Banco BTG Pactual S.A. (BPAC11) Earnings Call Transcript & Summary

Good morning, and welcome to the Fourth Quarter of 2023 Results Conference Call of Banco BTG Pactual. With us here today, we have Roberto Sallouti, Renato Cohn, Julia Rocha. We would like to inform you that this event is being recorded. [Operator Instructions] After Banco BTG Pactual remarks, there will be a question-and-answer session for investors and analysts when further instructions will be given. Today, we have a simultaneous webcast that may be accessed through the website, www.btgpactual.com/ir and the platform. There will be a replay facility for this call from today. Before proceeding, let me mention that this call may contain forward-looking statements relating to the prospects of the business, estimates for operating and financial results and those related to the growth prospects of Banco BTG Pactual. These are merely projections, and as such, are based exclusively on the expectations of Banco BTG Pactual's management concerning the future of the business. Such forward-looking statements depend substantially on changes in market conditions, government regulations, competitive pressures, the performance of the Brazilian economy and the industry, among other factors and risks disclosed in Banco BTG Pactual's filed disclosure documents and are, therefore, subject to change without prior notice. Now I'll turn the floor to Mr. Roberto Sallouti, who will begin the presentation. Mr. Sallouti, please go ahead.

Thank you very much. Good morning. Thank you for joining our 2023 earnings call. I'm going to start talking about the highlights of the full year '23 on page 3 of the presentation. So the first point to mention is that throughout 2023, we were able to both increase revenues and operational leverage of the platform resulting in a record net income for the year and a 22.7% return on equity even as we faced a challenging, I would say, macro environment, both globally and specifically in Latin America as well as some idiosyncratic events in the credit markets. So we're very satisfied with the financial results of the year. Going to the second point, we're also very satisfied with the qualitative results of the year as we continue expanding our client franchises, specifically very strong growth in our investment management platforms. We had reaching a total of assets under management of BRL 1.6 trillion with a net new money of BRL 205 million for the year. We also continued to grow our corporate credit portfolio growing 19% year-over-year while at the same time, keeping the top quality of the portfolio as well as a very diversified one. So we're very satisfied not only with the growth but the quality of growth of our credit portfolio. And finally, we finished the year with a very robust balance sheet, extremely liquid, well-capitalized funding base growing 60% year-over-year and a capital ratio of 17.5% at the end of the year. For next year, or the current year 2024, we continue to expect continued gains in operational leverage in our platform. And with that, we continue to expect to have return on equity expansion throughout '24 when compared to 2023. This will be a result of continued growth in all of our business lines in 2024 and a very controlled growth of our expenses as we exactly -- as we explore this operational leverage. If you turn to the next page, on Page 4, we start talking about the highlights of the fourth quarter of '23. We had total revenues of BRL 5.7 billion, 56% year-over-year growth. This is a bit -- this 56% is impacted by the one-off credit expenses we had in the fourth quarter of last year. Net income of BRL 2.8 billion for the quarter compared to BRL 2.7 million in the previous quarter, 61% year-over-year. Again, this was impacted by the credit one-off that we had in the last quarter of last year. And for the quarter, we had a return on equity of 23.4%, the highest return [ on that ] -- the highest return on equity of all the quarters we have throughout the year. Going to Page 5, we had BRL 41 billion of net new money in the quarter with wealth under management growing 31% year-over-year, reaching BRL 713 million and assets under management growing 21% year-over-year, reaching BRL 856 billion. When you turn to Page 6, we talk a bit about our balance sheet. As I mentioned previously, we finished the year with a 16% year-over-year growth in unsecured funding with a total unsecured funding base of BRL 204 billion. We finished with a capital ratio Basel ratio of 17.5%, net equity of BRL 49 billion. And we grew our credit portfolio 19%, reaching BRL 172 billion, of which BRL 21 billion in the SME segment. We, again, after a reduction in the first quarter of this year, we're back to growing this business line. If you turn to Page 7, we talk about how we traditionally report every quarter the results. So once again, total revenues of BRL 5.65 billion for the quarter, net income of BRL 2.85 billion and a return on equity of 23.4%, net income per unit of BRL 0.75. We had a bit below historical -- our historical average cost to income at 36% compared to, let's say, a more recent history between 38% and 39%. We finished with total assets of BRL 493 billion on our balance sheet, BRL 49.4 billion net equity, 17.5% capital ratio. And we also announced in the quarter a JCP distribution of BRL 1.45 billion. We continued with a stable VaR throughout the year. So the -- there was a bit of an increase in the second quarter if I'm not mistaken but third and fourth quarter relatively stable with fourth quarter, an average of 31 bps VaR. On the next page, on Page 8, we talk about the full year results, BRL 21.56 billion of revenues, BRL 10.42 billion net income, 22.7% return on equity, BRL 2.73 net income per unit. Cost-to-income ratio of the year, 38.2%, on, let's say, on the bottom range of what we consider, let's say, an average cost-to-income. As mentioned previously, a shareholders' equity of BRL 49.4 billion, growing 17% year-over-year and a VaR 35 bps throughout the year so pretty stable compared to 2022. On the next page, on Page 9, we show a breakdown of the growth in the different business units. We have a bit of an outlier here in the corporate lending business, which was impacted in the last year because of the one-off credit events we had. And the rest are pretty much growing across the board with faster growth in our investment management business lines. As I said in the previous quarters, we continue to like the way the business is diversified and growing and we especially like the distribution, where we have roughly one-third in corporate and investment banking, one-third linked to markets and one-third of our revenues linked to the investment management business. With that, I'll pass the floor to Renato Cohn, which will talk about the performance of the different businesses.

Thank you. Thank you, Roberto. So moving and starting with our investment bank. As usual, on Page 11, we recorded solid revenues of BRL 464 million during the fourth quarter, which is a decrease of 21% from the very strong revenues of the third quarter of '23 when we had record revenues in DCM and are now more in line with revenues we recorded during the fourth quarter of '22 and even the third quarter of '22, specifically on DCM, after a very weak first half of '23 and a very strong third quarter of '23, we had a strong contribution as market volumes normalizes and the number of transactions continue to gain momentum. We also had higher contribution from M&A transactions as we continue to execute our pipeline. And we had weak revenues from ECM transactions as market continues to aid for better conditions. When we look at the right side of the chart, we see that in 2023, we recorded revenues of BRL 1.620 billion, which is a 12% decline when we compare to the previous year. And this is a good result considering the events at the beginning of the year that strongly affected DCM markets and also the absence of IPOs throughout 2023. And we are also happy to announce that we are -- we were awarded for the fourth consecutive year as Best Bank for Sustainable Finance in LatAm, Best Bank for Sustaining Communities in Latin America and Best Bank for Sustainable Finance in Brazil as we continue to support our clients with their sustainability approach in their financial needs. Going now on Page 12 to corporate and SME lending; we had record revenues of BRL 1.353 billion, which is a 2.4% increase when we compare to the previous quarter. Total credit portfolio increased by almost 7% during the quarter and 19% when compared to the previous year, reaching a total portfolio of BRL 171.6 billion. And important to note here that we continue to expand our SME credit portfolio, which grew by 16% during the quarter. As you recall, and as shown in the right side of the slide, we reduced our exposure by BRL 8 billion during the first quarter of '23, and we maintained it more or less flat during the second quarter. And then we resumed the growth process during the third quarter as market conditions improve. And as we expand our product offering for this SME segment, we expect to continue to increase our presence and market share in this segment with more diversified sources of revenues. Going now to our sales and trading on Page 13. We had revenues of BRL 1.4 billion, which is a similar level when we compare to the previous quarter. And looking at the right side of the slide, we see the evolution of sales and trading revenues during the last 5 years. So in 2023, we recorded BRL 6.235 billion, which is an increase of 17.5% compared to last year. And when we consider a longer period, we see a compounded growth rate of 22% in the last 4 years as we continue to expand our product offering as well as enlarging our client base. We also see the structural reduction in VaR and also the market risk component of our risk-weighted assets. So VaR ended the quarter at 31 basis points, and we had an average VaR of 35 basis points for the entire year while the market risk component finished the year at 25.5%. Going now to our asset management on Page 14, we had record revenues during this quarter with revenues of BRL 509 million, which is a 9% increase during the quarter, driven by higher management fees and also some performance fees that we recorded in December. Net new money was BRL 14.5 billion during the quarter and BRL 80 billion during 2023, which is a very positive number, especially if we consider the total asset management industry outflows of BRL 138 billion. Most of the flows were directed to fixed income strategies and alternative funds managed by BTG Pactual Asset Management. And when we look at the right side of the slide, we can see the evolution of total assets under management during the last 5 years. And we can see that assets under management grew 21% during the year. And when we look at the longer term, we see a compounded growth rate of 33% in the last 4 years. Moving to Wealth Management on Page 15; we had another quarter of record revenues, and this is the 20th consecutive quarter of record revenues. Revenues reached BRL 862 million, which represents a strong increase of 9% compared to the previous quarter and 25.6% when compared to the fourth quarter of '22. When we look at the bottom part of the slide, we see the evolution of revenues over the years. During 2023, revenues reached BRL 3.074 billion, which is a 21% increase when we compare to the previous year. And when we look to the longer term, we see that revenues multiplied by 5x in the last 5 years. Net new money for the quarter was almost BRL 27 billion, which is a similar number that we've been bringing during the last few quarters. And overall, during 2023, we brought a total of BRL 124 billion. With that, total wealth under management reached BRL 713 billion, which is an increase of 7% compared to the third quarter of '23 and an increase of 30% when we compare to last year number. Looking at the evolution of wealth management throughout the years, we see that wealth under management multiply by more than 4x in the last 5 years. So overall, very strong numbers of growth, both in revenues and wealth under management for our wealth management business. Going now on Page 16 to Participations and Principal Investments; so in Participations, we recorded BRL 50 million in profits. And as customary, we break down the components in the right side of the slide. Too Seguros reached BRL 55 million in profits, which is a slight improvement from the previous quarter. We recorded BRL 128 million in profit from our stake at Banco Pan, BRL 78 million from the accrual of payroll [ loan ] portfolios that we acquired during 2023. And we recorded BRL 210 million elimination from the portfolios that we acquired during the fourth quarter of '23. And in principal investments, we posted BRL 117 million in revenues, mostly driven by a higher contribution from our investment as well as lower funding costs. Moving now to expenses on Page 18; we will see that we managed to improve efficiency as our revenues grew more than our costs. Overall, throughout 2023, we managed to reduce our cost-to-income by 2 percentage points coming from 40% in 2022 to 38% in 2023. While in the fourth quarter, our cost-to-income was only 36%, which is below our historical levels. Salaries and benefits increased slightly by 2% during the quarter, while administrative expenses increased by 5% due to some one-off year-end expenses. And our effective income tax rate was stable at 19.8%, mostly impacted by interest on equity distribution. Going to Page 20, on our balance sheet, we see that total assets slightly reduced to 9.5x our equity. We continue to maintain strong liquidity levels with BRL 76 billion in cash and cash equivalents, and our LCR closed the year at 172%. Our on-balance sheet credit portfolio grew in line with our unsecured funding, which result in a stable coverage ratio of 162% and our corporate and SME lending portfolio now represents 3.5x our net equity, which is a very conservative level. On Page 21, we look at our unsecured funding. We see that total funding grew by 5.5% during the quarter, reaching BRL 204 billion, which means a 16% growth when we compare to last year. And even with a strong BRL 28 billion funding expansion during 2023, we managed to slightly increase the share of retail funding to 31%. And during the quarter, we successfully issued another tranche of our 10-year subordinated CRA, totaling BRL 3.5 billion during the fourth quarter and a total of BRL 10.5 billion during 2023. Finally, on Page 22, we look at our Basel ratios. We see that our balance sheet remains very robust and liquid with total Basel ratio, total capital ratio stable at 17.5%, with core equity Tier 1 at 12.5% and Tier 2 capital of 4.9%. Important to say that as we communicated to the market on January 15, we will redeem on February 15 our subordinated bonds due in 2029. And the impact of this redemption is estimated to be around 60 basis points in our Tier 2 cap. And as mentioned before, our VaR decreased during the quarter to 31 basis points. So with that, I think we can open for questions.

[Operator Instructions] The first question comes from Renato Meloni with Autonomous Research.

So first, if you could give us some outlook on the investment banking business, if you're expecting some improvement in order of magnitude, I think it will be helpful to know like what you're seeing in the pipeline and how that's going to evolve throughout the year? And secondly, we, again, this quarter saw a reduced VaR, but the market risk component after RWA is again going up. So I wonder if it is disconnect here is because of the difference in methodology that you mentioned in the last quarter or if there's something else, but then it will be helpful to know which of the metrics, it's a better proxy of how our position here in first Q of 24.

Thank you, Renato. For Investment Banking, we do expect to go back to growth. We actually expect all our business lines to grow. And the pipeline, I would say, on the 3 underlying businesses, M&A, ECM and DCM leave us quite confident that we will be able to have, let's say, go back to growth throughout the year. On your second question, this is exactly it. The Brazilian Central Bank has its methodology for the market risk component of the BIS of capital. We actually -- I personally believe that VaR is a better, say, metric to analyze the risk on the balance sheet than the market risk component, which has some lagging effects, have some overweight on some assets compared to others and some very specific issues.

That's clear. And just a quick follow-up here on the [indiscernible] have some order of magnitude that you can give us in terms of the improvement for this year or too early to tell?

I would not like to get into -- give specific guidance on each of the business lines but definitely, we're expecting -- we had 2 consecutive years of declines. We expect to go back to growth somewhere where we were in the recent past.

[Operator Instructions] The next question comes from Tito Labarta with Goldman Sachs.

A couple of questions also. First on just the investment management business, net new money has been trending a bit lower, but you're still getting good revenue growth. Just how much of that do you think is just because of the higher base that you have? Just trying to understand the sustainability of the growth there. And as interest rates come down, could we potentially see an acceleration there? You mentioned that optimal or you mentioned the revenue mix, right, is a third investment management, their banking and then a third other. Do you think that's the optimal revenue mix? Do you think the investment management business could potentially represent a greater percentage of your revenues? And then my second question, on just your ROE, you mentioned ROE expansion you expect again, you continue to deliver good performance there. Do you think this 23% ROE level that you're hitting today, is that sort of a sustainable level of ROE? Just do you think there could be further expansion from there? Just to kind of think of how you think about the long-term sustainable ROE for the business?

Thank you, Tito. So on investment management, I think you have to remember that Investment Management has a wealth management component and an asset management component. If you analyze what happened to the asset management industry, you will see that we have a very good performance. And as you mentioned, in the high interest rate scenario where you have a lot of the tax-exempt products on the major retail banks being offered to clients. Even in that scenario, we were able to deliver solid net new money in wealth management. So that leave us quite optimistic that we're able to sustain these levels a bit of volatility on both sides. But clearly, the macro scenario that we are seeing for 2024 and '25, is probably a healthier scenario for the investment management business and consequently for our investment management business and in both lines, both wealth management and asset management. On the second part of your question relating still to investment management, we expect these both franchises to be growing at a faster pace than the other business lines. So yes, we expect that year-over-year, the percentage of investment management and our revenue mix will continue to grow, which explains a bit of the ROE expansion. If we are able to generate revenues from, let's say, service businesses, and these are growing at a faster pace than the businesses that use the balance sheet, let's say, credit, for example, this will allow us to continue to explore ROE expansion. And this is, let's say, further more exponentialized by what we said in the last few quarters that we've reached a level of technology deployment and delivery that we think that we can continue to expand volumes significantly in our platform without a significant increase in costs. So the guidance we're giving you is that for 2024, we expect an ROE above 22.7%, and we expect, at least for the next, say, 2 or 3 years, this to be the scenario as we continue to benefit from the operational leverage in our platform.

That's very clear, Roberto. Just one quick follow-up, I guess, on the net new money, how important of a metric do you think this is for understanding sort of the outlook for the business, right? I just mentioned high rates is a little bit challenging. Second half of the year maybe starts to get better. But how much of the business is driven by accelerating perhaps net new money or how much of it is cross-selling, maybe other products and that can also drive the growth in -- particularly, I guess, wealth management, even if net new money doesn't accelerate as much as where you were at the peak?

The truth is there are -- we talk a lot about net new money, but that's, let's say, 1 out of the 3 variables that matter and how we see the business. A second variable is what happens to the stock, right? Because it's -- let's say, it's important that the assets that are under your care also grow year-over-year. So we have to see the growth of the assets that already our clients have with us. We have to see the net new money coming in, and we have to see the return on assets. And here, we're quite optimistic with continued ROE expansion as we are not only having, let's say more cross-selling, but we also increased our product offering, right? We mentioned that we started with investments. Now we have local banking. Now we have international investments. And as we are able to service our clients in more products and a higher percentage of their share of wealth, we are able to, with that have a return on asset expansion. So the truth is we're -- we talk a lot about net new money, but we're always monitoring these 3 variables. So net new money has a bit -- as you mentioned previously, has a bit more of volatility but as long as the other 2 are in the on the right direction this gives us a lot of confidence in the growth of the investment management platform and the percentage of revenues of investment management compared to the rest of the businesses.

The next question comes from Daniel Vaz with Safra.

Congrats on the results. I would like to elaborate more on corporate and SME lending. You recently set up a very interesting partnership with [indiscernible], right? So BTG being their bank as a service provider. And I remember that one of the 2023 goals was to set up a full banking platform, right? So for the business. And with these partnerships and seems like at least that you're closer to being 100% set up. So can you comment on the current state of it and elaborate more on your expectations for credit portfolio growth towards 2024? I mean are you expecting to grow above this 20% mark that you reached close to in 2023? Is it going to be boosted by [indiscernible] line? Should SME outpace corporates?

Thanks, Daniel. So we expect a similar level of growth to this year in 2024. When I say similar, it's, let's say, plus or minus 2, 2.5 percentage points from the 19% that we grew this year. Of course, there will always be a function of what's going on in the market. On your second question on how -- where are we on the launch and development of our platform to corporates, I would say that we are already quite competitive, but we still expect in the next few months to have a few differentiating factors that will come into play, which leave us quite bullish with the growth of this business. So clearly, we think corporates, if they want to have us as the only bank via a corporation or be it an individual, we can do that. They can do that. They can have us as the sole bank. But we also expect some differentiating factors, especially on the experience to come in over the next few months, which leaves us quite bullish. And we -- yes, we expect, let's say, probably the SME portfolio to grow faster than the rest of the business.

The next question comes from Jorge Kuri with Morgan Stanley.

Jorge Kuri from Morgan Stanley. I have 2 questions, if I may. The first one on the comments that Roberto made a couple of times already about operating leverage being a big part of keeping the ROE or actually, I think you said expanding ROE this year versus last year. If I look at the composition of your expenses, half of it is roughly compensation. And I'm guessing it's fair to say that your comp ratio will remain around 22% for the next few years as has been the case historically, and we wouldn't get operating leverage from that. And so it really all boils down to admin expenses, which over the last 5 years grew at a 24% CAGR. I know there were some investments and business expansions that drove that. This year, you grew 16%, which is here you grew 16%, which is evidently lower than that 5-year CAGR of 24%. So how do you see that number going forward? I mean that's evidently a really important input in that ROE expansion. Is there a big step down in admin expense growth this year versus last year? How do you see that evolving over the next couple of years? So that's my first question. And then my second question is on the average daily VaR as a percentage of your shareholders' equity. On slide 13, you show the historical level, 0.67% in 2019, 0.35% last year. That's almost half. If indeed, [ selling rates ] go to 10 or 9 or 8 over the next 12, 24 months, do you think that -- and there's more of a risk on in trading in the market. Is the appetite for you guys to take that number up from the 0.35%? I guess, in other words, can trading revenues grow faster than your shareholders' equity, which seems to be one of the inputs that a lot of people have a hard time putting in their models. And if I look at consensus numbers, it just doesn't feel that consensus is giving you any credit for a little bit more animal spirits on the trading. And so I just wanted to get your sense on how much can that move up going forward.

Thank you, Jorge. So on your first question, first, it's important to mention that we always like to look at salaries and benefits and admin together because we -- especially in the technology part of the business, we have been in-sourcing part of that. So to gain agility, we were probably using more outsourcing in the past than we expect to use in the future. So while what you said is a clear analysis of the numbers, there's a bit more to that that's important to mention. But the truth is, yes, at the end of the day, when you look at this composition of both of them, we expect it to grow slower than it did in 2023 and the previous years as we think we have a lot of capacity to increase volumes with the current platform that we have. On your second question on the VaR, I would say that not necessarily, let's say, the Selic going down, it would mean that we would be looking to necessarily increase the VaR. The truth is the -- and I don't necessarily think that it would increase at a faster growth base than equity would come from an increase in VaR. If we continue growing at the same pace that we have in the previous years, that's -- we think that's consistent because this would come from increased presence in different markets, different segments as we gain market share and the market develops. So I don't necessarily see it so much linked to VaR, but I see it much more linked to market activity. So yes, if market activity picks up, and we can see this just, let's say, the liquidity of the stock exchange, if market activity picks up overall, for us, that's a much better indicator of what will happen to our sales trading business than necessarily the VaR. And you have to remember that we also use a very transparent approach to market risk, which sometimes makes us have to give a bit [ moral ] explanations, but we like it because that means that our investors will never be surprised. And I'm going to give an example. If we decide that we think that the level of interest rates currently in the market is good for you to lock in fixed rates -- and while probably the tradition of global banks is to put that in the banking book, and this does not -- the market volatility does not go into results as we saw in the crisis with the medium-sized banks in the U.S. last year. If we do that, that goes into VaR. And even though we could put this in the banking book and not have volatility and the volatility just show up in, let's say, OCI, we think it's much more transparent to our investors to report it there. So you always have to remember that we are quite -- how would I say, we are probably more conservative, making sure that our investors are aware of all of the market risk we have on the balance sheet. So -- this is just to say that at the end of the day, I don't necessarily see us increasing VaR structurally as interest rates go down. I do see business benefiting though, and this would be from an increased level of activity and not an increase necessarily increased VaR.

The next question comes from Gustavo Schroden with Bradesco BBI.

Congrats on the very strong results in the year. I just would like to -- my question is a follow-up on investment management business, specifically on the net new money. It was very clear when you explained that net new money is not the most important driver or way and also the stock. But just to help us here to understand because although it's very clear that we have the same view about the composition of this business that we saw, let's say, a very fast deceleration in the fourth quarter. I just would like to understand if this -- it was related to any specific point or a specific issue in the fourth quarter this year or if it is a new, let's say level of net new money, we should model in our models. And also to confirm when you mentioned the question about it, you mentioned that we should continue to see the same levels. You were talking about revenues or talking about net new money to be more specific here. Should we work with this, let's say BRL 14.5 billion in asset management and BRL 27 billion in wealth or you are talking about the revenues, just to help us on this? That's my question.

So to be clear, that -- and I'm going to rephrase your question. Is Q4 what we expect for the next few quarters? No. Is, let's say, an average of what was the year of 2023, what we expect for the next few quarters? Yes. I would say that's more likely. So as always, if you look at things quarter-over-quarter, there is some volatility. This following volatility was more present in the asset management business rather than the wealth management business. And this is just natural, right? Because when you look at quarter-over-quarter there's some specific flows. There are things happening to the industry, specifically in the asset management industry, there was a time that you were talking about, let's say, taxation issues. So that affected the flows. The industry was also not facing a favorable moment, which affected our fund administration business. So no, we think that the volatility was within what is expected. Throughout the quarters, volatility will continue to happen. But when you look at more normalized, let's say, period of time, let's say, the average, the moving average of the 4 quarters, that's what we expect going forward, and that's what we're seeing in the day-to-day. So we continue, I'd say, quite constructive with the net new money across the different businesses.

The next question comes from Thiago Batista with UBS.

I have 2 questions. The first one, on the tax exemption instruments, we saw last week that Central Bank changed the regulation on the tax exemption instrument, so the [indiscernible], etcetera. Can you comment on the potential impact of this measure for BTG Pactual? And then my second question is about the [indiscernible] or the court orders. We saw that the federal government is paying about BRL 19 billion of [indiscernible] during the beginning of this year. How relevant do you believe that this money can flow to net new money for BTG? And also, if not wrong, you guys, you have [indiscernible] in your season trading and if this should be relevant for your P&L?

Thank you, Thiago. So on the tax exempt changes, let's put it this way. When you look at our funding base compared to the big retail banks and when you look at the tenure of the tax-exempt products that we have compared towards the big retail banks, I would say that net-net, this change is, let's say, we are in a better position to deal with the challenges that the change in regulations make. So when we look at it as a part of our funding, we think it's net positive for us. At the same time, we also think this change will probably cause clients to have to seek other ways to have good returns on their savings, which is beneficial for our investment platform. So I would say that net-net, these changes are marginally positive for BTG when compared to the big -- the rest of the market. On the backup volumes and net new money, personally, I don't see any big connection there. I think it's quite spread out there. And for our business, it's part of our portfolio. But I would say it's not going to be anything out of the ordinary. It's part of our special situations portfolio, but it's a small part. So it's not going to be anything that you will notice in the numbers.

The next question comes from Flavio Yoshida with Bank of America.

I have 2 questions on my side here. The first one is on the SME portfolio. So you guys showed that the SME book is gaining share in the overall book. But I was just wondering if this pace should continue in '24, especially taking into consideration that other traditional banks, they have been very vocal on a stronger growth in this specific segment. So what should we expect? And how do you guys are seeing the competition in this segment? And then my second question is on principal investments. So the results increased a lot in this quarter. So just wondering here what happened here? What led these results to increase a lot? And what level of results should we expect in '24?

Thank you, Flavio. So on the SME, yes, we expect the business to grow faster than the rest of the credit portfolio, especially as we diversify the product offering to the segment, which goes a bit to my previous answer. And when you mean diversify, I mean both on the banking side and I mean on the credit offering side. So yes, we expect to see faster growth, especially because we were quite conservative throughout 2023, given what happened especially in the supply chain business. On principal investments, well, yes, percentage-wise, it's a big change. Nominal wise, it's not that significant, right? And overall, Principal Investments has lost relevance and we expect it to continue in that way. Q4 specifically was related to a specific opportunity of our energy portfolio. So that's where you saw a bit of a, let's say, a small increase there. But as you said, percentage-wise, it is strong. Nominal-wise it's not that relevant, and we expect, let's say, the historical pattern there to continue.

The next question comes from Pedro Leduc with Itau.

Quickly here on the corporate and SME lending business, but more on the revenue side of it, now you grew 2%, which was a bit slower than the overall book. I know there are a lot of moving pieces here, be it mix, which actually seems to have favored you or special situations or maybe renegotiations having impact on yields. Just first to understand what led to the slower pace in revenues relative to the loan book growth to also make us help model it in 2024, a little bit as well.

Thank you for your question. The truth is, though, as you said, there are a lot of moving pieces, but it's a relatively -- when you look at, let's say, ROA for the average, it's kind of stable. But then you have to remember, maybe the portfolio can grow in December and you don't have time to grow the interest maybe growth at the beginning of the quarter than you do, maybe you grow on more high-yielding credit, maybe you grow on non-funded credit of very high quality, which has a lower, let's say, average spread. So there's nothing big there. It's within the normal volatility that you should expect. And probably, if you ask me, I think a relatively stable ROA is what you should expect for the next few quarters.

Okay. And just a follow-up on how you're seeing your relative provision levels. If you could remind us how the specific corporate retail case from the beginning of the year ended up relative to what you had provisioned for it.

Unchanged. We have not changed anything. We think the provisions are conservative -- but let's wait until the situation is -- advances much more before we change any provision. So we're not expecting at least for the short term, we're not forecasting any changes in the provision.

The next question comes from Rafael Frade with Citi.

Congrats on the strong results. My question -- I was taking a look on your payroll book and I would like to understand, it seems to me that maybe half of your growth of your loan book this year was related to the payroll. I would like just to understand if this -- this amount seems right. I would like to understand if it's -- how it impacting your ROA for the credit business, it's higher or lower or much more in line? And what's the idea or the strategy here going forward for 2024, specifically on the payroll?

So on the payroll, yes, you're right, roughly half of the growth was from the acquisitions we made from [indiscernible] disclosed on their call that their plan is to sell less portfolios. So consequently, I expect that, unfortunately, we will purchase less portfolios because we think it's a very good asset at an attractive spread from -- and we're very comfortable with the servicing and the origination, but you should expect it to decrease. And as I mentioned previously on the previous question, I would say that for the whole credit portfolio, we expect stable spreads or ROEs, depends on how you want to call it, but we expect the levels to remain stable.

Perfect. And if you allow me just a follow-up here, just to understand the -- how it's accounted because previously, I thought that the accrual of those loans were in your line of participation. But given that you book the loans on the credits, they are -- in fact, they are accrued there. So just to understand where it's accrued those results.

So what we've been showing is that you have part of the accrual from the price established when the acquisition happened of the portfolio from BTG from Banco Pan BTG is on corporate lending, right? And this surplus, the profits that Banco Pan makes when they sell this portfolio, that is where we show with participations, we show the eliminations from the quarter and then from the quarter and then these eliminations, they will be accrued until the maturity of the portfolio, right? So every quarter, we will -- some of these surplus that we pay that we start receiving back, right? So that's the way that we show.

So if I just try to summarize in a very simplistic manner is the capital gains Pan made when they sold the portfolio to us, we accrue the Banco Pan line. The carry of the portfolio from the price we bought, we report on the credit line.

The next question comes from Jorge Kuri with Morgan Stanley. Jorge Kuri? The next question comes from Jorge Kuri with Morgan Stanley.

I believe it's probably a mistake. Jorge probably has left the call. So I think we can -- I see there are no further questions on the queue. I think we can end the call.

Okay. That brings us to the end of the question-and-answer session. I will now return the floor to Mr. Roberto Sallouti for his closing remarks.

So I'd like to thank all of you once again for joining our quarterly and full 2023 earnings call. Thank you all once again for your trust and your partnership and looking forward to seeing all of you again at our Q1 earnings call. Thank you very much. Have a great week.

Thank you. This does conclude today's presentation. You may now disconnect your line at this time, and have a nice day.