Banco Santander Brasil SA
BOVESPA:SANB3
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Good morning, everyone. I am Camila Stolf, Head of Investor Relations and Market Intelligence at Santander Brasil. And I would like to welcome and thank you for joining us this morning for our first quarter 2023 earnings video conference. This event is being streamed live from the studio at our corporate headquarters in Sao Paulo and will be divided into three segments.
The first one, our CEO, Mario Leao, will discuss the main strategies driving our growth as well as the key highlights of the quarter. In the second part, Gustavo Alejo, our newly appointed CFO with over 20 years of experience within the organization, will be presenting our first quarter results. Then in the final segment, we will host a Q&A session, during which analysts will have the opportunity to engage directly with our leadership.
Before we start, I would like to give you a few instructions to make the most of today's meeting. This event features simultaneous translation into Portuguese, giving you the option to choose between English and Portuguese as your preferred language. To ask a question during the Q&A session, simply click on the hand icon at the bottom of your screen. With that, I would like to turn it over to Mario Leao, who will begin the presentation. Mario, you may proceed.
Thank you, Camila. Good morning, everyone, and thank you for attending our earnings presentation. It's a pleasure to be here with you again. We achieved a net profit of BRL 2.1 billion this quarter, representing a 27% increase from the previous quarter and resulting in an ROE of 10.6%. Our performance continues to be influenced by higher interest rates and client selectiveness. It's worth noting that we had a positive one-off event that enabled us to strengthen our balance sheet through provisioning in specific portfolios.
Our more selective lending approach, which has been in place since fourth quarter 2021, continues to drive growth among clients with higher ratings and secured lines, benefiting the risk-adjusted margin in new vintages. Despite this new approach, we've been able to expand our portfolio and even increase origination above market in some products such as payroll loans, while capitalizing on market opportunities within the large corporate segment. We remain committed to cost control and productivity, which has allowed us to maintain an efficient operation, a cornerstone of the Santander culture.
Throughout this year, we will continue to prioritize the strategic businesses that we've shared with you since last quarter, and which will be covered in greater depth later on. Furthermore, we are determined to boost our client loyalty level further -- to further diversify our revenue streams, whether through the expansion of our high income business or the development of new growth levers, which we will discuss in more details throughout the presentation.
On Slide 5, we highlight the strengthening of our balance sheet. During our last few presentations, we showcased the good performance of our new loan vintages. Currently, as you can see here, they account for 54% of our total loan book. And as they become more relevant throughout the quarters, our balance sheet becomes even more solid to expand our portfolio in a healthy way. Our secured loans in the individual segment remain at a high level, reaching 65% in the quarter and thus ensuring a solid portfolio.
Our strategic business segments have progressed as planned. The new vintages of our loans has enabled us to grow this product in a healthy way in the last 12 months despite the macro. In payroll loans, we have further improved the customer experience by expanding the digitalization of agreements, leading us to originate loans at an unprecedented pace, outperforming the industry. And finally, despite a more challenging funding scenario, we remain committed and able to grow in mortgage loans as this product offers high levels of customer loyalty and asset quality.
Slide 6 provides more details about the positive performance of our new loan vintages. In the credit lines, where we have seen greater NPL pressure, our ratio has increased by an average of 100 basis points less than the system. In cards, for instance, the market delinquency increased by 274 basis points in the last 12 months, where ours only by 117, less than half.
In personal loans, our NPL grew by 145 basis points less than the system, while in vehicles, 31 basis points below the overall market. The center of the slide illustrates just how much our new vintage has improved. It's important to bear in mind that this new vintage pertains to our originations from last year when we adopted a more restrictive lending approach. This new vintage exhibits an NPL 90 ratio, 80 basis points lower than the old vintages, which corroborates my earlier assertion that as this vintage becomes more relevant we are fostering an environment conducive to healthy growth.
Likewise, short-term NPL is substantially lower than those seen at the end of 2021. On the right-hand side of the slide, we can observe the loss absorption of new vintages has been improving on a quarterly basis despite greater pressure on asset quality across the system. This favorable trend supports our selectiveness on lending approach and underscores the effectiveness of our risk models, enabling us to stay ahead of the market during the current credit cycle.
On Slide 7, we share the pillars that will fuel our growth going forward. We remain focused on continuously improving customer experience by investing, particularly in post sales support, which will lead to even higher transactionality, while upholding our commitment to provide convenience to customers 24/7 throughout the availability and integration of our channels and ecosystem. Further ahead, we will highlight the businesses and growth levers that will allow us to boost our revenues without compromising the culture we have of efficiency.
On Slide 8, we share a few metrics confirming that we are on the right track, consistently [ hastening ] customer experience and increasing transactionality. We have significant opportunities within our own customer base, and we will place an even greater emphasis on customer-centricity this year. Our loyal customers base grew 7% over the past 12 months, with a strong growth in loyal customers in high income segments. Our ecosystem keeps generating customer acquisition opportunities.
In the last quarter alone, our consumer finance unit was responsible for 119 new -- 119,000 new customers for the bank, while our microcredit business, Prospera, added 75,000 clients, and payroll 234,000 clients. So altogether, almost 500,000 clients in the quarter. We have a huge opportunity inside our ecosystem, around 14.5 million monoliners that we can cross-sell. Regarding Open Finance, we have received nearly twice as many consents as we have sent, which have resulted in better ratings for 233,000 individual customers and the generation of already BRL 134 million in loans.
Our deep understanding of our customers allows us to implement dynamic and personalized pricing models, and we are heavily focused on that. Today, 88% of our offering feature -- offerings feature a personalized CRM, representing 17 percentage points increase over 12 months. This strategy is reflected in increasing frequency with which our services are utilized, as evidenced by the share of wallet on our main products, such as credit cards.
Slide 9 delves deeper into customer satisfaction oriented strategy. Our high income segment, Select, which underwent an overhaul last year, is one of our focus. The growth of this division allows greater revenue diversification and less sensitivity to credit cycles. We are working on pillars such as specialized services as well as convenience through our customized and enhanced customer experience. These pillars have been yielding results, as we have now 834,000 customers in Select, a 36% jump in 12 months, and we are on track to reach our ambition publicly mentioned of 1 million customers by the end of this year.
Additionally, this segment's loan portfolio grew by 16% in 12 months, translating to a 25% increase in revenue throughout this period. The improvement in the experience of these customers is evidenced by the higher NPS score, which is currently at 62 points, a rise of 3 percentage points from last year. In March, our aggregate NPS score among individuals stood at 53 points. We know that there's a lot of room for advancement in this area, and we are constantly working on that.
This quarter, we're also showing customer satisfaction through our different channels, with the physical channel standing out with an NPS score of 72 points, an increase of 4 points from a year ago. Although these results are not yet where we would like them to be, we are constantly taking steps in line with our strategy to improve the scenario, as we will continue to see in the upcoming slides.
On Slide 10, we draw attention to our broad capillarity thanks to our extensive footprint, whether through our own stores, through Prospera, our microcredit segment, or partnerships at safepoints. The value of physical proximity to specific audiences is reflected in business growth throughout these locations. Currently, we are present in 59% of Brazilian municipalities, which accounts for 92% of the national GDP, thus encompassing a significant portion of the [indiscernible]. Our commercial network consists of nearly 3,000 stores, all of which experienced a high volume of foot traffic every month, thereby creating a wealth of business opportunities. During the quarter, we opened 5 new stores in locations where we had no previous presence.
Moreover, we continue to [ implement ] our strategy of optimization by consolidators with overlapping coverage, resulting in [indiscernible] models. On our Prospera net [indiscernible] a [ 9% ] increase over the past 12 months. [indiscernible] serve actually 1 million customers in 1,700 municipalities nationwide, representing a portfolio of almost BRL 3 billion. Prospera's 84 NPS score, which has been steadily increasing over time, is indicative of the quality of service we provide here.
Finally, on the external channel, we have reached 21,000 sales locations, an increase of 16,000 in only 12 months, thanks to a substantial expansion of our partnership with bank correspondents. In just 1 year, we have increased our coverage to almost 1,800 municipalities. This channel currently generates nearly BRL 2 billion in loans every month.
On Slide 11, we showcase our dedication to offering convenience to our customers around the clock, 7 days a week, through the ability and integration of our channels. Today, Santander Brasil's customers have the freedom to choose between automated and human service, all with the support of our analytical approach to personalize their experience and better meet their particular needs. Our digital channel remains the primary avenue for transactions in addition to being a vital sales distribution operation. Roughly 97% of the bank's transactions are conducted through this channel, resulting in 11 million contracts during the first quarter. It's important to highlight our improvement in account opening process by cutting the time needed to complete this task by 82%.
Lastly, our remote channel has become an increasingly crucial touch point for human interaction outside of banking hours, with 50% of customer support services taking place during this period. This channel generated BRL 4 billion in loans this quarter alone, a 44% jump in 12 months. Furthermore, we have achieved a first call resolution rate of 96%, which represents an increase of 15 percentage points over the past 2 years.
Slides 12 and 13 provide insights into the areas where our growth will be concentrated in the quarters ahead. Consistent with our objective of expanding the high income segment, and in line with the group's overall strategy, we highlight wealth management. This strategy involves the AAA initiative, which we disclosed to you in the previous quarter and which is advancing at a very rapid pace. We ended the quarter with almost 900 advisors, and by June we will have 1,300.
In March, net inflows per advisor had already reached BRL 1 million per advisor per month. Meanwhile Toro, our digital broker dealer, continues to grow exponentially, reaching 1.3 million accounts, which represents a 40% increase over the last 12 months. Its assets under management custody have grown to BRL 14 billion a record, expanding by a remarkable 75% since last year. In the Private Banking business, we leverage our global expertise to drive robust local operations. This quarter, our net inflows reached BRL 13 billion, more than 200% year-over-year, while revenues grew by 20%.
We were recognized as the best international private bank in Brasil as well as the best private bank in Latin America and best for wealth transfer succession planning by Euromoney. In insurance, we are dedicated to building a benchmark ecosystem. We totaled EUR 2.5 billion in premiums [ during the quarter ], a 3% increase relative to the previous year. We have a strong foothold in personal insurance with an 11% market share of premiums and in personal accident insurance with a 13% market share.
Santander Auto and Autocompara, our insurtechs, are just two examples of the robustness of our ecosystem. This quarter, we have already reached a 27% penetration rate in our auto financing business and almost BRL 200 million [indiscernible] written for Autocompara.
On the next slide, we share a few metrics regarding the evolution of some strategic businesses. We are committed to establishing ourselves as the main platform for business customers, Empresas. In March 2023, our corporate portfolio achieved BRL 204 billion, 15% year-over-year, and 1.3 million active customers.
In SMEs, we underscore our new customer acquisition and increased transactionality, resulting in higher revenues, highlighted by cash management and consórcios. The segment's total revenue grew about 12% year-over-year. In wholesale, we continue to bolster our geographic footprint and expand our team of specialized professionals, while capitalizing on the distinct characteristics of each region of the country.
We leverage cross-selling opportunities to drive profitability, leading to a notable 11% Q-on-Q increase in the segment's revenue. In cards, we maintained a selective strategy focus on customers with a better risk profile, with 97% of new acquisitions derived from banks' existing customers base. In line with our commitment to deliver the best customer experience, we have partnered with Google Pay, thus consolidating our presence across all major digital wallets available in the market.
At our Consumer Finance business, we remain market leaders with a 22% share of auto loans. During the first quarter, we originated 206,000 vehicle contracts, an increase of 4 percentage points year-over-year, with 81% of them in the highest ratings. Our efforts towards building a more secure portfolio translates in the LTV of our loan portfolio, which reached 49%. In payroll loans, our portfolio totaled BRL 62 billion, with our origination level outperforming the market.
Our focus remains on agreement digitalization and profitability with 77 agreements having been digitalized and 94 originated during the quarter. These initiatives are all aligned with our ambition of achieving a BRL 75 billion portfolio by the end of this year.
On Slide 14, we cover our culture of innovation and efficiency. We are always seeking ways to streamline our offerings and processes, with the aim of enhancing productivity. We have been able to raise the number of financial transactions while simultaneously reducing the cost per transaction. Additionally, our cost to serve full digital clients reached 18.7%, a 17% decrease year-over-year.
Our stores have been dedicating 81% of their time to sales activities,s, looking to further drive business growth. As a result of consolidating F1RST and SX Tools in our technological system, we are making strategic investments, with 90% of our business now running in the cloud and 88% of new deployments occurring in real time. Moreover, according to Downdetector, we attained a 99.86% service availability rate in the first quarter.
In Slide 15, after outlining our growth strategies and levers, I would like to turn the floor over to Gustavo Alejo, our new CFO, who will discuss our first Q '23 highlights. Thank you.
Thank you, Mario. It's a pleasure to be here with you all on my first earnings video conference.
Let's start on Slide 16, where we provide a breakdown of our P&L. Our results continue to reflect the present stage of the credit cycle with revenues being impacted by our selective lending approach and provisions affected by older vintages. We achieved a net profit of BRL 2.1 billion in the first quarter, representing a 27% increase over the previous quarter.
It is important to note that our net interest income is rebounding after 5 successive quarters of being more heavily impacted by our lending selectivity and negative sensitivity to interest rates. Although this process is not yet complete, the sensitivity to interest rates shows signs that the banking book repricing is already taking place. And the market's NII
[Audio Gap]
line is expected to gradually improve over the year.
In fees, we observed a decline from the previous quarter. This is a natural occurrence due to the period seasonality, [ which ] typically [ sees ] higher volumes of transactions and consequently a better performance.
Regarding our loan provisions, they continue at high levels as a reflection of our old vintages, increasing 47% year-over-year although declining 8% over the last quarter.
Despite inflationary pressures, general expenses dropped in the quarter. Efficiency remains a top priority for us and evidenced by our 40.8% ratio during the quarter.
An important highlight of the quarter was a BRL 4.2 billion reversal of provisions for tax-related litigations, which affected the Others line. We neutralized this positive effect, constituting more provisions to strengthen even further our balance sheet. The convergence of all these variables led us to our ROAE of 10.6% for the quarter.
Now let's move to Slide 17, where we take a closer look at our net interest income. Our client NII grew by 3.3% in the quarter due to a combination of 3 factors: expansion of our loan portfolio; better funding results, resulting for both our volume growth and higher average CDI; and the third one, higher revenues on our own working capital, which was also favored by higher rates in the quarter.
Given these movements, the spread rose by 40 basis points during the quarter. The market NII benefited from higher treasury gains as well as from a lower impact of ALM, where we began to witness a positive dynamic in the banking book repricing. We anticipate that this line will continue to perform gradually better over the coming quarters, with projected breakeven in early 2024.
The next slide provides additional details on our loan portfolio and balance sheet position. Our portfolio showed a good performance during the quarter, growing 2.2% in the period driven by large corporates and individuals. The large corporates segment experienced the most significant growth in the quarter, thanks to our ability to seize market opportunities and generate operations with higher spreads, all while maintaining a strong focus on high-quality customers. Furthermore, the reduced activity in the capital markets also contributed to the expansion of this portfolio. In individuals, we continue to prioritize secured loans, including payrolls and mortgage loans, both of which delivered good growth over the quarter.
In terms of funding, we had a solid performance during the period, enabling us to sustain a robust liquidity position. Finally, our core capital equity Tier 1 reached 10.8% at the end of first quarter '23, flat compared to the previous quarter, indicating that we remained at a healthy level.
It is worth noting again that Resolution 229, which was originally scheduled for January, was postponed to July by the Brazilian Central Bank. This resolution will bring a favorable impact of -- on our capital of approximately 60 to 70 basis points.
On Slide 19, you can see our fees were affected this quarter by our more selective lending approach, with a seasonal impact from the prior quarter. The period saw a decline in our insurance revenues since a greater proportion of policy renewals occurs in the final quarter of the year. Nevertheless, we expect this business to be a major revenue driver throughout 2023. Asset management fees increased on the back of greater consórcios origination, which is another promising lever for growth ahead. Also, current accounts showed some resilience. Regarding expenses, our reported figures continue to reflect our commitment to cost control, with 2.3% decline in the quarter despite the impact of inflationary pressures.
On Slide 20 illustrates the evolution of our asset quality. As expected, both our 50-to-90-day and over-90-day NPL ratios remained under control during the quarter. Our most recent loan vintages have shown a positive trend, and as they make up a larger portion of our loan portfolio, we expect our asset quality to become increasingly healthier.
Our cost of risk showed a slight increase of 10 basis points as it was affected by impact of older vintages mainly in the individuals segment. Our provisioning pace contributed to an increase on our coverage ratio, which reached 245% (sic) [ 244% ] at the end of the quarter, exceeding pre-pandemic levels. It's important to keep in mind that this figure considers the cases that were previously noted. Finally, quality recovery was -- has regained momentum and will remain a major focus area for our businesses.
Now I'd like to turn it back to Mario for his closing remarks.
Thank you, Gustavo. So I'd like to conclude today's presentation before Q&A by briefly reviewing the highlights of the quarter. Our performance remains in line with management's expectations, so this is very important, with good volume growth in selected businesses, so no surprises for management. At the same time, our portfolio mix continues to improve as new vintages gain relevance. Furthermore, we had a relevant balance sheet reinforcement, which we just covered, derived from a one-off reversal. Finally, we continue with an active cost management approach that does not hinder our ability to invest in our business.
Growing our strategic businesses will be our top priority in 2023. And we continue to be selective -- and we will continue to be selective in our lending portfolio throughout the year. We don't expect to change our risk appetite before next year. We will also have an even closer look and management of company's portfolio given the macro scenario we're in. Also, we will further accelerate cross-selling within our ecosystem with a focus on diversifying our business portfolio.
Well, having said all that, we may now start our Q&A session. Thank you for your time so far.
Mario and Gustavo, thank you. We will now start the Q&A session. All analysts will have the chance to ask questions during the Q&A, which will last for about 30 minutes. [Operator Instructions] So the first question here comes from Thiago Batista from UBS.
I have 2 questions, the first one about the efficiency ratio of the bank. Efficiency ratio of Santander Brasil used to be above 40% until 2018, and then we saw this reducing to 35%. Now it's back to 40% level. And when we look for the outlook of the top line expansion, clearly it's not so positive in Brazil. So can we expect to see if this ratio back to below 40s level in the midterm? Or it's more feasible to believe that this will be more or less stable?
And my second question is about the spreads, the client spreads. We saw an increase in the client spreads during the first Q, but the loan book of Santander is clearly moving to safer lines. So can you talk a little bit about this dynamic and if there is any kind of one-off or if you can see this trend continuing going forward?
Thank you, Thiago. So I'll take it off, and then Gustavo will be able to complement. Regarding efficiency, which is your first question, yes, we're committed to coming back to the 30-mids, 30-highs level for sure. We are right now, as we go through a broader perspective on the cycle -- 7, 8 years -- we are running the second year of the lower part of the cycle, if I may call it that way, where our net revenues expansion, as you yourself mentioned, has been cut by our risk appetite. So it's all planned. It's always expected.
But obviously, we're not growing top line as we had in the past, but that has been calculated. And our costs have been well managed, I would say, as it shows in the Q-on-Q. So efficiency right now is a result of not growing top line as we would like, but we're growing as much as we think we should be growing. And we're managing costs as well as we can given inflation and the scenario we're in. We believe we will be able to open up the jaws again by growing top line more than we're growing expenses. It's not a month-by-month thing, it's a directional move I mentioned to you. So yes, we expect to come back to the 30s level, starting with breaking the 40% to 30-highs and then aiming at getting closer to the mid-30s as we had in the past. So yes, we're committed to that.
Second question regarding spreads, we remain committed to more secure products, also more secure customers. So that hasn't changed, and that is not going to change at all this year, at least. So I mentioned in my final remarks we don't expect to change our risk appetite before 2024. If we're wrong and we can do it earlier, we're going to share with you, of course, but we are not expecting that.
But the good news is, while we focus on more high-rated clients and less-risky products, we are still managing to improve margin spreads. So we don't expect spreads to continue to go up substantially over the next quarters, as we are not expanding our risk appetite. But it's good news that we are managing to take advantage in the good way of market opportunities both in wholesale and in retail and pricing up our spreads, while we remain committed to our risk appetite consistently with the last 5 quarters.
Thank you, Mario. So the next question comes from Mario Pierry with Bank of America.
My question, Mario, is similar. It's on the -- your appetite for lending. Like you said, right, you do not plan on changing your appetite. But when we look at your NPLs, it seems like it's under control. It seems like you're able to reprice your loans. So I was wondering, what is it going to take for you to increase the appetite? What are you waiting for to see before you become more aggressive in lending?
And again, it's just that we see a very tight credit market in Brazil today. And this could be the right timing to start lending, right, because you probably can get like better spreads now, and there's probably a lot of demand from good corporates. So just interested in hearing a little bit more why you think you're not going to change your appetite in the coming -- or throughout this year?
Thank you, Mario. So starting with -- so you mentioned the corporates in the end of your question -- so I'll start with the corporates, and then I'll ask Gustavo to mention more on the individuals what we are doing. In particular, the financeira or auto finance business is a good example where we are expanding without changing risk appetite while perhaps others are more holding their horses.
So starting with the corporates, we are precisely doing exactly what you said, Mario. We are looking at our corporates portfolio, which includes both the SMEs, medium-sized corporates, also large and ultra-large corporates. And the results we are presenting today show that we have taken advantage of a market which is positive for expanding portfolio selectively and even increasing -- like I just said, answering UBS' question.
So we believe in corporates, we do have a great opportunity. I've been saying since my first -- a year ago, since my first quarter presentation to you, analysts and markets, we've been saying that we want to be, respectfully to our great competitors, we want to be a landmark corporates platform in Brazil. We want to be leaders in corporates, and that includes both base, SMEs, midsized, large-sized and ultra-large corporates. So we want to be the most relevant corporates platform in Brazil.
And we believe there is an opportunity indeed, given how the market is, to position ourselves further. And that's exactly what we've done in the quarter, mostly focused on large corporates, yes, but we are definitely expanding our SMEs portfolio as well as we speak. But we're doing that selectively because we don't want to take overexposure to companies and sectors which will cause us a cost of credit later on this year. So we're being selective, but we are, for sure, taking advantage of the opportunities we see.
Perhaps, Gustavo, you can comment on individuals.
Yes. Well, with individuals, we are still selective, and we are expanding in the lines that we are more secured. But granularly and using our expertise, we are expanding in portfolios that we have the space to expand, some clean portfolios.
And in auto, for example, we are expanding in higher ratings, but we are seeing room for expansion. So we are still selective and testing every single day with our models and our testing base to see if there are opportunities, obviously, that keep in our risk appetite.
And obviously, what has -- just to finalize, Mario, what has to change, like Gustavo said, we're testing every day. So this is a dynamic thing. It's dynamic pricing, dynamic risk taking, so we test every day our borders, like we call, which are the customers that we just wouldn't lend to, and then we test them on a selective basis. And then as we see the results, we get more excited in expanding the public.
Right now, those tests have proven that the risk decisions we've taken were the right ones. But as we do that throughout the year, hopefully, we'll get to the point where we see that the borders perform better. And at that point, we're going to start [Foreign Language]. So we're going to start doing more credit concession with the slightly lower-weighted clients. But that's going to be done with caution because we are progressing without doing that. So when we can do, obviously, we're going to be ready because we have a very strong individuals platform and SMEs as well.
So our next question comes from Gustavo Schroden at Bradesco BBI.
My first question is related to the asset quality, because although, in our view, the NPL deteriorated by only 10 basis points quarter-on-quarter to 3.2%, in our view this is still challenging trend, especially because NPLs for individuals continue deteriorating for individuals by 20 basis points quarter-on-quarter for the third consecutive quarter, while NPLs for SMEs is still deteriorating faster by 50 basis points quarter-on-quarter, while NPLs for corporates remained relatively stable quarter-on-quarter. So in addition to that, we still see the renegotiation level at a high levels. So my question here is, when do you think that NPLs for individuals and SMEs should reach the peak and if you see the current level of NPLs for corporates sustainable at the current level, or this should increase through the year?
And my second question is a follow-up on your NII with clients. As you mentioned some gains on your funding side, so my question here is how sustainable is these gains. Should we expect further funding gains in the coming quarters or this was specifically related to the first quarter?
Okay. Thank you. Well, first, in terms of the NPLs, well, we are monitoring the progress of the NPLs, obviously, that we are seeing the macro, and we are testing the results of the concessions that we did. So it's difficult to say that if there is a peak or it's in a peak in Brazil in terms of the NPLs or the performance mainly in the individuals segment, but we are monitoring. So this is a small movement. It's -- obviously, the 50 to 90 days is a ratio more volatile than the over 90. But the over 90 represents what we've been saying regarding the old vintages. So it's natural that we see -- that we saw this movement in this over 90. So we are monitoring. It's difficult to see in Brazil with when and if we are in the peak or not, but it's something that is our day-by-day monitoring of performances.
And just -- Gustavo, just complementing still on individuals, you and all the analysts following us, you've questioned us a lot about our renegotiated portfolio, right? We saw it. It has increased a lot last year. But for the first quarter, if I may, it is absolutely stable. At still a high level, I recognize, but it's stable for the first quarter. Last quarter, it had increased less than before but still BRL 1.5 billion to BRL 36-ish billion. And now we're stable at that level.
So our approach remains being very close to customers with difficulties. We try to be proactive early on in the stage to try to bring them opportunities, to renegotiate, give time and selectively discounts as well. But it's good in our perspective that the renegotiated portfolio is stable. We are working towards, obviously, reducing that throughout time, together with NPLs.
So I would say that we are within the range of the bottom in terms of the cycle. I don't expect necessarily a material deterioration from here, like Gustavo said, but this is a daily monitoring, daily measurement. But I believe we have a healthy portfolio more and more. And again, new vintages, as they become more representative, we're going to have more dilution, if I may call it that way, dilution effect.
Regarding your question regarding NII, just a quick comment on -- and when we met, I mentioned this very rapidly -- one of our big pillars. So when you asked me what's my perspective of what's the future of Santander, I've been saying, and I'll repeat it many times to you and the market, I believe we should have a very significant investments and liabilities platform, which not necessarily we had over the last, let's say, growth cycle we endured in Brazil.
Since early last year, we're investing a lot in building pillars. Liabilities is not a business you build and it shows up in the next quarter, it's a longer-term thing. Obviously, quarter-by-quarter, we need to show improvements, and we are showing that. So yes, I believe it's a consistent thing, it's not a one-off. And the reason why it's not a one-off, it didn't happen by accident. We are building a significant investments platform. It has many different pieces. AAA, the advisory platform we built, is one of them. The Select revamped is another piece. We are focused in liabilities more and more in corporates in general, in SMEs in particular. So we're going to have more funding coming from all our portfolio of clients, and that's a strategic initiative that I wanted to highlight to you all.
We now have a question from Tiago Binsfeld from Goldman Sachs.
I wanted to ask 2 questions as well. First, on the regulation side, do you have any expectations for a tax reform in Brazil? This is a topic that we've been hearing more and more these days. What is your base case here, particularly with respect to interest on capital and on the revenue tax simplification in Brazil? If you have any thoughts on that, I would appreciate.
And the second question is on the deposits. This quarter, we saw deposits outpacing credit, so the loan-to-deposit ratio actually declined. Is this a trend from now? What is your expectations for leveraging deposits in your balance sheet? Do you expect to be more conservative from that perspective as well?
Thank you, Tiago. So I'll start with the regulatory topics you asked, and there are many. So covering the ones you referred to, there's a lot of speculation. Obviously, it's a new government. There's a new fiscal anchor just announced, which has many positive things. Obviously, in order to work, it needs more revenues, which will not come from higher taxes. It has to come from cutting exemptions, et cetera. So we are following that very closely. We're not alone. So we're following that through FEBRABAN. And for some aspects, we're following that through Confederação Nacional Financeiras (sic) [ Confederação Nacional das instituições Financeiras ], the Financial Consideration System, CNF, which more and more will have an important role in advocacy.
So talking about the value-added tax reform, we've been following closely -- like all the sectors, we've been talking to the Congress in order to outline our concerns and considerations. Right now, there's nothing concrete, as you well know. We believe it will evolve. We believe it is very important for the country, it will allow us, not instantaneously, but it will allow us to unlock part of our growth potential that we've always talked about, [indiscernible] in particular. So I believe it is a very important step the government and the Congress are taking.
And we are sharing our considerations. And the good news is Congress is listening to, government is listening to, so we believe that it's going to go in the right direction and it will take place. So yes, that is probably going to be the first major milestone in terms of reforms of the new government.
In terms of interest on capital and other potential measures, those are all speculations, obviously. Our role, if I may -- what we're doing with all these topics is really trying to share, like we're doing for the VA tax, we're sharing financial impacts, we are sharing considerations. We are suggesting ways to achieve the goal.
That's the same thing with the discussion on the interest rates or the spreads on credit cards, which I'm sure is going to come up as a question. So what we're doing, we're proactively -- we're organizing ourselves with FEBRABAN and CNF. And we're proactively sitting down with the government, sitting down with the Congress and really talking with them about calculations, scenarios, remarks, so that we can have an educated discussion whereby the right result is achieved. So we are having that proactive approach more and more, and I believe it's the right thing to do. So that's part of my agenda particularly and part of my senior management's team.
Yes. And well, in terms of deposits, well, it's -- as Mario mentioned, is one of our pillars. So we saw the AAA, the private, all the businesses that brings deposits are performing pretty well. Obviously that it's important to see how the macro behaves in terms of the total liquidity of the -- mainly of the individuals. If we see less inflation, potentially, we will have even more possibilities of deposits and we think -- and is one of our pillars in terms of the medium-term consideration of our balance sheet.
Okay. We now have a question from Rafael Frade from Citibank.
So my question, maybe I missed a little bit about the explanation about the expectations in terms of NII and portfolio. But I would like to understand just where we are in the cycle of NII. So for the first time in a long time, we saw an improvement in the NIM. Compared to my expectations, given that you are moving to a portfolio of more safer clients, I would expect the NIM to continue to decline. So I would like to understand your perspective if we should see some stabilization from here, start to see some improvement, still see some deterioration in coming quarters. So how should we -- the trend for the NIM in coming quarters?
Thank you, Rafael. I will take it over. We mentioned throughout the presentation -- I'll start with market NII. So that has already shown a slight decrease Q-on-Q, which I emphasize because it's in a positive direction. We've been telling the market since last year that we -- given the way our balance sheet is structured and the way we position our [indiscernible] portfolio, we would have a 2-year cycle of negative results, increasingly negative results last year and hopefully decreasingly negative results throughout this year. So we already show a Q-on-Q reduction, still 1 digit, but still -- but in the right direction.
So we believe that trend will continue to go towards breakeven by, hopefully, early next year, which will mean a substantial increase when you look at full year perspective in terms of market NII. And obviously, we hope to continue to perform well in our markets business, which is unrelated to our portfolio.
Regarding clients NII, it is a big challenge. So you're right asking yourself and ourselves how should that prevail [indiscernible] liabilities, I'm very confident we're going to keep growing, which I already mentioned, in assets in credit. We will remain selective at one point. We don't believe spreads will continue to grow, as I said, at a rapid pace. We were fortunate to do it in the first quarter, but I don't extrapolate it necessarily throughout this year. But the fact that we are growing our lending portfolio in the right customers, in the right products, the combination of all that should mean we are working towards improving our clients NII throughout the quarters.
And looking ahead through 2024, we believe we're going to have significantly better market -- customer NII and also market NII as we grow correctly our portfolio. We are not going to do that at the expense of running more risk than we should be running, because obviously it could open risk appetite, increase rapidly customers NII, which is an immediate effect, but then 6 months, 9 months later, have more cost of credit than we should be having. We're not going to do that. So maintaining risk appetite but expanding the portfolios we want to expand and also continue our long-term strategy on liabilities, we should continue to improve client NII as a longer-term trend, but obviously, we hope to see that throughout the quarters. Thank you.
We have a question from Domingos Falavina at JPMorgan.
I just had a few quick ones. The first one is it stood out to us a little bit that you mentioned the quarter was in line with your expectations. So our question is if you could share a little bit of that expectation because, to us, this was kind of a 10% ROE. With positive taxes, right, I mean, it would probably have been something closer to 8%. There was a BRL 4 billion tax reversal that also helped, which wasn't really expected to us. Not even adjusting for that, this probably had been around an 8% ROE. So if you could share a little bit like what's kind of your ROE expectations for the full year and if you expect positive tax brackets and things like that.
The second one is around the reversal of the tax. I understand it's a fiscal thing. There was only one justice in the Supreme Court that voted in favor. So separating, if you're allowed to do it, I understand you are, but what made you comfortable around doing this reversal?
Okay. Thank you. So what I mentioned in my final remarks that the results were in line with expectation, I don't want to mean that we -- as a franchise, we believe BRL 2 billion, BRL 2.1 billion should be the quarterly profit on average looking at the next years ahead. That's not what I meant and wanted to infer. In line with expectation means, given the macro we're in, given the decisions we took, which we do not regret, given how demand is behaving, given how competition obviously is positioning -- we respect deeply our competitors, and they're doing a great job -- so all those things together, we believe we got to the top line, medium line and bottom line which are in line with our expectation.
We are happy that we grew our NII line, on customers particularly. We are happy that we reduced our negative in market NII, which I just covered in more details. We understand that commissions, obviously, reducing Q-on-Q is not great, but there is a seasonal explanation for that. We are happy that our cost and efficiency orientation -- which is not cost per cost, it's a broader efficiency thing -- we're happy that Q-on-Q we reduced our costs.
Yes, we had a positive tax effect given interest on capital, et cetera, but that is not expandable throughout the year, of course. So we believe that it's not a number whereby we are looking at the senior management and management overall. We obviously believe the franchise is worth a few billions more per quarter, and we're working on that, and I'm sure you all agree. But given everything macro, the decisions we took, competitive landscape, the demand overall in the economy, we believe this is a quarter we should be getting through. And we are -- on that perspective, we are happy that there were no surprises on it.
Talking about the provision, yes, you're right, in terms of the judicial process, there was a vote from -- well, from the main justice, from the main voter. And obviously, the process needs to continue. We believe we have the -- obviously, we believe and our auditors believe we have the ability to unwind the provision.
The question was, well, we unwind the provision and we flow that through P&L, which we had the right to do, to be honest. We preferred to take advantage of the allowance of reversing the provision to reinforce the balance sheet. We now have, as you've seen, a 244% coverage in our nonperforming portfolio. We have therefore the ability to manage the cycle, which hasn't improved yet. We believe there are still a few quarters or more ahead before we expand again balance sheet, and competition does alike.
So reinforcing our balance sheet, in our view, was an important decision. We're happy that we could take advantage of it. But again, the fact that we didn't flow it through P&L means that we are still being conservative, although we changed the tax provision line to a broader credit cost provision line. And we believe that was the right decision. Thank you.
Okay. So we will now take the final question from Pedro Leduc from Itaú BBA.
A little bit on the portfolio growth itself. We saw a nice expansion, 7% Q-on-Q on quarters. I want to pick your brains a little bit if this had anything to do with a bit of a tighter capital market for corporates, be it in credit or equity. We saw that you purchased a lot of -- your securities portfolio grew a lot. So are you seeing this net effect of a more tighter capital market, but opportunity for you to take on loans yourself? Are you seeing spreads profitability involved with those corporate opportunities?
Yes, Pedro, thanks for the question, and it's good to close with that remark. So yes, absolutely, we saw an opportunity derived from almost no activity in domestic capital markets, very, very little in international capital markets, as you've all seen. Equity capital markets also muted as well. Companies still demand credit, either new credit for their expansion and investments overall and rolling over transactions as well. So we monitor that very closely, as I'm sure our competitors did the same. And we saw opportunities to expand in large corporates. We did so with very -- obviously, the credit decisions in mid and large corporates are all name by name, so we were very thoughtful in advancing those portfolios. And each decision was discussed thoroughly. But we did take advantage of not only expanding the loan book but also doing so with better margins than we had originally or historically with those same customers, so yes.
Would that continue throughout the year? We believe and it's healthy that the domestic capital markets reopens marginally. The international capital markets is the same and hopefully equities as well. So we believe that on a marginal basis, those capital markets will reopen. And again, we're happy with that because it's a big piece of our business as well on the fees line.
But while that takes place gradually, we will keep looking at opportunities and growing our balance sheet consciously and with the best ROE possible. I've mentioned a few quarters ago that our aim is really not growing the portfolio per se, our aim is doing so in an ROE-adjusted basis. So we look at the ROE of each transaction. We look at the cross-sell we can make in each transaction as well. And we monitor that on a client-by-client, banker-by-banker basis. And the ROE discipline we have, I believe, is industry standard. So we're going to keep that. But as the market provides opportunities, we will take advantage in the right way.
Okay. I don't know, do you want to thank everybody?
No, no, I just wanted to say that, again, thank you very much for your time. It's a very productive 1 hour for us. I know there's a lot of things which we couldn't cover given the time. The IR team is here. I'm available more and more. I met many of you a few months ago here in our headquarters. It's going to be great following up with you throughout the year. I'm open, Gustavo just joined us. So it's going to be pleasure to dig further into the numbers, the strategy. We are building significant growth levers for the next quarters and years, and it would be a pleasure sharing with you all that as we have also questions about the markets we're in, the macro and short term.
Thank you very much for your time. Camila, please.
No. Thank you. This is it. Thank you for joining. We are available for any further questions you may have, and have a great day.