Apr 25, 2013
Executives
Carlos Alberto López Galán - Chief Financial Officer, Vice President, Executive Officer, Investor Relations Officer, Member of Executive Committee, Member of Asset and Liability Management Committee, Member of Compliance Committee, Member of Human Resources Committee, Member of Legal Committee and Member of Financial Committee José Maria Nus Badía - Executive Vice President of Santander UK Operations Oscar Rodriguez Herrero - Head of Risk Management Area, Vice President, Executive Officer, Member of Executive Committee, Member of Asset & Liability Management Committee and Member of Compliance Committee Luiz Felipe Taunay Ferreira - Officer and Chairman of Asset & Liability Management Committee
Analysts
Carlos G. Macedo - Goldman Sachs Group Inc., Research Division Mario Pierry - Deutsche Bank AG, Research Division Jorge Kuri - Morgan Stanley, Research Division Marcelo Henriques - Banco BTG Pactual S.A., Research Division Saul Martinez - JP Morgan Chase & Co, Research Division Regina Longo Sanchez - Itaú Corretora de Valores S.A., Research Division
Operator
Good morning, and thank you for waiting. Welcome to the conference call to discuss Banco Santander SA Results of the First Quarter of 2013.
Present here are Mr. Carlos Galan, Vice President, Executive Officer and CFO; Mr.
Oscar Rodrigues Herrero, Vice President, Executive Officer and CRO; and Mr. Luiz Felipe Taunay, Head of Investor Relations.
The live webcast of this call is available at Banco Santander's Investor Relations site at www.santander.com.br/ir 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 relating to the business outlook of Banco Santander, operating and financial projections and targets based on the beliefs and assumptions of their Executive Board, as well as 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 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. We would now like to pass the word to Mr.
Carlos Galan, Vice President and Executive Officer and CFO. Mr.
Carlos Galan, you may proceed.
Carlos Alberto López Galán
Okay, thank you. Good afternoon, and thank you to all of you who are attending this conference call.
The table of contents are a quick view about the macroeconomic scenario, highlights about the first quarter, the evolution of the main drivers of the results and the commercial activities, and I would like to finish with final remarks. I would like to mention that in view of the implementation of International Accounting Standards #29 -- 19 in Brazil 2012 figures were restated.
This restatement has increased 2012 net profit in BRL 33 million. Regarding the macroeconomic outlook, I would like to highlight 3 points.
First, in terms of GDP growth, economic activity is recovering versus 2012. Market consensus indicates a GDP growth of 1% in the first quarter and 3% for the entire 2013, maintaining the pace for next year.
Regarding the inflation at #2, the estimate is that it will be within the range of the target determined by the Central Bank, reaching 5.7% in 2013, benefited by a more benign trend or inflation in the coming months, while remaining the same level for 2014. #3, looking at exchange interest rate, we see stability in exchange rate running in the range of 2% and 2.05% until next year.
In terms of interest rates, even though the market survey is projecting 100 basis points increase until 8.25%, we foresee a more moderate cycle. In fact, our research department expects the Selic range 2013 at 8% and stability next year.
Finally, we believe future monetary policy steps may still depend on prospects for economic activity and the international environment. Going through the highlights of the first quarter of 2013, I would like to share 6 points.
First, net profit was BRL 1,590 million Q-over-Q shows a 5% decline of 14 year-over-year. Second, expanded credit portfolio remains flat in the quarter and grew 8% year-over-year.
Three, total revenues declined less than 1% in the quarter and 2% year-over-year. Four, total cost declined almost 6% in the quarter and increased about 1% in the year.
Five, allowance for loan losses grew 9% in the quarter and 12 months. And new NPO formation decreased in the quarter and year-over-year around 20%.
And finally, a strong balance sheet. Our cover ratio reached 124%.
Our BIS ratio reached 21.5% and we have a comfortable balance liquidity position. In the first 3 months, we had a net profit, including 100% of goodwill amortization of BRL 1,590 million, which represent BRL 88 million lower compared to previous quarter and a 5.5% decrease quarter-over-quarter.
And 14.4% decrease or BRL 256 million in 12 months. This implies BRL 1.50 as profit per share in the first quarter.
The structure of our results are based on 4 lines. First, revenues are affected by product mix change, a sluggish growth and seasonality.
NII increased 2% in the quarter and 5% in 12 months. Fees and commissions up 2% in the quarter and 9% compared with first quarter 2012.
Second, higher allowances for loan losses but we reached the peak. Total credit provisions total BRL 3,371 million, up 9% both in the quarter and year-over-year.
Cost upgrade was 20 basis points lower when compared with the average 2012. Third, general expenses control.
Expenses, including depreciation and amortization, decreased by 7% in the quarter and 1% in 12 months. Basically, in this quarter, the weaker revenue performance was offset by better expenses dynamic.
And so pre-provisioning profit was slightly better in the quarter. And fourth, improvement in other operational expenses with the fourth element is related to lower tax expenses and operational expenses, which declined versus fourth quarter and year-over-year.
Net interest income came to almost BRL 7.7 billion in the first quarter, a 2% decrease in the quarter and 5% over the same period last year. Basically, we have 2 drivers.
Revenues from credit operations decreased by 5% or BRL 292 million, and partially offset by the improvement in the line order component with BRL 153 million or 11% better than previous quarter. Regarding the first in the quarter we have, first, almost flat average trading portfolio; second, lower number of working days on income from high-margin loans impacted NII in about BRL 100 million; and third, 30 basis points lower spread, 110 year-over-year.
Regarding the spreads, also, we have foreseen this trend is worth mentioning that was a bit weaker than anticipated. [indiscernible] of a drop in the spreads are related to mix shift towards lower risk loans, which have accelerated.
For instance, in this quarter, the volume of revolving products decreased, which is one of the main drivers behind the mix change. The other 1/3 is due to various factors, including prices and less volume in overdue loans up to [indiscernible].
Regarding the second, which includes [indiscernible] interest rate mismatch. Capital revenues, income of financial operations grew 11% compared to a weak 4Q 2012 and declined 6% in 12 months.
Looking at the loan portfolio, it has been growing at a more moderate pace, even considering for the seasonality, the trend is below our expectations. The expanded portfolio remained flat in the quarter and grew 8% in 12 months.
We have a good diversification between segments, half with individuals and half with corporates. Evolution by segment is close to [indiscernible], up 7.3% year-over-year and almost flat in the quarters.
Mortgages are the main driver with 31% up in the year-over-year and 6% in the quarter. On the other hand, credit cards decreased by almost 8% due to seasonality and mix change as I mentioned before.
Consumer Finance totaled BRL 36.2 billion, down 0.5% in 12 months and 1.6% in the quarter. Forecast strategy is increased ourselves via branches and partnerships.
Finally, Corporate and SME totaled BRL 104 billion, up 8% in 12 months and 0.2% in the quarter. SMEs were affected by seasonality and weaker activity but remains our main focus in growth.
We still believe that the portfolio will gain traction throughout the year and we will maintain our focus on growing with credit quality in 2013. In terms of credit indicators, we have 2 important points.
The first one is the early delinquency from 50 to 90 days continues to show a positive trend and is performing in line with the previous quarter. It remains flat in all segments within 4.9% in total with 6.8% in individuals and 3.1% in corporate.
In 12 months, early delinquency improved 100 basis points -- 180 basis points in individuals and 40 basis points in corporate. The second point is the NPL over 90 day, which 5.8% of the total credit portfolio, up 34 basis points in the quarter and almost 1 point percentage in 12 months.
The evolution in the quarter is in accordance with the old shared with you previously. Actually, associated with denominator factor with the lower upturn in the credit portfolio and the seasonal effects of the opening months of the years.
The delinquency ratio of the individual segment stood at 8.0%, an increase of 12 basis points in the quarter. This segment accelerated pace and the volume growth decreased to 1.9% in the quarter versus average growth of 7.5% of the previous 3 quarters.
The delinquency in the Corporate segment increased by 50 basis points in the quarter to 3.8%. We still believe the peak of the NPL cycle in this segment will occur in the second Q, while the signs in the origination continued to support an improvement in 2013, initiating probably at the end of the second quarter conditional to the economic performance.
Last, but not least, we have an encouraging signal of the NPL formation, a message that the market follows closely. This indicator was 50% in the quarter and 20% in the yearly comparison.
The allowance for loan losses totaled BRL 3.4 billion, an increase of almost 9% in the quarter and the same volume in 12 months. The current movement can be decomposed in 2 lights, gross loan losses provisions increased by 3.7%, while the recoveries from regional loans decreased by 32%.
It should be noted that we continue with a positive outlook for the cost of credit evolution this year, improving at least 60 or 70 basis points. As a matter of fact, because this quarter is 20 basis points lower than the average last year.
[indiscernible] conditions income in the first quarter reached BRL 2.7 billion, an increase of 2% in the quarter and 9% in 12 months. The first quarter was impacted by the weaker activity and the highlight was income from the shares, which grew 58%, mainly due to the seasonality effect of policy renewals, which I concentrated in the first months of the year.
In annual terms, the growth is mainly due to cost, which increased 31%, mainly driven by the acquired services, insurance with 15% and security and brokerage services growing 27%. As a part of our strategy to adapt the bank to a new environment is to improve our commercial productivity and operational efficiency.
The bank has been implementing a plan which includes amount orders, increased operational leverage, optimize processes and structures, usage of cheaper distribution channels and service level differentiation for client clusters. As a result, general expenses decreased 7% in the quarter and 1% in 12 months.
Total expenses, including depreciation and amortization presented a reduction of 6% in 3 months and increased 1% over the first quarter of 2012. As you can see, we are trying to deal with capital recurring cost with an increase in our investment.
Regarding performance ratios. We have efficiency ratio reached 44.3% in the first Q and a 240-basis-point improvement in the quarter, an increase of 0.7 percentage points over the first quarter.
Recurrence ratio reached 59.4% in the first quarter and increased approximately of 550 basis points in 3 and 12 months. Return on average assets closed the first Q at 1.4%, a decrease of 10 basis points in the quarter and 40 basis points in 12 months.
And finally, return on average equity reached 12% in the first quarter, a reduction of 80 basis points against the fourth quarter and 250 basis points year-over-year. Assets totaled BRL 437 billion, an increase of almost 0.2% over December 2012 and 9% over the same period last year.
Equity amounted to BRL 51 billion, a goal of 1.2% in the quarter and 6% in 12 months. Considering the goodwill, equity totaled BRL 63 billion.
Product ratio over 90 days closed at 124% and continues to be at comfortable levels. BIS ratio reached 21.5%, 70 basis points up from previous quarters, the highest among Brazilian banks.
And basically booked in the Tier 1, which is 20.1%, while the Tier 2 is 1.4%. Total resources funding an assets under management increased more than BRL 6 billion in this quarter or 1.8%, as BRL 30 billion, 9% in 1 year.
Total funding amounted to BRL 217 billion remains stable in the first quarter and grew 12% or BRL 23 billion year-over-year. Assets under management reached BRL 141 billion, an increase of 4% in the quarter and 12 months.
The bank maintains comfortable levels of liquidity with the ratio loss to total deposits below 100%. Finally, I would like to finish this presentation sharing with you our perception where we stand in the transition of the banking model in Brazil in view of the lowered spreads.
First, the challenges related to this transition have been increased during the point of the economic cycle in which this transition is taking place with sluggish economic activity that impacted banking activities and delinquency. For that basis, the outlook scene is better.
The bank will resume credit growth as activity is picking up and NPL dynamic should improve going forward. Second, the bank is dealing with a change in the products mix portfolio with a spread compression process, which is occurring more front loaded than anticipated.
We expect that in the near future, the pace of these spread trends to be more gradual. Looking into the year 2013, we see that both of the compression has already taking place.
Third, related to the 2 previous points, we reinforced the stability and future improvement in asset quality. And maintain our perception that because should decrease in 2013 because the better quality of [indiscernible] originates the mix changed and of economic pickup.
Fourth, we have been working in reducing the structural costs for the feature. The bank has been quite agile in starting to change the cost base to adapt to a new banking environment.
We are confident of that we aim to deliver cost growth below inflation is quite feasible, and we should see this trend in the coming months. Finally, I would like to reconfirm that as it was informed and planned, our CEO is leaving his current position to become Chairman of the Board.
Our new CEO, Jesus Zabalza, was head of -- was head of the LatAm unit. He's a highly skilled professional in commercial activities and in LatAm markets.
Thank you very much for your attention, and please [indiscernible] open questions.
Operator
[Operator Instructions] The first question comes from Carlos Marcelo with Goldman Sachs.
Carlos G. Macedo - Goldman Sachs Group Inc., Research Division
I have a couple of questions. The first one regarding your margins.
Carlos, if I heard you well, you said you think the bulk of the pressure in margins for 2013 is already in place. If you could just give us some more color on that, we did see your credit spreads declining through essentially the last 3 quarters now down to 11.3%.
How much lower do you think that can go throughout the year? And what kind of relief do you think you can get on the deposit spread given the increase in the benchmark rates we would expect the government to implement?
The second question is regarding expenses. You did the fourth quarter -- the first quarter was, obviously, very solid from that front with the year-over-year growth around 1%, yet you're sticking to growing around inflation.
Is there the potential for some positive surprise from the expense front during the year?
Carlos Alberto López Galán
Regarding the first one, spreads, well, we've seen that, we mentioned in the presentation that we think that the mix change process was quicker than we expected. We've seen that this is a long trend reality.
We've seen that it will continue not just in 2013, but in the coming years. But our perception, as I shared with you before, is that we think that it will be more moderate, more gradual.
And for 2013, more or less, we are working at this moment with between 90, 110 basis point reduction versus 2012. And basically, this compression will be depend on the growth portfolio and these spreads are important assumption about how the denominator is going to grow.
Later, how fast is the overdraft or rollover portfolios are going to grow. And bear in mind, for instance, that in order to give you more color about that, that even though our total portfolio expanded -- credit portfolio has expanded 8% in the first quarter, and rollover products such as overdrafts, such as credit card, et cetera declined 10% in 1 year horizon.
So basically, you can imagine that this mix shift -- the most of the impact was already booked in the first quarter, so in order to give you an example. Regarding the second question on expenses.
Well, the bank acknowledged that given that the -- this mix shift is quicker or has been anticipating quicker or has happened quicker than we expected, we are accelerating as well the -- all the improvement in efficiency on commercial productivity, which is not exactly to sell more by person. Commercial productivity involves the use of different channels, the use of different model of servicing our clients, et cetera, et cetera.
The idea is that clearly to grow for the entire year well below inflation. And we think that more or less, as a assumption for the entire year, growing something between half of the inflation for the entire year.
This is more or less the outlook that we have for this line for 2013.
Carlos G. Macedo - Goldman Sachs Group Inc., Research Division
And just to follow up on that. Do you think growing at half of inflation, would that still enable you to pursue your growth objectives in loans and fees, that would still be within the -- in your reach?
Carlos Alberto López Galán
Yes. In order to give you an idea, part of our challenge is that you know that we have invested there, now very important money.
And we are still maintaining this pace in investing for 2013. Now the idea is to leverage this investment in branches, in new IT development, in new products as a priority.
Bear in mind that the Santander franchise is more or less 12% market share in the branch network infrastructure, while in terms of commercial activity, only has 10%. So I think there's plenty of room to leverage the -- our footprint -- our actual footprint in order to -- we are capable of -- with the infrastructure that we have at this moment to lead with the potential pickup in the growth portfolio and in the potential growth in services and transactions.
So we don't think that it's something that is going to be a constraint at least in -- for the short-term.
Operator
Our next question comes from Mario Pierry with Deutsche Bank.
Mario Pierry - Deutsche Bank AG, Research Division
Let me ask you 2 questions as well. Just on your asset quality, the big deterioration we saw in your corporate portfolio, I know you cannot specify your clients, but I was just wondering if there's a specific industry where you're seeing a bigger problem?
Also, I think you mentioned that you expect corporate NPLs to peak, I think, in second quarter. Is that what you meant that we should see a peak in second quarter 2013?
And if that's what you said, why do you expect that? And then my second question is related to your fees, especially your asset management fees.
I did not understand the trend here. We saw assets under management growing 5% year-on-year, but your fees were down close to 15%.
So is there anything in particular that happened at the asset management? And how should we think about fee income growth for 2013?
Carlos Alberto López Galán
Thank you, Mario. Well, I would like to -- regarding the first question, I would like to pass the question to our Chief Risk Officer, and later, I'm going to face the rest of your questions.
José Maria Nus Badía
Mario, thank you very much for your question. In terms of asset quality, the trend and evolution on the corporate portfolio delinquency is very much related to the mix of segments.
As you probably remember from the previous calls throughout 2012, one of the, I will say, distinctive elements of our business evolution during 2012 was the ability to grow our SMEs portfolio, but this is also one of the pillars of our strategy. We believe that our share in the SMEs business is still low compared to the opportunity that we see in the market, and we're pursuing that with a differentiated service proposition using the BOAs and some products that we can only offer well.
That growth in the portfolio of SMEs, in terms of order mix, we were already and we've been talking about that in previous calls. We're expecting to see an increase in the NPLs of the corporates.
It is obvious that this trend has also been impacted by the limited growth we could see that we saw in 2012 in terms of economy that it typically has a higher impact in the -- in SMEs than in other segments. But I think -- but we believe that is evolving according to our plans and within the ranges that are acceptable to our policy and credit growth.
In terms of industry, there is not any specific industry where we've seen the data deterioration happening. And why the peak in the second quarter?
We -- in the second quarter, it will -- this will happen a combination of 3 elements. We've been talking and we confirmed that the vintages of the origination since last year are in levels significantly better than what we saw in 2011 and the beginning of 2012.
And as those new vintages gain weight within our portfolio, it is obvious that it has to have a reflection in the credit quality of the portfolio. That's on one side.
On the second side, we also expect that as the economy picks up and we already see our first quarter with more activity, the ability and the business of our customers on the Corporate segment to have better conditions and to -- not only to run their business, but also to fulfill their financial debt. That will impact as well -- positively impact the portfolio.
And thirdly, the increase in the delinquency that we saw in 2012 also is getting out of the portfolio. It's -- we're writing off a part of the portfolio.
So the combination of the 3 elements, each will lead us to believe that we should see the normalization, the stabilization of the NPLs in the portfolio -- in the corporate portfolio in the second quarter.
Carlos Alberto López Galán
And Mario, regarding the -- your question about asset under management fees, basically, you have in this quarter a seasonal effect because you have less working days, but looking in that 1 year horizon, I mean, basically, the impact that we have compared to the growth that we have in assets under management is explained by 2 effects. The first one is, half of the impact is explained by the price effect.
Basically, the bank just revised some of the products in terms of commissions or fees, and has impacted throughout all the year. And secondly, there is a mix effect as well, where basically [indiscernible] mostly related to equity management, which grew less than other products which has lower fees that were related to CDI or fixed income.
So basically, this is more or less the explanation. Looking at 2013, while we think that more or less we expect the funds -- 2012 was a very flat year, now we think that we can grow around 10% or around 10%.
And basically, the fees, there is a volatile issue here because there is a success fee as well in some of them. But they should grow in high one single digit for the entire year.
Mario Pierry - Deutsche Bank AG, Research Division
Great. That's clear.
Just to make sure, when you say high single-digit for 1 year, you're talking about the overall fee income or just for the asset management?
Carlos Alberto López Galán
No, the assets management fees, and they are fees coming or commissions coming from the assets management. But more or less, for the total portfolio, we expect more or less similar volumes there.
We are working between 10%, 12% for the entire year, and it always is dependent on the credit loan origination, but it is more or less the figure that we all have been working for the entire 2013.
Operator
Our next question comes from Jorge Kuri with Morgan Stanley.
Jorge Kuri - Morgan Stanley, Research Division
I have 2 questions. The first one is on margins.
I'm not sure I understand your expectation of the worsening margin is now behind. If I recall correctly, at the onset of the easing cycle, you commented that you had hedged your mismatch for around 12 months, and that's the one -- and that would have helped you deliver better margins in the first 12 months of the repricing, and then you would suffer more margin pressure.
Given that rates fell mostly during the first half of last year, I would expect that your margins will continue to compress all throughout this year, as you commented some of those hedges maybe expire by the mid of this year, therefore, your margins are going to fully reflect the lower level of Selic rate by the end of 2013 and '14. So if you can just clarify what the expectation is.
It doesn't seem that even given the 40%-plus decline in Selic that you are going to reflect better margin. That's question number one.
Question number two is on -- if you just can help us translate what you think is the improvement in asset quality or the stabilization in asset quality that you're soon to see, how does that translate into provisions for the year? Your provision charge last year was around 7.3% of average loans.
I'm just looking at provisions, not deductions and recoveries, so provisions of BRL 14.9 billion, last year was BRL 7.3 billion, what is your expectation as we normalize asset quality in 2013 either on an absolute number in reals or as a percentage of average loans?
Carlos Alberto López Galán
Thank you, Jorge, for your questions. Yes, I'm going to clarify, maybe I didn't make it clear.
When I was referring to the spread compression that I was thinking or I was referring to credit spread compression. So what I'm saying is that no, the spread compression in credit is not behind.
We think that it's going to still -- this is a, as I was mentioning, a trend for a long period of time. As a matter of fact, you see a 5, 6 years horizon.
This is a trend that it will remain quite stable for the last 5 years. And with some acceleration or when some deceleration, but this is a clear trend, and we're seeing that it's trend is going to continue looking forward.
But regarding the credit spread -- the credit compression, what we've seen is that well, we've seen that most of the mix change product explaining our case and this spread compression in credit, we think that well, with new origination, with the new vintages, that it will be more -- will be softer for the coming years. And we've seen that reducing more or less, as I was mentioning, 15% comparing the rollover products versus the traditional products, and we feel that part of this mix shift was already made.
Now well, on the other hand, what we have is that the portfolio has grown very low, and this is the other important element that we think is going to help in terms of spreads given that the prices, in terms of new origination, has stabilized. And we don't see that the pressure that we have in 2012 is going to be the same for next -- this year.
And we see that -- we expect some stability. And as a matter of fact, the competition at this moment is more Russian, and I would tell you that.
The current cycle maybe is going to help us something in order to stabilize these new prices and the new credits and the new origination, and this is more or less the assumption that we have at this moment or the vision that we have at this moment. Regarding the other point, the real interest rate mismatch position that we have, as I mentioned in the fourth Q, this is a line that, well, we think that is going to be resilient for 2013, even though a lower level compared to the previous year.
As I mentioned in the 4Q, this is a line that is more or less on a quarterly basis should be contributing in not more or less neighborhood of BRL 1.5 billion per quarter. So more or less, what -- we are going to have, of course, with higher level as this one, but this is more or less the outlook that we have in the other component of the NII.
In our situation facing the new timing cycle, I would tell you that it's more or less neutral in 1 year horizon, okay? Basically, our sensitivity is, at this moment, almost close to 0 when considering the new origination and the dynamics of the new prefixed credits, and this is more or less the position that we have.
Having said that, we have some assets in order to immunize this sensitivity because otherwise, as you know, banks usually are in a structural long position. So basically, this instruments and this position more or less immunize the situation, and that's why we are confident in order to maintain the volume or the level that I mentioned in this chapter.
Regarding the provisions performance or the provisions evolution, first, I'm going to give you my -- our vision about the cost of trade evolution. And later, I'm going to compare and tell -- to extend, Oscar wants to add some color.
But as I mentioned, I mean, all the new early delinquency is improving. That all the signals are telling us that, as we mentioned, that the individual portfolio was stabilizing, and the corporate portfolio is accelerating as well.
So as I will show, all these elements -- or that's why we've seen that we will be running the bank with -- running with our cost of credit, 50, 60 basis points, as I mentioned in the presentation, lower versus the average that we have in 2012, which is, in 2012, the cost of credit was more or less 5.8%. So this year, will be more or less in the line or the levels of 5.2%.
This is more or less the vision that I have. And I don't know if Oscar wants to clarify something else.
Oscar Rodriguez Herrero
No, thank you. The question was answered.
Operator
[Operator Instructions] Our next question comes from Marcelo Henriques with BTG.
Marcelo Henriques - Banco BTG Pactual S.A., Research Division
I have a couple of questions. And sorry to go back to the asset quality issue.
When you look at the evolution of asset quality, the NPLS, there's like this very important disconnection between the early delinquencies and NPLs over 90 days. So I'm just wondering how confident are you really that [indiscernible] in the second quarter?
I understood that the main explanation for the deterioration in the asset quality of the corporate was because of a shift in mix [indiscernible] with the small and medium companies than corporate. But when you look at the percentage of SMEs on top of your total credit outstanding, if you compare March 2013 with March 2012, it was actually relatively flat, I mean, with a stake of 16.5%, 17%.
So there -- actually, there was no -- at least in my view, there's no major change in the mix if you compare 1 year ago. So I was just wondering if there's any, again, specific issues.
It seems like the quality of SMEs could have deteriorated much more or large corporates to some extent. So I just would like to understand it.
And then I have more questions.
Carlos Alberto López Galán
Thank you, Marcelo. Oscar, please.
Oscar Rodriguez Herrero
Marcelo, thank you for the question. But you didn't clarify what is the disconnection because [indiscernible] there is a disconnection between the early delinquency and the delinquency percentage.
Did I understand you correctly?
Marcelo Henriques - Banco BTG Pactual S.A., Research Division
Yes. Because I understood from your speech that the early delinquency, there is positive signs that NPLs should cede going forward because of this -- because of the early delinquencies.
But it has -- the early delinquencies, you see, in your chart, it been moving down for a couple of quarters, several quarters. But it has not translated into the NPLs over 90 days.
So I just want to understand, as part of the first question, how confident are you that now it has indeed quite improved, but that you have been improving fast so...
Oscar Rodriguez Herrero
Well, really, we are confident, I am confident in terms of the internal -- on evolution that we're commenting. As I said, and I've been already sharing with you in the previous calls, in terms of what is the quality of the new vintages that we're originating, in terms of disconnect, that disconnect, and it is very much related to the way NPLs have been -- that the back of NPLs over 90, it's a longer period.
So as the early delinquency goes down, it takes some time to absorb or to write off that portfolio originated. So it is normal that you shall see a delay of 2 to 3 quarters before you actually can see that improvement in terms of the over 90.
And we have to take also into consideration that when you look at the mix in terms of corporates, it's important to see the trend. And we started to grow stronger in SMEs in the first -- basically, since the first and second quarter of last year.
And as it is a sustainable growth because the first quarter typically, for us, in SMEs is a slower quarter, which has not been the case in the large corporates. So even though it is that there is no big differential in terms of growth over the 1 year period, but the trend in the -- how that growth has been built in terms of SMEs, it is clear that we're being impacted right now by the new portfolio originated in 2012.
And also, as I mentioned, the portfolio was impacted by the slowest growth in GDP in 2012. And what we've seen in the market and digging a little bit more detail is that corporates -- our large corporates were better prepared for a slowdown in the economy as they had longer tenure debts, and they have raised money in the last few years with longer tenure, whereas typically, SMEs have more difficulty in -- because their capital structure, it's more dependent on the shorter-term financing.
So that's why, typically, they have -- they suffer more when there is a slowdown on the economy, like it has happened currently. So basically, this is complementing a little bit of the view that I already shared.
But you also -- I think it's important to consider that the first quarter, typically, it's bad for us in terms of collections, as you've seen in the numbers. And that's why the combination of all the factors lead us to be confident in terms of the trend that we have commented in NPLs and delinquency.
It is obvious that the environment, it will play an important role in terms of the future delinquency, but we don't expect to see significant changes. And if those happen, we will have to review it.
Marcelo Henriques - Banco BTG Pactual S.A., Research Division
Okay. Just one quick thing before the final question.
In April, which just basically ended, are you seeing any kind of pickup in demand for credit or already seeing signs of releasing NPL on both loans? Are you seeing improvements on both sides?
Or how do you see for April? And if you could give us some color, comparing it to last year.
Okay.
Oscar Rodriguez Herrero
In terms of demand, we don't see anything very much different to what we've been talking about. It is obvious that now we benefit from months that had more days.
So what we see in NPLs and delinquency is that January and especially February and March are showing better numbers than we saw in the evolution between November, December and January. So we already see a different performance within the quarter.
Marcelo Henriques - Banco BTG Pactual S.A., Research Division
Okay. So just one final question.
On the acquiring business, your market share reached 4.8% in March 2013, but I noticed that you have moved the guidance for 10% market share by the end of 2013. Should we interpret that -- how should we interpret it?
Is it something that you feel focused on, getting the 10%? Or is this no longer a target for the end of 2013?
Carlos Alberto López Galán
Okay. It's a client business, as we've seen that we discussed with some of you.
I mean, this is a key target, a key role for the bank. Our aspiration, our goal is to achieve that percent.
Bear in mind that, first, our first movement -- or the first movement in the last 2 years was, obviously, on the SMEs. Basically, you could rate or you could break down the differences on the market share between big corporates and SMEs.
Basically, the bank has already achieved the 10% in SMEs. And basically, all the efforts were in order to gain some market share in this segment.
Why? Basically, because we've seen that they're natural clients for Santander; secondly, because it's the most profitable; thirdly, because you know that SMEs or that segment is a key segment in our strategy medium-term.
Now in order to achieve the 10% market share as a whole or for the whole portfolio, we enter in dealing with new retail companies since, basically, second Q, third Q last year. Well, it's taking time in order to gain the confidence because, usually, this is a process that it's made in different parts.
At the beginning, they usually give you a percentage. Later, when you show that you can deliver the service and the quality that the companies are expecting, later, they usually expand some of their transactions to you.
And at the end is when you can gain their entire confidence and entire transactionality with different companies. So well, this is more or less -- we are in the way of that.
Now to give you an idea, in this quarter, we gained some 30 basis points in the market share, and this is more or less the goal that we have. But we are not upset.
If you ask me, if we are going to keep 10%, no matter the price that we are going to pay, the answer is not. We want to maintain the profitability in this product and not to jeopardize the profitability of our customers on -- in the process.
Operator
Our next question comes from Saul Martinez with JPMorgan.
Saul Martinez - JP Morgan Chase & Co, Research Division
I'm surprised that very little comments were made on the resignation of your CEO and the installment of the new CEO. Can you comment a little bit more on that?
That's, obviously, a major corporate event. What drove that?
Who is the new CEO, what he brings to the table? And I have a follow-up as well.
Carlos Alberto López Galán
Okay. Saul, thank you for your question.
Well, I would like to share 3 ideas with you. The first one is that I expect that once that is -- all the legal procedures in place, that you personally meet him in the near future.
Secondly, that, well, as you know, when the former CEO became CEO, which was the Chairman of the Board, basically, signed a contract for a period of time. When this contract expires, it was planned to substitute the CEO for another person.
This new person, well, the message that maybe he is going to bring us, he is going to bring you is that he's most troublesome on the commercial activities. He's a specialist in retail, in branches, in the commercial arena.
He has been dealing with the LatAm units for the last 8, 9 years; the last 3 years as a head of the unit, dealing with the different countries, Mexico, Chile, Uruguay, Argentina, et cetera. So he knows the clarities that every market has regarding the financial industry.
And I would say that, well, we closed a cycle, where, basically, the experience of the former CEO, Marcial Portela, was more focused to create a robust platform, a financial platform. He -- basically, he dealt with the integration.
We dealt with the -- or focused on the different segments and with the pillars of the IT platform, with the pillars of the operational platform as well. So at this stage, we've seen that he's considered more than other.
And now the priorities for the bank, as it was our priorities in the entire duration, is more focus on the commercial activity well, and the nomination of the new CEO is more -- any not that a goal than any other thing.
Saul Martinez - JP Morgan Chase & Co, Research Division
Okay, that's helpful. I guess in that vein, sort of big picture, and I hope this question doesn't come across as confrontational or me being a jerk.
But I mean, it seems -- I think it's fair to say since the IPO, the operating performance has been not what you expected. And it seems like we -- every quarter, we kind of have some signs of progress, perhaps, but still struggling.
Is there a point at which the company, whether Spain or management there, decides that something larger needs to be done, whether it's a tie-up with another company, whether it's existing select businesses, whatever it is, whether something more significant from a strategic standpoint needs to get done? Because it just seems like it's been 3-plus years, and operationally, things continue to be very, very challenging.
And if not, what gives you confidence that the current strategy is the right one?
Carlos Alberto López Galán
Thank you for -- Saul, for the question. Well, I mean, it's always challenging but not for -- just for us, it's for everyone.
If you look at our competitors, I mean, they are trying to adapt their models to a new environment. So this is something that it's for the entire competitors in Brazil, and this is something that is challenging for everyone.
But regarding our situation, I would say that, well, this is a newcomer. I mean, to stabilize a bank after a big integration between 2 big banks takes time.
We acknowledge that we are behind our expectation and that the performance is not as good as we expected, but we have to recall that you don't make a bank in 2 days or in 2 years, and this is something that takes time. We've seen that in 3 to 5 years only is when we see with more clarity if the franchise that we have been building at is good or not.
I think it's too soon to qualify the performance. And I don't, and this is my personal view, that the market share or the math that we have is that constrained.
As a matter of fact, I think that we have a good critical mass. We think always, we would like to have some new products or some new segment, but this is something that everybody is always wishing.
But I would tell you that I think that we have a solid platform. We have a good network, branches.
We think that we have a good portfolio of products. And the most important, I mean -- or the 2 most important, we still have a very -- good qualified professionals and a solid client base.
We have more than 10 million customers, and the idea here is how to leverage the relationship with them. This is more the challenge, and I think it's going to take time.
But I think that while this is possible, that it's no linear. I mean, you have ups and downs, et cetera, but I think that to build up a franchise takes minimum of 3 or 5 years, as I've mentioned.
And I don't think that the size of -- that we have is constrained. I think that this is more related to consistency and to adapt to new realities, the challenging realities, with a new, maybe, financial model that we are facing in Brazil with a different type of mixed parts or mixed-grade portfolio.
And I think that it's to leverage in the great activity. And that the part of the challenge in Brazil is to diversify this concentration that we have with -- in margins with the credit contribution.
With more services, with more fees, with more transactions, and this is part of the challenges for everyone here. So once again, the new CEO, they should contribute to this idea, and they should help in order to accelerate this buildup, the franchise.
Saul Martinez - JP Morgan Chase & Co, Research Division
How actively up until now -- my understanding of the new CEO is -- was -- has been the head of LatAm. How active has he been involved in understanding on top and in managing the Brazilian operations?
Carlos Alberto López Galán
Well, as I've told you, he has been dealing with the LatAm units for the last 8, 9 years. Previous to the Banco Real integration, he was responsible for the commercial activity in Brazil, so he knows very well and for a long period of time all the peculiarities in Brazil.
Operator
Our next question comes from Regina Sanchez with Itaú.
Regina Longo Sanchez - Itaú Corretora de Valores S.A., Research Division
I also have 2 questions. The first -- more specific ones, okay?
The first one is that you announced the sale of 30% stake of WebMotors to CarSales. Is it true that WebMotors' stake is now booked under Santander subsidiary that was created as a result of last quarter restructuring?
And if this is correct, and Santander Brasil has 60.65% of Santander Serviços and not anymore 100% because Santusa Holding has the other 39% stake. Can you share with us what is the expected gain related to this transaction for Santander Brasil?
Can we expect a positive impact on second quarter results? And then my second question is regarding the Basel index.
That increases quarter-over-quarter even considering that you have the negative impact of the BRL 2.4 billion in the shareholder equity related to the pension plan. I believe the main reason was lower loan growth and also the new Basel rules that lower risk-weighted factor that was announced by the Central Bank in March.
But have you simulated the common equity Tier 1 ratio under Basel III? I mean, if it was already fully implemented, how much it would be?
That bank has a very good Basel ratio, but I was curious about Basel III common equity Tier 1 ratio.
Carlos Alberto López Galán
Thank you, Regina. Regarding your first question, the -- yes, we announced the 30% sale of the stake in WebMotors.
It's an important partnership because we are -- as you know, we are always looking for the best promise where we see that we can't add value, as it happened in the insurance activity as well, and this is -- and especially in CarSales through the net, and this is the biggest and main player in Australia. And yes, we are going to do the transaction, and we expect -- it depends on the -- all the legal procedures, we expect to book the profit in the second Q.
And more or less, the profit, net of taxes in local books, will be around BRL 70 million. Regarding the second question about BIS, yes, you're right, we improved even though the charts, with the new rule around pension plans.
Basically, this improvement is coming from 3 elements. The first one, it's, yes, we benefit from the new rules in capital consumption issued by the Central Bank of Brazil.
The second one, it's -- we've had less consumption in the market risk, capital consumption. And the third one is that the bank is always trying to optimize the capital consumption and part of this -- forming this process was affected by an implementation of optimization that we execute in the first Q.
And Felipe is going to add some color.
Luiz Felipe Taunay Ferreira
Yes, Regina, when the government announced the package, it concluded, let's say, Basel II features and Basel III features. He mentioned at that time that the overall impact of those together was 50 basis points in the Tier 1 capital, right?
Now we've seen already the positive impact of the Basel II elements, which is about 90 basis points. So you could claim that the future impact of Basel III elements, going forward, will be in the neighborhood of 140 basis points in Tier 1 capital.
Operator
Thank you. The Q&A session is over.
And now I wish to turn the conference back over to Mr. Carlos Galán for his concluding remarks.
Please go ahead.
Carlos Alberto López Galán
Well, thank you, everyone. We extended more than usual.
And please don't hesitate to contact us if you have -- or you want to clarify any more subjects. Thank you very much, and good afternoon.
Operator
Banco Santander's conference call has come to an end. We thank you for your participation.
Have a nice day. Thank you.