ratio. I would say that our growth going to a more, I would say, a lower pace, we see this 50%-60% ratio going back to this 60%-65% activation ratio. Of course, by granting more credit limits, like that I mentioned before, helps on the activation and on the retention. We might also have a tailwind on that, and therefore we're confident that having the good products and all of the products in the best platform as we do, we'll be able to go back to the 60%-65% activation rate.
We're looking, of course, always try to improve, but we're not concerned on that. About the CAC, we did have an increase on the operational costs, so to ship the cards, to send the cards, to buy the cards. But we didn't have an increase on the marketing expense. On the other way around. I would say that last month, we started to reduce our acquisition costs. We have reduced it around 25%, and we printed it almost the same number of clients that we have been printing for the past six months or so in the first half of the year. We're very confident that our acquisition cost, the marketing acquisition cost, will decrease going on.
We believe that when we normalize this cost with cards and shipping and everything, we should have a positive trend on CAC going down. I believe that we'll also have good news on that front.
Okay, João. That's very clear. Basically, the CAC is a temporary increase. It should be declining. The activation rate also, you think it should be going higher, right? You think between 50% and 60% should be your normalized level?
No, no. I believe that our normal level, we need to start going back to maybe 55%-60%, then we have the capacity for sure to be above 60% active clients. I would say quite soon. I mean, one maybe from short term to mid-term.
Okay. Thank you very much.
Thank you, Mario.
Perfect. Our next question comes from Thiago Batista, sell-side analyst from UBS BB. We are gonna open the audio so that you can ask your question live. Thiago, please go ahead.
Hi, guys. Thanks for the opportunity. I have a question about the interest rates. You already comment about the increase in interest rates of credit card loans. Is Inter expected to increase also the other lines? I know that there's some limits for payroll loans, but you guys used to be the pricing seems to be lower than average, mortgage also. Are you guys seeing room for further increase in interest rates in other lines, not only the credit card?
Hello, Thiago. Alexandre speaking. As you mentioned, credit card is already done. We're starting to see and the central bank data demonstrating that the increasing rates impacting the NPL this quarter, third quarter, we should see the first full quarter of results there. We are obviously following up on that. Think it's gonna be an important move for the NPL. Now, on the other portfolios, it's a constant work that we're doing, okay? We're focusing a lot on optimizing use of capital on the different lines and on payrolls and on the mortgages. It takes a bit longer to do all the repricing, but we're focusing on that, and we're also touching on that on all the SME lines.
We can say that in the next months and quarters, we're gonna keep improving our spreads, and as a consequence, on our loans.
Thank you, Alexandre. Are you guys seeing any complaint by clients with these increasing rates, or no, the clients are accepting these increase? Probably in the credit card you did in a more strong way, but has been okay to do this increasing rates? Or how price sensitive are the clients seems to be?
Okay. Thiago, it's João Vitor speaking. As you might know already, we're very, very customer-centric. Of course, we just don't want to keep raising interest rates and to just start charging for withdrawals and everything. That's not our mindset. On the credit card specific, we had a big increase, and it's pretty much aligned to the risk reward of the business. That's it. We realized that we had to move up. At the end of the day, we are the lowest of the industry, so we haven't seen a complaint so far. We did that already for almost two months, I'd say. We don't have a complaint, so we're proud of that. People really like to use our business, to use our credit card.
It's convenient, it's good, as I mentioned, very important, good UX, UI. We're able to reprice that. It was, I think, a smart decision. We do that. We do the big assessment on how to do and what to do. Important, we did that mostly on the revolving, which is a very short-term loan. We didn't increase as much in the installments. We increased, but not much because we believe that therefore on that it's not feasible to have a 15% compound for 12, 24, 36 months. That's how we address that risk-reward issue on credit card.
Great, João. Thanks. Thanks much.
Perfect. Our next question comes from Neha Agarwala. We are gonna be opening the audio so that you can ask your question live. Neha, please go ahead.
Hi. Thank you for taking my question, and congratulations on the results. How comfortable are you with your originations going forward? Should we see originations in the coming quarters for your overall book remaining more or less stable versus the previous quarters, or do you think they should be going down? What is the level of loan growth? I think previously we talked about around 50% loan growth for this year. Does that sound reasonable or more or less? How much have you changed? Thank you.
Thank you for your question, Neha. Alexandre speaking. First, on the credit cards, we're very comfortable, as João mentioned on his speech in the first part of the call. We've been working on the product, learning all the do's and don'ts of credit cards. Lately, we've observed a strong macro deterioration where we're able to put to the test our ability to drive NPLs, to drive the early indicators of delinquency, such as the first payment default that João mentioned. We've been able to see the results of the moves that we do internally translate into P&L changes and things like that. That's important.
We've been able to early on reduce the percentage of approval on credit card limits that we were doing on onboarding, getting good results on NPLs as a result of the move. We have our hands on the wheel, and that makes us comfortable to keep on growing and to keep on executing on this product. Our goal, just on a last point on credit cards, is to improve our models to be able to do even better selection of clients so that we can improve and increase the approval rate without increasing NPLs. That's one thing that we're working on doing and that we expect to deliver by the end of this year. Just to remind everyone, we were at about between 15% and 20% approval rate on the onboarding.
We're close to 10%, and we expect to go back to the 15% level or more without increasing the risk profile of the clients that we are approving.
Yeah. On loan growth, we should be in the same levels that we mentioned in the first quarter, in the 40%-50% level on an overall portfolio level. Thanks, Neha.
If I can ask another follow-up. What are you doing to improve your ability to underwrite credit cards? What changes are you making to your models? Are you hiring people from the market to build more expertise? What are the changes that can lead to this improvement?
Neha, a lot of different things. Danilo, who takes care of the credit models with Felipe, that has been with us for a long time, they've been improving a lot the model. They have been bringing new variables and also new people to the team. As we combine all that, the model improves. As we have more data, as time goes by, we can also make the models richer. That's a little bit of what we've been doing. An important point also is to focus on clients that already have engagement with Inter. We've had a lot of success increasing limits and giving out limits based on the behavioral models. It's a good part of what we've been focusing on to keep spending increases and to keep the portfolio increases.
Thank you so much.
Perfect. Our last question comes from Rafaela de Oliveira Vitoria. We are gonna be opening the audio so that you can ask your question live. Rafaela, please go ahead.
Hi, guys. Good morning. My question here is just if you could give some details about the strong recoveries that you have in the quarter. You have something like BRL 150 million in credit recoveries, well above the last quarters. Just to give some detail here would be great.
Rafaela, João Vitor speaking. If you recall, I told you about the three stages on the credit card business. First, underwriting, pricing. The second one, UX/UI for the client. The third one, collection. I would say that one good lag is from this, I would say, this mess in the unsecured credit portfolio for the past, I'd say six months or so. For us, it was that we really worked hard to improve our collection process. Not only in bringing people, putting new initiatives, working with more data, being more aggressive, improving the UX/UI in our app to make it more convenient for the client. It's a big lag for us, and we're gonna keep doing that forever. It's not something that we're gonna stop doing after the market improves.
This is what's the main reason why you have this improvement on the recovery. Of course, we also expect some more better market trends, so we have more liquidity on the market coming soon, with much liquidity coming from the government side, so this should also help. We did our homework. We improved a lot the collection. On these three specific factors for a good credit card business, the underwriting, the UX/UI, and the collection, I would say that 2022 was the year for us to improve on the collection side, and we were able to do this good recovery that you mentioned. That's the main reason for that.
Okay, thank you.
We see a question here from BTG, Caro Paula, apparently with no microphone, asking us about ROE and capital consumption. On ROE, what we see in 2023 is this trend of operating levers that João Vitor was saying improving, and that translating into bottom line. In terms of capital, towards our meeting with BTG, we would say performance way far from where we want to, but already improving and creating organic capital, which is what we want to do to cover our five-year self-funded plan from a capital perspective. Our CET1 remains at 33% with room to model and dial our other RWAs. With the addition of organic capital created, we think we can make that capital last comfortably five years down the road.
Perfect then. Now we conclude the question and answer session. All the other questions sent will be answered by the Investor Relations team. Now, I would like to turn the conference back over to Mr. João Vitor Menin for his closing remarks.
Thank you everyone for joining us today. I would like also to thank my team, everyone working hard at Inter to make that possible. As I like to say, we're here for the mid, long term, not for the short term, and very excited with what we have ahead of us. Thank you also for all the shareholders that have been supporting us since the beginning. That's it. See you all soon. Be sure we're gonna keep working hard to deliver the best value for our shareholders. Thank you, and have a good day.
The conference has now concluded. Inter IR area is at your disposal to answer any additional questions. Thank you for attending today's presentation. Have a nice day.