Banco Santander Brasil SA (BSBR) 2012 Q1 法說會逐字稿

Good afternoon, and thank you for waiting. Welcome to the conference call to discuss Banco Santander Brasil SA's results for the first quarter of 2012.

Present here are Mr. Carlos Galan, Vice President, Executive Officer, CFO, Oscar Rodriquez Herrero, Vice President, Executive Officer, CRO and Mr. Luiz Felipe Taunay, Head of Investor Relations.

The live broadcast of this is call is available at Banco Santander's investor relations site, www.santander.com.br/ri where the presentation is available for download. All the participants will be on listen-only mode during the presentation, after which we will begin the question-and-answer session when further instructions will be provided. (Operator Instructions).

We would like to inform that questions can only be asked by telephone, so if you are connected through the webcast you should email your question directly to the IR team at ri@santantder.com.br. Please also note this configuration is being recorded.

Before proceeding we wish to clarify that forward-looking statements may be made during the conference call relating to the business outlook of Banco Santander, operating and financial projections and targets based on the beliefs and assumptions of the Executive Board as well on information currently available.

Such forward-looking statements are not a guarantee of performance. They involve risks, uncertainties and assumptions as they refer to future events and hence depend on circumstances that may or may not occur. Investors must be aware of the general economic conditions, industry conditions and other operational factors may affect the future performance of Banco Santander and may cause actual results to substantially differ from those forward-looking statements.

We would now like to pass the word to Mr. Carlos Galan. Mr. Galan, you may proceed.

Thank you. Good afternoon to everyone. First of all I would like to emphasize that our presentation is going to follow the Brazilian GAAP criteria. As you know most of you, we have anticipated that we were going to follow these criteria from the -- from this -- since the first quarter and it will be the criteria that we will be presenting in the coming quarters.

The table of contents for today are the following. We are going to see a key view about the macro environment, we are going to highlight the most important ideas regarding the first quarter. We are going to seek more detail, the evolution of our results and the main drivers and I would like to make final remarks about the first quarter's performance.

Regarding the macroeconomic scenario I would like to highlight three points. The first one is in terms of GDP growth, even though we are showing the market consensus -- the consensus which is more or less projecting 3.2% based on the [Facos] survey. Our system is a little bit more positive, and it's projecting a 3.5%. In any case going forward, the belief is that the economy is going to improve in the coming quarters, gaining momentum in the second and the third quarter. As a matter of fact we are projecting 1.5% growth q-over-q.

The second idea that I would like to share with you, in terms of inflation, we foresee that it will be reaching more or less 5%. We see favorable amounts to come. The final idea is looking at interest and exchange rate we see a stability for the rest of the year, in both indicators, even though the consensus is BRL1.80 for exchange rate and 9% for the Selic, my personal view is that the FX will be, more or less, in the neighborhood of 1.9% and the interest rate will be -- we are going to see 8.75%.

Moving to the highlights in the first quarter, basically we have chose -- we have chosen five elements. The first one is that the net profit was BRL1,765 million in the quarter, 7.5% growth q-over-q. The second one is the loan portfolio, and funding is growing in line with the market, basically a loan portfolio growth 1.7% in the quarter, more or less 18% year-over-year. The funding from clients performed very well in this first quarter, growing 6% or more or less BRL10 billion in the first quarter.

The third idea is total revenues are showing strong performance in the quarter, an increase of 9%, and this idea plus the cost control, the expenses show a 1% decline in the quarter give us the opening doors or expanding doors in the first -- this first quarter.

The two other points that I would like to share with you are the following. In the quarter we show a higher allowance for loan losses. Gross provisions grow 24% q-over-q. And NPLs, even though we are showing in the metrics a flat performance, later are going to clarify because normalizing -- because which sold -- a loan portfolio we normalizing -- we will be in line with the NPL showing by the market, more or less, growing 30 basis points in the period.

Finally, I would like to stress our strong BIS ratio and our comfortable coverage ratio. The BIS ratio amounts to 24% at the end of March, and our coverage ratio is almost 35% in the first quarter.

Looking at the net profit for the period, as I mentioned, we reached BRL1,765 million in the first quarter, and this figure includes 100% of goodwill amortization and basically represents 3.4% lower figure than the same period in 2011 and 7.4% higher than the previous quarter, or more or less BRL123 million more than the 4Q in 2011.

Looking at more detail, the structure of our results, I'd like to highlight four lines. The first one we see a strong top line revenues. NII growing 19% year-over-year and 9.5% in the quarter, commissions up 15.5% in one year and 6.7% in the quarter. The second idea, higher allowances for loan losses, total credit provisions totaled BRL3.09 billion in the first quarter, 44% higher than first quarter 2011, and 36% higher compared to 4Q '11.

The third idea is cost control, D&A expenses declined 1% in the quarter and grew 11% in one year. I would like to highlight that excluding the amortization, you know that we are in an expansionary period and we are growing the amortizations above the running rate of the core expenses, excluding the amortization -- the performance of the quarter will be better, more or less declining 2% expenses compared to the 4Q. More or less the running rates that the expenses are growing is around one digit, 9% year-over-year.

Finally the four, or the last line I would like to stress, in this slide, is normalized and corporate tax. As we anticipated, the previous quarter, we, more or less, in this quarter show what we can expect in terms of tax figure for the coming quarters, more or less, in Brazilian GAAP we expect to run around 8%, 9% on a quarterly basis.

Looking in more details these lines, first of all I would like to look and share my thoughts about net interest income. Net interest income, as I mentioned, grew 9.5% in the quarter, BRL700 million more than 4Q, '11, and basically it's the component of it is explained by three different lines.

The first one, revenues from credit which explains BRL200 million of the BRL700 million improvement in the quarter. The revenue for credit operations grew 22% in 12 months, 3.5% in three months, and basically due to two factors. The increase in the credit portfolio volume and the second, and the improvement in spreads, 30 basis points in one year and in the quarter. Basically for two reasons, the segment mix and the portfolio mix.

The second one, which explains the performance of NII in this period, are the others line which includes basically three components, interest rates, balance sheets. Second one is revenues for our capital positions, and the third one, the income of our financial operations. Altogether grew 41% in this quarter, BRL500 million. And basically BRL500 million explained by BRL200 million coming from the balance hedge and the capital position, and BRL300 million explained by the treasury results.

As you know the 4Q was a very weak Q in terms of financial results, and basically in this Q we are coming back to what we consider the normal level for the bank. The thin line is the revenues from deposits as the rest of the peers, this line -- the contribution was reduced because the interest rate's movement and these lines just explain 3% of a total NII.

When we look at the many component of the net interest income which is the contribution coming from the credit operations we see that basically the main, or one of the main drivers was the credit expansion. The credit expansion, as you see in this slide, basically we, have been growing the credit portfolio in 18.2%, and 1.7% in the quarter, considering the organic expanded portfolio.

These organic expanded portfolio basically normalize the sale and purchase that we have with different products and different loans portfolios, and basically this is the running rate, the Banco is -- net originating the credit portfolio.

So as you can see 1.7% in the quarter more or less is in line with the market but slightly above our private peers, and 18% more or less it's the same performance, as you can see, in the market. In terms of segments, the main segmental drivers of this credit expansion are the following. SMEs which grows 3.8% in the quarter and 25% in a year period. The consumer finance, which basically it's our auto finance company which grows 2.3% in the quarter and 20% in one year period.

And the third main driver was the personal and individual portfolio which grew 1.4% in the quarter, a 15% in one year [percent]. In personal product, mortgages, credit card, apparels are the main products in terms of credit growth.

Looking at a second element in the results, the allowance for loan losses, allowance for loan losses, net of recovery grew 36% in three months and 44% in 12 months. Here, basically, the main thoughts are the following. Gross allowance for loan losses increased 22%, 21.2% in the quarter and 24% on yearly basis.

Basically this is the pace that we expect for the coming quarters. Income from recovery of loans decreased 39% and 44% in three and 12 months respectively. We have to keep in mind that 2011 was benefited by the IT integration and the fact that we were able to sell Banco Real written off loans.

So we normalize the levels that we can in these lines in terms of recovery. We will be more or less considering [BRL400 million] per quarter as the level that we can expect. As a result of all the credit growth and the previous trends, the cost of credit reached 5%, increasing by 70 basis points one year and 30 basis points in the quarter.

In terms of credit indicators and looking at delinquency ratio of 60 days, this indicator reached 5.6% -- 5.7% in March 2012. 20 basis points as compared to the previous quarter and 70 basis points higher than March 2011, basically if you look in more detail, individuals reached 8.4% flat, compared with the previous quarter, 110 basis points higher than the same period of time in 2011. Corporate and SMEs reached 3.2%, 30 basis points up and 20 basis points increased in three and 12 months respectively.

The second ratio, delinquency over 90 days reached 4.5% in the quarter, basically repeating the same levels that we saw in the 4Q 2011. It's worth not mentioning that in this quarter we made BRL700 million loan portfolio, sold which was fully provisioned. This sale benefits these ratios, normalizing this effect in NPLs over 90 days we would have increased 30 basis points in the period, so basically we will be reaching 4.8% at the end of March 2011.

If you look in individuals, the impact was 40 basis points so it means that basically normalizing this effect -- the individuals over 90 days NPLs should be reaching 7.1% and in the corporate line it should be growing 20 basis points, reaching 2.6%, at the end of March 2011.

Looking at the fees and commissions performance, fees and commissions grew 6.7% in the quarter and 15.5% in 12 months. In the quarter we would like to highlight the insurance performance which grew 68%. And due to provisional effect of the policy renewals which are usually concentrated in the initial months of the year, it was the same in the 1Q in 2011. And in the 12 months comparison, we would like to highlight a main driver, main lines of growth cards that are showing a 36% growth in one year, credit operation 23%, and collections with a 17% growth in one year horizon.

Our fourth line, in terms of breakdown of results, looking at general expenses, total expenses, excluding amortization totaled BRL3,453 million in the first Q 2011, up 9.3% compared to first quarter 2011 and 2% down compared to the previous quarter.

Including the amortization, the final performance will be 1% decline in the quarter period and 11% growth in one year horizon. Basically you see here that in -- the amortization is impacted by the commercial expansion that I mentioned before. We have opened 128 branches in the latest year and we have been increasing our commercial staff, in this quarter we have incorporate more than 600 people, basically in commercial activities, in the first quarter.

In terms of -- or regarding performance ratios, we see good direction in terms of efficiency with basically [500] basis points improvement compared with the previous quarter. Basically in a one year horizon 230 basis points, this an element that the bank is going to try to improve for the -- throughout the year, for the entire year.

In terms of recurrence, you see that we increased our recurrence, 5 points compared to the previous quarter. Or more or less 3 points compared with the entire 2011. In terms of profitability, return on assets improved by 20 basis points in the period, and in terms of return on average equity we registered 0.7% improvement compared with the previous quarter.

Looking at the assets and the equity evolution, we see that our balance has grown 5% in one-year horizon, and basically reduced 2% compared to the previous quarter, and the most important thing, the equity that you see has improved 10% in one-year horizon, and 3% in the quarter.

Here I would like to connect this evolution in terms of equity with our BIS ratio we are comfortable to address all the BIS new rules adopted by the Central Bank of Brazil and as you see, we have plenty room for credit expansion and for the growth, given the fact that our BIS ratio as of March 2012 reached 24% basically, all these base is in Tier 1, 21.8%.

And on the other side, in the coverage ratio and on the left side of the slide you can see that we maintained more or less the comfortable levels in terms of coverage ratios, they have been running in the latest two years in the neighborhood of 135%, 140%, 145%.

The last but not the least, in terms of funding, funding from clients improved in the period more than BRL11 billion in the first quarter, a growth of 6%, and in mutual funds we grew BRL5 billion, basically 7% growth in one quarter. Look at one year's horizon, you'll see that our total funding increased by BRL27 billion, and this is something important because basically you see that our funding are growing more or less in line with the credit volume growth.

More or less we grew BRL30 billion in the credit portfolio and 27% in the funding from client, and this is part of the strategy that we have been managing throughout the latest two or three years.

Finally -- final remarks, I would like to emphasize two ideas. The first idea is that as I mentioned at the beginning, economic conditions are likely to improve on a supportive employment and a lower-rate environment, we think that even though we have increasing our [PDD] and our delinquency ratio, we think that given the recovery that we expect for the economy it should be a stabilization at the NPL and the period in the coming course.

And the second idea that I would like to share with you is we confirm our guidance in terms of credit growth around 15% in 2011. The revenues around 15% in 2012 and cost around 12% and the net -- as a result of all these elements we expect to grow the net income in neighborhood of 15%.

Thank you very much for your attention. And [Laura], please?

Thank you. We will now start the Q&A session for investors and analysts. (Operator Instructions). Each participant is entitled to ask two questions. (Operator Instructions). And our first question is from Jorg Friedemann of Bank of America.

Hello, everyone. Thank you for the opportunity. I have two questions but I'll start with, you know, related to the assignment of bad loan that you undertook during the quarter. According to the headlines that I have been seeing during the morning it seems that you assigned approximately BRL700 million of bad loans. Could you elaborate a bit more on two things related to the assignments? First, which kind of portfolio, which segment those loans took place? And secondly, how does it impact your net interest income? Thank you.

Thank you, Jorge, and I'm going to answer, I don't know if, Oscar, a little later can give more color on the answer. But regarding your two questions regarding the sale of this loan portfolio. The first one is, in terms of segment, basically most of that is -- are individuals, but they are SMEs in the sale as well.

And the second one, it was not very material in terms of net interest income. I would tell you that it was fully provisioned by the extra gain that we had with this portfolio, for confidential reason, I'm not going to give you the figure, but I can tell you that it's not material, and it's not important in order to normalize the NII for these reasons in this quarter.

Oscar, you want to give more color about the type of segments that were included in the sale?

No.

Okay, Jorg.

Yes. Just one further question. We know -- noted the good evolution in terms of non interest income and I think these are an important, part of the case for you to improve operating leverage. And particularly, we got surprised by the good evolution in terms of card fees. Could you also elaborate a bit more on how important was the merger acquiring contribution to your fees in this quarter, and how is the strategy evolving in terms of market share, et cetera? Thank you.

First, I'd like to tell you that this becoming more material. It's important. We have in the appendix some information regarding our performance regarding the [Conta Integral] which is our proposal in terms of the acquiring business. Maybe in the coming quarters we are going to -- explicit -- show the indicators, the figures, the financial figures coming from the acquiring business. I could tell you that in this basically most of the performance was led by the acquiring business is basically is on track.

You know that we established three goals for the acquiring business, basically we are on track and we are convinced that we are supposed to accelerate because given the -- one of the competitors movement, this space is basically reduced for this year, we are now the movement that they are going to do in 2013 and we know that in order to replicate our proposal, meaning when it's going to take one year. So that's why we would like to accelerate the pace, even though, as I was mentioning, we are on track.

And as I was mentioning, basically, in order to give you two ideas, basically their invoices are multiplying by four times compared to the same period in 2011, we have 288,000 merchant affiliated. And basically all the goals that we established when we launched the acquiring business more or less we are going to achieve in this year.

The market shares of this March was 3.1%.

Our next question comes from Mario Pierry of Deutsche Bank.

Hi, everybody and good afternoon. Let me ask you two questions, one is with your outlook for asset quality. If I understood you correct, Carlos, you were talking about maintaining the pace of provision growth in the next few quarters, so I just wanted to understand what exactly do you mean by that, which segments are you more concerned about in terms of asset quality? Because it was a bit surprising to see or maybe this is opportunistic to see that you -- it seems that your auto loan book is growing, is picking up pace here.

It seems like you are entering this market more aggressively than your peers, and yesterday one of your peers just gave us guidance that the auto segment is the major area of concern for them. So if you can give us some level of comfort why do you think you should be increasing your auto loan book, when everybody seems to be having trouble with it? Thank you.

Thank you, Mario, if you don't mind, I'm going to pass the answer regarding the auto finance and performance to Oscar and later I'm going to give you the picture that we have in terms of coming quarters.

Mario, thank you very much for your question. Firstly, in regards to the outlook for asset quality, we still seeing the second quarter of 2012 as -- that it has some room for -- deterioration is slowing down, in relationship to the first quarter, to improve in the second half of the year.

The reasons that we see an improvement in the second half of the year, I could divide it in two, one is our perspective from -- on the market evolution, and secondly it's the strategy and the actions implemented for us to manage our credit portfolio.

Talking about the first one, we believe that the economy is going to accelerate in the second half of the year. The actions taken by the government in relationship to easing taxes for some of the industries, and the additional capital to BNDES continue to grow its credit portfolio to have a positive impact in the overall economic environment.

Together with that, in February it was implemented, there 14% increase in the minimum salary here in Brazil which should have also a positive impact in consumption and in the overall performance of the individuals. That will also benefit from lower inflation, and lower interest rates in their credits.

It is obvious that these measures that have been taken in the end of 2011, beginning of 2012 will take a few months to really reach the frontline of the economy, and that's why we are expecting the normalization and room for improvement in the second half of 2012.

Also in terms of what we've been doing we obviously, and it couldn't be any different, we have an active management of our credit portfolio and we have been adjusting some of our policies to start in mid-year last in -- mid-year 2011. And also, again, like it happen last year, preparing for the increase in delinquency in the first quarter and more resources into our collections area. And so we believe that we are comfortable and ready to benefit for these -- expected recovery of the economy in the second half of the year.

Specifically in terms of the auto finance, we believe we're at a different path and in a different position and that our competitors in the auto finance market, we have been and re-position ourselves in 2011 and we have started to gain market share after June.

This is as a result of our strategy to recuperate a part of our market share in the auto finance focused in good quality credit, leveraging our improved admissions systems and processes, as well as our improved collection process which is key to be successful in this market environment.

We are very careful with the credit quality and we are also very careful with the profitability in these markets, and we are comfortable with our growth rate as we still believe that the auto industry is very key and very important to the Brazilian economy and is a strong driver for the growth in Brazil. I hope that answers your question?

Yes. That was very clear, but let me then as we follow up the question I asked originally when you mentioned about the increase in provision charges, you said you expect it to maintain the same pace, what does that mean?

Basically, the meaning is the following. When you look at the [our loans] (inaudible) losses, you have two components. The first one is the gross provisions. What I mentioned is that on a yearly basis more or less we are growing, running with 24%, 25% growth on a yearly basis. Basically this is more or less in line with the credit revenues. We keep in mind that our revenue is coming from credit -- this 22%.

The credit portfolio is more or less growing 18%, so more or less what I'm saying is maybe the gross-credit provisions are going to run in a slightly higher level than our credit revenues, but more or less linked to the same growth that we can see in the contribution coming from the credit portfolio. So that's why when I was mentioning that what you can expect for the coming quarters, is more or less this [paid], 24%, 25% in terms gross provisions. Well this is the meaning that I would like to share with you.

Okay. And does it mean that you expect, then an improvement by the fourth quarter?

Yes, as Oscar mentioned, and I mentioned in the -- previously, yes, we've seen that given the outlook that we have in the -- for the economy and for the second half, we should be -- stabilization, I don't know, the (inaudible) I'm sure -- I don't want to commit any specific period of time because we have missed a couple of quarters but more in terms of medium-term or if on trend, what we see is some stabilization and some improvement at the end of this year.

Okay, thank you very much, that was very clear.

The next question comes from Jorge Kuri of Morgan Stanley.

Hi, good morning. I have a question on your margin. You sort of like mentioned this, but it was a bit too fast to follow. If we look at your net interest margin, excluding what is the non-interest portion, i.e., the FX and the trading gains, all including interest on loans and interest on securities. What was the net interest margin for the quarter and how does that compare to the fourth quarter number?

And then the second question is, what is your expectation then as you think about the next 12 months and where margins are going? And again, margins without FX, without treasury, really just the interest portion of it. Given some of the things that are happening on the government putting pressure on spreads and Selic's falling passes and consensus expect, et cetera. Where do you think relative to where margins are today, you are going to be 12 months from today? Thanks.

Okay, Felipe is going to answer -- Jorge, thank you for your question. Felipe is going to answer the first part of your question and I'm going to answer the second part.

So basically we explained the delta in NII and here in Brazilian GAAP, you put together what is gain and loss with financial assets with the pure NII. So if you see in the quarter we had an increase of BRL700 million, to sum up both, right.

About BRL200 million came from client-related transactions, another BRL200 million came from the impact of lower interest rates in our balance sheet and another BRL300 million came from the fact that result in treasury improved substantially in the quarter, if you recall in the fourth Q we had a very depressed treasury results so this extra number is explained by the improvement in treasury results.

And we expect -- you know, now we have treasury's results running at a level that we think that should be sustainable.

Which is basically the same level that we saw in first Q, 2011. Jorge, regarding the second -- your second question which is a very old-fashion question, as I would like to give you the following answer, basically what we see is spreads are high or are improving in this quarter, basically for three reasons.

The first one it's because our mixed segment, it's more leveraged in segments that they have higher spreads such as SMEs that are individual. The second is because we think in these segments we have been growing in products with higher spreads. Once again, the product mix is important in order to understand the spread movement.

And the third one, is clearly, I'm afraid to say that, yes, with the declining interest rates some products expanded the spreads that we had compared to the previous quarter. As a result of that what we expect for the rest of the year it's in average terms for the total year, more or less, to maintain the spreads that we had in 2011.

This is more or less the outlook that we have at least for this year. We think that in the short term, the old -- the new environment regarding compression in the spreads is not going to affect the results of the financial institutions and it's going to be more dependent on the mix and the credit growth and in the credit -- and in the products growth, which are going to explain if they're going to impact or not the spreads in the coming quarter.

Having said that, something important, and I would like to share with you it's the -- at least in the Santander, the outlook that we have is that, even though the spread could compress somehow in the coming years, they will be more or less aligned with lower NPLs and lower delinquencies, so which means that in a medium horizon, our outlook is that after provisions or NII after provisions should be resilience.

And your next question is from Regina Sanchez of Itau.

Hi, everybody. First of all I would like to say that I appreciate that you now are releasing the figures in BR GAAP, although we also like it also to see the IFRS figures with all the details that IFRS bring to us, but since the Central Bank is still adopting BR GAAP role that has -- in order to compare, I wait to see it.

So I have two questions, the first is related to the significant increase in write-offs that we saw in this quarter, more than 50%, I know that -- this -- going to the sales this portfolio, but can you provide more color? What portfolios -- what type of portfolios will constitute in this write-off? Or the deterioration in the past comes more from -- if it's not vehicle finance it was more individuals or in corporate laws? And then I'll ask my second question. Thank you.

Thank you very much, Regina, for your question. The portfolio that we saw was BRL700 million, and it consistent in retail credits, mostly from individuals, and the impact that it would have have in terms of the -- over 90 days NPL, it will be 30 basis points. I don't know if that answers your question.

Well actually I was talking about the write-off which was in the amount of BRL3.4 billion in the quarter. If those loans that have been written down, if they were more related to individuals or vehicle financing specifically.

Sorry, I misunderstood. The write-offs, they follow up -- there have been no other -- not any changes in terms of the write-off and mix, or significant change in the write-off mix. I would like to stress that write-offs here in Brazil happen six months after the loan is 100% provision, and this is regulated. This is not an option from the financial institutions and, therefore, it basically follows the same trends as NPLs and the mix of the portfolio.

That's great, that's --

And Regina, in order to give you more color, if you exclude the sale of the loan portfolio that we mentioned and we comment before, more or less, the charge off for -- in this period of time was more or less 1.7% of the total credit portfolio. And if you include this event, more or less the charge off for the period would be amounted more or less 1.4%. More or less, if you see in the latest two years, this is more or less the average charge off that we have registered on a quarterly basis.

Okay. Thanks, Carlos, that's very helpful. And my second question is regarding -- you already mentioned the expectation regarding this announcement of lower rates that you think could have a tradeoff in terms of better asset quality, because banks would only lend a lower rate to better clients or with better collateral.

But I would also like your opinion in terms of if you belief that a huge amount of the banks used to pay in terms of acquisition of their rollover from state or municipal governments in auctions. Do you think this will reduce from now on? That, is something they're starting in the beginning of this year as advertising on TV in order to attract payroll accounts. Do you think this could also reduce going forward in the --? I appreciate your opinion on that. Thanks.

Well, good -- very precise question. I don't think they are only being impacted by the spread compression. I think that they're what we call portability. It's going to impact it because now there is freedom. The customer can choose where they want to receive their payroll, and I think that is already impacted in terms of auction prices, et cetera, et cetera.

I think that this is going to be more tailor-made, all the negotiations with the customers. Clearly, we've seen that even though we -- for instance we have portability for the private companies, the movement that you have seen in the previous quarter and in 2011 was negligible. So but I think it is something that is going to take time to see a big movement in the society, a big movement in the prices, in the -- I don't know, in the short term.

I think that this is a transformation movement, we feel that is good for the competition. You know that Santander is always looking at the competition and we think that maybe the approaches are going to change. Are going to change in terms of a new service proposal, a new services prices, a new approach, more adequate for the customers, more than the auction -- the prices that you can expect, given the fact that clearly now, the customer is the -- who is going to choose where he's going to receive the payrolls.

But as I was mention, we are supposed to adapt because I think this is not just impacted by the spreads. We think that the -- as you know, Santander always try to launch innovative products. Remember that we have to keep in mind that, for instance, we launch products in credit cards with half of the prices that -- all the approach -- similar approach.

We have overdraft at [check especiale] with 10 days without interest rates, and maybe we are going to -- and now they are -- with acquiring business proposal as well, that it's -- with different services and different [tariffs], so maybe we are going to complete with all the products, all the services, but this is part of the new environment with more competition, but I don't think that just because the spread compression, it's because -- there are other factors that they're going to impact in the customers, in the client, in terms to ask more adequate products and services.

And the next question comes from Carlos Macedo of Goldman Sachs.

Hi, good afternoon, gentlemen. I have just one quick question since most questions have been answered at this point. On your fee revenues for the quarter we did see a significant increase with brokerage fees that you see for insurance. I was just wondering how seasonal that is, and what should be expect going forward from that specific line? Thanks.

Yes, thank you, Carlos, yes. As I mention this is a line that is well concentrated in the first quarter, all the renewals. So what you can expect, it is a very important business for us but -- normalizing on a yearly basis what you can -- or you're supposed to consider for the rest of the year, it's more or less the little that you see year-over-year growth.

So basically if you see that the insurance it's growing on a quarterly basis, 68%, on a yearly basis 3%, and more or less this is impacted by the sale that we saw in the third quarter last year to the -- and we (inaudible) and what you're supposed to see in order to more or less forecast what you expect for the coming quarters is the brokerage and securities placement more or less is growing 3% year-over-year. And this is more or less the figures that you can expect for the coming -- for the rest of the year.

Okay, perfect. Thank you, Carlos.

And next we have a question from Fabio Zagatti of Barclays.

Hi, gentlemen. Thanks for taking this question. Another follow-up on asset quality, just to make sure we all understand. When you say the bank's provisions will remain fairly at the same pace as seen in the first quarter, does it really mean loan loss provisions will be some 20% higher than last year? Or, maybe putting it differently, what is your expectation for loan-loss provisions in 2012 as a percentage of average loans?

As Carlos -- thank you very much for this question. As Carlos was mentioning in his presentation, we truly don't give guidelines in terms of the -- of what is -- what to expect to see in the provisions for the year, or for the quarter, but we do expect that it will follow with some level of lack of time life, the trend in terms of delinquency that we have commented, where we see in the second quarter that still we will have some potential volatility in terms of the performance which -- some potential deterioration at a slower pace than we have seen in the first quarter, and improvement in the second half. And this trend should have impact in the provisions -- loan-loss provisions with some time lack with respect to it. Thank you.

Okay. Then, if I may, a final question related other operating expenses. I wonder if you could give us more color on how this line would look like going forward. Is it really fair to assume that the first quarter level should be recurring? I understand that there were some reversions of provisions in the last quarter, so I wonder, you know, what the actual recurring level is. Thank you.

Yes, as if. You remember we anticipated and we talked about this in the previous quarter, basically this line was impacted by some initiatives that we launched in 2011 regarding the -- in order to reduce the stock of -- level of litigations that the bank was managing. And what you can expect for the rest of the year is more or less similar to this quarter basically, more or less, what we expect is to grow more or less between 10%, 15% for the coming quarters, given the fact if we don't have any extraordinary item in terms of -- regarding litigations or other issues.

But as I was mentioning, this is a line that should be growing, more or less, in line with nominal inflation, 10%, 15%, because you know that all the litigation, they have to update with the nominal -- the nominal interest rates and that's why more or less, what we expect is to grow in line with this figure that I mentioned.

And the next question is from Victor Galliano of HSBC.

Yes, my questions have been answered mainly. But if I can I just ask one quick follow-up here on expenses -- related to expenses, and the expansion plan that you may have. You've given us some good data here on branches and employees. But is there -- you know, what is the build-out of branches expected to be over the next three quarters? And can we expect operating costs overall to remain in this kind of low double-digit growth territory?

Thank you for your question. The guidance for this year is more or less what you can see in the first quarter, more or less, growing, or opening branches around 100 branches per year -- 100, 120 branches per year compared to the first quarter last year was 128, and what we have been doing is to trying to balance this cost expansion with internal initiatives.

If you remember in the 4Q, we commented that we have hire 500 people for commercial activities, but basically these people are more or less upset with initiatives with optimization that we have been doing in back offices, in headquarters, in staff and administrative task.

This is more or less what we have been doing and this is the way that we are going to work for the -- for the entire year. So as a result of this, what you can expect for the rest of the year is more or less what we share in our guidance. More or less, we would like to see positive results -- positive results means revenues grow higher than the cost growth, and this is more or less what we expect in terms of cost, what we expect for the year is more or less to run the bank in more or less the neighborhood of 11%, 12%.

This is more or less the outlook that we have and basically this 11% and 12% it's more impacted by the amortization that I explained, more than the core expenses. The core expenses we expect to run the bank in more or less the 10% -- between 19% for the rest of the year.

This is more or less the outlook and for us it's very important to maintain the positive results in order to build up the franchise and we are the bank. We are convinced that if we don't improve our efficiency we are not going to be able to compete with our competitors and with the same level field.

Okay. Thank you.

The next question is from Marcelo Telles with Credit Suisse.

Hi. Good afternoon, everyone. I have just one follow-up question on the margin question asked a little bit earlier. I appreciate that you gave the breakdown by -- BRL200 million -- around BRL200 million and BRL400 million between the different lines in order to make up for this BRL700 million increase.

But my question is how much of that is related the hedge of your fixed rate portfolio, because my sense is that you probably did the hedge at a very good level, and you're going to have some -- these gains for some quarters. So if you can tell me a little bit -- how much of that is related to that hedging, and how long do you think those gains are going to last for?

Because I imagine they'll probably last, you know, mainly in line with the, more or less, the duration of your fixed rate portfolio. So do you think we are going to see the positive impact of the hedge finishing late this year, or the system so that it can last until part of 2013? Thank you.

Marcelo, thank you for your question. We -- I think that we anticipate in the previous conference call, yes, the bank hedged or immunized their balance sheet for the entire 2012 in terms of interest rates movements, which means basically, that what you can expect for the coming quarters is more of the same that you have seen in the first quarter in this line.

So basically, the BRL200 million, Felipe was mentioning, that basically the NII improvement in the quarter, basically was among the BRL700 million, BRL200 million coming from the credit revenues, BRL200 million coming from the hedge, the balance hedged interest rate, and BRL300 million from the treasury markets. The latest one is more or less in the line that we -- or the level that we expect for -- in average terms for the year.

And regarding the second line, you can expect the same as well for the rest of the year, given the fact that we have hedged the balance for just 2012. It will be different for 2013, it depends on the market conditions, it depends on the decision that we are going make in terms of how to position in the balance sheet, but now what we can share with you is that, in terms of interest rate sensitivity for NII the 2012 year is almost hedged and you can expect that this line is going to perform more or less similar what you have seen in the first quarter.

Perfect. So all else equal, 2013, it probably, you know, those gains they should decline, right, all else equal of course?

Well we don't do that -- we don't do anything yet, but as I was mentioning, depends if we hedged the new credit production, if we take some other decision, yes, but this is something that -- so basically what I'm saying is that we only immunize the 2012, maybe we are going to immunize, as well, the 2013 but this is something that we have to -- it has to be decided.

Okay. I appreciate your answers. Thanks so much.

Thank you. The Q&A session is over. And I wish to hand it over to Mr. Marcial Portela, for his concluding remarks.

Well, I'm not Marcial Portela, I'm glad to be Marcial Portela, I'm Carlos Galan. Just, in order to thank your attendance, and please don't hesitate to contact our Investor Relations Department if you have further questions. Thank you very much for your attendance, and see you later. Bye.