BSBR Q4 2020 Earnings Call

Operator: Good morning and thank you for waiting. Welcome to the Conference Call to discuss Banco Santander Brasil SA's Results. Present here are; Mr. Angel Santodomingo, Executive Vice President, Chief Financial Officer; and Mr. Andre Parisi, Head of Investor Relations. All the participants will be in a listen-only mode during the presentation, after which, we'll begin the question-and-answer session, when further instructions will be provided. [Operator Instructions] The live webcast of this call is available at Banco Santander's Investors Relation website at www.santander.com.br/ri, where the presentation is also available for download. We would like to inform that questions received via webcast will have answering priority. [Operator Instructions] Before proceeding, we wish to clarify that forward-looking statements may be made during the conference call relating to the business outlook of Banco Santander Brasil operating and financial projections and targets based on the beliefs and assumptions of the Executive Board as well on information currently available. Such forward-looking statements are not a guarantee of performance. They involve risks, uncertainties and assumptions as they refer to future events and has depend on circumstances that may or may not occur. Investors must be aware that general economic conditions, industry conditions and other operational factors may affect the future performance of Banco Santander Brasil and may cause actual results to substantially differ from those in the forward-looking statements. I will now pass the word to Mr. Andre Parisi. Please, Mr. Parisi, you may proceed.

Andre Parisi: Good morning, everyone. It's my pleasure to welcome you to our earnings conference call. 2020 was a challenging year more than usual. And we also had important achievements, which will be present today by our CFO, Mr. Angel Santodomingo, as well more details on our fourth quarter and full year results. So now I turn it over to Mr. Angel.

Angel Santodomingo: [technical difficulty] 4Q results Santander Brasil's 4th Q results. We have divided the presentation in the four areas, basically in a Strategic Update, the Main Highlights of the Results, Santander Group results and the Final Remarks. Starting with the first part, what I would like to do is to speak a little bit, just a little bit of how we finalized 2020 as Andre said, it's not been in a normal year, let me say like that, and then we will probably speak more about forecasting and forward-looking ideas. So in the first slide, as you can see, we made a summary of what we have been achieving during the last few years, but specifically what we have been delivering during these four Qs in 2020. It is a fact that commercial activity and transactionality has started to rebound during the second Q, but it also I think it is important to notice or to underline, that in fourth Q, there were three key ideas, which do leverage us thinking in 2021. First one is that, production as you will see, improved and started to get the goodest speed and direction. The second point is that, even we - in that situation, the attendance - the quality of attendance, the NPS hit record high and we - I will present that further on. And the third one is that, as you will probably see, credit quality is absolutely controlled without a nice trend. So, moving to be a little more concrete in next slide, we have presented in terms of NII growth and cost evolution, good numbers, NII grew with 7% year-on-year, we have an efficiency ratio of 37% in 2020 in the year, closing the year in 39%. As you know, we have some seasonality in the fourth Q, which are so far, but we can estimate that they will be the best efficiency numbers in the country. This has been the case during the last quarters and we may say that it could happen also in this Q. In terms of net profit, after deducting the extraordinary provisions we made in second Q, we have achieved R$13.8 billion, and that includes, net of taxes R$2.7 billion of these extraordinary provision. That lead us to almost double the market share in net profit compared to our natural market share. Return on equity remains in good levels, distracting the extraordinary provisioning, we are in 21.5%. If we include that extraordinary, we go down to 19%. You have in the - in the last part of the slide, achievements and recognition - recognitions that we have received throughout the year. I would like to underline in between all of them, those that were not known or are new. In Euromoney, we received the award as the Best Bank in Latin America in the world for SMEs and the Best Company in Social Responsibility by CNN and Institutional Investor as the Most Honored Bank in Latin America. Moving to the next slide, what I will say is that, we keep on gaining market share both on the asset and on the liability side as you may see, our collateralized loans keep on growing, 400 basis points more on a year-on-year basis, so we keep on shifting or increasing the lower risk profile of our individual loan portfolio. And in the bottom of that slide, you have different kind of examples of these collateralized loans, how they are able you know, I would say a strong growth in all of them and specifically gaining a strong market shares. And all these happens with, as I said in my beginning words sort of my introductory words with a rigorous risk situation. It is important to understand on the risk side, not only the total kind of quality of the portfolio, but also what is happening with recoveries. I think we have developed and we are delivering quite a positive and good recovery capacity. As you may see there, we are rolling 26% year-on-year compared to 2019. But it has also evolved in quality in terms of, for example, 70% are done in digital channels you know. So this leads us to the - toward - to the race to the - sorry, to the graph that you have on the right side which is basically that we tend to be less volatile than our competitors. So the standard deviation of our kind of performance in cost of risk tends to be more stable and less cyclical, let me say like that. And this is a strongly part due to the recovery capacity. You will see numbers in a few moments. And then trying to - in the next slide trying to build what is, I would say, a simpler bank, there are multiple kind of fronts in which we are working, we just put here some of them, obviously, customer support, automating operations and processes, this has been a key kind of issue for us in the last years, not only in 2020. And in technology, obviously improving the end-to-end lending you know. And all these leads to improve our cost side, you know, because we increased the number of products that are in digital channels, because we increased the productivity of our stores or because we are more environmental-friendly in responsibility also saving costs you know. As you know, focus on unit cost is also key to understand our evolution. And diversity in the next slide, we couldn't forget about this. We continue to improve numbers. As you can see there, we have already 25% of our employees are black, 29% of our leadership is - are women, et cetera, as you can see their diversity. We have ambitious and plans here, and you will see our evolution in next quarters and years, you know. We have been recognized by the market as the Best Company to Work For in the different rankings. We have a very high engagement that remains very high, very important for us to have that 92% of engagement. And our - and the positioning of the bank can be reflected, for example, in our trainee program, you know, I mean, we had more than 70,000 trainees' applications received. If we compare these with just a couple of years ago, three years ago, we were around 10,000 or even below that. So, clearly the attraction of the bank for also young talent is happening. Moving to the sustainability arguments. In the first slide of these items, we have been - we have continued to be close to the society, you know, we have impacted, we calculate around 300, 270,000 people with the different supporting programs, Amigo De Valor, as you know, one of the main Brazilian social programs, which is focused in children and teenagers has also had outstanding results. Our initiatives last year included, the granting of scholarships and during the COVID, we promoted things like Semana Santander - specifically focused on CUFA, which are communities in need or the distribution of almost 20 million masks or the donation of R$100 plus million. On the second slide of sustainability, what we try to put there is, how we are leading or participating in this business. And this is from the business point of view. You can see their numbers in terms of green bonds to solar energy financing, promoting or pioneering sustainable credit lines, social responsible investments, such as our Ethical Fund and Santander Go Fund and doing with the main private banks, I already mentioned these to you in previous results, the Plano Amazonia clearly focused on that region. In total, R$27 billion of ESG business that we have done with the market. So closing the first part of this kind of strategic update. Let me update in a couple of our slides. What our - those plan is that I presented to you some time ago, in between one year, one year and a half ago, how they are evolving and what is happening to them you know. In the first slide, you have four of them, emDia, which is our debt negotiation platform, already reaching 4 million customers, Santander Auto, a great success of our insurance initiatives, already - surpassed R$100 million premiums in the first year. This is the first insurance company to achieve that mark, obviously putting things in the same timing perspective. Toro, the merger with Pi that we are expect central bank approval in the very short-term. And Ben, our platform for vouchers that already reached around 1.4k Human Resources departments or almost 340,000 merchants. And on the second slide of this is new part, I underlined there, both Sim in our consumer finance unit you know, to underline about Sim that continues to grow fast and strong. Already a portfolio today is clearly overvalued, but coming at the closing R$700 million, it's already in profits. So already gone - has gone through breakeven. Production is heading towards R$100 million per month. And then you have Santander Financiamentos, the consumer finance part of our business that keeps growing, improving the micro-regionalization business, both in B2B and - B2C, sorry, and we are clearly increasing activity with the market, aiming to grow our portfolio as strongly almost at 50% as you may see there on a yearly basis. In the last part, if and I may go in the last part of this initial introductory words, which is growth, okay. So, customer-wise, which is the first slide, as you can see, we have continued to grow strongly our customer - base, we have almost 28 million active clients, 6 million loyal and 16 million digital with nice growth rates in all of them, I would underline specifically the loyal ones is still growing or continued to grow in a double digit, 12% on a year-on-year. The NPS I introduced to you that we were performing nicely there, 63 basis points we started with almost - when we started to publish the number we were close to 40, we as, if you remember we spent some pointers around the 55 to 57 points and now we have improved to clearly above 60, 63 points, that is almost 8 points improvement in 12 months. So, we are clearly in the line of improving our capacity and our quality of attendance, which is one of our key strategic lines, you know. And on the digital agenda, I just wanted to underline - we just wanted to underline to you the - these Gente or Gente, which is our artificial intelligence initiative to support the commercial expansion and the commercial activity in our - with our clients, you know, as you can see almost 40 million interactions, already 70% coverage, et cetera. Moving to the payments industry which as you know is kind of one of the focuses of the market, we try to put some numbers here to kind of focus on how strongly we are growing here you know. So as you may see their turnover growing above 40%, probably even not the strongest one of the strongest in there in the market. We finished strong participation of our current account holders of our more loyal clients, let me say like that. And we issued on the back of the PIX new payment system, we issued also the card SX, which is the merchandising or the commercial name we gave to our PIX initiative. And as you may see also quite good growth there you know, so we have grown since the start of the PIX which was in November, we have sold more than 1 million cards of SX in these - up to today, this is not up to the closing of the year, this is up to today. So it's close to two months, a little bit more than two months, okay. And the numbers on the PIX system also on your right, you can see there that we have 15% market share, so clearly above also our - what we would call a natural market share with a strong activity in transactionality. From the Getnet side link to these payments kind of universe. You may see there the main numbers I would underline market share. We have transformed what was a FinTech in a 15% market share player and strong - gaining strong market share continuously, 25% market share in e0commerce, turnover continues to grow well above the market and the prepayment of receivables increased almost 40%, 39% in a yearly basis. And not - last but not least, we have the lowest cost per transaction, which is constantly evolving, you may see there, the average cost 2020 R$0.32 per transaction, in 4Q was R$0.27, and in December was R$0.23. So, the evolution continues to be in the right direction of being able to have the lowest costs of transactions on being quite competitive these compares very nicely with any number you may see in the market. And finally, to end this kind of - this part of the presentation, what we could speak about our corporate or company's bank know, we have been achieving different leaderships and different processes in products. I will underline that we have had more than R$270 billion in project investments, we are top five in energy trading, we were named Best Bank for ForEx, Pioneers in Fully Digital ForEx contracting, as you know, we offered a One Pay ForEx, which is already with important transactionality. Okay, so as I said, these were the main kind of highlights that I wanted to share with you of what has been 2020, but specifically, how we end the year and how we go into 2021. And now let me go into the proper numbers, which is what we may see. The first slide is the numbers of the Group, that this has already been presented. We - I'm not going to elaborate too much there, just underline that we continue to be approach approx one-third, 30% of the profits. The region is - the region meaning, the region, South America is achieving 42% of weight on the results. Details have already been given by the Group. Moving to our results on the slide, I think it's 23, we present full details there. We closed the quarter with net income close to R$4 billion, R$3.958 billion, a 1.4% increase on Q-on-Q basis and for the full year, I already mentioned, we reached R$13.8 billion or, and this is important, R$15.6 billion before the extraordinary provision we made in second Q. I will call this a sound result considering the year we have just finalized. Highlighting the same - the next - the following figures. On the revenue front, NII remained virtually flat relative to third Q, while in the full year increased almost 7% reflecting a good evolution of our loan portfolio and market activity results, offsetting pressures - a pressure as you may see afterwards on the spread side. Fees on the other hand decreased 1.2% in the year, impacted by a lower transactionality, obviously, during the pandemic. In the quarter, we already had a solid increase of 8% more than 8%, here both the client base growth, the higher activity driven by better economic activity played a key role in the second half of the year. And on the expenses side, provisions remain under control declining even 1.2% in the quarter and increasing 4%, 3.8% in the full year compared to 2019 and general expenses once again under control growing clearly below inflation on a yearly basis and below revenue growth, fast improving our operating leverage in the P&L. Such performance comes as a result of the key pillars that I have already shared with you some other times, which is constant client base expansion, leading to a solid and sustainable growth, accurate risk models and intense effort on cost control. Here we have a clear agenda leading to lean growth and productivity gains. So now we stand by the different parts of the P&L, NII totaled 1.2 - sorry, R$51.1 billion in the last year as I said, increasing 7% compared to previous one. Client NII increased 1.1% in the quarter and remained virtually flat in the full year with product NII benefiting from a positive volume dynamic which you will see in the next slide. These effect more than compensated both mix and a spread reduction as I already mentioned before. Working capital delivered weaker results in a yearly basis, given obviously that we have a lower SELIC. And NII from market activity presented a good performance in 2020. In the quarter, we presented a softer and more probably normalized level. In the next slide, we can see that our loan portfolio reached R$412 billion by the end of the fourth quarter, representing a growth of 4% Q-on-Q, quarter-on-quarter, 4% and 17%, as you may see there on - in the year, a strong performance I will say versus the system, the financial system. Individuals and consumer finance accelerated the pace, as I mentioned in my introductory words, of growth in the quarter growing 6% and 4%, respectively, reflecting these pickup in demand, for example, for vehicles and interesting also to note, if you can see in the slide that the SME portfolio experience a solid quarter-on-quarter growth. As you may see, they're close to 5%, which is a continuation of what we saw or we started to see first Q. Finally, let me quickly underscore that 76% I already said these numbers, but I want to repeat it, of the individuals' loan book is comprised of collateralized loans. In the Slide 26, as we have been doing the last three quarters now, we update our deferred loan portfolio, it totaled R$41 billion, R$40.6 billion, indicating a decrease of roughly R$9 billion since it was created in the second quarter. Remember that we started with almost R$50 billion. Important to underline that the portfolio moratorium has already expired. So, what I mean by this is that we are already in a have to pay mode, I mean, everything is at current status. The 15 to 90 days NPL in this portfolio reached 5.5% so in that even with the reduction in the liquidities of bond paid by the government in the moratoriums, our yearly delinquency still remains at a healthy and comparable levels. It is important to stress that more than 50% of these individuals' portfolio is collateralized, with more than 85% of the loans rated in between AA and C which are the Central Bank rate is better - Central Bank ratings, risk ratings. On the funding side on Slide 27, you will notice that our funding maintained the strong trend, especially in the main client on balance clients. If we include all funding from clients, it was almost as stable in the quarter and grows or close to 30%, 29% year-on-year. All concepts presented a positive performance in the year, except the most expensive instrument, financial bills, Letra Financeiras, a trend that we have executed during several quarters already. These dynamic is in line with our study of lowering the funding cost and in our view, the current level is adequate to support the current level of growth, obviously is adequate to support our loan growth as you can see comparing growth rates of both funding in the asset side. Moving to fees, you may see how a strong transactionality came back as soon as economy has started to recover, with an 8% increase in Q-on-Q, clearly given an idea of how transactionality in the bank is working. Highlights, I would say cards which presented 14% Q-on-Q growth with an increase in transaction with the - in total turnover, current account that increased even on the back of the PIX launch, reflecting a larger client base. And finally insurance, which as you know we have always some seasonality here in the fourth Q, it grew close to 22%, if we clean the seasonality, it is growing at a 3%. Moving to the quality part of the presentation, as an overall quality remained at very sound levels with a high coverage ratio, thus reflecting a solid balance here. Short-term NPL presented as slight improvement as expected given the end, geo seasonality. In the 90 days NPL maintain a good and comfortable level is 2.1% that you may see on the slide. The already mentioned almost 300, 297% coverage ratio Combined with the good performance of the deferred loan portfolio that I already mentioned also, sustain our view that the level of extraordinary provisions then is adequate. On the next slide, you may see that loan loss provisions remain controlled in the year, reflecting a cost of credit of 2.8% in the year, 2.5% in the quarter. The 2.8% obviously does not consider the extraordinary provision we made in second Q, it will be 3.6% if we include it. In the full year comparison, provision and expenses grew - 7.2%, 7%, while at the same time, loan portfolio expanded 17%, this is the reason why cost of risk obviously has decreased. And this also reflects the collateralized portfolio I was giving to you the numbers. Finally, it is important to highlight in last year that we presented the best level of recovery of write-off loans, which increased by 26% I mentioned. Just look at the red part in the right side of the slide, in which you may see that the R$2.2 billion of recoveries done in 2019 have moved to R$2.8 billion in last year, so an improvement of R$600 million approximately or almost one-third, you know. Okay, in terms of costs, 4Q posted a gain, an excellent performance I think, decreasing 2% year-on-year. The 3% quarter an increase as I mentioned is the traditional end of year seasonality. If we - overall, we see full 2020 costs, they grew 1%, clearly below inflation, remember that the inflation closed the year at 4.4%, so more than 300 basis points below inflation. And that is one of the reasons - other reason why the efficiency ratio improved. These efficiency ratio reached the 38.8% I mentioned in fourth Q and 37% full year. And also, we discontinued our guidance given one year and a half ago. It is already a better efficiency level than the one we forecasted for 2022. So we are already achieving more than expected. Finalizing the presentation in the last two three slides, capital and liquidity we continue to have convertible numbers and levels to face the scenario we have in front of us and to - specifically to support growth. Our funding in terms of loan to deposit ratio is around 90% as you may see. So it's a good improvement both on the quarter and specifically in the year. And at the end of the year, our BIS ratio reached 15%, a little more than 15% and our core equity tier 1 last year finalized the year at 12.9%, remembering that our reference level continues to be around 12%. And moving to indicators, the last part of the numbers, they all show good evolution in a year-on-year comparison, the efficiency improved 180 basis points to the mentioned 37%. We estimate as I said that it could continue to be the best ratio in the industry. Recurrence ratio reached good level, recovering from what we saw last year given the commission - the commission's stress we had in some quarter to a level of 86% and our profitability remains at healthy levels, even if we compare - I'm sorry, if we include the extraordinary provisions that I mentioned. So, concluding my part in terms of presentation, I would like to highlight that first, our commitment continues to be obviously to support our customers, employees and society as you may see throughout the presentation, while delivering good profitability to our shareholders. We rely on a - we think we rely on a strong business model supported by the engagement of our employees, our 30 perception of business cycles in a continuous - efficiency effort, a solid combination that has allowed us to reach and capture market opportunities in advance. So this is it. I would like to thank everybody for the attention. And now Andre, I think we are available to answer your questions.

A - Andre Parisi: Thank you. We're going to start the Q&A with the questions we received through the webcast. So the first one is from Eduardo Rosman, BTG Pactual. Regarding your future ROE at Santander Brasil first Investor Day at the end of '19, it was guided ROE of close to 21% for the end of '22. Due to COVID-19, the guidance was cancelled, but still - but you still report ROE of 20% in fourth quarter. Do you think it is possible to deliver ROEs close or slightly above the 20% mark in the next three years? And here we have another question with the same subject from Thiago Batista, UBS. Santander Spain provided a medium-term guidance for RoTE for South America over 19% to 21% and Brazil is the main business of the region. Do you believe this level of profitability is feasible for the Brazil operation?

Angel Santodomingo: [technical difficulty]

Operator: Ladies and gentlemen, please hold.

Angel Santodomingo: Sorry, are you hearing me? No, not. Okay, sorry. I think we were put on mute and we were having - I was elaborating on the equation and no, but the question, I think it was heard, Andre. And I'm sorry about this. I was speaking and we were on mute. Okay, so I'm going to repeat the answer I just gave without anybody hearing me. So, thank you, Eduardo and Thiago. Let me try to answer your question. You are right in terms of the return on equity, we discontinued the guidance, we do not have a guidance right now, the clearly objective of the bank is to maintain and utilizing the capital in the right way, and this is a continuous kind of discussion on a daily basis, on a weekly basis. So, profitability is going to continue to be the main kind of objective or one of the main objectives. We have already achieved the levels of that guidance that was discontinued, I already spoke about efficiency, we are better than that, we maintain profitability around the same levels, the 21%, 20% and we will continue to try to deliver on that sense. So that is no question now. We will - we are obviously discussing about the guidance, if we resume it or not and what is the best moment to do that and we will come to you as soon as that discussion is finalized. But the - we strive to continue delivering levels of profitability that the market will pay for. I'm sorry about the mute thing.

Andre Parisi: Okay, next question is from Victor Schabbel, Bradesco BBI. When does the bank see an NPL ratio peaking? How does it should affect provisioning trends ahead after declines seen in the fourth quarter?

Angel Santodomingo: Well the reality is that both NPL and costs of risk quality in general terms as you have seen in the in the slides has performed positively, that is - that is a fact. So we are currently with rate - with ratios, both in terms of cost of risk and in terms of NPL, both the 15 to 90 days, really quite attractive you know. We are speaking of 2 - around 2% the over 90 and in 2.5% the cost of risk. Now, I think we have two discussions here. One is the short-term, the short-term, if we see how the economy may evolve, what their supporting measures, how their supporting measures and liquidity measures to the individuals are happening in the evolution of them and how we may see the next months and I'm speaking of months, we may see that the trend is marginally and slightly, let me underline the marginal and slightly, but with some deterioration. Are we seeing that as of today? The answer is no. But again, if I apply some rationality to the situation, I will say that those levels that I mentioned in NPL and cost of risk would probably turn upwards. We have not seen any leading indicator in that sense, we are not - as you know, we follow a kind of operations. Now, looking at a bit farther. So not only in the next months or what I would still see is that, if Brazil goes into a more stable in reform-wise country, where you will start to continue to have more collateralized loans as I have shown to you, you continue to have a more stable environment. My guess is that structurally cost of risk will be better. But that is a long-term view. Okay, so we probably go through a short-term is more deterioration, that could be happening, I don't know during - we are not seeing as of now. So I don't know if it's first Q, first semester, depending on how things evolve here in Brazil on a macroeconomics point of view, and then probably move into a more positive standpoint.

Andre Parisi: Okay, next question is from [indiscernible], Itau BBA. Fee revenues from current account were better than Resilient, up plus 3.5%, quarter-on-quarter. And you are one of the first the-fastest adopters of PIX. Can you elaborate on how you achieved these between volumes, pricing and what is fair to assume growth in line in final year '21 as well?

Angel Santodomingo: Okay, a couple of comments here. You're right, the insurance grew 22% on the quarter remember, I mentioned this during my presentation that we have seasonality here every fourth quarter. So that means that we have an income from an insurance premium that comes in the fourth quarter, which is a yearly premium, but it is paid on the fourth Q. So if we clean that 22% for that kind of seasonality, we are speaking of 3 - approx 3% growth on a quarterly basis, so annualized double-digit. We are quite positive on the insurance side. It is not as still the main fee line. But I would estimate that the trend would be in some time, not fully obviously for the first - from the next quarter, that it will be, if not the largest one of the largest, it's already the third as you can see in terms of concepts, but it will clearly improve going forward. The second part of the question was with regards to PIX. I gave some numbers with regard to PIX in terms of 15% market share, it is working pretty well. But let me say you - let me share with you something that is kind of significant, you know, I mean, we have - as everybody registered a lot of clients, we call it keys, et cetera. But we were doing on a monthly basis. Let me give you second semester, okay, from July, August, September. In between 37 million to 38 million transfers per month, okay. As you know, PIX started by mid November, I think it was 16th of November. And let me give you the numbers of December compared to what I just said. In December, we made 37.1 transfers. So, absolutely in line with the number of transfers we had made in July, August, September, October, November and we made also close to 30 million PIX transactions. So, what is the bottom line of what I'm saying that clearly, we are maintaining the dead end of the transfer operations, and at the same time, we are going into this new system with - which means at the end of the day, that the link, the loyal, the capacity to transact with linked clients is even higher, because we are doing what we almost more or less did and using much more the PIX' capacity. And this is pure linkage. This is clients being loyal in transacting more with the bank.

Andre Parisi: Okay, next question is from Mario Pierry, Bank of America. What level do you think is a minimum that you would like to operate with? And what payout ratio should we expect in '21?

Angel Santodomingo: What level of capital? Okay. I would - we have always given the guidance of around 12%, I think something between 11.5% to 12%, you know that last year, the payout was limited here in Brazil to 30%. I think we - with the announcement we made yesterday, I think we are in 28%, 29%. So close to the - in between the range, you have a minimum of 25%, a maximum of 30%. So we are in a - in the range, in the upper part of the range last year. And that has meant that we have accumulated a little bit more of capital. I would say that the level of capital here between 11.5% to 12% or around 12% is, I wouldn't move my previous statements around capital, obviously a gain, as the country stabilizes this level of capital is more comfortable you know. Which leads to the second part of your question, Mario, which is payout. Payout, I always say the same thing, you know, I mean as you see we are at 20% plus with the 21.5% return on equity. Risk weighted assets are growing at around and will be growing in my estimation or our estimation is that we'll be growing in somewhere around low double-digit, 10%, 11%, 12% which leads to an approx 50% payout you know. So those are the levels which as a reference for you with which we are working, obviously we will adapt depending on the situation, the regulations that we had last year, et cetera.

Andre Parisi: Okay, next question is from Gustavo Schroden, Goldman Sachs. What is the bank's view regarding potential increase in SELIC rate and what are the impacts on NIM? Should we expect a positive impact on the bank's NIM?

Angel Santodomingo: Okay, thank you, Gustavo. In terms of the SELIC, we have our macroeconomic department has an estimation that which is, I think, quite in line with the consensus that SELIC will start to go up sometime this year from the current 2%. So, we will start to see movements the next meeting I think is March and then - and the other one is in May, and I think that all the market has positioned itself with increases to kind of compensate the - or to try to adapt to also to the inflation levels, et cetera. The NIM sensitivity we have already communicated these several times. We are speaking of around 100 million - 100 basis points movements. It's around I think is 200 million something like that in terms of sensitivity to the movement of interest rates. Now, this is sensitivity to a yield curve parallel move in the full yield curve. So the fact that the SELIC goes up or goes down, if the Q doesn't move, it doesn't move my sensitivity. Okay, I think that is important for you to understand. So, for me, it's more important how the yield curve moves at the end of the day, as you know, we have been lending - we have increased significantly the lending about one year in the last year. So the collateralized movement also aligns with more duration in our balance sheet, improving or - not improving, increasing significantly, which also means that you have more exposure not to the very short-term, but also to the medium part of the Q, okay.

Andre Parisi: Okay, next question is from HSBC, Carlos Gomez. Looking at the different segments' individual lending out to mortgage, payroll, credit cards, where are you seeing the most competition? Are you still targeting credit cards as an area of market share growth?

Angel Santodomingo: Well, I will say that we see competition across the Board. I mean, speaking here, if you have more or less competition, that I always have said I mean, the Brazilian market is absolutely competitive. I mean, you are - you mentioned auto, in auto, we have very strong competitors and they are continuously - on a weekly basis, they are continuously adapting in price, in offers. We are the leaders there, we have a very strong positioning and we are increasing market share also there. But competition I mean is, but I will say that we - you will see growth in two parts of the balance sheet or more growth not growth, more growth in two parts of the balance sheet. One is the, all the collateralized part, I mean, the mortgages, agro, the different I mean the auto lending, the different parts in which you see guarantees, payroll, et cetera, that is a part in which we have been growing and we will continue to grow, probably even linked with not - call it non-collateralized like consumer finance, if the country moves from the strong positive territory that is one part. The second part probably will be outside the individuals on the SME arena, you know, corporate and corporate I am a little bit more conservative, because specifically obviously capital markets will play its share and its - also its competition. In credit cards, you mentioned - you were asking about credit cards, yes, we are growing in credit cards as you know we stopped that growth a couple of years ago. We didn't like the environment. We lose market share on purpose and we are back on growth on that part of the - and you saw their numbers you know, I mean we - I mentioned we sold - a little bit more than two months, 1 million credit cards from the SX on the PIX offer you know.

Andre Parisi: Okay, next question is from Otavio Tanganelli, Credit Suisse. Cost of risk is running below 2019 levels, will there be a need for additional provisions in the future?

Angel Santodomingo: Okay, Otavio, thank you. Well, the extraordinary provision we made in second Q, I have continually said that we think it's enough. So we are not foreseeing for the time being, obviously things may change, the country may change et cetera. But if we continue with how we foresee the future today and with the environment that we have today, we do not foresee additional extraordinary provisions as the one we made in second Q. In terms of cost of risk evolution, et cetera, I already gave my areas there.

Andre Parisi: Okay, so now we're going to receive your questions from the - from phone calls.

Angel Santodomingo: Okay.

Operator: The Q&A session via telephone is open now. [Operator Instructions] Our first question comes from Thiago Batista, UBS.

Thiago Batista: Yeah, thanks guys for the opportunities. I have one question about the collection or the credit recovery process. We saw a big increase in the recovery during 2020. I know that did some changes in this process. So, if you can elaborate a little bit more on how - what the bank did to really increase these recovery process, and if the bank believes that these level should continue high in the next quarters? And a very small follow-up or a very small question. On the taxes for next year, do you have any indication on how tax should be in 2021?

Angel Santodomingo: Okay, thank you, Thiago. Yes, I mentioned through my presentation, the recovery positioning that we have been performing better and better and we have a clear view that is one of the important parts we had already some time ago and we have been building as you saw in the slide, that is one of the important parts of on the provisioning part. What are we doing there? What we are doing is that, I showed in the slide that we have been evolving throughout the time in terms of how we do things on the recovery side. We are focusing what we do is, we look - we do have a recovery area obviously, but it really focuses in each of the areas, in each of the segments or products to really try to optimize both the level of knowledge, the data center, et cetera, that we have and the digital capacity, you know. I mentioned that I mean, recovery traditionally was made physically as you remember, then we started with a little bit of information. Now, we are clearly on the digital side, you know, which is, it means, digitalization, it means very important to integrate the distribution channels. So, they have to be part of the recovery. I mentioned you know that we have 70% of the digital channels that are participating already on the regionalization. And we have also kind of innovated here. Let me remember for you, for example, the troca com troco, you know, that which is on the auto side, if you have a car that is financed and you want to change it for a car that is of a lower level, and in the exchange, even obtain money, we put on the market that product, we sign an agreement with our 15,000 car dealers, and they have moved that recovery product to be one of its products, each car dealer is often is, as it will be his or her product, which means that we are moving our recovery capacities outside the organization making partnership with those car dealers, which is a new way of kind of recovering provisioning levels. Let me give you a number, 90% 90% of the provision that has been saved through troca com troco, through that system in which we subscribe with them the process is new, we wouldn't have done it with a traditional recovery capacity and that is very important, okay.

Operator: Our next question comes from Jorg Friedemann, Citibank.

Jorg Friedemann: Yeah, thank you very much for the opportunity that to talk from microphone here. Thank you very much for the opportunity. I have one question and just a very quick follow-up possibly. The question comes on the Getnet actually, the whole card strategy, I noted that no cards in acquiring even though growing 40% quarter-over-quarter, they grew only 4% year-over-year, and as a matter of fact, it's reduced 8% you know for the last 12 months. So, at the same time, turnover has been quiet, you know substantially growing both in you know, in insurance and also in the acquiring side. So just to understand, is this an effect of a mix of clients or it's an effect on paper rates? If you could elaborate a bit more, it could be helpful. And you know a quick follow-up on the numbers. I noted that this quarter we had a very significant increase in the contingencies and procedurally labor and tax litigations, 120% quarter-over-quarter. Just if you could give us some color there and whether these are not required? Thank you.

Angel Santodomingo: Okay, let me - I didn't answer the tax question from the - from Thiago I think he was before. So Andre, can you elaborate on that? And then I will elaborate on both Getnet and contingency. I'm sorry, I forgot about you.

Andre Parisi: Okay, sure. So going to the question regarding taxes for '21. When you look our I mean, estimates, initial estimates and considering that we had already an impact on 10 months last year, in income tax, increasing from 40% to 45% and also considering the results and all we can see by now, we are spending something close in the tax rate to '21 from what you saw already in '20. What is my level? I would say I mean, it'd be, I mean a big chance to be really close, okay. So, this is what we have. Thank you.

Angel Santodomingo: Okay, on Getnet, what you were mentioning, well I gave the numbers depending how you take all these numbers and how you do the calculations. We will be obviously, we as you know, we made a relevant fund yesterday by which management will be - will have a positive opinion on the operation given to the Board in the next weeks. So, that will also open when whenever if the Board approves, it will open probably for much more information about your new question. But what I would say to you, I don't know if I'm answering what you mentioned, but I mean, client is growing 16%, POS are growing 38% which means that, we are penetrating much more our database and turnover is growing 32% not enough with that, the anticipatory series and the receivables business is growing close to 40%. So those numbers and this is on a year-on-year basis. On a quarter-on-quarter basis, it depends a lot to your question. It depends a lot on the type of client, I mean, for example, if you incorporate a wholesale client, which is large enough, that quarter, you may dilute a little bit numbers. In this quarter in four Q we are very active on Black Friday, I think I put the numbers, we were leaders in the Black Friday with an amount of activity that was historic you know. So, the kind of volatility in between quarters, it's - I would really look at the year-on-year numbers. If you divide also by credit and debit for example, in terms of also turnover, we are growing in credit 15% and in debit, 11%. So all in all, the turnover is what I said, 32% and transactions grow 13%, which shows what I said to you, it's depending on the type of client that you incorporate in each of the moments. The second question was about contingencies, you are right. Now there is volatility in between quarters. You have in this quarter, specifically an increase. But I mean, depending on the quarter here, you have some volatility. Let me - I want to try to remember exactly the numbers, but what has, if you take the last quarters, let's speak about the last five quarters, 2000 - in the last quarter of '19, it was about 2000 - sorry, R$2 billion, which has been the situation also almost in first Q, I think it was close to R$2 billion, second Q was clearly above R$2 billion and what happened is that, third Q was a lower amount. It was 1. - I don't remember, it was R$1.4 billion or R$1.5 billion. So, what is happening is that, Q-on-Q is growing, but it is probably returning to a much kind of normalized or common levels compared to the past. If will speak specifically of contingencies there, you have three types as you know, which are labor, fiscal and civil contingencies. In that you do have also volatility, specifically we'll say more on the fiscal side, because depends if you gain something or you lose something, when you have these type of legal processes, which depends on the quarter, it goes in and out. And in this quarter, we have more - a more negative performance compared to the previous ones. And this is how I would explain that volatility.

Operator: Our next question comes from Marcelo Telles, Credit Suisse.

Marcelo Telles: Hello, Angel, Hello, Andre and thanks for the time. Most of my questions have been answered just have a follow-up on Getnet. You know you've been - you know you've reached like a market share of 15% clearly in the past years, you know, your market share has increased and where do we go from here? Do you still see room for Getnet to continue to gain market share you know given you know, despite the fact that you know, you guys already achieved you know a very high market share number, 15%? And where would that growth come from?

Angel Santodomingo: Okay, thank you, Marcelo. I would answer to you in the direction that I also answered probably the same question when we were at 5%, 6%, 7% or even 8%, and there was a strong opinion in the market in this period saying okay, we would reach our natural market share and that was about it, because it was going to be impossible given the acquiring business to have more than our natural market share. We are clearly above that one and why, because we have moved the company in the direction of as you know, the mix is more retail, two-thirds of retail depending on the moment, but around 60% retail and 40% wholesale, first. Second, the cost per transaction that I said et cetera, so that has made us competitive and we have delivered or developed during the last, I would say two, three years already, additional products to the traditional-only POS as last credit business. So 50% we are there. It will depend again on the same matters that I mentioned to you, you know, I mean, would it be profitable? Would it make sense? Does - do we have a space to grow? I think that the long tail that very small part of the business market, is a small micro kind of entrepreneur is, we do have a space there, clearly. We should be able to also on the next kind of layer on this SME on the small SME, okay. And then, as you know, we are a bank, which is quite strong in corporates, bringing in payrolls, and when you - you're not only bringing the payroll, you bring the full or we try to bring the full range of products and that also means acquiring you know, those probably are the main growth areas. But again, it will depend on profitability. But yes, I mean, the idea of being a clearly a growth company going forward is what we are clearly seeing, it has very good competitive advantage and it has been proved, this is a fact, this is not an estimation. So we are absolutely prepared to continue on that direction, if it makes sense and the offering in terms of products or services is kind of a winning tool. So just, and if you aren't the potential operation that we announced and that we are now recommending and the Board will discuss in the next weeks or months or whatever it is, well, I mean the capacity that Getnet should have, both because of size, both on this - on the cost side and because of new products and revenues should even improve that you know, you don't have kind of a global player in the acquiring business you know. Thank you.

Andre Parisi: So, okay. And we see, I mean, that was the last question. So now I give the word to Mr. Angel to further closing remarks. And thank you very much for joining us in the call. Also apologize for not taking all the questions at these time. So I mean, a big number of questions. We can obviously attend to you anytime from the IR team. Thank you.

Angel Santodomingo: Okay, thank you very much. As Andre said, if there is anything that has not been covered, please do revert to us and we will clearly answer the questions that is - that is a clear objective of not leaving anything unanswered in this session. Thank you very much and looking forward to seeing you in the next occasion.

Operator: Banco Santander Brasil's conference call has come to an end. We thank you for your participation. Have a nice day.