Banco Santander (Brasil) S.A. — FY2018 Form 20-F
Period and basis. Annual report for the fiscal year ended December 31, 2018—not a standalone fourth-quarter filing. Figures are consolidated and in Brazilian reais (R$), unless noted. Financial statements follow IFRS as issued by the IASB and were audited by PwC, which gave unqualified opinions on the statements and internal control over financial reporting. The filing does not provide a clear standalone Q4 value for the metrics below.
Key financial and operating metrics
| Metric | FY2018 / Dec. 31, 2018 | Comparable period |
|---|---|---|
| Total income | R$49.5bn | R$48.7bn in 2017; +1.6% |
| Net interest income | R$41.9bn | R$34.9bn in 2017; +20.0% |
| Net fee and commission income | R$14.1bn | R$12.7bn in 2017; +11.1% |
| Operating profit before tax | R$15.9bn | R$14.5bn in 2017; +9.6% |
| Consolidated profit | R$12.8bn | R$9.1bn in 2017; +40.1% |
| Return on average assets / equity | 1.9% / 14.3% | 1.4% / 10.4% in 2017 |
| Efficiency ratio | 33.9% | 33.1% in 2017 |
| Net interest yield | 6.9% | 6.4% in 2017 |
| Operating cash flow | R$8.3bn | R$50.3bn in 2017 |
| Total assets / total liabilities | R$723.9bn / R$632.3bn | R$645.7bn / R$558.6bn in 2017 |
| Total equity | R$91.6bn | R$87.1bn in 2017 |
| Gross / net customer loans | R$321.9bn / R$301.7bn | R$287.8bn / R$272.4bn in 2017 |
| Customer deposits / total funding | R$304.2bn / R$497.5bn | Customer deposits: R$276.0bn in 2017 |
| Basel capital adequacy ratio | 15.1% | 15.8% in 2017 |
| Liquidity coverage ratio / net stable funding ratio | 131% / above 117.3% | Both exceeded the stated 100% minimum |
Cash and cash equivalents at year-end were R$25.3bn, up from R$22.7bn in 2017. The filing reports no single headline debt total; funding included R$74.6bn of marketable debt securities, R$9.9bn of subordinated liabilities and R$9.8bn of capital-eligible debt instruments. The latter balances reflect regulatory reclassification of 2014 notes; a US$2.5bn Tier 1 and Tier 2 issuance was completed in January 2019 to fund redemption of those notes.
Material changes versus prior year
- Profit rose 40.1%, led by higher net interest income and fees, lower net provisions, and lower income tax expense. Total income grew only 1.6% because reported financial-asset and foreign-exchange results swung to a combined R$5.6bn loss from R$1.6bn of gains in 2017.
- Net interest income benefited from loan growth and improved spreads; average net yield increased to 6.9%. Customer loans rose 11.8%, led by individuals (+24.2%) and consumer finance (+23.5%); corporate loans declined 2.4%.
- Asset-quality indicators weakened: impaired assets increased 17.1% to R$22.4bn, and impaired assets as a share of gross loans rose to 7.0% from 6.7%. Coverage increased to 102.4% from 95.4%. The filing attributes part of the movement to IFRS 9 adoption and growth in individual lending.
- Administrative expenses increased 4.2% to R$16.8bn, including a 30.8% rise in technology and systems expense. The reported efficiency ratio worsened by 0.8 percentage point.
- Customer deposits grew 10.2%; total deposits, including deposits from banks and the Brazilian Central Bank, increased 13.5%. Capital adequacy declined 0.7 percentage point but remained above stated regulatory requirements.
Outlook, commentary, risks and unusual items
- Management described Brazilian growth as moderate: GDP increased 1.1% in 2018, while the SELIC rate ended the year at 6.5%. It cited loan growth, customer revenues, digital adoption, cost discipline and risk management as business priorities. The filing provides no numerical earnings guidance: Santander Brasil discontinued publication of projections in August 2018.
- Management identified uncertainty around Brazil’s new administration, fiscal and pension reforms, economic recovery, inflation, interest rates, exchange rates, competition and regulation. It also highlighted credit deterioration, funding costs, cybersecurity, data protection, technology dependence and operational risk.
- Funding is materially short-term: 80.6% of customer deposits were payable on demand or due within one year, while 31.6% of assets had maturities of one year or more. Brazilian government securities represented about 16.1% of total assets, creating sovereign concentration exposure.
- Legal and administrative proceedings classified as probable loss, including legal obligations, totaled approximately R$14.4bn and were provisioned. Possible-loss proceedings totaled approximately R$26.5bn; significant disclosed matters include tax disputes. Management cautioned that outcomes could exceed reserves.
- IFRS 9 and IFRS 15 took effect in 2018. IFRS 9 changed classification and expected-credit-loss accounting; the reported opening equity adjustment was a reduction of R$1.5bn. IFRS 15 had no significant reported revenue impact. A one-percentage-point interest-rate move was estimated to change annual net interest income by about R$419m.
- Dividends and interest on equity declared for 2018 totaled R$6.6bn, including R$4.8bn scheduled for payment in February 2019. The board approved a buyback of up to 37.8m units or ADRs, approximately 1% of share capital, through November 5, 2019.
Important facts for investors to verify
- Reconcile the reported and adjusted efficiency ratios: the filing presents differing adjusted figures in separate sections, so the applicable definition and calculation should be checked.
- Review IFRS 9’s effect on comparable asset-quality and impairment measures; 2017 figures were not restated, and management identifies adoption as a factor in 2018 deterioration.
- Assess the rise in impaired individual loans and the adequacy of coverage, including the R$14.0bn renegotiation portfolio and its 53.9% allowance coverage.
- Check the maturity and liquidity profile of deposits, repurchase-agreement funding, and the post-year-end refinancing and redemption of capital notes.
- Monitor material litigation, especially possible-loss tax matters, and developments in Brazilian fiscal, pension, regulatory and data-protection rules.
- Distinguish recurring operating performance from volatile foreign-exchange hedging effects: reported 2018 losses in financial-asset and exchange lines were substantially offset through the tax line.