Santander Brasil (SANB11) has long-awaited recovery with default rates falling in Q3, but shares have volatility

Has the long-awaited recovery of Santander Brasil (SANB11) finally arrived?

The bank opened the earnings season in the third quarter of 2023 (3Q13) with a lackluster earnings data but an improvement in asset quality that was noted by market analysts.

As a result, SANB11 units opened higher by more than 3%, but the gains were reduced during the first hour of the trading session, until the price fell to zero. At 10:26 am (Brazil time) this Wednesday (25), the stock was down 0.40% to 27.36 reais.

After 18 months of deteriorating asset quality, the bank saw a fall in defaults quarter-on-quarter, which helped reduce provisioning costs.

The default rate for loans more than 90 days past due was 3% last quarter, down from 3.3% in the second quarter and stable compared to the year-ago period. Indicators of future defaults also fell, with the rate of transactions 15 to 90 days past due falling from 4.2% to 4%.

Expenses with provisions for bad debts amounted to 5.62 billion reais in this period, which is 6% less than in the second quarter.

On the other hand, the margin fell compared to the previous quarter, and although it increased compared to last year, it did not compensate for the increase in costs of the institution.

Santander CEO Hector Grisi said during the Spanish bank’s earnings conference call that he expects the Brazilian unit’s financial margin to improve in the current quarter compared to the third.

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In recent quarters, Santander Brasil has continued to pursue its “more selective” lending strategy, focusing on products with guarantees and less risky customers.

According to the bank, it was this selectivity that caused the financial margin to fall, which fell by 1.2% over the quarter. “Nevertheless, we achieved volume growth and good performance on margin liabilities, which indicates a positive outlook for the coming quarters,” Santander Brasil CFO Gustavo Alejo said in the balance sheet.

On XP, Santander delivered positive results that exceeded expectations, delivering a healthy recovery in profitability.

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The bank reported net income of 2.7 billion reais, with a significant contribution from lower PDD in the quarter. “It should be emphasized that NPLs (defaults) for 90 days decreased by 30 basis points in a quarterly comparison,” he emphasized.

On the other hand, analysts noted, the margin with customers was R$ 14.240 billion, with a drop of 1.3% in the quarter and an increase of 0.7% in the 12 months.

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“We expect a positive market reaction, driven not only by the quarterly performance, but also by the general recovery trend in several segments, accompanied by an improvement in ROE (return on equity),” XP said in a report earlier. market opening.

The bank reported a return on average annual equity (ROAE) of 13.1%, compared to market expectations of 13.2%.

In the same spirit, Jose Eduardo Doronca, an analyst at Suno Research, emphasizes that the bank posted results that were slightly higher than the market’s expectations.

The decrease in profitability compared to last year was already expected, given the more difficult context.

“This quarter we have started to see a decline in delinquencies, remaining at 3% (over 90 days), which is positive. We believe that the default peak is behind us, so it should return to historical levels in the coming quarters, albeit gradually,” he assesses.

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The bank’s loan portfolio grew timidly, mainly due to a decrease in the bank’s appetite for risk. “In our view, if the bank manages to stabilize default rates, bringing them to the historical average, it should increase its loan portfolio again,” he concludes.

Also for Bradesco, BBI Santander Brasil presented the best trends for 3Q13, with a focus on the improvement in the default rate, which also points to a sequential improvement in 4Q13.

“The bank delivered solid numbers across the board, while net interest income (NII) was expected to remain weak. We expect a positive reaction from the market (for the Brazilian banking sector), especially as an improvement in individual default rates could indicate a potential recovery in credit,” he assessed before the market opened.

While analyst sentiment was positive for the 3Q balance sheet, most remain cautious on the stock. BBI has an underperform (below-average sell-equivalent) recommendation, the same recommendation as Goldman Sachs. XP, on the other hand, has a neutral asset recommendation.

Nord Research notes that with lower net profit and lower margins compared to peers in the sector, which is still a challenging scenario for the company, despite some progress in terms of default, it continues to outperform other players in the segment, e.g. , Banco Itaú (ITUB4).

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(com Reuters)

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