Itau Unibanco Holding Q3 2026 Earnings Call Transcript
Itau Unibanco Holding (NYSE:ITUB) reported third-quarter financial results on Wednesday. The transcript from the company’s third-quarter earnings call has been provided below.
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View the webcast at https://live.popcast.com.br/itau/resultados3T26/Default_eng.aspx
Summary
Itau Unibanco Holding is focused on maintaining a disciplined approach to managing cost of capital and profitability amidst market deceleration and higher credit costs.
Strategic initiatives include investment in technology and AI, exemplified by the acquisition of Neos, to enhance efficiency and model accuracy.
The company is preparing for a challenging 2027, emphasizing a long-term view, maintaining liquidity and capital strength, and being ready to seize opportunities despite potential market headwinds.
Management highlights strong balance sheet and capital base, enabling flexibility to navigate potential economic downturns and market volatility.
Itau Unibanco Holding remains committed to efficiency improvements and value creation, balancing investment in future growth with prudent risk management.
Full Transcript
Milton Maluhy Filho (CEO do Itaú Unibanco)
For most of them. And it’s not different from the portfolios that we’ve been building this year. But we don’t have a guidance, neither a clear vision. We are now working to find the optimum point to continue to grow with consistency and quality, with a long-term view. Second question. Renato Meloni, Autonomous, the floor is yours.
Renato Meloni (Analyst at Autonomous Research)
Thank you for the opportunity. Congratulations on the deck. Let’s continue on the midterm 2027. So the scenario of deceleration that you described and the growing of the credit portfolio, higher cost of capital, deterioration of the cost of credit, what are the levers? Well, excluding the control of cost that you see, how do you keep the spread between the profitability of the bank ROE and the cost of capital that is increasing?
Milton Maluhy Filho (CEO do Itaú Unibanco)
Thank you, Renato. I believe the levers are the ones that I just presented to you. First, a lot of discipline, talent. I believe that the main lever that we have is the capacity to navigate well through turbulent waters. The bank has that tradition and I am certain that depending on the scenario we will be able to perform very well. Cost of capital is a relevant variable. We’ve increased the cost of capital in the margin. Facing the recent changes in the market, how do we reprice the portfolio as the demands appear? This is natural with the cost of capital and also it will impact the price as the curves of the interest rates on the long term will impact the price as the cost of funding changes. So our portfolio is highly repricable through time. That will continue. The expansions continue to take place in the businesses that we have a high conviction.
We are investing in the future, we are investing in technology. We bought a company, very relevant, of AI, Neos. They’ve done an incredible work with us over the last three years. What is the practical benefit of this acquisition? The results that we’ve seen in our models are completely different. We increased in 10 points the Gini of the models with high penetration, high accuracy. These are the levers that we’re going to use: more efficiency, excluding efficiency. But it’s impossible to exclude these expenses with a prospective outlook. The world doesn’t end at 2027. What is the bank that we want to have in 2030, 2040, 2045? That’s the long-term view. All the businesses are—we are trying to understand what is the opportunity. That’s our focus in all the businesses: trying to define profitability and what makes sense, where do we need to reprice, where we have to be more aggressive, where we have to be more conservative.
And a part of cost and efficiency—it’s not efficiency by brute force, but efficiency in an intelligent way, being able to improve the leverage. It’s our obligation to continue to seek efficiency in all the businesses we have. It’s more of the same models of management that are implemented all years, and we’re going to continue to adapt them through the cycles. Thank you. Next one. Eduardo Rossman, BTG Pactual, the floor is yours.
Eduardo Rossman (Analyst at BTG Pactual)
Good morning. Still in the issue of value creation, you have in your institutional presentation a very nice graph of the records showing the ROE, the cost of capital, the generation of value. And we’ve seen that at the worst moment you have a cost of capital 17%. At the best moment, 13, to be more exact, 12.9. And now the long interest rates are above 15. Probably you’re going back to the next of the worst moment of the series. But I wanted to understand today, how do you see looking at these series of the last 10, 15 years, how do you see it in the future?
Do you think that you are at the best moment of your series from the competitive standpoint? We saw a lot of competition suffering, with the tangible cash generation under pressure and more of the fiscal pressures; of course, new competitors are rising. Help us understand how you see all these opportunities for the next year? Thank you.
Milton Maluhy Filho (CEO do Itaú Unibanco)
Great to see you. The cost of capital has naturally a lower limit, which is the cost of capital. Well, let’s imagine that, you know, interest rate in the US, or ours, says 12 and a half was the lower index of the series, because we don’t understand that Brazil at 12 is reasonable when we look at the dollar plus 12 in the United States. So for us, that’s the floor of the cost of capital. Even now, with the interest rates in the United States going up, that equation to me stops at the bottom.
Looking up, we are looking at the 81 level of the bank that has—with the levels that we’ve seen with the cost of capital. We’ve done a recent review; we’ve operated with 14 and a half and we are now operating with 15.25 of the cost of capital. That’s the cost of capital. Now can it change up or down? Depends on the economic conditions, depends on the long curve, depends on the risk premium, depends on the institutional environment, depends on the legal securities—all the elements that are necessary for you to work with a lower cost of capital.
So we need to address as a country, because the cost of capital, not just for Itau Unibanco Holding, is for the whole system, for all the companies that invest, that seek the returns and they want to remunerate their shareholders. That’s a relevant point. On our standpoint, first, the capacity for generating capital endogenously—so we’ve managed to generate value, create capital, and more than finance the expansion of the bank, create the options for the bank for what we think makes sense for the capital allocation. And, in the limit, we distribute. No, it’s not an additional dividend—well, it’s not extraordinary; last year we anticipated. But this is a discussion that will come at the beginning of the year: what is the basis of the capital of the bank for the next 12, 14 months in organic, so we can decide to do an additional distribution.
Now, liquidity: it seems at the moment of the market that is more stressed—if we live a difficult moment—there is a factor called the cost of liquidity in the bank. We have a base of liquidity that is very good, strong. The balance is liquidity, creation of capital, and team. I believe that with that we can seize all the opportunities that arise. Of course, you have to change the way that you navigate in a few businesses—more conservative in some and others more aggressive.
But the most important thing is that we don’t have any active restrictions to grow and continue to expand the bank. We don’t have a restriction of capital, we don’t have a restriction of liquidity, we don’t have a restriction of provisions of the balance, we don’t have a restriction of the dynamic of P&L. So it’s important to continue to work with a solid profitability—always the spread over the cost of capital—and repricing the businesses in the way that the economic conditions change.
So we don’t have a silver bullet. Risk management and capital allocation never were so important as they will be today. Next question, BofA. Antonio, the floor is yours.
Antonio (Analyst at BofA Securities)
Thank you for your question. Let’s go back to the issue of credit market for next year. The expectation for the market has been changing very accelerated over the weeks. And you highlighted you were preparing for a more difficult scenario. But it seems that this presentation is very focused on the T’s of the balance. It shows that you also expect a scenario that is even more difficult. This at a moment that not necessarily all the players have a balance as robust as yours.
So my question is, do you expect a year specifically difficult for next year? And given that the other players have a strong balance, do you believe that there will be any Central Bank measure, whether if it’s capital provision or any type of restriction for any type of cap? Well, congratulations on the results.
Milton Maluhy Filho (CEO do Itaú Unibanco)
Thank you, Antonio. Thank you for the considerations. Well, let’s see it this way. First, the market has a high capacity for management, capacity for discipline, and the active restriction that is most important is always a capital index for any institution. Given a very challenging scenario, every institution will do their homework. There are levers for this. There is the lever of dividend payout—always good to retain more capital. The way that you manage the fiscal base is always a lever so you can avoid the interest.
This is management. There is the way that you accelerate or not your portfolio. And I just wanted to do a very relevant point here for next year. Many of the measures that will have an inflationary effect on the deceleration of the activity were already subcontracted. So regardless of the results of the elections, the scenario for 27 was a challenging scenario without a shadow of a doubt. Naturally, now the macroeconomists and the economists start to adjust their models and their projections. We do not work with a conservative scenario.
We work with a realist scenario. Of course, with a decision with a degree of uncertainty very high, you tend to be more cautious so you can build a portfolio that does not have the volatility that is expected at the moment of higher squeeze. So I would say that, on the one hand, showing that the balance is robust and solid has an objective. Whatever the opportunity that we’re going to have in 2027, we’re ready to face it, whatever the challenge is. If the challenge is worsening delinquency, the balance is very well provisioned, robust, and we have the capacity to absorb any effect because we have a capital creation that is very solid. We have a capital base that is very solid. If we have the opportunity—and we will always have those opportunities at a challenging moment—we will seize it.
We’ve done that in the past. In more acute moments of the economy, where we have a repricing, where the capital markets many times need to let go of assets, our capacity of absorbing is enormous. We know the companies, we know the clients, we’re close to the companies, we’re close to the clients. We want to be present not only at the moment of abundance but also at the difficulty, if it should take place. That’s our role. Long-term view: a relationship bank has to be present in all moments.
But we have to do it right. We have to allocate the capital and the adequate return. In our vision, it is very early to see what is 2027. We’re closing the budget. Me and Gabriel, we are doing a deep dive with the Executive Committee, and over the next weeks we’re going to have more visibility. But we need to look at the top line, the capacity for the execution. It seems more uncertain today than what it was yesterday. On the other hand, there are levers that depend on ourselves: efficiency, cost.
So we cannot be just at a whim with this scenario. We have to use the opportunities of top line and more efficiency. That has to be the journey, so we can continue to deliver value and create value for the clients, first of all, and for the shareholders as a consequence. I continue conservative in the sense of the word, because it can be challenging. But I am optimistic that opportunities are there for the taking and we have to seize them. Next question. Bernardo Goodman, XP, the floor is yours.
Bernardo Goodman (Analyst at XP Investimentos)
Good morning. Thank you for the opportunity. I would like to talk about the segment of SMEs. Portfolio still growing, delinquency normal, but the delinquency on the short term has increased on the quarter. How do you see this indicator from now on, with the interest rates higher, longer? And how is the part of the portfolio that doesn’t have a guarantee of the government behaving?
Milton Maluhy Filho (CEO do Itaú Unibanco)
Thank you, Bernardo. Great to see you here. First, let’s do a relevant statement. The government program is a lever, but it also has to be done in a correct way. We have to identify what is a portfolio, how do you service your clients well, how do you deliver a solution that goes from product to journey, and the care with the decisions that are taken. We, through the years, have worked on the change of rating of the portfolio. This portfolio of SMEs has also evolved, with a portfolio with ratings that are much better than what we had over the years.
This migration has also helped with the cost of credit. Because even though government has a very relevant role in this segment, the rest—if they’re not performing well—there is no government that can withhold the delinquency. Because the delay of the government also occurs. One thing is the recovery of the guarantee and execution. For some products you do 90 days post delay, for others 180. So delays arise, but you see the result, and it has to do with a portfolio that is very well built, very well managed over the years, with the right volume, with the right client, at the right price.
That makes a difference as time goes by. Growing with a speed at the wrong price generates revenue in the short term, but the loss is later; your financial margin is impacted. Our best estimation today, with the information that I have now, is that we should stabilize the long delay in 12 and 10 for the next quarter, volatility of 10 basis points up and down, which is expected. But my best prediction is that we have 12 and 10 with a delay of SMEs over 90 for the next quarter, which shows not only the stability of the delay but the predictability of the portfolio. When you look at the short-term delay, there is a drop of 10 basis points.
It’s something that shows for the long-term delay any given security. For doing the segment that I’ve done in the past, this is a segment where we have penetration that is relevant. We have a deep relationship with these companies. We’ve done a deep review of strategy, the model of service. Even with the business of the natural persons, individuals and retail, the digital is gaining more relevance in the model service. We’ve grown materially in the number of clients serviced by this platform. We’re going to continue to grow.
We’re going to continue to grow with all the levers, going through experience, model service, purpose, digital proposals, and model of credit and management. And everything that we’ve done with AI for the credit models are for individuals and companies. That expansion of Ginis with the level of accuracy of the models is also for the individuals and for the companies. This is a challenging scenario. Of course, this year has been more challenging than the previous one. But the portfolio continues performing very well, with a lot of quality, profitability, and depth in relationships. We’ve increased the lifetime value with the clients and growing, which is important, with quality beyond the government programs that certainly are an important lever, but it’s not the only lever in the management model.
Next question. Gustavo Sherodin, Citi, the floor is yours.
Gustavo Sherodin (Analyst at Citi)
Good morning. Thank you for the opportunity—redundancy, but congratulations on another quarter that is very strong. Congratulations on the deck. Going back, everybody explored the challenges and you have a challenging scenario for 27. But let’s try and quantify, because when we look at the performance of your portfolio—stage two dropping, three stable—there is the coverage issue of stage three that you explained. But when you look at the creation, also stable.
If you look at the PDD close to 11 billion—so the bad debt—so the overview suggests in your forward looking you are capturing risks that did not appear in the observed indicators. Of course, you don’t have to give me a specific number, but how much of the expected credit loss that you’ve given us is of growth, and how much is looking at 2027 for the models that you’re capturing for the future problems?
Milton Maluhy Filho (CEO do Itaú Unibanco)
Thank you. Excellent question. Thank you for your ideas. So let me tell you first: the expected loss model—the coverage is a consequence for us. It’s no input for our management. So as we are tempestuous with the change of rating, tempestuous in the management of risk for delays, tempestuous for devaluation of the worsening, the clients tend to move through the stages quicker. There are clients that go from stage one directly to three. They go from one—some from one to two—in a reasonable horizon of time.
If they go back, if they have the cure, or eventually they worsen and they migrate the stages. So the stages more show to you tempestiveness—how tempestuous we are. And the several variables that we have here do not depend only on the short-term delays or the long. So that’s why we have these 240% of the budget in regards to the 90 days. So the central message for you is, first, forward looking is a variable of the model and we adjust. I’m going to answer a part here. If you look at the model of business profitability, you will see that in the retail this quarter we had an adjustment in the profitability. Part of that is the forward looking that we’ve done. We’ve recorded the scenario. When you worsen and you have the expected loss model that we work with, it’s very sensible to short-term delays.
You’ve seen in the presentation the delay 31 days; we are provisioning 60%, and you migrate those clients through the stages. This is a dynamic. A great deal of the provisions that you’ve seen had to do with growth and, naturally, migration of declines in stages. This is a matrix as we discuss inside. So we have a portfolio that is all done in A. It’s expected that a part of the portfolio stays in A, goes to A1, A2, A3, and it works as at the ratings as time goes by.
This is nothing more than the natural dynamics of portfolios. What I can tell you is there is no relevant credit case that’s been discussed in the press that doesn’t have the provisions that are adequate for the information that we have now. And this is important because all the new provisions are on the margin of a new event, of new information. It’s difficult when you have debt of provisions that are not done and they’re accumulated through time; there is a moment that you don’t have the capacity to absorb.
And our mantra is: first the provision and then the result. It’s not first the result and then the provision. That for us is key. So if you ask me, Milton, do you have any discomfort in regards to the provisions? No, I have comfort—excess of comfort. And that gives you degrees of freedom for you to continue to work and correct proactively. And the importance of speed in these delays—we have to identify them very quickly, and you do a feedback on the model so they correct the model. That’s the continuous learning that we have here. Very comfortable. Sometimes the delays are solid.
We are still reviewing the projections. No disruption predicted in any of the business. But it’s an area that has challenges. We have a numerator challenge maybe, but we also might have denominator challenges depending on the growth of the portfolios. But this is our outlook for the portfolio. I’m very comfortable. And these migrations of stages—a surety that I have to give you is that as we have a new client from stage one to two, typically they get less provision.
And the client that migrates two to three typically migrates with a volume of provision that is higher. And the client that leaves three typically leaves one with a write-off, with a provision close to 100, taking into consideration the guarantees that they have. So this dynamic is natural. No review of the models in the sense of favoring the bank reversion against the cost of credit. And even so, we’ve gotten the 2.7 over the portfolio consistently since 1Q25.
Very comfortable with the dynamic of provision and reviewing the models. Next question. Yuri Fernandez, JP Morgan.
Yuri Fernandez (Analyst at JP Morgan)
Good morning. Congratulations once again—very predictable results and balance. While talking about balance, the bank has liquidity, capital, a strong capital, strong culture and invested in technology. You have all the ingredients. But the macro scenario—very challenging. Even the competitors facing challenges that are equal or more challenging than yours. So what would you need, Milton? What would you need to see to be able to accelerate the growth of the bank or gain market share from the market?
It’s a moment of a lot of uncertainty. I’m very concerned because, different from other crises, we don’t have some tools. So the checking account is not a tool, the overdraft is not a tool. So that message of cautious is important. But I see you prepared, I see you preparing for that scenario that is difficult. So again my question: what would make you, or Itaú in general, become a winner of market share in this difficult scenario?
Milton Maluhy Filho (CEO do Itaú Unibanco)
Thank you. Great to see you, Yuri. The answer is the following. Well, first of all, we don’t look at the portfolio; we always look at the long term. So all the portfolio that was built, all the management of the portfolio that was done, was done considering—and looking in the rearview mirror—scenarios of stress and benign scenarios. So when you are talking about working with resilient clients and even in challenging scenarios, they’re still going to be performing.
If this is the variable of the model, all the growth looking up ahead, we’re going to have that as a principle. Is it a resilient client through the cycle? Do they create value through the complete cycle? How am I distributing the cluster of risks, this portfolio target? What is the level of volatility in the stress of bad debt? What is the level of return that we’re going to have? Those are some of the variables that we look to build a portfolio.
I would like to say the market share—and I understand your message clearly—but I would just like to highlight: market share is a consequence; it is not an objective. It’s important that you don’t follow just a market share because once you start to do this, we would be making a lot of mistakes if the market share would be the target. It’s not. Our variable is to build a long-term portfolio, increase the lifetime value of our retail clients, big companies, SMEs.
We are a consultant relationship bank that is present for the clients in all the moments, and we have a healthy, balanced portfolio. To have a strong balance is something necessary; it’s not just enough. This is why we need to have a model for capital allocation, a model for risk management, proximity, so we can take good decisions at the moment that the opportunity appears. So my answer is that we are prepared for occupying whatever the space that is available so we can continue to grow and invest in the franchise. Probably we lost market on some lines—we were aware; this is by design.
Our market share in credit cards dropped by design. We took the decision to reprofile our entire portfolio. We had to renounce market share, and thank God we did, because otherwise the results were not as strong as we got them. So renouncing is a part, especially when you see a growth that is not sustainable in the market and when you see one, two, three competitors appear, operating with more aggressiveness. This is the moment that you lose market share and not lose money.
So when the opportunity arises, you can get market share and you’ll get money. So we are ready to continue with the strategy long term. The strategy hasn’t changed. We continue with the opportunities to grow in all the segments, within the strategy that was designed, with the adjustments that we will do through the cycle. I am under the impression that we have a solid balance, and that can open opportunities.
Tito
Well, hi, Milton, Gabriel, thank you for taking my question. Also, congratulations as well on the strong results. Actually a little bit of a follow-up to UD’s question just now. Just, you know, thinking about the competitive environment, particularly in a more challenging scenario. You know, you can argue your relative strength has increased over the years. When you look at your profitability, maybe where some of your peers are today relative to where they have been in the past, you know, do you think that maybe creates some potential for irrationality just because some competitors may try to get market share that could put pressure on profitability of the system? I mean, we’ve seen some pressure on your fees, which I think, you know, you’re doing to protect the client base, but maybe there’s further competitive pressures that could put some pressure on your overall profitability.
Right, because Milton, you also mentioned, right, you focus on efficiency and that nice chart in 22 where you’ve continued to deliver better efficiency over the years, ROE has been going up. How do you think that’s still a sustainable trend? I know it’s a challenging year in 2027, but how do you think about that continued evolution in terms of efficiency, profitability, and the competitive dynamics that may evolve in this scenario?
Milton Maluhy Filho (CEO do Itaú Unibanco)
Thank you very much. Good to see you. Thank you for having you here. My thoughts on this question is, first of all, I believe that there is no room for irrationality. This is my first comment here. And why is that? Because everybody who is operating on a relevant basis in the market knows that the delinquency is going up in the system, the level of capital, capital is being consumed, the excess capital, everybody doing their homework in terms of capital adequacy.
So they know that to grow irrationally now, to gain market, you’ll be paying that for the long, long term in the future. And I think we’ve seen some histories like that in the past and everybody knows in the market that excess at this moment is not suggested or recommended somehow. So I believe that discipline will speak loud and everybody will be looking to grow in a disciplined way. The right pricing, the right return. But this depends, of course, on each bank’s strategy, each bank’s model, the managerial model of running the bank.
But my expectation is that no one will be irrational at this time. You might see some irrationality here and there and we still see it, but this will be corrected very soon. So my view is that this is not sustainable in the long term. Number two, for next year — and Gabriel can go and tell you more about that — but we are having a lot of discussions on the efficiency side. We know that there are other costs coming to the bank, like the facilities. We just rented new buildings to make an adaptation in our home office model. We are investing in IT, keep investing in tokens and technology, keep investing in enhancing our businesses. That means that we still have some cost pressure.
We might see more inflation for next year. That means that for our wages and the salary we should have more pressure. So we have pressures coming from one side, but we have the discipline and the way to manage that on the other side. So we will have to find what is the key point, the break-even point, where we can keep growing costs, investing in the bank and investing in IT, investing in the strategy of the institution, investing in the future, but not forgetting that we need to be more efficient in the long term, especially in the business lines where this is key and relevant for the future.
So areas where we need to enhance the efficiency ratio will keep enhancing and those are the ones that are contributing more positively for us in the efficiency ratio. Now others, we have a very good level of efficiency ratio benchmark globally, I would say, and we will see less room to keep increasing the efficiency ratio in those cases. But there’s a lot of things to be done and we still are very positive about the way we are managing and the program that we have in place.
I don’t know, Gabriel, if you want to add something on.
Gabriel Moura (Chief Financial Officer)
Sure. Hi, Tito. I think there is a common thread to everything that we are discussing here. It is seeing things across the cycle, right. Milton told you about how we do this in the credit portfolio. And the same thing is efficiency. Right. If you think about all the investments that we are making, all the companies that we acquired this year, you can clearly see that we are investing in the future, but taking care of the operational efficiency and scalability that we have for the bank right now.
So if you go back in time, a few quarters back at the beginning of 2025, in the first quarter, we were moving our expenses in something around 10% year over year. If you take a look at this quarter, it’s 1.5. But doing this while investing in the bank is always a challenge. But this is an easy discussion for us. We are maximizers of value creation. This is, at the end, the focus that we have. So we are always going to invest and there is always opportunity for us in portfolio management, as Milton mentioned for credit, and it’s the same thing for expenses.
All the resources that the bank does is that we are taking resources out of some segments and creating efficiency and investing in others. This shifting portfolio is something that we’ve been doing and we still see space in the future to continue to do so.
Tito
Thank you, Gabriel.
Daniel
Thank you, Gustavo, Milton. Gabriel, congratulations on the results. Very solid balance. A great deal of the questions were in regards to 2027, but I’m going to try and look back. My perception is that over the last years we went over a super cycle. Well, it was 40 on average, but we didn’t see a big deceleration of the portfolio. The system is very net with the financial inclusion, government programs, FIDC capital. There are some new lines. Well, you know, thresholds for discussions of the central bank recently show that in some fronts they’re more concerned with the level of leverage of the system and the capital base that we have to absorb all this growth and what may take place in the future.
So looking to the future with a more difficult scenario, if it should take place, is this still the modus operandi of the system, a lot of liquidity still in the programs, the government helping this modus operandi? Or maybe is there a reversal of this net liquidity? If you look at the portfolios, looking at 27, 28, is there any space for any more relevant adjustment? Portfolios dropping and, in fact, leaving the cycle of the high interest rates as it was, having a more retroactive effect on credit?
That’s my question. It’s a bit more difficult to answer, but it would be great to hear your opinion.
Milton Maluhy Filho (CEO do Itaú Unibanco)
Thank you, Daniel. Well, I believe firmly that there is an important challenge in credit. All the indicators are there: the compromise of the income of the families, the delays measured by over-15 thresholds that are higher in the series. There is an excess of offering in the market. I am certain that there was an overvalue of credit in the market, and I am not questioning if people made good or bad decisions. There is an excess of credit offerings over the years, and we see that a few niches grow and they take on the growth of credit.
The digital allows you to have more access, less fee in the credit card. In my time with credit cards in 2013, a client had 1.3, 1.4 credit cards and you had two deadlines for paying. Now the average client has five, six credit cards. In the past you had to pay yearly fees and you had restrictions and you’re not going to have a lot of limit. Today, when you open the app and you hire a credit card, you have five, six products, all with credit, without any cost to have.
So the conditions have worsened. There is an over-offering of credit. On the other hand, in the capital markets area in Brazil there was a monopoly for long-term funding. It’s not negative: the only one that offered credit in the long term was BNDES. It went through a relevant adjustment, and now capital markets have developed in a material way in Brazil. Now the level of corporate credit in the capital markets—looking just at corporate, removing Ls of banks, removing from the account-based effects—we’re talking about a trillion reais.
The FIDC market, we’re talking about a trillion reais. So it’s not just credit in the balance of the banks that has grown. The credit adjacencies are growing materially. Liquidity goes until the pocket can withhold. If you have a credit situation that is more complex and the prices of the papers deteriorate, that will cause a higher migration for the fixed-income titles of the government, the banks, that give you a remuneration that is very competitive.
This is a risk. I’m not saying that it will happen, but it’s a possible risk. I’m not saying that it’s probable; it’s a possible risk. And that will direct the liquidity of the system, and there is a repricing of the asset because the final asset will behave as the banks will behave in a scenario of higher stress. Nobody is foreseeing a scenario of stress of a credit cycle that is more complex—no credit crunch. The conditions herein are complex, and the government has been a buffer with these programs because they help, but they don’t really fix structurally the problem.
Because the risk of you having a program that is recurrent—it’s better to have a program with an FGI that is recurring, that you are at the beginning of the concession, stimulating the credit with competitive conditions and good quality, than just getting in the cycle of getting the payment when the problem is materialized. That generates moral hazard. People are going to take the credit waiting for this saving to happen. So remember that the people continue responsible for the debt even after this umbrella.
The responsibility for the payment—even though there is a guarantee after the discount—they’re still the credit taker. They’re not going to have their clean name if they’re not paying their obligation. So there are structural challenges. There is less space for irrationality, efficiency levels. We open new markets and new losses. Some players that operate with a lower—well, they have higher absorption of losses. It opens markets, but there is saturation. The market as a whole will have to adjust. It’s not avoidable. And here is the opportunity. If you have a portfolio that is performing well, with the delays under control, with solid capital and the firepower—whether it’s liquidity, possibility and relationship with the client—this is where the opportunity may appear.
So we can grow in portfolios at moments of liquidity in the system and losses. We are ready for this. The portfolio of the bank is well built. So we’re going to have to follow 2027 still with a level of uncertainty. We have to follow, but I continue positive, not with the scenario, but with the opportunity of working with this adverse scenario, should it materialize. Next question. Marcelo Misray, Bradesco, the floor is yours.
Marcelo Misray (Analyst at Bradesco)
Hello, Milton, Gabriel. Congratulations on your results. The question is: people are looking at 27, and I wanted you to discuss the dynamic of revenue. We think about the mix more collateralized. It has led us to a drop in the margin. And looking up ahead, while looking at 27, the mix shouldn’t have any changes. Large corporate may be better, but it should be collateralized. So can you tell us how you understand the level of margin, NIM? Well, the lower level of NIM can have a profitability level in ROE that is lower next year.
So thinking about the maintenance of the collateralized mix, the growth, there shouldn’t be anything different from what we see. How do you think about this dynamic? That this is the right decision, and it’s possible for the ROE of the bank, even with these challenges looking ahead. That would be the question.
Gabriel Moura (Chief Financial Officer)
Well, thank you, Marcelo. Thank you for your question. We don’t give a guidance of ROE because of that. Our work is to create value and use the management levers that I just commented as a mechanism to deliver value and consistent results. So it depends on the scenario and the dynamic of the scenario. We need to advance and create value for the shareholders. I think inertia is very much in favor in that sense. A great deal of the portfolio you build in a few—from now on, as you have less demand, the market is more conservative—we will see what is the real opportunity for the portfolio for the next cycle. Of course, portfolios build for the next year; there is a runoff of the portfolio. Given the portfolio, which is one trillion and a half reais, I believe that the NIM, the dynamic of the margin, is not going to change.
It’s going to continue to grow in collateralized products. That generates this effect. Look at NIM adjusted by risk. It doesn’t matter that you work with NIM and you’re with a high NIM and you return that with a cost of credit. It’s no use. You open the gap between the NIM and the NIM adjusted by risk. This is not what we’re seeking. We need to deliver a NIM stable through the cycle with the migration. And remember that in our NIM, besides the spread, besides the portfolio, besides the segment, there are the liabilities, structured operations that we understand continue to be a relevant franchise, and the capturing and relevant franchise for the cost of proximity, the capacity for servicing our clients.
So there is a series of businesses and, more so, a balance between the businesses. This diversification—universal—is an advantage because in the past there was a lot of doubt that our result was very sensitive to the interest rates. And we’ve seen a series of how our portfolio behaves in a different way from the interest rate. So it has a NIM that is more stable through the cycle and the volatility with the interest rates in Brazil, and this is the dynamic of the portfolio that has been built.
Talking about ROE, our expectation is to continue to deliver good profitability. Looking ahead, if the ROE will be higher or lower, we are working with this so we can calibrate what we expect. It will depend on the scenario, specifically in the cost of credit that we will see looking at 2027. And the lever that we have to help is the level of efficiency, which might have—you know, we have a constant lever for the management. We will continue to deliver with profitability.
If it’s lower or higher, the ROE is difficult to mention. At the beginning of the year there will be, in the guidance, the results that are implicit and the ROE that is implicit, but with a level of profitability that is adequate or even higher than what was expected for a challenging scenario, such as the one that we’re going to face. So we are building this for the guidance. Now we have Enrique Navajo, Santander.
Enrique Navajo (Analyst at Santander)
Good morning, everyone. Great result. My question is on the challenging scenario, how you can imagine that the banks are building the thresholds of 2027, which is the basis of the guidance. We can expect the growth that is lower of the credit portfolio that inevitably will have more capital. And can you imagine this excess of capital being distributed in dividend? Or maybe cautious will require this on the safe side? What can we expect in dividend with this scenario of more capital being used?
Milton Maluhy Filho (CEO do Itaú Unibanco)
Well, thank you for your participation. We’re going to discuss the discussions of dividends briefly. We have a quarter accounting that we have to close to continue to do the projections in 2027—budgeting still under construction, organic and inorganic projections, regulatory changes, capital. We have the third year of the phase-in of operational risk, and I would like to consider that our appetite is very well defined. When we have the CET1 for appetite, 12, for the distribution of the dividends, I don’t have any discomfort.
The protection that we have in regards to the regulatory minimum is very high, so we can absorb any shock, should the shock appear, and our capacity of growing and the capital generation. So from the standpoint of distribution, we will continue to practice the same policy of doing the production, looking at the excess to 12 and what should be the additional distribution, because our objective is not to have excess, specifically if we don’t have an opportunity for capital allocation. So it’s difficult to say if it’s going to be higher or less. We’re going to have more reais because last year we anticipated—jokes aside—specifically because we have a higher result this year.
So the dividend per share will be higher by consequence, and the level of payout will depend on all of these points. It’s very difficult to give you an estimation of payout. But certainly we will do a distribution that is adequate and very consistent with what we’ve been doing over the last years. I am not foreseeing anything that justifies a higher retention than what we have.
OPERATOR
Switch back to English as we have Carlos Gomis Lopis from HSBC. Carlos, you may go ahead.
Carlos Gomis Lopis (Analyst at HSBC)
Thank you, Gustavo. Thank you, Milton. Let’s try to make the last one a bit more optimistic. So in terms of the opportunities that you can take advantage of because of the strengths of your balance sheet, because others may be retrenching, where do you see some of those? Maybe these places we are not looking, maybe auto loans, agro, or mortgages. Which areas, perhaps, can you identify that you think, well, maybe Itau Unibanco Holding can be bigger in this particular segment in the next two or three years.
Thank you.
Milton Maluhy Filho (CEO do Itaú Unibanco)
Thank you, Carlos. Good to see you. Thank you for the question and the comments at the beginning. So my view is that mortgage, I think we are growing on a very strong basis due to the level of demand deposits we have, of deposits that we have in the bank, saving deposits that we have. I think we have the best structural funding to keep growing mortgage in the balance sheet. So I don’t think we’re going to grow more or less. We’ll keep growing at the same pace that we are seeing now.
In auto loans we’ve been very disciplined, and we did the same de-risking that we did in other portfolios, like the credit card portfolio and others, we did in the auto loans as well. So we’ve been growing with current account holders, clients of the bank, in a very disciplined way because it’s a very volatile market. We had our experiences in the past, so we learned from the past. Of course things change, but we have to be very disciplined to keep the learning from the past.
And I think we have that in place in our strategy. So don’t expect big growth in this portfolio, but the discipline to create and allocate good capital as a complement product in the offer that we have to our clients. I see opportunities on the wholesale. We might see good opportunities to allocate in good names, good level of price and returns, and to help our clients if the debt capital market is not there. So I think here it’s a good opportunity to keep the discipline in capital allocation, returns on capital. This is key to maintain the level of returns on our portfolio.
And in all the businesses we have a strategy—strategy to keep growing organic. So we’re not going to be erratic in grow fast and grow very slow. So the idea to have this portfolio approach is to manage the credit throughout the cycle. That means less volatile in terms of results, less volatile in terms of concession. So I think the opportunity will be there, and we have to keep developing our way to the future. So I’m still positive that there are going to be opportunities ahead not only in credit, but in businesses in general.
And all the strategy we’ve been developing in individuals, in SMEs, in the wholesale, in all the areas that we’re in Latam, are being in place. So I think we should have very strong developing in the coming years, implementations, programs that should bring a lot of returns in the future as well. So I keep positive that there are a lot of projects being implemented as we speak.
OPERATOR
Thank you, Milton. Thank you, Gabriel. Thank you everyone that took part of our event. With that, we finish the Q&A and our earnings call in 3Q26. I’ll give the floor to Milton so he can close.
Milton Maluhy Filho (CEO do Itaú Unibanco)
Thank you, Gustavo. Thank you, Gabriel. Well, I don’t have anything else to add besides everything that I just mentioned in the Q&A. The important message is that we have a business model. The pillars of the management of the bank—this is a work that we’ve done with the board. All of our employees are focused on, with this culture, with this model of management that permeates all the governance of the organization. We are still very focused, very disciplined, with the management mantras, the capital allocation, and the overview of the client.
What we are growing in all the businesses—we strengthened all the businesses—and I believe that the expectations for the future are not different. We continue to strengthen and continue to be strong regardless of the cycle. We are ready; we’ve never been so ready to face any cycle. We expect a better cycle; if it comes, great. If we have a challenging cycle, then I hope to have the wisdom that we have now. It’s our tradition of navigating well through challenging moments, with humility, respect to the competition and everything that is happening, with an outlook for the regulatory and above all looking at the client.
I would like to thank your participation here, your presence. It was a dense call, but I believe very important so we can share our strategy with all of you. See you soon.
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