Banco Santander Brasil SA
BOVESPA:SANB3
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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. We would like to inform that questions received via webcast will have answering priority. [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 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. Andre Parisi. Please, Mr. Parisi, you may proceed.
Good morning, everyone. It is my pleasure to welcome you to Santander Brasil's First Quarter '18 Earnings Conference Call. Once again, we had several important achievements will be presented by our CFO, Mr. Angel Santodomingo. So let me turn it over to Mr. Santodomingo.
Good morning, everyone, a pleasure being here again with you presenting our first Q '18 results. You've got the agenda, which is composed by key messages. After that, I will go through Santander Group's results, a brief overview on the Brazil's macro scenario, and focusing myself on the highlights of the quarter to end with a final wrap up.
So in the Slide 4, as you may see, and as a clear result of all efforts made in the past few years and that are continued to be done, profitability has kept rising and reached the highest level since 2010. We are glad to show that our return on equity stood at 19.1% in the first Q of 2018. I would like to underline that our profitability has increased based on a sustainable and recurrent business. We still have significant opportunities regarding businesses, but our goal continues to be to improve in the future.
On the Slide 5, we show that our good performance is absolutely supported by our focus on organizational culture. Santander is presenting high levels of engagement and employee commitment, which is clearly supporting the sustainability of our business. I would like to share with you 3 pillars which uphold these 88% of engagement, quite a high level. Firstly, we have been vocal that to speak clear, to speak up is an essential condition. It means good and simple communication to establish and pursue success in the relationship with our teams. Second one is meritocracy. Performance is always connected to results, and we are constantly working to achieve higher goals. And thirdly, culture and leadership. Our people should build and strengthen their own professional lives. This is what we call intrapreneurship. The most meaningful example on this front is Academia Santander, a tool where every single employee is able to trail its own training and self-capacity journey. Numbers of internal multipliers, 73% of the total training is done by internal multiplier, plus employees trained, 95% of employees trainer in the bottom of the slide. It speak for themselves.
On next slide, our culture is skilled towards only one main aim: customer experience. In this sense, I am presenting to you for the first time how we measure this. And we measure this through the NPS, net promoter score. We have shared a few quarters ago that we were measuring the customer experience satisfaction level on a daily basis under this methodology. Our aim is to continuously improve our NPS as a way of having a better client experience. These years -- this year, sorry, 2018, incentives for 100% of our employees are linked to this metric. We are all linked in our valuable remuneration to this objective. As you may see, we have improved by 5 points year-on-year to 49 points. But here, I would like to address 4 key points. First, we believe is a key improvement for the sector on how clients are and will be served looking forward. Second, and as I said before, is the first time a financial institution discloses here in Brazil its NPS number, how it's evolving, and how it will evolve. Third, it is important that you consider how this is measured. In our case, we measure it on a daily basis, we measure it in all our branches, and we measure it in all our channels of client attendance.
And finally, and probably most important, the key issue here is the delta, how that number varies going forward. Are we improving the service to the client, or are we not improving it? And that is how we will measure it looking forward. This is a great achievement, which came as a result, this improvement of 5 points I mentioned before in our case, as a result of our strong client focus combined with the launch of strategic products, adequate digital and physical channels, and compensation metrics for our teams. In line with this, I would also like to draw your attention to Santander's latest innovations. We have just launched the Santander One Pay FX, a new real-time international payment service using blockchain-based technology, available to retail customers in different countries. We also unveiled the flagship branches to the SME segment, enhancing the interaction with customers and providing a complete transformation in the customer experience.
Next slide shows that we have succeeded on developing innovative and customer-oriented solutions. Santander Consumer Finance has showed an impressive performance, boosted by our digital platform, +Negócios, which has totally disrupted the auto loans dynamic. More than 1.1 million simulations per month on car financing, 21% year-on-year growth in origination, and 23.6% of market share were the main outcomes from this breakthrough innovation that took place already some time ago. Having said that, we are proud to continue providing the best experiences for our customers through our newest stage of innovation now based on our own WebMotors, the largest portal, our Internet portal in the auto segment in Brazil, which hosts every month more than 10 million unique visits. We have launched, this is, I will call it, 2.0 evolution, we've launched the Cockpit, a multidisciplinary platform which gathers solutions to enhance the entire car buying and selling journey, including CRM, lead and inventory manager, market intelligence, advertising advice, and other features. We are sure that this is going to take us further up in our client experience.
Moving forward to Santander Group results, net profit as you probably have seen because it was announced yesterday, I'm not going to stop here too much, for the first Q amounted to EUR 2.1 billion or BRL 8.6 billion. The results of the Brazilian unit are important for the group as a whole. In fact, Santander Brasil accounted for 27% of the group's earnings in the quarter.
Moving forward to the macroeconomic scenario. The economic recovery in Brazil is gaining breadth and depth, encompassing all main activity sectors with advance in both household consumption and investments. The economy seems set to post an improvement this year, although still at a slow pace. The moderate but steady improvement in economic conditions make us optimistic when looking at the future. Lower for longer interest rates with controlled inflation, job creation and sound external accounts, indicates a country that may present positive evolution in the next few years. The combination of these low rates, low inflation, relatively stable currency and economic expansion, added to a reduced presence of the government in the trading market, creates a favorable environment for operations in the capital market.
So now going into the Santander first Q '18 results on the next slide. We bring to you some details of our performance in the quarter. The net profit increased by 25% year-on-year, explained by a host of factors. Just to name a few, net interest income, NII growth, mainly supported by individuals loan portfolio expansion. Greater customer loyalty, as mentioned before, resulted in higher transactionality supporting fee revenue growth. Provisioning under control as has been during the last years and quarters, and productivity gains resulting in a better efficiency ratio
On the next slide, as you may see, net income totaled BRL 2.86 billion in the quarter, 4% Q-on-Q, up and 25% above first Q '17, as mentioned. We have been delivering earnings growth Q-on-Q for more than 4 years in a row. These set of long-term performance underline the fact that we are on the right track to keep delivering sustainable and resilient results.
On the Slide 15, we present the main lines of our results, about which I will go into more detail later on. On the revenue front, NII income increased by 7% relative to the fourth quarter of 2017, and almost 15% on an annual comparison. Fees decreased in the quarter due to insurance and credit costs seasonality, which is a normal issue in this first Q every single year. But advanced by a strong 11% against first Q last year, which is in line with our double-digit growth commitment to this year. On the expense side, although provision expenses increased year-on-year, it remained almost flat Q-on-Q. Loan portfolio growth is key to understand year-on-year evolution and especially, the mixed effect on this loan portfolio growth. General expenses grew 4% year-on-year and decreased 7% Q-on-Q. So in a clear control on this area. I will elaborate on the main concepts on the following slides.
Slide 16 shows NII evolution, net interest income evolution, which surpassed BRL 10 billion, again 15% higher than last year and 7% better than last Q. The highlights of the quarter are: credit NII, which came as a result of not only the solid loan portfolio growth, but also wider spreads, the oldest concept reflecting favorable results. And I have to underline here that we have 4 main concepts: getting its prepayment of receivables business, capital remuneration, treasury, and ALM. This solid performance fully offsets the lower revenues from the funding side due to the lower Selic levels. It is worth mentioning that the positive evolution of credit spreads is explained by the strong mix shift process of our loan portfolio towards retail segment, SME included here, which naturally presents higher spreads and coverage. The retail segment now represents 68% of the loan book compared to 63% one year ago. On the other hand, funding spreads showed [indiscernible] in the quarter due to a negative effect from the lowest Selic rate levels, the funding mix and also pricing. We keep focusing -- focused position a successful liability management strategy.
Next slide will look into the loan portfolio. Our expanded loan portfolio increased by almost 9% in the year and 1.7% in the Q, which we consider a strong performance. According to the latest Central Bank data, I must underline that total system loan book reduced on both metrics, year-on-year and month-on-month. Compared to the fourth Q '17 performance, a positive evolution is observed in all segments on a yearly also basis. Individuals portfolio kept accelerating and expanded by 21% in 12 months. Payroll, agricultural, credit card and mortgages were the main growth drivers. Consumer Finance once again delivered outstanding figures. It expanded 4% Q-on-Q and 22% year-on-year, continuing to reap the benefits of our auto financing digital platform and individual pricing model, as I mentioned in my introductory words. The SME portfolio keeps on gaining traction, accelerating from the fourth Q with 5.6% year-on-year increase. We believe that combination of commercial focus and more compelling offers amid a better macro scenario ahead will pave the way for portfolio expansion. And finally, the corporate portfolio, which is still on a year-on-year negative variation, but reducing its contraction pace as may be seen with a small but positive Q-on-Q evolution that used to be negative in the past -- in the few past quarters.
On Slide 18, you can see how our funding has advanced in the quarter. Funding from clients increased by 3% Q-on-Q and 5% year-on-year, a clear result from our intense efforts to enhance customer engagement levels. Except from the most expensive instrument, financial bills, [Foreign Language], all lines increased strongly in the year, reflecting client activity and loyalty. Highlights are time and saving deposits, which grew well above the system over the last year, I would say almost doubling how much the system is growing.
On the next slide, we believe that fee revenue growth is a consequence of more engaged customers, adequate pricing, and improvements in the quality of our products and services, altogether culminating into increased transactionality. In the annual comparison, total fee income increased 11%, with positive performances especially on current account cars and insurance. The drop of 2.5% in the quarter is explained by the seasonality in cars and insurance. We remain confident that fee revenues will continue to grow at a double-digit rate this year.
In the next slide, we see Santander's asset quality. In general terms, we see improvements or stability -- both improvements and stability. The short-term NPL, that which is in between the 15 and 90 days, deteriorated a small 10 basis points due to the seasonality we always have in this quarter in the individual segment. In any case, let me underline that it is 90 bps below the level of 1 year ago, evidencing the asset quality improvement. In the corporate segment, the earlier year's NPL kept its improvement process for the fourth consecutive quarter. I anticipated to you, if you remember, in the fourth Q '17, the last year's results call, that in a specific case that had provoked the peak of the NPL over 90 days ratio was solved. As you may see now, the ratio returns to previous levels as announced. Individuals NPL, on the other hand, which is the yellow line, was stable at 3.7% for the third consecutive quarter. In our view, this is an undisputable evidence that our risk models are highly trustable, giving us confidence to keep on growing our business. As a consequence of the decline in the over 90 days portfolio in this specific case I mentioned, the coverage ratio increased to 216%, which in our view is a comfortable level.
In the next slide, you'll notice that the loan loss provisions net of recoveries are flat when compared to previous quarter, and increased year-on-year given a lower level of recoveries compared to first Q '17 abnormal level. Compared to the fourth Q to the last Q, the cost of risk increased -- sorry improved, not increased, improved 10 basis points to 3.4%. We are continuously showing stability in this ratio, which combined to the portfolio mix shift is helping us to improve our profitability.
On Slide 22, we analyze how expenses have evolved. As we have been stating, Santander Brasil continues to focus on cost discipline and lean mindset. We keep industrializing our processes. Total expenses dropped by 7.3% in the Q, in the quarter, attributed to seasonality in both personal and administrative expenses on top of the normal control we do in these lines. In the last 12 months, administrative expenses remained virtually flat while personal expenses increased 5%. All in all, are close to inflation levels in the case of personal expenses and a negative real terms in administrative expenses line. In a yearly basis, total revenues grew 3x faster than expenses, 3x faster than expenses revenues growing, indicating that we are increasing our operating -- or taking advantage of our operating leverage. Looking ahead, we expect costs to be somewhere around inflation. Also, obviously, the level of commercial intensity that you may perceive of the bank will continue to put pressure here.
The next slide summarizes our performance ratios. All in all, these metrics have shown good evolution, positive evolution. As a consequence of what I commented in the previous slide of our operating leverage in the P&L, our efficiency ratio is at a historic best level, reaching 40% in first Q of this year. The recurrence ratio rose to 86% in first Q '18 versus 80%, so is 600 basis points better than 1 year ago, and compared to 80% -- almost 82% -- 81.8% in the fourth Q '17. Again, as I always share with you, bringing more predictability and resilience to our results. As I mentioned before, thanks to all these advances, return on equity has gone above 19%, so it's 19.1% for the first time since 2010.
In the next slide, you may see that our liquidity and capital positions remain at comfortable levels with stable funding sources. The loan-to-deposit ratio stood at 88.5% in first Q '18, while the BIS ratio reached 15%. Attending market demand, we also are now disclosing for the first time, I have commented verbally these ratios a lot of times, but we are indicating it on the slide, on the presentation and on our financial disclosures, our core equity Tier 1 fully loaded ratio, which stood at 13%. Finally, first Q '18, we also declared BRL 600 million on interest on capital dividends that you probably have already noticed, continuing with our policy to pay out shareholders on a quarterly basis. I will underline that this is a 20% increase when compared with what we declare in first Q of last year.
So as we wrap things up, I would like to bring your attention to the main highlights of our first Q '18 results. Return on equity, our key metric and our key focus, is on 19.1%. So, and as I mentioned and I think you already perceived, a substantial improvement when compared to any moment in the past. Strong revenues reflecting customer activity and linkage, continuous -- and continuous improvements in the key businesses. Asset quality under control, evidencing one more time our excellence in risk modeling. Net profit growing 25% year-on-year, representing the sustainable and recurrent manner to add value for shareholders, customers, employees, and communities, our stakeholders. Greater productivity remains at the top of our priority list, as our efficiency ratio has reached the best level of our history. We remain well positioned to deliver sustainable results powered by a well-defined business strategy, organic growth, and disciplined capital deployment.
Thank you for your attention. We are now available to answer your questions, but I first pass the floor to Andre Parisi, our Head of Investor Relations.
Thank you, Angel. Just before the Q&A session, I'd like to remind you that Santander Brasil is going to host its first Investor Day on October 31. It'll be a great opportunity to meet the bank's top management and also executives with different roles within our ecosystem. At that time, we will share with you how the organization achieved recent results and also how we are paving the way for the future. During the event, we will present our growth story, considering customer experience, innovation and efficiency. It'll be a pleasure to see all of you here. So I invite you again to schedule Santander Brasil Investor Day on October 31, which will take place in São Paulo at Santander Theater rooftop. And now we are available to answer your questions.
[Operator Instructions]
The first question is from Thiago Batista, Itau BBA. Santander Brasil had a slight increase in the level of additional provisions, roughly BRL 100 million quarter-on-quarter. This increase was due to a specific case of expected increase in delinquency. And second point is NPL formation contract considerably quarter-on-quarter even if adjusted by the specific case in 4Q '17. Could you please comment how would the NPL formation have been, considering only the individual segment?
Thiago, now the level of provisioning, as you probably have seen, is kind of even constant. If you only see provisioning in this Q, effectively it went down compared to the previous Q, from BRL 3.3 billion to BRL 3.2 billion. When compared on a yearly basis, what you had is kind of an extraordinary or quite a high level of recuperations in the first Q of '17. In any case, in terms of cost of risk, the levels of BRL 3.2 billion, BRL 3.3 billion, BRL 3.5 billion, BRL 3.4 billion, I mean we are around those levels in terms of cost of risks, no issues that I would underline that would keep me kind of worried in terms of how we see things going forward. The specific case of BRL 100 million that you're mentioning on your Q, I don't -- there is now nothing specific case. It's just business as usual. There's nothing really to be underlined in terms of both provisioning, quality, et cetera. In terms of NPL formation, what I would underline is that is probably one of the best quarters in the last years. I mean if I'm not wrong, and I'm speaking here out of memory, we're below 1% in NPL formation in this Q, [ 1.90 ] -- high 90s, high 98 or around there, which again shows that it is not only about provisioning, it is not only about balance, it is about both write-offs and renegotiations that we are controlling the full package, let me call it like that, the full package of quality.
Next question is from Jorg Friedemann. In addition to the strong growth of retail portfolio, which helped this present quarter, we also observed an improvement in the line of ALM trading versus 4Q. The line order in NII BRL 2.6 billion in first Q '18 versus BRL 1.9 billion in the prior quarter. What do you see as a recurring level of this line item order in NII after the benefits on the current ALM position are over following 3Q '18?
Okay, Jorg, let me underline what I mentioned in my speech. And then I can go a little bit more in depth. Please remember, because to some point we have been focused only on one part of what we would call the NII others that we present here. Let me recall to you, and this is important for everybody that is connected here, we have 4 concepts there. We have the discount of receivables from our acquiring business, from Getnet, that is included there. It's an important part so it's business related. So we have growth business related. We have what we call capital remuneration, the remuneration of the capital. We have the treasury activity that is also coming from our wholesale banking activity, with clients and nonclients. And we have what you mentioned in your question, ALM activity. I have shared with you in the past our ALM, but I will underline that you have different concepts here, business-related concepts in which obviously they are putting outwards pressure in terms of evolution. Now, these recurrent, as you can see, depending on 4 factors, the recurrency of these line tends to be volatile. Having said -- part of that, obviously, the acquiring business is not volatile, it's growing a lot. Remember that Getnet has been growing during the last at least a couple of years, 3 years, over 30%, 35%. Now this recurrency of this line comes in -- trying to see what -- how it has performed in the last 2 years, 3 years. I would say the average is moving up also because of the business-related activities. If you take an average, probably we're somewhere, I haven't calculated it, but I would say somewhere above the BRL 2 billion. But I will say that going forward with some volatility, we should tend to see this type of evolution. Remember that we had a very good first Q, then we had a lower fourth Q, now we have another high first Q. There's going to be some volatility around this part of NII. I think we try to be quite transparent here. We're sharing with you every single element of the NII. So I'm sharing with you credit, I'm sharing with you liabilities, and I'm sharing with you others. So what I have discussed here with the team is that we have to keep on with that transparency so that you can easily see how we are obtaining our revenues and our NII.
The next question is from [ Carlos Altos ] from Banco Brasil. Can you give more details on the effective tax rate? In my calculations, the rate jumped more than 8 percentage points quarter-on-quarter, reaching 35%. What were the reasons?
Well here, I mean, let me elaborate a little bit. I mean, remember first that we -- the goodwill amortization tax shield finished sometime, if I remember well, in October last year. So the quantity of amortization that we had on a quarterly basis has gone down from somewhere around the BRL 450 million to somewhere around the BRL 60 million. Okay? So that obviously has an impact on the tax rate. And then, after that, as always, it depends on the interest on capital we pay, it depends on the different factors that affected this part of the tax rate. We continue to say the same thing. I mean, it tends to have some volatility also in between quarters, but I would say levels are I don't know if it's going to be around 30%, a little bit more than 30%, 31%, 32%. I mean, levels around 30%, 31%, 32% should be what we should consider going forward. Again, please, let me accept my disclaimer here because as you can obviously anticipate, it is not something easy to estimate, not for you, not for us in some cases because you have things that are not predictable. But I will say around the 30%, 31% should be the level you could work with.
The next question from Eduardo Nishio, Brasil Plural. Santander Brasil reached an ROE of 19%, well above the target of 15.6%. What's the new target? With all the improvements, how much more ROE can improve?
Well, it's a good question. I mean, as you're saying in your question, the target that was a target for 12 -- for this year, for December '18, this 15.6% that was set up, if I remember well in the September '15 in the Investor Day of September '15 of the group. And we, I have said it with you, we surpassed that level 1 year ago, almost 1 year ago. I wouldn't even speak of that guidance because it's not a guidance, it's a past kind of objective that was already achieved. I always answer with the same -- in the same line here. One of the strong changes this bank has had in the last 4 years is capital focus, capital -- total capital management, how we use capital, both on the stock, both on the margin, how we measure profitability? As I said, the profitability concept is totally embedded in each different segment. In each different business, we measure people by profitability. We measure people on how they are using capital and how that capital is being profited. And that is continuing because it not only applies to, I don't know, household banking or corporates, which are the easy ones, it applies to agro, it applies to real estate, it applies to the retail part of our business. So that kind of management, I can assure you, that is going to continue. We measure, I remember you, we measure continuously economic profit, and that is measured not only by business line, by segment, by clients. So we know who is adding value and who is destroying value and what we have to do to kind of change that trend. So this is the reason, at the end of the day, why a bank that used to be structurally on the 11% and 12% return on equity today is above 19%. And so what I can assure you is that we will continue to put focus on these metrics. Now if the question is can I extrapolate what I have seen in the past going forward? Probably that's going to be rather difficult given that strong performance.
Okay, the next questions we are going to open the phone calls.
Mr. Carlos Macedo from Goldman Sachs would like to ask a question.
On the first question, I'd like to go a little bit deeper on the margin and the other line that Jorg mentioned. I know you mentioned the 4 factors. Just trying to get an idea of each one. Obviously, the prepayment of receivables at Getnet is powerful, but we don't know exactly the level. But Cielo does around BRL 500 million a quarter. It's 4x the size of Getnet. So I can't believe that it contributes that much and was responsible for the entire increase. In the past, you mentioned that every 100 basis points of decline in the Selic rate meant BRL 300 million more in this line from your ALM position. Just wondering if that relationship holds? And as a result, should we -- once that wears out, what exactly will be the, as Jorg said, what exactly will come out of that as a result of the end of the position? Second question, coverage is still around the 220 level. You mentioned that NPL, if you take out the blip last quarter on the corporate side, had been pretty level for the last 3 or 4 quarters. It doesn't look like it will get any worse. I mean, it maybe in mix a little bit a little bit, but in terms of each one of the categories it looks like, if anything, a little bit better. But is 220 the right level? Do you see any opportunity for you take a little bit of relief on provisions, go to a slightly lower coverage level? What is the view there?
On the NII side, I didn't try to kind of put more focus on one or the other. I just tried to give a little bit more transparency of what is behind that part of the NII. As I said, NII is -- the receivables parts are growing because of our acquiring business. And we have the other 3, and the volatility comes more from both, I would say specifically the treasury part more than from the ALM. The ALM, you're right, we share the sensibility and I have been also totally kind of clear here. What we had, how we're positioned, the ALCO portfolio doesn't move in terms of keeping the duration we want to keep so that we match the balance sheet and we avoid any kind of risks in that sense. And that continues, and the only thing we do is we try to maintain that duration so that the matching continues there, whatever the level of interest rates we have in the country. So it is obviously, the interest there is to keep that balance sheet matched and with the sensitivity, I have shared with you. You were right. In terms of the coverage, I always mention for us coverage is an outcome. Okay? So, you're right, we're comfortable at the 220 level. I also share with you the idea that we shouldn't move too much, okay? But it's a little bit of the other way concept. I mean, we do not manage coverage. We manage clients in terms of risk, we manage rating of clients, we have our own conservative views in terms of provisioning on top of the regulatory rules that we obviously match. And with all that, the discussion is how much we have to provision. And believe me, the last value we look at is the coverage ratio. I mean, we are more on the line of let's have the provisions we need made, and we will end up with the coverage that we -- supposedly we need. As you know, this is not in local criteria, but in the IFRS criteria, or what we call here the Spanish criteria, which is the group criteria. We already started from first Q with IFRS 9. So which is probably one of the main accounting changes we have seen in the sector in the last years. And that means that we have also evolved a lot in, again in knowledge of the concept of what we could say actual loss and expected loss. So all that area of quality and coverage make us, as I said in the call, quite comfortable.
Our next question comes from Mr. Jorge Kuri from Morgan Stanley.
Two questions, if I may, and the first is, can you give us a view on the acquiring business, given 2 things that are happening. One is recent regulation on interchange. What does that mean for both your credit cards fees as well as for your Getnet fees? And what if anything you expect of additional regulatory changes going forward, such as also a cap on interchange on credit cards. And on the competitive side, we've seen a lot of, at least, visible moves from new entrants and incumbents trying to step up their game and be a bit more aggressive on the press and for lower income segments. So that's the first question. And the second question is on the Fintech world. We're also seeing a lot of competition on the Fintech side, a lot of newcomers offering free checking accounts and trying to take away some of the market share from the incumbent banks. Some Fintech companies being able to go inside of your systems and pick and choose your best clients and offer them better prices. What -- how do you think that's playing out, and what is the strategy of Santander in order to maintain profitability amid the Fintech world that is trying to disrupt your business?
Jorge, in terms of our acquiring business, I will say first in terms of regulation, yes, as we all know, we have seen this new regulation on the debit side. I wouldn't say that as a whole, as a whole the business, because as you know it's a cap for the fees, 0.5, as a whole the business will be structurally impacted. But I mean, we have to accept that in this area, regulation will evolve during the next quarters or years, or will change more than evolve. And that may affect different business -- different parts of the business. I would say that here probably the most important thing to analyze is, how entities are, or how we are diversified in terms of not depending on one unique source of revenue, first. How you are penetrated and linked with clients, second. So, how, first, how recurrency, what's the level of recurrency you may have on the revenues, and again, what is the impact at the group level that this could have? For me, it is difficult to elaborate on what may happen in terms of regulation and what that impact will have because, I mean, there are discussions in all directions. As you know, I always mention the same point. I see Brazil clearly evolving on the regulatory front and I think on that sense, on that direction, our central bank has a very good team, which is, I would say, quite market-oriented and friendly, and that probably this will evolve in the following future. I -- if you ask me, I see the financial system in Brazil different in, I don't know, 3 or 5 years time, which will be very positive. I think it will be very positive for the country to have a more kind of flexible, free, competitive, non-directed financial system with a lot of the limited things that we have today probably being changed, freed, or seen in another way, so moving towards a concept of a more open or developed financial market. I see that as a positive. Obviously, we'll have things that will be positive for us, negative for us, neutral for us. We'll have things that will result in negative impact, but long term, because of activity and volume, are positive. I mean, we have to admit that, that is coming and that we'll have to bear with that. But again, I'm positive in that because at the end of the day when these things happen, the structural change that the country achieves. Looking at the medium-term, which is how we all should look at this, looking at the medium term, it is so positive for the capacity of the country to evolve financially, to leverage on the financial capacities of the banks. And to use that financing capacities of the banks to grow and to increase growth going forward are quite positive. On the fee side, yes. I mean, you're right, we have a smaller entrance that -- I mean, the way of capturing market share, one of the main focuses has been prices. We are not on that fight. We understand that you have some percentage points of market share that are quite price sensitive, and that are quite price sensitive for the good and for the bad. Because I mean, when at some point, when those percentage points of market share move in terms of price because whoever it is tries to be profitable and not unprofitable, well, the sensitivity to the price is so high that they tend to be very volatile moving into in between players. So we try not to be in that kind of area of the market, but I mean, you're also right on the main question you were mentioning, that there are some parts of the market in which we do see fee pressure. We're trying to keep our MDR, we're trying to keep our revenues and profitability, but it has a lot to do also with the full offer. I mean, focusing only on part of that revenue would probably be limiting. I would say that, given the full range of services that today we are starting, and I will link this with your first question in terms of Fintechs, given the full range of services that we may offer today to our clients, not only MDR, which is a fee, because you have a POS, but I mean, all of which goes around the full package of service in terms of how they manage their business, their small or big business. That capacity of offering a full package of services will generate more linkage and fast revenues, more than only focusing on one type of revenue. And again, I also linked that with my first part of the answer, which is the more diversified you are, the better looking forward in terms of regulation. So with the Fintechs linking with the acquiring business and in general terms what are we doing? I don't -- there are part of the market that tends to see Fintechs as an opposite to banks or as a contrarian to banks or as an enemy for banks, I don't see that, to be quite honest. Obviously, I always say, no, I mean Fintechs normally -- at banks we -- we banks normally have our biggest trends today is large platforms of clients. Fintechs, what they have is very good ideas sometimes. So I don't see why these 2 things shouldn't go together going forward. And this is how we envision it and how we approach our relationship with Fintechs. I see them, we see them as partners, as potential partners, and we have several initiatives here. We have initiatives that we're building on our own with Fintechs or based on Fintechs, and there are other initiatives in which we promote the linkage with them. We have what we call Radar Santander, which is an initiative by which we end up from 200, 300 potential Fintech ideas. We end up in a close selection with 5 of them, we mentor them, it's not only pitching and selecting them. We mentor them during several months and we end up being a partner, being -- them being a provider, a partner, a JV, we buy them, we close relationships with them. So I see that the evolution going forward is a world in which we all will have to be quicker and with better service, and Fintechs can be clearly a good partner, as I said.
Our next question comes from Mr. Marcelo Telles from Crédit Suisse.
Congratulations on the results, and it's incredible, the ramp-up in ROE over the past quarter and years. I have 2 questions. The first one, in light of a more, let's say, uncertain election scenario, how do you think that would affect your risk appetite, particularly in the consumer and the SME segments? And my second question is, how -- you've been clearly gaining market share in the market, and for how long you think that market share gains can be sustainable, as it seems some of your competitors are starting to become more aggressive, particularly on the consumer side? Those are my 2 questions.
Marcelo, thank you for your words. In terms of elections, I mean the situation with elections, as you all are aware, is that obviously, it is too soon to anticipate what may happen. We are just starting the process of knowing who will present. I would say that, I always say this idea, both internally and externally, I would say that Brazil has a good chance of being quite an attractive market and country for the next years. But I don't want to be kind of overly optimistic in this sense because this is not the way that banks should position. We do not position ourselves in terms of how -- in terms of risk how things will probably evolve. I think that we are growing, as you said, and we are capturing markets, and we are growing more on the retail side, on the SME side, because: first, we are open for business; second, we have the capital to do it; third, we have been able to price risk correctly.
I'm not saying that the others don't do it, I'm saying that in our case, we feel comfortable. And the best example is that I think it's already 12 quarters now that we have the lowest ratios in terms of quality, so the best ratios in terms of quality of the portfolio. And this is, I don't want to be the best, it's just that we are comfortable in how we are pricing the risk that is coming. On the general issue you are asking, confidence levels I think is a key variable to follow. For me, how both industrial and consumer confidence evolves during the next quarters and year will be clear -- will be key to anticipate how the economy will grow, how consumption and investment will perform, and thus, how we will all see volumes, and financing, and leverage, and usage of banks, et cetera. But I mean, it's already has been like 2, 3 years of crisis, in which as you've said, we have been growing. We will only grow, and that was my first slide in the presentation, we will only capture market share when it is profitable. We don't want to be the largest. We don't want to position ourselves as -- I mean, we want to be profitable. So for those points of market share that will be available that will be still profitable, we will try to gain that market share. And as you said, it has been the right thing to do. We have presented the car financing tools that we have been continuously launching during these last couple of years that has put us ahead of everybody in the sector. Pricing the risk, it's only 10% of our portfolio. So that's not the main part of our portfolio. Sounds more part of our portfolio, but it gives you an idea of how we are thinking about it. And in all these discussion, we always are speaking of quality, quality, quality. But it has a lot to do also with cost -- operating cost, how you control them, how you optimize processes, how you calculate unit cost, et cetera, et cetera, et cetera, in which we are also putting some focus. So in terms of your second part of the question, in terms of market share, et cetera. If it is, I mean, if it is markets are profitable that comes available, we will continue to boost rate.
Our next question comes from [indiscernible] from JPMorgan.
Just a quick question here on NII again. The others line, Angel, you mentioned that it's basically composed by 4 business lines. Just want to ballpark -- I don't know if you can give this number, but a ballpark of how much each line that you mentioned of the 4 business related lines you present from this others line of the NII, and being more specifically, how much the prepayment of Getnet represents on this line?
I think I elaborated. Thank you for your question. I think I elaborated enough on the NII. I think I shouldn't go further than what I went.
Our next question comes from Mr. Rafael Frade from Bradesco.
I have 2 questions. First on this funding spread, was surprised that in the last quarter, it came kind of in the same level to third quarter given the reduction in interest rate, and now I'm surprised again that it fell a lot. Something that I would expect to happen in the last quarter given effect of the movement on interest rate. So if you could talk a little bit if anything that changed in the quarter or just really the movement of the interest rate. And the second question would be related to your acquiring business. I call my attention that when you look for fees, you present a very strong growth in terms of fees that includes both the credit card business and the acquiring business, so we don't have much split between the lines here. But when I look for Getnet net earnings, it seems that it grew 6% year-on-year. So I would like just to understand if we are comparing the same thing, fees growing 17%, net earnings from the acquiring business growing 6%. And if we are comparing kind of the same things, if -- what explains the big difference between both groups?
Yes, Rafael, you're right on the funding spread. It's what you said. It's interest rates, basically. It has a little bit of mix. It has a little bit of pricing, it has a little bit of everything. But basically we would say it's this Selic evolution which has impacted in that direction. In terms of the acquiring, let me remember you, on the car side, on the fee car side, you have our car business that has been growing strongly. Remember that we have been quite active both in current account and non-current account clients. So that's an important one. On that line, you have also the MDR and the rental fee of our business. And then on the NII others, you have the discount of the prepayments of the receivables. Okay? So looking at Getnet by itself is only part of the business. That's why we put everything on the P&L as the accounting rules are. I cannot -- we have to apply where everything goes in into the P&L. That's why you see that difference. Okay? Thank you.
Thank you. The Q&A session is over and I wish to hand over to Mr. Angel Santodomingo for his closing remarks.
Okay. So again, thank you all for being there. A pleasure sharing with you and the Investor Relations team and myself these results. The Investor Relations team keeps open for any additional questions. And I will see you back in second Q results. Thank you.
Banco Santander Brasil's Conference Call has come to an end. We thank you for your participation. Have a nice day.