Banco Santander Brasil Q2 2025 Earnings Call Transcript

Quartr
Provided by Quartr
July 30, 2025

Key Takeaways

  • Positive Sentiment: Net income for Q2 reached BRL 3.7 billion, up 10% year-on-year with a ROAE of ~16%, while expenses fell 12.5% QoQ to deliver the best efficiency ratio in three years.
  • Negative Sentiment: Net interest income declined 3.3% quarter-on-quarter due to market NII drag from higher Selic carry costs, despite a 1.9% rise in client NII.
  • Negative Sentiment: Cost of risk increased after adding provisions for court reorganizations and writing off lower-recovery portfolios, even though recent loan vintages show improving NPL trends.
  • Positive Sentiment: Disciplined balance-sheet management drove credit growth in high-return segments with consumer finance up 16%, cards up 13% and SMEs up 11% year-on-year.
  • Positive Sentiment: A 30% boost in technology investment cut infrastructure costs by 23% and cost-to-serve low-income customers by 11%, underpinning record NPS scores and app engagement.
AI Generated. May Contain Errors.
Earnings Conference Call
Banco Santander Brasil Q2 2025
00:00 / 00:00

Transcript Sections

Skip to Participants
Moderator

Good morning, everyone, and thank you for joining us on the results for the 2025. We are live from our headquarters in Sao Paulo. And as always, we will split this event into three parts. First, our CEO, Madhu Leon, will talk about the main highlights of the quarter and the directions for our growth in the coming periods. Next, Gustavo Alejo will provide a very detailed analysis of our performance.

Moderator

And finally, we will have a Q and A session. I will now proceed with some instructions.

Moderator

We have three audio options on the screen, all content in Portuguese, all content in English or the original audio. To select your option, simply click on the button at the bottom center of your screen. To ask a question, click on the hand icon also at the bottom of your screen. The presentation we are about to give is now available for download on our IR website. And now I'll hand it over to Mario to begin the presentation.

Moderator

Good morning, Mario. Good morning and welcome. It's 1002. This is the presentation for the 2025. I will start with the main highlights for the quarter, and then I will go over a few slides that depict the strategic numbers, and then we will have enough time for Q and A.

Moderator

As you saw before, our net income for the quarter was 3,700,000,000.0, slightly below the previous quarter in terms of ROAE is EUR 16,400,000,000.0, slightly below the first quarter, but nevertheless, with a positive evolution of almost 10% in net income and 1% year on year. Now looking at the main lines that we will elaborate further during the Q and A hour, NII was down by 3.3%, mainly due to market NII and an expected effect of the carryover cost because silica is higher and performance was slightly less positive in our trade line. Year on year was still positive, but we will see client NII with a positive evolution that shows that both assets and liabilities are still evolving in the right direction even though we are not growing the portfolio. So we started the quarter with a small positive evolution, more important than the added number. I mean, we had a relevant evolution in the quarter and some one off evolutions despite a flat scenario.

Moderator

But we show here that several of our businesses are moving in the direction we want, meaning that the franchise is evolving in several fee lines, and we are also growing fees despite a lower growth in the portfolio. That's what we're trying to do. We're trying to extract further productivity from our assets. Cost of credit, there was an increase in the quarter because this refers to some very specific portfolios. In the entire flow, we are seeing in the most recent vintages, things are evolving the way we expected, but we had to reinforce some of our portfolios.

Moderator

That's why our cost of risk increased. In terms of expenses, we had a strong delivery and positive delivery, not only year on year, almost 400 percentage points above inflation, but there was a quarter where there was a drop of 12.5%. And that's why our efficiency ratio is the best of the last three years. In terms of leverages, we are still very much focused on the same thesis, meaning building a more solid and resilient operation. We are still seeking for excelling management, our golden rules.

Moderator

And we are focusing in the areas where we want to operate. We are very disciplined in terms of executing our strategy. The result is not linear, but it is really earmarked to some particular regions. And we will continue to evolve in the coming periods, constantly seeking for our objective, which is to reach profitability of 20%, 21% in the years to come. And this can only happen with a lot of embedded technology with a continuous improvement of the journey and customer service.

Moderator

Now speaking very quickly about the customer journey because I could spend an hour talking about this. We're still growing our total customer base. We have almost 72,000,000 customers. We're also growing the base of active customers by almost 34,000,000. And in terms of principality, I mean, customers that choose us for their main relationship with the bank is also growing.

Moderator

Our NPS is increasing, has been increasing for both SMEs and individuals. Now we are continue on this growth journey. We are hitting record numbers in July, and I'll talk more about this very soon. Now speaking about how we engage customers in the margin even more, we already talked about our one app, which is a big leap of an app that is being deployed for a while. We want now to give you a more concrete number of how many clients are using the one app.

Moderator

But I would like to highlight a very specific point of one app. Not only this has to do with the centricity of the clients and the relationship with the bank because this is quite important. But the fact is that this ONE App was built with a very high conversational capacity, and that's why we are market leaders. In the past two years or two point five years, we were able to build a very new CRM platform that we call a customer interaction platform. And this allows conversations within the contextualized according to the moment that the client is experiencing, very personalized.

Moderator

Here, I have just some data for you. We have two forty five possibilities of conversation. Our response to the stimuli is much higher. Conversion is higher by 2.3 times. So with this pilot that we are now rolling out to the entire customer base, we are getting a lot more conversations with our clients.

Moderator

This is already embedded in our current version. We are transforming ourselves into a major wallet. We say that we want to be a bank of all accounts. So in this quarter, we are bringing the function of bringing our money or transergener, consolidated flows from other organizations. And all of this through Open Finance, we've allowed the banks to have the money, and then we will operate all the transactions through Santander.

Moderator

You don't have you don't need to have an independent wallet, but you can operate through the Santander wallet. And with that, you consolidate all your banking operation. We also introduced new payment experiences, and this is performing quite well. Our NPS is 86%. This is one of the highest NPS.

Moderator

With peaks alone, this is increasing by 17 points year on year. We have a very specific well, meaning that we are evolving in our payment journey. Payment is certainly the most frequent contact moment of our customer. We are very much focused in this area. We are advancing with very good results.

Moderator

Speaking about four of our main businesses, I will highlight some very briefly, and later on, we can give you more details. Our consumer finance still makes us proud. We have the largest consumer finance in the market, but it's also the most digital, the most modern. We have half of electric vehicles funded through our consumer finance operation. The journey is quite simplified.

Moderator

And this is a great lever of fees. Our consumer finance, being this robust help us with our insurance segment. We made important advances with insurance, and this contributes to increased fees. The fact that our consumer finance is growing more after a first quarter that was a bit more timid, this really shows that we will grow in a robust manner, and we'll be able to contribute with better margins. In terms of cards, we are still very successful in our strategy to grow.

Moderator

More than half of our portfolio is earmarked to high income. Of course, we also have lower income customers in the card segment. We grew 13% in average spending in the quarter. We have last products, meaning that the journey is more simplified and more efficiency. So the journey of cards, you will see when we talk about fees that this has to do with principality, results and recurrency.

Moderator

In terms of SMEs, there was I mean, we promoted a revolution a few years back. We removed the experts from the stores. And now we talk about a bank that stepped out of the bank, meaning that, in fact, we removed the traditional concept of a manager that sat behind a desk just waiting for the enterprise clients to visit the store. But now we increase the specialists by almost 30%. They go around the region with an iPad and a map of calls.

Moderator

And now they can perform four more calls than in the past, but more than the number of visits. We want deep and more personalized visits, so the customer is more connected to the bank more ever than before. We are growing principality. And with that, we are also increasing transactionality and results. I mean, we haven't been talking much about the next topic, but I would like to refer to two fee lines, which are very relevant, more than BRL 1,000,000,000 and near, for us.

Moderator

And then we believe that with some effort, this number could also double in the next coming years that and I'm referring to premium bonds and consortium. Now you see here the base of BRL 100,000,000 in terms of revenue. And premium bonds is a business that has been consolidating over time. And this is now being engaged in a digital journey with a high consumption of customers. So these are the key businesses that we wanted to highlight.

Moderator

We believe a lot in these businesses. We are diversifying in different lines, and we are counting on several billion barrels coming for credit cards, insurance and all of that to be more diversified and to have a better outcome. And now to conclude my introduction, I wanted to emphasize our efficiency agenda. Efficiency is more than our expense account, but efficiency means the way we are transforming the operation in our business, and none of them will be possible without technology. I'm not just embarking technology in our strategic discourse, but technology has been increasingly important.

Moderator

Technology and business, we don't talk about business and technology. We talk about technology driven business. And now we are increasingly talking more about business demand. But I would like to emphasize three pillars. The first one being our digital transformation.

Moderator

We are enhancing the experience. We created the one app. Not only this is a new app, but a new journey within the journey of the actual app. These are different components that we are building together with the group. So for the first time ever since Endeavor Brazil, we'll start benefiting from being part of a large group.

Moderator

We are building entire platforms and components of the platforms together with the group. That means that Brazil is no longer doing its own or Portugal doing its own or The U. S. Doing its own app, but we are doing everything in a more coordinated fashion under the leadership of Brazil because everything that is new in the market starts in Brazil. But we have to invest less in relative terms because we're investing as a pull, but we are we can be more competitive.

Moderator

And with that, we can invest more in technology than all of the rest. We see you see here that we are investing 30% more in technology in with the base of the past few years. And of course, we are investing maybe more than in other assets of the bank. We are I mean, I mentioned our investment in cars, but this applies to all of the other products. Have many less products in the platforms.

Moderator

That means less training costs, less cost to serve lower cost to serve. We are already reducing by 23% our expenses in infrastructure, and we are already reducing by 11% the cost to serve a mass income. I mean, low income customers, I mean, the operation can only be profitable if we reduce the cost to serve and if we select the clients with whom we want to operate. I mean, in the short term, we were able to reduce that by 11%. The second pillar is the optimization of our stores or branches.

Moderator

We are not talking about closing branches or stores or expenses per se, But we just have to realize that the dynamics of customers today are different. I mean, only in the past two years, customers are reducing their visits to the stores by 30%, and this is happening across the board. And by the same token, they increased digital consumption by 38%. So digital is growing almost 40%, and the reduction in stores was down by 36. If we look back some years ago, the reduction will be even more severe.

Moderator

So that's why we need a different hub, a lower number of stores, but better stores. So we are transforming two stores into one or three into two. The terminology we use is merging of stores rather than shutting down of stores. So now our network of stores is serving our clients better. And with that, we increased our service by 35%.

Moderator

We are increasing the expenditure. And by the same token, we are reducing the noncommercial job that we do in the stores by seven percentage points. This is an ongoing effort, but we are removing the nonoperating jobs at the stores, and we are serving customers there. And the last pillar is AI. We've been talking about this for quite some time.

Moderator

The market as a whole has been talking about it. But Santander I mean, the group Santander Santander as a group decided to embrace AI. And the same thing goes for Brazil. So we created a new function, the CDAIO, the Chief Data AI Officer, and we already appointed this position in Brazil to help in our AI transformation throughout the organization. This does not only apply to chatbot technology.

Moderator

This goes across the board, legal, risk, investment advisory and also customer service. This is across the board topic. It's institutional, and we certainly embrace it. And we will tell you some cases to you throughout the quarter. There's one case I would like to say that once we are updating legacy languages like Java and others, in the past, we had to write new codes and look at it side by side and do things one by end.

Moderator

With GenAI now, we are able to reduce by 98 the time that it takes to do that with more assertiveness. And at the same time, our accuracy is much higher, 97%. I mean, it takes a lot less time to update codes. Our investment advisory part has the pitch maker. And by that, we reduced by half an hour just to put a customized pitch.

Moderator

We say I mean, it takes about thirty to forty seconds to do that with the assistance of GenAI. And Checkbox with something very classic that everybody talks about, we were able to reduce by almost 40% the updating time. And when we talk about mass income, that time is down by almost 60%. And now I'll call Gustavo to talk about the numbers, and then I'll come back to talk about our final remarks.

Moderator

You, Mario. Good morning, everyone. So let's talk about our results, starting with the loan book. The loan book reflects our active portfolio management and ongoing efforts to increase the profitability of all of our businesses. I would like to highlight the positive performance of cards, up 13% year on year of consumer finance, up 16% and SMEs, up 11%.

Moderator

In Individuals Retail, the portfolio remains stable, but there are some significant changes in the product mix. In addition to the positive evolution in the card portfolio with good credit quality and with greater transactionality, we grew 81% in personal loans secured by FGTS or investments and approximately 7% in real estate loans year on year.

Moderator

We reduced exposure in public and INSS deductible loans due to the factors already mentioned and disclosed. And similarly, we reduced our exposure in unsecured personal loans by 34% year on year in higher risk profiles. The variation in the large corporates portfolio, which was negative in the quarter, is basically due to exchange rate variation and reduced demand for forfeit or supplier risk, advanced payment transactions to suppliers, which was the subject of IOF discussion during the period. With regard to customer acquisition, we continue to follow our plan to increase the relative share of retail and funding through greater client engagement, building loyalty and transactionality. The growth in time deposits from individuals is very positive and growing faster than in other segments, demonstrating the evolution of our principality with our customers.

Moderator

Let's talk about NII. Client NII grew 1.9% in the quarter. Client NII includes credit NII, which remained stable in the quarter despite the lower average credit volume, as you can see here, but benefited from a better mix. Liability NII evolved positively with a greater relative share of retail deposits, as I mentioned just now, in addition to the effect of CDI on the base. Also in the annual comparison, NII growth, which is here, is higher compared with credit volume, which demonstrates discipline in pricing and optimization of the asset portfolio.

Moderator

As a result of a more favorable mix of assets and liabilities, together with CDI increase, spreads increased by almost 200 basis points. Actually, he corrects himself, almost 100 basis points in twelve months. Regarding market NII, the increase in the average SOLIC rate in the quarter had an effect on ALM, as already indicated in previous disclosures. The SOLIC rate at 15% raised in the last month of the quarter, and its potential to remain at this level throughout the year influences the results of this line item. However, it should be noted that the plan for the year in this line item remains the same.

Moderator

As Mario mentioned, our Market Making operation showed good results in the quarter coming from a record result in the previous quarter. Despite slower credit growth and the partial migration of fees from credit operations to NII. According to four thousand nine sixty six, fees have proven resilient, growing 1.3 in the quarter. Cards have benefited from higher transaction volumes and consortiums from improved performance, both due to the macroeconomic scenario and our focus on our sales force. Now moving to provisions. Provisions in the second quarter increased by 7% quarter on quarter. This variation is basically explained by two effects. The first relates to the increase in provisions for court reorganizations, mainly in the large corporate and agribusiness portfolios, which totaled approximately million in the quarter.

Moderator

So this is related to court reorganizations and the other party's clients for whom we adjusted provisions according to credit recovery. The second effect stems from the prepayment and a loss of operations with low probability of recovery in our view. The volume of assets written off was BRL 2,500,000,000.0, resulting in a reduction in the provision cost of around BRL200 million. On the other hand, we sold some other portfolios at a loss in the quarter, which practically offset this amount of 200,000,000 in full. The total amount sold from this portfolio at a loss during the period was EUR 3,800,000,000.0.

Moderator

We have seen improved performance of vintages in the individuals and consumer finance portfolios, which under the logic of risk return have been performing well with fewer late payments and less need for renegotiations. In the quarter, the percentage of NPL fifteen to ninety days fell to 4% from 4.1% in the previous quarter, reversing the upward trend in this indicator observed in the first three months of the year. As I mentioned in the last earnings call and as expected, the rollover of the real estate portfolio to NPL over 90% did not materialize, reducing this portfolio in the first range of late payment. In general, most mass retail products for individuals recorded a decline in rollover percentage rates in the quarter. Although the smaller portfolio in the period did impact the denominator.

Moderator

In the corporate segment, we saw an increase in NPL fifteen to ninety days concentrated on SMEs, mainly due to the macroeconomic scenario. Here, are operating with more collateralized products that serve customers well in this current context. We also saw an improvement in the percentage of the portfolio in the over 90 NPL, which fell from 3.3% to 3.1%, impacted by early recognition at losses of the operations, as I just mentioned. As for expenses, we will present data on the evolution of our expenses. We are advancing in our pursuit of efficiency, focusing on cost control and better resource allocation.

Moderator

We've been talking about this. During the year, expense growth was well below inflation and declined in the quarter, and that is important. We observed a decrease in personnel expenses in the quarter due to a onetime increase of benefits in Q1. We saw similar behavior in administrative expenses, which also contributed to an improvement in the efficiency index or ratio of 40 basis points in the quarter and two fifty basis points in twelve months. Lastly, I would like to share our income statement.

Moderator

We ended the second quarter with a net income of EUR 3,700,000,000.0, up 10% year on year and 80 basis points growth in ROE with CET1 at 11.6%. Revenues grew more than expenses, which in turn grew well below inflation. Our credit portfolio shows a better combination of risk return, supported by funding with better mix of instruments, customers and prices. This performance, given the current macro scenario, shows the discipline with which we have been managing our balance sheet over the last few years leaves us better prepared for short term volatility, confirming our pursuit of profitability that is increasingly sustainable. I will stop here and turn the floor back to Mario for his final statements. GOMES

Moderator

Thank you, Gustavo. So to end very briefly, I want to end with some strategic topics so we can start the Q and A session. You probably have a lot of questions. So four main messages. Primary relationship and satisfaction of our clients.

Moderator

We are customer obsessed, obsessed about the journey of bringing a better journey, bringing customers closer to us to interact with us in a personalized and digital way and more and more engaged. For that, we have unified and multichannel journeys, more and more powerful ones featuring a lot of embedded technology, providing the best payment experience fee. One app in the second half will be more and more a reality. Technology is our major lever for transformation and efficiency. We'll hear more cases and data showing our evolution.

Moderator

As I have said for some quarters and years now, we'll continue to pursue a powerful efficiency agenda when we preserve our franchise, reinforce our franchise in all of the fronts where we need to grow, for example, technology. But we seek an efficiency agenda with revenues growing correctly and expenses under control. And to when the business continues to evolve, we continue to grow and the businesses we choose to grow. And knowing how to fund the growth, we're just in some other businesses due to profitability and capital discipline. We have to stop investing.

Moderator

So we have an agenda of diversifying the portfolio with a better quality of our numbers, and we continue to believe in growing profitability and results in the coming quarters. With this, I will end, and we'll start the Q and A. Camilla? Thank you, Mario and Gustavo. We will now start the question and answer session.

Moderator

We answer the questions in the language in which they are asked. Our first question comes from Thiago Batista with UBS. Good morning, Thiago. Good morning, Camilo, Mario, Gustavo. I have a question about ROE.

Moderator

In this quarter, for the first time in a long time, we saw slight decrease in Mario. You have been mentioning that you aim to have a bank return much higher than it is currently. So I will link this with the Spain call this morning earlier today. They said that ROE could be 20%. But almost always, there was a comment about the Brazilian interest rates.

Moderator

If at 12%, we could improve this return. So my question is, what are the drivers you have or levers? What are the levers that you have? If the delivery continues at current levels, higher than expected by everyone, can we have this return on equity reaching 20% or not? Does the decline of the SAILIQ rate to a low double level would be essential for the ROE to evolve to 20%.

Moderator

It doesn't need to be 20%, but something higher than the current level. Thank you, Thiago. This is an excellent question, actually. Let me just put things into context. The group has talked about seeking 20% ROE as a profitability target for the coming years for the group as a whole.

Moderator

There are some businesses of the group that generate an ROTI, an OTE above 20%, some below 20%, which is the case of Brazil, some that are aiming to converge to 20%. That is the case of Brazil. It is true that the group is locking the interest rates of Brazil up close. Of course, the group is one of the biggest FDIs in Brazil. They have several hundreds of billions euros almost €15,000,000,000 of capital in Brazil.

Moderator

So it's only natural that the group will look at the macroeconomic issues in Brazil. The group has little or no concern about our ability to execute. But of course, the macro scenario raises questions and challenges and group investors challenge these investors buying shares of the group. They look at the portfolios. They look at the points of concern.

Moderator

And the high interest rates of Brazil is one point of concern, at 15%, CELIGUS, the highest in recent years. If it were just a snapshot and then dropping, well, it would be different. But we know it will continue at double digit, at least for a few years down the road. When it starts dropping, it will be probably in the trend of the year. And still, it will end next year at probably around 13%.

Moderator

So the concern about interest rates is correct for Santander Brasil investors and for group Santander investors. This is not good for anyone for the loan book, for the growth of the country and for the financial health of the sector. So I think it is an important point to be monitored and have to deal with Now how does that reconcile with our ambition that I stressed in the opening of this earnings call? We remain obsessed to pursue 20%. Of course, a higher SILIQ rate makes this challenge mathematically a little bit further out.

Moderator

The higher the SILIQ, the more expensive is the carryover of our bonds portfolio. Historically, we had an additional challenge with the high SILIQ, how which was how we fund our retail and consumer finance portfolios. Historically, we would do it with no hedge. And we've been saying this for almost a year. We have been saying that in the NII, we have, if not a full hedge, but a substantial hedge of the new loan origination.

Moderator

So we are working more and more neutral in the marginal origination, but we still have that stock, that inventory that was not hedged plus the bonds portfolio. All of that suffers when the interest rate increases. If we believe we'll get to an ROE of 20% in the coming years, well, it will happen. Do we need the Selic rate for that to happen? We'll work to not rely on the Selic.

Moderator

There are many other levers to improve our results. You mentioned efficiency. Absolutely, the efficiency agenda is important. I have a slide about this, and I talk about this with the buy side with you analysts. This is a big lever.

Moderator

It cannot be the only one. And it has to be well conducted because this is not an agenda of just cutting down costs. We have to do it thinking about evolving the primacy relationship and good service to our clients. But the efficiency agenda is a big lever. In and of itself, it will get us from high 16% to the 20%, which is basically growing 15% to 20% the current profitability. So efficiency, absolutely. And I spoke about expenses on the side of revenues. We can evolve a lot. We don't need to evolve materially the portfolio, although we will work to evolve the portfolio where it makes sense, but we can continue to work on the NII.

Moderator

We have a spread discipline, as Gustavo mentioned, which is very good, both in credit. We are growing credit NII better than we are growing the portfolio. And also in liability NII, we have been benefiting from a high SILI grade. And we have been doing a good work on the mix. We are bringing the bank's funding to be funded by retail.

Moderator

So the bank is being funded more by retail than wholesale. That's another source of profitability because it's an NII without capital. In the fees business, I mentioned about this, Gustavo mentioned about this, several line items evolving to an annualized base of two digits. We have to improve in capital markets, in insurance and continue the growth base of the rest of cards, consortium, premium bonds. If I have all the line items growing three around 3%, we will have an annualized fees account of two digits.

Moderator

That will bring us more efficiency of results and capital productivity. So yes, we continue to believe we can get there. Of course, the CLIC rate helps. If it starts declining next year, we'll have better results, and this will help us get our profitability closer to those 20 ROE. And we don't want to stop at 20%.

Moderator

This is just a threshold we want to hit, and the management is convinced that we will achieve this in the time horizon REPRESENTATIVE:] of the coming years. So thank you very much.

Moderator

Thank you, Thiago. Next question comes from Daniel Vance with Hi, Camilla, Mario and Gustavo. Good morning. Question relates to this landscape of cautious and the increase in the low delinquency. Well, I think what it is concerning is SME.

Moderator

And I think in the last twelve months, we saw some increase in SMEs. But when we look at some differences in the market, different activities and the financial health of SMEs, I think this is becoming more aggravating. So how much of that concerns you? I know that the bank is talking about being cautious for quite some time. So as part of your concerns, where do you see SME vis a vis payroll loans and reorganization of companies.

Moderator

Here, we still believe in the SME business. In our view, this is a great opportunity, but more than a large opportunity, we have about 7% to 7.5% share, and I think we can grow more. This means that we will grow above market in terms of SMEs. It doesn't mean that we will do that every quarter because we will continue to be cautious in the way that we allocate capital, and we place some of that growth in SMEs. At the end of the day, certainly, we want to be a more profitable bank until we get to 20% to 22%.

Moderator

But we continue to believe in that SMEs. Macro really affects not only SMEs, but all of the other industries. I mean, immunity, the scores is macro And SME, the SMEs are certainly affected by an interest rate that begins at 15%. And certainly, that leads to higher spread costs in addition to government lines, but so the risk is higher now when compared to Silica nine. But even then, we continue to believe in SMEs.

Moderator

We believe that this is one of the areas where we should expect to grow more. And that means that we will continue to be cautious like we are in all the other portfolios. But certainly, we want to seek for growth in SMEs by granting credit or even with through government lines, we want also to get additional guarantees. All of the rest of the things that we can do with SMEs, not only loans alone, our most profitable portfolio, and I said that last quarter, is the portfolio of SMEs with profitability way above that 20% that we have in other portfolios. So we have to know how to learn with the how to grow with the right transactionality, with floating business, fees business and the principality of that SME customer is very important.

Moderator

Sometimes they do not ask for loan. I mean, this SME is self funded by a great margin. We have a lot more deposits in SMEs rather than the loans. Means that we continue to evolve. And this is a self funding business, and it's much more profitable.

Moderator

So the direction won't change. Certainly, we will be more cautious in the margin as we are with other portfolios. But there is still a lot more to do with SMEs in addition to loans, and we know how to do that quite well. So you should continue to wait, but this is a portfolio that will continue to grow vis a vis other portfolios. Thank you.

Moderator

Thank you very much. Now we have a question from Gustavo Schroeder with Citi. Good morning, Camilla. Thank you. Good morning, Mario and Gustavo. Thank you for taking my question. I will my question is about asset quality. This is a topic that is worth elaborating further. There was a worsening with SMEs. But if you look at NPL in general, it was an NPL that posted a slight improvement. But when we look at exposure, looking at 4.966 stages, 2.66, there was an 100 bps increase.

Moderator

It went from 8.1% to 9.1% in a combination between Stage two and three. But Stage two requires larger provisions. I would just like to understand whether that increase from Stage two and three is also related to SME or there is another segment that also hurt stages two and three or RURO? And still speaking about asset quality, if you could talk about the write off policy of the bank. The PAP is slightly different from what we've seen in the industry.

Moderator

I know that the 4,009 and 66 will give you more flexibility in the write off path, but I see Santander going in the opposite direction. Gustavo, I think you could start. UNIDENTIFIED Hi, Schroder. In general, we saw the impacts in different stages, as I said it. I mean the reorganization impact stage three, and that is the major move in the quarter.

Moderator

Just like the we have agribusiness companies that are going through the reorganization process. Therefore, we have to add additional provisions because we believe that expected losses could be higher. So and then as I was saying, the retail portfolios and the consumer finance for individuals is performing well. There are less entries, and so the losses are lower in the initial stages. But we are closely monitoring coverage per stage.

Moderator

And I think our coverage per stage is very good, and this also matters. The second part of the question was? The write offs. Well, the dynamics is the same. We work with expected losses.

Moderator

So in portfolios where we believe that there will be low recovery as our as part of our policy, since we have that possibility today, we will anticipate our moves when we think that the portfolios will not have the anticipated or the estimated recovery level that could happen. I mean the write offs are healthy. We made some important moves this quarter. So it's important that with that, our portfolio will be cleaner given the fact that we have better new vintages or cohorts. So as I evaluate and remove things that may not have the expected recovery level, I think that this dynamic is quite healthy for any risk management or balance sheet management.

Moderator

Just to add, Gustavo, it is precisely what Gustavo said. We've been pursuing a policy of engaging in agreements, and we are more sensitive in terms of our agreement policies or negotiation agreements. So everything now includes a cash component. In practical terms, this leads to an acceleration of our position vis a vis I mean, agreements that we would do without the cash component, but we are using a cash component. For the past year, all of the agreements include the cash component, that anticipation or the write offs, meaning that every quarter, the margin is cleaner and healthier. And that the risk, if I could call it that, gives us more room. And if the opportunity comes, we would do that more often rather than extending that attempt to get any recovery. So you should expect this kind of management going forward.

Moderator

Question by Eduardo Rosman. BTG Pactual. I have two follow-up questions. First, Santander Group. They announced a one off impact of €467,000,000 I think that this is the main reason explaining IFRS profit and BRI GAAP income.

Moderator

So I'd like to get a confirmation from you. How do they these two factors talk with each other? My second is regarding asset quality. One of your competitors has said that NPL of the vehicle system has been showing worsening. And to them, that's an indicator of worsening in the last ten, fifteen years.

Moderator

Do you see this? Do you see this getting worse? Do you agree that this is an important indicator for us to follow and monitor? Could you elaborate? Thank you, Rosman.

Moderator

I will quickly answer the first question and then Gustavo will speak about asset quality. This balance sheet reinforcement, the reinforcement provisions the bank had, but just to put things into context. First, if you follow the group up close, the group had a super positive quarter with all indicators ticking the box. And the group would have had an extraordinary result, of surplus linked to the sale of an asset. And this could be a surplus, but the group decided to use this to reinforce provisions in the global balance sheet.

Moderator

And given that first question from Thiago, with the concerns about the select rate, the macroeconomic center in Brazil and given the provisioning level in IFRS nine, I'm not talking about 4.966, okay? The group said since I have this ability to strengthen the balance sheet in a conservative preventive way, not that we have anything happening. August 1 is coming, but the group preferred to boost the balance sheet in a preventive conservative way and to increase the provisioning for Brazil under IFRS nine. How does this talk with 4966? Rosman, it's almost a harmonization.

Moderator

If you follow the disclosure of the last quarter, if you look at the LLP that we had in the IFRS nine, there was some billions difference. And this creates a convergence of about twothree of this difference that existed in the IFRS nine of Santander Brasil matching 4.966. In practice, it has no impact on 4.966. It is almost as with the change of the accounting criteria. It's almost like we already did a good part of the change in the capital.

Moderator

And now with IFRS nine, the group decided to use the proceeds of the sale of that asset to strengthen It's the balance nothing more than that. It's a onetime thing to harmonize, converge the two GAAP criteria. It doesn't really touch the 4.966%, which should be your natural concern. As regards to consumer finance, I think it is important to take a step back. About eighteen months ago or more, we have been operating with our best ratings. We didn't change anything in our risk appetite and guideline. We are operating with the highest ratings in our view. This started in the last few quarters. And truly, did not identify any deterioration in the ratings of our customers. We have seen performances in other ratings, and that's why we didn't move forward.

Moderator

If we had seen better performances in ratings seven, six and five, we could think of approaching this, but we did not and that is an important signal. And we see that there are a number of performances by rating. 90% of the market goes through our funnel, and we choose to fund almost 20%. We didn't change anything internally. So in the audiences that are of interest to us in the rationale of risk, we have been having good returns, returns that have been increased as Mario mentioned before by the penetration of products and cross selling to our consumer finance customers. So we've seen good performance, so much so that we increased the portfolio by 5% and growing one of the largest portfolios. So again, for the groups that we have defined, we have not seen this deterioration REPRESENTATIVE:] that you mentioned in NPL.

Moderator

Excellent. Thank you very much. Thank you. Next question from Mario Pierry with Bank of America. Good morning, everyone.

Moderator

Thank you for the opportunity to ask a question. Mario, I would like to focus on the growth of the individual portfolio. You showed stability with cards growing 13%, but payroll deductible loans are decreasing. So I would like to hear from you, how do you see opportunity in private payroll deductible loans? In the latest data we've seen, the bank has been very conservative.

Moderator

You haven't been growing in this product. What are you waiting to see? What do you think could accelerate this growth to offset the reduction in INSS deductible payrolls and payroll loans. Thank you, Mario.

Moderator

I'll speak about individuals portfolio, and then I'll speak about the deductible loans, okay? In individuals, I've been saying this for quite a while. We are relocating portfolios, reusing higher risk assets to portfolios where we can be more profitable. So in individuals, we post a slight decrease net wise. And it's okay if this happens.

Moderator

As long as we are using the risk weighted assets that we were using with less sustainability in the mass income and redirecting that more to high income. So there's a structural need in individuals. We are rebalancing our exposure. We had historically high concentration in low income. And now we've been moving to mid to high income.

Moderator

We've been doing this for a while, we will continue to do it. Our commercial pressure would be to increase our presence in mid- to high income. It's not that we are going to exclude lower income. We need low income, but we need the right low income, so we've been more selective. So this is the first move of a mix change in the individual segment.

Moderator

This is happening. And every quarter, we are improving a little bit. Hopefully, in the second half, we will improve even more in that direction. Now speaking about the product, Mario, you are correct in your assessment. In the payroll deductible loans, it was revenue growth source revenue and growth stream in 2022, 2023.

Moderator

But since then, we have been reducing more INSS deductible loans and all public ones because the private payroll loans change. So INSS, well, continues to be the same when we use. INSS, there is very little margin left given the ceiling of rates that continue to exist and not correlated to the cost of funding for the mid to long term. There is no correlation with the silicate and silicate is increasing and the ceiling, the cap continues at a level that is not feasible. So for the core Ben channel, it doesn't really make sense to do INS as payroll loans.

Moderator

In our own channel, those make sense and as much as possible, we are doing it. But there is an additional element, which is recent. Given what happened with the INSS, all of the fraud, the government, I would say, did the right thing. They implemented a methodology to validate customers via face biometrics, which is an anti fraud measure, but in an audience that is less digitized, less familiarized with digital apps and biometrics. So they raised the bar for the right reason and for the whole market biometrics and assigning INS payroll loans, well, it became more complicated.

Moderator

We like the product, but we are very disciplined in terms of profitability. And we don't see how the Corvus channel can be profitable. If some players are managing, good for them, but it is a business that does not reach the targets that we want. And as you know, we are very restrictive in terms of capital discipline. But with our own channel, yes, but with the challenge of biometrics.

Moderator

There's some challenge regarding the cap, but that's manageable. We'll continue to grow where it is possible. And in private, payroll deductible loans, we have about 30% bankers' share with the new format. We are learning as we go. Very candidly, there was a lot of proportionate noise, something that we never expected would happen in the short term. Of course, there is volume or there are many incumbent and new players doing this. We respect them. But we tend to be more conservative because not all mechanics of collection, responsibilities, etcetera, not everything is very clear. Some things are being still designed or finalized.

Moderator

It is only natural that a totally new process will take some time to settle. We are monitoring this, of course. We continue to like the product. We believe we understand private payroll deductible loans. We had a portfolio of EUR12 billion over the years.

Moderator

We want to continue to resume growth for the portfolio. There might be an evolution in Q3, but it won't be a leap. The first payment defaults will tend to stabilize. We had very high levels and we prefer to be cautious in the beginning and play more strongly in the public payroll loans in the coming months. So we will resume growth, but this is kind of a new product, well, with a whole new mechanics.

Moderator

The market and the product are learning to operate everything, to be very precise. Excellent. Thank you very much.

Moderator

Now we go to Yudi Fernandez from JPMorgan. Good morning. Good morning, Camilo, Mario and Gustavo. My question is about top line and your NII. Maybe for the next twelve twenty four months going I saw a very good spreads dynamic.

Moderator

Volumes are weak, but I think you're seeking profitability. We may increase allocated capital. But my concern here thinking about the next twelve, twenty four months, which spread going to towards the fourth quarter, maybe we should try to think about something to do because the portfolio is very weak. What is your strategy? Maybe you think the volume will still be weak.

Moderator

You think that spreads should improve going forward. Maybe it's a matter of market NII because maybe with lower interest rates, maybe your client NII will improve or maybe will be more challenging because now everything seems good. But with the portfolio growing one percent, 2%, it's hard to keep that going on for a long time. I just want to understand your dynamics better. I will start and then Gustavo can comment later.

Moderator

I would like to give you a few answers. First, we don't have to grow continuously our portfolio by 1% or 2%. It's not a KPI imposed by Santander Group. The management KPI is what you manage. We want to be very obsessive in terms of the profitability level of that portfolio, and we haven't reached that level yet.

Moderator

So in our obsessive search for profitability, we will not focus on growing the bank very much if it's not profitable. But I think we can grow specific portfolios more than what we are growing. The consumer finance is a good example. We saw room to grow. I mean, all of the origination cohorts that generated a lot of money, ROE was above 20%.

Moderator

So our origination was very good on the consumer finance segment. And this applies to SMEs. We grew less mainly because of the write offs, but the growth was below that of the first quarter. We can still grow above that 20% that I mentioned for the consumer finance. Large corporate in the first quarter, in the last two years, we haven't posted growth.

Moderator

It has been flat or sometimes a slight decline. But due to some one off situations, I don't think that the exchange rate will appreciate so much in the next coming quarters. Maybe there will be some ups and downs. And IOF, at least the drawdown risk is something already sold, not so much so in terms of SMEs or the corporate segment because there is a cost because that hampers the financial breadth of companies. So the drawdown risk comes back this quarter.

Moderator

The margin, maybe, I don't think it will appreciate a lot more. But we still see a lot of room to grow with profitability on the wholesale segment. Are very disciplined. There are situations where I can sell my assets or up for some other avenue. And I talked about high income.

Moderator

High income, we are still far from where we want to be. We grew a lot in the past few years. We can grow a lot more. Are focusing individuals and high income. We know that high income is more sensitive to fees.

Moderator

They are more competitive, but our franchise is very robust. We have almost 4,000,000 clients in our select portfolio with advisory service, meaning after all of that, that the portfolio can grow more than in the past quarters. It's not a KPI per se, but we have enough capital to make it grow. Maybe your next question was about capital. I know you focus on the capital side.

Moderator

And you're right, I mean, we have a capital base to grow. We have capital to distribute. And it would not be for lack of capital that we would do it, but more it's more a matter of discipline. Now going back to NII, ex volume, the credit discipline that you mentioned, we believe that we have a lot of discipline. With a lower ceiling next year, we believe, I mean, P versus Q, there will be a last P and it's natural.

Moderator

We'll try to offset that with more transactionality and more volume. To give you an idea, Yuri, in the low income segment, we are growing mid teens our transactional deposits and our credit position in low income. When we reshuffle low income going high income, we are reducing low income, but we are growing transactionality by in mid teens because with account, we are transactionality is growing. So we want to increase margin with better mix reliability volume and volume taking care of fees. And to close, we want to withdraw more out of the fee line.

Moderator

Some dynamics are very positive, some are not. We want to maintain the positive levels at work. And we will take care of the capital markets insurance so that they continue to grow 3% to 4% every quarter. And the fees line will grow four digits in the foreseeable future. I mean, margin and commissions, we want to keep our top line account growing mainly in clients because eventually, CELIKI will start falling.

Moderator

And so this line will give us a contribution in year on year. So 2026 will be better than 2025. So I hope I answered your question. You. It's very clear.

Moderator

UNIDENTIFIED Our next question comes from Pedro Lezuki with Itau BBA. Good morning, and thank you for taking my question. My first question is very quick about 15 to 90 NPL that was up in the quarter. Could you tell us how much of that increase came from protected loans like FGI that they do not materialize as a loss. I just want to hear your view.

Moderator

And the second question is on the expense line. The performance was very good. I mean, if you look at all the other lines, outperformed. And looking at the quarter, Mario, would like to hear from you what we could expect in terms of underlying, what is behind the gains, especially looking towards 2025, whereas fee in the revenue can be tougher and whether you continue you will continue to see greater efficiencies. I mean, Gustavo will start with the first part of your question, and then I will talk about expenses.

Moderator

As I said, NPL 15 to 90 in the lines with further collaterals, I mean, 15 to 90 NPL is affected by government lines. So there are lines where we have to wait one hundred and eighty days. And then after that, there will be another seven days and some other lines, ninety days plus 30. Obviously, there is an impact coming from these lines. It's not a loss, but there is the rollover of these lines in the period. And so this is what happened. It is an important part of the rollover. There are some basis points on top of that 15 to 90 NPL. That's why I said that 15 to 90 comes from macro. But to be more specific, it is precisely what is happening. These lines are delinquent, and we have to follow the normal flow attempts.

Moderator

Once that doesn't mature, I mean, if they do not pay, there is thirty days for people to pay and then you give them an additional seven days. So this is exactly what is happening. We are not concerned because there are collaterals that 15 to 90 NPL for SMEs have an impact, like you said. Now speaking about expenses, and I'm glad I have a chance to talk about the outlook. We are shrinking the expenses in a sequence. I mean, I've been talking about that in several occasions with the sell side. And I've been saying that we would try consistently try to beat inflation. Throughout the years, we are doing like sub inflation, but not maybe the difference is not so high so much so that we'll move the needle.

Moderator

But this quarter, we are trying to beat inflation in a more enforceable way. Mean, maybe 1.3, we had a reduction of almost 400 basis points, I mean, 100 points in terms of actual gain, and this is something relevant, but we will not stop there. So what can I tell you about what we anticipate going forward? This agenda will be pursued throughout the year. It's not an agenda that I think will be concluded at the 2025 because it involves efficiency, transformation, in some cases, reinvention.

Moderator

We want to continue with that agenda throughout 2026 and maybe 2027. Why can't I do everything now? Because there are things that depend on other investments that we started in the recent past and others that are about to come to have more automated journeys to eliminate redundancies of some legacy systems or core systems like cards. We are still running two systems today, the new system that we developed together with the group. This will help us a lot with the operation in terms of increasing efficiency.

Moderator

But we still have the Panda, which is a legacy system where we ran our mainframe for years. So all of that takes time because it's just a matter of completing the new system. But the transformation agenda, processes, automation, transformation, etcetera, the reduction of redundancies and the prioritization of the management is something that is happening at full force. So I think you could demand for demand a positive performance in the coming quarters. And this is part of our positive outcome.

Moderator

I think that we also have to grow the top line. So your previous question is very important. That's why we want to grow the top line, but without just having this huge appetite to grow the top line in detriment of ALL. But the management now is more asset, I will say, on the expense line so that we have a positive breadth throughout the next two years. And with that, we will create a more sustainable base for the bank.

Moderator

And this is part of how we will achieve profitability of 20% plus with a lean management. We will still take care of the top line, but this will transform into midline, middle line with a better quality of credit and this will reduce the ALL per point. So in a snapshot, this is the equation of how we will converge towards that profitability that you would rightly so should demand from us. Thank you.

Operator

We will now switch to English with Carlos Gomez from HSBC. Good morning, Carlos.

Carlos Gomez-Lopez
Carlos Gomez-Lopez
Head - LatAm Financial Institutions at HSBC

Hey. Good morning, and thank you for taking my question. I wanted to ask about a specific reason, which is the the rural portfolio. We see that it is declining quite significantly for you. The corporate part, 5% individuals, 17%.

Carlos Gomez-Lopez
Carlos Gomez-Lopez
Head - LatAm Financial Institutions at HSBC

That's a lot. In the past, you wanted to grow this portfolio. Obviously, there are problems now. We know that in the main player. How do you see it from your perspective?

Carlos Gomez-Lopez
Carlos Gomez-Lopez
Head - LatAm Financial Institutions at HSBC

What are the prospects? And has it been impaired permanently? And second, if you could just comment how do you feel today versus three months ago in terms of the macro and the general situation? Okay,

Mario Roberto Opice Leão
CEO & Director at Banco Santander (Brasil)

Carlos. So I'll start. Gustavo, please feel free to chime in. Well, we grew a lot of our agro portfolio, and I've shared this with you through the times. Between '1 and '3, we almost doubled the portfolio.

Mario Roberto Opice Leão
CEO & Director at Banco Santander (Brasil)

It became, the credit portfolio, close to 10% and on the expanded portfolio, close to 7%, 8%. So it became a relevant portfolio. We don't regret having grown our agro franchise the way we did. But obviously, 2024 was not foreseen by us and by the market. And the mismatch for some of the commodities, particularly grains between pricing reals of the commodities sold versus the supply the cost of supplies, agrochemical supplies and the financing costs.

Mario Roberto Opice Leão
CEO & Director at Banco Santander (Brasil)

That didn't work well for grains, particularly last year. It is better already this year, but it's the portfolios the farmers are still tainted with the negative results they had last year. So that was unforeseen. How did we deal with that? We dealt very closely with the clients, restructuring whatever we needed to restructure.

Mario Roberto Opice Leão
CEO & Director at Banco Santander (Brasil)

There were much higher clients, much larger clients filing Chapter 11 equivalent in Brazil than ever. So we had to deal with that as well. Most of the portfolio, Carlos, is secured with either fiduciary lien or mortgage. It takes time for us to take over the farm and potentially sell it and monetize. That we are probably in the valley of that cycle whereby the Chapter 11s are still taking place at a slightly slower pace, but still relative to two years ago, still higher.

Mario Roberto Opice Leão
CEO & Director at Banco Santander (Brasil)

But we're still aggregating Chapter 11 filings and working on the recoveries as fast as we can. But there's a process, there's a, let's say, trial for you to undertake that. It takes at least twelve months in practice. So we are already working on the recoveries for the Chapter 11 side last year. And probably next year is going to be an important year for recoveries as we undertake the final procedures related to the newer Chapter 11s and those from '24.

Mario Roberto Opice Leão
CEO & Director at Banco Santander (Brasil)

So how do we look at the agro going forward? First of all, agro is a lot of different commodities. I mentioned the grains, soybeans and corn, particularly. But sugar has performed super well, coffee super well, cocoa and some other products. So we continue to work on those sub products where nothing happened almost and growing those portfolios.

Mario Roberto Opice Leão
CEO & Director at Banco Santander (Brasil)

In grains, we're not away from those producers anymore, but we are more cautious in looking at the numbers and looking at those producers that did not were not affected by the pricing challenges last year. And at some point, we're going to resume growing. So right now, we are more working around the portfolio where we had more challenges. At the margin where we didn't have challenges, we keep growing. The net can be a reduction, yes, but it's not because we want to reduce per se directionally our exposure to the agribusiness.

Mario Roberto Opice Leão
CEO & Director at Banco Santander (Brasil)

No. We're just in the point of time where we are digesting more of the portfolio as opposed to looking at growing. But at some point, we will have digested the portfolio probably next year onwards, and we will resume growing more broadly. So hopefully, that answered the question. The question regarding the sentiment on macro.

Mario Roberto Opice Leão
CEO & Director at Banco Santander (Brasil)

At the margin compared to two months ago, marginally worse, given while rates peaked at 15% or hopefully peaked, but I do believe they are peaked at 15%, but it's a very, very high level. The performances overall, we just saw two days ago, the Central Bank data for June and for the quarter, there's a marginal deterioration in delinquencies. We are seeing that. We just saw in our numbers. Some portfolios are suffering more.

Mario Roberto Opice Leão
CEO & Director at Banco Santander (Brasil)

Corporates, in general, pay flowing rates. So the higher CELI for a long period of time, which we will unfortunately have poses a challenge. And on the more global arena, the tariff scenario is not great, obviously. So we hope Brazil closes a deal with The U. S, but God knows.

Mario Roberto Opice Leão
CEO & Director at Banco Santander (Brasil)

But that is a potential cloud in the horizon as well. So at the margin, I'll say, marginally worse, but we keep progressing. We keep willing to grow the bank, grow the balance sheet, grow the different lines, like I said before, and obviously, grow profitability. So we remain optimistic mid- long term, but obviously, with some concerns on the short term, which we need to handle, but nothing preventing us from keeping growing the tranches and the results.

Operator

We will go now with Jorge Curie from Morgan Stanley.

Jorge Kuri
Jorge Kuri
Analyst at Morgan Stanley

Thanks for the opportunity to ask questions. I wanted to ask about markets NII. You had telegraphed that that was going to be a more complicated quarter given the movement in rates. I I do think that the magnitude was probably worse than what the market anticipated, and that's why your operating income shrank a lot quarter on quarter. How do we think about the next couple of quarters?

Jorge Kuri
Jorge Kuri
Analyst at Morgan Stanley

If CELIC indeed is now going to stay at 15% for the rest of the year, is there room for that market NII number to be a much lower negative figure for the next two quarters? And then just because it's it's such a big part of your revenues, how do we think about 2026? If if we start an easing cycle and the consensus is right and Selic grade ends 2026 at around 11.5%, 12%, which is where most estimates are. How big could that market NII be on an absolute basis?

Mario Roberto Opice Leão
CEO & Director at Banco Santander (Brasil)

Thanks, Jorge. So Gustavo, please.

Gustavo Alejo Viviani
VP, Executive Officer & IR at Banco Santander (Brasil)

Jorge, well, as I mentioned, what I think in terms of total number for the NII, the Marcus NII and more specifically, the ALM part, the number the figures that we think are the same regardless of this higher Selic because we did some measures to get there. I cannot anticipate what how much will be the figures in the third quarter and the fourth quarter. But something that I can tell you is the number and the figures that we thought in the last quarter and also in the fourth quarter about what's going to be the shape or the number for 2025 is the same. So nothing changed despite the fact that we have a higher Selic, a higher average Selic year on year than we budgeted. So is everything under control?

Gustavo Alejo Viviani
VP, Executive Officer & IR at Banco Santander (Brasil)

But I'm sorry, but I cannot anticipate the movements on this NII for the next quarters.

Mario Roberto Opice Leão
CEO & Director at Banco Santander (Brasil)

But I think we can complement, which goes along with the previous expectation, as Gustavo was saying, Jorge. The market should not expect, I mean, it's a price versus volume thing. Again, it's mathematical, right? So the SEDIC consolidates at the 15% level average in the third quarter. In the second, it was already high, but not full 15%, right?

Mario Roberto Opice Leão
CEO & Director at Banco Santander (Brasil)

So there's a consolidation at the higher level in the third quarter. So it's unlikely that we reduced materially the negative number we saw in the second quarter if the average Selic, which is the funding cost of our ALM portfolio, got marginally higher in the third Q. And by the way, in the fourth, which is probably going be the same level. So I would not expect a material decrease in the negative number in the next few quarters simply because the opportunity cost will remain at that high level, close to what we saw in the second Q and slightly higher when we compare third Q versus second Q. There's the other element, which is market making, the trading position, which also consolidates in market NII.

Mario Roberto Opice Leão
CEO & Director at Banco Santander (Brasil)

That's very hard to predict. We had a positive second Q, but we had had a record first Q, which helped us on the first Q. But on a relative basis, there was a decrease, although the franchise keeps very solid, very strong. But that one is really hard to predict because it depends on the flows, the auctions, the tradings, etcetera, client flows, particularly. And we hope, as we have a very solidified franchise, we hope that we're going to have solid third and fourth quarters, but time will tell.

Mario Roberto Opice Leão
CEO & Director at Banco Santander (Brasil)

But on the bigger number, which is the ALM piece of the portfolio, it is volume versus pricing. So I wouldn't expect a material change there. Then in 2026 onwards

Gustavo Alejo Viviani
VP, Executive Officer & IR at Banco Santander (Brasil)

Yes. '26 onwards, obviously, depends on the average LIC. And I hope and potentially, the average LIC is lower. So we'll potentially see a delta 26% against 25. That is natural.

Gustavo Alejo Viviani
VP, Executive Officer & IR at Banco Santander (Brasil)

So we'll be hedged. And the carry and the Selic, the rate will be, on average, lower than 25%. So potentially, you'll see positive delta in 26% against over 25 Yes.

Mario Roberto Opice Leão
CEO & Director at Banco Santander (Brasil)

So we hope we're going to progress in that line in twenty six percent, hopefully, again, twenty seven percent. Time will tell. But we believe we have peaked the rate scenario at a very, very high level. And from here, taking aside the next few quarters where we still accommodate the average Selic. But for the next few years, we believe that is going to be one of the points where we have at the margin more earnings momentum.

Jorge Kuri
Jorge Kuri
Analyst at Morgan Stanley

Thank you, Mario. Thank you, Mario.

Mario Roberto Opice Leão
CEO & Director at Banco Santander (Brasil)

Thank you.

Moderator

We'll switch back to Portuguese with the last question from Thiago Renzo from Goldman morning, Camilla, Mario and Gustavo. Thank you for taking my question. My question is about fees. I would like to hear from you what do you expect going forward. There are three lines, especially insurance, capital markets.

Moderator

We see some potential for improvement, if that's what you expect by the end of the half year. And if you think it's sustainable to grow cards by in two digits from now till the end of the year. Thank you, Thiago. We talked about fees. Some dynamics are already running at the level we would like to see for longer.

Moderator

You also mentioned cards. It's hard for me to precise the magnitude of this growth because the denominator growth as the base increases. But what I can tell you about cards is that we still want to grow in this line because cards, together with the limit of the account and payments as a whole because we see everything as being one single thing, the capacity to invest, to expand and transfer. We see that as something integrated. So this is still the pillar of the strategy.

Moderator

We will continue to put capital in this area, and our focus will be in improving technology, people, etcetera. So this line will continue to grow. And together with that comes transactional deposits. I mean, are not together, but as we said, we are growing retail transactional deposits. So things are moving along very well, and we hope that this line will continue to grow two digits year on year.

Moderator

But with the bar or deposits increasing, this will we will look at cost of risk and also profitability. Insurance, the quarter was about flat. Certainly, resuming growth in this line is crucial. I mean, granting less credit in more expensive products where you have more cross selling in insurance tells us a bit of a challenge when compared to So previous I would say that the quality of our insurance origination and productivity in terms of our credit has to be higher. And so that's what we are looking for.

Moderator

So there is one or other product that we didn't have. We are launching it now. Now we launch the insurance for the checking account and credit card, and that is selling like popcorn. So we will launch high income insurance just to add up to our offering. So we are just filling into some historical gaps.

Moderator

Our we are strengthening our sales force in the insurance segment. We have another external channel with people that work for us, but they are dedicated to the insurance business. And so we are just making this team more robust. And finally, we are aligning that to with incentives. And so I do believe that starting in the third quarter, our insurance segment will resume growth.

Moderator

And this is a crucial line. And the capital markets, certainly depends on our effort, but it depends pretty much on the market. As you know, the first half was a bit slower than historically. We are not in some operations for our because of our own discipline. But in the third quarter, the pipeline will be stronger.

Moderator

In July, we already did a few things. My feeling about the third quarter and going forward, especially debt because equities is still not performing. M and A, we see one thing here or there, but we are excited about capital markets, and we believe that will continue to grow. So the fees dynamics should have a very good performance in the second half of the year, And we are putting a lot of our efforts And in this again, that with that, we will increase productivity, profitability to extract more value out of our capital because we have to continue to grow, and we will grow. Thank you, Mario. Thank you, Thiago. I would like to thank you all very much for joining us this morning. So after this video conference, myself and the entire IR team for Santander Brasil will be available to clarify any further questions. Thank you very much. I wish you a very good day and a very good week. Thank you all.

Analysts
    • Moderator
    • Carlos Gomez-Lopez
      Head - LatAm Financial Institutions at HSBC
    • Mario Roberto Opice Leão
      CEO & Director at Banco Santander (Brasil)
    • Jorge Kuri
      Analyst at Morgan Stanley
    • Gustavo Alejo Viviani
      VP, Executive Officer & IR at Banco Santander (Brasil)
Powered by Quartr