Itau Unibanco Holding S.A.

This is our first report on one of the largest private sector banks in Brazil, Itau Unibanco. In the last quarter, Itau Unibanco’s recurring managerial result for the quarter reached BRL 8.4 billion, indicating a quarter-on-quarter increase and a consolidated ROE of 20.7%, a rise of 1.4 percentage points. Despite the financial margin with clients falling by 0.7%, the bank’s credit cost dropped by 7%. The nonperforming loans over 90 days held steady at 2.9%, while the efficiency ratio stood at 39.8%, marking a drop of 1.7 percentage points and a historic low. The loan portfolio showcased growth despite signs of a slowdown, with the SMEs loan portfolio registering an increase of 9.2% for Q1 2023 compared to Q1 2022. However, the bank’s portfolio had a slower growth rate in Latin America, which stood at 11.7%, or 10.4% excluding the FX effect. Itau Unibanco has been decreasing their concentration in higher volatility industries from 36% in 2014 to 17% presently. The bank’s insurance business continued to post strong results, and their focus on credit quality resulted in an expected increase in short-term delinquency rates. Their cost of credit stood at 3.2%, closely aligning with the pre-pandemic level of 3.3%. The management has been maintaining their expected credit loss management, with their total coverage ratio remaining flat. Their noninterest expenses fell by 3.5% in Brazil, with the efficiency ratio hitting a record low. We initiate coverage on the stock of Itau Unibanco Holding S.A. with a ‘Hold’ rating.