Banco Santander Brasil SA (BSBR) 2016 Q1 法說會逐字稿

Good morning, and thank you for waiting. Welcome to the Conference Call to discuss Banco Santander Brasil SA's results. Present here are Mr. Angel Santo Domingo, Executive Vice President, Chief Financial Officer and Mr. Luiz Felipe Taunay, Head of Investor Relations.

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).

The live webcast of this call is available at Banco Santander's Investor Relations website at www.santander.com.br/ir where the presentation is also available for download. We would like to inform that questions received via webcast will have answering priority (Operator Instructions).

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 Brasil, 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 Brasil and may cause actual results to substantially differ from those in the forward-looking statements.

I will now pass the word to Mr. Angel Santo Domingo. Please Mr. Santo Domingo, you may proceed.

Good morning, everybody. Thank you for being present in our 1Q 2016 results. I'm going to go through the presentation as always and then, we will open the floor for Q&A. The presentation will be divided in five main blocks. The first being key messages, specifically our strategic messages going forward.

Then, I will stop for one slide only on results of Santander Group that are already known and public to the market. And then, we will go specifically into Brazil into Santander Brasil, going through the macroeconomic scenario, highlights and results and the performance of this 1Q.

So going into the four main strategic messages in terms of customer orientation, which will be the first strategic pillar of the Bank. The ideas here are that we want to support our customers and businesses, so we continue to invest in our retail franchise, increasing customer satisfaction and reducing complaints and these are tangible facts, it's not only positioning of the bank. In fact, in this quarter we again remained above our peers in the Central Bank complaints ranking that is published, as I said, monthly. This is a result of our increased client linkage.

Also one month ago, which is the first point, we launched our new positioning which clearly expresses our customer centric model through the sentence or through a question of What can we do for you today? And in Portuguese (spoken in foreign language) which is basically what we could do for clients being closer to them today, not yesterday or tomorrow, trying to offer the best possible solution. And obviously, we'll continue to build our multi-channel platform to which I will address in future slides. But I must say that we already got to 5 million digital customers, as we speak.

Next slide, talking about the integrated Bank; we think we are nicely and widely positioned through an integrated offer including wholesale and retail service products to our clients. This is probably unique in Brazil in terms of being able to offer these integrated offer and service.

Global corporate banking; in that area we are leaders already in project finance and ForEx operation and in April, we were also leaders year-to-date in ECM operations. In SMEs we have the most comprehensive offering of any Brazilian bank with a complete package of financial and non-financial products and services, including an integrated account with a [current] access to an international desk, an online platform with a [deliverance] of potential employees and a training platform for owners and their employees, unique offer, believe me, for these SMEs.

And finally, the Atacarejo, this is an award in Portuguese joining retail and wholesale and this is the unique positioning I was mentioning to you. For example, we just agreed with a big company here with 5,200 points of sales in which we are going to offer and install an integrated solution both acquired in and with the rest of financial services in all its shopping points.

Third point maintenance in cost control. I would just here underline that we expect to continue pushing costs below inflation in 2016 as we have done in the last three years, already saving more than 15% in real terms, this continues to be in the DNA of Santander Brasil.

And finally, the fourth strategic point. I would like to draw your attention to our excellent risk management which has proven both preventive and effective, especially given the current macroeconomic Brazilian scenario. As a result, as you will see the next slides, our NPL ratio remains under control, having increased only by 30 basis points in the last 12 months.

So, how are we positioned? On top of the four strategy lines of actions, we are well positioned being the only international Bank in Brazil with critical mass. So we are the reference in that sense, with a market share of close to 10% across these businesses, we have the ideal size and scope to take advantage of growth opportunities. Having made the strategic and positioning introduction, I would like to stop five seconds in today's Santander Group results. The Group, as you know, presented a net profit of EUR1.6 billion with an increase of 12% Q-on-Q and 5% down compared on a year-on-year basis. 61% of their total income comes from Europe and 39% from the Americas. The Brazilian results, as you can see, are important for the Group account for almost one-fifth of the total.

So moving to the macroeconomic scenario. Let me address a little bit how we see things on the macro/political side. Last year, as you know, was characterized by a transition of adjusting prices and consumption. This process, we believe, is not yet complete, and as a result, in 2016, the country is expected to experience a recession of around 4% accompanied by still high inflation of around 7%. Recently, the improvement in Brazil's outlook together with some improvement in the international scenario enabled the real to strengthened somewhat in-line with the rest of the markets.

Additionally, we have seen a strong change in Selic expectations, now estimating a cut in the rate by the end of this year. The deflationary process could be intensified if the currency strengthens further, paving the way for a monitory issue, which may help the economy recover even further. Despite the ongoing challenges, we continued to be optimistic about the future. The country remains one of the most attractive emerging markets, if not the most.

In fact, Brazil presents a low financial credit risk, international reserves, a strong solvency and liquidity levels and a well acknowledged banking system. The country also has sound institutions in demographic bonus which are supportive of growth and favors several economic sectors structurally. We see the current moment as one of opportunity looking forward, which could lead the country to resume a stronger and more sustainable growth with greater productivity and important social gains.

So moving to the highlights of the results. In this slide, we present to you the three main buckets about both the results and the balance sheet. On the grey zone, I would refer to balance sheet, on the yellow boxes we refer to P&L, and finally the net profit that we are presenting. So our first quarter results we think were positive being the main highlights that the Bank's capital and liquidity position remains absolutely comfortable. The loan portfolio reflecting the economic scenario, as you will see in the next slides, nevertheless, the customer base expanded and revenues increased. Asset quality metrics remain stable or are deteriorating in a limited and controlled manner. Total cost growth remains below inflation, as I mentioned, and as a result, net profit climbed by 3% reaching almost BRL1.7 billion.

Going to the specific performance of this 1Q results; as I mentioned, net profit totaled BRL1.66 billion in the first quarter of this year, 3.3% up compared to the previous three months. In the year-over-year comparison, as you can see net profit increased 1.7%, which underlines that we are on the right path of a sustainable and more resilient results. And we have achieved this increasing the customer base. We have increased almost 300,000 clients linked in the last 12 months, almost 650,000 digital clients, and we have increased the total base of clients by 1.5 million in 12 months, reaching 32.8 million clients.

On slide 16, we show the main lines of our results about which I will go into more detail later on. Regarding revenues, net interest income increased by 2.9% over the fourth quarter of 2015 and 6.4% over the first quarter of 2015. Fees fell by 3.7% in the quarter due to the seasonal impact of credit cards and insurance, but registered a strong year-over-year upturn of 9.3%.

The allowance for loan losses decreased by 12.2% in the quarter. Returning to similar levels of 3Q15 after we commented -- we already commented this in the previous results presentations. After the comment that in the 4Q15 results as I said, and presented our 12 month growth of almost 15%. General expenses declined by 4.8% over the previous quarter and grew by 7.5% over the same period in 2015, which is still below inflation, even considering the annual collective bargaining agreement of 10.5%. As a result, as mentioned, net profit totaled BRL1.7 billion, 3.3% more than in the fourth quarter of last year.

So, looking now at each individual line let me address, in slide 17, the evolution of our NII which totaled BRL7.6 billion in the first quarter, 2.9% up versus the previous quarter. The increase is explained by market activities which maintained a good performance in the quarter as well as NII from liabilities, which is starting to reflect our already announced efforts on this side of the balance sheet.

Net interest income from credit reflected a drop in volumes due to the weakening of economic activity. But it is worth highlighting that credit spreads of the loan book increased by 10 basis points both quarterly and in our 12 month comparison with higher spreads per product more than offsetting the negative impact of the change of mix. So the price effect has more than offset the mix effect in terms of impact in the NII.

Moving to volumes, the expanded loan portfolio totaled BRL312 billion, which represents a decrease of 5.7% in the quarter and 3.8% in the last 12 months, a natural tendency that I mentioned in the previous slide, given the challenging macroeconomic scenario. Adjusted by ForEx, the drop in the quarter is 4.5%. By type of clients it is worth noting the performance of the individuals portfolio, which increased by 0.9% over the previous quarter and 7.2% in the last 12 months. Payroll lending and mortgages continued to be the main growth drivers.

Consumer finance, which decreased by 3.6% Q-on-Q reflects the weaker vehicle or car market. Our model is extremely efficient and we were consequently able to gain market share in the current scenario maintaining our leadership. Both the SME and the large corporates portfolio reflected the mentioned, weakened derived from the macro scenario. In the last case, in the corporate portfolio, large corporates portfolio, 30% of the quarterly drop is explained by the strengthening on the retail.

On slide 19, you can see the evolution of funding. Funding from clients which total BRL283.1 billion were down 1.7% Q-on-Q, but up 8.6% year-on-year. The decrease in the quarter can be explained by the different deposits performance, again reflecting the economic scenario, while treasury notes are increasing in order to offset both payment of dividends and reserve requirements. Good performance of assets under management, as you may see, rising strongly both in the year and quarter. So total funding including off balance sheet, assets under management came to BRL512 billion or BRL513 billion, falling 0.6% Q-on-Q and climbing 9.3% in 12 months.

Moving into the P&L commission side, so reflecting our increasing linkage with clients, fees are evolving positively. Total fee income came to BRL3 billion in the first three months of 2016, a remarkable absolute level compared to the past. 9.3% higher than in the same period last year. It is particularly worth noting that fee revenues are moving towards expected double-digit growth in 2016.

In fact, if we exclude the kind of one-off effects of the sale of the custody business that we announced last year, fees would have increase already a 10.2% year-on-year, double-digit increase as I mentioned. Current account fees again reflected improvement of our relationship with clients, with more than 24% growth year-on-year.

In the Q-on-Q comparison, the 3.7% downturn was impacted by our traditional insurance and credit card's seasonality effect. Excluding the first effect, the 4Q high insurance revenue impact that we normally have, fees would have increased 1.2% instead of the mentioned minus 3.7%. So, as I mentioned in the first words I spoke in the presentation, here in commissions, fee revenues are a measure of the loyalty of our customer base, a critical variable in our business model.

If we move to credit quality on slide 21, I would underline that the 15 to 90 days overdue portfolio, adjusted for the announced specific facts in the corporate segment in 4Q15, if you remember I mention that in the presentation of 4Q results wasn't somehow or somewhat in the quarter, again reflecting seasonal patterns and the deterioration in the economic activity. This last recent economic situation also caused a deterioration in individuals.

NPL over 90 days increased by 10 basis points in the quarter, with both the individual and corporate segment remaining flat. This was due to a combination of our continuous efforts, our credit mix more focused on low risk products, a more robust customer knowledge product in terms of risks and effective portfolio monitoring. Finally, coverage reached 200% remaining at client comfortable levels. In general terms, we expect the current challenging macroeconomic scenario to result in a moderate negative credit quality trend in the coming quarters.

Moving to cost of credit. The allowance for loan losses, as you may see, totaled BRL2.4 billion in the first quarter, a 12.2% improvement or drop over the previous three quarters and the cost of credit fell back to the levels of previous quarters. This trend can be partially explained by the normalization following the upturn in the prior quarter that we announced and which was associated, as mentioned in the 4Q results presentation with specific issues in the corporate segment.

Moving to slide 23, we see the evolution of expenses and as was clearly mentioned, cost control is a cornerstone for Santander to grow seasonability or to continue seasonability. Expenses decreased 4.8% in the quarter and increased 7.5% in the last 12 months. If we consider constant perimeter, let me remind you that, that would mean excluding Ole, Ole is the new trademark for Banco Bonsucesso Consignado with payroll joining venture that we have, the expenses instead of that 7.5% would have grown or increased by only 6%.

Moreover, the year-over-year evolution was also affected by the annual collective bargaining process that I also mentioned before. Going forward, we remain committed to cost control discipline. We expect to deliver expense growth below inflation also this year for a fourth consecutive year.

The next slide deals with our performance ratios. There was a widespread improvement in the quarter. The Efficiency improved 60 basis points and finalized or ended the quarter at 50.8%. Recurrence increased from 69.3% to 70.1%. Every time that we improve this indicator, we bring more predictability and resilience to our results. Thanks to these advantages, return on equity increased to 12.6%. As we have mentioned in several occasions, we continued to post improved results in this area.

On the slide 25, you can see that our liquidity and capital position remain solid with a stable funding sources and an adequate funding structure. The loan to deposit ratio reached almost 88%, a comfortable position and the lowest since 2009, I think. The BIS ratio stood at 16.4%, an increase of 70 basis points over the previous quarter. In addition to having a comfortable level, our capital is of excellent quality with a Tier 1 ratio of 15.1%.

In sum, in the slide 26, our management model has proved its effectiveness controlling risks, expenses and liquidity and capital levels, therefore building a solid platform on which to continue growing with quality. In the commercial area, we can make rapid progress with our digital agenda, which together with our other efforts has helped to improve customers' experience and reduce complaints. We have also maintained and expanded our importance in the strategic businesses, exemplified by the fact that our foreign exchange platform is the biggest in the country.

With regards to investments, we concluded the outright acquisition of ContaSuper, a prepayment digital business with enormous growth potential. Our Webmotors portal, already Brazil's biggest online vehicle purchase and sale site, acquired the Busca Carros brand, which has so important in important locations in the South region with high market shares.

In our payroll business, we finalize, what I mentioned, the change of the name of Ole Consignado from the previous Banco Bonsucesso. And thanks to all these efforts, we generated a positive impact on both our operations and our balance sheet. This was the eighth quarter in which we have recorded net income growth since the beginning of 2014. We gained more clients and encouraged them to carry out more transactions with us. Consequently, profitability increased and our main performance indicators improved.

So, as my final words, I think we have the necessary infrastructure and capital and positioning with an efficient integrated commercial model and important competitive advantages, ensuring that we are ideally positioned to continue delivering profitable growth.

Let me address, in the last two slides, couple of ideas that I think will be of interest for you. First, our two latest contributions into the Brazilian society, the Santander Theater in Sao Paulo that we just inaugurated and the Santander Cultural approach in Porto Alegre reaching 15 years.

And in the next slide, this is our full offer of products and services in Brasil. This is the ecosystem of Santander Brasil in Brazil that shows the potential and the positioning in each of the segments and each of the products.

Thank you for listening and now, I open the floor for the Q&A session.

Thank you. (operator instructions).

So, we'll start to go for the questions that I received many thing, I will summarize the things, try to put together the questions that are related to same topic. So starting with loan portfolio, we received a question from Eduardo Nishio from Plural asking how we see credit evolving 2016 and 2017, given the contraction in the portfolio that we saw in this quarter.

Okay, thank you. Well, as I mentioned in the presentation we think that apart from ForEx impacts and kind of the known like-for-like issues, it is true that we are seeing the macroeconomic scenario or situation or environment affecting the evolution of the portfolio.

We remain, I mean this is statistical one, but we remain with the idea that probably the Q-on-Q behavior in terms of economic indicators could start to be positive sometime in 1Q against the 2Q or 4Q against 1Q. At some point, we think that the economy will bottom up. Another discussion is the size, the strength and the timing of the way out. But we do think that we should start to see that positive territory in the next quarters.

If that is the case, we should also see reflection of that situation on volumes. So I would expect something like a single-digit, low single digit or positive single-digit for this year gaining a little bit of momentum for next year. It is what we have been saying more or less during the last, I don't know, at least three, four, five quarters. So we haven't changed the message here and we still think that if the economy behaves as I mentioned, we should start to see that kind of behavior.

Obviously, the confidence levels are going to be crucial in that discussion and so, the general momentum that the country could be involve during the next months will be kind of important to understand how the economy can evolve.

Regarding NII, we received one question from [Gillian Ricosta] from Itau BBA. We noted that spreads continue to evolve positively, but the loan portfolio reduction caused contraction in the NII -- credit related NII, could you comment your expectations for NII in 2016, especially given the scenario that you have for Selic of a cut of a 100 basis points?

Well, the first thing I have to say is that what we include in the presentation is consensus numbers. And so, we do see the Selic going down by the end of this year. I mean, I think in fact, that we were one of the unique bank here in Brazil that had clear call in terms of monetary easing by the end of the year, when the consensus and the market was on the opposite side with almost a 150 basis points of interest rate increases in the year.

So, we do think that the Selic will go down by the end of the year. What will happen with NII, well I already elaborated in terms of volumes, what we are managing are prices and that sort of mix. If you see the last long series of quarters, in general terms -- with some volatility, but in general terms, we have been able to offset the mix effect with price management. And on top of that, I will also -- it's still a low amount, I would also address the liability NII.

So I would be somehow positive of still with low amounts on the liability side. In terms of NII, obviously the volume impact will be there. I would say that in terms of NIN, we should be in positive territory. And the third component, which is obviously the market component, that's a difficult one to estimate.

Regarding asset quality, we received six questions from Philip Finch from UBS; Gillian Ricosta, Itau BBA; Flavio Yoshida from Banco Votorantim; and Nishio from Plural and [Lucas Lopez] from Credit Suisse. So starting with the more general questions, given the current scenario or the outlook, how the bank perceives delinquency going forward? And more specifically, regarding for corporates, given that we saw an uptick in early than it was in the previous quarter that was partially regularized this quarter, how do we see the outlook for corporates going forward as well?

Okay, thank you. With regards to credit quality, which is probably one of the main issues currently in Brazil, I would like first to -- what I mentioned in the presentation. I mean, I would like first to repeat the efforts that Santander Brasil has done during the last three, four years.

This has been -- it is clear we have been doing the efforts because this has been clearly reflected in our ratios. We have done a strong convergence towards BIS and we not only converged towards BIS but we remain clearly in a comfortable level in relative terms and this not kind of, this is not magic.

This is usually the reflection of knowing the client behavior, understanding the models, increasing diversification, improving exposure et cetera. And again this is not a 1Q job. This is a job that has been done by the risk department and the full operation, I would say during the last two, three years.

So having said that, how do we see quality going forward? Obviously deteriorating and I would say, as I mentioned also in the presentation, marginally and specifically controlled, but obviously, reflecting the situation that we have today in the economy. If you ask me by, I mean trying to differentiate the behavior in between different segments, I would say that also this is not the case today in terms of NPL ratios.

I would say that the normal trends will be that the retail side should perform worse in relative terms compared to corporates et cetera, because as the crisis continues to be present, the capacity of surviving by the retail side is obviously lower and that should be reflected. Specifically speaking of the 15 to 90 days, I would say a couple of ideas here.

Once we kind of normalize the behavior of the 4Q that I mentioned in these presentation three months ago. With that specific issue, on that same day it was too close to be solved and it was solved, just some hours after the presentation was done. But we decided to maintain what was real in the moment of the presentation. The deterioration in corporates has been in the quarter, in the 15 to 90 days, has been 30 basis points. And in retail, as you can see, has been 70 basis points.

Okay, so how do we compare that? How do we put these in context? If we compare, for example, with the 1Q in 2011 and 2012, which was the last credit cycle in which quality as you know deteriorated, the deteriorated there was around a 150 basis points in average, a 140 basis points to 175 basis points depending on the quarter in retail, which compares to our 60 basis point or 70 basis point deterioration in this Q.

So we're speaking of half of that deterioration in the same moment with a crisis that is already more -- almost three years long. The same comparison in terms of corporates also has the same, almost the same conclusion, it was 30 basis points compared to 90 basis points of average of deterioration. So, first idea is in the 15 to 90 days, we are seeing a deterioration or usually we should see a deterioration. It will be kind of a little bit of -- and really we didn't see that. Having said that, it is in relative terms limited and we feel comfortable in terms of how we're controlling that. And why I say that, because as you see in the NPL ratio in the 90 days, the situation is flattish or controlled or deteriorating in a reasonable way.

So we are doing our job in terms of, in between 15 to the 90 days in terms of trying that clients do not go into the NPL situation after those 90 days. Our perspective is for both ratios that deterioration would continue at least until, what I said before the economy starts to show some kind of recovery of -- in a small quantity.

Now, let's start going to the more detailed questions about asset quality. The first question is, has the BRL appreciation contributed to asset quality, actually the BRL appreciation makes the reported NPL to be 5 basis points higher than it would be in case if BRL had not appreciated. The second question is, can you explain the dramatic fall in the level of loan loss provisions in 1Q, 2016. Was it somehow related to FX changes?

Okay. In terms of ForEx, the answer is no. I mean, if you see -- let me address it simply, I mean, if you see -- the ForEx effect has two signs depending if you compare the year-on-year, or the Q-on-Q. And if you see the NPL ratio, the year-on-year moves from 3% to 3.3% and specifically companies from 2% to 2.1%. So I really would not put a lot of emphasis here, because what I mentioned before in terms of credit quality is not affecting.

And in terms of the fall or the drop in provisions in 1Q, I would say that what I mentioned in the 4Q results. I mean, we did and we communicated and we published that we were making a specific efforts for companies. That meant that in the Q at that time, we climbed from almost 2.4 to almost 2.8 be of provisioning.

And now, the levels of provisioning are returning back to 3Q levels or even a little bit far upper compared to 2Q. So cost of risk is more or less stable and this level is around 3.1%, 3.3%. And so, I would more underline that in favor of 4Q more than the 3Q. So normal levels of provisioning with again, potential deterioration going forward in a controlled way.

And later came a question from Philip Solomon, Morgan Stanley. The question regarding [as such] Brasil. As a shareholder, can you share any details on the outlook of this business and if Santander that has already provisioned the loans and active investments made?

This is a quick one. We don't speak about clients and we don't to speak about levels of provisioning we've done. The only thing I can say and this is not with regards to whoever we are speaking, is that the criteria that Santander Brasil applies in terms of provision is absolutely conservative and I repeat, absolutely conservative.

And lastly, regarding asset quality. There was a question of whether there was any sale of credit portfolio? And I'm going to answer. There was a small sale of BRL21 million. So it had no major impact on any metrics or in terms of delinquency or gains or effective impact on the P&L.

So now moving topics. There was a question regarding other operating expenses from [Carlos Gomes] Banco do Brasil. The other operating expenses grew 49% quarter-on-quarter and year-on-year. What exactly impacted this line and what can be expected for the coming quarters?

Okay. Thank you, Carlos. This line is kind of volatile per se and so analyzing the results and effects of in terms of Q-on-Q or year-on-year et cetera tends to be a little bit difficult. What do we have there? We have all kind of things. I mean we have from actuarial adjustments from variations from the liability, from monetary adjustments on the liability side, some expenses or costs in terms of some judicial things we have said as expenses which is a positive [borough]. So the concept of all those, as you can imagine and as we can show in the past is quite volatile. It's a little bit difficult to estimate and a bit difficult to achieve a trendy line there, given the -- as I said, the Q-on-Q and the concepts because you have full list of concepts within that line.

Now, moving to tax rate, effective tax rate, we received questions from Philip Finch, UBS; Lucas Lopez, Credit Suisse; Gillian Ricosta, Itau BBA; and Tito Labarta, Deutsche Bank. The question is, what is the outlook for the effective tax rate? And if we can share some color on the volatility of the effective tax rate over time?

I'm going to answer this one. So if we see, in the quarter -- the effective tax rate in the quarter was 10.9%. And last year, effective tax rate was 13.6% and 2014 was also in the neighborhood. So the effective tax rate that we had in this quarter is not that different from the effective tax rate that we had overall last year. If one looks to the behavior of tax rate last year, effectively there was major swings among the quarters, but because there are events like payment of interest on capital that tends to make those swings on the quarter-on-quarter evolution. When we manage this, we are looking to the yearly figures. And as we indicated in the last quarter call, we indicated that we expect the effective tax rate for 2015 to rumor around between 15% and 20%.

We received one question, asset quality question from [Philip Pedigo], MetLife. Can you give us some color on the level of credit renegotiation, NPLs and loan loss provisions on this portfolio?

Well, we do publish these. I think it is in the quarter report, both levels that have been -- what the Bank has been doing during the last full series of quarters. I think it's absolutely flat, if I'm not mistaken. So there is not really strong variations here. We continue to -- obviously, to do an important effort as I mentioned before in the 15 to 90 days period, in which we think that -- and we've published this in the last quarters. We think that there is clear an opportunity for the Bank to be closer with the clients.

This does not mean anything more than what I'm saying. It's just analyzing, making our risk department and our mobile department active in terms of what is the health of our clients, financially speaking. And with that in mind, we try to find solutions and these has being like I'm saying for a long time. So there is no strong variations. The numbers, you have them in, as I mentioned in the report, in the quarterly report and we will continue in the same way.

I would say that in general so it's not only Santander Brasil, the Group has proven to be very capable in this territory. As you know, the Group has gone through different crisis in different markets during the last 10, 15 years and the capacity in terms of recoveries, fee negotiations et cetera is already a proven fact. So we are doing the same thing here, which means that we optimize our position and knowledge with the clients to avoid future [index].

We have no more questions that we received through the web. Now we can go to the questions on the phone please.

(Operator Instructions) Mr. Rafael Frade, Bradesco.

Hi, good morning all. I have two questions. One, a follow-up on the question related to taxes. In the quarter, I understand that you used some tax loss that you having in the past. How much more you still have of those tax loss to be used and if you intend to use these throughout the quarters or maybe concentrated in any specific quarter?

And second, I would like to get a sense of how relevant was the impact of the change in interest rates on the results in the [quarter], if it was something relevant or not. If you can give any color on this, it would be great.

Thank you Rafael. So, the amount of the DTAs that are off-balance, equals BRL1.2 billion as of March 2016. How this is going to be used over time? You know it will depend on the conditions.

Regarding your second question, Angel is going to answer.

Yes. Well, I would say that you have kind of the (inaudible) of the mark-to-market, but that goes through capital. In general terms, our portfolio, overall core portfolio in general and in specific terms has been totally stable. So we have not been active given the market volatility and the situation of the financial markets, in general terms.

And obviously, we do have a sensitivity, but I would say that here probably the more important impact is what I mentioned in the presentation, is our price policies, our spread evolution and how we are pricing our provision, our services.

In terms of sensitivity, I think we have said in the past, I think it's a 100 basis points decrease/increase impact around BRL400 million or EUR100 million. But as I said, we have been absolutely or fairly non-dynamic at all in this quarter.

Okay. Just a follow-up on the last question, putting it another way, the [results came] in the other line on your NII was significantly higher than the fourth quarter, what would be a good number be working with? Is this the first quarter number, is the fourth quarter, something in between?

Thank you. I have mentioned this in the past, I mean, the market component, [what if I] remember well, in 4Q results I was mentioning that we were having quite a good quarter in terms of markets. If you see, historically speaking, the range is in between 1 point -- if I take the outliers, 1.3, 1.4 to 1.6, 1.7, so this could be -- we could see this quarter as a positive one in terms of market, the answer is yes. Do we see this as a maximum or we don't see reaching those levels again, I wouldn't say so.

I mean this depends a lot on, as you can imagine, on all the activities that we have around markets in terms of treasury, in terms of all our departments in the wholesale banking etcetera and we have had a quite positive 1Q results in that sense, and we continue to perform absolutely positive in the 2Q. So difficult to say, difficult to estimate. It is, you're right, this is a quite a good quarter in that sense, but I wouldn't say that it's non-repeatable at all.

Okay, that's perfect. Thank you.

(Operator Instructions) [Dominguez Halavina], JPMorgan.

Hi, good morning all. Congratulations on the results, I thought some of the trends are good. My question is adding to Frade, just so that we understand, I understand that the line others is highly volatile, but how should we think about this line versus rates. So in example, we did see a significant rate reduction, if we look at the curves two year, five year over the last three months. How much of those results were benefited from this rate cut and how should we think going forward on the moves of the one-year or five year rates and these line.

Dominguez, I don't know if you are referring to the others in the NII or the others in the costs.

In NII, I'm sorry. Within NII, I understand there was some reclassifications --?

Thank you for your comments. I already elaborated here, I mean it has not only to do with a specific Selig movements or pure movements, better said. It has to do a lot with our activity on what I mentioned before treasury et cetera. So in that sense, as I mentioned, our wholesale department an area is absolutely well positioned. I remembered two years ago, we are first players in ForEx along with first in advisory equities et cetera. And that means this type of performance in that line of -- I don't like Dominguez, I don't like the word others because these are specifically basically markets et cetera.

But be first to do directly with that. I mentioned in my thoughts, it's a good quarter and we'd repeat it, I hope so and so are we trying to repeat it, yes. We are having already, I mentioned, a good 2Q in that sense, but I would not link it to, specifically to the Q. Obviously it has to do because volatility and times et cetera move more or less depending on what happens and such the Bank benefits more or less. But difficult to estimate.

I would, in general terms, if I have to put myself in your place, I would kind of analyze what has been the historic evolution, I mentioned already the ranges and then see how we outperform [against] those levels.

Yes, I'm sorry. I didn't mean like for you to forecast. I ask, if the interest rate curve shift upwards or downwards has a direct impact on that line.

Dominguez, you have the trading books, which are the wholesale traders that Angel mentioned. And then of course they trade as well, the interest rate markets, right. So, but it's not a structural thing, one day they can be long, the other day they can be short. So doesn't mean that, structurally speaking, you have a fine here. They vary a lot their positions over time. So it's difficult to give any sort of sensitivity or any sort of direction.

No, perfect.

That's why I was mentioning that at the end of the day the activity of these guys that affect and that have that kind of impact. I wouldn't link directly if X basis points et cetera because it has do with that (inaudible).

Okay, understood. Thank you.

Thank you. The Q&A session is over and I wish to hand over to Mr. Angel Santo Domingo for his closing remarks.

Well, I think that's it, another quarter, I would like to stress that we continue to deliver. We do not want to excel in one Q and do the opposite in the next Q. So the idea is recurrency, is continuing to deliver. We are increasingly little by little and we are going into the direction that we are expected. We want to deliver what we have said to the market and we strive to doing it. So, thank you for your presence here and I look forward to seeing you in the next quarter.

Banco Santander Brasil's conference call has come to an end. We thank you for your participation. Have a nice day.