Feb 2, 2022
Operator
Good morning and thank you for waiting. Welcome to the conference call to discuss Banco Santander Brasil SA's results.
Present here, Mr. Sergio Rial, Council Chairman, Mr.
Angel Santodomingo, CFO, and Mr. Gustavo Sechin, Head of Investor Relations.
All the participants will be on listen-only mode during the presentation. After which, we'll begin the question-and-answer session when further instructions will be provided.
[Operator Instructions] The live webcast of this call is available at Banco Santander's Investor Relations website at www.santander.com.br/ri, where the presentation is also available for download. We would like to inform that the questions received via webcast will have answering priority.
[Operator Instructions] Each participant is entitled to ask one question. 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 in financial projections and targets based on the beliefs and assumptions of the executive part, as well on information currently available.
Such forward-looking statements are not a guarantee of performance. They involve risks, uncertainties, and assumptions as they refer to future events and hence depend on circumstances that may or may not occur.
Investors must be aware that general economic conditions, industry conditions, and other operational factors may affect the future performance of Banco Santander Brasil and may cause actual results to substantially different from those in the forward-looking statements. I will now pass the word to Mr.
Sergio Rial. Please, Mr.
Rial, you may proceed.
Sergio Rial
Well, very good morning to you all. Thanks for joining us in today's call.
This is going to be my last call as CEO of the previous year, 2021. So basically, materializing six years of a very interesting story.
So, without any further ado, let's go to Slide 4. This is the slide with the headline Business Evolution and Transformation.
It's a little bit busy, but I think it's an important slide to show the evolution of the firm since its IPO. I remember when I joined as CEO back in 2016, there were a number of questions relative to Santander on a variety of issues.
I think the last six years, together with the team -- this has nothing to do with me, but definitely the team that still continues in the company. We were able to redefine scale.
There were a number of questions. We're still talking about the sale of HSBC, which at that time we decided not to pursue.
And we made a conscious decision that -- knowing that it would be a lot harder, we would go for organic growth. And we moved the company from a loan portfolio which is only one data point of R$142 billion, as you can see, to pretty much R$500 billion.
And this hasn't happened in an easy macro-environment. We were able to basically perform a formidable speed of growth, yet keeping the environment of control, not just credit, which is an important one, but the entire environment of control in check.
This was only possible because we absolutely were obsessed, among other things, to move the company to different levels of efficiency. I think we're probably, if not yet the most likely, the leading company from a cost efficiency point of view in the industry with a cost income that I think it's remarkably strong.
And this is just another reflection of the culture that the management team was able to implement over the last six years. I think it is important to also note that a number of trends which are today being spoken, we initiated the trajectory of the Agro, invest in the Agro industrial sector of Brazil a number of years ago.
We have been involved in an ESG agenda for the last decade. This really happened for Santander in Brazil in the last couple of years.
So, this is something that I think it's going on for a number of years and decade. And we have not shied away from innovating, not only acquiring and we're going to talk about some of the subsidiaries, but also entering businesses which traditionally something that wasn't necessarily pleasant.
One being energy trading, the other one being the commodity desk. Today we have one of the most striving commodity desks in the financial market; pretty much not taking any directional risks, but assisting customers from a hedging strategy point of view.
So, this slide is a good picture of what has happened. If we move to the next slide, that's bringing more of a shareholder view.
If that is true, what has happened to [Indiscernible] shareholder? And I think you have seen from the IPO, was, at that time, a relatively robust ROE, when you would compare to the industry, we were still lagging behind back in 2009, to basically ending the era of the last 10 years as one of the leading firms in the financial industry from a profitability point of view.
It is easier said than done. And it wasn't necessarily perceived six years ago that that was going to happen.
We have been incredibly committed to our shareholders. As you can see, the dividend yield, we will -- we have just announced another important dividend and we certainly posting this year a record dividend payment again.
And as you can see, this has happened on the back of underlying profitability. So, we have -- we continue to strengthen the balance sheet of the bank.
We have, up to now the highest rating by Moody's when compared to any other financial institution in Brazil, and that's very much underpinned by a net profit that moved from R $ 4.7 billion in 2009 to the number that we are printing today, R $ 16.3 billion with an ROE over 21%. And if we continue on the next slide on earnings distribution to shareholders, the slide is an attempt to compare what has happened in terms of Santander Brasil and its management commitment towards shareholders of the last couple of years.
And as you can see, 2010 was an atypical year due to the cap that was imposed by the regulators on dividends to the entire industry. So, I think the slide speaks for itself.
It doesn't really require further explanation. The next slide is addressing the underlying trend of the business.
We have been incredibly focused on true client base growth. By true, I mean clients that are truly engaged in transacting with the bank far beyond the database or a point in a database.
So, we have reached 53.4 million total customers as of end of December 2021, and when you see that only in the quarter, we have added almost 3 million new customers in the last quarter, 2.7 to be exact, and from this number, 52% -- five, two percent -- are actually engaged with the bank in some sort of level, product, and/or service. Just to give you an idea besides numbers in itself, digital transformation that I think we've done through our channels, we moved from 15.6 million -- you don't see it here, but 15.6 million customers that were basically acquired through the digital channels to ending 18.3 million in December 2021.
We have put quite a bit of attention that Santander Brasil, and I think that's one of the uniqueness of the company, has to be among other strength is on its distribution strength. So, strengthening the distribution platform, creating a true omnichannel strategy, where the customer really decides to serve itself through the channel that it fits best it’s on style.
It's something that I think we've been committed over the last couple of years and we're seeing the results both from a remote approach that we internally call FX channel or directly through the digital channel shortening cycle, making sure that the experience, and there's enormous amount of rooms to improve, is as easy and comfortable as possible to any customer of different sects of society. So, as you can see here, we see a very rapid growth on the customer side, as already mentioned, but that has not happened without attention to quality, which the NPS is only one dimension.
And again, a lot of work ahead of us. There's no accolade that we have reached the peak of the mountain, but where we were to where we are, there has been significant improvement.
On the next slide, it's just another attempt to show that I think we are moving on the quality side, but I think here there's still a lot of work to be done. Due to the multi-product and multi-service nature of our platform -- of our signs, quality is a permanent objective.
So, although yes, it's true that the NPS is now around the 60 range we have within Santander verticals that have already exceeded 70. So, the portfolio too shows a number of detractors from a quality point-of-view.
And this is where I'm sure the new CEO Mario is going to pay attention and the big opportunity not the only one, but one of the biggest opportunities that we see is definitely around enterprises, small and mid-sized companies in Brazil that still need a level of customization and quality and [Indiscernible] that from our perspective, nor Santander neither the market is completely capable of doing it. On the digital side, Slide 9, where I show we're digital and available is this attempt to show you here the omni -channel attempt that we're implementing as we speak.
So, we're less concerned about branches or remote coverage or digital, these channels have to co-exist in a way that from a customer perspective and experience, it's absolutely one. And more and more, this is going to be the reality.
Customers still like to have the practicality of being able to see someone if there is a need, for example, in Europe, it's very -- there's a very interesting political debate going on for those who are not digitally literate, if you will, banking has become a real challenge for a number of people who have just not being part of a generation of being digital. This problem is less important for Brazil because it's younger population all the way.
But physical assets, the combination of being able to be present if there is a need, it's not in the material asset that I think we'll continue to leverage as part of the distribution platform strategy. So, the customer acquisition through the digital channels, and I think that's a remarkable number on this slide, has increased 185%.
Of course, percentages are always a function of how low your base was, but what it shows is just the thrust that is behind the growth that we're experiencing over the last couple of years. And a very important data point here is the fact that we've been incredibly transparent to actually even boast what is our fully allocated cost on this channel, costs of certain of R$26 a month customer coming through the digital channel.
So, the attempt on making this customer become more loyal, more engaged, transacting the bank, more than justifies profitability in the years to come. But that doesn't mean that we need to start on the R$26 amount.
The continued sort of obsession of the company to remain avant - garde from an efficiency point of view will continue. It’s very important you to note that part of the efficiency hasn't really just come from cultural or we were one of the first companies in the financial industry with the exception of those who have started over the last couple of years to bring a company of this size to the Cloud.
We have over 70% of all our systems in the cloud, which basically allowed Santander Brasil to actually collapse all the last dependent or legacy systems and particularly in our case, remember, we have been historically a result of a number of acquisitions. So, the Cloud strategy has absolutely helped us to deliver the level of digital growth that I think you have seen today.
On the next slide, it was also another part of our strategy which was folks are paying too much attention to the number of branches as opposed to understand the demographics of branches. And one of the decisions that we made was to bring Santander to the interior of the country.
And we have expanded and will continue to expand to cities that most of us are not necessarily familiar, but that's where the future growth will continue to exist. Most of the cities have been served historically by public banks, more recently by co-ops and private banks in general, with the exception of very few, have never really taken a sort of a net nationwide view of Brazil.
And we have done it, we believe it's a plural society. We believe Brazil is fundamentally and not an industrial economy.
And European centers have an incredible importance, but growth and the future of Brazil reside in its interior. Last but not least, here, it's just an attempt to show you that the physical brand or the physical channel, the stores or the branches like more commonly known, we have launched what we call -- nothing more than what we call Bank To Go, which is the capacity of one of our employees to be able to serve the transit that goes throughout each and every day through our ATMs.
So, this concept, 59% of the stores. So, you can actually go to a customer at an ATM and serve that customer besides the need for cash withdrawal, so that customer can actually do transactions without necessarily having to go into the branch, sit down, be on a desk, and eventually spend 20 or more minutes when you don't have that time.
We have today approximately 15 million, 15, customers circulating per month through our physical infrastructure, so we believe there is quite a beautiful opportunity for us to optimize sales, engagement and dialogue with our customers. And that is very much shown by the next slide, Slide 12, which you see the commercial activity of the company.
In terms of cards, we had a record year in terms of invoicing, so reaching R$306 billion; that's a 26% increase year-on-year in a year of a pandemic, so one can explain that some of that was absolutely linked to the fact that people had to use cards more often than before. But this is a record number and it's a record number because it also shows that we have seen a significant growth in terms of acquisitions of new customers.
So, our ambition in cards is to be able to get Santander Brasil to a market share of 20%. It's not guidance, but it's an internal ambition that drives us into that direction as we headed for GAAP, which was able to end the year with 16% market share coming from single-digit market share in the years past.
And the rest, I think one of the things I would like to note is the insurance fees on the upper side of the table. We have launched Santander Alto today, one of the highest growth insured techs in the marketplace, and that will continue to grow very fast.
If that becomes an interesting -- becomes a question to one of you more data around the growth of Santander Alto. So, 2021 we have issued 6 million cards to a variety of customers of different segments under the brand FX, as we have launched years ago.
Next one, is the whole piece around the cultural transformation, something that was not even part for the great place to work. We ended 2021 as one of the best 10 companies to work for in the country.
It's one data point, but it's a data point that shows that a lot of attention has been put in place not only just to culture but to the dynamic and the fabric of the organization. So, we are -- I think the numbers speak for themselves I will not make comments, but very few companies can say that they have the level of ambition that we have for December 25 in terms of true leadership positions of different extract of our society.
So again, the slide speaks for itself. With that, I pass the word to our CFO who will get into now more specificity around the numbers.
Thank you.
Angel Santodomingo
Thank you, Sergio. Good morning to you all.
I will now go into the presentation, which we can detail a little bit more in our Q&A session. So, in the first slide where you can see the full P&L account for the full year, as you may see, we delivered record net profit of R$16.3 billion, which is a 7% increase.
We closed 4Q 2021 with a net profit of R$3.9 billion, representing a 10% increase relative to the 1Q and stable when compared to the same period last year. The quarterly decrease can be explained by a weakened market result and expenses with pressure from inflation, which will I'll explain farther on in the next slides.
Let me highlight in the following figures here in these slides. On the revenue front, NII rose by almost 9% in the year, even higher customer NII.
Pull down to detail here on the customer NII. Fees increased by 14% over the year.
Here again, the customer base growth and higher activity boosted different items such as cards or insurance revenues. And on the expense side, provisions grew 10% in 2021, which is consistent with our credit growth and mix.
Unit expenses increased due to the collective bargaining agreement in -- back in September inflation and foreign currency fluctuations, but remained clearly below inflation in the year. Efficiency ratio as a consequence of this came in at 35% improving by 90 basis points in 12 months, again, probably the best in the country.
And return on equity remain at the 20% delivered in the fourth Q and reached above 21 -- 21.2% for the full year. The next slide illustrates the evolution of our NII highlighted by customer NII which advanced almost 3%, 2.6% in the quarter, and almost 10% in the year in 2021 with product NII benefiting from positive volume dynamics and mix.
Despite a strong pressure in funding costs, the spreads increased by 10 basis points, that was 10.3 to 10.4, reflecting a better mix in good price management. Market volatility during the year contributed to positive results from market NII.
Also in this Q, we show weakened market activity returning to a more normalized levels from an extraordinary 1Q. Advancing to the next slide, we can see that our loan portfolio grew almost 3% in the quarter and above 12% year-on-year to R$462 billion largely driven by retail, which continued to outperform with mortgage and credit card explaining part of the growth.
It is important to note that almost 70 -- 67% of individual’s loan portfolio is collateralized. SME remained virtually stable in the quarter, growing 1.9%, but performed well in the year, expanding 13%, thanks to the recovery in demand.
Given liquidity conditions of companies since the beginning of the pandemic, corporate lending remained stable in the quarter and grew by 2.5% in the year. On the funding side, our funding also had a positive performance.
Financial bills increased quarterly targeting a diversified funding base, and continue to hover around the lowest level in history relative to total funding. At the end of the quarter, capital stood at comfortable levels.
Our core equity Tier 1 reached 11.6% decreasing 34 basis points due to higher earnings distribution, as Sergio mentioned to shareholders in the period, and our BIS ratio was almost 15% given recent capital operations. Next slide, moving onto fees.
We had another strong performance supported by customer base growth and a stronger loyalty. The best performers in the quarter and the year were clearly cost and insurance.
The latter following our traditional seasonality in fourth Q. Current account fees decreased by only 4% -- 3.9% during 2021.
This lower growth compared with previous years is basically explained by the peaks, this rapid payment system here in Brazil implementation. Looking at expenses.
In the fourth Q, we had the full impact of the collective bargaining agreement, as I mentioned before. And also, important to mention, higher commercial activity, which puts pressure on variable costs.
In the year, we saw expenses rise by 4%, which continues to be well below inflation. We have conducted and will continue to conduct a thorough review of efficiency given our commitment to productivity.
As I mentioned in the beginning of my presentation, our efficiency ratio improved year-on-year to 35.3%. At this level, it may be possible, as I said, that we remain as it has been for a long series now the best in the industry.
On the next slide, we can see how our asset quality has evolved. It remained at a well-controlled level in the quarter with an adequate coverage ratio reflecting our solid risk management.
Short-term delinquency remains healthy, while 90-day NPL increased by 30 basis points to 2.7%, both and is still under control and below pre -pandemic levels, as you may see in 4Q '19. You can also see that our loan loss provisions remained within reasonable levels, consistent with our cost of risk for the full year of 2.7%.
This performance is a direct result of our dividend lending practices. As you probably have seen in our numbers, we released 1.2 billion of our generic provision due to risk modeling updates.
Recovery continues to post a good performance, that red part that you can see in the -- in the columns, reaching 80 -- sorry, R$800 million in the quarter driven by both the continuation of good management as well as the sale of [Indiscernible] portfolios. And in the full year, recoveries grow almost 23%, representing, as I should have mentioned you in previous quarters, a strong focus on that activity.
So finalizing the main takeaways, six main areas: consistency, sustainable growth and profitability, given our long term focus and top return on equity in the industry, second, robust and comprehensive financial platform resulted in an all-time high level of new customer acquisition, as Sergio mentioned, a stronger loyalty and trans actionality will support our growth going forward, the macro environment will likely present some challenges, we acknowledge that, which we showed to be able to manage successfully in past cycles for example in 2015 or 2016, the availability in integration of channels will unlock greater business opportunities, and last but not least a corporate culture deeply committed to growth, results, and society. So that's about the last part of the presentation.
I think we open the floor now for Q&A. Thank you.
Operator
Thank you. We'll now start the Q&A session for investors and analysts.
I will now pass the words to Mr. Gustavo Sechin.
Please, Mr. Sechin, you may proceed making the question terms via webcast.
Gustavo Sechin
Good morning, everyone. Let's just start our Q&A session.
We have a couple of questions here. The first group of questions comes from Tiago Bachisco (ph) from UBS.
Thank you, Tiago. So, can you comment your expectation of asset quality dynamics for 2022?
Do you see NPL ratio of Santander, Brazil during this credit cycle higher than the pre - COVID levels? Another question of Tiago, relates to the profitability.
The bank ended 2021 with an ROE of 21% or 20% in the 4Q. It is feasible to maintain the ROE at 20 there's levels going forward.
So, Angel and Sergio? Can I -- I will take the first part.
I think Tiago, it's Sergio here, one of the things that I have experienced over the last couple of years, and rightly so as a CEO is the whole discussion around cost of credit in NPLs in Brazil. I remember back in '16, as we were growing, the suspicious level that we would definitely have significant increases in cost of credit, fortunately did not happen.
And it wasn't by luck. We have over the last couple of years created a portfolio that it's incredibly well collateralized.
That's one point. Second point, when you think, for example, on the vehicle market, the auto market, where we have expanded our consumer finance businesses over the last couple of years, tripling its size and yet keeping the cost of credit in check.
Now one of the facts, for example, that perhaps the sell side is not necessarily observing, is that the embedded equity today in used vehicles -- so if I will take a fair market value of Santander Car Finance portfolio and I will do a mark-to-market in terms of the embedded equity, just because the price of used cars has doubled, you have a loan-to-value that has improved incredibly. But your question is related 2022.
So, I have said in the past that there were a number of factors that would make me pause to think that the cost of credit for the system in Brazil will increase. One has been definitely the pandemic and unemployment.
One of the things we've seen is that the government-sponsored programs that actually alleviated a big, big part and thankfully so in indebtedness level of a number of Brazilians. So, a lot of finance has gone into people, rightly so, paying down debt.
But now we have had new factors coming in. One is inflation, second, interest rate, third, open finance, which will create a level of competitiveness, perhaps in terms of willingness of new players to grant credit that we haven't necessarily seen over the last couple of years.
So, we have taken cautionary measures in the third quarter of 2021 so that we could navigate 2022 with absolutely acceptable level. Where do I see 2022?
I see 2022 most likely coming back to the levels of '19. Again, it's not guidance.
It's just I think we're going to see structurally the cost of credit of 2020 and 2021 was very much helped by government-sponsored programs as I mentioned. Those were significant amounts of money injected in the accounting.
So, we should be seeing levels closer to '18 and '19 pre -pandemic. Nothing that we are concerned, but we're certainly attentive and paying attention to grow.
Where you have to be more sensitive is on cards, absolutely under control. Absolutely under control, phenomenal good quality growth.
Vehicles, absolutely under control. And I mentioned the fact of the quality of the portfolio.
So, nothing today that would put me at an uneasy position.
Angel Santodomingo
I mentioned in my speech that collateralized part that Sergio was mentioning, we are speaking of around 70%, 67% of the retail individual's portfolios collateralized, and that collateralize of those guarantees, as mentioned, are improving in price in several products. So that's one part.
Putting numbers to what Sergio said, something that Brazil has been with our cost of risk in between 3.3, 3.2, 3.5, 3.6 in 2014, '15, '16, '17. So, the structural kind of way of looking at this, and probably that coming back that Sergio was mentioning, is that the 2.7% that you are seeing as cost of risk, is a leveling which is clearly positively affected by the liquidity that we have been having and the performance in the programs that were mentioned.
So, I will say that, yes, we do expect the deterioration of quality in a gradual manner, not something to really think as an explosion or something that will be intense. That would be my adding words.
The Return on equity, Sergio, you want to address that or?
Sergio Rial
I leave it up to the CFO because it's 2022 and I will not be behind the wheel, so.
Angel Santodomingo
Okay. The return on equity as we have been mentioning to you in the past, we have been striving to deliver it on return on equity in the levels of that 20%, 21%, 22% and that is where the bank has been moving in the last -- some years now.
Obviously, you have seen also the payout remuneration and how we have been dealing with the capital in the last quarter. If we put all that in the same discussion, we would be waiting.
I mean, I would be expecting growth of risk weighted assets in the region of high-single, low-double, which means that to maintain that, to have that grow in, to maintain those levels of capital of around 11%, 11.5% of core equity Tier 1, we will be targeting a payout of around 50%. So, all that works in the same formula, which means trying to deliver similar profit abilities during the year at the same time that we maintain a nice remuneration to our shareholders.
Gustavo Sechin
So, our next question comes from Gustavo Schroden from Bradesco BBI. On the increase in any sales, which line is more responsible for debt cards out, etc?
Also, did the bank sell loan portfolio in the quarter? If yes, what was the amount and what was the net impact in the quarter?
Sergio Rial
I'll go here. I think we do sales from time-to-time.
So, nothing that I would necessarily characterize. So, we did sell in the fourth quarter, but I think if I remember correctly, so we also sold back in the second quarter.
So, nothing -- just part of what I would call business as usual. On the asset quality I think I already addressed in the previous discussion from UBS.
So, we -- I think the credit card portfolio was the one that could have brought surprises and we're incredibly comfortable with our credit card portfolio because of the measures we have taken -- cautionary measures we've taken right from the beginning of 2021. Nothing else I could add here.
On the critical side, just add to in, 90% -- remember that we have mentioned this in the past, 90% of our cards being sold are sold to current customers that we know about them. And it's a car d to, whatever, relative they want it to.
So that's -- the risk controller Sergio is mentioning can be seen in that number.
Gustavo Sechin
Okay. Our next question comes from Flavio Arzilla from Bank of America.
Given that additional provision decreased R$1.1 billion in the quarter and NPL trended up, is there any change in the credit concession or risk policies? Should we expect a lower loan book growth or provisions growing at a faster pace and then they're low on book?
Sergio Rial
Also, with you. Yes, as I mentioned, we did use that generic provision, that response to modeling.
Basically, we already addressed all the MPLs in the provision discussion so I'm not going to repeat it. But the fact is that we did both in IFRS and in the [Indiscernible] GAAP as we always do, the modeling of the need of generic provision of the overlay and that led us to a total amount remaining of around R$1.82 billion.
That's why we did that. In terms of growth of portfolio and credit portfolio, what I would expect these accounts growing in nominal terms, in GDP somewhere around the 6%-7%, with an inflation of 5-6 and some GDP real in terms of [Indiscernible] to one.
That means that credit portfolios could grow in the high-single, as I mentioned before in [Indiscernible] assets. So high single-digit or even low level.
So, this is our expected kind of performance for this year. I already mentioned cost of risk should accompany that.
Gustavo Sechin
Our next question comes from Ricardo from BTG Pactual. As we saw in the third quarter, there were other operating expense line waiting up on the fourth quarter due to higher credit cards and customer acquisition expense.
These investments should reflect in higher customer base and does a boost in the main revenue lines, correct? Should we expect these investments to continue on the following quarter?
Sergio Rial
I will go there. I think Mario as the new CEO -- very much committed to growth and very much committed to profitable growth.
He's going to certainly be refining, improving, doing things that at that time we're not ready to [Indiscernible] and certainly continue to grow profitably the credit card business. I do expect the revenue line in terms of growth to be still an important north star for the new CEO.
So, the answer would be yes. That has to happen in an environment where costs will continue to be under control.
Remember, we were able to post a significant, I would say, measure in terms of cost, despite what we have seen in terms of employee increases on the back of the union agreement of almost 11%, which already hit the numbers third, fourth quarter last year. Expenses have been pretty much under control in the neighborhood of 5%, 4% to 5%.
So, I think that commitment towards efficiency will still be there, but that will not be at the expense of good variable costs that are basically fueling good growth. Then I would like to also, that we haven't really asked the question, but I think it's worth noting, for example, under commissions, the significant increase that we have seen on capital markets and the position that the bank has been able to achieve on investment banking.
So, we have done a very large number of either IPO s or follow-on. These were 28 last years.
And sometimes there has really moved up in the quality of transactions like the one of [Indiscernible] which was very much led by the current CEO, Mario, and all the transactions that we are still very much pursuing. So, the whole capital market investment banking has also had a phenomenal performance last year, not necessarily same because we're not necessarily disclosing.
And in terms of some of subsidiaries I'd like to mention return, which is our assets [Indiscernible] company. We have also made last year an important acquisition, which was a company called [Indiscernible], which has continued to focus on collection.
One of the things that have -- that explains something their good performance in terms of risk management is not just the model, it's not just the people, it is also what I would call state-of-the-art collection strategy. And last year, we strengthened that with the acquisition of Fozcobra Cobranças.
Thank you.
Angel Santodomingo
To add to that on the specific line of expenses that you mentioned, remember that we do have some seasonality. Normally the 4Q is more intense.
You do have somebody will call and like the one you say the credit cards or the banking correspondents. We do have some impact also from the currency, from the currency exchange rate.
But it tends to be aligned, which is more intense in the 4Q, which explains also part of the profit evolution, okay.
Sergio Rial
Yeah, that's true. There is another question Gustavo, maybe I help you, from Mario from Bank of America.
Which is, good job in the last five years, so thank you, Mario, for that, recognized by the strong appreciation of the stock, that's true, not enough yet, but that's true. But the question is, what are the main challenges for the bank for the next five years?
One of the very important questions is the whole succession process. Santander has created a succession that was noiseless, that was basically done without -- with one of the best candidates that we have.
I have absolutely looked, and as a group, as part of the governance, together with the board, local board, in groups board, external candidates. I'm completely convinced that Mario was the best choice.
I -- he has been -- I hired him. He did not necessarily have a broader experience in retail over portfolio of this size.
Phenomenal quality banker, had spent a number a year in Citibank, Morgan Stanley, and Goldman Sachs. You're going to have a chance to meet him in the first quarter.
But more importantly, over the last couple of years, he basically took -- I gave him the most challenging job, which was the turnaround of the SME business. Not only he did that, but he also showed levels of leadership and desire to lead the company to a whole -- to a new phase.
Again, he's been part of the executive committee over the last six years. So, no big changes conceptually, but still a big generational change.
He's 47 years old; I'm 61. So, he will see the world differently.
He will certainly bring his own flavor to a number of aspects. But I'm absolutely convinced that not only succession was done in a very nice way.
We didn't have anybody leaving the company abruptly; the entire management team remained because everyone believes in the story and everyone sees something there as one of the most challenging from opportunities, platforms in the country. If you look at the number of subsidiaries that we have opened from start, we launched the company of benefits, bank, which last year already had 0.5 million active cards and increasing over 330,000 merchants being a credit to be able to use bank card all done from scratch.
So, there is a culture of being able to be builders. And so, I think succession is a good point to mark.
Gustavo Sechin
Thank you, Sergio. So, our next question comes from Chito (ph) from Goldman Sachs.
The city ratio is now below 12. What level do you feel comfortable operating with, and what does that imply for dividends?
Angel Santodomingo
I mentioned a little bit before the levels of core equity and BIS ratio linked to the risk-weighted asset growth and payout, etc. What with I feel comfortable is a core equity of around in between -- what I always said, in between 11% to 11.5%, 12%.
We're going to be in that range the full year. We will probably be also well above the 14% in the BIS ratio between 14.5% and 15%.
As you probably remember, we did an issuance of Tier 2 subordinated debt in November, and with those ratios, and to maintain the ratios, given what I mentioned before, the return on equity. Given the risk-weighted asset growth, probably payout will be in the region of 50%.
But the main objective will be to maintain those levels of capital that I said, okay.
Gustavo Sechin
Thank you, Angel. Our next question comes from Chito (ph) from Goldman.
Do you expect the further pressure on trading results from rising rates?
Angel Santodomingo
Well, this is a good question. I did address a little bit throughout my speech, but it is probably worth mentioning.
The first thing you saw in the fourth Q, the NII had a decline because the NII [Indiscernible] markets had a decline. But how did it decline from a [Indiscernible] fourth Q, 3Q and 2Q.
Putting numbers to these, I think the last Q was R$2.5 billion, R$2.6 billion and we have -- this was extraordinary as you said in 3Q. 4Q we went down back to our normalized or average number, which is in the region of R$1.7billion, R$1.8 billion, R$1.5 billion, which explains fully the decrease of NII, because NII sometimes had a strong performance.
Going forward and given the movements that we have seen in interest rates and in the deal [Indiscernible], which as you know is strongly tipping during this year. Then we negative slope in the following years, I would expect that the NII from markets will care for our weaker result during this year.
We do have and a strong, as you know, treasury department, which is over-performing and that should continue to do into 2022. But the [Indiscernible] side that you always question in this part of the questions of the Q&A will obviously perform in a weaker way compared to 2022.
I would expect an NII from markets weaker in 2022 compared to 2021, yes.
Gustavo Sechin
Thank you, Angel. Our next question's come from Pedro [Indiscernible] look you from Itau BBA.
Renegotiations, Santander has launched a national-wide [Indiscernible] program for actively calling retail clients to renegotiate their credits. Can you discuss more of this program?
Is there a rule for term for how much your provision for retail corporate renegotiation?
Sergio Rial
I'll take that one. Piedro, thanks for the question.
Thanks for your work. I've been following your work, so outstanding quality, so well done overall, not necessarily Santander.
Mario and I, and the rest of the team, as we were pretty much attentive that I think curation was going to happen -- was already happening 2021 in terms of credit quality. We wanted to start the year ready.
And we were very fortunate in doing a couple of things. Not only the campaign, but also the marketing content behind it, which was the notion of you have the launch of Big Brother Brasil which is still very popular in our country.
We were creative to bringing former winners of the same reality show, which despite the price that they had won, all of them had financial problems. We wanted to make a point that the fact that you earn money, that doesn't make that you get rid of financial problems, you need more than that.
We came with the program. This program has yielded in terms of new renegotiations, over R$700 million.
We normally run -- I'm not going to give you the exact number, but somewhere between R$1.8 billion to R$2.8 billion a month in terms of renegotiations. So, 700 is a very significant number for one specific campaign.
It proved to be the right thing to do. Again, we are not yet completely – we just don't know how the R$400 the new government subsidized systems program is going to influence those repayments.
So that's still a no-no. If we look at the last two years, it has been very positive and favorable, but we don't know how the consumers are going to behave specially on the back of inflation that is eroding the capacity of people to buy more critical stuff like food, energy bills, and so forth.
Operator
The Q&A session via telephone is open now. One question per participant only.
Please wait while we gather the query requests. Our first question comes from Marcelo Telles with Credit Suisse.
Marcelo Telles
Hi. Good morning and hello, everyone.
Sergio, I'd really like to start here, just thanking you for all the work you've done at Santander and you're leading this incredible transformation, which I'm pretty sure it will be part of case studies on how to transform a bank. And I know that's a lot of hard work and I want to wish you all the best in your new role.
So, congratulations again. My question is regarding the competitive environment.
Of course, all this year it is always like someone going concerned right about potential new players potentially bringing down credit spreads. And at least the latest data that we're looking, we're not seeing that.
If you could comment a little bit on how we're seeing compete -- and the impact on credit spreads going forward, especially now coming from the digital banks? How do you see that's on them versus the digital banks?
Sergio Rial
Okay. Marcelo, nice to hear you.
I thought you were not on the call, so it's really nice to hear you and I think -- I appreciate the words, but I would also like to give back the words to you because you are probably one of the very few who truly believed that what happened could have happened. So, thanks for believing.
I would say Marcelo, a couple of things, I think on the wholesale side, on the corporate investment banking side, I think you're going to see quite a bit of pressure on spreads because by definition there's going to -- there's not going to be a lot of demand for credit. I don't see it.
I don't see significant investments happening in the private sector as of today, particularly the large companies in Brazil who have done a phenomenal job in improving their balance sheets over the last couple of years. So, I don't see companies’ borrowing necessarily.
So, company investment banking aside, pressure on spreads on the consumer side, not necessary. I don't see it.
I think credit is going to remain scarce. The banks have done a phenomenal job during the pandemic.
But if delinquency levels increase, there is going to be naturally in the system higher level of attention and care. I don't see the pressure on spreads on the consumer side necessarily, but I do see on companies in general, particularly those who had strengthen their balance sheet.
I don't see current credit demand from large corporates in the coming quarters. That's how we see.
Now, the digital banks, I think that's a broader discussion. I can't speak about them, but I think, my reflection is we are getting to a world that is indeed the fact, increases rates by more than six times where people are already even discussing that seven times can still be possible.
I think there will be important implications to the rest of the world as we all know. And it's not very clear all the different co-relations to the financial system, in particular to the value of liquidity.
I think the value of liquidity will fundamentally change. Those who are a little bit older like me have seen that in the past.
And those who have been a little bit older than me remember the U.S. and I'm not in any way suggesting that, but with rates in double-digits back in the '70s.
So, inflation seems to have arrived, and that's just part of the knock-on effect of trillions of [Indiscernible] over the last two decades since 2008. So, this is going on for a number of years and some of the consequences are going to come and we're going to have to live them for the coming years.
Gustavo Sechin
Thank you. I would like to thank everybody for the interest in our call.
We have a couple more questions, but due to the time, we would like to give you Sergio, the words for final remarks. Thank you.
Sergio Rial
Thank you. First of all, let me correct, just to be accurate, Mario's 46 and 47, so I still want to keep him as a friend.
So, he's 46 years old and I think -- I don't know if Mario has joined us, but I think he probably joined us now in the room. I'm not in Sao Paulo today, I'm in London.
So, I would like to ask each and every one of you to give Mario the level of challenge, trust, doubt, confidence, total lack of confidence that you have given to me over the last couple of years. And I will be as close as Mario wants me to be as the Chairman.
I am in Santander. I will ensure that everything that I have learned, I'll be putting for him to bear and for him to make his own decision as the CEO.
So, Mario, maybe you want to say a few words and I'm sure you're going to need them in the first quarter.
Marcelo Telles
Thank you very much, Sergio. I just wanted to say it will be a pleasure to get to know each one of you.
We're going to have discussions with investors, bilateral discussions, group discussions. Sergio has given me the opportunity to lead this great company and we will definitely continue that transformation has begun six years ago.
We have a great team which goes well beyond myself as it should be with Sergio as well and I will be very happy to lead the Executive committee, our 50,000 blames (ph) as we call towards a new cycle of continues growth and continuous transformation as well. And it will be a pleasure to get to know each of you.
Thank you very much.
Operator
Banco Santander Brasil conference call has come to an end. We thank you for your participation and have a nice day.