Good morning, and thank you for waiting. Welcome to the conference call to discuss Banco Santander (Brasil) S.A. results. Present here Mr. Angel Santodomingo, Executive Vice President, Chief Financial Officer; and Mr. André Parisi, Head of Investor Relations. [Operator Instructions] The live webcast of this call is available at Banco Santander’s Investor Relations website, at www.santander.com.br/ri, where the presentation is also available for download. We would like to inform that questions received to the webcast will have answering priority. [Operator Instructions] Before proceeding, we wish to clarify that forward-looking statements may be made during the conference call relating to the business outlook of Banco Santander (Brasil), operating and financial projections and targets based on the beliefs and assumptions of the Executive Board as well on information currently available. Such forward-looking statements are not a guarantee of performance. They involve risks, uncertainties and assumptions as they refer to future events and has depend on circumstances that may or may not occur. Investors must be aware that general economic conditions, industry conditions and other operational factors may affect the future performance of Banco Santander (Brasil) and may cause actual results to substantially differ from those in the forward-looking statements. I will now pass the word to Mr. André Parisi. Please, Mr. Parisi, you may proceed. André Parisi: Good morning, everyone. It’s my pleasure to welcome you to Santander Brasil’s second quarter 2020 earnings conference call, which will be presented with more details by our CFO, Mr. Angel Santodomingo. Now I turn it over to him.

Thank you, André, and good morning, everyone. Thank you all for joining us this morning to discuss our second Q 2020 earnings results. As has been in the past, I will start the presentation by talking about our strategy and key messages, followed by the results of both Santander Group and Santander Brasil highlights on the quarterly earnings. And finally, I will conclude with final remarks. So starting in Slide 4. We start by showing the evolution of main figures of our balance sheet and P&L during the last both quarter and year. I think this is a key slide to understand how the business underlying performance is happening. We have been growing strongly both on the asset and the liability side during the last year, as you can see, 21% and 23%, respectively, gaining market share. But at the same time, being highly efficient, given, as you may see, that we have achieved a historical minimum of 35.7% in the efficiency ratio, a strong improvement compared to last quarter and last year. But an important part of this trend is, how did we grow on the asset side? As I have mentioned already and we, as a bank, have mentioned already one year ago, approximately, we have been selective in losing market share in those higher risky products like cards, overdraft or personal loans, as you may see in the slide, with significant decreases in market share, while at the same time, we have grown strongly in collateralized loans. These type of loans have increased 21% year-on-year. You don’t see that on the slide. This is a figure I’m giving you. Meaning that as of June 2020, they were 69% of total loans to individuals. This is a high number by itself, but also an important increase compared to…

Could you please explain more the BRL 2.5 billion in trading results. Is that sustainable? What exactly helped? FX, hedge accounting or loan book or interest rate?

Well, I have always commented, on that part of the NII, that you have volatility depending on how our treasury prop account, prop activity performs during the quarter. And obviously, the rest of the positioning with the yield curve. So this is a level, the BRL 2.5 billion that we have achieved responds to that. It is higher than past quarters, but I wouldn’t say that volatility will go away. We will continue to see this is a continuous question on the results because it’s a part of the P&L that tends to be volatile. As you know, we changed our criteria, our – how the information was given last quarter to give you even more transparency on that part of the P&L, and we hope that it helps in that way. It responds to the different evolution of the different variables you mentioned. André Parisi: Okay. Next question is from Thiago Batista, UBS.

Can we assume the provisions will return to their normal level already in second half 2020? In the Slide 6, you mentioned that 83% of the clients defer the payment by only 60 days. So I imagine that a relevant part of them already start to pay it as most of this defer happened in April. Can you comment how those clients are performing?

Well, there are several discussions here. First, as I mentioned, we have done this extraordinary provisioning in the second Q, once we have the facts, and we could apply those facts to future modeling, to the estimated behavior going forward. This is what we estimate today. I already mentioned that as of today, and with the visibility we have today, we do not expect additional extraordinary provision. That’s the first idea. Second idea, I remember that also through my presentation, we had another strong generic provisioning happening at the end of last year. So the balance sheet today shows a strong position. This is a different discussion. So how are we positioned with regards to quality of risk? You saw how our business as usual goals, how we control the capacity of entering into risky products and how we have performed in trying to avoid a strong growth when everything was okay 12 months ago in higher risky products like overdrafts, et cetera. So this is a discussion of a strength of balance sheet. The second discussion is how is credit quality going to evolve. In general terms, forget about extraordinary provisioning, et cetera, et cetera. And I have commented in previous results, I mean I wouldn’t be surprised if you see some trend upwards, given the amount of crisis that we are seeing in the different parts of the economy. Is this going to be an explosion? Is this going to be an exaggerated movement? I don’t think so. But the trend could be, in that sense, is, I would say, possible. But depending on what you call normal, we will be around the levels you have seen in the past with the volatility in the performance that probably will come from the behavior of confidence, consumption, et cetera.…

Congratulations for the results. So what were the factors that gave you such a good market income position in rates, others?

Well, I think I already addressed this question, no? André Parisi: Next question is from Jorg Friedemann of Citi.

How comfortable are you with the current level of renegotiation and coverage? Do you have a sensitivity scenario in terms of NPLs and cost of risk for the year?

Well, we gave all the numbers and all the figures that we have seen so far. We are comfortable because we have seen that clients are performing in terms of what we did. The response through our channels has been quite positive. You saw the NPS going up to 61%. That means that we are where we are supposed to be and that clients are responding to that. And if you see, for example, the NPL formation, we are – if I remember well, we are at 1.4% level. So it’s quite stable compared to the 1.4% level of last quarter and 1.3%, I think it was previous or 1.2%. So in terms of how the underlying and how the credit quality is performing, I addressed this point. And I think that we feel that the portfolio will evolve in a correct direction. We don’t see – obviously, it will depend – as I said, it will depend on how the economy performs, how – if this is going to be a V, this is going to be a Nike way, this is going to be – how the recovery is going to happen. But we feel as of today that the amounts of both provisioning and the way that the portfolio is performing is quite comfortable. André Parisi: Next question is from Marcos Assumpção with Itaú BBA. Marcos Assumpção: Considering the positive cost performance in the quarter, what could we expect on further efficiency gains?

Well, this is a good question, Marcos, because you know that we have been continuously focusing and sharing with you our way of looking at cost. Now I always – we always mention this industrialized way of looking at the sector, where it does not happen to exist that view or normally doesn’t happen to exist. So we continue – and we share this with you on our Investor Day last year. We continue to be more efficient in trying to analyze processes end-to-end, in trying to be quicker in time to market, in trying to be kind of leaner in the internal way of handling the thousands of processes that we have in treating technology, in treating our platforms, so that they are close to the front end, and they really perform and hand over the product that is supposed to be given at the right time. So this is not – this hasn’t started this quarter and it hasn’t finalized this quarter. So this is an ongoing process that you will continue to see. We think we have to be even cleaner or leaner in terms of costs because we are going into an industry that will have to be more efficient. And the ones that do not understand that will be losing either market share or capacity of growing in the future. So you are going to continue seeing this effort. But again, I’m not giving you new news here. André Parisi: Okay. One more question regarding NII. So it’s from Victor Schabbel, Bradesco.

If NII with clients was a positive, would you be concerned about future trends once asset deteriorates, likely waiting on the bank’s ability to have loans accrued? Would you see this as a potential headwind for NII or not really?

Well, again, this goes back to the question on the quality. I mean, I already said about how we see performance in this part. We have a 272% coverage ratio, that’s – which is already happening today. Obviously, those clients that will not be paying, they will not be generating NII. This is what will happen. But again, we see that controlled and in a positive trend. I’m not going to elaborate more because I think I already commented enough. André Parisi: Okay. One more question. A follow-up on NPLs from Tito Labarta, Goldman Sachs.

When do you expect NPLs to peak?

Well, I would address more the NPLs given the current situation, the cost of risk. I said that the trend could be flattish or deteriorating during the next times. This leads directly to our question in terms of how the economy is going to perform. The current estimation, as you all know, is that we’ll have a strong drop of GDP this year, especially focused on second Q and then recovering gradually towards third and fourth Q. But still a minus, whatever, 5%, 6% GDP deterioration in 2020 with a strong recovery. That’s the V that I commented, with a strong recovery in 2021. If that happens, the normal trend is that you will see that deterioration during the next quarters and starting to improve during next year. But again, I mean, visibility here is we have all the same visibility about how economy is going to perform. André Parisi: Okay. Next question is from Marcelo Telles, Crédit Suisse.

Loan growth has been somewhat resilient on the retail side. Do you see room for growth in the retail loan book going forward?

Well, you are right. I mean, what we have seen, and this goes back to – again last year that I was commenting with you. What we see is that, that difference that we were seeing in terms of retail growing, I don’t know, 15%, 20%. Corporates and SMEs and large corporates is almost flattish. At some point, we see that reverting or closing the gap, which, okay, provoked also by the pandemic, but it’s what we have started to see already before this crisis in first Q last year. So what we see going forward is that, that leveling probably will continue. The strength from corporates and SMEs loan growth was intense. I commented that at the end of March and during April, and it has been smoothing throughout the quarter. So we should go to reasonable growth rates looking forward. What means reasonable? I would say around nominal GDP as we go into positive trend with positive behavior on the corporate side. On retail, I mean, we have to go through the different products. This is not a general comment. I mean, you have products like car financing in which you will totally depend on how the sector and the economy performs. Obviously, all the consumer-related figures. And on the other hand, we have both credit products and non-credit products that are performing or will start to perform possibly. I’m speaking of payrolls, I’m speaking of mortgages, I’m speaking of these type of products. And outside the loan products, you have other ones like capitalization and special product here. Consórcio, another special product that we have here in Brazil that you already know, as they are both saving products in another way. They are already today growing strongly. I mean capitalization is growing 173% compared to pre-COVID levels. Consultants is growing 38% compared to pre-COVID level. So I mean, you have those products that I still show that there is good activity, performance and capacity from our clients to both safe and spend or leverage for future spending or investments. But I would differentiate, Marcelo, throughout the different products because if not, it’s a difficult conversation. André Parisi: Okay. Next question is from [indiscernible], Bank of America.

Can you please explain why the effective tax rate was lower quarter-on-quarter, even with the increase in the social contribution tax? Here, [indiscernible] what happened is that we had an IOC declared during the quarter, as you saw and with the statutory results, the impact was higher than previous quarters. Since we reported statutory results at BRL 2.1 billion in net profit. So basically, the answer is that. If you need anything else, we can touch bases later, okay? So I believe – okay. We have one other new question, it’s from Eduardo Nishio, Plural. What are the key assumptions used in the stress test scenario to reach the one-off provisions of BRL 3.2 billion in NPL level, GDP, et cetera?

Well, I mean, we do not disclose all – every single detail as you can imagine, but I can share with you some of them. Obviously, all the macro variables were strongly stressed in the line I mentioned before. So you have from GDP disposable income leverage, ForEx, I mean all the variables you can imagine that affect the leverage of the different clients. And additionally to that, I think it’s important to underline that the probability of default, we increased that by more than 50%. In fact, it is 55%. So increasing probability default by 55%, you can imagine the amount of stress that you put on a portfolio, a portfolio gain that has all the guarantees and the behavior that I said to you before. So we feel confident that, that amount of stressing done to facts, to already portfolios that we know are already there, that they happened and that we already are not offering more prorated capacities are more than enough, okay? Thank you for the question. André Parisi: Okay. Now we’re going to answer questions by phone calls.

[Operator Instructions] Our first question comes from Thiago Batista, UBS.

I have one follow-up about the credit renegotiation. We saw an increase of about BRL 4 billion Q-over-Q. Can you comment if this was concentrated in any specific type of loans, if this was corporate? Or if you can give a little bit more color on this credit renegotiation? And the second question on the fees.

Sorry, can you repeat? Because we got a little bit hung up. Can you repeat the question? I’m sorry.

Okay.

Hello?

Hello?

Hello. Now I can hear you. Sorry, we didn’t hear you. Now we do hear you. Please repeat it. I’m sorry.

Okay, okay. Sorry. If you can comment about your credit renegotiation. We saw an increase of BRL 4 billion Q-over-Q, more or less. If this renegotiation was concentrated in any specific segment or if this was large corporate? So if you can give a little bit of more colors – color on this credit renegotiation? And second one, on fees, especially the fees of credit card, if you had saw in June and also in the first weeks of July, the season on car resuming today at the normal pace?

Okay. Let me try to address both things. On the renegotiation, I have already tried to give a lot of light. What I would say is that we have like around 50%, 60% of that renegotiated portfolio being retail, retail individuals, I mean, less than 10% wholesale in terms of the breakdown, and the rest are minor percentages. I mean, let me give you an example. Credit cards, for example, less than 3%. Yes, so I mean, if you go to the risky parts, which is the ones that we reduced market share, and we were not growing, obviously, they have very small percentages, or the same – similar one to personal loans and the pure, clean personal loans are, again, I don’t know, 2%, 3%, 4%, no more than that. So we are concentrating and we’ve been concentrated in the non-risk part of it. On the fee side, you have seen – I mean, you have to add a little bit of – or some transactionality. I mentioned that in April, we had a month in which transactionality suffered, and credit cards is an obvious one. I mean, yes, they increased a lot on the digital platforms, on e-commerce, on marketplaces, yes. But obviously, they do not offset the amount of activity that the country has in normal situations. And you have regulatory impacts that you already know. I mean, we have had those impacts in this part of the business, they have been impacting. So the transactionality component is important because it generally affects, by a vast majority, the performance you have seen in fees. It is also true that, that activity is coming to normal. As for example, activity in credit cards today, we are around 15% lower than we were – we used to be in pre-COVID levels. Financing to cars, we are 19%, 18%, 15% depending on the day and improving, all of them improving. Mortgages, we are in between 10-plus percent lower than pre-COVID, improving. So the trend is positive, again, below pre-COVID levels. But I mean, we are, to some extent, positive in terms of how things are evolving. Again, with a big disclaimer on how the economy will perform, et cetera, that I have already mentioned.

Our next question comes from Daniel Wiks, Guard.

My question is about the investment abroad. I mean we’re seeing some movements from other banks to reduce some of the investment abroad. And regarding the change of the regulation at the end of the year, what is the – Santander’s strategy? If I’m not mistaken, and I didn’t see any reduction in the second quarter. So if you can discuss a little bit about your strategy regarding this?

Yes. Thank you, Daniel. The answer is no, we haven’t – as you know, all the – all what is around Alco and capital activity, we tend to be stable, and we don’t tend to be too trading-oriented in those things. So in terms of our capital approve that we have allocated for our loan portfolios in dollars, we have not moved in this quarter. Obviously, we will have to take a decision towards year-end because, as you know, the new regulation is being approved as we speak. So yes, we will have to adapt to the regulations, as we have always done.

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

No. Thank you so much. I think that we have three main messages for you today. First one is that our BAU, our business as usual, as you see, continue to go in that recurrency and strong capacity in terms of how it is performing, and we’re trying to show to you the different details and with transparency, both on the asset liability, risk and costs. Secondly, I try to explain that extraordinary provisioning and once, we said in first Q we didn’t have the facts. Now we do have the facts, and we have tried to present them to you so that you could understand how and why we are doing this. And third, the message on the guidance that we will come back to you. But obviously, in the current situation, we don’t think it makes sense to continue trying to hold that. Also, we continue to be quite insistent in the four things I mentioned: growth, cost, risk and profitability being one of the best, if not the best, in the Brazilian sector – the financial sector. Thank you so much, and looking forward to speaking with you in the next quarter or occasion. Thank you.

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