Banco Santander (Brasil) - Q3 2023

Transcript

Speaker 3

Good morning, everyone. Welcome. We are here in our headquarters in São Paulo, live for our Third Quarter 2023 Earnings Conference Call. Today, this event will be divided into three parts. First, our CEO, Mario Leão, will talk about our strategy and the main highlights of the quarter. Then Gustavo Alejo, our CFO, will provide a detailed analysis of all the members that were highlighted during the period. Lastly, we will host a Q&A session, during which you will be able to interact directly with us. I would like to remind you that we have simultaneous translation, so you can choose whether you want to follow the presentation in Portuguese, in English, or just simply using the original audio. I would also like to tell you that the presentation that you are about to see is already available in our IR website.

Now, I will turn the floor to Mario Leão to

begin the presentation. Hello, good morning, everyone. It's a great pleasure to be with you again. This is a different format, and I hope you enjoy. We are constantly evolving. We are here live, it's now 10:02 A.M. I'm glad to have the opportunity to tell you more about our performance together with our IR team and Gustavo. I would like to start on page four, slide four. Here I highlight the most relevant aspects of the quarter, and then we will elaborate further on the following slides, and I'll talk about the quarter and the outlook for the year. The most important highlights are right here on my left.

First of all, for quite some time, we've been telling you, I mean, during previous conferences, and Camila and I participated in a relevant conference in New York, and we've been talking to several investors throughout the past nine months, and we talked about the diversification of our portfolio. This is quite an important aspect because we build our major growth cycle with a great emphasis on loans, and especially loans to low-income people in different markets. And certainly, we looked at the past, and we realized that we had to have a more balanced portfolio with a multi-year investment. It's a permanent investment because it takes, you know, a few years in funding and also fees. That we had a relevant business, but we thought it had to be even more relevant. This year, we clearly know that the strategy is being executed.

We've seen some progress, and certainly we will continue to pursue looking at these two areas of diversification. The second highlight is that we continue to see a very positive evolution in terms of quality of assets. I, I can say that in all of our metrics, NPL formation, coverage ratio, cost of credit, and even, you know, the AL, ALL results evolved, and this makes us very pleased because it shows consistency in everything we do. We've been talking to the market in a very patient and consistent way in the past three quarters, and now we are just consolidated everything we said in the past quarters. You know, now we see that we are capable of resuming growth in a very conscious and focused way, with a more constrictive bias from now on, and we will show you some figures, you know, in a moment.

In terms of our financial margin, we see, you know, in terms of our NII, we see, you know, that we evolved, and Gustavo will talk more about it. In terms of clients, things are being consistent, even though the evolution was small. But this is important because in the past year and nine months, we were able to build our portfolio with, you know, more selective clients and clients that have a better cost of credit. And to continue, we have a very good agenda of productivity and efficiency, and I constantly highlight that, because that's part of Santander's culture. And this is important because it means that we can continue to invest in growth, and this will not compromise the result of the bank as a whole. Speaking about our net income.

Net income is important in the quarter because certainly we want that progress to continue, and we will see that with time. But we posted 18% growth in ROAE that had a significant improve, BRL 2.7 billion, vis-à-vis the previous quarter, and ROE is going from 11%-13%. In terms of our priorities for the year, to my left and to your right, I see here three highlights, and these are very consistent with everything we've been talking about. Enormous focus on customers. Well, everybody talks about their, their clients, but Santander has a very high obsession with clients. We are not running after, you know, increasing the volume of clients.

Of course, this is important, but we are less concerned with our ranking of clients, but much more on how do I monetize, how do I become, you know, the principal bank for the customers? This is our strategy, and everything we are doing in terms of technology, innovation, focus on priority businesses with a view on the customer, has to do with that, and I'll give you some insights about that as well. On slide five, I bring more details about, you know, customer centrality. First of all, I would like to highlight our major obsession in our pursuit for primary. This quarter, I have some very good numbers to show you. This is a quarterly growth of 3% of loyal customers.

At Santander, we have a very high bar in terms of what we call a loyal customer, but this is a metric that is, it's very consistent. We are growing 3% quarter-on-quarter, and so this is a figure that makes us very pleased because this number increases due to several drivers that, you know, on which we've been working consistently. One is a great focus on CRM. We are totally redesigning our CRM strategy. We are trying to provide better and more customized offerings. Instead of having a, you know, one-size-fits-all offering, we are now customizing communication. We are connecting customers along his or her journey, and this has driving us to a total review. I mean, we are actively reviewing our value proposition in all segments.

In the next coming slides, I will talk more about Select, our high income proposition. This is growing at a very good pace. We have a good offering of products and services that we need. We almost don't need to develop any new services or products. Our agenda has been more focused on simplifying the offering rather than creating additional offerings, and with that, we gain agility, we gain in our capacity to serve customers, and as a result, we gain more loyalty. The NPS, you know, on the top of the screen, we've been consistently talking about NPS every single quarter. In this quarter, we certainly have many good news. In all channels, in all segments, we've seen an evolution. I would like to highlight our remote channel with a year-on-year evolution of 32% of NPS.

In our corporate, corporate line, this is the first time we talk about, you know, corporate NPS. It's 39, but I know we have a lot of room to improve, but this number had remained at 20-25 for quite some time. So we increased by 19 points, and we are certainly committed to pursue higher levels of NPS. And to conclude, on this slide, we have some elements that show the consolidation of our revenue that I showed down below, and we will cover them in more details further on. We grew almost 7% quarter-on-quarter in terms of fees. It shows that volume is growing, transactionality is growing, and with all of that, we are bringing customers to renegotiate and to increase their transactions with us. Now, I talked about high income customers.

It's been a year since we redesigned our value proposition for high income customers, and I've been constantly telling you about that because we are progressing the way we expected. The business is performing well, and NPS, as a result, is increasing as well. The customer base is increasing almost 50% year-on-year. We go from 674,000 to almost a million. About a year ago, I established a public commitment that we would hit the mark of 1 million Select customers until the end of the year, and I'm sure that we will get there. Our revenue, in terms of Select credit, is growing consistently, so everything is according to plan. We are looking at everything with great focus, but we believe that we, that there...

That we have a big differential in terms of investment model, the Triple A, that I will talk about it soon. Our store model, we have great stores scattered throughout the country and our service 24/7. Now to complete the offering, this is a spoiler, but I'm already talking about it, so in a few weeks, we will launch Select Global and offer for, you know, international transactions. It will be launched in the next few weeks, and in a month's time, we will have a major launch to the market. Then finally, there will be nothing, nothing else left to do. I mean, so Select customers can have an international account and have access to that account through our app. And certainly, with that, customers will be even more loyal and will be closer to us.

Next slide, we show you our investments. Here, I highlighted a few elements to tell you about our strategic focus that is now bearing fruits and becoming more material, and certainly, this will bring about better results. And strategically, we decided that we had to change the funding mix of the bank. We never had any liquidity issues, but we had, and we still have a lot of our funding coming from wholesale. Wholesale, be it large corporate or institutional customers. There is nothing wrong with that in terms of volume, but in terms of pricing, yes. So we are strategically and structurally changing our funding mix from, you know, mostly on wholesale to mostly on retail, especially, you know, in individuals and corporates as well. We have some data.

Of course, we want more, and we will go after more, but we already see some relevant figures, figures. If we go back to 2021, the numbers is to your left, you know, that was negative in the year to date in 2021. So now we will increase the numbers further, and we are working hard to improve even further. In terms of retail, emphasis on Triple A, our strategy or our response to the advisory model, I mean, Triple A is here to stay. We launched it about a year ago. It's still being consolidated, but we are already, you know, ready to show that through, you know, net inflows or volume and customer experience measured by NPS, that shows that this is an assertive model.

It's a model that has the lowest coverage ratio, you know, client versus advisor, and we can give our clients the correct advice. This is just a consequence of having, you know, satisfied customers that bring their volume to us and maintain that volume with us, and that, you know, gives us good results. So Triple A is moving quite well, performing quite well. Toro is being consolidated. We just acquired the remaining stake. We grew more than 100% year-on-year in terms of net inflows. We have very high NPS. Toro ranks first or second in terms of NPS, you know, consistently, and this is measured by third parties, so Toro is moving and performing quite well. And now with the acquisition of the remaining stake of Toro, we are able to consolidate a lot of the technology and the way of operate.

This is a fintech that turned into a digital brokerage firm, and we will bring a lot of talent to the people. To your right, we have our private banking. I've been talking more and more about our private banking in all dimensions. We have record funding, record revenue, record results, and NPS still very, very high. So private is an essential part of our franchise. You know, individuals and firms interacting, and there is still a lot more to do, but the progress here is very clear. Slide eight. I am putting more emphasis on the card business. Certainly, the market is very curious about that. They wanna know how we are dealing with it. You know that the active base of clients decreased, the market share decreased, and the answer is yes.

In this last conference that I mentioned, I told the market that once we decide to step on the brakes before the rest of the market at the end of 2021, we knew that move would be significant, especially with unsecured products. So we are focusing more on cards rather than personal loans and other products. But in other products, we are focusing on other products as well, and we knew that in about a year or a year and a half, the share of active customers will decline. We knew that, but it's time now to recover that. And as I said, that we had turned the curve. With cards, we are showing now that we are selling a lot more cards than we were selling, even in the second quarter and throughout last year. In the second...

In the third quarter of 2021, we would sell, I mean, X number of cards. We reduced that to almost one-third last quarter, and now we are already recovering and achieving a much higher level. It doesn't mean that we reviewed our appetite vis-à-vis 2021, but it means that now we have a much better understanding of our customer base. All of the investments in CRM that I already mentioned. In terms of personalization, this is something quite important because we are working hard in that hyper understanding and knowledge of the client, how they spend their money, I mean, their, their income dynamics and how they perform in the market, so we are working with data architecture. The connection of everything helps us focus better on the client.

A lot of these, the growth in cards, come from existing clients and new clients, and also our strategy in terms of payrolls. So cards is growing. We are very pleased with that. This is, this is very reflected in the fees account, but it will increasingly appear in that fees and margin without letting go of the credit quality, as you can see from the right part of the slide. Well, we have a loyalty business, which is quite relevant, and that is Esfera. I think we've talked about that. Esfera is a fantastic experience per se. It is connected to the Santander Macro system, but this is a business that alone grew, grows almost 60% year-on-year, and it has great penetration with cards. Everything. Every time we have the possibility of selling Esfera and cards, the volume of cards is quite higher.

I mean, volume grew 15% year-on-year. We reduced share and the base of active customers, but we increased by 15% the client NII. Clients become more connected with us, so they increase their transactions with Santander. In addition to the card itself, they buy and sell using the bank. Slide nine here talks about corporate companies. This is another crucial part of our strategy, and I recently talked a lot about that in the meeting in New York. So we are saying here that we have two large corporate businesses, but they are even more connected in terms of their common parts, and these common parts are technology. Most products are common, and a lot of how I want to position myself is common. We call this one single, you know, corporate platform.

We've been thinking in a more horizontal way, thinking about corporate and SMEs. Our ambition is to be the bank of all companies. We want to be the bank that corporate and SMEs think about, and they can call us, you know, in different formats. In large corporate, we have the natural customization of an investment bank or some more customized transactional services. We are the large international bank of Brazil or the large Brazilian bank with international penetration. We remain number one in foreign exchange. We are top three position in capital markets in terms of net debt over equity. We are also doing a lot of investments in talent in our people business, and we are very pleased on how things are evolving. We are growing in large corporate and also SMEs.

I've been talking to analysts and investors, and investors that we are putting great focus on the increase of our SME business, and I already have some good and solid numbers to show you. So SMEs is beginning to respond. In our first quarter, we were moving on the side, but consistently we've been very, very cautious in the first quarter and last year because we just wanted to see how CDI would evolve. Economy was not, you know, picking up, so we made all the necessary adjustments, and this quarter we are beginning to grow, and from now on, in the midterm, we seek to double the business. This is the magnitude of our mission. Now, quickly speaking about our strategic business. In the third quarter of 2022, I told the market, "Okay, we continue to pursue our growth history. We will not let go of that.

We will, we will seek for a complex portfolio, but at the same time, we choose our levers, and we are growing different levers. Not in a linear fashion, because that wouldn't be intelligent, but we are growing strongly in all of the levers that we chose. So this quarter, I'll talk about three levers. Our consumer finance. In the third quarter, we are consuming BRL 8.1 billion, and we are growing almost 20% our production towards the third quarter. This certainly brings fees. We know how to do that well. I mean, issues related to spread, especially insurance, and because of that, the client NII performs very well. This will appear more significantly in the fourth quarter, and but we are not even happy with that number. We have to go for more.

So the consumer finance is an area that was slow in the first quarter, but certainly soon we will increase our appetite to grow. We are very familiar with this business, and I'm sure we can perform even better. In terms of payroll, we've been consistently telling the market that this is one of the products that we try to work on. It's a very nervous product because the market is very competitive, but we believe we can do that well, as well as other players. But we managed to grow above market without letting go of the quality. Our ratings are very good, as with consumer finance and cards, so the control side is performing very well, which allows us to grow even more and to grow above the market. And to conclude, you know, our other major focus is Agro.

Agro, for the past five, six years, is a great focus of Santander, and we are growing. But a year ago, I publicly said that I wanted to reach BRL 70 billion in the portfolio. I mean, Agro client, they have transactions with non-Agro products as well. This is not calculated here. Here, I'm just including Agro products, and we are almost there. So I shouldn't even give you a spoiler, because it seems very likely that we will exceed the target in the fourth quarter. So we will get into 2024, you know, in a very robust situation. To conclude my presentation, speaking about technology, we could spend hours here talking about technology, because that's part of our core strategy. In all senior leadership, they are looking at that, and with F1RST as well, but I'll give you some highlights.

First of all, in a few years, it doubles or triples the volume of transactions. It's even, you know, staggering. We talk about, in the past nine months, almost 4 billion transactions, and the volume is very, very high, higher than any comparison that you may have. We know how to invest, we are very efficient, and the cost per transaction drops by half. So to the right, you have series of elements that talk about technology. What does technology have to do with customer loyalty, you know, et cetera? We were number one, according to Downdetector. For those of you who are not familiar, this is a public app that checks, you know, interferences, bugs, et cetera. We were number one. That means that we are focusing very well in terms of providing the best customer journey.

Our app is highly recognized, and this is a very good figure. 94% of our transactions occur in the cloud, so we are almost reaching 100%. Just give me a few more quarters, and we will get 100%. So we have a lot of transactions in the cloud. That means that we are more agile, we are more cost efficient. We have more than one-fourth of additional deployments year-on-year, meaning that we are more agile in terms of improving customer journey and also making corrections along the way, and 86% of that occurs automatically. And we are maturing, we are deeply maturing our business domains. This means our capacity of no longer being defined according to, you know, closed structures or silos. Okay? Operating platforms and technologies, they are available to all of our businesses.

There are 27 business domains, and this is maturing very quickly, and this will really help the customer, because the customer is the one that defines how they want us to be organized. So now I will pause, and Gustavo will give you more details on our numbers, then I will come back at the end. Thank you, Mario. Good morning, everyone. So let's start with the performance of our net interest income. We posted total NII growth of 2.1% in the nine months to date. That means growth in product NII, and our portfolio grew within expectations. This quarter, we had a solid growth in asset volumes between the months of the quarter, giving the better performance of, you know, liabilities that I will talk about later, and a better funding result.

In terms of credit growth and greater selectivity since the beginning of 2022, had an effect on the spreads in the quarter, resulting in a drop of 20 basis points in spread, and causing our client NII to fall by 1.3% in the period. As for market operations, we continue to show gradual improvements in our ALM positions, given the recent reductions in the Selic rate. This quarter, this improvement was partially offset by, you know, lower trading result. We expect the trend of gradual improvements in market operations to continue in the coming quarters, and that the client NII will perform better as we grow the portfolio. Now, I will present the evolution of our loan portfolio.

We had a better retail performance this quarter, and adjusting the consumer portfolio for the sale of the equity interest in Banco PSA, which happened in August, and as mentioned before, we would have seen a growth of 1.4% in this portfolio, as highlighted here. In individuals, in line with what we planned, we had good performance in real estate, payroll loans, and rural credit, which has been repeated over the quarters. I see the evolution of cards increasing 2% as being very positive in the quarter. In auto financing for individuals, we grew 2.6% quarter-on-quarter, and this was the best performance since December of 2020, excluding the effect of the sale of our equity stake in Banco PSA. This performance is a result of the new strategic partnerships already mentioned.

In SMEs, we were able to resume the growth of our portfolio, thanks to good credit quality indicators, both in short and long term. Growth in the quarter was 3.1%, a level that we haven't seen since the third quarter of last year, when we grew due to government programs. Currently, approximately 67% of our total portfolio of loans to individuals, including consumer finance, is secured, an increase of 2.5% over the last 12 months. On the next slide, we provide more details on the breakdown of our balance sheet. We continue to pursue our strategy, as Mario mentioned, of expanding our funding, and we can see growth in funding. I would like to highlight the evolution of demand deposits growing 10% and time deposits growing 6% in the quarter.

The year-on-year evolution is also very satisfactory, mainly due to the participation of retail, which is strategic for us. Total funding increased 16% in the last 12 months and 4.5% in the quarter. Our loan to deposit ratio has shown continuous improvement in the quarter, and we posted the lowest level on record, reinforcing the soundness of our balance sheet. Here, we detail the evolution of fees. As Mario said, part of our strategy, which we grew 6.5% in the quarter. We had a very positive performance, as you can see, in practically all fees and commissions lines. The one that performed the best was the insurance business, which benefited from the launch of new products and specific campaigns during the period.

In addition, we continued to perform well in consortiums and checking accounts, as you can see from the chart, especially checking accounts due to higher transactionality. So SMEs are growing in loans and fees. That's a good sign. Loans perform better to, to the good performance in auto financing and cards, which also performed well in the quarter, growing 2.3%, which is twice the growth when compared to the previous quarter. Now, I will talk about the evolution of the asset quality. The best vintages are gaining relevance and reflect positively on our indicators. Our ALL expense was down 6% in the quarter, and the quarterly cost of credit reached the lowest level since the first quarter of 2022. NPL formation has already normalized, ending the third quarter at 1.05%.

And we again provisioned above delinquency formation, which brought our coverage level to 230%. In regards to the renegotiated portfolio, we continue to see a drop in relation to the total portfolio, around 30 basis points in the last 12 months, reflecting the effectiveness of all the adjustments made to the risk models in recent months. Now, I will bring some more details on the delinquency indicators. As expected, they continue to show positive trends. NPL over 90 days improved by 30 basis points, both in the individuals and corporate portfolios. The 15-90-day NPL showed an improvement of 20 basis points with a positive effect on the individuals' portfolio. The corporate and SMEs portfolio showed a slight movement in the short-term indicator, which is a one-off event that doesn't cause us any concern.

Now, moving to slide 19, we can see the performance of our expenses, which grew by 0.9% in the quarter, very controllable, and 7.5% in the nine months-to-date. Personnel expenses were impacted by the collective bargaining agreement in recent months. Admin expenses, on the other hand, remain under control. This quarter, we are taking a new look at expenses, separating them into those incurred on products and business expansion and recurring expenses. The F1RST includes expenses that should support our future growth, such as software amortization and fees with third parties to boost sales, and we continue to focus on controlling admin expenses, seeking to further improve our efficiency ratio, which improved 70 basis points in the quarter. And to conclude, I would like to talk about our income statement.

As a result of all the dynamics we've talked about so far, we grew our net profit before tax by a significant 32.5%. Our net income, as mentioned before, grew by 18% in the period, and ROE 13.1%, which shows that we are gradually recovering our profitability, a trend that we expect to continue in the coming quarters. Our Common Equity Tier 1 ratio rose by 50 basis points to 11.2%, mainly due to the entry into force of Resolution 229, which came into effect on July first and brought a benefit to our CET1. With that, I stop now, and I turn the floor back to Mario for his final remarks. So, Mario, the floor is yours. Thank you, Gustavo. So I would just like to conclude with something that consolidates everything we said.

What are the main takeaways? I will start with the consolidation of our main portfolio management strategy. We had already talked about this in the third quarter. I mean, in the third quarter, we were comfortable because, you know, the peak was over. I mean, it was clear that the peak was over. We only learned that after the fact. In the second quarter, we saw that, and in the third quarter, we consolidate our strategy. From 21 continuous months of portfolio management, when we grew a lot, like the entire market in 2021, and this certainly impacted our results. So knowing that, we worked in a very quick way to digest that, and now in parallel, we are seeing growth in different areas.

The F1RST big takeaway is a consolidation of our strategy, which makes us comfortable to show you very clear growth numbers in the portfolios, and we will continue to pursue that in a very consistent manner in the coming quarters. The second takeaway is that the business where we chose to grow, we are growing, meaning that we are posting a growth history. It doesn't mean that the bottom line grows every quarter. There is no linearity, especially in a company of this size. But we are growing where we wanted to grow, and in areas where we knew we had to go slower, we did. In some cases, we figured that it was time to resume, and we're showing good signs.

The third takeaway, great focus on the client, you know, loyalty and how to bring this client to, you know, more to increase their transactions in the bank. I will say this constantly. Certainly we are a bank, so we know and like to grant loans, but even within that loan portfolio, we have to diversify. We have to focus more on mid and high income. We continue to work with bank, and we are not just growing for the sake of growing. We are not. This is not a race, and within credit, we want to diversify, and also our funding, our agenda, on balance and off balance. To conclude, we also want to pursue obsessively. I know this is a strong word, but we want to obsessively pursue profitability.

So in addition to that discourse, which is important, we have to look at the details, look at the journey. I mean, look at verbatims from NPS. We have to talk to customers constantly, and also we have to be humble and listen to our clients. We know that we still have a lot of things to do. We have to be disciplined. We have to, to know how to say no when we do have to say no. So with that, I pause, and it's a pleasure to be with you again, and now we pursue, we go to our Q&A session. Mario, thank you very much, Mario and Gustavo. We now initiate our Q&A session, and from now on, you will have the opportunity to ask your questions. All you have to do is click on the Raise Hand icon in the bottom of your screen.

Your question can be asked in either English or Portuguese, and the questions will be answered in whatever language they come in. To give everybody the opportunity to ask a question, I will urge you to ask to start with only one question. So our first question now comes from Bernardo Gomes from XP. Good morning, Bernardo, and welcome. Good morning, Camila, Mario, and Gustavo. Thank you for the opportunity to ask a question. I would like you to elaborate more on the topic of quality and growth of the portfolio. There was a relevant drop in delinquency levels, and NPL between 15 and 90 days points to the continuity of this move. Apparently, I think you are leading the way with good management in terms of the portfolio quality, but on the other side, you know, credit origination, it seemed to be a bit timid.

So I just want to understand your priorities in terms of growth, whether it would make sense to increase your appetite, you know, with higher spread, maybe, you know-

... With secured lines, but I would just like to understand your broad strategy. Where—what are the most interesting income brackets?

Thank you, Bernardo. I would start, and then Gustavo can add. That's a great question, and it's very legit. We are showing a trend that continued and picked up in the past quarters in terms of management of our portfolio that we used to call old vintages. We are not even making that distinction between old vintages and new clients. Certainly, I mean, monitoring the evolution on a day-by-day basis, we are constantly provoking ourselves about how can we translate that into a higher appetite. I've been asked constantly, "So in fact, are you selling more cards? Are you going to emulate the growth that you had in 2021?" No, we are not seeking to emulate the growth we had in 2021. I mean, from then on, we became much more knowledgeable about our customers.

So two and a half years later, we now know a much better knowledge about the market dynamics. Everybody matured, you know, the entire market. So I would like to summarize the strategy the following way: We will continue to grow on the strategic businesses that we designed, especially on in the last quarter of last year. Those are more secured businesses. For SMEs and large corporate, we will continue to do that, and this quarter we show, you know, a progress in SMEs and also consumer finance, which is one of the strategic business. It is, you know, a collateralized business, but with the new regulation, things will improve. So you will see an evolution quarter on quarter. It will not be linear. We are not obliged to show you X% growth every quarter, but we will grow.

The plus will come, and that's a very good question. We will be more open to the less collateralized portfolios, and you mentioned cards, and I highlighted cards for the first time, you know, in a long time. We will also look at personal loans, you know, according to whatever makes sense, because we are constantly testing. We will also look at overdraft accounts and this clean credit in topics that are relevant to our customers. I'm not just offering products because I want to increase fees or NII, but with a better knowledge of customers, trying to focus on existing customers. I mean, of course, that we do not-- Of course, that we still wanna deal with customers that are not in-house, but we are looking at payroll clients that we know their consumption dynamics and credit dynamics.

And certainly, we always welcome clients that are not connected to our ecosystem. And finally, we will increasingly try to connect to different points in our ecosystem. We have a very broad system. We have our Return company, which is focused on renegotiation of loans, and this could be a source of new clients because the healthy clients that we recover could be, you know, could be part of our ecosystem. We have auto finance and, and the answer in a nutshell is, yes, we will continue with collateralized business. We do not want to step on the brakes, but we will grow more in non-collateralized businesses. This will have. This will occur in time. We will grow more in other portfolios when compared to NII. I do recognize that.

So part of our consumer finance and SMS, SMEs, we will have a full, you know, margin together with the acceleration that we will post in the fourth quarter. I hope I answered your question.

Yes, thank you. It was very clear. Now, our second question comes from Mario Pierry, from Bank of America. Good morning, Mario.

Good morning, and congrats on your results.

Ah, there is Mario. Good morning. Okay, there you go. Good morning.

Congratulations on your results.

Oh, yeah, yeah, we can hear you now. It's okay. Yeah.

Okay. Let me try for the third time. I would just like to get a better understanding, because you are showing an appetite for cards that increase, you are gaining share again. But there are still some uncertainty about the profitability of the industry, giving the regulatory changes that are coming up soon. So what do you expect in terms of the regulating agency? Mario, that's a great question. Thank you for giving me the opportunity to talk about that. That is a common topic. I will just try to give you a brief version of it, and if you feel like I didn't answer you completely, you can ask again. We are actively participating in all of these discussions. I am personally involved.

This is a topic where all CEOs got involved, and this is a good thing, because what issuers have been doing throughout the year, since February, was to promote a technical debate. We are not advocating in favor of our own business model. Many of us have an acquiring business, so we are not talking about fostering the issuer and then, you know, hurting the other side. We want to strike a balance that is sustainable. The balance is unstable. It's unstable. It's not sustainable. I mean, revolving credit interest rate is very high. It's not annualized, as you well know, but the headline is bad, the government is not comfortable, and they are right, so... I'll say that now the agenda is converging, even because of that ninety-day deadline of the regulation, as you mentioned. We are-...

Being very provocative, we are insisting on a technical debate because we are saying that there has to be a balance in terms of revolving credit interest rate. That interest rate has to go down, but the entire funding structure of credit card has to evolve as well, and this has to do with no interest-bearing installment payment, which is something very unique of Brazil. It is important, you know, for income, but it has to be gradually balanced because we don't want the economy to be heavily dependent on it. We always suggested a phasing out, and I think the discussion is moving in that direction, which is good. And not only we suggest, you know, the reduction of interest rate or revolving credit, but the introduction of interest-bearing installment payments at competitive interest rates.

So we start with a very unbalanced risk when you only charge a small portion into a design of a revolving credit that is out of finance. I mean, the portfolio, it's funded with installments. And the entire chain, we have a balance between, you know, non-interest-bearing installment payments that is phasing out with time, and interest-bearing installments that will be available to all issuers. So this agenda is evolving. I mean, it's far from being concluded, but we've been part of that discussion. And the regulating agency, which is the central bank, will converge to a design similar to what we have in mind. And we will wait until the end of the year to debate again. And going back to the beginning of your question, we are not concerned.

Well, now that you are resuming your credit card sales, there might be a regulatory event. Yeah, there might be, but we believe that this will be a positive regulation rather than negative. That's why our growth has been well calculated in the brackets that we wanted and with the customers we wanted. I hope I answered your question. Yes, that's great. Thank you. Thank you. Now we have our next question from Eduardo Rosman, from BTG Pactual. Rosman, good morning, and thank you for your question, and thank you for joining us. Good morning. Good morning, everyone. Congrats on your numbers. My question is about payroll. Santander is gaining relevance for quite some time with Olé, and now that you incorporated 100% and more recently, there has been more intensive growth.

Yesterday, we saw a large digital bank announcing 1.35 rate a month, which is much lower than the market. The argument is the fact that they don't have to pay fees. Santander has a larger exposure vis-à-vis its peers. So how do you expect to compete in this area, and how can you retain your customer, and how can they become more loyal? How can you retain your clients in-house? Well, thank you, Rosman. This is a very good question, and we've been talking about that for a year, that we are growing fast. I mean, always looking at our risk targets. I will answer in parts. We have a proportional presence, higher when compared to our competitors, in what we call private payrolls. We have thousands of agreements with companies throughout the years.

I mean, this is not a recent sprint, but throughout the years, we built a very strong franchise of private payroll. This gives us a lot of pricing flexibility because the ceilings from the public sector, especially, you know, Social Security, is not part of our business. What we are doing is digitalization, meaning that in the app of the Santander client that has its payroll with us, they can hire up a payroll loan with just a few clicks. So our experience in terms of private payroll is top in the industry, and this is very relevant in our portfolio. Also, we have a lot of things with governments, you know, you know, city halls and state governments. We also take care of public payroll.

I mean, the bank you mentioned, I mean, it happens in several other banks, but it's more prevailing in terms of INSS, which is more relevant. And you're right, here we have a historical share that is lower compared to our competitors, and we noticed that. And the growth that you saw and the market saw, saw in the last 12 or 18 months was very much based on INSS. And so what did we do differently? We looked at our, our stores. I mean, other banks have different models, but we redesigned to look at what were our vocational stores that could cater to these pension fund clients or INSS clients. We cross a lot of information, and in the last 12 months, we redesigned the system. So several stores that were not vocation to serve pension fund clients, we redesigned that.

So in practical terms, we are making more efficient use of all of our stores, and with that, we don't need banking correspondents as much as we needed in the past. Not only we acquired 100% of Olé some months ago, but we are integrating systems. Our efficiency gains and productivity gains and the capacity to interact with customers will increase substantially. And on the side of Corban via Olé... With the ceilings of INSS or the pension fund, there will be renewed downwards, and I think this is, you know, an anti-client fund, and we have to explain that to the government. At the end, we are redesigning the way we remunerate this Corban to keep the business feasible. So the best answer to your question is, whatever we do, we will do with profitability.

We are not here, you know, to be part of a market share sprint race, but our market share is increasing in payroll rather than falling. With that, the return equation for Corban becomes more complex. This topic is more related to Corban rather than the banks that bear the risks. Thank you, Mario. Thank you. Our next question is from Yuri Fernandes, from JPMorgan. Good morning, Yuri. Good morning, Camila. Good morning, Mario, Gustavo, and congratulations on the growth of demand deposits and the quality of the portfolio. My question relates to product spreads. We are seeing a drop in product spreads, something like 20 basis points quarter-on-quarter.

But you said that you are willing to take more risks to grow SMEs and to grow consumer finance, and I think that demand deposit and the migration towards retail deposits should help you with the margins. So my question is: What do you expect? Is this correct? Do you think that NII should improve going forward, and if yes, when and how much of that would improve? Thank you. Well, you're right in your assumption. This is what you expect to see. Certainly, that the speed of portfolio growth will dictate how much we will be able to resume spreads. SMEs bring a positive drive and all of the deposit base, both demand and time deposits, and the growth volume will impact that calculation.

But it's difficult to predict the date, you know, day, month and hour, but what we are doing is that we are in the right direction. With price discipline, looking at price discipline, and it's important that we increment this ratio in a satisfactory way. So this is precisely what we are doing. But now, you know, we have to look at the movement. When we saw demand for SMEs, we made progress in this direction, and it is this balance of the portfolio that is important. So this trend is more or less precise. I mean, we have to look at our dynamics, which is doing very well, and we have to look at the market dynamics, both in terms of loan and the available money, you know, available for the bank. This is a very good question.

I would like to also add to Gustavo's point. First of all, we already talked about cards. We are all familiar with the dynamics. You start selling cards, and then the card is activated, and then the client starts to use the card. At first, almost everyone is paying, so you have a non-funded card portfolio, which is good, and part of that, after the second or third quarter, part of it is financed in the card and the margin is high. So part of what you're saying is almost already contracted, but it's natural that it takes some time. So when we resume card sales, we are not, you know, thinking about the 2023 calendar, but again, it's 2024. And again, I'm not looking to do the same thing I did in 2021.

We do not want to strike the benchmark, but we want to resume it. But it takes some time until, you know, we reach an ideal level. The second comment is on large corporate, and maybe I see... I know that we have lots of questions, but large corporate, there was a slight drop in the second quarter and a slight drop in the third quarter. Yes, we are not here to decrease the portfolio, but in large corporate, the ROE topic is very important, and with fixed income, capital is returning, and we are one of the largest distributors in the market, and this is very healthy if the market goes back to that. But prices convert, so we were even more disciplined in this quarter.

In the first quarter, we experienced a very strong growth quarter-over-quarter for large corporate because the capital market was closed. We were very agile, we were limits, we were very quick to do business with clients. And in the second quarters, the ROE topic becomes more relevant. I don't think that we will continue to have -0.6 or -1. We will continue to grow, but we were not going to grow for the sake of growing, because we want to deliver some ROE to the market, and we want to reach our previous historical levels. Okay? Thank you. Now, our next question comes from Gustavo Schroden, from Bradesco BBI. Hello, Gustavo. Hi, Cami. Thank you. Good morning, Mario and Gustavo. Thank you for this opportunity. Congratulations on that delinquency improvement NPL improvement.

It's quite visible to everyone, the fact that you decided to be more selective. Now, I would like to focus on your strategy and your business composition. Despite the fact that you talked about retail and some consumer lines that should be resumed very quickly, I would like to focus on the high income clients. Do you think that the retail story, especially lower income retail or open C, do you think that the strategy has been exhausted? I think people got a little hurt in this last cycle, and do you believe that we will now tend to see banks trying to strike a better balance, especially with mid and high income, and also SMEs that you talked a lot before?

How do you see that move, and whether we should see a better balance going forward in this, you know, when you, when it comes to this competition, you know, involving SMEs that can be confused, mixed up with retail and mid-income and high income? Just because I want to understand the dynamics in the financial system, because I believe it's going through a very relevant transformation. Thank you. That's a great question. This gives us the opportunity to talk about our strategy. Yes, I talked about high income, and I've been talking about high income in the last quarters. I know that I'm not the only one, because it's just natural that the whole market is looking at that, and that's fine, because it raises the bar, and then we can serve our high-income clients better.

I talked about that because a year ago, we decided to focus in this line, because this had to do, I mean, with our portfolio management. It's not that we didn't have any ALL with high income, because that also happened, you know, allowance for loan losses. So to summarize, high income, I think it's in the right position. I mean, it doesn't mean that we don't have anything else to do. I mean, that is, it's in the right fit. I mean, we can manage the client 24/7, and NPS is just one of the KPIs. But what are we doing in terms of low and mid income, which is very important, and we will talk more about this in the coming quarters. A year ago, we were rethinking the offering, the differentiation of high income.

We are doing, as we speak, the same thing for low and mid income. For mid income, we already have a clear vision of what we will do. It's not just related with cost to serve, but footprint, how to deal with people, digital, also mid-income. It's a little bit of everything. They take loans, they invest, they have credit cards, they travel, but there are several groups within mid-income. But we are very close to fit into that, our model. Certainly, when we disclose the numbers for the fourth quarter, you will see that we have a very relevant agenda. This has always been a relevant business for us. Van Gogh is our brand for mid-income, has always been a relevant business.

It struggled in the past two years, of course, but the low income, that is special for us and for the entire market, I think this is a major challenge. I don't have all the answers, but we are asking ourselves the questions now. We are asking all the questions now, and some of the answers we already have. The most obvious answer that everybody knows, but it doesn't hurt to say it again, you can only afford to have a profitable low income if we drop the cost to serve to a very low level, 10% or 20% lower, it's too little. So if we do not redesign, not only the value proposition, also the value proposition and brand positioning and differentiation, but I also have to deal with the entire infrastructure.

That doesn't all have to do with the branch or the store, but I have to look at the entire chain. So in lower income, we have the agenda that involves digitalization, you know, offering simplification. Simplification of the offering is crucial, so we have to write down exactly what that means. So for next year, we intend to come up with a new positioning and a new way to serve low-income clients. If you ask me whether this is a topic that affects the entire industry, I said yes, we all had our, you know, growth cycle in low income. I mean, low income had four or five accounts, three or four active cards. They got, you know, they were granted credit from us and from digital banks, I mean, throughout 2020 and mainly 2021.

So these clients were heavily indebted, and this, this became a problem for all banks. And I don't think things will go back to what they were in 2021, because the market already knows that this client has a limit in terms of their income and in terms of top-line generation for banks. So as credit fosters an amount of income to the financial market, this model will not return because that client doesn't have the capacity to generate this income to the system. So the answer will come from those who know how to capture that income, but with a much, much lower cost to serve, and I'm talking about drastically lower, and so I hope with that, I answered your question. Yes, super clear, Mario. Thank you very much, and congratulations on your work regarding NPL. We will now go to Thiago Batista from UBS. Good morning.

Good morning, everyone. My question is about the efficiency of Santander Brasil. When you run some comparisons, you see digital banks with better efficiency ratio, and Santander got 43% efficiency. There was a slight drop, but still much higher than the historical levels of the bank, which was around 40. Well, given your margin, you know, position, et cetera, this is what impacted the efficiency ratio of the bank. But when I look at Santander's efficiency in IFRS, looking at Spain versus the group, so I'm talking about the last 9 months. So your efficiency ratio is better than the entire bank's efficiency. There are much better players. The international bank is worse than Santander Brasil. In the mid-range, do you think that we expect to see, you know, anything relevant in the next years? Well, it is true.

From time to time, we have to challenge ourselves, but Brazil reports efficiency, you know, reports efficiency vis-à-vis the international bank, maybe differently. The, the accounting metric, even with IFRS, it's not, it's not the same as IFRS 9. But efficiency usually, you know, moves hand in hand. If we had an improvement of 9 basis points in terms of issues, but we are still at around 42. So we, without giving guidance, but directionally, what we are pursuing is certainly to go back to, to go to the level of 30 and some. It will take some time, because certainly it's an equation that involves numerator and denominator. But the answer I gave, I gave a while ago, takes us to that equation, because we will have to do... I mean, our low income cannot be a business that generates negative figures.

So how do I bring that to a break-even, and how do I make that a profitable business, but not in a sprint or a macro cycle, but in a sustainable way? I can only do that, knowing how to work on the top line, but also knowing how to control expenses. The expense agenda will help us in terms of efficiency, because it's the only way I can respond to all of my sustainable and continuous business. Every segment has to be profitable in the mid and long range, and there is the side of revenue. So this quarter, we are already showing that in fees, in some aspects of NII, even though in some aspects it's lower than we expected.

When we see the conversion of client NII and market NII, that continues, I mean, to drop, and soon enough, it will go back to being positive. At the top line, we will have an improvement and a relative improvement and an expense discipline. And in low income segment, we reduce that in a stronger way, and so the expense and cost will go down, and we will resume our efficiency ratio that we had in the past. This is a consequence of a strategy and management. This will occur. We will have an improvement in our efficiency ratio in the near future. As a quick follow-up, you talked about SMEs, and this is the focus of the bank, that you would like to double it in size. SME, it's a very broad thing.

What will be your focus, more towards the S or the M? When I say that no growth, when I talk about growing, I'm referring to it directionally. I mean, growth cannot be linear, so I would just give you the same answer. We are splitting this in three major blocks. SMEs, they're the very small companies, but there are a lot of those. There are 1.3 million very small SMEs, and even in this segment, we are looking at ways of sub-segmenting them to be more assertive in our offerings, and we will talk more about that, you know, at the end of January, during our next results earnings results call. We are looking at very small SMEs, small mid-size. I mean, the small SME, SMEs or the medium SMEs are approaching the small corporates.

Small, I mean, the larger, the large SMEs. Mid SMEs, they demand more loans, but we have to look at working capital. So we were not focusing too much on the mid SMEs because we just wanted to have a more assertive offering. Large SMEs, we are growing, and very small ones as well. So the answer depends on macro, competition. This is not a profitability topic. The way that we direct our SME portfolio is, you know, is going. We want to keep that profitability equation. We do not disclose ROE for this portfolio, but they are quite high, and I hope I have answered your question. Thank you. Our next question is from Daniel Vaz, from Safra Bank. Hello, good morning. Hi, Camila. Thank you for this opportunity. Good morning, Mario and Gustavo.

I will still refer to efficiency based on your store efficiency and that Work Café. Can you share about your economics to have a branch like Work Café and also your older stores? I know that you cannot disclose all the details, but I would just like to have a bird's-eye view, whether this has proven to be a good move or it is bearing good fruits. And then I have a follow-up question, but I will stop here for now. Here, you mentioned Work Café, and we'll just talk about the physical distribution of the stores. Last year, we started a move that we hadn't yet started. I mean, until 2021, we just grew the number of stores because there was a lot of room to occupy in geographies where we were not present. We took the bank to some interior locations.

But in 2022, already looking at an efficiency agenda with a new serving model, because with the pandemic, the relevance of the stores lost momentum. We were still investing a lot in the digital side to do it better. So last year was the first year that we shut down some stores. I mean, that was a very conscious move with a lot of technology, with heat map, CRM, and with constant communication with our clients. We shut down more than 150 stores last year, and this number will double this year. So between last year and this year, we will have been closing about 460 stores when compared to the 2021.

I mean, not only we haven't done anything like it before, but this is more than 20% of our total number of stores, and this goes back to that topic of efficiency. Again, we're doing that in a very scientific and surgical way, because those customers that still go to the store, they are served by stores nearby, and then we increase efficiency. Right now, we are looking at the topic of stores in a different way when compared to the way we look at it in the past. It doesn't mean that we are gonna let go of all the stores. I mean, the bank talks about digital bank with branches. We do believe in having the right stores in the right location, be it to serve clients, to cover the traffic, or to cover the micro region around a store.

We have stores located in regions with small stores and small trade, and also... I mean, some stores do not have a lot of traffic, but they are important in terms of brand positioning, and the Work Café is one of these examples. So that's what we have in the Work Café. Well, we don't have that many. We don't have dozens of Work Cafés, but we have just a few Work Cafés well-positioned, and we've been testing the model in some locations. I would say that certainly our investment per store is higher. Just go into one of these stores, they are very cool stores, and they cost more. The payback of that, part of it is not as measurable. That has to do with, you know, positioning.

For those of you in São Paulo, we just reinaugurated our flagship in the JK Shopping Mall, and we will have a few more of those. So we will decide where we want to have flagships. Work Café is a different concept of flagship that has the flow that with coffee, which is very cool. We have also a little bit of that coworking aspect. We try to engage not only customers digitally with Wi-Fi; we are investing in that. The figures are good, and I'm not going to say... I mean, that's not what you're suggesting. I'm not going to turn all of my stores into Work Café in Brazil. We have that in other geographies as well, like in Chile, but we will strengthen the model. Okay, that's very clear. My next question is for Gustavo. We saw your profitability numbers for the new vintages.

I just want to understand, I mean, this quarter there was a slight decline, but when we look at the line of consumer finance and payroll, the line was higher. So it seems to me that some other lines that are less collateralized, that bear more risk, profitability is a bit more difficult. Would it be too naive of me to assume that, or should I look at other lines? We haven't seen any change in performance from the second to the third quarter. Nothing relevant in terms of performances in all indexes or ratios, no major changes, to tell the truth. So no, I don't think we can, that what you said can be reinstated. Everything is under control. We see that in the ALL dynamics, and there has been no adjustment or material adjustment in the portfolios for performance.

The performance is exactly as expected. So certainly, there hasn't been any major changes, but we've been constantly changing, testing things. We are testing the borders to see, you know, up to what limit we approve it or not. Sometimes we say, "Can we stretch the border a little bit?" We are happy with LA, especially in personal loans. It's a clean product, a bit more nervous. We are constantly making some adjustments, but these are just fine-tunings. In fact, I would say that in 21 months, we have made any major moves, but 90-some% was at the end of 2021, and all of the rest was just fine-tuning. Great, and congrats on your results. Next question is from Mateus Raffaelli, from Itaú BBA. Good morning. Thank you for the question.

My question is about portfolio growth, and I think Santander, it would be high triple digits, and the numbers will be also benefited from the lower Selic rate. We see credit quality in for corporate, not yet solved. So with this backdrop, I just want to understand, what is your view in terms of portfolio growth? What are the main challenges you expect to see, and whether in 2024, we should expect some similar growth or something more to the level of 2023? Thank you, Mateus. Well, this is a challenge for me, as we do not give any guidance. You're asking for a soft guidance, but thank you for your question because it is a good question. Well, we will certainly not pursue a portfolio growth. We are not going to to look for a more timid portfolio growth.

There are several factors that are out of our control, like demand, capital markets, you know, macro regulation. We do not control all the factors, but those that we control do not point to a more timid growth. But we will try to grow, you know, on an equal footing. We do have capital base. We master our portfolio. We are producing new vintages where we want, and we are just digesting the portfolio of old vintages. So there is nothing that lead us to say, "Okay, you have to be more conservative in 2024 when compared to 2022." This is not a debate that we have in our risk committees, but we have, and it's important that we calibrate that. Mateus, we are not going to pursue growth for the sake of growth, because I want to show you growth every quarter.

I mean, well, it will not be linear in all portfolios. In every quarter, things will be different. But of course, we will try to grow some percentage points, of course, because on average, we will try to grow with a focus on profitability and focusing of, of not getting a, an ALL. Of course, we, some allowance for loan losses will be present, but we want to have the profitability that is desirable for the market. We want to grow, you know, we want to grow more than what we are growing, with a more even more diversified portfolio, and this is an important point. We will also focus on low income with credit, but less dependent when you look at what we do what we did in 2021. So I hope I answered your question. It's very clear. Thank you.

Camila Stolf Toledo (Head of Investor Relations)

We will now switch to English for our last question with Tito Labarta from Goldman Sachs. Hello, Tito.

Tito Labarta (Managing Director)

Hi, Camila. Thank you. Good morning, Mario and Gustavo. Thanks for the call and taking my question. I guess my question's on the profitability of the bank. You know, we did see an improvement in the quarter, but you're still benefiting from a relatively low tax rate, you know, more normalized tax rate of 30%. You know, you still would be around 10% ROE. So just to think, I assume you expect it to improve from here, but what do you think is the sustainable level of ROE, and what are gonna be the main drivers to improve it from here? Yeah.

Mario Roberto Opice Leão (CEO)

Yeah. Thanks. Thanks, Tito. It's a very good question. So, Gustavo, please feel free to add. So directionally, as we're talking a lot of things about the direction we're taking, for sure, as you said yourself, we're looking at improving the teens from the low teens, almost 10, depending the way you look, even close to 10. We published 13.1. It's better than last quarter. It's not enough, obviously. We wanna get much better as we continue to progress portfolio results and obviously the whole client experience surrounding all this. So we're targeting to get back to the high, the mid, and then higher teens, as we've been delivering for many quarters up until 2021.

Again, it's a very different mix, Tito. I'm sure you know that. So it's not gonna be the same kind of ROE than we delivered in 2021, for example, which was our record ROE, the 21+. We believe we need to get to the high teens. We will work to get to the high teens. We will get there eventually. It's gonna take, you know, quarters, but we're gonna get there. There's no target number which otherwise we will fail. We'll get to the mid-teens first, then the high teens, then we're gonna work even more towards getting back to the 20, 20+ number. And this is gonna be the progress we're aiming for. So I touched profitability in many aspects in my speech in Q&A today, you notice.

So we're gonna grow with profitability. We're gonna get the, you know, low income mass market segment to become from unprofitable as it is right now, and it's obviously hurting our P&L, to break even soon enough and then profitable. And all that, together with middle income, high income, SMEs, and then the wholesale business as a whole, which is already obviously profitable, all that together will point to the same direction. That's very clear to management. It's very aligned with the group. The group is very focused on ROE as well, which is good because we have the same agenda. So capital, profitability, choosing the, the clients to do, to sell, to securitize, all that is in the top of our agenda, so we're gonna get there. It's a matter of time.

Tito Labarta (Managing Director)

Great. If, if I can ask a follow-up, along those lines, maybe a little bit more backward-looking, actually, in this case, right? You know, going from that 20%+ ROE you had a few years ago to today, and I know you've... You know, dealing with high interest rates, the credit cycle, I mean, you appropriately slowed down loan growth ahead of that. But if you go back, you know, the sharp decline that we've seen in the last couple of years, do you think it was all cyclical, just where you are in the credit cycle, where interest rates are? Do you think the competitive dynamics of the industry have overall changed, that have maybe caused some of that? Just to think about what those dynamics were that caused that compression to, you know, compare today to where you were back then.

Mario Roberto Opice Leão (CEO)

Yeah. Well, yeah, it's a profound question. I believe, Tito, as many things, it's a combination of different factors, different things that happen all together. Yes, competition increased a lot up until 2021. It kept increasing, but everyone, every one of us, accelerated their credit portfolios back in 2021. The incumbents, the digital banks, that is part of the problem, because we all accelerated, and we all did it together without knowing, of course, of each other. So I believe some of the model changed, and I touched it a few questions ago. So I think the model has changed from a low-income mass market, which is hugely profitable for the whole industry-...

I don't believe that's still gonna maintain, because it's impossible that everyone is gonna make a lot of money with low, low market, low, low-income market, the way we did, at least the way we did up until 2021. So part of the evolution is a model change. But like I said, today, my ROE would be maybe one point or two points better if I did not have some segments like low income, which are providing a negative PBT. So when I solve the equation on low, low income, that naturally will bring me back, not necessarily to the 2021 figures, because they were not, in my view, on a forward-looking basis, sustainable, but back to a profitable and more profitability with a profitable low, low-income segment.

Regulation evolved as well, so from 2019 to 2020 and then 2020 to 2021, there was an evolution on the capital hedge and some other things. There's the INSS cap on interest rates in consignado and payroll loans. So there are regulatory things which also evolved, and we've got to handle that, whether via the third-party providers, the bank correspondents, via our own cost base. So there are many evolutions altogether. But many, many things that we are doing or most things we are doing are answers to counteract those changes, competitive-wise, regulation-wise, and even portfolio-wise.

So when I tell you that I believe we're gonna get back to the higher teens, I'm saying that because we are providing new answers to old questions or new questions, but we're working a lot on those new answers so that we can counteract what's happening competition-wise, regulatory-wise, and even portfolio-wise. And I'm confident we are in encaixados, we are on track in that agenda.

Tito Labarta (Managing Director)

Great. Perfect. Great. Thanks so much for the answer, Mario.

Speaker 3

I would like to thank everyone for joining us this morning. After this call, myself and the entire team of Santander Brasil will be available to clarify any further questions. Thank you so much. Have a very good day, and I'll see you soon.