Earnings Call Transcript - ITUB Q4 2020

Operator, Operator

Good morning, ladies and gentlemen. Welcome to the Itau Unibanco Holding Conference Call to discuss 2020 Fourth Quarter Results. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session. As a reminder, this conference is being recorded and broadcasted live on the Investor Relations website at 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 Sao Paulo are Mr. Candido Bracher, current CEO and new Board member; Milton Maluhy Filho, current CFO and CRO and new Chief Executive Officer; Alexsandro Broedel, new CFO; and Renato Lulia Jacob, Group Head of Investor Relations and Marketing Intelligence. First, Mr. Candido Bracher will comment on 2020 Fourth 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.

Candido Bracher, CEO

Good morning, everyone, and thank you for attending our 2020 Fourth Quarter earnings call. Before we get into the financial performance, I'd like to talk about some of the recent commercial, digital, and ESG highlights from our operations. So moving now to Slide 2, you can see that credit origination for individuals increased 15% in a single quarter. This stronger origination led to significant growth in the loan portfolio, which was driven not only by seasonally higher credit card loans but also by the payroll, mortgage, and car financing portfolios. It’s also worth mentioning that the digital engagement of clients continues to improve. The digital client base reached 24.2 million, of which 23 million are individuals. This represented an increase of 2.9% in the fourth quarter alone. The higher digitalization of customers creates an opportunity to further optimize our retail footprint and led to the closure of 95 branches and client service points this quarter. I'm also quite proud to report that our employees’ net promoter score reached the record mark of 89 points. This is a direct result of our efforts to promote the best possible working environment during this challenging crisis. Last but not least, we improved our client net promoter score by 10 points over the course of the last two years, thereby beating our internal target for the period. Now on Slide 3, we will share more light on some of our digitalization and technology KPIs. We continue to constantly increase our investment in technology and expect to invest in 2021 twice as much as we invested in 2018. Not only that, but we have invested better. While our investments in developing solutions and features for our digital platforms more than doubled in this period, we managed to decrease expenses on infrastructure maintenance by 28%. Also important to highlight that this resulted in a 25% reduction in clients implementing solutions in the last 12 months. We also increased the number of features and services available for clients in our bank digital platforms by over 80% in the same period. The sanitary nature of this crisis has forced many of our customers to migrate their interactions through digital channels. However, the use of these channels continues to rise even after the end of a more acute period of social distancing. This behavior can also be seen in the opening of new digital accounts, which grew more than 200% over the first two weeks. Another key part of our digital strategy is to strengthen our technology team. In this regard, we currently have 261 data scientists, possibly the largest contingent of these professionals in any company in the country. Moreover, throughout 2020, more than 3,700 employees have been added to our technology team, either directly or through the acquisition of ZUP. On Slide 4, I’d like to update you on the recent developments regarding the stake in XP Investimentos. With our focus on creating shareholder value, last November, we announced our intention to sell a portion of that stake in the company and later spin off the remaining part. In December 2020, we sold 4.5% of the capital of XP Inc., and two days ago, the Extraordinary General Meeting approved the spin-off of the remaining stake into XPart, pending regulatory approval. I think it’s important to highlight a couple of points. First, after the favorable opinion of the regulatory authorities, there is up to 120 days for listing shares on B3 and for the distribution of new shares of XPart. The cut-off date will occur close to the listing of the company, which will be informed in due course. Lastly, when the new company finally lists its business on the stock exchange, the shareholders will receive an equity holding in XPart in the same amount, type, and proportion as the shares they hold in Itau Unibanco. Slide 5, now moving to our ESG highlights, I'm happy to report that we intensified our sustainability commitment in 2020, reinforcing the firm's socio-environmental responsibility and its role in transforming society. Itau Unibanco and its controlling shareholders donated more than BRL1.2 billion to fight the pandemic in the country. The donation was invested in research, acquisition of medical and protective equipment, and awareness campaigns. We also launched the Amazon Plan in partnership with Bradesco and Santander. Out of the 10 proposed initiatives, four were prioritized. The first is fighting against illegal deforestation in the meat production chain. Here, we expect the producers’ engagement for traceability of direct and indirect supply. Second is the stimulation of sustainable chains directing BRL100 million, which will be offered by the three banks to finance cultural industries and cooperatives that deal with sustainable cultures and finance for small businesses. Third is the promotion of bio-economy, wherein we expect to fund research and projects that unlock the socio-economic potential of new production chains. Lastly, land regularization and recommendations on how the financial system can support regularization to stimulate legal and economic activity in the region. We also held and promoted a conference focused on the Amazon, where we hosted over 70 sessions with companies and financial market participants, 12,000 spectators, and donations for the planting of 380,000 native trees. Since 2019, the bank has implemented the TCFD and SASB guidelines in its financial reports, and we will further develop them in the coming year. On Slide 6, I'd like to highlight that we recently issued a $500 million Tier 2 sustainable bond. This issuance was the first of its kind in Latin America and was another step in integrating ESG into our business. We launched the sustainability finance framework whereby we defined eligibility for the allocation of funds raised through debt securities with social and environmental criteria. The funds raised can be allocated into eight categories, which are in those lines. This operation is strongly connected to the Positive Impact Commitments agenda, with financing targets related to sectors and businesses covered by the framework. We have already disbursed BRL47.7 billion to Positive Impact sectors, of which BRL12.5 billion were directed to renewable energy generation and sales. For the entrepreneurship agenda, we originally set an origination target of BRL9 billion to finance more companies led by women by 2024 but ended up surpassing that mark well ahead of our expectations. We launched a new BRL11 billion credit target for these efforts. Lastly, I'd like to invite you to check future updates of the Positive Impact Commitments on our Investor Relations website. On Slide 8, moving to our financial highlights, we entered the fourth quarter of 2020 with a recurring net income of BRL5.4 billion, resulting in an ROE of 16.1%. The 7.1% net income growth in this period was a direct result of a 4.5% reduction in the cost of credit, in addition to the growth in fees and net interest income. These effects were partially offset by a seasonally higher non-interest expense. This seasonality will not affect the bank's structural expenses' downward trend. Finally, the loan portfolio continues to show positive trends, growing 2.7% in the quarter. As usual, we’ll review each of these effects throughout the course of this presentation. Starting with the loan portfolio on Slide 9, I'd like to highlight some of the trends that can be seen on this page. The first is related to the individual credit portfolio, which continues to show a significant recovery driven by clients’ demand for collateralized products with lower rates and lower risk, such as vehicle financing and mortgage. The latter had record-breaking credit origination in the fourth quarter that resulted in a growth of over 130% compared to the same period in 2019. After several quarters of stability, payroll loans posted significant growth in the fourth quarter, mainly due to regulatory changes allowing them to access more funding through these products. Credit cards also had a strong quarter as a result of seasonally stronger demand due to the economic activity at the end of the year and holiday season. We observed a decrease in the personal loans portfolio, which is frequently the case during the fourth quarter of every year, until the payment of the 13th salary. We noted a reduction in the personalized credit portfolio, demonstrating the better financial health of our clients. The SMEs portfolio slowed its growth pace due to the lower rejuvenation of government-sponsored loan lines. The large companies’ credit portfolio grew by 1.6% in the quarter, primarily due to the corporate securities portfolio. Moving to Slide 10, the fourth quarter proved to be an inflection point for the financial margin with clients. The 3% increase was driven by continuous loan portfolio growth and higher average balance of the bank's own working capital and higher margins in our operations in Latin America. These effects were partially offset by the marginal reduction in spreads and an additional change in the portfolio mix, though this larger effect was considerably smaller than in previous quarters and was linked to seasonal effects such as the payment of the 13th salary, which naturally amortizes the balance of revolving credit lines. Slide 11 updates the figures from our reprofiling loans book. This portfolio finished 2020 with BRL15.8 billion, representing a reduction of 5% compared to the third quarter. This decrease is due to lower demand from our customers and higher incentive amortization. 96.1% of the portfolio is already outside the grace period. The NPL 15 to 90 days ratio reached 8.3%, an increase of 190 basis points compared to the previous quarter, driven by the end of the grace period for almost all of the reprofiled loans. The 90-day NPL ratio reached 5.2%, which is well below the short-term delinquency ratio of the previous quarter. As we said in the previous quarter, the credit quality performance of this portfolio is better than we originally forecasted in the early days of the pandemic. Our strategy of offering clients more flexible payment terms is yielding positive results. On Slide 12, we delve into the credit quality of KPIs from our portfolio. The cost of credit decreased by 4.5% in the quarter, driven by an 11% reduction in allowance for loan losses in the same period, in addition to the lower volume of discounts granted. These effects were partially offset by the increased impairment of corporate activities, primarily driven by a well-known large corporate client. While the provisions’ balance continues to grow, the coverage ratio reached 320%, down 19 percentage points this quarter. The short-term NPL ratio declined by 10 basis points due to the good performance of the individual credit portfolio in Brazil. This performance was again, partially offset by the expected increase in the 15 to 90 days NPL ratio from the SME portfolio. It is important to highlight that when we exclude the efforts of the reprofiled loans from the individuals and SMEs portfolio, their credit quality ratios are at the best historical levels. Slide 13 shows that the financial margin with the market reached BRL1.6 billion, representing a 14.1% increase in the quarter. This performance is due to higher gains in our banking book. The financial margin with market operations was also noteworthy, boosting revenues through the sales of securities and more volatility in interest and inflation rates. On Slide 14, the fees revenues grew 4.1% in the quarter. This performance is primarily explained by the higher volume of transactions in card issuance and acquisition, which exceeded seasonal expectations, as well as higher performance fees in our asset management business line. These effects were offset by the investment banking and brokerage operation, which had a strong quarter but did not perform at the same level as the third quarter. The new fast payment solution, PIX, also impacted current account fees as we opted to exempt our clients from paying fees on transfers, irrespective of their preferred method. Insurance revenues fell by 14.5% in the quarter, mainly due to the asymmetric effects of inflation rates and the remuneration of asset liabilities in our guided pension plan operation. On Slide 15, we show a 5.1% growth in non-interest expenses in the quarter, primarily due to seasonal effects related to stronger economic activity, higher profit sharing, traditional year-end commercial campaigns, and also due to the concentration of training and layoff expenses during the period. I'd like to highlight that operational expenses in 2020 contracted by 3% in Brazil, even more impressive when discounting the effects of inflation, resulting in a real contraction of 7.6% during the period. Latin America's operational expenses grew by 13.6% in reais for the year, mainly due to adverse exchange rate variations of the reais. As we previously mentioned at the beginning of this presentation, restructuring efforts enabled us to close 95 branches and service points in the fourth quarter alone. This movement pressed operational expenses upwards in the short term but is expected to reduce OpEx in 2021. Lastly, our workforce increased by approximately 1,700 people due to our investments in technology, having hired around 1,700 technology professionals in addition to about 2,000 engineers added to our teams from the ZUP acquisition. On Slide 16, our Tier 1 capital ratio increased by 80 basis points in the quarter, finishing the year at 13.2%. This was primarily due to higher net income and the sale of part of our investments in XP Investimentos. With that, I finish my part in the presentation and officially complete my last task as CEO of the bank. This was a four-year journey that brings me satisfaction and pride. I want to thank you all, investors and market analysts, for your interactions and your support throughout this journey. I now pass the floor to Milton, our new CEO, to set the expectations for 2021. Milton, good luck, and I am very happy to leave the bank in your capable hands. You know that you can continue to count on my support from the Board of Directors. All the best.

Milton Maluhy Filho, CEO

Thank you, Candido, for the kind words. Our daily interactions and discussions will be sorely missed. It will be a great challenge to succeed you. But it was with great pleasure that I accept this role and responsibility. Before we discuss our expectations for 2021, I would like to spend a minute on Slide 18, talking about the recent changes that have been implemented in our executive team. In order to be even closer to the business areas, we started to simplify our structure and reduce hierarchical levels within the bank. We doubled the size of our Executive Committee, which is now comprised of 12 people. These are very seasoned executives who were previously in charge of relevant business units and other key areas of the firm. We now have seven members of the Executive Committee focusing on commercial areas, including the IT Division as I consider them part of our business. New ways of working, such as through communities, have brought our business units and IT even closer. The objective of this new structure is to allow for speed, more autonomy at the front desk, a better understanding of the specific needs of each business area and our clients, and thereby maintain our focus on the bank's role. I think it’s worthwhile to highlight the creation of the payments area, which we believe has enormous value. Moving to the next slide, before presenting our expectations for our operation, it’s important to put the macroeconomic scenario in context. The past few months have shown an important recovery in the Brazilian economy. However, we're still experiencing an increase in infection numbers and fatalities throughout the country, which brings a high level of uncertainty to our macroeconomic forecasts. Among other factors, vaccination will be key in normalizing our lives and, therefore, restoring the country’s economy. It’s important to mention that this scenario assumes there will be no further delays in the immunization of the Brazilian population. We expect GDP growth of 4% in 2021. It is worth mentioning that this growth is statistically carried from the last quarter of 2020. We also expect a rise in the basic interest rates, ending the year at 3.5%, and that inflation will remain under control and within the range defined by the Central Bank. Finally, we expect a stable unemployment rate, albeit still at a high level. Here, it's important to add more context as we believe that formal job creation will remain positive, as it did in the second half of 2020. However, this effect will be offset by a greater number of people looking for jobs due to the reduction of government aid programs. Moving to Slide 20, we are presenting our operation expectations that were the basis for this guidance for 2021. We believe we are at appropriate capital and liquidity levels considering our internal stress test scenarios. It’s worth mentioning that our target of 13.5% for Tier 1 capital remains in force. Although we ended 2020 slightly below this level, we believe that in the first half of 2021 we will again meet or even exceed this target. We anticipate expansion of the loan portfolio driven primarily by the individual portfolio, assuming a recovering economy in line with our base scenario. Initially, this growth should be supported by lower risk and lower interest rate products, such as stable loans, mortgages, and auto loans. However, we expect demand for consumer credit lines and revolving lines to resume in the second half of the year. We anticipate recovery in the average financial margin, with a decline in NIM over the year due to the progressive change in the credit portfolio mix among segments, and the expectation of higher interest rates impacting the remuneration of our capital and liability margin. We anticipate growth in service and insurance revenues in line with the trend of recovery in economic activity, despite the negative impacts from the rollout of PIX, the Brazilian Central Bank’s first payment solution, and the spin-off and sale of XP Investimentos. It is important to mention that last year, we had a full year of XP Investimentos, while this year we only account for one month in this guidance, considering 11 months without XP in our figures. The performance will be mainly driven by the expectation of strong activity in the capital market and the launch of new channels, products, and services. We expect a progressive reduction in cost of credit, anchored in the bank's expected loss model and Brazil's economic recovery. However, this model will react promptly to relevant changes in the Brazilian macroeconomic scenario and the financial conditions of our customers. Strategic cost management based on structural efficiency projects will continue to bring benefits in the coming quarters, with a nominal reduction in operational expenses. We expect an increase of approximately BRL1.5 billion in our investments in technology, new products, and commercial platforms, which will positively impact the bank's operational efficiency in the medium and long term. Moving to Slide 21, we present our guidance here. Due to the high uncertainty in the macroeconomic scenario and its potential impacts on the bank's operations, we have decided to increase the range of projections to 3% to 4%. We now expect our growth for the loan portfolio to be between 5.5% and 9.5% in the consolidated figures and between 8.5% and 12.5% in Brazil. For the financial margin with clients or NII, the expectation is for growth of 2.5% to 6.5% in the consolidated figures and 3% to 7% in Brazil. We anticipate the financial margin with the market to end the year between BRL4.5 billion and BRL6.4 billion in the consolidated figures and between BRL3.3 billion and BRL4.8 billion in Brazil. For the cost of credit, we expect our whole operation to end the year between BRL21.3 billion and BRL24.3 billion in the consolidated figures, and between BRL19 billion and BRL22 billion in Brazil. For fees and insurance revenues, our expectation is for growth between 2.5% and 6.5% in consolidated figures and in Brazil. It’s important to highlight that we did not factor in any additional revenues coming from XP, as I mentioned before, from January this year, as a result of the spin-off disclosed in Slide 4. As for our non-interest expenses, we expect a nominal contraction or growth of 2% in both consolidated figures and in Brazil. This range was reduced considering the higher investments in technology and in our commercial platforms as we mentioned on the previous slide. Finally, our effective income tax and social contribution rates should end the year between 34.5% and 36.5% in the consolidated figures and between 34% and 36% in Brazil. We emphasize that this guidance is based on the macroeconomic scenario we've just presented, and any abrupt change in our expectations for the economy may lead to a complete revision of our expectations during the period. With this, I conclude the presentation, and we may start the Q&A session.

Operator, Operator

Ladies and gentlemen, we will now begin the question-and-answer session. Our first question comes from Mario Pierry with Bank of America. Please go ahead.

Mario Pierry, Analyst

Good morning, everybody. First of all, I wanted to congratulate Candido for all the work that you've done in the last few years and all of the interactions that we had were very enriching for us. I wanted to wish Milton good luck in his new role. I have two questions, both for Milton. Milton, when you look ahead, over the next five years, what do you think are the biggest threats to the bank, especially for its profitability? Is it regulation with the creation of open banking or instant payments, or is it the low rate environment? Or is the main concern the entrance of new players, especially the FinTechs and potentially big techs? My second question is slightly more specific: when we look at your loan portfolio growth guidance in Brazil of 8.5% to 12.5%, this implies very little real growth when considering that you’re forecasting nominal GDP growth of about 7.5%. Can you discuss why we wouldn’t be able to see significant growth next year? Could it be that the SME portfolio this year was inflated given all of the government programs in place? If possible, could you give us a breakdown of your loan growth expectations for 2021 by individuals, SMEs, and large corporates? Thank you.

Milton Maluhy Filho, CEO

Thank you, Mario. Thank you very much. First, in terms of challenges ahead, as you noted, we should be working in a different environment with low rates. We've seen some shifts in the market stemming from competition and various lines of business. Regarding regulation, yes, we don’t forecast what the implications of open banking will be. That is something we should be very close to monitor to understand its impact. We believe that in a low-interest-rate scenario, some of the revenues that were significant last year will be adversely affected. As we grow the bank, that remains our focus this year, especially on the credit side. We also have to be proactive in creating new lines of business for the bank as well. This is a different scenario, and we still believe in positive trends long-term. Looking specifically at loan portfolio growth, we've seen significant growth in the wholesale portfolio last year, surpassing our budget. The movements from large companies anticipated crediting the market to grow during the crisis, especially since the capital market was closed for several months. For 2021, we still expect an active dynamic from the retail portfolio, even though wholesale growth will likely be much less than it was last year. The capital markets are expected to open throughout the year, impacting our ability to underwrite credit from our balance sheets. We do not foresee it as a concern since we are a very active player in this market.

Mario Pierry, Analyst

That's very clear. Just a quick follow-up on the retail segment: in terms of growth this year, which specific products are you most excited about?

Milton Maluhy Filho, CEO

We believe there will be a significant increase in secured loans, which include mortgages, auto loans, and payroll loans. These three lines should see much improvement this year. We anticipate some recovery in personal loans as well. As for credit cards, given the economic activity and increased consumption, we expect growth too. We are focusing on growing the secured portion of the portfolio, which has increased five points over the last year.

Tito Labarta, Analyst

Hi, good morning, and I would also like to thank Candido for his time as CFO and wish Milton all the best in his new role. I have a couple of questions: first, looking at the overall guidance, just plugging in the midpoint of the figures provides a rough estimate of a 17% ROE for the year. Is that reasonable in terms of your longer-term expectations? Do you believe you can return to the 20% level, and how long that might take? My second question relates to your expense growth guidance, roughly flat to down by two. Can you maintain expenses at around this level over the longer term? You mentioned closing 95 branches in the last quarter. How deep can you go on cost-cutting, and how can this help to offset revenue pressures?

Milton Maluhy Filho, CEO

Thank you for your question, Tito. First of all, just to clarify, the midpoint of the guidance is around 17.6-17.7%. However, we see challenges ahead due to profitability pressures and interest rates. In an environment with 2%, we lose revenue from working capital and deposits. We believe the cost of capital will reduce over the coming years in a low-interest-rate environment; thus, we don’t foresee an ROE increase between this year and the next. We still have opportunities to continue working efficiently. We are opening room for investment, and we still have space to work on reducing our usual costs. We're focused primarily on creating value for our stakeholders.

Tito Labarta, Analyst

Thank you, Milton. That's helpful. Just a quick follow-up: concerning the 17.6 or 17.7% you mentioned for the midpoint, what kind of dividend payouts should we expect? Do you think you'll resume back to normalized payouts this year?

Milton Maluhy Filho, CEO

The way our policy functions is to distribute everything that exceeds the 13.5% target. This policy will not change, but we also take into account any significant investment needs for the upcoming 12 months. It's difficult to anticipate now, but we’ll maintain these ratios as we’ve devised previously.

Geoffrey Elliott, Analyst

Hello, thank you very much for taking my questions. Good luck to both of you in your next steps. There has been a lot of capital going into digital banks in Brazil recently, like Nubank and others. How does this capital influx change the competitive environment for you? Are you observing any changes in their behavior that require you to respond?

Milton Maluhy Filho, CEO

Yes, as I’ve mentioned, we are experiencing a more dynamic and competitive environment, especially from FinTechs. Their typical course of business involves raising money through these investments. We have a robust capital structure and believe competition makes us better. We've been working hard internally to establish the capability to compete effectively.

Geoffrey Elliott, Analyst

Are there specific products or lines of business where you’re noticing that competition changing?

Milton Maluhy Filho, CEO

We've seen significant competition in payments, particularly in acquiring business. We’ve noted strong competition there lately. It’s also obvious on the investment side, where we're increasing our efforts to enhance our commercial distribution, client assessments, product offerings, and our apps for interaction with the bank. Investments in payment solutions, particularly in acquiring, have been under intense competition. On the credit card front, new entrants are appearing, and while they typically attract new customers to the market, they are very focused on specific client types, while we have a diverse client portfolio.

Thiago Batista, Analyst

Thanks, everyone. I have two questions. The first regarding the capital position of the bank: Milton, you mentioned that the bank continues with the target of 13.5% for Tier 1. Why not reduce this target to, say, 12.5%? Overhead used to be a main concern for banks maintaining their capital. The second refers to the importance of the payment business for Itau. Can you elaborate on the payments units you're considering? Are you encompassing just hedge, or are you including solutions like PIX?

Milton Maluhy Filho, CEO

We don't foresee any change to the 13.5% Tier 1 target. If you recall what happened in the first quarter of last year, we had the impact of overhead, along with tax effects, but the major influence was on risk-weighted assets, particularly from our significant international operations. Devaluation of the foreign exchange impacts both the risk-weighted assets tied to our U.S. and other currency portfolios, which impacts us. As for the payments area: yes, we're encompassing the acquiring business, credit card portfolios, cash management, and the new PIX platform. Money tied to payments, even from various facets of retail, will be integrated into this business segment. We strongly believe there’s tremendous synergy to be had.

Jason Mollin, Analyst

Hi, everyone. I would also like to thank Candido for his hard work over many years and congratulate Milton. My questions are related to perspectives and guidance. You mentioned that the bank's outlook for 2021 is highly contingent on the base macro scenario that you laid out. How do you view the upside and downside risks for economic growth, rates, inflation, and employment? How do these translate into risks for loan growth and loan loss provisions?

Milton Maluhy Filho, CEO

As I stated, this scenario we have is positive, but there remains considerable uncertainty. The key factor is the vaccination program, and any delay may reduce economic growth by at least 300 basis points. This reduces employment and impacts our expectations of government support. This is our main concern. Therefore, we see a downside risk for loan portfolios, while we intentionally broadened the guidance range to account for potential variances. We need to remain cautious about the cost of credit due to delinquencies; we don’t foresee new formal programs to assist clients this year, although we will continue to monitor their needs. Many lines of revenue are correlated with economic activity, so lower activity will affect revenues. But operational cost reductions will mitigate some of the revenue impacts.

Jason Mollin, Analyst

Just as a follow-up on the provision outlook: does the cost of credit guidance incorporate any release of reserves? And regarding the cost side, you mentioned an increase of about BRL1.5 billion in investments for technology, new products, and commercial platforms. What was the total amount spent in 2020 for an apples-to-apples comparison?

Milton Maluhy Filho, CEO

Yes, the guidance does incorporate a release of reserves. We had anticipated the credit cycle, and we expect delinquency to grow this year, consuming part of our provisions made during 2020. As for our technology investment, we will be doing two full levels; we will almost double the hours spent on our operations compared to the last year.

Carlos Gomez-Lopez, Analyst

Hello. I would like to start by congratulating Milton and thanking Candido for his commitment over the years. Now that there’s a roadmap for exiting XP, what are the key learnings from that investment? How will the investment platform be established differently moving forward? Also regarding dividends, will you maintain this minimum statutory median of 25% until you achieve the 13.5% level, or can we expect an increase as you get closer to that metric?

Milton Maluhy Filho, CEO

We’ve seen significant changes in our executive committee, focusing on agility and client simplicity. We achieved our 2020 goals but have more work ahead. We will concentrate on efficiency and introduce new ventures. Our ESG agenda will remain a priority as we focus on improving diversity and addressing environmental concerns. Regarding dividends, until we reach the 13.5%, we’ll abide by a minimum of 25% payouts, with expectations that we will be above 13.5% by the end of this quarter, moving back to our previously established policy. The XP transaction will minimally impact our capital ratios. Selling part of our investment in the last quarter brought around 20-25 basis points of capital increase, but the spin-off itself does not significantly affect capital levels. We remain cautious moving forward.

Geoffrey Elliott, Analyst

To wrap up, my follow-up concerns the XP spin-off. What does the need for Fed approval entail? Given both banks’ underwriting activities in the U.S., what's their role in this approval process? Second, regarding PIX, have you encountered any operational issues on registration or transaction processing? There were discussions in the press about registration delays and potential duplicate transactions. What are your experiences with this?

Milton Maluhy Filho, CEO

The Federal Reserve needs to approve the XP transaction due to underwriting activities by both XP and us in the U.S. This is fundamental to the process due to structural changes. Now, over PIX: Initially, there were some platform instabilities, but we've since improved our systems. The early figures released by the Central Bank showed we were moving in the right direction with our market share. There were early challenges with key registrations, but we promptly addressed these issues. We're confident in the improvements made and our market share in PIX transactions. Thank you all for participating in our call. It’s my pleasure to have you here. I want to extend my gratitude to Candido for his support this past four years. It’s been a privilege to work with him.

Candido Bracher, CEO

Thank you, Milton, and thank you to the analysts and investors for their support during this period. I wish you all the best of luck, and I am extremely confident in how the bank will perform under your leadership.

Operator, Operator

This concludes today's Itau Unibanco Holding earnings conference for today. Please respond to our event perception survey available through the QR code. Thank you very much for your participation. You may now disconnect.