Jul 30, 2019
Operator
Good morning, ladies and gentlemen. Welcome to Itau Unibanco Holding Conference Call to discuss 2019 Second Quarter Results.
[Operator Instructions] As a reminder, this conference is being recorded and broadcasted live on the Investor Relations website at www.itau.com.br/investor-relations. 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 Botelho Bracher, President and CEO, Mr. Milton Maluhy Filho, Executive Vice President, CFO and CRO and Mr.
Alexandro Broedel, Group Executive Finance, Finance Director and Head of Investor Relations.First, Mr. Candido Bracher will comment on 2019 second quarter results.
Afterwards, management will be available for a question-and-answer session. It is now my pleasure to turn the call over to Mr.
Candido Bracher.
Candido Bracher
Good morning, everybody. Welcome to our Second Quarter 2019 Earnings Conference Call.
I will start the presentation where we show the main highlights of our performance for the quarter. Recurring net income was BRL7 billion which represented a 2.3% growth when compared with the previous quarter, and resulted in a 23.5% ROE.
The key drivers of this performance were the duration of our financial margin both with clients and with the market, as well as a stronger fee revenue generation. These effects were partially offset by two expected events.
Seasonally, higher non-interest expenses and a higher cost of credit.The latter is the result of a continuous growth of the origination of creditor individuals. Lastly, our effective tax rate increased 70 basis points as a result of the lower to GLP long-term interest rate in the period, which is used to calculate the tax shield from our interest on capital.In the next slides, we will provide a more in-depth view of these figures on slide 3, we show that our value creation increased 9% in the second quarter and reached BRL3.2 billion, a record figure.
This was the result of our performance in the quarter, as well as due to a lower cost of equity. Moving now to slide 4, we show that our Brazilian credit portfolio grew 7.9% over the last 12 months, driven by individuals and SMEs, which have grown 14% and 19% respectively.
Origination continues to accelerate in both portfolios, resulting in a usual credit mix as will be shown in the next slide.On the other hand, our credit portfolio in Latin America remained practically stable compared to the previous year. This is a consequence of the depreciation of the real against other currencies in the region.
If we discount its affect, the portfolio would have grown 7% when compared to the same period in 2018 and the portfolio as a whole would have grown 7.7%.Now, I want to draw your attention to slide 5, which portrays a crucial element of our results dynamics in the bottom of slide 5. Financial margin declined is composed by two distinct elements.
One is related to working capital, which is mainly affected by its own volume and the Selic rate. And the other which is the core element of NII and MN&H from spread sensitive operations.
The spread sensitive NII grew around BRL800 million as a result of the credit portfolio expansion and continuous change of mix towards higher spread bearing products. This amount was partially offset by a lower working capital NII which was the result of two effects, one lower average balance after dividends payment and two lower interest rate.
Consequently, we are observing a robust increase in the spread sensitive NII.On slide 6, we show that our financial margin with the market increased 26.4% this quarter. This performance was largely attributed to higher accruals in the foreign investments overhead strategy and in our insurance reserves management.
We consider those gains to be structural as they are an integral part of our core banking activity. Turning to Slide 7 now, we show our credit quality.
Short-term delinquency remains stable in the quarter, while the NPL 90-day ratio decreased 10 basis points. The latter was a result of loans written- off from specific large corporate clients and a further improvement in the SMEs, NPL ratio, which reached 2.5%, the lowest level since the merger between [Indiscernible]The NPL 90 days coverage ratio remained stable at 208% and the cost of credit ratio increased 10 basis points as would be expected given the acceleration of the change in credit mix in the period.Slide 8, shows that our revenues from services and insurance grew 5% in the quarter.
This performance was mainly driven by asset management and investment banking fees, it is worth to highlight the growth of almost 50% in the year of the funds from our open platform initiative, which reached BRL155 billion. Also of note are our credits and debit card issuer fees, which continue to grow consistently.
Lastly, the acquiring business fee revenues declined 12.8% on the quarter, mainly as a result of the new commercial initiative, which consists that no longer charge interest rates on the prepayment of credit card transactions, which are now paid in 3 plus 2.In the next page, we examine more detail the initial results of this initiative. Slide 9 now we show that after the 3 plus 2 initiative, all our acquiring operation had enough surge up demand New clients acquisition increased 73% while new clients choosing the only [Indiscernible] in the same period.
More importantly, net promoter score increased 8 in the year. These KPIs reinforce our perception that this was the right move.Now turning to slide 10, we show that our noninterest expenses grew 4.3% in the quarter.
This growth was largely expected as expenses in the first quarter are seasonally lower than the rest of the year, but it is important to highlight that the growth was more subdued this year than in 2018 when our expenses grew 5% in the same period.It is worth pointing out that the quarter concentrated the closure of almost 200 branches just in Brazil, which added further pressure in our immediate OpEx. But we will positively impact our efficiency from now on.
Finally, our first half expenses grew 3.7% when compared to the same periods in 2018, roughly in line with inflation for the period. Another important message.
Yesterday, we announced a voluntary severance program. It's --this program affect the potential population of [6.9,000] employees, potentially, they will have from 1st to 31st August to decide whether they will join or not the program.
As we have more information about these, more confirmed information about these, we will inform the market.Now on slide 11 illustrates the organic capital generation of the bank as we finish this quarter with a Tier 1 ratio of 14.9%, an increase of 30 basis points compared to March 19. It's worth mentioning that we announced the distribution of BRL7.7 billion as a complementary dividend to be paid in August 23, 2019.Finally, now, I want to discuss our expectations for the remainder of the year.
On Slide 12, we show that the actual performance of the economy so far makes it clear that the original forecast for economic growth was too optimistic, with the interest rates forecasted in a higher level than the one we foresee now.Lastly, it is worth mentioning depreciation of the Brazilian real against the Chilean and Colombian pesos. So bearing these effects in mind, I now want to comment on our guidance and go item-by-item here.
So we still abide by our guidance for the year, but it's continuing to situate our base scenario for each line. Total credit is well within the interval in Brazil.
But the changes in exchange rate for LATAM places our base scenario around the lower end of the range for the consolidated portfolio.The forecast of a lower SELIC rate and a narrow future yield curve have a negative impact in the expectations for our liabilities margin. And for our working capital NII.
Therefore, we anticipate 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 and our cost of credit to be around the midpoint of their respective ranges.As for the commissions and fees.
We anticipate to finish the year between the mid and lower point of the guidance and finally, we expect our non-interest expenses to finish the year around the lower end of the guidance.With this, we conclude this presentation and are now open to any questions you may have.
Operator
[Operator Instructions]Our first question comes from Jorg Friedemann, Citibank.
JorgFriedemann
Thank you for the opportunity. I have two questions, the first question, and thank you very much for sharing your impression.
Candido, in terms of the guidance by each line, but here, I just want to understand a bit better why, I know you are so conservative in terms of the financial margin with the market, because if you look into the run rate so far, you are already above the upper end of the range. So just wondering if there is anything that might negatively impact the results for the coming quarters that you are either/ or just a matter of being really conservative there?
And the second question, I understand that you're still looking for additional clarity about the early dismissal program.But just a couple of points there first. I understand that the [6.9000] employees that are eligible for the program are all based in Brazil.
So it's approximately 7,000 out of the 85,000 that you have, is that correct? Or is this could be also extrapolated to other regions?
And the second point, just wondering if you had already contemplated such early dismissal program when you put together the OpEx guidance? And how the potential effect of such a program will be contemplated in the guidance?
You mentioned that you believe that they are going to be in the mid-point of the OpEx guidance here. This is already contemplating or not the potential effects of the layoffs for this year.
Thank you very much.
CandidoBracher
Hi, Jorg. Thank you very much for your questions.
First on guidance. On guidance, I must say, I think you're right, the financial margin with the market is probably, I mean the line more difficult to forecast.
And I mean we had a positive semester two positive quarters in the beginning of the year above our initial guidance. And so we were relatively conservative when forecasting the end of the year.
I think it can be better, but I cannot be certain about it.Now considering the early dismissal program. So first of all, like I mean it's only concerns Brazil.
So it's 6.9 the eligible population with [6.9000] employees in Brazil and the costs of this problem, of course, they fall into the non-recurrent cost, so didn't --do not affect our guidance. As to the benefits, we will wait until we have a clear figure of -- I mean how much adherence to the program days.
So far, we have not included any of this, impacts when we guide the non-interest expenses to the lowest point of the guidance.
JorgFriedemann
Okay, that's perfect. And by the way could you just gives us some kind of finish ideas about what could be the impact if you have like, I don't know 10% or 50% adherence or you're still working on the numbers?
Thank you very much.
CandidoBracher
Last time we made a program like this was already 10 years ago. So we really have no statistical evidence to make any kind of forecast here.
It depends very much on the adherence in each level is a given, what happen. So we, it's too soon to tell about our expectations.
Operator
The next question comes from Otavio Tanganelli, Credit Suisse.
OtavioTanganelli
Hi, good morning. Thanks for taking my question.
I have only one question, if I may. I wanted to ask about the asset management fees.
We saw acceleration from previous quarter. It was growing at about 5% year-on-year and this quarter is accelerated up until almost 15%.
I wanted to get a little more color on what's driving this because the assets under management continued to grow at a similar pace than what we saw in the previous quarter, but the average rate. If we divide the revenues by the assets under management, they increase as a percentage of AUM.
So I wanted to understand a little better. Thanks.
CandidoBracher
Thank you, Otavio, for your question. I have a very direct answer.
I mean what drove this improvement in the margin were the performance fees. I mean we had a good quarter in terms of performance of the more sophisticated funds and this improved this line in our balance sheet.
Operator
The next question comes from Mario Pierry, Bank of America Merrill Lynch.
MarioPierry
Good morning, everybody. Let me ask you two questions as well.
The first one is related -- continue to this 6900 employees that you think are eligible for business. So if you can give us some color.
What kind of functions that are you targeting? What kind of jobs this people have in related to your costs also right this quarter you closed close 200 branches in light of one thousand people?
Can you disclose to us the costs that you had related to these branch closings in lay off people? And then I'll ask a second question related to something else.
CandidoBracher
Thank you, Mario, for your question. So this [6.9000] employees, they are above 55 years of age until it must become 55 before the end of this year.
And they are people who enjoy or not above age party, people who enjoy some kind of stability, which according to Brazilian legislation happens when your health license or whether you are a member of syndicate or Director of the Syndicate or things like this. So they are not divided by functions specifically.
So they cover all the spectrum of function in the bank. As to the 200 branches, we closed, I do not have a figure of the cost involved, but of course, there are some costs involved, there is always when you have to lay off people, and we expect to the benefits to come along the time.
You said you had another question.
MarioPierry
Yes. So, just one follow up then on this 6,900 people.
So it's fair to assume then these are people, they have an above average salary at the bank. It's just that we're trying to understand here what would be the potential benefits of this plan?
So if you look at the average salary, but it seems to me that this will be people earning well above the average salary?
CandidoBracher
Yes, I think this is a reasonable assumption. Mario.
MarioPierry
Okay. And then second question is related to your net interest margins right.
You showed on page 5, the ability of the bank to maintain net interest margins relatively stable over the last few years, given those [Indiscernible] has contracted quite a bit. Can you discuss, I understand why the big chunk of this is related to improved mix, but can you discuss a little bit, the type of pressure that you see on credit spreads, especially in our new specific segments.
If you're already seeing rent spreads coming down. Looking at Central Bank data we see mortgage rates are down, pretty much every interest that you are charging on your loans have been coming down.
So the question then becomes about your ability to maintain your financial margin of clients stable for the foreseeable future?
CandidoBracher
Well, Mario, the Central Bank talk is always an icon, an index called ICC into [Indiscernible] which is a compound weighted average of all the financings in the bank. During the past year, our ICC dropped is 0.1% it would have drop, but the mix made it to increase 0.6%.
So spreads alone had a negative impact of 0.7%. And I see this as a continued strength especially with the improvement in the economy that we expect from the pension reform and so on.
I think that competition will increase and that there will be pressure on spreads. This may still be somehow offset by a richer mix in terms of in terms of portfolio, but there is a limit to where you can grow in terms of mix.
So I think that the general trend is for more pressure.
Operator
The next question comes from Andrew Brodsky, Goldman Sachs.
TitoLabarta
Sorry, I'm not sure where you got Andrew, but this is Tito Labrata from Goldman Sachs. I am sorry for that.
Good, thanks for the call. A couple of questions also.
I guess, first just a little bit color on REDE, we saw the volumes only grew by 0.9% in the quarter despite the price reductions. And the free prepayment of receivables.
Just curious why it looks like you're still losing market share in REDE despite the price reductions? And then I have a follow-up question on expenses after that.
CandidoBracher
Okay. Tito, thank you for a very good question.
If you see essentially, I mean our T plus two offers targeted the market with net revenues up to BRL13 million a year. We think that this is the richest segment of the market.
There is more profit to be made. But this is not the segments that make the most of the market share.
Most of the market share is made by the large corporations, well above BRL30 million a year, and in this segment, we have been losing market share for quite some time already. And so this is why despite our offer and despite our improvement in the segment up to BRL30 million in the overall figure we grow very little in our total volume.
TitoLabarta
Okay, that's helpful. Do you think you'll continue to lose share overall given these trends that you're seeing?
CandidoBracher
Well, it depends on the willingness of our competitors to go below cost on the large operations segments because that's something we are not doing.
TitoLabarta
Okay, got it. Makes sense.
Great. And then a follow-up question on expenses, I know you give me some color there.
But maybe just thinking a bit longer term, do you think the expense growth can remain around the 3% to 5% guidance that you're giving for this year, particularly with some of the initiatives that you're announcing. So is it around inflation, is that a good level of cost growth for the next few years and are these sorts of initiatives, is it because of the pressure you're seeing on spreads and competition that sort of forcing you to reduce costs or is it something else?
CandidoBracher
Okay. So I, as I said, I mean I see interest expenses in the bottom of the range this year and we will certainly keep a strong hand on that in the time coming ahead.
I don't see this as a result of pressure. I see this as an opportunity and you know, I mean we, as you remember, we started the year with a much higher guidance 5% to 8%.
Then when we saw that the economy would have a weaker performance, we decided to make the big corporate effort around efficiency and costs and we are happy with what we are discovering with the opportunities we are seeing and we certainly think they do not to finish this year. I mean that this will be a trend.
Operator
The next question comes from [Indiscernible]
UnidentifiedAnalyst
Thank you for the opportunity. Good morning, Candido.
Two questions as well. First on the guidance, if you can go back again, I think there is two items that I either miss or you didn't talk about.
Cost of credit, if you can give us your views on that and also effective taxes? I appreciate it.
Then I have my second question. Thank you.
CandidoBracher
Okay, thank you. Cost of credit will be in the middle of the range has; it’s going very well along the lines we had forecasted.
Effective tax rate will also be in the middle of the range this year.
UnidentifiedAnalyst
So for cash cost of credit BRL4 billion posted this quarter, a little bit more than that and then last quarter was BRL3.8 billion. So more or less the same level no changes probably to reach BRL16 billion, right?
Then, my second question is concerning your digitalization, your digital transformation, if I will, you've been reducing staff this quarter was about quite a lot is 1,200people, reducing branches and we crosscheck here across all of our regions.What would be the ideal size and what is your ideal bank size in this digital transformation? And by when do you expect it to reach and by the way you be hiring IT folks as well.
So what would the mix of people? And if you can give us some color on the future of your digital transformation?
I appreciate it. Thank you.
CandidoBracher
Okay. Thanks.
Yes, we have two complete conflicting forces. In one hand, we expect the growth in the economy and coming after the pension reform approval to put some pressure in growth in terms of absolute growth and this also implies people.
On the other hand, digital transformation has been enabling us to reduce people in a faster pace.Let me combine those movements. I would think that the reduction will still overall margin compensate the economic growth factor, but not quite sure about it, in terms of digital transformation and we are increasing.
I mean the opening of our accounts totally digitally. We now are using facial recognition in many aspects, including vehicle financing.
So there are many progress is being made. And that will be made in the future in the closing of branches.
It's not only the digital. I mean it's of course it's an effect of the digital transformation is driving less people to our branches, but we are not closing branches, which are isolated geographically.We are only closing branches so far that are very close to one another.
So when two branches are very close, less than 500m distance and one of them is capable of absorbing the population of both the branches. These are the cases, when we are.
We still have some room for that in our, in our portfolio.
Operator
The next question comes from Domingos Falavina, JPMorgan.
DomingosFalavina
Good morning, Candido and everyone. Thanks also for taking the question.
Could you -- my question is a bit more structural. When we look at the fee composition this quarter it looks very good to us like the evolution investment banking and broker growing 40 plus percent.
And above all it seems to us that the bank is not really pushing hard current account fees, which in our view here, at least, it seems like a smart decision given the competitive threats. So my question is when we look at this fees, is this kind of reading, correct?
So basically do you also share this view that current account fees are unlikely going to grow substantially and it makes sense to hold back on some of these adjustments or not? Is that something we are reading in the wrong way?
And then I'll ask the second question
CandidoBracher
No, we take these decisions on a decentralized manner, Domingos. But I think our reading is right and we are referring to grow in the areas where we can grow volumes more significantly as an investment banking and asset management.
And we are not resting on the sea level. I mean we are more, we are very more mean growing volumes, then the level of fees, which we tend to keep in a slow growth as we can.
DomingosFalavina
Understood. Second question is on Reddy [Indiscernible] 0:33:06.1.
I'm sorry if I missed any specific comment there, but I mean volumes came in at first, it's in some additional deceleration. But when we look at the industry in general, I mean get net decelerated massively 6% [Indiscernible], so versus the big players.
It was still did well, but it kind of left us with the question here like what's happening to volumes like or we are not seeing one big player.I'm not really [Indiscernible] or someone else growing and taking away volumes. Did you guys notice an overall industry deceleration maybe in credit and debit volumes?
And what kind of effect that [Indiscernible] have in NII and fee like if you could comment a little bit like given the quarter has best--
CandidoBracher
So in relation to the T plus two, the effects are those I have described to you, saw a 73% increase in new accounts, more than double the increase in company's choosing us to be the bank that will receive the conditions and so on. I'm not sure I understood your doubt about the total volume.
[Indiscernible] 0:34:31.2difference has been what I explained in the last question; I mean. So it's really linked to the large corporation.I mean, this is where we are losing market share.
We will see revenue. There are some competitors, which are very aggressive in this segment and looking specifically for market share, but at prices which I mean in our experience even negative margin.
And so this is why we are not going there and I mean not too worried about it either.
DomingosFalavina
Do you believe you're losing share? Because when we look at, get the math grew 6, we look at sales grew 9.
So you grew more than those two. So my question was more like, do you believe you're losing share or do you believe the industry in general is growing below 14%?
CandidoBracher
I'm not sure about the answer here, sorry, will be resolved it, but I'll have to in the field to answer you this. Thank you
Operator
The next question comes from Owa Vuatuzu, Santander.
UnidentifiedAnalyst
Hi, everybody. Good morning and thank you for taking my question.
Actually, I wanted to shift a little bit, it's to other topic, there has been calling the attention of the markets. I would like to understand the bank's digital strategy.
So in other words, I just wanted to have a clear view on Itau's approach as a digital bank because but this co has their own future called that has few service free of charges and all the client must pay a fee and Banco Brazil has another digital solution that is free of charges for some services, but different from Bradesco it is within the bank.And we know it as quarter fast. So my two questions are, first, what exactly data perception on these approaches from your main competitors in light of a lot of other initiatives and digital banks the targets its customer base?
And the second question is in few words what the main focus of Itau digital strategy is? Thank you, Candido.
CandidoBracher
Very good question. So to your first question, I think, and I continually saying for some time, which is, there is a basic decision to be made in terms of digital strategy, which is do you separate a new bank from an old bank and we will concentrate your digital efforts in a new venture or do you work, I mean to transform the existing bank, the legacy systems and so on and to modernize the incumbents bank obviously.
And here our strategy is to continue in the second one. So we are working hard in order to digitalize Itau as a whole and not a new bank.We have new initiatives like -- for instance, which is quite a new products, it is the platform, but it's integrated into Itau.
We have as you know Cubo which is a hub. Of course, it will go working in joining companies.
I mean, which is the largest in Latin America and we learn a lot from them. We have, we are leaders in digital wallets in Brazil.
Apple Pay, Samsung Pay all the orders we have now just launched an app for people to buy foreign exchange. India, we are opening more than 200,000 accounts a quarter exclusively by us.So we are digitizing the bank as a whole and not in some separate initiatives.
Our digital strategy here, I mentioned in my interview recently is, I like that phrase that incumbents must find innovation before innovators fight distribution. And I thought of an incumbent used to see as an incumbent of finding innovation was basically being first in replicating the initiatives of Fintech's and so on.
I have changed my view in this point, I think it's not simply replicating what they do, but it's learning to do it differently. It's producing technology in an integrated way between the technology area and the business area, which by the way, I think that in a few years from now, we will not be talking anymore about technology business area.This will be one and only thing and I mean this is the best we are creating and I think we are making consistent progress there.
Operator
Our next question comes from Marcelo Telles, Credit Suisse.
MarceloTelles
Hi, good morning Candido. Thanks for your time.
I have two questions. My first one is a follow-up on your comment about credit spreads, I think you mentioned earlier right that you expect some pressure in credit spreads down the road.
And my question to you is in which segments you think that this should happen because when you look at the credit spreads evolution, at least as per the Brazilian Central Bank data, we actually see spreads very fairly resilient in particular on the retail side.So if you could elaborate what would be the timing which segments, what would be driving that? Maybe it is more the Fintech's or the competition would come from among the big banks.
Just to understand what would cause that spread compression to take place. And my other question is with regarding costs.
I think it's very good to see the banks so much focus on reducing costs through this severance program and my question to you is, going forward. And if you think like 2020 and on does the bank have some sort of goal of not growing operating expenses at all?
And try to become more competitive and allow some fee decline or use OpEx as an operating leverage to leverage earnings growth down the road? Because with this program, it could be that maybe your OpEx next year could be -- could not grow at all and even decline.
Is that a reasonable assumption you think in the considered the efforts that you've been undertaking? Thank you.
CandidoBracher
Thank you, Marcelo. First on the spreads.
I am expecting a competition to come more from traditional competitors and maybe from using the case I mean when the economy starts to perform well, you have more appetite also from foreign banks in the local markets, I mean, the corporate sector face is quite a significant pressure in this situation. So I am not seeing the pressure on spreads coming in any specific segment.
I'm just thinking that with a better economic environment, there will be more people willing to take credit risk and this will possibly generate some extra pressure on spreads. Spreads have been already under pressure for quite some time not too much pressure but some pressure.
And I think this may increase and what relates to costs. I mean, we certainly intend to keep very strong focus on that.I think that cost reduction is fundamental to in order to enable the bank to be more competitive in pricing.
And I think we will need to be more competitive in pricing; everybody needs to be more competitive going forward. Therefore, I mean, a strong active costs is fundamental there.
MarceloTelles
And kind of just will follow-up on your answer being very competitive on costs and being able to have better pricing. Does that mean that you think --you could sustain your current ROE levels where they are today?
Do you think that there are sustainable, let's say, in the short to medium term, at least with all these efforts are undertaking?
CandidoBracher
As you know, we guide very much our efforts in the bank on value creation and so I mean I look at the ROE always in relation to the average cost of capital, I see a clear trend of decline in the cost of capital in Brazil. So I think that there may be some pressure on also now.
Operator
Our next question comes from Neha Agarwal, HSBC.
Operator
Hi, thank you, Candido for taking my question. I wanted to understand that for your REDE business the acquiring business you meet recent cuts and prices.
But apart from competing in pricing any other changes that you're making structural changes that you're making in REDE which could would improve its competition mix given the evolving dynamic of the sector? And my second question is, can we have any update on ET?
Is the platform operational? How has the uptake been?
How do you see it integrating with the bank? Any update there would be very helpful?
Thank you so much.
CandidoBracher
Thank you, Neha. Now so on the acquiring business, I think you're right, I mean it's not only at pricing that we are looking.
I mean we have been investing a lot in improving the quality of our services. I mean that the quality of our machines of our support services to the clients and so on.
And we are seeing improvement in the levels of satisfaction, which are not only derived from the pricing activity. As I have mentioned in another question in relation to competitors.
I think we have really good examples. We are looking at the competition and they are, and it keeps us under pressure to improve more the quality of our services.In relation to ET, I will tell, I mean it's too soon to say more about this product, I mean it's just being opened to some groups of clients to smaller group of clients.
I think we will know more next quarter and the quarter after that.
NehaAgarwal
If I can follow-up on the acquiring business. Have you adopted any the distribution model apart from the bank channels?
Especially for the micro merchant segment. I believe we have been spending a little bit more on the marketing and advertising, but any other specific changes in your model or the way you reach clients that has been made for ready?
Thank you.
CandidoBracher
Yes. We have been focusing also more to the segment of non-current account holders and we are investing a lot in the support for these clients.
Operator
[Operator Instructions] The next question comes from [Indiscernible]
UnidentifiedAnalyst
Hi, Candido. Good morning to everybody.
My question is a follow-up on the ROE dynamics looking ahead, if you look in the appendix there is a breakdown of ROE per segment, that's a very good chance. And we can see a big improvement in the ROE of the credit operation.
On the other hand, the service has been under pressure. I would like to know, Candido, how do you see the ROE per segment, moving ahead?
And of course the idea is do you think that the ROE, the cost of the ROE is already in future at this 23.6%? And if you could you open --how is the sanction of the cost of capital that you are assuming now?
Thank you.
CandidoBracher
Thank you. Yes, I think this chart that you referred to the business model.
I mean it shows the convenience the advantages of having a wide portfolio of products and services and credit, and over time, we have seen services performing better in non -- credit increasing in the best one year and so on. And make no specific forecast here in what is for these areas as even within the Group's of insurance and services and that you have products which improve during the time and orders which face more competition.
As the general, but I just say that I mean I feel comfortable in having such a wide portfolio of products where one tends to compensate the other.In terms of the ROE. What I can tell you is that the distance now between ROE and cost of credit is I think probably the widest in our historical series.
So let's see if we can keep it is this present level. I am --if you ask me what's take on how cost of capital is going to evolve, here, I am a bit appalled let's say because I see our cost of capital in 13 and these are reducing trend.
On the other hand, I see the cost of capital used in developed economies remaining long term way above the interest rate in this market.I would expect it's some moment in time there would be a convergence. I mean not really go to the same level, but that is wide margin would reduce in the developed economies, that's not what we are seeing so far.
And while we don't see a reduction in the cost of credit of 10% in the developed economies, it's difficult to imagine that Brazil, we will have a cost of capital which is only 2% above what you have in developed economies.So I see this as a resistance for a drop in the cost of credit in Brazil. Cost of capital in Brazil or sorry.
UnidentifiedAnalyst
So you think that you are going to -- we ready to stabilizing the cost of capital.
CandidoBracher
Unless we see a drop in cost of capital in developed economies, I think, yes, that we are already around the bottom, around the narrowest margin, suitable margin between the cost of capital in developed economies and in Brazil.
Operator
This concludes today's question-and-answer session. Mr.
Candido Bracher, at this time you may proceed with your closing statements
Candido Bracher
Just to thank you all for the very good questions and for the interest in our results. Thank you.
Have a good day.
Operator
That does conclude our Itau Unibanco Holding Earnings Conference for today. Thank you very much for your participation.
You may now disconnect.