Banco Santander (Brasil) S.A. (NYSE:BSBR) Q4 2023 Earnings Call Transcript

Banco Santander (Brasil) S.A. (NYSE:BSBR) Q4 2023 Earnings Call Transcript January 31, 2024

Banco Santander (Brasil) S.A. misses on earnings expectations. Reported EPS is $0.06 EPS, expectations were $0.15. Banco Santander (Brasil) S.A. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Camila Toledo: 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 three parts. First our CEO, Mario Leão, 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 three audio options on the screen, all the content in Portuguese, all the content in English or the original audio.

The first two 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 icon 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 Leão, who will begin the presentation.

Mario Leão: Hello, good morning, everyone. We are here live with you. It’s 10.03. It’s a pleasure to be with you again, closing 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 answer further questions. Here on slide four, 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 four carries some key messages. First of all, this has been another quarter of margin growth as a whole. We will show you, a 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 with 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 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.

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Q&A Session

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 the retail business, is evolving as expected. We had some one-off cases and there was one-off case on the wholesale part. Gustavo is not going to give you lots of details on that, as we usually 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-based 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-based 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 the second half of 2022 and how things interact. In the next three slides, well, we chose three 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 seven years ago, Santander was one of the first large banks to talk about NPS. We released our measures. We talked 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 seven years, and I would say that this past year, we made great progress. I mean, there was a 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. NPS is not the only one, but we will continue to talk to our clients in an omni-channel 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 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 the clients with whom we want to work with. And the way we work with these customers allows us to improve profitability. We are also improving and making progress in terms of loyalty. We make 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 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 the Select or high-income segment. We are working very closely to our customer base. Our loan portfolio, I 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, 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 reach 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 Select at first is that we are launching a new initiative.

It’s 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 advisors. First of all, they are linked to the Select store selling it 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 is being quite diversified. We’re 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 offerings. 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 generative 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 an agenda that is based on the essentials. It has to be simple and easy to understand. Now moving on to the investment agendas, which is one of the strategic building blocks. We made important advances, and I will 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 1.5 times more than what we did in 2022.