Banco Santander Brasil SA
BOVESPA:SANB3
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Earnings Call Analysis
Q3-2023 Analysis
Banco Santander Brasil SA
The company has made significant strides in enhancing digital customer experience, as evidenced by its top ranking on Downdetector, which gauges app performance. With 94% of transactions being cloud-based, the company's banking platform is on the brink of full cloud transition, promising enhanced agility and cost efficiency in banking operations.
There has been moderate growth in net interest income (NII), with a 2.1% increase over nine months and a 1.3% decline in client NII for the quarter due to a reduced spread of 20 basis points. The bank is expecting improved client NII as its portfolio grows. Moreover, retail lending indications are strong, with the consumer portfolio adjusting positively by 1.4%, and particularly robust growth in secured loans to individuals, which now compose 67% of the portfolio with a 2.5% year-on-year increase.
The bank's strategy to expand funding is bearing fruit, demonstrated by a 10% increase in demand deposits and a 6% rise in time deposits for the quarter. Overall funding bolstered by 16% year-on-year, with a record-low loan-to-deposit ratio underscoring a strong balance sheet. Fees and commissions have seen a 6.5% growth, with the insurance sector standing out due to new product launches and campaigns.
The bank has reported an improved asset quality, with allowances for loan and lease losses (ALL) falling by 6% this quarter and non-performing loan (NPL) formation normalizing at 1.05%. The coverage ratio now stands at 230%, while NPL over 90 days improved by 30 basis points in both individual and corporate portfolios. These improvements have come alongside controlled growth in expenses, which increased by 0.9% for the quarter and by 7.5% over nine months. The bank has made efforts to distinguish between growth-related expenses and recurring operational costs to support future growth prospects; this strategy has resulted in a 70 basis point improvement in the bank's efficiency ratio.
Reflecting the operational achievements and strategic initiatives, the net profit before tax surged by 32.5%, while the net income climbed by 18% for the period. This has helped in recovering profitability trends with a return on equity (ROE) of 13.1%. Further, the common equity Tier 1 ratio bolstered by 50 basis points to 11.2%, influenced by regulatory changes effective from July that favored the bank's capital structure.
The company is diversifying its credit portfolio, with an inclination towards mid- and high-income segments as well while being selective in growth pursuits. Going forward, the bank plans to expand more aggressively in non-collateralized business, integrating various ecosystem points to enhance customer connectivity and engagement. This strategic approach suggests a disciplined yet opportunistic path for portfolio expansion.
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[Interpreted] Good morning, everyone. Welcome. We are here in our headquarters in São Paulo live for our third quarter 2023 earnings conference call. Today, this event will be divided into 3 parts.
First, our CEO, Mario Leao, will talk about our strategy and the main highlights of the quarter. Then Gustavo Alejo, our CFO, will provide a detailed analysis of all the members that were highlighted during the period. And lastly, we will host a Q&A session during which you will be able to interact directly with us.
I would like to remind you that we have simultaneous translation, so you can choose whether you want to follow the presentation in Portuguese, in English or just simply using the original audio. I would also like to tell you that the presentation that you are about to see is already available in our IR website.
Now I will turn the floor to Mario Leao to begin the presentation.
[Interpreted] Hello. Good morning, everyone. It's a great pleasure to be with you again. This is a different format, and I hope you enjoy. We are constantly evolving. We are here live. It's now 10:02. I'm glad to have the opportunity to tell you more about our performance together with our IR team and Gustavo.
I would like to start on Page 4 -- Slide 4. Here, I highlight the most relevant aspects of the quarter and then we will elaborate further on the following slides. And I'll talk about the quarter and the outlook for the year. The most important highlights are right here on my left.
First of all, for quite some time, we've been telling you, I mean, during previous conferences, Camila and I participated in a relevant conference in New York, and we've been talking to several investors throughout the past 9 months, and we talked about the diversification of our portfolio.
This is quite an important aspect because we build our major growth cycle with a great emphasis on loans and specialty loans to low-income people in different markets. And certainly, we look at the past, and we realized that we had to have a more balanced portfolio with a pluri-annual investment.
It's a permanent investment because it takes a few years in funding and also fees that we had a relevant business, but we thought it had to be even more relevant. This year, we clearly know that the strategy is being executed. We've seen some progress. And certainly, we will continue to pursue looking at these two areas of diversification.
The second highlight is that we continue to see a very positive evolution in terms of quality of assets. I can say that in all of our metrics, NPL formation, coverage ratio, cost of credit and even the [ ALL ] results evolved, and this makes us very pleased because it shows consistency in everything we do. We've been talking to the market in a very patient and consistent way in the past 3 quarters. And now we are just consolidated everything we said in the past quarters.
Now we see that we are capable of resuming growth in a very conscious and focused way with a more constructive buys from now on. And we will show you some figures in a moment.
In terms of our financial margin, we see -- in terms of our NII, we see that we involved and Gustavo will talk more about it in terms of clients. Things are being consistent, even though the evolution was small, but this is important because in the past year or 9 months, we were able to build our portfolio with more selective clients and clients that have a better cost of credit.
And to continue, we have a very good agenda of productivity and efficiency. And I constantly highlight that because that's part of Santander's culture. And this is important because it means that we can continue to invest in growth and this will not compromise the result of the bank as a whole.
Speaking about our net income, net income is important in the quarter because certainly, we want that progress to continue, and we will see that with time. But we posted 18% growth in ROE that had a significant improved BRL 2.7 billion vis-a-vis the previous quarter and ROE is going from 11% to 13%.
In terms of our priorities for the year, to my left and to your right, I see here 3 highlights. And these are very consistent with everything we've been talking about, enormous focus on customers. Well, everybody talks about their clients, but Santander has a very high obsession with clients. We are not running after increasing the volume of clients. Of course, this is important, but we are less concerned with our ranking of clients, but much more on how do I monetize? How do I become the principal bank for the customers. And this is our strategy and everything we are doing in terms of technology, innovation, focus on priority businesses with a view on the customer has to do with that. And I'll give you some insights about that as well.
On Slide 5, I bring more details about customer centrality First of all, I would like to highlight our major obsession in our pursuit for principality. This quarter, I have some very good numbers to show you. This is quarterly growth of 3% of loyal customers. At Santander, we have a very high bar in terms of what we call a loyal customer. But this is a metric that is very consistent. We are growing 3% quarter-on-quarter. And so this is a figure that makes us very pleased because this number increases due to several drivers that -- on which we've been working consistently.
One is a great focus on CRM. We are totally redesigning our CRM strategy. We are trying to provide better and more customized offerings instead of having one size fits all offering, we are now customizing communication. We are connecting customers along his or her journey, and this has driven us to a total review. I mean we are actively reviewing our value proposition in all segments.
In the next coming slides, I will talk more about Select, our high-income proposition. This is growing at a very good pace. We have a good offering of products and services that we need. We almost need to develop any new services or products. Our agenda has been more focused on simplifying the offering rather than creating additional offerings. And with that, we gain agility. We gain in our capacity to serve customers and as a result, we gain more loyalty.
The NPS on the top of the screen, we've been consistently talking about NPS every single quarter. In this quarter, we certainly have many good news in all channels, in all segments, we've seen an evolution. I would like to highlight our remote channel with a year-on-year evolution of 32% of NPS. And in our corporate line, this is the first time we talk about corporate NPS, it's 39%, but I know we have a lot of room to improve, but this number had remained at 20% to 25% for quite some time. So we increased by 19 points, and we are certainly committed to pursue higher levels of NPS.
And to conclude on this slide, we have some elements that show the consolidation of our revenue that I showed down below, and we will cover them in more details further on. We grew almost 7% quarter-on-quarter in terms of fees. It shows that volume is growing, transactionality is growing. And with all of that, we are bringing customers to renegotiate and to increase the transactions with us.
Now I talked about high-income customers. It's been a year since we redesigned our value proposition for high-income customers. And I've been constantly telling you about that because we are progressing the way we expected. The business is performing well and NPS, as a result, is increasing as well. The customer base is increasing almost 50% year-on-year. We go from 674,000 to almost 1 million.
About a year ago, I established a public commitment that we would hit the mark of 1 million Select customers until the end of the year. And I'm sure that we will get there. Our revenue in terms of Select credit is growing consistently. So everything is according to plan. We are looking at everything with great focus, but we believe that we have a big differential in terms of investment model, the AAA that I will talk about it soon.
Our store model, we have great stores scattered throughout the country and our service 24/7. And now to complete the offering, this is a spoiler, but I'm already talking about it. So in a few weeks, we will launch Select Global and offer for international transactions. It will be launched in the next few weeks. And in a month's time, we will have a major launch to the market. And then finally, there will be nothing else left to do. I mean, so Select customers can have an international account and have access to that account through our app. And certainly, with that, customers will be even more loyal and will be closer to us.
Next slide, we show you our investments. Here, I highlighted a few elements to tell you about our strategic focus that is now bearing fruits and becoming more material. And certainly, this will bring about better results. So strategically, we decided that we had to change the funding mix of the bank. We never had any liquidity issues, but we had and we still have a lot of our funding coming from wholesale. Wholesale will be large corporate or institutional customers. There is nothing wrong with that in terms of volume, but in terms of pricing, yes.
So we are strategically and structurally changing our funding mix from mostly on wholesale to mostly on retail, especially in individuals and corporates as well. We have some data. Of course, we want more and we will go after more. But we already see some relevant figures. If we go back to 2021, the numbers is to your left, that was negative in the year-to-date in 2021. So now we will increase the numbers further and we are working hard to improve even further.
In terms of retail, emphasis on AAA, our strategy or our response to the advisory model, I mean, AAA is here to stay. We launched it about a year ago. It's still being consolidated, but we are already -- ready to show that through net inflows or volume and customer experience measured by NPS, that shows that this is an assertive model. It's a model that has the lowest coverage ratio, client versus adviser, and we can give our clients the correct advice.
This is just a consequence of having satisfy customers that bring their volume to us and maintain that volume with us, and that gives us good results. So AAA is moving quite well, performing quite well. Toro is being consolidated. We just acquired the remaining stake. We grew more than 100% year-on-year in terms of net inflows. We have very high NPS.
Toro ranked first or second in terms of NPS consistently, and this is measured by third parties. So Toro is moving and performing quite well. And now with the acquisition of the remaining stake of Toro, we are able to consolidate a lot of the technology and the way of operate. This is a fintech that turned into a digital brokerage firm and we will bring a lot of talent to the people.
And to your right, we have our private banking. I've been talking more and more about our private banking in all dimensions, we have a record funding, record revenue, record results and NPS still very, very high. So private is an essential part of our franchisees, individuals and firms interacting and there is still a lot more to do, but the progress here is very clear.
Slide 8, I am putting more emphasis on the card business. Certainly, the market is very curious about that. They want to know how we are dealing with it, that the active base of clients decrease, the market share decrease. And the answer is yes. In this last conference that I mentioned, I told the market that once we decide to step on the brakes before the rest of the market, at the end of 2021, we knew that, that move would be significant, especially with unsecured products. So we are focusing more on cards rather than personal loans and other products. But in other products, we are focusing on other products as well.
And we knew that in about a year or a year and a half, the share of active customers will decline. We knew that, but it's time now to recover that. And as I said, that we had turned the curve with cards, we are showing now that we are selling a lot more cards than we were selling even in the second quarter and throughout last year in the second -- in the third quarter of 2021, we would sell, I mean, x number of cards. We reduced that to almost 1/3 last quarter and now we are already recovering and achieving a much higher level. It doesn't mean that we reviewed our appetite vis-a-vis 2021. But it means that now we have a much better understanding of our customer base.
All of the investments in CRM that I already mentioned in terms of inter-personalization, this is something quite important because we are working hard in that hyper understanding and knowledge of the client, how they spend their money, I mean their income dynamics and how they perform in the market. So we are working with data architecture and the connection of everything helps us focus better on the client. A lot of these growth in cards come from existing clients and new clients.
And also our strategy in terms of payrolls. So cards is growing. We are very pleased with that. This has already reflected in the fees account, but it will increasingly appear in that fees and margin without letting go of the credit quality, as you can see from the right part of the slide.
Well, we have a loyalty business, which is quite relevant, and that is Esfera. I think we've talked about that. Esfera is a fantastic experience per se. It is connected to the Santander macro system, but this is a business that alone grows almost 60% year-on-year. And it has great penetration with cards. Everything -- every time we have the possibility of selling Esfera and cards, the volume of cards is quite high. I mean volume grew 15% year-on-year. We reduced share and the base of active customers, but we increased by 15%, the client NII. Clients become more connected with us. So they increased their transactions with Santander. In addition to the card itself, they buy and sell using the bank.
Slide 9 here talks about corporate companies. This is another crucial part of our strategy. And I recently talked a lot about that in the media in New York. So we are saying here that we have two large corporate businesses, but they are even more connected in terms of their common parts. And these common parts are technology. Most products are common; and a lot of how I want to position myself, it's common.
We call this one single corporate platform. We've been thinking in a more horizontal way, thinking about corporate and SMEs. Our ambition is to be the bank of all companies. We want to be the bank that corporate and SMEs think about. And they can call us in different formats. In large corporate, we have the natural customization of an investment bank or some more customized transactional services. We are the large international bank of Brazil or the large Brazilian bank with international penetration. We remain #1 in foreign exchange. We are top 3 position in capital markets in terms of net debt over equity.
We are also doing a lot of investments in talent in our people business, and we are very pleased on how things are evolving. We are growing in large corporate. And also SMEs, I've been talking to analysts and investors that we are putting great focus on the increase of our SME business, and I already have some good and solid numbers to show. So SMEs is beginning to respond in our first quarter. We were moving on this side. But consistently, we've been very cautious in the first quarter and last year because we just wanted to see how CDI would evolve, economy was not picking up.
So we made all the necessary adjustments. This quarter, we are beginning to grow. And from now on, in the midterm, we seek to double the business. This is the magnitude of our mission. Now quickly speaking about our strategic business. In the third quarter of '22, I told the market, okay, we continue to pursue our growth history. We will not let go of that. We will seek for a complex portfolio. But at the same time, we choose our levers, and we are growing different levers, not in a linear fashion because that wouldn't be intelligent. But we are growing strongly in all of the levers that we chose.
So this quarter, I'll talk about 3 levers. Our consumer finance. In the third quarter, we are consuming BRL 8.1 billion, and we are growing almost 20% our production towards the third quarter. This certainly brings fees. We know how to do that well. I mean, issues related to spread especially insurance. And because of that, the client NII performs very well. This will appear more significantly in the fourth quarter, and -- but we are not even happy with that number. We have to go for more.
So the consumer finance is an area that was slow in the first quarter, but certainly soon we will increase our appetite to grow. We are very familiar with this business, and I'm sure we can perform even better. In terms of Payroll, we've been consistently telling the market that this is one of the products that we try to work on. It's a very nervous product because the market is very competitive, but we believe we can do that well as well as other players. But we managed to grow above market without letting go of the quality. Our ratings are very good as with consumer finance and cards. So the control side is performing very well, which allows us to grow even more and to grow above the market.
And to conclude, our other major focus is Agro. Agro for the past 5, 6 years is a great focus of Santander, and we are growing. But a year ago, I publicly said that I wanted to reach BRL 70 billion in the portfolio. I mean, Agro clients, they have transaction with non-agro products as well. This is not calculated here. Here, I'm just including agro products and we are almost there. So I shouldn't even give you a spoiler because it seems very likely that we will exceed the target in the fourth quarter. So we will get into 2024 in a very robust situation.
To conclude my presentation, speaking about technology, we could spend hours here talking about technology because that's part of our core strategy in all senior leadership, they are looking at that with first as well. But I'll give you some highlights.
First of all, in a few years, it doubles or triples the volume of transactions. It's even staggering. We talk about in the past 9 months, almost 4 billion transactions. And the volume is very, very high, higher than any comparison that you may have. We know how do we invest. We are very efficient and the cost per transaction drops by half.
So to the right, you have a series of elements that talk about technology, what does technology have to do with customer loyalty, et cetera. We were #1 according to Downdetector. For those of you who are not familiar, this is a public app that checks interferences, bugs, et cetera. We were #1, that means that we are focusing very well in terms of providing the best customer journey. Our app is highly recognized, and this is a very good figure. 84 -- 94% of our transactions occur in the cloud. So we are almost reaching 100%. Just give me a few more quarters, and we will get 100%.
So we have a lot of transaction in the cloud. That means that we are more agile, we are more cost efficient. We have more than 1/4 of additional deployments year-on-year, meaning that we are more agile in terms of improving customer journey and also making corrections along the way and 86% of that occurs automatically and we are maturing. We are deeply maturing our business domains. This means our capacity of no longer being defined according to closed structures or silos, okay?
Operating platforms and technologies they are available to all of our businesses, there are 27 business domains and this is maturing very quickly, and this will really help the customer because the customer is the one that defines how they want us to be organized.
So now I will pause and Gustavo will give you more details on our numbers. Then I will come back at the end. Thank you.
[Interpreted] Thank you, Mario. Good morning, everyone. So let's start with the performance of our net interest income. We posted total NII growth of 2.1% in the 9 months to date. That means growth in product NII and our portfolio grew within expectations. This quarter, we had a solid growth in asset volumes between the months of the quarter, given the better performance of liabilities that I will talk about later and a better funding result.
In terms of credit growth and greater selectivity since the beginning of 2022, it had an effect on the spreads in the quarter, resulting in a drop of 20 basis points in spread and causing our client NII to fall by 1.3% in the period. As per market operations, we continue to show gradual improvement in our ALM positions given the recent reductions in the Selic rate. This quarter, this improvement was partially offset by lower trading result. We expect the trend of gradual improvements in market operations to continue in the coming quarters and that the client NII will perform better as we grow the portfolio.
Now I will present the evolution of our loan portfolio. We had a better retail performance this quarter and adjusting the consumer portfolio, for the sale of the equity interest in Banco PSA, which happened in August, and as mentioned before, we would have seen a growth of 1.4% in this portfolio, as highlighted here, and individuals in line with what we planned, we had good performance in real estate, payroll loans and rural credit, which has been repeated over the quarters.
I see the evolution of cards increasing 2% as being very positive in the quarter. In auto financing, for individuals, we grew 2.6% quarter-on-quarter. And this was the best performance since December of 2020, excluding the effect of the sale of our equity stake in Banco PSA. This performance is a result of the new strategic partnerships already mentioned.
In SMEs, we were able to resume the growth of our portfolio, thanks to good credit quality indicators, both in short and long term. Growth in the quarter was 3.1%, a level that we haven't seen since the third quarter of last year when we grew due to government programs. Currently, approximately 67% of our total portfolio of loans to individuals, including consumer finance, is secured an increase of 2.5% over the last 12 months.
On the next slide, we provide more details on the breakdown of our balance sheet. We continue to pursue our strategy, as Mario mentioned, of expanding our funding, and we can see growth in funding. I would like to highlight the evolution of the demand deposits growing 10% and time deposits growing 6% in the quarter. The year-on-year evolution is also very satisfactory, mainly due to the participation of retail, which is strategic for us.
Total funding increased 16% in the last 12 months and 4.5% in the quarter. Our loan-to-deposit ratio has shown continuous improvement in the quarter. And we posted the lowest level on record reinforcing the soundness of our balance sheet. Here, we detail the evolution of fees. As Mario said, part of our strategy, which we grew 6.5% in the quarter. We had a very positive performance, as you can see, in practically all fees and commissions lines. The one that performed the best was the insurance business, which benefited from the launch of new products and specific campaigns during the period.
In addition, we continue to perform well in "consórcios" and checking accounts, as you can see from the chart, especially checking accounts due to higher transactionality. So SMEs are growing in loans and fees, that's a good sign. Loans perform better due to the good performance in auto financing and cards, which also performed well in the quarter, growing 2.3%, which is twice the growth when compared to the previous quarter.
Now I will talk about the evolution of the asset quality. The best vintages are gaining relevance and reflect positively on our indicators. Our ALL expense was down 6% in the quarter, and the quarterly cost of credit reached the lowest level since the first quarter of '22. NPL formation has already normalized ending the third quarter at 1.05%. And we again provisioned above the delinquency formation, which brought our coverage level to 230%.
In regards to the renegotiated portfolio, we continue to see a drop in relation to the total portfolio around 30 basis points in the last 12 months, reflecting the effectiveness of all the adjustments made to the risk models in recent months.
Now I will bring some more details on the delinquency indicators. As expected, they continue to show positive trends. NPL over 90 days improved by 30 basis points, both in the individuals and corporate portfolios. The 15- to 90-day NPL showed an improvement of 20 basis points with a positive effect on the individuals portfolio. The corporate and SMEs portfolio showed a slight movie -- movement in the short-term indicator, which is a one-off event that doesn't cause us any concern.
Now moving to Slide 19, we can see the performance of our expenses, which grew by 0.9% in the quarter, very controllable and 7.5% in the 9 months to date. Personnel expenses were impacted by the collective bargaining agreement in recent months. Admin expenses, on the other hand, remain under control. This quarter, we are taking a new look at expenses, separating them into those incurred on products and business expansion and recurring expenses.
The first includes expenses that should support our future growth, such as software amortization, and fees with third parties to boost sales. And we continue to focus on controlling admin expenses, seeking to further improve our efficiency ratio, which improved 70 basis points in the quarter.
And to conclude, I would like to talk about our income statement. As a result of all the dynamics we've talked about so far, we grew our net profit before tax by a significant 32.5%. Our net income, as mentioned before, grew by 18% in the period, and ROE 13.1%, which shows that we are gradually recovering our profitability, a trend that we expect to continue in the coming quarters. Our common equity Tier 1 ratio rose by 50 basis points to 11.2%, mainly due to the entry into force of Resolution 229, which came into effect on July 1 and brought a benefit to our CET1.
With that, I stop now, and I turn the floor back to Mario for his final remarks. So Mario, the floor is yours.
[Interpreted] Thank you, Gustavo. So I would just like to conclude with something that consolidates everything we said. What are the main takeaways and I will start with the consolidation of our portfolio management strategy. We had already talked about this in the third -- I mean, the third quarter, we were comfortable because the peak was over. I mean it was clear that the peak was over. We only learned that after the fact.
In the second quarter, we saw that in the third quarter, we consolidated our strategy from 21 continuous months of portfolio management when we grew a lot like the entire market in 2021. And this certainly impacted our results of knowing that we worked in a very quick way to digest that. And now in parallel, we are seeing growth in different areas.
So the first big takeaway is the consolidation of our strategy, which makes us comfortable to show you very clear growth numbers in the portfolios, and we will continue to pursue that in a very consistent manner in the coming quarters.
The second takeaway is that the business where we chose to grow, we are growing, meaning that we are posting a growth history. It doesn't mean that the bottom line grows every quarter. There is no linearly -- linearity, especially in a company of this side -- this size, but we are growing where we wanted to grow and in areas where we knew we had to go slower, we did. And in some cases, we figured that it was time to resume and we're showing good signs.
The third takeaway, great focus on the client, loyalty and how to bring this client to -- more to increase their transactions in the bank. And I will say this constantly. Certainly, we are a bank, so we know and like to grant loans. But even within that loan portfolio, we have to diversify. We have to focus more on mid- and high-income. We would start -- we continue to work with [indiscernible]. We are not just growing for the sake of growing. We're -- this is not a race. And within credit, we want to diversify and also our funding agenda, on balance and off balance.
And to conclude, we also want to pursue obsessively. I know this is a strong word, but we want to obsessively pursue principality. So in addition to that discourse, which is important, we have to look at the details, look at the journey, I mean, look at verbatims from NPS, we have to talk to customers constantly. And also, we have to be humble and listen to our clients.
We know that we still have a lot of things to do. We have to be disciplined. We have to know how to say no when we do have to say no. So with that, I pause, and it's a pleasure to be with you again. And now we pursue -- we go to our Q&A session.
[Interpreted] Mario, thank you very much, Mario and Gustavo will now initiate our Q&A session. [Operator Instructions] So our first question now comes from [ Bernardo Goodman from XP ].
[Interpreted] I would like you to elaborate more on the topic of quality and growth of the portfolio. There was a relevant drop in delinquency levels. And NPL between 15 and 90 days points to the continuity of this move. Apparently, I think you're leading the way with good management in terms of the portfolio quality. But on the other side, credit origination seemed to be a bit timid, so I just want to understand your priorities in terms of growth, whether it would make sense to increase your appetite with higher spread, maybe with secured lines. But I would just like to understand your broad strategy, what are the most interesting income brackets.
[Interpreted] Thank you, Bernardo. I will start, and then Gustavo can add. That's a great question, and it's very legit. We are showing a trend, a trend that continued and picked up in the past quarters in terms of management of our portfolio that we used to call old vintages. We are not even making that distinction between old vintages and new clients. Certainly, I mean, monitoring the evolution on a day-by-day basis, we are constantly provoking ourselves about how can we translate that into a higher appetite. I've been asked constantly.
So in fact, you're selling more cards, are you going to emulate the growth that you had in 2021? No, we are not seeking to emulate the growth we had in 2021. I mean, from then on, we became much more knowledgeable about our customers. So 2.5 years later, we now -- know much better knowledge about the market[indiscernible] next everybody matured the entire market. So I would like to the summarize the strategy the following way. We will continue to grow on the strategic businesses that we design, especially in the last quarter of last year, those are more secured businesses.
For SMEs and large corporate, we will continue to do that. And in this quarter, we show a progress in SMEs and also consumer finance, which is one of the strategic business. It is collateralized business, but with the new regulation, things will improve. So you will see an evolution quarter-on-quarter. It will not be linear. We are not obliged to show you x percent growth every quarter, but we will grow. What we -- the plus will come, and that's a very good question.
We will be more open to the less collateralized portfolios, and you mentioned cards. And I highlighted cards for the first time in a long time. We will also look at personal loans according to whatever makes sense because we are constantly testing. We will also look at overdraft account. And this clean credit in topics that are relevant to our customers. I'm not just offering products because I want to increase fees or NII. But with a better knowledge of customers trying to focus on existing customers, I mean, of course, we do not -- of course, we still want to deal with customers that are not in-house. But we are looking at Payroll clients that we know their consumption dynamics and credit dynamics.
And certainly, we always welcome clients that are not connected to our ecosystem. And finally, we will increasingly try to connect to different points in our ecosystem. We have a very broad system. We have our returning company, which is focused on renegotiation of loans. And this could be a source of new clients because of the healthy clients that we recover could be part of our ecosystem. We have auto finance and the answer, in a nutshell, is yes. We will continue with collateralized business. We do not want to step on the brakes, but we will grow more in non-collateralized businesses. This will have -- this will occur in time.
We will grow more in other portfolios when compared to NII. I do recognize that. So part of our consumer finance and SMS -- SMEs, we will have a full margin, together with the acceleration that we will post in the fourth quarter. I hope I answered your question.
[Interpreted] Now our second question comes from Mario Pierry from Bank of America.
[Interpreted] Congrats on your results. There is Mario Pierry. Congratulations on your results.
[Interpreted] Yes, yes, we can hear you now. It's okay. Yes.
[Interpreted] Okay. Let me try for the third time. I would just like to get a better understanding because you are showing an appetite for cards that increase, you are gaining share again, but there are still some uncertainty about the profitability of the industry giving the regulatory changes that are coming up soon. So what do you expect in terms of the regulating agency, Mario.
[Interpreted] That's a great question. Thank you for giving me the opportunity to talk about that. That is a common topic, I would just try to give you a brief version of it. And if you feel like I didn't answer you completely, you can ask again. We are actively participating in all of these discussions. I am personally involved. This is a topic where all CEOs got involved. And this is a good thing because what issuers have been doing throughout the year since February was to promote a technical debate.
We are not advocating in favor of our own business model. Many of us have an acquiring business. So we are not talking about fostering the issuer and then hurting the other side. We went to strike a balance that is sustainable. The balance is instable -- it's unstable. It's not sustainable. I mean revolving credit interest rate is very high. It's not annualized, as you all know. But the headline is bad. The government is not comfortable, and they are right. So -- and I'll say that now the agenda is converging even because of that 90-day deadline of the regulation, as you mentioned.
We are being very provocative. We are insisting on a technical debate because we are saying that there has to be a balance in terms of revolving credit interest rate, that interest rate has to go down. But the entire funding structure of credit card has to evolve as well. And this has to do with no interest-bearing installment payment, which is something very unique of Brazil. It is important for income, but it has to be gradually balanced because we don't want the economy to be heavily dependent on it.
We always suggested a phasing out. And I think the discussion is moving in that direction, which is good. And not only we suggest the reduction of interest rate of revolving credit, but the introduction of interest-bearing installment payments at competitive interest rates. So we start with a very unbalanced risk when you only charge a small portion into a design of a revolving credit that is out of finance, I mean, the portfolio is funded with installments. And the entire chain, we have a balance between noninterest-bearing, installment payments that is phasing out with time and interest-bearing installments that will be available to all issuers. So this agenda is evolving. I mean, it's far from being concluded, but we've been part of that discussion.
And the regulating agency, which is the Central Bank, will converge to a design similar to what we have in mind. And we will wait until the end of the year to debate again. We -- and going back to the beginning of your question, we are not concerned. Well, now that you are resuming your credit card sales, there might be a regulatory event. Yes, there might be, but we believe that this will be a positive regulation rather than negative. That's why our growth has been well calculated in the brackets that we wanted and with the customers we wanted. I hope I answered your question.
[Interpreted] Now we have our next question from Eduardo Rosman from BTG Pactual.
[Interpreted] Congrats on your numbers. My question is about Payroll. Santander is gaining relevance for quite some time with Olé and now that you incorporated 100%. And more recently, there has been more intensive growth.
Yesterday, we saw a large digital bank and now seeing 1.35 rate a month, which is much lower than the market. The argument is the fact that they don't have to pay fees. Santander has a larger exposure vis-a-vis its peers. So how do you expect to compete in this area and how can you retain your customer and how can they become more loyal? How can you retain your clients in-house?
[Interpreted] Well, thank you, Rosman. This is a very good question. We've been talking about that for a year that we are growing fast. I mean, always looking at our risk target. I will answer in parts. We have a proportional presence higher when compared to our competitors in what we call private payrolls. We have thousands of agreements with companies throughout the years. I mean, this is not a recent sprint, but throughout the years, we built a very strong franchise of private payroll.
This gives us a lot of pricing flexibility because the ceilings from the public sector, especially social security is not part of our business. What we are doing is digitalization, meaning that in the app of the Santander client that has its payroll with us, they can hire up a payroll loan with just a few clicks. So our experience in terms of private payroll is top in the industry, and this is very relevant in our portfolio.
Also, we have a lot of things with governments, city halls and state governments, we also take care of public payroll. I mean the bank you mentioned, I mean, it happens in several other banks, but it's more prevailing in terms of INSS, which is more relevant. And you're right. Here, we have a historical share that is lower compared to our competitors. And we noticed that in the growth that you saw and the market saw in the last 12 or 18 months was very much based on INSS.
So what did we do differently? We looked at our stores, I mean, other banks have different models, but we redesigned to look at what were our vocational stores that could cater to these pension fund clients or INSS clients. We crossed a lot of information. And in the last 12 months, we redesigned the system. So several stores that were not vocation to serve pension fund clients, we redesigned that. So in practical terms, we are making more efficient use of all of our stores. And with that, we don't need banking correspondents as much as we needed in the past. Not only we acquired 100% of Olé some months ago, but we are integrating systems. Our efficiency gains and productivity gains and the capacity to interact with customers will increase substantially.
And on the side of [indiscernible] via Olé and a little bit of the bank with the ceilings of INSS or the pension fund there will be renewed downwards. And I think this is an anti-client fund, and we have to explain that to the government.
At the end, we are redesigning the way we remunerate this [indiscernible] to keep the business feasible. So the best answer to your question is whatever we do, we will do with profitability. We are not here to be part of a market share sprint race, but our market share is increasing in Payroll rather than falling. With that, the return equation for [indiscernible] becomes more complex. This topic, it's more related to [indiscernible] rather than the banks that bear the risks.
[Interpreted] Our next question is from Yuri Fernandes, JPMorgan.
[Interpreted] Congratulations on the growth of demand deposits and the quality of the portfolio. My question relates to product spreads. We are seeing a drop in product spreads, something like 20 [ NIIs ] quarter-on-quarter. But you said that you are willing to take more risk to grow SMEs and to grow consumer finance. And I think that demand deposit and the migration towards retail deposits should help you with the margins. So my question is, what do you expect? Is this correct? Do you think that NII should improve going forward? And if yes, when and how much of that would improve?
[Interpreted] Well, you're right in your assumption. This is what you expect to see. Certainly that -- the speed of portfolio growth will dictate how much we will be able to resume spreads. SMEs bring a positive drive and all of the deposit base, both demand and time deposits and the growth volume will impact that calculation.
But it's difficult to precise the date, day, month and hour, what we are doing is that we are in the right direction with price discipline, looking at price discipline, and it's important that we increment this ratio in a satisfactory way. So this is precisely what we are doing. But now we have to look at the movement. We -- when we saw demand for SMEs, we made progress in this direction. It is this balance of the portfolio that is important.
So this trend are more or less precise, I mean, we have to look at our dynamics, which is doing very well, and we have to look at the market dynamics, both in terms of loan and the available money -- available for the bank.
[Interpreted] This is a very good question. I would like to also add to Gustavo's point. First of all, we already talked about cards. We are all familiar with the dynamics. To start selling cards, and then the card is activated and then the client starts to use the card at first. Almost everyone is paying. So you have a non-funded card portfolio, which is good.
And part of that, after the second or third quarter, part of it is financed in the card and the margin is high. So part of what you're saying it's almost already contracted, but it's natural that it takes some time. So when we resume card sales, we are not thinking about the 2023 calendar. But again, it's 2024. And again, I'm not looking to do the same thing I did in 2021. We do not want to strike the benchmark, but we want to resume it, but it takes some time until we reach an ideal level.
The second comment is on large corporate, maybe I know that we have lots of questions. But large corporate, there was a slight drop in the second quarter and a slight drop in the third quarter. Yes, we are not here to increase the portfolio, but in large corporate, the ROE topic is very important. And with fixed income capital is returning and we are one of the largest distributors in the market, and this is very healthy if the market goes back to that, but prices convert, so we were even more disciplined in this quarter.
In the first quarter, we experienced a very strong growth quarter-on-quarter for large corporate because the capital market was closed. We were very agile. We were in limits. We were very quick to do business with clients.
And in the two 2nd quarters, the ROE topic becomes more relevant. I don't think that we will continue to have minus 0.6% or minus 1%. We will continue to grow, but we were not going to grow for the sake of growing because we want to deliver some ROE to the market, and we want to reach our previous historical levels, okay?
[Interpreted] Now our next question comes from Gustavo Schroden from Bradesco BBI.
[Interpreted] Congratulations on that delinquency improvement -- NPL improvement. It's quite visible to everyone, the fact that you decided to be more selective. Now I would like to focus on your strategy and your business composition despite the fact that you talked about retail and some consumer lines that should be resumed very quickly. I would like to focus on the high-income clients.
Do you think that the retail story, especially lower income retail or open sea, do you think that the strategy has been exhausted? I think people got a little hurt in this last cycle. And we believe that we will now tend to see banks trying to strike a better balance, especially with mid- and high-income and also SMEs that you talked a lot before. How do you see that rule and whether we should see a better balance going forward in this -- when it comes to this composition involving SMEs that can be confused, mixed up with retail and mid-income and high income just because I want to understand the dynamics in the financial system because I believe it's going through a very relevant transformation.
[Interpreted] That's a great question. This gives us the opportunity to talk about our strategy. Yes, I talked about high income, and I've been talking about high income in the last quarter. I know that I'm not the only one because it's just natural that the whole market is looking at that. That's fine because it raises the bar and then we can serve our high income clients better. I talked about that because a year ago, we decided to focus in this line because this had to do -- I mean, with our portfolio management.
It's not that we didn't have any ALL with high income because that also happened allowance for loan losses. So to summarize, high income, I think it's in the right position. I mean it doesn't mean that we don't have anything else to do. I mean that is, it's in the right fit. I mean we can manage the client 24/7, and NPS is just one of the KPIs. But what are we doing in terms of low and mid income, which is very important, and we will talk more about this in the coming quarters.
A year ago, we were rethinking the offering. The differentiation of high income we are doing as we speak. The same thing for low and mid income. For mid income, we already have a clear vision of what we will do. It's not just related with cost to serve, but footprint, how to deal with people, digital, also mid-income. It's a little bit of everything. They take loans, they invest, they have credit cards, they travel, but there are several groups within mid-income. But we are very close to fit into that our model.
Certainly, when we disclose the numbers for the fourth quarter, you will see that we have a very relevant agenda. This has always been a relevant business for us. Van Gogh is our brand for mid-income, it has always been a relevant business. It struggled in the last -- in the past 2 years, of course. But the low income that is special for us and for the entire market, I think this is the major challenge.
I don't have all the answers, but we are asking ourselves the questions now. We are asking all the questions now. And some of the answers we already have, the most obvious answer that everybody knows, but it doesn't hurt to say it again, you can only afford to have a profitable low income, if we drop the cost-to-serve to a very low level, 10% or 20% lower, it's too little. So if we do not redesign -- not only the value proposition, also the value proposition and brand positioning and differentiation, but I also have to deal with the entire infrastructure that doesn't all have to do with the branch or the store, but I have to look at the entire chain.
So in lower income, we have the agenda that involves digitalization, offering simplification. Simplification of the offering is crucial. So we have to write down exactly what that means for next year, we intend to come up with a new positioning and a new way to serve low-income clients. If you ask me whether this is a topic that affects the entire industry, I said yes, we all had our growth cycle in low income. I mean low income had 5 or -- 4 or 5 accounts, 3 or 4 active cards. They got their granted credit from us and from digital banks, I mean, throughout '20 and mainly 2021. So these clients were heavily indebted and this became a problem for all banks. And I don't think things will go back to what they were in 2021 because the market already knows that this client has a limit in terms of their income and in terms of top line generation for banks.
So as credit fosters an amount of income to the financial market, this model will not return because the client doesn't have the capacity to generate this income to the system. So the answer will come from those who know how to capture that income but with a much, much lower cost to serve. And I'm talking about drastically lower. And so I hope with that I answered your question.
[Interpreted] Yes, super clear, Mario. Congratulations on your work regarding NPL.
[Interpreted] We will now go to Thiago Batista from UBS.
[Interpreted] My question is about the efficiency of Santander Brasil. When you run some comparisons, you see digital banks with better efficiency ratio and Santander got 43% efficiency. There was a slight drop, but still much higher than the historical levels of the bank, which was around 40%. Well, given your margin position, et cetera, this is what impacted the efficiency ratio of the bank. But when I look at Santander's efficiency in IFRS, looking at Spain versus the group. So I'm talking about in the last 9 months. So your efficiency ratio is better than the entire bank's efficiency. There are much better players. And the international bank is worse than Santander Brasil. In the midrange, do you think that we expect to see anything relevant in the next years?
[Interpreted] Well, it is true. From time to time, we have to challenge ourselves, but Brazil reports efficiency vis-a-vis the international bank, maybe differently, the accounting metric. Even with IFRS, it's not the same as IFRS 9. But efficiency usually moves hand-in-hand. If we had an improvement of 9 basis points in terms of [indiscernible] . But we are still at around 42%. So without giving guidance, but directionally, what we are pursuing is certainly to go back to -- go to the level of 30% and some. It will take some time because certainly, it's an equation that involves nominator and denominator. But the answer, I gave a while ago, takes us to that equation because we will have to do, I mean, our low income cannot be a business that generates negative figures.
So how do I bring that to a breakeven? And how do I make that a profitable business, but not in a sprint or a macro cycle but in a sustainable way. I can only do that knowing how to work on the top line, but also knowing how to control expenses. The expense agenda will help us in terms of efficiency because it's the only way I can respond to all of my sustainable and continuous business.
Every segment has to be profitable in the mid- and long range. And there is the side of revenue. So this quarter, we are already showing that in fees in some aspects of NII, even though in some aspects, it's lower than we expected, but when we see the conversion of client NII and market NII that continues, I mean, to drop and soon enough, it will go back to being positive.
At the top line, we will have an improvement and a relative improvement and an expense discipline in low-income segment, we will reduce that in a stronger way. And so the expense and costs will go down, and we will resume our efficiency ratio that we had in the past. This is a consequence of the strategy and management. This will occur. We will have an improvement in our efficiency ratio in the near future.
[Interpreted] As a quick follow-up, you talked about SMEs and this is the focus of the bank, then you would like to double it in size. SME, it's a very broad thing. What will be your focus more towards the S or the M.
[Interpreted] When I say that no growth when I talk about growing, I'm referring to it directionally. I mean, growth cannot be linear. So I would just give you the same answer. We are splitting this in 3 major blocks. SMEs, they are very small companies, but there are a lot of those. There are 1.3 million very small SMEs. And even in this segment, we are looking at ways of sub-segmenting them to be more assertive in our offerings, and we will talk more about that at the end of January during our next results earnings results call. We are looking at very small SMEs, small, midsize. I mean the small SMEs or the medium SMEs are approaching the small corporate, small -- I mean the large SMEs.
Mid SMEs, they demand more loans, but we have to look at working capital. So we were not focusing too much on the mid SMEs because we just wanted to have a more assertive offering, large SMEs. We are growing and very small ones as well.
So the answer depends on macro competition. This is not a profitability topic, the way that we direct our SME portfolio is going, we want to keep that profitability equation. We do not disclose ROE for this portfolio, but they are quite high, and I hope I have answered your question.
[Interpreted] Our next question is from Daniel Vaz from Safra Bank.
[Interpreted] Mario and Gustavo. I will still refer to efficiency based on your store efficiency and that Work/Café. Can you share about your economics? Do you have a branch like Work/Café and also your older stores. I know that you cannot disclose all the details, but I would just like to have a bird's eye view whether this has proven to be a good move or it is bearing good fruits. And then I have a follow-up question, but I will stop here for now.
[Interpreted] Here you mentioned Work/Café. And I will just talk about the physical distribution of the stores. Last year, we started a move that we hadn't yet started. I mean until 2021, we just grew the number of stores because there was a lot of room to occupy in geographies where we were not present. We took the bank to some interior locations. But in 2022, already looking at an efficiency agenda with a new survey model because with the pandemic, the relevance of the stores lost momentum. We were still investing a lot in the digital side to do it better.
So last year was the first year that we shut down some stores. I mean that was a very conscious move with a lot of technology with heat map, CRM and with constant communication with our clients. We shut down more than 150 stores last year, and this number will double this year.
So between last year and this year, we will have been closing about 460 stores when compared to 2021. I mean, not only we haven't done anything like it before, but this is more than 20% of our total number of stores and this goes back to that topic of efficiency. Again, we are doing that in a very scientific and surgical way because those customers that still go to the store, they are served by stores nearby and then we increase efficiency.
Right now, we are looking at the topic of stores in a different way when compared to the way we look at it in the past. It's going to mean that we're going to let go of all of the stores. I mean, the bank talks about digital bank with branches. We do believe in having the right stores in the right location, be it to serve clients, to cover the traffic or to cover the micro region around the store.
We have stores located in regions with small stores, a small trade. And also, I mean, some stores do not have a lot of traffic, but they are important in terms of brand positioning. And the Work/Café is one of these examples. So -- but what we have in the Work/Café, but we don't have that many. We don't have dozens of Work/Cafés, but we have just a few Work/Café well positioned, and we've been testing the model in some locations.
I would say that certainly, our investment per store is higher, just going to one of these stores, they are very cool stores, and they cost more. The payback of that part of it is not as measurable. It has to do with positioning. And for those of you in São Paulo we just reinaugurated our flagship in the JK Shopping Mall. And we will have a few more of those.
So we will decide where we want to have flagships. Work/Café is a different concept of flagship that has the flow with coffee, which is very cool. We have also a little bit of that coworking aspect. We try to engage not only customers digitally with WiFi. We are investing in that. The figures are good. And I'm not going to say, I mean, that's not what you're suggesting. I'm not going to turn all of my stores into Work/Cafés in Brazil. We have that in other geographies as well, like in Chile, but we will strengthen the model.
[Interpreted] Okay. That's very clear. My next question is for Gustavo. We saw your profitability numbers for the new vintages. I just want to understand, I mean, this quarter, there was a slight decline. But when we look at the line of consumer finance and payroll, the line was higher. So it seems to me that some other lines that are less collateralized that bear more risk profitability is a bit more difficult. Would it be too naive of me to assume that? Or should I look at other lines?
[Interpreted] We haven't seen any change in performance from the second to the third quarter, nothing relevant in terms of performance in all indexes or ratios. No major changes to tell the truth. So no, I don't think we can, what you said can be reinstated, everything is under control. We see that in the ALL dynamics. And there has been no adjustment or material adjustment in the portfolios for performance. The performance is exactly as expected. So -- certainly, there hasn't been any major changes.
But we've been constantly testing things. We are testing the borders to see up to what limit we approve it or not. Sometimes we say, can we stretch the border a little bit? We are happy with [ LA ], especially in personal loans. It's a clean product, a bit more nervous. We are constantly making some adjustments. But these are just fine-tuning. In fact, I would say that in 21 months, we haven't made any major moves, but 90-some percent was at the end of 2021, and all of the rest was just fine-tuning.
[Interpreted] Next question is from [indiscernible] from Itaú BBA.
[Interpreted] And my question is about portfolio growth. And I think Santander, it would be high triple digits and the numbers will be also benefited from the lower Selic rate. We see credit quality in -- for corporate not yet sold. So with this backdrop, I just want to understand what is your view in terms of portfolio growth? What are the main challenges you expect to see and whether in 2024, we should expect some similar growth or something more to the level of 2023.
[Interpreted] Thank you, [indiscernible]. Well, this is a challenge for me. As we do not give any guidance, you are asking for a soft guidance. But thank you for your question because it is a good question. Well, we will certainly not pursue a portfolio growth. We are not going to look for a more timid portfolio growth. There are several factors that are out of our control, like demand, capital markets, macro regulation, we do not control all the factors, but those that we control do not point to a more timid growth, but we will try to grow on an equal footing. We do have capital base. We do -- we master our portfolio.
We are producing new vintages where we want and we are just digesting the portfolio of old vintages. So there is nothing that lead us to say, okay, you have to be more conservative in 2024 when compared to 2022. This is not a debate that we have in our risk committees. What we have, and it's important that we calibrate that. [indiscernible], we are not going to pursue growth for the sake of growth because I want to show you growth every quarter.
I mean you will not be linear in all portfolios. And every quarter, things will be different. But of course, we will try to grow some percentage points, of course, because on average, we will try to grow with a focus on profitability and focusing of not getting in ALL, of course, some allowance for loan losses will be present, but we want to have the profitability that is desirable for the market.
We want to grow more than what we're growing with a more -- even more diversified portfolio, and this is an important point. We will also focus on low income with credit, but less dependent when you look at what we did in 2021. So I hope I answered your question.
We will now switch to English for our last question with Tito Labarta from Goldman Sachs.
I guess my question is on the profitability of the bank. We did see an improvement in the quarter, but you're still benefiting from a relatively low tax rate, more normalized tax rate of 30%, you still would be around 10% ROE. So just think -- I assume you expect it to improve from here. But what do you think is the sustainable level of ROE? And what are going to be the main drivers to improve it from here.
Thanks, Tito. It's a very good question. So Gustavo, please feel free to add. So directionally, as we're talking a lot of things about the direction we are taking for sure, as you said yourself, we're looking at improving the teens to the -- from the low teens, almost 10%, depending on the way you look even close to 10. We published 13.1. It's better than last quarter. It's not enough. Obviously, we want to get much better as we continue to progress portfolio results and obviously, the whole client experience surrounding all this.
So we're targeting to get back to the high mid and then higher teens as we've been delivering for many quarters up until 2021. Again, it's a very different mix, Tito, I'm sure you know that. So it's not going to be the same kind of ROE than we delivered in 2021, for example, which was our record ROE, the 21-plus. We believe we need to get to the high teens. We will work to get to the high teens. We will get there eventually. It's going to take quarters, but we're going to get there.
There's no target number, which otherwise will fail. We'll get to the mid-teens first, then the high teens. Then we're going to work even more towards getting back to the 20, 20-plus number. And this is going to be the progress we're aiming for. So I touched profitability in many aspects in my speech in Q&A today, you noticed.
So we're going to grow with profitability. We're going to get the low-income mass market segment to become from unprofitable as it is right now, and it's obviously hurting our P&L to breakeven soon enough and then profitable. And all that together with middle income, high income, SMEs and then the wholesale business as a whole, which is already obviously profitable. All that together will point to the same direction.
That's very clear to management. It's very aligned with the group. The group is very focused on ROE as well, which is good because we have the same agenda. So capital, profitability, choosing the clients to do to sell, to securitize, all that is in the top of our agenda. So we're going to get there. It's a matter of time.
If I can ask a follow-up along those lines, maybe a little bit more backward looking actually in this case. Going from that 20-plus percent ROE you had a few years ago to today. And I know you're dealing with high interest rates, the credit cycle, I mean, you appropriately slowed down loan growth ahead of that. But if you go back, the sharp decline that we've seen in the last couple of years, do you think it was all cyclical, just where you are in the credit cycle, where interest rates are? Do you think the competitive dynamics of the industry have overall change that have maybe caused some of that just to think about what those dynamics were that caused that compression to compare today to where you were back then?
Well, yes, it's a profound question. I believe Tito as many things, it's a combination of different factors, different things that happen altogether. Yes, competition increased a lot up until 2021. It kept increasing, but every one of us accelerated their credit portfolios back in 2021, the incumbents, the digital banks, that is part of the problem because we all accelerated, and we all did it together without knowing, of course, of each other.
So I believe some of the model changed, and I touched it a few questions ago. So I think the model has changed from a low-income mass market, which is hugely profitable for the whole industry. I don't believe that's still going to maintain because it's impossible that everyone is going to make a lot of money with low market -- low-income market, the way we did -- at least the way we did up until 2021.
So part of the evolution is the model change. But like I said, today, my ROE would be maybe 1 point or 2 points better. If I did not have some segments like low income, which are providing a negative PBT. So when I solve the equation on low income, that naturally will bring me back not necessarily to the 2021 figures because they were not, in my view on a forward-looking basis sustainable, but back to a profitable -- and more profitability with a profitable low income segment.
Regulation evolved as well. So from '19 to '20 and then '20 to '21, there was an evolution on the capital hedge and some other things. There's the INSS cap on interest rates in Consignado and Payroll loans. So there are regulatory things, which also evolved, and we've got to handle that, whether via the third-party providers, the bank correspondents via our own cost base.
So there are many evolutions altogether. But many things that we are doing or most things we are doing are answers to counteract those changes, competitive-wise, regulation-wise and even portfolio-wise, so when I tell you that I believe we're going to get back to the higher teens, I'm saying that because we are providing new answers to old questions or new questions, but we're working a lot on those new answers so that we can counteract what's happening competition-wise, regulatory-wise and even portfolio-wise. And I'm confident we are in [indiscernible] we are on track in that agenda.
[Interpreted] I would like to thank everyone for joining us this morning after this call, myself and the entire IR team of Santander Brasil will be available to clarify any further questions. Thank you so much. Have a very good day, and I'll see you soon.
[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]