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Itau Unibanco Holding S.A. (NYSE:ITUB)
Q3 2019 Earnings Call
Nov. 05, 2019, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning ladies and gentlemen. Welcome to Itau Unibanco Holdings Conference Call to discuss 2019 third quarter results. [Operator Instructions] As a reminder this conference is being recorded and broadcasted live on the Investors Relations site at www.itau.com.pr/investorsrelations. A slide presentation is also available on this site. Before proceeding let me mention that forward-looking statements are being made under the safe harbor of the Securities Litigation Reform Act of 1996. Actual performance could differ materially from that anticipated in any forward-looking comments as a result of macroeconomic conditions market risks and other factors. With us today in this conference call in Sao Paulo are Mr. Candido Bracher President and CEO; Mr. Milton Maluhy Filho Executive Vice President CFO and CRO; and Mr. Alexsandro Broedel Group Executive Financial Director and Head of Investor Relations. First Mr. Candido Bracher will comment on 2019 third quarter results. Afterwards management will be available for our question-and-answer session.

It is now my pleasure to turn the call over to Mr. Candido Bracher.

Candido Botelho Bracher -- President and Chief Executive Officer

Good morning everybody. Welcome to our third quarter 2019 earnings conference call. I will start the presentation on slide two where we show the main highlights of our performance for the quarter. The recurring net income was BRL 7.2 billion representing a 1.7% growth when compared to the previous quarter and resulting in a 23.5% ROE. The key drivers of this performance were the acceleration of our financial margin with clients as well as a stronger fee revenue generation. An expected higher cost of credit partially offsets these effects. Lastly our noninterest expenses grew only 1% despite the seasonal effects of the collective wage agreement which increased wages 1% above inflation. In the next slide we provide a more detailed view of the figures. On slide three we show the value creation for the period. In this quarter we created BRL 3.3 billion in economic value resulting from the difference between our ROE of 23.5% and the estimated cost of capital of 12.5%. Moving now to slide four. We show that our total credit portfolio in Brazil grew approximately 4.9% in the quarter and 11.7% over the last 12 months. The SMEs and Individuals portfolios led the growth as in previous quarters but we had an important change at our Corporate book group annually for the first time in more than three years.

Also important is the increase in corporate securities deals that we advised and structured for clients as more than half of the total committed growth in volume for the year was originated this quarter. Lastly the credit portfolio in Latin America increased around 3% in the third quarter boosted by the Chilean operation. Also worth mentioning credit origination continued strong in all segments as you see in the left part of the chart. On slide five now. On the bottom we show that the positive effect from the change in the credit portfolio mix continues to offset the impact of lower interest rates and spreads leading to a stable net interest margin. The credit portfolio growth was the main driver behind the BRL 0.8 billion increase in our core net interest income in the quarter. On slide six we present the financial margin with the market which decreased 8% in the third quarter as an effect of the lower interest rate on our foreign investments overhead strategy as well as the lower financial margins in Latin America. Turning to slide seven we show the key credit quality indicators. Short-term delinquency reached the lowest level since the merger between Itau and Unibanco both for the consolidated and the Brazilian credit portfolio. The NPL 90-day ratio remained stable with an improvement in the credit quality of the SMEs and corporate portfolios whereas the ratio deteriorated 20 basis points in the individuals book as the natural effect of the change in mix of the current portfolio and expansion within our risk appetite.

As expected higher loan originations especially in the retail bank caused an increase in cost of credit. Delinquency and provisions are responding to the natural dynamics of the higher-than-expected portfolio growth in the retail bank in Brazil. On the next slide we present a more detailed view of this dynamic. Now the graph on slide eight shows that the loan loss provision grew at a higher rate than the credit portfolio except on periods of economic contraction when provisions grow even when the portfolio contracts with the gray bars in this chart are the loan loss provisions. For the first time since the merger between Itau and Unibanco market economic conditions allowed two consecutive years of credit growth in the retail bank as you see in the blue line. Therefore we can observe that provisions are increasing along with the expansion of the credit book. We expect this dynamic to continue under normal macro economic circumstances. And also as you see in the chart in the green line and in the red line I mean the ratios of NPL and of provisions over total portfolio remained stable. Now on slide nine we present a breakdown of our commissions and fee revenues. As in previous quarters the main highlights are our investment banking and asset management operations.

Our investments open platform continues to accelerate reaching BRL 172 billion in assets distributed. This represents a 50% growth in the last 12 months. The higher client base caused current account services to grew 3% in the quarter. We have also seen the credit and debit card operation continue to grow consistently. Lower fees in the acquiring business diluted these effects. On slide 10 we will invest now a few minutes talking about our most important asset our clients. We have 55 million clients and in the last 12 months our current accountholders base increased 9% reaching 21 million. In the same period we opened more than four million new accounts of which more than half for individuals under 30 years of age. Not all bank accounts are equal. At Itau we open bank accounts that create value for the bank. Finally showcasing the efficacy of our clients increases our strategy. Our Global Net Promoter Score increased eight points in just one year and current account closures reduced more than 29% in three years an important growth achievement albeit this is only the early stage of this journey. Turning to slide 11 we show that our noninterest expenses continues to be managed with focus and discipline. This is highlighted by its accumulated growth of just 2.8% which is below the inflation rate for the period. This was achieved by a continuous investment in technology and optimization of our processes which enabled our cost-cutting measures.

These efforts led to a cost-to-income ratio of 45.5% the lowest in the last 10 quarters. This quarter we concluded the voluntary severance program about 3500 employees adhere to the program out of 7000 eligible. This result is slightly above our initial expectation and led to a nonrecurring expense of BRL 2.4 billion before taxes. On slide 12 we show that the bank finished the third quarter with a Tier one ratio of 14.1% a decrease of 80 basis points in the period. This effect is related to the growth of the risk-weighted assets and the distribution of BRL 7.7 billion as complementary dividends this quarter. Finally on slide 13 we reaffirm our guidance for the year and continue to be comfortable with the ranges provided. But just like we did last quarter it's continued to situate our base scenario for each line and we are changing the indications for the current portfolio and for the cost of credit. We now expect our credit portfolio in Brazil to finish the year around the top of the guidance and our consolidated credit portfolio to finish the year around the midpoint of the range. These higher expectations are related to a stronger demand for credit fund from individuals and SMEs. As a result we expect our consolidated cost of credit to finish the year between the mid and the higher point of the guidance. As for the rest of the lines our expectation remains unchanged with our financial margin with clients to finish the year close to the lower end of the guidance. We expect our financial margin with the market to be around the midpoint of the range. But for the commissions and fees line we anticipate to finish the year between the mid and lower point of the guidance. And we expect our noninterest expenses to finish the year around the lower end of the guidance.

With this we conclude this presentation and we may start the Q&A session.

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from Eduardo Rosman BTG.

Hi, everyone, I have two questions. The first one is on asset quality right? So I want to know if you could comment a little bit more about the NPL increase on your retail book? I want to know if this is a yellow flag or it's just like a mix effect? Because I think that the EBITDA pick-up in provisions was pretty large quarter-on-quarter. I ask that because when we look to income commitment that level with the Central Bank we are able to see already a small deterioration right despite the much lower Selic. Probably I would assume that this has to do -- that the wages have been lagging. So I just want to know if this is a concern for you? And is this a concern for your growth on the individual book as you think about next year? And then I'll ask my second question later.

Candido Botelho Bracher -- President and Chief Executive Officer

Hi Eduardo. Thanks for the question. I wouldn't say this is a concern but it's of course an item to which we pay a lot of attention and very -- we follow very very closely. We understand this small NPL decrease in the retail book to be a normal effect of the change in mix of these lines. We as I said follow this closely and we see nothing extraordinary there. We understand this is an expected effect. I understand what you mentioned about the Central Bank report which points to a worsening in the credit quality in credit cards specifically. Our own industry is better than those pointed by the Central Bank. So we didn't see in our portfolio that worsening which is presented in the Central Bank report.

Eduardo Rosman -- BTG -- Analyst

My second question I know we still don't have the budget for -- the budget or guidance for next year. But we are already at the end of 2019. So wanted to know if you could share a little bit your initial thoughts about next year. I know that you expect -- I think everybody expects a better economy right? So I want to know if you could share some thoughts on outlook. Does it make sense to expect no loans to be a little bit better next year? Your NII has been recovering pretty nicely. Does it make sense to believe that it could grow a little bit faster next year than this year at least the client portion? Fees which was -- which has been a big challenge I know you did a pretty good job over the past couple of quarters right? So do you still think it's possible to go above inflation next year ? insurance on the other hand you've been restructuring but it's still kind of a drag on the results. So I would have assume an enter into the big line. So when you think that could improve costs. You've been very vocal about it. So if you -- could we have also tax rate increasing rate. So if we add everything up do you still think that we could see better line expansion next year? If you could share some brief thoughts it would be very interesting.

Candido Botelho Bracher -- President and Chief Executive Officer

Okay Eduardo. So I'll give you a brief overview of the general scenario for next year but I will not go into detail in each of our lines of business. Some of them we haven't studied them in detail yet. So we see a strong economy next year at least strong compared to this year. Our current forecast GDP growth of 2.2% we don't think it's going to be more than this. So we expect the credit portfolio and services to keep on this. Of course we also expect the competitive scenario to -- I mean competition to increase as we have seen in recent quarters and there will be some pressure on spreads and on fees in general. We will have -- so we will have this the positive effect of the economic growth in our results. But we have some significant headwinds also and I mentioned 2. First the higher social contribution which is the approval of the pension reform I mean it's to increase from 15% to 20% again; and second the lower interest rates scenario. I mean we see that the interest rates may be even lower than 4.5% next year we open higher interest rates and this affects many lines in our balance sheet. I mean the earnings on our own capital the earnings on our growth generated by services and the results of our overhedged book. So there are -- there's a mix for next year of positive expectation with the economy and some specific headwinds which will definitely have an impact on our results.

Eduardo Rosman -- BTG -- Analyst

Okay, thank you very much.

Operator

Our next question comes from Jorg Friedemann Citibank.

Jorg Friedemann -- Citibank -- Analyst

Thank you for the opportunity to make questions. I have two questions as well. If I go with the first we noted that in the quarter risk-weighted assets increased BRL 40.5 billion well above the growth in loss. In addition your Tier one is now running after the dividend at 14.1% which is just 60 basis points above the target that you guided to the market at 13.5%. So my first question taking all of this into consideration is first to understand if the RWA increase is transitory or if this should be a recurring ahead? And if you see room to continue paying dividends the payout at the average of the last three years above 70%? And then I'd make my second question.

Candido Botelho Bracher -- President and Chief Executive Officer

Okay Jorg. Thank you for the question. As we have been stating in -- for quite some time dividends are the consequence. I mean dividends are not a target. We do not target a specific dividend distribution on a proportion of our profits. I mean dividends -- I mean the capital which is idle about 13.5% of the Tier 1. So I expect RWA to continue to grow. I expect that we will have profitable opportunities of using capital in project and in other areas of the bank. Having said that I think we still -- our capacity to generate capital is rare of the possibilities of use of capital that we see on the short term. So as a consequence I see continued distribution and still be significant looking forward.

Jorg Friedemann -- Citibank -- Analyst

Perfect. Clear. And then my second question I see that you have approximately BRL 37 billion in net tax credits in your balance sheet as a result of the tax increase implied in patient reform. I think this is expected to be reassessed at the new rate they're generating an extraordinary profit right? In my numbers this accounting profit could be approximately BRL 4.5 billion. So just wondering if this makes sense for you? And what should you do with these additional profits? I mean I'm not sure if you're going to pay dividends on that. But if you see any lines of the balance sheet that you'd like to reinforce?

Candido Botelho Bracher -- President and Chief Executive Officer

Thank you Jorg. Yes you're right. I mean just from past experiences this lifting of the market in this innovation in the taxes I mean will generate a profit over this BRL 37.5 billion. I mean we still have not decided on how to apply this profit. I mean this is a decision that we will take during next quarter and announce together with the last quarter results.

Jorg Friedemann -- Citibank -- Analyst

Perfect. Sorry I just couldn't hear exactly your estimates of the profit generated. Could you please repeat Candido?

Candido Botelho Bracher -- President and Chief Executive Officer

You didn't hear because I didn't say it Jorg. We will talk to you later.

Jorg Friedemann -- Citibank -- Analyst

Okay, perfect. Thank you.

Candido Botelho Bracher -- President and Chief Executive Officer

Thank you.

Operator

Our next question comes from Jason Mollin Scotiabank.

Jason Mollin -- Scotiabank -- Analyst

Hello, everyone. My first question is on Itau's focus on cost efficiency. Could you provide more color on the voluntary severance program? You disclosed already that 3500 employees participated around half of those that -- were eligible. What are your expected cost savings versus the BRL 1.4 billion after-tax charge? And do you see more programs like this in the future? That's my first question.

Candido Botelho Bracher -- President and Chief Executive Officer

Hi Jason. Milton Maluhy will take this question.

Milton Maluhy Filho -- Executive Vice President Chief Financial Officer and Chief Risk Officer

Hi Jason. So about the effects of this program. What we have said is that we don't foresee longer-term any program like that. This is something -- the last time we offered a program like this to our employees was in 2010 one year after the merge. And at this time we thought we could do another one to achieve specific products and people from our employees from our bank providing them the opportunity to do a transition in their career and specifically because in certain part of this public were stable. Somehow they were protected by law. So the only way they could achieve or move or do a career transitions were this program. So this was the main reason why. So we had 7000 people and we had the adoption by 3500 employees. When we say that we had this major impact of BRL 2.4 billion before tax I would say that some of it is for labor discussions in the future.

So we know the history of this specific public that's why we made some provisions according to that. Similar costs that we had were new business the people were a regular cause of that some are some fines that you have to do as well as regular cost of this program. So what we did is anticipate some of the costs we would incur in the near -- in the coming years especially because important part of that was stable employees. And with that we have had this important impact in this quarter. So we have a positive expectation of the benefits of this program in the coming years. Of course we don't have exactly the numbers but we are working at this moment with 3000 employees below what we had by the year-end of 2018 in Brazil annually. We expect to be very focused on that in the coming quarters. So very disciplined in terms of headcount in terms of growth. So the idea is to keep this trend.

Jason Mollin -- Scotiabank -- Analyst

That's helpful. My second question is on Itau's international presence and strategy. Could you provide an update on the outlook for Chile which represents I think the last calculation I think it was around 17% of the loans for the group? And how Itau will use its exposure in Chile? And maybe you can also talk briefly about -- it's small but about Itau's position in Argentina and exposure there.

Candido Botelho Bracher -- President and Chief Executive Officer

Okay. Thank you Jason. So yes for TV I mean it's 17% of the loans as we know. I mean our ownership of the bank is slightly above 30% 35% of total cap and our diversification is 38000. The margin anticipation was 62% 63%. We see the bank evolving well in an economy which is still facing its difficulties. But -- I mean we are progressing consistently in -- perfection in -- I think in the management of the bank of implementing new technologies which we have in Brazil evolving the technology area which is the bank its results of mergers and so on. So we see a positive evolution in our Chilean operation. Naturally I mean we were concerned with the events the political events in Chile the social unrest. We had a few branches closed because of that. But I mean the worst seems to be behind us now and we expect a normal evolution for the bank in Chile. Cash flow in Argentina. Argentina as you know is a much smaller operation and we have been in Argentina for quite some time. Argentina represents less than 1.3% of our book. And given the long time depreciating revenue, we have grown accustomed to the volatility in the markets and try to avoid. So earlier this year because of fears that we had that the situation could worsen in Argentina we have reduced significantly our risk appetite for that market which places us now in a more comfortable position to wait and see the evolution of the economy under the new government.

Jason Mollin -- Scotiabank -- Analyst

Thank you very much.

Operator

Our next question comes from Otavio Tanganelli Credit Suisse.

Otavio Tanganelli -- Credit Suisse -- Analyst

Hi, everyone, Congratulation on the results. I also have two questions. The first one is on the NII with clients. So maintaining the 9% to 12% growth for the year would imply material acceleration in the last quarter. So I would just double check with you if you still think that the bottom end of the guidance is still feasible for the year? And second one I wanted to get a little more color on the fees sustainability particularly on the asset management segment where we saw a very nice increase on assets under management around 21% as per your disclosure. But even so fees had increased a little more than 28%. So I wanted to understand what's driving this very good increase on revenue figure? If there is a migration for funds that charge a little higher management fee? Or is some funds performing very well on the Itau assets? So if you could get -- give us a little more color on that it will be great.

Candido Botelho Bracher -- President and Chief Executive Officer

Thank you Otavio for your questions two very good questions. The first one is exactly as you say. I mean we expect an increase on NII this last quarter as has been happening already. I mean in the third quarter we have seen an increase in the growth in this margin compared to the quarters before. So this is what -- and it makes us believe that we will be able to reach the bottom of the guidance interval which we provided. As to the fees' sustainability as you see -- I mean the major growth increase has been coming from investment banking and this activity we expect to continue very intense going forward. I mean we are seeing a little bit of growth in the economy we are seeing an intensification in offer and demand of fixed rate and equities in the local market. And our investment bank has -- have a leading position in this market in Brazil also in the M&A market. And in asset management the fees growth I mean it derives mainly from higher volumes especially in the open platform and from performance fees you are right. And so the funds which earned a performance fee are performing positively. And this has been granting an increase in -- and increasing fees along with a higher volume invested in this spot. So the volume is easier to forecast the performance of the funds and we invest our best currency in managing this. But I mean they are more difficult to anticipate.

Otavio Tanganelli -- Credit Suisse -- Analyst

Thank you.

Candido Botelho Bracher -- President and Chief Executive Officer

Thank you.

Operator

Our next question comes from Thiago Batista UBS.

Thiago Batista -- UBS -- Analyst

Hi, guys. I have one question about the quality of the clients that are opening the bank account in the banks nowadays. Let me review a bit of universal accounts so obviously it impacting larger banks so everyone are open at 3000 -- 32 million clients during the year. So can you give you your view about this trend? And the quality of these clients -- those new clients is the bank seeing a kind of cannibalization in its client base? Or if not those guys are more unbanked clients? So how do you guys are seeing this boom in the opening of an account in Brazil?

Candido Botelho Bracher -- President and Chief Executive Officer

Hi Thiago. Well I don't see a boom in opening accounts in Brazil. I see a lot of competition and so on. But I mean I think we have been increasing the number of accounts we open based on really investing in this activity. So we mentioned here we are satisfied with the parts of the accounts as well. It's a general trend. I can say that accounts opened typically tend to have a better quality than accounts who open this way.. We are working very intensely on our digital products in order to narrow this gap but the accounts opened at the branches are still -- show significantly better quality than the ones opening through apps. What else did you ask?

Thiago Batista -- UBS -- Analyst

If it's too much -- if you are seeing a kind of cannibalization of your client base?

Candido Botelho Bracher -- President and Chief Executive Officer

Cannibalization. Not yet cannibalization. We may experience some cannibalization now from ICI which we are launching as you know which has a payment account and it's a cheaper product than the regular accounts that we have. So there we do experience some kind of cannibalization it's almost sure to give you though these are complementary topics. I mean I think we will have a lot of accounts opened by our new project which we are not reaching today and we will start reaching. But some cannibalization is inevitable and we are not especially worried about that. I mean we are fully aware that we are not the only player in the market. So if we don't launch products that compete with our own products certainly others will. And we better move those clients to ourselves than to new competitors.

Thiago Batista -- UBS -- Analyst

Thank you.

Operator

Our next question comes from Jorge Kuri Morgan Stanley.

Jorge Kuri -- Morgan Stanley -- Analyst

Hi, good morning, everyone. I'm going to ask on the numbers. My question is on credit growth. And if you could please provide some color on what you're seeing on the credit market on the different key categories? Your credit card business is growing up 20%; your car loans are up 19%; personal loans also 20-plus percent; SME. And you saw for the first time a recovery in corporate lending. So what -- how do you characterize what's happening in each of those buckets? And what is your outlook for the next six to 12 months? To what extent this pace of growth going to continue? And is it needed to have a strong economic recovery or not? Employment? Are you seeing this growth come from much better financial conditions as rates are lower and the consumer has leverage SMEs have deleveraged. And so just help us understand what's happening or what's driving all of this and what the sustainability of it is going forward?

Candido Botelho Bracher -- President and Chief Executive Officer

I think we have two main tailwinds behind this higher demand for credit. It's the economic growth and the lower interest rates. I think the lower interest rates are very powerful in this -- for borrowing. I was just looking at the figures today the Central Bank deposits an index called ICC which is the cost of credit, the global cost of credit. And the deposit ICC for the -- it could lead for the results -- for the resources which are not designated to someone specifically. And since the interest rates started to fall in September 16 the Selic has fallen by 8.8% while the ICC has fallen by 22.8%. So I mean there is a real decrease in rates which is slowly reaching the clients. And I think this encourages growth in some lines specifically in I think the mortgage loans and payroll loans I mean we will benefit a lot from this the other lines as well. And of course I mean higher market activity we expect unemployment to improve and this also increased demand. So I don't think that the rate of increase in demand for loans will increase.

Actually I expected it to taper a little bit. But we will have a positive growth -- as if we may have positive growth for quite some time yet. In the corporate market trend it's much more difficult to forecast because the demand for funds is there as we see the investor appetite really increasing in the economy. But if this companies will borrow from banks or from capital markets we would have planned very much on more specific conditions. I think this quarter we -- capital markets were a bit tired of fixed rate loans. There was a bit of oversupply in the capital markets. We saw strong credit funds specifically having to sell some assets. So I think that is provoked a turn in the demand toward the banks and this is why portfolio in the banks grew. I mean it's not certain that the situations will continue in the next quarters.

Jorge Kuri -- Morgan Stanley -- Analyst

Thank you.

Candido Botelho Bracher -- President and Chief Executive Officer

You are Welcome.

Operator

Our next question comes from Victor Schabbel Bradesco BBI.

Victor Schabbel -- Bradesco BBI -- Analyst

Good morning, everyone. Thanks for the opportunity. Just a follow-up on Jorge's question. You guys have been growing quite well in some retail lines. And could you provide us for better visibility on a product-by-product basis which one would you see as more promising going forward given the strong growth Itau had in your credit cards for example while order lines have been lagging like payroll like mortgages which are usually safer lines but lower yielding? So just a brief comment if you might make about what you expect in terms of the type of loans that should be let's say driving growth in the retail and the market in the coming quarters and in coming year?

Candido Botelho Bracher -- President and Chief Executive Officer

Thank you Victor. It's a very good question. As a matter of fact we have been growing more in credit card loans and personal loans than in mortgage vehicle or payable loans. And this thing is one of the reasons behind the higher increase in NPL warranty in individuals portfolio. So looking forward I wish we would grow more that we have been going in this safer lines of credits like mortgage and portfolio loans. Here I mean there are more units to grow than in the credit card market mortgage loans which are more open and comes so much on a -- you have a specific access to recoveries and it create special situations like this.

Victor Schabbel -- Bradesco BBI -- Analyst

Thank you. Thank you for that.

Operator

Our next question comes from Henrique Navarro Santander.

Henrique Navarro -- Santander -- Analyst

Hi, thank you, for the presentation, make some questions. My question is more on the acquiring business. This revenue line has been down here 20% year-over-year. I believe we might expect some continued pressure for the 4Q. So my question is when do you believe we are going to see this declining path to stabilize? I mean should it be doing 2019? Or it might continue throughout 2020? That's my first question. The second one is if you could share highlights on the new commercial proposals from the REDE card on the acquiring business when do you establish the end of the prepayment rates on credit card transactions? Now the evolution of pop credit card any news you could share with us? I mean market share you are targeting are you having success or not? It will -- I would appreciate it.

Candido Botelho Bracher -- President and Chief Executive Officer

Okay. Thanks for your question. You're right. I mean -- so the income from the acquiring business has been increasing. And I wish I could tell you when I think it will stabilize but I don't know. As I see it I mean this is a trend that may continue indefinitely. We've seen this with other types of products in the past. I mean I make some mental comparison between the acquiring business and what once were current accounts. Current accounts has always been a product which was not specifically -- especially profitable. On the contrary it was relatively a drag on the results but it was a very important product in order to distribute all the lines of the other financial products. So you must see it under a portfolio view rather than a specific product. We have -- as a result of our initiative on the T2 T+2 in May I mean we have gained market share in the companies with earnings of BRL 30 million a year which was our goal.

We are satisfied with this growth. I think it clearly responded to our employee expectations and we keep on growing there. But we lost more market share in the large corporations than we gained in these small ones. In the large corporations as you may know the competition has been very intense and at prices which I mean are not reasonable, a lot leaders. So when we have not been participating in this competition at the cost of losing global market share in this segment. We persevered with our initiatives in the lower segments and in our credit card which is holding positively. And it's a very difficult market. It's one of the most difficult markets in which we participate and we must play the game here and this is what we are doing. We are working quite intensely on cost control in this area so as to be able to reduce prices even more.

Henrique Navarro -- Santander -- Analyst

Okay, thank you very much.

Candido Botelho Bracher -- President and Chief Executive Officer

You are welcome.

Operator

Our next question comes from Domingos Falavina JPMorgan.

Domingos Falavina -- JPMorgan -- Analyst

Hi Candido, thank you also for taking the question. My question is more like I know you're not guiding to 2020 but just sort of what kind of sensitivity you have run internally if I may say that? I'm wondering it's funny to update our models here , we're getting basically to counterintuitive bottom-lines. The first one is that -- and it's not a perfect metric with the data we have on Central Bank but when you try to consolidate your NII and see the mix shift we actually see a scenario where 2020 may have either no spread compression on science. So even some increase given the mix shift so strong and that tailwind maybe even like help the NII. So my first question is when -- I'm sure you have better data if you look at the average book and if you look at the new book and the mix change is that a scenario where we could see no margin compressions? The second is more related on cost. So we have only cost of risk as disclosed by you on IFRS not on Brazilian GAAP. But when we decompose the change in the mix we are getting scenarios where no cost of risk could increase provisions can grow 20-plus percent year-on-year. How your data indicate those two figures?

Candido Botelho Bracher -- President and Chief Executive Officer

We're not guiding so I will be very limited in what I say. I see -- I mean during this year we had a pressure on specific that you see in the financial margin with clients it decompose the effects of the asset spreads which has been negative throughout the year. But it has been compensated by the mix of products. This has happened in every quarter this year. We see some of these will continue during next year but there's a limit to -- in the -- as I said in my previous answer. And then I would expect that we would grow more now in lines which have a lower spread but also better quality of credit like mortgages or payable loans. But yes you are right. I mean this effect is something -- there is a change in mix which counterbalances even if only partially the pressure on spread. And as to the cost of risk I mean as I have shown in the Page eight -- on slide eight you see that yes I mean the cost of the provisions which are the gray bars I mean they increased along with the growth in portfolio and maintain the same 90 day -- and this is only for the retail bank maintaining the same rate -- I mean the third NPL rate and provisions over average portfolio. So when the portfolio grows it is to be expected that provision should also grow.

Domingos Falavina -- JPMorgan -- Analyst

Yes. But I think what I meant is that you have a lot of reversals on the corporate and those reversals should not happen next year. So if we apply I don't know a deal two deal three cost of risk to large corporates which is not high we get more than 20% provision growth year-on-year. I understand the retail looks OK but just the support from wholesale won't be there. Do you do any analysis on that one that you could share?

Candido Botelho Bracher -- President and Chief Executive Officer

Yes. I mean you see -- I mean this quarter we had no reversals at all. I mean we didn't touch the -- there were no effects in the complementary provisions. And I think -- I mean their view you're right. I mean their view in the future did not move into the complementary position than what has been in the past.

Domingos Falavina -- JPMorgan -- Analyst

Okay, thank you.

Operator

Our next question comes from Eduardo Nishio Banco Plural.

Eduardo Nishio -- Banco Plural -- Analyst

Good morning. Thank you for taking my question. Two questions as well. A bit of a follow-up on the previous questions but I just want to make sure I get the right message here. Interest rates are at very low levels now strictly changing the composition. And we have seen probably rates -- real rates going to 1% I think it was the scenario a few years ago. So if you could share with us your general thoughts on how you see the economy evolving the competition? How the bank is preparing itself? And how you see volumes credit volumes mix spreads fees expenses moving forward the next few years and going beyond to 2020? And your general thoughts on -- I mean how the bank is preparing itself. Also the second question is related to the complementary allowances as you said in the previous question. We see no change in the balance. So I was just wondering if -- how do you see that evolving going forward? Probably you didn't have any reversals this quarter on complementary allowances. So if you could give us some thoughts or give us some visibility on how you see those numbers going forward.

Candido Botelho Bracher -- President and Chief Executive Officer

Thank you Eduardo for the question. You're right on your first question concerning the interest rates in the scenario. And we are on uncharted waters here. We have not seen interest rates that low in Brazil and -- which leads us to believe they will remain low for quite some time. I mean we have -- the inflation does not show any legal pressures and there is as you know I mean still high unemployment in the country which -- I mean we saw the bad things that comes with it. There is one positive side effect which is the fact that inflationary pressures are much lower. So I think we may be looking at a longer-term scenario of low interest rates in Brazil. My expectations in relation to this are very fast. And this -- I mean we have seen this in other countries that we had in the past. I mean you can look at the sequence of years of growth albeit modest growth but stable and growing growth with low interest rates I think the economy thrives and the financial system thrives with it. So I think there will be possibilities for increasing the loan books and to put capital to work more.

Then in the previous question I think RWA is bound to increase and we will be able to work in different lines of credit improving different lines of credit all this while we are facing more competition which I think is also a natural consequence of the scenario in which people feel more secure to lend because the quality of loans improves. So I see this as the positive for the financial sector and especially for the banks established in the market. And in relation to the complementary provisions I mean we are not giving forecast here because as you can clearly see the things depend very much on the individual means it's volatile and so on. But it's a fact that in the event of bad loans which can be recovered has been reducing over the last two years. And so we have a smaller inventory going forward it would be natural to expect less movement on the complementary provisions going forward.

Eduardo Nishio -- Banco Plural -- Analyst

Just a follow-up here. Any estimate for how much the private banks can grow loans if we can refer back to historical levels like 2007 2008 where you had also a structural change in interest rates and loans grew 30% 40%? Is there any chance to have that loans going back to I don't know like 20%-or-so for private banks?

Candido Botelho Bracher -- President and Chief Executive Officer

This is not what I'm seeing. One I think not a growth as high as 20%. I mean I don't expect demand to increase that much. I mean I would see probably more low to midteens for individuals. Anything for corporations it's even more difficult to forecast. But certainly lower than this.

Eduardo Nishio -- Banco Plural -- Analyst

Right. Thanks so much.

Candido Botelho Bracher -- President and Chief Executive Officer

Thank you.

Operator

[Operator Instructions] Our next question comes from Neha Agarwala HSBC.

Neha Agarwala -- HSBC -- Analyst

Hi, thank you for taking my question and, Congratulations on the results. Two very quick questions. First on ET you recently launched the product family. And there's already seems to be good uptake in the market. What is your plan with the product? How would you incentivize consumers and merchants to yield the ET application? So are you giving any rewards or our cash backs? Or what is the strategy to increase the usage? And my second question is on fee income. Is it fair to say that we should see low single-digit fee income growth in the coming years? You mentioned that acquiring is going to be under pressure for maybe some more time and it's really hard to say when that's going to stabilize. And we have seen pressure on others also with the fee income as well. So would it be fair to say single-digit fee income growth in the coming two, three, four years maybe?

Candido Botelho Bracher -- President and Chief Executive Officer

Thank you Neha. Well on each year we are leaving important days as you speak. I mean we are now on the public launch of the product. I mean it's having a good reception by the public. We are increasing the number of accounts first and we are starting to devote it more. The product is still -- has few features and more features are going to be added to it as we develop. But I think it's a very -- I mean it has a very -- proposition -- very good proposition especially to small merchants I mean who are able to sell and collect at a much lower rate than the alternatives. And yes I mean there will be more features coming -- going forward to the front. We are still in the first phase of this offering. I think next quarter we will be able to talk in more detail about the evolution of ET. In relation to fee income yes I mean you're right. I mean in the acquiring business we see a lot of pressure as I mentioned. In other businesses I mean we have projects which are evolving well and which make us optimist when I look at the future. I mean the open platform in insurance is evolving positively now. I mean we are seeing a good evolution there. Investment banking and asset management are also in good perspectives. Cash management in general has been evolving well and tends to evolve well in line with this credit growth. So as credit grow -- I mean traditionally we see an increase in the demand for cash management products and an increase in our penetration in cash management products. So we are positive about the perspectives of fee income behavior in the future.

Neha Agarwala -- HSBC -- Analyst

Thank you so much. That's very helpful.

Candido Botelho Bracher -- President and Chief Executive Officer

Thank you.

Operator

[Operator Instructions] This concludes today's question-and-answer session. Mr. Candido Bracher at this time you may proceed with your closing statements.

Candido Botelho Bracher -- President and Chief Executive Officer

I just want to thank you all I mean for your presence and the interest and the good questions. Thank you very much. Bye.

Operator

[Operator Closing Remarks]

Duration: 60 minutes

Call participants:

Candido Botelho Bracher -- President and Chief Executive Officer

Eduardo Rosman -- BTG -- Analyst

Jorg Friedemann -- Citibank -- Analyst

Jason Mollin -- Scotiabank -- Analyst

Milton Maluhy Filho -- Executive Vice President Chief Financial Officer and Chief Risk Officer

Otavio Tanganelli -- Credit Suisse -- Analyst

Thiago Batista -- UBS -- Analyst

Jorge Kuri -- Morgan Stanley -- Analyst

Victor Schabbel -- Bradesco BBI -- Analyst

Henrique Navarro -- Santander -- Analyst

Domingos Falavina -- JPMorgan -- Analyst

Eduardo Nishio -- Banco Plural -- Analyst

Neha Agarwala -- HSBC -- Analyst

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