Incoming Itaú CEO expected to push forward efficiency efforts

Latin America's largest bank is about to get a new, younger CEO who analysts believe will help the company move more assertively — and efficiently — into the digital age.

Milton Maluhy Filho, Itaú Unibanco Holding SA's 44-year-old CFO, will shift to the chief executive role on Feb. 2. He is replacing Candido Bracher, who is stepping down after reaching the company's CEO age limit of 62.

Maluhy will take over during a unique period for Brazil's banking sector, with a pandemic still threatening the economy, record low interest rates putting pressure on margins and growing competition from rapidly growing financial technology space.

Analysts are optimistic that his CEO tenure will be defined by his approach to technological change and the pursuit of efficiency efforts.

"He has gone through different roles at the company and is very young, ingrained with the idea for Itaú to become a more technological, customer-driven institution," Ceres Lisboa, a senior bank analyst with Moody's, said in an interview.

It can also be more efficient. The bank had nearly 2,900 branches in Brazil and nearly 100,000 employees at the end of the 2020 third quarter. Personnel expenses make up 22.3% of revenue.

"Itaú is a very heavy bank," Lisboa noted.

The bank has already made efforts to lighten its physical presence and bolster its digital footprint. While it has not pushed into digital in the same way as competitors like Banco Bradesco SA, which has rapidly culled its branch count and launched a digital banking unit, Itaú has been working in a similar direction at its own pace. The new CEO could accelerate those efforts.

"We might see that model of the traditional branch model change more rapidly this year," Lisboa said. "The pandemic is an opportunity to cut costs."

In anticipating future strategy, analysts expect the incoming CEO's experience at Itaú to play a key part. With roughly 18 years at the bank, Maluhy has held roles such as head of acquiring company Redecard SA and chief executive of the bank's Chilean unit, Itaú CorpBanca.

The Chilean business is the bank's largest outside Brazil, and analysts expect his experience in the Andean country's low-rate environment to be valuable in leading the whole bank. "Itaú might be learning a lot from the Chilean operation in a competitive, very low rate ecosystem," Lisboa said.

The Selic, Brazil's benchmark monetary policy rate, has fallen dramatically over the past four years to a historic low of 2.0%. This new reality comes as unfamiliar territory for domestic players used to double-digit rates as the economy grappled with inflation in the past. An ultralow rate is now spawning deep structural changes in the industry, potentially shaping the future of banks in years to come.

According to Claudio Gallina, a senior director with Fitch Ratings, low or negative real rates "pose limits to banks ability to generate new good businesses and also calls for cost reduction. It represents more difficulties for larger banks."

Maluhy also will have to deal with Itaú's international footprint. Analysts expect the bank to remain committed to its ongoing strategy despite the crisis having hurt Latin American nations to a greater extent than elsewhere in the world.

"The bank will have to deal with its international strategy," Gallina said. Itaú has operations in Chile, Argentina, Colombia, Paraguay, Panama and Uruguay. Maintaining asset quality under control as well as profitability in foreign markets will be a key challenge for the new CEO, he added.