Nov 2, 2015
Executives
Angel Santodomingo - EVP, CFO Luiz Felipe Taunay - Head of IR
Analysts
Philip Finch - UBS Victor Galliano - Barclays
Operator
Good morning and thank you for waiting. Welcome to the conference call to discuss Banco Santander Brasil S.A.’
s results. Present here are Mr.
Angel Santodomingo, Executive Vice President, 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 Web 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, CFO.
Mr. Santodomingo, you may proceed.
Angel Santodomingo
Thank you. Good morning everyone and thank you for joining us in the Banco Santander Brasil third quarter 2015 results.
As you may see in the index in the table contents, I will try to cover the four areas in the results presentation, a short briefing on the macro side and then I will finalize both results and final remarks. Starting on Page 4, we present the consensus the central bank service source in different dynamics for the main economic value.
There is reviews and thoughts. The Brazilian economy continues to go through the adjustment process, in this environment the amount of measures implemented and/or announced by the government is considerable.
Consequently, the Brazil and the Brazilian inflation has reached the levels clearly over 9% in 2015, well above the 4.5% target. The fiscal measures implemented and/or announced as I mentioned indicate a clear change in the course of the macroeconomic policies, which should lead to a better environment in the medium term.
We think that Brazil is addressing the fiscal imbalances and we’ll solve them overtime. On the other hand the process will probably be longer than initially anticipated.
Since the adjustments are sizeable, the economy is being impacted. In 2015 current estimations point to a GDP contraction of 3%, with quarter-on-quarter recovery likely starting over the course of 2016.
We believe that after these adjustments, the economy will be in a good sector assume a trend of sustainable growth from 2017 onwards. Consensus expects lower inflation and lower selling rates for 2016 which is not good.
And last but not least it is expected that the exchange rate should converge to somewhere around BRL4 per $1, a level that is already improving the Brazilian external account deficit to more sustainable level. These two large barriers both inflation and current account conversions are always barely indicators of a positive this in the cycle.
Moving to Slide 6, which is where we show our net profit. You can see that 2015 third quarter net profit profound BRL1.7 billion, so as increase of 2% over the second quarter that’s clearly and obviously the extraordinary than we thought we [indiscernible] last quarter and continuing the positive trend of last quarter.
Year-to-date to in our fee basis, results at market grew BRL5 billion growing 16% in relation to the same period of 2014. It is more or less, I mean the internal portfolio amortized the goodwill related to Banco real purchase has been extended to 2017.
As the result, the quarterly amount of goodwill amortization has been reduced in about BRL0.5 million with extreme part of increase of the quarter a kind in profit that demonstrate in [indiscernible]. Moving to the next page, Page 7, here is a main highlight that will let to underlying in this quarter and the comparison of little compared with series quarter.
I will highlight for main idea. First, the expanded loan portfolio increased by 3% in the quarter, quarterly impacted obviously by the real depreciation.
I remember here that the real depreciation was 28% in the quarter. Excluding this impact, the quarterly evolution will be flat falling from 10% more than that 3% it most focused impact.
Secondly, the bond remains with our formal position in terms of capital liquidity reflected in the strength of its balance sheet. These ratios stood at 15.8% with the tier one ratio of 14.4%, the loan to deposit ratio decreased to 91% first [indiscernible].
The net profit totaled BRL1.7 billion in the third quarter of 2015 as I mentioned in the previous slide with the quarterly growth of 2%. I would like to underline here the positive performance of our NII as well with controlled cost and provision following the economic market that we are living in still.
And finally the fourth idea asset quality metrics are stable or accelerating in a limited or controlled way even on the face of the current new macro-environment. Over 90 days delinquency field we remained flat in the quarter while coverage ratio reached to 185% by maintaining higher level in 2009.
At the same time, the cost of risk deteriorated in 12 basis points. In the next page, Page 8, we saw the main lines or the main parts of our P&L.
I will elaborate further on first revenue. Net income increased 2% over the second quarter and 8% in 12 months while commissions remained flat in the quarter and increased by 7% in 12 months.
The second point I will elaborate is the lower loan losses they totaled BRL6.9 billion in the first nine months of 2015 with an increase of 5% over the second quarter and at the same time a reduction of 5% in the year. The increase in the quarter reflects the economic background.
Third, general expenses remained flat in the quarter and represented a 3% growth in total loans well below the annual inflation. The quarterly evolution was mainly impacted by the annual [bargaining] costs.
Four, in the quarter, income tax expense of group profit before tax which grew to 1% as you can see medium term is on the effective tax rate this reflects the trends in what would amortization as well as the fiscal contingencies that we had during the quarter. And five, as a result, net profit climbed by 2% in the three months and 16% in the year.
Now I will start going line by line in next page we can elaborate on our NII evolution. In the quarterly comparison net interest income totaled BRL7.6 billion in the quarter growing 2% over the previous quarter.
NII directly related with client activities which is clearly across the quarter continued to grow at the rate of 1% in the quarter so therefore we are doing with prior related activities. Market operation we maintained very good performance and I would like to underline two ideas in this regard.
First, client NII which clearly continues to grow on a quarter-on-quarter basis 1%, and clearly the spreads on the loan book that remained flat in the quarter with the negative impact of the currency being offset by higher spreads problem leaving to that 8.5% flatting figure in both quarter. In the yearly comparison net [indiscernible] income increased 8% from 7.7% mainly explained by evolution of July and August the credit related NII remained stable, a gain, spread by product evolution around the volume of third retained or mix that we have been sharing with you during the past quarter and also happened during this quarter.
Page 10 shows the loan portfolio. The expanded loan portfolio totaled BRL332 billion the exchange rate in the real and the dollar variation had a major impact on the portfolio growth metrics.
Strengthening now to that impact we see growth deceleration the yearly evolution of the expanded loan portfolio grew 7% and the quarterly evolution is flat. Going by segments the large corporate segment is more impacted obviously by the exchange rate variation.
The annual growth amounted 6% to 160 we consider the ForEx in the period. In the quarter this loan portfolio decreased in fact by 3% excluding the real and the depreciation as you can see there it grew 6.9%.
Going to individual, individual segment, presented a growth of 8% year-on-year, 2% Q-on-Q. The yearly evolution was impacted remember by the incorporation of a Basel 3 portfolio.
Business as year from or like-for-like moving to some Basel lending continue to be the main growth driver. Consumer finance the performance increase 4% in the quarter and 10% in 10 months.
Obviously reselecting weaker comp market Finally the SME portfolio has increased by 1% in the quarter and 2% in 12 months. It also reflects our already commented in previous quarter investment.
On the following slide next page, Page 11, you can see the evolution that reflects our focus on clients and on the linkage with them. Funding from clients totaled 288 billion, climbing almost 44.5 billion in 12 months and 12 billion in the quarter, to mark royalty.
There was an increase on reserve requirements in the quarter as you can see there, but personally and mainly explain by two factors’ first, the decision of the Central Banco Brasil to remunerate all the research requirements by the [solid] rate. This could have been reduced on full basis in working capital loans as a reserve requirement reduces; and secondly, there was also an increase of the base of reserve requirements.
Funding continues to outgrow the loan growth that 4% I was mentioning and compared with the 3% I mentioned before on the credit side, leading to an improved liquidity position as we were seeing in a couple of the slides. Finally total client funds including assets under management came to BRL500 billion with a growth of 18% in 12 months is BRL76 billion, also a remarkable figure and 4% of improvement increment, assets under management total BRL187 billion with a 16% increase in total loans and 25% in the quarter.
Fees and commission moving to the next page. The total fee income totaled 8.7 billion in the first nine months, 7% higher than the same year 2014 and flat quarter-on-quarter.
In the quarter, current assent management and current accounts increased presented a good momentum. So, dynamics in the wholesale business, which is quite understandable in the current environment, and insurance influenced by deterioration of third Q seasonality relate to a [indiscernible] overall fee evolution in the quarter.
In terms of annual growth, insurance, current account and fees from lending operations explains two-thirds of an unknown growth in this of almost 600 million or 7.1%. General expenses Page 13 in which we keep a breakdown on the expense excluding depreciation and amortization increase 4% in the quarter and 3% in 12 months well below on our inflation level which has been our continued investment with years.
The quarterly claims was impacted by the annual earnings process and we literally grow towards impacted by the [indiscernible] corporation of GetNet and [indiscernible]. We continue to deal with cost impact as we’ve been commented during our long series of quarter cost continue to be controlled well below our inflation.
In current depreciation and amortization total expenses remained flat in the quarter and moved up by 3% in 12 months. Again well below our non-inflation by driving depreciation and amortization in the quarter results from the impact all time of the software and assets improvement that really orderly reported in second Q of this year.
We will move to quality on Page 14, we may underline that the NPL ratio over 90 days fell by 47 basis points in 12 months with an improvement in both the individual segment 25 basis points and corporate segment 24 basis points. The 15 to 90 early areas or early indicator NPL ratio decreased by 23 basis points in the quarter and by 3 basis points in 12 months.
In the quarter, NPL for companies led the movement that I have mentioned. The real devaluation impacted fees as well as the traditional also seasonal effect on third quarter, excluding these four exit rates, the third one in the quarter including the 90 days NPL for companies and for the total portfolio also being flattish.
In the quarter, the NPL ratio over 90 days remained flat with individuals increasing 24 basis points and in companies 13 basis points. So the result for company was again influenced by the devaluation of the real, excluding again [indiscernible], NPL for companies will be flattish and the total 90 day NPO ratio we said increased 15 basis points in the quarter.
We believe that given the economic background the asset quality metrics showed that they are under control. I would like to underline that we have been sharing what we have been sharing in recent quarters.
We expect a gradual and controlled asset quality deterioration reflecting the current risk economic reality. Last but not least on this slide the coverage ratios reached a remarkable 185% remaining at very affordable levels.
In the next slide where we move to P&L in terms of our loans for loan losses they came to BRL6.9 billion in the first nine months presenting a decrease of 5% due to the quarterly [indiscernible] of early quarter while in the quarter increased 4.7%. Cost of credit dropped on an year-on-year basis again for the same reason 60 basis points and this is 12 basis points in the Q-on-Q comparison.
This evolution currently reflects my early rewards about quality performance. We see gradual deterioration in the margin but granted and controlled.
Moving to the last part of the presentation in terms of performance ratios with evolution I would say in the efficiency ratio that moved 200 basis -- 215 basis points in fact in the quarter down to 38%. The recurrence ratio reached 68.1% in the quarter also increasing 38 basis points and the profitability ratio was over assets and equity remained flat in the quarter.
Remember that we are comparing obviously with our second Q in which we exclude the [indiscernible] results that we presented to the market. Liquidity and capital ratios in the next slide finally the bank maintained an strong position in terms of liquidity and solvency with a stable funding solution and an adequate funding structure.
The loan to reported ratio continues to improve and it stood at 91% in September 2015. This ratio decreased to 15.8% most composed of tier one at a very comfortable level.
On the quarter the ratio decreased 223 basis points mainly to remember that we incurred dividend timing from our preliminary results that’s one of the main reason and also obviously the increase of the loan portfolio and other assets due to the devaluation of the Brazilian currency in the period. Finally in the last slide as a conclusion I would like to say to you our main focus.
Our third quarter 2015 main messages are basically two; first regarding results. Revenues continue to present a positive trend with total expenses that continue to report well below inflation.
Allowance for loan losses returned at a moderate growth reflecting the current economic environment. Balance sheet remains strong both in terms of liquidity and solvency.
And finally I would like to remember what I said about dividend and we declared dividend amounting to BRL3 billion coming from the [indiscernible] and gains that we obtained in second Q 2015. The second idea is that we continue to invest in our retail contract results are difficult in terms of increased client satisfaction and reduced constrains at a rate 20% for the year.
Also we continue to invest in building a state of the art advanced semi-platform improving on the economic trends are weakening in the industrial array which is in September. We are very confident in the customer centric model we are posting a model decided to provide sustainable and more resilient long term results.
Thank you and we are now ready to answer any questions you may have.
Operator
Thank you. We will now start Q&A session for investors and analysts [Operator Instructions].
Philip Finch
The first question we received came from Philip Finch from UBS. The question is in the first Q did you recognized any gains on past revaluation rising from the 5% rise in total composition, if so if not why not?
And question number two is the factors tax rate increased in 3Q 2015 to reflecting a higher total contribution from fourth Q 2016 onwards, what should we assume as a normalized tax rate?
Angel Santodomingo
Thank you, Philip. The answer to the third question is, we recognized approximately BRL2 billion due to the change you were mentioning and we are fit basically of it with and the write-off of loss carry forward.
So net-net it was up, it was basically netted. The question on effective tax rate was....?
That it is it come and what we should assume the normal evolution of the tax rate and so we just been trained that has reflected in the change in the [CSLL] from 15% to 20%. We should expect that to maintain an adverse trend and we will optimize that with the evolution of both the amortization of the goodwill and the different parts that I already explained on this et cetera.
Philip do you want mention the….? And we gauge that going forward the effective tax rate should move around 13% to 18%.
We have raised you can see that up balance [DTAs] that we have amounts to about BRL2 billion and also the reduction in goodwill amortization increase the fair payment of interest on capital. So overall the effective tax rate should move in between 13% and 18% going forward in average.
The second question came from the [indiscernible] cost from the [indiscernible] my question is about the say of non-portfolio we incur that the [indiscernible] about BRL238 million of loan during the 2015. Could you comment what would be the impact on your NPL ratio if you have not sold this portfolio.
Furthermore was this portfolio 100% provision?
Angel Santodomingo
Let me comment you and briefly my thought here and Philip I can give you a little bit more retail. I will say it first the selling of net selling of portfolio in the quarter is current of a business as usual activity.
So what you do obviously optimize and what our policy is that if it's we have [indiscernible] in between managing our service role obviously selling it to external parts and we measure that and when we optimize the internal usage we do it internally and when we see it makes from the financial point of view it make sense to send the external part, we do sell it externally. When we sell portfolio, I totally read there are 100% provisions on this.
So we have not considered selling portfolios are not a 100% provision. On the impact on the quarter related leverage, but basically I will say that the impact that we have seen in the quarter is margin, we are taking BRL240 billion of portfolio [indiscernible].
So basically, you can make an easy calculation which indicates that this sale would have impact NPL and above some response which is not critical for us. Secondly the impact on the results in the quarter was relatively marginal.
Operator
Mr. Victor Galliano from Barclays would like to make a question.
Victor Galliano
Yes, can you give us some more -- I hope you can hear me okay, can you give us some more detail on the camp situation was that primarily really because of the depreciation of the real that we saw the capital come down, I am sorry that it wasn’t a very good line once you were giving the discussion?
Angel Santodomingo
Victor, thank you. I will try to clarify in my presentation I will try to clarify, it says that we had 223 basis points of impact of capital, approximately 100 out of is the extraordinary gain that we directed to dividend.
Remember that we presented what we announce at the -- I think towards the end of September, not during the month of September, we announce BRL3.05 billion dividend and that consumed I would say rather 100 basis points. Then you have business as usual, I mean deliveries assets grow obviously impacted also by the ForEx situation due to our exposure and then reals loans and finally also you said in the rest of the asset the impact of the ForEx but has also made additional consumption of capital in the month.
And please also remember that we have mark to market impact due to the resulting portfolio that we hold in the [indiscernible] cover portfolio for example. So with all that I think I am speaking of 80%, 90% plus of the variation of the capital in the quarter.
Victor Galliano
So 100 bps from the dividend the FX depreciation the FX portfolio the depreciation impact would have been another 50%, 60% and most of the balance in mark to market is that about right?
Angel Santodomingo
I think we are being close to the reality the ForEx increase here in different part so it’s not an issue to individualize the ForEx but more or less is what I am saying.
Operator
[Operator Instructions] Thank you. The Q&A session is over.
And I wish to hand over to Mr. Angel Santodomingo for his concluding remarks.
Angel Santodomingo
Thank you very much for your attendance. It looks like we’ve had some technical issues, I don’t know if we have been able to transmit the message fully.
If this is not the case, I will clearly invite you to contact our investor relations department in the part that has not been held in the right way, if this is the way we got just [indiscernible] saying that this isn’t very well for the [indiscernible] I am these comments. Again thank you for the presence and we remain at your disposal for any doubts that you may have.
Operator
Banco Santander’s conference call has come to an end. We thank you for your participation.
Have a nice day. Thank you.