Banco Santander Brasil SA
BOVESPA:SANB3
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Good morning, and thank you for waiting. Welcome to the conference call to discuss Banco Santander Brasil S.A.'s results. Present here, Mr. Angel Santodomingo, CFO; and Mr. André Parisi, Head of Investor Relations. [Operator Instructions] The live webcast of this call is available at Banco Santander's Investor Relations website at www.santander.com.br/ri where the presentation is also available for downloading. We would like to inform you that the questions received via webcast will have answering priority. [Operator Instructions]
Before proceeding, we wish to clarify the forward-looking statements may be made during the conference call relating to business outlook of Banco Santander Brasil operating and financial projections and targets based on the beliefs and assumptions of the Executive Board, as well on information currently available. Such forward-looking statements are not a guarantee of performance. They involve risks, uncertainties and assumptions as they refer to future events and hence, depend on circumstances that may or may not occur.
Investors must be aware that general economic conditions, industry conditions and other operation factors may affect the future performance of Banco Santander Brasil and may cause actual results to substantially differ from those in the forward-looking statements.
I will now pass the word to Mr. André Parisi. Please, Mr. Parisi, you may proceed.
Good morning, everyone. It's my pleasure to welcome you once again to our conference call. As a growth company, we had another strong quarter, which will be presented by our CFO, Mr. Angel Santodomingo.
So now I turn it over to him.
Thank you, Andre. Good morning, everyone. Thank you, you all for joining us this morning to discuss our third Q 2020 earnings results. I hope you are all doing well.
Given that it is 1 year since our Investor Day, added to what the society has gone through in this year in 2020, we have included a first part in this quarter presentation in which we update our strategy. This will be followed by the traditional results presentation that I will share with you. So I hope that you follow me through this first part of the presentation.
Next slide, Slide 4. Santander's growth history in Brazil is based on a number of transformations. The last 5 years have been important for us to get to where we are today. In 2016, we started to transform our branch network while establishing a strong and perennial culture. It also marked the beginning of our new consumer finance goods and services unit. We accelerated lending during a period when the market receded, a contrarian strategy that turned out to be the right one.
In 2017, we introduced the NPS, the Net Promoter Score, because we figured it wasn't enough to change our future in service. We needed to measure our customers' perception on the quality of our work. Since then, we have reached positive results, and we started appearing in performance rankings. Improving our operational efficiency, we managed to end 2018 with a return on equity of 20%, again, surprised the market.
Last year, we launched several platforms that are currently at the helm of the industries in which they operate. And yet again, we anticipated market trends as we reduce our exposure to uncollateralized lending as well as accelerated another efficiency program based on expectations of a more challenging 2020. And we entered this year prepared to overcome obstacles, and we have delivered solid results throughout the year. Going forward, we are entering a new cycle, even more obsessed with efficiency and stronger growth.
Next slide, our performance speaks for itself. We have achieved substantial gains in profitability from 12.8% return on equity in 2015 to the 21.2% that we are presenting today. Despite all these other difficulties, our return on equity has remained stable in the last quarter at quite attractive levels.
With net profit growing 2.2x in 5 years, we reached BRL 14.5 billion mark in 2019. Probably most important is that our share in the credit market is currently around 10%, which means that we are ahead of the industry earning 17% of the profit pool. This was only possible, thanks to increased productivity and efficiency gains, which have allowed us to grow in a lean and profitable manner.
Next slide, #6. As mentioned earlier, in 2016, we began our cultural transformation. It wasn't a quick process, but rather a journey that has required a lot of work over the past 5 years and which is constantly evolving. Our culture is based in 4 pillars: having a quick time to market combined with the ability to capture opportunities; industrializing our processes; encouraging new ideas and knowing how to do things differently; and finally, thinking about the future and the environment in which we operate.
Next slide. We are a bank that for a long time, this is not new, has focused on sustainability. Together with 2 other major private banks in Brazil, we launched the Plano Amazonia to help the region prosper in a sustainable way. We have also relaunched our ethical fund, which was first introduced to the market back in 2001, and uses proprietary ESG criteria for asset selection.
So far this year, we have supported BRL 19.3 billion social and environmental enterprises, leveraging a way -- wide array of projects from micro finance, primarily through Prospera, to large infrastructure investments.
We have stopped -- stepped up, sorry, our social action programs such as Maes Da Favela, which raised a little more than BRL 7 million and helped 26,000 families. In addition this month, we launched another version of the Amigo de Valor campaign, Brazil's fourth largest program to protect children and teenagers at risk.
So going to the next slide. We believe that banks and technology cannot be understood separately. This is why we have developed new businesses and niches to capture emerging opportunities. In 2 slides, let me go through them.
Next Slide, #9. In line with our core expertise of lending and managing portfolios, in October of last year, that's 12 months ago, we introduced 2 platforms that are already leading in their fields: Sim, a straightforward lending platform focused on individuals with the ambition of reaching a portfolio of BRL 10 billion in 5 years, that is tenfold. In the field of debt renegotiation, emDia has already attracted 3.3 million customers, thanks to an easy and intuitive journey. It has the potential to achieve an EBT, an earnings before taxes of BRL 0.5 billion in 5 years.
Next slide, #10, we are also reinventing the way of doing business in these areas. We've recently announced the combination of Toro and Pi, pending regulatory approvals, one focused on equities and the other on fixed income. This move will help us better serve a niche that is rapidly growing, the influx of individual investors into the Brazilian stock market. Santander Auto has arrived to further strengthen our automotive solutions ecosystem with a frictionless, fully digital insurance offering during the financing process. Its penetration in financing applications has already exceeded 15% and will continue to increase, considering that it also has just over 12 months life.
Ben, our voucher platform reached breakeven within just 1 year of its creation. It currently has more than 310,000 partner establishments and over 160,000 cards issued.
So up to here, I explain you what we have created recently to provoke and have new growth in the future. But I also want to share how we, at the same time, have grown -- have growth to come from our current portfolio of businesses and strategies. Let me divide this in 3 big concepts: High-growth; products and services growth; and countryside expansion growth.
Starting with the first concept. Over the last 5 years, we have grown our active customer base by 71% to more than 27 million clients, and we have added more than 1.3 million active customers in the last year and 660,000 digital account holders. More important than growing is growing with quality. Our customer-oriented strategy is core in this. So our NPS, an indicator that, as you know, measures customer satisfaction, has increased by 4 points in the last 12 months to 62, an outstanding level considering that we started close to 40 2 years ago, approximately, and in comparison with any other bank or other banks worldwide. And this has happened through the pandemic when clients needed banks the most.
Slide 13, next slide. So digitalization is important. We also had that idea. We offer to our entire customer base this alternative. Today, 87% of transactions are made via digital channels compared to approximately 65% 5 years ago. In the last years, our e-commerce sales have grown importantly, close to tenfold.
And we continue to progress. We expect to end the year with a share of about 40% of digital customers among our retail customers, a much higher penetration rate compared with the past. The combination of all these factors has allowed us to see an increase of 32% in the number of new contracts originated through digital channels since the beginning of the year.
Next slide, I spoke about our first growth engine, clients. Now let's focus on the second one, our products and services, our current products and services. In an increasingly competitive industry, combining innovation with technology is key to enable ongoing evolution and growth. In the next few slides, we'll discuss each of our core businesses, how we have managed to differentiate from the market and grow at a consistent pace.
Starting with Santander Consumer Finance, this unit is a success story. With over the past 5 years -- which has grown over the past 5 years against the market trend, showing that it is possible to run a highly profitable operations in this segment when supported by adequate risk models and strong commercial efforts, and with an NPS of 83 points. We have expanded at our bold market rates, achieving a 25% share in August of this year. We have built a winning ecosystem, together with Webmotors, the leading online car buying and selling platform in Brazil with more than 360,000 vehicles listed and 12 million, 12 million unique visitors per month.
We are industry leaders and pioneered a fully digital journey that helped us to recover during the pandemic period. Due to our strategy in the auto segment, we continue to leverage cross-selling opportunities within the bank, which is one of the growth opportunities I presented to you 12 months ago in our Investor Day. An example already as a fact, is the current rate of more than 18,000 new account openings per month, which should lead us to a full year total of 350,000 accounts in 2021.
Moving to the next slide. Today, we are one of the significant players in acquiring market. We went from a market share close to 0, around 3% or 2% 7 years ago in 2013, to 13% now in this quarter. And we expect to close this year with 15% share. Getnet was one of our acquisitions in this industry, and we have conducted its transformation process by creating a broad range of products that cater to all customer segments, which has allowed us to build a strong active base while aligning our profitability strategy with market growth.
We have the lowest cost per transaction in the industry, which with the rebounding economy activity we saw turnover increase by more than 32% year-on-year, 3x higher than the market. Looking ahead, we want to set ourselves apart in e-commerce services, a process that we have already begun in recent years. As a result of this new direction, digital turnover compared to our total turnover jumped from 11% to 22% at the end of third Q '20.
Moving to cards in the next slide. Cards are an important growth engine of our business. We have strengthened our strategy to grow in a profitable way. We launched the Santander Way app, positioning ourselves to offer the best digital self-service and payment experience. In a short time, we have reached 8 million active users of the platform, along with an impressive NPS of 82.
We have advanced at an accelerated pace surpassing the market, which has allowed us to expand our card base by 50% over the last 5 years while doubling turnover. Growth numbers in general in this slide, I think, speak for themselves.
Payroll loans in the same in the next slide have also been one of the major growth drivers of the collateralized individual loan book in recent years, a vital part of our strategy of expanding in safer, longer duration loans, which provide the benefits of customer loyalty and cross-selling opportunities as well as high profitability. As part of our enhanced focus on digital channels, today, more than 85% of new loans are granted electronically, delivering a satisfaction rate and NPS, as you can see on the slide, of 88 points.
Our market share has climbed 6 percentage points to 11.4% and as a result of our strategic commercial efforts, with our portfolio expanding by more than 2x, 2.4x compared to the market growth of just 52%. So 240% against 52%. Let me remind you that this was an almost inexistent business some years ago in our bank.
On the mortgage side, next slide, we have taken the lead. And since 2018, we have been first movers in the segment. We've pioneered the fully digital end-to-end offer, anticipating the needs of our customers. This, in turn, has reflected the high satisfaction levels and contributed to a 50% decrease in lead time. This is time to market, obviously.
We have grown at a rate of 4x, 4.3x higher than the market in the last 3 years, reaching for the first time in history the BRL 2 billion mark of origination in last September, in this September, an unprecedented level among private banks.
Last but not least, our home equity product, Usecasa, continues to gain traction in mortgage loans. Compared to last year same period, our origination has grown twofold, capturing over 32% -- over 32% of the origination of the market as a market share.
Speaking about investments, only through excellence in service and innovation it is possible to continue growing our investment products in a sustainable manner. With that in mind, we have directed our efforts to building a complete model. This experience ranges from offering advisory services to innovate solutions and dedicated investment platforms. A recent example was the acquisition and merger of Toro with Pi, a way to complement and accelerate our operations in the investment industry. Our ambition is to achieve a market share of 11% over the next 3 years. You will see in our reliability numbers already some of these efforts reflected.
By redesigning our wholesale offering, in Slide 21, we encouraged the use of specialized services and provide portfolio management assistance to optimize the profitability of our customers. With that, we offered a variety of value-added products, which provide a full solution for large companies, enabling us to effectively promote our cross-selling proposals and make steady progress on several product fronts, from payrolls to transactional services.
On the next slide and by playing a leading role in innovating, we were able to position ourselves in new markets. Some examples are: energy trading market in which we gained presence over a short period of time and have already delivered solid results; launched last year, we are already the largest agricultural commodities desk in Brazil. We have opportunities to multiply five, sixfold this result in a few years.
In Project Finance, we have disbursed more than BRL 220 billion for project investments, in addition to advising on more than 250 deals in the last years. We have become leaders in this segment. And finally, we are the country's largest ForEx platform, pioneers in creating a fully digital journey for companies to close exchange contracts while offering One Pay FX for individuals, the only app with blockchain technology and instant settlement.
And finally, in the next slide, after speaking about client growth and products and services growth, the third growth engine is our move to the inner part of the country. Again, moving in the opposite direction of the market, we bet on the strategy of expanding into Brazil's countryside, opening a smaller and less costly branches in more remote cities, as well as segment-dedicated stores such as Agri and Prospera.
We also continue to move towards being the go-to bank for agribusiness, expanding into Brazil's countryside, as mentioned, with more than 40 Agri stores and over 300 segment-dedicated branches. As a result, over the last 5 years, we have tripled our Agri portfolio, achieving growth 9x higher than the market. We expect our Agri portfolio to reach BRL 30 billion in 2022.
And on the other side, with a model that has proven to be successful, Prospera, our microcredit program, has reached a portfolio of more than BRL 1 billion with over 99 stores and more than 0.5 million, 540,000 active customers who have the potential to increase this portfolio by more than 2x in 3 years.
So going already into the pure results presentation, I wouldn't really repeat this because the group, Santander Group, has already presented their numbers. Santander Brasil accounted for 30% of the group's earnings, showing the importance of the performance of the Brazilian subsidiary to the group. And at the same time, the South American region accounted for 41% of the total results.
On Slide 27, we presented the key lines of our results. On the revenue front, NII rose 9.6% in the -- in 9 months relative to 2019, reflecting good evolution of our loan portfolio. While on a quarterly comparison, net interest income dropped due to mix, lower spreads and lower market activity results. Fees, on the other hand, had a solid performance compared to second Q '20, driven by higher transactionality levels as a result of economic activity gradually returning to normal after the peak of the pandemic.
On the cost side, after booking an extraordinary provision, as you know, in second Q '20, which we maintain is efficient to cover expected losses, recurring provisions are now recovering to regular levels, falling 13% Q-on-Q or 55% if we consider the extraordinary provision.
General expenses grew below inflation on a year-on-year basis, leading to our efficiency ratio to remain below 37%. We closed the quarter with net income reaching almost BRL 4 billion, BRL 3.9 billion, a sound recovery from second Q.
On Slide 28, we show our NII evolution, which totaled BRL 12.4 billion in third Q, representing a compression of 9% Q-on-Q and 10% expansion in the 9-month comparison -- in the 9 months comparison.
Customers' NII decreased by 4.5% Q-on-Q, with product NII slowing down on the back of mix and spread reduction. On the other side, we have good positive volume dynamics, which you will see in the next slide. Working capital delivered weaker results given the lower selling rate, obviously. And after a strong last quarter, NII from market activities returned to a more normalized level.
Next, we take a closer look at our loan portfolio, as mentioned. It reached almost BRL 400 billion at the end of September, increasing 20% in the year and 4% Q-on-Q. The highlight of the quarter was the change in creating mix with the individual segment's recovery, supported by still solid performance from mortgage and payrolls, as well as a rebound from credit cards.
Consumer finance bounced back to positive growth, expanding 2% Q-on-Q, thanks to our leadership in the auto segment. It is interesting to note that the SME portfolio experienced solid Q-on-Q growth, mainly due to the higher demand for credit from government programs. The corporate segment presented a shy contraction of 1% Q-on-Q after a very strong second Q '20 that you surely remember. The 12-month numbers show this fast growth registered last quarter -- second quarter, I mean.
Finally, let me quickly underscore that 68% of the individuals loan book is comprised of collateralized loans, a major advance compared to last year and practically stable when compared to the second Q.
Keeping track of our portfolio of deferred loans that we presented, obviously, for the first time in the previous quarter, this portfolio totaled BRL 46.7 billion. That means a drop of approximate BRL 3 billion in the quarter. This amount was concentrated in our portfolio of loans to individuals and unsecured products, so improving the portfolio risk profile. The 15 to 90 days NPL in the deferred loan portfolio reached 5.1%. Given the portfolio breakdown, which, as you see, almost 3/4 of individuals and 1/4 of SMEs and corporates, it has an indebtedness or a ratio in this 15 to 90 days higher but very close, quite close to our total bank portfolio, as you will see in a couple of slides.
It is important to stress that more than 50% of individuals deferred portfolio is collateralized, with 90% of all loans rated between AA and C, which are, as you can imagine, the better ratings.
Moving to funding. Here, you can see how our funding has increased and strongly improved both in quarterly and annual terms. Most of its components performed well, except for the most expensive instrument, financial bills, letras financeiras, which we downsized as a way of improving funding costs.
With the COVID-19 outbreak, we witnessed both clients depositing more and a flight to quality movement, fast benefiting on balanced funding instruments and explaining part of the year-on-year evolution. This dynamic is in line with our strategy of optimizing our funding costs and volumes at levels that support our loan book growth, and supports what I commented in the strategy update about our investment approach.
Fees, on the next slide, we see how they have possibly evolved -- positively evolved in the quarter. Growing 16% Q-on-Q, stronger economic growth or activity and better transactionality levels reverted fees back to upward trends, mostly on cards, in acquiring securities brokerage and placement, current accounts and lending operations, for example.
On the following slide, we may see Santander's asset quality. Short term NPL has slightly deteriorated, but in a controlled manner and at a very reasonable levels if we compare historically. We still see controlled figures on the early stage. The 90 days NPL maintains a good evolution given current market conditions and decisions taken during the pandemic.
As an important highlight, I would like to underscore the 307% coverage ratio, such a consolidative level, combined with the good performance of the deferred loan portfolio that I showed to you a couple of slides ago, sustain our view that it is unlikely that we will have another round of extraordinary provisions.
On Slide 34, you can see how loan loss -- loan loss provisions, sorry, performed in the quarter. Provisions returned to a more stable path, dropping in the Q-on-Q comparison and coming back to very reasonable levels. In addition, we delivered an improvement on the recovery of unpaid loans, the red part of the columns, as you can see. It is important to highlight with recoveries that we are acting faster in a deliberate and anticipated way with this part of the portfolio.
Next, we see how our expenses have trended in the quarter. Total expenses grew below inflation in the period, rising 2% in 2020 compared to 2019 and leading our efficiency ratio to stay around same levels. We continue to make good efforts controlling costs, with some initiatives that started before the pandemic outbreak, as mentioned already in the previous slides. As it has been during the last years, we continue and will continue to try to improve efficiency.
Moving on to capital and liquidity, we continue to have comfortable numbers to face the scenario that we are going through. On funding, we reached a loan-to-deposit ratio of 88% approximately, a significant improvement on an annual comparison. At the end of September, our BIS ratio reached 14.9%, with the Core Equity Tier 1 above 12%, a level in line with our midterm objectives.
Looking at our main indicators in the next slide, we present a positive evolution in third Q. I already commented on efficiency. Recurrence is also starting to clearly recover, positively influenced by stronger fee figures, while our profitability remains at healthy levels. This is with a return on equity, ROE, above 21%.
So my closing remarks start by reiterating our commitment to supporting our customers, employees and society, while delivering good profitability growth to our shareholders. We're relying on a strong business model supported by the engagement of our employees and our effective perception of business cycles, a solid combination that has allowed us to react quickly and capture market opportunities in advance.
I would like to thank you, everyone, for the attention in this longer-than-usual quarter presentation. And now we are available to answer your questions. Thank you.
We now we're going to start the questions we received from the webcast platform. And the first one comes from Mario Pierry, Bank of America. Can you discuss the behavior of your reprogrammed portfolio as the grace periods are expiring?
Yes. Thank you, Mario. Well, I already gave in the presentation some of the numbers. Let me go through them. First idea is that the portfolio has gone down BRL 3 billion. So when we first presented this portfolio was in July, as you remember, it was close to BRL 50 billion. Now it's close to BRL 46 billion or BRL 47 billion. So first, it's going down. Clients are paying.
The second idea is I gave to you the early arrears, 5.1%. And remember, almost 75%, 3/4 of the portfolio are individuals, 25% are companies and SMEs. So the 5.1% compares quite positive -- well, quite positively is in the -- in line with the early arrears that we have in the bank. If you see the individuals, the arrears in this quarter, it was 4.6%, close to the 5.1%. But we have had a 6%, a 5.2%, a 5.7% just in the last 12 months. So the portfolio is behaving in a natural way. In fact, the BRL 3 billion that we saw as a net going down has been concentrated in unsecured loans and individuals. So improving the risk profile of the portfolio.
But let me give a little bit more details on the portfolio, on top of what I mentioned in my speech. The NPL over 90 is below 1%, okay? Remember that the bank has 2.1%. I repeat, the NPL over 90 is below 1%. Obviously, the portfolio has to evolve, but by all means, the portfolio looks that it is performing, even probably, to some extent, better than expected. And this is why I mentioned that we do not expect further extraordinary provisions.
Okay. Next question is from Otavio Tanganelli, Crédit Suisse. How comfortable is the bank that there will be no requirement of additional provisions in coming quarters? Are current levels of coverage enough?
Thank you, Otavio. Well, 307% coverage ratio, it looks conservative to us. As you all know, and I always have shared with you that for us, coverage ratio is an outcome. We do not have an objective in terms of we have to reach certain level or whatever. It's an outcome of how we classify our portfolios, how we rank them in terms of, not only the regulatory needs in terms of provisioning, but also according to our risk model. So it comes out to be about 300%. I will say, it's quite a large number. But also, it means that we are comfortable with the balance sheet strength that we have, which includes, by the way, the extraordinary provision that we made in second Q.
I mentioned in my speech, that we do not expect to make further extraordinary provisions. If you add what I mentioned with the renegotiated portfolio, the BRL 46 billion I gave all the details just in the previous question, to the 300-plus coverage ratio, to the fact that we provision this BRL 3.2 billion extraordinary in the second Q, we provisioned another BRL 3 billion in 4Q last year, I mean I think that the strength of the balance sheet is there.
We will have to wait. We will have to see. I mentioned the same thing in the second Q results, that we will have to wait and see how everything evolves, the economic trend, the momentum, et cetera, but we are comfortable answering to your question. We are comfortable both with the coverage and with the provision. So returning to business as usual in terms of provision.
Okay. Next question is from Victor Schabbel, Bradesco BBI. In the quarter, we still identified an increase in the renegotiated portfolio, while the provision expense has already corrected as well. What best explains this behavior?
Well, in fact, if you see numbers in terms of provisioning and recoveries, provisioning -- gross provisioning has returned to similar levels to the pre-extraordinary provisioning in second Q. And as I mentioned also in my speech, recoveries are performing positively.
I think recoveries are a basic part of the business. And we have developed a lot in that area. You have to have a lot of intelligence there. It is not just cold calling. It has a lot much more than that. We have specific teams working there. I spoke about emDia, which is a specific subsidiary or unit. But we also have specific teams in each of our areas which are working on recoveries.
So if you add all that, with the specific effort that we tend to do in the 60 to 90 days, but also in the early -- also in the pre early, you have to deliver, you have to develop -- sorry, you have to develop this kind of intelligence so that it really works.
I mean let me put just a very punctual example. Loop and troca com troco, the 2 things we have somehow new in the auto finance business. Loop is a park and sell subsidiary that we have a 50% participation along with Estapar. Loop is helping the recoveries in terms of selling cars in a secured place, which is a place where you park the car or you recover it and you put it there to sell.
Troca com troco is something that we have started in July. This is that you have a car financed. You start to go through difficulties and you can go to one of our 50,000 dealers that we have agreed with them to do it. You go there, you deliver your car and you go out with another car, obviously, of a lower stand and with money because of the difference.
This has been a total success. We are doing more than 3,000 cars per month in this -- and it's just 3 months old, because it's a way of recovering also. It's a way of recovering in partnership with our car dealers. So this kind of experiences that are happening all across the bank with intelligence, being close to the client, being capable of understanding the situation and giving solutions, not only trying to recover the cars in the old way manner, are being successful. So this is helping, obviously. It is clearly helping on the provision side, and we'll continue to do that.
Okay. Next question is from Jorg Friedemann, Citi. The bank is currently the vast capitalized among the Brazilian large banks with the CET1 at 12.3%. How should we face your dividend policy and recurring dividend payout?
Well, I mean, you're right, we are above 12% Core Equity Tier 1. We announced yesterday an interest on capital dividend that will consume around 20 basis points. So we are speaking roughly 12.1% before generation of profit in October. We have several variables here. First, as you know, we are limited this year to 25% payout ratio. So that's given. And we are adjusting our interest on capital or dividend payments to that maximum level established by the Central Bank here in Brazil.
Now this expires in December. After that, we will continue to manage the capital in the same way we have done in the past, which means reasonable levels of capital. And we have always said, around 12%. We have been in 11-point -- I think 11.4% or 11.5%. We have been in 12.6%. So around these levels, I think that levels of, as I said, 11.5%, 12%, et cetera, are levels that for the current Brazil are more than enough or are quite correct in terms of maintaining a capital ratio. And the other variable is clear, is return on equity to end up in risk-weighted assets growth to end up in a payout. So we will adjust that payout.
The general kind of thinking in the past has been that, as you see, we have return on equities above 20%. We have risk-weighted assets growth around the 10%. It can be 12%, it can be 8% depending on the moment, but we are around there. Which leads us to an around 50% payout. But it's not written in stone, given that the main point will be how much do we want to grow in terms of risk-weighted assets in the future. I don't want to put in risk future growth because of a decision in a moment of time, but having enough capital to fund that risk-weighted asset growth in the future will be our main kind of way of acting here.
Okay. Next question is from Marcos Assumpção, Itau BBA. What's the outlook for fee income in 2021? How does fixed Central Bank platform affect this line in the short-term?
I mean, we have always said, and this is why I dedicated, on the strategic side, I dedicated 2 or 3 slides to the active client growth or linked-client growth. This is key and this is vital for you to understand our growth. We have continuously increased number of linked, of active clients. We are in 27 million now. We were almost half of that 5 years ago. We are growing above 100,000 clients per month.
I mean the intention here is to have that income, that inflow of active clients. And at the same time, making our current clients, obviously, more linked. And this is what will drive fees, which is basically transactionality. If you see in the quarter, all concepts, Q-on-Q, right, all concepts are growing nicely. You have, I don't know, cards over -- or around 18%. You have asset management picking up again at 16%, or around lending operations more than 20%, or even securities is more than 60% for a total of 16% Q-on-Q, which is pure transactionality. And this comes from our linked plans. So variable to follow, linked plans.
Second point, on the fixed side, we are just starting. Next November 16 is when the fixed starts to be live, if I may say like that. As you have seen, we have created using the fixed system from the Central Bank, our own trademark is X, which is the commercial number for that fixed system. And we will offer it to our clients. We are already offering it to register, et cetera. We will see impacts. Obviously, they will have. But also, clients will be, again, more linked and more active with the bank. So both trends will probably tend to offset. But I mean I cannot give you a number now because it's a little bit too early.
Next question is from Thiago Batista, UBS. Santander Brasil has not reduced its overhedge, at least not the equity IBrA. Can you comment the future dynamics of the overhedge?
Yes. Thank you, Tiago. Well, I always said, I mean we have the position that we have. We have a new regulation running and being applicable for the end of the year and for next year, in which that situation will be reverted. And we will adjust to that situation. This is no -- obviously, no doubt about it. Up to that point, we have reached levels in which we thought -- we think are the appropriate levels for this bank. So you're right. This is the situation.
Next question is from Gustavo Schroden, Goldman Sachs. Some of your private peers are indicating that expense can decline in nominal terms. Is this possible for Santander as well? What should we expect in terms of operating expenses and efficiency ratio in 2021?
Well, here, we have always said, I mean our -- if I may say like that, our file is against inflation as a headline. But the real one is a continuous efficiency effort as a bank. As you know, we are the most efficient bank today, considering second Q results, obviously. We will see with third Q. But we can maintain more or less the same efficiency levels, around 36%, 37%, or below 37%.
Remember -- I mean I remember last year, both in the Investor Day and throughout the quarterly results, underlying that we were going into another round of cost efficiency, without obviously knowing anything about the COVID, et cetera, this is something that is on our DNA. I mean this is something that the bank has pushed during the last years. I have spoken with you a long time or a lot of times around industrializing processes, time to market, et cetera. And we continue to do so, and we will continue to do so.
We still think there is a space. And we think that the bank has still capacity of making processes leaner, of making quicker time to market. I spoke about the mortgages. Mortgages are 50% quicker time to market now than they were 12 months ago or 18 months ago. And this is just another improvement in efficiency.
I always said with you also knowing the unit cost. The net is the lower unit cost per operation in the market. And this is something we have started 3 years ago, 4 years ago. This is not -- you do not do that in a quarter.
So trying to answer your question. Yes, there are more space. We will continue with that focus, and we will try to continue to maintain very attractive or even better, we will see, levels of efficiency. That will also depend, obviously, on the operative leverage of the P&L, and I'm referring to growth of revenues, but we will try to keep that leverage quite open, or the jaws of revenues and costs quite open, so that it is reflected on the efficiency ratio.
Okay. Next question is from Tito Labarta, Goldman Sachs. And spreads have been declining. Do you think there will continue to be pressure on spreads? Or are the -- or they are near the bottom?
You have said -- I mean look at the spread discussion and the mix discussion. Note here, as I mentioned in the NII presentation. On the spread side, we have seen this. Depending on the quarter, depending on the segment and my probably the situation, and we have also seen -- sorry, the regulation impacts that I have mentioned in previous quarters.
I think that this is something that each of the banks have to try to maintain in the future, but we will have pressure. We will have pressure. And this can be offset through several ways. Through a little bit of volume in terms of -- that dilutes a little bit the return on risk-weighted assets, but adding what I said before, fees, and clearly controlling costs and the cost of risk, as we have done in the past.
But I mean it's a little bit of a general question, a general answer. But it depends on the product. It depends if you have products in which they are clearly stable. We have positioning in the market in some areas in which we lead the market and we have spreads clearly above our peers, and we maintain that position. Because all the offer, all the services that are being offered are there and are being perceived. So I mean a bit of a mix. But I would say that speaking of NIM on the asset side, some pressure will be there, yes.
Next question is from Carlos Gomez-Lopez, HSBC. Is the acquisition of Toro fully reflected in this quarter results? Are there any deferred payments to consider? What additional investments or integration charge does the business require?
No. Toro is not reflected in these quarterly results. We signed and we will be, hopefully, making the closing before year-end, depending on regulatory approvals and the normal processes that these type of operations require.
This is an operation in -- we announced it in which we thought and Toro management and stakeholders also follow in the same direction, that the -- putting it together with Pi had a lot of sense in terms of thinking of the Brazil we are going to live in the next years. We are very positive about the operation and how this provokes the positioning of the bank in these type of platforms. And we will -- probably, I will say that you will see the integration of Toro in between fourth Q and first Q. I don't know, as I said, depending on the regulatory approvals, okay?
Next question is from Domingos Falavina, JPMorgan. Getnet were up 30% year-on-year, but card revenues were slightly down. What drove -- what drove it? MDR, interchange or prepayment spread?
Well, first, on the acquiring side on Getnet, Getnet is strongly improving in market share, volumes, transactions, et cetera, that has to do with several parts of its business. I would say, basically, the 3 parts in which the net income is coming from. Performance in October continues to be absolutely strong. We are very positive that the subsidiary, Getnet, will reach 15%, I mentioned, of market share in terms of activity.
We are strongly moving on the e-commerce side. I mentioned in my speech, the growth that we are seeing in terms of tenfold, et cetera, on the e-commerce side. And I mentioned with you in the last years, in the last quarters, Getnet has been investing and trying to kind of increase or open a little bit the wide range of services that we have been -- that we have been offering.
On the card side, the discussion is different, Domingos. On the card side, the year-on-year evolution is strongly impacted, in between other things, but strongly impacted by the second Q. Remember that in that Q, we suffered -- everybody's suffered very low level of transactionality.
So you have a negative number on the 12 months, above 10%, and a 17% or an 18% increase on the Q-on-Q, on third Q against second Q. So the trend is positive. I mentioned also digital transactions, et cetera. We are seeing already strong card activity, both from current accounts and noncurrent accounts, both on the digital side and on the non-digital side. So I think that the trend will continue in the positive. But it's a little bit of a cultural moment on the second Q, okay? On top of other things, regulatory, et cetera.
Thank you very much for your questions to the webcast platform. Now we're going to open to receive questions via phone calls, okay? So let's start.
[Operator Instructions] Our first question comes from Mr. Marcelo Telles from Crédit Suisse.
I have 2 questions. The first one, with regards to your NII evolution going forward, I mean you've seen your NIM and NII under pressure this quarter, both on the client side and on the treasury side. How should we think about your NII evolution from here on? Should expect -- do you expect to grow more or less in tandem with your loan portfolio? Or are there any headwinds that may lead that to grow at a lower pace?
And the other question is on the -- on your operating expense line, I mean you had a nice decline in the other operating expenses. I was wondering if you could tell us how sustainable that lower -- the new lower level of other operating expenses is going forward.
Okay. On the NII, I already -- I already elaborated a little bit on the previous question on this pressure. Let me see here. I mean you have several parts. On the asset side, I mentioned you have the mix kind of movement and the volume movement. On the mix, we are seeing more collateralized activity in the last quarters, which means that you end up with an NII net of risk better, but within that gross NII with pressure in terms of NIM that you were asking. So the full picture is net of risk. This is very important for you to understand.
We have other products by regulation, for example, the Check Especial, the overdraft that suffered, and that started last January, if you remember. So for the time being, that continues to have the same effect on a 12-month rollover basis.
And on the -- moving more to the corporates and large corporates, et cetera, what we have seen is longer duration in general terms. Volumes, as you saw in the quarter, relatively stable. So if I wrap it all up, what I would say is NII, given volume and what I mentioned to you should, maintain positive trends. NIM, on the asset side should be somewhere there, okay?
On the liability side, we are seeing a strong growth. That is due to volume, but also due to the spread and the funding cost that I mentioned. We are strongly reducing letras financeiras. I remember to you just some quarters or a year ago, 1.5 years ago, we had more than BRL 65 billion letras financeiras. Today, we have BRL 17 billion. I wouldn't be surprised if we go below BRL 10 billion next year, okay? And that is funding cost.
So on the liability side, we have a strong inflow of on-balance sheet. And I'm speaking of [Foreign Language], I'm speaking of Poupanca, I'm speaking of [Foreign Language]. So good volume and good experience there. So total NIM, total NII, I would guess, some positive territory is still to see. Offset with what I said to you before, fee growth, et cetera.
On the second one, this is a volatile line, by definitions. So I mean this is not a -- so if you see -- let me take the last 4 quarters because I think it's a little bit more valid than just 1 quarter volatility. In the last 4 quarters, if I'm not wrong, I think it's flat or slightly down. I don't know if it's 1% down or something like that. So year-on-year, stable on the quarterly basis volatility.
By the way, volatility, the same one that I didn't mention, but you asked about it in the NII on the market activity. We had a very strong first Q in market activity -- second Q, sorry, in market activity, BRL 2.5 billion, or around BRL 2.5 billion. But if you see the historic levels, they tend to be below BRL 2 billion. So it was more a very kind of positive second Q in market activity, more than the first Q being lower than normal, BRL 1.8 billion, BRL 1.9 billion, BRL 2 billion, BRL 1.7 billion. This is the normal level we have been having in the last -- for a very long time in the last quarters.
Our next question comes from Mr. Jorge Kuri from Morgan Stanley.
Could I go back to the issue of provisions and asset quality? I get it that you feel pretty comfortable with the amount of provisions that you've made and the coverage ratio that you have. If we look at your reserve ratio relative to your peers, you're at 6%. The average for the large-cap banks in Brazil is around 8%. If we look at your coverage ratio adjusted by the renegotiated loans, which require provisions, it's actually below 100%, you're at 80%. Your peers are at around 120%.
So I understand that balances are different, and you don't have to be at the same level of your peers. But certainly, you look low relative to them, justifiable or not. Maybe a way for us to understand your thinking behind the provisions that you have is to get what your expected NPL will be over renegotiated portfolio. So you're creating provisions based on expected losses, would you share those, what is that NPL that you expect on your renegotiated loans? What do you think NPLs are going to peak relative to where we are today, and whether or not that is what's explaining your level of provisions today.
Yes. Thank you, Jorge. Well, my first reaction to all what you mentioned is that, obviously, portfolios are not the same one. I mean I shared with you the collateralized part of our individual portfolio. Or the type of growth that we have had in the SME segment, given the government programs, et cetera. I gave all the details during my presentation. So comparing this type of a little bit general ratios, I think these are sometimes the kind of the mix and the portfolio details that are refined.
Speaking specifically of this BRL 46 billion that we have as the moratorium or the renegotiated portfolio, I think I mentioned we have below 1% NPL ratio over 90 days. We have 5.1% in the early arrears. I'm not going to repeat all the numbers. This obviously should evolve. But I mean you are speaking, we have more than 50% of the retail part with guarantees, 83% of the clients just chose the 60 days, even go to the 90 days and they started to pay it. So do you have other banks that went to the 120 days. We just went to 60 days, and only 17% of that portfolio, of the clients went to 90 days. So we are already, as we speak today, with a portfolio that is kind of performing in a natural way. We are not still in a period in which you have, still, clients that are not paying or are under moratorium, et cetera, that already kind of passed some time ago.
So it will increase at 1% NPL ratio, 90-days NPL ratio. Your question, it will increase during the next months. Probably yes. But still we are at such a good level and here, what I mentioned to you that that is why we think that no additional extraordinary provisions will be needed. We have the BRL 3.2 billion that we made in the second Q that are -- at our disposal, that are disposable, that are to be used. So I mean whatever you use, whatever ratio you want to use, we feel that we are comfortable, including what you mentioned, the 300-plus coverage ratio. I think I elaborated sufficiently in this point.
Our next question comes from Mr. Thiago Batista from UBS IB.
I have one question about the government programs. If not wrong, so that originated about BRL 10 billion more or less of those programs in this quarter to the SME segment. Can you talk a bit on how those programs are impacting the bank's margins and cost of risk? So I believe that the margin of the extraordinary is much smaller. Probably you -- the capital required is also smaller. So if you can talk a little bit to the main dynamics on how those programs are impacting the bank?
Yes. Thiago, thank you. Good question. I mean, yes, you're right, it's around BRL 10 billion, a little bit more than BRL 10 billion, yes, in the 3 main programs: FGI, Pronampe, CGPE, the adding of the 3. You have different conditions. I'm not going to elaborate too much because it's a little bit too much detail, but you are right. They tend to have lower spread and lower cost of risk, and depending on which, you tend to free some capital.
The most aggressive one is the last one I mentioned, the CGPE, and the other one had different amounts of impact of capital. The end of it is that you tend to have a nice spread net of risk, reasonable. And in some cases, you free some capital, being the most aggressive one, the one I said to you the last one. The answer is yes.
The Q&A session is over, and I hand it over to Mr. Angel Santodomingo for his closing remarks.
No, thank you all for this, as I said, a little bit longer presentation than normal. I hope you found it useful in terms of the update, considering the Investor Day 12 months ago. We are open for additional questions that you may have, both at our Investor Relations team and myself. And thank you again for being there. Looking forward for next quarter. Thank you.
Banco Santander Brasil's conference call has come to an end. We thank you for your participation. Have a nice day.