Banco Santander Brasil SA
BOVESPA:SANB3
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Good morning, and thank you for waiting. Welcome to the conference call to discuss Banco Santander (Brasil) S.A. results. Present here, Mr. Angel Santodomingo, CFO; and Mr. Gustavo Sechin, Head of Investor Relations. [Operator Instructions] The live webcast of this call is available at Banco Santander's Investor Relations website at www.santander.com.br/ri, where the presentation is also available for download.
We would like to inform that 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 the business outlook of Banco Santander (Brasil) operating and financial projections and targets based on the beliefs and assumptions of the executive part as well on information currently available.
Such forward-looking statements are not a guarantee of performance. They involve risks, uncertainties and assumptions as they refer to future events and hence depend on circumstances that may or may not occur. Investors must be aware that general economic conditions, industry conditions and other operational factors may affect the future performance of Banco Santander (Brasil) and may cause actual results to substantially differ from those in the forward-looking statements.
I will now pass the word to Mr. Gustavo Sechin. Please Mr. Sechin, you may proceed.
Thank you, operator. Very good morning, everyone. Welcome to our third Q conference call. Thank you all for joining this morning and for your interest. I have here with me, Angel Santodomingo, our CFO, and our Investor Relations team, and we will try to provide some frame to the results you have seen and some update on our strategy.
I now refer to -- the word to Angel. Please, Angel.
Thank you, Gustavo. Good morning, everyone. I hope you -- everybody is doing well, and thank you for joining us this morning to discuss our third Q '21 earnings results. As always, I will begin the presentation with an update on our strategy, followed by an overview of our quarterly figures, and finally, my closing remarks. First and one of the most important points of the presentation is that we continue to deliver, as you may see, by achieving our all-time high return on equity, 22.4%.
This is an all-time high. We have also been delivering consistent growth in net profit over a long series of quarters, reaching BRL 4.3 billion in this third Q. Our business strategy enables us to generate sequential returns above the cost of equity, steadily creating value for our shareholders and outperforming. For example, as you may see in the slide, the IBOVESPA, the local index in the process.
The next slide, let me elaborate on how do we continue to achieve this level of return on equity. During the last quarter -- the last quarters -- in general in the last quarters, I have been highlighting our different customer categories, ranging in the slide from right to left from those who are no longer active after 90 days to the most loyal and active ones.
Two critical questions from my point of view must be addressed here. Are we continuing to expand our customer base? And second, are we succeeding in moving customers to the most profitable segment from the right to the left, meaning the top loyalty tier. And the answer to both questions remains affirmative. Our total customer base grew by 9% in one year. But even more importantly, they grew 1.6 million clients, million people in just one quarter, as you may see in the slide.
Our -- so these last ones, the most active and linked one, which are 7.5 million clients, as you may see in the slide, increased by 25% in one year, growing at a pace almost 3x faster than the overall customer base. And one important reason to explain this evolution is customer service, which is reflected in our NPS of 62 points. Let me underline in this slide -- still in this slide that the 1.6 million clients that I mentioned that we grew in the quarter are almost evenly divided in between those that offer more potential, again, those on the left -- sorry, on the right, the ones that have less products and those that generate 80% of the revenues who are already linked and are generating the current profitability that you may see.
So in the next slide, profitability comes with client growth, but also with how you do in the different steps with those clients that we have. For example, in this Slide #6, we present the pace at which our new customers engage with the bank and generate this profitability. Considering only September, the last month, we set a record on customer acquisition, growing by more than 70% in a year, of which, again, another 70% of the 70% were acquired via digital channels, and as you may see in the slide, at a lower acquisition cost or CAC.
However, simply opening up an account does not guarantee, as you know, that the customer will generate revenue until they really begin transacting with the bank. Some metrics that break down our performance on this front are 72% of all new accounts opened in January, for example, this year were activated in 6 months. And 22% of those activated clients became loyal with 6 months also -- within 6 months also. What does loyal mean?
It means more than 6 products with the client. And as a result of the activation and transactionality, revenue generation nearly doubled after half a year. So in the next slide, I have explained profitability so far through client growth and processing. But in this discussion, digital has to be also explained. The large volume of active or prospective customers who come through our channels provides us with excellent business opportunities, allowing us to earn profits by combining a good experience with a low cost to serve.
Through a simplified onboarding process, our digital platform has enabled us to acquire more than 60,000 customers in September, for example. So out of the almost 900,000 that I mentioned in the last slide, 600,000 came through this channel, implying a rise of almost 200 plus or more than doubling in 12 months with 1/4 of those customers being unbanked in choosing Santander to establish their first banking relationship.
Considering the revenue generated by new clients acquired in August, as an example, 50% came through insurance, 18% credit or 12% cards. On top of that, the cost to serve that I mentioned, decreased by almost 20% year-on-year and in first Q in BRL 28. That is basically less than $5, $4.
Continuing in the digital front, our end-to-end digital business model enables us to achieve new sales records while also delivering a crucial benefit to our customers, convenience when purchasing new products and services. Here in the slide, we highlight the performance of 3 key products on the digital front. GAAP capitalization rose by almost 3x in 12 months in number of new contracts. Insurance almost doubled in contracts sold this quarter compared to the same quarter last year.
And finally, car sales advanced also almost by doubling over the same period. Finally, when considering the digital channel, the overall loan portfolio showed an increase of almost 130% in number of contracts. Along with the increase in origination, we witnessed a search in customer inquiries through our artificial intelligent channel, GENTE, recording over 18 million, 18 million interactions in just a month, that is almost 3x 267% year-on-year.
Our digitalization is enabling us to transform our business model and providing us with new revenue and value-creating opportunity. It is important to underline that the digital focus is also on transactionality and generating P&L. So as a result, we have concentrated our efforts of growing our transacting digital customer base, which expanded by 25% in 1 year, translating into roughly 5x greater revenue per customer over a 6-month period.
Next slide, you may see customer growth and technological advancements, both require people. I would like to underline in this slide, as you may see in the left bottom part, that 94% of our employees are proud to work here in Santander Brasil. This is not only a high level of engagement at 11 percentage points more compared to the market. Our business is backed by a strong culture that fosters a high level of engagement, which is recognized by the market.
Management is close to employees. We have held about 56 virtual events over the past 6 years with employee attendance reaching more than 80% of our total population in the last quarter as an example. Regarding inclusion, women already make up 31% of our leadership positions, 27% of our employees are black and 5% are people with disabilities. We have already accomplished the goal we had set for the years ahead, but we will keep on moving.
As part of the collaboration process, we incentivized knowledge dissemination with employees acting as leading figures in the training process. For us, this training is key in our model. As a result of our actions in all these fields that I mentioned, we were recognized by Great Place to Work in the women and LGBTQI categories in 2021. Furthermore, GPTW named us among the 10 best companies to work in Latin America.
Delivering -- in next slide, delivering long-term value also depends on engagement with individuals and groups that represent a wider society. In this regard, ESG has been ingrained in our culture for a long time, not only in the last quarters or years as evidenced by the fact that we have had programs impacting society since 2002, in addition to being pioneers in certain markets.
In the environmental field, for example, we promote sustainable businesses to our customers by providing pivotal solutions such as ESG-linked loans in which we currently have a portfolio of more than BRL 2 billion. CBIOs where we lead the market with a 55% share and solar energy loans in which we are also top with BRL 1.6 billion in origination. Since 2018, we have facilitated over BRL 43 billion in green financing and demand for more innovative products continue to grow.
Our own KPIs are also focused on mitigating environmental impacts, and we share some of these KPIs publicly. We believe that we can make a meaningful contribution in this transition to a low-carbon economy. At the same token, we intend to generate 100% of our electricity from renewable sources by 2025. Eradicate single-use plastics from our operations and use recycled PVC cards in our sales. Our efforts, for example, have been recognized with the most sustainable company award by Época Negócios 360 Degrees.
We acknowledge that our growth -- sorry, that our role as a financial institution is fostering sustainable enterprises, thereby helping people and businesses prosper. In this sense, we reached over 800,000 people in the last 3 years through our social programs, earning market recognition.
Our Amigo de Valor, a very well-known program here in Brazil, has already reached thousands of people all over the country being a top program in Brazil. We run the country's largest micro credit operation among private banks called Prospera, with BRL 1.6 billion portfolio and over 660,000 active customers. As one of Brazil's 3 largest private banks, we have unveiled an integrated plan aimed at effectively contributing to the sustainable development of the Amazon region.
Simultaneously, we are increasing our loan portfolio for sustainable agriculture in the region by almost BRL 300 million. We are also celebrating 25 years of Santander Universidades. Over these years, we have strengthened our partnership with public and private universities to which we offer academic support and grant scholarships through exchange programs. A total of 24,000 scholarships were awarded just in the last quarter, 24,000 scholarships.
Lastly, moving to our governance. Our Board is a good example of how we internalize ESG principles within the bank, committed to developing a long-term strategy that will enable us to continue assisting and engaging with local communities as well as society at large. So moving to numbers to our results.
On Slide 13, we detail our P&L. We closed the period with net profit of BRL 4.3 billion, representing a 4% increase relative to the last quarter and more than 12% when compared to second Q last year. Let me highlight the following figures. On the revenue front, NII grew in the quarter, reflecting a better mix and a stronger market activity in the period. Fees increased by 13% over the same quarter last year. Here, the customer base growth and higher activity boosted different items such as costs or capital market revenues.
On the expense side, provisions grew by 10% in the quarter, aligned with credit mix and growth and 26% year-on-year. General expenses are rising as a result in between other things of the collective salary agreement, inflation and foreign currency fluctuations, but remain on the year below inflation. The efficiency ratio, as you may have seen, became at 35.7%, almost stable in 12 months, and the recurrence ratio reached more than 88%.
And as mentioned, return on equity remains at record highs and return on assets improved 20 basis points in the last year. The next slide details the evolution of our NII highlighted by customer NII which advanced by more than 5% Q-on-Q and almost 15% year-on-year, with product NII benefiting from positive volume dynamics and mix. Despite the strong pressure on funding costs, let me remember you like in between 400 to 500 basis points on the year, higher cost of funding spreads increased by 10 basis points reflecting a better mix and a very good pricing management.
Market volatility during the quarter contributed to a positive result. Advancing to the next slide, we can see that our loan portfolio grew by 2.4% Q-on-Q and more than 13% year-on-year to BRL 450 billion at the end of the quarter, largely driven by retail. This regarding the ForEx impact, the portfolio would have grown slightly more. The impact is very marginal by 13.6% year-on-year. The individual segment continued to outperform with mortgage and credit card explaining part of the growth.
Consumer Finance grew by 1.7% Q-on-Q and 9% year-on-year amid a challenging scenario for the automotive industry. SME had a good quarter, growing 3.7% attributable to a recovery in demand. Corporate lending dragged down our overall credit growth given the more dynamic capital markets environment and improved liquidity conditions. And it is important to note that 69%, almost 70% of the individuals loan book is collateralized by guarantees. But even in a more dynamic economic landscape, we saw some increase in the funding base.
Financial bills increased quarterly, but continue to hover around the lowest level in history relative to total funding. At the end of the quarter, capital stood at comfortable levels. Our BIS ratio was above 14% -- 14.2% and our core equity Tier 1 reached 11.9%.
Moving on to fees. We had another strong performance supported by customer base growth and a strong loyalty. The best performance in the quarter were credit cards and capital markets. Cards grew by roughly 31% year-on-year with higher transactionality and total turnover. Insurance showed a slight decrease in the quarter but continues to post a strong performance year-on-year, growing almost 20%, as you saw also in activity in the digital front.
Looking at expenses in the third Q, we had a 7% year-on-year rise in total expenses below the 10.25% inflation in the period. We have conducted and will continue to conduct a thorough review of expenses given our commitment to productivity. In any case, we anticipate some cost pressure in the coming months due to the collective salary agreement, which has meant that personnel expenses are rising by almost 11%, 10.97% in September.
Inflation and foreign exchange fluctuations exerted also pressure on administrative expenses. Our efficiency ratio remained mutually stable year-on-year and 35.7%. At this level, and this is a hypothesis, but it is possible that we again remain as has happened during some quarters already the best in the industry.
On the next slide, we can see how our asset quality has evolved. It remained at a well-controlled level in the quarter with a proper coverage ratio reflecting our solid risk management. Short-term delinquency remains healthy below prepandemic levels. The 90-day NPL kept under control at a ratio of 2.4%. You can also see that our loan loss provisions remained within reasonable levels. And also, let me remind you this below pre-pandemic levels. Consistent with a cost of risk of 2.9%, more aligned to our credit mix.
This performance reflects our diligent lending practices. Recovery was quite strong, as you may see, at BRL 1.1 billion in the quarter, reflecting both a continuation of good management and focus. I have mentioned this in several quarters already and a sale of a written down portfolio.
So let me conclude the presentation with the main takeaways, which I would like to underline. First, consistency. Six years of profitable growth. We remain focused as may be seen through our return on equity that stood at 22.4%. Our dedication to building a robust and comprehensive financial platform resulted in an all-time high level of new customer acquisition. Revenues continue to grow supported by higher transactionality.
Our risk model ensures that the cost of risk remains within a comfortable range. Pursuit of productivity drives efficiency to almost -- to 35%, 35.7%., and finally, not least, a corporate culture deeply committed to grow results and society. So thank you so much, and Gustavo I think now we are open for Q&A.
I will now pass the word to Mr. Gustavo Sechin. Please, Mr. Sechin, you may proceed making the questions sent via webcast.
Okay. So our first question comes from Gustavo Schroden from Bradesco. Thank you, Gustavo for your question.
The bank posted an expectedly growth in trading gains this quarter. Could you explain what has supported this growth and what -- how sustainable is the current level of trading gains? Also what is the impact in the trading gains from the spike in the long-term interest rate. Gustavo also had another question. Considering the weaker estimates for GDP growth next year, do you think that the bank will be able to maintain the current level of loan growth? And with such positive mix, what should we expect in terms of loan growth and mix for the next years?
Okay. Thank you, Gustavo. NII from market activities treasury, et cetera. Yes, it has been a good quarter. Our treasury activities, our wholesale banking activities have done, I would say, a good year, but specifically a good quarter. This 2.5% -- if I remember what we had, I think it was second Q last year, second Q 2020 in which we also had a very good quarter. It was even larger than the amount we have presented in this quarter.
And our first quarter in 2021 was also a good one. So as always, that I mentioned with you, I mean, we do have some volatility here. When things go in the good and right direction, you end up with higher numbers. This is not the highest, but it is a high number. When things -- when volatility affects you on the other side, you go down in that number. That number has ranged, in general terms, I would say, from -- making a little bit of an average in between BRL 1.5 billion to BRL 2.5 billion per quarter depending on how things evolve.
Difficult to estimate following your question. So it depends really on how markets evolve. But at the end of the day, this kind of quantity that you see there helps the NII, but I will clearly focus on the NII from clients that is performing pretty well. The second part of your question, which is GDP and loan growth. Well, if we think in 2022, in which you may have an inflation, I don't know, taking a little bit of the consensus of the market, I don't know, 4%, 5% or even a little bit more than 5%. With our GDP growing between 1% to 2%, you end up in a nominal rate of around 6%, 7%.
So I wouldn't be surprised that loan growth tends to grow at the country level higher than that, obviously, with probably separating the role of private and public banks as has happened in the last years. The discussion is not only the total loan growth because that's a little bit generic assessment by my side but also what are -- how are the different segments going to grow.
What we are seeing is that retail continues to present a strong and good growth, while you dilute that growth as you move to SMEs, corporates, large corporates, being large corporates and corporates are growing the least. And probably that type of profile is what we see in '22.
Thank you, Angel. So our next question comes from Mario Pierry from Bank of America. Thank you Mario.
So you showed that your active client base expanded by 2.4 million in the last 12 months or 9%. Are these new clients coming from expansion into new regions? Are these clients coming from other banks? Or are you now able to reach the end bank and the population through your digital channels. And also, your employee base has expanded by 9% or more than 4,000 people in the last 12 months, while your branch network has declined 6% or 140. Can you help us to understand the diverting trends in employees [indiscernible]
And Mario also has another question, Angel. Can you discuss the outlook for asset quality and loan growth to individuals. You have started to accelerate growth in security loans and in retail loans but economic outlook for 2022 seems to be deteriorating, and the Brazilian Central Banking showed that the indebtedness of families is at historical highs. Are these real concerns that should lead a more conservative lending stance? Thank you, Mario.
Thank you, Mario, for such a comprehensive coverage of the different things. Let me -- I noted 4 points. So let me try to address them. Growth of clients. Well, this is one of the main engines of Santander Brasil growth, as I have been discussing with you during a long time now. So we have positioned the bank that is able, is producing this type of attractiveness for clients, and we continue to have our main -- one of our main reasons to present profitabilities and growth that you have seen through this type of growth.
Let me try to give a little bit more light in those clients. I mentioned 24%, 25%, 1/4 of the clients are new clients in the financial system. So these are clients that are bancarizing. We do have several channels. We have Prospera, which is the micro credit area and which, as you know, is basically focused on clients that are in social extreme situations in which they need and they have little businesses, and they performed pretty well in quality and everything.
I have discussed with you the 4 different channels through which we acquire clients. The 4 of them working pretty well. The physical one, the digital one, the remote one and the external one. And the 4 of them -- and I can elaborate a little bit further afterwards, if you want on that point. I elaborated on the presentation, the digital front. More than 70% or approximately 70% of the clients that we are improving -- sorry, increasing in the quarter are coming through the digital side.
But let me also give you some numbers that I didn't share with you. 28% of the client base on the digital -- on the digital front, we are increasing those in terms of transactionality. So the digital client base is increasing by 28% in those that are active clients, in those that are presenting transactionality. So in those that are generating P&L. So as I mentioned in the presentation, it's not only opening current accounts, it's really making or having the capacity of offering those clients this type of transactionality.
And this is how the bank is positioned, okay? So the NPS, the app, everything that you may see around Santander is basically oriented to make it an easy user experience so that clients really use the bank. The increase in employees is basically focused in 2 things that I already presented to you before. One is [indiscernible] SX, which is where we have basically focused our remote channel. This is what I mentioned to you in the last quarter, the call center, the traditional call center being transformed in an active selling point.
We are already above 5 products per person and per day being sold. This started in between 1 to 2. So this is strongly increasing and supporting our growth. And the other part is part of our movement that we made on the technical department, on the operations and technology department, to make a technological company that provides services to the bank. So those are the 2 main 95% of increase is that one.
The branch movements. Branch movements, as you know, what are we doing? We are continuously managing branches. We are opening small shops as we call them, which are branches in any case, in the center of the country, basically where the growth is, and I have shared with you payback and breakeven in very short periods of time, 6 months, 9 months, which are performing pretty well. And in the large cities, we are -- as always, we are managing those branches.
You have branches that have been -- traditionally from a long time ago have been kind of merged and we still have like kind of 2 codes there and they are being moved to one. You have branches that are basically in the same place, but the city has moved and grown to other places. [indiscernible] is a very good example, for example, in which we had 5 branches in almost 1 square kilometer.
And what we did there is just maintained some of them and move the others or closed them. And finally, asset quality. Let me elaborate here, sorry, one point, which I think is important. I mean I have mentioned to you in past quarters that we have reached very low levels of cost of credit or NPLs. So the normal movement after this -- or throughout these important liquidity kind of support that has come from different places, is that we recover or we come back slightly marginally, as you may see in the different quarters.
The cost of credit today is 2.9%. I presented that in the presentation. This is still below pre-pandemic levels. Pre-pandemic levels, if you choose, for example, first Q 2020 were 3.2%. So we are still better than before the pandemic, even with whatever GDP and whatever consideration you want to -- going forward, I will say the same thing I said in the last 2 quarters.
I mean, if we see this type of 10 basis points, I don't know, I don't want to quantify them. But if you see a slight kind of deterioration, it's kind of going back to normal levels in which we have been for a long time. Let me remember you that Santander Brasil has the lowest volatility in terms of cost of credit throughout a very long-term period of time. So we really know how to deal with risk in this business. Sorry to make a long answer, but there were the 4 points, and I think we covered -- or I covered the 4 of them.
Thank you, Angel. We have another question come from Eduardo Rosman from BTG.
The [indiscernible] interest rate should move up 700 bps in a 12-month period, a very fast and big move in a short period of time. Can you please explain what are the impacts of such change on your results? What are the benefits? What are the negatives? How asset sensitive you are?
Okay. Thank you, Eduardo. Let me go through the different kind of considerations. You first have our sensitivity in terms of NIM that I have shared with you, around BRL 400 million for every 100 basis points of parallel move in the Q. So that is kind of stable. And that will -- has already been there and will be there. So this is not a new kind of sensitivities that I'm sharing with you.
Probably the important thing to discuss is in the pure NII, client NII more than on the kind of surrounding variables. So what we will have is a better performance on the liability side, speaking of NII, a better performance on the NII, meaning more revenues on that side, more profitability coming from all what we can consider as investments or saving from a time perspective.
On the asset side, what has happened, as you know, the yield curve is already imputing or estimating or like more than -- or around 600 basis points in the next 2 years. So when we are already producing in the 10 year, it's close to the 12% level. So when we produce, I don't know, a loan at -- in a 3-year loan, the prices that we are producing are already embedding that yield curve. Now if you compare that, which probably is part of your question. If you compare that with 12 or 24 months ago, the yield curve has moved up.
And that means -- and this is my -- coming back to the quality discussion, and that means that obviously, that effort coming from companies, from families, et cetera, will be harder. And this is why I was mentioning before that coming back to normalized levels in terms of quality of risk should be seen as a normal kind of movement because, again, we are clearly below historic averages in a very good point in terms. But the important thing, again, is that you maintain positive operating leverage in terms of revenues in both provisions and costs that you are able to maintain spreads. As we have -- as you have seen, we presented, I think it was a 10 or 20 basis points improvement in spread in the bank, and that embeds 400 to 500 basis points of increase of cost of funding.
So we are managing the situation, but the effects are the ones that I tried to summarize.
Thank you, Angel. The next question comes from Marcelo Telles from Crédit Suisse.
Cost of risk increased sequentially. Do you expect further normalization going forward? Are you changing your credit risk appetite in light of deterioration macro condition in Brazil.
Well, Marcelo, I think I answered basically the question. In terms of macro appetite and the different reactions to the situation, this is absolutely [indiscernible] I mean, we have the risk department, with the business department and with the rest of the departments around those 2 have continuous, and continuous means weekly, meetings in which the elaborate opening and closing the pipelines, fine-tuning in this segment in the other.
Now here is performing, let's do this test and let's go into untested waters. Let's come back because this didn't work. This worked pretty well. We have -- for example, in the auto business, we have increased share in different clients that we didn't use to be there. I mean you have -- this is absolutely business as usual. Now having said that, again, I think that the rest of the quality, cost of credit question, I already answered.
Thank you, Angel. So the next question will come from Thiago Batista from UBS.
Santander Brasil posted a solid expansion of the credit card business. Can you comment about the bank's strategy in the credit card segment?
Yes, you are right. I mean we are -- we have been selling -- and I think I also mentioned this in the last quarter, we've been selling over 600 credit cards per month. Well, I think that this strategy here is, first, make the product usable and that has to do with all the tools that you have around in terms of payments.
And secondly is positioning the bank not only in credit cards but in payments. The third one is offering different products to the different clients [indiscernible] segmenting the product in function of the client, if not the other way around, okay? So adapting the product to the client. And I would say -- and finally, having that trial and error capacity that I mentioned before, I mean, we have been increasing, I mean 70%, 80% of the credit cards that -- in some months are sold, are sold to existing clients that they want another car for relative or for somebody close to them.
So we all know the risk -- we know the risk profile of those clients. And if not, we have an established trial and error process by which you advance hand-in-hand with the client in terms of the limits and the amount of risk that you want to bear with that client. So I think it's a little bit of an adding of positioning the bank in the payments as last acquired and as last credit card and all that kind of big segment with a client perspective, more than with a bank's perspective. In the channels that I mentioned before, have a lot to say and to do here, our position credit cards, for example, with American Airlines, I mean, with Amex, et cetera.
The next question comes from Jorg Friedemann from Citibank.
Can you please elaborate a bit for -- on what drove record negative on other operating income or expenses of BRL 2.8 million. I understand other operating income come down, but it seems other operating expenses also accelerated significantly, and we lack visibility about it. Thank you, Jorg.
Yes. Absolutely, yes. As you know -- but first, that line has its proper volatility quarter-on-quarter. And we cannot do much more there, but try to explain it to all of you. And let me give you some examples of that line so that you understand why it has some volatility. For example, let me try to remember here different things.
In second Q, if I remember well, we had an insurance and a positive -- I wouldn't call it extraordinary, a positive result on an insurance from a punctual point regarding labor security that in the comparison with this quarter affects negatively. For example, we update with [indiscernible] all the fiscal situation in offshore like Luxembourg -- like Luxembourg, sorry. For example, we did receive part -- an input in terms of, I don't know how to say that, precatorios, which are kind of public rights that you have to -- you may receive, and we received some of them in the past quarter.
We have another punctual thing. I mean, to give you a little bit of light in this line, we have the difference in between the average ForEx exchange and the closing of the month or the quarter foreign exchange. You have an input there that in this case, was negative. For example, we did acquire miles for our programs, and that was in the third Q. So I mean, I can put -- I don't know, I don't remember more, but I'm sure that if we do a list, we have a lot of them that goes up and down, positive, negative, and this is the reason.
So at the end of the day, you have there, as you said, those BRL 2.8 billion this quarter that are affecting more negatively than other quarters.
Our next question comes from Yuri Fernandes from JPMorgan.
You continue to have a good growth in number of clients, but demand deposits are decreasing on both sequential and year-over-year base. Can you provide more details on it? How do you see funding in 2022, given higher reference rates?
As I said, funding, I see as a very important point in 2022. I mean, I think not only because of the NII, but also because being a universal bank we have to diversify that type of funding. I think we are leaving a little bit of a hangover of those strong liquidity programs that we saw in the past. And 2021 has been a year in which that source of liquidity has not been as strong as it was.
Remember 2020. I mean in 2020, we had quarters in which we were growing 50%, 30%, 40%, 25% in terms of client funding. I'm speaking of deposit funding. So it's a little bit of a normal situation in which you leave some kind of hangover in that sense. Having said that, it is a focus, and we will try to focus and continue to focus in the next quarters and years, specifically 2022, as we understand it is, as you perfectly mentioned, crucial for the funding and for the full cost of funding.
Thank you, Angel. The next question comes from Pedro Leduc from Itaú BBA.
Cover durations versus NPLs, where are you seeing most NPLs pressures in terms of broadening geography? Is there any outlook for 2022 already? Given the current macroeconomic scenario, should you keep historical 200% coverage ratio by year end of -- year-end 2022 or remain above it?
I -- in terms of quality of risk, I'm not going to elaborate much more because I think I did cover it already. I'm going to try to answer you the 2 points that I think I didn't cover. Coverage ratio. I mean, let me remember to you, for us, coverage ratio is the outcome. So how we understand the business is that we have our -- not only the regulatory needs, but we have our risk department that sets the needs to whatever it is, to provision, to not provision, to over provision or to leave it or to renegotiate or whatever of each of the clients that this bank has.
And with that policy, we end up with a coverage ratio. So it's -- we don't have an objective. Obviously, it comes as a consequence of our provisioning. So the fact that we have a 248 or 50% coverage ratio is something that comes out from that process. It is also true that if you see the historic series, we used to be, for a long period of time, at 100 plus then we went over 200 even to 300 and then back to 250.
And this is something that we'll continue to answer to the process I mentioned before. In terms of geography, segments, et cetera, obviously, each of the segments have different cost of risk. The trends in each of the different segments I already mentioned before, in terms of geography, I -- we haven't seen differences from what it is usual here in Brazil.
We have another question from Thiago from Goldman Sachs. What were demand drivers for the decrease in the effective tax rate in the third Q 2021? What should be the recurring level going forward? Thank you, Thiago.
Yes, Thiago, good question. I mean the main reason was that we paid interest on capital, [indiscernible] as we say here in Brazil in the third Q. We announced it in July, the Board approved it in July. And that in the full payment, BRL 3.4 billion was interest on capital. So that impacts significantly the tax rate. I think the tax rate in this quarter was close to 30%, which put the average in the year around 35%.
The answer here in terms of tax rate is the same I've given to you. I mean we should be in the 30-plus, and that depends on this interest on capital and different initiatives that knowing that we have a second semester in which the tax rate for banks, as you all know, has increased by 5 percentage points, so punctually during these 6 months.
The Q&A session via telephone is open now. [Operator Instructions] The first question comes from Jorge Kuri with Morgan Stanley.
I think most of the questions that I wanted to ask has been answered. Thanks Angel for the detailed responses to all of the questions. Let me just ask you something more longer term and bigger picture. I'm looking at the consensus numbers from the sell side on your growth in net income and pretax profits for the next 2 years, 2022 and 2023.
I'm seeing pretax profit, 2-year CAGR growth of 5% and net income growth, 2-year CAGR, 7%. I wanted to get your reaction on what do you think about these numbers? I think they're too low, 5% 2-year CAGR on pretax profits, that's basically growing with inflation, and I'm assuming you can do much more than that, similar to net income.
So I wanted to get your reaction on what do you think about these numbers? What do you think are numbers that you would feel more comfortable with over the next 2 years? And what do you think the sell-side community is underappreciating, getting wrong overall on the story that's driving this what I think are very low numbers.
Thank you, Jorge. Well, I mean, you have seen the evolution of the consensus and how we have been performing or delivering and what has been kind of the performance of that consensus. As you know, we don't give guidance or forward looking, but what I can say to you is that, I mean, we have been outperforming strongly during the last 5, 6 years continually against the consensus, I think.
And this is what I think was a research done by you, by your house, by Morgan Stanley, in which they output all the banks and the ones that have given some kind of negative surprises some time. And I think Santander Brasil was the only one that did not give any single negative surprise. So meaning that we went over consensus during a long period of time. I think it was 3, 4, 5 years. So I mean, we continue -- as I said in my speech, we continue to be focused. We continue to put a return on equity and growth and clients. I think the bank is uniquely positioned in terms of acquiring clients, uniquely positioned in terms of capacity of selling through the different channels with clarity on what it has to do each of the channels.
A lot of capacity is still as an industry, but specifically, as a bank on the cost side. Also we have the lowest efficiency ratio. We will have to monitor obviously quality, and that's an obvious one. That's it. So I think that the fact that the bank has been performing should be a part of your answer. And what are we all losing, I think that the capacity of this bank to navigate throughout whatever it comes. If you see the performance, I just put the return on equity. But I mean, if you see the performance since 2015, this country went through the worst crisis in '15, '16, and the bank performed.
And then it went through a pandemic and the bank performed. And then we are now heading towards lower GDP growth, and I think we will perform. And that's, I think -- and why? Because you have all those variables I said to you, all that capacity of positioning. You have a bank with a lot of hunger, a lot of intensity in terms of delivering. And you can -- I mean, I said to you, 94% of the employees are proud to work in Santander Brasil.
This is, I don't want to say unique, but this is something really to be very proud of. And I'm very proud of working in a bank with 94% of the people that really are proud. Not only they want to work here, they are proud of working here. And this is culture, this is diversity. This is picking up. This is meritocracy. I mean, you have some of the things that I understand sell-side analysts is difficult to quantify, but it is a reality that they exist.
And this is why we underline them and we put the bank. And now we speak of ESG and the bank has been 20 years in ESG. And this is another -- this is the kind of things that I would consider.
The next question comes from Mr. Carlos Gomez from HSBC.
I have 2 brief ones. One is if you can comment on your current relationship with Getnet. It's been a few months now since the company is separate. You have reached this agreement about how to make payments to each other. Can you give us an idea about the revenues and expenses related to Getnet and whether this has remained now that you have experience needs to be adjusted or is working well so far?
And the second very brief question is in the other expenses, it seems that one of that is related to a particular labor claims. If you can tell us how much that was in the quarter? I mean, was it a total of BRL 1.8 billion? We want to know how much of that is legal expenses.
Okay. Thank you, Carlos. On the Getnet relationship, well, it is true that Getnet officially and accounting-wise, et cetera, was already spin off as of the end of March. So we have been functioning in that also. It was not quoted, et cetera, but we have been working in that scheme already for more than 6 months. And the reality is that what we promised to you, I mean, things haven't changed.
What does that mean? It means that the relationship in between the 2 entities continues to be -- and this is our main focus, continues to be as it was, which is trying the both sides, the bank and Getnet obtained the maximum out of it. So this is what is happening. So management from Getnet continues to participate with all the, obviously, legal framework applied but continues to work, continues to participate in the same committees, in the same working groups.
The Board of Getnet, as you know, is going to have 2 members -- 2 senior members from Santander Brasil to maintain the same kind. So the experience, your question, how is it going on? It's going as expected. And we expect Getnet to continue to grow strongly as it has happened in the past. Markets are already in 16%, et cetera. So they are presenting the numbers in -- they have presented the numbers of revenue, and they will be doing the call in -- I don't know, in some hours and they will give you details.
But I mean they have presented more than BRL 90 million. It is BRL 90 million result. The growth will continue to be there, and I hope that you are able to understand it. The second part of the question, I didn't get it. Do you want to answer it, Gustavo? We could try.
If I understand correctly, Carlos, your question is regarding the labor contingencies, if I understood correctly. We had some impact in terms of labor contingencies this quarter. It's around BRL 106 million, and it's considering in other expenses.
Thank you. The Q&A session is over. And I hand it over to Mr. Gustavo Sechin for his closing remarks.
So I would like to thank you very much for joining us today and your interest. Once again, we are fully available here for any further questions. Thank you very much. Have a nice day. Stay safe. Bye-bye.
Banco Santander Brasil's conference call has come to an end. We thank you for your participation. Have a nice day.