Banco Santander (Brasil) S.A. Q2 FY2022 earnings call

Strategy Pillars - Customer centricity: Stronger relationship with customers, increasing loyal customer base, tailored offerings, and using Open Finance for better lending. - Efficiency: Reducing cost to serve, with cost to serve for digital customers down 30% year-over-year, and reducing lead times in mortgage and agri products. - Distribution: Expanding physical stores (70 to open this year), digital channel with over 500 million monthly visits, remote channel doubling business volume, and external channel poised for double-digit growth. - Innovation and Capital: Launched helpS assistance business, AAA advisory platform, Toro digital consumer brokerage, SX Integra supply chain financing platform, and acquired WayCarbon. - Culture and ESG: Focus on diversity, leadership proximity to frontline, academy with 98% certified employees, and Prospera Microfinance operation expanding.

Net profit amounted to R$4.1 billion, growing 2% in the quarter and almost flat in the six-month period. Total NII was stable with customer NII and fees performing strongly, while market NII and provisions were under pressure. Customer NII expanded at 28.9% semester-over-semester. Fees grew by 5.7% in the quarter. Loan portfolio grew by 2.9% quarter-over-quarter to almost R$470 billion, with individuals outperforming corporate, and core capital at 11.1%.

Guidance - Expect to resume expanding the portfolio in certain segments as signals are seen, particularly in wholesale and payments business. - Market NII expected to remain negative in 2022 but offset by customer NII growth. - Core capital to stay in the range of 11% to 12%. - Dividend payout to be maintained at a comfortable level based on profitability and risk weighted assets growth.

Risks - Macro environment impacting market NII and provisions. - Renegotiation risks with clients, including both active and non-active clients, but with 50% coverage and conservative presentation. - Potential impact of economic cycle on loan quality and provisioning.

Q: Regarding NPLs, should we expect loans acceleration this quarter and difference between IFRS and BR GAAP?

A: Angel explained that measures taken since September 2021 are showing first signs in flat balance sheet ratios, and the difference is in how provisioning is done between IFRS (more forward-looking) and BR GAAP (more factual). Mario reinforced that some portfolios like wholesale and payments are growing.

Q: Reconcile net income drop and talent attraction with OpEx?

A: Angel said focus on efficiency and growing costs below inflation, with personnel expense down 10% Q-on-Q. Mario added bringing people in with lower fixed costs and variable remuneration aligned with P&L.

Q: Impact of M2M on market NII and outlook for second half?

A: Angel said market NII will remain negative in 2022 but offset by customer NII growth.

Q: M&A opportunities with asset price correction?

A: Angel mentioned Santander has done 15 M&A operations in 18 months, focusing on completing the ecosystem.

Q: Details on renegotiation portfolio and outlook?

A: Angel said renegotiation goes across products, with 50% coverage and including active and non-active clients. Mario added omnichannel platform for renegotiation and new tools for self-service.

Q: CET1 ratio and dividend payout?

A: Angel said core equity Tier 1 to stay in 11-12% range, dividend payout comfortable with 20%+ ROE and growing risk weighted assets.

Q: Corporate loans trend and impact on consumer lending?

A: Mario said corporate loans expanded in the quarter, and consumer lending will resume expansion as signals are seen, with focus on secure portfolios.