Banco Santander Brasil SA (BSBR) 2012 Q2 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 of the second quarter of 2012.

Present here are Mr. Marcial Portela, Chief executive officer, CEO; 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 webcast of this call is available at Banco Santander's Investor Relations site at www.santander.com.br/ri where the presentation is available for download. All of the participants will be on a listen-only mode during today's presentation, after which we will begin the question-and-answer session when further instructions will be provided. (Operator Instructions)

We would like to inform you that questions can only be asked by telephone, so if you are connected through the webcast you should email your questions directly to the IR team at ri@santander.com.br.

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 as 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 that 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 in the forward-looking statements.

We would now like to pass the conference call over to Mr. Marcial Portela, Chief Executive Officer. Mr. Portela, please go ahead.

Good afternoon and thank you to all of you who are listening to this conference call. The table of contents for today we'll discuss key view about the macroeconomic scenario, the highlights regarding the first half of 2012 and the main drivers of the results and our commercial activities.

Regarding the macroeconomic outlook I would like to highlight four ideas. First after a weak beginning of 2012, the market consensus shows a strong GDP growth for the second half. To achieve the growth of 1.9% for the year the third and the fourth quarter must grow around 1.7% each. This would allow a GDP growth of 3.5% to 4% in 2013.

Second, regarding inflation the estimate is that could end the year 2012 around something below 5%.

Third, in terms of interest rates the market expects a decrease ending the year in 7.5%. And fourth, regarding the exchange rate the estimate is to close 2012 at BRL1.95 something around BRL2 per dollar.

Going through the highlights of the first half 2012 compare to the same period of last year, I would like to share with you the following points. The Bank made a BRL3.2 billion net profit which means a 4% decline.

Our loan portfolio grew 17% decelerating in the two last quarters. The total revenues show a positive trend up 19% with highlight for net interest income which grows 21%.

Costs are under control growing at a single digit. The gross allowance for loan losses grows 36%.

And finally our balance sheet strength, the Bank remains with a very comfortable situation both in terms of capital and coverage ratio.

In the first half, we have a net profit of BRL3,230 million. Compared to the first half of 2011 net profit has decreased BRL146 million equivalent to a drop of 4%. In the quarter, we decreased 17%. In terms of profit per share it reached BRL1.7 in the first half 2012.

Looking at the P&L I would like to highlight the following three points. The first is that the semester shows a good increase in revenues. Net interest income grows 21% in 12 months and 3.7% in the quarter. Fee and commission income decreases 4% in the quarter and grow 10.7% in 12 months.

The second point is that there is a higher cost of credit with a higher allowance for loan losses which grows 47% in 12 months and 23% in the quarter.

And the third point is the expense control. Expenses not including depreciation and amortization grow 9% -- (sic - see slide 9 "10.6%") -- in 12 months and dropped 1% in the quarter. Expenses including depreciation and amortization present 1% drop in the quarter and an increase of 11% in 12 months which is compatible with the Bank's commercial expansion and investment.

Net interest income grows BRL302 million in the quarter due to a higher contribution of credit revenue which increased BRL312 million. It is worth emphasizing the resilience of the credit spread growing 60 basis points in the first half.

Deposit margin decreased 14% in the period and the third part of the graph the others which includes (inaudible) grew 30%.

Observing the loan portfolio, the expanded portfolio grows 3% in the quarter and 17% in 12 months, and we keep a good diversification between segments. The main driver of growth of the loan portfolio is Individuals that grow 3.5% in the quarter and 14% or BRL8 billion in the year. Corporate segment shows important evolution rising 5% in the quarter and 16% in the year explained partially by currency fluctuation.

Going now to the allowance for loan losses, I would mention that the current market environment has proven to be more challenging and showed slower GDP growth than expected having a negative impact in the credit quality in Brazil.

We show a non-performing loan ratio over 90 days of 4.9% in the second quarter, an increase of 60 basis points year-over-year in line with the market evolution. In the quarter, there is a deceleration showing 10 basis point increase adjusted by the credit sale executed last March that you may remember as we commented about it on our last conference call.

NPLs over 90 for individuals increased 10 basis points in the quarter while NPLs over 90 for Corporate remain stable in the quarter both adjusted as well. The early delinquency indicators and the stability observed on NPLs are initial signs that lead us to confirm our expectations that delinquency should improve in the fourth quarter benefiting from acceleration in the economy.

And as there is credit quality deterioration in the market, Santander Brasil was also impacted. Gross loan loss provisions grew 47% year-over-year, and 27% in the quarter. We have already mentioned that Santander Brasil loan loss provisions tend to present a higher variation upwards and downwards due to the credit mix in the portfolio.

Income from recovery has also accelerated with 65% growth in the quarter. Having said so, our expectation is that loan loss provisions should improve in the next two quarters compared with the second quarter, in line with the positive evolution of delinquency indicators that I have already mentioned and with the improvement in early delinquency of 40 basis points in the second quarter. This trend is aligned with a positive economic environment going forward to 2013.

Fees and Commission Income in the first half of 2012 reached BRL4.8 billion, an increase of 11% in 12 months and down 4% in the quarter. The growth is mainly due to cards with 35% in 12 months and also Collection Services and credit operations were highlight in this period which grow 20% and 15% respectively.

Due to the seasonal effect of insurance policy's renewal, we presented a decreasing insurance of 28% in the quarter, thus declining the total Fee and Commission Income in the same period.

As part of our strategy of cost efficiency, expenses not including depreciation and amortization grew 9% against the first half of 2011. Considering depreciation and amortization, total expenses increased 11% over the first half 2011 due to high investments and commercial expansion.

We maintain our cost efficiency path so that there is an improvement of 1.7 percentage points in the quarter and 3.5 percentage points against the first half of 2011. The recurrence ratio reached 63% in the first half of 2012, a decrease of 2.2 percentage points in three months. Over the first half of last year, this ratio was flat.

Considering the profitability indicators, return on assets reached 1.6% in the first half, but it's a decrease of 30 basis points in the quarter and 20 basis points in 12 months. Return on equity reached 12.9% in the first semester this year, a decrease of 2.7 percentage points in three months and 2 percentage points against the first half of 2011.

Our assets totaled BRL421 billion, an increase of 5% in the quarter and 4% in 12 months. Equity amounted to BRL51.1 billion, growth of 1% over March 2012 and 11.5% over June 2011.

Our BIS ratio remains high at 21.9%, out of which 19.9 percentage points is represented by Tier I and two points by Tier II. Moreover, the coverage of our loan portfolio remains at comfortable levels reaching the number of 137.7%.

In terms of funding treasury notes, which grew 83% -- treasury notes, this is Letras Financeiras on your slide, which grew 83% in 12 months still show a high performance contributing to the growth of funding from clients. Treasury notes is an important funding instrument due to its minimum maturity of 2 years providing a greater stability for funding.

Funding on balance amounted to BRL194.8 billion, an increase of 12% against the same period in 2011 and 2% in three months. Considering assets under management, total funding reached BRL333.1 billion, an increase of 11% in 12 months and 2% in the quarter.

It is important to bear in mind that the relation between loan portfolio and funding remains well balanced, reaching a ratio of 106%.

So finally I would like to highlight the six points for the first half of 2012 compared to the first half of 2011. The first is that Bank's net profit made BRL3.2 billion in the first half 2012. That means a decrease of 4% over the same period of last year.

Second is that in terms of commercial activity volume, the loan portfolio grew 17% and funding from clients increased 8%.

The third point is about the favorable performance of our total revenues which grew 19% improving our efficiency ratio by 3.5 percentage points in the quarter.

Another factor that influenced positively our efficiency ratio was control of costs which decreased 1% in the quarter and increased 9% in 12 months. Moreover the allowance for loan losses also grew in the first half of 2012 so that the gross allowance for loan losses grew 36% in 12 months.

NPLs over 90 days increased 10 basis points in the quarter considering the ratio normalization which excludes the portfolio sale of the first quarter and increased 0.6 percentage points in 12 months.

We have a solid balance sheet. We presented a BIS ratio of close to 22% and a coverage ratio of close to 138%. Therefore we emphasize a strong commercial growth, higher revenues, improvement on spreads, cost control, increase in allowance for loan losses and we are confident of economic recovery in the second half of 2012 which will result in an environment more favorable to the banking business. Thank you very much for your attention and now we are open to your questions.

Ladies and gentlemen, at this we'll begin the question-and-answer session. (Operator Instructions) Each participant is entitled to ask two questions. Regina Sanchez, Itau BBA.

Regina Sanchez from Itau BBA. I have two questions. The first one is related to the increase in provision for loan losses. I mean, I know Mr. Portela already explained that it should reduce the level in coming quarters. But I would like to know what was the main reason for this since the increase in NPL ratio was not that much even if -- especially for just for the sale of the portfolio in the previous quarters?

And I also noted that loans classified as AA and A reduces to 78% of total loans from 82% in the last quarter. Was there any specific downgrade for some loans, and if yes, I mean what was the reason, the nature of these downgrades in ratings? And if there was a case, how much was this impact? Can you consider that -- if that was a one-off in this quarter, or you cannot rule out further downgrades in coming quarters? And then I have my second question. Thank you.

Thank you Regina. I'm going to pass the two sides of your first question to Oscar.

Regina, thank you very much for your question. In regards of the reasons for the increase in the loan loss provisions, as Marcial mentioned in his presentation, the impact in delinquency of the market deceleration it had an impact in terms of the overall delinquency for the Bank resulting in an increase in provisions.

You mentioned how is that explained considering that the over-90 does not go up in the quarter. The reason for that is there is the provision scheme set up by the regulator, by the Central Bank is such that that when a transaction goes into over-90 we will still have to require 70% of the provisions.

Therefore what we -- what you do (inaudible) is that after the increase that we presented in the over-90 in the first quarter, the impact in provisions is still lag into the second quarter.

It is true that we've seen an increase in the transfer of portfolio from AA to A, and the reason for that is also the way the calculation for the provisions works. We have to, according to the 2682 regulation, we need to provision clients, customers that are on due date, but they're paying their debts based on their rating when their credit is over BRL50,000.

Considering that there was a deceleration in the economy that impacted the capacity to meet --- not a capacity, but impact the results and the risk profile of our portfolio, we have review in accordance to the regulation the ratings of our client-base that meet that criteria and that has resulted in a downgrade of the ratings for part of the portfolio, which explains the reviews credit volume in the AA and the increase in A and B and C credit categories.

Could that we consider a one-off; it is difficult to say, but we don't see it as a one-off because what we're saying is it follows the trend of the macroeconomic trends of the market. Therefore, as Marcial said, we're expecting an improvement in the macroeconomic environment with more growth in the system that will have a positive impact in the quality of the credit portfolio. I don't know if that answer your question?

I'll say so. That was a perfect answer. Thanks a lot. And my second question is regarding net interest margin and net interest income. I think it was the positive in this quarter and I would like to know how much of this increase is related to fixed rate exposure, I mean, exposure to fixed rate assets and how much if you can quantify in basis points can we expect to see a decline maybe in 2013 as a consequence of a lower Selic rate and lower spreads that we're seeing in the new origination looking at the Central Bank's data after the government put pressure and also because of the lower Selic rate? Thanks.

Regina, Carlos, CFO, is going to answer the question.

Regina, as Mr. Portela said in the presentation, most of the improvement in the second Q versus the first Q is due to the trade-related activities, all the margin coming from the grade portfolio. You see for instance we anticipate in the first Q that this alliance is going to be resilient in the year for two reasons.

The first one was because we -- if you remember, we accelerated the [pass] in the second-half 2011; so basically we were entering 2012 with higher average volume. And the second one was because our -- we further in terms of experience with -- we were going to manage the spreads as you can see in this question this quarter went up. It was the second quarter that it went up.

So basically this is the book of growth in NII in the -- not just the second Q, but on the first half. Having said that, there is another contribution more related to your question, which is considered in the presentation under the other contributions and as we mentioned basically all these other contributions included two elements.

The first one, it's everything related to the hedge that the Bank has with the interest rate environment and secondly all the results coming from the treasury or the markets. I can tell you that in this quarter basically the results coming from a markets, [PVT] more or less are similar to the volume that we saw in the first Q.

If you remember in the first Q we highlighted that the volume was higher than the previous quarter basically because we have established that more or less the limit that we can expect coming from the subsidiary activity or market activity.

So in order to resume, basically the NII, we expect that this trend should be maintained for the coming quarters. As you can see I mean basically the credit activity is there, in the most important line which support the NII, and later in the other line what we can expect is more or less the level that we have seen in the first two Qs. So basically you can expect that for the coming quarters at the end of the year more or less to maintain the high double-digit growth for the rest of the year.

Carlos, thanks a lot. I appreciate your answer. But for 2013 do you think it will be able in terms of first quarter to sustain this positive trend or it will really depend on how spreads fall from now on?

Well, as we have mentioned in the previous quarter you remember that we hedged the portfolio for this entire year and it is something that we have to readdress it at the end of the year. It depends on the view that we have for 2013, and is something that Mr. Portela highlighted as well. I mean, we think that with the environment in terms of interest rate, what we expect is that the credit space should be -- come down, but at the same time what it -- at least this is our view is that (inaudible) should normalize as well in 2013. So -- and for 2013 overview I would prefer to have more color for the coming quarters and to give you our view in the next quarter, okay?

Okay, Carlos, thanks a lot.

Jorg Friedmann, BOA Merrill Lynch.

So I have some questions; let me start with the first. I have noted that comparing to the guidance that you provided to the market in last September, most of the lines are okay. The main issue was obviously I know the unexpected surge in provisions. Having said that, I'd just like to know how you see your ability to meet the two-year guidance of net income growing at about 15% or given latest results this ability become jeopardized and then I will make the second question. Thank you.

Thank you Jorg. Well, related to the guidance we gave last year in September at the Investor Day, just I would like to remind you that it was the guidance for a period of two years time, and so now we are only quarter of the period of the guidance we showed at London last year.

Then it's true that with the macroeconomic scenario -- environment we are seeing for the second half even if it's a bit different from the one we projected a year ago we expect that loan growth will still be inside the range we mentioned there.

It was -- I must remember something like between 15% and 17% for the period for the two years and for the time being we are working with all our capacity and intensity so that we are able to reach the targets we showed in London for this period of 2012 and 2013. So we hope we are going to see better figures especially if you analyze the P&L we showed at the second quarter you can see that there is a very good performance in terms of revenues and it's good performance, well-controlled cost management and the variable that it's out of the curve is non-performing loan ratio and then as a consequence cost of credit of the provisioning for credit losses.

And so with the recovery we expect to see in the second quarter, we expect a better performance clearly, I would say a more normal performance of the net profit in the third and fourth quarters.

Perfect. So just to clarify here if I understood correctly, at this point given the acceleration that you expect going forward, you're maintaining the guidance of net income expansion of about 15% for the two years?

Yes. We are sticking to the guidance.

Okay, perfect. And my second question I think is a little bit more short-term. I realize that even though NPL evolution was not favorable by the reasons you already commented, the write-offs, they started to come down from BRL3 billion to BRL2.9 billion in this quarter. So just like to hear from Oscar if possible what he expects in the evolution of write-offs in the next two quarters? Thank you.

Oscar, please.

The write-offs caters to -- in the balance sheet logically they have and they follow a similar trend to the NPLs that we present. And the reason is that here in Brazil by regulation write-offs are done six months after the credit is a 100% provision. Therefore, the trend that we expect in the write-offs will follow the trend in the non-performance.

Perfect. But could you clarify a little bit more if the absolute level of write-offs should continue stable or start to come down on top of the expected evolution of these NPLs?

For the next quarters we're probably -- we're expecting to see a lower level of write-offs by the fourth quarter. I cannot be more specific at this time of what is the exact number. But we do expect to be more -- to have lower write-offs than what we did in the second quarter.

Perfect. Thank you very much, gentlemen.

Saul Martinez, JPMorgan.

A couple of follow-ups really to the questions by Regina and Jorg. First on the loan, the downward migration in loan classification, it looks pretty extreme. If I look at E through H loans, it went from -- to total loans, went from 7 to 7.8.

And to what extent and obviously that downward migration as you said Oscar is driving provisions higher, much higher. To what extent is this being driven though by downward reclassification of a couple of larger corporate borrowers or is this more broad based? Is it more -- are there more isolated -- is it more driven by isolated incidences of specific borrowers that can filter through or is it a broader downwards migration of both commercial and individual borrowers? So that's my first question.

And my second question is just on the sustainability of the loan spread which Carlos mentioned increased about 30 basis points sequentially as -- I'm not sure I understood the question -- the answer to Regina's question on how new origination being done at much lower lending spread as shown by the Central Bank data will filter through that line.

So I'm curious as to what your expectations are for NII from lending activity spreads there and whether the lower lending spreads are really going to start to impact your NII growth in a more meaningful negative way? And why it won't, because I'm not clear on that question.

Okay, thank you, Saul. Oscar is going to answer the first question.

Saul thanks for your question. It is the rate in the downgrades that you can see, it is basically explained by the re-rating of the -- for the customers that has occurred on a broad way across the portfolio, the credit portfolio proportionally for each segment. We don't see any significant concentration in any of the segments. Does this answer your question?

It does. And if that's the case, why -- I'm not clear why that trend will all of sudden stop in the third quarter. Was it more driven by a review of your own policies and ratings or if the economy is only starting to track back up, shouldn't we continue to see downward migration that's going to continue to impact your provisioning?

Well, because when we adjust the ratings we take into consideration what has happened in the macroeconomy and also expected recovery of the economy in the second-half of the year. So it's not something that is correlated to any specific number, but is a rewriting considering what has happened and also considering the expected evolution in the second half of the year.

Okay, that's helpful.

Saul, Carlos is going to give you a more specific answer on spreads looking forward. I would just like to say that the industry here is going to deal with lower spreads certainly.

I believe that Brazilian banks we are going to deal with the transition from higher spreads to lower spreads in a very smart way following also the trend of the basic rate that has been going down something like one-third in the last 10 months, 12 months something like this.

So at the same time we expect -- we will deal also with lower NPLs and with some revision of -- about the cost structure we have. But I would like to pass the question to Carlos so that you can have a more specific answer on the new production spreads.

Saul, thank you for your question. I was more -- my answer was more focused on the short-term more than in the long-term (inaudible).

Okay.

It's the same. Clearly our view is that the spreads, they should come down. But my question regarding more the -- what we expect for the coming quarters I would like to clarify three points.

The first one is that even though the new production are with lower prices, this new production are with spreads higher than one year ago. Why? Basically, because -- basically that the new production is benefiting from the lower interest rates funding.

Okay.

The second one is that our case -- in our particular case here Santander has been differentiating a long time ago the products by segments, by clients and pricing these products in a general way -- a general view. But -- and this has been more resilient for us because the impact of the new environment in the spreads here has been not affecting as much as all the competitors that they were practicing extended pricing practice.

And the third element it's -- and our case -- the new NII coming from -- or the margins coming [the case] should be more explained by the mix in the portfolio that we are going to have more than by the prices. What I mean is that if the mix changed the profile with lower or with more companies, or with lower proportion or contribution in individuals clearly it will be impacted there, and the NII of the spreads in the coming quarters.

And the same idea is the mix in the [product] within the segments changed. These two elements, the mix in the portfolio and the mix in the [product] are going to affect much more. This is at least the view that we have -- are going to affect much more than the prices in the origination and the prices in the prices.

And I think that the view in the longer terms we think that collateral products are going to grow faster than un-collateral products which are going to impact. And maybe while we are going to except deceleration in the individual loans, and then going to impact in the margins as well.

But all I'm saying is that with a longer (inaudible) view no, yes, [what we aspire for] and the rest of year.

Okay, that's helpful, thanks a lot.

Carlos Macedo, Goldman Sachs.

A couple of questions actually. One, I realize that the first quarter was seasonal on the insurance commission revenues, but it did have a very negative impact on your fee income for the second quarter.

I was just wondering if that was all captured by seasonality or if there was something really specific about the first quarter? Should we expect to see these very large swings going into the second quarter next year, or is this something a little specific to this year?

And the second question is related to tax. The effective tax rate was very low in the quarter, close to zero. If you could comment a little bit on what drove the effective tax rate to be that low, and what we should expect coming out of that line in the future quarters?

Thank you Carlos. Carlos is going to answer your questions.

Okay, thank you for your question Carlos. Regarding the first question, yes, as Mr. Portela in advance said, yes, the society was the main explanation of the fees performance quarter-over-quarter. Bear in mind that we have concentration in the first Q in the premiums received from the insurance products. And what you can expect is that you see -- I would suggest to use more or less the year-over-year past -- or the year-over-year comparison to [mark] what you can explain for the coming quarters.

You see more or less, we are growing in 10%-11% per year, and this is more or less the pace that you can expect for the entire year. Regarding the --

But Carlos, just on the first -- so next year, in 2013, we should expect a similar swing in the second quarter (multiple speakers) --

In 2011, we had the same happening as well.

Okay.

It is always the same because you have concentration in the premiums received in the first year, so in 2011 it happened. In 2012 it happened, and you can expect the same in 2013 to go on, okay.

And regarding the tax -- the corporate tax, yes, this year -- quarter, you remember basically is affected by one question. The hedge that not just Santander but all the Brazilian banks have regarding the payment subsidiary, and you know that this is a hedge, bottom-line, it doesn't affect the result, but within line is affecting the resource for financial transactions, and the tax line.

So in our case with devaluation the result of financial transaction was impacted negatively and positively the tax. That's why basically that you see this swing in this quarter. And that's why we normalize in our management information in order to neutralize this effect because, as I was mentioning, bottom-line it doesn't affect the performance of the banks, but within line there are some important movements.

So what would you consider to be the effective tax rate we should look at going forward for the Bank?

It depends on the criteria that you are following.

The manager of criteria that --

Yes, regarding -- regardless, we anticipated there will be around 8%-9% for the entire year.

Okay, perfect. And then this including the loan for this quarter?

Yes, but as once again it depends on the movement in the currency because it's going to affect higher or lower, the final (inaudible) in normal conditions this is what we anticipated, and this is more or less what you can expect for the entire year.

It's a little bit confusing to us because the other banks, when they make the managerial adjustment, the income tax, the effective income tax level kind of returns to a normalized place. And for you it still stayed very low, the tax -- the normalized tax for Santander Brasil is low compared to peers because of amortization and goodwill. But it did stay much lower than that, and that's why it was a little bit confusing in the quarter.

Yes, well, you have the two elements there, the goodwill amortization, which is clearly the most important effect that -- which explained our lower corporate tax versus our peers, and in a quarterly basis the movement on (inaudible). You have more color -- if you need more color please we can explain it in more detail later after the conference call.

Sure, no problem. Thank you Carlos.

Fabio Zagatti, Barclays Capital.

I know that your comments in the local press, in Brazil this morning, suggesting that you expect delinquency to stabilize in 3Q, and even improving in 4Q, so how should investors feel comfortable with the scenario after this quarter, particularly when there is just too much uncertainty related to the overall economic activity which has indeed led Santander Brasil to have -- to revisit client credit risks on a broader basis, as you have just mentioned in a previous answer.

And my second question would be, during the last quarter's call you had expected some 20% growth in loan loss provision expenses in absolute terms, compared to 2011. Could you please provide us with a more detailed expectation or guidance for provision expenses in coming quarters. Thanks.

Oscar?

Fabio, thank you very much for your question. You're asking us why do we feel comfortable with expected stabilization in the NPLs in the third quarter, and improvement in the fourth quarter.

Well, first of all, as Marcial explained while configuring on our overall macroeconomic improvement for Brazil in the second-half of the year, this improvement slowly impact -- took up a positive impact in terms of the profits and the business of the enterprises here in Brazil in all segments, from SMEs to large corporates, that should result in an improvement in that -- in those NPLs.

On the individual side, when we look at the NPLs, they have been mainly driven by two things. One is the auto finance portfolio in the system has suffered from an important growth of the portfolio, with less than 20% down payment. As all players including us have explained in, not only now, but in the previous presentations, we have adjusted our policies -- our credit policies. And now the new [vintages] for the auto finance, so significant improvement since third quarter last year. That lead us to be confident that the auto finance will have a positive evolution in the second half of the year.

In the other individuals business Marcial also commented that we have seen that some of the clients, some of the individuals in Brazil present a situation of our leverage. Here again banks -- all banks including ourselves have been adjusting the credit policies based on that and with the additional information provided by the Central Bank of Brazil for customers with more than BRL1000 that will already have stabilized the vintages and will show improvement in the second half of the year.

So this is why we are confident on that expectation even though the second quarter was disappointing. In terms of guidelines for loan loss provisions, we don't provide guidelines for loan loss provisions. Does this answer your questions?

Yes, it does. But let me ask it differently. In the previous call, management has actually -- implied in management's answers was that loan loss provisions would grow roughly 20% year-on-year this year.

So I guess that the best way for us to feel confident that management is confident that delinquency will improve in 3Q, in 4Q for us to have a better sense of the loan loss provisions. If it's not on a manageable term, may be if you could provide us with a range for loan loss provisions as a percentage of average loans, that will be very helpful. Thanks.

It is true that in the last call it was mentioned 25% growth, loan loss provision. We're not going to provide any changes.

We're reviewing that based on the evolution of market environment that has had an impact in terms of the loan loss provisions growth for the year due to the performance in the second quarter. But I cannot give you any other guideline related to that.

We do expect as we mentioned already that the NPL improvement should result in also an improvement in the level of loan loss provisions that we'll have in the second half of the year.

Okay.

A more normalized level.

Peggy Koury, Hartford Investment.

I just wanted to know if you would please elaborate on what you think will drive the improvement in the economy in the second half of the year?

Thank you Peggy for your question. I would say that starting already some months ago, the basic interest rate, the Selic here has been going down up to present level of 8%, coming from 12% last year -- at the end of last year, the second-half of last year.

So to see the impact of this measure, should -- probably should take some months as it always happens. And so we believe the second-half of the year, the impact would be 100% of this reduced Selic.

Secondly the government is taking several different measures to improve the economy, part of them are related to reduction in terms of taxes, different taxes in the country for specific sectors sometimes and sometimes also for the whole country, also for individuals and sometimes for different industries.

So we believe this will also have a strong impact in terms of consumer spending and also for firms, for small and medium enterprises.

Third, there is also coming from the government a very active positioning in terms of investment that have been delayed related to the problems of infrastructure. So the government is accelerating those investments related to airports, motorways, ports, different kinds of infrastructure and in fact the government decided a package to be channeled through the BNDS Bank of the government to different sectors of activity. I don't remember -- Oscar, do you remember now the amount that the government sent to BNDS, it was BRL50 billion?

It was capitalized BRL50 billion, have a higher impact in terms of credit.

Yes, it was something like BRL50 billion more capital for the BNDS. And like this some other measures the government has undertaken so that all that together leads us to think that really the second-half of the year the economy will be growing. Probably for the fourth quarter of this year, economy should be growing at something like 3.5% or 4% in the quarter.

What should drive the country into the 2013 with a minimum level of GDP growth of 2% just by the inertia of these measures, of this speed and should -- this is why we feel comfortable thinking that GDP growth for 2013 could be something between 3.5% or 4%. Thank you.

Thank you very much. That's very helpful.

And that concludes today's Q-and-A session. I would now like to turn the conference call over to Mr. Marcial Portela for his closing comments.

Would like then to thank you all for the attendance and I would also suggest for the participants that could not put the question in front of us now during this call that our Investor Relation department is ready to receive the questions and we would be delighted to give you a call personally, any of us, or to send the answer by e-mailing you. Thanks so much.

We feel -- we have a very positive vision on the next quarters and also on the future of the country. We believe the financial system -- the Brazilian financial system is very resilient, is very well-capitalized, well managed, and well-supervised.

And we all -- I'm talking mainly thinking of our competitors -- we all believe we will deal with the movement, the decision is to undergo in the next quarters and we feel comfortable when we say that next quarters will show a much better profile than we all have shown during this second quarter of the year. Thank you very much for your attention.

Ladies and gentlemen, Banco Santander's conference call has now come to an end. We thank you for your participation. Have a nice day. Thank you.