Apr 28, 2017
Executives
Andre Parisi - IR Angel Santodomingo - CFO
Analysts
Guilherme Costa - Itaú BBA Philip Finch - UBS Carlos del Tolza - JPMorgan Yuri Fernandes - JPMorgan Mario Pierry - Bank of America Merrill Lynch Carlos Macedo - Goldman Sachs Carlos Gomez-Lopez - HSBC New York Marcelo Telles - Crédit Suisse
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. 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 all the 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.
Andre Parisi. Please, Mr.
Parisi, you may proceed.
Andre Parisi
Good morning, everyone. I'm Andre Parisi, and it's my pleasure to welcome you to Santander Brasil's first quarter '17 earnings conference call.
This past quarter, we had several important achievements which will be presented by our CFO, Mr. Angel Santodomingo.
So let me turn you over to Mr. Santodomingo.
Angel Santodomingo
Thank you, Andre. Good morning, everyone, and thank you for being here.
Before getting through results, let me quickly outline the topics I will cover during this presentation. I will firstly remind you of some of our key messages.
Then I will discuss the results of the group of Santander Group, which will be followed by an overview of Brasil's macro scenario in just one slide; the highlights of the quarter; and to wrap it all up, I will provide some concluding remarks on what has been presented today. Starting with our key messages.
I would like to highlight the fact that we have achieved a significant improvement in ROE, in return on equity, this quarter reaching 15.9%, meaning that we were able to meet our profitability guidance objective 7 quarters ahead of schedule. Let me remind you that this objective was done in the last couple of years for December '18.
And as I said, we have achieved that almost 2 years in advance or 7 quarters in advance. The group has announced an Investor Day next October 10 in which obviously, we will probably revisit these targets and specifically the return on equity target.
Other metrics also, so Santander Brasil remains on track to deliver the goals that we set out to accomplish. Our NPL ratio is the best among our peers considering early information up to now.
The efficiency ratio improved by 540 basis points year-on-year and is now very close to our December '18 target also. Our fees continue to display a strong growth, and the number of loyal customers has increased to 3.7 million indicating that we are on the right path to also keep our guidance.
Moving on to Slide 5, I will now start to address five key slides in which we try to summarize through commercial highlights and customer satisfaction, what we are trying to do and we are achieving in Santander Brasil. So as I said in Slide 5, on the commercial front -- on the retail commercial front, we close the quarter with positive achievements and trends to be added to our continuous digital transformation process.
As facts, I’ll like to underscore the following. Cards, we had a very good performance in both credit and debit cards.
In credit cards, we have reached a market share of almost 14% in credit revenue, while in debit, we were one of the MasterCard issuer that experienced the highest growth in debit revenues worldwide. Looking to the near future, we've remained optimistic as Santander Brasil is now the sole issuer of American Advantage to the American Airlines cards in the country allowing our customers to accrue mileage points in one of the top loyalty programs in the world.
We should also point out the fact that the credit card Santander Way app continues to show remarkable success with almost 3 million downloads thus far. In credit and loans, we maintained upward trends in market share and portfolio growth with a significant contribution from the Olé Consignado brand.
For ContaSuper, the number of users climbed 14% in the quarter, meaning that we now have almost 1 million customers who are 100% digital. Regarding the savings account Consórcio, a specific Brazilian product -- saving product, also this product was only recently launched, right?
Remember two years -- 12 months ago, we almost see no markets share. We had already achieved a 7.5% market share in new service in production.
In the private segment, we saw good growth across the board and the strengthening of the ultra-high segment. Thanks to a more compelling offer which helped us to attain considerable growth in asset under management and funds.
Lastly, in the agribusiness, I have commented in the last quarters that we have been investing in this business for some time now. Now it is starting to be reflected in numbers.
For example, we dropped close to 100 basis points in market share in the last 12 months. The next slide is still on commercial highlights or in the commercial area.
There is some of the positive results achieved by Getnet, our acquiring firm, which stands out as one of the main pillars of our commercial settings. Its revenues are growing at the fastest pace and we keep gaining market share without losing profitability which is key to our strategy.
In fact, Getnet's revenues increased by 38% year-on-year and it has already dropped a market share of 11% in the first Q 2017. Our acquired loans for an integrated offering with the bank reaching different segments and resulting in an expansion of our base of loyal customers, not to mention the benefit of greater synergies.
It is key to bear in mind that Getnet's importance goes beyond its acquiring services. It is a major product to leverage the banks' revenues.
Still in the commercial highlights in Slide 7. It shows that our leading businesses continue to run at full steam, not only maintaining leadership but very importantly expanding it.
We have maintained our leadership in wholesale banking while also holding on to the top positions in project finance and ForEx transactions. We were also at the helm of M&A deals last year and this year in 2017.
We are leaders in every capital market this year for both Brazil and LatAm for the first time as well as in fixed income in Brazil according or the following ANBIMA ranking. I'd like to call your attention to also our digital channel in the commercial finance segment.
With our unique platform for car dealers, Santander Brasil innovated and is completely changing the dynamics of the car financing industry in the country. We have more than 1.5 million potential clients doing car financing simulations in March.
This represents 45% growth from December, just 3 months ago from December 2016. Now moving to customer satisfaction.
The second concept I wanted to describe to you in my introductory words, that's the next slide. Customer satisfaction is our cornerstone to keep growing in a consistent and sustainable manner.
That's why everything we do aims to create a better experience for our client base. Our expertise to achieve that goal is fully grounded on EPS squared, that's excellence, performance and satisfaction also reflected in earnings per share.
What does this mean? Establishing a culture of customer service excellence through improving our approach to client relationship upon which we are constantly striving to increasing our knowledge of their needs providing with high customization.
Net Promoter Score as an indicator of customer experience is starting to be implemented in real banking, and we would be following it in following quarters. Industrializing Santander's processes, with the purpose of becoming faster while also enhancing the overall quality of our operations which is why we are implementing the Lean Six Sigma methodology.
Second, clear initiatives composure competitive advantages such as cost reductions through our new mindset bringing the P&L at the branch level. It is not an easy task I know, but I'm certain that this strategy will strengthen our position within the country, and I expect that through my summary, I was able to translate to you what we are doing on the cost and excellence in service front.
Moving on to Slide 9. As we got to mention, our growth is based on better customer experience which is why we are continually focused on creating value for our customers.
While we still have a lot of work to do on this front, I would like to highlight some of our achievements so far. The number of loyal customers increased by almost 14%, 13.8%, while digital customers rose 33% to 36% year-on-year.
Digital transactions jumped 26% year on year and reached 76% of the bank's total transactions boosted by an increase in mobile transactions of more than 90% year on year. Sales from digital channels have doubled in comparison with the previous year.
We are confident that we are now on the right track to keep expanding our base of loyal and digital customers. So moving on to the Santander Group results.
Earlier today, as your colleagues may have seen, the Santander Group also announced its earnings for this first Q in 2017. Posting a net profit of almost €1.9 billion or BRL6.3 billion.
The results of the Brazilian units are important for the group as a whole. In fact, Santander Brasil accounted for 26% of the group’s earnings in the quarter.
With regards to the macro scenario, after more than two consecutive years of GDP contraction we are finally observing some recovery. It is true that Brazil's economic rebound will likely be gradual, but the important message here is that the country is moving in the right direction.
I have already mentioned these for some quarters in the past. And when you add to these situations the productivity gains that will come with respect to those reforms that are being announced, approved and executed, I think, we will enter in a long, structural growth period in the country.
Domestic inflation has been holding steady creating room for aggressive interest rate caps as we have seen. Market consensus indicates that the [indiscernible] rate should reach single digit directly still in 2017 contributing to the deliberating process of both individuals and corporate.
We are seeing progress on the fiscal adjustment arena, which we believe should help business confidence to continue its upward trend in 2017, thereby playing a major role in the recovery of the Brazilian industry and investments. Thus, we believe that the worst is behind us.
And that the macro scenario tends to improve in the months ahead. So now let's move to begin examining Santander Brasil's first Q 2017 results on Slide 15.
First, and again, I might -- I must highlight our exceptional gains in profitability as I have been announcing to you in the last quarters. Our final objective is to continually improve profitability, and we are starting to show that process.
It is in line with our commitment to delivering consistent and sustainable earnings growth. During our 2015 Investor Day, in September 15 and also in September 16, we established our return on equity guidance of 15.6% for 2018.
Obviously, much has changed since then, both on the positive and on the negative side. But especially in our case, the speed of our commercial innovations which enabled us to achieve and surpass that goal almost 2 years earlier than expected, despite [indiscernible] coming the macro scenario facing the country.
As I have mentioned in the past, our profitably gains have come and will come from improvements in our P&L operating leverage. This is maintaining costs under control and growing revenues.
Moving on to further details on the next slide, on Slide 16 of our quarterly performance. As we have always said, we strive to keeping improving our bottom line every quarter.
This is the twelfth, the number 12 out of the last 13 quarters in which we delivered an earnings growth. So re-currency is an important value over here to consider.
In first Q '17, we managed to deliver another solid quarter. This movement has supported because was supported by a host of factors.
To name a few, we note that in spite of once again loan portfolio being affected by the still timid and gradual rebound of the Brazilian economy, our loan portfolio for individuals and consumer finance segments remained resilient. The bank continued to enjoy a comfortable capital and liquidity position.
Asset quality stayed at healthy levels. Greater customer loyalty resulted in increased revenues underpinned by a combination of liability management and good market activity with fees growing well above the promised double-digit pace.
And finally, the efficiency ratio rose to the best level in the past 5 years. As a consequence, net income amounted to BRL2.3 billion in first Q '17, 15% and 37% higher than the previous and 1 year ago quarters, respectively.
In the next slide, as I've stated before, net profit totaled BRL2.3 billion in this Q, 14.7% higher than previous quarter and 37% above first Q '16, again providing the number 12 out of the last 13 quarters with profit growth. This business provides undisputable evidence that we are on the right track to keep delivering sustainable and resilient results in the quarters ahead.
On Slide 18, we show the main lines of our quarterly earnings about which I will go into more detail later on. On the revenue front, net interest income increased 13% relative to the fourth quarter 2016 highlighting market activity and liability NII.
On an annual comparison, NII rose 16.7%. Fees decrease in this quarter owing to insurance and credit card seasonality, but advanced [indiscernible] against first Q of '16 further accelerating our double-digit growth pace.
On the expense side, allowance for loan losses fell by 15% Q-on-Q and 6.6% year-on-year. And general expenses declined by 4.2% versus the previous quarter and climbed 7% year-on-year.
I will elaborate on the details of each line in the following slides. Slide 19 shows the evolution of our net interest income which came to BRL8.9 million in first Q '17 or '16 almost 17% higher in first Q last year and 13% better than fourth Q '16.
Let me highlight the main points. Market activities which is what we call others line played a key role also in the quarter on top of market general evolution.
In this item we include the ALN results and this is important to understand as we had been saying with you that we are positively positioned to lower interest rates. So that position from the ALCO from the ALM strategies is reflected here.
In fact, as we always say, part of the red part of the column is also in that on the gray side. We are offsetting or helping the asset NII part of the total NII with the ALM position activities.
Revenues from the funding side had another very good quarter. Growing by an outstanding 54% year-on-year and 4% Q-on-Q, these figures demonstrate that the brands that we started approximately 1.5 years ago, and that I assure we view by then in the last almost six, seven quarters are starting and are being reflected in the P&L.
Finally, as I mentioned on the red part of the column, credit revenues went up 0.5% in the quarter due to a combination of higher volumes and stable spreads. In the year, credit revenues also posted an annual improvement of 5.6% with steady volumes and wider spreads.
On the spread side on the right side, you can see both asset and liabilities spreads. And specifically on the liability side, what I mentioned about our liability management in terms of improving the spreads during the last 1.5 years.
Next slide we look into asset volumes. Our expanded loan portfolio totaled 325 billion in first Q '17, which means an increase of almost 1% in the quarter and 4% in the year.
Our credit portfolio was stable at the margin but saw this focus and drive year-on-year, making the first year-on-year growth since the first quarter '16. Hence, all progressive economy environment is experiencing and in other words recovering, we start this year with a positive growth rate again so we would have customer loyalty.
In addition to that, I would like to draw your attention to the individual portfolio which continued to deliver a resilient performance expanding by 2.8% over the previous quarter and almost 10% from first Q last year. Payroll lending was the main growth driver there.
Once more, this quarter, we must highlight the performance of Consumer Finance, which advanced by 2.9% Q-on-Q and 9% year-on-year, notable figures considering the still difficult conditions in the card sector. It remains, this is basically card financing.
This improvement has been fueled by the implementation of our disruptive digital platform which took place in September '16 and has spurred significant productivity gains for the business in which I have shared details over the past quarters. On the other hand, the SME and corporate portfolios decreased in the quarter.
Regarding SME, despite the weak quarter, we understand that our combination of commercial focus and more company offers have made a better macro scenario will have their way for portfolio expansion in the following -- in the coming quarters. On the corporates side excluding the ForEx exchange, the portfolio would have caused minus 2% Q-on-Q and a positive almost 3%, 2.7% year-on-year.
On Slide 21, you can see how our fundings have evolved. Funding from clients increased by 0.8% Q-on-Q and 6% year-on-year in this quarter.
Then we are in the line positive and above market performance of savings and deposits within this quarter in response to our initiatives to enhance client engagement levels. Additionally, we have been reducing the amount of financial bills we've called treasury notes or letras financeiras, which suggests a better cost of funding.
This trend will continue. Finally, total funding reached 553 billion first Q '17, remained stable in the quarter but increased almost 8% year-on-year.
Next Slide, as we have been saying since the beginning of 2016, fee revenue growth is a consequence of adequate pricing, improvements in the quality of our products and service and engaged clients. Also, fee revenues had a minor decrease of almost 1% in the quarter.
It is worth noting that this performance was impacted by the traditional seasonality in insurance in this Q and credit cards, excluding the effect of the former fee revenues which have grown by 3.5% Q-on-Q. On the other hand, in the annual comparison that eliminates this Q-on-Q seasonality, total fee income had 24% growth.
Regarding the gains in our base of loyal customers, I would like to highlight the performance of current accounts, credit cards and collection services showing these transactionality concepts I just mentioned. Moving to asset quality.
The earnings and delinquency rate increased by 120 basis points in the quarter, reflecting the seasonality in the individuals segment and also a few corporate cases that were already known and facts that had already been partially provisioned. Still, we note that some of those cases have already normalized as we speak.
So we do not see these movement as an [indiscernible] for the asset quality that the revision process in following quarters. NPL over 90 days dropped by 50 basis points in first Q to 2.9%, basically explained by the write-off of a specific case in the corporate segment that we mentioned back in third Q '16.
Additionally, individuals NPL fell by 10 basis points, which is the fourth consecutive quarterly improvement reflecting the efficacy or efficiency of our risk model. Now our business numbers are clear evidence that our asset quality remains sound and at a comfortable level especially considering the usual lag between economic activity and NPL.
These favorable trends continue to reflect the strength of our risk model and confirm that all actions we have taken and commented on in recent years. The appropriate measures to protect the quality of our asset includes a more collateralized portfolio, which reached 63% of the total individuals portfolio in the first Q '17 versus 58% three years ago and diversification.
As a consequence of the decline in the over 90 days portfolio, recovery ratio increased to 229%, which is in our view, a healthy level. In the next slide, loan loss provisions totaled 2.3 billion in this quarter inclined -- a 15% decline from the previous quarter and a 6% decrease relative to first Q last year.
This has allowed us to maintain the cost of credit at 3.1%, the lowest level in six quarters. On Slide 25, we see how expenses have evolved as we had been stating in previous quarters, our [Indiscernible] continues to focus on cost discipline and lean mindset even after four consecutive years of real savings in this area.
Our total expenses dropped by 4.2% in the quarter attributed to seasonality in both personal and administrative expenses. In the last 12 months, total expenses increased by 7% year on year, which was above inflation in the period.
This is explained by an obvious rising administration expenses reflecting the renewal of contracts and services which usually lack inflation. I remind to you that we come from a double-digit inflation and we are now in 4% or a little bit more than 4%.
Looking ahead, we expect costs to grow in line with inflation. As we are still reaping benefits of a number of initiatives such as tighter controls on operating expenses then the utilization process and measures aimed at enhancing productivity.
I commented these in my introductory words. The next slide presents our performance ratio which have also shown progress.
The efficiency improved both year on year and Q on Q terms and stood at 14 -- 44.9% almost 45% in this quarter, the best level in the past five years. Our recurrence ration rose to 80% versus 69% in first Q last year.
Every time that we make a size in this indicator, we bring more predictability and resilience to our results. Thanks to these advances, return on equity keeps increasing.
And as mentioned earlier, we were able to meet our 2018 guidance almost two years in advance, despite the challenging macro scenario in this country -- in our country. We'll remain committed to continuously improve our profitability.
Our relentless push of a stronger result is guided by our mission to establish our competitive position against our peers and meet our shareholders' expectations while always maintaining, group solvency ratios. And on the next slide, you will notice that our liquidity and the solvency positions remain solid with a stable funding [indiscernible] and an adequate funding structure.
The loan to deposit ratio. The loan to deposit ratio reached 85%, which is quite a comfortable level.
This ratio decreased to 15.8%. Despite that decline, our capital ratios remain healthy with our core equity Tier 1 level of 13.7% and our Tier 1 level of 14.7%.
We also announced yesterday that the board approved a dividend payment -- quarterly dividend payment of BRL500 million. So this is the first time we move into this territory of quarterly payment in terms of dividends.
So as we wrap up things in the last slide, I would like to bring your attention to the highlights of our first Q earnings. Profitability achieving almost two years in advance objectives, a stronger and increased and increasingly solid results in every quarter, commercial initiatives and digital innovation continue to consummate to boost customer loyalty and transactionality.
Which allowed us to offer, a more compelling value proposition as well as to exclude growth in net interest income and fees. Also our regulatory management that has been announced the continued during the last quarters proved to be effective and responsible.
Greater productivity remains at the top of our priority list as our efficiency ratio reached the lowest level in recent years. Excellence in risk leveling provided resilience to our asset quality, comfortable liquidity and capital levels and our employees are and continue to be committed to Santander's unique future.
So lastly, we are set to deliver and this is our main messages, our main message, a consistent and upward trend in return on equity, powered by a well-defined business strategy, fueled by organic growth and disciplined capital deployment. As a consequence, we are confident that we will keep advancing to provide a strong and positive customer experience which is a key from the [indiscernible] strategy and profitable return to our shareholders.
Thank you for your attention. And we are now able to go into the Q&A session.
Operator
[Operator Instructions] Mr. Guilherme Costa from Itaú BBA would like to pose a question.
Guilherme Costa
My first question is about the NPL ratio we saw that you showed a much improvement in the NPL ratio per loss overdue by 90 days which is partially linked with the credit was written off from the corporate portfolio, but my concern is the increase in the early NPL ratio the loans that were between 15 and 90 days. Could you comment on the deterioration seen in the commercial portfolio of the early NPL ratio of this segment?
Do you expect this to increase in the NPL ratio overdue by 90 days going forward? And what are your expectations for the cost of risk as a consequence of this increase in the early NPL ratio and then I have my second question?
Angel Santodomingo
Okay, thank you for your good words and congratulations. Let me elaborate on the 1590 [ph].
I tried to elaborate on my speech, but, there are 2 things here to understand. First, let me give you the headline.
The headline is that we do not expect this to translate into a kind of a trend or strong deterioration in the NPL ratio. But let me try to explain these movement.
In the retail side, and in the dealer side, first Q is always, you always have seasonality there. So you're always here for the duration, and you know in fourth Q you have the 13 salary here, which provides liquidity.
You have all these expenses and then you go into the first Q in which you tend to see the typical delays in payment, et cetera. So I'll put aside kind of an individual's retail segment.
Now concentrating on the other side, on the corporate or the non-retail individual side. We had a specific series of [indiscernible] cases that as we speak today they have come back.
Okay? So both operations or individual lanes that for end reasons you end up in the quarter with again these types of delays.
So if I add all that, I mean, I don't know more than half or close to 2/3 or somewhere around there, it's a non-event issue. So I would totally try to normalize these 15 to 90 days evolution.
We will see, already we are following as we will see, already we are following as we have been in the 3 years, even the crisis, the evolution of the quality of risk, etcetera. But again as I had been sharing with you, as of today we don't see any warnings or any point that I could address to you or say to you, where we have this to look after or to follow in the following Qs.
On the course of risk, we looking forward as I always mentioned to you, I mean, this has to be totally linked to what we think on the economic side. It looks like the economic, the macroeconomic picture is going to improve, we should have a positive GDP growth rate this first Q already about 10.5% probably, so if that continues Q-on-Q and we continue to see that trend which is what we all are probably hoping -- or sorry expecting, not hoping, expecting today.
We probably have seen the worst. But I want to leave this message to the macro evolution.
So we know we are at a very good level in terms of credit quality, but this is my view in terms of evolution.
Guilherme Costa
And my second question is related to margins. First on the selling spreads, you have delivered a much improvement in the funding spread over the last quarters, how much more potential do you see for improving the funding spread going forward?
And about credit spread, do you seem to have stabilized now, are you expecting the credit spreads to contract going forward or we are going probably to see stabilization over 2017?
Angel Santodomingo
On the funding side, I mean I announced to you, as I said 1.5 years ago, something like that, that we were starting to put focus on the liability side which is something the banks had not done, for a long time. That brand was initiated and is, as you say, it's delivering results.
I do not see that we have ended that capacity. So we should be able to continue that movement, it's both on a financial movement in terms of the impact in P&L, and so a view of service on the commercial front.
So I do not see that and then for now. On the credit -- and obviously remember also my words in terms of the type of funding that we have, [Foreign Language], the touch of wheels by which we are starting to decrease them, and that's an expensive funding.
On the carrier spread, well again this was going to the marked we are going -- I don't see now okay, I am not saying now but I will roll to the positive cycle and I'm speaking of the next two or three years. We will obviously have pressure on the spread side.
We will have to probably, offset that with volume but my view is on a two year three years at the NIM on the asset cycle have some pressure. We obviously have the NIM from liability side and the ALM and the asset liability management and activities to offset that.
So my view on total NII and NIM tends to be positive.
Operator
Now we have questions via the webcast.
Andre Parisi
As you know we have preference to a written question, so moving on, next question comes from Philip Finch, UBS. NIM improved strongly in the first Q of '17 partially driven by lower funding cost and loan mix shift, were there any other drivers for the margin expansion and how sustainable is the current level of NIM?
Angel Santodomingo
Okay, Philip, I think, I briefly mention or I just mentioned my views on NIM, the answer is we do have potential. And we have been showing these in the past quarters on the liability side, you're right on how you see the new expansion.
I already elaborated on my views on NIM going forward.
Andre Parisi
Next question come from Eduardo Nishio. Your NII had a good evolution growing much faster than your loan growth.
Can you please give a bit more the color on the AOM strategy, credit and funding spreads? Do you still have space to improve funding and credit spreads in light of lower Selic rate environment?
Angel Santodomingo
Okay, Eduardo, let me try to elaborate on total NII and NIM. How do I see these I see three kind of areas.
The NII and NIM, on the assets, on the liability and on the ALCO or ALM activity. I already mentioned NIM on the asset side not in this quarter probably not in second Q, I'm trying to give you a kind of medium-trend view one, two, three years from now.
I tend to see some pressure on the NIM asset side. So that as borrowing starts to grow and spreads remain even flat, you will have that pressure.
Now in our case, we have two things to consider. The NIM on the liability side, I already mentioned, we have been improving that part and we are trying and will continue to try to improve that side.
Yes, I do see expansion there. And then we have the ALM activity.
How we are positioned in ALM. We have already shared with you this in the past.
We are positively positioned to interest rate decreases, 100 basis points decrease follow the move in the Q. We have a positive sensitivity of BRL300 million.
So that is why in the presentation I was saying okay, you do see a credit and asset NII, because we do give to you this breakdown. I mean if I would give you everything together, let me say it like that, you will not notice it.
But as I am giving it to you breaking down, you can see how the asset spread is fairly stable, while we are growing the others. And the others it is starting.
We are positioned, the bank is positioned to offset that decrease. So as I said in my presentation, part of the other that you have in the NII really belong to the asset side.
So you should see both together. In that position lasts for, I don't know, 12 to 18 months.
So that's how we are positioned in the ALM side. Sorry to wrap it up, NII and NIM, obviously we may have in the future again, please, underline my words that this in the medium-term view.
We may have this NIM pressure offset by liability center.
Andre Parisi
The next question regarding to ROE comes from Carlos del Tolza of Brazil and new finance JPMorgan. Is there more room for asset quality improvement in the ROE sub guidance of 15.6% by the end of '18 announced in 4Q '15 conference call is maintained -- 4Q '15 was the Investor Day and the last quarter was conference call maintained?
Angel Santodomingo
Okay. Carlos [indiscernible].
Let me remind to you on the ROE side. We have shared with the market our ROE objectives both in September '15 and September '16 in the Investor Day -- in the group's Investor Day.
We are having another Investor Day this October, the 10th of October I mentioned that in my remarks. We will be revisiting, reviewing our guidance given that we have already made that almost two years in advance.
So if your question if we are going to do something. Yes, obviously, we have done these seven quarters in advance.
We will revisit it, we see our profitability and we will try that our profitability continues to improve. In terms of asset quality I think I already elaborate.
Andre Parisi
Next question regarding the tax rate comes from Yuri Fernandes, JPMorgan. Can you please provide more color on your effective tax rate?
In addition to no payment of IOC what else drove higher rates? How should we expect your effective tax rate for the full year '17?
Angel Santodomingo
Yes, Yuri, tax rate I agree with you -- I mean, numbers, we have presented the numbers, we got a strong number and on top of that, of those strong numbers the tax rate has increased substantially. On the Q numbers, the tax rate is always kind of -- I mean we have to be careful.
What we have been commenting with you is that we should head to the 20%, 25% tax rate. But I mean this depends on what you said, interest on capital, depends on a lot of deductions and non-deductions that are applicable or non-applicable.
And this Q, we presented the numbers with a 30% tax rate -- is that known, 29% tax rate. So the only thing I can say is that we think we have presented strong numbers with a high tax rate.
Obviously this will evolve during the year. The tax rate is kind of something that depends on a series of variables.
Andre Parisi
Next question regarding to other expenses [indiscernible] from JPMorgan and also Jorg from Citi. Can you please comment on provision for contingencies in your other income expense -- income expense line?
It accelerates this quarter, and any specific reason for that. How should we think this line involving the next quarters?
And Jorg also comment about the expenses on credit cards if it is any how link to the American Advantage program?
Angel Santodomingo
Well, you probably have seen that we have some increase in this contingencies and provisions for these contingencies. Again, I mean this has to do again on our Q on Q you have a lot of what a lot of sample activity, so it's a difficult one to estimate.
It is true that other expenses increased in the quarter but as I said, this is coupled with not only contingencies but with other expenses due to several things. There is nothing special there.
It's just, that you have to cope with it in each quarter with a lot of activity. In terms of operating expenses, we have already started to commercialize the American Airlines credit cards.
I would not link these to -- the evolution of expenses to this initiation of commercialization. Both expectation and the initial answers and demand and interest for this credit card has been amazing.
As, we have an exclusivity agreement with American Airlines that used to be with Citibank and now is with us for a long time. We are very happy to offer this, we have been quite active commercially speaking linked to several marketing campaigns.
But I wouldn't link it to the other expenses lines.
Andre Parisi
Okay, now you open the mic for a few questions.
Operator
[Operator Instructions] We have a question from Mario Pierry from Bank of America Merrill Lynch.
Mario Pierry
Just a question related to loan growth. Like you mentioned, right this is the first time that we see year-on-year growth in lending but primarily driven by individuals and the Consumer Finance segment.
When do you expect the corporate and the SME segments, when do you expect to start lending against the corporate and SME segment. I guess from your remarks, it seems like you're fairly comfortable with the asset quality trends.
So I was just wondering if it is a matter of time are what do you need to see before you start lending again?
Angel Santodomingo
Okay, Mario, thank you. Yes, a good question.
I would say that, as you said we are comfortable in the credit quality side on the individual side, I will say that probably the loan growth looking forward will first, will come from the SME and corporate side. Probably again with macro going forward.
Probably gaining momentum as the year goes by. On top of everything, we have a specific program for this SME and corporate world.
That should also give some result. I would expect it to gain momentum as the year goes by.
And is probably one, going to be one of our arguments to end up, we have always said to you 3%, 4%, 5% loan growth. That should come, obviously, and again the macroeconomic discussions here is a key one, but we have that feeling.
We have a feeling that they will gain momentum as the year goes by and clearly going into 2018. And I have no doubt that this is going to be, the delivery there has been significant and we will probably see good positive growth there.
Mario Pierry
And when you look in the corporate segments today, any sectors in particular that you still very concerned about in which you're still uncomfortable landing? Or just trying to get an idea here which it sectors could be leading this recovery?
Angel Santodomingo
Systems that we are not. Obviously, you have the strong ones.
The agri, the exporters, et cetera. But sectors in which we have a concern, no remember that we have, I mean for example, I have been, I have received questions lately about our say building for example.
We are project oriented okay, so we do finance in general terms projects. We are very active in credit financing in general and in building.
So our study in terms of quality obviously goes through sectors. But it doesn't go through a general sector view we go deeper than that.
And that's probably one of the key successes of the quality line.
Operator
Mr. [indiscernible] would like to pose a question.
Unidentified Analyst
So I have 3 questions. The first one is related to, starting to come back to the other lines on your NII.
But just to confirm so I understand that probably with the mark to market of the securities that you have in the quarter and the results that do not flow through the income statement but only in the balance sheet. Probably we should see this other line as too strong let's say for the last -- the next nine, 12 months.
Is that correct? The second one would be related to your -- you sold portfolio of BRL200 million more or less that you disclosed that it was in the H ladder, just to clarify if it was in NPL or not?
And the third one is really to get net, so this quarter you didn't disclose the number that you have been disclosing in previous quarters. So it's your intention not to disclose anymore the numbers, just the volumes, specifically for that net?
Angel Santodomingo
Okay. On NII, yes, you do have a point in terms of all we usually have these higher activities there that are trying to offset the decrease in interest rates, you will have that impact on the others.
Again, I have always said to you this, and I am not going to change my speech now. This is not something that is as trendy as the rest of the [indiscernible].
You also have market activities and other activities that tend to have some volatility, but I agree with you that on the ALM side, it will give us some recurrence here. In terms of saving portfolio, no.
My answer is linked to NPL, said no. This is business as usual, we do have these as normal and more amount in fact, activity but.
And in the net, well I did show some numbers, I don't know exactly which one you remember and you refer to but we are growing 38% in how you say that, in selling -- in the turnover, sorry the word didn't come up, in the turnover, we are growing nicely both in dividend credit. We have already 11% market share so whatever number you need please do ask the correlation because we haven't changed any policy there.
Operator
Mr. Carlos Macedo from Goldman Sachs would like to pose a question.
Carlos Macedo
Just I'm sorry to go back to this Others line, is just trying to understand what the dynamics here are. So you're saying that last quarter the average Selic was down 100 basis points quarter-on-quarter, which means you made around 300 million just in the ALM position.
Could you break down what was actually trading, because trading as you've suggested is a lot less volatile -- a lot more volatile and maybe not totally recurring whereas the ALM is. And so just so we understand what we can use as a base for that others line that was very relevant in the quarter.
Second quarter still on this, you know the Selic rate is expected to go down all the way to 8.5%, you have 8.5%, the market has around 8.5% or 9%, maybe even by the third quarter. So does this mean that after the third quarter when you get to the fourth quarter and then first quarter next year, this ALM position will not provide support to your margins and as a result, the 300 million plus you can get every quarter this year will go away and that could have a negative impact our new quarter next year in addition to the pressure that spreads on the asset side could cause?
Angel Santodomingo
Okay, thank you. In terms of NII what I said was our sensitivity I gave this 100 basis points, BRL300 million sensitivity, not because of the quarter, because that's the sensitivity we have commented with you.
Trading revenues in this other, they tend to be low. Low means, I don't know, 10%, 15%, in that region, depending on the quarter.
So it is not an amount that really drives. Will it last for long or not, I already mentioned these.
The ALM activities give some help in the 12 to 18 months. How are we going to offset that?
I already mentioned the liabilities, et cetera. And obviously, in total NII, not in terms of NIM, volumes should come up at some point.
So that would be, again, repeating myself in some of the concepts but that would be the main points.
Operator
Mr. Carlos Gomez-Lopez from HSBC New York would like to pose a question.
Carlos Gomez-Lopez
I wanted to ask you about fees on page 22. You show us a very strong increase especially on current account 33%, on collection 25%, on securities 25%.
First I would like to know if that increase in current account is going to be sustainable, have you changed the pricing in that product? Also in Insurance in which you are growing 21% have you changed the terms of your relationship with the insurance company and again did you think these rates of growth are sustainable?
Angel Santodomingo
Thank you, Carlos. The answer to this is what we have been commenting the last few inquiries, is both usage of a bank transactionality, linking clients, and new clients.
So we did have pricing improvements obviously, but the main also issue here is that in terms of current account et cetera, we have climbed using more of the bank. And this is main driver.
In terms of insurance, we haven't changed anything. We keep on the same direction I mention that there is seasonality in this quarter.
But there is no change. The reality is that we are selling a lot of insurance and I also mentioned to you that we keep a big chunk off these revenues of the fees generated by insurance in our commercial network.
So when we sell an insurance product, well it depends, but it goes along, 70% of the fees remain with us. So that's why, it is growing.
So I will say fees is a clear reflection of the transactionality that I have been trying to comment to you.
Operator
Mr. Marcelo Telles from Crédit Suisse would like to pose a question.
Marcelo Telles
I have two questions. The first one, I mean you clearly have been gaining in some market share versus your peers.
Even like in the SME business and some other -- you know of course in the individual segment as well. So my question to you is how comfortable can we be that there is no sort of adverse selection in that portfolio, how comfortable are you that it can maintain good asset quality levels there?
And my second question is regarding the abnormal course loans balance, we saw an increase in the quarter let's say despite the fact that one you had that specific corporate exposure that was charged off. So if you can comment a little bit on that as well?
Angel Santodomingo
Okay, thank you, Marcelo. You're right, we do have to be quite careful in terms of our best selection on the corporate and SME side.
Especially when you have, when you have different strategy within the financial sector in which you have different players with different appetite in terms of lending et cetera. Totally agreeing with you, we are absolutely concentrated in growing our client base in the SME side back with maintaining our credit standards.
We are not changing that at all, at all. So that means that we except to remain comfortable in terms of credit quality.
In terms of the impact in this Q, of this written off, I will remember to you that -- I have to remember to you that in first year we explain to you we are putting into an NPL a specific case in the corporate segment, which if I remember was something like 0.5 percentage points of NPL, but now six month afterwards, following the button rules is being written off. That means that we do a like for like analysis, NPL ratio this quarter would have been fairly stable.
I think it's a little bit down, but fairly stable. Repeat information, I don't know if you were also referring to that -- my -- our calculations is that they remain quite stable, so around 1%, or something like that, a little bit down, so no issue there.
Operator
Mr. Jorg Friedemann would like to pose a question.
Unidentified Analyst
Just an additional question from my side, you are still sitting on a lot of capital so just like to have some color on your upcoming plans for that. I hear you when you comment about I know very conservative capital deployment but not sure if there is any news that you could share with us.
Maybe with relation to buying back some of the activities that were set to the parent company years ago, such as the asset management unit.
Angel Santodomingo
Thank you. On the capital site, I mean, we did make a change, that we have announced quarterly payment of dividend payments.
We continue to see capital in the same way we have seen which is we will manage it through payout, we don't have any plans further than that as we speak today. So no news, we are comfortable.
Obviously we will manage the level of comfortably going forward. But I mean we do not have a huge -- we do not see a huge excess of capital nor that we are short of it.
So we will -- as I have always said to you this is our kind of a medium-term view, we cannot manage capital based on the quarter. So if we do think that Brazil is going to start growing structurally going into '18, '19, I do not want to have -- to struggle with capital.
So I will keep on reasonable levels which is around where we are or lower but I mean consuming part of it as growth comes in. But trying to -- I mean putting the focus both on the usage and on the profitability of it as you have seen.
In terms of asset management, the group that has announced that it is buying, it will execute the operation during the year so we will have until that execution. I remember to you that there is insurance we do have a big chunk of the commissions generated by the asset management unit within our retail network.
Okay, so thank you so much.
Operator
As there are no more questions, I would like to turn the floor over to Mr. Angel for final considerations.
Please Mr. Angel, you may proceed.
Andre Parisi
It is Andre. Thank you very much for your time.
And if you have any further question the IR team is 100% available. Expect to see or meet you all in the next quarter.
Thank you very much.
Operator
Thank you, Santander's conference call has finished. Have a nice day.