Itaú Unibanco Holding S.A. (ITUB4) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome. In these extraordinary times against the backdrop of the COVID-19 pandemic, Itaú Unibanco has set up this extraordinary webcast to address the measures it is implementing to manage operations and support employees, clients and society. This webcast will not address actual or projected financial results. This information will be presented as usual at 1Q '20 earnings conference call. Before proceeding, I would like to clarify that in face of such a strong uncertainty scenario, any statement made on business prospects are indeed mere prospects based on management's expectations and which may not come to pass. These expectations are highly reliable on the COVID-19 pandemic rollout and related impacts. For this reason, these expectations are subject to change. This webcast is being recorded and transmitted on our Investor Relations website, www.itau.com.br/investors-relations. The presentation slides are available on Itaú Unibanco's website. Today, we have with us Mr. Candido Bracher, President and CEO; Marcio Schettini, General Director, Retail Bank; Caio Ibrahim David, General Director, Wholesale Bank; Milton Maluhy Filho, Executive Vice President, CFO and CRO; Andre Sapoznik, Executive Vice President of IT and Operations; Alexsandro Broedel, Executive Finance Director and Head of Investor Relations; and Mario Mesquita, Macroeconomic and Research Director. We will start with a presentation and afterwards, our executives will answer the questions posted in writing on the Internet. Now I hand over to Mr. Candido Bracher.

Hello and good morning, everybody. Thanks for joining us in this extraordinary call where, as said, we will not talk about financial results or performance. The idea is to tell you on how we have dealt with this crisis for this past month, so for these past 3 weeks. So on Page 4 now, I would like to call your attention to the fact that the corona hit was totally unexpected. It would be absolutely not correct for me to say that we have prepared for it. We have not prepared for this crisis. And yet, after the onset of the crisis and seeing at how we reacted to it, we notice that many of the things, which we had been doing before the crisis, had prepared us for it in a very positive way. I think that the main fact, the main aspect which enabled us to deal with the crisis is that we have a 6-people executive committee, which is experienced, used to working together, work in a very good environment. There's no star members, everybody working together. There's a lot of dedication, a lot of rapport. We have also been investing a lot in the past in the relation between the executive committee and the executive directors of the bank. So that communication is very fluent and very fluid and so with the delegation as it is the main factor which has been enabling a swift functioning of the bank in the past few weeks. But there were also 4 other aspects which I think deserve being mentioned. The first 1 is technology and people. So we have been digitalizing our clients for quite some time, which enabled most of them to use our services through digital channels. And digital channels activity has increased by 50% since the onset of the crisis. Also, our workforce has been intensely digitalized over the past months. We were already experimenting in some markets with many people. We have been working in communities where technology people, product people and commercial people work together. Getting more intimate with one another is one of -- and with the aspects of one another's activity. So all these prepared us for this moment. Secondly, we have always had a very intense focus on risk management. And for some years already, we have developed very clear and effective tools of risk reporting and control, every type of risk: liquidity risk, market risk, credit risk, operational risk, reputational risk, risk of continuity of business. And these tools, they have a very clear governance which is permanently tested and used. And it continued to be so during the crisis. So I think that these 2 are the factors which have allowed us to react very fast, changing completely the routine of the bank in the morning of the March 16 when we canceled all the regular meetings of the bank and have replaced them for crisis committees, which have been working strictly since then. And there are also 2 other that -- 2 other events which were -- which deserve being mentioned. One is that we feel that in this crisis, the identity between our collaborators and our culture has increased significantly and also helped the sense of loyalty to the institution. You see that in a moment like this when, I mean, everybody feels how serious the moment is and the institutions takes measures in order to protect its people, I mean these values and ties are strongly reinforced. And the fourth aspect which I would like to call your attention to is the cooperation among the financial system. Different from crisis in the past, from the crisis of 2008 or even others like the Asian crisis, this crisis has not been generated by the financial sector nor has it had the financial sector as its main affected area. On the contrary, I think the financial sector was felt at the onset of the crisis and will be much more part of the solution than part of the problem. And we have seen here in Brazil a very intense cooperation among financial institutions. Very notably, I mean cooperation between Bradesco, Santander and ourselves in these first weeks of the crisis where we have been discussing measures among ourselves, discussing measures with the government in order to keep liquidity flowing into the economy and to fulfill our tasks as -- in dealing with the financial aspects of the crisis. If we move now to Slide 5. We have 3 main goals in this crisis. And so every action we make is directed to 1 of these 3 main goals. The first goal is to take care of our clients. To cater our clients under the best possible manner, digitally or physically, in our branch network. The second is to guarantee the normal functioning of the bank in exceptional circumstances. And this includes financial aspects such as liquidity and flow of funds, et cetera, risk control technology, remote digital liaison strategy. And third, to protect and to tranquilize our workforce. We need to let them feel that they are taken care of; that they are protected; that they can, in this difficult scenario, perform their tasks to our clients, not having to worry too much about themselves, about their safety, about the security of their position. Turning to Slide 6 now. Now we get into detail of how we are fulfilling our tasks in relation to each of these 3 aspects. So first, serving our clients. We, on the first day of the crisis, declared that we would review every maturity for 60 days at the same interest rate that we did before. We did this -- we may even renew this again if the quarantine is extended for a longer period of time. We have been intently encouraging the use of digital channels through a mass communication on TV, communication on social networks, everywhere, we get these tutorials. And we have been seeing an increase in the use of these digital channels so as to relieve our branch network from too much demand, from too much traffic. And we're taking collective initiatives jointly with other banks. I think the most significant of them was the idea of credit line for companies with sales up to BRL 10 million a year to finance their payable, 100% of their payable to workers. I mean up to 2 minimum wages for each worker. This line of credit is a 36-month line of credit with 6 months grace period in which credit risk is for 15% by the government -- sorry, 85% by the government and 15% by us. And besides that, there are ongoing discussions of that regulation in order to facilitate the supply of credit to the companies. Now if we move to Slide 7. Here, I mean we -- in terms of functioning normally in extraordinary circumstances, I mean the first worry was with our people. In the branches, I mean we reduced in-branch personnel. But we also reduced personnel in call centers, sending those recruits to home office so that there was more space among them in the call centers, reducing the risk of contagion. We also have reduced the working hours of the branches from 10 a.m. to 2 p.m. In these past 7 days, we had an extra hour from 9 to 10 a.m. to deal exclusively with the retired population. In terms of infrastructure, moving forth the infrastructure to support the operations in remote environment, we have over 40,000 people in home office right now. And dealing with the cyber risks and the fraud risks that occur in situations like this, I mean we have all these people intensely looking at this. I think that's what made it possible to deal with all these aspects of the crisis so immediately that we have been working for some time in being more flexible. We have been testing this home office. We have been working in communities in lean and agile methods and so that the people from different areas were working together and getting more intimate with other areas' problems. So I think all this, which we have been making before when the crisis arose, proved to be very useful in order to deal with these aspects and to enable us to maintain a normal function. If we move now to Slide 8. This is what we did to taking care of our people. We have a phrase in the bank that say that people is everything for us. And so we have -- immediately, we had these 40,000 employees working from home in order to reduce the risk of contagion. We asked our workers if they consider themselves to be in one of the more fragile groups, I mean, because of being over age -- over 60 or because they had a high blood pressure or diabetes or any other factor which made them more fragile to the situation. And those who said yes, I mean we either put them in home office or in vacations immediately. So that they do not have to come to work. We assured job stability during the crisis for all of our workers. We anticipated the payment of the 13th salary, which was normally paid in May and November because we realized that there could be exceptional expenses derived from the crisis. We are communicating very intensely with them, with daily information, formal information and weekly video that I make and that is distributed to them every Friday. Besides -- and besides doing all these things which are more related to our normal course of business, we know that as a corporate citizen, we have to do more. So now on Slide 9, this is a list of what we've been doing since the onset of the crisis. And through our foundations, I mean we have made BRL 150 million donation, which is being used to build emergency hospitals, ventilators, respirators, essential items, security items for people and to help needed [ fast ] registration of crisis. Also, jointly with Bradesco and Santander, we have bought 5 million detection tests from China where we had the help from Bali. We have also brought, engineered a program of making masks -- 15 million masks which are made by micro entrepreneurs, and we distributed to the people. And this all totaling BRL 250 million so far. And we have also extended our Read for a Child program in order to help parents to deal and to entertain their children at home during this time of quarantine. With this, I now pass on the word to Milton Maluhy, who will talk about risks.

Thank you, Candido. First of all, to say it's a pleasure to have you here in this conference together with my executive committee colleagues. And the idea here is to share with you what we have been doing and what's our agenda throughout this period of crisis. Moving to Slide 11. I would say that, first of all, I would like to highlight that governance -- I'll go again, I think a little noise on the line that I am. Moving to Slide 11. I would like to highlight that our governance and risk management practice are well established and incorporated on the day-to-day of the bank. They have been very important to maintain the strengths of our balance sheet and are essentially supporting our long-term strategy. We have a classic risk management model with 3 lines of defense, as you can see on the left-hand side. The first line are the business areas. They are responsible for managing the risk that they originate. The second line is the risk area. We are responsible here to assure that the risks and management through the use of corporate tools throughout the organization. That means using our risk appetite, policies and procedures. And the third is the internal audit that responds directly to our Board of Director and has the mandate to evaluate all the activities developed by the bank. And I can tell you that the 3 of them are working together for many years now. And I think we are very, very comfortable with the level of work and the culture of risk that we have disseminated throughout the organization. I also think it's important to emphasize that our risk appetite is well established and it's disseminated in this entire organization as well and is divided in 5 dimensions as you can see on the right-hand side. And for each of it, we define the nature and level of risks that are acceptable for the bank. We are constantly monitoring all this framework with predefined metrics and with action plans in the case it's necessary. The risk appetite is defined by the Board of Directors. And from that, we have monthly meetings with a special committee with Board members, including one of the Co-Chairmen, and we discuss all the risks and metrics. And for those, only the Board has the power to change any dimension or metric. What I can say here is that our risk management models are being tested, and they give us the reassurance that our risk management structure and governance allows us to navigate, I would say, with serenity through the current scenario. Now if you could please move to Slide 12. Here, I would say that since March 16, we instituted a completely different governance model. Those active committees working remotely together with the other 40,000 employees, as Candido just mentioned, will be further identifying a team of crisis management. And this is very important to say that it's without losing the agility and the decision-making capacity. We have established the most important pillars to follow very close: first, the safety of our balance sheet; second, the level of service of our clients; third, the safety of our employees and service providers; and last, our governance and public image. As you can see in the chart, we have many war rooms and meetings. I can say that this institutional crisis management committee where we monitor our operations in order to centralize the strategy and allow quick decisions, minimizing risks through our daily risks checkpoint meeting in order to follow market credit, liquidity and operational risks. Now moving to Slide 13, please. I would like to highlight, first of all, the recent government measures through the Central Bank and Ministry of Economy, as you can see on the left-hand side, bringing more liquidity into the system. Then it's important to mention that we have increased our cash and liquidity in line with our risk appetite for this moment of crisis, and it is reflected in our LCR and NSFR metrics being forward their long-term indicators. And this increase has been done with a very active credit activity, and Caio will mention it in a moment. We have been pursuing a positive inflow of deposits, both on retail and wholesale segments. And we see a migration coming from more riskier assets and funds and also a flight to quality [ behavior here ], okay? And last but not least, I would like to emphasize our robust capital base, which is also defined by the Board. We run constantly security stress tests, and we are very comfortable with the absorption capacity that we have here in place. Now moving to Slide 14, please. The key message here is that we have been able to maintain the same level of corporate security, even with thousands of people working remotely, okay? All the employees are working with corporate equipment and systems, and they have our security standards. We took the opportunity to reinforce communication to our clients and teams about fraud risk due to the increasing use of digital channels. And our specialist teams are fully working on mitigating those risks as well as per our cybersecurity risks. Now moving to Slide 15, please. I would say here that credit risk management of the bank is part of the risk -- sorry. Credit risk management at the bank is part of the risk appetite framework that I mentioned before. We have well-defined parameters for the diversification of portfolio exposure by sector, economy trend, products and client credit score. We have built a contra platform for onboarding and also for monitoring the credit risk of our clients based on real-time information of behavior patterns and credit quality. And since 2010, I think it's our very important message, we have been working with an expected loss provision model that has been continuously tested and improved. This model anticipates provisions and take in consideration the macroeconomic variables that influence our overall portfolio. This is very important because, of course, in moments of crisis like this, it's expected that we will see implementing provisions like these. Now with that, I would like to invite Andre to talk about technology and operations. Thank you.

Thank you, Milton. Good morning to you all. I'm glad to be here with you on this webcast today. And I'd like to convey 3 messages from the technology and operations standpoint. The first one on Slide 17 is a message of a robust infrastructure. With all the investments that we've been increasingly making in the bank's infrastructure over the last few years, we found ourselves in a relatively good position to move to home office, to move remotely a very large number of employees in a very short period of time. As you can see on the graph on your left-hand side on the upper side of the page, we have about 400 employees using virtual private network, VPNs, to remote access the bank on March 15. And in a very short period of time, actually, in 5 days, that very week, we were able to scale that up to about 35,000 connections. And we currently have about 40,000 of the bank's employees from administrative offices who are working from home, in home office situations with the bank's equipment and fully secure connections. And that doesn't use even half of our available capacity, which is about 90,000 connections. So we're well under our max capacity for this kind of remote working. With that, you can see on the bottom left that the number of calls between team members and meetings through video conference have skyrocketed, and the infrastructure has gone really well. As a result, we actually can manage the bank. The bank is safe and sound operationally for everybody who needs to access our corporate systems. So everybody who would be in our offices is now at home. But for a small fraction of employees who still have to come physically to our offices, and that's about 5% of our workforce. One interesting feature of this movement was that we were able to keep on hiring. We are still hiring professionals, for instance, for our technology group. And we were able to select people and hire them remotely. And they're even -- they'll be onboarding remotely and they can get integrated to the bank's culture remotely, and we have people starting as we speak to work at the bank in productivity conditions, which are similar to at least while already working at the bank. So this shows a lot of robustness in our infrastructure. Now turning to Page 18. The message here is about the operational capacity, the management of the day-to-day in the bank. Whenever the crisis onset early March here in Brazil, we were very quick to allow our -- the part of our workforce who consider themselves in a more fragile situation, as candidly put it, to remain at home. So everybody over 60 years of age, pregnant women and people who would have preexisting conditions, such as high blood pressure, diabetes and other kinds of conditions, would -- were allowed to stay at home. With that measure and the remote -- the home office capability I just talked about, we're able to have 94% of our workforce avoid coming to our offices every day. And the 5% to 6%, which remain coming to -- who keep on coming to our offices, they are able to do so in a very secure conditions. We have increased the levels of hygiene keeping and social distancing at our offices and very aggressively promoting policies of cleanliness and security so that people feel safe to come to our offices whenever they actually have to. As far as our contact centers, this is probably where we're facing some of our greatest challenges. With the policy of letting people stay at home if they had any particular conditions, we saw 25% of our workforce go home, and then we stay with 75% of the workforce on our contact centers. And that happened at the very moment where customers were accessing us in increased levels because they wanted some kind of orientation with their financial life. They wanted to know about the postponement of installments that we offer them for 60 days. So a lot of doubts here, and people were calling more than they used to, and we had a smaller workforce. So our service levels were down, and they're still down, but we're still being able to cope it with a lot of -- with a little bit of patience from the customer side, who are being kept informed of the challenges that we have here. What we were able to do in about 1 week is was to develop a different technology solution which allowed our contact center operators to effectively work from their homes. So right now, as we speak, we have about 1,600 of our agents who are servicing clients from home as if they were on our own premises. And so far as vendors and service providers, and this is very important for us, we have about 60,000 people who indirectly work for Itaú Unibanco. They report to 15,000 vendors and service providers. We extended to these people the exact same policies that we are practicing with our own employees, and we're keeping a daily contact with the 300 or 400 most relevant service providers to understand continuity plans and contingency plans, financial equilibrium, financial balance of the contracts that we have with them. And so far, we were able to keep everything working with no concerns on this front, although it does deserve a daily monitoring. And finally, on Page 19, the message I would like to share with you, to convey to you is about our digital channels. We have always -- as you probably know, we have always been very keen on promoting digital channels very actively. And by digital channels here, I mean the Internet banking and mobile banking. And you can see on the top left that the number of customers who routinely use our digital channels has been growing. Last 3 years, there was a 50-plus percent increase. And of course, from January, February through to March, the numbers have increased as well. So we are keeping those channels up and running. And you can see on the bottom left that the availability of those digital channels is at one of its highest levels ever. We have about 99.8% of the customers who come to our digital channels not being impacted by any of this -- by any downtime. And this is something that we're measuring very closely. And the availability, the quality levels are even up from what they used to be in January and February. And on top of being able to keep the channels up and running on the right-hand side of this chart, what you can see is we have diverted a lot of our technology efforts to develop new features, new transactions, new customer journeys, which would allow customers to avoid having to go to a branch or to call our call centers, our contact centers, which, as I told you before, are impacted by levels of service. So we've been churning out new solutions in the space of 1 week. Some of these were even developed over a couple of days. And with that, we're ensuring completeness of digital channels to better service our clients. I'll just highlight 2 of them. One is the -- our credit card PIN code recovery. This is something that would have to be done at one of our branches usually and that we just launched on our app. So a customer who forgets or has any problem with their PIN code can actually retrieve the PIN code from the app directly. And the second one, which is at the very bottom of the page, relates to check deposit. This is a feature that we have implemented for Itaú personally pay customers and which we rolled out to basically every individual customer at the bank and for SMEs as well. And we've seen a 70% surge in use of that very feature so that people can actually use the bank and do their customer journeys without actually having to come to our banks. With that, I would like to invite Marcio Schettini, who heads the retail bank to keep on talking about how we are handling customers during this difficult time. Schettini?

Thank you, Andre. Good morning, everyone. Now we cover the retail bank and we share with you what we are doing in this segment. As Candido said before, we are focused on 3 main initiatives in this process. The first one is to provide the best solutions to serve our clients. The second is to keep normal operations under these exceptional circumstances. And third, ensure the well-being of our workforce, clients and service providers. At our branch network level, we can see all these 3 key initiatives being put in place on a very clear way. We have adapted our opening hours to manage the customers' inflow and serve in a more suitable way clients within the risk groups. We have also adopted prevention protocols with safe distance among our workforce, clients and service providers and continuous sanitization procedures in order to keep our employees also in a much better, safe way. We have implemented weekly people rotation, and we'll start this week to provide protection masks for our employees. In our digital branches, we put in place remote work, following the same standards used in our central administration areas, the same for the SME business branches or platforms. On next page, we can see what really happened with the interactions that we have with our customers in terms of use of channels. We have seen a huge change on the use of our channels. Beginning, we have an increase in access of digital channels for queries, transactions, customer service and businesses. Regarding businesses, we have seen an increase through digital channels for credit solutions and also investments options with more demand for low-risk investment options or fixed income products. Our mobile banking app was the main channel, followed by our Internet bank website and now the use of WhatsApp as an alternative channel. Going to the next slide and regarding communication, we believe that we must keep a straight, clear and simple communication with our customers during this period. We enhanced the interactions with all segments with the propose of updates about our branches' opening hours and services, guide about the use of digital channels, offer specific solutions for this period, more precisely related to credit and share our vision from our investment consultants during this period of uncertainty. Going to the next slide and concerning our offers, in order to help our customers to cross this period of uncertainty, we have put in place important and relevant initiatives. Regarding credit, we have decided to not increase our interest rates during this period, and we are operating at the same level that we were operating at the end of last year. For individuals, we had offered new payment terms and extended grace periods. Up to last Friday, we have achieved more than 300,000 customers served with this offering. And beyond these credit offerings, we have postponed the expiration of exemptions of fees and reward points under our loyalty program umbrella. Additionally, for SME clients and beyond the new payment terms and extended grace period, we will start to offer this week special credit lines for payrolls and working capital together with BNDES, the state development bank. For customers that use our merchant acquiring solutions through our company, Rede, we offered free-of-charge new POS machines to support delivery service. And we also kept and postponed the expiration of special offers and also kept the prepayments for small customers in 2 days without interest rates or 0 interest rates. We are also working with local partners like iFood in order to offer special conditions for indirect customers. So this is what we are doing up to now at the retail bank. And now I pass to Caio, who will cover the wholesale bank.

Thank you, Schettini. Good morning to all of you. It's a pleasure to be with you all in this conference. So as you all know, we are facing this crisis with no exact treatment with a diversified -- and the vast majority of companies, which means our clients, the different sectors of the clients. So in that context, liquidity has become the #1 priority not only for financial institutions, but also for our corporate and institutional clients. In the last 20 days, we had a chance to increase our credit origination by 4, which means the economic [indiscernible] factors that vary from vehicle manufacturers, clothing, chemicals, food and so on. And let me talk about the institutional clients, I would like to mention that we support that through the acquisition of allowing to institutionalize the financial assets and only to provide liquidity to asset managers who run our business. Actually, in addition to that, we have been able to support our clients in different ways in terms of credit portfolio management, which means postponing some maturities of the loans that will expire in the coming months. Also, new lines of renegotiation as a way to allow our clients to better manage their cash flows. And also providing to the middle market clients 90-day grace periods also to support them in the cash flow management. Overall, as you know, our product concentration is something that we take care in our strategy. Nowadays, the 100 largest debtors in our portfolio if we can, is 15% of the credit portfolio in terms of volume. And also, our largest credit concentration by sector, we see that represents only 3.6% of the total credit. So that's important to mention because, diversification of the credit portfolio in this period of crisis is even more important. Turning to the next slide. What we have in here is some information about the treasury, the wealth management services and investment banking. In terms of treasury, considering the history chart, volatility is all over the place, not only in terms of the equities market, but we have seen the same volatility in the fixed commission, the credit and also in some specific markets such as FX. Banking activity is pretty much a result of the uncertainty in terms of the GDP growth, not only Brazil, but also for the entire world. And I would expect that volatility will still remain for a while, until we have a clear view on what would be the impact in the [indiscernible]. Talking about the management services, 2 points to highlight here. First, the migration that we have seen from equity is typically from assets, which was alluded, is extremely important as a way to manage the investments of our clients. And another good thing is that you've seen some of our funds performing extremely well even in this scenario of high volatility. So we are happy with the kind of the performance that we saw in March from those clients. In terms of investment banking, it's important to mention that we're not seeing capital markets since the beginning of March, which means after, we have no way our clients can access capital markets, we will see the volatility relatively soon. And of course, we're going to be able to maintain our robust top line that's already viewed in the last 3, 4 quarters as [ evidenced ] by our clients, now want to have [indiscernible] of the volatility and reopen our capital markets [indiscernible]. The next slide is to mention an important thing that we have seen in terms of providing a constant communication to our clients through different channels. It has been extremely helpful to them, to bring in new information with the leaders in the digital markets, especially investors as well, politicians, CEOs, economists and some others, to talk about the situation that we are facing and how they are planning the future of their companies or the future of new policies, approved policies that would stay around. So overall, we have been able to reach thousands of clients through those podcasts and lives that we are providing especially to private clients, seasonality clients and institutional clients as well. And of course, the suppliers in general. And finally, I would like to mention about Latin America in the next slide. So the first important information to share is that the liquidity and the capitalization level of each one of those countries are competitive with our, [indiscernible] and we have had contact today with them, especially the strong movement that could stay in the market, but managing profile of those 2 markets. And we wanted to mention that we have a diverse team in terms of complexity, each one of those countries. So just to give an idea, Paraguay, Argentina, Colombia, right now, are in total quarantine, which means there is only essential services in those countries, which is just as we have in entire -- the East Brazil, but it's still -- it's not in total quarantine at the moment. The most important thing that I would highlight to you is that over the last 4, 5 years, we have been able to create a franchise with an integrated framework that allows us to manage not only our Brazilian operations, but also the operation of those countries pretty much the same way, of course, respecting the local particularities. But we have been able to address, especially in this crisis. The key point in each one of those countries, as always, to provide the best policies and the best initiatives, in each one those, very coordinated with the government and franchise. So that's the 2 points that has really supported us in terms of managing the risk throughout the region. So based on that, I would like to ask Mario to share his view about the macro. Please, Mario.

These are indeed exceptional -- thank you very much, Caio. These are indeed exceptional times. We are following developments in Brazil. We showed that in Slide 31. The number of deaths is rising here, about 500 people already. It's not the worst case by any means, but it's still relatively early days. So we will see how this progresses going forward. One of the consequences of this pandemic is that it is -- one of the reactions is social distancing. And one of the implication of social distancing is that compiling economic statistics, economic data, becomes a bit more tricky than usual. And in order to help this decision-making process of our executives, we are more and more relying on our own data. We have established or developed an internal daily activity measure for Brazil. This shows a tremendous drop in the mid part of March, followed by some stability that is based on data that we can see in the bank regarding spending on goods and services and also the consumption of electricity by manufacturing in Brazil. Activity is now some 35% below what it was before the crisis. We think it's also not the lowest point. We've seen it was bigger than that a few days ago. It's recovered a little bit, but we think as long as the lockdown measures continue in Brazil, activity is going to suffer some more before we start to see a more sustained recovery some weeks down the road. We are living in extremely uncertain periods. And we highlight that in the following slide, in Slide 33, we show that in the line there, we have different dates for the lifting of the lockdown. And on the columns, we have different speeds for the recovery from the third quarter. And what you see is, a sea of red number -- of negative numbers, right? We are going to have a recession in Brazil, a recession that can be from minus 0.5%, it's not likely, to a much deeper recession if we have a protracted lockdown, followed by a slow recovery. And the one thing to notice is that in this table, we tend to move diagonally from the top right-hand side to the bottom left-hand side, meaning that the more protracted is the lockdown, the weaker the following recovery tends to be. Again, an extremely uncertain environment, unfortunately dominated by the prospects of a significant recession in Brazil, significant to severe recession in Brazil this year. With that, I pass over again back to Candido for his final remarks. Thank you.

Thank you, Mario. So I think that this chart, I mean, shown by [indiscernible] gives the degree of uncertainty of the times here. I can't think of another time in Brazil when in March or in April of the previous year, we were trying to forecast the GDP growth for the year, and you would end up with a 6% disparity between the lowest and the highest half, minus 0.5% to minus 6.5%. So what we tried to show to you during this call is that despite this very high uncertainty, we have been able to react to the crisis on a very strict and efficient manner. And this was enabled by our previous work with people and technology, our governance and risk control, the strong ties, cultural ties among our people and the bank, and the ability of the financial systems. We and other banks, I mean, to work together in proposing solutions that will enable with the banking system to insert liquidity in the economy as a whole. So with this, I conclude my remarks, and thank you for your attention, and we'll move now to the questions and answers.

[Operator Instructions] Our first question is to Candido Bracher from Jason Mollin of Scotiabank. How would you compare this COVID-19 crisis shutdown versus 2018-2019 (sic) [ 2008-2009 ] financial crisis in terms of: one, liquidity; and two, expected loan losses for the banks; three, main segments, corporates, SMEs and individuals?

The sound was not too good earlier. I understand that the question is to compare this crisis with the 2008-2009 crisis in what concerns liquidity, loan losses for the -- in the segments we serve. In terms of liquidity, I think we could clearly see that parties, not only in Brazil, but in the whole world, headwinds are lesser after 2008 crisis. The reaction was much faster, much swifter. The crisis met a financial system, which was much more capitalized, less leveraged than in 2008. So this crisis was much easier to deal with from the liquidity standpoint. And the regulators, in general, have been much faster to react. In Brazil specifically, this is true. The 2008 crisis, as you know, in Brazil was not as intense as it was in other -- in developed markets. But the Central Bank of Brazil in this crisis reacted very fast, injected liquidity in the market. So this is a much lighter crisis in what concerns liquidity. In what concerns, loan losses for the bank, expected loan losses for the bank. It's too early to say how we will describe, expect the loan book, how you will describe the impact the loan book of the banks. It will depend on 2 important variables: one being the duration of the quarantine; and the other being the amount of fiscal intervention in the economy by the government. Having said that, you remember that in the 2008 crisis, Brazil was not too severely hit, but we had the problem of the derivatives, what we called then the toxic derivatives, which have provoked a huge investment in some corporates, especially large corporates. And this, I mean impacted the loan book of the banks during some time. In this crisis, we have nothing of the type. I mean, there was not a high leverage in the economy, I mean, we see the corporate sector very much leveraged, leveraged but on normal terms, neither the individuals. On the other hand, this crisis is much more serious in the sense that companies and people, I mean, stopped working. So they start selling, the inflow of cash will be severely reduced. So this probably will need rollovers, will need an increase to their debts, and sometime in the future could be able to repay them. So I think, I mean, depending of course, on the intensity of the crisis, we do believe that the credit effects of this crisis for at least the whole of 2021.

Our next question is to Marcio Schettini from Mario Pierry of Bank of America. Can you discuss the effect of your fees on the crisis? How effective is the app in mobile in the duration of your businesses versus the branch? How much has your branch traffic declined?

Okay. Thank you, Mario, for the question. Regarding the impact in our fees as we have anticipated, so we will not bring figures related to end of this quarter in this call. But I can answer the few other questions related to the effectiveness of our digital channels and also what did happen with the volume of transactions in our physical branches. We have today, as a baseline for individuals, our digital channels being responsible for something like a 16%, 17% of our total revenues. And we have seen an increase of almost 30% in our -- in the use of our digital channels. So we expect to have an increase of revenue generation in digital channels. For SMEs, the contribution for the digital channels in terms of revenue generation is around 30%. And we also had an increase of 30%. So this 30% will probably come up to 40% during these periods, during this crisis. Regarding the volume of transactions in our physical branches, we had seen last week, compared to our baseline, a decrease of 50% in terms of volume of transactions in our physical branches. We were not seeing this up to the beginning of last week, but we finished last week with this drop, what means that we have seen a change or a shift for electronic and also these digital channels.

Our next question is to Milton Maluhy, from Nicolas Riva of Bank of America. Does the announcement today from the Central Bank mean that you cannot pay any dividends until September 30? Or that you cannot pay any dividends above the 30% minimal payout? Two, assuming you cannot pay any dividend, does this affect your ability to pay the coupon on your perpetual bonds?

Well, for the questions. First of all, what it says is that we cannot pay dividends above the minimum that we are obliged to. So I'm just talking about 25% of minimum that we still -- we can still pay. And the second question is, if it affects the coupon of our bonds. No, it doesn't affect the coupon or critical debt. So even with this restriction, we can keep on paying the coupon of our bonds.

Next question to Candido Bracher, from Eduardo Nishio, Plural. For the past few years, regulators and politicians have been pressuring for the system to increase the competition to higher taxes for banks, away from the usual stance of a solid financial system. This particular crisis has probably proven that having a solid financial system is paying off. Still we see political initiatives to increase the CSLL from 20% to 50% at this point of the COVID-19 crisis.

Thank you for your question, Nishio. I think you are right in noting that, I mean the fact that the financial system is sound and capitalized, has been fundamental for the swift way which it's reacting to the crisis. And I think this is valid for Brazil. This is also valid for other parts of the world, but it's especially valid from Brazil. It's really showing the value of a solid financial system in a situation of crisis like this. When you mentioned in -- the initiative to increase the social contribution from 20% to 50%, and other measures like this, I think this is democracy working. You cannot expect that every Congress member will be an expert in economy and will know how to evaluate the consequences of the measures they, the economic consequences of some the measures which are proposed. But this is why -- I mean the Congress then has all the commissions, then has the way of discussing these things. And I think, I mean common sense at the end prepay. So of course, I mean lifting the tax to this level, I mean it would be very damaging for the economy as a whole inasmuch as it would help the possibilities of the banks to deal with the situation, to insert liquidity in the economy as they are requested to do in a situations like this.

Question to Marcio Schettini from [ Flavia Fulla Funis ], [indiscernible]. What has been the impact of the crisis on the cards payments business? Can this situation lead to consolidation or a new round of decrease in fees?

Thank you, [ Flavia ]. We have seen a huge impact on the dynamics of this market during the last 3 weeks. We had seen a decrease, around 50% in terms of sales, what impacts the issuing and also the applying business. And it is the same for debit and for credit. We have also seen a huge demand for working capital for all kind of segments on the acquiring side, what put us in a very, I think, competitive position to serve big customers and also medium and small customers. And we expect to continue to see this trend during the next 2 months. Regarding the last questions, where you asked about some impacts that came to stay, like a decrease of fees and things like this, I think that is very early for us to anticipate any trend. And it's also difficult for us to also imagine any consolidation move on payments and also on the card business.

Next question to Caio Ibrahim David from Jason Mollin, Scotiabank. Can you talk about the details related to the acquisition of financial assets from core clients? What that BRL 2 billion you mentioned, what -- did that marketing prices reflecting the recent declines?

Well, I think Caio's having some issues with the connection. Caio, can you hear us? Okay. So let's do the following. Caio will be connecting. I can give the answer now for that and if Caio wants, he can complement. The Central Bank of Brazil released one of the credit lines in the market specific to do repos with assets that could be bought in the secondary market. So those BRL 2 billion, most of it has been done by those lines. We did input an amount as well with our own cash flows. All the assets, were bought with market price. So yes, market price reduced our own liquidity to give liquidity to the secondary market and also the Central Bank released a line to grant to the banks to do repos in the secondary market for those specific assets as well.

Our next question comes from [indiscernible] to Candido Bracher, [ Euromoney ]. Question on corporate banking. As they search for liquidity even large, highly rated Brazilian corporates are reporting a large increase in the cost of new credit during the crisis, around 3x the spreads compared to the precrisis. Do you have any comments on this? And were you worried, will change the notion of corporate's sense of what a relationship bank means after the crisis?

Thanks, [ Rob ] for your question. I think it's an important one. I've had all my career in corporate banking, in wholesale banking, it's almost 40 years now. And I think we have always, because I work and characterize ourselves as a relationship bank. What does it mean to be a relationship bank in a situation like this? It means basically to be present to your clients, in this case, to your corporate clients. It means to take the calls, to be open for discussion and whenever possible, to have private lines open for them. These companies, in the past 2 or 3 or 4 years, have gone to capital markets rather than to bilateral loans with it. And this is very good. Capital markets in Brazil have flourished. They have supplied the need for these companies for our large corporates, especially the first-class corporates, basically for cash, and this was very good. When the crisis arose now, in the beginning of March, you have seen, we all have seen the spreads in the corporate bonds increasing tremendously. We ourselves have a perpetual bond, which was paying about 5 -- was yielding about 5% a year before the crisis. With the onset of the crisis, it came to almost 15% a year, and now I think it's around 9%. The same thing happened with bonds from Petrobras, from Vale and from every other important Brazilian corporate. So in this moment, in the first moment of the crisis, most of the companies wanted to do a test of liquidity. And we were there to help them do this. The increase in spreads in large corporations, spreads are dealt case-by-case, was but a fraction of the increase in the risk perceived in capital markets, which was transparent in these bonds. So I am very confident that all of these companies see that they have in Itaú Unibanco, in Itaú BBA, specifically, a relationship bank, which will keep on being the partner for the times to come. Thank you.

Next question to André Sapoznik from Geoffrey Elliott, Autonomous. Are there examples of practices, which you expect should change permanently following the epidemic rather than go back to normal after COVID has passed?

Jeffrey, that's a great, great question. And this is one that we have been entertaining during our spare time, not that we have a lot of spare time during this crisis, but something that has given us food for thought. We've all been reading that the world will never be the same after this crisis. And I certainly agree to that to a certain extent. Some of the things or changes in practices that we're seeing that I'd like to comment. First is digital adoption. Every time that our customers, both individual and commercial customers, are inclined to adopt digital solutions and digital journeys to make that relationship with the bank very effective. What we see after those moments is a very interesting residual value. So the first thing we see is that we're probably having a surge in digital adoption, in digital practices and contracts being done digitally. And we've seen a lot of flexibility, not only from our customers but from the society in general, from courts, from regulators to accept digital transactions with the same value that physical transactions would have. So first thing I would comment on is digital adoption. Second thing that occurs to me is ways of working. What we've seen is that and the widespread adoption of agile management and agile development. One -- some of our consultants let us with partners of the consulting company in Asia and in Italy, to learn what financial institutions in those geographies have seen from their day-to-day operations. And one very interesting comment, which was made by the Asian partner of that firm was that all the banks who are already working in agile shifted to remote agile very fast. But all the banks who were working in a very traditional way, a waterfall way of developing products had a lot more difficulty in adapting to home office. So we have been investing for a couple of years in making our workforce work in agile and integrating technology people, business people to develop the solutions. And we see that as a very important lingering effect of this crisis. Also in the ways of working the adoption of home office, which I would say that we were doing timidly, shyly and testing and very worried about how we control the environment. Basically, we had to take the plunge here. We had to actually very actively promote home offices and remote working. And it's working very well. We've seen the productivity levels be the same as they were before and in some cases, even better. So we understand that the adoption of a widespread home office solution, and that may be shared between physical presence and home presence and keeping the ceremonies and keeping teams connected, that is also something that the crisis is probably bringing us for good. The third comment I would make would be efficiency. I mean, on this crisis, one of the things that you have to do in a very pragmatic way is to go back to the basics, to do -- to understand what is key, what are the needs to have and what is nice to have and actually become -- be very efficient and become more efficient than we were. And there's a lot of lessons in efficiency that we are driving from this crisis, which will probably be with us for a long period of time. A fourth comment I would make is a consolidation and an advancement of the culture of the organization. We're seeing a lot more pragmatism. We're seeing a lot of leaders emerge and leadership practices, which connect people who are in different geographies. We're seeing a lot of collaboration, intense communication and to a very interesting extent, solidarity, people helping each other across organizational lines. And we think that yields a better culture for a better bank. And the fifth and last comment I would like to make is on the institutional dialogue. We've seen that working together with other banks, with competitors, with regulators and with the government, to actually build the solution has come into put. And actually trying to help the society as a whole overcome this very difficult crisis has increased the level of dialogue to a new level, which we understand, this is where it should be all the way. So we hope to maintain that institutional dialogue on a new level.

[Operator Instructions] Our next question is to Caio Ibrahim from David Maher, Wells Fargo. Itaú, similarly to other large Brazilian banks, counts with financial bills or Letras Financeiras for funding. Have you seen any reduced liquidity in this market? How do you expect the availability of this funding source to behave during the crisis?

This is Caio Ibrahim here. Thanks for your question. Of course, as in all, Letras Financeiras are one of the most important funding source for the banks. And we take that also as very [indiscernible]. I think that's the [indiscernible]. Plus what you have seen in the crisis, a question of the pricing. So of course, we have a chance to get the most through this, on this bank. At that [indiscernible] of the bank. So overall, what you've seen, based on our high liquidity, we do not need use Letras Financeiras Actually, on the other hand, you're seeing that...

Caio, I'm sorry to interrupt you. Your line is very bad, and we can't hear what you say. So I'll return back to webcast. They will pose one question to you to Milton now, while they change -- try to change you to another line. If they can't change you to another line, then Milton can take this question. Thank you. Can we go to the next question? And then it's the case, if Caio cannot connect, I can answer that, please. So now Milton, the next question from Carlos Gomez-Lopez, HSBC. On the dividend again, the middle minimum for earnings distribution is 25%. But we understand the bylaws of the bank have a higher level, 35%. Does the Central Bank ruling supersede the bylaws? And can the dividends be paid as interest on own capital?

Okay. So Carlos, thank you for the question. First of all, in our bylaws, we have 25% of dividends, which is in line with this resolution of Central Bank, okay? So bank release, we will keep the same definition of the Central Bank of Brazil. And this is also valid for interest on capital, not only dividends, okay, for both.

Excuse me. We are now ending the Q&A panel and the webcast. I would like to hand over to Mr. Candido Bracher for his final thoughts.

Thank you very much. So thank you all for your interest, for attending to this call. We hope we have been able to convey to you, I mean, our position, vis-a-vis the crisis and how we are working in order to be prepared to fulfill our role, in talking to, in the economy in these difficult times. Thank you very much.

Thank you. This Itaú Unibanco Holding webcast is closed. We thank you all for participating. Have a good day. Thank you.