Banco Santander (Brasil) S.A. (NYSE:BSBR) Q2 2024 Results Earnings Conference Call July 24, 2024 9:00 AM ET
Company Participants
Camila Toledo - Head of Investor Relations and Market Intelligence
Mario Roberto Opice Leão - Chief Executive Officer
Gustavo Alejo Viviani - Chief Financial Officer and Investor Relations Officer
Conference Call Participants
Brian Flores - Citigroup
Daniel Vaz - Safra Bank
Jorge Kuri - Morgan Stanley
Mario Pierry - Bank of America
Matheus Guimarães - XP Inc.
Thiago Batista - UBS
Pedro Leduc - Itaú BBA
Yuri Fernandes - J.P. Morgan
Eduardo Nishio - Genial Investimentos
Camila Toledo
Good morning, everyone. And thank you for joining us today during our conference call for the results of 2024, the first quarter. We are here in our headquarters in São Paulo and we'll be dividing this event 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 drive our growth in the coming quarters. Next, our CFO, Gustavo Alejo, will provide a detailed analysis of our performance. And finally, there will be a Q&A session.
I will now 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. To pick an option, just click on the button at the bottom center of your screen. To ask questions, just click on the hand icon at the bottom of your screen.
Today's presentation is available for download on our IR website.
Now, I hand over to Mario to start the presentation.
Mario Roberto Opice Leão
Good morning, everyone. Well, it's 10 o'clock sharp and we are live. And this is the second quarter results conference call. And I would like to start by showing you the main highlights. I'll start with the column in the middle with the numbers. I think you've already seen it.
And as you know, once again, we had a very clean quarter, as I like to call it, with some one-off events, which are posted in our results. We grew 10% quarter-on-quarter, over R$3.3 billion. So once again, we reached R$3 billion level this quarter. And this shows that we are showing a consistent growth of our portfolio growth and results delivery. And in the next quarter, good operating results.
And we had increase in profitability. Our profitability year-on-year is 15.5%. And this is an evolution when compared to 14.1% of last quarter, where we already showed an ROE. above our cost of capital. So in terms of results, growth and profitability, it's a good performance. And this is testimony that we are really moving forward in the right direction.
On the left hand side, we have a year-on-year view and how our results performed. Our NII. increased by two digits. We will give you more details. And during the Q&A, we can give you more information about client NII, market NII.
We also had consistent progress in fees. And this shows that we are going to the direction of portfolio diversification. So, since 2022, we've been saying that we need to diversify. We needed to diversify the macro numbers of the bank. We have a credit position, which is different, more balanced, in terms of different income brackets and more funding and fees. The idea is to grow fees above our margin growth.
In terms of funding, we are also growing two digits. This is another marathon. It's not a sprint because this is an effort that spends for many decades. I will give you some additional information further.
Our LLP is decreasing year-on-year, even though the portfolio is growing 8%. This is a clear sign that our portfolio is becoming even healthier and that, therefore, dilutes the portfolio from old vintages, portfolios that we had to work on during 2023 and 2024. And now we're seeing the benefits.
On the right hand side, we have the strategy progress. We are certainly talking about our obsessive search for principality. We use this topic, this theme principality, because that means that we want to be the main bank and we want to be closer to our clients. We have to be present throughout the customer journey. It's a multichannel conversation. So this is the summary of our strategy.
In terms of free, we had an important launch. We did that just before the last result. Free is a very relevant offering, and that puts us back into the game in terms of mass income. We will highlight the consumer finance, which is growing and with lots of transformations.
We will give a double click in our business of SMEs. It's growing. We are revisiting our service model. And as I said in the last quarterly presentation, I mentioned that.
And finally, I think you've seen it. A few weeks ago, at the end of June, we concluded the VR and VF benefits and we are making a merger with Pluxee, Sodexho. And so, we've increased the valuation of our business, R$1.930 billion. This – the recognition of the results. We could flow over to the results, but to be cautioned, we prefer to reinforce our P&L.
So we do have an extraordinary item in the third quarter, but we will just preserve it in our results just to reinforce the balance sheet, because this is a good sign of good management.
Moving on to the next slide, we talk about customer centricity because, after all, this reinstates the essence of our strategy. The first major topic that I would like to highlight is that we start talking about principality rather than loyalty.
So you might recall that we start reinforcing the topic of principality. We are no longer talking about loyal customers. Of course, loyal clients is something very important. But what we are measuring now is principality. Principality is defined in three major blocks. Transactionality, the everyday transactions from our clients, credit card, current account, integrated payments and then we have the credit side. I mean, everyday credit that converges with transactionality or more structured credit related to mortgage loans and other things.
And the third pillar is investment. So we are referring to three main principality blocks, and that defines whether we are the principal bank or whether we are the second bank or the first one. So we have a lot of things to do yet.
Not only we show that conceptually, but also in numbers. We improved our principality goal by 6%, and year-on-year we are making a two-digit progress. We will start talking more often about principality. And now this is our commitment, and we will speak about it continuously.
We also talk a lot about NPS. We've been showing that quarter-on-quarter. We have to show our NPS numbers either going up or down. So our NPS continued to grow. NPS as a whole, transactional, we grow NPS, individuals and companies. We have posted high levels, but that's not enough. We want to increase NPS even more, converging towards individuals as well. But these are historical levels and quite positive.
They also reflect in every channel. When we look at a digital channel, remote channel, then obviously they are constantly integrated with the chat experience. So when we look at physical stores, this is even more surprising because we posted an important evolution in the physical channels, which coincides with the new service model that we also launched a few months ago in our effort to redesign our retail platform. The stores no longer own the clients, but they become a major element of our multi-channel offering as an element of convenience. So now the stores serve all clients of the bank in a very open way. All of the models are earmarked to that end. So the store is more dedicated to traffic. So NPS grows substantially.
Moreover, profitability per vintage also grows. We've been showing these numbers in the past quarters. The 2021 vintage compared to 2022 and 2023 had a substantial evolution, which shows that we are going in the right direction. We want to grow more, but we are on the right track already.
Here we talk about free with strategic numbers. So we captured the strategy that was literally launched one day before the release. I even showed you the video. We are referring to a strategy that involves a complete redesign of the way we deal with mass income. We talk about a new digital experience, redesign, simpler, and much more supported by a human and digital experience through the app.
We also talk about a continuous conversation. And I usually say here that we don't want our clients to repeat the story over and over. So the client had a conversation with us, and the conversation has to flow. I don't want our clients to tell the story more than once. And we do that through data capture and our CRM experience. We don't want the clients to tell the story over and over again because we have to be able to know the story even before they tell us. And again, we want to be the most present bank in customers' lives. And not only through our own will, but we want them to feel that for themselves. And the NPS evolution is just showing that.
What has happened to free in the past three months? We are very pleased with the evolution. The first KPIs are quite positive. We are reactivating more account holders. Part of the strategy that I talked to you before during the release and other presentations, from our total base of over 60 million clients, half of it, almost the entire bank, we have inactive customers. So we have a great opportunity to reactivate clients that were not active a few months or a year ago.
We are also capable of converting single-product clients, like auto loans or mortgage loans or savings accounts. So we have the opportunity now to bring these clients, to bring them a more encompassing offering. And we are doing that with a very selective group. So free not only means that we are changing our cost of risk, not only means that we are lowering the bar in that credit, in the ocean credit. We are bringing new clients with quality, proportionally even better than before. And we are activating the clients that we want to have as well.
Now here we are zooming in into the Select product. I've been talking about Select for the past year when we launched Select. Select is our high income segment and it celebrated its 10th anniversary last year. Two years ago when I started talking about Select with you. We had 600,000 clients, rounding up. And at the end of last year, we hit the target of 1 million. That was a public commitment that I made with you and I was saying, okay, now we are counting backwards towards our target of 2 million. So nine months later, I would say I'm pleased to say that we already have 1.5 million clients and we're not only focusing on the number of clients, but we are growing with an NPS that hits the mark of 70. This is the highest in our history and this is through public survey, NPS between the first and second banks in terms of high income in Brazil. And this makes us very pleased. And we do that by growing our credit portfolio, loan portfolio and we also do that through investments.
So principality is increasing among high income clients. And since we are never totally satisfied, a few weeks later, we launched a new positioning that we call our repositioning of the branding and this is also migrating to high income clients with Começa em Você, starting with you.
So we want to be very close and being close meaning human. Of course, the digital also has a very good relationship with our client, but we want our clients to be supported by people available 24/7. These are experts in investments in our AAA and so on and so forth. So we are revisiting this offering to highlight what we do best in terms of our offering of credit cards, current accounts, personalized offering in our dedicated stores which are spread all over Brazil, also in terms of our remote and digital offering.
And here, as I've been doing since September of 2022, here we choose some of our strategic businesses and we will detail their performance. So starting on the left hand side with our credit card business, if you recall, for almost two years, our operation was decreasing and this was not pleased to see, but it was something that we did consciously. This was part of the change in our portfolio. We need that not only we had to step in the breaks, but we had to earmark a portfolio because we were growing significantly in 2021.
So, 2022-2023, there was a drop in the customer base that was necessary. But in the last quarter, we started to grow again. We double our speed of growth this current quarter. So we are very pleased with the evolution of our credit card business. We are growing in terms of client quality. We are growing in terms of credit turnover and you see the growth in credit turnover in our fees line. You will see through Gustavo's presentation that we are very well positioned, particularly in credit cards, and we are selling a level of credit cards that is two-thirds of what we sold in the peak of our speed of sales back in 2021. But, certainly, now, we are selling – having better knowledge of our clients. We have a good management of who comes in and who will merit an increase in their limits. So there was a great evolution in terms of data management and risk management as well. Therefore, we are very pleased with the current level of things. And certainly, I would say that it's been a year since we started growing the credit card business and this is relevant for this year and moreover for the coming years and quarters.
And at the same time, NPS has been very good. So we choose to grow this business again, but grow with quality and customers being very, very happy. On the right hand side, we talk about payroll loans. This is a business that I've been referring to for quite some time. Payroll loans, we are growing in every single portfolio, individuals, government and INSS, with all of the given challenges with rate limitations. This is one of the most competitive and dynamic products we have, maybe the most in our entire portfolio. But once again, we are growing with satisfied clients and we are growing providing a better credit quality. So payroll loan remains a very key part of our offering. This is the type of credit where we want to grow with our clients. And with that, we will generate not only principality, but we will be able to deliver better quality of credit.
Now here, in this slide, we highlight our consumer finance business. I was telling our employees that the consumer finance is even older than Banco do Brasil because the consumer finance transaction is over 60 years old. So it's been around in Brazil even longer than the bank itself. But even then, it is one of the arms that brings more transformation. We are making great strides here.
Between 2015 and 2016, we took a major step. But now in 2024, we are giving another big leap because not only we want to be ahead of the game, certainly this is – we are not sitting comfortably on the couch, but we are working to evolve. We are the consumer finance company that is leader in the country. Our market quota is 21%. And even more than the quota, we are originating almost 90% of all of the entire auto loans or used vehicles in Brazil. We choose to do part of it, but we are capable of looking at the market. And that's why we have a lot of data. Technologically speaking, we also evolved in terms of hiring experience, in terms of hiring an auto loan. We only need the CPF and the number plate of the vehicle, just four clicks.
So the experience to the dealership is amazing. So on average, the dealers would want to work with Santander because our experience is quite technological. We use facial, biometrics and all of the experience that we need because the world is becoming even more complex when it comes to security.
We also have super personalized offerings. All we need is the CPF and the number plate of the car. So we anticipate ourselves in terms of risk and the price of the operation. And we use a lot of events analytics. Again, we have embark [ph] technology, favoring customer experience. And this allows us to deliver quickly and correctly, both in terms of pricing, volume, and appetite. We have partnerships with 6 out of 10 largest OEMs, partnerships that involve our stake. We have a stake in some companies and we also have operating partnerships. And in practical terms, they work the same way. And we are leveraging sales together, the sales of new and sometimes used vehicles together with the OEMs.
We have a historical partnership with Webmotors. You might recall that last year we sold our stake to Carsales. In practical terms, nothing changed in terms of the operation. We remain totally integrated. Webmotors is one of the largest auto portals in the world. So our partnership remains very solid and strong.
In addition, we have a green consumer finance operation and we are constantly embracing initiatives related to electric vehicles, flex vehicles, partnership with BYD and other players. Therefore, we are growing with quality, bringing ESG to our agenda on the side of the consumer finance platform.
Speaking about agribusiness, in the quarter, if you look on a monthly basis, and quarter on quarter, we had a record origination quarter. Our portfolio grows almost 20% in two years. And our origination also grows. If you look at the volumes disburses, over 60%, we do that with a very high NPS score.
And the quality of credit is even outstanding, outperforming the industry. Our NPL is coming down 0.0 percentage points. So NPS and credit quality and volume growing significantly.
Here we zoom out in our SMEs. Last quarter, I referred to the launching of a new service model for SMEs. In practical terms, to recap, so what do we do? We remove from the stores the specialists for SMEs. So the manager is no longer sitting in the store, just serving a flow that not necessarily came from SMEs. But we reconnect these experts and we put them down the road, so they can cover a closer micro region.
In the past, we would cover hundreds of kilometers, sometimes 50 or 60 kilometers of area that was almost impossible to cover. But now, the range covered is much closer. So, the experts are out of the stores. They spend their days carrying their iPads and visiting clients all day long. Therefore, we increase the number of calls. So in a few months, we just increase the number of visits. NPS increases because proximity multiplies NPS. And with that, we also have a better risk management because these clients on average are a bit more nervous. So being close to them is crucial. We can cover more clients. We are much closer. And we increase the number of specialists by 25%.
We do believe in this model. We are investing in people. So this is a topic that involves people. So we are increasing that headcount by 25%. We will have more experts all over the country increasing our performance.
And on the right-hand side, we have other figures, again, based on technology. We do not have a slide on technology alone because technology is part of everything we do. Technology is part of Select's transformation. Technology is also part of free. It's part of our investment platform. And certainly, it's part of the transformation of our offering and the delivery of our experience for SMEs and corporate as a whole.
Here, we talk about automation, digitalization. We talk about guarantees. We say that almost we have almost 100% of digitalized customers, 94%. We talk about lead time. Lead time is decreasing substantially in some of the products that we highlight here. And the NPS continues to grow. I do not like 41 of NPS, but it's much better than the 20-some that we had in the past. But that means that we are moving in the right direction with more profitable vintages and more engaged and loyal customers.
Here, we talk about investments. Investments, that's one of the main pillars of our strategy. I've been talking about that since the first time we met. I said that we had to diversify towards an investment platform. The bank never focused on investment as being the main pillar. But we want to change the funding mix of the bank, from being more concentrated in wholesale to being more concentrated on the retail side. I will show you more of the data further on. And we are very pleased with the results achieved.
So starting with that lower part, we had important progress in retail. Retail has never captured as much. Of course, we want to do a lot more funding. We will move towards that direction. So a five-time growth in investment in the past year, that is very good. We are more consolidated, and that will give us continuous growth. The base is growing more and more, and I hope to be bringing good news in the future as well.
This is executable, and we will not be distracted in terms of retail. The zoom of retail is AAA. AAA is our advisory services. At first, we wanted to reach 1,200 advisors, but now the target has gone to 2,000. But we know that, with 2,000 advisors, we will be able to provide unique service through AAA. It's unique because we offer a good base. It has a technological base which is comparable to any other good experience available in the market, and proximity is very unique.
And I say that with no arrogance at all. Our AAA service level, it's outstanding. Our design is very good, and with organic capture or funding of clients, we can even excel. This gives us a greater possibility to serve clients. We can talk more about it. We will bring net inflow, and we will keep an eye on our client because all of the targets are very much aligned with client view. All of the standards related to correct sales and compliance helps us to grow the business significantly.
We are very pleased because, this quarter, we reached over R$6 billion. Of course, the bar is increasing. We reached R$6.5 billion, and the number per advisor is 4 million users in the quarter, and this number compares quite well with the market numbers.
And for all investor clients and individuals, all individuals starting June, they will have a new digital experience. Renewed. It's almost like a new portal with profitability experience, usability experience, and different menus, and usability, everything at a different level. And we're very pleased with that evolution.
And with that, I will call Gustavo to talk about the results, and then I will come back to talk about the closing remarks for the quarter. Thank you.
Gustavo Alejo Viviani
Thank you, Mario. Good morning, everyone. Let's talk about our results. NII continues to expand year-on-year, growing 11%. This reflects the evolution of our strategy on both client and market NII.
In the quarter, client NII benefited from an increased volume, which offset the effect of the Selic interest rate on funding quarter-on-quarter. Spread variation in the quarter is basically explained by the variation in the Selic rate and the mix, especially the non-revolving card portfolio which grew 4%.
In market NII, on the other hand, ALM operations progressed as plant and continued to show a positive trend for the years we have been mentioning in prior quarters. The reduction in the quarter in market NII reflects a lower result in treasury operations due to the fact of market volatility observed in this quarter. We seek long term sustainable expansion with active risk management, price discipline and technical rigor when making resource allocation decisions.
On the next slide, as mentioned, we show that our loan portfolio grew by 8% year-on-year, with a positive evolution in all segments. In individuals, the portfolio grew by 1% with a balance between higher and lower risk products. With the highlight going to the cards portfolio, which grew 4% in the quarter and payroll loans, which grew 2%. Actually in cards, as Mario mentioned, we are increasing activation and gradually expanding our client base.
As for payroll loans, we continue to increase origination more and more through our own channels, with a 21% increase in share in two years, which gives us greater profitability.
With regard to auto loans, the market continues to be buoyant and we are keeping up with this trend. We grew 4.5% in the quarter, and as seen before, with our well-adjusted portfolios. In SME, this was a significant increase in the portfolio, a segment that we are prepared to grow at a good pace as we saw before.
Based on our team and on technology, the large corporate portfolios benefited from the exchange rate in the quarter and here we continue to maintain our profitability discipline.
Moving on to the next slide, we present our funding performance. Our liabilities plan continues at a good pace aimed at improving the mix of client segments and funding instruments.
We recorded growth of 3% in the quarter and 10% over the previous year. I would like to highlight the 4.5% increase in the quarter in demand deposits, as well as the good growth in term deposits, savings and letters of credit.
The strategy of increasing retail exposure in our mix continues to make progress. And as a result, we have seen an increase of 2 percentage points in the share of individuals over the last two years. As we have mentioned, this is a structural and gradual change and we are pleased with the evolution of our strategy.
To close the slide, the loan-to-deposits ratio is at an all-time high, reaching 93%.
I will now comment on the performance of our fees and commissions. We reached all-time highs this quarter as a result of our revenue diversification strategy. Our quarterly growth was 6% and our annual growth was almost 18%. I would like to highlight the 7.2% growth in cards in the quarter and 13% growth in the year showing this resumption. Insurance, current account and assets all showed increases of more than 4% in the quarter and significant year-on-year growth. Another relevant point is that the securities brokerage and placement line item continues to grow, driven by debt issuances which grew 12% in the quarter.
In the line item others, the biggest quarterly increase came from the savings bonds [Technical Difficulty]. Regarding the quality of our assets, we continue to have a controlled ALL, allowance for loan losses, with a slight drop in the quarter, which, together with the increase in the portfolio, resulted in a cost of credit of 3.7%, accumulating a reduction of 80 basis points in 12 months.
NPL information showed a positive performance, reflecting the better quality of our origination, standing at 1.2%. Lastly, due to the better quality of the vintages, the renegotiated portfolio is already more than R$5 billion smaller than in Q2 [Technical Difficulty]. We posted a reduction of 150 business points in relation to the total portfolio last year.
Moving on to the next slide. Here we provide details on the performance of our delinquency indicators. Our loan branding remains well-balanced and the portfolios are duly adjusted.
The short-term indicator improved in all segments. In the long-term indicator, we saw stability overall. We saw an improvement in individuals and the opposite behavior in companies. The increase in SMEs is concentrated specifically in what we call E1, which includes companies with an annual turnover of up to R$3 million. This behavior is partly explained by the renegotiated portfolio, as mentioned in the previous quarter. However, it is important to note here that the short-term indicators have been adjusted, which suggests a more positive trend ahead.
On the next slide, we have details on our expenses. We continue to make progress in our quest for efficiency, focusing on cost control. During the quarter, total expenses remained stable.
The increase in administrative expenses is due to a higher volume of data processing by virtue of the growth of our business, and this was offset by a reduction in personnel expenses. In the year-on-year comparison, the growth in expenses was below that of revenues, helping to increase our operating leverage.
As a result of our effective management, we saw a sequential improvement in our efficiency ratio, which fell by 4 percentage points year-on-year.
To conclude, the earnings results section represents our income statement. Year-on-year, we saw a 12% increase in total revenues, driven by NII and by a good performance of fees and commissions.
Provisions dropped in the quarterly and annual comparison, and we maintained our strict control over expenses, resulting in a profit of R$3.3 billion. This represents an increase of 44% in 12 months. We ended the quarter with growth in profitability, with ROE of 15.5% and common equity tier 1 of 11.2%.
Finally, I would like to highlight that we are focused on a gradual resumption of our results, which have evolved in keeping with our expectations. Our goal is long-term sustainability, with solidity and consistency of our results.
That concludes my part, and I turn the floor back to Mario for his closing remarks.
Mario Roberto Opice Leão
Thank you, Gustavo. So, just to close very quickly, so we can start the Q&A, and I'm sure you'll have more questions. And I just have five take-home messages connecting with everything we've been talking about.
We don't have a lot of new elements in the strategy, which is good. It shows we are consistent in what we designed. In 2022-2023, we were focused on designing the bank we want to have in the next five years and beyond. And this is summarized in these five pillars.
We want to be the most present bank in our customers' lives. This is the main motto. It cascades down on all the rest. We want to have primacy, using intensely our technology. You'll hear more and more. We're talking about technology as the main enabler, so we can have principality. We want to have the right customer experience and the interconnection among the channels.
Free offering is the answer. It's a powerful tool for mass income offerings. It will bring more activation, more conversion, more margin, the right margin in the right assets and not the short-term margin. And we will be counting less on – we'll count more on collateralized products and on cards in the offering, given that cards represent a lot in principality and usability in client's day-to-day relationship with the bank.
We'll consistently advance our strategic business and we'll continue consistently to work for non-linear growth because our market is not linear, but consistent to solid growth with quality. And this translates into a mid to long term view of profitability, one, two steps at a time in the right direction, so that we can grow with speed where we believe we can grow with speed to deliver solid results, as Gustavo mentioned.
With this, I invite you for the Q&A session.
Question-and-Answer Session
A - Camila Toledo
[Operator Instructions]. The first question comes from Brian Flores from Citibank.
Brian Flores
Congrats on your results. My question is on SME. You talked about changes to your model, and it's very clear to me what you've been doing. I would just try to understand a bit better why did we see delinquency increasing in the quarter? And so, if you could elaborate a bit more on that issue, that will be useful.
And also, if you talk about the performance of the sector, the dynamics, that will be very good.
Mario Roberto Opice Leão
I will start and then I'll turn it to Gustavo. First, I will refer to the strategy and how this connects to the risk management that we've been doing for over a year. And finally, I'll refer to the numbers themselves.
We've been talking about our strategy, and that means that we want to double our business of SMEs in the next few years. I cannot give you the exact date, but certainly it cannot be in 10 years. But in a few years, we want to double our business because we believe there is room for that. And we would do that not linearly because this is not a mathematical equation, but we want to double the size of the business.
Just as a reminder, in December of 2023, we had already doubled the numbers vis-a-vis 2021. So we doubled that number once and we want to double it again. But, certainly, we will do that the correct way. And this applies to every segment of SMEs, but certainly there are different clusters. There are small, small companies, there's small midsize, and we call them, in the bank companies 1, 2, 3.
In the very small company segment, company 1, we needed to renew our service. And I already talked about that during my presentation. And I'm pleased to know that you recognize that.
We believe that we have something much better now. And certainly, very soon, we will have a business of small, small companies that will grow in a very sound and consistent way.
But how does that connect to risk management? The fact that I have some thousands of experts spread all over Brazil and knocking the doors of our clients, so to speak. That means that our marginal risk management is much better. And this also allows us to manage our inventories much better.
How are we managing small companies and individuals in the last 12 to 13 months? Since the second quarter of last year, we changed our renegotiation policies. And we've been referring to that. We are not so open anymore to renegotiate debt with no cash components. We are being more restrictive in the way that we allow the renegotiation to roll out.
A portfolio of R$5 billion reflects a most sensitive agreement policy, which is very good for the health of the portfolio. And it's also good because our de-risking is more accelerated in terms of the portfolio. And some rates are affected because we are not rolling over anymore.
But I can turn that question over to Gustavo, but this stems from a more asset, so to speak, management of our legacy portfolio. This legacy portfolio is more predominant among individuals, but more so with very small companies. That's why raising the bar in this portfolio allows us to touch in some ratios or indexes. But this has to do with a new generation of very small companies and more to do with that inventory.
Gustavo Alejo Viviani
You will also notice that NPL 15 to 90 of this segment is under control. It's performing well. So in terms of legacy portfolios, and as Mario was saying, with our new renegotiation strategy, things are very clear. And NPL 15 to 90 in the new vintages, performance is very good. So it's a one-off thing, and it stems from what Mario said before. And NPL 15 to 90 is performing well.
In summary, it has more to do with the portfolio de-risking rather than marginal origination. So I would say marginal origination tends to be a better quality, not only because of the policies, but with everything else we did, especially up to 2022. And the new model will help us because the new model will increase proximity, something we didn't have as much with our clients.
Look at the number of calls that we have now. And I assure you, we want to increase that number of visits, not only increase the number of visits, but visits with quality. I want my experts, almost like camping in the house of the client, this will not only increase volume, but results.
I hope I answered your question.
Camila Toledo
Our next analyst is Daniel Vaz from Safra Bank.
Daniel Vaz
Congrats on your results. I would like to take a second look at the spreads. I will split my question into two. Your portfolio mix. And now I see you are accelerating mass income and also high income has become your priority. What would be the behavior of your spread?
First, looking at client mix, and secondly, looking at the rates from your peers. I mean, tight rates in terms of payroll loan. What will be the progress of your spreads going forward?
Mario Roberto Opice Leão
Well, certainly, when we look at the spread, we look at the gross profitability of the portfolio, but we are taking a deeper look to the profitability of the portfolio I'm generating. I'm not saying that we are not interested on the spread. Spread is important, but I do not want to demonize the portfolio, the credit portfolio. The spread comes from several dozens of percentage points. It could be 40% to 42%, Daniel, but I do not want to rely on that spread because the net spread of provisions is not a good spread. So, of course, there will be a certain amount of personal loans that is very much connected to the payment journey.
So, personal loan that is disconnected from principality, from the credit card journey, from the journey of transactionality of PICs, because it's becoming just one single thing. We call it a payment journey or consumption or consumer journey.
So, in terms of portfolio midterm view, it would have less risk in terms of mix. So, credit card would be the major clean element of my portfolio because it's crucial to have a credit card as a clean element. It doesn't mean that I'm going to open to everybody at a volume of R$100,000 per client. I will accept having lower limits when compared to my historical levels, and I can only do that if my unit cost falls quickly because this is an important evolution, and we will talk more about that further on.
But the credit card has to be the clean element of the offering because this translates the client's connection with the bank on a day-to-day basis, but this has to be based on collateralized instruments. And we want to have all of the other things coming from that. Home equity, they were called [indiscernible]. We are already leaders in home equity in Brazil, about 25%. And I don't think that's enough. I think that the portfolio is not so relevant, but I think we can do a lot more in terms of structured financing.
But the pivoting point would be the credit card. So we will migrate to less risk. And if the price to get there is the nominal spread, I'm not going to struggle because the net margin will have much better quality, and this will certainly be translated into the bank's profitability. Our design is profitability, et cetera. So we will grow with profitability. So therefore, I will look for an equation that involves a net spread.
On the liability side, the NII comes on the right and the left side of the balance sheet. So we are getting a cheaper funding for the bank. Maybe in one quarter, I may give a leap, but in some years, we will see some gradual improvement, individuals versus corporate. So retail funding for the entire industry is cheaper when compared to wholesale funding. Many percentage points of CDI is cheaper. And as we gradually improve quarter-on-quarter, we will see an increasing margin on the funding side. Even CDB has a lower spread. But we will have cheaper funding of the money that remains in the account. So the mix is much better.
One point that I would like to stress is that we make a decision aiming at the performance of the portfolio. It's not spread alone, but how the performance evolves in terms of profitability. So the decisions we'll make for client and the combined product looks at the evolution we envision for the portfolio aiming at profitability.
Daniel Vaz
If I can do a follow-up question, you said that the pivoting element is still the credit card. We see a digital competitor of yours doing PICs finance as an embedded product in the credit card. How do you see that product and whether this is also part of that mass income product of yours?
Mario Roberto Opice Leão
Thank you for raising that issue. Whenever I say that our view is based on the journey rather than the product alone, I'm not praising A or B, but that view that the client no longer wants to have a product relationship with the bank, this is something that is here to stay. There is no going back. A client, they want to have a journey relationship and the main journey that individuals wants to have, corporate will be the same, but the main journey that clients want to have with us is transactionality. And with transactionality, there is no distinction between overdraft account or credit card account. We have to offer an integrated limit. And so, no matter how they consume things, consumption defined as supermarket purchases, payment slips and PICs transactions, at the end, everything boils down to transactionality and everything has to be integrated.
We have a very clear design of payment journeys and we are working towards having the best journey in the market in just a few months and we will deliver that. So, certainly, the short-term view is to have a unique journey. So together with the PICs journey, which is a very simple and very seamless journey in the market, the entire payment journey will be integrated with the card.
Camila Toledo
We will now switch to English with Jorge Kuri at Morgan Stanley.
Jorge Kuri
I wanted to ask about market NII. You did R$258 million this quarter, which was down sequentially. To what extent this number going forward is a result of market volatility and to what extent is the result of the absolute level of rate? There's evidently been a big shift in the way the market thinks about Selic rates going forward. If indeed the consensus is right and Selic stays at 10.50% throughout this year and next year, how much of a recovery can we see that number from the R$258 million that you did in quarter?
Mario Roberto Opice Leão
Although we don't provide formal guidances, in terms of how we think about the numbers, this number has two components, like Gustavo mentioned and you know well. The first number is our ALCO portfolio, our ALMM. In that portfolio, we have been repricing our funding of the retail business for a few years already. That's the piece of the portfolio which with the higher rates very rapidly in Brazil between late 2022 and 2023, that piece of the portfolio suffered. You know well, we explained it every quarter. That repricing of the retail funding of the portfolio, the margin of the front book as we call it, that repricing has been undertaken basically and we are going to keep progressing on the results, so we don't have any cost to be paid on that repricing. The repricing is fully implemented. It took us 18 months, give or take, which is normally the speed. So that's the piece which Gustavo mentioned that we should keep progressing through the next few quarters and obviously as we enter into 2025.
The dynamics change with the Selic rate now at 10.50% probably throughout late this year and most next year, who knows? But that impacts mostly the funding of our back book which is how we basically invest our capital. So the funding of our capital is going to be made at a higher rate than we felt before. So that margin is lower than what we expected. But the overall, the juncture of how we price our front book, how we fund our back book, we view positively in the next few quarters. So it's not a guidance, but the outlook should be constructive as how we see that piece, which is a big piece progressing over the next few quarters.
The second element is market making, as we call it, which is the way we handle and square the risks arising from our markets or sales and trading business. And that's where we captured the volatility we saw in the second quarter. It was, I would say, a tremendous volatility. Globally, but in Brazil particularly, with nominal rates going more than 100 basis points up, nominal rates going maybe 50 basis points up, FX, et cetera, and that obviously caught us partially. We still made money in that business, but less so than in the first quarter where we had actually a seller production.
It's harder to predict a business which is on the squaring of businesses from clients and that depends more on market volatility and how we capture that. We view that business positively. It has been a strong component of our P&L delivery, Jorge, but it's hard to predict the direction. It's obviously not linear, but we feel positive as to the way we run our VARs, the way we have our franchise established. We are the number one franchise for FX in Brazil, number one in rates. So we do have a lot of flows to capture and that should allow us to trade that, to square those positions well. So we view that positively, but, again, it's a business which is harder to predict.
The ALCO business is "easier" to predict and we view that constructively, like I said. I would say, overall, we feel good about our markets' NII through the next few quarters, but again there's an element which is market dependent, which us and no one else can precisely predict, but we feel positive about the overall line.
Camila Toledo
Mario Pierry with Bank of America.
Mario Pierry
Congratulations on the results. Many positive trends here, operational trends, but I'd like to focus more on fees and commissions. We see fees and commissions in the last four years not growing. And in this quarter, we saw a significant increase, particularly in the current accounts, checking accounts. And I would like to understand how you see the dynamic of this line item going forward. Particularly what the growth will come from volume or price, how do you see competition, holding back prices, is there any room to increase prices or have we achieved a price level that has decreased enough and there's no more room to decrease?
Mario Roberto Opice Leão
I'll start it, Gustavo will complement. Of course, we are happy with the performance of our fees and commissions. It is true, we had modest growth in fees and commissions for quite a while. Again, we built a successful business in 2015-2021 cycle based on credit growth. We grew other line items too, but the loan book grew and it's clear to us that we have to support a loan book with a more smart and more diversified credit. I don't want to suggest that we are going to grow 6% quarter-on-quarter in every quarter. Of course, we are progressing and we want to continue to grow on average in all quarters, but the fact that we grew more significantly in this quarter is the result of a number of things.
A number of seeds we have been planting for a while. There was no great one-off element. Perhaps the capital markets was the only one, and we have a franchise to capture that. It was a good progress, as Gustavo mentioned.
As for the transactional part, which to me is the most recurring element, the most replicable element when we look at the lifetime value of the account, you mentioned cards. I know you asked about checking accounts, but cards to me are a very important element because they have a progressive gain in client base. As I mentioned, we grew 6% year-on-year. It's not a huge number. We're growing 6%, plus higher spending per client, higher turnover by client. Both become very powerful. And that's an element we didn't speak about, but which is also relevant.
We talk about expense management, managing our expenses correctly. But there's an important management to reduce costs of those operating expenses, expenses directly linked to sales that we sometimes recognize as reduction factors for margins and fees and commissions, and also managing that.
Now, talk about checking accounts. That's an important question you asked. We grew checking accounts in a market where supposedly there should be no fees coming from checking accounts. So how come we're growing in a business that clearly should be zero? I don't believe that we will continue to grow in the line of fees and commissions for the next 5 to 10 years.
It is very positive what we are doing. It's not by chance. We're doing this for two reasons. We're bringing in new clients. We're bringing new clients in packages where clients accept to pay fees and commissions, and there was also some repricing also for legal elements. So we have new clients on board in individuals and companies. In companies, we can bring these clients in components of combos that have been adjusted by inflation. So we adjust for inflation plus more clients that accept paying some fees. And of course, that pumps up the fees and commissions. So the growth is positive. We are happy about it, mainly in companies and individuals.
In my very long-term vision, we should see this line item together with other transactionality lines, the cards, cash and payments as a whole, and when not acquiring, which is a key product, prepayment. So spoke a lot about a focus on journey for individuals and companies. It's all about transactionality, cash, collection, prepayment, get net, in our case, all more integrated. And all of this will evolve to a more powerful combo view that we will price more and more focused on a client and will play with the lines in a way, Mario, that will allow us to win as a whole. And of course, volume is important. The checking accounts is important, but our focus lasts in gaining in that line and gaining as a whole in fees and commissions, our profitability per client. But it is a positive movement in the quoting.
Camila Toledo
Now we turn to Matheus Guimarães from XP.
Matheus Guimarães
Congrats on your results. Referring to Vaz's question, I would like to hear more about personal loans. And you also said that the spread or the margin after provisions is not healthy. It's less healthy than it seems, even though spreads are higher. Does that have to do with the cost to serve? How do you compare that with other fintechs and competitors investing in this line? I think this is more focused on personal loans.
Mario Roberto Opice Leão
Right. When I talked about personal loans, personal loan involves four major portfolios. We have the clean personal loan. And I answer that part when I answer Vaz's question. Our ambition to grow is moderate, given the fact that the vocation of this product, in my view, should be the one that boosts principality and loyalty.
The personal loan product that we have not necessarily adds principality or delivers results. Of course, I'm referring to the average. I'm not saying that any personal loan does – it makes no sense, but it's a product that usually we have a lower share. We are not worried about that. So in all my leadership meetings with my team doesn't have to do with how I double my personal loan share. And talking about collateralized personal loan on the investment side, we talked a lot about the payroll loan portfolio, which is huge, but I do not want to have different ratios in these two particular loans. And there is a fourth personal loan that I really want to reduce, which is the renegotiation of the portfolio. And that's when we combine all portfolios, especially from credit cards, overdrafting accounts and more structured funding. And then we bundle everything to renegotiate some debts that even have a haircut. And this personal loan is coming down. And part of that margin equation has to do with the drop of this personal loan reorganization. It means that the members are healthier now.
I cannot speak about how other competitors see that product, but in our view, personal loan is something that is auxiliary to the entire payment journey. And the clean personal loan is seen by us with a certain degree of limitation. Clean personal loan is just part of our portfolio. That clean personal loan is part of our portfolio, a balanced portfolio. And with that balanced portfolio, it's something that you adjust and limit. So personal loan is just part of that. This is very important.
It's not a standalone product, but it's a product that is part of a portfolio. And long – and mid and long term profitability and sustainable growth. So we are not so much concerned with the evolution of that clean, but that's part of a risk portfolio and how we weigh that portfolio, so that we arrive at the best possible performance and strictly serving the client.
Camila Toledo
Now we go to Thiago Batista from UBS.
Thiago Batista
My question is about margins. We talked a little bit about margins, but when we look at the third quarter – the first quarter, the margins were positive. The only thing that disappointed me a bit was the growth of NII. In the Spanish call, they indicated that the margin in Brazil would grow and before it was in the high-10s. I would just like to understand what will be your dynamic going forward. I know that Brazil uses GAAP. There's GAAP and IFRS. We will see growth of margins in the quarter. So what kind of dynamic in terms of NII should be expected, whether we would see them gaining momentum in the next quarter or not?
Mario Roberto Opice Leão
Without giving any guidance, of course, if we look at the funding margin this quarter, as Gustavo said, but I would like to reinstate that point, of course, we would rather have a client NII that grows more, of course, and/or an NII as a whole that grows. We are working on that and we will deliver it.
But starting with the funding client NII, the detractor factor of the quarter was basically the proportional fall of average CDI compared first and second quarter. We encompass it part of that with volumes. I would say that the mix also had a positive evolution. Therefore, our evolution and, I would like to call it – the average spread measured as CD – our average spread is evolving in the correct direction. And this compensates for the drop in CDI per se. CDI, if it doesn't change from now to the end of the year, which is the base case of the entire market [indiscernible] and we are also included in that, we will not have a detractor factor of CDI. So we will continue to work hard to grow volume, to grow mix, bringing more clients and more time deposits with a mix more earmarked towards retail. And so, we will see a difference in the funding client NII.
In terms of regular client NII, it has to do with CP reorg goes down and we do no longer have that NII element. I would rather not have. So we will continue to see that positive evolution of the reorganized portfolio and this is good and we will try to mitigate that by increasing the portfolio that aims at growth spread. But as I said before, we want to do that in a way that, after provisions, we can grow in the correct way.
Because client NII, we should have a positive evolution in the next quarters. So this coupled with funding, we will grow client NII. It won't be linear because it shouldn't be, but we will grow sequentially with a bias of the mid and long term rather than the next quarter. We want to deliver good quarters certainly, but we want to deliver a very sound and consistent bank with a very diversified portfolio. And this has to do with a growing client NII.
Camila Toledo
Next question from Pedro Leduc from Itaú BBI.
Pedro Leduc
Congratulations on the results. Speaking about revenue lines, I'd like to ask about the cost of risk. The ALL level was slightly below despite a higher loan book with a good NPL formation. SMEs not so much. The ALL level is stable at almost R$6 billion. Cost of risk is falling. I would like to ask about, what do you think about the next six months in terms of NPL, ALL level acceleration of the portfolio, SMEs being a point of attention.
And as a second part of my question, the JV was considered as a reinforcement for ALL. Is it something that you wanted to do or was it just a good place to allocate it? I just want to get a sense of the coverage ahead.
Mario Roberto Opice Leão
I'll start with the second part. Thank you for asking that, Pedro. I'll start with the second part and then I'll turn the floor to Gustavo. So starting, it's a good thing you asked about this actually, the fact that we have this gain of $1.9 billion in our VA/VR operation. It's circumstantial. Of course, it's part of a vision, Pedro, where we want to extract value that is kind of hidden in the pricing of the stock. Either because it's non-core or because these are smaller elements in the franchise and in the results.
When we had Webmotors operation last year, we wanted to unlock value. In Webmotors, one way or another, that flowed into the results. We were in the most acute phase of purging the portfolio. Now we are in a more mature phase of management of the old portfolio and derisking.
And why did we provision for that? Why did we reinforce the balance sheet? Because we could do it. We wouldn't have done it if it weren't for the advent of that joint venture. So to answer your question, we didn't think that we needed to do. We were not worried about the coverage of the portfolio. You mentioned the evolution of the indices and that proves – that's proof of that. But we felt that we had a clean result to deliver. A clean result in terms of being recurrent, diversified in the right direction with the non-core year-on-year growth. So we didn't need to flow this to the result. We decided to be prudent and reinforce. We didn't need to do it, but we could afford to do it.
And so, simply put, that's it. And I'd like Gustavo to comment on the performance.
Gustavo Alejo Viviani
And it's exactly what you said. All of our indices, our ratios, 15 to 9 and 9 day NPL, NPL inflation [ph] at a good level, the vintages performing well. We are growing the portfolios where we want them to grow. We didn't change our risk appetite. We are growing at a good pace in the portfolios that have been growing in recent quarters. So the ALL trend is positive at this point. We have no surprises. What we knew was already in the 90 plus, 15 to 90 NPL, as you mentioned, SMEs, that's well balanced, adjusted.
Looking forward, we'll continue to grow the portfolio with this kind of credit quality that we have. There was a change that we talked about, and this is already reflecting in our allowance for loan losses. It's all established. There's nothing new because that's all established. It's already seamless. ALL is very correct and adjusted in all senses. We will grow the portfolio.
The performance is doing well. Where there's some noise, we can quickly adjust. We didn't see anything different in the quarter. So that's the trend. But again, the ALL volume will be the result of the volume of the portfolio that we are growing and how it is made up in terms of every block of business and product.
Mario Roberto Opice Leão
So let me stress that. We see all ratios performing well, and we are comfortable to grow in the SME portfolio that we grew in the quarter because it's all adapted, or else we wouldn't grow 3%. So that's the trend in ALL and the cost of risk will evolve positively.
And there's something here to highlight. Gustavo kind of touched on it. But let me add to that. During the presentation, I kind of mentioned what we're doing with technologies. So please allow me to digress a little to stress the point.
Today we have the ability to react, to adjust up, depending on the audiences that I want to work with, not just appetite, but marginal increases in terms of loan granting, but also to reduce credit. So we're looking at the border, that limit in loan granting in every product, in every segment. We're looking at that every day, every week.
What changed in the last three years? In the end of 2021 to 2022, when we stepped on the brakes, we took months to implement something. Now we take a couple of weeks to implement a change. It might sound a lot, but two weeks of [indiscernible], as an diligent analyst, you know that our ability to move with this big bank, this cruiser in terms of policy decision and models decision, doing that Agile with agility, that evolved a lot in the last few years. So we can test the border more dynamically, because if we make mistakes, and it's part of the business to make mistakes, we can adjust quickly.
And when we realize that there's an audience we shouldn't be giving loans to, we can quickly make a change. That costs very little to us. So this evolution has everything to do with technology and how we deal with our policies and credit models. That's an asset that we have now that we didn't have two, three years ago, and that helps us in the policy of recovery and in our ability to do fine-tuning credit management.
Camila Toledo
We're going to give the floor now to Yuri Fernandes with J.P. Morgan.
Yuri Fernandes
My question is similar to Leduc regarding this credit cycle in Brazil. I think that in a different moment, you stepped on the brakes before, and that the systems leveled this NPL discussions, some wrestling in SMEs, I think that Gustavo's message is clear that, for you, NPL is well behaved. But I'd like to understand about this system. How do you see it? Not just in terms of NPL, but in terms of growth as well. There's a lot of discussion. I see FEBRABAN's research reviewing growth a little up, but with somewhat higher interest rates. So I'd like to understand how do you see the cycle at the Brazil level and how will Santander serve that cycle? Because, like I said, you were in a slightly different position than the average peers that made you step on the brakes earlier.
Mario Roberto Opice Leão
I'll start and then I'll give the floor to Gustavo. When we speak about strategic business, I always choose a few to comment on in the call. Some are related to credit, but we have other strategic business deriving from credit, fees and commissions, liabilities, so on and so forth.
So I spoke about where we're evolving, where we are gaining share, but, Yuri, it's a good thing to earn share. Of course, we prefer to earn share than lose share. We are gaining share in cards and consumer finance and payroll loans. But we don't wake up in the morning thinking I have to gain one, two, three points this quarter. That's not it. We want to grow with profitability, with the right mix in a sustainable fashion. But we don't define in our evaluation model for the management that we should grow one, two points more than FEBRABAN is talking about something close to 10, but I don't want to give any guidance, but we want to grow in line with the market. We don't want to say, oh, I'm happy to grow half as much as the market. Of course not. But in line with the market and the products that we choose to grow, and I call these strategic businesses, we're going to grow more than the market. But not because gaining share will define our success, because in a strategic approach of mix and how we want to grow the bank, we're designing the bank for the next five years. We deliver it every quarter, but I'm designing the bank for 2028.
So this bank has to have a different credit mix, different credit mix. It means having some more clean personal loans. This product will lose relevance over time. It's not the most relevant in margin. It will lose. It doesn't mean I'm doing a bad job and payroll loans that are collateralized, the home equity – home equity can grow two fold. I have a portfolio of less than R$6 billion, so this portfolio can grow to R$10 billion very quickly or maybe R$50 billion or plus, which is all we have in mortgages. So in this mix approach, we intend to grow more than the market in some products, and on average, we will be reasonably in keeping, perhaps one percentage point more or less.
There are the state-owned banks. Speaking about the whole industry, I'm not going to give any names, but some state-owned banks with an appetite which is marginally higher, which is natural. These are cycles. I think state-owned banks do a super important work. We act in some industries, some sectors which are huge, such as housing, agribusiness. These are interesting to us.
In housing, we compete less, but in agribusiness, we compete and we want to continue to grow. But in agribusiness this year, we'll grow with less ambition than in prior years. Now, remember that we practically doubled, 98% of portfolio growth between December 2021 to 2023, with R$53 billion at the end of last year. Now we're growing. We're growing all through accrual rather than growing the portfolio because this is a more challenging year for agribusiness. There's nothing wrong in that. It's with the cycles. We are not scared. We're not going to be growing 20%, 30% as we did before. And it's all good.
In agribusiness, you might lose a little share due to a correct decision about managing the portfolio. So I hope I kind of gave you a macro view. Gustavo, do you want to add?
Gustavo Alejo Viviani
Now, that's exactly it. Of course, we look at the market, but we have our own portfolio mix. Ideally, it is a dynamic portfolio mix. We measure performance of all of the portfolios, thinking about the product and thinking about the clients. It's all very dynamic.
We have a target of profitability. How it's made up might be different. We might grow as much as the market, but with a different composition. So it's all about actively managing the portfolio and measuring performance daily of everything. It's all very dynamic. And we are not focused on growing more or less. We are focused on doing the right thing, the right makeup that will give us the best result. So for our macro environment and business environment and always decomposing into individuals and companies, this is our vision.
And CDI, if CDI stops dropping, it doesn't help particularly for companies. CDI at 10.5 is still high. We don't pay that. There is always a CDI plus in terms of market funding. So legal entities don't benefit from interest rates that do not decline.
And for individuals, all the individual risk appetite for individuals will not go back to the level of 2020-2021 because we had an oversupply of credit because there was this perception that COVID did not have any effect on disposable income. As an industry, we got that wrong. And then we had new competitors offering new credit to clients, but all of that evolved. I spoke about this in Pedro's question, but we evolved as an industry in terms of not allowing oversupply, particularly to low income clients.
I don't think that for individuals, there will be an accelerated resumption, as surveys indicate. I think everyone is going to be more prudent in loan granting. We are being prudent and still we are growing, but with a smaller audience and with products with a different mix, as we said before.
Camila Toledo
Let's move to our last question from Eduardo Nishio from Genial.
Eduardo Nishio
My question relates to this last one. It's more related to your journey to improve sustainability, diversification and profitability. I think, Mario, since 2022, you had – ROE at the end of 2022 was very, very low and then you started resuming profitability. There was another quarter with a drop, but in fact, this profitability is improving and it has been improving more quickly this year in the last quarters. But my question is, where do you find yourselves in this journey? I know that this is an endless journey, but in terms of the objectives that you lined up during your administration, Mario, where do you think you are right now in that journey? And where do you think you still have some catching up to do? What segments you believe that profitability could be improved in mass income or credit cards? And whether you could also tell us about incumbent banks that are operating at higher ROE? And when do you intend to catch up with these banks?
Mario Roberto Opice Leão
So I will answer without giving any guidance. Okay? That's a very good question. Whenever we talk about profitability, certainly, this is a key element of our strategy. The strategy is not just profitability because profitability is just the result of a strategy. And I've been repeating that because we have to have a better balanced credit portfolio, more recurring, more fees, funding and all of that combined to deliver a good client strategy. And we haven't seen that happening so strongly at least in the last nine years where I've been with the bank.
Eduardo, some quarters ago, when you and your peers would ask me, you would say that we were in the low teens. We were generating economic loss. Profitability was below cost of capital and that was not sustainable, but it was part of a cycle. We had to go through that. So, well, we were not proud of it, but we had to go through it because we are now doing the right homework. We have to look at the cost of capital. We were doing that even before some of you started asking us about that. But in the first quarter, we were able to show some economic progress, but still not what we wanted to have, 1.4 percentage points of gain every quarter.
But it's not linear because that's not part of our business. But the bank is all fit with the right levers. And we are just measuring the acceleration pace in every segment. So we want growth in both sides. We are not going to let go of profitability in favor of growth because even though we want to deliver good quarters all the time, we are not going to let go of one in favor of the other. So we reach that level of mid-teens. We want to consolidate that level. And from now on, what will be the next level? Mid to high-teens. So in the next quarters, we will gear our operation to that end.
I'm not going to say that it will be in the next quarter. It will be quarters and not years. Because if it takes years for us to reach high teens, it wouldn't be advisable. So we will aim at mid to high teens in the next few quarters until we reach something rounding up to 20%. This is a very clear objective.
I'm not going to tell you whether it's going to happen in X number of years. Obviously, it's not going to come in just a few quarters, but it could happen. And we will work to that end in a timeline of short to mid-term.
But more importantly, Eduardo, is how we are going to get there. If I'm saying, okay, I'm going to do 20%, that's cool. But certainly, I think this is what you want to hear, myself included. But we have to do that with a different portfolio construction when compared to what we did back in 2021 in some quarters. It's not bad that we reached 21 plus, but that 21 plus that costed us low teens of ROE, this is not where I want to be. So the speed will be different, but it will be very consistent in a mix that I guarantee you will be very different.
Of course, challenges will be on the way. Our business is very dynamic and complex with exceptional competitors, both incumbent and digital competitors, and consumers are looking at us, forcing us to innovate all the time. So there are challenges coming from many different directions. This also includes human and intellectual challenges. And that's very nice. We discuss with the Santander Group all the time because Brazil is almost like an indicating KPI for the world. But we are aiming at a mid to high teens level and then to be in the 20s. And throughout time, we will evolve and we will certainly talk to you about how we are getting there.
Camila Toledo
Very well then. So now, I would like to thank all of you for joining us this morning. So after this video conference, myself and the entire IR team of Santander Brazil will be available to certainly answer any pending question. Thank you very much. I wish you a very good day.