Jul 27, 2016
Executives
Angel Santodomingo – Executive Vice President and Chief Financial Officer Andre Parisi – Investor Relations
Analysts
Rafael Frade – Bradesco Marcelo Cintra – Goldman Sachs
Operator
Good morning, and thank you for waiting. Welcome to the conference call to discuss Banco Santander Brasil SA's results.
Present here are Mr. Angel Santodomingo, Executive Vice President, Chief Financial Officer; and Mr.
Andre Parisi, Head of Investor Relations. [Operator Instructions].
The live webcast of this call is available at Banco Santander's investor relations website at www.santander.com.br/ir, where the presentation is also 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 Brasil operating and financial projections and targets based on the beliefs and assumptions of the Executive Board, as well as 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 Brasil, 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. Please, Mr.
Santodomingo, you may proceed.
Angel Santodomingo
Good morning, everyone. Thank you for joining us in Banco Santander Brasil's results conference call for the second quarter of 2016.
Before starting, I would like to initiate asking for apologies to all of you, given the change in the scheduled time of this call. As you know, we never do this type of things, and we will try to avoid them, or any changes, in the future.
But this time, due to unavoidable issues, we couldn't maintain the announced scheduled time. Starting with the results, as you can see from the table of contents, I will basically try to cover the following.
Firstly, I will remind you of the main figures of Santander Brasil; followed by the results of the Santander Group; an overview of the macro scenario; the quarterly results highlights; the evolution of the quarter and commercial activity; and finally, some concluding remarks regarding what has been presented today. Firstly, I would like to address the four main strategic pillars of the Bank that are the reflection of the structural changes that we are trying to carry out within our Group, here in Brazil.
Our commercial strategy is to support customers in their business, so we continue investing in our retail franchise, building our multi-channel platform, and improving our digital channels. As a highlight, 73% of all transactions are through our digital channels already.
In fact, we have reached 5.5 million digital customers in second Q 2016; an increase of 36% in one year. On top of that, we have 100% of our branches covered with biometric technology already, to serve more than 2.4 million customers already registered in this tool.
In fact, as of today, these 2.4 million clients have already grown to 3 million clients. Still regarding digital transformation, during the last two months we have launched more than 10 new features on our mobile app.
All these actions have been reflected in more transactionality; customer satisfaction; and less complaints. Indeed, as you probably have seen, in June we reached seventh place in the Central Bank's complaints monthly ranking; our best historical position.
The second pillar is our focus on business. Our loyal client base continues to evolve positively reaching 3.4 million customers as of June 2016; an increase of 13% over June 2015, boosting retail results.
We launched simultaneously, in 12 countries, the Select International Global Services; a global offer of products and services which reinforces our position as the only international bank with the scale in this country, in Brazil. Additionally, we remain strengthening our credit cards and payroll loan businesses.
The total loans of these segments grew 1.6% and 72 – sorry, 7.2% in the quarter, respectively. And we are also having a greater role in the agri business.
Moving to our leadership position, I must say that we are widely positioned through an integrated offer, including wholesale and retail services and products, to our clients through a strong and already existing platforms. Let me underline some of them.
Global corporate banking, GCB, which is already leader in project finance and ForEx operations. Taking advantage of our leadership in consumer finance, we are launching a new vehicle platform and new partnerships.
Getnet was the first to accept all credit card brands reflected in a continued gain of markets served. Finally, we are investing and gaining market share in the asset management business.
In fact, we gained 62 basis points of market share in the retail segment in the year, growing more than any of our competitors. Finally, as with regards to the fourth point, to efficient management, I will underline the following points.
Execution of our liabilities business plan delivers initial results, as you will see in the following slides. Efficient and new initiatives maintain expenses growth much lower than inflation.
The gap between costs growth and inflation was 370 basis points; almost 4 full percentage points in the first semester of 2016. NPL ratio has decreased 10 basis points, due to our state-of-the-art risk management tool, our knowledge of our clients, models, etc.
Finally, capital structure and liquidity position remain quite solid. So, moving to slide 8, today, Santander Group, as you probably already know, already presented second Q results, generating a net profit of more than EUR1.6 billion.
The Brazilian unit results are very important for the Group. In fact, Brazil represented 19% of the Group's results in the first semester of 2016.
Returning to our country, and moving to the macro slide, regarding the macro scenario, it is clear that the country continues to undergo an adjustment process. But also, it is clear that we already have several economic variables pointing to the start of at least a stabilization period.
On the monetary policy front, it is worth mentioning the clear communication from the Central Bank to bring the annual inflation to the center of the official target as soon as the end of 2017. Having said that, inflation is expected to finish this year at around 7%, falling further throughout 2017, providing plenty of room for a less restrictive monetary policy.
On the foreign exchange side, commercial and financial flows have been large. Rolling 12-month trade surplus at $40 billion where foreign direct investment in the same period amounted to as much as $79 billion.
Such inflows momentum should leave Brazil to remain relatively strong in the short term. In fact, we knew yesterday the current account numbers; and, again, we maintain our lower than 2%, in fact, 1.7%, current account deficit in the country, which are levels, as you may imagine, quite comfortable.
Lastly, we believe that the combination of improved confidence and the government's capability to put in place a structural reforms, coupled with fiscal consolidation, will lead to an increase in public and private investments, focused in improving productivity, and, consequently, resuming growth. Moving on now to our performance, on slide 12, we believe that we have presented a sound set of results.
Starting by balance sheet issues on the gray boxes, the Bank's capital and liquidity position remains comfortable. The loan portfolio, obviously, is reflecting the economic scenario, while asset quality metrics remained stable with a coverage ratio increase and a cost of credit that reflects the current environment.
With regards to P&L, revenue's performed positively, due to a more – due to more customer transactionality. And efficient management of expenditures are reflected in the evolution of costs.
Finally, all these issues result in a net profit that climbed almost 9% in the quarter, reaching BRL1.8 billion; the best result of the last five years. Moving to the specific performance, as mentioned before, you may see in the slide that we totaled BRL1.8 billion net profit in the second quarter of this year, with the 8.8% growth I was just mentioning.
In the first half of this year versus – or compared to the same period of 2015, net profit increased 4.8%, which underlines that we are on the right path for a sustainable and more resilient results. Resiliency is one of the main issues of Santander Brasil, as we have been delivering results during the last years in a continuous way, quarter over quarter.
On slide 15, we show the main lines of our results, about which I will go into more detail later on, in the next slides. But let me give you the main issues around the P&L.
Regarding revenues, net interest income increased by 2.8% over the first quarter of 2016, and 5.4% over the first half of 2015, even with volumes, as I already said, reflecting the current macroeconomic scenario. Fees increased 7.7% in the quarter, and posted another strong year-over-year uptrend of 11.9%, already a double-digit growth.
On the expenditure side, the allowance for loan losses increased in a controlled manner by 3.7% in the quarter, and presented a growth of 11% year on year in the first semester. General expenses were stable in the quarter, and grew by 5.1% in the first semester of 2016 over first semester of 2015, which is still well below inflation, as I mentioned before.
As a result, net profit totaled BRL3.5 billion in the first half this year. This set of results, as you probably know, had been well above the market consensus in all lines of the P&L.
Slide 16 shows the dilution of our net interest income, which totaled BRL7.8 billion in second quarter of this year; 2.8% higher than the previous quarter, and a 4.4% in year-over-year comparison. This increase, and this is an important point about the NII, was widespread among the sub segments.
The NII from clients, which is both on the asset and liability side, increased, despite the weakened volumes, boosted especially by spreads, as you can see at the right of the chart, with both the credit and the funding spread increasing substantially during the last quarter, or two quarters. So credit NII improved, the spreads coming from a change of mix and higher prices.
And with respect to the client deposits, NII in the spreads already reflect the first signs of our efforts on liability management that I have commented to you in past quarters. Additionally, we had another quarter of good performance in market activities.
So the three concepts that are embedded in the NII have had good performance. Moving to volumes, in the next slide, the expanded loan portfolio totaled BRL308 billion, which represents an increase of 1.2% in the quarter; and 4 % in the last twelve months.
Obviously, it is a natural tendency, given the extreme poor macroeconomic scenario. In any case, if we adjust by the ForEx variation, the portfolio would have been stable in the quarter.
By type of client, it is worth noting the performance of the individuals portfolio, which increased by 1.4% over the previous quarter, and 6.5% in the last 12 months. Payroll lending and mortgages continued to be the main growth drivers.
Consumer finance decreased by 2.3% QonQ, reflecting the weak vehicle market. In any case, our model is extremely efficient, and we were, consequently, able to gain 30 basis points of market share in the year in the current [indiscernible] scenario, maintaining our leadership in the car financing industry.
Both the SMEs and the large corporate portfolios, obviously, again reflect, as mentioned, weakening derived from the macro scenario. On slide 18, you can see our funding evolution.
Total funding, including off balance, reached BRL518 billion; an increase of 1.1% in the quarter, and 5% in 12 months. Funding from clients increased 1.7% in the quarter, and 4.5% in 12 months.
Let me underline the positive performance of demand deposits, growing both in 12 months and in three months, reflecting the greater customers' linkage. Additionally, this increase in customer penetration is also reflected in our assets under management evolution, which increased an outstanding 5% in three months, and almost 26% in one year, gaining 62 basis points of market share in the retail segment.
Moving to commissions, as we have been saying, fees revenues' growth is a consequence of our improvements in product and services portfolio, coupled with greater linkage of our customer base. As a result of these improvements, fees posted an outstanding evolution in the second Q 2016.
On the quarter, fees increased almost 8%, 7.7%, with an almost wider spread growth among concepts, especially those that refer to transactionality, such as current account and cards. Total fee income came to BRL6.4 billion in the first semester; almost 12% higher than the same period last year.
So it is particularly worth noting that fee revenues already reached the expected double-digit growth for the full year. Moving to asset quality, on slide 20, I have to underline several points.
The 15 days to 90 days overdue portfolio showed an increase of 70 basis points in second Q 2016, basically explained by a specific corporate case; and, consequently, it does not suggest a wider spread worsening in the segment. In fact, excluding this effect, the overdue portfolio would have increased only 20 basis points, again, continuing a marginal deterioration that reflects the macroeconomic scenario.
NPL over 90 days remains controlled and at comfortable levels, especially considering the mentioned, again, macroeconomic situation. On the quarter, it decreased 10 basis points, with an improvement of 30 basis points in individuals, and an increase of 10 basis points in corporate.
This continues to reflect that our risk model is strong and solid, and that all measures taken and commented to you during the last two or three years are proving to be right. The coverage ratio reached a comfortable and historic level of 209% in the quarter.
Now, next slide, the allowance for loan losses reached BRL2.5 billion in the second Q of 2016; an increase of 3.7% in three months, and 7.6% year over year. Further, the credit costs increased by 30 basis points, and returned to fourth Q 2015 levels.
We continue to see evolution under control, and in line with the economic reality of the country. Moving to slide 22, we reinforce one of our main pillars, given that cost control is a cornerstone for Santander to grow in a sustainable way.
In fact, in second Q 2016, total expenses were stable, due to the strong and efficient internal culture implemented already for some time now. Expenses totaled BRL4.4 billion, with an increase of just 0.3%, so almost flat in the quarter; and 5.1% in the first semester.
If we compare this with the inflation levels, the almost flattish numbers in the quarter compare with a 1.75% inflation, so we saved almost 2 percentage points in real terms. And year over year, the 5% compares to almost 9% of inflation.
So, again, saving close to 400 basis points; exactly, 370 basis points, in real terms. Going forward, we remain committed to maintain this cost control discipline.
And, as we have mentioned in several occasions, we expect to deliver expense growth below inflation for the fourth consecutive year in 2016. The next slide presents our performance ratios, which have also a general and specific improvement.
Efficiency improved, both quarterly and yearly, and reached 48.5%. Recurrence, in the same way, moved and increased from 70% to 75%, or to over 75%.
Every time that we improve this indicator, as you know, we bring more predictability and resilience to our results. Thanks to these advances, return on equity increased again to 13%.
We remain committed to continuously improve our profitability. And all this has been done with an improvement in both liquidity and capital ratios.
On Slide 24, you may see that our liquidity – that both ratios, liquidity and capital, as I mentioned, remained solid, with stable funding sources in an adequate funding structure. The loan-to-deposit ratio reached, or was below 85%, which is quite comfortable.
BIS ratio stood at 17.7%, with an increase of 120 basis points over the previous quarter. Our capital ratios remain, as I mentioned, solid, with a core equity Tier 1 level embedded in the ratio, I mentioned, of 15.3%; and a Tier 1 ratio, capital ratio, as you may see there, of 16.5%.
Finally, in the last slide, from our second Q 2016 results I would like to highlight the following points. First, that the results, with improvement in performance indicators, I think they are solid; and, as I mentioned, showing recurrency.
Second, customer experience that is positively impacted by new services and digital channels. Third, fee growth reflects our strategy of increasing clients linkage and transactionality.
Fourth, efficient management expenses – or efficiency in management of expenses, continues to be one of our cornerstones. Fifth, the excellence in our risk models and risk control continues the positive evolution that we have seen in the last two years, even within an uncomfortable scenario.
Finally, as I mentioned in the previous slide, comfortable levels of liquidity and capital. Additionally, we have an engaged team, enough infrastructure of capital, and an integrated commercial model, with important competitive advantage in the local market.
All in all, it ensures that we are well positioned to deliver higher profitability and sustainable growth, executing the structural changes that I have mentioned within the Bank. Thank you.
And we are now available to answer your questions.
Operator
We will now start the Q&A session for investors and analysts. [Operator Instructions]
Andre Parisi
Addressing asset quality, first question is from Mario Pierry, Bank of America Merrill Lynch. Has the Bank made any provisions related to their one specific large corporate case that had an impact on P&L in second quarter 2016?
Or will the Bank use it's staff reserves? Can you comment in what segment does this large corporate operate?
Angel Santodomingo
Thank you, Mario. Well, as you know, it is a traditional issue and way of presenting results in Santander Brasil, we do not comment on the specific names.
Obviously, what I can mention is that we already had provisioned an important chunk of this corporate; that we are absolutely comfortable with the levels of coverage that we have. And probably also linking with this, what we also did was we moved a provisioning that we had done in the past from what is called additional, which is kind of non-specific provision, to requested, given the change of status that this name had.
And you can see that in the information we have presented. But the specific question, I must say that the levels of coverage that we have – and I would say not only in that name.
That name obviously brings attention because of the change of the 15 days to 90 days. But I would say in general terms, as we have been proving quarter over quarter continuously, the levels of both coverage and provision that we have today with the specific names and general names, we feel absolutely comfortable.
We haven't given a single surprise in that sense.
Andre Parisi
Guilherme Costa, Itau BBA. I note that your early delinquency rate increased materially, as well as the NPL ratio overdue by 60 days.
You have commented that the increase in the NPL ratio is due to one specific corporate client. My question is do you expect the deterioration to occur in the portfolio overdue by 90 days, or this will be normalized in the next quarter?
Moreover, could you comment on how much you have a red provision for this client, or if you expect to book additional provisions?
Angel Santodomingo
Well, I think I already mentioned and answer of the last part of the question. If we expect it to go through 90 days, well, obviously, it will depend on the situation of the client.
What we do is we reflect the reality of the clients; we do not change that reality. If the client continues to be in the same situation, it will naturally flow to the over 90; and if something change during the course of the quarter, then it will not move.
I cannot anticipate anything now, because I really do not know. But again, the same comment: this is one case that brings attention, but the policy, the provisioning, and the way of covering these type of cases is general across the board and does not change, depending on individual names.
Andre Parisi
Tito Labarta, Deutsche Bank. How did consumer NPLs improve?
Can this continue, or this is a one-time improvement? Why did provisions increase if asset quality improved?
Can this be a peak for the cost of risk?
Angel Santodomingo
Well, in general terms, what are we seeing on credit quality, well, obviously, we are seeing the ratio, the NPL ratio, improved a little bit in the quarter, due to the retail individuals evolution. This has several things to do.
It has to do with the mix. Remember, that we are growing in what is called consignado, in payrolls.
We are growing significantly in both payrolls and real estate, and that gives, should tend to give you lower pressure on both NPL ratios and cost of risk. This is one question – one issue.
There is another issue, which is, as you know, in car financing the book is going down. So, naturally, in a sector that is suffering significantly the book is going down, and that also should be reflected.
In an activity that if you analyze, I don't know, in the last five years, or seven years, at least we, I think this is something applicable in general terms to the sector, have clearly moved to, for example, asking more equity to our clients when they finance their cars, etc., which, at the end of the day, improves the credit profile of your clients. The relation in between NPL ratios and credit quality has a lot to do with how you move in to – from NPL clients, or early NPL clients to final provision.
It is not directly linked on a quarterly basis, as you can imagine. And then, you have a lot also to comment in terms of recoveries, and in terms of how you prevent clients from growing in to NPLs.
We are doing a strong job. And this is something that the Group has a know-how already, that has been shown to the market, I would say, during the last at least seven year, eight years, in which we know how to deal, in this low-cycle moments, with clients; and we know how to treat early delinquencies; and we know to prevent delinquencies.
Maintaining the levels of renegotiation, maintaining the levels of restructuring, I'm not saying that we are changing at all criteria; in fact, criteria is as restrictive as it has been in the past. But it is true that we have some know-how, and we are showing it.
And I think that the numbers are quite clear in that sense.
Andre Parisi
Eduardo Nishio, Plural. The evolution of your results were relatively good compared with the economic conditions, and perhaps your peers.
How do you see the environment for asset quality in the next few quarters? When do you think the peak of delinquency will be?
Angel Santodomingo
Okay, yes, I do agree that the macroeconomic scenario continues to be negative. Obviously, we continue to have an environment in which activity levels, GDP, etc., are in the clear and negative territory.
But I have to say that during the last two months, three months we are starting to see clearly variables that show us that at least a stabilization processes is starting; if not, are in initiation, and let we remark initiation, please, the initiation of a small recovery. Speaking of that production, or GDP, I am speaking of sales through credit cards; I am speaking of confidence; I am speaking of different variables, which tend to be leading indicators that the lower part of the cycle has been touched.
Does that mean that we are going to start seeing a strong positive re-bounce in the very, very short term? No.
But I wouldn't be surprised if first Q shows, I don't know, a flattish behavior, or around flattish behavior, compared to second Q; or we start to see positive evolution in fourth Q. If that is the case, and let me underline if that is the case, what we would normally have is, going in to 2017, two things.
We should start to see some volume pick up. Obviously, it will be different by type of products and segments, but some volume pick up.
And, obviously, at some point, also linked to our unemployment, but at some point the peak of NPLs. The peak of NPLs, to be quite honest, I tend to be quite skeptic about giving a point of time, because it tends to be – tends to lag, and tends to move around the peak of unemployment, to move around the low part of the cycle, and it is difficult to estimate.
But with that macro scenario, I would tend to say that, going in to 2017, we should go in to the year with a more positive view about those variables.
Andre Parisi
Next question is from Flavio Yoshida, Votorantim, and Mario Pierry, Bank of America Merrill Lynch. Changing subject now to NII, we observed another round of spread improvement.
But we would like to know the management expectation towards spreads going forward, given the fact that Selic rate will likely start to trend down around this year.
Angel Santodomingo
Well, yes, you are right, Flavio and Mario, that we have been able to increase spreads on both side of the balance sheet. I would probably tend to differentiate a little bit in between assets and liabilities.
On the assets side, we have done an effort there, trying to bring some of our spreads to higher levels, given both the general situation, and specifically the financial sector situation. In some cases, we had to increase them because we were below the market practices.
Another, they were due to the specific way that we have here in Brazil in terms of the linkage of directed loans, the linkage with how they are funded on the liability side. And I am speaking specifically of real estate and things linked to that.
On the liabilities side, I have mentioned in previous quarters that we already have started, I would say, two, three quarters ago, a liability plan by which we started to analyze and to remodel our way of looking to liabilities. And that has to do with prices; but it has to do with mix, also; and it has to do with where we put the focus.
So, in both sides of the balance sheet you have management of prices. I have to underline the mix effect, please.
Do not forget the mix effect on both of the issues. In going forward, what we will try to do is maintain the positive impact coming from spreads until we start to see some help from the volume side.
I would say that probably this is the natural trend not only of Santander Brasil, but, in general terms, in the sector. Because when you start to see some help from the volume side, normally, the pressure on the spreads also trend downwards.
But this would be the strategy now, going forward.
Andre Parisi
Moving forward to effective tax rate, and a question from Guilherme Costa, Itau BBA. We saw that you showed an increase in effective tax rate, due to a lower depreciation of tax credits.
Could you comment on your expectation for the effective tax rate, going forward? Will the benefit of [indiscernible] tax rate will continue decline?
Angel Santodomingo
Thank you, Guilherme. This is, of course, something I always answer every quarter, and I continue to see the same trend.
I think that the normal trend is marginal, but upwards, and that, that should happen, and continue to happen, during the next quarters, going in to 2017, and going in to 2018. So I would say that the natural trend is upwards.
I wouldn't expect big jumps, but a trend in that way.
Andre Parisi
Guilherme, Itau BBA. A question from loan portfolio.
Do you expect to see a pick up in the loan expansion in second-half 2016? Which segments are expected to lead the portfolio expansion in second half, and in 2017?
Angel Santodomingo
Well, I elaborate a little bit already on the portfolio side. But I would say that here you have a different analysis.
You have by sectors; that, obviously, you have sectors in the economy that are directly linked to domestic consumption, which are suffering more. And those, up to now, given the real movement, because in the last month or two months the real has moved the other way around, but up to that moment the export sectors that were doing pretty well and were leading the volume evolution.
In terms of retail, I would say that payrolls will continue to grow nicely; probably, real estate also, because the demand is there. We do not have any kind of bubble or similar things on the real estate sector here, so there is a need of growth there.
And I would also underline, probably, lending linked to infrastructure. You have a lot of interest from outside the country in the potential plans of infrastructure.
That will pop in money from outside. And I'm sure that also domestic clients and domestic investors will clearly be interested in that type of loan evolution.
Andre Parisi
Regarding fees, a question from Domingos Falavina, JPMorgan, how much did Santander Select contribute to the 26% increase in current account fees? How much was price increase?
What is the fee growth expected for the year?
Angel Santodomingo
Okay, thank you, Domingos. Let me elaborate a little here on fees.
What are we doing here? First, as you saw in the presentation, what we are doing is reflecting that increasing linkage, increasing transactionality, and that has to do with current accounts, has to do with cards; has to general movement of fees and tariffs of our clients.
Santander Select, which is an important part of our commissions, are wider spread through the different commissions. Another set of measures that we have taken, we have been trying to adapt the usage of things like credit cards to our clients.
For example, we used to have a credit card that was for free, and we had clients that did not use it. Now we have changed the way of charging, and the way of fees linked to those credit cards, by which if you use it you continue to have it for free.
So we have a lot of clients on that specific credit card that are starting to use that credit card, which was not used before. They are still not paying those fees, but they are generating MDR, and the like.
So I would say those type of decisions or measures that are being taken in which you have a win-win situation between the client and the Bank will continue to be reflected on the P&L, and specifically in commissions. We are properly convinced that we have a specific space there to continue improving, and, as I said, with a win-win situation with our clients.
Andre Parisi
Alessandro Arlant, Bank of America. Other subjects, can you please remind us of your dividend payout policy?
Has it increased over the last couple of years? Is there any restriction from the Central Bank of Brazil for Santander Brasil to make extraordinary dividend payments to its parent?
Angel Santodomingo
Okay, with regards to the – as I mentioned in past quarters, the way how do we manage capital and capital back to our shareholders, we manage it through payout; as we have been during these years. We made a specific operation, as you know, 2.5 years ago, but, in general terms, what we try to do is manage it through payout.
This is up to the Board. But, as you know, in the past we have been optimizing the payout in local terms, in [indiscernible] by which it has been close to 90%.
This will have to be decided in talks at the Board level. But I would say that the payout policy, going forward, we'll try to maintain a kind of way of doing similar to the past.
I cannot anticipate, obviously, levels of payout, because, as I said, it's up to the Board. But I think we have been remunerating the shareholder nicely within the last years.
If I remember well, in 2015 yield was close to 12%, which was probably the largest within the financial sector. And we will continue to try to remunerate our shareholders in the way we have done.
Andre Parisi
Mario Pierry, Merrill Lynch. What impact, through the uncertainties in Europe related to the Brexit, and volatility, weak capital ratio of the Group have to Santander Brasil?
Does it mean that Brazil might required to preserve capital? Does this diminish the appetite for acquisitions?
Angel Santodomingo
Well, thank you, Mario. I will stick or try to answer the questions related to Santander Brasil, more than to Santander Group.
In terms of Brexit, the reality, and this is a reality both for Santander Brasil and for the Brazilian economy, is that the impact for this country is low. It's low because the dependence to UK, both in financial terms and in structural terms, in trade terms, etc., is low.
Obviously, if it affects the general growth at the world level it will affect demand to this country; and that will also mean, obviously, lower activity. But that is a little bit, I think, long in terms of time.
Negotiations haven't started to take place in Europe. And I don't see a short-term impact happening in the next quarters, or even in the next year.
In terms of capital, in terms of acquisitions and how do we manage this, I have spoken about this in the past. We think, I think that we have the fiduciary duty to analyze any opportunities, organic and inorganic, that may arise within our financial sector, or country.
In this situation, if in Brazil we have opportunities we will obviously analyze them. We will analyze them from a strategic point of view, we will analyze it from a financial point of view, and if we have a goal on both of them we will try to go.
This happened in the past, and we have been quite open about this, with, for example, HSBC, in which we did have a strategic sense. And we analyzed it to a maximum in financial terms.
And this is what we did. And we stick – at that time, we stopped at a certain level, sticking to that financial strategy and discipline.
So I would say that, yes, we will analyze potential inorganic movements; and with that analysis, if we come to a positive end, we will try to execute them. In general terms, our position or the strategic situation here is that we feel that the Bank is well positioned.
And as we have done in the past, probably, what it makes sense is in very specific small gaps that may add value to products or to segments we may think of movements; but, again, following the fiduciary duty that we have to do. And in terms of capital management, I think I already addressed the issue.
We plan to manage these situations through payout for the time being, but this is up to the Board. Andre Parisi here, the Head of Investor Relations, is saying to me that I think we open now for Q&A, yes.
Okay, so we are open for wider Q&A, if any.
Operator
[Operator Instructions] Our first question comes from the line of Rafael Frade with Bradesco. Please go ahead.
Rafael Frade
It's just a follow up on the NII questions. If you could give – for several quarters you have these spreads basically flat, and we saw a good improvement this quarter.
I would like to understand is this a level – that from this level, probably, we should see still some improvement for the coming quarters, or not? If you could elaborate a little better on this.
And also, on the liability side, also, if you believe that already, let's say, in the best point in terms of the improvement, or still you believe that you can have more improvement in the spreads for the liability side.
Angel Santodomingo
Okay, thank you. Well, if I were on your side, I think that extrapolating 40 basis points per quarter on the asset side is really optimistic in terms of thinking in the next, I don't know, one, two, three years.
I would say that the efforts on the assets side will try to continue to be there. But it, obviously, depends a lot on the mix effect; on the general situation; and on the demand that we have in the different segments.
I wouldn't extrapolate it exactly those 40 basis points, going forward. On the liability side, it's another story.
As I already mentioned, this way of looking to liabilities, both in terms of mix and in terms of prices, in terms of what should we have from the different segments, and from the different provisions, how we should manage the funding of our assets, I mentioned the plan. I already gave you some details.
On that side, I would say that we should expect a continuous improvement, both in NII terms, in NIN terms, and in spread terms. Obviously, this is an execution that is not an issue of a quarter evolution; this is a trending situation, and we will continue to execute it during the following quarters.
I'm speaking of several quarters, not any specific one. So I would be more positive on the liability side than on the asset side.
And specifically as we had a question before, we speak about the, obviously, [indiscernible] evolution, etc., that at some point may have impact, offsetting or not by the volume issue.
Rafael Frade
Okay, perfect. Thank you.
Operator
Next question comes from the line of Marcelo Cintra with Goldman Sachs. Please go ahead.
Marcelo Cintra
My first question is actually a follow up on the NPLs and coverage levels. Looking at your additional provisions, we know that there was, like, it lowered by roughly BRL400 million.
And when the Bank constituted increased the excess provisions in first quarter last year it was considered a non-recurring event. I just would like better understand if you continue to use that additional provision this will still be considered as a recurring event, as it was listed this quarter; and what's the level of additional provisions that you would accept to operate if you could drop to, I don't know, maybe BRL1 billion, or even if you – and then I will follow up for my second question.
Thank you.
Angel Santodomingo
Well, as you said, what we had there was an additional provision of around these BRL400 million that you mentioned, if I understood well the question, because it was a little bit fluffy, the sound. In that, what happened is that it moved to a requested provision, which is the G, I think, it's in the G area, or the G level of classification.
With that provision being specifically allocated, I mean being specifically located, as I said to you before, I'm not going to give specific levels of coverage, but we are more, and I underline more, than comfortable in this case. As I said to you before, this kind of brings attention, because we are speaking of one name, because 15 days to 90 days, etc., but this is the conservative and general way that we have of dealing with other banks.
You don't see here, obviously, smaller names, but this does not change at all the way we function. Remember, fourth Q results, I came that day saying to you guys today we have on a specific name that has not been signed, and we have a 15 days to 90 days, picking, I don't remember how much, but it was picking strongly up.
And this is how life is. Part of our cost is obviously cost of credit, and we have to treat it in a homogeneous, coherent, and recurring way.
And this is what is happening exactly here.
Marcelo Cintra
Okay, thank you. And still, on asset quality, we also noted that there was roughly BRL220 million of portfolio sale.
Apparently, you mentioned that it was classified as H, this level. I just would like to understand if there was any impact on your NII regarding this asset sale, if it was immaterial.
Angel Santodomingo
No, well, firstly, was immaterial. And secondly, this is a totally bound business-as-usual issue that we try to optimize.
I think I have addressed this in past times: what we do is we analyze the portfolios, and we try to determine if it makes more sense to maintain the portfolios inside or outside. And we analyze them.
And you have every single quarter a small amount, depending on the quarter, of portfolios being sold. So the reality is that totally business as usual, and totally marginal.
Marcelo Cintra
Okay, perfect. And if I may ask a third question.
Today, we saw that the Santander Group, basically, they ended the talks with UniCredit in order to a partnership on the asset management side. I just would like to understand from [indiscernible] this movement could change the strategy for Santander Brasil in order, I don't know, to have its own asset management, as the other local banks does, or even acquire back the Brazilian operations; or if it doesn't change the strategy for the local business.
That's it. Thank you.
Angel Santodomingo
For the local business, it does not change anything because, remember, we are speaking of the factory this year. So what the local business does through branches is specifically sell those funds that you saw were growing 25% on an annual basis; and that, commercially and strategically speaking, does not change a single point.
Obviously, and I don't know, and I don't want to speak in Santander Group's name, if Santander Group makes a movement we will analyze it. But it will always be in the arena or the factory; not on the arena of what we sell and how the branches are remunerated.
Remember that – I don't remember, I don't know if it's 75%, 70%, or 80% of the fees remain in the branch and the rest are allocated to the factory. So we are speaking of that part of the factory, okay?
Operator
Thank you. The Q&A session is over, and I wish to hand over to Mr.
Angel Santodomingo for his closing remarks.
Angel Santodomingo
First of all, I didn't do it in the introduction, but I want to do it now, which is we have to welcome Andre Parisi, which has being incorporated to the Group as Head of Investor Relations in Santander Brasil. And he has been the person who has been kindly introducing the questions that you send through the website, written.
Secondly, my final remarks are that I hope you found these results as solid and recurrent as we feel they are, which reflect a continuous trend of what we had been doing during the last years and quarters. We expect to continue delivering in the same direction.
And we look forward to seeing you in next results. Thank you for attending.
And let's look forward for next quarter.
Operator
Banco Santander Brasil's conference call has come to an end. We thank you for your participation.
Have a nice day.