Banco Santander Brasil SA (BSBR) 2017 Q3 法說會逐字稿

Good morning, and thank you for waiting. Welcome to the conference call to discuss Banco Santander (Brasil) S.A.'s Results. Present here are Mr. Angel Santodomingo, Executive Vice President, Chief Financial Officer; and Mr. Andre Parisi, Head of Investor Relations. (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. (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 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. Andre Parisi. Please, Mr. Parisi, you may proceed.

Good morning, everyone. It's my pleasure to welcome you to Santander Brasil's third Q '17 earnings conference call. This past quarter, once again, we had several important achievements, which will be presented by our CFO, Mr. Angel Santodomingo. So let me turn it over to Mr. Santodomingo, please.

Good morning, everybody. This is Angel Santodomingo. Thank you, Andre. I will try to go through the different slides, kind of highlighting the main issues around our results in third Q. So the main items that I will be addressing, you've got them in the first slide, which is I will have first for the key messages. Then briefly in one slide, I will try to discuss Santander Group's results, which have been already presented this morning. Then I will give an overview of the macro scenario here in Brazil, which is also one slide. And then that will be followed by the highlights of the quarter, and I'll -- usually, I will end up with a wrap-up.

So starting with the next slide. I will say one of the key messages is obviously profitability. I have been continuously addressing our desire to improve profitability during the last quarters. Return on equity achieved 17.1% this Q, which is a continuous improvement during the last years already. So this is kind of the trend that the bank has showed and continues to show.

In the next slide, you can see the strong commitment that we have to deliver consistent and sustainable earnings growth and profitability, both net profit and return on equity. In third Q, we accelerated this process and presented a net profit growth of 37% year-on-year and a profitability that is 400 basis points higher than the same period in 2016. This dynamic has been supported by our retail segment, which went through a deep commercial transformation during the last years. Now it represents 65% of Santander's earnings before taxes compared to 42% 2 years ago.

On Slide 6, I can tell you -- we can tell why this trend has been possible, improving Santander's operating leverage. I have addressed these 8 item during the last quarters, and I think it's important to understand the capacity or the potential we have through improving our operating leverage in the P&L. While revenues are growing close to 20%, expenses are controlled. First, our efficiency ratio has strongly improved in close to 400 basis points. I will say that this dynamic is closed to optimum. And growth comes in between all the initiatives through profitable market share on both loans and deposits, as you can see on the slide.

Let me say we use 3 main messages in 3 slides, which possibly can explain or may explain why this is being possible and is being executed. In the next slide, you can see first retail. In payroll loans, for example, both distribution channels, external, known as Olé Consignado, our subsidiary; and internal through our branches, have performed very well. In the quarter, we launched the digital payroll loan platform, which I will discuss further, and it has certainly contributed to the market share expansion process you may see on this slide.

Cards, once again, with a very good performance in the portfolio. We are optimistic about our prospects in these business, with differentiated products such as American Advantage card. We indicated our strength in the product. I can say with you that last month -- last 2 months already we are above 400,000 cards sold in the month or commercialized.

SMEs, on the other hand, agro business, for example, as I have mentioned in the last few quarters, we are making a strong effort in this area and they are -- they can be seen here. The markets again is a clear indication that we have adopted the right story to expand our base of agribusiness clients. SMEs -- pure SMEs, what strengthens our position in this segment goes beyond our financial offerings. As you know, we provide a unique loan financial platform. The name is Avançar program -- that helps entrepreneurs in their business.

In both retail and SMEs and last but not least, Getnet, which remains one of the main pillars of our commercial strategy. Its revenues are growing at a fast pace, and we continue to grab market share while keeping profitability at healthy levels. It is worth bearing in mind that Getnet's importance goes beyond its acquiring services. We consider it a crucial component on our plan to leverage the bank's revenues. So this slide -- the main area are several examples of why and how we are gaining profitable market share.

Second idea, the next slide, shows that our leading businesses continue to run at full steam and continue to maintain their leadership and expand it. In wholesale banking, we continue to hold leading positions on several fronts, including equity capital markets, project finance and ForEx. In Consumer Finance, our digital platform, +Negócios, has completely changed the dynamics of car financing in the country. As a result, today, the majority of car financing simulations are done -- in the country are done through our app system. I would say up -- clearly above 90% of them. We have been capturing profitable market share at a consistent and fast pace without jeopardizing asset quality. We are doing more than 1 million simulations per month through this app or system.

And third idea, in the next slide. We remain focused on delivering user experience improvements for our client base since we see, as I have shared with you during the last quarters and years, customer satisfaction as the cornerstone of our strategy to keep growing in a consistent and sustainable manner. And as I also shared with you, one key metric for this is the net performing -- promoter scores, sorry. Some of the initiative, innovative solutions launched in the past quarter are Santander One, our digital platform offering financial advisory and investment solutions; digital payroll loans, 100% digital solution available to our clients in their whole life cycle and integrated with bank's offerings. It has streamlined, process-enabled, enabling a greater efficiency. And following the positive steps mentioned about our auto finance and digital platform, we launched a similar solution focused on customer goods, +Vezes. It's main. It is already a success with more than 160,000 simulations per month with only 2 months being live. All these innovations through increased customer satisfaction help expanding our active, loyal and digital customers, translating obviously into higher transactionality, fast, higher profitability, as we will see when we speak about our P&L.

So advancing to the Santander Group's results. Santander Group, I'm not going to elaborate here too much. You already know because as I said, it has been already presented this morning. Santander Group net profit for 9 months amounted to EUR 5.6 billion or BRL 21 billion. The results of the Brazilian unit are important for the group as a whole. In fact, Santander Brasil accounted for 26% of the earnings in these 9 months.

The next slide, going to the next issue, macroeconomic scenario. The Brazilian economy is entering a positive growth phase with low inflation, stable currency, and close to lowest interest rates in history. It's -- I think it's almost 60 years that we haven't seen these lower -- close to these lower interest rates. After 2 quarters of positive growth, the recession, I would say it's over. And the economy is heading to a 0.7% approx growth this year and possibly accelerating to over 2% or even 3% in 2018, with most sectors expanding albeit at different paces. We are witnessing the first signs of recovery in the labor market with our combination of small but steady job creation and improved purchase power of salaries. Due to existing economic [lacking] growth, we will not lead to meaningful inflationary pressures. Indeed, inflation is expected to remain below target for at least another year on the back of idle labor and capital capacity but also thanks to gains of credibility and efficiency in economic, fiscal and monetary policies. This is paving the way for a country probably experiencing the lowest interest rates, as I said before, in more than 60 years. This combination of growth, stability in low rates is conductive to sustainable credit expansion and development of capital markets.

So let me go in the core of the presentation, which is the third Q results highlights. On Slide 15, we bring to you some details of our performance in these 9 months. The 35% growth in net profit is explained by a host of factors, obviously, just to name a few, net interest income growth on the back of the loan portfolio expansion process and healthy spread environment combined with a winning strategy on market activities and further gains on the deposit NII. Greater customer loyalty resulted in higher transactionality boosting the fee revenue growth. Asset quality and provisions were kept under strict control; and as has been in the past years, our comfortable position in both liquidity and capital.

Next slide, Santander Brasil's net profit totaled BRL 2.6 billion in the quarter, 11% higher than the previous quarter and 37% above third Q '16. This is the 14th out of the last 15 quarters in which we have delivered earnings growth Q-on-Q. Similarly, in these 9 months, net profit increased 35% year-on-year and is already at the same level of the whole year of 2016. This dynamic confirms that we are on the right track to keep delivering sustainable and resilient results.

On Slide 17, we present the main lines of our results, about which I will go into more detail later on. Total revenues increased by 7% Q-on-Q and 18% year-on-year. I would underline these 2 trends; 7% Q-on-Q and 18% year-on-year on the revenue side. Such good trend was supported by a positive dynamic on NII, net interest income, increasing 8% over the second quarter of '17 and 18% relative to 9 months -- to the 9 months of '16, reflecting a good performance from all of its components, credit and funding NII as well as others. Fees once again delivered a sound growth Q-on-Q and year-on-year of 19% with an excellent performance on current accounts, credit cards and issues, among others, fast transactionality or linked clients. On the expense side, allowance for loan losses increased at a very controlled pace in the quarter but decreased substantially in the year by 9%; general expenses growing above inflation, 6% Q-on-Q and 7% year-on-year but is still at lower pace than the revenues. As a result, net profit totaled BRL 7.2 billion in 2017 so far. I will elaborate on the main concepts in the following slides.

So as Slide 18 shows our NII evolution, which came to almost BRL 10 billion, 19% higher than third Q '16 and 8% better than second Q this year, the previous Q. Before elaborating the numbers, I draw your attention to spreads. Its opticality is flat, but considering the adjustments that the Selic has had -- I mean, closing yesterday night, we have a Selic that it's almost half what it was 1.5 years ago. It is clear that the bank is strongly and positively managing this variable. Main highlights of numbers -- of these numbers are credit NII, which continued its upward trend, reflecting the still healthy spreads level and loan portfolio growth. Revenues from funding resumed its expansion process, even considering a lower Selic rate environment, as I mentioned, growing 4% in the quarter and 35% year-on-year in these 9 months, clearly indicating that the liability management plan that I had been sharing with you for the last 2 years is having a positive impact on the P&L. And finally, market activities under this others concept, had another solid quarter, mainly reflecting our balance sheet position -- our balance sheet positioning against lower Selic rates. In fact, as you will recall, we could say that part of the asset NII income is included in these others segment.

Next slide, we look into the loan portfolio. Our expanded loan portfolio increased by 8% in the year and 4% in the quarter, reaching BRL 336 billion, which is, I would say, considered a good performance. According to the latest Central Bank data, total system loan book reduced by 2% year-on-year, so minus 2% the system plus 8% Santander Brasil; with private banks shrinking 1.3%, so minus 1.3% private banks plus 8% Santander Brasil. The individuals portfolio continued to deliver a resilient performance, expanding by 5% over the previous quarter and 16% in 12 months. Payroll lending, rural and credit cards were the main growth drivers. The Consumer Finance once again delivered solid figures, expanding 6% Q-on-Q and 16% year-on-year, still taking the benefits of what I mentioned, our auto financing digital platform. This, I have been sharing with you during the last, I would say, 4, 6 quarters. Our double-digit growth in retail compares positively with a sector average of 4.6% year-on-year. So we are multiplying by 3 that. SME portfolio has also shown improvements although still timid on both Q-on-Q and year-on-year. If you remember, last Q, we had numbers that were almost flattish, and we are clearly going into the positive side. We are confident that this is the beginning of a new cycle; and finally, the corporate portfolio which reduced slightly in the quarter, partially reflecting the strength of capital markets and again improving strongly versus the performance of the previous quarter in which, you would recall, was deeply in negative territory in terms of the delta of the Q.

On Slide 20, you can see how our funding has [moved], again a very positive picture, I would say. Positive growth on funding from customers is still reflecting more engaged clients, growing 3% Q-on-Q and 6% year-on-year. Additionally, we have been proactively reducing the amount of financial bills, what we call here locally letras financeiras, which leads to a better cost of funding. These letras financeiras, as you may see in the slide, have gone down from BRL 67 billion to almost BRL 39 billion. So we are speaking of almost BRL 28 billion drop in 9 months -- in 1 year, sorry. All in all, total funding reached BRL 594 billion this past quarter, growing 5% Q-on-Q and 12% year-on-year.

The next slide. As we have been saying since 2016, fee revenue growth is a consequence of more engaged customers, adequate pricing and improvements in the quality of our products and services, altogether culminating into increased transactionality. Comparing these 9 months to the same period of the previous year, total fee income jumped 19%, reflecting a good performance in mostly all lines. In the quarter, fee revenues climbed 2.1% with good results from cards and collection services with the highlight to cash management, while insurance presented its traditional seasonal impact during the quarter.

Now let's turn our attention to asset quality. The early (inaudible) NPL continued with a healthy dynamic, decreasing 30 bps in the quarter with improvements in both segments, individuals and corporates and SMEs. NPL over 90 days remained stable in the quarter at 2.9%. Individuals -- the individuals segments delivered an NPL improvement for the sixth consecutive quarter, and the corporate NPL improved slightly. And our [BODs] figures continue to be an undeniable evidence that our asset quality remains controlled at comfortable levels. This trend continues to reflect the strength of our risk modeling. To further corroborate this statement, it should be noted that our coverage ratio reached 230%, almost stable during the last 2 quarters, which is, in our opinion of course, a healthy level.

In the next slide, you will see the loan loss provisions net of recoveries that totaled BRL 2.4 billion in third Q, 3% in -- almost flattish 3% increase Q-on-Q and 14% lower than the same period of 2016. Also, the cost of credit rose by 10 basis points to 3.3%. We still consider it to be at a comfortable level especially compared to last quarters.

Moving to next slide. We can observe that expenses grew above inflation both Q-on-Q and year-on-year. Let me elaborate on these points. This dynamic comes as a result from a greater commercial activity that -- and the impacts came mainly from, first, outsourced services, reflecting the enhancements of digital processes, including the development of the different platforms I had been sharing with you in this Q and previous quarters; second, advertisement -- advertising and publicity, greater intensity of marketing campaigns for new and already existing products and services; third, data processing, greater number of transactions and accesses through different channels, indicating that our clients are closer to the bank and using our services more frequently; and lastly, fourth, personnel variable compensation especially for the retail segment, reflecting the substantial improvement in the performance. In the year -- and this is an important number, our total revenues grew 2.6x faster than the expenses, indicating that we are increasing our operational leverage that I mentioned before and we are in the right path. These numbers clearly reflect our growth, stock equity story that I have been sharing with you, both backwards and forward.

Next slide brings our performance ratios into the spotlight. The efficiency ratio reached 44% in 9 -- in these 9 months, improving substantially from the same period of last year and remained flattish Q-on-Q. The recurrence ratio in these 9 months stood at 81% -- 81.3%, above 80%, which, in our view, is a level that already grants a great predictability and sustainability to our results. And thanks to these advances, return on equity improved further and reached 16.3% in these 9 months and 17.1% on the last quarter. Compared to the same period of last year, we delivered a remarkable improvement despite the challenging macro scenario in the country. We reiterate our commitment -- this is a commonplace already in the last -- almost 2 years, to continuously enhance our profitability.

On Slide 26, before our final -- before my final remarks, you will notice that our liquidity and capital ratios remain at sound levels, with stable funding sources. The loan-to-deposit ratio remained virtually flat in the Q at a comfortable 85%, and the current BIS ratio is at 16% -- 16.2% with our capital ratios are at healthiest, a core equity Tier 1 level of 14.2% and a Tier 1, as you can see in the slide, at 15.2%.

So let me wrap up and end with my final remarks about these third Q results before we go into the Q&A session; return on equity of 17.1% in the quarter, showing a substantial improvement and remaining significantly above our guidance for 2018. Remember that, that guidance was 15.6% for December 2018; total revenues growing at fast pace, reflecting a healthy dynamic on loan portfolio spreads and client activity; asset quality under strict control, evidencing our excellence in risk modeling. Greater productivity remains at the top of our priority list as our efficiency ratio improved 390 basis points in 12 months. The good momentum for Santander Brasil has been supported by our strong retail machine, which now only -- which not only, sorry, brings profitability to a higher level, but also grants a great predictability to our results. We remain well positioned to deliver sustainable ROE, return on equity, improvements powered by a well-defined business strategy, organic growth and disciplined capital deployment.

Thank you for your attention, and I think we are now available to answer your questions.

Okay. First question is from Lucas Lopes, Credit Suisse. What was the driver of the sharp Q-on-Q growth in [other] operating expenses? Does this line include provisions for economic plans contingency?

Thank you, Lucas. Well, I tried to explain on my presentation the 4 main reasons. I would say basically, the basic idea is we've got a franchise. As I mentioned, this is a growth stock story. So we are -- have a franchise that is growing, as you can clearly say -- see. And this means in some quarters, obviously, we will see some volatility here because it will depend on the Q, but you can see that this is also reflected, obviously, in investment and in cost. Let me say we are totally committed and this is the ComEx level. We are totally committed to maintain a control in this cost. I mean, with this type of turnarounds, with this type of growing stories, one of the things you have to be disciplined is in cost because you have this rich effect that as -- given that you are growing, things may be supported and then expenses can grow whatever they might. And this is not the case in Santander, absolutely not. But on top of that, we have to admit that, that growth has to be funded, has to be supported by growth in operating. So I elaborated in 4 main concepts: outsourced services, advertising and publicity, data processing and personnel. I would say wrapping that up, 40% of that is kind of [first] services or subcontracted services, and the other 60% is kind of the marketing, data processing, communications. Remember that you have also, I mentioned, the variable remuneration that -- given the strong performance we are having in different areas and specifically on the retail side, we have started to account -- well, started -- I mean, started to account the delta, obviously, not the total amount in this Q. And that means also a little bit of an effect. And the minor one also is that the salary increase that happened in the last part of the Q is also affecting that variable, okay. That's a little bit of a summary.

Next question from Lucas, Credit Suisse. I understand that the [CJ] is not up to the management, but do you have that information whether Qatar is willing to sell the remaining stake they have in the bank now that the lockup period expired?

Thank you, Lucas, again. You are totally right. This is not up to the -- this question is not up to the management. I can only speak about facts and feelings. Facts -- as you said, there was a small and very -- a small group of players or individuals [argumenting] that at the end of the lockup period, we were going to have a kind of an issue around here. We are already almost at the end of the month. So time has gone by and I have -- as I have mentioned in different places, it was not foreseeable, that situation. But I mean, the best for this type of assessment is time. And time will go by, and it will put in its place to everybody. That's a fact. Now the feeling or the sensations -- or management has the feeling that we have a stable shareholdership structure today and that the kind of performance that the bank is having is reflected in those shareholders. And I'm not speaking only of the main ones because as you can imagine, we do have relationship with a lot of our shareholders. And that is being reflected in stable shareholders, and they are very happy. And I'm speaking of the whole shareholdership base today with the performance, and they are looking forward to seeing the delivery in the next years and to see that, that is reflected in the share price. And I am sure that it will be reflected.

Next question is from Thiago Batista, Itaú BBA. Trading results and others concept were really strong, the highest level in the absolute term or in relation to the total NII. Can you give some color on this strong performance and also what we can expect going forward?

Okay. Thiago, thank you for the question. It's a good question. I'll try also to address a little bit in my words, but let me try to elaborate here. I have been saying with you, first, the position that we had is not that we have, that we had a long time ago in terms of how we saw the rates and the Selic rates here. That's the ALCO portfolio position. I will say that here, we like to do a transparent exercise. From what I see, this is not common in the marketplace, but we do like to share with you the division in between -- in credit, liability NII and others. So credit is growing. Liability is growing, NII. And why is others growing? It's basically because, I would say, part of the NII margin and part of the liability margin -- but basically, the NII margin is in that others. Why is in that others? Because the ALCO portfolio is positioned in that way. We -- I was going to say we knew. Obviously, we didn't know. We foresaw that this could happen, what we are seeing today, and we positioned ourselves to help -- positioned not in trading terms. I mean, believe me, we haven't sold a penny during the last, I don't know, how many quarters. It's just pure positioning in terms of helping, which is part of the business of the bank in terms of positioning the ALCO portfolio in the relation we wanted. Now the next question will be, "Okay, so how long, how sustainable is this?" Well, this depends on the [recipients rate]. Last -- yesterday, we saw the last interest rate decrease. That -- this depends on the recipients of the interest rate drop, but this tends to last in between 12 to 24 months. We foresee that, that still will be the case, okay. So that is the first part of my answer. The second part of the answer is, okay, on top of that 12 to 24 months, do we have additional leverage points in which we could compensate these lower rates? The answer is yes. The answer is yes because of different things, first, because as you can see, we are clearly grabbing market share. So we do have a strong commercial platform today, and we are grabbing profitable market share. I always underline profitable because we do not want to grab market share for the sake of being larger; so first, volumes, okay. Second, as you can see, we are managing spreads strongly in an environment which the normal trends would be downwards. So we are managing spreads; third, liability. I shared with you this lability plan almost 2 years ago, right. And I said to you, "I am announcing this liability plan. We have this different client of leverage points to address. And these, we'll be having during the last quarters, years." And this is what has happened. I mean, the NII from the liability side used to be BRL 300 million, BRL 400 million. Today, it's above BRL 1 billion per quarter. So this is already happening, and there is still some capacity there. And finally, what I mentioned to you, the different strategies around -- and my final point is on top of that, I would look at total revenues. A bank generates total revenues from NII and fees and this -- and the focus or the strength, if you are strongly committed to your commercial workforce and to your commercial position in the marketplace, show up slightly in between. So sometimes, you have strong NII revenues. Sometimes, you have stronger commission revenues depending on the products that the clients select, depending on the environment, depending on the needs of the financial sector and clients. So total revenue per client -- total revenues, as in all, how linked clients use the bank and generate revenues, that is what matters. And this is why also, I tend to share with you always that, I mean, customer experience, customer satisfaction, this type of things that normally sound a little bit fluffy but in the end is what we really target in terms of being a strong player here in Brazil. Sorry for the long answer.

Okay. Next question is from Rafael from Bradesco. Could you give a little more color on other expenses? There were a big jump in commissions. Is it related to payroll? How the accounting works. Can you explain further and give some reference to what expect next for the other expenses?

Yes. Thank you, Rafael. I would say that in other, you have a different -- you have a different issues. In general terms, unfortunately, although it is called other, has to do with business. You have there variable costs coming basically from our subsidiaries. I'm speaking of Getnet. I'm speaking of Olé Consignado payroll, as you can recall, or our financial arm, the auto financial -- the auto financing arm. So all those fees that are growing strongly because of our business, because our business is growing also strongly is one of the main issues. And obviously, always, you have others and others, the others and this type of things that tend to be a little bit volatile. I have -- in other quarters. I don't remember when. I think it was a couple or 3 quarters ago, I had the same question because that quarter also was a little bit peak in that sense. And you have this type of volatility because, as you can imagine, you have always the different others concepts. But this is basically the reasoning, subsidiaries' strong behavior and commercial activity, so fees growing in terms of what we invest there and also what we pay through these subsidiaries to external parties or through correspondence, as we call here, or to other selling points that are not in the organization.

Okay. Next question is, explain the strong growth in payroll lending, once again from Rafael Frade.

Okay, Rafael. Also, I mentioned a little bit about this in the presentation. But if I can expand it a little bit, I remain -- let me remind to you, have 2 kind of -- we have 2 lines of action here or line -- 2 lines of selling lines. One is the -- what we call internal one, which is through branches, which go normally directly to the client. And the other one is through Olé Consignado, which is our subsidiary here, which is also focused on payroll loans through third parties. I was addressing this issue in my -- in your other question in terms of fees. So why is it growing as strongly? Well, first, because it is gaining momentum. And you remember that Olé Consignado has -- I think it's 1.5 years of existence and it is clearly working pretty well. This year is going to be fantastic for them. It's gaining, clearly, momentum. We are focused, and we have the right product and the right positioning. And internally, it's about the same thing. On top of that, we have this digital -- new digital platform that is starting to work pretty well. So if you add all that, so good positioning, good tools, good commercial capacities and a clear strategy in terms of what you want to sell through, where you want to sell it. That explains the net right positioning. Let me remember you that this Olé Consignado subsidiary, we did it after closing our activity 3 or 4 years ago through third parties because it was not at all profitable. So we closed it. We did a joint venture with partners, with industrial partners, partners that knew how to do this. And now it's clearly paying off.

Next question is from Yuri Fernandes, JPMorgan. Long-term ROE, you were red there for your 2018 ROE target, and the gap to some other prior periods have reduced materially. Can you please discuss company's goals for long-term ROE?

Okay. Thank you, Yuri. You're right, return on equity, we had an expectation of reaching December '18 local ROE of 15.6% within what we share with the market in the different Investors Days that were done. And we achieved that goal 1 quarter ago. So we achieved that goal by June this year. So I will say -- I will give a couple of ideas here. First, our commitment to continue -- I have said this during the last, I don't know, how many quarters already. I hope that you will start to believe me now. I have said that we have a strong commitment of capital deployment, capital focus and capital profitability, and this is something that has strongly changed here. We have commercial units that in between the incentive measurement, they have return on risk-weighted assets. So this is not only, "We have to be more profitable, et cetera." We are clearly committed internally to analyze the economic value added, the economic profit that is being generated by segment on a monthly basis. So this is the positioning. In terms of numbers, let me maintain the no guidance policy. I will say that I would like -- we would like to keep it increasing to be clearly in between what we could say comparables, et cetera. So I would expect -- I wouldn't -- I would make here a petition, I wouldn't extrapolate as asset managers say. Probably a lot of them hearing us today. I wouldn't extrapolate past experiences to the future so -- because, I mean, we are clearly in a very strong positioning in terms of growth of ROE, but again, we are committed to increase this ratio going forward and to deliver it to our shareholders.

(Operator Instructions) Our first question comes from Mr. Mario Pierry from Bank of America.

Let me ask you 2 questions. The first one is related to your fee income. We're seeing current account fees growing 33% year-on-year. Your base of clients is growing but not nearly close to this pace. So this means that you're seeing increased usage by your clients as well as I would believe that you are also charging higher prices than before. So my question is related to your ability to continue to grow current account fees at such a strong pace. Second question is related to your loan growth. As you pointed out, the economic environment in Brazil seems to be improving. You are growing very nicely in consumer loans, retail loans. However, we still see corporate loans contracting. When do you think that corporate loans could start to bounce back in Brazil?

Okay. Thank you, Pierry, 2 good questions. First one, fees, current account usage, you are totally right. I mean, we are growing more in fees than in clients, and this is a clear reflection of the bank -- of the model of the bank. This -- what do I mean by this? This means that we are clearly focused, obviously, in gaining clients. Last month, we gained close to 80,000 clients in retail, net terms, so clearly gaining clients; as I mentioned, selling 400,000 credit cards, but making the bank clearly match more transaction and much more usage. A lot of the examples I gave to you, the app -- the different apps or the different digital solutions, I don't want to focus everything in digital because it is not. I mentioned in this Q the NPS that we continuously focus on the Net Promoter Score. What does this mean? I mean, let me be more concrete, okay. This means that by branch, by different segments, by different products, by different ages, we measure the NPS and we measure it weekly at the branch level, what -- means that each branch has a weekly kind of intention of improving customer service. And we do this because we know that customer service -- sorry, customer experience, customer satisfaction means exactly your question, more fees or more revenues because they use more the bank. It's not that we charge more. It's not that we are more expensive. This has not to do in terms of -- it's that they use more us. I mean, we have done this with credit cards. We have done this current account. We have done this with all the different products that you can imagine. And it's still the question, "Do you have still space?" We do have still space. I mean -- and this will come sometimes from current accounts, sometimes cash management, sometimes the different concepts that we have in -- within the fee environment. This is capital-light revenues. So it helps a lot in terms of profitability. So it's also good not only because of the P&L but also because of the profitability. Your second question was loan growth, fantastic, I mean, in terms of loan growth. You made a very good analysis. I mean, clearly, the retail side is going out stronger and following a little bit SMEs and not yet on corporates. If we analyze the large corps and corps, they were at minus 5% last Q. In this Q, they are close -- they are more closer to the positive territory. So on the delta, on the margin, they are improving, but still, they are not there. I would say that you have 2 variables here important: One is capital markets. Capital market usage is going to increase. So those companies that have access to capital markets, they will probably use it. And again, that goes back to my discussion in terms of fees, in terms of the banking role. And the second point is, obviously, the economic environment. How I see this is retail or individuals continue to grow, SMEs gaining, clearly, momentum both because of the economic environment but also because of what I said to you -- with you, the -- our SME plan that we have strong growth rates there; and finally, probably the larger ones and again depending on capital markets conditions. The performance of the bank is clearly above the market. I don't want to repeat myself here. But we are totally confident that we are growing at the right moment and at the right pace.

Our next question comes from Mr. Tito Labarta from Deutsche Bank.

I have just a follow-up question, I guess, on your loan growth. More on the consumer side, just the sustainability, I mean, you're growing consumer loans 20% year-over-year. And as other banks start to grow with the economy improving, do you think you will be able to sustain that level of growth? Will it need to moderate somewhat? Just want to get a sense of how that growth will continue to perform.

Thank you, Tito. I would say, first, why and then, second, where we are going. Why are we growing so much? It clearly has to do with this new platform we set kind of 4, 6 quarters ago. That platform has saved a lot of cost, but it has clearly produced a market-friendly environment for the auto financing settlement or business. We have several ideas here, but the idea is, first, this simulation app is being used strongly. I mentioned in my words. We guess because we, obviously, do not have official numbers. But we guess more than 90% of the simulations that are being done in the country are being done -- are being -- are using the app. So it's a very strong number, as you can imagine. Being leaders in this business put us in a very good position in terms of continue leading going forward. It gives a lot of flexibility both for car dealers and for clients, and they position themselves quite quickly in what they want and how they want to do everything. We have a front book market share of around 23%. We could go up to 24%, 25%, but we probably don't want to go further than that. So would I be able to grab much more market share if I wanted to? The answer is clearly yes. I could be grabbing much more market share on the front book than I am today, but obviously, I have my criterias and my profiles and I'm going to stick to them. Going forward, well, we guessed that we were going to have a stronger competition before. I would say that obviously, it's going to come. And we more than welcome that situation. So going forward, probably, the rate -- the pace would be slower than that 20% or 20-plus percent. Again, we are speaking of something like 10% of my total book. So it does have a representative weight, but I mean, 10% is part of the book. It's an important leading business, as I mentioned. But we are speaking of an impact only in 10% of the book.

Our next question comes from Mr. Carlos Macedo from Goldman Sachs.

First question, I want to go back to the question you had last about your margins and about the impact of your ALM position. If you look over the last -- for the 9 months of this year, your ALM position or the other position in your NII is up 31% versus last year. And you've got to get a lot of credit for your liability revenues, as you said, the NII being up 35%. That's really impressive. The thing that I ask is it would seem to me that the gains in liability NII and in loan NII are much more sustainable than the gains in the other NII, and that's why we ask the question. If you normalize this year's NII to last year's, your ROE is around 14%, a little bit over 14%, which isn't quite as impressive as 16.8% and still short of your target for 2018 but on track to get there. How long do we -- should we expect -- you said 12 to 24 months. How much does this contribute to your 9 months? Of the 31% increase, how much did the -- your position in ALM contribute to your 31% increase in this other line? Second question on cost of risk. Cost of risk has gone up for the 3 straight quarters now even though your asset quality has been flat and actually improved book to individuals. Can you talk a little about that? Is that just a factor of mix? Is there something else we should be looking at?

Okay. Thank you, Carlos. On your first question, as I mentioned in my words before, I think I addressed a little bit this question. You are right, and that part of NII is growing. As I mentioned, probably, we are -- we want to be -- not we are. We want to be very transparent here, and this is the reason why we are sharing with you both asset liability and the others, NII components. And it has to be understood what I mentioned also, that part of both the asset and then the liability NIIs are included in August. The ALM activity, again, without trading, without that cost because I mean -- when I was at the other side, I always understood this as a trading component. We do not trade here, okay. Obviously, treasury does and other parts of the bank does, but we do not, as a bank, trade on these positions. The component of that is positioned for these lower Selic rates. And as you mentioned and repeated, the 12- to 24-month effect will be there probably if the Selic rates continue to drop, as we've shown in the last -- yesterday in the last quarters. So going forward, I mentioned we have this effect that will last. It's not forever but will last. And on the other hand, we have the capacity that the bank will have to continuously deliver both on the asset and on the liability side. And we do think we have that capacity. So you have to analyze again. We have to analyze -- when you speak about recurrence, when you speak about sustainability, we have to analyze both total NII and both total revenues. So total NII, do we have that capacity? I would say yes. On the asset side, we have already shown what can be done and we will be improving going forward; on the liability side, the same thing. So all in all, that should keep on improving with the nonstructural impact of these others going forward. And again, let me link that to my previous answer in terms of fees. We do -- we have to look at total revenues. We have different sources of total revenues, more or less capital-light. We do have moments in which you have more intensity coming from NII or that you have more intensity coming from commissions. At the end of the day, what matters is total revenues per client depending on the products, depending on the different things that they demand or that we need what they want to be sold. In terms of cost of risk, let me say to you that it is true, your assessment in terms of increasing cost of risk in the last 2 quarters, but we are speaking of increasing 0.1%. So it is already 10 quarters in which Santander Brasil has been best-of-class in cost of risk. We used not to be in that position, but already, we are speaking of 2.5 years in which we can say that our risk modeling process in an environment as the one that we have had here in Brazil has proved to be the right one. So yes, it is increasing the cost of risk. If we compare to the last year, it was 4%. Now, it's 3.3%. So it's been 3.1%, 3.2%, 3.3%, but it is -- we have also compared to [the back] with 4%. It has to do with the mix. You were right, Carlos. It has to do with the mix, but obviously, it has also to do with a strong commitment and positioning from our risk department in terms of understanding client behavior, in terms of understanding modeling, in terms of being closer to the business, in terms of being proactive, maintaining the independent position, considering our volume growth and our position in terms of market share.

Our next question comes from Mr. Thiago Kapulskis from BTG Pactual.

So I have a couple of questions. The first one, I mean, in terms of expenses, I mean, of course, you're growing -- your growth is coming very well but expenses have been coming a little bit above inflation rate. My question would be, could you be able to grow expenses below inflation, particularly if the macro doesn't help and there is some deceleration of growth or something like that? That will be my first question. And my second one, a follow-up on the ROE question. Obviously, you're doing very well in terms of profitability, but of course, you have a structural difference versus your peers, which are in asset-light business, right, like insurance and also asset management, right. So would you be willing to acquire or be more present in those business in the future so your ability to improve ROE could even -- could strengthen even more? Those are my 2 questions.

Thank you, Thiago. In terms of expenses, I already elaborated the concepts why we are growing in terms of percentages and in terms of the reliance or the relationship that they have with the evolution of the bank and the strength that the bank is showing in terms of revenues. I would say what I also mentioned, the strong commitment that management has to control cost. And I am speaking at the ComEx, at the Management Committee. We are strongly committed to try to maintain this operating leverage capacity in terms of letting revenues grow and control expenses. We have always said we will try to be around inflation. So the answer to your question is yes, we will try to be around inflation. We have to understand that the franchise is growing a lot. As I mentioned in my words, we are growing 2.6x in terms of revenues compared to expenses, but that does not justify that we will not put pressure on cost. We will put pressure on cost, and we will continue to leverage on that operational capacity that the P&L -- that Santander Brasil's P&L has. So you should see the outcome of those efforts going forward, again understanding that you have revenues growing strongly and we have to invest and we have to expand ROE. Let me clarify because I have done this exercise sometimes with you, but let me clarify. We are not out of the asset management and insurance business. We do -- I mean, in fact, you have seen the numbers. I mean, funds, asset management funds are growing strongly above 20% in the year. And we do -- part of the fees that you see in our fee -- P&L account come from both activities, insurers -- insurance and asset management. So we do collect, depending on the business, 60%, 70%, 80% of those fees in the P&L. It is true that we don’t have the factory. We sold that. The group, as you know, is in the process of rebuying or reacquiring the asset management business. So going forward, we know that these 2 businesses are quite strong in terms of capacity of adding both value in P&L. We are open both to develop them and to continue to grow with them. So I would say we do have an ROE that is still -- let me underline, still lower than our pace, but I would say that the capacity to continue to improve our profitability is clearly including -- or includes these 2 areas.

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

Okay. So thank you very much for your presence and your questions. I would say they have been quite interesting and in terms. I look forward to seeing you during this Q and, of course, in our next quarterly presentations. Thank you so much, and good day.

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