Q2 2022 Banco Santander Brasil SA Earnings Call

[music].

Okay.

Hello, Good morning, everyone and thank you all for joining US this morning to our second quarter Conference call.

I am subsequent head of Investor Relations of <unk> Brasil here with me are our CEO , Mr. Marcelino <unk>, our CFO , Mr. Alexander Domingo and our investor relation teams.

Speaking first today is Marty <unk>, our CFO he was going to make some comments regarding our strategies and he will be followed by a hill, our CFO with comments overall, our fluctuate results.

After that we are going to open for a Q&A session. Just a reminder, this presentation is available in our website and please refer to disclaimer on it.

At this time I would like to turn off the cultural our C. O model. Please go ahead.

Thank you very much with stable. Thank you very much all for joining subsidies to be here again for a second time.

I'll kick off with strategy and then he'll complement with that with the numbers and then we will jointly covered the Q&A.

So basically a kickoff with an update on the precautionary measures. We've taken since September 21, and then I'll report some of the strategic priorities I have outlined for the first quarter in the first quarter and for the remainder of the year.

Upon which we are already working on as a group.

Our ability to anticipate trends is the resulting better integrated as expected.

And as they start to gain relevance inside the portfolio that should translate into a more controlled asset quality.

Delinquency ratios remained stable quarter over quarter.

With total delinquency at two 9% still below pre pandemic levels.

Also incorporating new variables and risk models allowed us to increase the origination of secured loans contributory to the maintenance of a strong balance sheet.

We'll give you more examples later, but for example in consumer finance in outflows in the second quarter, we've increased our production of share from roughly 18% to 22% and therefore, maintaining our overall position as market leader with 24 ish percentage.

In terms of market share.

It's all the challenges the macro scenario has been imposing on all of US we were able to maintain our profitability above 20%, reaching a 28% ROE and also a very very low efficiency level, our second best ever.

Moving on to our strategy.

Which we described in the next two pages.

So.

In terms of our strategic priorities that I outlined for the last quarter, we are designing our strategic thinking and developing for the next few years towards becoming what we call. The best financial platform in terms of consumer finance operation consumer services in general and.

And for that we hope line four strategic pillars, which we're already working on they talk with our results obviously as they should be in.

And the first one is customer centricity sales channels innovation and culture.

All of us the outlining.

The importance that our people have all the other peers I'll comment briefly on each of them and then.

A few of the points, where they translate into results. So that you can connect the strategic initiatives, we've offline with how that.

All those initiatives materialize in terms of P&L and starting with our Christmas increasingly priority.

A stronger and more intimate relationship with our customers will continue to be one of our main one of the main variables to keep delivering solid results as you can see here in this slide we have continued to increase our customer base. The gross customer base, the active customer base and a loyal customer base.

Yeah, I'll be Greece.

By significant percentage points, the loyal customer base increases.

A high teens percentage year over year, we make five times more revenue with those customers those customers than we do.

Average customers.

Thats, a very important data that we track.

We can see we continue to have.

Tailored offerings towards our customer base and obviously your compliance has been giving us more data. So that we can continue to offer the best possible.

Lending and also services to our customers.

We have continued to deploy dynamic and personalized models to have a more effective and assertive approach and our loan share of wallet.

Among large customers one eight almost two times greater than normal.

So the strategy of making consumers become more and more loyal with more communication Mark tailored offering that continues to be at the center of our growth strategy.

Moving onto the next page, we continue to be obsessed with our efficiency not only to achieve a low efficiency number but also to achieve.

The lowest cost to serve.

Our peers, so we keep reducing our cost to serve as you can see here from from 19.

2022 with Martin Currie.

And year over year, we reduced almost 30% our cost to serve our digital business. Obviously, that's an important data because as we grow.

The customer base more and more.

Been growing over the past few years, it's very important that we have the lowest possible cost to serve and that continues to be an obsession with like I said that includes our ability to be simpler to have simplified offerings, which doesn't mean, not adding products to our offering but doing so.

Super way, reducing therefore processing costs, obviously, the amount of people who need to process and.

Systems alike.

And another big focus.

We also cover here is our obsession.

Delivery and time to market will reduce year over year, 34% the timing.

<unk> origination and granting marketed and 22% the timing between origination and granting.

We've made the product so we consider ourselves to be best in both lead times, we're not we're not satisfied that these levels that we're going to keep.

Proving our efficiency levels, yes systems wise and processes wise, so that will continue to deliver a quick execution to our clients to our customers and therefore, improving their loyalty and their sights set of sexual get something there.

On the next slide we highlight our recognition as the vessel tumor company by procedures briskly amplification and the best Bank for low income individuals Bye Bye Buffy.

That means we are obviously focused on the on the lower base of the pyramid as you all know, but I wanted to highlight that we are obviously very focused as well with medium and high income we have to.

Segment, two specific segments here, which are called Vanguardia and select we're going to be renewing our ambition and both segments, particularly on select so we're going to be talking more about it in the next quarter and that has to do a lot with our big initiative on investments on liabilities, we launched the platform, which we will comment more later, which is called the.

Symptoms that fruitful way, which is our answer our strong answer too.

To the to the investments.

The balance sheet, and therefore will grow much more rapidly than we did in the liability side, particularly retail.

Compared to what we grew over the past few years.

Our NPS is that 65 points.

We keep working on that we were in 2017, the first want to start talking about it in Brazil and that continues to be an obsession NPS is one of the measure is not the only one but two continue to read it to understand what it means.

Two customers through the NPS.

And all different sizes.

Moving onto our distribution.

That's a big pillar, if you will not be the best consumer company in Brazil, We obviously need to dominate distribution and Thats, what you would do with our four different pillars in distribution the first one.

Recall, the physical channel the stores.

He'd like to quite stores, because thats, what they are there they are physical stores such as any annual retail.

Company in Brazil that sells a physical products.

It's just that all projects are different but our stores they should be the same.

Keep expanding the stores throughout Brazil, that's an important message we believe the relevance of the physical stores, we are in places where.

There is no.

Opposition like we have in the main Friday of Lima and Leblon.

Pieces of Brazil, So we keep opening stores 12, mainly the Midwest and.

In North Sea and Brazil, we're going to have opened 70 stores this year.

That compares to $1 20 last year, but thats, a very good base of growth.

The stores, we opened a very profitable they have a payback.

Many times, we didnt months.

Less than a year.

Most all of them.

We have increased lately the stores availability that their hours of availability because we were the first company in Brazil to have a nine am to five pm.

We're always stores that makes a difference because that allows our customers that source and many customers still grocery stores.

To be.

We'll be talking to our personnel.

We also have our <unk> initiative, which is already selling.

The thousands of contracts in the in the in.

In the stores, where we have the Atms remember that we had 16 million people willing to our Oems on a monthly basis half of those customers. Those are locked so we have a tremendous opportunity to cross sell those that our customers and to onboard those that are not so we're keeping in a locked in our physical channels.

Integrated with our other channels, we took over in the next page will provide us a very powerful distribution.

Platform, which we will construct to be the most fall through in Brazil, I'm talking about the other three channels very quickly our digital channel keeps expanding we're having more than 500 million visits a month in all the different apps and.

Portals.

We.

We continue.

<unk> business.

And post sale.

Digital channel more than any other channel obviously given it.

<unk> and availability, we have added new features which we called the <unk>, which allows us to talk to our customers and explained to them better their vehicle assumptions.

In a very diabetic and empathetic way so with that we want to have more time from our customers inside the RFS and the sustaining their their financial needs their financial goals.

Within the information that we have.

And we are now publishing very organized way in terms of our remote channels.

That keeps expanding very rapidly we're soon going to open our third headquarter.

Headquarter for a remote channel in the in the countless subtle some falling sort of carve out where we are now in the thoughtful Brazil, even though the Baldwin also in Rio and we are going to have our third spot we're already selling two times more in the channel than we did a year ago. So that has become already a very important sales channel and obviously, it's a very important.

The channel for Us to do post sale and we're doing much more.

Better there as well we have our first of all resolutions.

Above 90% level that was <unk>.

Slightly above 80% earlier this year and our ambition is to get to 95%.

At the end of this year and we're working hard on that finally on the external channel as you call. It.

That is everything that we have in terms of points of sale apart from our branches. The stores, we already have 2000 locations, which is a.

At the same number but well below where we would not be in here, we're long term ambition to grow.

A triple digit rate for the next few years, so that means that 2000 level will be much bigger and we want to be talking much more about it every quarter from now on with that we have again.

Different.

Sales channels, they're more and more integrated our loyal customers. They transact using different channels already at a very high pace and we want to keep integrating those channels to serve our customers more and more however, and whenever they want.

Moving on quickly to what we call innovation and capital that's a very important pillar two.

<unk> already talking about.

<unk>, an inorganic comment soon but this is the organic innovation that we're very fond of we launched this quarter, our assistance business, which we call helps it's already available for car buyers and Pat and we are launching now for more cycles and gamers in the next few months that as well.

Allows us to have a new stream of <unk>.

Commissions.

Current conditions.

Our retail base.

It's a business we are.

Are you expecting a lot from.

It has a specific brand positioning and obviously the price tag is very competitive compared to the two additional weeks of business. We also launched our triple way that I mentioned before that's going to be a game changer for Simpson there in terms of how we position ourselves in the liability part of the business risks.

We are spending more than 1000 advisors.

Main employees or something there our model is they are not independent advisors theyre sitting within Simpson there, but they have a very specific design compensation model. So that they can they can help because it would be.

Aligned with our with our results as well we have total our digital.

Consumer brokerage that has continued to expand very rapidly despite the markets not being so great over the past maybe year total continues to expand the customer base customer loyalty and business. Finally, we launched what we call Xx Integra is already.

Very large digital platform for supply chain financing.

We want to make it the largest in Brazil as a whole.

Does that connect with our consumer business, which is a very important piece of transactional business, we have where we connect suppliers with anchors.

Again on the agro side, we continue to expand a lot. We reached already 30 billion reais in our portfolio, that's a 33% year over year. So we continue to expand our agribusiness ambition and we will not be much bigger here.

And finally, just one comment on the inorganic side as we've mentioned in the last quarter. We acquired this company called weight carbon that.

There is Latin America's largest technical consulting firm for net zero climate and carbon and we wouldn't extract a lot of value from it.

Not threat of them.

In terms of our net profit, but we believe it will be more and more and our connection with breakout but will allow us to tackle this business, which is only beginning in Brazil as a whole.

Finally on culture and.

And people, we continue to have a very diverse and support of closer as you can see the numbers here, we are close to 30% Black employees, we keep working on that we have a public commitment towards 40% by 2025.

Women in leadership roles, we already have more than 30% 31 precisely.

Also want to get to 40% by 2025 and overall, we have more female employees in mainland. Please.

And one comment.

I wanted to highlight here because it's a very important cultural wise, we firmly believe.

Coach where neither ship is close to two everyone.

On the commercial side on the on the support roles. We do believe that everyone. In the headquarters we havent for Apollo should be visiting the stores and the spending.

What's going on.

At square reality kicks in which is at the same point at the wholesale point. So we promote.

My standpoint, the executive committee and everyone.

In the leadership roles in our headquarters they are traveling 12, Brazil, a loss and we believe firmly in that horizontal perspective.

So that we can learn more and translate that into further further and better businesses and finally.

We truly believe in proton.

And knowledge, we have our academy, which is going to be relaunched now with more content more courses.

And people joining.

Joining and we have a 98% level of employees certified.

Finally on ESG, we keep very focused on.

On businesses, which we connect to the environmental.

Final thing, obviously with all appropriate care.

We on the social side, we have the prospera microfinance operation, which keeps expanding very rapidly every year. Our portfolio is expanding by 36% by next year. We have added agents, we are serving almost.

800000 customers and hopefully we're going to reach wouldn't be there because we're soon.

Any governance, we keep obviously following all the appropriate government centers.

And with that I'll leave it to <unk>, so that we can cover.

<unk>.

The results.

Okay. Thank you Mario good morning, everybody. This is something because it's simple I mean rule.

I will be starting to slide 15, where we detail our P&L.

As you can see I wanted profit amounted to little bit more than 4 billion $4 1 billion Reais.

Growing 2% in the quarter and almost flat these see small PD comparison.

I think the important point here is the core revenue base is represented by customer NII and fees continued to perform strongly reflecting determines sexuality and growth that <unk> has come in.

While ICF I anticipated to you several quarters already marketed and provisions remained on the temporary pressure due to the <unk> and the macroeconomic environment.

Let me go over a few of our key figures for the quarter on the revenue front.

NII was stable and on a cumulative basis with market NII offsetting also showed strong positive performance of custom and NII.

Fees again, another good indicator about putting sexuality rose by almost 6% over the quarter, but normalized more than 20% here the expansion of our customer base and more robust activity translated into stronger revenues from our wide body.

Of items, including cost and issues.

And on the expense side provisions view grew by 60% of your competition.

The first half of last year, which is consistent with what <unk> been stating seems first Q of last year earnings call.

The other hand, you will see that.

Ray issues on a flat balance sheet.

Our ratios are flat in the quarter for the first time.

The loan series of quarters.

Also <unk> expenses increase in nominal terms more than 8% due to the collective by gaining agreement and inflation.

We continue to be efficient.

Focused.

We managed to deliver a solid quarter over quarter performance, posting a 2% decline.

In an environment of high inflation associated.

With all these efficiency ratio remains in very good shape, 3.9% in the quarter almost historical minimum.

Furthermore, our return on equity is state again, the healthy level of almost 21% 28%.

The next slide slide 16.

The biggest progress.

We thought maybe emphasis as I said on the on the customer side.

Mr Custer.

NII expanded at a rate of 28.9%.

This was the same btu of.

2021, which is a direct reflection again of everything we have been mentioning about customer growth loyalty.

Related teams.

Consequently in second Q22 product NII increased by 3% to 9% compared to the first quarter.

24% against the prior six month period.

If you deem from positive volume dynamics, a better mix and improved funding performance.

As a result of spreads continued to expand by approximately approximately 20 basis points.

A very high level when compared to for example last year.

On the other hand as I have been sharing with you for quite some time now monitor the NII reflects our sensitivity to the <unk>.

Specifically to upward movements in these two trend.

Trend that will persist in the second half of 2022.

This performance, which has no new east and we will continue to be partially offset by our treasury results in this line of the P&L.

Next slide slide 17, given the bullish economic cycle. We are witnessing we have taken precautionary steps of loan origination beginning in the first quarter of 2021 that they have been sharing with all of you.

These costs resulted.

Slower, but positive loan growth pace, when compared with the market as seen in this light.

Our loan portfolio grew by two 9% quarter over quarter to almost 470 billion reais.

Regarding the currency effects that few would have been 2% growth so not a huge impact on that side.

<unk> continued to outperform our corporate portfolio in the year.

Mortgage favorable personal loans and credit cards, driving part of our portfolio expansion.

It is important to underline that 64% of the individuals loan portfolio portfolio you secure this collateralized.

At the same time, the quarterly portfolio growth with small and medium size enterprises.

One 2% up whereas annual growth is already close to 7% six 7%.

Due to Comping competition from capital markets, and our profitability way of looking at operations corporate lending.

Number one the annual growth of their own.

Loan portfolio also as you can see in the quarter. It is showing a nice growth rate.

Finally, our funding performed nicely in.

In this regard and as you probably remember we insist the hike in interest rates will boost demand for traditional banking products.

This is reflected for example.

Increase in time deposits during the quarter.

Finally, our core capital has stood at a healthy level at the end of the period.

Our core equity tier 111, 1% within our refinished range, which as you know in between 11 and 12% in real estate in that range.

Next slide in the slide 18 in terms of fees. We continued to grow supported by the expansion of our active base and a higher level of customer loyalty in the Q on Q comparison and with the production issues. We should have been taken on the mineral side, even with those we delivered a client.

Positive five 7% growth only in the quarter.

You shouldn't assume capital markets were the best performing segments.

During the quarter, while comps were the top performer on a six month comparison basis.

Excuse me.

Expenses are a recruiting talking points inside the bank.

At the highest level and you can see our longstanding commitment to expense control was again shown with a $1 nine almost 2% decrease.

Deadline over the quarter.

Specifically in <unk>.

Environment in which inflation as you can imagine these put us in that part of the business.

Two ideal lead earlier expenses continued to grow below inflation of eight 4%.

Thus as a result of all these and as I noted at the beginning of my presentation of my part of the presentation.

CNC ratio finished the quarter at three.

333, 9% a solid level. Despite these inflationary.

Pressures and increased commercial activity.

<unk>. This is the second best ratio only 0.1% worse than the one we presented only 12 months ago.

Okay.

On the next slide on Slide 19, we can observe how our asset quality possible.

All ratios move 15, the earlier years 15, 90 over 90 days, so up flat reissue I'll repeat a flat ratio when compared with last quarter situation that did not happen since second Q2 thousand 22.

Two years ago.

The early reads are flat in all its components individuals and companies wildly over 90 shows.

Steel is light the degradation in individuals with improvement in comments.

These would be the first sign of all the decisions we have been taking seem September 'twenty, one about the production and risk profiles.

On the cost of risk sign us.

She could not be deepening given what I saw in the P&L breakdown in 12 months, our cost of risk grew to three 4% is still affected by past vintages that have been reduced during these quarters.

Credit recovery once again performed well in the quarter.

Thanks to our continued solid management.

Finally coverage ratio improved in these.

In vitamins, two 224% compared to 215% and the produce.

So that's about the numbers Mario if you want to take it over from here to the final rules and then we can move to the Q&A. Thank you.

Okay.

Perfect. Thank you very much so on slide 21, I just wrap up the main points of our strategy holds ratio would be very quick. So we have proper time for Q&A.

So I wanted to conclude by just reinforcing some some key messages regarding our strategy to become the vessels from the company in Brazil. So as I mentioned previously our focus is on four interconnected pillars customer centricity integrated sales channels innovation and profitability and coach.

Sure.

Customer Centricity, our focus is on the entire journey from sales to and specialty pulp sales.

Spansion of the loyal customer base as a key growth lever.

Obsession with minimizing lead time, streamlining the offering and lowering the cost to serve.

Operating the low middle and high income segments with a renewed approach, particularly on the ladder.

I'll say this distribution we are building an unparalleled.

Paralleled distribution business, we continue to believe in the branch network, we could expand by 70 stores. This year as I mentioned banks are always gaining traction and we're expanding store service hours. Our digital channel continues to grow in volume and offerings, adding management solutions for customers a remote channel doubles businesses volume.

Year over year and solutions for our customers.

And optimizing customer.

The first level.

And external channels poised for annual growth in the triple digit range.

And therefore, our innovation and profitability will continue to focus on organic results driven innovation.

As a cornerstone of our culture.

We launched helps our system business Triple advisory platform, introducing a one of a kind of concept in the market.

FX Integra prepayments platform is already in the market either.

And we keep consolidated total.

In the market.

One of the conference talk digital brokers.

Carbon is a major room for net zero carbon a priority and we will keep and will bring a lot of business as far as <unk> and.

In our culture and people, we view horizontally in proximity to the frontline as fundamental management tools will foster a culture of innovation, where everyone has a business mindset in which training diversity and USC.

Awesome.

Regarding our accomplishments in the quarter.

Our profitability and efficiency are consistently positive at 28 and $32 nine perspective.

Our commercial activity and customer loyalty continue to advance we've embarked my cart and costs of our license actions amongst individuals are corporate customers that are beginning to regain momentum that's on the wholesale side, but more and more in the meat penis piece of the business as well, which is very important.

Loan quality remains under control with deterioration as anticipated and projected.

That's part of 2021, we have stable NPL races, reinforcing his assessment of the portfolio and finally on the growth agenda that remains intact.

We keep.

Solid ADR presence across Brazil.

More on the physical side on the digital side on the customer growth side.

The girlfriend tied it in the growth mindset.

Within everyone inside the firm, we keep focus a lot on the top line, obviously focus focusing the managing all the other lines of the of our P&L, but top line remains a key lever in our key priority an obsession for all of US with the same growth mindset, we've had over the past several years with that I'll pause and we will have.

I guess half hour for Q&A.

Thank you Mario Thank you we will now open the Q&A session for our investors as you May know, we will start with questions primarily the saints via webcast our platform.

At this moment.

The first question that we have a group of questions comes from Flavio <unk> of Bank of America, then you're all of US could you just suisse joggle by choose the phone UBS and chip law about the phone Goldman. So I. Thank you guys for your question is rates are there any pls. So Danny Pls is already showing some encouraging signs and you were the first bank to become more selective on loans originated.

<unk> should we already expect some lower the acceleration. This quarter is we also have a complementary question from Chubb.

UBS.

Some information about the difference between <unk> GAAP.

No.

Okay. Thank you guys for the course.

Let me, let me try to elaborate a little bit on roofing.

We have been sharing with you and us.

Certainly.

The presentation.

We started to take issues on the production of loans September 21. This has been shown different quarters with its low.

Growth rate of our loan book.

Both full SKU for SKU, right and what we will see no.

Q did you clear that.

We're taking.

Taking those missions in a bunch of what this to Hudson.

I'm thinking that from the public.

Figures that you know that are suited with everybody.

No.

What are we seeing the first thing we have seen some question was mentioned is that in balance sheet ratios.

The first time in two years.

We are flat.

It means that all these measures that we have been sharing with you are starting with a greenfield side is starting to be reflected on these.

<unk>.

Hope usually.

This is something that theoretically will be represented.

Impact positively the P&L in the future and Thats due to these the question of how Quique et cetera, do you see this as an.

Another discussion about.

The first signs you see it on the ratio on the balance sheet, which is where the re is thought to be flattish both of <unk> 90 to the over 90, and then you'll see those effects coming into the provisioning level.

As I said in Q2 moments.

So thats the difference between why Youll see one thing on the one side and the other thing in the yield side.

At the same time.

So in the presentation, we increased our coverage ratio to 2200, 24%. So again also for US. This is a consequence of all the provisioning effort. So that we do throughout the process of provisioning decision.

The reality is that that has come into a sound balance sheet into.

Into an increasing amount of coverage.

And finally on that side the differential between <unk> basically the diffidence. You said you finished that has to do with.

How quick and how do you provision in ISR is as you know you tend to provision.

More thinking on what is going to happen in the future more than what is happening today.

If you grow a lot or do you view growing certain products you tend to provision more also this part of the portfolio may be up to date maybe.

Unknown doubts.

Doubtful loan, but you will start to provision just thinking at some point in the future.

This is what.

Normally means that youll tend to provision more on the ifr is when you grow more or will you grow in certain products, while in B R gap you automotive back to you.

Yeah.

Declining goes into a reuse you start with the process, depending on the classification of the client and depending on the company.

Let me know if you want to make some comments.

Yes.

Just a quick reinforcing here so last quarter, we mentioned that as soon as we saw signals we would win.

Zoom expanding the portfolio. So that's a very important question. So we appreciate that.

There are some portfolios as I mentioned last time in wholesale and in the larger part of the business we had no concerns.

Since late last year. It is here that remains the case.

And I'm happy to comment again on the on the wholesale part of the business.

We did expand this quarter again, obviously FX played a role but it was in.

In excess of the effects.

We did grow our wholesale portfolio, but also on the on the <unk> business, which is obviously very important for us not only for NII, but also commissions and more and more investment that piece of the business has been having a very strong performance. So that in that site. Our models are are.

Basically open and.

And we continue to expect good growth on the payments.

Mid and upper part of the famous pyramid, but more and more in payments in general.

As individuals as we mentioned our secured portfolio.

Is a big focus for us.

It's not to say that we're not going to land Q unsecured pieces of the portfolio, but we will continue to expand more rapidly in the secured piece or pieces of the portfolio and with that we expect yes in the second quarter third quarter and fourth quarter. So in the second semester as a whole to have continuous.

Performance growth in the asset side, and therefore NII.

One final comment we given.

Given the big focus we're having on investments we continue to focus a lot on the <unk>.

Investments NII on the liability NII on customers we.

We have a big business in investments in the wholesale we wouldn't expand that much more in retail we want to make sure. We save the biggest piece of our investment portfolio and that will bring us.

Also stable and obviously risk free.

Two hours.

The revenue mix.

Thank you Marty so our next questions come from February <unk>, when we had the old <unk>.

Good job on Opex, we can see especially in the personal expenses line, we sort of generation down 10% Q on Q you didn't let go people and it seems more related to variable compensation adjustments.

The net income isn't down however year to date more like flat can you help us with.

<unk> drop and how we should think about it going forward as we think about talent attraction. The mutation does look like a fine line to walk.

Thank you.

Well, Thank you think a beautiful for the positive.

Question.

Is true.

Or will you will be here.

What ADM.

We have been.

Our focus on cost for a long time, and we are not going to change.

Change that.

Because of whatever happens externally so the.

The focus on efficiency the focus on growing costs below inflation, you said that on the first SKU, but I should have said that in the last I don't know 789 years.

And continues to be top.

Issue.

Top management discussions.

Continues fight against inflation no.

You said on the quarter, we're down 2% on total cost 4% in personnel expense and flattish in the municipal tons and on the year on year we.

Almost 400 basis points below inflation, which is which shows that what I'm, saying is a fact is not a willingness.

The discussion is how do you do that I don't.

Too much the dis costs talent.

On the other way around the motive piece and you are the more capable more quique. The moat everything you are with clients. So the experience is.

Improved is better and you attract more talent in fact, if I may say, the general situation of liquidity, both worldwide and locally should.

Ofer.

Turning to those that.

Performing with profitability, but.

Linking to talent because.

As I said, how did you do this.

Have said with these do these with you I mean, we could for example.

<unk>, which is kind of a proactive selling call center that we have taken out of the bank to another type of company or first which is what a technological subsidiary.

<unk> has been taking out these are ways of keeping talent keeping them happy to be in you suddenly something that ecosystem and at the same time being able to improve efficiency and to downsize cost and this is how we do it so.

Nothing new but.

I am glad that you underlined because it is something that we are very proud of.

Thank you Rami if I can just quickly.

Just one question on his point, that's a very very important question Pedro and thank you for raising that.

We.

We not necessarily we reduce the amount of people we have working for us.

Because there are many third party providers, which we <unk>.

Very diligently of course, not only cost wise, but also quality wise, we've concluded that it would be better having including the St people, sometimes but but other times just hiring.

Fair enough.

Internalized people, so people really working for us inside something there.

Compared to both third parties, it's not that we're going to remove all third parties, it's not that but marginally what we're doing is in technology in our first platform, which hopefully we're going to be together if you all.

And we're going to have on the 15th of September Thats going to be in our headquarters for first our technology arm. So there and also in FX business FX <unk> veteran who mentioned those are two pieces, where we're bringing people inside Samsung there and with that we are.

<unk> eight on average tweet tweet to true cost reduction. So every three becomes truly is in some cases, we reduce even further so with that and by the way that with quality increase so that is one of the things. We're doing we're bringing people in so head count wise, we may increase actually but thats for a good reason.

We are bringing people that we were paying for more and with with a better quality and the second point is what I have mentioned we are.

Developing new ways of working so that people have.

In different pieces of the business big pieces of business, we have people with lower fixed salaries and fixed costs.

And much greater variable costs, and obviously variable variable.

We have innovation, which is totally aligned with our own P&L. So FX <unk> business is one piece.

A very relevant piece for that.

We designed our triple way advisory platform for investments.

One 3000 people who are going to have within two months 12 months. That's also on the same performance so more and more we're going to build businesses with lower fixed inc. Fixed costs and much bigger variable costs. So that people get attracted by the potential upside on the variable side, but they cost much more on a on a let's say.

Business as usual basis.

Thank you. So our next question comes from Eduardo Hosmer, BTG, Marcello Telles credit Chubb about use of UBS and Flavio Yoshida from Bank of America, We have chip up so are we going to NII first what's the input of MQM on market the NII.

How can we think about the market and I for the second half this year and next year is that in expectation of the recurring level of <unk> going forward.

Okay. Thank you guys.

Explained.

Do you have.

<unk> you have the.

The customer NII, which is performing strongly both on the asset and the liability side and then the market.

It reflects not since.

Sensitivity of the balance sheet.

The reality is what I said to you I think I said that throughout 2021.

Given that since you're doing this.

Last one and 'twenty two was going to be a negative year on the NII market Dupont and this is what has happened. So I would expect these im not saying anything new to you I would expect these to continue to be made at the level of TV as he is going to depend obviously on the <unk> and how it moves but.

I wouldn't expect.

Positive.

Number there into 22 now.

Looking forward is this going to be less intense obviously.

The cubes evolve in the close in.

Between the production and the cost of funding that number will tend to close and be more than offset or offset the murano should be offset.

In improving way from the NII from client so that's our view here so.

Message is it will continue to renewal.

<unk> will be the NII of clients given the growth because it will.

We'll be an offsetting power to that.

Good news.

And I'm, not saying anything new to you because these are secondary what I have been saying in the last at least that they remember three quarters if not more.

Thank you on the Hill.

Our next question comes from Eduardo Rosman from BTG.

Certainly there has been much less active in.

In M&A over the last several years and something that is the only incremental who may still make some relevant acquisition.

With a strong correction in asset prices are you seeing any opportunities.

Thank you a lot of them do.

Understood.

I don't want to compare our associates.

Part of the business with.

And I don't follow that.

Rankin known internally or externally, what I can say.

You ease that.

We have broader you don't you havent noticed but we have done 15, one five operations in the last 18 months.

Operations and that includes total mobile.

Easy includes copied it includes content. It includes solution for feed it includes.

11.

I can give you the full lease I don't think it makes sense, but we have and this has been something structural during the last five years, we have been continuously completing the offer.

We call it internally the ecosystem with a smaller or bigger.

Planets that we tend to its too.

The first completing the ecosystem second could eating plan is that in the future will be large planets Oshkosh carbon for example, with return was almost something unique system today.

We plan.

<unk>.

Activity that will probably get closer to $400 million profit by the year.

Year in orderly that answer that we acquired last year. So.

That is the way I mean on top of that will there be transforming M&A in the next I don't know 345 years with.

To be seen I wouldn't.

I wouldn't say, yes, or no to that <unk>. What it is obviously is that if anything arises we give the fiduciary duty to look at that so we will look at that we will have as always.

<unk>.

The discussion in the financial discussion and Boeing through them as we have done in the past and you remember.

Pieces like HSBC or Seta here, we will decide to go forward or not so we are active there, but we are with that type of a strategy that has been successful so far.

Thank you Angel.

Our next questions come from will start rolling but ideas and Pedro Leduc from Dolby.

Hey, negotiation continues to rise, which we also see as a risk management to could you give us more details on what type of portfolio you were in negotiation should we expect more going forward.

We're in negotiation activity portfolio all written off.

Okay. Thank you <unk>.

Let me give you some insights on these first.

The negotiation part of the business is obviously.

A core part of it and the specific moments like there once we are at.

Okay.

There are no decision goes across products and clients I mean, we don't have any specific policy or concentration et cetera. So it goes across the different.

The full kind of range of products and services for our clients and products, which we tend to optimize you know and we have said with these we launched for example in January .

Pain called this and Davita so it's like.

On Liberty in Portuguese, which is.

<unk> of helping but being realistic about clients we are not boot.

Putting the problem in the front of US we are trying to really solve it and this is the universal policy of the bank let.

Let me remember you that that's part of that.

That portfolio solution portfolio, let me give you two numbers or <unk> as we talked about important first 50% coverage. Okay. So something that these.

Pain and is not a problem, we already have a 50% coverage ratio there second idea.

<unk> unit formation and this is important because I think is a differentiation at least.

So you can see from Santander Brasil compared to other plays.

In Q Dear declines that are obtained and declines that are not paying so the active clients in the non active clients and these kind of largest number a little bit when you look at it but we prefer to be conservative in how we.

Presenting on the street.

Just two.

To add to what Tom just mentioned.

Two important messages here on renegotiation one is that we've developed.

A.

Yes.

Many channel are multichannel.

Platform to renegotiate with our clients so we.

We obviously talk to them through the remote channel our our call centers quote unquote.

But we developed tools for customers too.

These studies serve themselves renegotiation more and more.

And with flexibility in developing the renegotiation that suits. These specific customer we've been achieving very good levels of not only renegotiation, but maintenance of those renegotiations.

The second comment is we are launching now so it's more like a third quarter onwards thing, but we are launching now new new ways of dealing with re negotiation with our clients.

Waiting to have that.

Renegotiations, where we actually provide limits new limits to our customers.

That the.

Under the negotiation in terms of makeup.

Make a down payment and obviously, they keep performing that renegotiation, but but the perspective, where we are giving to our clients now going forward is much more of that.

They renegotiate with us we can reopen limits with them and obviously, we do that in a way that we end up having lower cost of credit and more recovery.

Passing that model for many many months already and we literally this week, we launched it so the perspective of renegotiation being a key pillar of our <unk>.

Our lending cycle.

Is key.

We are improving we've been improving a lot over the past requires and now with this new.

Renegotiations with limit as we call. It we're going to have an even further to try to keep improving our renegotiation and and the maintenance of those renegotiation levels within our portfolio.

Thank you. Our next question comes from Cheetal about the from Goldman Sachs.

Do you expect any further reduction on CET ratio, one do you need to build up capital from here.

This impacted the dividend payout.

Okay. Thank you Tito.

Let me clarify similar things here on the on Dakota equity tier one capital ratio.

The first one is.

And I think we have repeated this for a long time also we have the idea to maintain our core equity tier one ratio between 11 and 12 and this is where we are last quarter I think was 11 <unk>.

<unk> are you doing something now we have 11 one.

Awesome.

Multiple marketing and we will mix quite a bit we will be I don't know probably closer to low end, bringing forward or fiber, we haven't done that calculation, but.

We have the plans to be in between 11 to 12.

So thats the first idea so.

Do we need to build capital here we go.

<unk> enough capital more than enough capital in fact to maintain those levels of ratios in which we feel more than comfortable in fact, we we feel that we have a little bit of excess capital.

And the last point, which is that even those important one.

Bin.

Sure.

Quite active.

First the payout ratio as you know comes from conclusion of how much you saw what profitability how much out of our risk weighted assets growth.

Potentially with all those two but where do we want that would be ratio payout ratio to us that we are as you know the <unk> 'twenty 'twenty, 1% return on equity we are growing reasonably reductions depending.

How would you.

But low.

High single low double so that gives you a payout ratio of around 50% good.

How are we paying dividends easier we have already paid.

Quarterly dividend of $1 7 billion, which compares very favorably with what we used to do pre pandemic because doing it by mainly because you know we put a cap on the ratio then we had a maximum.

Trying to shed what we did not pay in the past the two vessel, but going through those kind of extraordinary years.

We are increasing we are increasing.

Substantially the level of amount of payment per quarter, which gives you <unk>.

Or the assurance that we are.

<unk>, both with the capital ratio and with the level of dividends that we are being dose one 7 billion reais, which is by far much more than we used to be.

This is up to the board.

Part of the border and might even social bundles aboard we discuss these on a quarterly basis and our plans. Obviously are one of the board discusses and approves to maintain those levels of remuneration to our shareholders, which by the way.

Throne.

The largest or one of the largest depending how you compare with <unk>.

The ratio in terms of dividend yield.

During the last year. So we have a high we are a growth equity.

Proposal with a high dividend yield payment.

Payment infrastructure.

We have another question.

Come from.

We will start before then and but it is in general about the although the masako Saks related corporate loans. There was an increase in corporate loans in the quarter Particleboard trade finance in agribusiness should this trend continue.

Meaning do you expect to slow down consumer lending.

I'll pick this one Keith so thank you. Thank you for the question.

Covered briefly.

The portfolio mix saw highlight a bit further where we are.

So we are expanding all portfolios, where we are very comfortable and expanding and we've been comfortable in expanding wholesale as a whole. So what we call the carpet business and our corporate and investment banking business. Those two portfolio has expanded in the quarter.

Which is obviously positive.

That has not been the case before late last year I mean this year those portfolios were flattish are actually down in the second quarter. We recovered we will keep expanding those portfolios. Yes for sure FX played a role as I've mentioned, because those portfolios have a strong component in trade related financing something that is a big trade show.

<unk> player in Brazil, and we will keep being so.

So FX plays a little bit of a role here, but the portfolio ex effects increased as well in <unk> in general, particularly meat and prepayments those two portfolios, we want to expand more rapidly as well given that we feel those are extremely well controlled.

Based on our risk models, the backpacks and everything on the lower premium. So we keep monitoring together with individuals those are the two portfolios, which we have cut more our risk models since late last year early this year.

We want to resume expanding more rapidly in those portfolios as soon as we see further signals we're monitoring closely.

What I mentioned in the first quarter. We believe we will have in the second half of this year much better signals and then we will be able to resume expanding more rapidly those portfolios. So it's not that we're going to slow further our consumer lending. It's just that we're not going to expand consumer lending as rapidly as we will be in the corporate side. However.

We're in the in the secured portfolios and the three main secure portfolios we have autos.

Mortgages and payroll deductible those portfolios.

The market grows we're going to grow hopefully at a faster pace given that all models were adjusted then we're very comfortable with those three portfolios.

Yes.

Thank you <unk>.

The conference call sessions Q&A sessions is over we know that we have a couple of more questions here, but the time, we will try to answer all of them lately and also again I would like to remind you that we have full available here for any further question.

Thank you guys all have a nice day.

Okay.

Thank you all very much it's been a pleasure.

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