Itaú Unibanco Holding S.A. — 2020 Form 20-F Summary
Business context and reporting period
Itaú Unibanco is a Brazilian financial holding company with operations in 18 countries and territories. Its principal businesses are Retail Banking, Wholesale Banking, and Activities with the Market and Corporation. The filing is an annual report for the fiscal year ended December 31, 2020, prepared under IFRS as issued by the IASB. The source does not provide a separate, complete fourth-quarter income statement; selected fourth-quarter operating information is included where disclosed.
Key financial metrics
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Operating revenues | R$100,199 million | R$117,079 million | Down 14.4% |
| Net interest income | R$50,053 million | R$69,350 million | Down 27.8% |
| Non-interest income | R$50,146 million | R$47,729 million | Up 5.1% |
| Expected loss from financial assets and claims | R$(25,980) million | R$(18,567) million | Expense up 39.9% |
| Net income attributable to parent | R$18,896 million | R$27,113 million | Down 30.3% |
| Return on average equity | 14.2% | 21.8% | Down 7.6 percentage points |
| Recurring managerial ROE | 14.3% | 21.1% | Down 6.8 percentage points |
| Net interest margin | 3.3% | 4.5% | Down 1.2 percentage points |
| Total assets | R$2,019,251 million | R$1,637,481 million | Up 23.3% |
| Loan and lease portfolio | R$714,104 million | R$585,791 million | Up 21.9% |
| Deposits | R$809,010 million | R$507,060 million | Up 59.5% |
| Net cash from operating activities | R$59,491 million | R$35,160 million | Up R$24,331 million |
The average yield on interest-earning assets declined to 7.7% from 9.8%, while the average cost of interest-bearing liabilities declined to 4.9% from 6.0%. The filing reports adjusted net income for cash flow purposes of R$60,953 million and cash and cash equivalents of R$105,823 million at December 31, 2020.
- Loan mix growth was concentrated in corporate loans, up 33.5%; micro, small and medium-business loans, up 34.4%; Latin America loans, up 31.5%; and individual loans, up 6.2%.
- Allowance for loan and lease losses was R$48,322 million, or 6.8% of the loan portfolio, compared with 6.4% in 2019. Non-accrual loans were R$22,611 million, or 3.2% of loans, compared with 4.0% in 2019.
- The reported 90-day NPL ratio was 2.7%, down 76 basis points year over year. Coverage of 90-day NPLs was 319.9%, compared with 229.5% in 2019.
- Regulatory capital remained above requirements: CET1 was 11.5%, Tier 1 was 13.2%, and total capital was 14.5%, compared with 13.2%, 14.4%, and 15.8%, respectively, in 2019.
- Liquidity remained strong. The average liquidity coverage ratio was 194.6% and the net stable funding ratio was 126.0%, both above the 100% regulatory minimum. The operational liquidity reserve was R$323,212 million at year-end.
Material changes versus the prior comparable period
- COVID-19 and Brazil’s economic contraction drove lower margins and higher expected credit losses. Brazilian GDP declined 4.1% in 2020, while the SELIC rate ended the year at 1.90% versus 4.59% in 2019.
- Net interest income declined primarily because of lower interest rates, lower spreads, reduced income from repurchase agreements and compulsory deposits, and a negative fair-value adjustment. The weaker real also affected hedges of foreign investments, although the related tax effect generated a substantial tax benefit.
- Non-interest income increased despite lower card and acquiring fees. The principal offset was a R$3,996 million pretax gain from the sale of 4.51% of XP Inc. interests, together with a R$545 million gain from XP’s primary offering and dilution.
- Deposits increased sharply as customers moved toward lower-risk and more liquid products. Time deposits increased to R$491,234 million from R$277,166 million.
- Reported credit costs rose as management increased forward-looking provisions and changed the weighting of economic scenarios. The allowance increased by R$10,814 million from 2019.
- Other operating expenses included unusual items: R$5,906 million of Itaú Corpbanca goodwill and intangible-asset impairment, R$1,047 million donated to the Todos pela Saúde initiative, and the continuing effect of the 2019 voluntary severance program.
Guidance, outlook, commentary, risks and unusual items
Management forecast Brazilian GDP growth of 3.8% for 2021, supported by vaccination, reopening, and monetary and fiscal measures. The filing also projected 2021 growth of 6.7% for the United States, 4.5% for the eurozone, and 8.5% for China. These are management macroeconomic forecasts rather than formal earnings guidance.
- Management expects continued digital transformation, growth in lower-risk lending, diversification of fee income, and further investment in technology. Digital account openings for individuals grew 108% in 2020 and represented almost half of total individual accounts opened.
- The proposed XP corporate reorganization would transfer a 40.52% interest in XP Inc., valued at R$9,371 million at December 31, 2020, to XPart S.A. for distribution to Itaú Unibanco shareholders, subject to regulatory approvals and completion conditions.
- In January 2021, the group issued US$500 million of Tier 2 subordinated notes due 2031 to finance or refinance green and social projects. Management expected the issuance to increase the Basel ratio by approximately 0.25 percentage points, subject to regulatory approval.
- Key risks include renewed COVID-19 outbreaks, Brazilian fiscal and political uncertainty, inflation, interest-rate and foreign-exchange volatility, deterioration in borrowers’ credit quality, exposure to Brazilian government securities, liquidity and funding costs, regulatory and tax changes, cybersecurity and data-protection failures, competition from fintechs, litigation, corruption investigations, climate risk, and the transition away from LIBOR and other IBOR benchmarks.
- The group held Brazilian federal government securities representing approximately 20.9% of assets and 67.5% of the securities portfolio at December 31, 2020, creating material sovereign and concentration exposure.
- The filing reports R$19,819 million of provisions for civil, labor, tax and other proceedings. Possible-loss tax contingencies totaled R$31,330 million; management states that probable-loss provisions are adequate and that no disclosed litigation is expected to have a material adverse effect, but outcomes remain uncertain.
Most important facts for investors to verify
- Reconcile IFRS net income of R$18,896 million with recurring managerial results and isolate the XP gain, Itaú Corpbanca impairment, COVID-19 donation, hedge-related tax effects, and other non-recurring items.
- Assess whether the improvement in NPLs and coverage is durable after grace periods and loan-reprofiling programs expire; verify the reported R$50.8 billion reprofiled portfolio and subsequent performance.
- Review expected-loss assumptions, including the 2020 pessimistic, base, and optimistic scenario weightings of 45%, 40%, and 15%, respectively.
- Monitor capital and liquidity buffers after dividends, subordinated-debt issuance, foreign-exchange movements, and any future regulatory changes.
- Verify the regulatory status, valuation, timing, and shareholder consequences of the proposed XPart spin-off and the expected additional XP investment.
- Review concentration in Brazilian government securities, Latin American lending, derivatives, and foreign-currency assets and liabilities.
- Evaluate the potential financial impact of tax assessments, savings-plan litigation, labor claims, cybersecurity incidents, and changes in Brazilian banking and tax regulation.
- Confirm the separate fourth-quarter performance, as the filing is an annual Form 20-F and does not provide a complete standalone Q4 income statement in the supplied text.