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. results. Present here are Mr. Angel Santodomingo, Executive Vice President and Chief Financial Officer; and Mr. André 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/ri, 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 being 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 differ from those in the forward-looking statements.
I'll now pass the word to Mr. André Parisi. Please, Mr. Parisi, you may proceed.
Good morning, everyone. It's my pleasure to welcome you to Santander Brasil's First Quarter '20 Earnings Conference Call, which will be presented with more details by our CFO, Mr. Angel Santodomingo. Now I turn it over to Mr. Angel.
Good morning, everyone. Thank you, André, and welcome to this quarterly results, Santander Brasil's results presentation. Thank you for joining us this morning, and I really hope that you are all doing well. Well, given the current scenario, what I will try to do is, I will comment on the results of the first Q this year in 2020 and as well as the key recent developments to face this new environment. So basically, what I will go through is I will talk about our strategy, followed by a quick look at Santander Group's results, which were presented today. And then I will go into the details of the quarterly results, finalizing with the concluding remarks.
So moving on to Slide 4. The next 4 slides, what I will do is speak about our 4 main stakeholders. This is customers, people, community or society and shareholders. So starting with customers. As you probably have seen during the last weeks, we remain fully committed to serving our clients. We acknowledge that in a situation like the one we are going through today and during these weeks, we banks are an important pillar of society as a whole, and we have adopted our operation in different ways to meet these needs of our customers. We have been announcing a lot of them. But in addition to these measures announced jointly with all the bankers -- all the banks, all the Brazilian banks, we have increased credit card limits for all performing clients. And for example, we are also promoting home equity credit lines. This is a good product to help homeowners weather -- to weather the current crisis, but with very limited penetration in Brazil.
Current situation also has accelerated our digital evolution. We have shortened some of our projects. We have already introduced a broader range of digital products. This is a one-way path as we see it looking forward. Our clients' feedback on our stance has been excellent and quite positive, I would say, so far, and it has been reflected in our NPS, which, as you can see, stands at 58 points in the quarter, finalizing and starting this quarter -- this second quarter already at 60 and over points. So it's clearly increasing throughout the crisis.
On next slide, moving to employees and people. We saw how we managed to change our operation considerably in such a short time. The high employee engagement levels I have shown to you in previous quarters, have been key in increasing productivity, even while working from home. We have done a few different things, including, for example, bringing leadership teams closer to all employees or making medical personnel available to our staff or advancing the 13th month salary. This is the extraordinary salary that is paid here in Brazil, which will be paid in a couple of days at the end of April. In our view, this is a clear indication that the bank is really committed to that engagement coming from our employees or our people.
Moving to Slide 6. This is how we have moved around society or around the country. A special edition of our already traditional Amigo de Valor, which is an annual donation campaign, has been launched with funds dedicated exclusively to 5 hospital projects to fight for the COVID-19. Unlike regular editions, each real raised was matched by the bank. In between other initiatives, together with Itaú and Bradesco, all 3 banks donated 5 million rapid test kits and 15 million face masks, opened a credit line to breathing machines, sorry, manufacturers. And by offering great support to all health care workers, we have developed a specific solutions to their needs with dedicated service and partnership or insurance products.
Finally, on the next slide, I present a first summary of our results. Our loan portfolio expanded by more than 20% year-on-year with 11% year-on-year net income growth. Return on equity for the period yielded 22.3%, again reaching a historic high. With the new scenario we are going through, digital is, as you can imagine, growing even faster than before, while obviously, physical continues to lose steam. Digital transactions already represented 82% of our total, with e-commerce gaining momentum rapidly.
Moving to Santander Group results. I will not talk too much here as they have already been published earlier today. Net profit before extraordinary items or provisions that have been allocated reached EUR 1.9 billion. And Santander Brasil accounted as is already the case in previous quarter for 29% of this group's earnings, so in the relative importance of the subsidiary.
Now moving to Slide 11, which is where we start to present the key lines of our results. On the revenue front, NII rose 12% year-on-year, reflecting the volume that we use here afterwards on our loan portfolio. While on the Q-on-Q comparison, it remained virtually flat due to the new rule on overdrafts. This displayed a smoother performance relative to recent quarters or even negative due to a competitive scenario in the -- basically in the acquiring industry and a tough comparison base for card issuing activity. Also, please bear in mind that we do have some seasonality that I will comment further on.
On the expense side, provisions grew in line or a little bit below portfolio and general expenses grew in line also with inflation over the period, remaining below revenue growth. So further improving our efficiency ratio, which as you can see on the right of the slide, it stood at a new minimum or maximum, depending on how you want to consider the positive news, of 37%. So as mentioned altogether, we closed with a net income of almost BRL 3.9 billion or BRL 3.85 billion with a return on equity above 22%, as mentioned before.
On Slide 12, we show our NII evolution, which totaled almost BRL 13 billion in first Q, increasing 12% in the year and being flat in the quarter. As you know, we have presented a new NII breakdown so customers' NII decreased by 0.5% Q-on-Q, so almost also flat, basically affected by the new regulatory framework on overdrafts and lower spreads reflecting the reversal in the loan portfolio mix shift trend seen in recent quarter, which means that the corporate book has grown faster than individuals. NII from market activities increased 6% Q-on-Q, reflecting the lower interest rates in the quarter and as has happened in the past, with volatility when compared to previous moments.
Next slide, we look into our loan portfolio. And here, we can see some of the points I reflected before. The loan portfolio reached BRL 378 billion at the end of March with an increase year-on-year of 22%. Main point here is that we are growing in the 4 segments in both Q-on-Q and year-on-year. Individuals segment continued to perform positively in the year, supported by the ongoing performance from payroll and personal loans, smoothing that growth a little bit on the Q-on-Q basis. Consumer finance also maintained a good evolution with a similar trend when compared to the retail segment. And the SME and corporate portfolios delivered also a sound quarter. For the first time since 2015, the corporate book experienced a higher year-on-year growth on the Individuals. This is the change of mix that I was referring to before. If you remember during the last several quarters already, it's not the last one, we have seen this trend happening and gaining momentum as quarters have gone by, and we see it also happening now.
And finally, I will also -- this is a new piece of information that we wanted to put for you here in this slide, which is the collateralized percentage of our portfolio. We have 64% of the individual portfolio, which is collateralized so high-quality in that sense with a strong increase on a year-on-year and Q-on-Q. So it is clear that we have more exposure to the individuals, but highly collateralized and with good growth in that collateralization.
Moving to funding on Slide 14. You can see that it has increased strongly quarterly and year-on-year basis. All its components performed well, except for as it has been in the past for the most expensive instrument, letras financeiras or financial bills. This dynamic is in line with our strategy of optimizing our funding costs and volumes as well as that support our loan book growth. With the COVID-19 outbreak, we have witnessed a clear flight to quality movement, thus benefiting on balance funding instruments. So -- and we are not seeing a reversal as we speak in April of this trend.
On the next slide, we see how fees have evolved. And here, we start to see some impacts from the COVID-19 crisis. The pandemic triggered market volatility and less transactionality impacting with different reasons: asset management, cards, insurance, for example. The Q-on-Q performance is also attributed to seasonability, specifically on the insurance. Remember that we always have a fourth quarter with a strong insurance performance. And when we compare first Q with fourth Q, we always have that negative evolution.
In the year-on-year comparison, the 1% reduction was mainly derived from a weak performance in cards, reflecting the competitive landscape in the acquiring business and issuer activity. Please remember also on top of what I said in terms of competitiveness, that in first Q of last year of 2019, we booked an additional revenue as a result of a specific commercial agreement.
Okay. So moving to quality on the next slide. In general terms, I would say that it remains healthy with different movements that we can comment on later. We think that credit quality will deteriorate in a limited way, but will deteriorate in the near future. Going into the numbers we presented after reaching the best level since our IPO in fourth Q '19, the short-term NPL has returned to a more normalized position, if we compare historically. The individual segment deteriorated from a very low previous quarter. I think it's a historic level. With the corporate segment, reaching 1.6%, this is really the best performance ever. Within a stable over 90 days NPL, the corporate segment also deteriorated from a very low previous quarter. Coverage ratio at 194% remains at similar levels to the past. In any case, we believe that we are prepared to face this new scenario, which is in front of us, with a healthy asset quality position and accurate risk modeling.
On Slide 17, you can see how loan loss provisions have performed in the quarter. To make some comments here, additional to the quality I mentioned before. In the year-on-year comparison, it grew 19%, in line with the pace of the loan book growth, as I mentioned before. So flat in a year-on-year comparison in terms of cost of risk and increasing from the low 3%, 20 basis points in the quarter.
So next in productivity and costs. We can see the trend in the period. Total expenses remained in line with inflation over the period, growing 4% year-on-year and leading our efficiency ratio to the best level ever. The highlight here was personnel expenses. If you allow me to underline some of the performance, which showed quite a controlled evolution, reflecting this focus I have been setting with you on cost control. Here, we aim to stand up our focus on improving our productivity. So this is a continuous effort, and we are focusing even more there as we see it key to protecting our profitability in this challenging environment. Our drive to industrialize a nonindustrialized sector continues even more strong -- or stronger.
Moving on to capital and liquidity. We continue to have, I would say, good numbers. And I think more importantly, that if they are good or not, that we feel comfortable to face this new scenario in which we are going into. Our total ratio, capital ratio reached almost 14%, 13.8%, with the core equity Tier 1 at 11.4%, while our funding is the loan-to-deposit ratio stood at 98% at the end of March.
So with this, let me go through the final remarks, which is the last 2 slides, which is our view in terms of making the right decisions. Last year, if you remember, I started to comment with you last September, I think it was in the results of third Q, that we were clearly making new decisions in terms of facing a difficult 2020. Obviously, we didn't know the crisis we are facing, the type of crisis that we are facing. But we already started to make changes that I have been sharing with you in the last quarters. On top of that, we have been, as I mentioned, helping our clients. If you analyze total origination in SMEs since March '19, this has amounted to almost BRL 70 billion, always with a risk -- with a way of looking at risk from a conservative way, I would say. And we have commented the potential indebtedness of some of the parts of the economy, of some segments, specifically in cards, et cetera, in which we were already saying publicly that we were putting attention to.
The flight to quality that I mentioned before has proven to be right as we have built a stronger investment brand, and this is working, clearly working on a daily basis, which all this provokes that our focus in productivity and profitability is even more important or stronger. Obviously, we are finalizing a quarter in which the crisis has started to be perceived. We will have a tougher second quarter. I think this is not new to anybody, specifically on the physical channel. I think we can comment a little bit more about this on the Q&A. But I can share with you some of our experiences here.
We see cost of credit that may increase in the short term. But again, the type of modeling risk procedures and experience, for example, some that we sold in the last crisis, I think give us some capacity of reaction. Corporate and SME segments are clients that will tend to increase transactionality and volume with the bank. And we remain at an opinion that liquidity is clearly not an issue. We are very strong in liquidity, as you have seen, not only in the ratios, but in the performance on the on-balance liabilities. And we remain -- I think we remain an engaged bank with a strong leadership and with a strong kind of strategic lines of how we have to react and how we have to -- we should adapt to this crisis.
So this is in a nutshell, what I wanted to share with you, and I think now we can open the floor for Q&A. Thank you, André.
Okay. So now we start with the questions we received from the webcast. First one is from Victor Schabbel, Bradesco BBI.
Given the impact on the capital ratios as well, the more challenged scenario had. Should we expect a lower payout ratio to 2020 and 2021?
Yes. Well, let me elaborate here. I mean in terms of payout, as you probably have seen, we announced yesterday night at the closure of the markets a dividend of BRL 890 million, approximately $200 million, which is a payout of 25%. This follows the view announced by the Central Bank in which maximum payout will be that 25%. In the past, in the previous quarters last year, we were devoting quarterly approx BRL 1 billion. So we have not been too far off our traditional remuneration to shareholders.
I always have said to you, I mean, we will -- payout will always be a consequence of return on equity and growth of risk-weighted assets, given a certain level of capital ratio that we want to maintain. And that certain level of capital ratio is about where we are today. In capital, this quarter, we have had basically 3 intents. One is the -- what I mentioned, the growth of risk-weighted assets. Another one is the mark-to-market positions that, as you know, are mark-to-market against capital and markets have certainly been negative or volatile. And the third one is EPS. Well, it will depend, obviously. I mean, as I said, we have around 300 basis points of sufficient capital compared to needs and minimal level. So we don't feel in that sense, any kind of additional need or additional measure. And we will take decisions in payout accordingly to the values I mentioned to you, and obviously, within the Central Bank rules that are to stay down to September 30. So down to that moment, maximum payout will remain at 25%. And we will take a decision. We will -- the current position is, okay, let's see how second Q performs, what is the result that we present, what is the strength, what is the transactionality, et cetera. And we will take a decision by then.
Okay. Next question is regarding asset quality. We have one from Mario Pierry, Bank of America. Can you explain the strategy of a reduced reserve coverage ratio ahead of a likely asset quality crisis?
And this other question is a follow-up, like from Jorg Friedemann, Citi. Despite an increase in provisions this quarter, coverage declined. We know that there is limited visibility on asset quality so far. But what do you think is a comfortable coverage to navigate through this convoluted period?
Well, the evolution of coverage ratio, I have shared with you in previous occasions, is a consequence of our provisions and our criteria-making provisions, which maybe either the minimum coming from Central Bank regulations or criteria, more conservative that we apply in each of the cases. So our coverage ratio has been moving in the last quarters, and I speak in quarters and years, but basically, quarters in between 190% and 210%. If I remember, I'm speaking out of memory, what if -- I remember. So we are basically where we have been, again, as a consequence of our provision -- our provision criteria.
It is true that we do not know what is coming in front of us, but it is also true that our proven kind of way of looking at risk and how we have been dealing with this, along with all the measures that the country has been taking. Let me remember you, for example, the last ones that have been announced is these 2 payrolls being paid to the SME workers with 85% guarantee coming from the treasury. If you add all those things, we think we have good coverage ratios and good provision policies. Again, we will adapt the deals to the reality that will be coming in the next months, but we feel at these levels, comfortable with the ratios we have presented.
Next question is from Marcelo Telles, Crédit Suisse. Will you consider front-loading provisioning expenses ahead of the expected deterioration in asset quality? Has the bank run a stress scenario? What could we expect in cost of risk in CET1 in that scenario?
Again, the provisioning policies will depend on what we see. We could have obviously done a generic provision, just waiting and seeing how the quality is going to perform. We are seeing transactionality and activity going down. This means that we'll have kind of 2 components here to consider, no? One is what happens on the supply side in terms of companies fast provoking unemployment. And the other one is what is the strength of the coming back of consumer. We are already seeing countries both in Asia and in Europe, in which the coming back of activity is very strong. And they are already at 90% of what used to be peak of it. So you have all kind of arguments here to go either direction. This is why when we discussed internally, we prefer to see how the country is going to perform instead of taking pre-decisions, which is absolutely fair to do, but this was our position here.
In terms of core equity Tier 1, I mean, as I mentioned, the impact in core equity Tier 1, looking forward, will depend on markets. And obviously, really where industries grow. Two, aside the capital through cost of risk, it's quite hard because you will have to bear in mind an absolutely strongest growth in provisions so that you are not destroying capital. So I don't see the core equity Tier 1 being affected obviously, depending on the profit that we generate. And again, the same variables I mentioned before so that we maintain decent and comfortable capital ratios. But I don't see the capital ratio for the time being, being negatively affected, obviously, except for the fact that profit will vary depending on how things perform.
Next question is from Daer Labarta, Goldman Sachs. Can you comment on the loan growth expectations for this year? Do you expect a significant deceleration going forward, particularly given the strong growth in the quarter?
Thank you, Tito. Okay. I mean as I mentioned in the presentation, what we have seen is a different pattern compared to the past. Obviously, SMEs and corporates, when the crisis started, there was a demand for liquidity, and we attended part of that demand. When measures started to come, things have kind of gone into a more comfortable or quieter way. Because remember, we here, we are just considered in the last 2 weeks of March, which is when the crisis started on the 16th and measures were discussed but not approved or even formally announced. So what I would expect looking forward is that, that pattern you have seen, not specifically the percentages. Please, do not misunderstand me. But the pattern of growth being a little bit more intensive in corporates, SMEs and corporates than in retail will probably be maintained.
This has a lot also to do with retail activity. I share with you what is happening in the physical network. Transactionality is going down, depends on what you touch, but it goes from, I don't know, 20% to 30%, 40%. You have public figures, for example, on the card industry in which you have already 60% declines in some parts of the country. So I mean you have a little bit of everything. What is also happening is that -- and I can say that with you in what I'm looking at April is that from the minimum, things are coming back. We are going back. I mean we are reopening part of the branches that we had closed. I remember, I mean, we have 3,500 branches approximately, and we have -- depending on the moment, in between 500 to 800 of them close. We are, as we speak, reducing that to the minimum that following local rules, municipalities or state rules. So as that comes back, we will see how that transactionality evolves, thus, your question in terms of volume for the retail -- for the individuals. But my understanding is that the pattern will continue for some time in the line, I'm saying to you.
Okay. Next question is from Otávio Tanganelli, Crédit Suisse. Congratulation on the results. I want to get a little more color on Getnet's volume acceleration. Can you explain to us what are the drivers behind this increase and the sustainability of those?
Yes. Thank you, Otávio. Well, you have kind of 2 behaviors here, okay? In this, let me speak about the card industry, and then I will go around to Getnet. You have an evolution in which I mentioned in the presentation, high competitiveness, issues, competitiveness and prices, so affecting basically the credit side, not the debit, the credit side of the card business, affecting the acquirers and affecting rentals, okay? And that is negative. That is -- has been negative for some time, and we are still seeing a negative trend, which is not the same on the debit side. That is kind of the -- a little bit the macro behavioral form of the industry and what we are seeing. If you took both on top of that, that, as I mentioned, for example, specifically in cards, we are seeing transactionality going down between 30% to 40% because of the isolation and because of the lower capacity of clients or people to interact and to consume. It all adds in the same direction. And April, for example, in that sense, probably will be a tough month for that part of the business.
Having said that, in Getnet, we'll continue with the same policy that I have said to you, which is maintaining our mix, again, on retail and wholesale, using external networks to sell our POSs, specifically the small POS, which is also still being a success, fast positioning ourselves in part of the market that we were not present 2 years ago, making a lot of efficiency efforts we maintain, we think. We will see when public figures come out, but I -- we think we maintain the lowest unit cost per transaction. And all in all, if we are to the kind of integrated offer with the bank with e-commerce, et cetera, marketplaces, et cetera, that we offer to our clients, it continues to be a good story or a success story. But again, in a complicated -- in terms of competitiveness and price, in a competitive environment, which I have been sharing with you for some time now.
Okay. Next question is from Carlos Gomez, HSBC. We see the impact from the FX hedge is very large between accounting and on the euro figures. Should we expect some reversal in coming quarters?
Now this is -- Carlos, this is quite an easy one. I mean this is -- this ForEx position, what happens is that it generates DTAs and those DTAs are deducted from capital. Following current regulation, risk-weighted assets on the ratio or weight is 300%, okay? So this is what you have there in terms of consumption of capital. It will depend on the ForEx and market's evolution. I said to you, we have the ForEx. We have the mark-to-market of the yield curve. And this going -- I mean, the accounting principles are that we put them against capital. I don't see an issue here. What I see is that it will depend on the evolution, what we see going forward. But it is -- that difference is exactly what I mentioned and the reason why the capital has evolved, 1 of the 3 reasons I said to you on why the capital has evolved in that direction.
Next question is from Domingos Falavina, JPMorgan. How much did you renegotiate on current loans? Now [ pass to ]. How much did you provision for each reals renegotiated?
Okay. Let me move. Thank you. I think you have the information about the portfolio that has been renegotiated. If I -- I'm speaking out of memory, but it's like from BRL 5 billion to BRL 4.5 billion or something like that. So that is the numbers we are sharing with you. What I will say is that -- I mean, your question is important because it is true that as we speak and going forward, the recuperation front, renegotiations also but the recuperation front, probably is going to be a focus of the full sector and specifically, I can assure you that it's going to be one of our focus.
We have already done some changes. We did in the past. When I mentioned to you that we started to take decisions back in September, one of them was this one, to put a strong focus in recuperations. We -- as you know, we have been -- I mean, we created a strong department around all that activity. We have returned, which also plays an important role in that activity, in the NPL portfolio activity. And we have strengthened that just a couple of weeks ago or 1 week ago, in which we have reunified all those activities that we have strengthened that department, continuing what we did last September. So it is a clear focus looking forward. And we feel that, that is, strategically speaking, is one of the key lines for the next quarters.
Next question from Thiago Batista, UBS. Can you comment about the fund that the federal government created to finance the small companies around BRL 20 billion per month? Are the bank lending using these resources? Can you comment about the main characteristics of this fund and the expected P&L of this product?
Yes, Thiago. Let me summarize what has been announced and what we banks had done. What is happening is that for those SME and corporate clients, remember to you that there is a specific criteria in terms of revenues of those clients. So we're speaking specifically for SMEs. For those SMEs that are already your clients, so this is not a competitive position in between banks, we will be paying. We banks will be paying directly to the employees of these SMEs, 2 payrolls, 2 monthly payrolls for those SMEs that want to do that. That will be a loan at a Selic rate. So we are speaking that this is 0 spread. 3.75 is the rate. This is a 3 year long with 6 months moratory, in which the guarantee of that loan, 85% is guaranteed by the treasury and 15% by the bank. Liquidity-wise, 85% is given by the treasury and the other 15% is a freeze legalization of the compulsory reserves. So liquidity-wise does not have an impact. Quality-wise, we have a guarantee from the treasury of 85%.
Now some -- the question that sometime has been raised to me, which is, okay, so what happens with an NPL happens? Okay, we try to recover it. And if it is not recovered at the end of the 3 years, the NPL portfolio that will be -- that we will have at that point will be auctioned, will be sold for those that want to buy. And as you know, you have a lot of investors interested in those portfolios. So that is the way it works. It is a way of helping our clients, our current clients. Important to note is that this, as I mentioned, our current clients, which means that we know them. We are comfortable with them because they are our clients. So it is something that it is not a new client that we have to investigate or analyze and see what is its risk profile.
Excuse me. The next question comes from Thiago Batista, UBS.
Just a small follow-up on the asset quality front. You had a comment about the evolution, et cetera. Two points that I want to know a little bit more. One, we saw some deterioration in your NPL ratio over 90 days on the corporate segment. Can you give you -- give us some color about your deterioration? If this was concentrated in one fixed client or not or the segment? And the second question, when we look to the NPL -- sorry, to the gross provisions over the NPL formation. This quarter, this ratio was much lower than in the previous quarters. So something close to below 80% this quarter versus around 90% in previous quarter. Can you comment a little bit on why the bank did provisions much below the historical average when we look to the formation?
Okay. In terms of the -- thank you for the question. On the 90 days NPL ratio, it is true that if you see in the corporate side, we have I think the evolution was going from 1.3% to 1.6%. A couple of comments. First, you have these type of behaviors depending on names, as you said, we may have some names going in and out depending on the size, and this moves the needle. Secondly, we come from a historic low. 1.3% was the historic low. If you compare year-on-year, we are still about or even below what happened 1 year ago or 3 quarters ago. But specifically, the behavior on the quarter is because of this type of names that go in and out and have this volatility on a quarter.
Second question was in NPL formation. NPL formation, I think in the quarter, we were at 1.4%. We have been above 1%, if I remember, sometimes below 1%, but it was 1.2%, 1.3%, 1.4% is kind of a historic average.
Provisioning, as you said, depends on the quarter. Remember, again, that we provision following the rules I mentioned before. So sometimes, it can be 100%, 90%, 80%, 85%, depending on the quarter and specifically, depending on the timing. I mean, it is very difficult to analyze this on a quarterly basis. Because, I mean, depending on the quarter, on the timing, if it comes in at the end of the quarter or at the beginning of the quarter or if we go to the criteria of expected loss, if it is in whatever stage it is, the timing affects the quarter. So extrapolating on a specific number in one of the quarters is -- for me, is difficult to comment. What I would say is that, again, provisioning is growing. It's growing in line with portfolio. We see different behaviors depending on the segments, in terms of quality, but we remain comfortable with the level of provisioning at this stage that we are making. And we will adapt this to what we see happening in this quarter, in the next quarter, et cetera. And we will take those decisions with effective behavior of our portfolio.
The next question comes from Domingos Falavina, JPMorgan.
The -- basically, what stood out to me here Angel, and I must be honest, that you mentioned you're being prudent in the way you look at risk. And we're comparing basically, your results here with -- like in the U.S., for example, we saw 4x more provisioning ahead of coronavirus. We look at your parent company, Santander Spain. They did about EUR 1.6 billion as provisionary provision, and that's post tax, it's probably like EUR 2 billion or so.
And we look at your provisioning level, and I mean, your loans grew 22%. Your provisions grew 20%. You provision less than the new NPL formation of the quarter. And while I understand you can say we're going to wait for this to default to provision, which is Central Bank rule. It's different than saying we're taking a conservative stance. It seems now GDP is being revised downwards across the board, and you're burning coverage ahead of the quarter. So like if you could elaborate why you think you're being cautious? Or just say we're going to wait for it to really be forced to provision before we do it because we're having a hard time reconciling the two.
Okay. Well, first, I wouldn't say we are burning coverage. I mean what I would say is that coverage I mentioned has been traditionally between 190%, 200%, 210%, and we feel comfortable out on those levels. I also feel comfortable around 170%. So it is not -- for me, I mentioned before that it is a consequence and not a variable to really -- you mentioned for example, our parent company, they are running with 70% coverage. So -- and what does that say to you? It just says, again, that is a consequence of the provisioning, which, by the way, has turned to be the right one throughout the different crises, both at the group level and at the accounting level. So I wouldn't extract too many consequences out of that.
Comparing with United States, again, a difficult one, Domingos, right, because the portfolios are such different. I mean I understand the amount of -- with a lot of volatility between banks, the amount of provisioning that has been done there. But I remember to you here, we have 64% of portfolio -- of individual portfolio collateralized. You don't have mortgages in United States. So again, it's a little bit.
Now eliminating those kind of comparisons outside the bank. I'm not trying to be -- and if I look like it, I'm not trying to be -- to give the image of optimism or a positive image. I'm -- what I'm trying to be is factual. And factuality here means that the behavior we are seeing is the one we are registering. I mentioned in the presentation that second Q is going to be a difficult Q, and we acknowledge that, and we will adapt to the behavior that we see in our portfolios. The only thing I have said is that we feel comfortable about our way of looking at risk. Obviously, that will mean adapting to the risk behavior that happens at the country level. And I also mentioned that cost of risk will deteriorate. But we think we have the capacity to go for that.
First -- second Q is going to be better than first Q? I don't think so. But I mean, giving you now, we have a lot of variables. And I mentioned an example before, I can build the positive one with examples of Germany or China or New Zealand or -- and I can build a more negative one, which is a longer isolation process in which consumption and transactionality is affected in a longer way. But in any case, second Q is going to be a negative Q in terms of relative comparison with the first Q because we are already at the end of April, and we are starting to see how the society will come back to normal activity or to activity that may be classified as close to normal, no? So this is our way of looking at that, acknowledging that things will get worse also.
The next question comes from Thomas Peredo, BTG Pactual.
I would like to have 2 questions, if I may. The first one is regarding the tax rate. It stood practically flat year-over-year despite no payments in -- of interest and capital in this quarter and an increase in the CSLL. So if you could bring the -- give us a bit more detail on why the tax rate stood flat? And the second question is, how the bank will treat the 60-day grace period to customers? Would this be accounted as renegotiating loans? Or should -- and should we see an increase in the second Q in this line? Or will it be booked in another specific line in the balance sheet? How could we track this going forward?
On the second question, Thomas, no, the treatment will be unless obviously, they go into an NPL situation. It will be treated as a normal loan. We will obviously give to you numbers when we have them. We will have full disclosure and transparency in terms of the amounts and diversification and the different quantities in terms of number of clients and companies, et cetera, that we are starting to grant to them. But they will be treated as a normal loan, if they perform as a normal loan. On the tax rate, André, you wanted to make a comment?
Thomas, regarding the tax rate, what happened this quarter was the FX impact that originated a huge amount of fiscal losses and we could use during this quarter exclusively. So because of that and also comparing to the next quarters, we had also January and February with 40% yet and only in March, the 45%. So looking ahead, if your idea is that it's going to increase the tax rate, yes. We do expect increase in our effective tax rate looking forward, okay? So it was basically the FX impact during the quarter that we could use.
Thank you. The Q&A session is over, and I wish to hand over to Mr. Angel Santodomingo for his closing remarks.
Well, thank you all for standing there. I hope that we have clarified doubts and numbers. We are heading into, as I mentioned just now, into a second Q that is going to be a difficult one, but we still feel comfortable around our capacity to go through the different crises. I really hope that you feel well and you take care of yourselves given the current environment, and I look forward to seeing or hearing from you in the next 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.