Inter & Co - Q4 2023

Transcript

Operator (participant)

Good afternoon, and thank you for standing by. Welcome to Inter & Co's Fourth Quarter Earnings Conference Call. Today's speakers are João Vitor Menin, Inter's CEO; Alexandre Riccio, Senior Vice President of Retail Banking, and Santiago Stel, Senior Vice President of Finance and Risks. Please be advised that today's conference is being recorded, and a replay will be available at the company's IR website. At this time, all participants are in listen-only mode. After the prepared remarks, there will be a question-and-answer session. For this session, we ask you to write down your question via the Q&A icon on your screen. Your name will then be announced, and you will be able to ask your question live. At that point, a request to activate your microphone will appear on your screen.

If you do not want to open your microphone live, please write down "no microphone" at the end of your question. In this case, our operator will read your question for you. Please note that there is an interpretation button at the bottom of your screen, where you can choose the language you want to hear, English or Portuguese. Throughout this conference call, we will be presenting non-IFRS financial information. These are important financial measures for the company, but are not financial measures as defined by IFRS. Reconciliations of the non-IFRS financial information to the IFRS financial information are available in Inter & Co earnings release and earnings presentation appendix.

Today's discussion might include forward-looking statements, which are not guarantees of future performance. Please refer to the forward-looking statements disclosure in the company's earnings release and earnings presentation. Now, I would like to yield the floor to Mr. João Vitor Menin. Sir, the floor is yours.

João Vitor Menin (CEO)

Thank you, operator. Good morning, everyone. I will start with a quick overview of our strategy to then pass this to Xandre and Santi to cover the operating and financial performance of Inter. As in prior calls, I will close with some final remarks and then open it for the Q&A session. At our Investor Day, held in Belo Horizonte a year ago, we introduced our five-year business plan, known as the 60/30/30. This North Star means that Inter's goal for 2027 is to achieve 60 million clients, 30% efficiency ratio, and 30% ROE. When we announced it, it was received as a highly ambitious plan. I'm glad to say that the first year of our plan was a resounding success, much better than many imagined.

Aside from being an important direction to the market, the point of the plan was to engage and drive our organization toward that goal. In sum, as Armstrong famously said, "A small step for man, one giant leap for mankind." We're both humble and proud of our progress. This is a first step toward profitability. But more importantly, it validates how sustainable our business model is. To illustrate better the progress in year one... As you can see, we achieved 30 million clients, right on track. An efficiency ratio of 51%, significantly ahead of schedule, and a ROE of 9%, also ahead of the plan. As you can see, our metrics are stronger than expected, demonstrating our strong execution towards the plan.

We have been able to combine growth, operational leverage, and profitability while staying true to our core principle of always putting the client first, by innovating and bringing new solutions in our financial Super App. This is only possible thanks to our unmatched set of products that are organized across seven verticals. These are banking, credit, insurance, investments, shopping, global, and loyalty. This powerful engine, that is our financial Super App, is continuously evolving and improving day by day. Our wide set of products and services complement each other, creating a flywheel that brings together a complete ecosystem of financial solutions. When I say clients connect to our solutions, I really mean it. For instance, we see strong acceleration in the adoption of new products. Today, we have more than 12 products with more than 1 million active clients.

At this pace, it is highly likely that by the end of this year, we will have a new product that we didn't even launch yet, and with more than 1 million active clients by year-end. This is what happened this year, for example, with Inter Loop and Meu Porquinho. This is the consequence of having what we believe is the best super app in the Americas, with over 30 million clients, more than 4 million individual daily logins per day, and a run rate TPV of over BRL 1 trillion. With all that said, I have no reason to doubt that the only possible direction in our profitability and growth trend is up. We have reached and surpassed the inflection point, and in 2023, we presented 4 consecutive quarters of consistent growth in net income, EBT, ROE, and many other metrics.

We are on the right track towards our long-term plans, and we are thrilled to announce that we are on track to deliver an even better year 2 of our 60/30/30 Plan. Now, Xandre will walk you through our business updates. Thank you very much. Xandre, please go on.

Alexandre Riccio (SVP of Retail Banking)

Thank you, João. Good afternoon, everyone, and thank you for joining us today. I would like to discuss four topics as we go along the presentation. First, clients and engagement. Second, the performance of the different business verticals. Third, our innovation capabilities, and fourth, our potential for further growth. Before going through the numbers, I'd like to quickly reflect on what we said a little over a year ago in our 60/30/30 Investor Day. At the event, we said our mission to deliver the 60/30/30 was relatively simple, but not easy, and that the most uncertain part of building Inter was already delivered from 2018 through 2022. Having a lot of focus and discipline is the key, and the results we're about to share demonstrate our team's commitment to getting there. Moving to the results, when we look at clients, besides surpassing the impressive mark.

We're happy to announce a 135 basis points improvement in our activation rate, which now stands at 54%, the highest level in eight quarters. Our efforts to boost activation include, but are not limited to, improving onboarding, personalizing the super app, streamlining customer life cycle strategy, and offering high-engaging new products such as Loop, along with overall UX fine-tuning. This, combined with the lowest CAC since 2020, brings us confidence in the future and in our ability to keep the flywheel going with low CAC and high engagement, building stronger relationships for a seamless and complete experience. Flipping to page 13, we start talking about business, looking at day-to-day bank. It makes us proud to see the robustness of our transactional business, and that despite the materiality achieved, we see accelerated growth.

The fourth quarter was of strong acceleration in our TPV, surpassing BRL 250 billion reais. We see a consistent growth in Pix, which grew 45% in 2023, and an important 36% growth in the credit card volume, continuing our focus on gaining credit share against debit in cards. When we look at the full year, we achieved amazing BRL 851 billion reais in TPV, with over BRL 1 trillion TPV at the fourth quarter run rate. On a cohort basis, as presented in the right chart, we see another quarter of improvements on both new and old cohorts. New cohorts performance shows the consistency of our client growth strategy that starts with higher levels of engagement and grow faster.

I'd like to finish saying that the new cohort performance on top of the older cohorts that keep accelerating engagement puts us in a confident position for future revenue growth and margin expansion. The current clients alone can keep us growing for many years to come. Moving to page 14, I'll talk about three verticals that are a great representation of the powerful numbers a financial super app ecosystem can generate. On e-commerce, we reached 3 million clients and surpassed 10 million transactions in the quarter, another record. We also surpassed BRL 1 million of GMV, led by our Orange Friday and the holidays. Launched recently, and our pay later partnerships with our app. Now we have nearly 150 merchants with which we offer these new payment methods. This is likely the engine that will fuel the beginning of personal loans in Inter.

On insurance, we also had another great quarter, reaching more than 388,000 sales and 1.7 million active clients. Combining this, we reached a record-breaking net revenue in this vertical of BRL 47 million. A successful product to highlight is Consortium, which grew 21% on a yearly basis, surpassing 38,000 sales. Finally, on investments, our cutting-edge product offering resulted in an impressive 66% year-over-year client growth, the highest adoption amongst our verticals beyond day-to-day bank. With increasing clients, our AUC reached BRL 92 billion. With 9 billion being third-party fixed income products distributed within our Super App. We also innovated by launching Meu Porquinho, or Piggy Bank, an incredible product that surpassed BRL 1 billion in AUC and 1 million clients in just one quarter.

On global, as we move to page 15, we see another quarter of strong success and some early signals that our global vertical is a big driver of value creation. We achieved more than 2 million clients and more than $360 million in AUC and deposits, a 4x growth compared to 2022. The clients that are active in our global products have better profiles, are more engaged, and adopt 3x more products than the average client. To continue having this great success, our branding strategy included some investments in the U.S. We became, in 2023, the official financial institution of Orlando City and Orlando Pride U.S. soccer teams. I'll have the naming rights of their stadium.

We believe being in Orlando and connecting through soccer will not only bring awareness, but also create an emotional connection between Inter and the Brazilian and Latin community living and traveling to Orlando. It is worth mentioning that per year, more than 900,000 Brazilians visit Florida, and that more than 400,000 Brazilians are U.S. residents in the state. Jumping to our seventh vertical, loyalty, we achieved 5.4 million active clients in the fourth quarter, adding 1.5 million in these last three months. As we observe with our global clients, Loop clients also create better profiles, spending on average 60% more than average on cards. Positive engagement trends have been observed in gamification initiatives as well.

As we move along, we're adding other ways to earn and burn points, with one of the last additions being allowing our clients to convert their points into US dollars in their global accounts. This week, we made available an option to pay with points for products in our marketplace. As you can see, our Loop allows us to unlock value from all the other verticals in our financial super app. Very excited to see the results of it. Moving to page 17, we see that 2023 demonstrated our unique capability to combine innovation in a year focused on efficiency. We launched many products such as Pix Credit, a buy now, pay later, overdraft, and Loop. We also created a brand-new version of our financial super app to deliver an even better UX with personalized home screens to optimize our clients' lives.

As Santi will show in the financial performance section, we didn't stop innovating while continuing on the path to deliver operational leverage. We're confident that our value proposition is best in class, and that our next moves will keep us in the frontier we need to keep delivering. Finally, and before I pass the word to Santi, I'd like to say that the best of all is we're still in the early stages in every market we operate. On one hand, we were able to achieve material market share in multiple segments. In the other, there is a lot of room to grow in every one of these markets. We remain confident that we're well-positioned to reach our long-term North Star and continue to drive growth and profitability in the years to come as we increasingly deepen our relationships with our clients.

team is ready, and our financial super app is adaptable and scalable to navigate into those challenges. Now, I'll pass the word to Santi to present our financial performance.

Santiago Stel (SVP of Finance and Risks)

Thank you, Xandre. Hello, everyone. Now, I'll walk you through our financial performance section. Jumping into page 20, here we can see strong acceleration on the credit side, growing our portfolio two consecutive quarters at 5%-7% and 10% in the third and fourth quarter, respectively, therefore, entering 2024 with strong momentum. Closed loan portfolio reached an impressive BRL 31 billion highest mark, which is a result of growing 4x more than the Brazilian market average, therefore... gaining significant market share across products for. Moving to interest rates on the top of the page, you can see personal FGTS administered rates growing sequentially, while SME, the only regular portfolio, remained stable. We go deeper into the full impact on rates on the pages. Going to page 21, here we go a bit deeper on growth by loan product.

As you can see in the chart, we remain disciplined on growing the most profitable lines of best credit products, FGTS and home equity, presenting the highest growth levels in significant scale within our loan portfolio. For credit cards, a successful approach of prioritizing credit limits to existing and strong-performing clients enabled us to increase by nearly 40% the portfolio while improving asset quality trends. Finally, on real estate and payroll, we balance growth with repricing to ensure that profitability continues to improve. Jumping on to page 22, we have a great quarter for asset quality, with all the metrics improving this quarter. Starting with the 15-90-day NPL ratio, we saw an improvement of 30 basis points quarter-over-quarter. We also improved the 90-day NPL metric, as well as the NPL and stage three formation metrics, each of them by 10 basis points.

Finally, when we look at the delinquency of by cohorts, we continue to see strong performance and credit quality in recent quarter cohorts. Jumping on to page 23, we can see significant decrease of cost of risk, about 70 basis points. This dynamic was driven by underwriting and collection processes, producing cohorts with stronger performance. Coverage ratio remains stable at 132%. It is always worth reminding that 70% of our portfolio is collateralized, presenting lower average risk profile. Overall, as a quality front, we see that the strong work done on data underwriting and risk management is paying off, and is enabling us to start 2024 with a positive trend. On page 24, we can see once again our leading franchise, which has almost 15 million clients trusting us with their deposits.

Moreover, our transactional deposits represent 33% of our total funding, which is one of the best mixes of funding in Brazilian financial entities. Funding accelerated 10% this quarter, reaching almost BRL 44 billion. At the product level, it's worth highlighting the 17% growth in transactional deposits, which reached BRL 14.4 billion. Finally, we experienced the average deposit balance per active client, which is BRL 2,000, with a 6% growth quarter-over-quarter. On page 25, we can see our cost of funding continues to be one of our key competitive advantages. This quarter, we reported 59.2% of CDI cost, once again, below the 60% mark that we aspire to have. In terms of the volume cost, the improvement was 100 basis points, going down from 8.2% to 7.2%.

A slight further decrease, we should continue to benefit from this dynamic, the structure of our balance sheet that makes Inter bank sensitive. In terms of revenue, we had a great year, reaching record-breaking numbers in all the quarters. We achieved BRL 2.2 billion revenue in the fourth quarter, and BRL 8.1 billion in the year. On net revenues, NII, delivering impressive growth of 31% in the year. In terms of fee income, we were able to keep roughly the same level as the prior quarter, with a healthy growth on the main fee income lines, such as interchange, banking, and investments. Moving to the unit economics page on page 27, monthly ARPA reached BRL 46 as we continue adding a strong number of active clients every quarter.

This, combined with a stable cost to serve, led us to keep enhancing our gross margin per active client, with which BRL 17.7 on a net basis, which is our second-best quarter ever. Finally, in terms of active clients per employee, which is a good metric for our workforce productivity, we are closing the year at 4,900, relative to 3,100 active clients per employee year. On page 28, we present our NIM evolution net of cost of risk. We do this because it helps capturing the full picture of our repricing and risk management practices. In the fourth quarter, risk-adjusted NIM reached the highest level in the year, and the second-highest level since 2020. This strong expansion is a consequence of, one, improvement on repricing of legacy real estate and payroll loan.

Two, changing the loan mix towards the most profitable. Three, lowering cost of funding. Four, efficiency in the reserve requirements as a result of our new NFB product. For 2024, we see a continuation of this dynamic, plus the scale-up of new product launches such as Pix Credit and Buy Now, Pay Later. Going on page 29, we see the expenses that had an impressive year. With most of the breakdown items remaining roughly in line with prior periods, we achieved a 1% reduction in the total year. This is a consequence of disciplined focus on expense management. We still see a strong opportunity to continue delivering operational leverage. Moving on to page 30, here we can see our efforts on the operational leverage with more detail.

In the next chart, it's clear that in the fourth quarter of 2023, we were able to further increase the gap between the growth-- net revenues, growth on expenses. On the center, we had another impressive quarter of improvement in our efficiency ratio, which led us to end 2023 in a record low level of 51.4%. On the right side, we can also see the efficiency ratio net of cost of risk, which similar to the risk-adjusted NIM, also considers the cost of risk element. In such metric, we had another five percentage points of improvement this quarter. On page 31, as we can see in the chart, our net fees continue to cover a good percentage of our SDNA base, which is currently at 70%.

It's worth to remind again that the fees we earned here, after we earned here in the third quarter of this year, will now continue rapidly in the same level with more checking banking and investment lines. We track this metric closely, as it is a key component to achieve our ROE. The last, but certainly not least, we couldn't be prouder of what we achieved in terms of profitability. We delivered a record ROE of 8.5%, and printing our best ever net income of BRL 160 million reais, which on an annual basis translates to a $640 million dollar net income. On a pre-tax basis, we reached BRL 208 million reais, reflecting a remarkable 33% increase over the third quarter.

These results show that we are working full steam to remain focused on maintaining this momentum going forward. Now I pass it back to João for his closing remarks. Thank you.

João Vitor Menin (CEO)

Thank you, Santi. Thank you, Xandre. So since we launched our digital bank back in 2016, we have been focused on creating a unique platform that attracted tens of millions of clients, who engage with us every day and transact over BRL 1 trillion last year. For the past 2 years, we entered what we call the compounding phase. This is nothing else than continuing, continuing to innovate and deliver the best to our clients. While we're starting to see the benefits of our digital banking model, these benefits are scalability, strong weight on fee income, strong NIM risk-adjusted margins, best-in-class fund mix, and also highly diversified revenue base. We think that this year, this competitive advantage become clearly visible and allowed us to deliver even more than what we expected for, for our year one on the 60/30/30 Plan.

We are highly proud of what we achieved this year, both from a business and financial performance, and could not be more excited for what's coming in 2024 and beyond. Thank you for joining our call today. Now we will start the Q&A session.

Operator (participant)

We will now begin the question and answer session. Please note that in the interest of time, we will allow each participant to ask one question with one follow-up each. Again, for this Q&A session, we ask you to write down your question via the Q&A icon at the bottom of your screen. Your name will then be announced, and you will be able to ask your question live. At this point, a request to activate your microphone will appear on your screen. If you prefer not to open your microphone live, please write down "No microphone" at the end of your question, and our operator will read your question out loud. Our first question comes from Mr. Tiago Batista from UBS. Sir, we are now opening the audio so you can ask your question live. Please go ahead, sir.

Thiago Batista (Executive Director - Head of BR Research)

Thank you, guys. Thanks for the opportunity. I have one question about the Pix Finance. I know that this product is still in a kind of early stage on Inter, but can you comment your initial impression and how relevant this product can achieve?

João Vitor Menin (CEO)

Yeah, João Vitor speaking. Thank you for the question. Actually, we are very excited with Pix Credit. Just to put things on a context, we have 8% of the market share in Pix in Brazil. Everyone knows that. But most importantly, the UX/UI for our Pix Credit is amazing. So most likely, we believe that we can outpace this market share for this product in Brazil going forward. 100% of our credit-- of our clients use our app to transact. This is a good advantage for us. And last but not least, the economics for Pix Credits are amazing. They are better than the current credit card scheme in Brazil. So we don't have the interchange, we don't have the MDR for the merchants, so it's a win-win situation.

I do believe that it's gonna be a very profitable product for us going forward. We're very excited. The first readings on the liquidity are good, similar to the credit card. The rates are better. It's a way more efficient product. So I really think it's gonna be a game changer for the payment industry in Brazil, mostly for the digital banks.

Thiago Batista (Executive Director - Head of BR Research)

Very clear, João. Thanks and congrats for the results.

João Vitor Menin (CEO)

Thank you, Tiago.

Operator (participant)

Our next question comes from Mr. Tito Labarta from Goldman Sachs. Mr. Labarta, we are now opening the audio so you can ask your question live. Please go ahead, sir.

Tito Labarta (VP, Equity Research - Latin America Financials)

Hi, good morning. Thank you for the call and taking my question. My question is that, there was some margin pressure in the quarter, I think it was related to renegotiations and discounts that you did that it also helped the, the cost of risk. Should we expect more of this going forward? How should we think about both, I guess, both the margin and the cost of risk going forward from here? Thank you.

Santiago Stel (SVP of Finance and Risks)

Thank you, Tito, and Santiago taking the question. So what we continued doing this fourth quarter was what we did in the third quarter, which was to be a bit more proactive towards renegotiating the non-delinquent, the delinquent loans. And we did that additional BRL 30 million, or we have an impact of additional BRL 30 million from the NAI into the cost of risk. Remember that we had a similar impact in the third quarter, no? Related to the second quarter. So it was BRL 30 million on the third quarter, and now 30 + 30, meaning 60 versus the second quarter, now in the fourth quarter.

That impact drove cost of risk lower, and it also impacted NIM, which is the reason why we incorporated this new method, which we call the risk-adjusted NIM, that captures both variables together, and we, we think is the proper way to see that we recorded a 5.0% risk-adjusted NIM, the highest in the year and the second highest in the last four years. Going forward, we expect the level that we reached now to continue. We don't think we have more incremental changes in the levels, but we will expect to keep it as a percentage of, percentage of the portfolio roughly at this size.

We also incorporated a new disclosure regarding the stocks of the renegotiated portfolio, which is a feedback that we got from investors and research analysts, and that's providing the press release for people to go a bit deeper on how that compares relative to the market.

Tito Labarta (VP, Equity Research - Latin America Financials)

Great. Thanks, Santiago. Maybe just one follow-up. We did see some improvements on the funding costs in the quarter. Is there room to improve them more from here?

Santiago Stel (SVP of Finance and Risks)

So in the fourth quarter, there are seasonality, to be honest, so we took the level below 60%. But around 60% is the level that we want to, to operate at. As we always say, the structure of our funding, base or our funding franchise, it is a key competitive advantage. We will try to defend that as much as we can. We do think that the worst moment of stress, with the SELIC being at almost 14%, which could have had a, a shift towards the higher-yielding deposits, didn't happen, no? We continue having, a strong funding mix and a 60%, cost of funding. With SELICs going down, we think we'll be in a, in a, in a downhill, no, or in a with, with tailwind in the front of cost of funding.

Tito Labarta (VP, Equity Research - Latin America Financials)

Great. Thanks, Santiago.

Santiago Stel (SVP of Finance and Risks)

Thank you, Tito.

Operator (participant)

Our next question comes from Mr. Mario Pierry from Bank of America. Mr. Pierry, we are now opening the audio so you can ask your question live. Please go ahead, sir.

Mario Pierry (Managing Director, Equity Research - Latin America Financials)

Hey, guys. Congratulations on the quarter. Quick question on efficiency. As you showed, right, you have made significant improvements to your efficiency ratio. A lot of that because you were able to keep your costs flat, especially personnel expenses. So going forward, how should we see... Clearly, your target is for efficiency to continue to improve, but I wanted to understand from your perspective, is this improvement coming from revenue generation, or can you do more to reduce your cost structure? Do you have any initiatives that should reduce costs, or are we just talking about maintaining costs, relatively growing in line of inflation, but revenue generation coming through? Thank you.

Santiago Stel (SVP of Finance and Risks)

Hi, Mario. I'll start taking that one. So what we saw throughout 2023 was at the beginning, we had certain low-hanging fruit, so to speak, which we went very aggressive towards capitalizing them. If we look at the graph of the index, you know, of expenses and revenues in the second half, both grew, but the growth on the revenue side was materially steeper than the growth on the expense side. That is what we expect to see in 2024. We will invest more to continue growing, but the growth will be at a much lower rate, half or less than half the growth in revenues. And for that, we have a fixed side and a variable side. The fixed side is mainly the personal expenses.

That is a number that will also grow at inflation plus a few percentage points, but not too far from that. And then on the variable side, those are expenses that are more tied to the volume growth, and those will grow at a higher level. But the growth, the improvement in efficiency will mainly be driven by revenues growing significantly higher than the expense growth.

Mario Pierry (Managing Director, Equity Research - Latin America Financials)

Okay, that's clear. And, Santiago, just to, you know, like, you showed that slide, that you are almost halfway to your target for efficiency, you know, and this was, like, a five-year target. Do you think you are ahead of schedule on efficiency, or was that the expected trajectory when you gave the guidance?

Santiago Stel (SVP of Finance and Risks)

We are definitely ahead, is the area where we are ahead the most. We went a lot more aggressive on expenses, and to be more specific, we have a project, which is a Project Owl or Coruja in Portuguese. We launched this project at the end of April, and that was a Coruja 1.0, a meeting every Friday morning, the senior leadership of Inter attacking all of the main line items in the co- We had our first meeting of Coruja 2.0 of 2024, the first Friday of the year, you know? So we are starting a lot earlier. Obviously, now it will be tougher, not to deliver incremental improvements, but the focus is there because we want to continue being above the level.

We're not going to have 20 percentage points improvement like we had this year, but we think that the concept of the digital bank like we have has a strong competitive advantage from the cost side, and that is something we want to continue delivering as we go along. So this is a front where we will expect to continue excelling.

João Vitor Menin (CEO)

Great. Thank you very much.

Santiago Stel (SVP of Finance and Risks)

Thank you.

Operator (participant)

Our next question comes from Mr. Yuri Fernandes from JP Morgan. Mr. Fernandes, you have the floor now. We're opening the audio so you can ask your question live.

Yuri Fernandes (Executive Director, Equity Research - Latin America Financials)

And thank you. Hi, Santi, as well, Alexandre. I have one regarding recoveries, loan loss recoveries. It was a good quarter. We tracked this, and it was BRL 80 million. It used to be tracking around BRL 40 million. So just asking what happened there, like, if this level is sustainable, if there was any kind of one-time recovery, because it was a good quarter for this line. Thank you very much.

Santiago Stel (SVP of Finance and Risks)

Hi, Yuri. Yeah, so recoveries, typically, the fourth quarter has better performance as there is more money, you know, in people's pockets, and we see that on the funding side as well, as we mentioned earlier. So there is a bit of seasonality, but we are a lot more effective on the work being led by the underwriting team and recovery team. Mauro Rangel has been spectacular. We expect to continue improving that metric, but the growth in the fourth quarter did have some seasonality. So we had to compare the quarters versus the prior quarter of the prior year in order to make it apples to apples. But we think this is a front where there's a lot to continue evolving.

Yuri Fernandes (Executive Director, Equity Research - Latin America Financials)

No, thank you, Santi. If I may, different topic, but quickly, one on the marketplace, on Inter Shop, the net take rate was slightly down. Should we see this recovery? Ahead is this, like, promotions, I don't know, a Black Friday, Christmas, and should we see the net take rate moving up back again, or what is the message for that line? Thank you.

João Vitor Menin (CEO)

Yuri, João Vitor speaking here. Just to complement Santi on the previous question, and then I'm going to answer about the marketplace. I think that most of the analysts remember that I have always talking about three key elements for the credit card: so good underwriting, good products/good UX, good UI, and good collection. And the renegotiation is a very important part of a good collection. We're doing that seamless for the client through our app in a very wise way, and therefore, we have been improving the flow, the type that we make the collections. It's a win-win situation. It's very important. Going to the marketplace, now, also, I mentioned in the past that we're always trying to do the best balancing, trying to find a sweet spot between growth and profitability.

The good news are we have been able to shift from one to the other quite easily. Every single week I have a meeting with Rodrigo. Rodrigo, both all of you know Rodrigo, the CEO of the marketplace, and then we can decide, do we have a strong time of the year coming in, so should we put the take rate, the cashback, sorry, less competitive? Should we be more competitive because it's a low season? So we use that quite often to adjust growth versus profitability. Having said that, I believe that I don't see a major change on the trends going forward for 2024, but if you have a good recovery on the retail in Brazil, we can improve the growth, the... I mean, the GMV, but also the net take rate going forward.

So pretty much stable for 2024. That's what we foresee for the net, net take rate. But again, we can adjust that very easily and very often. Thank you.

Yuri Fernandes (Executive Director, Equity Research - Latin America Financials)

That, that's super clear, João. Thank you, and congrats for the results.

Operator (participant)

Our next question comes from Ms. Neha Agarwala from HSBC. Ms. Agarwala, we're now opening the audio so you can ask your question live. Please go ahead.

Neha Agarwala (Director, FinTech Specialist, and LatAm Financials Analyst)

Hi, congratulations on the results, and thank you for taking my question. A quick one on the revenue side. So you mentioned the cost to income improvement will be driven more by revenue growth. What are the main levers in your view that is going to drive revenue growth for 2024? What kind of loan growth should we expect for this year, which will further translate into stronger interest income and fee income growth? And probably you can touch upon the BNPL product that you mentioned on your platform. Maybe that could be one of those new levers for the on the revenue side. And a second question, very quickly, what kind of ROE should we expect for 2024? Something like 12, 13, 14% seems reasonable, any color on that, if not a number, it would be very helpful. Thank you so much.

Alexandre Riccio (SVP of Retail Banking)

Thanks, Neha. This is Alexandre speaking. I'll start with the BNPL, and then I'll go to the growth part. So the BNPL is a new payment method that we incorporated into our marketplace. We see it as the consumer finance two point zero, so bringing more of the pool of revenues of the system into Inter, and we see that as super positive. We're fine-tuning the model as we grow and believe this could be in the ballpark of BRL 200 million-250 million by the end of the year. The context of the partnerships is a driver to reduce risk. So in the end of the day, we get take rates that range from 30 to 30...

from 20%-30% from our partners, and that helps financing the delinquency that we may get in the model and with the clients. The nice thing about the BNPL is that given the take rates from the partnerships, we can open it for a wider range of customers. So several million customers that don't have a credit card can buy with the buy now, pay later within the app. We're excited, and it is one of the drivers of margin expansion as we drive through 2024. When you think about growth-

Neha Agarwala (Director, FinTech Specialist, and LatAm Financials Analyst)

Can I, can I pause over there and just ask something very quickly?

Alexandre Riccio (SVP of Retail Banking)

Sure.

Neha Agarwala (Director, FinTech Specialist, and LatAm Financials Analyst)

It seems like for the BNPL product, you'll do part on your own balance sheet and part with the partners, which allows you to get a fee income from the partners. Could you talk a little bit about what kind of proportions we can expect, 10% on balance sheet, 90% with partners, or more like 50/50? And what kind of partners are we talking about? If you can name some, that would be helpful.

Alexandre Riccio (SVP of Retail Banking)

Yeah. So, so Neha, in terms of balance sheet, it all goes to our balance sheet. So in practice, what happens is, for example, let's say somebody's buying a phone from Samsung for BRL 1,000. Instead of disbursing BRL 1,000 to pay for this phone and making this a loan in Inter's balance sheet, the disbursement may be of only BRL 750, because Samsung is providing the take rate of, let's say a 25-150 BRL. So we have a collection balance of 1,000, but a disbursement of only 750. That's the mechanics of how it works. And we, we'll keep on expanding the partnerships so that the product can grow.

Neha Agarwala (Director, FinTech Specialist, and LatAm Financials Analyst)

Okay. So essentially, just the take rate, you're not. The loan will still be - everything will be in your balance sheet?

Alexandre Riccio (SVP of Retail Banking)

Everything in our balance sheet, correct.

Neha Agarwala (Director, FinTech Specialist, and LatAm Financials Analyst)

Okay.

Alexandre Riccio (SVP of Retail Banking)

Yes. And on the growth aspect, we expect to grow beyond 30% this year. We're excited, like, the last quart- the fourth quarter was positive at around a 10% growth, so we're excited about 2024. The core portfolios will keep on growing, so home equity, FGTS, we're excited about those and good start of the year so far. And it's also nice to mention the expansion on the non-collateralized, right? João talked a bit about the Pix credit, and we launched them last year, so overdraft, buy now, pay later, which we've discussed, Pix credit, as João discussed. We also have bill pay using the credit card limit, and we're also allowing customers to put cash in their accounts using their credit card limit.

We have a potential of a BRL 1 billion portfolio by the end of the year in these lines, and they're definitely going to be a margin expansion, a margin expansion product for us, so we're excited about it. Thank you, Neha.

Neha Agarwala (Director, FinTech Specialist, and LatAm Financials Analyst)

Super helpful. Thank you. Anything on the ROE front?

Santiago Stel (SVP of Finance and Risks)

I can take that one, Neha. Hi. So, on ROE and net income, we don't provide guidance, but, what we said last year on the Investor Day was that we agreed with the sell-side consensus of 5% for 2023, and, and we deliver that. What we can say now, exactly a year after, is that the flow or the curve of build-up, both in net income and ROE that we saw throughout the year, should continue into 2024. We can't get too much specific on that because then it, they will become guidance, and we, we don't intend to provide. But we see a continuation of the trend, that we've had last year coming into what is year two of the 60-30-30.

Neha Agarwala (Director, FinTech Specialist, and LatAm Financials Analyst)

Perfect. Thank you so much.

Santiago Stel (SVP of Finance and Risks)

Thank you, Neha.

Operator (participant)

Our next question comes from Mr. Pedro Leduc from Itaú BBA. Sir, we're now opening the audio so you can ask your question live. Please go ahead. We have apparently lost connection with Mr. Leduc. Mr. Pedro Leduc is apparently is no longer in the room, so we're moving on to the next question, coming from Mr. Brian Flores, we're opening the audio now, so you can ask your question live. Please go ahead, sir.

Brian Flores (VP, Equity Research - Latin America Financials)

Hi. Thank you, thank you for the opportunity. Just a couple of follow-ups on the answers that you provided. You mentioned you were excited about FGTS loans, so the contribution to gross loans is around 6%. This has been increasing steadily. So just wanted to get a sense on how are you thinking about this segment. Any insights on the dynamics of this segment, and how where should we think about the contribution going forward? So I think this is my first question. The second one, Santiago, you mentioned that in terms of the strategic plans, you intend to defend your deposit base. Can you share with us, like, what are... You know, any ideas on how to do this would be really helpful. Thank you.

Alexandre Riccio (SVP of Retail Banking)

Brian, this is Alex speaking. May I ask you to repeat the question, please? We had a technical problem and couldn't hear you.

Brian Flores (VP, Equity Research - Latin America Financials)

Sure, no problem. The first one was on FGTS loans. The contribution is around 6%, has been steadily helping in terms of the total portfolio. So just wanted to think to get a sense on how are you thinking about this segment. Any insights on the dynamics would be really helpful. And then the second one was on how are you planning to defend your deposit base?

Alexandre Riccio (SVP of Retail Banking)

Great. Thank you. So, starting with the FGTS, it's a product that we like a lot. 100% digital underwriting, good margin, high engaging product, and we've been able to do continuous improvement also operationally to make it easier for customers to obtain their loans. We have a lot of returning customers. Having said that, we expect to keep on growing. It's at 6% of the portfolio, as you mentioned, and we believe it could get to around 10% by the end of 2024, as we move forward, so we are excited about it. From deposit to... In terms of defending the deposit, it's all about defending the transactional business, right? So we've been consistent on keeping Pix around the 8% market share.

João Vitor Menin (CEO)

We're gonna work heavily to increase this market share as we move towards 2024. And with the transactional business, we're gonna be indirectly defending the deposit franchise, right? That is one of the strengths of Inter, the massive transactional platform we've been able to bring in, along with also the investment platform. It's super nice, but that's the defense. The defense is to keep growing on the transactional business. Thanks, Brian.

Brian Flores (VP, Equity Research - Latin America Financials)

Perfect. Thank you.

Operator (participant)

This concludes our question and answer session. The conference is now concluded. Inter IR area is at your disposal to answer any additional questions, but first I'd like to yield the floor to Mr. João Vitor Menin for his closing remarks. Sir, the floor is yours.

João Vitor Menin (CEO)

Thank you very much. So first of all, I would like to thank our employees for the great year we had in 2023. We worked a lot, we worked hard, and we worked with the right strategy, with the right focus, with the right North Star, which is our 60/30/30 Plan. And I really feel that it's no longer different in 2024. I see already in the first month, our team engaged, motivated to also deliver another positive year on our 60/30/30 Plan. We were chatting this morning about the priorities for the year, and I would like to say that I have two priorities for 2024. The first one, to make sure that we also deliver another year ahead of the budget of the 60/30/30 Plan.

The second, guys, to make sure that I'm going to stick with the first one. That's about that. Be focused, engaged, motivated, and I'm sure that we can keep delivering good results, both on a profitability basis, but also, very important, on a growth perspective as well, as well. We are still a growth company. But combining these two elements, we could deliver it on 2023, and we will deliver it on 2024 again, I'm sure about that. Thank you, all the employees. Thank you, all the shareholders that support us for a while, that will keep supporting us. See you soon. Thank you very much. Have a good day.

Operator (participant)

The conference is now concluded. Inter IR area is at your disposal to answer any additional questions. Thank you for attending today's presentation. Have a nice day.