Inter & Co, Inc. (INTR) Q4 2023 Earnings Call Transcript

Inter & Co, Inc. (NASDAQ:INTR) Q4 2023 Results Conference Call February 8, 2024 11:00 AM ET

Company Participants

João Vitor Menin – Chief Executive Officer

Santiago Stel – Senior Vice President of Finance and Risks

Alexandre Riccio – Senior Vice President of Retail Banking

Conference Call Participants

Thiago Batista – UBS

Tito Labarta – Goldman Sachs

Mario Pierry – Bank of America

Yuri Fernandes – JPMorgan

Neha Agarwala – HSBC

Brian Flores – Citi

Operator

Good afternoon, and thank you for standing by. Welcome to Inter & Co’s Fourth Quarter Earnings Conference Call. Today’s speakers are João Vitor Menin, Inter’s CEO; Alexandre Riccio, Senior Vice President of Retail Banking; and Santiago Stel, Senior Vice President of Finance and Risks. Please be advised that today’s conference is being recorded and a replay will be available at the company’s IR website. At this time, all participants are in listen-only mode. After the prepared remarks, there will be a question-and-answer session. [Operator Instructions]

Throughout this conference call, we will be presenting non-IFRS financial information. These are important financial measures for the company, but are not financial measures as defined by IFRS. Reconciliations of the company’s non-IFRS financial information to the IFRS financial information are available in Inter & Co earnings release and earnings presentation appendix.

Today’s discussion might include forward-looking statements, which are not guarantees of future performance. Please refer to the forward-looking statements disclosure in the company’s earnings release and earnings presentation.

Now I would like to yield the floor to Mr. João Vitor Menin. Sir, the floor is yours.

João Vitor Menin

Thank you, operator. Good morning, everyone. I will start with a quick overview of our strategy to then pass this to Santiago to cover the operating and financial performance of Inter. As in prior calls, I will close with some final remarks and then open it for the Q&A section.

Our Investor Day held in Belo a year ago, we introduced our five year business plan known as the 60-30-30. This North Star means that Inter’s goal for 2027 is to achieve 60 million clients, 30% efficient ratio, and 10% ROE. When we announced it, it was received as a highly ambitious plan, and they have to say that the first year of our plan was a resounding success, much better than many [indiscernible].

Aside from being an important direction to the market, the point of the plan was to engage and drive our organization to our [indiscernible], and some as Armstrong Family Stack, a small step for men, one giant leap for mankind. We’re both humbled and proud of our progress. This is the first step toward profitability. But more importantly, it validates how sustainable our business model is.

To illustrate there, the progress in year one. As you can see, we achieved 30 million clients right on track, an efficient ratio of 51%, significantly ahead of scale, and an ROE of 9%, also ahead of the plan. As you can see, our metrics are stronger than expected, demonstrating our strong execution towards the plan. We have been able to combine growth, operational leverage, and profitability, while staying true to our core principle of always putting the clients first by innovating and bringing new solutions in our financial superpower.

This is only possible, thanks to our unmatched set of products that are organized across seven verticals. These are: banking, credit, insurance, investments, shopping, global and loyalty. This powerful engine that is our financial Super App is continuously evolving and improving day by day. Our wide set of products and services complement each other, creating a flywheel that brings together a complete ecosystem of financial solutions.

When I say clients connect to our solutions, I really mean it. For instance, we see strong acceleration in the adoption of new products. Today, we have more than 12 products with more than one million active clients. At this space, it’s highlighting that by the end of this year, we’ll have a new product that we didn’t even launch yet, and with more than one million active clients by year end. This is what happened this year, for example, with inter Loop and new booking.

This is the consequence of having what we believe is the best Super App in the Americas. With over 30 million clients, more than 4 million individual daily logins per day and a run rate TPV of over 1 trillion cards. With that said, I have no reason to doubt that the only possible direction in our profitability and growth trend is up. We have reached and surpassed the inflection point, and in 2023, we presented four consecutive quarters of consistent growth in net income, EBT, ROE and many other metrics. We are on the right track towards our long-term plans and we are thrilled to announce that. We are on track to deliver even better year two of our 60-30-30 plan.

Now, Santiago will walk you through our business updates. Thank you very much. San, please go on.

Santiago Stel

Thank you, João. Good afternoon, everyone, and thank you for joining us today. I would like to discuss four topics as we go along the presentation. First, clients and engagement. Second, the performance of the different business verticals. Third, our innovation capabilities, and fourth, our potential for further growth.

Before going through the numbers, I’d like to quickly reflect on what we said a little over a year ago in our 60-30-30 Investor Day. At the event, we said our mission to deliver the 60-30-30 was relatively simple but not easy, and that the most uncertain part of building Inter was already delivered from 2018 through 2022. Only a lot of focus and discipline is the key and the results we’re about to share demonstrate our team’s commitment to getting there.

Moving to the results, when we look at clients, besides surpassing the impressive mark of 30 million, we’re happy to announce a 135 bps improvement in our activation rates, which now stands at 54%, the highest level in eight quarters. Our efforts to boost activation include, but are not limited to improving onboarding, personalizing the Super App, streamlining customer lifecycle strategy, and offering high engaging new products such as Loop along with overall UX fine-tune. This combined with the lowest cap since 2020 brings us confidence in the future, adding our ability to keep the flywheel moving with low cap and by engagement, building stronger relationships for a seamless and complete experience.

To Page 13, we start talking about business looking at day-to-day banking. It makes us proud to see the robustness of our transactional business and that despite the materiality achieved, we see accelerated growth. The fourth quarter was of strong acceleration in our TPV, surpassing BRL250 billion. We see a consistent growth in peaks, which grew 45% in 2023 and an important 36% growth in the credit card volume, continuing our focus on gaining credit share against debit in cards. When we look at the full year, we achieved amazing BRL851 billion in TPV with over 1 trillion TPV at the fourth quarter run rates.

On a cohort basis, as presented in the right charts, we see another quarter of improvements on both new and old cohorts. New cohorts performance shows the consistency of our client growth strategy that starts with higher levels of engagement and grow faster.

I’d like to finish saying that the new cohort performance on top of the old cohorts that keep accelerating engagement puts us in a confident position for future revenue growth and margin expansion. The current clients alone can keep us growing for many years to come.

Moving to Page 14, I’ll talk about three verticals that are great representation of the powerful numbers the financial Super App ecosystem can generate. On e-commerce, we’ve reached 3 million clients and surpassed 10 million transactions in the quarter, another record. We also surpassed BRL1 million of GMV leveraged by our Orange Friday and the holidays. Launched recently, we’re scaling our Buy Now Pay Later partnerships with our app.

Now, we have nearly 150 merchants with which we offer these new payment methods. This is likely the engine that will fuel of the beginning of personal loans in Inter. On insurance, we also had another great quarter reaching more than 388,000 sales and 1.7 million active clients. Combining this, we reached a record breaking net revenue in this vertical of BRL47 million. A successful product to highlight is consortium, which grew 21% on a yearly basis, surpassing 38,000 sales.

Finally, on investments, our cutting edge product offering resulted in an impressive 66% year-over-year client growth, the highest adoption amongst our verticals beyond day-to-day bank. With increasing clients, our AuC reached BRL92 billion with 9 billion being third-party fixed income products distributed within our Super App. We also innovated by launching Meu Porquinho or Piggy bank, an incredible product that surpassed BRL1 billion in AuC and 1 million clients in just one quarter.

On global, as we move through Page 15, we see a quarter of strong success and some early signals that our global vertical is a big driver of value creation. We achieved more than 2 million clients and more than $360 million in the AuC and deposits. A 4x growth compared to 2022. The clients that are active in our global products have better profiles, are more engaged and adopt 3x more products than the average client. To continue having this great success, our branding strategy included some investments in the U.S. We became, in 2023, the official financial institution of Orlando City and Orlando Pride, U.S. soccer teams, and now have the naming rights of their stadium. We believe being in Orlando and connecting through soccer will not only bring awareness, but also create an emotional connection between Inter and the Brazilian and Latin community living and traveling to Orlando. It is worth mentioning that per year, more than 900,000 Brazilians visit Florida and that more than 400,000 Brazilians are U.S. residents in the states.

Jumping to our seventh vertical loyalty. We achieved 5.4 million active clients in the fourth quarter, adding 1.5 million in these last three months. And as we observe with our global clients, Loop clients also create better profiles spending on average 60% more than average on cards. Positive engagement trends have been observed in gamification initiatives as well. As we move along, we’re adding other ways to earn and burn points with almost the less additions being allowing our clients to convert their points into U.S. dollars in their global accounts. This week, we made available an option to pay with points for products in our marketplace.

As you can see, our Loop allows us to unlock value from all the other verticals in our financial Super App. Very excited to see the results of it.

Moving to Page 17, we see that 2023 demonstrated our unique capability to combine innovation in a year focused on efficiency. We launched many products such as PIX Crédit, Buy Now Pay Later, Overdraft and Loop. We also created a brand new version of our financial Super App to deliver an even better UX with personalized home screens to optimize our clients’ lives. As certain we were showing the financial performance section, we didn’t stop innovating while we’re continuing on the path to deliver operational leverage. We’re confident that our vendor proposition is best in class and that our next moves will keep us in the frontier we need to keep delivering.

Finally, and before I pass the word to Santi, I’d like to say that the best of all is we’re still in the early stages in every market we operate. On one hand, we were able to achieve material market share in multiple segments. In the other, there is a lot of room to grow in every one of these marketplace. We remain confident that we’re well positioned to reach our long-term North Star and continue to drive growth and profitability in the years to come as we increasingly deepen, our relationship with our clients. Team is ready, and our financial Super App is adaptable and scalable to navigate into those challenges.

Now, I’ll pass the word to Santi to present our financial performance.

Santiago Stel

Thank you, [indiscernible]. Hello, everyone. Now I move you through our financial performance section. Jumping into Page 20, here we can see strong acceleration on the credit side for growing our portfolio two consecutive quarters at 5% grew 7% to 10% in the third and fourth quarter respectively. Therefore, entering 2024 with strong momentum. Credit portfolio reached an impressive BRL31 billion mark, which is a result of growing 4x more than the Brazilian market average, therefore gaining significant market share across products as [indiscernible] mentioned before.

Moving to interest rates on the top of the page, we can see personal FGTS and real estate rates growing sequentially, while SMB, the only rate of the portfolio remain stable. We go deeper into full impact on rates on the mid pages.

Going to Page 21, here we go a bit deeper on growth by loan product. As you can see in the chart, we remain disciplined on growing the most profitable lines of best credit products, MCTS and home equity present the highest growth levels in insignificant scale within our loan portfolio. On credit cards, a successful approach of prioritizing credit limits to existing and strong portfolio clients [indiscernible] to increase by nearly 40% of the portfolio, while improving asset quality trends. Finally, in real estate and payroll with balance growth with repricing, we ensure that profitability continues to improve.

Jumping onto Page 22, we have a great quarter for asset quality with all the metrics improving this quarter. Starting with a 15 to 90 day MPL ratio, we saw an improvement of 30 basis points quarter-over-quarter. We also improved the 90 day MPL metric as well as the MPL has stage three formation metrics, each of them by 10 basis points. Finally, when we look at the delinquency of credit card by cohorts, we continue to see strong performance very quite in recent cohorts.

Jumping on to Page 23, we can see significant decrease of cost of risk, about 70 basis points. This dynamic was driven by underwriting and protection processes, producing cohorts with stronger performance. Coverage ratio remains stable at 132%. It is always worth to note that 70% of our portfolio is collateral, presenting lower average risk product. Overall, as we point in front, we see that the strong work balance data requiring risk management is paying off, is enabling us to start 2024 with positive trend.

On Page 24, we can see once again our leading franchise, which has almost 15 million clients trusting us with our deposits. Moreover, our transactional deposits represent 3% of our total funding, which is one of the best mixes of funding [indiscernible]. Funding accelerated 10% this quarter reaching almost BRL44 billion. At the product level is worth — 17% growth in transactional deposits which reach BRL14.4 billion.

Finally, we experienced growth in the average deposit balance per active client, which is BRL2,000 with a 6% growth versus the prior quarter.

On Page 25, we can see how our cost of funding continues to be one of our key competitive advantages. This quarter is reported 59.2% of CDI cost. Once again, we lower 60% margin than we expired to have. In terms of the all in cost, the improvement was a 100 bps going down from 8.2% to 7.2%. As leap further decreases, we should continue to benefit from this dynamic in the structure of our balance sheet that makes intervene that sensitive.

In terms of revenues, we had great year, reaching record breaking numbers in other quarters. We achieved BRL2.2 billion revenue in the fourth quarter and BRL8.1 billion. Net revenues growth by NII growth of 31% in the year. In terms of the income, we were able to keep roughly the same level of the prior quarter. The healthy growth on the main income banks just interchange banking and investments.

Moving to a unit economics page on Page 27. Gross monthly ARPAC reached BRL46 as we continue adding a strong number of market players every quarter. This combined with a stable cost to — led us to keep enhancing our gross margin per active client, we reached BRL17.7 on a net basis, which is our second best quarter ever. Finally, in terms of active clients brand which is a good measure for our work [indiscernible] it helps capture in [indiscernible] active client per employee.

On Page 28, we represent our NIM evaluate net cost of risk, which is because we have full picture of our pricing and risk management practices. In the fourth quarter, risk adjusted NIM reached the highest level in the year, the second highest level since 2020. This strong expansion is a consequence of: One, improvement on repricing of legacy real estate and payroll loans. Two, changing the longings towards the most profitable. Three, lowering cost of funding. Four, efficiency in the reserve requirements as a result of our new royalty program. For 2024, we see a continuation of this dynamic plus the scale of new product launches such as fixed credit and buy-now-pay-later.

Going on Page 29, we see the expenses that have been impressive. With most of the greater items remaining roughly in line with prior periods, we achieved a 1% reduction in the revenue compared to the prior year. This is a consequence of the focus on expense management. We still see a strong opportunity to continue delivering operational leverage.

Moving on to Page 30. Here we can see our efforts on operational efforts in more detail. In the next chart, it’s clear that in the fourth quarter of 2023, we are able to further increase the gap between the growth net revenues, growth of expenses. On the center, we had another impressive quarter of improvement in our efficiency ratio, leading us to end 2023 with a record low level of 51.4%. On the right side, you can also see an efficiency ratio net of cost of risk, with similar to the risk adjusted NIM also considers because of risk element. As mentioned, we had another five percentage points of improvement this quarter.

On Page 31, as you can see in the chart, our net fees continue to cover good percentage of our SG&A base which is currently at 70%. It is worth to remind again that the fees we have here [indiscernible]

Last but certainly not least, we couldn’t be prouder of what we achieved in terms of profitability. We delivered a record ROE of 8.5%, including our best ever net income by a BRL160 million, which on an annual basis translates to a BRL640 million combined by EBITDA. On a pretax basis, we reached BRL208 million, reflecting a remarkable 50% increase over the third quarter. These results working full stream [indiscernible]

Now I’ll pass it on to João for his closing remarks.

João Vitor Menin

Thank you, Santi. So since we launched our digital bank back in 2016, we have been focused on creating a unique platform that attracted tens of millions of clients, who engage with us every day and transact over BRL1 trillion last year. For the past two years, we entered what we call the compounding phase. This is nothing else than continuing to innovate and deliver the best for our clients, while starting to see the benefits of our digital banking model. These benefits are scalability, strong rate on fee income, strong NIM risk adjusted margins, best-in-class funding mix, and also highly diversified revenue base. We think that this year, this competitive advantage, it can clearly visible and allowed us to deliver even more than what we expect for our year one on the 60-30-30 plan. We are highly proud of what we achieved this year, both from our business and financial performance, and could not be more excited for what’s coming in 2024 and beyond.

Thank you for joining our call today. Now, we will start the Q&A session.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Mr. Thiago Batista from UBS.

Thiago Batista

I have one question about the PIX Finance. I know that this product is still in a kind of early stage on Inter, but can you comment your initial impression and how relevant this product can achieve?

João Vitor Menin

Actually, we are very excited with its credit. Just to put things on a context, we have 8% of the market share in PIX in Brazil. Everyone knows that. But most importantly, the UX UI for PIX credit is amazing. So most likely, we believe that we can outpace this market share for this product in Brazil going forward. A 100% of our clients use our app to transact. This is a good advantage for us. And last but not least, the economics for PIX Credits are amazing. They are better than the current credit cards scheme in Brazil.

So we don’t have the interchange. We don’t have the MDR for the merchant. So it’s a win-win situation. I do believe that it’s going to be a very profitable product for us going forward. We’re very excited. The first readings on the delinquency are good. Similar to the credit card, the rates are better. It’s a way more efficient product. I really think it’s going to be a game-changer for the payment industry in Brazil, mostly for the digital banks.

Thiago Batista

Very clear, João. Thanks and congrats for the results.

Operator

Our next question comes from Mr. Tito Labarta from Goldman Sachs. Mister Lobarta, we are now opening the audio so you can ask your question live. Please go ahead, sir.

Tito Labarta

Hi. Good morning. Thank you for the call and taking my question. My question is that, there were some margin pressures in the quarter. I think it was related to renegotiations and discounts that you did that also helped the cost of risk. Should we expect more of this going forward? How should we think about, I guess, both the margin and the cost of risk going forward from here? Thank you.

Santiago Stel

Thank you, Tito. Santiago, taking the question. What we continue doing this fourth quarter was, were we on the third quarter, which was to be a bit more proactive towards renegotiating the delinquent loans, and we did that, additional BRL30 million, we have an impact of additional BRL30 million from the NII into a cost of risk. Remember that we had a similar impact in the third quarter, relative to the second quarter. It was BRL30 million on the third quarter and now BRL30 million plus BRL30 million, meaning BRL60 million versus the second quarter now in the fourth quarter. That impact, draw cost of risk lower and it also impacted NIM, which is the reason why we incorporate this new method, which we call risk adjusted NIM that captures both variables together and we think it’s the proper way to see that we recorded a 5.0% risk adjusted NIM, the highest in the year and the second highest in the last four years.

Going forward, we expect the level that we reach now to continue. We don’t think we have more incremental changes in the levels, but we will expect to keep it as a percentage of the portfolio roughly at this size. We also incorporated a new disclosure regarding the stocks of the renegotiated portfolio, which is a feedback that we got from investors and research analysts, and that’s providing the press release for people to walk deeper on how that compares, really to the market.

Tito Labarta

Great. Thanks, Santiago. Maybe just one follow-up. We did see some improvements on the funding cost in the quarter, is there room to improve that more from here?

Santiago Stel

In the fourth quarter, the seasonality, to be honest, so we took the level below 60%, but around 60% is the level that we want to operate at. As we always say, the structure of our funding base or our funding franchise, it is a key competitive advantage. We will try to defend that as much as we can. We do think that, the worst moment of stress with us being at almost 14%, which could have had a shift towards the higher yielding deposits, didn’t happen. We continue having a strong funding mix and a 60% cost of funding with selling going down, we think we’ll be in a downhill or in a — with tailwind in the front of cost of funding.

Operator

Our next question comes from Mr. Mario Pierry from Bank of America.

Mario Pierry

Quick question on efficiency. As you showed, right, you have made significant improvements to your efficiency ratio, a lot of that because you were able to keep your costs flat, especially personnel expenses. So going forward, how should we see — clearly, your target is for efficiency to continue to improve, but I wanted to understand from your perspective, is this improvement coming from revenue generation or can you do more to reduce your cost structure? Do you have any initiative that, that should reduce costs or are we just talking about maintaining costs relatively growing in line of inflation, but revenue generation coming through?

João Vitor Menin

I’ll start taking that one. So what we saw throughout 2023, at the beginning we had certain low hanging fruits, so to speak, which we went very aggressive towards capitalizing them. If we look at the graph of the index, no of expenses and revenues in the second half, both grew, but the growth on the revenue side was materially steeper than the gross growth on the expense side, that is what we expect to see in 2024. We will invest more to continue growing, but the growth will be at a much lower rate, half or less than half the growth in revenues. And for that we have a fixed side and a variable side. The fixed side is mainly the personal expenses that is a number that will also grow at the inflation plus a few percentage points, but not too far from that. And then on the variable side, those are expenses that are more tied to the volume growth and those will grow at a higher level. But the growth, the improvement in efficiency will mainly be driven by revenues growing significantly higher than the expense growth.

Mario Pierry

And Santi, just to — like you showed that slide that you are almost halfway to your target for efficiency, and this was like a five year target. Do you think you are ahead of schedule on efficiency or was that the expected trajectory when you gave the guidance?

Santiago Stel

We’re definitely ahead — we are ahead the most. We went a lot more aggressive on expenses. And to be more specific, we have a project which is a project out or [indiscernible] in Portuguese. We launched this project at the end of April and that was the [indiscernible] 1.0 meeting every Friday morning. The senior leadership of Inter attacking all of the main line items in the . We had our first meeting of [indiscernible] 2024, the first Friday of the year. So we are starting a lot earlier. Obviously, now it will be tougher not to deliver incremental improvements, but the focus is there because we want to continue being above the level. We’re not going to have 20 percentage points improvement like we had this year, but we think that the concept of the digital bank like we have has a strong competitive advantage from the cost side, and that is something we want to continue delivering as we go along. This is a front where we will expect to continue excelling.

Mario Pierry

Great. Thank you very much.

Operator

Our next question comes from mister Yuri Fernandes from JPMorgan. Mr. Fernandez, you have the floor now. We’re opening the audio, so you can ask your question live.

Yuri Fernandes

Have one regarding recoveries, loan loss recoveries. It was a good quarter. We tracked this and it was BRL80 million. It used to be tracking around BRL40 million. Just asking what happened there, if it is level sustainable, if there was any kind of one-time recovery, because it was a good quarter for this line. Thank you very much.

Santiago Stel

Hi, Yuri. Recoveries typically, the fourth quarter has better performance as there is more money in people’s pockets and we see that on the funding side as well as we mentioned earlier. There is a bit of seasonality, but we are a lot more effective on the work being led by the underwriting team and recovery team has been spectacular. We expect to continue improving that metric, but the growth in the fourth quarter did had some seasonality. We have to compare the quarters versus the prior quarter of the prior year in order to make it apples-to-apples. But we think this is a front where there’s a lot to continue evolving.

Yuri Fernandes

Thank you, Santi. If I may, different topic, but quickly one. On the marketplace on Inter Shop. The net take rate was slightly down. Should we see this recovering ahead? Is this, like, promotions, I don’t know, Black Friday, Christmas? And should we see that the net take rate moving up back again? Or what is the message for that line? Thank you.

João Vitor Menin

Yuri, João Vitor speaking here. Just to compliment Santi on the previous question and then I’m going to answer about the marketplace. I think that most of the analysts remember that, I have always talking about three key elements for the credit card. Good underwriting, good product/good UX UI and good collection. And the renegotiation is a very important part of a good collection. We’re doing that similar to us for the client through our app in a very wise way and therefore, we have been improving the flow, the type that we make the collections. It’s a win-win situation. It’s very important.

Going to the marketplace, also, I mentioned in the past that we’re always trying to do the best balancing, trying to find a sweet spot between growth and profitability. And the good news are we have been able to shift from one to the other quite easily. Every single week, I have a meeting with [indiscernible]. All of you know the [indiscernible] the CEO of the Marketplace. And then we can decide. Do we have a strong time of the year coming in? Should we put the take rate the cashback, sorry, less competitive? Should it be more competitive because it’s a low season? We use that quite often to adjust growth versus profitability.

Having said that, I believe that, I don’t see a major change on the trends going forward for 2024. But if you have a good recovery on the retail in Brazil, we can’t improve the growth, I mean, the GMV, but also the net take rate going forward. So pretty much stable for 2024. That’s what we foresee for the net grid. But again, we cannot adjust that very easily and very often.

Operator

Our next question comes from Ms. Neha Agarwala from HSBC.

Neha Agarwala

A quick one on the revenue side. So you mentioned the cost to income improvement will be driven more by revenue growth. What are the main levers in your view that is going to drive revenue growth for 2024? What kind of loan growth should we expect for this year, which will further translate into stronger interest income and income growth? And probably you can touch upon the BNPL product that you mentioned on your platform. Maybe that could be one of those new levers for on the revenue side. And the second question very quickly, what kind of ROE should we expect for 2024? Something like a 12%, 13%, 14% seems reasonable. Any color on that, if not a number would be very helpful?

Alexandre Riccio

This is Alexandre speaking. I’ll start with the BNPL and then I’ll go through the growth part. So the BNPL is a new payment method that we incorporated into our marketplace. We see it as the consumer finance 2.0, so bringing more of the pool of revenues of the system into winter. And we see that as super positive. We’re fine tuning the model as we grow and believe this could be in the ballpark of BRL250 million by the end of the year. The context of the partnerships is a driver to reduce risk. So in the end of the day, we get take rates that range from 20% to 30% from our partners, and that helps financing the delinquency that we may get in the model and with the clients. The nice thing about the BNPL is that given the take rates from the partnerships, we can open it for a wider range of customers. So several million customers that don’t have a credit cards can buy with the Buy Now Pay Later within the app. We’re excited and it is one of the drivers of margin expansion as we drive through 2024. When you think about growth,

Neha Agarwala

Can I pause over there and just ask something very quickly?

Alexandre Riccio

Sure.

Neha Agarwala

So, it seems like for the BNPL product, you’ll do part on your own balance sheet and part with the partners, which allows you to get a fee income from the partners. Could you talk a little bit about what kind of proportions we can expect, 10% on balance sheet, 90% with partners or more like 50-50? And what kind of partners are we talking about? If you can name some, that would be helpful.

Santiago Stel

So Neha, in terms of balance sheet, it all goes to our balance sheet. So in practice, what happens is, for example, let’s say somebody’s buying a phone from Samsung for a BRL1,000 instead of dispersing BRL1,000 to pay for this phone and making this alone in Inter’s balance sheet, the disbursement may be of only BRL750, because Samsung is providing the stake rate of, let’s say BRL250. So we have a collection balance of a BRL1,000, but a disbursement of only BRL750. That’s the mechanics of how it works, and we will keep on expanding the partnerships so that the product can grow.

Neha Agarwala

So it’s just, essentially, just the take rate. The loan will still be, everything will be in your balance sheet?

Alexandre Riccio

Everything in our balance sheet, correct. On the growth aspect, we expect to grow beyond 30% this year. We’re excited. Like, the last fourth quarter was positive at around a 10% growth. We’re excited about 2024. The core portfolios will keep on growing. Home equity, FTPS, we’re excited about those and good start of the year so far.

It’s also nice to mention the expansion on the non-collateralized, right? Joao talked a bit about the PIX credit and we launched them last year, so overdraft, buy now pay later, which we’ve discussed, PIX credit, as Joao discussed. We also have bill pay using the credit card limit and we’re also allowing customers to put cash in their accounts using their credit card limit. We have a potential of a billion portfolio by the end of the year in these lines and they’re definitely going to be a margin expansion, a margin expansion product for us, so we’re excited about it. Thank you, Neha.

Neha Agarwala

Super helpful. Thank you. Anything on the ROE front?

Santiago Stel

I can take that one Neha. On ROE and net income, we don’t provide guidance, but what we said last year on the Investor Day was that we agreed with the sell side consensus of a 5% for 2023 and we delivered that. What we can say now, exactly a year after, is that, the flow or the curve of build up both in net income and ROE that we saw throughout the year should continue into 2024. We can’t get too much specific on that because then it they will become guidance, and we don’t intend to provide. But we see a continuation of the trend, that we’ve had last year coming into what is year two of the 60-30-30.

Operator

Our next question comes from Mr. Pedro Leduc from Itau BBA.

We have apparently lost connection with Mr. Pedro Leduc. Apparently is no longer in the room. We are moving on to the next question coming from Mr. Brian Flores from Citi. Mr. Flores, we’re opening the audio now so you can ask your question live. Please go ahead, sir.

Brian Flores

Hi. Thank you for the opportunity. Just a couple of follow ups on the answers that you provided. You mentioned you were excited about FGTS loans. The contribution to gross loans is around 6%. This has been increasing steadily. Just wanted to get a sense on how are you thinking about this segment? Any insights on the dynamics of the segment? And how should we think about the contribution going forward? So I think this is my first question.

The second one, Santiago you mentioned that in terms of the strategic plans, you intend to defend your deposit base. Can you share with us like, what are any — ideas on how to do this would be really helpful?

Alexandre Riccio

This is Alex speaking. May I ask you to repeat the question, please? We had a technical problem and couldn’t hear you.

Brian Flores

No problem. The first one was on FGTS loans. The contribution is around 6% has been steadily helping in terms of the total portfolio. So just wanted to think — to get a sense on how are you thinking about this segment? Any insights on the dynamics would be really helpful. And then the second one was on how are you planning to defend your deposit base?

Alexandre Riccio

So, starting with the FGTS, it’s a product that we like a lot, 100% ditched underwriting, good margin, high engaging product. And we’ve been able to do continuous improvement also operationally to make it easier for our customers to obtain their loans. We have a lot of returning customers. Having said that, we expect to keep on growing. It’s at 6% of the portfolio, as you mentioned, and we believe it could go get to around 10% by the end of 2024, as we move forward. So we are excited about it.

From deposit to — in terms of defending the deposit, it’s all about defending the transactional business, right? So we’ve been consistent on keeping peaks around the 8% market share. We’re going to work heavily to increase this market share as we move towards 2024. And with the transactional business, we’re going to be indirectly defending the deposit franchise, right? That is one of the strengths of Inter, the massive transactional platform we’ve been able to bring in along with also the investment platform. It’s super nice, but that’s the defense. The defense is to keep growing on the transactional business.

Operator

This concludes our question-and-answer session. The conference is now concluded. Inter IR area is at your disposal to answer any additional questions. But first, I’d like to yield the floor to Mr. João Vitor Menin for his closing remarks. Sir, the floor is yours.

João Vitor Menin

Thank you very much. So, first of all, I would like to thank our employees for the great year we had on 2023. We work a lot, we work hard, and we work with the right strategy, with the right focus, with the right North Star, which is our 60-30-30 plan. And I really feel that it’s no longer different on 2024. I see a red for the first month, our team engaged, motivated to also deliver another positive year on our 60-30-30 plan. We were chatting this morning about the priorities for the year, and I would like to say that I have two priorities for 2024.

The first one, to make sure that we also deliver another year ahead of the budget of the 60-30-30 plan. And the second, guys, to make sure that I’m going to stick with the first one. So that’s about that. Be focused, engaged, motivated, and I’m sure that we can keep delivering good results, both on a profitability basis, but also, very important, on a growth perspective as well. We are still a growth company. But combining these two elements, we could deliver it on 2023 and we will deliver it on 2024 again. I’m sure about that. Thank you, all the employees. Thank you, all the shareholders that support us for a while, that will keep supporting us. See you soon. Thank you very much. Have a good day.

Operator

The conference is now concluded. Inter IR area is at your disposal to answer any additional questions. Thank you for attending today’s presentation. Have a nice day.