Brazil ‘Needs to Improve Its Regulatory Landscape to Build a Better Financial System’

Even as GDP growth slows, Inter is expecting to benefit from lower interest rates and grow its portfolio in 2024, the digital lender’s CEO tells Bloomberg Línea

Banco Inter de Brasil apunta a expandir su cartera de crédito por hasta 50% en 2024
October 31, 2023 | 02:00 AM

Miami — João Vitor Menin, CEO of Banco Inter, says the outlook for the Brazilian economy and the general business climate remains positive ahead of 2024, while lower interest rates are poised to enable market share growth for the digital lender.

Menin said during an interview with Bloomberg Línea in Miami that he expects to see Inter’s loan book grow by 40-50% next year, even as GDP growth slows in Brazil, the bank’s main market.

He also anticipated a double-digit return on equity (ROE) for Inter in the coming year, highlighting the bank’s current and managerial ROE, which is already at double digits. With a goal to outperform the competition, the bank is also aiming to further penetrate Brazil’s trillion-reais mortgage market.

When discussing the role of AI, Menin is optimistic about how it will facilitate cross-selling and engage clients more effectively.


A simple and all-in-one app that doesn’t overcharge or underserve clients, and that has better UX and UI than most large US banks will be the key for Inter to grow in North America under the Inter&Co brand, he added during a conversation on the sidelines of the Americas Society/Council of the Americas’ (AS/COA) annual BRAVO event.

Jarrod Dillan, presidente de Operações Comerciais do Orlando City, e João Vitor Menin, CEO do Banco Inter, em evento nesta quinta-feira (14 de setembro de 2023) no Exploria Stadium, estádio do clube da MLS (Foto: Divulgação)dfd

The following conversation has been edited for length and clarity.

Bloomberg Línea: What is your view for the Brazilian economy and for the business climate in 2024, given the high interest rate environment?


João Vitor Menin: The macro environment in Brazil is good. Brazil has some things that are positive for doing business, such as a good legal framework for banking and construction, as well. Though we have had high inflation, it’s starting to settle and interest rates are going down. That’s going to be very helpful for companies, families and individuals. In Brazil we are used to working in a scenario where rates and inflation are high, so it’s easier for people to adjust. But with the rate going down I believe that we can have more investment, not only foreign investment but also from local companies and the government. We don’t have a huge market share on our credit portfolio, so with the interest rates going down, we’re likely to gain more market share in all the products that we have: mortgages, home equity, payroll loans and so on. So it’s very good momentum for us.

What risks do you see in the Lula administration’s fiscal policy going forward into next year?

Fiscal issues are important in every country. Brazil, US, Europe, wherever. So you need to have a very disciplined way of doing your budget, because if you are always spending more than you earn, it can hurt a government, a company or a family. You get in trouble, you lose credibility and then inflation will return. The effects would skyrocket, so we really need to keep an eye on that. I would say that we have some good things going on, some things that need to be adjusted, but overall I would say that Brazil, not only in this administration but for the last 10-15 years, has improved on understanding that the fiscal issue is important for any country.

What are the main credit segments that you will be focusing on to grow your market share in Brazil?


We have always been very strong in the mortgage business. In Brazil it’s the biggest credit portfolio in the banking industry, close to one trillion reais. So we will keep gaining market share there and it’s easier to do so with rates going down. We are also very strong in payroll loans, which are very popular in Brazil. A low-rate scenario is important because with payroll loans you have the portability from one bank to another. So with that we can gain more market share. One of the reasons why we can be aggressive in gaining market share on the credit portfolio is because we have the best funding in Brazil. Believe it or not, better than Itaú, Bradesco or Banco do Brasil. So funding from 30 million clients that can do all the products through the app, plus a good macro environment is a perfect combination for us to grow the portfolio in a sustainable way. We have all the elements in place to keep growing. And we can, because we are not Itaú, which has like 25% of the market share. We can grow let’s say at 40-50% year over year on the credit portfolio without the need for GDP to grow 5-10%. We have room to expand, and we have the tools.

Beyond your credit strategy, where will Inter be investing next year? Where will you be focusing on?

Around 35% of our revenue stream comes from the services that we offer in our super app. So we are always investing a lot in launching new products, new features, or what we call the ‘NBA’, non-banking assets. So for instance, we have our shopping, FX and insurance initiatives or our loyalty program that we just launched. So we want to invest also next year in this segment. By doing so we can increase or at least keep this 35% from fees on top of our revenues. And therefore our ROE can improve, because this is something that we don’t need equity for, as we have no non-performing loans. So it’s a very good place for us to put our energy, our technology team and so on.


We’re seeing an AI revolution. What role is that trend playing at Inter? How important is it in making the operation more efficient?

AI is changing almost everything, all the industries in the world. The good news for us is that we are prepared for AI. We were the first retail bank in Brazil, and still the only one that has migrated 100% of our data to the cloud. And not only that, we have all the data lakes in the microservice working in a very coordinated manner. It’s not because we’re smarter and have more money to invest in technology. We started the retail business from scratch five or six years ago. So we have no IT legacy systems. We’re able to design everything. That means we can combine our digital-first retail banking technology with AI, our data lake and our CRM capabilities. So we engage 100% of our clients through the app. And we already have some initiatives, such as underwriting for credit cards. So I’m very excited about AI. I believe it’s going to make it easier for us to cross-sell all the products that we have on the platform to many more clients. It will help us to farm rather than hunt.

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Is this the main trend to watch closely in the Brazilian banking industry next year?

No, I don’t think that’s the main trend. It’s important. And of course we have this big buzz around AI, but I don’t think it’s the main trend. We have other things that we should be looking closely at, such as the regulatory issue in Brazil. The interest rate is something important for the banking industry.


What are the main concerns in terms of the regulatory landscape?

So what happened in Brazil, and I believe that this will play out in the US soon, it played out in the past and I think it’s going to repeat again. So we had in Brazil this huge oligopoly in the banking system. Four or five banks with 85-90% of deposits. They were underserving and overcharging clients, which was not good, and the regulator was very wise to realize that and say: ‘So, if you want to have a society with a decent debt service, a decent banking system, we need to promote more competition, and in order to do so we need to change some things’. So they improved the regulation, for instance, to allow a client to be able to open a checking account online, Pix, some limits on very expensive fees, and this promoted the competition. As of today, I mean, we’re almost done, I would say, but you see the central bank still trying to push for some more initiatives, such as a cap on the interest rates on the credit card business, and I believe that’s something to watch closely. The good news for us is that most likely everything that might come will be beneficial for us, because our cost to serve clients is really, really cheap. I would say one-fifth of the cost of what the big banks have. Our funding is better than the big banks, we have our clients, we have our products, so I mean, we’re the ones that are going to have it best in any type of environment. We need to keep improving our regulatory framework to have a better financial system in Brazil.

What is your view on Latin America’s demand and adoption of crypto?


Like AI now, crypto was the hot topic for the last two years or so. Like most new technologies, at the beginning you have these problems, and we had a lot of issues with crypto. So I see it as something for the mid to long term for crypto to have an impact on the way we understand the banking and financial industry in the world. We don’t have exposure to that, and we don’t think it’s something that’s going to be a differentiation for our customers, for our value proposition. We see some demand, but with these ups and downs, we see some of the clients actually being more skeptical about trying to invest in this space. So I don’t think that’s going to be a big thing for next year.

How does Inter plan on differentiating itself from the competition in the US market, and what benefits do you expect to see from the alliance with Orlando City soccer team?

Back in 2016 when we started in Brazil, everyone argued that it would be impossible for us to compete, because as I mentioned, these four or five big guys held 90% of the market, they had 25,000 brands, very strong brands, supposedly very good IT systems, which were not good at all, and they had all the clients. But this is exactly why we realized that there was an opportunity for us to disrupt this market. We came in with a better value proposition, better technology, and aggregated non-banking needs, such as shopping, embedded in one app. What we see here in the US is almost the same thing that we saw back in 2016 in Brazil. We also have four big banks underserving most clients, overcharging as well, and without a good UX and UI at all. If you take the big guys like Bank of America, they bought Merrill Lynch, but for you to have a brokerage account, it’s a different app. So we offer a very simple, easy to use app, and also without all the fees. We believe that we’re going to be a product that will gain quick adoption and also good referral amongst our clients. Referral has been very important for us in Brazil, without the need to spend a lot on advertising and acquisition costs. We want to replicate our mindset, our software here in the US. Out of our seven verticals that we have at Inter, we already offer four of them here in the US, so most likely by the end of next year, we’ll have all the offerings here, and so we’re very excited. Regarding Orlando City, we did the same thing in Brazil in 2016-2017, when we sponsored São Paulo FC. It’s going to help us to showcase to the market that we’re here to stay. And not only Orlando. We’re planning to do some other stuff down the road, it will help us to showcase the benefits, the value proposition of Inter in the US. They have been great partners for us, and they are based out of Orlando, which is the most Brazilian geography in the United States.


What sort of a year can we expect in terms of profitability for Inter in 2024?

I don’t think that the rates are going to impact our profitability. As we mentioned, rates are going down, and it’s going to be positive for our bottom line. This year we should top mid-single digits on ROE. Next year, we’re just starting to do our budget, but most likely we believe we can print a double-digit ROE. We have our current ROE and our managerial ROE, because we run our bank with a Common Equity Tier 1 capital (CET1) of 23%, and the average in Brazil is 13-14. So our equivalent ROE is already at double digits as of today, our running rate. So this is a very good trend.

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