Banco Santander (Brasil) Q1 2025 Earnings Call Transcript

Quartr
Provided by Quartr
April 30, 2025
Skip to Participants
Moderator

UNIDENTIFIED for our video conference on the results for the first quarter of twenty twenty five. We are live from our headquarters in Sao Paulo, and we will split this event into three parts. First, our CEO, Mario Leon, will talk about the main highlights of the quarter and the directions for growth in the coming periods. Next, our CFO, Gustavo Alejo, will provide a detailed analysis of our performance. And finally, we'll have a Q and A session.

Moderator

Well, I'll now proceed with some instructions. We have three audio options on the screen, all the content in Portuguese, all the content in English or original audio. To select your option, simply click on the button at the bottom center of your screen. The presentation that we are about to give is now available for download on our IR website. And with that I'll now hand over to Mario to begin the presentation.

Moderator

Thank you Camilla. Good morning everyone. It's a great pleasure for me to be here. It's two past ten. Are streaming live, presenting our the results for the first quarter of twenty twenty five.

Moderator

It's the beginning of the year, but it's the continuation of a journey. Here I have the main highlights. I think you probably saw all of that. Starting on the left hand side, we have consolidated numbers where we deliver net income of KRW 3,861,000,000.000 or KRW 3,900,000,000.0. This is net income almost the same as the fourth quarter of last year, slightly above an important evolution year on year.

Moderator

And it's important to deliver that because this shows the consolidation of an improvement conducted throughout last year, where we are very much focused on our strategy. Our profitability is slightly lower at the same level of the fourth quarter last year, '17 point '4 percent, a major evolution of over 300 basis points. Today, we will give you more details about how we arrived at this result. This is quite important. Certainly, there are some relevant and accounting evolutions related to 04/1966.

Moderator

We are the first listed bank to tell you more about how this affects the financial institution. There are several lines that were impacted by that 04/1966 resolution. We we made progress in our NII of 0.4 that involves market NII. And I think you already looked at that. There was a reduction, which was already expected, but the number is still positive.

Moderator

And there was also a positive evolution in the client NII made up of assets and liabilities. The impact in the first quarter was quite relevant. We never mentioned business days impact, but this quarter, business days had a relevant impact. And this led to a reduction in the NII of a few hundred million. But NII, I would say it's flat with some dynamics that I will further explain.

Moderator

And there are several positive impacts. On commission on the fee side, we have a difference between the fourth and the third quarters. Well, there are some dynamics that are positive and some others that throughout the year, we will focus on continuous growth. But in terms of fees, we still have more things to do. And all these strategic agenda is geared towards transactionality to create greater volume and also cheap deposits.

Moderator

In terms of cost of risk, there was a three basis points evolution, but in comparative basis, not the same. We will make comparisons of the different dynamics. The members follow different criteria. And from then on, we will build a new baseline, and I will comment further on about that. Our expense line is very much focused.

Moderator

There was some seasonality between the third and fourth quarters. There is a natural evolution in terms of year on year expenses, point 4%. We will continue to have year on year expenses lower than inflation. We will seek for a higher gap against the inflation, but this continues to be an agenda focused on discipline. In terms of the strategic drivers, I mean, I will give you more details about that.

Moderator

We are very much focused on building a very sound and resilient operation, increasingly diversified. And you've heard me speak about that in previous earnings release calls, and you will hear more about the effects of this diversification strategy. We are focusing on very clear strategic agendas. This time, we'll bring you more data that we call the golden rules, And I will comment on the golden rules further on. And certainly, we have this obsessive focus on our transformation agenda of customer experience because after all, this is the bottom line.

Moderator

This is what feeds us. And speaking about clients, here I have some figures and I'm pleased to share that with you. We superseded 50,000,000 clients in our total base. We are also evolving and making progress with the active client base. We have 33,000,000 and I'm even more satisfied with our primacy clients.

Moderator

We call them the agenda of primacy clients because we want clients to feel like they are our main or principal clients. So this is certainly the pillar of our client strategy. In terms of NPS, we have the best numbers in our history. We made a 10 increase, in companies, in corporate, but this shows that we are moving forward in our journey. But this is not all.

Moderator

We continue to focus in developing a very robust agenda with clients. I mean, we have here two examples. The first, I'm very pleased to talk about it. We briefly talked about it, but now this is a reality. We are about to launch our one app.

Moderator

This is not an updated version of 13.5.1, but this is a new app in fact. And with this new app, we launched a very unique experience to our clients. This will certainly be an app that converges all of our experience throughout the years, and this will also converge into all of our apps. But we we want this one app to be the new way of clients to try out Santander every day in a much more personalized way in a within a context. And this also involves continuous conversation.

Moderator

This one app is rolling out. We start we will escalate from May to September. So before the fourth quarter, all of our customer base will be covered by the new app. And the second focus relates to our evolution in the payment journey. I mean this consists of a very lengthy list of things.

Moderator

But the payment journey has been a major focus of Santander. Last year, we made progress and we gained more than 10 or 11 NPS points, and we evolved our PIX journey in a very material way. We have a single place for any kind of PIX key. The PIX journey is simpler and more intuitive. We have credit picks, which will come very soon.

Moderator

We have contactless fee, click to pay. We are ready to do automatic picks, which will be introduced to the entire market very soon with major things already decided at Santander. So the payment journey is something that we will give you more details throughout the year. This is a great strategic pillar. And together with cards, these are the journeys or the things that clients use the most.

Moderator

We continue being number one in tax, so sustainability remains one of the major pillars of the bank. Speaking about our strategic business and here I'll mention four. We usually mention some of our business. The consumer finance, you know that it's a very robust segment. It grew less than last year.

Moderator

Last year, we grew over 20%. And this year the market as a whole is growing less. Therefore, we were more cautious in terms of growth in the first quarter given higher demand and increase in interest rates, but this remains a very relevant growth avenue. In addition to being a good consumer finance, we are the most digital consumer finance operation. We have also a share in electric vehicles.

Moderator

Our share is 50% out of 100 electric vehicles sold in Brazil, we sell 50% of them. For some brands, our market share is over 70%. In SMEs, we remain renewing our franchise. We introduced a new service model that was launched last year, a new value proposition with coverage throughout the country. We are also increasing the number of calls, so evolving and advancing in NPS.

Moderator

And the result certainly comes along. We had an evolution of almost 20% of net income in two years. And certainly, we want to increase that curve even further. Cards, we had a major leverage that I just mentioned. Our base is mostly focused on high income with improvements in average spending.

Moderator

We still have a lot to do, but our evolution in cards is here to stay. We are very much focused on this product. I mean, current account picks and a view on payment journey with an eye on further integration among different products and how we integrate our agile model. In March, we are launching Santander Shopping. We will talk more about it throughout the year, but this is a new way of our for our customers to consume through our app using Espera,

Moderator

which

Moderator

is our relationship model as a big support. And to conclude, I reinstate our retail for individuals. The market is shrinking in general, and we respect that decision. But for us, we decided to simplify the way we position ourselves vis a vis our clients with our brands, the value proposition that we want to deliver. And we are doing that with individuals with the center of their brand for low and very low income.

Moderator

The first results were very positive throughout the year. We will be able to share more information with you. And just to conclude, in terms of investments, we now launched our major Gen AI pillar. So in practice, all of our AAA advisers and very soon all of our advisers in general, experts, there will have I mean AAA already has a pitch generated by GenAI, a % generated by GenAI. And they can share that with their clients through any channel, I mean, email, WhatsApp, or personal conversations.

Moderator

And just to conclude my presentation, and this is the first time I share this with you. This is something that for more than a year or a year and a half, it is part of my management and the management of the entire leadership of the bank. And I call this our compass, our golden rules. So in practical terms, you will see that everything is quite simple. And this is how it should be and everything is connected with everything we said so far.

Moderator

I will briefly talk about it, but I wanted to share this with the market because in a way, this really solidifies everything we've been talking to you in the past few years. What is the bank that we are building? We are building Santander with three principles. I mean, the first being our balanced loan portfolio. I do want to continue to grant credit.

Moderator

Credit as a means to gain transactionality with clients through fees and deposits. I mean, loans per se, they have to be well priced. And despite this more difficult macro scenario, we want to grow spreads. You will see that we are very much focused on spreads because pricing is key. And this balanced loan portfolio means a lower concentration and low income, higher concentration and higher income.

Moderator

Balancing SMEs and the consumer finance. The second pillar is to reduce the funding cost of the bank. We've been doing that consistently. This is not press like pressing a button. This is a strategic agenda that has to be that has to permeate all the channels.

Moderator

This has to do with the retail market so that we can use our retail instruments to also do some funding and paid funding like deposit and credit notes as well as funding coming from our transactions with clients, things that you don't sell, but you gain the right of having a deposit in the account. So we are focusing on that. The third pillar is diversification of revenues. Revenues from fees, we have in that fees pillar, we saw how we evolved last year. So we want to advance again this year in a very substantial way, and we will do that.

Moderator

The diversification of revenue lines is very important, and fees play a very important role. The fourth is efficiency in cost. We are doing our homework quite well, and our homework is being well executed. But we want to go further. We want to be more efficient.

Moderator

We want to reach a level of efficiency never seen before, and we will and that will lead us to higher profitability. Profitability also consists of a composition of all the lines and how we organize our capital allocation, and we are being very disciplined in that. But profitability is a major pillar. This is the result of all that. So we will continue with that pursuit of that mission because we wanted to to get at at at least 20% profitability.

Moderator

This will be the minimum. But we have a long term view. We don't want to go on a sprint, but we will look at all the macro scenario, interest rate curves, volatility and results. Based on those golden rules, we are managing the bank. Everything we've been telling you in all conferences and events connects with all of that.

Moderator

And I thought that this will be a nice thing to share with you. And with that, I turn the floor to Gustavo, who will give us more details on the numbers.

Moderator

Thank you, Mario. Good morning, everyone. I'll start with the performance of our loan portfolio. The evolution in the full year as well as in the quarter shows the continued discipline of growing with quality and consistent profitability. Cards, which play a fundamental role to have loyal clients and transactionality continues to stand out.

Moderator

We had annual growth of 18%. We are making better use of our own middle and high income base, as we said in the prior call. Consumer finance maintained the good dynamics of previous quarters. Originations continue to be targeted at clients with the best ratings, who account for 80% of our portfolio balance. And we continue with a lot of price discipline.

Moderator

With regard to SMEs, growth was concentrated in government loan facilities, which increased 1.8% in the quarter. In corporate, part of the portfolio's evolution is in the private securities and guarantees portfolio, which grew by 2.1%. In this segment, excluding the exchange rate variation, the loan book would have expanded by 0.6% compared to minus 2.2 Payroll loans fell by 3.4% quarter on quarter, reflecting our focus on profitability. It's a focus that we have declared over and over. And this focus on profitability has led to a lower origination of INSS deductible loans.

Moderator

On the right side of the slide, we present the results of our funding. We made important progress in demand deposits, which is a reflection of the promise of all of our clients, both retail and wholesale. In addition, we continue to optimize our funding instruments, adjusting our costs, improving our costs. In the specific case of this quarter, we continued to increase the issuance of financial bills. So given the good market prices and the still significant demand for these securities, This result is a reflection of our discipline in managing funding prices, which contributed to improving average cost in relation to previous funding, combined with the objective the declared objective of changing the composition between individuals and companies.

Moderator

On the next slide, we see revenues, which grew by 7% over Q1 twenty twenty four. In the quarter, client NII grew slightly. The lower number of consecutive business days quarter on quarter affects the NII comparison. This regarding this effect, client NII would have grown by 1.5%. Another effect is related to the adoption of Resolution 4,966, which implies some adjustments to loan origination costs and problematic assets in the client NII, which also impacts the quarter on quarter comparison.

Moderator

But overall, we see a good composition of revenue in the quarter. In terms of funding NII in line with discipline in asset pricing, We are making good progress in relation to our strategic objectives with an LCR level of a 57% and a very positive evolution in loans to deposits ratio. As a result of these effects, the spread in the quarter grew by some basis points with increases in assets and liabilities spreads based on what we have been seeing a constant pricing discipline and a balanced portfolio with a focus on optimizing risk weighted return, and that is super important. Market NII posted a lower performance quarter on quarter, as we have mentioned, given the SILIQ rate hikes. So the SILIQ rate hikes have an impact have an effect, but this is offset by better results from treasury operations.

Moderator

On the right side of the slide, fees continued to perform well year on year despite the accounting effects of the new resolution, Form nine sixty six. The resolution had an impact on the credit operations line here, where fees related to the granting of loans were migrated to the NII, hence, this specific impact. In the year on year comparison in general, we continued to evolve in the main fees accounts and more rapidly. In consortium, for example, which increased 14% year on year and 4% quarter on quarter, even in a seasonally less favorable period. The others line has been driven mainly by savings bonds revenues.

Moderator

Now I'm going to speak a little about the quality of our assets. Loan loss provision, which is now calculated using the new expected loss methodology, showed a higher level over previous quarters given the new criterion, which requires greater provisioning for granting credit. In addition, we saw a lower level of credit recovery due to our stricter approach to renegotiations, which we have been mentioning in past quarters because we want to improve more and more the quality of our operations. With regard to delinquency, the long term indicator remained practically stable with a slight increase of 10 basis points. Short term NPL, on the other hand, reflects the seasonality of the period, given that households have lower liquidity.

Moderator

Part of this increase should be addressed during the second quarter and should not migrate into long term delinquency. More specifically, in the NPL fifteen to ninety days of individuals, of the 80 basis points variation in the quarter, almost half of that is related to real estate, which seasonally adjusts in the next quarter. That is not a point of concern. The rest is in cards and payroll loans, the latter being partially impacted by the drop in the portfolio. We had a reduction in our payroll loan portfolio.

Moderator

Although we have a more challenging macro scenario ahead, we are confident about the quality of our portfolios. We are focused on sustainable expansion over the long term, carrying out very active risk management, discipline in pricing, and technical rigor in the allocation of resources. Now let's speak a little about expenses. We are making progress in our quest for efficiency with a focus on cost control. In the full year, expenses grew below inflation.

Moderator

We saw a decrease in personnel expenses due to the one off increase in variable pay recorded in the previous quarter. As for administrative expenses, this first quarter saw a more normalized level without the effects of the end of year seasonality. Once again, the increase in expenses remained below revenue increase in the year on year comparison, contributing to the continued evolution of our operating leverage. We saw sequential improvement in our efficiency ratio with a drop of two fifty basis points over the year. To end the earnings session, I present a slide summarizing the quarter.

Moderator

We ended Q1 with a net income of BRL 3,900,000,000.0, up 28% year on year and higher profitability with ROAE of 17.4. We evolved in the composition of our earnings with revenues exceeding expenses, an increase in transactionality and more focus To conclude, I would like to emphasize, as we saw in the golden rules, that our work is focused on the medium and long term, aiming for sustainability and seeking to ensure solid and consistent results. Thank you all. And I now hand over back to Mario for his final statements.

Moderator

Well, I'm back. So very briefly, so we can start the Q and A. I am sure that you have excellent questions to challenge us. So let's focus on the Q and A. Five main take home messages just to tie together everything we have been saying over the last quarters and years and what we did in this quarter and we'll do in the following ones.

Moderator

We have an obsessive focus. I highlight obsessive focus on privacy relationships and customer satisfaction. Hi. By building unified and multichannel journeys, featuring increasingly hyper personalized offerings. We believe in multichannel and using a network of brick and mortar network that will be downsized more and more.

Moderator

But we have to be where we wanna be, the franchise stores, in the work cafes to serve our clients, a complete system with more and more mobile digital experience leading our relationship with the clients. Third message, business evolution, focusing on discipline and capital allocation. We have been doing this, and we've had concrete examples of that. Technology remains our major level lever for transformation. To transform customer journey.

Moderator

We embrace technology as a core element in our strategic vision. And this year, just like last year, will be a year of execution. Little strategic debate. We know where we wanna take this bank. We know what is the twenty, thirty Santander that we wanna have, that we want to deliver.

Moderator

And we will use our compass, our golden rules that I shared with you as our north. With that, let's start the Q and A session.

Moderator

Thank you, Mario, Gustavo. We will now start our Q and A session. To participate, you need to do is click on the hand icon in the bottom of your Our first question comes from Danielle Wass from Safra Bank. Good morning, Daniel. Congrats on your results, and thank you for taking my questions.

Moderator

I would like to go back to Mario's comments. When he talked about the second half of the year and the automatic picks, you already have some agreements. And I think this is a product that was one to end. You had to be enabled by several banks. And today, in the next update of the automatic peaks, there should be only one bank for you to license the company or the utility company to be able to cater to your retail needs.

Moderator

You think this is beneficial to the bank at the end of the day, this agreement? I mean, you didn't have any revenues coming from that. Do you think this is more positive for the system in general? I would just like to understand what is the net impact of automatic picks because this is a major revolution in payment means, especially regarding public utility services. That's a great question.

Moderator

And this gives us the opportunity to talk more about this regulatory change. This is a relevant change that will be in effect in a few months. Certainly, we cannot wait until the beginning the formal beginning of this regulatory measure to be prepared because we started in the midst of last year. So not only we had to be technologically ready, but we have to do it in a way through the app that we could also seek for a commercial agenda with the major banks. And so together with the conclusion of our development, we will be able to sell that to the major anchor banks even before it becomes operational.

Moderator

So today, we can already operate automatic peaks based on the agreements that we have with the anchor companies and our clients because in a one to one basis, we can already pilot that. We can already operate. But the broader journey that we'll start as of the third quarter, I mean, we already have agreements that we cannot mention publicly, but we have some large clients that many of us use every day, and they will be important pillars of our franchise from now on. This is a revolution, Daniel, because in practical terms, it changes the order by which payments or recurring payments are carried out. Today, I mean, you have to register.

Moderator

I mean, as an individual, you have to register all of these utility companies, you know, with the different banks. And the clients of these banks, they are the ones who decide what will happen. So we will be a relationship one to one, as you mentioned, B2B and then B2C according to the relationship of banks and their clients. So this is a journey or a more captive process, I would say. What automatic PIX allows us to do, and this will be because if we have the large agreements, I mean, it may not be as good for those who cannot engage in these agreements, but this allow us to have a one on one relationship with B2B.

Moderator

And from B2B, I will be able to get the demands from clients that are already in the bank. But not only that, but with all of the other banks in the system in different formats, digital banks, banks and their physical branches and other financial institution formats. So there will be a bilateral relationship with a large corporate in the agreement, and we will be able to also make collections from a large base of clients. This will also bring a robust flow of clients, and we will be able to, let's say, dialogue with a larger client base because we'll be dialoguing with recurring clients stemming from this agreement with a corporate or another organization. I think we have a lot to gain with them.

Moderator

The market will be reorganized. So it's difficult to refer to that to that pie chart, but I think that that pie will grow. Because once you coordinate payments, there will be more agreements. And at the end, there

Moderator

will

Moderator

be more agreements. And since we are a large incumbent bank, we will play a very important role. And through the agreements that we are finalizing, we are very optimistic going forward. Thank you very much. Our next question is from Yuri Fernandes from JPMorgan.

Moderator

Hello, Yuri. Welcome. Thank you, Camilla. Good morning, Mario, Gustavo. And congratulations is in order.

Moderator

You had a very good operating leverage. I think the only point that drew our attention was short term NPL, fifteen to ninety day, nine NPL. Especially looking at individuals, I think it was worse than seasonality. It was a quarter with a lot of accounting changes. So my question is what happened?

Moderator

I mean, Santander was a bank that took the lead vis a vis the other peers. What was the reason for that? What was the dynamics of the asset quality for the bank? Okay. I will turn the floor to Gustavo, and then I will just add to his answer.

Moderator

Yuri, nice talking to you. As I briefly mentioned during the presentation, so fifteen to ninety day delinquency, especially individuals, which is the topic of your question of that was up by 80 basis points. Half of that increase comes from real estate loans or mortgage loans. Mortgage loans have that effect in fifteen to ninety day delinquency. And usually, in the following month, things get adjusted.

Moderator

This is natural, and it happens at every beginning of the quarter. In this quarter, delinquency was slightly higher, but it is adjusting itself. Another effect that we've been mentioning for a few quarters is our renegotiation policies. In some quarters, we're more restricted in terms of renegotiations. I even said that we are not going to change our renegotiation policy because it is more restricted for one quarter.

Moderator

So we will continue pursuing that renegotiation. Some of these rollovers will be adjusted, and these will have an impact on the results. We are very much concerned on having a very clean portfolio. So excluding mortgage loans, we have cards. Cards is not a concern.

Moderator

And some things on the payroll deductible loan part. But the majority of that comes from the way we are dealing with renegotiations. But there is nothing that can draw our attention or that we believe will escalate overnight. We are adjusting the portfolios when we see that the performance is not going the way we want. And we are also allowing some portfolios to flow naturally because this is just a natural move.

Moderator

So this quarter, we are not concerned about that. I think that's it. Just to reinstate that, our topic of renegotiations is quite important, and we've been talking about that with you and everybody else. Since 2023, we've been you know, we are more we are tightening the belt. I mean, there is no renegotiation, I mean, with individuals, but also with corporate without a down payment.

Moderator

First, because we have to test the payment capacity of that client, and also we want to create further engagement. If there was a payment, I mean I mean, there are nothing against the other banks, but we have to ensure our payments. We are we are more restrictive, but we are not loosening that policy. I mean, the macro scenario is worse, but we are not going, you know, we are not going to change anything. De risking is still part of our practice.

Moderator

The legacy de risking continues, and we will see that reflected throughout the year. So the reduction in the portfolio, all of the agreements and the risking in the portfolio will remain. And the other part, I mean, Gustavo just explained, this is a common seasonality. This year seasonality was a bit higher. But in the past four weeks, we know that that's very much concentrated in one portfolio where losses are very small.

Moderator

I mean, that is the mortgage portfolio. So in summary, we are not concerned. That's very clear. Thank you very much.

Moderator

We have a question from Schroden with Citibank. Good morning, Kemi, Mario, Gustavo. Thank you for taking my questions. Do allow me. I'd like to have a follow-up question to Judith before mine.

Moderator

Was there any change in the write off policy based on resolution four nine sixty six so we can understand the NPL dynamics? Another question is about client NII. From what we could see, there were a lot of moving parts. So in our analysis, the number was good. But You mentioned that that there was high interest rates that improved your remuneration on funding.

Moderator

And Mario just mentioned derisking, which theoretically should play against the spread in the So could you comment on the dynamic of interest rates and funding cost, cost of funding? Is there a repricing going on? Can you have a gain with the interest rates and cost of funding? Or perhaps would this improvement be due to a remuneration of funding? Okay.

Moderator

I'll start, and then Gustavo will speak about the right path. We can cover this part later. Client then well, client NII has two big components. Starting with the funding liabilities, there there was a liabilities expansion and a growing franchise of funding like ours, which is super important. It's a good thing.

Moderator

We started focusing on funding in 2021, '20 '20 '2. So it's commissions in the strategic funding strategy benefits when we have a CDI at 14%. Are two types of liabilities, CDPs and literals that we sell to customers in here. And this is under Gustavo's management as CFO. We have applied a lot of discipline of repricing down.

Moderator

How do we do that? Not just being less. We do this by shifting the funding mix moving more towards retail, and we can continue to get money from the big big funds. There will be some price discipline there. So over the last twelve, eighteen months, we have been doing this with a lot of consistency.

Moderator

I call it the marginal funding of the bank balance sheet growth. It's coming more from retail than wholesale. We dilute wholesale. And also at the beginning of the year, we take advantage when the credit spreads were very, very low, and we start issuing again the Letras Finacitis financial bills. It's not that we did that because we didn't have alternatives, but it was a tactical move of funding financial bills at very low prices compared to CDI without the need of reserve requirement, and that gives us a very powerful LCR.

Moderator

So we have been funding in retail more than wholesale and also the issuance of financial bills, which was a tactical but relevant move. So the paid part of deposits, the part that I trade was reduced to bringing us a better margin with higher volume, and we get more money. Second block is what I gain without selling. I don't sell time time deposits or demand deposits. This is, again, derived from the relationship with clients.

Moderator

The fact that the organization is focused on transactionality as a as a core element. And and like I said, credit is a way to get fees, but also cheap deposits. So cheap deposits account has improved a lot. We saw a substantial evolution quarter on quarter, year on year, what we call a a max account, our remunerated account. So we can see a good evolution both in the time frames with low price and demand deposits.

Moderator

So we have an agenda of funding, which is not just for this quarter. So it's a multi annual agenda, and this line item should continue to grow. What's happening on the side of the assets, which is the more interesting part? We continue with the derisking with credit NII that we will continue to work to expand. So, Gustavo, the first assumption is we have been super disciplined in pricing.

Moderator

When we look at product, product by product, of course, we have to follow what's happening in the market, but we have been managing to pass through for the prefixed portfolio, consumer finance, mortgage, etcetera. We have been able to pass through this increase over time of the cost of funding. Of course, in the last quarter, there was the opposite effect because it was a slowdown of the midterm curve. But we had a good discipline between how we fund money and how we pass it through. By the way, we have been hedging loan origination.

Moderator

So in terms of market NII, we are more and more balanced, and we'll have less volatility. So we have spread discipline. But given that we are derisking, sometimes we'll have an exchange in the product mix or portfolio, which are less top line, but also less provision full of losses. We are pursuing this evolution. We don't doubt that we have to switch from more risky volatile portfolios or for less volatile portfolios even if the top line is lower.

Moderator

And the ALLL will take longer to be felt. But again, it's the golden rules. And until now, we have been able to balance all that. In a nutshell, we'll have an expansion of funding that should continue its strategic NII that didn't come as a sprint. CDI will continue to help us for a while.

Moderator

Hopefully, the interest rates will drop sooner than later, but while it is high, it benefits us and also price discipline. And since we don't have an agenda to grow the balance sheet in an expansionist way, we're being more disciplined. We can choose where to grow. We can better choose the pricing. And this applies to wholesale.

Moderator

In wholesale, we're not growing that much. There was also a reduction with exchange rate variation, but we have been disciplined in managing our disbursements in wholesale because I'm choosing the loans where I can have the best result so we can have we can play a better game for wholesale. Gustavo, would you like to talk about the write offs? Well, that's what you what you said, Gustavo, about the assets, and we're being very disciplined. We are not focused on growing some portfolios if we don't find an optimal point of price versus expected return.

Moderator

Some portfolios can grow more or less, but it's basically based on discipline. And also, we we didn't change the policies. We didn't change the concepts. We didn't change anything. We are just executing what was predefined by us.

Moderator

And when we do that, some portfolios will flow, some will be rolled over. We'll have a double l affected by that, but our goal is to have a cleaner and cleaner portfolio. A portfolio that needs to be built in a solid way with a better performance. This is what we are doing. There were no major changes.

Moderator

Now there was this change of resolution four nine sixty six. But since we were already operating by IFRS nine, there was no major change, neither in the way we operate or the way in which we book things. Yes, that's a good thing to point out. As we said two or three quarters ago, our day to day decisions since 2018 have been based on IFRS nine. So, obviously, there are some minor changes, some not so minor, but it doesn't really change the way we grant loans, the way we manage credit and how we book losses.

Moderator

So short answer is there were no changes. And our management felt little or nothing or no effects related to resolution four nine sixty six because we were already an Yes. I just want to compliment that we had or we were abiding by other resolutions. Thank you.

Moderator

Our next question from Pedro LeDuki from Itau BBA. Hello, everyone. Thank you for taking my question. My question is related to the 04/1966 resolution. I know that there are several parts to it, but I would just like to get a better understanding of it.

Moderator

I think you mentioned a few aspects of that resolution during your presentation. You talked about NII. And I just want to put everything in the same basket maybe. Next quarter, once we run a quarter on quarter comparison, things the picture will be clearer. But if maybe NII will be lower for Stage three, accrued sixty-ninety, ALL may be different, the debt service may be different.

Moderator

Do you have any estimate of what the impact would be in your P and L or R300 million negative. And still referring to that Resolution 4,966, we noticed that provisions for ALL transition was a bit different. I mean it was difficult to estimate. I know and we know that it was 5,600,000,000.0 and in the past was KRW 4,400,000,000.0. What led to that increase in that transition of ALL?

Moderator

It has to do with expected losses or it was related to a new understanding of the resolution. Well, it's great talking to you, Pedro. I will start with the second part of your question and then Gustavo will add to my answer. In fact, I mean there was this evolution and it's very good that you mentioned that because we want to cover that with everybody watching. Evolution would also that also relates to the initial provision for 04/1966.

Moderator

I mean, it has nothing to do with the scenario saying that, okay, since it's worse, let's take advantage of that. But we didn't use that. We didn't rule out or anything. But more than that, it was a deeper understanding of how that inventory, let's say, could be affected giving the new accounting standard. So we continue performing all the analysis.

Moderator

You were very kind to say that there were too many things that had to be assessed. We continue to to analyze things after the fourth quarter presentation. And right after the first month or month and a half, we just arrived at the conclusion that we already did some fine tuning, and everything was fine tuned with the central bank and with our internal and external auditing experts. So there was there wasn't anything associated to protecting our results or the macro scenario. We just use the same criteria we used it before, which is some additional things in terms of the perimeter and the portfolio.

Moderator

So I think with that, I answer the second part of your question. So the first question about the 4,966 resolution, I mean, it is exactly as you said. Certainly, the starting point was that first quarter. But the way this will evolve pretty much depends on where we produce, how we produce and what is the combination of all that. I mean, the fact that the portfolio accrual I mean, the renegotiated portfolio accrual has an impact.

Moderator

But as we reduce the renegotiated portfolio, the impact will be also diminished quarter on quarter. And the other thing is that it will depend on what products we produce and what kind of relationship we have, and this may have a negative impact on the margin. So there are several issues depending on how we produce and how we will advance our portfolio throughout the quarters. I mean there are several moves in this quarter in addition to all of the things that we talked about. We have also a different number of business days, and then we will progress going forward.

Moderator

It's difficult to say because we haven't yet defined everything that we will produce and how we will be producing things in the coming quarters, but we work knowing what the impacts will be in the several lines of the bank. And it very much depends on how the bank will perform. If we'll continue producing less payroll deductible loans as we did in this current quarter is one thing. But if the production increases, it's a different thing. We grew 0.6% of our auto portfolio.

Moderator

And or if that number decreases or increases the following quarter, I mean, all of these are variables that certainly once, I mean, we and also you will help us understand how this will impact our client NII going forward. And Pedro, also knowing that the work you do and the buy side work as well is already challenged, but it is even more challenged with this new 4,966 resolution. I mean, there is a time line of how much we can cover, but we are here at your disposal to clarify questions and to help you find out what will happen. We will try to be as transparent as possible. So whatever we can do to help you in the next few months, please count on us.

Moderator

And there are more things coming with this 49.66%. Try to build things with you going forward. And thank you for your question.

Moderator

Marcelo Misari with Bradesco BBI. Misari? Hello. Good morning. It's a pleasure to be here for the first time.

Moderator

Regarding the earnings, we have one question regarding market NII. Market NII was a positive surprise in our expectation and the market expectation considering the natural dynamics and how sensitive it is to interest rates. So Mario mentioned the start of hedge that started along last year and how this should reduce the volatility of this line item. So I'd like to understand what in in market NII was associated with trading with, ALM, and how should we think this line item looking forward? Well, welcome Welcome, Marcela.

Moderator

It's great to have you here. So I'll start then. Gustavo will be able to elaborate more because he runs that. Well, this line item has two big components. The first is what we call market making, the result of our non client treasury operations, essentially the part of treasury that zeros client positions.

Moderator

It's a core role. We have one of the biggest treasuries in Brazil, if not the the biggest one. So there's a lot to manage. So making also takes on some positions. We don't have a great proprietary book.

Moderator

We don't run our treasury like a big fund. Nothing against it. But our treasury is geared to clients and to zero clients' position. Sometimes we take on positions. And in a nutshell, Gustavo mentioned this.

Moderator

We had a first quarter which was very good in market making, which is a merit of our franchise. It is a nonrecurring event, quote, unquote, because in trading, we cannot expect equivalent performances week after week. But we did have a very good performance, which helped this account. In the ALM account, which is more linked to management of our loan book, how we fund our loan book, which involves hedge and the management of our securities that we carry as all big banks do. Here, we will have, by definition, a more challenging year than last year given the average CDI and SILIQ now versus last year and the average q one average CDI was different.

Moderator

So there is a quarter on quarter effect, year on year effect that can only be negative. And we should see this over this year until the moment that a quarter on quarter will start reducing. We hope that this will happen along 2025 and along 2026. So the market making part did really well, contributed for the positive result when you and the whole market expected a negative number. And, correctly, you expected a negative number.

Moderator

And on the side of ALM and the management of our books, of course, that portion had a negative result as expected. It is a performance to be expected throughout the year with a slick interest rate that should increase a little more, hopefully, just a little more. There will be some quarter on quarter effect, and then it will get to a peak of negative, and then it will start improving. So we expect to speak in this following improvement to start along 2025 so that we can end the year better and have a better outlook for 2026. Hedge.

Moderator

We started hedging in the end of third quarter of last year. We started hedging in September to hedge a good part of our loan origination. And over time, and over time should be measured in a window of about eighteen months. So over time, this should bring us a material derisking of our volatility, as you mentioned, in market NII because how I funded my pre income portfolio and my market funding hedged, and this will reduce volatility. Reduce the volatility this quarter, and over time, it will continue to do so.

Moderator

When interest rates start decreasing, this portion will no longer benefit but for a good reason and will benefit in in the portfolios because we are hedging pre and post fixed at much higher levels than before. So we will benefit from interest rates and from interest rate curves over time. So we have a potential upside to be built over the next quarter given the level of level and duration of the bonds we have been buying. Gustavo? Well, that's exactly that.

Moderator

The script in terms of negative sensitivity remains unchanged. What happens is the average of the average silica in the nonhedged part will will will change. But it is as designed as is in the script. And in Q1, we had a good market making performance. What drives this number is that there was no material change in terms of negative sensitivity.

Moderator

This is exactly according to the script. And there might be some potential websites now starting in May with the coupon meeting, and we'll see how the monetary policy will be in the coming months. But for now, things are exactly according to expected for 2025. And there was an event in q one that was very good, but this is an event in our view extraordinary. It doesn't change our ALOM strategy and execution.

Moderator

They're totally independent. And Marcelo, I give you a very broad answer. Just wanna stress that we are building a portfolio in the last two, three quarters with much higher levels than we had until then. And this is important information. Don't expect this to lead us to materially different in q two, but this will make a relevant change when interest rates start dropping.

Moderator

There will be a positive gap between the level of securities that we have in this newer portfolio and the SILIQ interest rate, which means a better accrual in the future. And or when the curves decline, the curves decline before the SILIQ will generate some goodwill in the future. So the short term is exactly what we expected, and I think that the a better market NII that we are having relatively brings some positive insights in the future in terms of what the market NII can be in the future. And thank you very much for participating. Next question by Thiago Batiste, UBS.

Moderator

Hello, Thiago. Hi, Camilla, Mario, Gustavo. My question is about mass retail. I think that it was in 2022, '20 '20 '3, Mario gave an interview and mentioned that mass retail was deficient and they needed a lot of cost adjustments, not in those words. But after a while, you closed many branches, points of service.

Moderator

There was a 7% reduction in the branch. Can you say that you have inverted mass retail that it has become profitable again? And this additional ROAE increase that you aim to have it at 20% in the term. And so ROAE would be 20%. Can you say that mass retail is profitable again and to whether this additional return gain would come from an even greater improvement in mass retail?

Moderator

Excellent, Thiago. Let's start with the end. The improvement we expect to have of at least 300 basis points plus. And we don't want to stop at 20, but this improvement of 300 basis points in ROE in the midterm. The midterm is getting closer and closer to us.

Moderator

Undoubtedly, that involves mass retail being more profitable. It doesn't come only from a profitable mass retail. We expect to have continuous improvement in the portfolio of our consumer finance. We have been originating with an ROE above 20%, but we still have the derisking. So there's a part of that in consumer finance.

Moderator

So I guess that in another year or so, the whole portfolio will be above 20%. So in the category of portfolios above 20% for Santander, where we are at 20% or much higher than 20 would be in SMEs, which is a super profitable segment. Our high income segment operates way above 20, and wholesale operates, like I said, at a lot higher than 20. But 20% is always the target. And consumer finance is moving in that direction given a marginal loan origination.

Moderator

And mass retail is still what is pulling down the average to 17%. Mass retail is already is is mass retail profitable as a whole? Not yet. But with the new vintages, we have an ROE above 20%, prospectively, obviously. And everything related to loan origination has to be checked vintage by vintage.

Moderator

And we always compare our assumptions ex ante and after it materializes. But in mass retail, we see positive performance aligned with the 20 plus ROE. The challenge is we still have a portfolio that up until recently was 100,000,000,000, and we'll continue to reach that. I'm not going give you a guidance here, but you should expect the mass retail along the year to drop with some material somewhat materially until the end of twenty twenty five, possibly also in 2026, but with a new portfolio, which is much healthier in the old portfolio with those renegotiation policies that Gustavo mentioned. That will remain intact.

Moderator

We'll continue to have an agreement with those that are paying their loans or writing off those that are not. We are at the best level we've achieved in the last three years. It doesn't mean it's good, but we are working on impeccable loan origination, working on the inventory of loans to reduce it so that we can have left the good part, so we can have mass retail that is profitable. This is what we are focusing on in a healthy mass retail. The rest continuing with the expected profitability.

Moderator

And if that happens, mathematically, profitability will be higher than 20% in the midterm in the not too long too distant medium term. Thank you.

Moderator

Now next question is from Eduardo Hausmann from BTG Pactual. Good morning, Rosman. Good morning, everyone. My question is addressed to Mario. I would like to learn more about that obsessive focus.

Moderator

In your press release, you said that you want your clients to feel like they are primacy clients. And every bank is talking about principality. Can you tell me what is Santander's differential and what KPI should we monitor to learn who is winning that race? Rosman, this is a million dollar question. Well, we're telling you probably the same thing that most large banks are telling you.

Moderator

We do acknowledge that the challenge is to convince you, the market, and mainly to convince the clients that we are the right bank for them to operate. Well, first of all, our base, our customer base is quite relevant. We are not starting now. We have 70,700,000 in our gross customer base. Many of them are still not active.

Moderator

So we have 37 potential clients to activate. I mean, reactivate those nonactive clients, it's been a very relevant part of our agenda. And I I will use the same thing I I use when I talk to our employees because sometimes in the past, we would ask clients not to reactivate their account with us. I mean, I'm ashamed to say that, but in in the past, our activation journey was impeccable, just as impeccable as in any other fintech or digital bank. So please, you know, challenge me if you think that, you know, that's not right.

Moderator

But we are now reactivating customers. We are really engaged in this conversation to reactivate those clients. So last year, we activated more clients than than what we did in our entire history. But activate them is not enough because we're talking about principality. From these active clients, how do how do I make them feel that they, they feel like they are a primacy client.

Moderator

I mean, it is it takes great discipline, and I will give you some reasons of, you know, how we are gonna get there. First of all, we have to be very simple more than what we've been so far. And if I could go even further, more than the incumbent banks have been. Being simple means having less offerings rather than more offerings. We have to know how to put the offering in the right context, either because the client wants that or maybe because in that client journey, it feels good to talk about it at that moment.

Moderator

If we can have CRM and the CRM use that, in fact, allows us to have a continuous conversation. It's not all the time, Mario, talking to Rosman and, like, you know, bothering you all the time, but having a continuous conversation when you the way that you feel like you're connected with me the whole time, that I will be very surgical rather than selling sending you lots of push messages that I send to everybody. I need you to see that I am directing my message to, you know, BTG's analyst, Eduardo Rosman. You have to feel that I am talking to you, understanding your context and your moment of life in a way that it brings you some context that has to do with your family, with your professional life, something very unique. That's why I like to use the name of customer with primacy.

Moderator

You have to make clients feel that they have primacy. Of course, there are dozens and millions of clients, but they have to know that they are unique. And then the second pillar, again, that has to do with hyper personalization, things that meet a context. And in the right dose, this is important. And together with all of that, we must provide an impactful journey.

Moderator

I mean, of clicks and a lot of menus. No. Sometimes the bank tries to sell everything they have, but the the advantage of a bank vis a vis a fintech is that we have a full offering. But if I want to sell everything at the same time, clients become disengaged. So sometimes it's better not to sell anything or to sell one or two one off things.

Moderator

And then we just respond to their demand and also provoke them with a few things that I have. It's a good advantage when you have a full basket of offerings, but I have to be very surgical in terms of what I offer to my clients. And all of that combined with our service model, almost twothree of my sales happen through digital channels. And we want to reach 60% to 70%. That has to be consolidated as well, given the fact that everything in the past was sold through the network.

Moderator

But it's also very important to have an adequate service model specific per client, you know, hyper personalized. You know, clients from private banking, clients from a grocery store, and clients that, you know, bank with us in New York. So the way we serve human beings throughout the country with a humane service, we have to work close to the client. We we go to where they are instead of having them come to us. So we pay a lot we pay clients a visit.

Moderator

And we are doing something apart from what the market is doing, except for acquiring businesses. We go we have a a call map. So our service model is very personalized. In the case of individuals and also corporate segment, we have we can talk about investments and the full banking's offering, but very simple. I know that I went around a lot, but I hope I covered some of the aspects of your question.

Moderator

That was a great answer. Thank you very much, Mario. Thank you, Rosman. And to conclude, we have our last question from Antonio Rouette from Bank of America. Good morning, Antonio.

Moderator

Good morning. Camilla, Mario and Gustavo, thank you very much for your time. I would like to go back a bit and talk about credit appetite because we see very conservative appetites. You talked a lot about derisking, nominal growth. I mean, what changed in the last three months?

Moderator

I know that you don't give any guidance for portfolio growth. But how would you say that your appetite evolved? And what changed in terms of your asset quality plan or your funding plan? That's a great question. And I'll start, and then Gustavo will add to my answer.

Moderator

Since the earnings call of the third quarter, even though it was a very positive quarter, at the October, we decided to be more cautious in terms of portfolio growth. And this is something that we mentioned in the fourth quarter. I think that the earnings release probably was less ambitious. But we remain on that same pace. We don't know more than the market does because our reading of the market is the same as everybody else's.

Moderator

But since the last months of last year, we saw signs that mean, of course, we didn't know what would happen in December, but we knew that the macro scenario had some signs given the fact that interest rates were were increasing. And we saw the immediate consequence of some deterioration in some portfolios. We see this happening in the numbers of the first quarter as it happened in the third quarter. Does that change our risk appetite? Substantially not.

Moderator

It doesn't change what we've been doing, and we do that regardless of the Selic rate or the fact that he's going up or down or, you know, whatever. Our discipline is very fierce, and that's not monthly, but we are looking at it every week. We look at all of the audiences to which we grant loans. You know, audiences that are closer to the appetite limit that we call border. I mean, look at all the audiences, but for border products we pay close attention to them.

Moderator

And we look at the first signs, concrete signs. We don't wait six or twelve months. We wait for the first concrete signs of deterioration and we make adjustments to those border audiences in a very differentiated way. What we evolved is in terms of our capacity to react to the data. So we make policy decisions in a few days.

Moderator

But in the past this would take six months. But policies are just fine tuning in loan granting, loan concession. So we make decisions much quicker. We continue to do that. If there is any additional did we make any additional cut?

Moderator

Yes, in March, we did some marginal cuts in some specific products for low income because these audiences were not performing accordingly. They were not performing exposed in line with what I wanted or or what I expected for low income. But these are marginal cuts that do not impact the portfolio as a whole. They have you know, there is a price in terms of entries because if the spread is higher, you decrease the NII, but this is acceptable because the ALL is lower. I mean we are just making marginal adjustments as I said and this is business as usual.

Moderator

And we implement this marginal adjustments much quicker. So this is part of our operation, our dynamics. I mean, that is it. We didn't make any substantial changes. We have the portfolio that we wanted.

Moderator

I mean, we have businesses within businesses. This is very clear, but there are no structural changes. So the macro scenario is not going to lead us to change our strategy. What we're doing is that we have the portfolio that we believe to be healthy. And now we're just testing the performance.

Moderator

The performance test is what lead us to make marginal adjustments. There is nothing relevant. We have a very clear strategy of where we want to go. And certainly, there are portfolios that can grow even further. It's just a matter of demand.

Moderator

If there is demand, we will then grow. I mean, the measurement is very clear, and nothing changed from what we've been talking to you in the last quarters. Great. Thank you. Thank you very much for your time.

Moderator

Thank you. With that, I would like to thank you all for joining us this morning. And after this video call, the entire IR team of Santander Brasil will be at your disposal to clarify any further questions. Thank you very much, and see you soon. Have a very good day.

Analysts
    • Moderator
Powered by Quartr
Earnings Conference Call
Banco Santander (Brasil) Q1 2025
00:00 / 00:00

Transcript Sections