Banco Santander Brasil Q2 Earnings Call Highlights

Key Points

• Profitability weakened in Q2 2026: Recurring net income was BRL 3 billion and return on average equity was 12.5%, pressured by higher credit costs, slower revenue growth and a more conservative balance-sheet strategy.
• Santander Brasil is prioritizing credit quality over market share: The bank expanded lending in cards, consumer finance, SMEs and secured products while reducing exposure to lower-income, higher-risk retail borrowers and tightening unsecured-loan standards.
• Near-term credit-cost relief remains limited: Provisions rose by BRL 700 million due to specific wholesale cases and a write-off methodology adjustment, while management said meaningful improvement may not arrive until closer to 2027. The bank maintained its long-term 50% payout policy.

Banco Santander Brasil NYSE: BSBR reported recurring net income of BRL 3 billion for the second quarter of 2026, with return on average equity of 12.5%, as higher credit costs and slower revenue growth weighed on profitability.

Chief Financial Officer and Investor Relations Officer Carlos Muñiz said the results reflected a more difficult macroeconomic environment, particularly a rise in the cost of risk, as well as management decisions to shift the bank’s balance sheet toward a more conservative risk-return profile.

“We are rebalancing our product and customer mix, always striving to achieve a better risk-return ratio,” Muñiz said. “This shift may have short-term impacts on revenue, but it is essential for building a more balanced, resilient, and predictable operation.”

Selective lending reshapes portfolio mix

Santander Brasil ended the quarter with 76.2 million customers, up 6% from a year earlier. The bank said 15% of eligible customers had enrolled in its recently launched Santander Rewards program, with early cohorts showing increased card spending. The number of registered Pix keys rose 30% over the prior 12 months.

The bank continued to expand lending selectively, reporting annual growth of 13% in cards, 15% in consumer finance and 11.5% in small and medium-sized enterprises. Mortgage lending was led by home-equity products, which grew 40% over 12 months.

At the same time, Santander Brasil reduced exposure to higher-risk retail borrowers. Its portfolio for customers earning less than BRL 4,000 per month declined about 30% over the past year, according to Muñiz. The bank is emphasizing secured products, including mortgage-backed lending, government-guaranteed credit and vehicle financing with stronger down payments.

Management said lower-income customers accounted for roughly 40% of the individual loan portfolio, while smaller companies under greater pressure represented about 20% of the SME portfolio. The bank does not intend to exit those segments entirely, but said it would be more selective in unsecured lending.

“We are not concerned with market share in the short run,” Muñiz said. “We are more concerned with macro returns, being certain that every origination we do has to be a profitable origination.”

Revenue pressured by funding, mix and deferred expenses

Client net interest income was broadly flat year to date despite declining during the second quarter. Management attributed the pressure to increased deferred expenses related to banking correspondents, lower funding results stemming from a lower average CDI rate, and selective loan origination.

The deferred-expense and lower-CDI effects reduced spreads by about 10 basis points during the quarter, the bank said. An operator on the call added that the effects amounted to nearly 20 basis points year to date and were expected to fade over time, with banking-correspondent expenses anticipated to return to a more normal level by year-end.

Santander Brasil’s move toward higher-income clients also reduced spreads, as the high-income segment has a structural spread of about half that of the low-income segment, Muñiz said. The bank is also growing in lower-spread secured products, including mortgages and newer electric vehicles.

Transactional deposits increased 18% year over year as Santander Brasil sought to increase the retail portion of its funding base. Fees and commissions were affected by stricter credit standards, though the bank cited continued strength in credit cards and consortium products, as well as improved non-credit-related insurance performance.

Muñiz said management remained optimistic about revenue growth over time but emphasized that the bank would not sacrifice credit quality for a near-term expansion in market share. He said the bank was still targeting low-single-digit growth for the year.

Provisions rise on one-offs and weaker segments

Loan-loss provisions increased during the quarter, driven by specific wholesale banking cases and an inventory adjustment arising from a new methodology for writing off transactions. Those two factors totaled BRL 700 million, management said.

The bank also cited continued pressure among smaller agribusiness companies and low-income individual customers. Santander Brasil has adopted a more restrictive approach to renegotiating delinquent debt, requiring additional collateral or cash contributions to formalize agreements.

Short-term delinquency indicators improved, and the long-term ratio also declined. However, the long-term figure benefited from an adjustment to the classification of non-performing loans that reduced the overall indicator by approximately 29 basis points.

Muñiz said he did not expect a major near-term improvement in provisions, noting that the bank will need to incorporate an updated macroeconomic scenario into its credit models. He said the timing for a more meaningful improvement could be closer to 2027, although recent loan-origination cohorts have made management more comfortable about future performance.

The bank said the Desenrola debt-renegotiation program had little effect on recoveries during the quarter, amounting to only hundreds of millions of Brazilian reais. Management said Santander Brasil already offered debtors significant discounts through its own recovery policies.

Costs remain controlled; payout policy unchanged

Personnel and administrative expense growth remained well below inflation in the quarter, management said, though weaker revenue pushed the efficiency ratio to 39.3%.

Santander Brasil said all employees now have access to artificial intelligence-powered tools, which it expects to support both cost efficiency and revenue initiatives. The cost to serve lower-income clients has fallen more than 30% over the past two years, according to the bank.

In response to questions about capital and deferred tax assets, Muñiz said the principal levers were improving revenue without creating additional loan-loss provisions, simplifying the organizational structure and integrating businesses outside the bank’s perimeter to improve the tax base. He said the bank still expected a turnaround in deferred tax asset consumption between 2027 and 2029.

Muñiz also said Santander Brasil did not plan to change its long-term payout policy of 50%, despite the lower profitability level. He said management expects return on equity to move toward more “reasonable levels” next year, with further gains dependent on non-credit revenue growth, broader use of global platforms and normalization of credit costs.

About Banco Santander Brasil (NYSE:BSBR)

Banco Santander Brasil SA is the Brazilian unit of Spain-based Grupo Santander and one of the country's major commercial banks. Headquartered in São Paulo, the bank serves a broad client base across Brazil through an integrated network of branches, ATMs and digital channels. Its shares are represented abroad via American Depositary Shares listed on the New York Stock Exchange under the ticker BSBR.

The bank offers a full range of financial products and services for retail, small and medium-sized enterprises, and corporate clients.

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