Banco Santander (Brasil) S.A.
Q3 2014 Earnings Call Transcript

Published: 4 Nov 2014

[Operator:]

Good afternoon and thank you for waiting. Welcome to the conference call to discuss Banco Santander Brasil S.A.'s results of the third quarter 2014. Present here are Mr. Angel Santodomingo, Executive Vice President, Chief Financial Officer and Control Officer; and Mr. Luiz Felipe Taunay, Head of Investor Relations. A live webcast of this call is available at Banco Santander's Investor Relations site, www.santander.com.br/ri, where the presentation is available for download. [Operator Instructions] Before proceeding, we wish to clarify that forward-looking statements may be made during the conference call related to business outlook of Banco Santander, operating and financial projections and targets based on beliefs and assumptions of the executive board, as well on information currently available. Such forward-looking statements are not guaranteed to performance, involve risks, uncertainties and assumptions as they refer to future events and hence, 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 and may cause actual results to substantially differ from those in the forward-looking statements. I will now pass the word to Mr. Angel Santodomingo, Executive Vice President, CFO. Mr. Santodomingo, you may begin.

[Luiz Felipe Taunay Ferreira:]

Good morning. This is Luiz Felipe Taunay Ferreira. I would just like to report the idea that we'll give priority to the questions that are posted through the webcast. I will put together all the questions related to the same subject and afterwards, if needed, we will also answer questions that comes from the phone. So Angel, if you could proceed, please?

[Angel Santodomingo Martell:]

Thank you, Felipe. Good morning, and thank you for attending Santander Brasil's third Q results conference. Before going specifically into the results, I would like to share with you some ideas about the voluntary public offer -- tender offer that was just finalized some days ago. As you probably have seen, the addition of minority shareholders of Santander Brasil combined with the ADR holders represented approximately 13.7% of the total capital, given that, that did not exceed the 2/3 of the existing free-flow to the exchange offer disclosed. So there would no -- be no additional periods provided. So in this way, Banco Santander groups are holding a stake rises to 88.3% of the capital. In shares and units of Santander Brasil ceased to be list, as you know, on level 2 of the BOVESPA and began trading on the traditional segment. As mentioned during the offer, we will continue to strive to deliver increasing profitability to all our shareholders -- current shareholders. We will continue our Investor Relations activities with the market as we have done in the past. So now changing or moving to the specific results presentation. I would like to go through the different concepts, the macro scenario, highlights from the results -- key results and some final remarks. On Slide 4, we start with the macro scenario, which is the consensus macroeconomic outlook. The market's forecast saw some macroeconomic scenario improving to a still low level of activity of around 1%, which was, as you know, adjusted in the last weeks, within inflation hovering around the target ceiling in the next 2 years. In general terms, the economy expected to recover gradually. The market expects '15 GDP growth to be gradually and positively impacted by the economic policy adjustments after the last weeks interest rate rise by percent of 25 basis points. Consensus stays at 11% for '14, inclines to 12% for 2015, probably to be adjusted within the next weeks. On the foreign exchange market, expectations are stable. We continue to believe that Brazil will overcome the short-term economic challenges and the country continues to be a growth opportunity in the medium realm. Now moving to Page 6, I would like to underline the main highlights of the third Q results. Let me remind you that we speak here of comparisons in between quarters, in 3Q compared to second Q. I would like to mention that as of this quarter, our results already reflect the consolidation of GetNet in -- starting in August 2014, us having a 2-month impact on our results. Bottom line, there is -- there is no almost -- there is almost no impact, so the GetNet consolidation shows almost 0 bottom line, although different lines of the P&L, obviously, are impacted. My -- let me say with you my view in this results. First, the bank continues with a comfortable position in terms of capital and liquidity, reflected in the strength of its balance sheet. The BIS ratio, the capital stood at 18.8%, almost 19%, with a strong generation in the quarter. And with the Tier 1 capital of 17.3%. The loan-to-deposit ratio decreased a couple of percentage points to 96%. Secondly, the expanded loan portfolio grew 5% in the quarter. We would like to underline that 5%, mainly driven by large corporates -- large corporation mortgages, which recorded both an increase of 9%. If we exclude the exchange rate variation, which also affected positively, the growth would have been, instead of 5%, 4%. At the same time on the liability side, funding from clients continues also to be strong with a 5% rise in 3 months. Thirdly, regarding results. Total revenues moved up by 4% in the same period, reflecting the increase in the net interest income and commissions. On the other hand, general expenses including depreciation and amortization posted an upturn of 6.7% in 3 months, reflecting the perimeter impact and the contractual adjustments for the wage agreements in the period. All in all, net profit totaled BRL 1.4 billion in first Q, posting an increase of 2% in the quarter. Of course, I will elaborate in the different lines on the P&L and specifically on the receipts lines in the structure of that part of the P&L. Lastly, I would like to point out the improvement in credit quality of our portfolio and delinquency ratio over 90 days dropped 40 basis points in the quarter and the coverage ratio reached 170 basis points. It's also increasing from last quarter. And this was accompanied by a good quality leading indicator, the 15 to 90 days, on which I will elaborate in the next slides. In Slide 8, basically, what you have there is the net profit evolution. As you can -- as I mentioned, net profit amounts to BRL 1,464,000,000 with a 2% rise in the quarter and year-to-date, that's the 9 months results, amounting to BRL 4.328 billion, remaining flat in relation to last year. Let's move to the P&L, which you can find in Slide 9. Starting with revenues, net interest income moved up 4% in the quarter, falling 9% in 12 months. Evolution in 12 months, as we -- as I already mentioned in other quarters, was impacted among other factors by the capital optimization plan that we executed last January. In the quarter, we had an expansion of NII driven by higher gains from market activities. In the next slide, you will see a breakdown of these concepts. Commissions climbed 3% in 3 months and it is important to note here that evolution both in the 3 months and in the 9 months was affected full by nonrecurring impacts, but we always explain in the quarters, and I will also try to indicate in the next slide. In any case, excluding these effects, commission would have grown a like-for-like or a business-like oriented ratio, 5% in the quarter and 8% in total. Moving to quality. Allowance for loan losses remained stable in the quarter. In the first 9 months, those allowances amounted to BRL 7.3 billion with a reduction of 24% in the year. We continue to maintain such strong reduction that was shown in an accommodated basis in the past quarters. In terms of credit, also the cost of credit was reduced by 10 basis points in the quarter and 133 basis points on annual terms. General expenses, the other important -- another important line in the P&L, we think they remain under control with an annual growth of around 3%. A gain well below inflation, reflecting our efforts in this increased productivity and efficiency. In the quarter, as you can see, expenses grow close to 7%, 6.8%, impacted by what I've mentioned before, the wage agreement that was signed in this quarter and the perimeter effect that I also mentioned a couple of slides ago. In any case, our view with regards to cost is that they will maintain a growth well below inflation. As a result of all these dynamics, as I mentioned, net profit increased 4% -- 2% in the quarter. In the next page, with regards to net interest income. I would like to comment the main points

[Operator:]

[Operator Instructions]

[Luiz Felipe Taunay Ferreira:]

I have 3 questions in the webcast. The first one regarding the loan portfolio is, Santander is accelerating credit growth, why would overall growth in the system is decelerating. What explains such behavior by Santander? And what are the risks involved?

[Angel Santodomingo Martell:]

Thank you. Sorry, I was on mute. Thank you very much. I would like to underline, first thing, that with regards to the portfolio, as you know, both SMEs and payroll financing, they're being kind of a drag in the past. In SMEs, we are remodeling the offer. That offer, which I mentioned briefly in the presentation is called Santander Advance, which is basically a full-package service that is going to be offered to our SMEs. And that will come into force probably around first Q next year. In any case, what we will start to see is that, that dragging effect of SMEs in the past is kind of fading [ph] away. We have seen that in this quarter, SME lending growth has gone from being negative to almost being nonnegative at the end of the quarter. So we see a kind of an improvement on a marginal way in terms of SMEs. In terms of payroll, you already know the story. It's basically, we reached an agreement with [indiscernible]. We are in the process of looking that app, trying to make it work and start to be active in the way we design, and we present it to the market probably starting of next year. So these 2 things that were kind of negative in the past are, let me call it, less negative now compared to other quarters. At the same time, we are growing in kind of lower spread, higher-quality loans. The portfolio, I already mentioned the dynamics, good growth in corporates -- in large corporates, in real estate and drops in revolving that generate interest rates, a 9% drop in the quarter in revolving that generate interest rate, which means that you have pressure, of course, from the -- on the -- both on the NII and on the spread. But I also mentioned that, that should be reflected in the cost of credit in the next quarters. Obviously, we are quite busy [ph] In terms of asset quality issues. That is something that has always been underlined. And as you may see, the credit quality is clearly under control. Thank you.

[Luiz Felipe Taunay Ferreira:]

We have 2 questions on the NII topic. One regarding spreads and the other one regarding the line Others. The one regarding spread is the decreasing spread in the quarter was quite strong. You have mentioned that the mix expense decreased. Could you provide more details? What should one expect in terms of spread evolution going forward? And the question regarding the line orders is the following

[Angel Santodomingo Martell:]

Okay, thank you for both questions. Let me elaborate a little bit more in NII. And as I mentioned just in the previous question, the change of mix is strong. I mentioned the 9% drop in those revolving loans. That is a part of revolving loans that generate interest rates, a 9% drop in -- on the Q is quite strong. This is obviously something that we have been executing during the last quarters and now in this quarter was more intense. Obviously, we don't expect this to be extrapolated to other quarters. I would say that our general comment is that probably that kind of change of mix or normalization of the spreads is something that is structurally, and I'm speaking here more in medium to long term, what we would see on the Brazilian financial system going forward. Probably the discussion here is the base, the acceleration or not, the moments where this happens. And here, the visibility is lower. But I would say that the trend is there to stay. With regards to Others. Well, I think I already elaborated a lot on this, but basically the idea is that we are kind of returning to -- in a volatile line because we have quite a volatility in this -- in the P&L. We are returning to what we could call, if we can call this an average of the history. Well, we'll return into that average, yes? Remember that we have the impact of the accounting of the Tier 1 instruments in the second Q. It was one of the reasons why we showed an extraordinary low level of Others and basically, we are returning what -- to what we have seen as an average in the previous quarters. I don't think there is nothing more or less established [ph] there.

[Luiz Felipe Taunay Ferreira:]

We received one question regarding the fee issue. The question is the credit policy growth seems to be weak for a company that is still an entrant on the acquiring business and has integrated GetNet in the quarter. What explains this? How GetNet integration is behaving? Were there any major accretion related to the integration?

[Angel Santodomingo Martell:]

Okay. With regards to fees. We have several things there. I already pinpointed the different issues in the year-on-year and on the quarter. The year-on-year were already known. On the quarter, we have this final readjustment in between lines. So I will underline that the business is growing -- what I mentioned, the 5% Q-on-Q. So I will say it has more to do with accounting things and nothing more than this type of reclassifications that you have to do. We thought of doing the statements, but we thought it would make it more kind of less clear. So we just -- we prefer to explain it as it happened. In any case, obviously, in between GetNet, our credential [ph] business and being one of our main products, credit cards. Obviously, the growth in these lines should continue to be important.

[Luiz Felipe Taunay Ferreira:]

We have one question regarding asset quality. And the question is asset quality has improved in the quarter, what is the perception for 2015?

[Angel Santodomingo Martell:]

I also think I mentioned a lot about the credit quality issues. I mean, the general trend is quite positive. Either you take balance situations, you take P&L ratios or whatever. So I think that both current and leading indicators are positive and pointing in the right direction. We expect the change of mix, of course, to be reflected on that evolution, and we continue to have a strong focus on credit quality and credit standards. I will also invite you to see -- I think comments on the annexes, Felipe? We have the vintages, the ZAFRAs. We have the vintages there and if you see all of them, are also pointing in a kind of a -- quite a positive direction. I think, I'm trying to find it. It's here, Slide 34, if you want to look in the presentation in the Annex. And you can see that individuals, corporate and even car finance that had a little bit of a peak in the previous quarter. They are all pointing down. So the trend is positive. We don't have any kind of concerns or anything that could mean a concern for us. So that's it, thank you.

[Luiz Felipe Taunay Ferreira:]

We have no more questions coming through the webcast. If anybody wants to pose a question through the phone, please?

[Operator:]

[Operator Instructions] I show no questions -- audio questions at this time. So I'd like to thank you and the Q&A session is over, and I wish to hand the call back over to Mr. Angel Santodomingo for closing remarks.

[Angel Santodomingo Martell:]

Okay. Thank you very much to all of you for being there in this third Q results. I see that we have answered basically all the questions posted. Any additional things, please do come to us, and we will try to respond. Thank you for being there.

[Operator:]

Banco Santander's Conference Call has come to an end. We thank you for participation. Have a nice day. Thank you.