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Itaú Unibanco Holding (NYSE:ITUB)
Q4 2020 Earnings Call
Feb 02, 2021, 9:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good morning ladies and gentlemen. Welcome to the Itau Unibanco Holding conference call to discuss 2020 fourth-quarter results. [Operator instructions] As a reminder, this conference is being recorded and broadcasted live on the Investor Relations website at www.itau.com.pr/investor-relations. A slide presentation is also available on this site.

[Operator instructions] 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, COO, 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 -- New Chief Executive Officer and Board Member

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 strong origination led to an important 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 with clients continues to improve. The digital client base reached 24.2 million, out of which 23 million are individuals. This represented an increase of 2.9% in the fourth quarter alone. The higher digitalization of customers created an opportunity to further optimize our retail footprint and led to the closure of 95 branches and client service points this quarter.

I am also quite proud to report that our employees Net Promoter Score reached the record mark of 89 points in the prior year in 2020 as a valid result of our efforts to promote the best possible working environment which we had to quickly adapt during this. Last but not least, we improved our client Net Promoter Score by 10 points over the course of the last two years, therefore beating internal target for the period. Now on Slide 3, we will shed some more light on some of our digitalization and technology KPIs. We continue to constantly increase our investments in technology and expect to invest in 2021 twice as much as we have invested in 2018.

Not only that, but we have invested better. While our investments in developing new solutions and features for our digital platforms more than doubled in this period, we managed to decrease the expenses on infrastructure maintenance by 28%. Also, important to highlight that this resulted in a 25% reduction in the time to implement new solutions in the last 12 months. We also increased the number of features and services available for clients in the bank's 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 to digital channels. However, the use of these channels continues to rise even after the end of more acute period of social distancing. These behaviors can also be seen in the opening of new digital accounts which grew more than 200% over the past two years. Another key part of our digital strategy is to strengthen our technology team.

In this regard, we currently have 261 data scientists which is possibly the largest contingent of these professionals in any company in the country. Moreover, throughout 2020, more than 3,700 employees to our technology team have been added directly and through the acquisition of Zup. On Slide 4, I'd like to update you on the recent developments regarding the stage XP investments. With a focus on creating shareholder value, last November, we announced our intention to sell a portion of the stake in the company and later spin-off the remaining part.

With this in mind, in December 2020, we sold 4.5% of the capital of XP Inc. And two days ago, the extraordinary general meeting approved the spinoff 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 cutoff date will occur close to the listing of the company which will be informed in due course. Lastly, when the new company is finally listed in 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 on Slide 5.

I'm happy to report we intensified our sustainability commitment in 2020, reinforcing the firm's social and environmental responsibility and its role in transforming society. As you are well aware, Itau Unibanco and its controlling shareholders donated more than BRL 1.2 billion to fight the pandemic in the country. The donation was invested in research, acquisition of medical and productive equipment, and awareness campaigns. We also launched the Amazon Plan in partnership with Bradesco and Santander.

And out of the 10 proposed initiatives, 4 were prioritized. First, fighting against illegal deforestation in the meat production chain. Here, we expect to be producers of engagement for traceability covering direct and indirect suppliers. Second is the stimulation of sustainable change, directing BRL 100 million which will be offered by the three banks to finance agricultural industries and cooperatives that deal with sustainable cultures and blended finance for small producers.

Third is the promotion of bioeconomy, whereby we expect to fund research on projects that unlock the socioeconomic potential of new production chains. And fourth, land regularization and recommendation of how the financial system can support regularization to stimulate economic activity in the region, legal, security and economic activity. We also held and promoted a conference focused on the Amazon, where we hosted more than 70 specialists. Companies and financial market participants, 12,000 and donations for the planting of 380,000 native trees.

Lastly, I'd like to mention that since 2019, the bank has implemented the TCFD and SASB guidelines in its financial reports, and we'll further develop them in the coming years. Now, on Slide 6. I'd like to highlight that we recently issued a $500 million tier 2 sustainable bond. The issuance was the first of its kind in Latin America and was another step in integrating ESG into our business.

To this end, we launched the sustainability finance framework, whereby we define 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 the slide. This operation is strongly connected to the positive impact commitment agenda, in which we have financing targets related to sectors and business covered by the frame. On the bottom of the page, we highlight how we are performing in some of the financial commitments.

We have already disbursed BRL 47.7 billion to positive impact sectors, of which BRL 12.5 billion were directed to renewable energy generation and sales. In the entrepreneurship agenda, we originally set an origination target of BRL 9 billion to finance small companies led by women by 2024, but we ended up surpassing that mark well ahead of our expectations. Thus, we launched a new BRL 11 billion credit target for this effort. Lastly, I'd like to invite you to check future updates of the positive impact commitments in our Investor Relations website.

On Slide 8, we move into our financial highlights. We entered the fourth quarter of 2020 with a recurring net income of BRL 5.4 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 noninterest expense.

This seasonality will not affect the bank structure expenses' downward trend. Finally, the loan portfolio continues to show positive trends and grew 2.7% in the quarter. As usual, we will view each of these effects over 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 vehicles credit portfolio, which continues to show an important recovery driven by client demand for collateralized products with lower rates and lower risk, such as vehicle financing and mortgage. The latter had a record-breaking credit origination in the fourth quarter which resulted in a growth of more than 130% over the same period in 2019. After several quarters in a row of stability, payroll loans posted an important growth in the fourth quarter. This was mainly due to regulatory changes which raised the indebtedness ceiling for retirees, therefore allowing them to access more funding through this product.

Creditcard had a strong quarter as a result of a seasonally stronger demand due to the economic activity at the end of the year and holiday season. We also observed a decrease in the personal loans portfolio, which is frequently the case during the fourth quarter after the New Year and to the payment of the 13th salary. We also observed a reduction in the personalized credit portfolio. This product is linked to our reprofiling loans program and this reduction trend highlights the better financial health of our clients.

The SMEs portfolio slowed down its growth pace due to lower origination of government-sponsored and guaranteed loan lines. As you may recall, those products are responsible for last quarter's impressive growth this segment. Finally, the large companies credit portfolio grew by 1.6% in the quarter, mainly due to the corporate securities portfolio. Moving now to Slide 10, which show that the fourth quarter proved to be an inflection point for the financial margin with clients.

The 3% increase was driven by the continuous growth of the loan portfolio as well as by the 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 by an additional change in the portfolio mix even though this latter effect was in a much smaller scale than in previous quarters and linked to seasonal effects such as the payment of the 13th salary which naturally amortizes the balance of revolving credit line. You can also see this dynamic when looking at the NIM which is 20 basis points lower than the third quarter. On Slide 11 now, we updated the figures from our reprofiling loans growth.

This portfolio finished 2020 with BRL 15.8 billion portfolio representing a reduction of 5% when compared to the third quarter. This reduction is due to lower demand from our customers as well as by a higher intensity of 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 when compared to the previous quarter.

This increase was driven by two factors. The first of which is related to the end of the grace period for almost the entirety of the reprofiled loans book. The second refers to the arithmetic effect of the reduction of this portfolio's balance. The 90 days NPL ratio reached 5.2% which is well below the short-term delinquency ratio of the previous quarter.

As was said on the previous quarter, the twelve-quarter performance of this portfolio was better than we originally forecasted in the early days of the pandemic. It also seems that our strategy of offering clients more flexible payment terms is paying off literally. On Slide 12 now, we dive 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 at the repayment.

These effects were partially offset by the increase of the impairment of corporate securities which was mainly driven by a well-known large corporate client. While the provisions balance continues to grow, the coverage ratio reached 320%, down 19 percentage points in this quarter. This reduction was a network effect of the increase of the NPL balance that ended up consuming the coverage loans. The short-term NPL ratio declined by 10 basis points which is a good performance of the individuals credit portfolio in Brazil.

This performance was again partially offset by the expected increase in the 15 to 90 days NPL ratio from the SMEs portfolio. Despite the intensity of the deterioration, it is important to highlight that credit quality ratios were unnaturally lower than they should have been given the reprofiling loans program we launched in mid-March 2020. Now they basically returned to the pre-pandemic levels. Finally, it is important to mention that when we exclude the effects of the reprofiled loans from the individuals and SMEs portfolio, their credit quality ratios are at our best historical levels Slide 13, we show that the financial margin with the market reached BRL 1.6 billion, representing an increase of 14.1% in the quarter.

This performance is a result of higher gains in our banking book. The financial margin risk market in our operational results are noteworthy. These revenues boosted the sales of securities and more volatility in interest and inflation rates. Now, on Slide 14, we show that the fees revenues grew 4.1% in the quarter.

This performance is mainly explained by the higher volume of transactions in card issuance and acquisition which grew beyond what was seasonally expected as well with the 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 not at the same level as the third quarter. Also noteworthy was the input of the new fast payment solution PIX and current account fees as we took this opportunity to exempt our clients to pay any fee in wire transfers despite of their preferred method. Insurance revenues fell by 14.5% in the quarter basically due to the asymmetric effect of inflation rates and the remuneration of assets and liabilities in our private pension plans operation.

On Slide 15, we show a 5.1% growth in non-interest expenses in the quarter mainly due to seasonal effects related to a stronger economic activity, higher profit sharing, traditional year-end commercial campaigns, and also due to a concentration of training and layoff expenses in the period. I'd like to highlight that the operational expense in 2020 contracted nominally 3% in Brazil. This is even more impressive if we discount the effects of being patient in the period, which brings us to a real contraction of 7.6% in the period. Expenses from operations in Latin America grew by 13.6% in reais in the year, basically due to the unfavorable exchange rate variation of the reais.

As we previously mentioned in the beginning of this presentation, the digitalization effort allowed us to close 95 brick-and-mortar branches and client service points in the fourth quarter alone. This movement pressured our expenses efforts in the field. But in turn, it should reduce Opex in 2021. Last but not least, our workforce showed an increase of approximately 1,700 people.

This growth is mainly due to our investments in technology. We've hired 1,700 technology professionals in addition to the roughly 2,000 engineers that were added to our teams as a result of the Zup acquisition. Now, on Slide 16, we showed that our Tier 1 capital ratios had an increase of 80 basis points in the quarter, finishing the field at 13.2%. This effect was mainly due to the higher net income as well as due to the sale of a part of the investment to be held in.

Well, with this I finish my part in the presentation and I officially complete my last task as CEO of the bank. This was a journey of four years that gives me satisfaction and pride, and I would like to thank you all, investors and market analysts, for our interactions and also for your support throughout this journey. I now pass the floor to Milton, our new CEO, so that he can set the expectations for 2021. Milton, good luck success.

I'm very happy to leave the bank in your hands, in your able hands. You know that you can continue to count on my support now through the board of directors. All the best.

Milton Maluhy Filho -- Chief Financial Officer and Vice President

Thank, Candido. Thank you for the kind words. Our daily interactions and your patience will be sorely missed. It will be a great challenge to succeed you, but it's with great pleasure that I receive these roles and responsibilities.

Before we discuss our expectations for 2021, I would like to spend a minute on Slide 18 talking about the recent changes that were implemented in our executive team. With the intention of being even closer to the business areas, we thought to simplify our structure and reduce one hierarchical level within the bank. So, we doubled the size of our executive committee which is now comprised of 12 people. Those are very seasoned executives who were previously in charge of relevant business units and other key areas of the firm.

And we now have seven members of the executive committee focusing on commercial areas, including the IT division as I consider them an integral part of our business. New ways of working such as through communities have brought our business units and IT even closer. The objective of the new structure is to gain more speed, to have more autonomy at the front desk, to better understand the specific needs of each business areas and our clients, and thereby maintain our focus on the bank's growth. To conclude I think it's not worthwhile to deleverage structure, but I would like to draw your attention to the creation of the payments area which for us has enormous value.

Moving to next slide and before presenting our expectation for our operation, it's important to put the macroeconomic scenario in context. The past few months have shown an important recovery in Brazilian economy. Having said that, we are unfortunately still experiencing an increase in the infection numbers and fatalities throughout the country. This brings a high level of uncertainty to our macroeconomic forecasts.

Among other factors, vaccination will be a key element in normalizing our lives and therefore restoring the country's economy. It's important to mention that the scenario presented herein assumes there will be no further delays in the immunization of the Brazilian population. We expect a GDP growth of 4% in 2021. It's worth mentioning that reports of this growth is basically a statistical carry from the last quarters of 2020.

We also expect an increase of the basic interest rate 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 employment rate, albeit still at a high level. Here, it's important to give more context as we believe that formal job creations will remain positive, as seen throughout the second half of 2020. But these effects will be offset by a greater number of people looking for jobs due to the reduction of government aid programs.

Go to Slide 20 talking about the perspectives. We are presenting the perspectives for our operations that were the basis for this guidance for 2021. Therefore, we expect that from capital and liquidity, we believe we are at appropriate levels considering our internal stress test scenarios. Here it's worth mentioning that our target of 13.5% for Tier 1 capital remains in force.

And although we ended 2020 slightly below this level, we believe that over the first half of 2021 we will again meet or even exceed this target. Expansion of the loan portfolio driven mainly by the individual portfolio assuming now recovering the economy in line with forward base scenario. At first, this growth should be supported by lower risk and lower interest rate products such as payroll loans, mortgage, and auto loans. But we expect demand for consumer credit lines and revolving lines to resume in second half of the year.

Recovery of the average rate of financial margin with clients, the NIM, over the year due to the progressive change in the credit portfolio mix between segments and the expectation of a higher interest rate and its impact on the remuneration of our capital and liability margin. Now it's important growth, the growth that you will see in service and insurance revenues in line with the trend of recovery in economic activity despite the negative impact resulting from PIX rollout, Brazilian Central Bank fast payment solution, and also the spinoff and sale of the stake in XP Industry Investimentos. Here, it's important to mention that last year we had a full year of XP Investimentos. And this year, we only have one month in this guidance.

So, we are taking consideration, 11 months without XP in our figures, although we still need the Fed approval for this transaction. Then the performance will be driven mainly by the expectation of stronger activity in the capital market and the launch of new channels, products, and services. Progressive reduction in cost of credit anchored in the bank's expected loss model and Brazil's economy recovery. However, the model will react promptly to relevant changes in the Brazilian macroeconomic scenario and the financial conditions of our customers.

Strategic cost management based on the structural efficiency projects will continue to bring benefit in the coming quarters with a nominal reduction in the BAU, business as usual operational expenses. This year we expect an increase of approximately BRL 1.5 billion in our investments in technology, new products, and commercial platforms, which should positively impact the bank's operational efficiency in the medium and long term. Now moving to Slide 21, we present our guidance here. Due to the still high uncertainty of the macroeconomic scenario and its potential impacts in the bank's operation, we decided to increase the range of projection toward 3 to 4 percentage points.

We now expect a growth for the loan portfolio between 5.5% and 9.5% in the consolidated figures and 8.5% and 12.5% in Brazil. For the financial margin with clients or NII, the expectation is for a growth of 2.5% to 6.5% in the consolidated figures and 3% to 7% in Brazil. We expect the financial margin with the market to end the year between BRL 4.9 million and BRL 6.4 billion in the consolidated figures and between BRL 3.3 billion and BRL 4.8 billion in Brazil. For the cost of credit, the expectation is that the whole operation will end the year between BRL 21.3 billion and BRL 24.3 billion in the consolidated figures and between BRL 19 billion and BRL 22 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 here that we did not take into account any additional revenues coming from XP as I mentioned before from January of this year as a result of the spinoff discussed on Slide 4. As for our noninterest expenses, the expectation is for a nominal contraction or growth of 2% both in the consolidated figures and in Brazil. This range was considering the higher investments in technology and in our commercial platforms as we mentioned on the previous slide.

Finally, the 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 here once more that this guidance is based on the macroeconomic scenario that we have just present and any abrupt change in our expectations for the economy may lead to a complete revision of expectations present in the period. With this, I conclude the presentation. And we may start the Q&A session.

Questions & Answers:


Operator

[Operator instructions] Our first question comes from Mario Pierry with Bank of America. Please go ahead.

Mario Pierry -- Bank of America Merrill Lynch -- 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 interaction that we had was very enriching for us. And I wanted to wish Milton here good luck on the new role. I have two questions, both to Milton.

Milton, when -- when you look ahead when you look over the next five years, what do you think are the biggest threats to the bank especially for the profitability of the bank? Is it regulation of all of these, you know, -- with -- with the creation of open banking or the instant payments, or is it the low-rate environment? Or is the main source of concern related to the entrance of new players, especially the fintechs and potentially the -- the big techs? And then my second question is a little bit 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, right, considering that you're forecasting nominal GDP growth of about 7.5%. So, can -- can you discuss why we -- we wouldn't be able to sim -- assess their growth next year? You know, it could be because the SME portfolio this year was inflated given all of the -- the government programs in place. So, maybe if you can give us a breakdown of you loan growth expectations for -- for 2021, broken down by individual SMEs and large corporates, I think that'd be helpful. Thank you.

Candido Bracher -- New Chief Executive Officer and Board Member

Thank you very much, Mario. Well, thank you for your words at the very beginning.

Milton Maluhy Filho -- Chief Financial Officer and Vice President

Thank you, Mario. Thank you very much.

Candido Bracher -- New Chief Executive Officer and Board Member

First of all, talking about challenge we see ahead, I think you pointed a few points. We are -- we should be working in a different scenario with low rates. We've been seeing some movements in the market, coming from competition and different lines of business. And in regulation, yes, we don't -- we don't forecast what should be the implications of the opening banking.

That is something that we should be very, very -- I wouldn't say cautious, but we should follow very close to understand what would be the impact. We do believe that in a scenario of low-interest rates, a few revenues that we used to have that were major impact last year with those affects should maintain. We should grow the bank, which would be our view this year, especially on the credit side. And also, we should be open to touch or to create new lines of business for the bank as well.

It's a -- it's a different scenario. We -- we do believe we're still in 2021 and we still have challenge ahead when we talk about the pandemic and all the effects it should have in the macroenvironment. But looking five years ahead, we still believe there is a positive trend and we hope these new markets, I would say, scenario keep for the long term. Talking about specifically -- and I think we'll be seeing an important digital transformation, not only in the bank but in the customers.

We've been working hard on that and this is something that should accelerate in the coming years. And we have to be very, very, I would say, transforming ourselves and working and moving forward for our-- toward the -- the direction. Talking about the loan portfolio, it's quite an easy answer, I would say, because, in one hand, we saw very, very important growth in the wholesale portfolio last year, above our budget, including details of the movements we saw from the big companies, anticipating crediting the market to grow throughout the crisis. And the capital market was closed for many months during last year.

So, the bank had to use the balance sheet to fulfill or to underwrite those transactions. When we look -- look for 2021, we still see an active dynamic from retail portfolio, different from what we saw last year. But on the other hand, we see that wholesale growing much less than what grew -- grew last year. And also, we expect to see capital markets opening throughout the year.

And this will impact for sure our capability to underwrite credit for the balance sheet. We don't see it as a problem, because we are a very active player in this market. And in terms of external capital, the -- the way to be more dynamic in terms of capital, we've -- it's important activity that we are very active on.

Mario Pierry -- Bank of America Merrill Lynch -- Analyst

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

Milton Maluhy Filho -- Chief Financial Officer and Vice President

Look, we -- we believe there are secured loans, seeing when I mean, secured loans, I'm talking about the mortgage, I'm talking about auto loans, and I'm talking about what we'd say, which is the payroll loans. So, basically those three lines we believe should improve a lot this year. But we will see some recovery on the personal loan as -- as well. And credit cards due to the activity and more transaction and more consumption, we should see a growth as well.

But we -- we have been growing the secured part of the portfolio, just to give you a figure, five points into -- in -- in one year for the other one. So, we -- we have grown to a more safer portfolio moving forward.

Mario Pierry -- Bank of America Merrill Lynch -- Analyst

Great, thank you very much.

Operator

Our next question comes from Tito Labarta with Goldman Sachs. Please go ahead.

Tito Labarta -- Goldman Sachs -- Analyst

Hi, good morning. And also, I'll echo that, you know, thank you Candido for -- for your time as CFO and -- and best wishes on your new role on the board. And also, congratulations, Milton, and -- and best of luck in -- in your role as well. A couple questions also.

First, just looking at the -- the guidance overall, just kind of plugging in the midpoint on each of the -- the numbers, getting to roughly a 17% ROE for the year. Just want to get your thoughts if you think -- does that's reasonable in terms of maybe sort of longer-term ROE? You know, do you think you can get back to the -- the 20% level? Or what do you think is sustainable and how long it could take to get there? And -- and then second question in terms of your expense growth guidance roughly flat, you know, down 2% to plus 2%. Do you think you can continue to control expenses at around this level sort of beyond this year? You know, you -- you mentioned you -- you call like 95 branches in -- in the quarter? Just thinking, you know, given some of the pressures on the revenue side, you know, how deep can you go on the cost-cutting and, you know, how that can help to offset some -- some of these revenue pressures? Thank you.

Milton Maluhy Filho -- Chief Financial Officer and Vice President

OK, Tito. Thank you very much for your question. First of all, just to clarify, the midpoint of the guidance, if you want to take the number it's precisely the number, should be around 17.6%, 17.7%, OK? Looking forward, what we -- we are seeing looking forward, we are seeing a -- a challenge. We have a profitability coming from the revenues and a lot of pressure on the interest rate.

When you work in an environment with a 2% of interest rates, we lose revenue, so the working capital. And also, we lose also for the deposits and the site deposits that we have within the bank. Those are the two major impediments. So, we do believe that as the cost of capital should be reduced in the coming years in an environment with a low-interest rate, that our return on equity should be -- not in between this year, for the coming year.

So, this is a challenge. We are still working a lot on the efficient side. We still have room to work on it. We are opening space or room for investment.

This is our agenda. We -- we still have opportunity here to keep reducing the business as usual -- usual cost of the bank. But depending on the interest rate and the cost of capital, we are more focused here on creating value, generating value for our stakeholders. So, the difference between the cost of capital and the interest rate here and the return is what we are going to be very focused, not specifically on the -- on nominal return on equity.

Even though we don't guide, neither for 2021, neither for the future the return on equity of the bank.

Tito Labarta -- Goldman Sachs -- Analyst

OK, thank you, Milton. That -- that's helpful. Just one quick follow-up then, in terms of the 17.6% to 17.7% you mentioned at the midpoint. In -- in terms of your -- your dividend payout, should we at least expect you to resume back to a normalized payout this year, or -- or what kind of payout should we expect?

Milton Maluhy Filho -- Chief Financial Officer and Vice President

Tito, can you repeat again, please? I couldn't listen to that.

Tito Labarta -- Goldman Sachs -- Analyst

Sure, just on -- on the midpoint of the ROE. You mentioned 17.6%, 17.7%. Just -- what kind of dividend payouts should we expect that -- should you expect to get -- get back to normalized levels this year in terms of the payout, or how should we think about the dividend and -- and also, you're getting back to that -- that core Tier 1 of like 13.5%?

Milton Maluhy Filho -- Chief Financial Officer and Vice President

OK, our -- the way we -- our policy here is to distribute everything that exceeds the 13.5%. This will keep, we won't change, but we also think in consideration the coming 12 months if we foresee any major investment or any needs of capital. So, it's difficult to anticipate now. We're going to keep this same ratios and the table that we -- we released to the market two years ago, where we're going to be paying what exceeds in terms of 13.5% depending on the risk-weighted assets and the return on equity of the bank.

So, the -- the -- the policy -- the policy didn't change.

Tito Labarta -- Goldman Sachs -- Analyst

OK. So, you go back to that normalized policy?

Milton Maluhy Filho -- Chief Financial Officer and Vice President

Yes.

Tito Labarta -- Goldman Sachs -- Analyst

You don't expect any more restrictions?

Milton Maluhy Filho -- Chief Financial Officer and Vice President

We don't.

Tito Labarta -- Goldman Sachs -- Analyst

OK, perfect. Thank you, Milton.

Milton Maluhy Filho -- Chief Financial Officer and Vice President

Thank you.

Operator

Our next question comes from Geoffrey Elliott with Autonomous Research. Please go ahead.

Geoffrey Elliott -- Autonomous Research -- Analyst

Hello, thanks very much for taking the question, and good luck to both of you with the -- the next steps. There's been a -- a lot of capital going into the digital banks in Brazil over the past few months. Nubank is doing their Series G, clearly an example of that, but plenty of others C6, Banco Inter have all been raising money. How does that capital going into the newer banks change the competitive environment for you? Are you seeing any changes in -- in their behavior that you need to respond to?

Milton Maluhy Filho -- Chief Financial Officer and Vice President

OK, Geoffrey. Thank you very much for your question. Yes, as I -- I've been saying -- we've been seeing a very dynamic and competitive environment. We've been seeing some fintechs working some lines of business where we've been seeing a lot of competition.

I think it's the -- the normal way for them to -- to raise money is to do these kind of investments -- those series of investments. So, this is the normal course of -- of their business until they access capital markets. We are a very active bank here. We have a very strong capital structure.

And competition makes us better. This is the way we believe and this is the way we've been working here for many years. So, yes, we see a more dynamic environment. But it's fine, it's the way it is and we have to compete and we are doing a lot of efforts internally to have, I would say, the capability to compete the best way possible and to grow the bank in the coming years.

This is our focus.

Geoffrey Elliott -- Autonomous Research -- Analyst

And any particular product, lines of business where you're seeing that competition changing?

Milton Maluhy Filho -- Chief Financial Officer and Vice President

Look, we have been seeing in the past years big competition for payments, especially in the acquiring business. We've released the figures, we -- we saw very strong competition there. I would say that we had a lot to learn from what happened with Sage to avoid seeing movements like these in other lines of business. But it's a very dynamic market.

We see a lot of competitions on the investment side and we are moving forward here to increase and to put efforts in our commercial distribution, not only the distribution but also the way we do the -- the assessments of our clients, the way we provide products, the way we provide the apps that they will interact with the bank. So, investments and payments are more focused on the acquiring, we've seen a lot of competition. On the credit card business, we see companies coming into this market, as you just mentioned. But we see two -- two main topics here.

They -- usually, open market. So, they bring new customers to the market as well. And also, they have a very focused -- they're very focused on a specific type of client and we are more diverse in terms of our client that we have in our portfolio. So, my view here that we still have a lot of work to do when we focused on young people and also to the base of the parameters.

So, this is where we should be focusing a lot for the coming, I would say, coming quarters. We still have work to do here.

Geoffrey Elliott -- Autonomous Research -- Analyst

Got it. Thank you very much.

Operator

Our next question comes from Thiago Batista with UBS. Please go ahead.

Thiago Batista -- UBS -- Analyst

Thanks, everyone. I have two questions. The first one about the capital position of the bank. Milton, you had comment that the bank continues with the target of 11.5% -- sorry 13.5% of Tier 1 targets.

With the end of overhead, why not reduce this target of cap? So, why not work, let's say, 12.5% or a different number -- a lower number? If I'm not wrong, overhead used to be the main question the banks -- or used to be the main cause of the questions that the banks maintain their capital. That is the first one. The second one, during the Portuguese conference call, you mentioned about the importance of the payment business for Itau. Can you talk a little bit more about these units? When you say payments business, are we talking about hedge only, or we're including, let's say, EG and also the business that can be created with PIX.

So, if you can discuss these payment units that you mentioned in the Portuguese conference call?

Milton Maluhy Filho -- Chief Financial Officer and Vice President

Thank you, Thiago. Thank you very much for your question. On the capital side, what I would like to -- to -- to tell you is that we don't foresee any change in the 13.5%. And if you remember what happened in the first quarter of last year, you will see that yeah, we had the impact of the overhead.

We had those -- those tax impacts. But the major impact we have was the risk-weighted assets and you have to -- to remember they are different from many banks in Brazil, we do have a very important and relevant international operation. And whenever we have any devaluation of the FX, it impacts the risk-weighted asset not only for the U.S. or any other currencies portfolio that we have abroad but also the portfolios that we have on balance sheet locally in other currencies.

So, these are -- brought an -- an important impact. The other thing is that it's true that we won't be having more relevant impacts on the tech side from the overhead. But we feel working our scenario that we believe we should be cautious here. We don't know yet what would be the impact of this pandemic, where it will land, what will be the recovery that will be seen.

So, we are comfortable in keeping a conservative level of capital being 12% as a common equity and 13.5% in level one. So, we still believe that this is a good and comfortable level, OK? And talking about the -- the payments area. What I would say, yes, you're right. Not only we'll have the acquiring business, the issuer, all the credit card portfolio that we have not only for bank credit card business but also the retailers that we have -- we are partners.

We also have the mono-liners here, where we sell to the open market the credit card. We also have cash management for the whole bank, not only retail but also for the wholesale business. We'll have the EG platform inside this new business area, and also PIX. And we are discussing what parts of open banking should be there as well.

So, all business that we have inside the bank that touch payments somehow, even some business from the retail as well should be concentrated in this new business area. And we do believe there is a lot of synergy, internal synergy, client synergy, platform synergy, experience synergy for the clients. And this is what we're going to be working for the coming years.

Thiago Batista -- UBS -- Analyst

Very clear, Milton. Thank you.

Milton Maluhy Filho -- Chief Financial Officer and Vice President

Thank you very much.

Operator

[Operator instructions] Our next question comes from Jason Mollin of Scotiabank. Please go ahead.

Jason Mollin -- Scotiabank -- Analyst

Hi, everyone. I would also like to thank Candido for his hard work, dedication, and communication over many years. And congratulate Milton for his success in prior roles, which clearly underpin his election as the new CEO. Best wishes as you start these new stages.

My questions are related to the perspectives and guidance that you presented. You mentioned that the bank's outlook for 2021 is dependent on the base-case macro scenario that you provided. How would you frame the upside and downside risks for economic growth, maybe rates, inflation, and employment, the metrics you gave? And in that context, how do they translate to upside and downside risks for the guidance, specifically for loan growth and loan loss provisions? Thanks.

Milton Maluhy Filho -- Chief Financial Officer and Vice President

Jason, thank you very much. Look, as I said at the very beginning, that this scenario that we have it's a positive scenario. But we do believe there is still a lot of un -- uncertainty in the market. I would say that the main window we have is the vaccination program.

We still have to follow very close the evolution of this plan. Just to give you an idea, if we have a postpone of six months in this vaccination program, we should have at least -- we should lose at least 300 basis points in terms of economic growth. This will impact unemployment as well, and this will impact the current -- the FX. And the reason why is because the expectation of the government still provide more support to the Brazilian population will increase.

And also, the uncertainty about the capability to have a sustainable debt. So, this is our main worry here. Of course, if we see this scenario, we don't believe that the credit will frow -- will go more for the low side of the guidance. That's why we -- we need a broader range coming from three to four points.

So, we see a downside risk here in terms of credit portfolio. In the other hand, we should have more concern on the cost of credit due to more delinquencies. And we are not foreseeing for this year any new program to help the clients. Of course, we'll be very close to the clients, but not very structured program as we had last year.

Maybe if we see a very, very bad scenario, we should think about reopening a program like with impacts that we should have. On the revenue side, it's very important as well that on services, those lines are very correlated with the activity of the country. So, if we see a lower -- lower activity as we saw last year, a few lines of revenues will be majorly impact. So, that's why we made a broader range.

So, I see a concern on the credit side, I see a concern on the revenue side, I see actually a concern on the cost of credit. It's true that only costs loan interest costs of the banks, part of that is efficiency that we have to -- to -- to be very, you know, deep in the analysis and keep moving in terms of opening room for new investments. But in the other hand, we -- we should benefit as well from a lower economic activity because we have a lot of variable costs that would impact the operation as well. So, this will be the hedge somehow for the P&L as we've seen last year part of it.

Jason Mollin -- Scotiabank -- Analyst

May -- maybe just as a follow-up on the provision outlook, does the cost of credit guidance incorporate any release of reserves? And then, secondly, on the cost side, you know, perspectives, you mentioned the -- an increase of about BRL 1.5 billion in investments for technology, new products and commercial platforms. What would that total amount be? Or in other words, what did you spend on -- on an apples-to-apples basis in 2020?

Milton Maluhy Filho -- Chief Financial Officer and Vice President

OK. Your first question, Jason, again?

Jason Mollin -- Scotiabank -- Analyst

Was -- does the guidance for cost of credit incorporate any release of reserves?

Milton Maluhy Filho -- Chief Financial Officer and Vice President

OK. Sure. Well, the thing here is, yes, it does. We do believe that as we work with the expected loss model, we anticipated this cycle -- the credit cycle last year.

So, we expect the delinquency coming from the NPL to grow throughout the year. We believe it will make a peak by the year-end and maybe on the first quarter of last year. And for sure, this will consume part of the provisions that we made for the year. So, they were made exactly to absorb those delinquencies that will be the coming in the following years.

So, this is -- yeah. So, the answer is yes, we do -- we do believe that. And on the second question?

Jason Mollin -- Scotiabank -- Analyst

Was the investment in technology --

Milton Maluhy Filho -- Chief Financial Officer and Vice President

Investment in technology.

Jason Mollin -- Scotiabank -- Analyst

Yeah, yeah.

Milton Maluhy Filho -- Chief Financial Officer and Vice President

We did not release in 2020, but it's -- it's important -- it's a relevant increase that we have this year in terms of hours that we deploy throughout the operation. We'll be doing a lot, the -- the number of hours that we use not only to transform the bank but also to deploy into developing new -- new -- new lines of business into new products and new business inside the bank. So, I would say that -- I would say that we almost doubled the -- the -- the quantity of hours that we're going to be investing in our operation from last year to this year.

Jason Mollin -- Scotiabank -- Analyst

So, will that BRL 1.5 billion be in expenses? Will that be amortized very quickly or -- or, you know, how -- how should we think about that number in terms of the expense?

Milton Maluhy Filho -- Chief Financial Officer and Vice President

Yes.

Jason Mollin -- Scotiabank -- Analyst

That --

Milton Maluhy Filho -- Chief Financial Officer and Vice President

Part of that yes because we are seeing investment. But a part of that will already go as opex throughout the year of 2021. So, not necessarily all of them will be made in assets and we have to amortize throughout the years.

Jason Mollin -- Scotiabank -- Analyst

Thank you.

Milton Maluhy Filho -- Chief Financial Officer and Vice President

Yeah. But mainly, this BRL 1.5 billion, that way we released -- I would say that most part of that is opex, OK? The small part of that is capex. So, at the end of the day, it is implied in the guidance that we gave.

Jason Mollin -- Scotiabank -- Analyst

That's helpful. Thank you.

Milton Maluhy Filho -- Chief Financial Officer and Vice President

Thank you very much.

Operator

Our next question comes from Carlos Gomez-Lopez-Lopez with HSBC. Please go ahead.

Carlos Gomez-Lopez -- HSBC -- Analyst

Hello and thank you for allowing questions. First of all, like everybody else, congratulations and good luck to Milton. And thank you very, very much Candido for all these years. It's been a very long road.

From the time when some of us have met you at [Inaudible] Carlos Constantini can talk about that. And -- and just kind of -- you had a great governing. So, thank you -- thank you very much.

Candido Bracher -- New Chief Executive Officer and Board Member

Thank you very much.

Carlos Gomez-Lopez -- HSBC -- Analyst

In terms of our questions -- one -- thank you. In terms of our questions, now that you have a --a -- a road to exit from XP, what changes for you? What have you learned from your investment there and how -- how will you establish your investment platform differently from perhaps how you did it before? And the second refers to the dividend. You've been very clear saying that you want to rebuild your capital back to the 13.5% level. I mean, should we understand that you are going to maintain this minimum statutory dividend, the 25%, probably through the end of the year until you reach that level? Or if you get closer, you'll start increasing it? Thank you very much.

And again, thank you, Candido.

Milton Maluhy Filho -- Chief Financial Officer and Vice President

Thank you, Carlos. Thank you very much for your question. Talking about the road as we've been seeing here, we made a -- a few changes recently in this active committee as I mentioned. The idea here is to have a more simplified structure where we can have more agility and focus, and we -- we'll have a different time to market.

We're going to be focused a lot on what we see in client simplicity. This is something that Candido has been doing inside the bank. And I think the culture of the bank is pretty much aligned with that. We still have a lot of work to do, we know that.

We achieved our goals for 2020, but we still have room to improve for the coming year. So, a lot of focus on that. We're going to be focusing a lot on the efficiency agenda, as I mentioned before, which is a must and we should open room for new investments. So, we have to keep the mindset to grow the bank, to grow revenues, to open new -- new -- new lines of business.

And to be able to fund that, we have to open room in the business, as usual, run the bank that we have here. So, there's a lot of things to be done there. And also, an agenda that we're going to be a lot of -- a lot of focus. And this is something also that we invested a lot in the past years.

With the ESG agenda, this is something very important and we're going to keep a lot of focus on that. Talking about diversity, talking about environment, talking about what we called here the Todos pela Saude was a major donation to help the country throughout this pandemic. This is the agenda that we keep a lot of focus. And also, we have a new executive committee now that is organized and trying to elaborate what will be the strategy coming for the coming years.

We have a lot of work to do on that ground, and we'll be sharing with you in the coming quarters whenever -- whenever we have more information. When we talk about dividend, the main issue here is that we -- until we get to the 13.5%, we're going to be working with the 25% which is the minimum regulatory. We do believe that by the end of this quarter, we should be above the 13.5% or even close to the 13.5%, and then we will keep or go back to the policy that we released to the market. So, this is our expectation.

We believe by the -- the end of this quarter, we should be above the 13.5%. And then we'll keep the same rules, the same table that we released to you to the market. And we'll go back to the same policy that we always have.

Carlos Gomez-Lopez -- HSBC -- Analyst

The -- sorry, when you are thinking about being at the 13.5% level at the end of this quarter, I -- I imagine that that includes the XP transaction and some positive impact from there because, I mean, otherwise it's a 200 basis points jump. Is there anything else that -- that we have been focusing on that also changes your capital ratio?

Milton Maluhy Filho -- Chief Financial Officer and Vice President

No. The XP transaction that we are doing right now, there is minimal impact on capital ratios. The part of the deal that had more impact for us, the -- the -- the selling of the stock that we made in the last quarter, it brought around 20, 25 basis points in terms of capital. This was the main gain that we had, and this was the reason why we sold part of the investment we had.

But on this spin-off that we are making right now, there is no impact -- relevant impact in terms of capital because we lose net worth and we lose, also, revenues here.

Carlos Gomez-Lopez -- HSBC -- Analyst

OK. And that was our -- our understanding, So -- so, I guess -- so -- so -- so, how do you get to 200 basis points?

Milton Maluhy Filho -- Chief Financial Officer and Vice President

I'm sorry?

Carlos Gomez-Lopez -- HSBC -- Analyst

Yeah. So, how do we get to 200 basis points just in one quarter in terms of capital accumulation?

Milton Maluhy Filho -- Chief Financial Officer and Vice President

200 basis points?

Carlos Gomez-Lopez -- HSBC -- Analyst

From 11.5% at the end of this year -- at this end of this quarter to 13.5%?

Milton Maluhy Filho -- Chief Financial Officer and Vice President

20 basis points, right, Carlos? What are you saying about the 200 basis points? I -- I don't follow you.

Carlos Gomez-Lopez -- HSBC -- Analyst

So, I -- sorry, maybe I'm focusing on a -- on a different question. So, you think you'll be at 13.5% by the end of the quarter. That is fine. OK.

Thank you very much.

Milton Maluhy Filho -- Chief Financial Officer and Vice President

Thank you.

Operator

Our next question is a follow up from Geoffrey Elliott with Autonomous Research. Please go ahead.

Geoffrey Elliott -- Autonomous Research -- Analyst

Hello. Thanks for squeezing in the -- the follow-up. Two -- two very quick ones. Firstly, the XP sale.

Why does that need -- the XP spinoff, why does that need Fed approval? What -- what's the Fed's involvement there given the operations are in Brazil? And then second on PIX, it sounds like there've been a couple of kind of operational IT-type issues. I know the initial sign-ups, initial key registrations were slower than you'd hoped. And I think that was something on the IT side there. And then there's been some press the last few days about transactions being duplicated and -- and trying to get those funds back.

So, curious about the tech challenges that you might have encountered on -- on the PIX side. Thank you.

Milton Maluhy Filho -- Chief Financial Officer and Vice President

Look, first of all, talking about XP. The reason why the Federal Reserve needs to approve is because the bank, and also XP, have underwriting activities in the U.S. So, it's part of the approval. We do have an operation in the U.S.

and XP as well. So, if there is a -- a change in the structure that we have, Federal Reserve needs to approve it. This is the main reason, OK?

Geoffrey Elliott -- Autonomous Research -- Analyst

Understood.

Milton Maluhy Filho -- Chief Financial Officer and Vice President

OK. And talking about PIX as you asked at the very beginning, when the Central Bank first released the figures -- the numbers, we were at the very beginning of the journey. We made an important catch-up in the last -- last months. As -- and I can tell you, it's not a public number, but we are very comfortable with the market share we have.

And the market share for us is not only the quantity of keys that we have from the clients but also ---- but more importantly there than that is the transactionality of the PIX. So, we have a very fair share on that. Also, in quantity of clients and also in quantity of the volumes transacted in terms of market share. So, we are very comfortable with the catch-up we made after the first announcement of the Central Bank.

Geoffrey Elliott -- Autonomous Research -- Analyst

OK. And -- and the tech issues?

Milton Maluhy Filho -- Chief Financial Officer and Vice President

And the what?

Geoffrey Elliott -- Autonomous Research -- Analyst

The -- it sounded like there had been some tech issues that made it hard for you to register keys at the beginning and then some more --

Milton Maluhy Filho -- Chief Financial Officer and Vice President

No. At the very beginning, it was -- yeah, some instability in our platform. But we think -- we sure will have -- it's -- it's the nature of the business to have issues. But we are very comfortable with the catch-up we made in the platform as well.

Geoffrey Elliott -- Autonomous Research -- Analyst

Understood. Thanks very much.

Milton Maluhy Filho -- Chief Financial Officer and Vice President

Thank you very much.

Operator

This concludes today's question-and-answer session. Mr. Milton Maluhy Filho, at this time, you may proceed with your closing statements.

Milton Maluhy Filho -- Chief Financial Officer and Vice President

Thank you, gentlemen. Thank you very much for your participation in our call. It's a big pleasure to have you here. As I said at the very beginning, it's -- it's a time to say thank you to Candido as well for leading us for the last four years.

It was a privilege and a pleasure to work with you, Candido. And I'm sure from the board of directors, you will be here cheering for us and following us. So, a big pleasure to have you on board.

Candido Bracher -- New Chief Executive Officer and Board Member

Thank you very much, Milton. And thanks very much for the analysts and investors who have given us support during this period. And I'd just like to say that I wish you the best of luck and I am extremely confident on the way you'll run the bank and how the bank will perform under your leadership. So, I wish you all the best.

Milton Maluhy Filho -- Chief Financial Officer and Vice President

Thank you very much.

Operator

[Operator signoff]

Duration: 72 minutes

Call participants:

Candido Bracher -- New Chief Executive Officer and Board Member

Milton Maluhy Filho -- Chief Financial Officer and Vice President

Mario Pierry -- Bank of America Merrill Lynch -- Analyst

Tito Labarta -- Goldman Sachs -- Analyst

Geoffrey Elliott -- Autonomous Research -- Analyst

Thiago Batista -- UBS -- Analyst

Jason Mollin -- Scotiabank -- Analyst

Carlos Gomez-Lopez -- HSBC -- Analyst

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