Banco Santander Brasil SA (BSBR) 2025 Q3 法說會逐字稿

(interpreted) Good morning, everyone. Thank you for joining us today for our third quarter 2025 earnings conference call. We are live from our headquarters in Sao Paulo in our new studio, and we will divide this event into three parts.

First, Mario Leao, our CEO, will talk about the main highlights of the quarter and about the directions for our growth in the coming periods. Next, Gustavo Alejo, our CFO, will provide a detailed analysis of our performance. Lastly, we will have a question-and-answer session.

When the time comes for questions, you will see three audio options on the screen, Portuguese, English or original audio. (Event Instructions) The presentation we are about to give is now available for download on our IR website.

With that, I will now hand over to Mario to begin the presentation.

(interpreted) Thank you, Camila. Good morning, everyone. We're sorry for some minutes of delay. I would like to start highlighting the big numbers. You probably had access to what we disclosed.

Starting with net profit, we achieved BRL4 billion in the quarter. And I have to point out that after three years and three months, we are back to this level. This is not a destination in itself, but it is a level we pursue. And we are again posting this kind of net income with a very organic result that will have an opportunity to explain in a moment.

Almost 10% increase quarter-on-quarter and year-on-year. Again, our profitability is back to 17.5%. This is not the final destination for net income, as I mentioned, but it is a relevant step in the correct direction and with a very healthy composition of results.

Let's start with some of the highlights, and we can detail those more. Net interest income dropped quarter-on-quarter, particularly because of market NII, and we'll explain that in more detail. But the strength of our franchise is measured by client NII, net interest income, and fees. And in both cases, we had a very positive evolution called NII increasing 2.7% and year-on-year, 11.1% increase.

And talking about fees, we've posted a powerful growth, 6.7% up quarter-on-quarter and with a very good diversification among the different fees line items, no big outlier. In cost of risk, stable, although the portfolio increased more strongly in this quarter than in the previous ones, portfolio growth in the right direction, in the right segments. We'll speak more about that as well.

And expense management, once again, very efficient in the quarter, expenses growing 0.2%, practically flat. And year-on-year, it is down 0.5%. We had a slight increase of virtually 0, which reinforces our OpEx agenda. Quite strong and we'll speak more about that in the Q&A. Efficiency ratio increased a little bit, because of the composition of NII against expenses, still at a better level. Year-on-year, 140 basis points, and this is a focus for us to continue to improve.

As the big strategic drivers. As we have said before, we are disciplined to build a more solid and resilient operation. Santander Brazil will be more diversified, more predictable with a more powerful customer franchise with a diversification of revenue streams, so that we will post an even higher profitability than we have today. And we believe we are on the right track. We continue with our obsession to transform customer journey, our digital journey. I'll speak more about our new app, and we are evolving well in our pursuit of a primary relationship with our customers.

As for customer centricity, we continue to increase our customer base or total customers. In October, has exceeded 73 million, relevant growth, 7% up year-on-year. We continue to grow the active customers base of those that have a practically daily transaction with us. Growing our customer with -- customers with primacy, individual NPS at a record level of 61 points. In companies NPS, we achieved an all-time high. Our internal NPS that we measure with hundreds of thousands of interactions every day. So, companies NPS, 52 points for the very first time.

Two important points here, I'm not going to get into the nitty-gritty, so we can speak more during the Q&A. We have a hyper-personalization journey that goes on. And we'll give you some data to show that this is becoming more and more relevant in our agenda with our customers.

We grew our ability of having hyper-personalized interactions in a relevant amount comparing the end of 2023 or even the end of 2024 with now, more than half of our digital interactions with customers are personalized. This is bringing us a much broader top of the funnel, a much greater bottom of the funnel.

Some examples, client acquisition, 2x greater interest than we had before in the old CRM interaction format, 30% more accounts opened in cards, the numbers are even more powerful, 4x greater interest at 3x higher conversion. And in salary portability, which is a super relevant point for transactionality, 2x higher conversion.

AI first. Again, AI is important for the whole financial industry. It's not different for Santander. We are embracing AI more and more trying to transform our customer journeys and our internal processes, focusing on AI first.

I bring you two points here. We are evolving in our loyalty agenda with Esfera with AI-driven personalized rewards journey. We can have a seamless experience, point optimization, and engaged clients. And in our renegotiation and the vehicle recovery agenda, we have used AI for renegotiation. And with that, we offer friendly delivery and a better experience for customers and the bank.

In this quarter, I'd like to focus on our app. I have mentioned that we were evolving in the agenda of what we call our One App. It is going to be an app that will channel all digital interactions for individuals and eventually for companies as well.

Speaking about One App, it is important to highlight that we've built this app over the few years with a lot of interactions with customers. Never did we have a development listening to customers that much. We like to say that this is not a Santander app. It is a customer app.

So, we had more than 50 customers heard in over 90 surveys conducted. In this rollout journey, we had very powerful feedback from our customers. Typically, when we exchange an app, this is not a new version. It is a brand new app. Customers are used with the old app over their journey. Even if we are offering something better, there tends to be some friction, but the result is better than expected. Almost 80% of customers rating the new app is excellent. 74% prefer the new app, that has been running for just a few months. This makes us very excited with what's coming ahead.

This app was built based on a multibank solution. It's open finance embedded in it. So, customers experience regarding Santander Bank and other banks accounts, is exactly the same. So, we have this comprehensive solution for our customers' financial lives and everything centralized in the Santander app. And the first time that this is done without Santander Group. This is the fact that Brazil is starting to benefit from being part of a group. We developed this One App with people from Brazil, from our technology team and channels team with people from Spain.

And this app that Brazil is rolling out is going to be the app used around the world with small tweaks in the different geographies, but the core of the app is going to be exactly the same. So, now Santander has platforms, global platforms launched for the whole group. With that, we gain agility and cut costs. We had a public beta version with more than 100,000 users. I was one of them.

Just get to see the evolution. We have 2.3 million customers already using the new app. And we also have card customers inclusion coming to this app. And by year-end, we expect to have the rollout of the entire customer base. And this was going to be a very powerful onboarding.

Here, in a nutshell, we are organizing our strategic agenda, just like the whole Santander Group mentioned to the market, we're bringing this to Brazil, basically the main messages in terms of pursuit of management. The three main pillars that Santander Group and Santander Brazil are continuously focused one are: Think Value, Think Customer, Think Global.

Think Value is value creation through disciplined capital management, credit portfolio diversification of the portfolio predictability and an efficiency and productivity agenda and modernization agenda.

Think Customer is the agenda geared to customers. Last year, we had a live call with 40,000 people. The whole personnel talking about Think customer. And we have a hyper-personalization agenda, more and more AI geared, an agenda to offer seamless and integrated customer journey across channels, digital channel as much as possible AI embedded.

And in Think Global is what I mentioned. The One App is an example. It means, starting developing things with the group bringing technologies that exist in other geographies and perhaps not in Brazil, and we can share all that. And Brazil is going to be one of the main innovation hubs for the group, given our innovation here. So, Brazil is going to be exporting innovation and technology for the whole group.

And again, stressing the message that you're all aware, we are the global bank with the largest presence in Brazil. We are part of the biggest group in market cap in Continental Europe, and we have a growing performance over the years. And Brazil is a fundamental part of that. We want to extract more and more value of the fact that we are a global franchise.

And to end my introduction, I'd like to mention some strategic businesses. So, we'll speak about consumer finance. Repeatedly, we talk about consumer finance, because it makes us proud in our portfolio. Consumer finance continues to grow at two-digits annually. And more than the loan portfolio itself, we are attracting more customers to the bank based on the consumer finance, considering consumption and other loans. We brought 1 million new clients that did not have a relationship with Santander and which are now part of the bank.

This is with a material growth of fees. Consumer finance leads to more fees, particularly insurance. We have a 43% year-on-year growth and always with a high NPS of 90, one of the highest we have across our businesses.

On the right, we have SMEs, the SMEs business. That has been a recurrent focus of our narrative to the market and our management. We have been growing revenues and diversification of revenue sources. We have grown the number of visits. And this comes together with our new commercial model. As a reminder, we no longer have managers or specialists at the branches waiting for customers to arrive, per day, and having on average one visitor a day. Now we have all of these experts are in the field calling on people, and we are growing almost 30% the experts' base.

We have thousands of people in all of the regions in Brazil closer to customers with a better credit management and focusing on principality. And talking about payments and transactional activity, we have -- we want to have our customers choosing Santander, and that entails payments. I haven't got the data on the slide. But the take-home message is that we are evolving over the last 12- to 18 months to offer a PIX and payment experience, which is flawless, impeccable and one of the simplest one in the market.

We have the agenda of Trazer dinheiro, Bring Money. We can offer an extremely simple journey for individuals and companies alike. We also offer PIX via credit card. This is something we have been developing, and we are launching this quarter with an initial performance, which is very positive. We're very excited to join both journeys, the PIX journey in the credit card limits, in addition to automatic PIX and Tap-to-pay PIX.

On the bottom right, I bring you relevant data on our mass income segment. We have done a fine management of the portfolio. We have been talking about this recently. In this mass income segment, we are looking for sub-portfolios, subclusters we want to work with. With that, we are reducing the portfolio of this subsegment in 100 base. We are at 94. And this brings the individual's portfolio to a growth challenge. But we are not concerned about growth as a whole. We are focused on growing and managing the subsegments correctly.

And even reducing the loan book by 6%, we were able to increase by 14% the deposits volume. So, we're bringing more transactionality from these customers and improving the quality of the of the loan book with more collateralized loan portfolio.

Now based on this introduction -- after this introduction, I would like to invite Gustavo to speak about the finance, and I'll be back for the Q&A. Thank you very much.

(interpreted) Thank you, Mario. Good morning, everyone. We'll talk about -- first of all, the portfolio.

We had a satisfying performance in all business lines according to our dynamic management of the portfolio, our efforts to increase profitability, always risk-weighted for all of our operations. We've been very judicious in granting credit, as Mario mentioned, which translates into a disproportionate growth in some lines compared to others, always prioritizing transactionality as well. It is important to highlight the positive evolution of cards year-on-year with an increase of 14.5% of financing to consumption of 12.6% and small and medium-sized enterprises at 12.4%.

Good progress year-on-year. We're on the right path. In individuals mass income segment, the portfolio remained stable, growing significantly in the composition of product mix and a reduction in exposure to higher risk profiles. We evolved positively in corporate in the third quarter. What was not happening in previous quarters, but maintaining price discipline with the greater revolution in supply of risk and foreign trade operations, for example.

So, looking on the right for the funding, composition is in line with our plans to increase the participation of retail and funding, promoting greater loyalty and consequently greater transactionality with all of our customers.

Time deposits and individuals, we had a very favorable performance showing growth at a faster pace than in the other segments, which reflects the evolution of our principality as well. In demand deposits, we absorbed the effect of migration of part of the funds to time deposits. Client NII grew 2.7% in the quarter, and most of this growth is in the funding results benefited from a greater number of business days in addition to an increase in the effort CDI, which also generated positive effects, but of lesser intensity.

Credit NII evolves, although it does not reap the full benefit of the portfolio growth, which occurred mostly in September. So, there was an evolution in portfolio growth.

Compared to the previous year, NII growth was considerably higher than credit volume, demonstrating our pricing discipline and the optimization of our portfolio, as we've been talking about. With the improvement in the mix of assets and liabilities and the increase in the CDI, the spread posted an increase of almost 100 basis points in the 12 months, very positive.

As for market NII in this quarter, in addition to a higher average Selic rates than we expected, that was expected. Actually, the higher number of business days also influenced the ALM results. Both movements were expected and within our planning.

In market making, the result in the quarter was slightly higher than the previous quarter. And in fees, we had a more positive dynamic in the period, with an evolution pretty much in all of the lines with a better performance in credit-related lines.

In cards, we have another positive quarter, which comes from the greater transactionality of our customers. And this higher transactionality has an effect on the current account line since customers, both individuals and companies obtained greater benefits from exemptions by working with us more and more.

In insurance, I highlight here better performance in the quarter, driven by new products and a strong focus from our sales force. In brokerage and securities placement, we see significant growth in the quarter with an improved performance in debt issuance. Therefore, we have a quarter with important growth in practically all fee lines.

So, in provisions, we had a better performance compared to the previous quarter, a result of the better performance of the vintages as well as one-off effects that impacted Q2 such as the early loss write-off discussed at that time. We have noted a better performance of the vintages in virtually all portfolios, except for smaller companies where there's a little bit more pressure.

Due to the performance of the vintages, the percentage of portfolio in arrears from 15- to 90 days decreased 3.9% compared to 4% in the second quarter. We note that part of the short-term deterioration that was recorded in the first half of the year reflected the 90-day NPL rate, resulting in a delinquency percentage of 3.4% at the end of the third quarter. This increase was also impacted both by the individual segments, where there is a greater concentration in renegotiation lines, due to our more restrictive stance and by cases in the agribusiness and company sectors.

On the next slide, we briefly present the evolution of our expenses. In this quarter we saw a partial impact of the collective bargaining agreement of 5.7%. And then, for yet another country quarter, we presented the result of our effective management of expenses growing below inflation and all that, considering the growth in expenses with business and technology expansion evolving and with the reduction in recurring expenses, which is very important.

The result is better performance in the efficiency ratio compared to the previous year with about 140 basis points, ending at 37.5% in the period.

To conclude, I'd like to share our P&L. We ended the third quarter with a profit of BRL4 billion, which represents an increase of 10% compared to the previous quarter and a growth of 120 basis points in ROE with CET1 at 11.7%.

Our loan portfolio demonstrates a better risk-return ratio with an evolution in customer mix supported by funding that combines instruments, customers and prices in an effective, balanced way. This performance, considering the current macroeconomic scenario demonstrates that the discipline with which we have managed our balance sheet in recent years, makes us better prepared to face short-term volatilities, confirming our trajectory of an increasingly sound and sustainable profitability.

Thank you. I'll turn to Mario for his closing remarks.

(interpreted) Thank you, Gustavo. So, just to wrap up and jump to the Q&A, the messages that I'd like to reinforce to be very clear to everyone. Starting with the customer, this is a very strong word, but that's how we work in our customer view. It's the obsession of raising our customer satisfaction with a higher level. We want to strengthen our principal relations -- primacy relationship. We will continue to have incumbent competitors and new competitors, and we need to continuously raise our bar to gain this primacy relationship.

Hyper-personalization and AI are two important levers for that, along with all the technology that we'll develop with the support of the Santander Group, and we support the group with the innovation in our model.

Technology plays a very important role in our transformation. And of the expenses we are seeking, as we've been saying for a number of quarters, not only to beat inflation, but to beat inflation significantly seeking to be a bank with an expense increase virtually 0 nominal and through technology for us to be able to do that with strength, not only technology, but technology is an important lever for us to have an efficient Santander even in the country with the inflation rate and FX aspects.

And with all that to focus our operation on more and more profitable operation with an active portfolio management and delivering what's it the next country getting closer to the 22% and not stop there. We are confident that we have an operation that can continue to evolve and will continue evolving in coming quarters with the management of profitability and growth.

And with that, I'll turn to Camila, and we will be in the Q&A shortly. Thank you.

(interpreted) (Event Instructions)

So, we concluded the presentations from Mario and Gustavo. I apologize. We have an issue with our video conference platform. So, we will not be able to connect the analysts to ask the questions. We have the questions. I already have those that have been sent, and I apologize that you will not be able to appear on the screen due to technical issues.

The first question comes from Thiago Batista, UBS, asking the expected effects with the implementation of the One App here at bank, whether we can imagine the biggest impact being in cost reduction or consumer experience or cross-selling?

And then, he also asked if we could talk a little bit more about the impact expected from the regulatory changes, such as the funding change in real estate credit and the change in the regulation of the advance of FGTS?

(interpreted) Thank you, Camila. So, continuing with the Q&A, I would also like to apologize for this platform issue. It's things that are out of our control. So, Thiago, I'll start answering about the One App and then regulatory aspects. And Gustavo can add to any aspect.

We believe that One App is a big leap in our customer obsession and what I mentioned just now. And the main driver is to improve customer experience and allow customers. So, it's not only a new version of an app. It's a completely redesigned app that has not a lot to do with the previous version or the previous app we had.

So, we are seeking a fluid experience that's personalized. I mentioned that we like to say that our app is the customer's app, it's Mario's app, Gustavo's app, Camila's app, all of our millions of clients. It's not a Santander app as a monolith. That is the same for everyone.

So, what we'll be able to get with these better journeys in addition to hyper-personalization of the app itself is to have conversations with this customer in a streamlined way. So this app is anchored, Thiago, on that concept.

Of the continuous conversation we want to have with our customers, with a personalized interaction, obviously, if I want to talk to a customer, I must do it in a specific personalized, contextualized way. So, the driver is UX, CX and through that to have more and more conversations with the customers, increase the transaction level of each customer and bring those customers that today are called mono-product customers, card customers or real estate financing customers, customers of the consumer finance unit.

All of these many millions of customers for them to be able to be Santander customers in a single app that will deal or treat each customer in a very specific conversational way. We'll reduce costs with One App, virtually, yes.

Because in practice, having a more digital fluid experience, we will be able to have digital interactions, AI based more and more with the customers. And that with time will reduce our need for other points of service such as stores or even our phone service, having more and more chat interactions.

About the regulatory topics, I'll be brief. The evolution of this new project of using part of the demand deposits and using subsectors of that. We see the real estate as one of the highlights of our performance in the last quarters. We believe that we know how to do this, and it will remain so in the coming quarters. We have one of the best journeys for real estate credit in the market, and it's important for also having cross-selling with a very low cost of risk.

In the market, we look at home equity. That's a product here that we can lever even for individuals and companies. We have a market share close to 30%. And we continue to grow with a strong appetite for home equity. So, real estate, we see these measures as a positive thing. It's a strong product that we believe will continue to grow.

The FGTS topic and the evolution of the capacity to hire or to take loans, we respect it. It's a government decision. It's a policy decision, a political decision overall that will reduce the share of FGTS for Santander and all of the markets.

So, it is quite significant. In practice, we will need to direct our appetite and credit parties' appetite to other products such as the workers, payrolls, the loans and has our support and all of the industry support and something that has been growing significantly in that, this third quarter. Considering we see evolution in the operational performance on the company side and the system overall, even though there are still some aspects to be determined and implemented. But we believe this will continue to grow significantly in coming quarters.

(interpreted)

Pedro Leduc. I think that we were able to connect Pedro.

(interpreted) Hello, Camila. I have one question. Regarding cost of risk, the write-off was about BRL5 billion. It dropped a lot over the previous quarter because there was an anticipation of write-offs. And I would like to ask you, in Q3, any other changes in the timeline? There was no acceleration. And was it a one-time off effect of the previous quarter?

And what can we expect looking forward? Also in terms of credit quality, when we talk about Stage 2, 3, coverage, it dropped a little. Perhaps you could help us understand what's driving that? Is it more related to mix or perception of expected loss. These are my two questions.

(interpreted) First part of the question. Well, let me start with the end, actually. We do not have any change. And this is valid for both questions. So, we did not have any change in the policy or in management. We did not change anything that what we are doing. Actually, in Q2, we had an anticipation of loss. And this change in policies, I mean, the result of the coverage is the result of the mix that we are originating. We had no actions to change that. This is a reflection of our loan originations, the mix and performance.

There are no changes to criteria or policies, both for question one and question two. So, no changes in our day-to-day in terms of expected loss, what we provisioned for, and what we're going to write-off. And nothing regarding the types.

And if I add, Pedro, by the way, welcome. I'll be a bit redundant, because your questions are important. Since last year, and of course, we have been evolving our agenda in terms of how we deal with recoveries, agreements, renegotiations. It's part of BAU. Last year, we raised the bar definitely in terms of how we accept to renegotiate past due loans. And we've been putting this into practice for over a year. We only renegotiate if we have some cash component, no exceptions.

If can you renegotiation with a company or an individual, we don't get some cash. We write it off. And then we work on recovery with a base of 100%. And when we have a cash component, of course, we give them more time to pay, but we have renegotiated with last time to pay, so the quality of our renegotiation or renegotiation is getting better. And of course, when we realized there was an opportunity to anticipate losses as we did in Q2, we'll continue to do so.

It is possible we'll make more of such moves, because we're interested in purging the portfolio, derisking the portfolio, focusing on the new cohorts, because as Gustavo mentioned in his presentation, they have been performing as we wish. We're very safe, that we are originating new loans like a clean water. And we have to continue with a disciplined approach to our portfolio, eliminating the last clean water, which has more to do with past portfolios, and we will continue to clean up the portfolio.

(interpreted) Mario Pierry, Bank of America.

(interpreted) Good morning, everyone. Congrats on the results. Mario, I'd like to ask you about risk appetite or credit appetite. You showed that the performance of the new cohorts have come better than expected. You have capital ratio that is high, good expectations for the next six months. So, what would lead the bank to have a more aggressive position in the loan book? Is it the political uncertainty? Next year, we are going to have elections. So, I just want to get a sense. Because the portfolio growth remains low. There is no actual portfolio growth. So, I'd like to understand your expectations for the next 12 months.

(interpreted) Thank you, Mario, for the question. Well, we will continue to try to grow disproportionately more in those subsegments and products, but we see that we can bring cohorts with high profitability. Of course, our profitability bar for the new cohorts is way higher than our cost of risk, greater than 20%. So, we are trying to originate credit, rolling out credit or expanding credit in the portfolios and the clients where we can have this perennial level of profitability.

So, we have been focusing our risk appetite on products that will bring transactionality of customers. It's just true we grow a lot in mortgage, but these are much long-term relationships with considering checking accounts and credit cards, we have been growing a lot in the customers where we want to grow. We have been gaining in deposits and transactions.

So, I would summarize our appetite for the next 12- to 18 months as we'll continue to have a disciplined and technical approach of the portfolios, we'll continue to reshuffle, reallocate risk-weighted assets from portfolios that, in some cases, have a higher gross margin, but a lower net margin and the low-income segment represents that. We'll continue to derisk these portfolios and put the risk in those portfolios where we can perhaps give up some growth margin, but have net revenues that are more perennial.

Of course, we want to grow the portfolio. But first, we want to focus on profitability in base 100 and make the 100 become 102, 106, and 110 over time. This is a quarter in which with a super disciplined management, we were able to grow, perhaps not as exuberant in the eyes of the sell side. But in annualized growth, we are close to two-digits.

And this is then exactly the way we wanted to do it, with flat growth in individuals, 0.2% practically flat, reduction in mass retail and increase in high income, which is exactly what we want. A very powerful growth in SMEs, slightly less growth in consumer finance after many quarters of growing along and again, growing in wholesale. Because we continue with the same disciplined management of marginal profitability. But we were able to do some important operations in September, as Gustavo said, the carryover effect in Q4 will be greater.

So, good growth in wholesale. The way we grew is exactly how we wanted to grow. If we continue to see opportunities, we will pursue growth over the coming quarters. And you talked about reduction in interest rates and macroeconomic context will remain challenging. If the interest rates declined to 13- or 12 next year, it will continue to be a high interest rate. It will continue to put pressure on companies they get funding.

So, the macroeconomic context will continue. We don't think that the macro scenario will change that much. The effect will not that obvious. It's not obvious that 2026 will be much better than 2025. We'll continue to be very disciplined in our capital allocation.

(interpreted) Gustavo Schroden, BBI.

(interpreted) Good morning, everyone. So, now I'm at Citi.

(interpreted) Thank you. I'm sorry. So, I had my notes are not updated, but Mario noted right away. Yes, it's up here, actually.

(interpreted) Good morning, everyone. Thank you for this opportunity. I'd like to discuss with you a little bit about the PIX in installments. I think that the Central Bank will probably come with a new regulation where we read in the press and some stories that there may be a change to remove the link to the credit card that it could be a line separate from credit cards. So, I'd like to hear from you your strategy for this PIX in installments. And what do you think will come if you think there's going to be disconnected from the credit card? Or how do you read on the PIX finance?

And quickly, I was reading a note from the Santander Spain earnings, correct me if I'm wrong, but it seems to me -- but when they talked about Brazil, we saw something that there could be an implementation to reduce sensitivity of NII to interest rates. So, I'd like to take this opportunity to see if the bank is thinking about any hedging policy to reduce the sensitivity of NII.

(interpreted) Okay. So, I'll start from the second question, Gustavo. We've been talking to the market, the group maybe gave more of a highlight to this in this release, but we've been talking to the market for about a year now when we evolved our hedging or non-hedging policy with the marginal production of the loan portfolio. Since the second -- third quarter of last year, we started talking about this in September last year, just over a year now that we start to hedge the marginal origination of the fixed portfolio. That's not 100% every day.

We have dynamic management. According to the fluctuations of the market, our market fluctuates a lot. But we've been originating a lot more in the credit portfolio than we did in the past. We still have inventory in September last year. We didn't take loans to hedge the entire inventory that would have obviously impacted the market. But on NII, we've been getting to 50% to 100%, depending on the day of this hedging of the margin of originations. So, it's not a new policy. It's something we've been implementing for more than a year.

But it started to have its effect felt more now. We have a bigger impact of the increase of the Selic rate, that's something important to happen this moment, this year. It would have been more relevant if we had not done that. So, every bank has the sensitivity. Every bank carries different portfolios of securities that are based on the current interest rates. So, some sensitivity, we will have, but it will not be as high.

(interpreted) And now about the PIX finance that you asked. So, here there's both a discussion of journey and regulatory. So start with what we implemented, that I mentioned earlier, that now we have the full offer of the transaction of payments with PIX on credit cards, and the initial results haven't changed the needle from the September results. But obviously, during the quarters, we expect to see this as a relevant portfolio here. And here, deep down, we are granting more credit to people who would not take personal loans with us. Of course, we need to have an appetite for that person. But there were limits that were not being used for loans and now it will be enabled through grant credits from 0 to the top of the limit I have with that person. So were are being able to engage a lot more people who are not borrowers to take loans from us to pick on cards, and that's very positive. The journey that we put together obviously is very streamlined. Some of our competitors already had. So we had to catch up. But this catching up is working well. And your question about the regulatory side. Oh, but what if this has to be in a different track that the track on credit card. The Central Bank is focused on that. My answer is, we believe that the journey actually should be defined by the banks, by the players, both digital and incumbants, and everyone seeking the best journey to have that customer performing there loans with our set, less competotors, and we have been defending with the Central Bank that the PIX finance and PIX-own cards should not necessarily be a separate track or separate journey, seprate limit even. And potentially, this is discussed. But deep down, there should be a credit appetite with that customer and practice that credit limit at their account, card, the installment payments of a purchase or a transfer in a streamlined journey and with that the convergence of cards, seem to me, it seems to be a very obvious for the industry. We've been proposing to the regulators so that each bank should be able to design the journey, that it should not have that division or the track. And there's a trail for an appetite for the card and there is a trail for the PIX finance. It should be defined by the industry, and it's not something that should differentiate the journey for products. The customer is interested not in different journeys but a fluid streamlined journey in a limit that they can understand and communicate with the bank about.

(interpreted) Daniel Vaz, Safra.

(interpreted) I would like to go back to 2026 to a point to sensitize the bank's vision. You've been more selective for some time for the portfolio and this carry that Mario mentioned in the previous question, it shouldn't be such an expressive improvement due to the spread and PIX. It should be a carryover improving due to a better portfolio origination, I think. So, the bank starts with a level of close to 0% in the end of total NII.

If we work with this more conservative origination scenario and the revenue that accelerates slowly with very well-controlled costs, I think that the surprising profit in 2026 and the level of provisions. So I'd like to understand from you how you're projecting provision and asset quality, how you're working with the liquidity going down for next year, cost of risk dropping for next year. So how we should work in this scenario of cost of risk and for 2026 to understand the bank's vision?

I'll start here, and I'll ask for Gustavo to add. But the way I'm not a sell-side analyst, but if I may, how would I think about Santander Brazil over the next quarters and years, including 2026. What are we seeking in terms of management? We're seeking to build positive jaw lines and positive, making the most of the jaws ratio. We have better revenues and provisions, expenses, contingencies, and we need to work on these lines that are already naturally levered. All banks are like that, and work all of the lines in the positive sense.

We will work to be able to increase revenues or Ingreso as they say in Spanish. We will seek revenues to increase. The composition may be slightly different from what we had this year, maybe, but it will not be significantly different in the sense that I will no longer grow client NII or fees. Obviously, market NII will have its own specific evolution. It was part of the results, but it's even less relevant for the whole franchise.

If we look at materiality, obviously, it makes sense to discuss market NII. But the significance of market NII, we want it to be less and less expressive compared to the whole. So, there's a message that we will work to increase revenues. But I will not raffle the overall results and sustained profitability to grow revenues disproportionately in segments that will not bring the profitability and the value that I want.

So, we'll be more interested in this net revenue, that's the composition of the revenue with allowance for loan losses rather than just growing, for the sake of growing. But we will seek to grow revenue. We're not designing a portfolio to be flat.

And fees are also an important part of that. But we don't want to grow only through fees to grow the top line next year. And then very rigorous management of the other lines, the middle line. You mentioned provisions, I'll take a focus here that we're working very focused on new vintages, as we talked about earlier on Pedro's question.

We're focusing on reducing more and more and faster the legacy portfolio that we carry. It still exists. It's still relevant, but its relevance is maybe a single digit to the size of the portfolio. It should be on the half single digits here in another 1 year, 1.5 years. So, we want this portfolio, the legacy portfolio, the runoff portfolio that we call managerial terms for it to be reduced faster as we've been able to do this year, and we want to continue doing next year.

Of course, this brings cost to the cost of risk. But it's almost a necessary cost, and we prefer to remove it as soon as possible. But we prefer overall to evolve positively, so that the cost of risk goes down, not up. And the level of provisions will be in part be comparable to the growth of portfolio, because we want to continue growing portfolio. And part of this is almost a later phase of our derisking. We expect the revenue to go up, ALM be reduced in cost of risk, ideally towards being more stable. So, that means that ALM on the Stage 1 for portfolio growth will come in, but it's healthy, quote-unquote.

And the Stage 3 ALM that cost more, will be progressively reduced. And expenses agenda that is very obsessive as well. We've been showing strong consistency here, and it's not a short shot. We're not focused on delivering in the quarter only, we want to have something that is targeted and powerful and expenses management. So, we believe we can do that. We manage this line more compared to how we manage others, and we believe we can do continuous work on expenses.

I'm not giving you a guidance but the idea is to have nominal expenses management that will not grow year-on-year in conceptual terms. We believe we can do that while we invest disproportionately where we must invest in moving AI and new platforms, digitalization of the bank, but we finance that with the legacy banks and the traditional bank being more and more streamlined. So that, we can self-fund our growth as we showed this quarter with close to 0 growth in expenses.

So, 2026 should be an year where we work in the jaws ratio with discipline, consistently growing revenues and maintaining expenses and provisions at a level close to what we have now, so that we can have profitability of profit before tax and profit after tax as well. So, in conceptual terms, that's what I would think for the bank, not only for '26, but for the next years. And it's from there that we can have a clear view of getting back to the 20% profitability level that I mentioned a lot of times.

(interpreted) Excellent. Yuri Fernandes, JPMorgan.

(interpreted) My question is about market NII, which was weaker. You mentioned fewer business days and high interest rates, and we know that this line item is very sensitive to interest rates. Could you give us some more color on why it practically doubled in the quarter? What could we expect in the short term? What is your expectation for the medium run? Hopefully, it is a contracted improvement for next year. So, if you could speak about that?

And the main point of the call, expense efficiency, nominal expenses close to 0. Could you elaborate? Because I was looking at the revenue numbers, and it can improve. But with 0 expenses, we should see some improvement over the year. So, what would be the expected number for efficiency? Thank you very much.

(interpreted) You're asking for kind of a guidance. So, I'll not give you a guidance. I'll start with the second question. Again, I'll talk about directions. I will not say when it will happen. And I won't say when we'll get to 20%. But every quarter, we're moving in that direction. I think it is totally feasible. The way we calculate it, there is a slight difference in how banks calculate efficiency.

But in our baseline, we have full conditions to get to an efficiency ratio of 30%, over the next few years, I should say. There's a consequence of that, jaws ratio management. We think it is feasible, absolutely. And it will be a challenge. You might be wondering how we get to 20%, 21%, 22% by managing both line items, but with management, very much focused on the delta between the two lines in quarter of magnitude of 30 of efficiency is viable, slightly more than '26.

For the next three years, we're thinking about a jaw a compounded jaw, because it's all a compounded effect. In 3 years, we think that we can get to many, many percentage points below what we have today. And the market NII question will be answered by Gustavo.

Once look in the presentation and Mario kind of mentioned it in the Q&A. Q3, we had the number of business days and a higher Selic rate. And so, we knew about those two factors. It didn't really change anything compared to what was planned. And indeed, our negative sensitivity was reduced. So, a risk portfolio for the whole portfolio, and for everything, we are exposed to interest rates and the banks reduced. And you will remember when we disclosed Q3 and we talked about the change in the policy, we said it was an 18-month policy. So, we are at two-thirds of the way in the process. So two-thirds of the way. We knew there was a script.

We could have higher or lower Selic rate along the way. It was higher. So, in terms of what we planned, everything is okay. And since it's a timeline on the 18th month, there will be a big change. The 18th month will be next year. Next year, under this logic will be different than in 2025.

And in Q3, another important point is that the Selic rate impacts market NII, but it also benefits client NII. A part of the client NII is benefited by the Selic rate. The other part is not. It is higher in the quarter given the carry for the long-term positions we carry at the bank. So, this carry exists with a higher Selic interest rate. For any institution that has long-term securities. Since the curve is inverted, we're going to have a negative carry, and this negative carry is created for all banks that have a long-term position.

Take-home messages, we continue with our plan. There was an important change in the portfolio. It will take 18 months. We have a much better risk profile, less exposure to interest rates today. In the end of the process, we are going to have a much more stable market NII. We'll still have long-term positions that we have in our proprietary portfolio that can have more or less positive or negative carry, but it will exist because we have long-term positions. So for 2026, overall, we have this whole process finalized. This process that we talked about.

But in 2025, we knew that second quarter -- that second half would be different than first half with higher average interest rates and with Q3 with more business days. It was all planned for. It was all clear. It was all in the plan. What changes is that when we get to month 18, we will be at a different level in this line item, with the stability that we have been talking about and with much less risk in the portfolio related to interest rates.

(interpreted) Eduardo Nishio.

(interpreted) I have two questions. The first is related to expenses. You have been evolving really well. You achieved a 0 nominal cost target. So, can you -- well, the 0 nominal cost has been talked about theoretically, it would take some quarters. So, you kind of brought it forward. You achieved that, and you're evolving really well in this item. So, what are the next steps? What can we expect in terms of the final footprint, number of branches? Where are you in this process? And are you expecting a further reduction in your footprint?

And my second question is actually a follow-up question related to market NII. Should we expect some time next year a positive result? You spoke a little about the process, but in absolute terms in the figures, should we expect a positive market NII result in any of the quarters next year?

I'll speak about expenses. And I'll add to what we've said before in a recent question. Again, what I mentioned about our mindset of 0 nominal expenses. This is not a guidance. It's more a direction. Please don't pressure us in terms of that, because there are seasonalities in Q4, there's the effect of the collective bargaining agreement.

Typically, we have investments that are greater in marketing and other more seasonal things. So, I'm not giving you a guidance for Q4. I'm talking about directions. We will pursue this in a time horizon, not quarter-by-quarter, but more for the coming years. And you asked about, since we have shown in the last three quarters and year-over-year, our Q3 is negative. We will try to bring forward everything we can, Nishio, in terms of managing expenditures and expenses without hurting the growth of the operation.

The agenda continues to be one of growth. This, like I described at the jaws ratio, we'll try to increase revenues and at the same time, keep the other line items stable. So we want to grow, grow the results and grow profitability. Obviously, we focus first on profitability and then on the earnings. Whatever we can bring forward, we'll do it. We have a number of initiatives running at the same time. All of these initiatives with a big order of magnitude. You can imagine the kind of spending a company like ours has. So, despite what we've done so far, we can still look for more funding for growth.

So, even with the exchange rate, the collective bargaining agreements that will continue to come and with expected growth, we want to have this funding, so that we can keep that mindset of 0 nominal or nominal 0 expenses. But we should never give up the growth of this organization. The mid- and long term depends on our investment and investing well in the segments, journeys and products that meet investing.

And Gustavo will talk about mindset without giving you guidance. It could provoking us, but let's try to elaborate and answer about market NII.

(interpreted) Okay. Our market NII has three components. First is market making. The second is the book. And third is the long-term positions that we have.

So, the answer to your question is it depends on a couple of things. It depends on the average Selic interest rate in 2026, and it depends on the future cuts of interest. If future interest curves decline in a good level, we'll have the possibility of having results given our positions. Likewise, if Selic is reduced in a more accelerated fashion than the market expects for 2026, the process can be accelerated. But we are not counting on this acceleration of process.

The combination of the three factors will tell us whether market NII will be positive, neutral or negative. The fact is from the logic of ALM, we had banking book and our proprietary positions, given everything that we've done, everything we've disclosed, we just need to finalize the process, and it will be definitely better than in 2025.

How the rest? Well, the rest is some exogenous factors and some endogenous factors. Market making, for example, can perform well and outperform other things in our proprietary balance sheet. So, you have a good question, but the answer is very complex.

Again, we don't bring guidance on that, but those are the variables you have to keep in mind when you study and model what we have in our market NII.

(interpreted) By the way, Nishio, Gustavo was very diegetic in explaining all three blocks that make up market NII. And we commit to be transparent with you over the quarters regarding how each one, each element is progressing. This is no secret. It's always a mathematical approach. Sometimes it's hard for you to project. We know, but we commit with you all to be more diegetic, transparent, give you the numbers for these three big blocks, so that you can visualize this evolution that will happen in 2026 compared to 2025. So that you can see each one of the blocks performing along the quarters.

Again, I'm not interested in the client NII. I don't want to disregard market NII. It is a drag in the calculation, and that's why we had an underperformance. That's fine. That's okay. I accept it, but it should be less relevant in time if we can grow our market and our client NII, and keeping market NII as stable as possible. Thank you very much for the question.

Jorge Kuri, Morgan Stanley.

I wanted to ask about your tax rate. It was 4% this quarter, which is evidently very low in absolute terms. Your net income grew 10% sequentially, 9% year-on-year, but it was all taxes. At the pretax level, you were basically flat on a quarter-on-quarter or year-on-year basis. Your effective tax rate for the first nine months of the year is 11%, which again is very low relative to the statutory tax rate. So, can you explain what's behind this very low level of taxes? How sustainable that is? What is the right expectation for the effective tax rate going forward?

And I guess the second question is, if I tax your pretax profits at the average of the private sector peers, which is around 25%, your ROE so far this year is 13.5%, which is lower than Selic, I'm guessing lower than your cost of capital. And so, how do you think about that underlying profitability? And what does it -- what do you need to do? What does it need to happen on the macro side in order for you to move that underlying profitability to better, higher levels?

Thanks, Jorge. Well, I'll kick off, and I'll speak here with Gustavo. So, it's obviously -- yes, it's a low tax rate, no dispute about that. We get there via, I would say, a combination of the interest on own capital, (spoken in foreign language) as we say, which proportionately, given the higher rates, given our capital base, it had a proportionately higher impact this quarter than in previous quarters. That obviously will continue, provided that interest on capital continues, which we hope is the case, not for our own P&L, but for all companies that have larger capital base such as banks.

So, interest on capital was a big contributor to this lower tax rate. And the other aspects were -- and I'll let Gustavo complement, of course, tax -- the legitimate tax planning as all companies do, some tax except bonds, et cetera, which allowed us to manage our tax line even better this quarter than we had already in the first semester or previous years.

And as we think this line going forward, again, without giving guidance, but not necessarily -- we are not counting on such a low tax rate for the coming quarters to continue to produce the increasing profitability we delivered this quarter. So, we're not reliant on paying effectively 4%, 5%, even 10% tax rate going forward on average.

So, we are very focused, like I said in the other questions. We are very focused on producing a sustainable and diversified, therefore, consistent profit before taxes so that we generate a higher taxable base, eventually pay more taxes, obviously, and have even with higher taxes, higher PAT and higher profitability without counting on such a low tax rate.

So, directionally speaking, we obviously agree we've got to grow our profit before taxes. I shared some thoughts as to how we're going to do it, the jaws idea, growing revenues, maintaining costs stable, maintaining provisions stable. We didn't talk much about the others, but obviously, working on the others so that the others become less and less relevant. All those lines combined have a very powerful compounding effect, Jorge, which we believe directionally will bring us higher and considerably higher PBT. We're going to pay more taxes, and we're going to still have higher PAT and profitability.

Conceptually speaking, those are my main lines, but Gustavo, please feel free to address.

That's it. That's what we are talking about the portfolio, spreads, how the markets NII will progress, costs and asset quality and provisions going forward. So, it will be a combination. The combination will bring more PBT and consequently, we'll have a higher tax rate. So, it's a consequence -- it will be a consequence of everything that we are doing, but it's a process. It's a process to rebuilding our profitability.

(interpreted) Marcelo Mizrahi, Bradesco BBI.

(interpreted) I think, I have a few points here. Most of them have already been asked. But some points to understand the dynamic, for example, of expenses was a positive surprise. If we combine the other operational expenses, it was very positive. I'd like to understand, you mentioned that for 2,000 -- the reduction of total 2,000 employees, there was 1,300, there was a migration to a company, SSD, that's a platform.

Mario talked about at the beginning using the bank's global platform. So, I was thinking about that. This is the bank's global back-office platform, something like that, if you can explain. And there was no impact on expenses of these employees. It was just a migration. And I remember there were more adjustments to be made in this structure. So that would offset this reduction of expenses.

And another point I wanted to understand in provisions. I understood the movement of NPL from last quarter to this one. But looking forward, we started to see some cases of corporate that brings some concern for the corporate -- the business companies dynamics, especially corporate. So how do you see that? You don't think there will be a big impact in the level of cost of risk to Santander in this line? We saw that large corporate portfolio being a constant in the quarter. So, I think that's why there was a question whether there's a change in appetite. So, I'd like to understand a little bit about provisions and expenses and the adjust in the migration of those employees.

Marcelo, I'll mention about the first question, and then I'll let Gustavo talk about provisions appetite and so on. So it is true. We wanted to be transparent -- we had this migration and wanted to be transparent with the market that part of the reduction of personnel has relation to that. But there was a reduction of some significance in that [Pao] not thinking about producing stores only. And I don't know, I think it was Nishio's question that we mentioned.

We continue to seek to optimize our stores, but it's not an increase in expenses. It's a consequence of this management. What we're doing is converging our service model to what the customers ask of us. And since we are being very successful in digitalization and One App will bring another leap, we are bringing Santander's consumption to a more digital agenda, more chat-based, not so many phone calls. So our classical service model that has 10,000 people. The remote channel is all internal, as we say. So, we're redefining the profile of that service model to get more and more chat-based.

And over time, we need fewer stores. We need a smaller headcount in this remote channel, because we are seeking to serve customers in digital channels. So the expense agenda has different pillars. There's no silver bullet, and there's no button that's easy to press. I mean, when we talk about the structural agenda with the different initiatives, all of them take time for us to go deeper and for us to move to execution. But we are doing that. And going back to that question of how much we can accelerate, we are doing that as fast as possible.

Now specifically about the migration, what it is? It's the migration of all of our employees, technology employees who manage the infrastructure, mainframe, cloud and the telecom. It's a base of people that we migrate to the bank -- from the bank. So, there's no labor cost because it's a migration. It's a carve-out. It's the same team.

Why is this good to the bank? Because when Santander creates this unit and creates from Brazil, the same people who use today -- who used to work only for Brazil, this is a real case. We'll work for Mexico, Brazil, Argentina, Uruguay. So how much they cost may go down in a significant percentage. So we have a headcount reduction.

That's kind of an even game, but not because the group is seeking on these verticals that we're building to bring efficiency to each of the operations, also bringing efficiency to Uruguay, Chile, Argentina, but without a doubt to Brazil. So in the expenses line, we'll see a swap maybe of lines, but there will be an absolute reduction quarter-on-quarter from now on, because of this type of move.

And this is related to that idea of being -- Brazil being a source of talent of technology for the whole group. So this will be separate from the bank. And there will be other cases where the bank will be developing things that other units of the group will pay royalties to Brazil. So, this global technology agenda starting from Brazil is an important agenda.

(interpreted) And the topic of appetite, we already mentioned the appetite changed. You mentioned, you talked about that corporate cases -- large corporate cases are well known. They all have their own processes. Some of them have more potential and recoverable assets and other less. So, we'll continue whenever we have. We'll continue or follow the processes for discussion. We do not see new cases coming up in addition to the ones we've mapped and the ones we mapped, some of them we already lapped. So, this is the BAU management.

But what we've been seeing in some performance deviation, we've been adjusting it. So, the portfolio -- smaller portfolios, as I mentioned in the release for very small companies, we are adjusting -- we say B1, that's our smaller companies. We made adjustments. We had a portfolio for individuals. But overall, we have not seen any movement in terms of us reducing our credit appetite, but also at the same time to increase the credit appetite.

And these cases, again, are known. Each one will have their own discussion, their history, and their potential of recovery. And the logic or the rationale of what we're doing nothing stands out. And we are pleased with all the performance management, and we have the back of all of them, not in this only on the credit performance, but also profitability. So, it's not only the clients performing well, but we also need to have an evolution of the ARPAC. And it has to be consistent.

And so far, we haven't seen any motivation to make adjustments. But on the other hand, there's nothing to make us increase the credit appetite and the customer portfolios that we define to move forward. We have been able to move forward correctly in my view and without increasing risk.

(interpreted) Do you have any reading of this acceleration that we saw with a better economy?

(interpreted) I mean, I wonder why there was so much acceleration of the portfolio in the third quarter in SMEs and large corporate. SMEs, I think, have a good evolution as the market evolution and the products of FTI and Pronampe were products that become material in the portfolios now and they started, but now there are products that are part of the company's day-to-day. So, we've been evolving quite well there. It's the products with secured, good guarantees, good collateral. So, this goes well.

And other large corporate cases, we considered that we could have more exposure and very good customers. So, we challenged ourselves to see where we could have more share of risk of customers who perform well in any scenario. And that's how we were evolving the portfolio. So, that was a combination in the directional of growing the portfolio. It was after a lot of study, a lot of portfolios or portfolios with secured -- more or less secured products, and we've been able to grow.

The objective was not to grow for the sake of growing. It was to find ways to grow in a healthy way, and we were able to do that in those cases. There was a little bit of recovery as well from the second quarter of the supplier risk in large corporates. Yes, there was also an evolution of the supplier risk that was paused all those events. That's true.

Carlos Gomez, HSBC.

So I have two. One is specifically about two portfolios, the payroll portfolio, which continues to decline double digits and the agricultural portfolio, which is not large for you, but we wanted to see your view about that one. And second, we understand that the government intends to be tougher in the use of deferred tax assets. Is that something that you believe will affect -- you will believe the banking industry in particular?

Well, I'll begin, Carlos, and then Gustavo can complement. So, as we've been talking consistently over the last year, 1.5 years, using the same mindset of disciplined capital allocation, capital rotation among the portfolios and subsegments, yes, we've been decreasing from a, I would say, accelerated growth between '23 and '24 towards the payroll loan portfolio.

Last year, we already started decreasing our new origination due to macro and/or, let's say, government-related topics. So, INSS, which is the retirees portfolio, which used to be a very healthy portfolio, and we grew a lot over the years up until sometime third quarter last year.

But with the caps on interest rates imposed by the government, compared to the medium-term rates that had raised a lot last -- second half of last year, and they kept high throughout this year, although with some moderation. The net -- the gross spread, the net spread post provisions didn't make much sense. So, on the INSS portfolio, it's as simple as that. And when you add the cor bond, the bank correspondent layer, it made even less sense. So, we've decreased more than 90% our origination in the cor bank channel, correspondent bank channel.

We keep doing some origination in the bank-owned channels, which are more profitable on a relative basis. But these are not the portfolios. And then the public, somewhat the same, some have caps, some have not, but some are the same construct. And then the private payroll loans, where, as you know, we were one of the incumbents, we had 30% market share, up until the new model.

But with the new implementation, which again, we supported, we believe it makes total sense directionally speaking. But there was a, let's say, learning phase, learning curve for all the players, and we took a more cautious tone towards that in the first few months.

But like I said, we've been growing. If you look at the month-by-month during the third quarter, which we didn't release that way. But if you look at it, you see a clear acceleration between June/July, July/August, August/September, and we continue to believe this product will succeed, but we will be niche players. We're not going to be broadly granting to all tech customers, all clients with the payroll under any jobs with any companies as payroll providers. So, we're going to be selective like we've been. But the pie is bigger now. So, we're going to be selective with a bigger pie.

So directionally speaking, this is not a portfolio where we believe on aggregate, we're going to be growing. I believe we're going to be growing in the private payroll loans for sure. And then on INSS and public, it's going to depend on whether the caps are -- whether the caps grow again or medium-term rates, they decrease much more than they already are in the inverted curve we have, so that the marginal spread makes sense.

Otherwise, we're going to be allocating our risk appetite towards the clients in more transactional products such as cards, accounts, now PIX in the credit card, then in products that do not give me that much cross-sell and the margins are small.

Any --

And then the DTAs, I mean -- so next year, we -- the whole system starts to amortize flow through the P&L, the legacy DTAs, the legacy credit DTAs, which for all banks is relevant. And for us, obviously, it's relevant as well. So, there's a challenge as to -- and by the way, this year, we are already flowing through the P&L, the marginal provisions differently from what we did up until last year. So, we are already flowing the marginal net credit losses, and we're going to be flowing a percentage throughout 10 years in practice in our case of the historical DTAs we have.

So, there's going to be a double challenge in our pretax profits on a fiscal basis, which is the marginal NPL, which is already happening and this amortization. Although through 10 years, it's a large sum and it's a public number, and we're going to be flowing that obviously through the P&L as well. So our management is -- well, we know that. So, our management is anticipating that flow and that movement, Carlos, so that we manage that amortization of the historic DTAs the best possible way so that we manage the P&L and the taxable base and the taxable income so that we can absorb those DTAs.

And that's a work in progress. But it's a clear focus of all management, including the two of us and some others. And we're looking at it on a very prospective and proactive way so that we can manage as efficiently as we can throughout time, not only '26, but beyond. But it's an important topic for sure, and we're going to be talking more about it in the coming quarters.

If I may ask, I mean, that would mean that next year, you will be using more DTAs, not less, which seems to be the intention of the authorities. There seems to be a conflict there between the industry and what the public policy goal is, right?

Well, given that we all have to begin to amortize those legacy DTAs, as I'm calling it, the taxable income of Santander and all our competitors, which have obviously their own taxable incomes will be affected by this additional DTAs on top of the marginal, the flow DTAs or the flow net credit losses, which we're already bringing to the taxable income.

So, yes, there's going to be more pressure on the taxable income of all the system, which will probably cause the effective tax paid to be challenged by that for sure. It's a mathematical question. So you're right on that.

Tito Labarta, Goldman Sachs.

Two questions also, if I may. Just on your funding on the deposit base, where we saw deposits fall about 12% this quarter, a slight pickup in time deposits. Although over the last year, time deposits have been kind of flattish, and we see savings deposits continue to decline where most of the funding is coming from the LCAs, LCIs and the financial bills. So, I just want to think what's impacting the deposit growth there? How do you see this evolution going forward? And how would that impact your funding costs?

And then second question, and I don't know if you have a good answer for this one, but a lot of -- we often get this from investors about whether Santander would buy out their remaining stake, even if you do, you probably couldn't tell us. But just in your conversations with the holding in Spain, how do you -- any comments you can give about how they view the holding in Brazil, maintaining sort of the stub piece that's publicly traded in Brazil. Just any comments on the relationship with Spain and how that could evolve from here?

Well, thanks, Tito. I'll kick off on the funding, and I'll hand it to Gustavo. But my main takeaway, my main headline here would be, we are evolving our deposits, our liabilities mix, product mix, segment mix, exactly the way we want it. We incentivize you and the other sell side not to look at the cold number, which is the quarter-on-quarter. By the way, we grew quarter-on-quarter, but we are much more focused on the quality of our liabilities vis-a-vis the volume. We could be growing 10% per quarter throughout X number of years.

We have the franchise to bring much more deposits than we currently have. So we've been very disciplined over the last, I would say, at least two years in executing the strategy, which we already shared with you. It's one of the main aspects of our golden rules, which is changing the mix from a wholesale-based or wholesale dependent mix, 60-40 versus retail towards exactly the opposite.

We are basically -- we're almost halfway through that movement. So, it's not insignificant what we did over the years. Obviously, we need to keep pressing. This is not a sprint. It's more like a ultra marathon. But we're very, very disciplined, not on the overall size, but how the mix behaves. We are bringing this quarter alone much more deposits from retail than wholesale. We're actually decreasing wholesale deposits while we increase retail.

I would say we are funding our loan growth via our retail deposits and particularly more and more our transactional deposits, which are almost no non-interest-bearing, that's DDA and our product, which is essentially a very low interest-bearing deposit. So, more and more, we're gaining those transactional deposits from individuals and SMEs. Obviously, they are welcome as well in the wholesale piece of the portfolio, but the quality is much more important than the number.

And when we're issuing latest financieras, the financial letters, those are very tactical issuances because we had very low volumes historically and the market early this year was extremely pro issuers, and we managed to issue at very, very tight spreads over CDI. And we got that funding we decreased even further our wholesale costs -- our wholesale volume and cost. And therefore, the evolution of our overall liability cost is very positive and shall continue to be independently of the CDI level.

I don't know, Gustavo, if you want to comment.

This is -- our plan is to change the funding mix. So, our medium-term plan is to change the funding mix. And in changing the funding mix, our overall cost of funding will be lower. We are focusing on quality, as Mario said. So, our liquidity levels are in good levels in order to give room to manage the liability side in a better way. So, that's why we are reducing the overall cost in terms of the time deposits. We are increasing the transactional deposits in publics like the mass market as we shown in our presentation. So, the mass market, we are reducing the loan portfolio and increasing the transactional deposits. So, it's a very good movement. So, the loan to deposit is better even in the mass market, which is very good.

So, it's everything according to the plan. We are not concerned in short-term variances of deposits, for instance, because they have some volatility, because it depends on the liquidity of clients. So, we are really concerned and being stick to the plan and delivering what we are -- we present to the market for the last quarter. So, we are in a good pace, and we'll get there in the medium term.

So, this will change dramatically our balance sheet composition. And obviously, it will bring some points of ROE, very stable and some very good points of ROE in the near future.

And to your second question, Tito, obviously, we can't share any guidance here. Even if there was a discussion, we wouldn't be able to talk about it. The way I suggest to answer your question is, one, the group already has close to 90% of Santander Brazil. So, all our focus is justifying the 90% they own of Santander Brazil so that it becomes a bigger 90% that the dividends, interest on capital we distribute get larger over the years, and we're obviously very focused on that, which is extremely aligned with all minority shareholders that buy our stock.

Obviously, our ratios are very low. And frankly, I'm not negotiating here, but our -- the levels we are trading, I believe, are quite low compared to the ROTE we're already delivering and the prospective ROTE, we've been telling the market we are going to get. But obviously, it's a matter of time that our stock converge. We're obviously not pitching the stock here. But we believe that there's a lot of upside given the execution we're delivering to the market. The group sees that obviously as well.

So, at some point, they may have a debate on that. Conceptually, yes, they can have a debate on that. But that's not something we're going to be talking more about here because, obviously, we can't and the discussions are group level and not Brazil level. So, our role is deliver the best Santander Brazil we've ever had. And I'm extremely confident we're one quarter ahead, and we are taking all the steps in that direction, and we will deliver. It's a matter of time.

So, our role is to deliver the best Santander Brazil, and we're working on that steadily and aggressively. And again, we're going to have the chance to follow up with you and the others over the quarters and take the challenges you post us every time. So, thank you very much.

(interpreted) Thank you. That concludes the Q&A session. I would like to thank everyone for joining us this morning. After this video conference call, myself and all the Investor Relations team of Santander will be available to answer any questions you may still have. Thank you very much. Have a great day, and see you next time.

Thank you all.

Portions of this transcript that are marked (interpreted) were spoken by an interpreter present on the live call. The interpreter was provided by the company sponsoring this event.