Q3 2021 Banco Santander Brasil SA Earnings Call
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Welcome to the conference call to discuss some costs and so therefore, you sba's with though.
Present here, new student has done to Domingos pixel and Mr. Pablo <unk> head of Investor Relations.
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Now for US the words to Mr. Gustavo speaking English speaking you May proceed.
Thank you operator, very good morning, everyone welcome to our COO Conference call. Thank you all for joining US this morning and for your interest.
Here with me, our CFO and all our investor relationship team and we will try to provide some frame to the results you have seen in some of the data on our strategy.
I know we've got to watch Wahoo. Please go ahead.
Thank you struggle with.
Hope you everybody.
Doing well.
Thank you for joining us this morning to East goes I would put Q21.
So results.
As always I will begin the presentation with an update on our strategy followed by an overview of our quarterly figures and finally my closing remarks.
Firstly, one of the most important points of the presentation is that we continue to de lever as you may see why youre, achieving our all time high return on equity.
The two point to 4%.
All time high.
We have also been delivering consistent growth in net profits over a long series of quarters, reaching $4 3 billion Reais in the school.
Oh SKU.
Our business is study enables us to generate sequential returns above the cost of equity.
Creating value for our shareholders. It outgrew outperforming for example, as you may seen his life that he will be spud the local index in the process.
The next is like live me and I'm going to elaborate on how do we continue to achieve this level of return on it.
Equity.
During the last quarter.
Last quarters.
The law school, just I've been highlighting our different customer categories ranging in this light from right to left from those who are no longer active after 90 days to the most loyal and active ones.
Two critical questions from my point of view must be addressed here.
How do we continue to expand our customer base and second how do we succeeding.
In moving customers to the most profitable segment.
From the right to the left meaning the top loyalty tier.
And the answer to both questions remains a few months.
Our total customer base grew by 9% in one year, but even more importantly.
They grew 1.6 million clients millions of people in just one quarter you may see in the slides.
Yeah.
So this loss was the most active and linked one.
7.5 million clients as you machines as light increased by 25% in one year.
Growing at a pace almost three times faster than the overall customer base.
And one important reason to explain this evolution is customer service, which is reflected in our NPS of 62 points.
Let me underline and this is late Sterling. This is like the one 6 million clients that I mentioned that we grew in the in the quarter.
Almost evenly divided between those that offer more potential again those from the on the left.
Saudi on the right the ones that have less products and those the identity.
80% of the revenues who are already linked.
Oh generating the current profitability that you may see.
So in the next slide profitability proton profitability comes with client growth, but also with how do view in the different steps with those clients.
That we have.
For example, and this is slide number six we present, the pace at which our new customers engage with the bank and generate these profitability.
Considering only September the last month, we set a record on customer acquisition growing by more than 70% in a year, which again I know that 70% of the 70% were acquired B.
Digital China's.
And as you may seen Theres light at a lower acquisition cost or CIC.
However, simply opening up an account does not guarantee as you know that the customer will generate revenue.
Can they really be game begin transacting with the bank.
Some metrics that break down our performance on this front are.
72% of all new accounts opened in January for example, this year, we are active baked it in six months.
And 22% of those activated clients became loyal with six months or within six months also what does it mean it means more than six products with the client.
And as a result of the activation and transactional EDI revenue generation nearly doubled.
After half a year.
Yeah.
So.
In the next slide I have explained profitability, so far through client growth in processing.
But in these discussions digital has to be also explained the large volume of active or prospective customers who come through our channels provides.
Also with excellent business opportunities, allowing us to earn profits by combining a good experience with our low cost to serve.
Through our simplified Onboarding process, our digital platform has enabled us to acquire more than 60 Samsung customers in September for example.
So out of the almost 900000 that I mentioned in the lost his life.
600000 came through these China, implying a rise of almost 200 class or more than doubling in 12 months with one fourth of those customers been unbanked intrusion Santander to establish the first banking relationship.
Considering the revenue generated by new clients acquired in August as an example, 50% came through insurance, 18% credit or 12% Cogs on top of that the cost of sales to serve that I mentioned decreased by almost 20% year on year and in first Q 'twenty eight.
It really is that these basically less than five $4.
Continuing in the digital front.
Our end to end a data business model enables us to achieve new sales records, while also delivering a crucial benefit to our customers.
<unk> when purchasing new products and services.
Here in this slide we highlight the performance of three key products on the digital front capex.
<unk> capitalization rose by almost three times in 12 months in number of new contracts.
Insurance almost doubled in context sold this quarter compared to the same quarter last year.
And finally cost saves a bus also almost by doubling over the same period.
Finally, when considering the digital channel.
The overall loan portfolio showed an increase of 100, almost 130% the number of contracts.
With the increase in origination we witnessed.
George in customer inquiries through our artificial intelligence tunnel gently recording over $18 million 18 million directions in just a month that discipline.
Almost three times, 267% year on year.
Our utilization is enabling us to transform our business model and providing us with new revenue and value, creating opportunity is important to underline that the digital focus is also on transactional engine it eating peanut.
So as a result, we have concentrated our efforts on growing our transaction transacting digital customer base, which expanded by 25%.
In one year.
So that is leading into roughly five times greater revenue per customer over a six month period.
Yeah.
Next slide you may see customer growth and technological advancements both require people.
We'd like to underwrite these light as you may see in the left bottom part.
94% of our employees are proud to work here in Santander Brasil.
This is not a not only a high level of engagement, but 11 percentage points more comparable to the market.
Our business is backed by a strong culture that fosters a high level of engagement, which is recognized by the market.
Management is close to employees, we have held about 56 beautiful events over the past six years with employee attendance, reaching more than 80% of our total population in the last quarter as an example.
Regarding inclusion Goodman already make up 31% of our leadership positions, 27% of our employees are black and 5% of people with disabilities.
We have already accomplished the goal we set for the years ahead, but we will keep on moving.
Part of the collaboration process, we incentivize knowledge dissemination with employees acting as leading fuses in the training process for US. These training is key in our model.
As a result of our actions in all these fields that I mentioned, we were recognized by a great place to work in the human and LGBTQ.
Categories in 2021.
Furthermore, DPW named US among the 10 best companies to work in Latam in Latin America.
Delivering the next next slide delivering long term value also depends on engagement with individuals and groups that represent a wider society.
In this regard is gene has been ingrained in our culture for a long time not only in the last.
Quarter soldiers.
Evidence by the fact that we had programs impacting society since 2002.
Now the issue to be pioneers in certain markets.
In the environmental field for example, we promote sustainable businesses to our customers by providing pivotal solutions such as ESG linked loans in which we currently have a portfolio of more than 2 billion Reais C. B.
Where we lead the market with a 55% Sir and.
Solar energy loans in which we are also top with $1 6 billion raise you know the origination.
Since 2018, we have facilitated over 43 billion reais in getting financing and demand for more innovative products continue to grow.
Okay.
Our Tpi's are also focused on mitigating environmental impacts and we sell some of these ppas publicly we believe that we can make a meaningful contribution in this transition to a low carbon economy.
At the same token we intend to generate a 100% of our electricity from renewable sources by 2025 eradicate single use plastics from our operations and use recycled PVC cuts in our sites.
Our efforts for example had been recognized with the most sustainable Company Award by April kind of office 360 degrees.
We have knowledge that our growth.
Sorry that our role as a financial institution is forced into sustainable enterprises, thereby helping people and businesses prosper.
In this sense, we reached over eight.
800, Samsung people in the last three years through our social programs, earning market recognition.
They are a lot of very well known protocols here in Brazil, hustle already reach thousands of people all over the country being a top program in Brazil.
We run the country's largest microcredit operation among private banks called Prospera with $1 6 billion Reais portfolio and over 660, Samsung active customers.
As one of Brazil's largest private banks we have.
Built an integrated plan aimed at effectively contributing to the sustainable.
Development of the Amazon region.
Simultaneously, we are increasing our loan portfolio for sustainable agriculture.
The region by almost 300 million Reais.
We are also celebrating 25 years of Santander universities. This over these years, we have strengthened our partnership with public and private universities to which we offer academic support in ground scholarships through exchange programs.
A total of 24000 scholarships, where they were just in the last quarter.
'twenty 'twenty 4000 scholarships.
Lastly, moving to our governance our board is a good example of how we internalize ESG principles within the bank.
Committed to debate and developing a long term study that will enable us to continue assisting and engaging with local communities as well as for society at large.
So moving to two numbers to our results on slide 13, we detail our P&L.
We closed the period with net profit of $4 3 billion, representing a 4% increase relative to the last quarter.
More than 12% when compared to second Q last year.
Let me highlight the following figures on the revenue front NII grew in the quarter, reflecting a better mix and a stronger market activity in the period.
Fees increased by 13% over the same quarter last year here, the customer base growth and higher activity boosted different items, such as Cogs or capital market revenues on.
On the expense side provisions, new by 10% in the quarter that aligned with credit mix and grow.
And 26% year on year.
Expenses expenses are rising as a result, EBIT and other things of the collective salary agreement inflation in flooring and foreign currency fluctuations, but remain on the year below inflation.
The efficiency ratio as you may have seen.
The game at <unk>.
35, 7% almost stable in 12 months and the recurrence ratio reached 80 more than 8%.
And as mentioned our return on equity remains at record highs and return on assets improved 20 basis points in the last year.
The next slide the things the evolution of how an NII highlighted by customer NII, which advanced by pharma, but my more than 5% Q on Q and almost 15% year on year with product NII benefiting from positive volume dynamics and mix.
Despite the strong pressure on funding costs, let me remember you like in between four to 500 basis points on the year higher cost of funding is spirit as spreads increased by 10 basis points, reflecting a better mix and a very good pricing management.
Market volatility during the quarter contributed to a positive result.
Advancing to the next slide we can see that our loan portfolio grew by two 4% Q on Q and more than 13% year on year to 450 billion at the end of the quarter largely driven by retail.
This is regarding the Forex impact the portfolio would have grown slightly more of the impact is very marginal by 13, 6% year on year.
The individuals segment continued to outperform with mortgage and credit card explaining part of the growth consumer finance grew by one 7% Q on Q and 9% year on year amid a challenging scenario for the automotive industry SME had a good quarter growing three 7%.
Well to a recovery in demand corporate lending dragged down our overall credit growth given the more dynamic capital markets environment and improved liquidity conditions.
And it is important to note that 69, almost 70% of the individuals loan book is collateralized by guarantees.
But even in a more dynamic economic landscape, we should we show.
Some increase in the funding base financial bills increased quarterly, but continue to hover around the lowest level in history relative to total funding.
At the end of the quarter capital stood at comfortable levels. Our bis ratio was 14% for 14, 2% and our core equity tier one reached 11, 9%.
Moving on to fees.
We had another strong performance supported by customer base growth and a strong loyalty the best performance in the quarter, where credit costs and capital markets got us grew by roughly 31% year on year with higher than intersectionality and total turnover.
You shouldn't show at a slightly decrease in the quarter, but continues to post a strong performance year on year growing almost 20% as usual also.
In activity in the digital front.
Looking at expenses in the third Q, we had a 7% year on year rise in total expenses.
Below the 10, 25% inflation in the period, we have conducted and will continue to conduct.
A photo review of expenses, given our commitment to productivity.
In any case, we count we anticipate some cost pressure in the coming months due to the collective salary agreement agreement, which has meant that personal expenses are rising by almost 11% $10 97 in September and September inflation, and foreign exchange fluctuation of success that also pressure on them.
Many cities expenses, our efficiency ratio remained virtually stable year on year, and a 35, 7%.
This level and this is and hypotheses, but it is possible that a gains remain as has happened in some quarter. This already the best in the industry.
On the next slide we can see how our what asset quality has evolved.
It would remain at a well control level in the quarter with appropriate coverage ratio, reflecting our solid risk management.
Short term delinquency remains healthy below pre pandemic levels. The 90 day NPL kept under control at a ratio of two 4%.
You can also see that our low loan loss provisions remained within reasonable levels and also let me remind you these below pre pandemic levels.
System with a cost of risk of two 9% more aligned to.
Our credit mix.
This performance reflects our diligent lending practices.
The recovery was quite as strong as you may see it.
At 1.1 billion in the quarter, reflecting both a continuation of good management and focus I have mentioned this in several quarters already and the sale of our reading down portfolio.
So let me conclude the presentation with the.
The main.
Takeaways, which I would like to underline.
First consistency.
60 years of profitable growth, we remain focused as may be seen through our return on equity that has stood at 22, 4%.
Our dedication to building a robust and comprehensive financial platform resulted in an all time high level of new customer acquisition.
Revenues continued to grow supported by higher transactional.
Our <unk> model and shoes that the cost of risk remains within our comfort range.
Who should have productivity drives efficiency, two almost two 235% 35, 7% and finally.
Not least.
Our corporate culture deeply committed to grow.
Faults and society.
So thank you so much and so I think now we are open for Q&A.
Thank you Bill.
Now start the Q&A session for investors and analysts.
If any investor or analyst.
They should be primarily via webcast.
But at the but enough to quantify.
Please wait while we can credibly request.
I will now turn the large chimney.
Thank you you May proceed making the question via webcast.
Okay. So our first question comes from Gustavo Rolling from Bradesco.
Thank you for your question.
The banking posted an unexpectedly growth in trading gains this quarter could you explain what has supported this role and what how sustainable is the current level of trading gains.
So what is the impact in.
In the trading games from the Spike in the long term interest rate.
<unk> also.
Had another question considering the weaker ex Tomatoes for GDP growth next year do you think that the bank will be able to maintain the current level of loan growth and with such positive mix. What should we expect in terms of loan growth and mix for the next few years.
Okay. Thank you Gustavo.
NII from market activities Treasury et cetera.
Yes, it has been a good quarter, our all our treasury activities. However, wholesale.
Banking activities, then I will say a good a good year, but specifically are good.
Quarter.
These two five if I remember well we had I think it was second Q last year second Q2 thousand 20 in which we also had a very good quarter and it was even larger than the amount we have presented.
These are in this quarter.
Our first quarter in 2021 was also a good one so I was always that I mentioned with you know I mean, we do have some volatility here.
When things go in the good in right direction, you end up with higher numbers. It is not the highest but it is a high number when things when volatility affects you on the other side.
You go down in that number that number that number has ranged in general terms I would say from.
Making a little bit of an averaging between one five to $2 5 billion per quarter, depending on how things evolve.
Difficult to estimate.
Following your question so.
It depends really on how markets.
But at the end of the day.
These kind of our COO.
Quantity that you see there helps the NII, but clearly focus on the NII from client that is performing pretty well.
The second part of your question, which is GDP and loan growth.
Well.
If we think in 'twenty to 'twenty, two in which you may have.
And inflation I don't know I'm thinking a little bit of the consensus of the market I don't know four or five or even a little bit more than five with GDP growing.
2122.
You end up in a nominal rate of around six 7%, so I wouldn't be surprised.
Loan growth tends to grow.
Uh huh.
At the country level higher than that or usually with probably.
Separating the role of.
Private and public banks as.
As has happened in the last two years.
The discussion is not only the total loan growth because that's a little bit.
Eddie assessment by my side, but also what are how are the different segments going on grow knowing what we are seeing is that retail continues to present, a strong and good growth why you dilute that growth as you move to Smes corporates large corporates being large corporates and corporates are growing.
The least.
And probably that type of profile is what we see in 'twenty tune them.
Okay.
Okay.
Thank you Rocco. So our next question comes from Mario <unk> from Bank of America. Thank you Mario.
So you showed that your active client base expanded by $2 4 million in the last 12 months or 90% are these new clients coming from expansion into new regions are these clients coming from other banks or are you now.
Now able to reach the en banc at the population.
Those channels and also our employee base has expanded by 9% or more than 4000 people in the last 12 months why is your branch network has declined 6% or 100 Friday.
Can you help us understand that.
Diverting trained as any employees and ranching and model also has another question.
Can you discuss the outlook for asset quality in the loan growth from Tianjin vetoes, you'll have to start to accelerate growth in secured loans and in retail loans, but the economic outlook for 2022 seems to be deteriorating and Brazilian central banking showed that the indebtedness of families.
Darko highs.
Are these real concerns that should lead to a more conservative lending stance.
Thank you Myra.
Thank you Marty for such a comprehensive coverage of the different things. Let me note that four four points. So let me try to address them growth of clients.
What this is.
One of the main engines of Santander Brasil growth as I had been discussing with you in a long time now so we have positioned the bank that April is producing these type of attractiveness for clients and we continue to have our main.
One of our main reasons to preserve profitability and grow that you have seen.
Through these type of growth, let me try to give a little bit more.
Right in those clients I mentioned 24, 35%, one fourth of the clients or new clients in the financial system.
So these are the clients that our bankers and we do have several tunnels, we have prospera, which is the microcredit Ada in which as you know you basically.
Focus on clients that are in.
Yeah.
Social extreme situations in which they need and they have little businesses and they performed pretty well in quality and everything.
I have discussed with you the four different channels through which we acquired clients the photo them working pretty well the physical one digital one.
Remote one in the external one and the four of them.
Elaborate a little bit farther afterwards, if you want on that point I elaborated on the presentation on the digital front.
More than 70% of that broke some approximately 70% of the clear clients that we are improving or sort of increasing in the quarter are coming through the digital side, but let me also give you.
Some numbers that I didn't.
Let's say with your 'twenty.
28% of the client base on the digital.
On the digital front.
We are increasing dose in terms of transactional and so the digital client base is increasing by 28%.
In those that are active clients in those.
Presenting tractors tonality. So in those that are generating P&L. So as I mentioned in the presentation is not only opening current accounts is really making a.
Or having the capacity offered introduced those clients. These type of a transaction on it and this is how the bank is positioned okay. So the.
The NPS the op everything that you may see around Santander is basically.
[noise] oriented to make it a niche you should experience. So that plan is really use the bank.
The increase in employees is basically focusing two things that I already presented to you before one is S cheese the S X.
Which is where we have basically focused our remote tunnel. This is what I mentioned to you in the last quarter. They call center, the traditional concert that call center being transformed in an active <unk>.
Selling point.
We are already above five products there.
Person per day being sold this has started in between one to two so this is strongly increasing in supporting our growth and the other part of the east part of our movement that we made on the technical Department on the operations and Technology Department.
To make and I think I've been logical company that provides services to the bank. So those are the two main 95% of increases that won the branch movements branch movements. Oh, you know what are we doing we are continuously managing branches.
We are opening is small shops, as we call them, which are branches in any case in the center of the country basically where the growth is and I have shared with you payback and breakeven in very short periods of times six months nine months.
Which are performing pretty pretty well and in the large cities. We are as always we are managing those branches now.
<unk> branches that have been.
Traditionally from tower, a longtime ago have been kind of merge and we still have like a kind of two codes there and they are being moved to one you have branches that are basically in the same place, but the city has moved and grown to other places.
And now she's a very good example for example in which we hit we had five.
Branches, almost one square kilometre and when what we did there is just maintain some of them and moved the others or closing them.
Finally asset quality.
Let me elaborate a key here sorry, a one point, which I think is important I mean, I have mentioned to you in past quarters that.
We have reached very low levels of cost of credit or mpls. So the normal movement. After these oh throughout these important liquidity liquidity kind of support that has come from different places is that we recover or we come back.
Slightly marginally as you may see.
In the different quarters.
The cost of credit today is two 9% they presented that in the presentation.
This is still below pre pandemic levels.
Pre pandemic levels.
If you choose for example, first Q2 thousand 20, where 3.2%. So we are still better than before the pandemic, even with whatever GDP whatever consideration do you want to go into forward I.
He will say the same thing I said in the last two quarters I mean, if we see these type of 10 basis points I don't know I don't want to quantify them, but if you see a slight kind of the traditional it's kind of going back to normal levels in which we have been for a long time, let me remember you that Santander Brasil has the lowest.
Volatility in terms of cost of credit throughout a very long term period of time. So we really know how to deal with risk in this business.
So I'll have to make a long answer, but they're worth four points and I think we covered what I call. It the four of them.
Yes.
Thank you Rocco.
We have another question coming from Eduardo Hosmer phone better here.
The silicon interest rates should move up 700 bps in <unk>.
From a theory.
Fast and big move in a short period of time can.
Can you. Please explain what are the impacts of such change.
Our results what are the benefits what are the negatives how asset sensitive you are.
Okay. Thank God, let me go through the different kinds of considerations.
Your first half hour sensitivity in terms of NIM that they have say with you around $400 million for every 100 basis points of parallel move into Q. So that is kind of stable and that will has already been there and we will be there. So this is not a.
New kinds of sensitivities that I am sharing with you.
The important thing to discuss these in the pure in AIE client NII more then on the kind of.
Surrounding variables.
So what we will have is.
A better performance on the liability side.
NII, a better performance on the NII, meaning more revenues from that side more profitability coming from all what we can consider us investments or say been from a time perspective.
On the asset side, what has happened as you know the deal is already imputing or estimating or like more than or around 600 basis points in the next two years.
So.
When we are already producing.
And the 10 year is close to the 12% revenue so when we produce I dunno alone.
In our three year, a three year loan.
The prices that we our position or already embedding that deal cure.
Now if you compare that which probably is part of your question and you compare that with a 12 to 24 months ago. The.
The yield curve has moved up and that means and this is my I'm coming back to the quality discussion and that means that obviously that effort coming from companies for families had said that it will be harder no and this is why I was mentioning before that can be back to normalized levels in terms of quality of risk.
Should be seen as a normal kind of movement because again, we are clearly below.
Historic average is in a very good.
Points in terms of what the important thing again is that you maintain positive operating leverage in terms of our revenues in both provisions and costs that you are able to maintain our spreads as weak as you have seen we presented I think it was at 10 or 20 basis points improvement in the spread in the bank.
And that Embeds four to 500 basis points of increase of cost of funding. So we are managing the situation, but the effects are the ones that I try to summarize.
Thank you Rocco.
The next question comes from Marcello Telles from Credit Suisse.
Cost of risk increased sequentially do you expect further normalization going forward are you changing your credit risk appetite in light of deterioration macro conditions in Brazil.
Well, Michael I think I answered basically the question in terms of Oh.
Macro appetite in the different reactions to this situation. This is absolutely bout I mean.
We have the reason apartment with the business Department and with the rest of the bumps around those two <unk> continues and continues means weekly meet.
Meetings in which the elaborate opening and closing the pipeline's fine tuning in the segment in the older. Nokia is performing led to these states and let's go into untested waters, let's come back because this is an award this work pretty well.
We have for.
For example in the auto business, we have increased share in different clients that we didn't used to be there. I mean, you have this is absolutely business as you know having said that again.
The rest of the quality the cost of credit.
<unk> I already answered.
Thank God I hope so the next question come from travel, but she is from UBS.
Brazil posted a solid expansion of the credit card business can.
Can you comment about the banks is try to be in the cards.
Credit card segment. Thank.
Thank you Jakob.
Yes, you are right I mean, we are we.
We have been selling and I think I also mentioned this in the last quarter, we've been selling overseas 600 credit cards per month.
Well I think that this threat that you hear us.
First make the product usable and that has to do with.
All the tools that you have around.
In terms of payments the second lease position in the bank not only in credit cards and payments.
The first one is offering different products to the different and clients.
Thus segmenting the product in function of the client if not the other way round, okay. So adapting the product to the.
Two declined.
And I would say and finally.
Having that.
Trial, and narrower capacity that I mentioned before.
We have been increasing I mean 70, 80% of the critical is that in some months are sold are sold to existing clients.
They want northern Cal for a relative or for somebody close to them.
So we all know the risks we know the risk profile of those of those clients.
And if not we have.
Stablish trial and error process by which you advance.
Hunter hunting Kahn with the client in terms of the limits and the amount of risk that you. What you want to bear with that client. So I think it's a little bit of and nothing of position in the bank and the payments. There's lots of acquiring these lost Grady county, and all that kind of big settlement.
Without trying perspective more than with a bank's perspective.
The channels that I mentioned before have a lot to say and to do here our position.
Credit cards for example, with American.
American Airlines with Amex, etc.
The next question comes from in Yoghurt Friedman from Citibank can you please elaborate a bit.
On what drove record negative on other operating income or expenses of $2 80 millions I understand other operating income come down but it seems other operating expenses also accelerated significantly and we lack visibility about it. Thank you.
Thank you.
Yes, absolutely yes.
Yeah.
As you know, but first.
That line HUS, it's proper volatility.
Quarter on quarter, and we cannot do much more there, but tried to explain it to all of you and let me give you. Some examples of that line. So that you understand why it has some volatility for example.
Let me try to remember hearing different things now.
In second Q, if I remember well we had.
And insurance.
Positive.
I wouldn't call. It extraordinary positive result on an insurance from a from a.
Now a pool point regarding labor.
Security that in the comparison with this quarter affects negatively for.
For example, we are to date.
With the cell leak, all the fiscal situation in offshore like Luke Sambuca Luxemburg sorry.
For example.
We did receive pod.
And input in terms of I don't know how to say that breakup breakout told us which are kind of public Reits that you have to you made receive and we received some of them in the past quarter. We have four another punto thing I mean to give you a little bit of light in this line we have the difference in between the <unk>.
Average photics as change and the closing of the month or the quarter Foreign exchange you have an input there that in this case was negative.
For example, we did acquire miles for our.
Programs and that was in the third quarter, Turkey. So I mean I can put it.
I don't know I don't remember more but I'm sure that if we do at least we have a lot of them that goes up and down positive net if and this is the reason so at the end of that you have there as you said those $2 8 billion in this quarter that are affecting more negatively than another qantas.
Thank you Rocco.
Our next question comes from Yuri Fernandes from Jpmorgan.
You continue to have a good growth in number of clients, but demand deposits are decreasing on both sequential and year over year base.
Can you provide more details on it how do you see funny in 2022, given higher reference rates.
As I said funding I see us as.
A very important point in 2022, I mean, I think not only because of the NII, but also because.
Being a universal bank.
We have to diversify the type of funding I think we are leaving a little bit of a hangover of those strong liquidity programs that we saw in the past.
And 2021 has been a gearing which.
That source of liquidity has not been as strong as it was remember 2020, I mean 2020, we had a quarter in which we are growing 50%, 30%, 40%, 25% in terms of client funding I'm speaking of deposit funding. So it's a it's a little bit.
Normal situation in which you live.
Some kind of a hangover in that sense, having said that it is a focus.
And we will try to focus on continuing to focus in the next quarters and years specifically.
Specifically 2022, as we understand it is perfectly mentioned crucial for their funding and for the full cost of funding.
Thank you I hope.
The next question is coming from Pedro Leduc from at all.
Corporate durations and vessels Npls, where are you seeing most anybody else pressures in terms of broadening geographic.
Is there any outlook for 2022 already given the current macroeconomic scenario should you keep that historical 200% cover duration by year end of year end 2022, RMA above it.
In terms of quality of risk.
I'm not going to elaborate much more because I think I did I did cover it already I'm going to try to answer you. The two points that I think I didn't I didn't cover.
<unk> ratio I mean.
Let me remember to you for us coverage ratio.
Outcome.
How we understand the business is that we have our not only the regulatory needs, but we have our risk department.
That sets the needs to whatever it is to provision to not provision to over provision or to leave it to renegotiate or whatever of each of their clients.
These bunkhouse and with that policy, we end up with a coverage ratio.
So it's we don't have an objective obviously e-commerce as a consequence of our provision even though so.
The fact that we have a 248 or 50% coverage ratio is something that comes out from the from that process.
It is also true that.
Youll see the historic series, we used to be for a long period of time.
At the 100, plus then we went over 211 to 300 and then back to 250 and this is something that we will continue to answer to the process.
I mentioned before in them.
In terms of geography segments et cetera, obviously each of the segments have different cost of risk the trends in each of the different segments are you already mentioned before but in terms of geography I haven't we haven't seen differences from what is usual here in Brazil.
Oh.
We have another question from Chagal from Goldman Sachs.
What were the main drivers for the decrease in the effective tax rate in the third Q2 thousand 21, what should be the recurring level going forward. Thank you travel yes.
Yes. They are a good question I mean, the main reason was that we paid interest on capital just as happy as we said we sit here in Brazil.
In the third in the fourth Q, we announced it in July the board approved it in July and that in the full payment $3 4 billion was interest on capital.
The impacts significantly the tax rate I think the tax rate in this quarter that was close to 30%.
Which put the average in the year around 35.
They also hidden in terms of tax rate is the same way I've given to you I mean, we should be in the 30 plus.
And that depends on this interest on capital in different initiatives at the knowing that we have a second semester in which the tax rate for banks as you. All know has increased by five percentage points. So a punctuality in these six months.
The Q&A session via telephone is open now one question only please.
Right when we get there could credibly good credit.
The first question comes from John.
Zack <unk> with Morgan Stanley.
Hi, good morning, everyone.
I think most of the questions that I wanted to ask have been answered. Thanks for the detailed responses to all of our questions. Let me just ask you something more longer term and bigger picture I'm looking at them.
Consensus numbers from them.
Sell side on your.
Growth in net income and pretax profit for the next two years.
2021 2023.
I'm seeing pretax profit.
Two year K guard growth of 5%.
And net income growth to your K R. 7% I wanted to get your reaction on why do you think about these numbers.
I think they are too low.
5% two year CAGR on pre tax profit stuff basically growing with inflation and I'm, assuming you can do much more than that.
Similar to net income so wanted to get your reaction on what do you think about these numbers. What do you think are numbers that you would feel more comfortable with over the next two years and what do you think the sell side community is under appreciating getting wrong overall on the story that's dry.
<unk>. This is what I think are very low numbers. Thank you.
Thank you Jorge.
Well I mean you.
You'll have seen the evolution of the consensus.
We have been performing or delivering in what has been kind of the performance of that consensus was not.
As you know, we don't give guidance or forward looking but what I can say to you.
Is that I mean, we have been outperforming a strong leader in the last five six years continuously.
Against the consensus I think and this is what I think was a.
So somebody buy UA by your house by Memorial at My model and is currently <unk>.
Rich the output all the banks and the ones that have given some kind of negative surprises some time and I think Santander Brasil was the only one that did not give any single narrative surprise, so meaning that we went over consensus.
During.
Long period of time of English 345 years, So I.
I mean, we continue as I said in my speech, we continue to be focused we continue to put our return on equity and growth and clients I think the bank is uniquely positioned in terms of acquiring clients uniquely positioned in terms of capacity of selling through the different channels with clarity on what.
It has to do each of the channels a lot of capacity of steel.
As an industry what the specific areas of rank on the cost side, although we have the lowest efficiency ratio.
We'll have to monitor obviously quality and that's that's an obvious one.
That seat so.
I think that that the fact that the bank has been performing should be a part of.
Of your answer.
We all loosing I think that.
The capacity of these bank to navigate.
Throughout whatever he comes.
If you see the performance.
Just put the return on equity, but I mean, if you see the performance since 2015.
We this these country went through the worst crisis in 15 16, and the bank perform and then you went through a pandemic and the bank perform and then we are now heading towards lower GDP growth and I think we will perform.
That's a I think and why because you have all those body of as I said to you all that capacity of positioning you have a bank with a lot of hunger a lot of.
Yeah.
Intensity in terms of delivery and you can I mean, I said to you in 94% of the employees are proud to work in Santander Brasil. This is I don't I don't want to say unique but this is something really to be very proud of and I'm very proud of working.
A bank with 94% of the people that really are proud not only they want to work here. They are proud of the work in here.
This is <unk>. This is diversity D C speaking up.
This is a meritocracy I mean do you have some of the things that I understand sell side analyst is difficult to quantify but it is a reality. They exist now and this is why we underline them and we put the bank.
And now we speak of E Z and the bar has been 20 years in ESG and this is another.
This is the kind of things that they can be confusing.
The next question comes from Carlos <unk> from HSBC.
Well.
Set up with Michael and thank you for taking the questions.
I have two brief ones. One is if you can comment on your current relationship with Nick It's been a few months now since the company is separate you'd have reached this agreement about how to.
You don't make payments to each other can you give us an idea about the revenues and expenses related to getting it and without this agreement now.
Now that you can experience needs to be adjusted or is working well so far.
And the second very brief question in the other expenses.
Same step one of that is related to a particular labor claims.
You can tell us how much that was in the quarter and we shipped a total of $1 8 billion, we want to know how much of that is legal expenses.
Okay. Thank you.
Carlos.
When they get net relationship.
It is true that.
Net.
Our fee Shelly and.
Accounting wise at Sidra was already a spinoff as of the end of March. So we have been functioning and that's all for me was no quoted et cetera, but we have been walking in that the scheme already for more than six months.
And the reality is that what we promised to you I mean things haven't changed.
What does that mean it means that the relationship between the two entities continues to be and this is our main focus continues to be as it was.
Yes.
Try and that both sides the bank and good net obtain the maximum out of it.
So this is what is happening so management from Gannett continues to participate with all the all usually legal framework applied but continues to work continues to participate in the same comedies in the same.
Working groups.
Board of good Nate as you know youre going to have two members to senior members from Santander Brasil.
To maintain the same time, so the experience your COO.
Question How's it going on it's going as expected and we expect <unk> to continue to grow as strongly as it has happened in the bus market said already 16% et cetera. So they are present in the numbers.
They kept presented the numbers already now and they will be doing the call in I don't know.
Hours and they will give you details, but I mean, they have presented more than $90 million 90 million resolved.
The growth will continue to be there.
Hope that you are able to understand the second part of your question I didn't get it and do want to answer it will start where we play.
If I understand correctly. Your question is are we going to do.
<unk>.
Labor contingencies, if I understood correctly.
We had some impact in terms of labor culturally and this quarter its around $106 million.
Andy it's considering in other expenses.
Okay.
Thank you. Thank you and the session is over and they handle virtually.
<unk> for his closing remarks.
So I would like to thank you very much for joining us today and your interest also again, we are fully available here for any further question.
Thank you very much have a nice day stay safe bye bye.
Yeah.
Then Christensen Deb. This is conference call has come to end and we thank you for your participation have a nice day.
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