BSBR

Good morning, everyone. Thank you very much for joining us on our first quarter 2026 earnings conference call. We are live from our headquarters in São Paulo. We will be dividing this event into 2 parts. First, Mario Leão will discuss the key highlights of the quarter and our growth strategy for the coming periods, as well as an analysis of our financial performance. Afterwards, we will have a Q&A session. At this point, our CFO, Carlos Muñiz, will also be joining us. During the Q&A session, you will notice that there will be three audio options: Portuguese, English or the original audio. To select your option, simply click the button at the bottom part of your screen. To ask a question, just click the hand icon at the bottom of your screen.

The presentation you are about to give is now available for download on our IR website. Now I'll hand it over to Mario, who will begin the presentation.

Thank you, Camila. Good morning, everyone. It's 10:02 A.M. We're beginning right on time. You will see that the presentation for this quarter is leaner because we want to be able to cover the main takeaways. We will jump straight into our Q&A because certainly we like to engage with you. Starting with the results, our net income is down quarter-on-quarter and marginally year-on-year. I'll give you more details of this, you know, how we built this quarterly net income. I would like to draw your attention to the evolution of earnings before tax.

This quarter we grew 5.4% earnings before taxes, meaning that the organic operation of the bank is growing in the direction that we intend it to, so our execution. We will see that with every line breaking down, we will see that our annual growth exceeded 20%. In practical terms, we are paying more taxes when compared to the last quarter. This is a point that both analysts and investors were questioning us and challenging us, so we are evolving in the direction that we were committed to. There are movements associated to our organic operation, and there are also other moves related to the way we are evolving the several entities of Santander Brasil towards having more profitability in the bank itself. With that, we will be able to absorb, you know, capital profitability and earnings as well.

We can talk more about that further on. How does this earnings before tax is evolving? Our NII is growing quarter-on-quarter, 3.1% growth. We will break it down in different lines. Certainly, this also includes market effects, and I will tell you how we manage the banking in practical terms, not looking too much at the market, but looking at the margin and the entire perimeter of the bank's asset liability. It's certainly a positive evolution. There was a drop in fees of 5.5%, and you will be able to see every line, I mean, what is expected to go down, and when do we expect growth. Certainly, we want more. We want to continue to grow, you know, fees unproportionately vis à vis the portfolio. Of course, we have that on an annual basis.

We are growing 1.6x vis à vis the portfolio. Our ROE, due to mathematical effect, the numerator growing and the average PL increasing, which is denominator. ROE goes back to 16%. This is not an structural number, it's an accounting number. Certainly, our mission is to seek for ROE that will grow throughout the year, seeking for an average ROE that is above the numbers from the past. Our goal is to seek for a 20% ROE, this is, you know, part of our target, we are working to deliver that bank in the next coming year. Our cost of risk is flat. We will give you more details about it. Efficiency, due to improvements in expenses and controlled cost efficiency, increases by 110 percentage points in the quarter.

We have one slide when we talk about the strategy and other figures, but I would like to say that we always start with customer centricity. On the left-hand side of the slide, we talk about how we are advancing the numbers. We are growing by 6% in the annual basis of customer growth, so we are growing the franchise. It matters a lot how much I can extract from all of these active customers. We talk about principality, and we are also talking about how we can resignify our share, focusing on, you know, mass retail, that we are also growing in our customer franchise. On the right-hand side, I talk about something very important that we just launched. Recently, we launched Santander Rewards. This is one of the most important deliveries, you know, since I started leading the bank.

For the first time, we are bringing this customer relationship. Focusing on points, benefits, and advantages. Instead of the relationship with credit cards that we always had, I mean, if you consume as much, you have certain number of points or exemptions, but now we're looking at the customer relationship as a whole. We are privileging customers that also privilege the bank, and we are doing that with a lot of engagement. It's almost like gamification. With that, in a multi-channel way, we have customers even closer to the bank. It's a big launch. The campaign will be kicked off on Saturday. I think it's one of the most important events that we will have in real.

With that, we will advance this franchise with clients, and this is one of the big pillars we have, as you will see through the numbers. Speaking about data in the portfolio, we are still focusing on the same line, and I've been almost repetitive. Santander wants to grow, but grow with quality, with, you know, capital generation discipline. Every segment that we produce every day, and as you can imagine, we produce hundreds of millions every day, starting with massive retail, privates, small-sized companies, and large corporate companies. We look at marginal management of profitability of, you know, the asset and customer profitability at every disbursement. We've been doing that impeccably in the past few years. Every month, we look at the performance of everything, and we retrofit our origination system.

The cohorts that have been produced in the past few years are according to plan. Certainly, this also mixes with the previous and older cohorts. When you see growth, which is slightly negative, I look at this construction on a positive side because on the individual portfolio, we are dropping. That was expected because when you talk about low income, we are reducing a few percentage points in the quarter. This is technical and scientific, and we are doing that, you know, according to our schedule. This is our derisking of low income, and we've been doing that for quite some time. We know that in 2026 and even part of 2027, we will complete the derisking of low income because it takes longer because the low-risk portfolio has a longer duration.

It takes a little bit more time. We are doing at the right speed. This runoff, you know, low income, you know, put some anchor in the individual portfolio. I relocate that to the low-income that I want to grow, and I relocate that to high income and other segments. The blend shows, you know, a drop in individuals, but that doesn't concern me too much because, given seasonality, first quarters versus fourth quarters, as I said, our credit card franchise is one of the leading products, and it's performing quite well. We posted a record fourth quarter with coming record months, and you will see that further on. Real estate credit, we are also, you know, evolving quite well. We posted growth, you know, in the quarter, and we grew, you know, slightly above 2 digits in the year.

Home equity, as we call it, is a product where Santander has the leadership, and we are growing origination in by 13 points vis-à-vis traditional home equity. We're doing more home equity when compared to the past. We have monthly origination that is getting close to EUR 400 million, which is almost twice as much when compared to what we did before. In terms of consumer finance, we posted, you know, positive growth, and now we are monitoring the market because we do not want to grow more, I mean, disproportionately vis-à-vis the market because we are already leaders. In practical terms, we are diluting origination, and the consumer finance portfolio is the crown jewel. I certainly we have to do that in a very controlled fashion.

Looking at the current scenario, we cannot, you know, exceed growth, but we already grew 14 percentage points in our consumer finance operation. In electric vehicles, out of every two e-vehicles, one of them is funded by Santander. We have an aggregated quota of 20-21 in electric vehicles more. In some, in terms of some brands, we have 2/3, you know, that gives us 75%. We have high penetration in electric vehicles because the average ticket is higher. New vehicles, the credit performance is better when compared to used vehicles. Therefore, we have concentrated, you know, our growth in the consumer finance in EV vehicles. This is also something that generates higher fees. We are growing exponential our capacity to grow per risk-weighted asset.

Between banks and lines of fees, we are doing some impeccable work for small and mid-sized companies. This is a segment that for many years I'm saying that we are not growing proportionally, and this growth didn't come in the third quarter. Obviously, we wanted to see a different number. I mean, year-over-year is close to 10, but here we were more cautious given the macro landscape. In the segment of very, very small companies, the challenge, the credit challenge, is even higher. We were less aggressive in the first quarter, but together with high income, this is one of the two segments where we have to grow 2+ digits during the year, and we have to gain quota. Large corporate, well, what matter in this quarter was the exchange rate.

I mean, we have a very robust trade portfolio in USD or EUR. You know, that was good for the economy, but not so good for the portfolio because the FX effect had an impact. This is not lack of capital or lack of appetite, but as I was saying, it's due to the fact that we are very focused on marginal discipline and cross-selling. The portfolio evolved 0.4%, and the whole portfolio 3.4%. I said that we would grow 1.6%, and this relationship between, you know, growing fees and portfolio is something that we are very much focusing on. I already mentioned some highlights on the right side of the slide. I mean, individuals, high income, if you add Select, we are growing 3 percentage points of share. As we decrease our mass retail, we increase high income.

We have individuals, I mean, high-income individuals that is growing, and this growth will persist for at least two more years. Well, the next point is the NII. As I said earlier, our growth is very good quarter-on-quarter of 3.1%. NII composition is more due to market NII rather than client NII. Client NII experienced a 4% drop. I mean, when you look at clients, both terms, margins and fees, the delta removes about BRL 300 million between, you know, fees and NII. I mean, the day effect is not, you know, lower. The way we've been managing the bank, and we've been managing the bank this way for two years, we report NII, market NII, and client NII assets and liabilities separately. Our ALM is measured according to the perimeter of liabilities as a whole.

In September of 2024, we started to do a marginal hedge of provision. It's a very dynamic hedge between 50%-60% every day, which will lead us to an average of 75% a year in nine months. If it is dynamic in practical terms, this reduces the volatility of the balance and also short-term interest rates, and it also decreases, I mean, the rollover assets and liabilities. Together with that, we extended our very short-term securities that was very, you know, they were sensitive to coupon. Now we are focusing on long-term bonds because they allow us to get better results through time, with results embodied in mark to market. When you look at our financial management, this was added to the expanded ALM view.

ALM is not just measured by the gross results that reflect in market NII. In the different committees, we manage liability as a whole. The expanded perimeter that contemplates NII, client NII and ALM. We evaluate the teams like that, and we analyze the numbers. I mean, the entire market breaks it down as it is here. I just wanted to make a parenthesis because at the end, we are not very much concerned, you know, if the client NII per liability is performing well or not, because everything is going in the right direction. If it were not for the accounting effects of the Resolução CMN 4.966, the spread would be better. I can do the de-risking in low-income, I can allocate this capital into other segments.

I mean, the spread is flat, and that is very good. The second message is, for the first time, probably in the whole history of the bank, we have the individual's portfolio that is capturing, I mean, it's funding better than the corporate portfolio. One of the golden rules of our management is that we evolve the funding mix of the bank. We are not where we wanted to be yet. We wanted to reach 60/40, but we reached 51, you know, 51/49. This not only reflects our transactional performance, not only in retail, but also in the individual portfolio, but because it costs less to fund, you know, individuals. The second point is that in our low-income or mass retail, there was an evolution, you know, of a margin of 100.

There was a drop from 2024 to 2025 from 100 to 99, but there was 8 percentage points. This same segment with the same cut, I mean, the transactional deposits out of 100, it increased to 106 on year one. This year, there was an increase of 16 additional points. Looking at the last 12 months, I grew by 600 percentage points in terms of deposits with the same liability. One was negative, and the other one was positive. This shows that we are managing to focus in the mass retail. Yeah, it's a little bit lower, but much more profitable. This, with time, will show in the books certainly.

Speaking about commissions, this is a line that in the fourth quarter to the first quarter, it suffers some pressure, typically a reduction. I look at 5.5, of course, I prefer zero positive in Q1. When I look at the breakdown, some of the numbers are explained by seasonality. Others, I would say, we did quite well, and others we need to improve. Cards, that's where we have seasonality. Since we grew, and we've grew cards with quality, with a sound portfolio throughout last year, and in the last quarter we had our all-time high. We had a seasonality that points to a drop, but year-on-year we practically grew two digits. This is quality. It's fees with a credit level in revolving credit, and installments that have earnings and with very good profitability.

Insurance business should have felt an even greater seasonality in Q1. We showed a drop of practically zero. Year-on-year, clear 2-digit growth. We are happy about that. This is less insurance-related, insurance associated with credit, because we are less aggressive in growing loans to our portfolio. We did even better in open insurance which is not related. We have in current account services, we've had a reduction, but we have dropped less than the market. The market feels the pressure of what we call free accounts with no commissions. This is natural, it's healthy, but we are able to engage our individuals and corporate clients so that we would drop less than some of our competitors. This is a number that I also see as positive.

Credit operations a drop due to seasonality, and because we are being less aggressive in granting loans to some portfolios. It's not a number I like to see, but it's explained by a lower production. In asset management, we have two positives here. In consórcio, we are growing at a higher pace. I want a lot more than that. I said earlier today to the whole organization that I expect to grow double that quarter-on-quarter. I think we're going to manage, but this is more recent growth. In asset management, well, we had an effect in Q4, and we have to look at that 20.9% up year-over-year, which shows that our asset franchise, it's lower than the rest of the bank proportionally speaking. We need to grow, and we are going to grow.

We don't aim to double it, but rather to triple it. We have an annual increase pace, which is quite good. In securities brokerage and placement, we did quite well in the quarter. Two strong line items, securities brokerage and capital markets, one of the strongest quarters we've had. In collection services, a very good quarter. Others, there are some effects of portfolio sales and others, nothing that will really drop or call our attention. The highlights, cards continued to evolve well. We grew almost 20% our credit card turnover. In insurance, we have new, lower-ticket products. We have the consumer finance cross-selling. In consórcio, we have fixed bid and reduced installments. These are the two highlights for consórcio. In terms of the asset quality, there's a lot here.

I'll try to be brief so we can speak more about this during the Q&A. Number one, cost of risk. It is dropping some basis points in the quarter. PL is increasing, but it is increasing, in my view, at a very acceptable pace. This is explained primarily by a reduction in recovery. This is explained by a reduction in the sale of portfolios. We sold fewer portfolios. We had an on-block recovery. I would say that business as usual was kind of stable considering the macroeconomic context. Given the context, in some portfolios, they remain concerning. I mentioned them. SMEs or small companies in every business, we have a challenge, although I expect a much better year or a less worse year. Last year was bad for the whole market. We expect a relative improvement.

Every business, till a little challenging, and very small micro companies being a challenge. In cards is a business that is doing really well, but we have minor adjustments to make because the families are very much indebted, and now the government should launch a new program to deal with that in a matter of few days. NPL is doing well. Cost of risk dropping, NPL practically flat. In a full year, it remains at the same level, so we are not concerned here. When we look at 15-90 day NPL, over 90, you know, in the short term, 15-90 day NPL, we see companies dropping a little in the quarter, and there's a component here in companies associated with government programs, and this doesn't become a loss.

In individuals, in 15-90-day NPL, there's a slight increase, and this is linked to consumer finance and mortgages. The rollover of NPL to longer term when the stages change, it is quite contained. We believe that in these two portfolios in Q2, we should have a reversal, and thus we won't have an increase in over 90-day NPL. Over 90-day NPL has some effects here. One of them is in Q4 last year, we did a technical review of each portfolio in our mass income and consumer finance, and we decided that instead of writing off as losses, in Q4, we started managing the portfolio by portfolio, doing it very technically. Sometimes, anticipating the write-offs as losses, and sometimes, working in the opposite way. This had some effect in Q4.

There's some effect now of lengthening the average maturity of the portfolio. This is what drove up over 90-day NPL. Of course, we continue with our discipline of writing off everything that we don't believe we can recover. Then we'll try to offset that by selling the portfolio. I mentioned that there is pressure from agribusiness, low-income, and very small companies, very small enterprises. There are parts of our portfolio that require more attention. We pay attention to all. We pay more attention to some, and these are the ones that are related to an increase in NPL. Talking about expenses, that's another quarter, which I believe we delivered quite well. It's very much in keeping with what I've been saying over and over, over the years. We have a fine management of the lines that we can control.

It's our obligation to do it. Doesn't mean it's easy. We have effects pressure this year. Effects helped us, but not last year. Inflation, collective bargaining agreement, now technology and of course, the effect of the war abroad. We are able to offset all of that with a firm management, and we are delivering a quarter with practically zero growth in expenses. When we break down what is general and what is depreciation and amortization, we are actually reducing our expenses by 0.7% in the quarter. In an annualized way, 0.3%. We break this down into administrative and personnel. Of course, we look at both, and we are reducing our personnel, our headcount. We did that last year. We continue to do this. We want to have a more streamlined and more efficient organization. Expenses increased because we are investing in technology.

There's a technology expansion. It's positive. It's 0% quarter-on-quarter and 0.9% increase year-on-year. Of course, I want to grow revenue more, but by growing revenue, you see, and maintaining our expenses flat, our efficiency dropped 10 basis points, which is good. Some highlights. Cost to serve in Select dropping 19%. I didn't have to reduce the cost of Select so much because I have a very profitable segment with ROE close to 20%, but it's healthy to do it, and we continue to engage our clients. In mass income, cost to serve dropped 44%. It's very positive, but I want even more.

The team knows that we have to improve this by another 30% in the next two years so that we can have mass income segment virtually as cheap as the digital banks, so that we can serve them in the best way possible. We are growing 22% our expenses in business expansion and technology, while we reduce to 3% our recurring expenses. Lastly, I'll speak a little about Gravity. We've spoken about it. The group talks a lot about Gravity. To keep you on the same page, Gravity means Santander no longer processing. The whole bank not having those expensive mainframes that you pay to buy and then you pay to consume. We would stop processing on mainframe and start processing the bank in what we call low platform, which are more modern, flexible, and efficient platforms.

Annualized, once we deploy Gravity, which we expect to happen in Q3, ideally in the beginning of Q3, annualized, in an annualized view, the deployment of Gravity should bring us savings close to BRL 400 million a year. To give you an idea of how relevant it is, almost 2 percentage points of the expenses line item of the bank. Of course, we are looking at all initiatives that can bring us to that point. When we think about AI touches practically everything. We are looking at AI as an efficiency agenda and also as a growth agenda. In our Investor Day in February, the group committed to generate EUR 1 billion by 2028 of results derived from artificial intelligence. Given the relevance of Brazil, this number is about EUR 200 million.

We have committed in practice in 2028 to have this kind of efficiency, but to given order of magnitude. This year, if we had all of the initiatives on AI, we should have something between BRL 400 million-BRL 500 million due to a more mass use of AI.

To end, let's talk about our income statement. We spoke about each one of these lines, the top line, growing. Of course, it needs to grow and grow more. It will grow more over time, it is growing positively with a mixed dynamic, which is more and more balanced. The direction is clearly correct, the mix is also correct, we have to work to improve speed. The midlines, expenses, others, provisions, although growing a little, they're behaving well. Putting it all together, given the operating leverage of the operation, takes us to a very positive evolution of earnings before tax.

We have DTAs, we have capital and net income reducers, but mathematically speaking, I think that we are at a very healthy state. This is the organic view of the franchisor growing, leading us to a CET1 Basel ratio that are very healthy, 15.2% Basel ratio and 11.2% CET1. We will continue with our distribution policy with IOC, for example. As our profits grow, distribution will grow as well. With this, I will end, and I'll call Camila to start with the Q&A. During the Q&A, for the first time, we're going to have Carlos Muñiz, our new CFO, sitting with me. I agreed with him that I will answer all of the questions, but he'll be sitting next to me. If he wants to add anything, of course, he may do so. Thank you very much.

Let's continue moving to the Q&A.

We will now initiate our Q&A session. To participate, just click in the hand icon that appears in the bottom part of your screen. We will answer the questions in the languages they are spoken. I would urge our analysts just to ask 1 question so that everybody will have a chance to participate. Our first question comes from Thiago Batista with UBS. Good morning, Thiago.

Good morning, Camila. Good morning, Mario. Mario, I don't know whether this is your last call or whether you will be present in the next call. My question is about Desenrola, the government program. I think we are about to hear about this new funding program. We know that this will involve low-income, credit card, consumer finance, and overdraft. Can you tell us a little bit about your view about this new finance program to be announced?

What is the impact you think that this will have in your balance sheet in the coming years in terms of the no monetization of DTA?

Well, at first, this is my last participation in this earnings release presentation, so I hope I will be still close to all of you, and I will be always cheering for the bank and supporting the bank in whatever is needed. I talked to the press not very long ago, and I would just like to say the same thing to all of you. I believe that this program, Desenrola, is indeed necessary. It's being very well designed. I mean, it's being led by the Minister of Trade. They are also calling the banks to design this program together. This was not something done by a lab in Brasília, and then the banks would have to deploy it, but it has relevant advances vis-à-vis the platform back in 2023. Maybe that's why the volume was not as high as expected.

Now each bank will do that through their own channels, even though the framework will be shared by all banks. All the banks will be able to engage that in their tracks in this Desenrola 2.0 program. Why do I say that this is important, and why do I say that this is the right timing? We are looking at the same data. In fact, despite of the fact that inflation is coming down or the economy is growing due to a miracle, despite all of the facts, the level of household debt and available income is critical, and that's why the NPL levels are bad. We didn't have any advance in terms of the income level of the families in the past few years. That's why the program makes a lot of sense right now. All the parts that the government will announce about the program, all of the new steps, make sense. We participated in the design of the new phase of the program. I'm sure it will be a successful program. I think that there will be millions of Brazilians joining the program. I think the delay, the payment, I mean, the NPL will be above 90 days. People will have a chance to negotiate their debts much better now. It does make sense. It will happen.

The bank, since we all participating in this new design, they will be able to participate, and Santander will be one of those banks. This is about Desenrola, and I'm not at liberty of saying anything else because we hope that the government will, you know, will announce it in full. About DTAs, the deferred tax assets, there are many things that are at play here at the same time. We already have a relevant DTA base, not only us, but the industry as a whole, you know, some more or less. This topic of DTA, according to the accounting criteria that will change, that changed after 2025, everybody accumulated DTAs. In 2025, you were not obliged to launch that DTA in your accounting books.

By now, we had, I mean, 420%, you know, since December 2021 is now posted in our results, and this is competing with the marginal ALLL. The combination of what was in the past combined with historical ALLL, this generates, you know, a lot of taxes. I briefly mentioned that since last year we've been re-coordinated, you know, according to what is correct. We are trying to coordinate all of the results of instruments that have less DTA, and sometimes they pay less taxes, you know, to our consumer finance, and we are placing all the results to the bank. I generate more profits because I can absorb DTAs faster, but on the other hand, I am leading this result to pay more taxes when compared to the other entities.

In the short term, I am reducing, you know, net income, and I am assigning to other instruments that pay more. You're increasing your own working capital in practical terms. These tectonic plates in our balance sheet, they are happening as we speak. Through this reorganization, all of the legal instruments, what we want is to boost the earnings of Santander there. You will see that Banco Santander Brasil S.A. will show better results vis à vis other instruments, you know, at arm's length.

The organic operation will have to grow, and it will grow in the several lines, but it will have to grow in the bank so that the organic that comes apart from the reallocation in other instruments will allow us to offer more taxes, therefore will be able to absorb more DTAs. We hope that we will be able to absorb all DTAs in the first, second, and third quarters.

Sorry. This is. Can you continue?

We think we will be able to absorb all of the DTAs we want in the first quarters of 2027, 2028, this will certainly depends on the evolution of the commercial activity. We are taking all the necessary measures to optimize the consumption of DTA in the bank. That's it. Thank you, Thiago.

Thank you, Thiago.

We have a question from Daniel Vaz with Safra Bank. Welcome, Vaz.

Thank you, Camila. Good morning, Mario and Carlos. Thank you for allowing me to ask a question. I would like to talk about SMEs and try to get more details on the NPL levels for SMEs. I know that there are several aspects that, you know, impacted this decline in NPL. I would just like to understand how much of that comes from this block and what sizes of companies, or whether there is any specific size of company. If you could elaborate more on whether this will continue to increase in the next quarters. I mean, there are also cohorts that were originated in the past and the government, you know, funding, not FGI but FGO, so that they can disperse more in the program.

Please, if you could elaborate more on this subject.

Well, I'll try. I hope my voice is better," he says. First of all, about the programs, about 25% or 30% of the portfolio goes to government lines, and this is where most of the delays occur. Having said that, there is a pressure on SMEs, so this is a point of attention, no doubt about it. Macro affects that segment, so that's a point of attention. Proportionally, I want to grow there more than in other segments. I'm not gonna do that by using a remote control. This quarter we didn't grow because we prefer to be more at the margin of that. From now on, we will look for opportunities to grow more and we'll try to grow two digits sequentially in the next coming years.

As a whole, this is a portfolio that really demands close attention. In terms of the continuity of the numbers going forward, well, Daniel, it's hard to say that it's going to happen. With a very tough macro and interest rates, you know, increasing less. I mean, if there is a drop of one or two for this audience, it doesn't make a lot of difference, but it affects the entire, you know, the entire scenario. For Brazil to grow 1% or 2% for this world of service or retail, it does make a lot of difference, maybe more than one point here or there in terms of interest rates. It is possible that the delinquency may go up. You talk about FGO, and the government will certainly announce that when the right time comes.

We also know that the government will certainly, you know, support Pronampe and FGI. The government is sensitive enough, you know, both BNDES and the Treasury department, they are looking at that. We believe that both things, you know, Desenrola and this program, will be managed together simultaneously.

Now we will call Mario Pierry with Bank of America. Mario? Welcome.

Can you hear me now? Good. Good morning. Thank you for the opportunity. Mario, I would like to thank you for the partnership in recent years, and I'd like to wish you a lot of success in the next steps of your career. I would like to double-click on the auto loan portfolio. You said that you're market leaders, 20% market share. We continue to see healthy growth of the portfolio. When we look at Brazilian Central Bank data, we see the delinquency in that segment go worse 130 basis points year-on-year. I'd like to know, how do you see the segment still with high interest rates, as you mentioned? What gives you confidence to continue to grow that portfolio?

If Central Bank data pointing to a worsening of 130 basis points, is there anything contaminating the industry that you're not seeing that we're not seeing? The question is, several players changed their write-off policy, and perhaps the 130 basis points is a little bit inflated. Thank you.

Thank you, Mario. Thank you for the kind words. It's been a pleasure. We'll continue to be close. Well, I briefly commented when I talked about new cars, new vehicles, and EVs, and I mentioned that our consumer finance is market leader. I'm not being arrogant about it but, of course, we end up having a gross penetration. What do I mean by gross penetration? An ability, a capacity of origination, which is not 100%, it would be exaggerating. Out of 100 contracts that are applied in the market, we effectively participate in more than 90% of those applications. We have visibility in the market, which is virtually complete. Of these 90 applications, we choose to grant 20 auto loans. There are 70 of those applications that we looked at, and we didn't want them because of the risk-return ratio.

The margin can be tempting sometimes, but the cost of risk, the loan-to-value, and the quality of the collaterals, that don't make sense. We just choose those 20. That's why I said that we should not grow disproportionally to the market, because we would be taking more risk than we want. How do we read market data compared to ours? Do we see deterioration as the market sees? No. Why not? Because with this broad and almost total visibility that we have of the market, we can cherry-pick where we are going to be placing our bets. In recent months, in the last two to three quarters, we have been focusing less on used cars, proportionally speaking, less on motorcycle, and focusing more on new vehicles. In new vehicles, more in EVs.

It is not by chance that we got 50% of average quota of origination of loans for EVs. Some of the brands, the ones that are growing the most, I'm not gonna mention any names, but the ones growing the most, we have a market share of close to 70%, and we chose to do that. We wanted to prioritize new vehicles that have a much lower delinquency rate than used cars. We end up granting loans to higher net worth clients with more income, with more financial capacity, and with a better rating.

This combo of better rating, better credit rating, better income, all of that drives our short-term and long-term performance. It doesn't mean that this is not a nervous business. It is. It's not zero cost of risk. The recovery capacity of Brazil is not equal to that of the U.S. We have the legal framework of guarantees, but it's far from performing as it is overseas. The margin is improving, and we continue to be positive. Our business is perhaps 5% or 6% of the whole portfolio, but it is a very healthy business of consumer finance ex auto loans.

We learned from our mistakes, and with what we did right, now we have the verticals in our consumer finance business, which is exactly what we want to have, a consolidated and profitable business, both in marginal origination and in the stock. We think about auto loans, which is the core, we have another part with a very good alpha in margins. We cannot grow out of proportion because consumer finance in Brazil has to be well done, and we learned the hard way that in some verticals, we cannot operate. Overall, it is a healthy business, a sound business. We're paying attention to the macroeconomic environment, we continue to operate well, and we'll continue to grow along the year, just like the market.

If we grow a little less than the market, that's fine as well because we have the right risk appetite. Thank you.

Pedro Leduc now with Itaú BBA.

Hello, Camila, Mario. Congratulations on your trajectory, and I wish you a lot of success. I have two questions. First, when we look at the SMEs portfolio growing 10% year-on-year in this macroeconomic context that you mentioned, perhaps you could help us review what should be the strategy looking forward, particularly with this risk opportunity balance. That's number one. Second question is about policies of the Resolução CMN 4.966 and lengthening of the write-offs. Anything happening in this quarter? The NPL formation was different than NPL. How should we think about impact on over 90 NPL? What would be the impact of these changes on the coming quarters?

All right, I'll start with the second question, Pedro.

As I mentioned, and thank you for the kind words. In Q4, we saw some effect, and in Q1, a little more of this effect of the changes in the write-off policy. I'll stress this because it's important that this becomes clear. We are being a lot more technical, a lot more strict than we were before. We used to write off according to the average, and everything that is an average is not necessarily technically more accurate. If we just, we prefer to do this double click. We saw the results, and we did a very technical work on that. For example, cards. I've been saying this, and you follow this up close. Cards is one of the portfolios that we have grown the most. It's one of the franchises where I'm betting more chips.

In practice, we are bringing forward the write-offs of cards because this is ex-post, looking at many of the previous cohorts. In auto loans and some other products, we have a recovery capacity that lasts longer. It would be incorrect to have a write-off and then recover that via sale of portfolio. That's the kind of technical analysis we are doing now, and this will bring us a material result. Will this change the curve of our over 90 NPL? No. Our average over NPL, especially over 90-day NPL, tends to have a higher number than the average number last year. Perhaps the curve will go up a little, and over time, we can show you what this effect is. It's not a problem to do it.

It's something we've done technically, and this was reviewed in all possible forums that you can imagine, and we will continue to report accordingly. From the standpoint of the portfolio, you asked about NPL, cost of risk, and here's what I can tell you, Pedro. There are a number of tectonic plates moving here. We are de-risking in mass income, low income. I mentioned some data in my presentation. To make this more tangible, in this quarter alone, our mass income portfolio dropped by close to 4%, and this reduction in low income has two effects, and both are healthy. In the short term, I am accelerating my runoff in low-income clients, and this brings a higher NPL because I'm accelerating the de-risking. There's another negative effect, but which is also healthy. I am not generating revenue that I'll have to provision for.

It's important that you understand that. An important digression. My top line, my revenue, particularly NII, in an annual view, it starts dropping, and this is good information for you. It starts dropping 1%-2% in the aggregate number for the bank just by de-risking low-income. Everything the revenue grows is the top off, recovering that in a technical and surgical reduction that I am doing in low-income portfolios that I'm not interested in, and all the rest is healthy growth. My 0.8% growth in the quarter is not an ultra-sexy number, but when you look at the breakdown of that number, it has a very positive quality, and that's my, that's why I am optimistic because we are growing well and with good health.

There is this initial counter effect when we look at NPL formation, some basis points above, cost of risk reducing. It sounds wrong. There are many moving parts there. There is a concern that you didn't mention. Somebody might mention. What about wholesale? Are you well-provisioned? We don't respond to that name by name. Of course, that's just part of NPL and cost of risk, and we have some relevant names, as anything is, as everything is in wholesale. We are safe regarding our provisions every month. I'd like to make a more general comment here. You can ask us later how this translates into practice. We provision for the wholesale, first based on the legal vehicle. Secondly, based on structure. Why am I talking about a legal vehicle?

Some of these single names that people talk a lot about in the media and among the analysts will have a substantial exposure overseas. We're part of a group, we have differentiated funding. In Madrid, for example, many or some of these single names, 90%+ of our exposure is in Santander, Spain, quote, unquote. Of course, I manage that. It's my committee of risk, my commercial team, it doesn't affect the bank itself and our shares. That's an important nuance for you to pay attention to. When we see exposure of Santander, it's not all in Brazil. I do a lot in terms of assets and project finance. You know we are leaders in project finance and have been so for about 10 years now. We do a lot in the energy desk, for example.

It's a more operational exposure, not a financial exposure. When we look at that by asset, we provision according to the level of structure, collateral, if it's operational or not, et cetera. Obviously, we only provision for what is in the balance sheet here. Some of these big players are not in the Brazil balance sheet. It's a broad answer. If I didn't cover everything, please feel free to ask a follow-up.

Thank you, Mario, and I wish you a lot of success.

Thank you, Pedro.

We have a question from Brian Flores with Citibank. Welcome, Brian.

Mario, thank you for this long-lasting partnership, and certainly, I would like to wish Carlos great success. You mentioned an interesting point, and you talked about 6% growth in client NII, and in you know, older cohorts just grew 3% year-over-year. I would just like to know that the gap between these two growths doesn't mean a monetization challenge with expenses going forward, whether you wouldn't have to invest more to engage clients a bit more, or whether this gap will face some efficiency issues going forward.

Thank you.

Thank you, Brian. Thank you for your kind words. This is a very strategic question, and it's a great question as well.

Well, this morning when I talked to my employees, I mean, I talked a lot about that. I mean, to grow six year-on-year, given the fact that 75% is a very good growth, the number is +4 million, which is a good number. I think I talked about this many times. We are not running to add more clients because the journey is to grow the franchise also through clients, but mostly active clients and clients with principality. For me, the challenge is: Can I do more to grow our client top line? I want to grow active clients and clients with principality. The main challenge is to turn 3 into 6 or 6 into more. What are we doing to that end? Obviously, part of that is credit appetite.

I'm not gonna change my credit appetite just to grow the number of clients. I have to grow clients within adequate appetite, and this has to be in tune with my portfolio. Balanced, sustainable, diversified, and that can deliver a ROE of 20+ after 2028, and even the group was committed to that number during our Investor Day. We are heading in that direction, and this is a fact. We can only do that if we maintain our discipline in terms of cost of risk. I'm not gonna grow at the expense of our appetite. I mean, Desenrola and et cetera. Inflation will fall, and this will certainly increase my appetite in the lines where I already operate.

In the audience where I already have a good credit appetite, how can I grow more? This has to do with all the tools we have, commercial value, and value propositions. When I talk about tools, I'm talking about platforms, our One App that we deployed to the entire base, maybe, you know, in record time. In only nine months, we began and ended the deployment. All of our account holders are now in the new app. Now we will also focus on customers that only have one product. We want them to increase their product list. We have our new CRM that started in Brazil. Then turned out to be, you know, a global platform, a customer interaction process. This allows for hyper-personalization. I think I mentioned that oftentimes. Santander Rewards that it was launched just the day before yesterday.

With that, we want to deliver a very encompassing view for the client when he feels that he is valued, and this has to do with the tools/value, especially for high-income and SMEs. We want to deliver the right value proposition expected by the client, and we want to win that in the market. In high-income and in SMEs, and certainly in wholesale, we have to have a service model that has to be better than that you find in the market. In terms of offering and tools, given our capital discipline, we have to deliver more, and I am certain that we can do that. But this is a journey, of course. It's a tough journey because we have extraordinary competitors, not only in Brazil, but in other geographies. There is the regulating body that is constantly challenging us.

This is the path. Thank you. Thank you very much.

[Break]

We'll go back to Portuguese with Bernardo Guttmann with XP.

Good morning, Camila, Mario, Carlos. Congratulations on your career at the bank.

I'm sorry, Bernardo, for some reason, we cannot hear you.

You cannot hear me? My audio is enabled.

Please hold for a moment. We are trying to sort it out. Please just hold one minute, Bernardo, and we'll try to sort out the audio issue.

Good morning. Can you hear me now? I would like to explore the topic of growth of mix. The bank is clearly migrating the mix to more collateralized products, real estate, consumer finance, collateralized SMEs loans. Is this mix delivering what you expected in terms of risk-adjusted return? Is there any segment that you think you were sub-allocated where you would like to grow more during this year? Thank you very much.

We apologize, but we cannot hear Camila anymore.

We apologise for the technical glitch with the platform. I think that it is resolved. Again, I would like to invite Bernardo. Let's try Bernardo. I think you can hear me now.

Yes. We can.

Good morning, Camila, Mario, Carlos. I'd like to take this moment to congratulate you on your history at the bank, and I wish you success and luck in your new challenges. I wish Carlos a lot of success. I will repeat my question. It was about growth of the mix. The bank continues with this movement of migrating to collateralized lines, real estate, collateralized SMEs loans. In your view, is this movement delivering what was expected in terms of risk-adjusted return? Is there any segment that you feel you were sub-allocated and that you would like to grow more during the year? Thank you very much.

Thank you, Bernardo.

I would like to apologize for the technical glitch and thank you for your patience. Not only you, but all of you that still are with us. I'll try to make it up for you. You touched on a strategic point of our strategy. One of our golden rules in recent years which is the mix, a healthier, more resilient, all-weather mix. That's what we want to deliver. Every quarter, we are delivering at Santander an all-weather bank for the whole group, for our market, for our management, and this has to do with a good mix. Are we where we wanna be? Absolutely not. This is a continuum that will take another year or two for us to get to the right mix, reducing mass income, and with a greater balance sheet, but we have progressed in the recomposition of the mix, as you yourself said it.

Do we see the impact of that in the line items of our earnings? Absolutely. When we look at the cohort of origination, and we do the backtest of that, I told you we do backtesting every month, but we do a more in-depth backtesting every quarter when we have a better notion of M3 and delays in payment, and then we do in-depth analysis. This is headed by Carlos Muñiz, CFO of the bank, with Carlos Diaz, our CRO. As the first line of defense in the equation for profitability, they challenge the businesses to improve the mix. Do we see this in the new cohorts? Oh, absolutely. Of course, we always have to be feeding back the origination model with the lessons learned. I would say that 90%+ of what we're doing is exactly where we want it to be.

What about the aggregated earnings account of the bank? Like I said, there are many tectonic plates moving at the same time. I am accelerating the write-off, my runoff, and the special part. This increases NPL in the special segment, but it's healthy that I do that because I'm purging the future NPL in that segment, and I have a top-line effect. I don't have the highest spread of the portfolio, which is the mass income segment, but the quality of the earnings I am building, the quality is improving month after month, quarter after quarter, and every quarter you will be able to see this. New cohorts, absolutely. Check. With a big backtesting discipline. If we had more time, Muñiz could speak for half an hour about how he's doing this as a recently arrived CFO.

This is one of the main steps of our weekly management. Little by little, this mix will impact the portfolio. That's why I feel safe to say that with the mix, we are going to have a 20%+ profitability as of 2028 because we will have purged everything that needed purging. The new cohorts will have originations at 20%+ ROTE.

Thank you, Mario. I wish you a lot of success.

We're moving to our last question from Marcelo Mizrahi with Bradesco BBI. Mizrahi?

Hello, Mario. First starters, thank you for everything. In the buy side, now in the sell side. Well, thank you for everything we learned from you. Thank you for the partnership. I wish Carlos a lot of luck. My question is, this week we wrote about the 15-90-day NPL compared to the over 90-day NPL.

As you mentioned, and the Central Bank also said that the over 90 is losing a little of comparability. Also, in terms of comparison within Santander, when we look at 15 to 90-day NPL of Santander, for individuals, the signaling for individuals and for SMEs is constructive. For SMEs, NPL is actually falling in Q1 quarter on quarter. For individuals, NPL is growing, but growing less than in recent years. I checked in the last four to five years, every Q1, especially last year, 15 to 90 NPL would grow more than 0.2%, which is what it grew this quarter. When I look at the 15 to 90-day NPL, because I think that's the most reliable piece of information to compare, I have a more constructive quality.

My question has to do with the cost of risk. Looking at the cost of risk, looking forward, you talked about a derisking of the portfolio. The question is, if we consider specific cases, I don't know if you have a provision or you expect to increase provisions looking forward. If we consider the loan book portfolio with a slightly lower risk, we start seeing this for individuals and SMEs. Should we expect an increase in the cost of risk throughout the year, or should we see the COR more stable?

In terms of our expectations for Q1, we expected a higher provision, but because of this dynamic of seasonality and of the special cases. I would like to hear more about the dynamics of cost of risk, looking forward.

Thank you, Marcelo, and again, thank you for your kind words.

You know, you said you learned from me, but I also, and the bank, learned a lot from the analysts. You're always very technical. You always ask the most difficult questions, and we have to prepare more. Thank you. Well, you touched on several points, and I'll try to touch on many of those. If I leave anything out, please let me know, and I'll add to that. It is true that 15 to 90-day NPL has constructive aspects, and when we look at the seasonality of Q1, it's good that you look at the track record, particularly last year, it was more difficult. I remember that a year ago we spoke about real estate. The effect was even more material than it is now. It is material.

If you look at real estate is 25%-30% of that, 15-90 delta. It's just the real estate. If we consider consumer finance, we'll definitely go beyond half. These are products that have a very healthy nature in terms of short-term delinquency. It seems constructive. For SMEs, the same. How do I interpret that, Marcelo? We have been, and you're the first to corroborate that, we have been more conservative in terms of growing the portfolio. I'm not saying that we are better than others because of that, but we are trying to be more selective in each audience of each sub-segment. Yes, we will try to have an over 90 NPL that is better than the market, because we are growing the portfolio less, and I grow less the denominator.

The effect on NPL formation and the cost of risk, if I were growing the portfolio at 10%, 12% a year, of course, this will help me get better indicators, and I'm not getting that. I'm not getting that because I decided not to. It's not by chance. It's not helping in that regard. Of course, in this quarter, because of the FX and some specific portfolios, we ended up having an expanded portfolio that posted a slight drop. I don't expect that the portfolio will end 2025 dropping. Of course not. It should grow some points, X points less than what is expected by Febraban, but it will grow.

The denominator should be positive, diluting the cost of risk, and if I can do this well in my portfolios, I should be able to make NPL not grow beyond the growth of the portfolio so that the cost of risk in practice would remain at the same order of magnitude, more or less, some basis points. It's too early in the year to say what's going to happen at the macroeconomic context. I spoke about household debt, and I spoke about SMEs, and in the small enterprises, we are concerned. Every business is not solved. It's not for Santander, it's the whole industry. We cannot say that we are going to have a reduction in the cost of risk that will be more visible, but we don't expect the cost of risk to deteriorate, at least not materially, this year.

In a longer term, 2027, 2028, the way we are de-risking the portfolio, the way we are originating portfolios in a more diversified, balanced, and safer way, we'll have a bank with a reduced cost of risk when we think about 2027, 2028. That I can say, because we are going to have a mid to longer term effect of our de-risking and the new originations which are more precise, like I mentioned in a previous question. We expect kind of flat order of magnitude, some basis points more or less. This quarter it was some basis points less, even with the portfolio growing. With the portfolio growing, we are going to have a tailwind, and we'll continue with the same discipline in dealing with the macroeconomic environment, because you, we, and all of our competitors have to face that.

Again, we believe that March 31st, the balance sheet will have the right provision for those single names, but the situation continues to evolve. April will be better than March. May will be better than April. We don't do ex-ante provision for a scenario that has not materialized yet. Of course, we have our recovery modeling, our net present value modeling of our exposure, so we take into account the scenarios. Whether we have negotiations happening where we sit at the table with the companies, designing constructive solutions. Of course, we'll monitor all of these discussions to evaluate how many provisions we need, because again, we cannot generalize. We have very low exposures, and we have more positions in operational assets and projects, and in the power desk or derivatives, and it's a different nature when we consider clean operations and holding operations.

We'll continue to do this, and depending on the evolution of the names, we'll have to reinforce the provisions. I hope I covered all of the points regarding the cost of risk, because this is a cross-cutting theme. I know it's important, the team is available. I will give the floor to Camila for the final statements.

Very well. Thank you very much. I would like to thank all of you joining us this morning. Myself and the whole investor relations team of Santander will be available if you have any further questions. Thank you very much. Have a great day and a great week. Thank you very much, everyone. It's been great spending these years with you, and I will continue supporting and cheering for the bank. Thank you very much.

Good morning, everyone, and thank you for joining us this morning to join us during the 2023 Closing Results Conference Call. This event is being broadcast live from our headquarters in São Paulo and, as always, will be divided into three parts. First our CEO, Mario Leão, will talk about the main highlights of the period and the strategies by which we will continue to direct our growth in the coming quarters. Next, our CFO, Gustavo Alejo, will provide a detailed analysis of our performance. And finally, we will have our Q&A session, during which you will be able to interact directly with our leadership. Before we begin, I would like to give you some instructions. We have three audio options on the screen, all the content in Portuguese, all the content in English or the original audio. The first two options will have simultaneous translation. To choose your option, just click on the button at the bottom center of your screen. To ask questions during the Q&A session, simply click on the hand icon at the bottom of your screen. Questions will be answered in the language in which they are asked. Today's presentation is now available to download from our IR website. Now I hand over to Mario Leão, who will begin the presentation.

Hello, good morning, everyone. We are here live with you. It's 10.03. It's a pleasure to be with you again, closing my second year in the leadership of Santander. As we started with this new format the last quarter, I will try to present to you the first slides in a very direct and dynamic way. And then Gustavo will join me to talk about the numbers. We will try to conclude the presentation in about half hour because we want to allow 45 to 50 minutes for Q&A, depending on your interest. So we are here to answer your questions promptly. And then our IR Department will certainly be available to answer further questions. Here on slide four, I would like to highlight a few key messages, revenue and our net income is also here. But we also want to focus on the consolidation of our messages for 2023 that just ended. Well, slide four carries some key messages. First of all, this has been another quarter of margin growth as a whole. We will show you, a more impressive growth in market NII. We also have growth in the client NII, but client NNI, NII is the summation of margins on the liability and also asset side. I mean, liability margin has the challenge that we will try to make up with more volume. And on the asset side, we will try to show you several lines that are growing as well. The first takeaway message is that certainly we have a revenue recovery, apart from NII. And looking at the portfolio diversification, as I've been stressed constantly, this quarter has been stronger, but even with seasonality, the quarter has been very positive in terms of fees. And I'll give you more details on how we go about that. Our balance sheet construction has been more solid. We already showed you some of our balance sheet lines, and now we will elaborate on that in the fourth quarter, which consolidates our strategy, both in terms of portfolio diversification. Portfolio diversification has to do with assets commissions and be less reliant on market credit. But it also has to do with diversification in the credit line, focusing on the customer base where we were growing less in the growth cycle, but we are growing more in products and client base. And so the quality of our portfolio makes us very optimistic and excited. We are talking about that turnaround in the curve, which happened in the first quarter of this year. And in the fourth quarter, we are very comfortable with the evolution of our cost of credit. Cost of credit and the relevant indicators of cost of credit, especially in the retail business, is evolving as expected. We had some one-off cases and there was one-off case on the wholesale part. Gustavo is not going to give you lots of details on that, as we usually do. And we did some special efforts, something that was one-off identified, and therefore the recurring cost of credit remains very sound with good prospects. In terms of priorities, as we've said before, we've been very consistent with our message. We will be constantly focused on customer-based monetization. We have a customer base of almost 65 million customers. We have to try to make them more loyal and focus on principality, which is our focus. Our strategy of being the principal bank of our clients is something that is here to stay, and it's very important for the bank. We will talk a lot about customer-based monetization. We will also talk about the consolidation of our strategic business, and I'll give you some figures about, in terms of what we've been doing since the second half of 2022 and how things interact. In the next three slides, well, we chose three slides to talk about customer centrality. I mean, our strategic agenda, which has to do with our delivery quarter-on-quarter, is mostly focused on customer centralization. Here, we have a summary of some figures related to customer centrality. On the left-hand side of the slide, on the bottom part, we have a chart that shows the evolution of our NPS. Back in 2017, almost seven years ago, Santander was one of the first large banks to talk about NPS. We released our measures. We talked to the market about it. Certainly, other competitors talk about NPS because we're not the only ones, but we've been talking about it for at least seven years, and I would say that this past year, we made great progress. I mean, there was a good evolution on the individual side, and in terms of the business accounts, I mean, this is our highest NPS in the company segment. And looking at every channel, we also evolved substantially. So my message to the market is that we are valuing NPS as one of the major KPIs. NPS is not the only one, but we will continue to talk to our clients in an omni-channel approach online and on the physical channel, and we certainly react based on their feedback. And that's why we were able to evolve in our principality agenda. We are also improving our profitability for the new vintages. So clients from the new vintages have had a good profitability performance, and here we are showing that in the year 2023 alone, we evolved. I mean, of course, newer vintages evolve much better when compared to older vintages, but we've been very fortunate because we are able to choose the clients with whom we want to work with. And the way we work with these customers allows us to improve profitability. We are also improving and making progress in terms of loyalty. We make important progress, and we will look for more in 2024. But this is just to show you that we are on the right track. We are evolving, and we are also focused on being the principal bank of our clients. That's why we're focusing on principality. Some of the main leverages are payroll. We've been talking about we are a major bank focusing on payroll, and we want to enhance that even more, our relationship with companies and large corporate, and also the high-income segment. I will elaborate on that further on. And investments, I will give you more details about our diving to that important strategy and also expansion in revenues. Also, talking about Select, I've been talking to analysts, and everybody asks, what are you doing that is so different? Everybody is talking about how income, everybody has their own responses, and our brand is Select. But we do believe that we are doing something very special and very particular. Maybe I can give you some more details later on during the Q&A and our IR team is also ready to give you more information. In 2022, we decided to have a special position with the Select or high-income segment. We are working very closely to our customer base. Our loan portfolio, I mean, 27% of the individual's retail portfolio is already represented in Select. We are growing 27%. Our customer base is growing more than 50% year-on-year. I mean, we had our public mission, which is to reach 1 million Select customers by the end of 2023 and we surpassed that figure. Now we reach 1.2 million Select clients and now the new target is 2 million. So this is what we will work towards. So we want to do this in a profitable way. I mean, our loyal Select customers are more loyal than the average. That's why our revenue has been increasing throughout the years. Another additional figure that has to do with Select at first is that we are launching a new initiative. It's still running as a pilot, but I believe that this will be an important step towards our goal for 2024. We are expanding the concept of AAA. AAA is our investment advisory service. It's evolving quite well. It's already bothering other competitors. So now we are launching the concept of AAA patrimonial. In fact, this is the version for insurance and consortium of our AAA. So AAA patrimonial is something that we will grow this year and we now have a large number of advisors. First of all, they are linked to the Select store selling it in a very personalized way, selling insurance and consortium to our high income clients. The movement we did last year was very exciting and so we believe that we will have an important agenda going forward. Now, moving to Retail, but now going to the other extreme because we were talking about how income. Now, we are making some important advances in what we call Mass Retail. So Mass Retail, which is the large base, not only of Santander, but all of the other incumbent banks, our agenda is being quite diversified. We're looking for more loyalty, greater principality. We're evolving with NPS, so we are doing that quite well. But doing more of the same or more of what we've been doing with just marginal evolutions, it's not going to work. So in our last call, I told you that this is a segment that is generating negative results to Santander. This is not something exclusively of Santander. Other banks are also facing challenges, but certainly we want to be profitable in every segment. We do not want to have a bank when one segment funds the other. And we do have opportunities to really focus on mass retail, and we are working diligently so that in the next few months we can also show some good evolutions in our offerings. This will be a more remote and digital agenda. So the mass retail segment will also combine digital experience and a greater capacity to relate with human beings through our remote channel. Well, over the phone, but a phone call that evolves to chat and generative AI. So this will be a year of evolution in the way we deal with Mass Retail. This simplification agenda is very robust. We have had a reduction so far of 31% of the products in the portfolio, and in cards alone, that number surpasses 50%. So what are we doing in practical terms? We are cleaning up our offering, making it simpler, making it more user-friendly, and with that we will be able to increase engagement with clients, especially in terms of Mass Retail. Clients do not need much. They need a good card, a good account, good credit offerings. Therefore, we are looking at an agenda that is based on the essentials. It has to be simple and easy to understand. Now moving on to the investment agendas, which is one of the strategic building blocks. We made important advances, and I will show you the numbers of how we grow in terms of volume and results. Retail is a driving force behind our growth. Of course, we want a lot more. We want to extract a lot more, especially in terms of companies, but also SMEs. We have a funding record, which is 1.5 times more than what we did in 2022. And sometimes in previous years, that number was even negative. So in terms, investments was something that was not part of our strategic agenda, but now it is. And certainly we are ready to look for better multiples like we did in 2023. But that shows that we are on the right track. One of the important segments is our AAA. It's like an office which focuses on, advice, investment advisory. The NPS is 85, which is the highest NPS of the industry. NPS here is measured by third parties in the market. And our net inflow per advisor was 2.5 million. And this is a very competitive number if we compare it with other offices or other peers. But we show that here, AAA is a major driver. Toro, our digital brokerage firm. I mean, last year I showed you that we grew and we grew a lot throughout the year. We posted great results. So Toro has a very relevant agenda. So more and more there will be an integration between Toro and our Santander stores. We have independent brands, distinct brands in our private, as I mentioned before. We posted record numbers in terms of funding and results, but we still have more room to grow. We want to double our private segment in the coming years, and we are ready to do that. Now moving quickly to our strategic agenda. We've been accountable to the market. And in the third quarter of 2022, I decided to tell the market something about our strategic agenda. We were still in the first year of our legacy portfolio of older vintages. So on the one hand, there was a part of the portfolio that we need had to be managed. And some other portfolios because we knew that for some time it will go down. Of course, we didn't want that, but we knew that for a year or a year and a half, we would have to take care of that. But on the other hand, we chose some other businesses in the third quarter of 2022 that we would put focus on growing those businesses. So this is just a quick accountability of these businesses. I'll start with payroll deductible loan. On the left-hand side of the slide, we see that we are growing again this quarter. We are growing all the payroll deductible loan lines. We are growing on the private side, and which is an asset percent in there. We are doing that with a very strict control of cost of credit. We are putting focus on payroll deductible loans. And I'm very pleased to see that we've been consistently delivering good results. Also agribusiness, we made important deliveries. One of the things I told the market before is that we wanted to reach 50 billion of our portfolio of agribusiness products. We are talking about Ag products. Not only we arrived at 50 billion, but almost 54 billion, meaning that we were able to grow 42%, if you look December 22, vis-à-vis December 2023. And once we compared with December 2023, we reached almost 100% growth. That means that we doubled our portfolio, which shows that we put a lot of relevance in this business. Our consumer finance is the largest consumer finance company in the country. At the end of the year, we had 21% of quota. We want to grow that. The ambition is to reach 25, and I hope we will reach that number this year. But we finalized that with a loan origination record, and this is a historical volume. So this is a very strong sign that appears in our results. But this just shows that we are really thinking big in terms of our consumer finance operation. About cards, I already mentioned our evolution in cards. We already posted great evolution in cards this quarter. I mean, if you look at billings, I mean, billings in the quarter year-on-year, in the fourth quarter of 2022 that was down vis-à-vis the previous year. In the third quarter of 2023, it was growing 7%. In the fourth quarter of 2023, it is growing 11%. So we are growing two digits in terms of billing, giving that the average spending increase in our customer base. And also there is the fact that we are selling more cards now than when compared to the first quarter of the year. So what we saw in the fourth quarter of 2021, which is our record sales of cards, now we are resuming to a level that is almost two-thirds of that level. And this is a very adequate level for us. Again, we are not trying to have a sprint in terms of card sales like we did in 2021, because this is not how we wanted to end 2023 and going forward into 2024. But we are happy with the sales of cards, considering our customer base and the results will appear. And also, principality with Esfera. We will talk more about Esfera, but Esfera is progressing very well. In terms of companies, the agenda is quite positive. You will see the volumes further on. But talking about strategies for large corporate and SMEs, there was a very good portfolio expansion. We grew two digits year-on-year. And so we want to continue posting a strong performance year-on-year. But the focus will always be in profitability. We could grow much faster on the large corporate side. But with principality being the focus now, we will certainly compete with the capital markets. And so we have to be more selective in terms of what we want to include in our balance sheet. And we have a very good performance in several rankings. Number one in consumer finance, foreign exchange, etc. So on the side of SMEs, on the right-hand side of the slide, our growth agenda remains very clear. We grew more than 100% quarter-on-quarter after growing more than three times last quarter. That stable agenda of the portfolio, where we were still looking at the right moment to accelerate, we were growing stronger after the second half of the year. And the numbers are here to prove that. So we are already giving clear steps in that direction. And now to conclude my part, I will talk about technology and innovation. And certainly this is connected to everything I said before. We don't have technology on the one hand and business on the other hand. Everything is business and technology is a major business center. The operation areas are large business centers. We have lots of figures in the slide I will just mention some. 95% of our operation already runs in the cloud. We are converging to 100%. Very soon, 100% of our operation will run in the cloud. This is a very good figure because this generates efficiency, cost reduction. Therefore, we are very pleased to have such a strong cloud agenda. We are constantly investing like the rest of the market is as well. We are investing in Generative AI. Generative AI can be a major response to chat and remote channel. But it can also give us a good response for coding, development, generate new businesses. Therefore, we are moving quite fast in this agenda. We are also focusing on innovation. Our first innovation with DREX was very successful. We are making good progress with the Central Bank of Brazil. We are also focusing on banking as a service. We are certainly trying to expand this agenda because we want to have Santander more present with our customers. We want to be a part of our customer experience on a day-to-day basis. We are also maturing our agenda business domains. We have 27 business domains that we introduced from 2022 to 2023. Now, from 2023 to 2024, we are also merging that more intensively with our product agenda. So business domains, those large communities that operate end-to-end in our businesses is quite consolidated in all of the remuneration, all the incentives are quite aligned. We continue pursuing our efficiency agenda. We are doubling the number of transactions. And while at the same time, we reduced by almost half the unit cost. And with that, I will turn the floor over to Gustavo, and I'll come back during our Q&A. Thank you.

Thank you, Mario. Good morning, everyone. Let's start the results section with the NII. We posted NII growth of almost 5% year-on-year. With good progress in client and market NII, we recorded a good performance in terms of volume, as well as in terms of funding, both of which benefited the client NII in 2023. In Q4, we saw the continuation of some positive trends seen in Q3, which led to growth of 4.8% in NII quarter-on-quarter. One of these is the gradual growth in retail credit, which will be detailed in greater depth in a minute. The other trend is the reduction in the Selic interest rate, which benefits our funding costs, as Mario mentioned. Market NII shows a progressive evolution, which I have been commenting on over the last few presentations, and which is in line with our expectations. The performance of spreads in the full year reflects a strategy of greater selectivity, which began in 2022, and which is in keeping with the risk profile of new loan originations. Lastly, regarding NII, I would like to highlight the positive year-on-year evolution of the net interest income. In the fourth quarter, as you can see, we posted growth of 12.3%. Now I am going to comment on some data on the evolution of our loan book. We increased our expended portfolio, growing 9% over the year, as mentioned. We grew in all lines of business, with significant expansion in retail for individuals, vehicles and SMEs. During Q4, we achieved a strong performance in cards for individuals. This result was sustained by seasonality and the gradual resumption of card sales. The resumption and improvement, which has proved to be more assertive and with satisfactory quality levels in loan origination. This performance was accompanied by continued, consistent results in payroll, deductible loans, mortgages and farm loans. Actually, Mario has commented, and I'll stress that, we should also highlight a strong growth in every business, up 10% in Q4, and up 42% in the full year. In auto loans, we posted growth of 5.5%, quarter-on-quarter, marking the best performance of the year. This improvement more than offset the impact of the sale of the PSA portfolio in the previous quarter, and it reflects the strength of our strategic partnerships and the positive momentum of the market. In SMEs, we continue to boost the growth of our portfolio after a relatively stable first half year, which is in line, totally aligned with our stated strategy of increasing the share of this business in the total portfolio. The 5.2% increase in the portfolio in Q4 is something to be highlighted here. On the next slide, I share details on our funding. As we have highlighted throughout the year, we have achieved a solid performance in funding, which shows our commitment to the expansion strategy and the search for a more balanced mix between wholesale and retail. Our funding, as mentioned, grew by 15% in the full year and 2.6% in the quarter, with a highlight going to time deposits and exempt securities. Our loans to deposits ratio stands at 92%, the best level in our history. Here, we present the performance of our fees, which each quarter reflects the evolution of our business in a very clear and consistent way, with positive performance in practically all business lines. In Q4, we recorded growth of 7% on the back of a 6.5% growth in the previous quarter. Even with the positive seasonal effects that happen in cards and in insurance, business in general showed very positive dynamics, which reinforces our strategy in fees, aiming for greater transactionality or more transactions with our clients. We now move to talk about the quality of our assets. This quarter, we have the effect of increasing provisions for the specific case and reinforcement of provisions for the wholesale cases. If we disregard these effects and the lower volume of recoveries, after two quarters of record performance, we have a stable growth ALL in relation to the previous quarter, with no signs of deterioration. We maintain the downward trend in the cost of credit, which closed the year at 4%. We also continue to see a downward trend in the renegotiated portfolio in relation to the total portfolio, reaching 6.3%, as you can see here. This 120 basis points reduction over the year reflects the better quality of recent vintages, especially in retail. On the other hand, NPL formation posted a slight increase due to higher delinquency in the renegotiated loan portfolio. But this is something that was expected as we move forward in the process of purging this portfolio. On the next slide, the next slide provides a more detailed overview of our delinquency indicators. We recorded a sequential drop in short-term indicators for both individuals and legal entities. I would like to highlight the 110 basis points improvement in the 15 to 90 past due loans for individuals. The long-term indicator 90 plus, there was a slight variation of eight basis points due to the renegotiated portfolio, as I've already mentioned. In fact, the 90-day default rate in the SME segment on the left also reflects the same impact. In short, we continue to have quality indicators under control with the possibility of some volatility throughout the year due to the renegotiated portfolio. Moving on to slide 19, please. Here we present the evolution of our general expenses, which rose 9% in the quarter and 8% in the full year. Personal expenses were affected by the collective bargaining agreement, which had an impact on the fourth quarter as a whole. In addition, in the full year, we also had the 8% carryover related to the 2020 labor agreement. Administrative expenses increased in the quarter, largely driven by seasonality. The main factors behind this growth were strategic investments in marketing campaigns to take advantage of the end-of-year period and data processing due to the increase in volume in more business. The seasonal effect also affected our efficiency ratio, resulting in a deterioration of 80 basis points. To continue the new breakdown implemented last quarter, we present the performance of our expenses, segregating product expenses and business expansion expenses from recurring expenses. We can see here that our annual growth was mainly concentrated on expenses focused on business growth, which we consider fundamental to supporting our strategy of delivering the best experience to our clients. And to conclude the results section, we present our income statement. As a result of the dynamics discussed throughout this presentation, we recorded net income of R$2.2 billion. Compared to Q4 2022, total revenues grew by 11% and net income grew by 30%. Managerial profitability, excluding the specific case, reached 12.3%. Our core capital reached 11.5%, a level that we consider adequate to continue with our long-term growth strategy. We ended 2023 with a more positive trend, despite fluctuations in specific provisions and seasonal expenses typical of any given last quarter. Credit performance was favorable and was accompanied by an increase in revenue generation. We expect this trend to intensify along 2024. With that, I'll end my part and I'll give the floor to Mario for his final thoughts.

Thank you, Gustavo. I'll take just one more minute of your time to close and we'll have the Q&A. Big message is here in this conclusion page, page 22. In terms of context, four main messages. Revenues are expanding and we have a very positive expectation for 2024, both in terms of clients and markets. So, we are optimistic, we are excited with the revenues line. The business portfolio continues to be diversified. That's the second big message. We'll continue to be very focused on liabilities and on expanding the fees business, which was always a very positive for Santander. We want to grow it even more. And also diversification is related to credit, which is the third point. We'll continue to pursue portfolio growth to gain market quotas in several products and segments and do it smartly so that we can grow the portfolio and with profitability. And the fourth context message is our obsessive quest for client principality. This is the strategy of Santander for 2024. In the coming years, everything we do will have to be linked to the client's agenda, as it is, and we'll strengthen this even more. The drivers for this. I mentioned this already, but I want to stress, we are repositioning ourselves in retail, both in mass retail that we'll talk more about during the year. We have a lot of deliveries for Q1 and mainly Q2, 2024. We'll end the year in a totally different position compared to where we started. We're very excited about that. In Select, high-income, company segment, now mid-income segment, and some SMEs. Well, these are segments that we're specializing in even more. We are making our service to these segments even more regionalized, more tailored. And in cards, we're taking another important stride forward with an obvious focus on principality and the ability to serve clients. We're very excited with this resumption in cards. We're doing this in a smart, precise and technical way with an in-depth personalization, understanding each client in each cluster. We have a consumer finance growing again in Q4. It was already showing some strength. We sold PSA, yes, but Q3 was good, and Q4 was quite strong. We are very excited with what consumer finance will bring us in 2024 and beyond. We also have consumer finance that is not related to vehicles. And the companies segment again, it's growing again in retail since the middle of last year. We're doing this in a very calculated and balanced way. We're very excited with that. And in terms of corporates, it's about profitability and discipline, but we have an important franchise that was established decades ago. So in a nutshell, now officially closing 2023, we are, when we end 2023, we start 2024, very excited with the business dynamic. There are some points that Gustavo mentioned in terms of ALL and wholesale, no concerns with retail, which is very important. For the last two years, we worked to have comfort and I'm sharing with you that we are very excited with the portfolio and the new vintages. In terms of expenses, we have one-off situations, but the franchise makes us very excited to start 2024 with full steam and with the top line growth that we have been showing in a consolidated way. With that, I will stop and let's start the Q&A. Thank you very much.

Thank you, Mario and Gustavo. We will now start the question-and-answer session. [Operator Instructions] Our first question comes from Thiago Batista with UBS. Good morning, Thiago.

Good morning, Camila. Good morning, Mario. Good morning, Gustavo. Good morning, everyone. My question refers to loan origination. In the fourth quarter, we saw that the bank had a strong origination in the auto segment. I think it was the best quarter ever in terms of vehicle origination. And we also said that the bank is already issuing cards with a good evolution in the portfolio. So this return to origination, is it something that the bank feels comfortable to go back to several segments or you still see a concentration in high income alone or income to mid income? How do you see origination in the Santander portfolio?

Thank you, Tiago. It's a pleasure to talk to you. We'll start and then Gustavo will just add. We've been talking to you in a very linear and consistent way, meaning that throughout the years, we've been very selective in terms of the portfolios that we would accept to keep them flat and CP and pure CP was in that category. The most, I mean, the cleanest and the more direct loan, especially if you look at average to low income, we knew that for two years these portfolios would be flat or maybe down. And this would be compensated by other businesses. Some of these portfolios, I mean, we are investing in CP FGTS and personal loans and cards. I mean, we are focusing in all income brackets. Of course, we are looking at high income considering the bulk of Select. But in the payroll area, that's a very good leverage to get to know clients better. I mean, we are not doing payroll just now. We have been doing it for the past few years. But in this past year, we saw a clear evolution in terms of our capacity to understand it better and to make that a more loyal client. And then with that, we could sell like cleaner products for low and mid income. And so payroll is a very good example that justifies that. Other products we have been growing starting in 2023 and more aggressively in 2023, 2022 and 2023. But today, I mean, we still have that. We are still in that comfort zone that we had before in the same portfolios that we are growing in 2022 and 2023 like payroll, agribusiness, large corporate. We never stopped growing. It was just a matter of profitability. But since that second half of the year, we also started growing in other portfolios like consumer finance, small and mid-sized companies were two portfolios that we decided to step in the break. We could have been more aggressive, but we chose to take care of the portfolio we had, take care of all of the origination assumptions so that starting June and August, we would put more emphasis on that. So we start 2024 with the idea of maintaining what was growing and consolidate things that were started growing in the second half of 2023. And in the customer base that we are operating, but we are careful enough to do that with the right clients, not seeking what the growth we had in 2021, but we want to grow in these lines as well. So come 2024, we will have greater diversification with different products, etc. I hope I answered your question. Yes, thank you.

We now have a second question from Gustavo Binsfeld [ph] from Goldman Sachs.

Hi, Tiago. Hi, Camila. Can you hear me, he says? My question relates to provisions. During your presentation, you said you did not see any deterioration throughout the quarter, but when we look in the long run, you have been posting two years of high provisions. So what is your view towards 2024? Do you believe that is a year of transition for the cost of credit or you see a trend towards normalization? Also, if you could comment on the corporate segment, there was a very specific case in that past quarter or whether you see any other specific one-off case in 2024.

Okay, I will start and then I will give the floor to Gustavo. Your question has two parts. One is the cost of credit and the other is the absolute value of provisions. Okay, during the presentation, and I would reinforce that again, is that we have been posting improvements in the cost of credit, I mean, in the factor, in that percentage. We have been posting an improvement in that line. So we still hope that this figure continues to improve going forward. So cost of credit has been improving, especially in this last quarter, once you remove that very one-off event, and Gustavo can comment on that. So we still expect further improvements. I mean, even though we are not going to give you any guidance. Allowance for loan losses, of course, there is the effect of the cost of credit per se. So when we accelerate the portfolio as we have been doing, starting the second and the third and fourth quarter, and we hope to do the same towards 2024, I mean, with a better portfolio, our ALL, we just move along in parallel. But we just hope that the cost is lower when compared to the average, but we continue to pursue a lower cost of credit. So ALL has a behavior that talks with the cost of, talks to the cost of credit. So by the same token, cost of credit, we continue to go down. So yes, that's precisely it. And you asked about that one-off case in the corporate world. We understand that there wouldn't be any other relevant cases. We look at every case individually and we make the necessary position adjustments. So, looking forward in 2024, we don't see any relevant event in the corporate world in our portfolio.

Now, Brian Flores [ph] with Citibank.

Welcome.

Thank you. Thank you for the opportunity to ask questions. One about efficiency. How should we think about the income ratio? Close to 23? Close to 22? And in your view, what line should contribute more in attaining your goals?

I'll start and then I'll turn the floor to Gustavo. Brian, thank you for the question. And for the opportunity to speak about income and expenses. There are two drivers here. Undoubtedly, we want to expand. And I started my conclusions talking about revenues. So, of course, we are super focused on expanding, but expanding the revenues line item in the right way. We want to grow our revenue, which is the strength of our franchise, which is measured in the top line. We want to grow our revenues consistently. It will never be linear. The world is not linear. But we want to grow the top, the revenues line. And I want this to be sustainable. I don't want to have hiccups in revenue. I don't want to have regrets. Of course, we can make mistakes, but we are careful to grow in the right way in each one of the segments, in each one of the product portfolios. So, part of the answer is yes, we want to expand revenues. In terms of revenue, of course, we'll have some increase in expenses. I don't want to give any guidance, but it is only natural because the business will require more volume, more expansion. We are hiring people as we speak in some of the sub-segments that we are specializing in. I mentioned mid-income and small companies, small enterprises. We are specializing even more. And that requires more people. These are individuals or companies that need to be covered by people. We want to be truly multi-channel, omni-channel. So, in some lines of expenses, those will grow. But the question is how will we fund those in the last quarter? We had to have a turnaround in mass retail. We had to reduce our base of expenses materially between 30% 50%. That will give me the funding to invest where I need to invest. So, I'll have a potential increase in expenses, but it must be a lot smaller than the increase in revenues so that we'll have the crocodile mouth. Gustavo, if you want to add?

That's exactly it. In 2024, we are seeing a deflation process. This will benefit us. We'll have a more efficient use of the expenses that we have, the spending we have, benefited by inflation, which is different than in the previous quarters. And this gradual and solid increase in revenues. So, we see a positive evolution in terms of the level of efficiency, but it's basically what Mario said. It is very important to increase, expand our top line to gain speed and traction in resuming efficiency.

Okay, perfect. Thank you.

Next question from Mateus Raffaelli, Itaú BBA.

Mateus, good morning. Welcome.

Good morning. Thank you for the opportunity to ask a question. I'd like to explore the expectations for client NII. I know that the funding spread pulls this down, but we see Santander with more appetite for clean lines, vehicles. We expect growth, renegotiated portfolio as well. So, perhaps you could elaborate on what you're expecting for client NII for 2024. Do you expect a flat NII or dropping or expansion, given the factors that I mentioned before? Thank you very much.

Thank you, Mateus. I'll start. Well, directionally, like I said, nothing is linear. You should not expect anything linear from us or anybody else. But we want to grow the revenue. I spoke about this in the previous question. Of course, the revenue has some sub blocks, but the NII is a fundamental block. It measures the strength of the franchise together with fees. In client NII, it's even more precise. It measures the strength of the franchise. So we are very focused on that line and in the sub lines that make up client NII. You mentioned and I also mentioned that in Q3 compared to Q4, we have a challenge because the Selic interest rate is dropping. As much as we increase the volume and spread as a percentage of CDI, if the Selic rate falls, it's a detractor. It's positive for the economy as a whole. We want to have a reduced interest rate, but for the liabilities line item, it will be a challenge. It will be a challenge for this year. You can do the math you want, but anything between 20% give or take of a lower Selic rate in 2024 compared to 2023 is a challenge that we will have and the whole industry will have in terms of liabilities. What we can do is to expand even more our investments and liabilities agenda. I have spoken about how this is strategic for Santander. So Mateus will offset with volume. I have some hedge in volume. We'll try to be pricing efficient as we try to be efficient in everything and we'll offset that with credit NII because you mentioned we are more constructive in several line items. I mentioned we want to have growth. It will not be equal in all portfolios, but I would like to have all portfolios growing over 2024 so that we wouldn't have any portfolio dropping or flat. And if we take care of spread on the side of assets and growing volume, sometimes we'll look for two-digit growth. Sometimes we'll grow just like the industry, but we'll pursue relevant growth in all credit portfolios. If we take care of the spread, we'll have a compound effect and we'll have a good evolution in the client NII, credit NII that I think will be more than enough to offset the challenges we'll have given the Selic interest rate, not because of the strategy, on the contrary, because of the interest rate.

And you mentioned well, Mario, there are different speeds of growth for the portfolios. So, we have payroll deductible loans, SMEs, mortgages, auto. So, the speed of growth among the portfolios will dictate the NII. Of course, we have to be very disciplined about pricing and volume. And the trend is that we'll be able to effectively balance the NII with the given challenges. But if we grow the portfolios in the speed, we believe we can, and if we increase volume, we'll be able to cope with this variable. So, in a nutshell, of course, we're going to have a positive evolution in market NII, which is the implicit question here. We continue to expect it just like you all do, an evolution in market NII. It will happen, it is a given. And we expect it to also evolve client NII with a net effect on one hand, because we are going to have an anchor in funding given Selic, we'll try to offset in the funding business, and we'll have a net positive in client NII on the side of assets. And I hope I have answered.

It was super clear. Thank you very much.

Now, the next question comes from Daniel Vaz from Banco Safra. Hello, Daniel.

Hi, Camila, Mario. Good morning. Thank you for taking my question. I would like to hear your view about something that has been very recurrent, which is payroll loans. There is a pressure on rates and also an additional potential of a major digital player that wants to add share in 2024. First question, how do you advocate in favor of the product? Are you increasing origination? And second question is, how do you see a potential increase in portability if the bank is expecting that? And how do you intend to defend yourself, maintaining cost of client, etc?

Thank you, Daniel. That's a recurring question about payroll deductible loans. And this is a very relevant question because this is part of the industry's portfolio. And for us, this is quite relevant. If you look at our expanded loan portfolio, our payroll portfolio is about 10% of our expanded loan portfolio. And that means this is a very relevant portfolio and we are happy with it. How do we see the pricing and the competitive dynamics playing out? First of all, you mentioned the price ceiling pressure. It's very specific. It's not lower, but it's very specific related to INSS. And as Santander, and I can certainly also speak on behalf of the entire industry, we don't think that this is a pro-consumer agenda. I mean, the decisions that were made in this past year in terms of limiting that rate lead to origination volumes. And this is a fact, I'm not speculating the origination volume in practice is coming down a few million every month, maybe two billion, even more every month. So if you multiply that by 12 months, it's R$25 million to R$30 billion. And the INSS loan, which is the cheapest loan available in the market, I mean, it competes with mortgage, mortgage loan. It's certainly the cheapest kind of loan given to retirees, and many of the potential borrowers have to resort to more expensive loans. So this is an agenda that does not favor consumers, and we are trying to tell the authorities about that. So I hope this year our advocacy is more successful. I mean, I just take this opportunity to say, I mean, we look at it and we are very sad because we know that consumers are being hurt. Having said that, we are trying to rebalance our pricing equation because we do not want to let go of INSS. As I said, we grew a lot in this past year, year and a half, we gained momentum, and we grew the most with INSS. And I can assure you that that was very profitable. So we are trying to rebalance the equation of fees. I mean, as with the rest of the industry, there is a great relevance coming from the external channel, the banking correspondence. We continue to have them, but we reduced the relevance of the external channel vis-à-vis the internal channel. So in practical terms, we are investing more to use INSS in our special stores. We are making advances in terms of our reading of INSS audiences. We are turning some of our major stores into stores that focus on INSS loans. We are -- I mean, anyhow, the whole agenda is not very favorable. And this affects the entire industry. So, I mean, if you look at the historical format, therefore, we are trying to do it more, more things internally, trying to keep our relationship with customers at different levels of profitability. In terms of competition from other digital banks, this is something like with any other player that is a new entrant, we are looking at those very carefully. But the relevance of these banks are not yet affecting us. I mean, we respect them, we think that their move is legit, but we will try to monitor that very attentively. But our agenda has to be focused on payroll and non-payroll clients. And we want them to look at Santander as their main bank with specialty stores, with omni-channel or multi-channel approach, not only for payroll. Clients should look at Santander and see that we have a whole basket of things. I can have everything in one single bank. So, we want to be a simpler bank and a more effective bank, as I said earlier.

Daniel, it is precisely that. We are making progress. And the relative share of other banks is being reduced year-on-year. So, there is an agenda of reduction. We are leveraging our digital footprint with a very strong agenda. And we are also using our proprietary channel. Therefore, this is a move that we are already engaged in, in general for the payroll portfolio. But we will also be more aggressive in other portfolios where there was a higher dependency reliance on third parties. We are moving at the right speed, but certainly there are some market challenges, like you said it yourself. But we are ready to defend our portfolio with these movements of lower Selic rate. Just to add another important point. We have INSS, we have payroll, we have private loans and we have payroll deductible loans coming from the public sector. So there are pricing and competition dynamics that are different, but we are very pleased to say that we are evolving in all of them. So we do not want to rely on a single one, even though INSS is quite relevant. We do not want to rely on the government alone. Our agenda is very dynamic, so we're very pleased with the way things are evolving. That's why we are focusing on these lines going forward. Thank you.

Our next question comes from Bank of America and the question is from Flavio Yoshida. Good morning, Flavio, and welcome.

Good morning. Thank you for taking my question. My question is about competition on your credit business or loan business. I think in the past few years we saw not only you, but other banks making adjustments to their portfolios, but now the risk appetite seems to be increasing. Therefore, I would just like to understand how you're getting prepared to face this more competitive environment. We see companies focusing on cards, AG and SME loans. And how is your feeling about demand for credit on the part of your clients?

Thank you, Flavio. It's a pleasure to talk to you again. Well, we are closely monitoring the competition dynamic. I would say that the speed and timing of this stepping on the brake has been different, depending on the bank in 2022 and 2023. Probably we were one of the first, if not the first bank to say, okay, from 2021 to 2022, performance is not good. So, we would have to step on the brake and then we would spend the next two years managing that. The fact that we were the first allowed us to manage that portfolio for a longer period of time. So, in the midst of 2023, we say, in addition to all the businesses that we were managing that were a part of that case, like AG, etc., we can grow in other lines. It could be secured or maybe not secured, but in terms of hyper-personalization and segmentation, now our capacity has increased substantially when compared to what we had in 2021, also because technology evolved and the systems evolved as well. Therefore, in 2024, we are eager to grow our portfolio. We are more eager now than what we were in 2022 and 2023. And certainly, the market as a whole is looking at the same lines and each one will pursue answers at their own pace. But how are we going to deal with that? Well, maybe because we started sooner, we have an advantage and we will try to get better experiences vis-à-vis the competition. Again, we are focusing on principality and the obsession is a buzzword for us. And we will certainly try to be the main bank to our clients. And there are many other things that we have no time to mention. We focus on customer centricity. We, in fact, will have an agenda that prioritizes the demands from our clients. And certainly, this will also involve having a very good and profitable agenda for the bank. But we will try to pursue a balance with a competitive dynamic. And this does not only pertain to banks or incumbent banks, but this is a competition agenda that involves the capital markets. We never had any difficulty in growing on the wholesale side. We could have grown a lot more than what we grew. There was just a drop of 0.1 percentage points. And we will also talk about the expanded loan portfolio in 2024 because it will be easier to talk to you about that. But in terms of wholesale, it's a matter of profitability. There will be cases where we will be more of an investment bank. We will do a very quick portfolio rotation. And in the cases that make sense, we will include that client in our portfolio. It's not just a matter of having more appetite. But the focus, I mean, there is more demand coming from retail. Of course, there is demand from the wholesale side. But there is probably a delay in terms of major projects, major investments. And even in M&A agendas, because they demand acquisition investments, there was a large case in the first quarter, I mean, in that turn of quarters. But this hasn't been yet a very major inorganic agenda. So I hope that on the wholesale side, we expect to see a better evolution in 2024. But we are well prepared to face that.

Okay, thank you. Thank you very much.

Let's move to our last question with Guilherme Grespan with JPMorgan. Good morning, Guilherme, go ahead.

Good morning. Thank you for your time and for taking my question. One around would like to tap into a different type of product. We spoke a lot about payroll deductible loans and we also talk talking about installment payment picks. We've seen some entrants being successful with a relevant contribution for their top line, particularly in the card business. If I'm not mistaken, you were the first, if not among the first, to launch the product in Brazil. We haven't heard so much about this product in the last two years. So, I'd like you to share with us the challenges of the product, what was right, what was wrong about it and if this remains a relevant product for you. Thank you.

Right, soon after the government launched PIX, it was a very successful agenda. In 2022, we created Divide o Pix. We wanted to connect a wire transfer with consumer loan. So, we created DVD [ph] PIX. We have been growing in this agenda, the CP agenda, also related to PIX, CP meaning consumer credit. And we did this, calibrating with the risk appetite that was being adjusted for the new reality that we had to cope with in the right way, given the macro evolution that we had, particularly in 2021. So, we didn't want to grow it for the sake of growing because it was a new product. But it is a product that has been on our shelf for two years. We had no deployment, implementation challenges. The big challenge is how fast we wanted to grow in pure personal credit because we reduced the client base that we wanted to operate with. We started operating with clients in the scale from one to ten. We were operating, continued to operate with clients scored nine and ten in our rating scheme. Each bank has a different one. But just to give a dimension of how sensitive we are. And even in this more sensitive range, we were able to grow this in personal credit, including Divide o Pix and in the card basis we reported here. So, we believe that this line item will evolve looking forward. It's not specifically very relevant, although it started some time ago. But with time, as PIX evolves, we want to be hand in hand with the evolutions of the Brazilian Central Bank and so that we can engage clients more and more with us, with installment PIX or other products. This is not so relevant yet, but we expect it to grow together with the personal credit or CP agenda. To speak less about the product and more about the client, we want clients to be served by Santander in all different ways. If they want to do it via FGTS, the worker severance fund, that would be good. I prefer clients to finance a product that is better for them than a product that has a higher spread. But I will have that operation and I will not get the principality of the client. So, we want to understand what is best for the client. And in personal credit, we'll speak less about products and more about clients. But the installment PIX is a reality, and it will be more and more relevant for us and for the industry.

Thank you. Perfect. Thank you very much.

With this, I would like to thank you all for joining us this morning. Immediately after this video conference, myself and the entire Santander Brazil investor relations team will be available to answer any remaining questions you might have. Thank you very much. Have a great day and see you next time. Again, thank you very much and I hope to see you in the next call.