Banco Santander Brasil SA
BOVESPA:SANB3
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Earnings Call Analysis
Q4-2023 Analysis
Banco Santander Brasil SA
The company has made strategic advances, emphasizing retail as a key growth driver. An impressive funding record, 1.5x more than the 2022 figure, indicates a significant investment shift onto the strategic agenda—originally absent. Retail, advisory via AAA, and digital brokerage with Toro are highlighted as vital growth vectors, with retail investment doubling in the coming years in ambition. The AAA investment advisory segment boasts an industry-leading NPS of 85%, reflecting top-tier customer satisfaction and advisor effectiveness with net inflows per adviser at a competitive 2.5 million.
The portfolio has shown diversified growth, particularly in payroll deductible loans and corporate and SME segments. Payroll loans saw significant quarter growth with disciplined credit cost controls. The agribusiness portfolio, with a goal to hit BRL 50 billion, surpassed expectations, reaching nearly BRL 54 billion, equating to 42% year-on-year growth and 100% compared to two years ago. Consumer finance is strengthening, holding a 21% market share with ambitions to reach 25%, and swelling loan origination in the vehicle segment reflects confidence in scaling operations. Card services also experienced an 11% increase in billings quarter-on-year, signaling a robust consumer spending uptick.
At the crossroads of technology and business, 95% of operations have now migrated to the cloud, with a complete transition imminent. This move underscores a commitment to efficiency and cost reduction. Investments are being made in generative AI, which holds promise for enhancing not only customer interactions but also product development and service innovation. A successful partnership with the Central Bank of Brazil supports the venture into banking as a service, aiming to further embed Santander into customers' lives.
Concluding the financial year of 2023 with optimism, the company is invigorated for 2024, bolstered by solid wholesale structures and a robust retail segment. Confidence in the new vintage portfolios and controlled expense one-offs set the stage for aggressive revenue growth and continued innovation. Particular excitement is directed toward consumer finance, which is expected to contribute significantly to the 2024 outlook.
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Good morning, everyone, and thank you for joining us this morning to join us during the 2023 closing results conference call. This event is being broadcast live from our headquarters in São Paulo. And as always, will be divided into 3 parts.
First, our CEO, Mario Leao will talk about the main highlights of the period and the strategies by which we will continue to direct our growth in the coming quarters. Next, our CFO, Gustavo Alejo, will provide a detailed analysis of our performance. And finally, we will have our Q&A session, during which you will be able to interact directly with our leadership.
Before we begin, I would like to give you some instructions. We have 3 audio options on the screen, all the content in Portuguese, all the content in English or the original audio. The first 2 options will have simultaneous translation. To choose your option, just click on the button at the bottom center of your screen to ask questions during the Q&A session, simply click on the hand at the bottom of your screen. Questions will be answered in the language in which they are asked. Today's presentation is now available to download from our IR website. Now I hand over to Mario Leao, who will begin the presentation.
Hello. Good morning, everyone. We are here live with you. It's 10:03. It's a pleasure to be with you again, closing in my second year in the leadership of Santander.
As we started with this new format the last quarter, I will try to present to you the first slides in a very direct and dynamic way. And then Gustavo will join me to talk about the numbers. We will try to conclude the presentation in about half hour because we want to allow 45 to 50 minutes for Q&A, depending on your interest. So we are here to answer your questions promptly. And then our IR department will certainly be available to ask -- to answer further questions.
Here on Slide 4, I would like to highlight a few key messages, revenue and our net income is also here. But we also want to focus on the consolidation of our messages for 2023 that just ended. Well, Slide 4 carries some key messages. First of all, this has been another quarter of margin growth. As a whole, we will show you more impressive growth in market NII. We also have growth in the client NII, but client NNI -- NII is the summation of margins on the liability and also asset side. I mean liability margin has the challenge that we will try to make up more volume. And on the asset side, we will try to show you several lines that are growing as well.
The first takeaway message is that certainly, we have a revenue recovery apart from NII. And looking at the portfolio diversification, as I've been stressed constantly, this quarter has been stronger. But even with seasonality, the quarter has been very positive in terms of fees. And I'll give you more details on how we go about that.
Our balance sheet construction has been more solid. We already showed you some of our balance sheet lines, and now we will elaborate on that in the fourth quarter, which consolidates our strategy, both in terms of portfolio diversification. Portfolio diversification has to do with assets, commissions and be less reliant on market credit. But it also has to do with diversification in the credit line, focusing on the customer base where we would we were growing less in the growth cycle, but we are growing more in products and client base.
And so the quality of our portfolio makes us very optimistic and excited. We are talking about that turnaround in the curve which happened in the first quarter of this year. And in the fourth quarter, we are very comfortable with the evolution of our cost of credit, cost of credit, and the relevant indicators of cost of credit, especially in our retail business is evolving. As expected, we had some one-off cases, and there was a one-off case. On the wholesale part Gustavo is not going to give you a lot of details on that as we usually do. do, and we did some special efforts, something that was one-off identified and therefore, the recurring cost of credit remains very sound with good prospects.
In terms of priorities, as we've said before, we've been very consistent with our message. We will be constantly focused on customer base monetization. We have a customer base of almost 65 million customers. We have to try to make them more loyal and focus on principality, which is our focus. Our strategy of being the principal bank of our clients is something that is here to stay, and it's very important for the bank. We will talk a lot about customer base monetization.
We will also talk about the consolidation of our strategic business, and I'll give you some figures about -- in terms of what we've been doing since half -- the second half of 2022 and how things interact.
In the next 3 slides, well, we chose 3 slides to talk about customer centrality. I mean, our strategic agenda, which has to do with our delivery quarter-on-quarter is mostly focused on customer centralization. Here, we have a summary of some figures related to customer centrality.
On the left-hand side of the slide, on the bottom part, we have a chart that shows the evolution of our NPS. Back in 2017, almost 7 years ago, Santander was one of first large bank to talk about NPS. We released our measures. We talk to the market about it, certainly other competitors talk about NPS because we're not the only ones, but we've been talking about it for at least 7 years. And I would say that this past year, we made great progress. I mean there was good evolution on the individual side.
And in terms of the business accounts, I mean, this is our highest NPS in the company segment. And looking at every channel, we also evolved substantially. So my message to the market is that we are valuing NPS as one of the major KPIs. It's not the only one, but we will continue to talk to our clients in an omnichannel approach online and on the physical channel, and we certainly react based on their feedback. And that's why we were able to evolve in our principality agenda.
We are also improving our profitability for the new vintages. So clients from the new vintages have had a good profitability performance. And here, we are showing that in the year of 2023 alone, we evolved I mean, of course, newer vintages evolve much better when compared to older vintages. But we've been very fortunate because we are able to choose clients with whom we want to work with. And the way we work with these customers, allow us to improve profitability. We are also improving and making progress in terms of loyalty. We made important progress, and we will look for more in 2024. But this is just to show you that we are on the right track, we are evolving.
And we are also focused on being the principal bank of our clients. That's why we're focusing on principality. Some of the main leverages are payroll, we've been talking about. We are a major bank focusing on payroll, and we want to enhance that even more our relationship with companies and large corporate, and also the high income segment. I will elaborate on that further on. And investments, I will give you more details about our or diving to that important strategy and also expansion in revenues.
Also talking about Select, I've been talking to analysts and everybody asks, what are you doing that is so different? Everybody is talking about how income, everybody has their own responses and our brand is select. But we do believe that we are doing something very special and very particular. Maybe I can give you some more details later on during the Q&A. And our IR team is also ready to give you more information.
In 2022, we decided to have a special position with a Select or high income segment. We are working very closely to our customer base. Our loan portfolio mean 27% of the individual's retail portfolio is already represented in Select. We are growing 27%. Our customer base is growing more than 50% year-on-year. I mean there was -- we had our public mission, which is to reach 1 million Select customers by the end of 2023, and we surpassed that figure. Now we reached 1.2 million Select clients. And now the new target is 2 million. So this is what we will work towards.
So we want to do this in a profitable way. I mean our loyal select customers are more loyal than the average. That's why our revenue has been increasing throughout the years. Another additional figure that has to do with Selective. First is that we are launching a new initiative still running as a pilot. But I believe that this will be an important step towards our goal for 2024.
We are expanding the concept of AAA. AAA is our investment advisory service. It's evolving quite well. It's already bothering other competitors. So now we are launching the concept of AAA patrimonial. In fact, this is the version for insurance and consortium of our AAA. So AAA patrimonial is something that we will grow this year, and we now have a large number of advisers.
First of all, they are linked to the Select store selling in a very personalized way selling insurance and consortium to our high income clients. The movement we did last year was very exciting. And so we believe that we will have an important agenda going forward.
Now moving to retail, but now going to the other extreme because we were talking about how income. Now we are making some important advances in what we call mass retail. So mass retail, which is the large base not only of Santander, but all of the other incumbent banks our agenda has been quite diversified. We are looking for more loyalty, greater principality. We're evolving with NPS, so we are doing that quite well. But doing more of the same or more of what we've been doing with just marginal evolutions, it's not going to work.
So in our last call, I told you that this is a segment that is generating negative results to Santander. This is not something exclusively of Santander, other banks are also facing challenges. But certainly, we want to be profitable in every segment. We do not want to have a bank when one segment funds the other. And we do have opportunities to really focus on mass retail, and we are working diligently so that in the next few months, we can also show some good evolutions in our offering. This will be a more remote and digital agenda.
So the mass retail segment will also combine digital experience and a greater capacity to relate with human beings through our remote channel, well, over the phone, but a phone call that evolves to chat and regenerative AI. So this will be a year of evolution in the way we deal with mass retail. This simplification agenda is very robust. We have had a reduction so far of 31% of the products in the portfolio and in cards alone, that number surpasses 50%.
So what are we doing in practical terms? We are cleaning up our offering, making it simpler, making it more user-friendly. And with that, we will be able to increase engagement with clients, especially in terms of mass retail. Clients do not need much. They need a good card, a good account, good credit offerings. Therefore, we are looking at essential -- an agenda that is based on the essentials. It has to be simple and easy to understand.
Now moving on to the investment agenda, which is one of strategic building blocks. We made important advances and I'll show you the numbers of how we grow in terms of volume and results. Retail is a driving force behind our growth. Of course, we want a lot more. We want to extract a lot more, especially in terms of companies but also SMEs. We have a funding record, which is 1.5x more than what we did in 2022. And sometimes in previous years, that number was even negative. So in terms investments was something that was not part of our strategic agenda, but now it is. And certainly, we are ready to look for better multiples like we did in 2023. But that shows that we are on the right track.
One of the important segment is our AAA. It's like an office, which focuses on advice -- investment advisory. The NPS is 85%, which is the highest NPS of the industry. NPS here is measured by third parties in the market. And our net inflow per adviser was 2.5 million, and this is a very competitive number if we compare it with other offices or other peers. But we show that here, AAA is a major driver, total our digital brokerage firm I mean, last year, I showed you that we grew and we grew a lot throughout the year. We get -- we posted great results, so Toro has a very relevant agenda. So more and more, there will be an integration between Toro and our Santander stores. We have independent brands, distinct brands in our private, as I mentioned before, we posted record numbers in terms of funding and results. But we still have more room to grow. We want to double our private segment in the coming years, and we are ready to do that.
Now moving quickly to our strategic agenda. We've been accountable to the market. And in the third quarter of 2022, I decided to tell the market something about our strategic agenda. We were still in the first year of our legacy portfolio of older vintages. So on the one hand, there was a part of the portfolio that we need had to be managed. And some other portfolios because we knew that for some time, it will go down. Of course, we didn't want that, but we knew that for a year or 1.5 years, we would have to take care of that.
But on the other hand, we chose some other businesses in the third quarter of '22 to the that we would put focus on growing those businesses. So this is just a quick accountability of this business. I'll start with payroll deductible loan. On the left-hand side of the slide, we see that we are growing again this quarter. We are growing in all the payroll deductible loan lines. We are growing on the private side, and which is an asset percent in there. We are doing that with a very strict control of cost of credit. We are putting focus on payroll deductible loans. And I'm very pleased to see that we've been consistently delivering good results.
Also, agribusiness, we made important deliveries. One of the things I told the market before is that we wanted to reach BRL 50 billion of our portfolio of agribusiness products. We are talking about ag products. Not only we arrived at BRL 50 billion, but almost BRL 54 billion, meaning that we were able to grow 42%, if you look December '22 vis-a-vis December '23. And once we compare with December 23, we reached almost 100% growth. That means that we doubled our portfolio, which shows that we put a lot of relevance in this business.
Our consumer finance is the largest consumer finance company in the country. At the end of the year, we had 21% of quota. We want to grow that. The ambition is to reach 25, and I hope we reach that number this year. But we finalized that with a loan origination record, and this is a historical volume. So this is a very strong sign that appears in our results. But this just shows that we are really thinking big in terms of our consumer finance operation.
About cards, already mentioned our evolution in cards. We already posted great evolution in cards this quarter. I mean if you look at billings, I mean, billings in the quarter year-on-year in the fourth quarter of '22, that was down vis-a-vis the previous year. In the third quarter of '23, it was growing 7%. In the fourth quarter 2023, it is growing at 11%. So we are growing 2 digits in terms of billing, given that the average spending increase in our customer base. And also, there is the fact that we are selling more cards now that in the -- when compared to the first quarter of the year. So what we saw in the fourth quarter of 2021, which is our record sales of cards.
Now we are resuming to a level that is almost 2/3 of that level. And this is a very adequate level for us. Again, we are not trying to have a sprint in terms of card sales like we did in 2021 because this is not how we wanted to end '23 and going forward into 2024. But we are happy with the sales of cards, considering our customer base and our -- and the results will appear. And also principality with Esfera. We will talk more about Esfera, but Esfera is progressing very well.
In terms of companies, the agenda is quite positive. You will see the volumes further on, but talking about strategies for large corporate and SMEs, there was a very good portfolio expansion, we grew 2 digits year-on-year. So we want to continue posting a strong performance year-on-year. But the focus will always be in profitability. We could grow much faster on the large corporate side. But with principality being the focus now, we will certainly compete with the capital markets. And so we have to be more selective in terms of what we want to include in our balance sheet, and we have a very good performance in several rankings. Number one in consumer finance, foreign exchange, et cetera.
So on the side of SMEs on the right-hand side of the slide, our growth agenda remains very clear. We grew more than 100% quarter-on-quarter after growing more than 3x last quarter, that stable agenda of the portfolio where we are still looking at the right moment to accelerate we were growing stronger after the second half of the year. And the numbers are here to prove that. So we are already giving clear steps in that direction.
And now to conclude my part, I will talk about technology and innovation. And certainly, this is connected to everything I said before. We don't have technology on the one hand and business on the other hand. Everything is business and technology is a major business center. The operation areas are large business centers.
We have lots of figures in the slide. I will just mention some. 95% of our operation already runs in the cloud. We are converging to 100% very soon, 100% of our operations will run in the cloud. This is a very good figure because this generates efficiency, cost reduction. Therefore, we are very pleased to be -- to have such a strong cloud agenda. We are constantly investing like the rest of the market is as well. We are investing in generative AI, generative AI can be a major response to chat and remote channel. But it can also give us a good response for coding, the development, generating new businesses. Therefore, we are moving quite fast in this agenda. We are also focusing on innovation.
Our first innovation with Drex was very successful. We are making good progress with Central Bank of Brazil. We are also focusing on banking as a service. We are certainly trying to expand this agenda because we want to have Santander more present with our customers. So we want to be a part of our customer experience on a day-to-day basis. We are also maturing our agenda business domains. We have 27 business domains that we introduced from '22 to '23 and now from 2022 to '24.
We are also merging that more intensively with our product agenda. So this is domain, those large communities that operate end to end in our businesses is quite consolidated in all of the remuneration, all the incentives that are quite aligned. We continue pursuing our efficiency agenda. We are doubling the number of transactions and while at the same time, we reduced by almost half the unit cost.
And with that, I will turn the floor over to Gustavo, and I'll come back during our Q&A. Thank you.
Thank you, Mario. Good morning, everyone. Let's start the results section with the NII. We posted NII growth of almost 5% year-on-year with good progress in client and market NII. We recorded a good performance in terms of volume as well as in terms of funding, both of which benefited the client NII in 2023.
In Q4, we saw the continuation of some positive trends seen in Q3, which led to a growth of 4.8% in NII quarter-on-quarter. One of these is the gradual growth in retail credit, which will be detailed in greater depth in a minute. The other trend is the reduction in the Selic interest rate, which benefits our funding costs, as Mario mentioned. Market NII shows a progressive evolution, which I have been commenting on over the last few presentations and which is in line with our expectations. The performance of spreads in the full year reflects our strategy of greater selectivity, which began in 2022, and which is in keeping with the risk profile of new loan originations.
Lastly, regarding NII, I would like to highlight the positive year-on-year evolution of the net interest income. In the fourth quarter, as you can see, we posted growth of 12.3%.
Now I'm going to comment on some data on the evolution of our loan book. We increased our expanded portfolio, growing 9% over the year, as mentioned. We grew in all lines of business, with significant expansion in retail for individuals, vehicles and SMEs. During Q4, we achieved a strong performance in cards for individuals. This result was sustained by seasonality and the gradual resumption of card sales, the resumption and improvement, which has proved to be more assertive and with satisfactory quality levels and loan origination. This performance was accompanied by continued consistent results in payroll deductible loans, mortgages and farm loans.
Actually, Mario has commented, and I'll stress that, we should also highlight strong growth in every business, up 10% in Q4 and up 42% in the full year. In auto loans, we posted growth of 5.5% and quarter-on-quarter, marking the best performance of the year. This improvement more than offset the impact of the sale of the PSA portfolio in the previous quarter and it reflects the strength of our strategic partnerships and the positive momentum of the market.
In SMEs, we continue to boost the growth of our portfolio after a relatively stable first half year which is in line -- totally aligned with our stated strategy of increasing the share of this business in the total portfolio. The 5.2% increase in the portfolio in Q4 is something to be highlighted here.
On the next slide, I shared details on our funding. As we have highlighted throughout the year, we have achieved a solid performance in funding which shows our commitment to the expansion strategy and the search for a more balanced mix between wholesale and retail.
Our funding, as mentioned grew by 15% in the full year and 2.6% in the quarter, with a highlight going to time deposits and exempt securities. Our loans to deposits ratio stands at 92%, the best level in our history. Here, we present the performance of our fees, which each quarter reflects the evolution of our business in a very clear and consistent way with positive performance in practically all business lines. In Q4, we recorded growth of 7% on the back of a 6.5% growth in the previous quarter even with the positive seasonal effects that happen in cards and in insurance business in general, showed very positive dynamics, which reinforces our strategy in fees, aiming for greater transactionality or more transactions with our clients.
We now move to talk about the quality of our assets. This quarter, we have the effect of the increase in provisions for the specific case and reinforcement of provisions for the wholesale cases. If we disregard these effects, and the lower volume of recoveries after 2 quarters of record performance, we have a stable growth ALL in relation to the previous quarter with no signs of deterioration. We maintain the downward trend in the cost of credit, which closed the year at 4%. We also continue to see a downward trend in the renegotiated portfolio in relation to the total portfolio, reaching 6.3%, as you can see here. This 120 basis points reduction over the year reflects the better quality of recent vintages, especially in retail.
On the other hand, NPL formation posted a slight increase due to higher delinquency in the renegotiated loan portfolio. But this is something that was expected as we move forward in the process of purging this portfolio.
On the next slide, the next slide provides a more detailed overview of our delinquency indicators. We recorded a sequential drop in short-term indicators for both individuals and legal entities. I would like to highlight the 110 basis points improvement in the 15 to 90 past due loans for individuals. The long-term indicator, 90-plus, there was a slight variation of 8 basis points due to the renegotiated portfolio, as I've already mentioned. In fact, the 90-day default rate in the SME segment, on the left, also reflects the same impact. In short, we continue to have quality indicators under control with the possibility of some volatility throughout the year due to the renegotiated portfolio.
Moving on to Slide 19, please. Here, we present the evolution of our general expenses, which rose 9% in the quarter and 8% in the full year. Personnel expenses were affected by the collective bargaining agreement, which had an impact on the fourth quarter as a whole. In addition, in the full year, we also had the 8% carryover related to the 2022 labor agreement. Administrative expenses increased in the quarter, largely driven by seasonality.
The main factors behind this growth were strategic investments in marketing campaigns to take advantage of the end of year period and data processing due to the increase in volume in more business. The seasonal effect also affected our efficiency ratio, resulting in a deterioration of 80 basis points. To continue the new breakdown implemented last quarter, we present the performance of our expenses segregating product expenses and business expansion expenses from recurring expenses. We can see here that our annual growth was mainly concentrated on expenses focused on business growth, which we consider fundamental to supporting our strategy of delivering the best experience to our clients.
And to conclude the results section, we present our income statement. As a result of the dynamics discussed throughout this presentation, we recorded net income of BRL 2.2 billion. Compared to Q4 '22, total revenues grew by 11% and net income grew by 30%. Managerial profitability, excluding the specific case reached 12.3%. Our core capital reached 11.5%, a level that we consider adequate to continue with our long-term growth strategy. We ended 2023 with a more positive trend despite fluctuations in specific provisions and seasonal expenses, typical of any given last quarter. Credit performance was favorable and was accompanied by an increase in revenue generation. We expect this trend to intensify along 2024.
With that, I'll end my part, and I will give the floor to Mario for his final thoughts.
Thank you, Gustavo. I'll take just one more minute of your time to close, and we'll have the Q&A. Big message is here in this conclusion page, Page 22. In terms of context, 4 main messages, revenues are expanding. And we have a very positive expectation for 2024, both in terms of clients and markets. So we are optimistic. We are excited with the revenues line.
The business portfolio continues to be diversified. That's the second big message. We'll continue to be very focused on liabilities and on expanding the fees business, which is also -- which was always a very positive for Santander. We want to grow it even more.
And also diversification is related to credit, which is the third point. We'll continue to pursue portfolio growth to gain market quotas in several or -- several products and segments and do it smartly so that we can grow the portfolio and with profitability.
And the fourth context message is our obsessive quest for client principality. This is the strategy of Santander for 2024. In the coming years, everything we do will have to be linked to the client's agenda as it is, and we'll strengthen this even more. The drivers for this. I mentioned this already, but I want to stress, we are repositioning ourselves in retail, both in mass retail, but we'll talk more about during the year. We have a lot of deliveries for Q1 and mainly Q2 '24. We'll end the year in a totally different position compared to where we started. We're very excited about that. In Select high-income company segment, now mid-income segment and some SMEs. Well, these are segments that we're specializing in even more.
We are making our service to these segments even more regionalized, more tailored and in cards, we're taking another important stride forward with an obvious focus on principality and the ability to serve clients. We're very excited with this resumption in cards. We're doing this in a smart, precise and technical way with an in-depth personalization, understanding each client and each cluster.
We have a consumer finance growing again in Q4, it was already showing some strength. We sold PSA, yes, but Q3 was good and was quite strong. We are very excited with what consumer finance will bring us in 2024 and beyond. We also have consumer finance that is not related to vehicles. And the company's segment again -- it's growing again in retail system mid of last year. We are doing this in a very calculated and balanced way. We're very excited with that. And in terms of corporate, it's about profitability and discipline, but we have an important franchise that was established decades ago.
So in a nutshell, now officially closing 2023, we are, when we end 2023, we start 2024, very excited with the business dynamic. There are some points that Gustavo mentioned in terms of ALL in wholesale, no concerns with retail, which is very important. For the last 2 years, we worked to have comfort and I'm sharing that we are very excited with the portfolio and the new vintages. In terms of expenses, we have one-off situations, but the franchise makes us very excited to start 2024 with full steam and with the top line growth that we have been showing in a consolidated way.
With that, I will stop, and let's start the Q&A. Thank you very much.
Thank you, Mario and Gustavo. We will now start the question-and-answer session. From now on, all analysts will have the opportunity to ask questions. Again, if you want to ask a question, just click on the raise hand icon at the bottom of your screen. We will answer questions in the language in which they are asked. We kindly ask analysts to ask only one question so that everyone can participate. Our first question comes from Thiago Batista with UBS.
Good morning, everyone. My question refers to loan origination. In the fourth quarter, we saw that the bank had a strong origination in the auto segment. I think it was the best quarter ever in terms of vehicle origination. And we also said that the bank is already issuing cards with a good evolution in the portfolio. So this return to origination, is it something that the bank feels comfortable to go back to several segments? Or you still see a concentration in high income alone or income to meet income. How do you see origination in the Santander portfolio?
Thank you, Thiago. It's a pleasure to talk to you. I will start and then Gustavo will just add. We've been talking to you in a very linear and consistent way, meaning that throughout the years, we've been very selective in terms of the portfolios that would -- we would accept to keep them flat and CP and pure CP was in that category.
The most -- I mean the cleanest and the more direct loan, especially if you look at average to lower income. We knew that for 2 years, these portfolios would be flat or may be down. And this would be compensated by other businesses. Some of these portfolios I mean, we are investing in CP FGTS and personal loans and cards. I mean, we are focusing in all income bracket. Of course, we are looking at high income, considering the bulk of select. But in the payroll area, that's a very good leverage to get to know clients better. I mean we are not doing payroll just now. We have been doing it for the past few years.
But -- in this past year, we saw a clear evolution in terms of our capacity to understand it better and to make that a more loyal client. And then with that, we could sell like cleaner products for low and mid income. And so payroll is a very good example that justifies that.
Other products, we have been growing starting in 2023 and more aggressively in '23 -- '22 and '23. But today, I mean, we still have that -- we are still in that comfort zone that we have before in the same portfolios that we're growing in '22 and '23 like payroll, agri business, large corporate, we never stop growing. It was just a matter of profitability. But since the second half of the year, we also started growing other portfolios like consumer brand, finance, small and midsized companies were 2 proposes that we decided to step in the break.
We could have been more aggressive, but we chose to take care of the portfolio we had, take care of all of the origination assumptions, so that starting June and August, we would put more emphasis on that. So we start 2024 with the idea of maintaining what was growing and consolidate things that were started growing in the second half of '23. And in the customer base that we are operating, but we are careful enough to do that with the right clients, not seeking what the growth we had in 2021, but we want to grow in these lines as well. So come 2024, we will have greater diversification with different products, et cetera. I hope I answered your question.
We now have a second question from Gustavo Binsfeld from Goldman Sachs.
Camila, Can you hear me? My question relates to provisions. During your presentation, you said you didn't see any deterioration throughout the quarter. But when we look in the long run, you we've been posting 2 years of high provision. So what is your view towards 2024? Do you believe that this year of transaction -- transition for the cost of credit or you see a trend towards normalization? Also, if you could comment on the corporate segment, there was a very specific case in that past quarter? Or whether you see any other specific one-off case in 2024.
Okay. I'll start, and then I'll give the floor to Gustavo. We -- I mean the -- your question has 2 parts. One is the cost of credit. And the other is the absolute value of provisions. Okay, during the presentation, and I would reinforce that again is that we've been posting improvements in the cost of credit. I mean in the -- in that percentage, we've been posting an improvement in that line. So we still hope that this figure continues to improve going forward. So cost of credit has been improving, especially in this last quarter, once you remove that very one-off event, and Gustavo can comment on that.
So we still expect further improvements. I mean, even though we're not going to give you any guidance, allowance for loan losses, of course, there is the effect of the cost of credit per site. So when we accelerate the portfolio, as we've been doing starting in the second and the third and fourth quarter, and we hope to do the same towards 2024. I mean with a better portfolio, our ALL, we just move along in parallel, but we just hope that the cost is lower when compared to the average, but we continue to pursue a lower cost of credit. So ALL has a behavior that talks with the -- talks to the cost of credit. So by the same token -- cost of credit, we continue to go down. So yes, that's precisely it.
And you asked about that one-off case in the corporate world. We understand that there wouldn't be any other relevant cases. We look at every case individually, and we make the necessary position adjustments. So -- looking forward in 2024, we don't see any relevant event in the corporate world in our portfolio.
Brian Flores with Citibank. Welcome.
Thank you for the opportunity to ask questions. When about efficiency? How should we think about the income ratio close to 23%, close to 22 and in your review, what line should contribute more pertaining your goals.
I'll start it then I'll turn the floor to Gustavo. Brian, thank you for the question. And for the opportunity to speak about income and expenses, there are 2 drivers here. Undoubtedly, we want to expand. And I started my conclusions talking about revenues. So of course, we are super focused on expanding, but expanding the revenues line item in the right way. We want to grow our revenue, which is the strength of our franchise, which is measured in the top line. We want to grow our revenues consistently. It will never be linear.
The world is not linear -- but we want to grow the top -- the revenues line. And I want us to be sustainable. I don't want to have hiccups in revenue. I don't want to have regrets. Of course, we can make mistakes, but we are careful to grow in the right way in each one of the segments and each one of the product portfolio. So part of the answer is, yes, we want to expand revenues.
In terms of revenue, of course, we'll have some increase in expenses. I don't want to give any guidance, but it is only natural because the business will require more volume and more expansion. We are hiring people as we speak, in some of the subsegments that there were specializing in. I mentioned mid-income and small companies small enterprises. We are specializing even more. And that requires more people. These are individuals or companies that need to be covered by people.
We want to be truly multichannel, omnichannel. So in some lines of expenses, those will grow. But the question is, how will we fund those in the last quarter? We had to have a turnaround in mass retail. We had to reduce our base of expenses materially between 30% and 50%. That will give me the funding to invest where I need to invest. So I'll have a potential increase in expenses, but it must be a lot smaller than the increase in revenues, so that we'll have the crocodile mouth.
And Gustavo, if you want to add?
That's exactly in 2024. We are seeing a deflation process. This will benefit us. We'll have a more efficient yields of the expenses that we have, the spending we have benefited by inflation, which is different than in the previous quarters. And this gradual and solid increase in revenues. So we see a positive evolution in terms of the level of efficiency. But it's basically what Mario said. It is very important to increase, expand our top line to gain speed and traction in resuming efficiency, okay?
Next question from Mateus Raffaelli, Itaú BBA.
Thank you for the opportunity to ask a question. I'd like to explore the expectations for client NII. I know that the funding spread post is down, but we see Santander with more appetite for clean lines vehicles. We expect growth and renegotiated portfolio as well. So perhaps you could elaborate on what you're expecting for client NII for 2024, do you expect a flat NII or dropping or expansion given the factors that I mentioned before?
Thank you, Mateus. I'll start. Well, directionally, like I said, nothing is linear. You should not expect anything linear from us or anybody else. But we want to grow the revenue. I spoke about this in the previous question. Of course, the revenue has some subblocks, but the NII is a fundamental block. It measures the strength of different types, together with fees.
In client NII, it's even more precise. It measures the strength of the franchise. So we are very focused on that line and in the sub lines that make up client NII. You mentioned and I also mentioned in -- that in Q3 compared to Q4, we have a challenge because the Selic interest rate is dropping. As much as we increase the volume and spread as a percentage of CDI, if the Selic rate falls, it's a detractor. It's positive for the economy as a whole. We want to have a reduced interest rate, but for the liabilities line item, it will be a challenge. It will be a challenge for this year.
You can do the math you want, but anything between 20%, give or take of lower Selic rate in 2024 compared to 2023 is a challenge that we will have and the whole industry will have in terms of liabilities. What we can do is to expand even more our investments and our abilities agenda. I have spoken about how this is strategic for Santander. Some of those will offset with volume. I have some hedge in volume. We'll try to be pricing efficient as we try to be efficient in everything. And we'll offset that with credit NII because you mentioned we are more constructive in several line items. I mentioned, we want to have growth. It will not be equal in all portfolios, but I would like to have all portfolios growing over 2024, so that we wouldn't have any portfolio dropping or flat. And if we take care of spread on the side of assets and growing volume, sometimes we'll look for 2-digit growth, sometimes we'll grow just like the industry, but we'll pursue relevant growth in all credit portfolios.
If we take care of the spread, we'll have a compound effect, and we have a good evolution in the client NII, credit NII that I think will be more than enough to offset the challenges we'll have given the Selic interest rate, not because of the strategy on the contrary because of the interest rate.
And you mentioned, well, Mario, there are different speeds of growth for the portfolios. So we have payroll deductible loans, SMEs, mortgages or auto. So the speed of growth among the portfolios will dictate the NII. Of course, we have to be very disciplined about pricing and volume. And the trend is that we'll be able to effectively balance the NII with the given challenges.
But if we grow the portfolios in the speed, we believe we can and if we increase volume, we will be able to cope with this variable. So in a nutshell, of course, we're going to have a positive evolution in market NII, which is the implicit question here. We continue to expect it just like you all do, an evolution in market NII. It will happen. It is a given. And we expect to also evolve client NII with a net effect on one hand because we are going to have an anchor in funding given Selic. We will try to offset in the funding business and we'll have a net positive in client NII on the side of assets. And I hope I have answered.
Now the next question comes from Daniel Vaz from Bank of Safra.
I would like to hear your view about something that has been very recurring, which is payroll loans. There is a pressure on rates in and also an additional potential of a major digital player that wants to add share in 2024. First question, how do you advocate in favor of the product? Are you increased origination? And second question is, how do you see a potential increase in portability if the bank is expecting that? And how do you intend to defend yourself, maintaining cost of client, et cetera?
Thank you, Daniel. That's a recurring question about payroll deductible loans, and this is a very relevant question because this is part of the industry's portfolio. And for us, this is quite relevant. If you look at our expanded loan portfolio, our payroll portfolio is about 10% of our expanded loan portfolio. And that means this is a very relevant portfolio, and we are happy with it.
How do you see -- how do we see the pricing and the competitive dynamics playing out? I mean, first of all, you mentioned the price selling pressure. It's very specific. It's not lower, but it's very specific related to INSS and as Santander, and I can certainly also speak on behalf of the entire industry, we don't think this is a pro consumer agenda. I mean the decisions that were made in this past year in terms of limiting the rate leads to origination volumes. And this is a fact, I'm not speculating the origination volume in practice is coming down a few million every month, maybe BRL 2 billion, even more every month. So if you multiply that by 12 months, it's BRL 25 billion to BRL 30 billion.
And the INSS loan, which is the cheapest loan available in the market. I mean it competes with mortgage, mortgage loan. I mean it's certainly the cheapest kind of loan given to retirees and many of the potential borrowers have to resort to more expensive loans. So this is an agenda that does not favor consumers, and we are trying to tell the authorities about that. So I hope this year our advocacy is more successful. I mean there -- I just take this opportunity to say, I mean, we look at it, and we are very sad because we know that consumers are being hurt.
Having said that, we are trying to rebalance our pricing equation because we do not want to let go of INSS. As I said, we grew a lot in this past year, 1.5 years, we gained momentum. And we grew the most with INSS. And I can assure you that, that was very profitable. So we are trying to rebalance the equation of fees. I mean, as with the rest of the industry, there is a great relevance coming from the external channel, the banking correspondent. We continue to have them, but we reduced the relevance of the external channel vis-a-vis the internal channels. So in practical terms, we are investing more to use INSS in our special stores.
We are making advances in terms of our reading of INSS audiences. We are churning some of our major stores into stores that focus on INSS loans. We are -- I mean, anyhow, the whole agenda is not very favorable. And this affects the entire industry. So I mean if you look at the historical format, therefore, we are trying to do it more things internally trying to keep our relationship with customers at different levels of profitability.
In terms of competition from other digital banks, this is something like with any other player that is a new entrant, we are looking at those very carefully. But they -- the relevance of these banks are not yet affecting us. I mean we respect them. We think that their move is legit, but we would try to monitor that very attentively. But our agenda has to be focused on payroll and non-payroll clients. And we want them to look at Santander as their main bank with specialty steel -- specialty stores with omnichannel or multichannel approach. Not only for payroll, clients should look at Santander and see that we have a whole basket of things. I can have everything in one single bank. So we want to be a simpler bank and a more effective bank, as I said earlier.
Daniel, it is precisely bad. We are making progress in the relative share of other banks is being reduced year-on-year. So there is an agenda of reduction. We are leveraging our digital footprint with a very strong agenda and we are also using our proprietary channel. Therefore, this is a move that we are already engaged in. In general, for the payroll portfolio, but we are also being more aggressive in other portfolios where we -- there was a higher dependency relies on third parties.
We are moving at the right speed. But certainly, there are some market challenges like you said it yourself, but we are ready to defend our portfolio with these movements of lower Selic rate. Just to add another important point. We have INSS with payroll. We have private loans, and we have payroll deductible loans coming from the public sector. So there are pricing and competition dynamics that are different. But we are very pleased to say that we are evolving in all of them. So we do not want to rely on a single one, even though INSS is quite relevant. We do not want to rely on the government alone. Our agenda is very dynamic. So we're very pleased with the way things are evolving. That's why we are focusing on these lines going forward.
Our next question comes from Bank of America. And the question is from Flavio Yoshida and welcome. Good morning.
My question is about competition on your credit business or loan business. I think in the past few years, we saw not only you but other banks making adjustments to their portfolios. But now the risk appetite seems to be increasing. Therefore, I would just like to understand how you're getting prepared to face this more competitive environment. We see companies focusing on cards, ag and SME loans. And how is your feeling about demand for credit on the part of your clients?
Thank you, Flavio. It's a pleasure to talk to you again. Well, we are closely monitoring the competition dynamic. I would say that the speed and timing of this stepping on the brake has been different, depending on the bank in 2022 and 2023. Probably, we were one of the first, if not the first bank to say, okay, from '21 to '22. Performance is not good. So we would have to step on the break and then we would spend the next 2 years managing that. The fact that we were the first allowed us to manage that portfolio for a longer period of time.
So in the midst of 2023, we say in addition to all the businesses that we were managing that we -- that were a part of that case like ag, et cetera, we can grow in other lines. It could be secured or maybe not secured, but in terms of hyper-personalization and segmentation, now our capacity has increased substantially when compared to what we had in 2021, also because technology evolved and the systems evolved as well. Therefore, in 2024, we are eager to grow our portfolio. We are more eager now than what we were in 2022 and '23. And certainly, the market as I always looking at the same clients, and each one will pursue answers at their own pace.
But how are you going to deal with that? Well, maybe because we started sooner we have an advantage, and we will try to get better experiences vis-a-vis the competition. Again, we are focusing on principality, and the obsession is a buzzword for us. And we will certainly try to be the main bank to our clients.
And there are many other things that we have no time to mention. We have -- we are -- we focus on customer centricity. We, in fact, will have an agenda that prioritize the demands from our clients. And certainly, this will also involve having a very good and profitable agenda for the bank, but we will try to pursue a balance with a competitive dynamic, and this does not only pertain to banks or incumbent banks, but this is a competition agenda that involves the capital market. We never had any difficulty in growing on the wholesale side. We could have grown a lot more than what we grew. We -- there was just a drop of 0.1 percentage points and we will also talk about the extended loan portfolio in 2024, because it will be easier to talk to you about that.
But in terms of wholesale, it's a matter of profitability. There will be cases where we will be more of an investment bank, we will do a very quick portfolio rotation. And in the case that makes sense, we will include that client in our portfolio. It's just a matter of -- it's not just a matter of having more appetite, but the focus -- I mean there is more demand coming from retail.
Of course, there is demand from the wholesale side. But there is probably a delay in terms of major projects, major investments and even in M&A agendas because they demand acquisition investments. There was a large case in the first quarter. I mean, in that churn of quarters. But this hasn't been yet a very major inorganic agenda. So I hope that on the wholesale side, we expect to see a better evolution in 2024, but we are well prepared to face that.
Let's move to our last question with Guilherme Grespan with JPMorgan.
Good morning. Thank you for your time and for taking my question. On our end, we'd like to tap into a different type of product. We spoke a lot about payroll deductible loans, and we're also talking about installment payment picks. We've seen some entrants being successful with a relevant contribution for their top line, particularly in the card business. If I'm not mistaken, you were the first, if not among the first, to launch the product in Brazil. We haven't heard so much about this product in the last 2 years. So I'd like you to share with us the challenges of the product, but what was right, what was wrong about it? And if this remains a relevant product for you. Thank you.
Right, soon after the government launched Pix, it was a very successful agenda. In 2022, we created Divide o Pix or Divide Pix. We wanted to connect a wire transfer with consumer alone. So we created Divide Pix. We have been growing in this agenda. The CP agenda also related to Pix, CP meaning consumer credit. And we did this calibrating with the risk appetite that was being adjusted for the new reality that we have to cope with in the right way, given the macro evolution that we had particularly in 2021. So we didn't want to grow it for the sake of growing because it was a new product.
But it is a product that has been on our shelf for 2 years. We had no deployment implementation challenges. The big challenge is how fast we want it to grow in pure personal credit, because we reduced the client base that we wanted to operate with. We started operating with clients in the scale from 1 to 10. We were operating. continue to operate with clients scored 9 and 10 in our rating scheme, each bank has a different one.
But just to give a dimension of how sensitive we are. And even in the more sensitive range, we were able to grow this in personal credit, including Divide o Pix and in the card basis we reported here. So we believe that this line item will evolve, looking forward. It's not specifically very relevant, although it started some time ago. But with time as Pix evolves, we want to be head in hand with the evolutions of the Brazilian Central Bank and so that we can engage clients more and more with us with installment Pix or other products. This is not so relevant yet, but we expect it to grow together with the personal credit or CP agenda.
To speak less about the product and more about the client, we want clients to be served by Santander in all different ways. If they want to do with via FGTS, the workers' severance fund, that will be good. I prefer clients to finance a product that is better for them than a product that has a higher spread, but that I will have that operation, and I will not get the principality of the client. So we want to understand what is best for the client. And in personal credit, will speak -- we'll speak less about product and more about clients. But the installment Pix is a reality, and it will be more and more relevant for us and for the industry.
With this, I would like to thank you all for joining us this morning. Immediately after this video conference, myself and the entire Santander Brasil Investor Relations team will be available to answer any remaining questions you might have. Thank you very much. Have a great day, and see you next time. Again, thank you very much, and I hope to see you in the next call.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]