Santander Brazil’s Q3 Profit Surges 34%, Market Remains Cautious

Santander Brazil set the stage for the Q3 2024 banking season with a strong financial showing. The bank reported a net profit of R$3.66 billion ($653 million), marking a 34.3% year-over-year increase.

This figure surpassed the average analyst forecast of R$3.50 billion ($625 million) compiled by LSEG. The bank’s performance was driven by several key factors. Net interest income from clients grew by 3% quarter-over-quarter.

Market-related NII saw an impressive 26% growth in the same period. Fee income increased by 3% quarter-over-quarter and 13% year-over-year.

Santander Brazil’s loan portfolio remained stable overall. The consumer financing portfolio expanded by 5% in the quarter and 20% year-over-year.

However, corporate loans decreased, offsetting the consumer financing growth. This shift raised questions about the bank’s corporate lending strategy.

Asset quality metrics held steady. The non-performing loans ratio remained at 3.2% for the third consecutive quarter. NPL formation decreased by 10 basis points.

Santander Brazil’s Q3 2024 Earnings

The renegotiated portfolio shrank by 2% in the quarter, indicating improved risk management. Profitability metrics showed improvement. Return on average equity reached 17% in Q3, up from 15.5% in Q2 and 13.1% a year ago.

Operating expenses grew at a slower rate than revenues, increasing by 2% quarter-over-quarter and 6% year-over-year. Despite these positive results, the market reaction was mixed.

SANB11 units initially rose by more than 1% but later declined by 0.42% to R$28.75 by mid-morning trading. This fluctuation reflected the market’s uncertainty about the bank’s performance.

Analysts’ opinions varied widely. Itaú BBA maintained an “outperform” recommendation, noting the net profit was 4% above their estimates.

XP emphasized solid results, with earnings per share above expectations. However, JPMorgan kept a neutral stance, attributing the profit boost to a lower effective tax rate of 14.5% versus an expected 18%.

Goldman Sachs maintained a “sell” recommendation for SANB11 assets, with a target price of R$27. This price target was 6.5% below the last closing price, indicating skepticism about the bank’s future performance.

The lower effective tax rate significantly impacted profit figures, potentially masking underlying performance issues. The reduction in corporate loans, partly due to exchange rate effects, raised concerns about the bank’s growth strategy in this segment.

Santander Brazil’s results may indicate trends for other traditional banks in terms of volumes, default rates, and net interest margins. As the first major bank to report Q3 2024 earnings, its performance sets the tone for the sector’s earnings season.

The mixed market reaction underscores the complex environment Brazilian banks face. They must balance growth opportunities with risk management in a challenging economic landscape.

As the banking sector’s earnings season unfolds, all eyes will be on how other major players compare to Santander Brazil’s performance.

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