XP Inc. Q3 FY2024 Earnings Call

…posting a 12% increase year-over-year. As we will see during the presentation, it's important to mention that it was another consistent quarter regarding net inflows, aligned with our levers and our capacity to adapt becoming more relevant in fixed-income in the current scenario. We also increased our total number of advisors, reaching 18,400, growing 9% year-over-year, and continued to expand our active client base marking BRL4.7 million, increasing 6% year-over-year. During the nine months 2024, gross revenues grew 17% year-over-year, reaching BRL13.3 billion. Our EBT posted 25% growth year-over-year, delivering BRL3.7 billion. Our net income reached BRL3.3 billion, expanding 17% year-over-year, and it was the highest in our history in the quarter at almost BRL1.2 billion with a 27.5% margin. This set of results indicates that we are at the right pace to meet the 2026 guidance released in last year's Investor Day. We will go into more details on the financials later on. Going to balance sheet and profitability. We ended the quarter with an ROTE of 28.4%, an increase of 258 bps year-over-year. Our managerial BIS ratio was 21.5%, and the EPS was BRL2.18 per share, the all-time high in our history. On the right, you can see that EPS since the IPO grew almost 4 times, reaching BRL7.93 in the last 12 months. Today, we also announced an extra payout of BRL3 billion, contemplating dividends and a new share buyback program. Recently, we commented that we are targeting to deliver more than 50% payout until 2026. This year, it's well above it. All in all, we keep our targets to 2026 to reach a BIS ratio between 16% and 19% with more than 50% payout in the next couple of years. Our capital discipline in how we operate our business considers efficient capital allocation and capital return to shareholders. As I commented recently, we were already expecting to deliver better results in the second half '24, based on our growth levers, cost discipline, and capital allocation. Third quarter '24 results reaffirm that our execution plan is on track and enhance our confidence in delivering the guidance. Moving on to the next slide, we see our strategy tracker, which presents how our business evolves in time. We will analyze each pillar during the presentation. Our gross revenue in third quarter '24 last 12 months marked BRL17.6 billion, posting a 20% growth. Hypothetically, if we target to reach the top of the guidance, it will be necessary a 20% CAGR into fourth quarter '26. Regarding our LTM EBT margin, we have reached 28.1%, 183 bps expansion compared to third quarter '23 LTM figures, demonstrating that we are on the right pace to reach the 30% to 34% target range in 2026. In retail investments, we reinforce that our aim is to become leaders in investments, which is our core business. As highlighted in the beginning of this presentation, our strategic achievement was to keep consistency on net new money. We recorded BRL31 billion in net new money for the quarter, which represents a 124% growth year-over-year, excluding Modal acquisition. It's important to highlight that out of the BRL31 billion, BRL25 billion is from retail. Important to remind you that around BRL20 billion in retail net new money is a good level for the current scenario. This achievement was possible due to improvements from several factors, and I would like to remind you of our main levers. First, our product platform is the most complete investment platform in the country, positioning us ahead of peers. As an example, during the quarter, our fixed-income platform posted solid results once again with innovative and competitive products and sophisticated instruments. Second, our multichannel distribution keeps evolving, and as we mentioned in the recent past, IFAs, internal advisors, and RIAs work synchronized to increase our client base and grow AUC. In this quarter, we reached 18.4 thousand total advisers, of which 2.7 thousand are our internal sales force. When compared to net inflows, internal advisors already represent in many months a higher net inflow than the IFA network. Third, for the past few years, we have implemented more intelligence in our offering with the right value proposition for each segment from private to retail, for example, pricing adjustments for each product and services with a better understanding of economics, providing private clients a more active portfolio management while providing retail clients an objective-based approach to run their portfolios. Additionally, during the year in private banking, we hired many seasoned professionals, including the CEO for the segment that will pay off in the next years. This change in the way of doing business translates into a potential faster growth in private banking and retail since we are already very competitive in the affluent segment. Lastly, transitioning from a product distribution firm to a service provider is key to differentiate ourselves from other players for the next decade. While competitors render financial planning to ultra-high private bank clients, we are offering to clients with 300K and above, which is only possible because of our tech-enabled platform. No other player in Brazil can do it on the same scale we are doing. We continuously keep improving our service and product offerings. And the combination of these levers is translating to a consistent retail net inflow, higher productivity, higher quality from a client perspective, and more profitability for the Company. Noteworthy, we received many questions regarding retail take rate direction. As we said recently, for the mid-term, we do not expect big change, and this quarter, it increased 4 bps marking 1.33%. Now, let's move to our cross-sell initiatives. We are continuously implementing new initiatives and products to attend and excel our client's financial needs. When a client decides to enhance the relationship with XP, acquiring other services or products, we see the cross-sell results materially lifting revenues. On the left side of this slide, we can see how retail cross-sell is evolving. Credit card grew 12% year-over-year, achieving BRL12 billion in TPV in third quarter '24, and gained market share during the year. It still has roughly 29% penetration, while we estimate incumbent banks present around 50% penetration. Life insurance keeps a fast pace posting 46% growth year-over-year in written premiums, reaching BRL362 million in the quarter. Penetration is around 2%, and when we compare to other players, we believe there is a lot of room to increase our penetration on our client base since the market presents an average of 17% penetration. From a revenue perspective, it still has a lagging effect since sales from our marketplace impact revenues positively during the first three years, and sales from our own insurance company take three years to present a positive impact on revenues. This effect relies on the high commissions and provisions in the beginning of the terms. On retirement plans, our client assets grew by 15% year-over-year, reaching BRL78 billion. XP has a 5% market share and the market leader has 28%. We are addressing new efforts to keep growing our share. Initiatives such as cashback and sales force expansion are resulting in a faster growth pace. We are confident that we will gain much more relevance during the next years. Retail credit presented 51% growth year-over-year, marking BRL75 million in revenues in the quarter. Our objective is not to grant money through clean credit lines but with client investments as collateral. We have the best client base from a credit risk perspective, and as a consequence, our ECL to loans is one of the lowest in the local market. In this new vertical concept, we have other products such as FX, global investments, digital accounts, and consortium, which grew 92% year-over-year with revenues reaching BRL201 million this quarter. This is a clear example of our capacity to launch new features and reap the benefits rapidly. If you remember a few years ago, we had zero revenues on these products. On the right side of this slide, to illustrate the relevance of cross-sell, we can see revenues per client among different segments. In this example, we are using a 100 base chart. On average, clients with more than two products present 38% more revenues, and clients with more than three products present two times more revenues than a client with one product. It's important to highlight that our retail offers include more than one product; therefore, this is how we monetize clients with tickets lower than 100,000. With that in mind, we understand that there is a significant opportunity in front of us. We have a complete product range with room to increase penetration and profitability while we keep launching new ones. And finally, the corporate and SMB. As we mentioned before, wholesale clients are crucial to our ecosystem. Each quarter, we have been able to innovate and meet our corporate clients' needs while distributing these instruments to retail and institutional networks. Now let's explore our wholesale business from origination, distribution, lending to derivatives and FX treasury services. During the last years, we have been improving our position in rankings and league tables in investment banking. We are number one in REIT issuance and CRA, agriculture receivable certificates, and number two in CRI, real estate receivable certificates. As a matter of fact, during third quarter '24, we reached BRL8.6 billion in DCM volume, positioning XP in the top two rankings year-to-date. Since we have the largest investor platform in the country, when we think about secondary trading, we are number one by far with more than 50% market share. Institutional is another piece that benefits from our ecosystem. As a market leader in independent fund managers distribution, we are the fourth largest player in equities traded volume. For quality in execution and strong relationships, we keep gaining market share, and we understand this trend remains looking ahead, expanding beyond investment banking and brokerage. A few years ago, we started to develop new businesses such as corporate security trading, which can be monitored by our capacity to originate and distribute or expand loan books. Corporate securities achieved BRL23 billion, a 79% growth year-over-year. We are the largest broker for corporate credit in Brazil, and a portion of this corporate secured is related to our flow book, which turns over around three times per quarter. Our unique recycling model provides better NIMs risk-adjusted aligned with our credit risk discipline. Another example, derivatives. We keep evolving our offering while increasing penetration in OTC derivatives. And this quarter, we were ranked fourth position compared to tenth two years ago. More than that, we became number one in interest-rate swaps. This is another clear view of our powerful ecosystem. On FX, we have seen similar improvements, reaching 15th from fourth four years ago when we started. Lastly, we have been developing and deploying more products and services. For instance, last quarter, we launched the corporate digital account and we will launch trade finance in the next months. We are also acting as the insurance broker for our corporate clients. As this business grows, we will bring additional disclosures regarding them. The new loans corroborate to increase cross-sell as it's part of our plan to gain profitable market share with lower risk. As a consequence, the wholesale business printed a solid 36% revenue growth in the last 12 months. Victor will give more details about the revenue growth. Now I will hand it over to Victor so he can discuss this quarter's financials. Thank you.

Thanks, Maffra. Good evening, everyone. It's a pleasure to be here with you. And before we go to the results of the quarter, I would like to recall some ideas anticipating the second quarter of 2024. First, in the second quarter, we explained that warehousing assets by underwriting more fixed-income offerings would drive an increase in our wholesale revenues, particularly in the issue services. At the same time, we anticipated a lagging impact on retail until the distribution phase of those offerings. As expected, when the distribution phase of those offerings took place this quarter, we observed a positive impact on retail fixed-income revenues. Second, for the reason just mentioned, in the second quarter, we have increased our balance sheet, growing BRL10 billion in corporate securities in a single quarter as part of our warehousing business. And finally, we had also anticipated that the revenue mix along with a few other minor effects result in a higher EBT margin and tax rate in the second quarter. We emphasized that using a trailing 12-month metric for both would serve as a more reliable guide for expectation in the coming quarters. With that in mind, remember that last quarter, we focused on discussing our last 12 months' figures. We are evolving in the right way to deliver our commitments in 2026, and the third quarter of 2024 was a positive quarter with the retail business in the spotlight. Total gross revenue grew 17% in nine months of 2024 and 4% year-over-year. Retail was the highlight during the quarter. Corporate and issue services posted solid results and institutional revenue was flattish quarter-over-quarter. On the high-hand side of this slide, we see our gross revenue breakdown, and retail increased participation to 77% of total revenues on the back of another positive quarter for fixed-income. Let's move to the next slide with more details on retail. Retail revenue posted BRL3,494 million, a 15% growth in nine months 2024 and 10% growth year-over-year. Fixed income was once again the highlight with a 56% growth in nine months '24 against nine months '23 and 31% growth year-over-year. That growth was supported by both our ability to keep launching new products, including corporate credit and structuring notes, being very competitive against tax-exempt notes for incumbent banks. And second, our relevance in secondary trading higher than 50% in terms of market share, which enables us to provide liquidity to our client base. Moving on to the next slide, we will talk about corporate and issuer services revenue. Corporate and issuer services continued to be an important driver to total revenues, posting BRL552 million in the quarter, which represents a 58% growth in the nine months '24 and 6% growth year-over-year. Issuer service delivered positive results on the back of DCM activity, reaching BRL323 million in the quarter, and 71% growth in the nine months '24 and flat year-over-year. Corporate results typically align with the issuer service performance if cross-selling opportunities arise from new fixed-income issues, particularly in derivatives. Corporate posted BRL229 million in the quarter, a 43% growth in nine months '24, and 17% growth year-over-year. On the right-hand side of the slide, we like to present our ecosystem rationale, connecting our retail and corporate investment banking business in a profitable risk-recycling mode. In the second quarter of 2024, we expanded BRL10 billion in new corporate securities warehouses in our balance sheet, and in Q3, we already distributed around two-thirds of that book to our retail institutional clients as we said we would do. Moving on to the next slide, we will explore our SG&A and efficiency ratios. SG&A ex incentives reached BRL1.5 billion in the third quarter, a decrease of 2% year-over-year and a 7% increase quarter-over-quarter. Since every third quarter, we have investments in our XP Expert; quarter-over-quarter comparison has a seasonality effect. As we said before, cost discipline and efficiency are part of our plan and DNA since both position XP at a better competitive level. I'm happy to announce that this quarter, we marked another record with a 35% efficiency ratio, the lowest in our history since the IPO, printing 179 basis points lower year-over-year and 6 basis points lower quarter-over-quarter. Important to mention that we are confident to deliver goals for 2026, with a powerful combination of our innovative solutions to our clients, our new business and internal advisor expansion becoming each year more mature, coupled with our cost discipline. Moving on to EBT now. EBT achieved BRL1.2 billion in the quarter, a 5% growth year-over-year and BRL3.7 billion in nine months '24, a 25% growth. As I commented before, we emphasize that using trailing 12 months maturity for both EBT margin and FX tax rate would serve as a more reliable guide for expectation in the coming quarters, which was already the case in this one. In this quarter, our EBT margin in the last 12 months was 28.1%, flat year-over-year and also flat against the second quarter 2024 last 12 months' EBT margin. We believe our EBT margin will keep growing on an annual basis, reaching our goals for 2026. Let's see our net income on the next slide. Even considering the different revenue mix, I'm happy to share with you that during the quarter, we set a new net income record, printing BRL1,187 million. It represents a 7% growth in the nine months '24 and a 9% growth year-over-year. Another important achievement was the increased net margin in 118 basis points, posting 27.5%. Let's move on to the next slide to talk about capital management. As you might have seen, this quarter, we started to disclose our BIS ratio data, including risk-weight assets breakdown in two years of historical data. We achieved a 21.5% BIS ratio in the quarter and one of our goals is to operate the business between 16% to 19%. So efficient capital management is key. Therefore, besides the BRL7.5 billion already distributed through dividends and share buybacks during the last years, we announced today an additional BRL3 billion to be distributed in dividends and share buyback. Considering this distribution and full execution of the buyback program, we would have a BIS ratio at 18.3%, in line with our guidance. On the right side of the slide, we can observe that the RWA total assets ratio stands at 30% this quarter if the credit RWA accounting for 4% and 5% of our total risk. The shift in the mix between credit and market RWA compared to the previous quarter is primarily due to the implementation of new Central Bank resolution in this quarter, the 313 resolution. According to this new resolution, the risk associated with securities and derivatives held in the trading book must now be classified as market RWA. We believe this regulatory adjustment provides a more accurate representation of our risk profile. Given the majority of our credit exposure is tied to corporate bonds' credit spread, it aligns more closely with market risk. Taking that into consideration, our credit RWA is way lower than peers, which corroborates our discipline in allocating capital across the ecosystem. Also, it's important to consider that our business not only consumed lower credit RWA but also has a low average daily VaR at BRL22 million in the third quarter, or 10 basis points of our equity. Our strategy is based on increased profitability and capital return to shareholders while keeping a conservative BIS ratio when compared to the Brazilian financial industry. This slide summarizes our capital distribution if more than BRL10.5 billion in dividends and buybacks in the last three years. Last year, our total payout ratio was 114% if BRL4.5 billion capital return. And this year, if the new announcements, it indicates more than a 9% payout ratio if more than BRL4.2 billion of capital return. As Maffra mentioned earlier, our goal is to keep delivering a higher than 50% payout ratio for the next two years, aiming to operate between 16% to 19% in BIS ratio. Now let's see our EPS and ROTE numbers. Our earnings per share evolution continues to post solid growth and achieved BRL2.18, an 11% increase year-over-year and an 8% increase quarter-over-quarter. During the 3Q '24, XP posted 28.4% in ROTE, with an increase of 258 basis points year-over-year and 114 basis points quarter-over-quarter. Now moving back to Maffra so he can do his final remarks and then we go to the Q&A.

Thanks, Victor. So before we go to the Q&A, I would like to emphasize four things. First, we had another solid quarter confirming that we are on track to deliver our 2026 guidance. Second, as we presented, our levers are delivering positive results with BRL25 billion net-new money this quarter, indicating that our target should deliver around BRL20 billion per quarter is feasible. Third, we believe we are enhancing our moats by offering to our clients the most complete and sophisticated product platform in the country, expanding our best-trained sales force, and evolving our value proposition properly to each segment through better offerings, objectives, and higher levels of service excellence. And lastly, our commitment to manage our Company with capital discipline, efficiency, and return to our shareholders. Once executed, we will have returned more than BRL10.5 billion to shareholders throughout the last three years. Now, Andre Parize will start the Q&A session.

Okay. Now we're going to start our Q&A. Attending you on a first-come, first-served basis. First question is from Thiago Batista, UBS. Thiago, you may proceed.

Hello, guys. Can you hear me?

Yes.

Okay. Thanks, Parize, Maffra, and Victor. I have two questions. The first one called attention, the increase related to about 400 new individuals. Is the amount of those individuals that went to the B2C advisor or not? And my second question. I know that you don't have guidance for profitability, but can you give us a ballpark idea of what level of profitability XP will have in the long term? And by the way, are you looking more to downside or upside?

Hi, Thiago. Thank you for your question. Good evening to all. It's a pleasure to be here. I will take the first question and Victor will answer the second one. Out of the about 400 employees, 300 add to B2C; they are advisors. You don't see that increase in the total number of advisers because we had a change in regulation a few months back, and now the IFAs, they don't need the IFAs partners. Imagine the managers, the people that work not as advisors in the IFAs. They don't need to be IFAs anymore. So now they are under employee contract agreements, and they are leaving the IFA number diminishing. So if you look at the total number, it's going down, and it's not because people are leaving the advisory profession; it is due to this new change in regulation, and they are becoming regular employees in Brazil. So out of the 400 people that we hired internally, 300 went to the B2C as advisors. Okay.

Perfect. Thank you. I will take the second question about ROE. Looking at our ROTE number of 28%, you can say that our return on capital employed is around that. And after we deliver our guidance of base index by the end of the guidance, you can expect our ROE will be in the mid-to-high 20s.

No, very clear, Maffra and Victor.

Okay. Next question is from Eduardo Rosman, BTG. Rosman, you may proceed.

Hi, everyone. Good evening. I want to discuss capital allocation further, as Victor provided some insightful information regarding it. I would like more details about the risk-weighted assets and what we can anticipate for growth next year and possibly in the mid-term, particularly regarding potential efficiencies in operational and market risk. Additionally, with your capacity to issue Tier 1 and Tier 2, if there’s an opportunity to do so and subsequently reduce your core Tier 1, I’m trying to comprehend what dividend and buyback payout levels we might expect in the upcoming two years. In the past few years, your payout has been quite high, so I’m curious if we can aim for at least a 50% payout over the next couple of years. Thank you.

Okay. Thank you for your question, Rosman. First, there is operational leverage in the RWA numbers that can give you a color. If you look at our revenues in issuer services and corporate, which is basically a more capital-intensive business, the revenues grew 38% in the last 12 months and the RWA grew only 30%. So there is a gain between the relation in revenue and the RWA. And when you go to marketing operational RWA, also our gains that we can make over the years using more efficient structures as now we can use the bank to its full capacity. Talking about payout, you can expect 50% or more of our net income paid in 2025 and '26, that should be the levels to reach our guidance in terms of BIS ratio, and after that, we should stabilize near 30%.

Awesome. Thanks a lot.

Okay. Our next question is from Yuri Fernandes from JPMorgan. Yuri, you may proceed.

Hello, Parize, thank you. Hi, Maffra and Victor. A quick one just on Rosman's question. Just making sure that 21.5% still does not reflect the BRL2 billion, right? It should maybe drop to 19.5% without any capital generation for the next quarter. So very quickly this. And if I may, a second one, just on the other line, Parize, what happened with the orders? It was about a 40% decrease quarter-over-quarter. So if you can provide a little bit of explanation what hurt that line this quarter. Thank you.

Sorry. Thank you for your question, Yuri. The BIS ratio at the end of the quarter was actually 21.5%, and after the dividend, it goes to 19%, and considering the buyback then, it goes to 18.3%. And as we said, you can expect that we will pay more than 50% of our earnings in the next two years. And after that, our payout ratio should normalize between 30% and 50% of our net income. Going to the second question about other revenue, in this quarter, we had a one-off event. In the beginning of the quarter, we tendered almost half of our outstanding 2026 notes and issued a new 2029 bond. Remember that those notes that we tendered, they were hedged to Brazilian CDI, and to buy them back, we had to undo the hedge accounting. And by undoing the hedge accounting, we discharged all the P&L in the net income. If you consider all the transaction, the carry of the new debt is cheaper than the one that we bought in CDI plus levels. So over time, the P&L of the transaction is positive. But in this quarter, we had this one-off event that reduced the other revenue line, and you should expect that we'll be back to average levels in the next quarter.

Super clear. Thank you for the explanation on this point.

Okay. Our next question is from Mario Pierry, Bank of America. Mario, you may proceed.

Hi, guys, good evening. Let me ask you three quick questions. Two of them are follow-ups. First one, Maffra, you talked about using more internal salespeople, right? However, when I look at the commissions paid to IFAs, they are growing faster than retail revenues. So, in fact, we calculated a ratio of 25.8% this quarter; last year it was 24.6%, previous quarter 25.7%. So when do we see the benefits of lower IFA commissions as you start to use your own internal salespeople? And as you mentioned, you had to add about 300 people this quarter, so I'm assuming we're going to see higher SG&A that should be compensated by lower IFA commissions. So I was wondering why that did not happen. The second question is very quick. If you can just talk about the impact of the Expert events on revenues and on expenses. I think that they net out, but just to be clear, how much did you book in expenses and revenues this quarter? And then the third one really is when we were looking at the revenues from credit, we see your loan book is relatively flat year-over-year. However, your credit revenues went from BRL71 million to BRL113 million. Was there anything unusual in the credit revenues? Thank you.

Thank you, Mario. Regarding the first question about commission costs, it's difficult to notice a change in COGS between quarters, particularly in the B2C channel. This trend is better assessed over a longer time frame, like a year or two, because even a minor change in revenue mix can significantly impact everything. As we mentioned in Q2, we saw a lot of revenue from investment banking and credit issuance. In Q3, we distributed a substantial part of this credit portfolio. When we distribute, we generate revenue in retail and pay commissions, which leads to a different COGS compared to when we book the primary market from investment banking, where no commissions are paid. Therefore, the variations in revenue mix are why you haven't observed a significant change. To truly grasp these effects, a longer-term perspective is necessary. Regarding the second question, we don't disclose our spending on Expert, but it was net zero. For a few years, it was slightly negative last year, and this year it remained at zero. While it's not positive, it's crucial for us as it's one of the largest, if not the largest, financial entities globally concerning investments. Thus, it holds substantial importance for our brand, despite being net zero and occasionally slightly negative. Victor will address the final question.

Okay. Thank you for the question. About the credit, we had two explanations. The first is the beginning of margin loan operations in the broker-dealer, which are more profitable than conventional credit, and the second one, some loans from the COVID area is lower NII maturing during this quarter, and they were renovated by new operations with this new normal of price and higher NII. Basically, that is the explanation. The book is almost flat, but we have two new products with higher NII than before.

Okay, that's clear. Maffra, let me just like a follow-up here then on the gross profit and gross margin, right? Because you provide guidance for EBT margin; I think 30% to 34%, you're running at 28% right now. The improvement in margin, does it come from the gross margin, or where should we see the improvement coming from?

Okay. Thank you for your question. Talking about the guidance, we can give you some color about the improvement. First, it is operational leverage. You can see our efficiency ratio is at the lowest level ever, and we expect that this ratio will keep improving over the next year. This is one factor. Another factor is the J-curve of the cross-sell verticals that we have. We mentioned before that credit cards, for example, had losses in 2022. They also lost money in '23. This is the first year that they will make positive margins and that grow over our guidance period. Other verticals as our own internal sales force also lost money over 2022 and '23. This is the first year of positive margin. And as they grow, they start being accretive in terms of EBT. Basically, those three things together can explain the expansion in margins.

Great. Thank you very much.

Okay. Our next question is from Tito Labarta from Goldman Sachs. Tito, you may proceed.

Hi. Good evening, guys. Thank you for the call and taking my question. Just a couple of questions on the revenues. Continued good performance on the fixed-income retail revenues. How do you think that line sort of continues to evolve? I mean, do you think you're benefiting from a higher-rate environment? Is there room for that line to continue to grow into next year? Just to understand a little bit the growth dynamic there. And then on the issuer services revenue line, right? I mean it's been a good year overall, tough comps in 2Q, so down a bit this quarter. Do you think that comes back in Q4 and into next year? Just help us think about sort of DCM activity and how you feel about the issuer services revenues. Thank you.

Hi, Tito. Thank you for your question. Let me answer both of them together. The DCM industry in Brazil is at a new level. Our pipeline remains robust, and most likely this same activity remains strong in the next quarters. As well, the demand for fixed-income coming from our distribution channels, both retail and institutional, is very strong. So we believe that we will see both lines, DCM and fixed-income lines, strong over the next quarter and next year. And also, you need to take into consideration the impact of our corporate restructuring. If the bank is at a more competitive level, we can originate more deals, and we can warehouse more fixed-income, and that increases our competitiveness in both of those lines. So we are optimistic for both in the next year and next quarter.

Okay, perfect. That's clear. One quick clarification. Just on the BIS ratio, is that a fully loaded or Tier 1 ratio just to make sure there's anything else in the BIS ratio?

Yes, yes. That is it. It's fully loaded.

Okay, perfect. Great. Thanks so much.

Okay. Next question is from Neha Agarwala from HSBC. Neha, you may proceed.

Thank you for taking my questions. Just a quick one on credit growth. The credit book was flat year-on-year. What should we expect going forward? Why don't we see more strong growth on the credit side? Thank you so much.

Hi, Neha. So one important thing when we think about credit for XP, one main point for us, we don't want to pile up credit. So you cannot expect us to come back here a year ahead and say that now we have BRL100 billion or BRL200 billion in corporate credit. So we don't have this strategy. We don't have the business to pile up credit. Of course, as the wholesale bank grows, we have to warehouse a higher amount of volumes from investment banking, for corporate bond flows, and for other business lines, for example, credit risk from the derivatives. So as the business grows, it will grow in nominal terms, for sure, but not at the same growth rate as the business grows, okay? So the idea here is always to recycle capital, okay, and recycle fast. It's always to give credit with some collateral, and that's the strategy. So we don't have any strategy to pile up a big credit portfolio here.

Very clear. Thank you so much.

Next question is from Daniel Vaz, Safra. Daniel, you may proceed.

Thank you, Parize. Hi, Maffra and Victor. Good evening. I have two questions. Regarding your expenses, I was trying to look beyond XP Expert to understand the other income and expenses net line. We noticed another quarter of incentives and a positive recovery in reversal provisions. Could you comment on this to help us understand what contributed to the significant increase in other operating income compared to last year? Secondly, I’d like more insight into your equity income or your share of profit from joint ventures and associates, which decreased from BRL41 million to a negative BRL3 million quarter-over-quarter. Are there any seasonal effects, or did associates incur higher costs to participate in XP Expert? Any clarity on this would be very helpful. Thank you.

Thank you for the question, Daniel. I will split the answer into three parts here. You first asked about the incentives. So as we have built one of the largest distribution channels in Brazil, we have today more than 18,000 advisors. Every time that we launch a new product, we have some players in the industry that want to have access to our distribution. And what usually happens is that they pay some fees. It can be upfront and can be based on performance. It depends on the product and on the partner. But it's recurring. There is not an amount that's recurring every month, but it's recurring to have this kind of one-offs from different partners from credit cards, from B3, from consortium, from other players, from whole-life insurance. So you can expect this type of one-offs to be recurring because it's part of giving access to these partners to our distribution. The second question that you asked was about the reversion in provisions. I imagine that it's the expected credit loss that you mentioned. We had a BRL42 million from the Aqua payment; there was a provision that was reverted. A good way of thinking about expected credit loss for a regular quarter is around BRL80 million. That can be a little bit less or a little bit more because we have some credit on the wholesale book that is less stable, but that's a good proxy, okay? And the third one about the interest that you asked, it was BRL41 million last quarter. It was almost zero this quarter. We have done some deals with different players, with some asset management, especially IFAs. Some of them are going through some reorganizations; some of them are going to employee agreements; some of them are in different states. But I would say that for next year, you can expect this line to be a little bit higher than this year and a little bit more stable than this year because we have a lot of reorganizations this year, and these investments that we have done in the past years in IFAs, assets, and other business, they will start to pay off next year.

Okay. Thank you for the detailed answer. Very helpful.

Okay. Next question is from Henrique Navarro from Santander. Henrique, you may proceed.

Hi, Parize. Can you hear me now? Hello?

Navarro, are you there?

Yes. Can you hear me now?

Yes, we can. You may proceed, please.

Sorry for that. My question is on competition. All the large banks have been advancing in their IFAs, both internal and external, financial advisors as well as improving the open investment platforms. The level of competition XP is facing was not there, like maybe two or three years ago and it has been increasing. How do you see this advancement of competition from the large banks affecting your businesses?

Thanks for the question, Navarro. I would say, of course, the incumbent banks, they are not sitting down, doing nothing, but for us, the most structural change in the last, I would say, two years, it's not that the banks—the incumbent banks—they improved a lot in investments, and the main reason is the high-interest rates, tax-exempt products, and so on. If you look at some of these incumbent banks without giving any names, they didn't improve at all in investments. But when you look at the NPS from affluent clients from the same bank, the NPS went up like 40 bps. The main reason is the level of profitability that they can have with just tax-exempt products. So it's a little bit harder to compete with the incumbent banks in this environment, but again, we are not like blaming the macroeconomic environment. We are not waiting for the macro to get better, and our guidance doesn't depend on the macro environment. That's an upside. But for us, it's more the environment and the structural change in most of these incumbent banks.

Thank you very much. That was very clear.

Okay. This was the last question. So we thank you for your participation. Our team and the management are available for further questions. It will be a pleasure to answer anyone that you send to us. Thank you, and we talk soon.