Santander’s second LatAm engine

While profits in the UK slipped by 13% in the first three months of the year, the bank beat estimates thanks largely to the Brazilian bank’s latest blockbuster result.

In the third quarter, Santander’s Brazilian business grew earnings by 20% year-over-year to reach R$3.1 billion and it is now the biggest individual contributor to Santander’s profits.

The rise of Santander Brasil is now well known. It can be traced to the appointment of its CEO Sergio Rial in September 2015 and Euromoney was one of the first to recognise Rial’s turnaround when we named the bank as the best bank in Brazil in July 2017.

The reasons for this were clear to us: between the first quarters of 2016 and 2017, the bank increased its customer base by half a million, to 3.7 million, and increased fees by 24.3%, revenues by 16.7%, net income by 37.3% and lowered non-performing loans by 40 basis points to 2.9%.

Digital transformation has been at the heart of the turnaround strategy and it helped to lower the bank’s efficiency ratio to 44.9% from 50.3% in just one year, and its return on equity (ROE) leapt to 15.9% from 12.6%.

The bank’s momentum hasn’t faltered since this point. Santander has enjoyed 19 quarters of sequential earnings-per-share growth – an incredible achievement for any bank, but for one competing against two dominant players in a country suffering its worst recession it is a truly phenomenal result.

Santander has overtaken Bradesco to enjoy the second-best ROE in the country and is likely to reach Rial’s unofficial guidance of R$12 billion for 2018, announced at the bank’s 2017 year-end party – a projection that was met with more than a dash of sceptism in the market. The price of this success is elevated expectations.

Rial gave guidance that the bank’s bottom-line growth will be “well in the double-digits” in local terms for the coming quarters, and pointed to a continuation of net interest margin (NIM) expansion – albeit at a slower pace as the mix effect from large corporates to consumer lending decreases in intensity.

However, a BTG Pactual analyst wrote a report with the words ‘losing stamina’ in the headline.

For the full article visit Euromoney’s website

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