So we are working with a lot of focus in this. Our overview is that if we are making this work and we are very trusting that it will work, we will unlock in fact a very big value in individuals, in natural persons. And that means working with a generation that is strong of business, with clients that we have relationship, but it’s a very limited relationship. And we can do that at a cost of service that is better with Ux and a value proposition that is better. And we’re going to have to learn to generate, cross sell. And we’ve made an effort all throughout the years to learn how to do businesses with platforms that are uniquely only digital. And we can service, therefore a public that is below the threshold of the waterline when you place in the cost of service in the equation.
So we’re going to be more efficient, more digital first in this business, and the expectation is very high. So we are working in the bank and this can be transformational for the retail and it can be a relevant growth lever for the future. And you talk about the cost of credit, a great deal of these clients, we have a relationship, we know the behavior, we have appetite for credit. And it’s not clients of low income. When we talk about, oh, it’s a platform which had an approach that was focused on the lower income in the younger product. This is a solution that goes through all the segments. Yes, it goes on the low income and it can be a value proposition for us to service exclusively the clients in that way. But it goes on all segments. And the big advantage of this solution is that you can customize for the need of each client.
So you don’t have the one size fits all. You’re going to have a customization depending on the need. And we will be able to attack the medium and high income with the known behavior, with clients that we know. And I can deliver the concessions that are very important. And this share. So I believe that there is a lot of talk. It’s not our style. What we prefer is over delivery, under promise. I’m not over promising, but we are very confident with the future. And I will give you more details. Last time it goes by.
Renato Lulia: Next question. Brian Flores, Citibank. Thank you for your presence.
Brian Flores: [Interpreted] Hi brother Milton Bernardo. I wanted to talk about Latin America. On the one side, we are seeing a contribution with a size that is less, but on the other hand, the profitability is improving. So I wanted to ask you, what are the trends that should talk amongst themselves from now on and what is the level of profitability that you are foreseeing for this operation in LATAM? Thank you.
Milton Filho: [Interpreted] Thank you for the questions. And your accent shows the importance of looking outside of Brazil, not just talking about Brazil. Right. This is a very important agenda for us, the agenda of regional Latin, Latin America on the long term. And we’ve managed to perform in a very strong level in all the countries that we are present in. What happened is that on the Yuri on year, there is a negative impact, which is the exit from Argentina, which impacts the numbers. This shows a smaller result in regards to the result. The result of Brazil is growing. Importantly, and I would say that Latin America now represents ballpark, about 7% of the result of the conglomerate, but with 20% of the assets. Why? Because these are countries where the ROI is, the results are lower, the profitability is lower.
So you have a larger portfolio, but a representativeness in the last line, smaller. What can I tell you? Well, first of all, Argentina, it’s misleading. When we just look at the line of the top line in the DRE, of the balance sheet of the bank, because it was positive in the generation of results. It reduced my cost of hedge for the capital index. So it brought a series of effects with the margin of the market and it had a positive result. The problem of Argentina is that we had the CTA famous. That was in the patrimony that all throughout the time it accumulates. The difference between the interest rates between Brazil and Argentina had a negative number and it reduced the patrimony of the bank. So Argentina had a positive effect in profitability, and a better result when you looked at the ROI, because it decreased the PL by the wrong reason.
So when we looked at the shareholder, Argentina was a detractor of value of the bank. So our vision of selling the operation, I think that the timing was very adequate. We saw other foreign banks leaving the operation. Thereafter, I think that the decision was correct in a consolidation for the local banks. What we kept in Argentina is an operation servicing the corporate clients for a very senior group of the bank. And even the CEO, Juan, that has been the leader of the operation, Argentina, he is leading all of that front. And we keep the relationship with the big economic groups in the region, bulking the offshore vehicle operation. The other countries, Uruguay and Paraguay, we’ve seen important growth with profitability, that is, very solid growth of the business in several countries.
Now, these are businesses that, even though we have a great profitability and they grow in the whole, they’re less relevant, given the dimension, continental dimension, geographic dimension of these countries, populational size, etcetera. And in Chile, we had last year, we had very good years, and this is a year that we go back to operating to what Gabriel and myself, many years, we said there was the profitability of expectation of profitability for Chile on the wrong term, which was an rot of 16%. So that’s where Chile has been running on the local level. When we took the adjustments here, taking into consideration the tax issue and the capital issue, and the hedge of the NSF capital, the profitability goes to a lower threshold. But even so, Latin America is accretive in very close to the cost of capital, which generates value in the bottom line result.
But it’s a bit dilutive in the ROI, given our ROI. So we think that these countries are going to grow, the countries are reacting economically, there are opportunities. And Colombia has been a big challenge, whether it fits by macro factors, micro factors. Our bank there is small sized, so you cannot work with a subscale bank. On the retail, we have an allocated team trying to do the best doing, structure adjustment, working strongly in efficiency, so we can have, within what is possible, the best possible operation, given the contour, local operation. So we’re very positive in regards to the region we’ve delivered the result, it’s a very strong position. Nonetheless, it will not represent more than seven, 8% of the results of the bank. And if we continue to expand in that speed, it will be that ballpark that we should observe.
But this is a very solid result and quality result.
Renato Lulia: Thank you. Next question. Renardo Meloni, Autonomous. Hi, Renato. Welcome.
Renato Meloni: [Interpreted] Thank you for the questions. Congratulations on the consistency of the results. Let’s go back to the issue of growth in the individuals natural person’s portfolio. I mean, you see the inflection point at the growth of the portfolio with the industry, even with the quality of credit, and that is better. [Technical glitch]
Nicolas Riva: I wanted to. At this point, you’re more likely than not to call the question yet on the 29th, and then third on the senior bonds. Other than potentially refinancing the 25s in the, in the offshore market, I would assume that at this point, you don’t have any, any relevant needs to issue senior bonds in dollars. But just to check your thinking regarding 81s, Tier 2 and senior bonds in dollars. Thanks. Perfect.
Milton Filho: Nicolas, good to see you again. It’s always good to have some fixed income questions just to go through the three of them. For the first one, the answer is yes, we have the same approach for the 81. I know it’s callable six months, and we’re going to take the same approach that we did in the past. One, we look a few metrics before making the decision with the informations we have today. The reset or to call this bond and to access the market would be much more expensive than simply don’t exercise. So we have an economic approach for the 81, for the 82, for the tier two. We don’t have the 82, but the tier two we see by the year end, we didn’t make the decision yet either. Or not. We’re going to call that. But as you said, it’s important to know that we have this five year term, that we go year by year losing the benefit of capital.
So we do a lot of calculation here to make sure that we are optimizing in the best way our capital base, considering the price that you lose 20% per year in terms of capital benefit on the senior bond. Yes, you are right. We don’t have any need to do or to tap the market with a senior bond. Of course, we are always going to do that if we find out it’s a good opportunity to access funding, but we have a lot of funding as well in the local market. Despite all of that, we always want to maintain some yield curve reserve market in the offshore market. So whenever we have the opportunity, we try to keep some bonds outstanding. But the main decision that we make all the time is look to the bonds and see if the price, the yield and what are the alternatives.
We have a very strong level three, basel three indicator of liquidity. Our LCR, it’s very, very strong at this moment. Far it’s very strong at this moment. So we don’t have any liability issue, any big discussion will be much more price oriented than a liquidity need to put this way. So thank you again for the question. Thanks.
Renato Lulia: [Interpreted] Nicolas Brigado Muto now let’s go to the last question of the call. Last but not least, Yuri Fernandez JPMorgan.
Yuri Fernandez: Thank you for the question. Thank you everyone. Congratulations on the consistency. I wanted to ask about deposits. It’s very difficult to compare the dynamic we end up calling these different numbers. So, you know, one thing might mean something for me and something for the other banks, but it’s very good, even adjusting for the exchange rate. Chile it’s very good quarter and you have great initiatives. I mean, high income. So I wanted to get from the conglomerate, where is the growth in funding coming from? Is it more corporate? I mean, there is a great DCM quarter, is it more high income? I wanted to understand in your franchise what is helping in this performance versus the peers. And congratulations. Thank you.
Milton Filho: [Interpreted] Yuri, it’s great to see you. Well, the issue of deposits is. There are several explanations. The deposit in this quarter, we see a variation that is slightly positive. Year-on-year we lose the basis. But it’s important to qualify this deposit. The local deposit riyals we’ve grown and we’ve increased the penetration engagement with our clients. Where we’ve seen higher volatility was relevant tickets of deposits in foreign currency because of the increase in the interest rates in the US. So these are clients that typically kept the deposit without remuneration or with a remuneration of the day to day. And they started to do their cash management realizing that the interest rate naturally increased and that the cost of opportunity changed.
So here we felt a volatility of great tickets, big corporate clients with concentrated volumes that ended up doing the deposit. So it migrates from the one lump sum and it goes to the long term and there is demigration, another phenomena that we realized. The deposits specifically for treasury products, which is the risk off that we observed in the market over the last few times. You remember the event of the, of the retailer that impacted the credit industry and the funds. And we saw the movement for, given the interest rate for the titles that are exempted, for letters and so on. So the idea the advantage of being a full bank and working with all the products is that at the moment, such as this wealth migration, we end up absorbing a great deal of these resources when they migrate from one strategy to the other.
This is the client overview that we have had evermore. So you have a consultant of investment that is looking at the client and is looking as it is taking care of the relationship. And it doesn’t matter if the product being offered a CDB or a fund. It’s important that the client is being serviced, given the context of the market and the profitability expectation of that portfolio. So there is a migration, yes, for treasury products. That has an impact. We have worked with a high discipline of prices, because we have a cash and we have a liquidity level that is very high. I wouldn’t say that these are big tickets of the. You have to look at the prices that we’ve practiced. We are practicing the prices that are fair, given the liquidity moment of the bank.
