Apr 28, 2015
Executives
Angel Santodomingo Martell - EVP and CFO Luiz Felipe Taunay Ferreira - Officer and Member of the Board of Executive Officers
Operator
Good morning, and thank you for waiting. Welcome to the conference call to discuss Banco Santander Brasil S.A.’
s results of the first quarter of 2015. Present here are Mr.
Angel Santodomingo, Executive Vice President and Chief Financial Officer; and Mr. Luiz Felipe Taunay, Head of Investor Relations.
The 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. All the participants will be on listen-only mode during the presentation, after which, we will begin the question-and-answer session and further instructions will be provided.
[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 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 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 and CFO. Mr.
Santodomingo, you may proceed.
Angel Santodomingo Martell
Few highlights results and are ready to share with you some of our final remarks. In Page 4, we will start with the macro side.
As you know, we present the consensus expected in the dynamics will remain variables. [Indiscernible] let me share with you some fronts.
At we see that [ph] the Brazilian economy is going through an adjustment process in this environment, the amount of measures implemented or announced by the government is considerable in a wide [ph] direction. There has been a pronounced adjustment in relative prices in the Brazilian economy.
Not only intervening prices have been altered, but also exchange rate differentiation has taken place. Both changes have an impact on the different variables, productivity between them and of course, in current year inflation that, as you may see, is expected to close even above 8%.
The fiscal motions that, as I mentioned, are even implemented or announced indicate an even [ph] change in the course of macroeconomic policies. Without it [ph], we believe that Banco [ph] measures will be delivered and will structurally impact in a positive way the economy.
The key issue is not whether the quantitative targets will be met but, specifically, that change of direction. As a result of those measures and uncertainties, the fiscal [ph] risks in the Brazilian economy have been reduced within the last weeks in a significant way.
It is true that there are extreme uncertainties and we believe the country is in the right track and we maintain our positive view with the country. Since readjustments have started [ph], the economy will be impacted.
In 2015, as you also may see, current destinations formed though a contraction [ph] of GDP of even further than a negative 1%, probably setting grounds for a better 2016 and even more ‘17 and afterwards. Consensus, these are probably the Central Bank will hike interest rates up to 13.5%.
We have tomorrow the corporate [ph] meeting and we plan to reach monetary policy by the end of this year or beginning of next year once the impact of the activities of the current adjustment process is better understood. And last but not least, it’s expected that the real will converse to somewhere around a 3.2 against the dollar, a level that overtime should reduce the current account deficits to a more sustainable level.
All in all, as you may see, the trend of the environment is complex with trend in the analysis that have been made are in the right direction. Okay, if leaving the micro side and we move to the highlights slide on Page 6, I would like to show before going to the detail in the three main areas - balance sheet, returns and quality barriers [ph].
The quarter results, as you’re going to see in the next slides, positive dynamics of various mathematics which result from the implementation of the strategy that we have been sharing with you now for some time. The four main highlights I would like to underline are, first, the expanded loan portfolio increased by 5% in the quarter, boosted, and this is important, by the real depreciation and the consolidation of Bonsucesso, our non-like-for-like issue since February 2015.
Excluding the impact of those two factors, or speaking in a like-for-like way, the quarterly growth was 1.8% for the total portfolio and 1.6% for the loan portfolio. Funding from clients moved up by 4%.
Second, the bank remains to [ph] have comfortable position in terms of capital and liquidity and reflected in the strength of its balance sheet at some time that we continue to - at the same time that we continue to increase our profitability. The BIS ratio is still at 16%.
We have here one ratio of 14.5. And the loan-to-deposit ratio is stable around 100%.
Third, net profit total BRL1.6 million - BRL1.633 exactly in the first quarter, with a quarterly growth of 7%. This is explained by a better evolution of learnings in the quarter which grew asset values quantities [ph] under pressure which is total [ph] loan loss provisions and cost control.
So basically, we have continued with the same pattern in the lower part of the P&L while starting to see positive signs on the upper part of it. Finally, it is worth emphasizing that quality remains controlled.
Delinquency over 90 days continue to improve, falling by 28 basis points in the quarter, while the coverage ratio reached 181%, more or less stable compared to the previous quarter but the highest level for a long time, several years, in fact. The next slide on Page 4, you will see that we looked at the net profit which totaled, as I mentioned, BRL1.633 billion which is an increase of 7% in the quarter and 14% in the year.
The highlights of the results may be seen on the next page in Slide 9. Regarding the revenues, there was an upturn of the net interest income which increased 2% both in the quarter and in 12 months.
This is the first quarterly increase after a long period. Commissions fell by 5% in the quarter but we have to remember here that it’s mainly due to insurance seasonality effect on 4Q - and grew by 7% in 12 months.
The allowance for loan losses remained flat in the quarter, totaling BRL2.1 billion with a reduction of 10% over the first quarter of 2014, reflecting our low risk balance [ph] growth. This improvement was also reflected in our cost of credit, which fell by 17 basis points in the quarter and 76 basis points in 12 months.
And obviously, it is also reflected, as you will see now, in the reduction of the credit spread. General expenses remain under control with annual growth of 3%, well below inflation as we have been seeing in the last almost two, three years, reflecting our efforts to improve productivity and efficiency.
In the quarter, general expenses moved down by 10%, mainly due to seasonal impacts. As a result of all what I mentioned, net profit climbed by 3% in three months.
Okay, now we will move into a more detailed - an in-depth view of each of these lines. In the next slide, we will see the net interest income evolution.
Net interest income totaled BRL7.1 billion in the first quarter, growing 2% over the previous quarter. The credit related net interest income pattern was driven by the increase in the average loan portfolio which more than offset the spread compression that resulted from change of mix.
We have a product spread growth that is still being more than offset by the change of mix. So all in all, what we have in here is the price positive evolution being offset by the change of mix.
But we have also some help coming from the volume side of the portfolio. In giving you comparison, net interest income also increased 2%.
The decrease in credit-related NII was more than offset by the increase in the positive year NII and by the increase also of around August due to higher gains in market activities [indiscernible] in a pattern that is similar to what we could we could call recurrent level. Again, the decrease in the credit-related NII is fully explained by the change in mix in the overall banking book spread.
The change in mix either from a product or certain perspective have been made tangible with the following examples - balances of riskier [ph] products for individuals like cards or overdraft or personal credit or the property or what we call here industrial decreased year-on-year 6% or BRL2.5 billion [ph]. While for example, mortgages increased BRL6 million or more than two times, almost three times what I’m speaking year-on-year or an expressive [ph] 36%.
Large corporates, for example, as a second example, loan portfolio growth clearly outperform by far the SME loan portfolio growth which as you can imagine for different spreads. Next point, the loan portfolio, expanded to a total of BRL324.7 billion.
The recent forex real increase with dollar exchange rate depreciation has a minor year impact on the portfolio growth excluding the impact of the forex depreciation and incorporation of 1.7 billion loan portfolio coming from loan suppression, the yearly and quarterly growth of the expanded loan portfolio amounted to 13% and 1.8% respectively. The large corporate segment continues to be one of the main growth engines, as you can see, growing from 5% year-over-year and 5% q-on-q after filtering out [indiscernible] rate devaluation, depreciation.
In the individual segment, [indiscernible] a 0.6% year-on-year growth and a 2% q-on-q. Both metrics have been impacted by incorporation of [indiscernible] at the start of February.
Like for like growth was in 3.5% and 0.3% respectively. Consumer finance portfolio decreased 2% in the quarter and 3% in 12 months.
We are comfortable with the profitability and performance of this segment especially taking into account the overall car market dynamics that as you know are dropping depending if we are speaking of new cars or used cars. But the new cars are dropping by almost 15% while used cars are slightly positive.
The SME portfolio finally has sustained growth in 3 and 12 months probably reflecting a macroeconomic environment. We continue to invest in our franchise in the second - in this [indiscernible] next 19th of May, we will announce the implementation of a new SME platform that we should be mentioning and sharing with you in the last quarters.
Moving to funding in the next slide, we may see the evolution that reflects our time-focused and linkage-focused strategy with them. Funding from clients reached a total of 261 billion coming for almost 7 billion in 12 months and 9 billion in a quarter.
Total client funds [indiscernible] if we include off balance [ph] in assets under management, going to 469 billion with strong growth of 20% or BRL79 billion in 12 months and just 4% in three months. Assets under management [indiscernible] the year at 167 billion, with a 12% increase in 12 months and 2% in the quarter.
Coming back to the opinion in fees and commission, next page you can see that the total fee income totaled 2.8 billion in the first quarter of 2015, 7% higher compared to first quarter 2014. In fact, [indiscernible] in three months against 4Q last year.
Be careful with this comparison because the quarterly evolution was nearly impacted by the recommission of the renewal of insurance volumes in the last quarter of 2014 of last year. And [indiscernible] excluding this effect, fees and commission will be stable in the quarter.
First on the quarter, let me highlight, security and brokerage and placement, which would grow for 35%. And 12 months ago, that was wasted [ph] from the insurance and lending operation fees.
I would like to also underline these insurance commissions which increased 10% in 12 months and the non like for like 13% drop in the quarter, which is really a 21% increase if we’re paying for this non like for like or one off-ish. But it’s not really a one-off [indiscernible] account for that income every fourth year.
[Indiscernible] expenses, next slide. If we still got diffusion on amortization, the biggest is 9% in the quarter and flat in 12 months, as I’ve mentioned, well below inflation levels which as we know are main message during the last three years.
The seasonality of first quarter in our control policies explain this performance. Including the depreciation and amortization, total expenses move down 8% in 3 months and increased 3% in a year, a gain well below inflation.
As mentioned, the world performance is a result of our productivity and efficiency problems which will continue to [indiscernible] throughout this year as also mentioned and announced during the last quarters. On Page 15, we’re go on to quality into the delinquency [indiscernible] which continue to reflect the quality improvement of our mutual ratio [ph] in 12 months with [indiscernible] segment, 78 basis points and the quarterly segment, 57.
In the quarter, delinquency failed by 28% also with an improvement in both segments. The [indiscernible] in 15 to 19 days in PL ratio increased by 23 basis points as you can see here from 4.1% to 4.3% in the quarter, a fall of around 100 basis points in 12 months.
We remind that first quarter terms to have some seasonality also here. Last year, the Q-on-Q increase was 56 basis points.
So this year the 23 basis points is less than a half of the increase we had in the first Q last year. The quarters’ ratio, and you can see there, is 181% I was mentioning before which remain in a very controlled - remains in a very controlled level.
In terms of allowance for loan losses in the next page, as can be seen, they came up BRL2.1 billion in the quarter, presenting a decrease of 10% over the previous year and with almost 1% reduction in the quarter due to an increase in both provisions and recovery of regional launch. The cost of credit reflects the improvement as well as the previously mentioned change of mix representing a decline of 76 basis points in 12 months and 17 basis points in the quarter.
With this evolution, the spread net of risk is stable in the quarter. If you remember, the asset spread was - it also came down by almost 20 basis points also.
Looking forward, even though the overall economic environment remains challenging and there are some sectors that are under stress, we continue to expect that the overall 2015 cost of credit will not meaningfully delineate from 2014 cost of credit levels. This improvement is reflecting the past investment Santander obviously has made in commercial increase for decision notes which have improved our level of client knowledge and risk profile, retaining capacity and type of product.
Moving to performance ratios in the next page. You can see that deficiency ratio is still at almost 50%, 49.9% with a good improvement in the quarter.
We are speaking of almost 400 basis points of improvement in the quarter. The deliverance [ph] ratios reached 68.9% in the quarter also improving 187 basis points in this quarter.
And finally, [indiscernible] reached 12.8% in this first quarter of 2015 which have explicitly increased 77 basis points in the quarter and 165 basis points in 12 months where we found expressive improvement in profitability to our shareholders. Finally, the next page, liquidity and capital ratios.
We maintained a market position in terms of liquidity. [Indiscernible] in March 2015.
On the right-hand side, [indiscernible] ratio, still up 16% margin composed of Tier 1, very comfortable levels. There are few factors displaying [ph] the quarterly change of 150 basis points.
Approx [ph] 40 basis points related to [indiscernible] asset sale growth and 30 basis points related to the market and operational risk within asset growth. The [indiscernible] related obviously was impacted by interaction o a [indiscernible] behavior by the central bank, by the Brazilian Central Bank [indiscernible] capital in Brazil.
And we have the impact of approximately 60 basis points in [indiscernible] in the quarter. As you know, both from economic perspectives under the [indiscernible] is more open currency procedures which are reflected in the [indiscernible] network.
It does [indiscernible] forex movements. From a fiscal perspective, [indiscernible] eliminated assets and [indiscernible] which become relevant in [indiscernible] relevant FX movements like we had in 1Q 2015.
[Indiscernible] the majority funds of that has already [indiscernible] as we speaks today. Year-by-year [ph] [indiscernible] more than 50% of that [indiscernible].
We have another [indiscernible] 60 basis points due to the pricing of Basel III rules that we you probably know, all of you. With respect [indiscernible] amortization of BRL2.9 billion up to the end of this year, 30 basis points of the impact in the quarter would be [indiscernible] at the end of the year.
So as you can see, [indiscernible] our impacts that as we speak all, the year would be [indiscernible]. And finally, the real depreciation that I mentioned, the capital ratio was benefitted in approx 30 basis points by the fact that we issued in 1Q 2014.
As you know, $2.5 billion of denominated Basel III compliant securities. As a conclusion, in the last slide, let me show you the main messages that we think explain and we underline the messages that the members show.
First, the value is drivers of our results in the quarter show data dynamics than in the past. We are continuing effort to improve our franchising commercial retail banking in Brazil.
It starts slowly to bear fruits. Second, revenues are already showing a positive trend, with net interest income upturn.
Products, real expenses have remained under control. The annual growth well below inflation.
The productivity and efficiency plans are generating the expected results that we had been continuously announcing in the last quarters and years. But once again, the most important point is to continue concentrating on transforming the bank in a time-focused organization, which is something that is being done and will continue to be done in the next quarters and years.
In this regard, the most recent event in the development of our commercial platform has been the introduction of our new commercial model [indiscernible] circle which aims at simplifying processes, improving service level and devoting more time of our branch network teams to commercial activities with clients, so organizing the commercial activities in life [ph]. In the second quarter, new improvements will be delivered that you will be informed in due time.
In this process, we’ll always continue in following quarters and years [indiscernible]. Quality remains under control.
That would be my final words. Although the environment has the already commented performance, we remain comfortable thanks to our coverage ratio levels, the 181% I’ve mentioned, as well as the attentive management priorities to continue delivering results while we improve the performance of our asset part of the P&L.
Thank you. And we are now ready to answer any questions you may have.
A - Luiz Felipe Taunay Ferreira
We will start the Q&A session. I have put together the questions that all relate to the same subject.
And so some of the people that posed questions will see their questions answered in different segments. So starting with long portfolio, a question from Saul Martinez.
How quickly can we begin to grow and pay rolls with a bunch of [indiscernible] partnership and the adoption of the SME platform advance.
Angel Santodomingo Martell
The first thing I would say around most especially [ph] those from the starting now as part of Santander [indiscernible] in February. As you know, we hold 60% of that JV.
This is a key player with that - with key experience. So the process basically now concentrated.
They are constantly [indiscernible] all the activities on the commercial side, expressive growth. And on the operational side, we are integrating, as you can imagine on the portfolio and that of course, we will steam fifth translation of portfolios in the second Q that are still under the Santander Brazil umbrella.
And we agreed to have under successful umbrella. We have had good news [indiscernible] potential lows that may improve even further with capacity of [indiscernible] ratio of aligning and offering the products that they share.
That’s 1 point. And the second point is of the strategy of [indiscernible].
Instead of trying to operate through every single correspondent that you will find in the country, to concentrate activities in higher but more efficient, more profitable and more sizeable correspondence. And that covering also as we speak.
So our execution and the message once official are positive. We are very happy with the management team [indiscernible] as we said, we are quite experienced people with a long experience.
We are speaking of in between to almost 30 years of experience in this business or related businesses, not only the top management also the commercial [indiscernible] recurrent [ph] networks. In terms of the SME, well, I don’t see that the platform advance [indiscernible] but it is just the same concept.
I would say that, as you know the aim of this platform was to offer a full range of products and services. And [indiscernible] which maintain process which is something [indiscernible] so that we could go out to the market when we felt we were comfortable and with the right offer.
And we feel we are starting to be there. But please bear in mind that the implementation of these processes is not a weekend change.
We implement them, we run them out, the network has to learn about that. They have to learn how to change [ph] that new set of problems and services.
Some of them are not new, maybe some of them are. But the way of approaching the client, that full set of range of products and services, is something that has to be rolled out.
So do not expect second Q as a means or third Q as a mean of data [ph] boosting out because that is not the way. This is, as I always mentioned, these businesses is made of trans-Atlantics and that Trans-Atlantic, you have to move it.
And moving it takes time and process [ph]. Once you have moved it and you have put it in the right path, the acceleration may be the right one.
But we are still moving the trans-Atlantic on the SME side. The second set of questions regards asset quality.
The first one comes from Sao Masnid [ph] from JP Morgan. And it is, in your audit footnotes, you mentioned that you sold BRL1 billion of credit assignments that had previously been classified as H category loans.
What did impact this have on your financials and PLs [ph] more importantly? Did it have NI defect [ph] since they had already been fully provisioned for?
So since it is a more detailed question, I will take this question. So the bank sold about BRL1 billion as it is indicated in the footnote.
Out of this, BRL440 million was classified in the over 90. And BRL60 million was classified in the 50 to 90.
So the impact on the 50 to 90, the [indiscernible] figure is relatively small, the minimum. And in the over 90, it’s about - instead of having a drop of 28 basis points in the quarter, we would have had a drop of 13 basis points, i.e.
this is an impact of 15 basis points in the NPL evolution. And in terms of the impact in results, it is an impact of BRL158 million.
One should bear in mind that a bank has various strategies in terms of recovery strategies. So while in better state, we continue to do the recovery process ourselves.
But in some circumstance, the bank might decide that it’s more economical to sell those portfolios. Regarding the second question, it comes from Philip Finch from UBS.
Could you comment on why the 15 to 19 daily NPL went up by 20 basis points in the quarter, both non-corporate and individuals?
Angel Santodomingo Martell
Okay, Philip, thank you. So, well, I think I mentioned in my words and it is true that the 15 to 19 NPL ratio goes up really more than 20 basis points.
But I would underline a little bit of position [ph] on the fact [ph] of the first Q. As I mentioned last year, this same indicator went up more than double of that amount.
If I remember well, it went up 56 basis points. So we are delayed on [ph] half of what happened 12 months ago.
But when we average our EBITDA [ph], even the comments on the quality side, however, what is seen [ph] under position in terms of what we - and usually, we are very attentive. The group numbers we are showing to you which, as I mentioned, are a clear reflection of what we have been doing in the last years.
So we say, in terms of implementation of these models of using them in the risk part of some portfolios, all that things that were done some time ago that - when we say that nobody was asking for that because the environment was not what we have today in the country, obviously do have an impact. Does that mean that we are in safe harbor [ph] and - no, no.
It means that obviously, as I mentioned, we are expressively [ph] attentive, we are following all the things that are happening in the country. We follow the metrics, both leading and non-leading indicators.
And that obviously we will continue the same direction. But I would like to underline to stress that when the network is learning [ph] in a long time, well you have some positive impacts.
We are not in a position of disbelieving that the situation here is more having [ph] an impact or is not what has the common integration [ph] in the general sense. But that as I mentioned in my words, for the time being, we maintain our view about cost of fees, et cetera.
Before we move to the next topic, someone pointed out that I forgot to mention the figure BRL158 million is grew out [ph] of the gross amount and not the net amount.
Luiz Felipe Taunay Ferreira
So regarding effective tax rate, the next topic is effective tax rate. Philip Finch from UBS asks, we have seen some volatility on this front in recent quarters.
Going forward, what do you think is a normalized level of tax rate?
Angel Santodomingo Martell
Well, Philip, thank you. Remember that the volatility of the last Q has to do with [indiscernible] which are the dividends paid on capital that have a fiscal treatment that provoke this volatility.
I would say that if we exclude that, more or less maintain the same levels of previous quarters. So I would say going forward, about more of the same.
Anyway, we are also going through [ph] significant changes of tax and rates on - this is our usual way of analyzing it and we will be adjusting for these types of dividend ratings, et cetera.
Luiz Felipe Taunay Ferreira
The next topic is BIS. The question was told by David Hengov [ph] from JP Morgan.
Can you please explain the drop of 160 basis points quarter-on-quarter on the QT1 [ph] and the Basel III?
Angel Santodomingo Martell
Okay, thank you, David. I think I already explained in my - also in my speech the impacts in capital.
At the end of the day, what you have is an increase due to credit and to operational. Credit only is because of the loan growth.
And operational due to this, what I mentioned before, the introduction of borrower [ph] perimeter has to do with the total perimeter that is included under the operational risk following the buffing [ph] - Brazilian Central Bank measures. That’s one part of the story.
The other part has to do, I mentioned, with ETAs [ph] and with the impact of what it is - the forex change generates a fiscal loss which generates those ETAs [ph] that if it is reverted as we are seeing now, you revert and that impact. And I think I mentioned that more than 50% is already ongoing [ph] as we speak even though we will depend - all this will depend on the level of forex.
And then you have your [indiscernible]. Remember that we grow from 20% to 40%.
I mean, you go into different - into that phase in process. The market normally concentrates on the fully loaded number that when we speak of the phasing, you go - every single year, you have these impacts that also affect that ratio.
Luiz Felipe Taunay Ferreira
We’ll just proceed some more new questions. Some of them regarding topics that we have already addressed.
So starting from Marcello Telles from Credit Suisse, could you comment on your expansion strategy result? Would you grow organically or would you consider potential acquisitions?
Two, do you see potential for the duration in the large corporate book? What is Santander exposures to Petrobras supply chain?
Angel Santodomingo Martell
Okay. Expansion strategy in Brazil.
Well, I would say that we are 100% focused on organic growth. These are the way of functioning, the way of deciding and strategies and the way of acting.
The organization is not at all distracted from - or this business as usual. Having said that, I already mentioned in the previous quarters, two things that I would like to underline again.
First, there are businesses in which we share a below market presence and in which also the strategies to continue to grow organically, obviously, we’ll analyze any potential activity. And secondly, and most important, which is in May 1, that includes in the previous one I mentioned, is that we think the figures are resulting [ph] of analyzing anything that maybe or least proposed to us to try to understand if that would add value or create value to our shareholders.
The question is, is that what we are looking for? I think no.
But having a 99.9% organization focused on organic and business as usual growth strategies, [indiscernible] because of that future [indiscernible]. Do you see potential degradation of Petrobras, et cetera issue [ph]?
Well, I think we’ve mentioned that our [indiscernible] quality on the economy and [indiscernible]. So I’m going repeat, those were [indiscernible] already we are totally conscious of the country servicing the [indiscernible] I mentioned in my words towards ’16 and ’17 and so forth [ph].
And the year is going to be a difficult year. For the Brasil [ph] Petrobras, the only - we had two issues.
I think we’re going to be disclosing the numbers [indiscernible] exposure. When we said that in terms of oil and gas, we should not lose [ph] 4% of our book.
That’s the total exposure to the total [indiscernible], okay? So in the [indiscernible] the premium suppliers of Petrobras in terms of exposure to them, we are speaking of less than 1%.
So I think that we are in comfortable and reasonable levels to both the sector and specifically that set of group that was set publicly and explicitly by Petrobras.
Luiz Felipe Taunay Ferreira
The next question comes from Felipe Solomon [ph] of Morgan Stanley. You mentioned that the non-bulk [ph] ex the tax depreciation and the tax of the JV with a bunch of [indiscernible] would have increased 1.8% quarter-on-quarter.
If we do the same adjustment for the NII, how much it would have increased on a quarterly basis? If we just adjust the NII for the tax of the JV with Bonsucesso, how it would have increased in the quarter vis-à-vis the 2.2% growth report in the quarter?
I’ll take this one. Felipe [ph], those impacts are very minimal in terms of the NII evolution for two reasons.
First, you know that the tax book - basically, we are talking about big corporates. And the prices [ph] of big corporates is not that substantial.
Regarding Bonsucesso, the incorporation of Banco Bonsucesso took place in the end of February. So effectively, the quarter in terms of NII, we had the effect of just one month and not the full quarter.
Then, back to the asset quality questions. We have three more questions regarding asset quality.
The first one comes from Marcelo Cintra from Goldman Sachs. Our goals [ph] of 90-day NPLs improved in the first year, the early NPL situated in both consumer and corporate portfolios.
Furthermore, NPL creation is slightly deteriorated in the quarter as [indiscernible] increased significantly. Considering this trend, how management sees the evolution of asset quality and cost of credit going forward.
Angel Santodomingo Martell
Well, Marcelo, again, I think on the quality side, I already said our opinion and how we see it. I mentioned in my words that probably we are thinking how cost of risk in the region, when we speak about the region and underline the region cost, obviously it is difficult question.
But how we see the changes, et cetera in the region of what we should see in the region plus I’ve mentioned, specifically in my words on the [indiscernible] presentation. So again, I’m not going to repeat myself too many times because we are saying the same thing.
We are attentive and we see how things are evolving. I think we made our homework.
And we will see that evolution in the next quarters.
Luiz Felipe Taunay Ferreira
Sorry. The next question comes from Carlos Daltozo from Banco do Brasil.
The first one regards income from the cover of written off loans. And the question is, income from the cover of written off was just 30% in the first Q.
Do you believe that this income can return to the previous levels in the coming quarters?
Angel Santodomingo Martell
Well, it is still not that recovery from region [ph] office [indiscernible]. This has always been shared always [indiscernible] volatility we see in quarters, okay?
So I would say that our recovery activities are quite active. I would say that we are working a lot in the last quarters in the early delinquencies, in the recovery plans before in the first half of the client goes into NPL.
I mean our loans activities have been intensely fine, not as we speak or this quarter but first quarter, but it is always sometimes, we’re speaking of quarters and years. So this as you may imagine are communicating glasses [ph], at the end of the day, if you improve on one side, you end up with [indiscernible].
But having said that, yes, you do have some volatility. And I would say that, why not [indiscernible] to those levels.
Luiz Felipe Taunay Ferreira
And the second question from Carlos Baldovo is there is no room to improve the quality of assets in the coming quarters?
Angel Santodomingo Martell
I actually [indiscernible] I’ll mention, Carlos, my opinions on the credit side.
Luiz Felipe Taunay Ferreira
We have no more questions that we received, so --
Operator
Thank you. The Q&A is over.
And we still handover to Mr. Angel Santodomingo for his concluding remarks.
Angel Santodomingo Martell
Okay. Thank you very much again for being there on the quarterly results.
I think on the quarter has been a quarter that expands [ph] to show the impact of what the things that have been done by Santander Brasil. But it’s still a long way in the process into next quarters.
Thank you for your presence. And we are of your disposal here in Santander Brasil.
Good morning.
Operator
That concludes that today’s conference call has come to an end. We thank you for your participation.
Have a nice day. Thank you.