So will this be challenging for the insurance company? Yes, as it is for any company. But I understand that the insurance company has important assets, managerial ability. Ivan conducted a beautiful reorganization of the insurance company with an update of systems, systems to interact with clients. The digital platform of the insurance group is doing really well this year. To give you an idea, the insurance company will end with about 3 million items sold only over mobile. So there’s this whole framework in the insurance group. We believe that despite the lower interest rates, GPM IPCA insurance group will continue to deliver significant and sustainable ROEs over time.
Tito Labarta: Thank you.
Octavio de Lazari: Thank you, Tito.
Carlos Firetti: Our next question from Rafael Frade with Citibank. Good morning. You may proceed.
Rafael Frade: Good morning, everyone. I would like to revisit the topic of your NIM. You had a significant reduction in NIM in the quarter. And you also showed how much of each component accounted for that drop. When we look at the mix, it was quite relevant in the half year, in one year I think it represented about BRL1 million. In this half year alone BRL700 million. I want to know whether this was just due to SME or there is any other element that impacted the quarter’s result. And how should we expect the recovery maybe in the fourth quarter? Maybe this has been a very significant drop this quarter and maybe we could see some relevant recovery at NIM or maybe this would be more gradual.
Octavio de Lazari: Thank you, Rafael. It’s good to hear from you. Rafael, in fact you described our results in terms of the NII or NIM. There was reduction in on the average spread that came down to 9.1%. And as you put it quite well, this was mainly due to the mix. This reduction in business, in loans to SMEs is quite relevant in terms of putting together the spread. Just to give you an idea, throughout the year you may notice that there was a drop of almost BRL10 million in that portfolio. And this has a major impact in the overall result. But this matter has been solved. We have appetite to operate further. And you know that the formation of NII depends on your growth, therefore it doesn’t happen in the immediate month after that or in the subsequent quarters.
So the portfolio has to evolve so as to see any improvement in NII. And the mix of the portfolio had an impact, especially in terms of SMEs. But we already saw some growth in loans. We saw their numbers throughout this last quarter. And in October, there has been further progress. We have to make adjustments all the time. We have to have the adequate pricing for every type of product so that at that margin we can see a significant recovery. But this is a gradual process, Rafael. We look at this every month, every operation to see the recovery on that line. But we know that it is possible for us to recover it because these transactions at this level of clients, it’s just natural that spreads are naturally better. So what we have to do now is resume these operations, but certainly with a good degree of caution.
And also having in mind the size of loan that we are giving to these clients, but we don’t want to lose them. And all of these loan transactions usually come with other products and services in terms of the client principality, in terms of collection, loans, credit cards. And all of that plays into having a more robust NII throughout the fourth quarter and also throughout 2024. Therefore we have just to go after the improvement of this financial of this NII or NIM.
Carlos Firetti: Thank you, Rafael. Our next question is from Daniel Vaz from Safra. You may proceed, Daniel.
Daniel Vaz: Thank you, Firetti. Good morning, Octavio and Cassiano. Thank you for taking my question. You already talked a lot about SMEs, but in fact this is a segment that is worth elaborating a bit more because usually there is volatility, but the margins are usually higher. And in 2020 and 2021 with the [indiscernible] recovery of credit is not so easy. You have to know how to operate in this universe of small and micro-size companies. And I think that NPL hasn’t yet gone back to normal. Do you think that this is more related to a movement in the industry? Do you see other sectors with worse delinquency or some that have better delinquency numbers? How do you see the health of clients and how difficult it is to collect? And what is the behavior of the new vintages and what do you expect going forward to 2024?
Octavio de Lazari: Well, thank you, Daniel. Good morning and thank you for the question. In fact, this segment of small and micro-size companies, it’s a good segment, but it’s very complex to work with it. I mean, this is not a simple task, but we see that the industry has even higher delinquency depending on the segment and depending on the focus of every financial organization, or whether it’s more located in the southeast or spread around the country. It’s not very simple to operate in this segment. And this segment is also affected, as you well know, by the economic cycle, higher interest rates, issues related to growth. These companies face difficulties during the pandemic. Some recovered better than others. And some others even ceased to exist.
And so this industry, as you put it yourself, it’s a complex industry to work with. It’s difficult for us to develop some work with them. That’s why we are always very cautious. And that’s why we are taking a very close look to small and micro-size companies. The managers are closer to the companies. Regional managers are being more selective as well. I don’t see any specific industry being more or less affected. But when I look at mid-size companies that we call, that are with corporate one, we see stable NPL, delinquency is stable, and companies that gross more than BRL30 million. So in these cases delinquency is more stable with no concern going forward. I think the cause for concern is with SMEs. Average-size companies, no concern. We will just do business as usual.
And the focus indeed is more with small and micro-size companies without leaving aside individuals. That’s always a very sensitive issue in terms of the loan book and the impact of interest rates, especially if you look at some portfolios like personal loans and credit cards. Therefore, when you add all of these factors together, you can then see our capacity to increase our loan grants. But we are becoming more stringent in terms of keeping the controls in place, but we are very certain that delinquency is under control.
Carlos Firetti: Thank you, Daniel. Our next question is from Thiago Batista with UBS. Go ahead, Thiago. Thiago?
Thiago Batista: Can you hear me now?
Carlos Firetti: Yes.
Thiago Batista: Sorry my mic was muted. My question is a follow up to Tito’s question regarding the profitability of your retail business. When we look at the ROE in the last 2 to 3 quarters, about 11%, 12% in the consolidated number, insurance, 25. So doing a simplistic calculation, we think that the ROE of the banking business is between 5 and 10. We see other players in the wholesale having an ROE of 20% plus. So in the best-case scenario, your ROE would be zero. Other banks have done there, for example, mentioned that they lose money in low-income retail. And I’d like to understand from you what is availability of the retail business, particularly with a focus on low-income. Can you really have a return or not?
