Banco Santander Brasil SA
BOVESPA:SANB3
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Hello. Very good morning, everyone. And thank you all for joining us this morning to our Second Quarter Conference Call. I am Gustavo Sechin, Head of Investor Relations of Banco Santander Brasil. Here with me are our CEO, Mr. Mario Leão; our CFO, Mr. Angel Santodomingo, and our Investors Relation teams.
Speaking first today is Mario, our CEO. He is going make some comments regarding our strategy, and he will be followed by Angel, our CFO with comments over our quarterly results. After that, we are going to open for a Q&A session. Just a reminder, this presentation is available in our website, and please refer to disclaimer on it.
At this time, I would like to turn over the call to our CEO, Mario. Please go ahead.
Thank you very much, Gustavo. Thank you very much all for joining. It's a pleasure to be here again for second time. So I'll kick-off with strategy and then Angel complement with the numbers and then we'll jointly cover the Q&A. So, I'll basically kick off with an update on the precautionary measures we have taken since September 21. And then I'll reinforce some of the strategic priorities I have outlined in the first quarter and for the remainder of the year, upon which we are already working on as a group. So our ability to anticipate trends is resulting better vintages as expected. And as they start to gain relevance inside the portfolio, that should translate into a more controlled asset quality. The delinquency ratios remain stable quarter-over-quarter with total delinquency at 2.9%, still below pre-pandemic levels.
Also incorporating new variables in risk models allowed us to increase the origination of secured loans, contributing to the maintenance of a strong balance sheet. We will give you more examples later, but for example, in consumer finance, in August, in the second quarter, we have increased our production share from roughly 18% to 22%, and therefore maintaining our overall position as market leader with a 24-ish percentage in terms of market share. Besides all the challenges the macro scenario has been imposing on all of us, we were able to maintain our profitability above 20%, reaching a 20.8% ROE and also a very low efficiency level, our second best ever.
Moving on to our strategy, which we described in the next few pages. So in terms of our strategic priorities that I outlined for the last quarter, we are designing our strategic thinking and developing for the next few years towards becoming what we call the best financial platform in terms of consumer finance operation, consumer services in general. And for that, we have outlined four strategic pillars, which we are already working on. They talk with our results obviously as they should be. And the first one is customer centricity, sales channels, innovation and culture, obviously outlining the importance that our people have in all the other pillars. I'll come briefly on each of them. And then touch a few of the points where they translate into results so that you can connect the strategic initiatives we have aligned with how that -- how those initiatives materialize in terms of P&L.
Starting with our customer centricity priority. A stronger and more intimate relationship with our customers will continue to be one of our main -- one of the main variables to keep delivering solid results. As you can see here in this slide, we've continued to increase our customer base, the gross customer base, the active customer base, and the loyal customer base. They all increased by significant percentage points. The loyal customer base increases high teens percentage year-over-year, and we make 5x more revenue with those customers than we do in with average customers. That's a very important data that we track. We continue to have tailored offerings towards our customer base and obviously Open Finance has been giving us more data so that we can continue to offer the best possible lending and also services to our customers.
We have continued to deploy dynamic and personalized models to have a more effective and assertive approach. And our loan share of wallet among loyal customers is 1.8x, almost 2x greater than of non-loyal customers. So the strategy of making customers become more and more loyal with more communication, more tailored offering, that continues to be at the center of our strategy.
Moving on to the next page, we continue to be obsessed with our efficiency, not only to achieve a low efficiency number but also to achieve the lowest cost to serve among our peers. So we keep reducing our cost to serve. As you can see here from '19 to 2022 with more than half, and year-over-year, we reduced almost 30% our cost to serve our digital customers. Obviously, that's an important data because as we grow digitally the customer base more-and-more, as we've been growing over the past few years, it's very important that we have the lowest possible cost to serve. And that continues to be an obsession like I said, that includes our ability to be simple, to have simplified offerings, which doesn't mean not adding products to our offering, but doing so in a much simple way, reducing therefore processing costs, obviously, the amount of people we need to process and systems alike.
And another big focus, which we also cover here is all our obsession in delivery, in time to market. We reduce year-over-year 34% the timing between origination, granting mortgages and 23% the timing between origination and granting for agri related products. So we consider ourselves to be industry best in both lead times. We are not satisfied at these levels. We are going to keep improving our efficiency levels systems-wise and processes-wise so that it will continue to deliver a quick execution to our clients, to our customers, and therefore improving their loyalty and their satisfaction with Santander.
On the next slide we highlight our recognition as the best consumer company by prestigious Brazilian publication, and the best bank for low income individuals by IBOPE. That means we are obviously focused on the lower base of the pyramid, as you all know. But I wanted to highlight that we are obviously very focused as well in medium and high income. We have two segments, two specific segments here, which are called Van Gogh and Select. We're going to be renewing our ambition in both segments, particularly on Select. We're going to be talking more about it in the next part. And that has to do a lot with our big initiative on investments on liabilities. We launched the platform, which we'll comment more later, which is called the Santander AAA, which is our answer -- our strong answer to the investments side of the balance sheet. And therefore, we will grow much more rapidly than we did in the liability side particularly in retail compared to what we grew over the past few years.
Our NPS is at 55 points. We keep working on that. We were in 2017 the first one to start talking about it in Brazil. And that continues to be an obsession. NPS is one of the measures, not the only one, but to continue to read it, to understand what it means and talk to customers through the NPS in all different segments.
Moving on to our distribution. That's a big pillar. If you want to be the best consumer company in Brazil, we obviously need to dominate distribution. And that has to do with our four different pillars in distribution. The first one that we call, the physical channel, the stores. We like to call it stores because that's what they are. They are physical stores such as any retail company in Brazil that sells physical products. It's just that our products are different but our stores, they should be the same.
We keep expanding the stores throughout Brazil. That's an important message. We believe in the relevance of the physical stores. We are in places where there's no competition like we have in the main Faria Lima and Leblon pieces of Brazil. So we keep opening stores throughout, mainly the Midwest, North and Northeast of Brazil. We are going to have opened 70 stores this year. That compares to 120 last year but that's still a very good pace of growth. The stores we open are very profitable. They have a payback many times within months, less than a year, almost all of them.
We have increased lately the stores' availability, the hours' availability. We were the first company in Brazil to have a 9:00 AM to 5:00 PM for all these stores. That makes a difference because that allows our customers that go to stores and many customers still go to stores to be talking to our personnel. We also have our Bank to Go initiative, which is already selling thousands of thousands of contracts in the stores where we have the ATMs. Remember that we have 16 billion people going to our ATMs on a monthly basis. Half of those are customers. Half of those are not. So we have a tremendous opportunity to cross sell those that are customers and to onboard those that are not. So we keep believing a lot in our physical channel. That integrated with our other channels, which we will cover in the next page, will provide us a very powerful distribution platform, which we will construct to be the most powerful in Brazil.
Talking about the other three channels very quickly. Our digital channel keeps expanding. We are having more than 500 million visits a month in all the different apps and portals. We continue to do business and do post-sale in the digital channel more than any other channel, obviously, given its scale and availability. We have added new features, which we call the Gent&, which allows us to talk to our customers and explain to them better their consumptions in a very didactic and [exciting] way. So with that, we want to have more time from our customers inside our apps, understanding their financial needs, their financial goals within the information that we have, and we are now publishing in a very organized way.
In terms of our remote channel, that keeps expanding very rapidly. We're soon going to open our third headquarter for our remote channel in the country side of São Paulo in Sorocaba, we right now have in the South of Brazil in the [indiscernible] and also in Rio, and we're going to have our third spot. We are already selling 2x more in this channel than we did a year ago. So, that has become already a very important sales channel. And obviously, it's a very important channel for us to do post-sale and we are doing much more and much better there as well. We have our first call resolution at above 90% level, that was likely above 80% early this year, and our ambition is to get to 95% by the end of this year, and we are working hard on that.
Finally, on the external channel as we call it. That is everything that we have in terms of points of sale. Apart from our physical branches, the stores, we already have 2,000 locations, which is a decent number, but it's well below where we want to be. And here we are launching an ambition to grow at a triple-digit rate for the next few years. So that means that 2,000 level will be much bigger, and we are going to be talking much more about it every quarter from now on.
With that, we have, again, four different sales channels. They are more and more integrated. Our loyal customers, they transact using different channels already at a very high pace, and we want to keep integrating those channels so that we serve our customers more and more, however and whenever they want.
Moving on quickly to what we call innovation and capital, that's a very important pillar. That’s still an area we’re already talking about M&A and inorganic, we are going to comment soon. But this is the organic innovation that we are very fond of. We launched this quarter our assistance business, which we call helpS. It's already available for car, home, bike and pet. And we are launching out for motorcycles and gamers in the next few months. That will allow us to have a new stream of commissions -- recurring commissions from our retail base. It's a business we are expecting a loss from. It has a specific brand positioning, and obviously the price tag is very competitive compared to the traditional insurance business.
We also launched our AAA, that I mentioned before. That's going to be a game changer for Santander in terms of how we position ourselves in the liability part of the business. We are expanding more than 1,000 advisors. They remain employees of Santander. Our model is, they are not independent advisors. They are sitting within Santander, but they have a very specific design compensation model so that they can obviously be aligned with our results as well. We have Toro, our digital consumer brokerage that has continued to expand very rapidly despite the market's not been so great over the past maybe year. Toro continue to expand the customer base, customer loyalty and business. Finally, we launched what we call SX Integra. It's already a very large digital platform for supply chain financing. We want to make it the largest in Brasil as a whole. That connects with our Confirming business, which is a very important piece of transactional business we have, where we connect suppliers with anchors.
Again, on the agro side, we continue to expand a lot. We reached already R$30 billion in our portfolio, that's a 33% year-over-year. So we continue to expand our agri business ambition and we want to be much bigger here.
And finally, just some comment on the inorganic side, as we mentioned in the quarter, we acquired this company called WayCarbon. That is Latin America's largest technical consulting firm for net-zero climate and carbon. And we want to extract a lot of value from it. It's still not relevant in terms of our net profit, but we believe it'll be more and more. And our connection with WayCarbon will allow us to tackle this business, which is only beginning in Brazil as a whole.
Finally on culture and people, we continue to have a very diverse and supportive culture. As you can see the numbers here, we are close to 30% black employees. We keep working on that. We have a public commitment towards 40% by 2025. Women in leadership roles, we already have more than 30%, 31% precisely. We also want to get to 40% by 2025. And overall, we have more female employee than male employees. And one comment that I wanted to highlight here because it's a very important culture wise, we firmly believe in a culture where leadership is close to everyone on the commercial side on the support roles. We do believe that everyone in the headquarters we have in São Paulo should be visiting the stores and understanding what's going on at where reality kicks in which is at the sale point, at the post-sale point. So we promote from my standpoint the executive committee and everyone in the leadership roles in our headquarters, they are traveling throughout Brazil a lot, and we believe firmly in that horizontal perspective so that we can learn more, and translate that into further and better businesses.
And finally, we truly believe in protagonism, in knowledge. We have our academy, which is going to be -- we launched now with more content, more courses, and people keep joining and we have a 98% level of employees certified.
Finally, on ESG, we keep very focused on businesses, which we connect to the environmental side of things, obviously with all proper care. We -- on the social side, we have the Prospera Microfinance operation, which keeps expanding very rapidly every year. Our portfolio is expanding by 36% by next year. We have added agents. We are serving almost 800,000 customers, and hopefully we're going to reach 1 billion customers soon.
And in governance, we keep obviously following all the proper governance standards.
And with that, I'll leave it to Angel so that he can cover the results.
Okay. Thank you, Mario. Good morning, everybody. This is Angel Santodomingo. I will start in the Slide 15 where we detail our P&L. As you can see our net profit amounted to a little bit more than R$4 billion, R$4.1 billion with growing 2% in the quarter and almost flattish in a six month period comparison. I think the important point here is that core revenues best represented by customer NII and fees continue to perform strongly, reflecting the transactionality, and growth that Mario has commented. While as I have anticipated to you during several quarters already, market NII and provisions remained under temporary pressure due to the yield curve and the macroeconomic environment.
Let me go over a few of our key figures for the quarter. On the revenue front, total NII was stable on a cumulative basis with market NII offsetting, as I said, the strong positive performance of customer NII. Fees, again, another good indicator about transactionality rose by almost 6% over the quarter, that’s an annualized more than 20%. Here the expansion of our customer base and more robust activity translated into a stronger revenues from a wide variety of items including cards and insurance. And on the expense side, provisions grew by 60% in comparison to the first half of last year, which is consistent with what I have been stating since third Q of last year earnings call.
On the other hand, you will see that arrears ratios are flat. I mean, balance sheet ratios are flat in the quarter for the first time in a long series of quarters. Also, general expenses increased in nominal terms more than 8% due to the collected by gaining agreement and inflation. We continue to be efficient, focused and we manage to deliver a solid quarter-over-quarter performance, posting a 2% decline in expenses in an environment of a high inflation as I said.
With all this, our efficiency ratio remains in very good shape at 33.9% in the quarter, almost the historical minimum. And furthermore, our return on equity stayed again at a healthy level of almost 21%, 20.8%.
On the next slide, Slide 16 depicts the progress of our NII with a heavy emphasis as I said on the customer side. This semester, customer NII expanded at the rate of 28.9% versus the same period of 2021, which is a direct reflection, again, of everything we have been mentioning about customer growth, loyalty and related fees.
Consequently, in second Q '22, product NII increased by 3%, 2.9% compared to the first quarter and 24% against the prior six month period, benefiting from positive volume dynamics, a better mix and improved funding performance. As a result, spreads continue to expand by approximately 20 basis points, a very high level when compared to, for example, last year.
On the other hand, as I have been sharing with you for quite some time now, market NNII reflects our negative sensitivity to the yield curve and specifically to upward movements in this yield curve, a trend that will persist in the second half of 2022. This performance, which is no new is and will continue to be partially offset by our treasury results in this line of the P&L.
Next slide, Slide 17. Given the adverse economic cycle we are witnessing, we have taken precautionary steps of loan origination beginning in the third quarter of 2021 that I have been sharing with all you. This has resulted in a slower but positive loan growth pace. when compared with the market as seen in this slide. Plus our loan portfolio grew by 2.9% quarter-over-quarter to almost R$470 billion. This regarding the currency effect, that would have been 2% growth. So, not a huge impact on that side.
Individuals continue to outperform our corporate portfolio in the year with mortgage, payroll, personal loans and credit cards driving part of our portfolio expansion. It is important to underline that 64% of the individuals loan portfolio is secured, is collateralized.
At the same time, the quarterly portfolio growth for small and medium-sized enterprises, SMEs was 1.2% up, whereas its annual growth is already close to 7%, 6.7%. Due to competition from capital markets and our profitability way of looking at operations, corporate lending dominate the annual growth of the overall loan portfolio, also as you can see in the quarter, it is showing a nice growth rate.
Finally, our funding performed nicely well. In this regard, and as you probably remember, we have insisted that the hike in interest rates would boost demand for traditional banking products. This is reflected, for example, in an increase in time deposits during the quarter. Finally, our core capital stood at a healthy level at the end of the period. As our core equity Tier 1 hit 11.1% within our reference range, which is, as you know, in between 11% and 12% and will stay in that range.
In next slide, in Slide 18, in terms of fees, we continue to grow, supported by the expansion of our active base and a higher level of customer loyalty. In the Q-on-Q comparison and with the production measures we have been taking on the negative side, even with those, we delivered a quite positive 5.7% growth only in the quarter. Insurance and capital markets were the best-performing segments during the quarter, while cars were the top performer on a 6-month comparison basis.
Expenses are recurring talking point inside the bank and at the highest level. And you can see that our long-standing commitment to expense control was again shown with a 1.9%, almost 2% decrease in that line over the quarter. Specifically, in an environment in which inflation as you can imagine, is pressing that part of the P&L. Compared to the year earlier, expenses continue to grow below inflation at 8.4%. Thus, as a result of all these, and as I noted at the beginning of my presentation -- of my part of the presentation, our efficiency ratio finished the quarter at 33.9%, a solid level despite these inflationary pressures and increased commercial activity. Again, this is the second best ratio only 0.1% worse than the one we presented only 12 months ago.
On the next slide, on Slide 19, we can observe how our asset quality has evolved. NPL ratios, both 15 -- the early arrears, 15, 90 and over 90 days show a flat ratio, I repeat, a flat ratio when compared with last quarter, a situation that did not happen since second Q 2020 that is two years ago. The early arrears are flat in all its components, individuals and companies, while the over 90 shows still a slight deterioration in individuals with improvement in companies. This would be the first signal of all the decisions we have been taking since September '21 about the production and risk profiles.
On the cost of risk side, and as it could not be different, given what I show in the P&L breakdown. In 12 months, our cost of risk grew to 3.4%, still affected by past vintages that are being reduced during these quarters. Credit recovery once again, performed well in the quarter, thanks to a continued solid management.
And finally, coverage ratio improved in this environment to 224% compared to 215% in the previous quarter.
So that's about the numbers, Mario. If you want to take it over from here to the final words, and then we can move to the Q&A. Thank you.
Perfect, Angel. Thank you very much. So on Slide 21, I just wrap up the main points of our strategy. So I'll try to be very quick, so we have proper time for Q&A.
So I want to conclude by just reinforcing some key messages regarding our strategy to become the best consumer company in Brazil. So as I mentioned previously, our focus is on four interconnected pillars: customer centricity, integrated sales channels, innovation and profitability, and culture. On customer centricity, our focus is on the entire journey from sales to and specialty pulp sales, expansion of the loyal customer base as a key growth lever. Obsession with minimizing lead time, streamlining the offering and lowering the cost to serve, operating in the low, middle and high-income segments with a renewed approach, particularly on the latter.
On sales distribution, we are building an unparalleled distribution business. We continue to believe in the branch network, which will expand by 70 stores this year, as I mentioned. Bank to Go is gaining traction and we are expanding store service hours. Our digital channel continues to grow in volume and offerings, adding management solutions for customers. Our remote channel doubles businesses volume year-over-year and solutions for our customers and optimizing customer first-level resolution.
An external channel is poised for annual growth in the double-digit range that I mentioned before. Our innovation and profitability, we continue to focus on organic and results-driven innovation as a cornerstone of our culture. We launched help our system business, AAA advisory platform, introducing a one-of-a-kind concept in the market. SX Integra prepayment platform is already the market leader, and we keep consolidating total in the market as 1 of the contrast for digital brokers. WayCarbon is a major root for net zero and carbon neutrality and we'll keep -- and we bring a lot of businesses for us in the future. And on culture and people, we view horizontality and proximity to the frontline as fundamental management tools with foster a culture of innovation where everyone has a business mindset in which training, diversity and ESG are core assets.
Regarding our accomplishments in the quarter, our profitability and efficiency are consistently positive at 20.8% and 32.9%, respectively. Our commercial activity and customer loyalty continue to advance driven market by cards and collateralized transactions among individuals. Our corporate customers are beginning to regain momentum. That's on the wholesale side, but more and more in the mid piece of the business as well, which is very important.
Our loan quality remains under control with deterioration as anticipated and projected since the last quarter of 2021. We have stable NPL ratios, reinforcing this assessment of the portfolio. And finally, on the growth agenda. That remains intact. We keep consolidating our presence across Brazil, doing more on the physical side, on the digital side, on the customers' growth side and the growth mentality and the growth mindset is within everyone inside the firm. We keep focus a lot on the top line, obviously, focusing on managing all the other lines of our P&L, but top-line remains a key lever and a key priority and obsession for all of us, with the same growth mindset we’ve had over the past several years.
With that, I’ll pause, and we’ll have, I guess, half hour for Q&A.
Thank you, Mario, thank you, Angel. We will now open the Q&A session for our investors. As you many know, will start with questions primarily sent via webcast, our platform. So, at this moment the first question that we have, the group of questions come from Flavio Yoshida, Bank of America; Daniel Vaz, Credit Suisse; Thiago Batista from UBS; and Tito Labarta from Goldman Sachs. Thank you guys for your questions, It’s related to the NPLs. So, the NPL is already showing some encouraging signs in your the first bank to become more selective on loans originations. Should we already expect some loans acceleration this quarter?
We also have a complementary question from Thiago from UBS. They have requested some information about the difference between IFRS and BR GAAP.
Okay. Thank you, guys, for the question. Let me try to elaborate a little bit on the different things. As we have been sharing with you and as we said in the presentation, we started to take a measure on the production of loans September ‘21. This has been shown during different quarters with a slower growth rate of our loan book, both in fourth Q and first Q, we will see now in second Q. And it is clear that we were taking those measures in advance of what the sector has done. And I’m taking that from the public figures that you know and that are shared with everybody.
Now, what are we seeing? The first thing we are seeing as the question was mentioned is that in balance sheet ratios, we are -- for the first time in two years, we are flat. That means that all these measures that we have been sharing with you are starting, these are green shoots, are starting to be reflected on these ratios. Obviously, this is something that theoretically will be represented or will impact positively the P&L in the future, right? And that future is the question of how quick, et cetera, this is another discussion. But the first signs, you see it on the ratios on the balance sheet, which is where the arrears start to be flattened, both the 1590 [ph] to the over 90. And then, you see those effects coming into your provisioning level in, as I said in future moments.
So, that’s the difference in between why you see one thing on one side and the other thing in the other side.
At the same time, as you show in the presentation, we increased coverage ratio to 224%. So again, also for us, this is a consequence of all the provisioning efforts that we do throughout the process of provisioning decision. The reality is that that has come into a sounder balance it, or into an increasing amount of coverage.
And finally on that side, the difference in between IFRS and BR GAAP, basically the difference is a difference that has to do with how quick and how do you provision? In IFRS, as you know, you tend to provision more thinking what is going to happen in the future more than what is happening today. So, if you grow a lot, or if you grow in certain products, you tend to provision more. Also this part of the portfolio may be up to date, may be as known doubtful loan, but you start to provision just thinking that at some point in the future that could happen. And this is what normally means that you tend to provision more on the IFRS when you grow more or when you grow in certain products, while in BR GAAP you are more factual. If the client goes into arrears, you start with a process depending on the classification of the client and depending on the calendar.
Mario, let me know if you want to make some comments.
Yes, just a quick reinforcing here. So, last quarter, we mentioned that as soon as we saw signals, we would resume expanding the portfolio. So, that’s a very important question. So, we appreciate that. There are some portfolios, as I mentioned last time in wholesale and in the larger part of the team’s business, we had no concerns since late last year and this year. That remains the case. And I’m happy to comment again that on the wholesale part of the business, we did expand this quarter again, obviously FX played a role, but it was in excess of the FX effect. We did grow our wholesale portfolio. But also on the payments business, which is obviously very important for us, not only for NII but also commissions and more and more investments, that piece of the business has been having a very strong performance. So, in that side, our models are basically open. And we continue to expect good growth in the mid and upper part of the payments pyramid, but more and more in payments in general.
In individuals, as we mentioned, our secure portfolio is a big focus for us. It’s not to say that we are not going to land to unsecured pieces of the portfolio, but we will continue to expand more rapidly in the secure pieces of the portfolio. And with that, we expect, yes, in the second quarter -- third quarter and fourth quarter, so in second semester as a whole, to have a continuous performance growth in the asset side and therefore NII.
One final comment, we -- given the big focus we are having on investments, we continue to focus a lot on the investments NII, on the liability NII on customers. We have a big business in investments in the wholesale. We want to expand that much more in retail. We want to make retail the biggest piece of our investment portfolio. And that will bring also stable and obviously risk free NII to our revenue mix.
Thank you, Mario. So, our next questions come from Pedro Leduc of Itaú BBA.
Great job on OpEx. We can see especially in the personnel expenses line with remuneration down 10% Q-on-Q. You didn’t let go people and seems more related to verbal compensation adjustments. Your report in net income is down, however, year-to-date, more like flat. Can you help us to reconcile this drop and how we should think about it going forward as we think about talent attraction limitation? This looks like a fine line to walk. Thank you, Pedro.
Thank you, Pedro for the positive question. It is true. I mean, you know our way of working here. It’s in our AVM. I mean, we have been focus on cost for a long time, and we are not going to change that because of whatever happens externally. So, the focus on efficiency, the focus on growing costs below inflation, I said that on the first Q, but I have said that in the last, I don’t know, 7, 8, 9 years and continues to be a top issue at the top management discussions. And that continues fight against inflation.
Now, as you said, on the quarter, we are down 2% on total cost, 4% in personnel expense, and flattish in administrative terms. And on the year-on-year, we are almost 400 basis points below inflation, which shows that what I’m saying is a fact, it’s not a willingness.
The discussion is how you do that. I don’t buy too much that this costs talent. It’s on the other way around. The more efficient you are, the more capable, the more quick, the more everything you are with clients. So, the experience is -- improves, is better and you attract more talent. And in fact, if I may say, the general situation of liquidity, both worldwide and locally, should offer additional talent to those that are performing with profitability. But, I wouldn’t link it to talent because at the end of the day, it’s, as I said, how do you do this? And we have shared this with you. I mean, we have, for example X, which is a kind of a proactive selling call center that we have taken out of the bank to another type of company or First, which is our technological subsidiary that also has been taken out. These are ways of keeping talent, keeping them happy to be in the Santander ecosystem, and at the same time, being able to improve efficiency and to downsize costs. And this is how we do it. So, it’s nothing new, but I’m glad that you underline it, because it is something that we are very proud of.
Just reinforcing on his point. That’s a very, very important question, Pedro, and thank you for raising this. We, not necessarily, we reduce the amount of people we have working for us, because there are many third party providers, which we very diligently, of course, -- not only cost wise, but also quality wise, we’ve concluded that it would be better having -- including the same people sometimes, but other times just hiring elsewhere, having internalized people. So, people really working for us inside Santander compared to those third parties. It’s not that we are going to remove all third parties. It’s not that, but marginally what we are doing is in technology in our First platform, which hopefully we’re going to be together, if you all attend, the event we’re going to have on the 15th of September, that’s going to be in our headquarters of First, our technology arm. So, there and also in SX business, SX Negócios as mentioned, those are two pieces where we are bringing people inside Santander. And with that, we are achieving on average three to two cost reductions. So, every 3 reais becomes 2 reais. In some cases, we reduce even further. So with that -- and by the way that with quality increase.
So, that is one of the things we’re doing. We are bringing people in. So, headcount wise, we may increase actually, but that’s for a good reason. We are bringing people that we were paying for more and with a better quality. And the second point is what Angel mentioned. We are developing new ways of working so that people have different pieces of the business, big pieces of business. We have people with lower fixed salaries, fixed costs, and much greater variable costs, and obviously variable remuneration, which is totally aligned with our own P&L. So, SX Negócios, SX business is one piece, very relevant piece for that. We designed our triple way advisory platform for investments. The 1,300 people we’re going to have within 12 months, that’s also on the same format. So, more and more we’re going to build businesses with lower fixed costs and much bigger variable costs, so that people get attracted by the potential upside on the variable side, but they cost much more on a, let’s say, business as usual basis.
So, our next question comes from Eduardo Rosman, BTG; Marcelo Telles, Credit Suisse; Thiago Batista, UBS; and Flavio Yoshida from Bank of America. We have two tops, NII. First, what’s the impact of M2M on market NII? Second, how can we think about the market NII for the second half this year and the next year? Is there any expectation of the recurring level of market NII going forward?
Okay. Thank you, guys. Yes. As I explained, on the NII, you have both, you have the customer NII, which is performing strongly, both on the asset and the liability side, and then the market NII, which reflects that narrative sensitivity at the balance sheet level. The reality is what I said to you and I think I said that throughout 2021 that given that sensitiveness 2022 was going to be a negative year on the NII market part. And this is what is happening. So, I would expect this. I’m not saying anything new to you. I would expect this to continue being negative. The level of negative is going to depend obviously on the deal curve and how it moves. But I wouldn’t expect a positive number there in 2022.
Now, looking forward, is this going to be less intense? Obviously, as the Qs evolve and they close in between the production and the cost of funding, that number will tend to close and be more than offset or being offset -- pardon me more than offset -- be offset in an improving way from the NII from clients. That’s our view here. So, my message is it will continue to be negative. It will be -- the NII of clients given the growth that it has and will have, will be in offsetting power to that negativeness. And I’m not saying anything new to you because this is exactly what I have been saying during the last at least that I remember three quarters, if not more.
Our next question comes from Eduardo Rosman from BTG. Santander has been much less active than Itaú in M&A over the last several years and Santander is the only increment -- who may still make some relevant acquisition. With the strong correction in asset price, are you seeing any opportunity?
To be honest, I don’t want to compare ourselves in that part of the business with anybody. And I don’t follow that ranking, nor internally or externally. What I can set with you is that we have that -- probably you don’t -- you haven’t noticed, but we have done 15 operations in the last 18 months, M&A operations, and that includes store room, mobiles, it includes cockpit, it includes, curtain, it includes solution for fit, it includes Apê111. I mean, I can give you the full list. I don’t think it makes sense. But we have -- and this has been something structural during the last 5, 6 years. We have been continuously completing the offer, as we call it internally the ecosystem with the smaller or bigger planets that we tend to -- it’s too wise, the objective. First, completing the ecosystem; second, creating planets that in the future will be large planets, as has happened, for example, with return, that was almost something in existent. And today, we plan -- we have an activity that will probably get closer to 400 million profit by year-end, or [indiscernible] that we acquired last year.
So, that is the way. I mean, on top of that, will there be transforming M&As in the next, I don’t know, 3, 4, 5 years? Well, to be seen. I wouldn’t say yes or no to that. It will depend. What it is obviously is that if anything arises, we have the fiduciary jury to look at that. So, we will look at that. We will have, as always, the strategic discussion and the financial discussion and going through them, as we have done in the past. And you remember cases like HSBC or Citi here. We will decide to go forward or not. So, we are active there, but we are with that type of a strategy that has been successful so far.
Thank you, Angel. Our next questions come from Gustavo Schroden, Bradesco; and Pedro Leduc from Itaú BBA. Renegotiation continues to rise, which we also see as a risk management tool. Could you give us more details on what type of portfolio you are in negotiation? Should we expect more going forward? Are your in renegotiation activity portfolio or written off?
Okay. Thank you, Gustavo and Pedro. Let me give you some insights on this. First, the renegotiation part of the business is obviously a core part of it and specifically in moments like the ones we are living. Okay? Renegotiation goes across products and clients. I mean, we don’t have any specific policy or concentration, et cetera. So, it goes across the different -- the full kind of range of products and services or clients and products, which we tend to optimize. You know, and we have served with this, we launched, for example, in January a campaign called [indiscernible]. So, it’s like a un-leverage in Portuguese, which is a way of helping, but being realistic about clients. We are not putting the problem in the front of us. We are trying to really solve it. And this is the general policy of the Bank.
Let me remember you that that part of -- that portfolio, the renegotiation portfolio, let me give you two numbers or two ideas, which are very important. First, 50% coverage. Okay? So, something that is pain and is not a problem, we already have a 50% coverage ratio there. Second idea, for your information and this is important because I think it’s a differentiation, at least, as I can see from Santander Brasil compared to other place. We include there clients that are paying and the clients that are not paying. So, the active clients and the non-active clients. And this kind of enlarges the number a little bit, when you look at it. But we prefer to be conservative in how we present the numbers to you.
Just to add to what Angel just mentioned. Two important messages here on renegotiation. One is that we’ve developed a omnichannel or multichannel platform to renegotiate with our clients. So, we obviously talk to them through the remote channel, our call centers, quote unquote. But, we’ve developed tools for customers to digitally serve themselves in renegotiation more and more. And with flexibility in developing the renegotiation that suits this specific customer, we’ve been achieving very good levels of not only renegotiation, but maintenance of those renegotiations.
The second comment is, we are launching now. So, it’s more like a third quarter onwards thing, but we are launching now new ways of dealing with renegotiation with our clients. We’re starting to have renegotiations where we actually provide limits -- new limits to our customers, provided that they -- under the negotiation terms they make a down payment and obviously they keep performing that renegotiation. But the perspective we are giving to our clients now going forward is much more that if they renegotiate with us, we can reopen limits with them. And obviously we do that in a way that we end up having lower cost of credit and more recovery. We’ve been passing that model for many, many months already, and we -- literally this week we launched it.
So, the perspective of renegotiation being a key pillar of our lending cycle is key. And we’ve been improving a lot over the past two quarters. And now with this new renegotiation with limit, as we call it, we’re going to have an even further tool to keep improving our renegotiation and the maintenance of those renegotiation levels within our portfolio.
Thank you, Mario. Our next questions come from Tito Labarta from Goldman Sachs. Do you expect any further reduction on CET ratio 1? Do you need to build up capital from here? Will this impact the dividend payout?
Okay. Thank you, Tito. Let me clarify several things here on the core equity Tier 1 capital ratio. The first one is I have -- and I think we have repeated this for a long time also. We have the idea to maintain our core equity Tier 1 ratio between 11 and 12. And this is where we are. Last quarter I think was 11.7 or 11 point something. Now, we are 11.1. We have some mark-to-market impacts and we will -- next quarter, we will be, I don’t know, probably closer to 11.4 or 5. We haven’t done that calculation, but we have the plans to be in between 11 to 12 continuously.
So, that’s the first idea. So, do we need to build capital here? No, we generate enough capital, more than enough capital, in fact, to maintain those levels of ratios in which we feel more than comfortable. In fact, we feel that we have a little bit of excess capital there. And the last point, which is even that’s important one, we have been quite active. I mean, two ideas here. First, the pay-off ratio, as you know, comes from a conclusion of how much is our profitability, how much are our risk weighted assets growth, potentially with all those two variables, where do we want our pay ratio -- pay-off ratio to stand. We are at a 20%, 21% return on equity, we are growing risk weighted assets depending how we do accounting, but high-single, low-double. So, that gives you a pay-out ratio around 50%. Good.
How are we paying dividends this year? We have already paid a quarterly dividend of 1.7 billion, which compares very favorably with what we used to do pre-pandemic, because during the pandemic, as you know, we had a cap on the ratio, then we had a maximum -- trying to offset what we did not pay in the past, et cetera. So, but going through those kind of extraordinary years, we are increasing substantially the level of -- amount of payment per quarter, which gives you the idea or the assurance that we are comfortable, both with the capital ratio and with the level of dividends that we are paying those R$1.7 billion, which is by far, much more than we used to pay.
This is up to the Board, I am part of the Board and Mario is also part of the Board. We discuss this on a quarterly basis and our plans obviously are -- once the Board discusses and approves to maintain those levels of remuneration to our shareholders, which by the way have thrown the largest or one of the largest, depending how you compare with ratios in terms of dividend yield during the last year. So, we are a high -- we are a growth equity proposal with a high dividend yield payment structure.
We have another question come from Gustavo Schroden, Bradesco; and Tito Labarta from Goldman Sachs, related to corporate lows. There was an increasing corporate lows in the quarter, particularly trade finance and agribusiness, should this trend continue, do you expect to slow down consumer landing?
I’ll pick this one, Tito. Thank you for the question. I covered briefly the portfolio mix, so I’ll highlight a bit further where we are. So, we are expanding all portfolios where we are very comfortable in expanding and we’ve been comfortable in expanding wholesale as a whole. So, what we call the corporate business and our corporate and investment banking business, those two portfolios expanded in the quarter, which is obviously positive that had not been the case before. Late last year and this year, those portfolios were flat to actually down. And in the second quarter, we recovered. We will keep expanding those portfolios. Yes, for sure. FX played the role as I mentioned, because those portfolios have a strong component in trade-related financing. Santander is a big trade finance player in Brazil, and we’ll keep being so. So, FX plays a little bit of a role here, but the portfolio ex FX increased as well.
In payments [ph] in general, particularly [indiscernible] those two portfolios we want to expand more rapidly as well, given that we feel those are extremely well controlled based on our risk models, the back packs and everything. On the lower payments, [ph] we keep monitoring, together with individuals. Those are the two portfolios, which we have cut more our risk models since late last year, early this year. We want to resume expanding more rapidly in those portfolios as soon as we see first signals. We are monitoring closely our -- I’ll repeat what I mentioned in the first quarter. We believe we will have in the second half of this year much better signals and then we’ll be able to resume expanding more rapidly those portfolios.
So, it’s not that we’re going to slow further our consumer landing. It’s just that we’re not going to expand consumer landing as rapidly as we will in the corporate side. However, in the secure portfolios, in the three main secure portfolios, we have autos, mortgages and payroll deductible. Those portfolios, as the market grows, we are going to grow hopefully at a faster pace, given that all models were adjusted and we’re very comfortable with those three portfolios.
Thank you, Mario. Guys, the conference call session, Q&A session is over. We know that we have a couple of more questions here, but due to the time, we will try to answer all of them lately. And also again, I would like to remind you that we are fully available here for any further question. Thank you, guys. All have a nice day.
Thank you all very much. It’s been a pleasure.