UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
(Mark One)
☐ | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, |
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period fromto. |
OR
☐ | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of event requiring this shell company report |
Commission file number: 001-34476
BANCO SANTANDER (Brasil)(BRASIL) S.A.
(Exact name of Registrant as specified in its charter)
SANTANDER (BRAZIL) BANK, INC.
(Translation of Registrant’s name into English)
Federative Republic of Brazil
(Jurisdiction of incorporation)incorporation or organization)
Avenida Presidente Juscelino Kubitschek, 2,041 and 2,235 – Bloco2041, Suite 281, Block A
Condomínio WTORRE JK, Vila Olímpia
Nova Conceição
São Paulo, São Paulo SP 04543-011
Federative Republic of Brazil
(Address of principal executive offices)
Mercedes Pacheco, Managing Director – Senior Legal Counsel
Banco Santander, S.A.
New York Branch
45 E. 53rd Street
New York, New York New York 10022(212)
(212) 350-3604
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of each class | Trading | Name of each exchange on which registered |
Units, each composed of 1 common share, no par value, and 1 preferred share, no par value | SANB11 | New York Stock Exchange* |
Common Shares, no par value | SANB3 | New York Stock Exchange* |
Preferred Shares, no par value | SANB4 | New York Stock Exchange* |
American Depositary Shares, each representing one unit (or a right to receive one unit) which is composed of 1 common share, no par value, and 1 preferred share, no par value, of Banco Santander (Brasil) S.A. | BSBR | New York Stock Exchange |
* | Not for trading purposes, but only in connection with the listing of American Depositary Shares pursuant to the requirements of the Securities and Exchange Commission. |
and Exchange Commission.
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
Title of each Class |
7.375% Tier 1 Subordinated Perpetual Notes |
6.000% Tier 2 Subordinated Notes due 2024 |
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
Title of Class | Number of Shares Outstanding |
Common shares | |
Preferred shares |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes☒No☐
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Yes☐No☒
Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes☒ No☐
Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes☒ No☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer”,filer,” “accelerated filer”,filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer☒ Accelerated Filer ☐ Non-accelerated Filer ☐ Emerging growth company ☐
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.☐
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
☐ U.S. GAAP
☒ International Financial Reporting Standards as issued by the International Accounting Standards Board
☐ Other
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
☐Item 17☐Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes☐ No☒
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table of contents
Page
PRESENTATION OF FINANCIAL AND OTHER INFORMATION
Financial and Other Information
General
In this annual report, the terms “Santander Brasil,” the “Bank,” “we,” “us,” “our,” “our company” and “our organization” meanrefer to Banco Santander (Brasil) S.A. and its consolidated subsidiaries, unless otherwise indicated. References to “Banco Real” mean Banco ABN AMRO Real S.A. and ABN AMRO Brasil Dois Participações S.A. and their respective consolidated subsidiaries, unless otherwise indicated. References to “Banespa” mean Banco do Estado de São Paulo S.A. – Banespa, one of our predecessor entities. The term “Santander Spain” means Banco Santander S.A. References to “Santander Group” mean the worldwide operations of the Santander Spain conglomerate, as indirectly controlled by Santander Spain and its consolidated subsidiaries, including Santander Brasil.
All references herein to the “real,” “reais” or “R$” are to the Brazilianreal, the official currency of Brazil. All references to “U.S. dollars,” “dollars” or “U.S.$” are to United States (or “U.S.”) dollars. All references to “euro,” “euros” or “€” are to the common legal currency of the member states participating in the European Economic and Monetary Union. References to “CI$” are to Cayman Islands dollars. References to “£” are to United Kingdom pounds sterling. See “Item 3. Key Information—A. Selected Financial Data—Exchange Rates” for information regarding exchange rates for the Brazilian currency.
Solely for the convenience of the reader, we have translated certain amounts included in “Item 3. Key Information—A. Selected Financial Data” and elsewhere in this annual report fromreais into U.S. dollars using the exchange rate as reported by the Brazilian Central Bank (Banco Central do Brasil), or the “Brazilian Central Bank,” as of December 31, 2019,2021, which was R$4.03075.5805 to U.S.$1.00, or on the indicated dates (subject, on any applicable date, to rounding adjustments). We make no representation that thereal or U.S. dollar amounts actually represent or could have been or could be converted into U.S. dollars at the rates indicated, at any particular exchange rate or at all.
Certain figures included in this annual report have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables may not be an arithmetic aggregation of the figures that precede them.
Consolidated Financial Statements
We maintain our books and records inreais, our functional currency and the presentation currency for our consolidated financial statements.
This annual report contains our consolidated financial statements as of December 31, 2019, 2018 and 2017, and for the years ended December 31, 2019, 20182021, 2020 and 2017.2019. Such consolidated financial statements have been prepared in accordance with International Financial Reporting Standards, or “IFRS”,IFRS, as issued by the International Accounting Standards Board, or “IASB”IASB and interpretations issued by the IFRS Interpretation Committee, or “IFRIC”.Committee. Our consolidated financial statements as of and for the years ended December 31, 2019, 20182021, 2020 and 20172019 have been audited by PricewaterhouseCoopers Auditores Independentes or “PwC.” PwC isLtda., an independent registered public accounting firm, whose report and unqualified opinion is included herein.
IFRS differs in certain significant aspects in comparison with the generally accepted accounting principles in the United States, or “U.S. GAAP”.U.S. GAAP. IFRS also differs in certain significant aspects in comparison with the Brazilian GAAP (as defined below).GAAP. Appendix I to our audited consolidated financial statements for the years ended December 31, 2019, 20182021, 2020 and 2017,2019, included herein, contains information relating to certain differences between IFRS and Brazilian GAAP.
Under Brazilian law, we areAs required by the Brazilian Central Bank toand Brazilian law, we must prepare consolidated financial statements according toin accordance with IFRS. However, we will also continue to prepare statutory financial statements in accordance with accounting practicesthe Brazilian GAAP, as established by Law No. 6,404, dated December 15, 1976, as amended by Law 11,638, orby: (i) Brazilian Corporate Law; (ii) the “Brazilian Corporate Law” and standards established by the
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National Monetary Council ((CMN - Conselho Monetário Nacional), or “CMN,”; (iii) the Brazilian Central Bank and document template providedincluding the regulatory reports set forth in the AccountingStandard Chart of Accounts for NationalBrazilian Financial System Institutions (Plano Contábil das Instituições do Sistema Financeiro Nacional), and(iv) the Brazilian Securities and Exchange Commission ((CVM - Comissão de Valores Mobiliários), or “CVM,” to the extent that such practices do not conflict with the rules of the Brazilian Central Bank,Bank; (v) the Accounting Pronouncements Committee (C(CPC - Comitê de Pronunciamentos Contábeis), to the extent that such practices are approved by the Brazilian Central Bank,Bank; (vi) the National Council of Private Insurance (Conselho Nacional de Seguros Privados),; and (vii) the Superintendence of Private Insurance ((SUSEP -Superintendência de Seguros Privados), or “SUSEP.” We refer to such Brazilian accounting practices as “Brazilian GAAP.”which is responsible for the supervision and control of the insurance, open private pension funds and capitalization markets in Brazil. See “Item 4. Information on the Company—B. Business Overview—Regulation and Supervision—Other Applicable Laws and Regulations—Auditing Requirements.”Requirements” for additional information.
iii |
The Getnet Spin-Off
We completed the Spin-Off of our merchant acquiring business, conducted through Getnet and its consolidated subsidiaries, on October 26, 2021. As a result of the Spin-Off, Santander Brasil’s share capital was reduced by a total amount of R$2 billion, without the cancellation of shares, with Santander Brasil’s share capital decreasing from R$57 billion as of December 31, 2020 to R$55 billion as of December 31, 2021, and we stopped consolidating Getnet within our results of operations on March 31, 2021.
Furthermore, on April 15, 2021, we entered into a partnership agreement with Getnet, or the “Getnet Partnership Agreement,” which provides a framework for our relationship with Getnet following the Spin-Off.
For additional information on the Spin-Off, see “Item 4. Information on the Company—A. History and Development of the Company—The Getnet Spin-Off” and notes 3, 13 and 27 to our audited consolidated financial statements included elsewhere in this annual report.
Market Share and Other Information
We obtained the market and competitive position data, including market forecasts, used throughout this annual report from internal surveys, market research, publicly available information and industry publications. These data are updated to the latest available information as of the date of this annual report. We have made these statements on the basis of information from third-party sources that we believe are reliable, such as the Brazilian association of savings and mortgage financing entities (Associação Brasileira das Entidades de Crédito Imobiliário e Poupança) or “ABECIP”; the Brazilian association of credit card companies (Associação Brasileira de Empresas de Cartões de Crédito e Serviços) or “ABECS”; the Brazilian association of leasing companies (Associação Brasileira de Empresas de Leasing); the national associationNational Association of financialFinancial and capital markets entitiesCapital Markets Entities (Associação Brasileira das Entidades dos Mercados Financeiro e de Capitais) or “ANBIMA”; the Brazilian Central Bank; the Brazilian social and economic development bankDevelopment Bank (Banco Nacional de Desenvolvimento Econômico e Social) or “BNDES”; the Brazilian Institute of Geography and Statistics (Instituto Brasileiro de Geografia e Estatística) or the “IBGE”; the Brazilian bank federationBank Federation (Federação Brasileira de Bancos), or “FEBRABAN”; the national federationNational Federation of private retirementPrivate Retirement and life insuranceLife Insurance (Federação Nacional de Previdência Privada e Vida); the Getúlio Vargas Foundation (Fundação Getúlio Vargas) or “FGV”; the Brazilian Central Bank systemInformation System (Sistema de Informações do Banco Central); the SUSEP; and the CVM, among others.
Certain Definitions
Unless otherwise indicated or the context otherwise requires, all references to:
“ADRs” mean American Depositary Receipts representing ADSs.
“ADSs” mean American Depositary Shares.
“ANBIMA” means the National Association of Financial and Capital Markets Entities (Associação Brasileira das Entidades dos Mercados Financeiro e de Capitais).
“B3” means the B3 S.A. – Brasil, Bolsa, Balcão, or the São Paulo Stock Exchange.
“BNDES” means the Brazilian Development Bank (Banco Nacional de Desenvolvimento Econômico e Social).
“Brazil” means the Federative Republic of Brazil and the phrase “Brazilian government” refers to the federal government of Brazil.
“Brazilian Capital Markets Law” means Brazilian Law No. 6,385/76, as amended.
“Brazilian Central Bank” means the Central Bank of Brazil (Banco Central do Brasil).
“Brazilian Corporate Law” means Brazilian Law No. 6,404/76, as amended.
“Brazilian GAAP” means the generally accepted accounting principles in Brazil.
iv |
“CDI Rate” is the overnight interbank deposit rate (Certificado de Depósito Interbancário), which is the average daily interbank deposit rate in Brazil (at the end of each month and annually) for the given year.
“CMN” means the National Monetary Council (Conselho Monetário Nacional).
“COPOM” means the Brazilian Monetary Policy Committee (Cômite de Política Monetária).
“CPC” means the Accounting Pronouncements Committee (Comitê de Pronunciamentos Contábeis).
“CVM” means the Brazilian Securities and Exchange Commission (Comissão de Valores Mobiliários).
“Exchange Act” means the U.S. Securities Exchange Act of 1934, as amended.
“FEBRABAN” means the Brazilian Bank Federation (Federação Brasileira de Bancos).
“FGV” means the Getúlio Vargas Foundation (Fundação Getúlio Vargas).
“Getnet” means Getnet Adquirência e Serviços para Meios de Pagamento S.A. Getnet was one of our subsidiaries until the completion of the Spin-Off. For additional information on the Spin-Off of Getnet, see “Item 4. Information on the Company—A. History and Development of the Company—The Getnet Spin-Off” and notes 3, 13 and 27 to our audited consolidated financial statements included elsewhere in this annual report.
“IASB” means the International Accounting Standards Board.
“IBGC” means the Brazilian Institute of Corporate Governance (Instituto Brasileiro de Governança
Corporativa).
“IBGE” means the Brazilian Institute of Geography and Statistics (Instituto Brasileiro de Geografia e Estatística).
“IFRS” means International Financial Reporting Standards as issued by the IASB.
“IPCA” means the Brazilian consumer prices index (Índice de Preços ao Consumidor – Amplo), as calculated by FGV.
“IGP-M” means the Brazilian general index of market prices (Índice Geral de Preços – Mercado), as calculated by the IBGE.
“LGPD” means Law No. 13,709/2018, or the Brazilian General Data Protection Act (Lei Geral de Proteção de Dados).
“Nasdaq” means the Nasdaq Global Select Market.
“NYSE” means the New York Stock Exchange.
“Santander Spain” mean Banco Santander, S.A. and its consolidated subsidiaries.
“Santander Group” mean the worldwide operations of the Santander Spain conglomerate, as indirectly controlled by Santander Spain and its consolidated subsidiaries, including Getnet and Santander Brasil.
“Securities Act” means the U.S. Securities Act of 1933, as amended.
“SELIC” means the Brazilian Special Settlement and Custody System (Sistema Especial de Liquidação e Custodia), a system intended for custody of book-entry securities issued by the National Treasury Office and for the registration and settlement of transactions involving such securities.
“SMEs” means small and medium-sized enterprises.
“Spin-Off” means the distribution of all of the units, common shares and preferred shares of Getnet to holders of Santander Brasil units, common shares and preferred shares, including holders of Santander Brasil units represented by Santander Brasil ADSs, on a pro rata basis (excluding treasury shares), completed on October 26, 2021. For additional information on the Spin-Off of Getnet, see “Item 4. Information on the Company—A. History and Development of the Company—The Getnet Spin-Off” and notes 3, 13 and 27 to our audited consolidated financial statements included elsewhere in this annual report.
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v |
“SUSEP” means the Superintendence of ContentsPrivate Insurance (Superintendência de Seguros Privados).
“TJLP” means the Long-Term Interest Rate (Taxa de Juros de Longo Prazo), the interest rate applied by the BNDES for long-term financing (at the end of the period).
“U.S. GAAP” means the generally accepted accounting principles in the United States.
“United States” or “U.S.” means the United States of America.
vi |
Forward-Looking Statements
This annual report contains estimates and forward-looking statements subject to risks and uncertainties, principally in “Item 3. Key Information—D. Risk Factors,” “Item 5. Operating and Financial Review and Prospects” and “Item 4. Information on the Company—B. Business Overview.Overview” and “Item 5. Operating and Financial Review and Prospects.” Some of the matters discussed concerning our business operations and financial performance include estimates and forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995.
Our estimates and forward-looking statements are based mainly on our current expectations and estimates or projections of future events and trends, which affect or may affect our businesses and results of operations. Although we believe that these estimates and forward-looking statements are based upon reasonable assumptions, they are subject to certain risks and uncertainties and are made in light of information currently available to us. Our estimates and forward-looking statements may be influenced by the following factors, among others:
the 2019 coronavirus, or “COVID-19,” pandemic and other actual or potential epidemics, pandemics, outbreaks, or other public health crises, which could have an adverse impact on our business (see “Item 3. Key Information—D. Risk Factors—Risks Relating to the Brazilian Financial Services Industry and Our Business— The global COVID-19 pandemic has materially impacted our business, and the continuance of this pandemic or any future outbreak of any other highly contagious diseases or other public health emergency, could materially and adversely impact our business, financial condition, liquidity and results of operations,” “Item 4. Information on the Company—A. History and Development of the Company—Impact of COVID-19” and “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Principal Factors Affecting Our Financial Condition and Results of Operations—Impact of COVID-19”); |
● | the impact of the COVID-19 pandemic on general economic and business conditions in Brazil, Latin America and globally and any restrictive measures imposed by governmental authorities in response to the outbreak; |
● | our ability to implement, in a timely and efficient manner, any measure necessary to respond to, or reduce the impacts of the COVID-19 pandemic (including any variants of the virus) on our business, operations, cash flow, prospects, liquidity and financial condition; general economic, political, social and business conditions in Brazil, including the impact of the current international economic environment and the macroeconomic conditions in Brazil, and the policies of the Brazilian administration |
exposure to various types of inflation and interest rate risks, and the Brazilian |
exposure to the sovereign debt of Brazil; |
the effect of interest rate fluctuations on our obligations under employee pension funds; |
exchange rate volatility; |
infrastructure and labor force deficiencies in Brazil; |
economic developments and perception of risk in other countries, including a global downturn; |
increasing competition and consolidation in the Brazilian financial services industry; |
extensive regulation by the Brazilian government and the Brazilian Central Bank, among others; |
changes in reserve requirements; |
changes in taxes or other fiscal assessments; |
potential losses associated with an increase in the level of nonperforming loans or non-performance by counterparties to other types of financial instruments; |
vii |
a decrease in the rate of growth of our loan portfolio; |
potential prepayment of our loan and investment portfolio; |
potential increase in our cost of funding, in particular with relation to short-term deposits; |
a default on, or a ratings downgrade of, the sovereign debt of Brazil or |
restrictions on the |
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the effectiveness of our credit risk management policies; |
our ability to adequately manage market and operational risks; |
potential deterioration in the value of the collateral securing our loan portfolio; |
failure to adequately protect ourselves against risks relating to cybersecurity; |
our dependence on the proper functioning of information technology systems; |
our ability to protect personal data; |
our ability to protect ourselves against cybersecurity risks; |
our ability to protect our reputation; |
our ability to detect and prevent money laundering and other illegal activities; |
our ability to manage the growth of our operations; |
our ability to successfully and effectively integrate acquisitions or to evaluate risks arising from asset acquisitions; and |
other risk factors as set forth under “Item 3. Key Information—D. Risk Factors” in this annual report. |
The words “believe,” “may,” “will,” “aim,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” “forecast,” and similar words are intended to identify estimates and forward-looking statements. Estimates and forward-looking statements are intended to be accurate only as of the date they were made, and we undertake no obligation to update or to review any estimate and/or forward-looking statement because of new information, future events or other factors. Estimates and forward-looking statements involve risks and uncertainties and are not guarantees of future performance. Our future results may differ materially from those expressed in these estimates and forward-looking statements. You should therefore not make any investment decision based on these estimates and forward-looking statements.
The forward-looking statements contained in this report speak only as of the date of this report. We do not undertake to update any forward-looking statement to reflect events or circumstances after that date or to reflect the occurrence of unanticipated events.
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ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
1A. Directors and Senior Management
Not applicable.
1B. Advisers
Not applicable.
1C. Auditors
Not applicable.
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
2A. Offer Statistics |
Not applicable.
2B. Method and Expected Timetable |
Not applicable.
3A. Selected Financial Data |
FinancialThe following tables set forth the selected financial information forof Santander Brasil as of and for the years ended December 31, 2019, 2018, 2017, 20162021, 2020 and 2015 has been2019 derived from our audited consolidated financial statements prepared in accordance with IFRS as issued by the IASB. See “Item 18. Financial Statements.” This financial information should be read in conjunction with our audited consolidated financial statements the related notes and “Item 5. Operating and Financial Review and Prospects”Prospects,” as well as our audited consolidated financial statements and the related notes thereto included within this annual report.
In the year ended December 31, 2021, we revisited the accounting treatment of electric energy sales contracts, which no longer include the amount of the principal and, therefore, only the adjustments to fair value and interest determined in these transactions are recorded in equity accounts. The financial information as of and for the years ended December 31, 2020 and 2019 presented in this annual report already reflects the aforementioned adjustments. See and note 8 to our audited consolidated financial statements included elsewhere in this annual report.
8 |
Income Statement Data
For the Year Ended December 31, | ||||||||||||||||||||||||
2019 | 2019 | 2018 | 2017 | 2016 | 2015 | |||||||||||||||||||
(in millions of U.S.$)(1) | (in millions of R$) | |||||||||||||||||||||||
Interest and similar income | 18,072 | 72,841 | 70,478 | 71,418 | 77,146 | 69,870 | ||||||||||||||||||
Interest expense and similar charges | (7,076 | ) | (28,520 | ) | (28,557 | ) | (36,472 | ) | (46,560 | ) | (38,533 | ) | ||||||||||||
Net interest income | 10,996 | 44,321 | 41,921 | 34,946 | 30,586 | 31,337 | ||||||||||||||||||
Income from equity instruments | 5 | 19 | 33 | 83 | 259 | 143 | ||||||||||||||||||
Income from companies accounted for by the equity method | 37 | 149 | 66 | 72 | 48 | 116 | ||||||||||||||||||
Fee and commission income | 5,059 | 20,392 | 17,728 | 15,816 | 13,548 | 11,797 | ||||||||||||||||||
Fee and commission expense | (1,161 | ) | (4,679 | ) | (3,596 | ) | (3,094 | ) | (2,571 | ) | (2,314 | ) | ||||||||||||
Gains (losses) on financial assets and liabilities (net) | 611 | 2,463 | (2,783 | ) | 969 | 3,016 | (20,002 | ) |
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For the Year Ended December 31, | ||||||||||||||||||||||||||||||||||||||||||||||||
2021 | 2021 | 2020 | 2019 | 2018 | 2017 | |||||||||||||||||||||||||||||||||||||||||||
(in millions of U.S.$)(1) | (in millions of R$) | |||||||||||||||||||||||||||||||||||||||||||||||
Interest and similar income | 13,975 | 77,987 | 62,775 | 72,841 | 70,478 | 71,418 | ||||||||||||||||||||||||||||||||||||||||||
Interest expense and similar charges | (4,779 | ) | (26,669 | ) | (18,332 | ) | (28,520 | ) | (28,557 | ) | (36,472 | ) | ||||||||||||||||||||||||||||||||||||
Net interest income | 9,196 | 51,318 | 44,443 | 44,321 | 41,921 | 34,946 | ||||||||||||||||||||||||||||||||||||||||||
Income from equity instruments | 16 | 90 | 34 | 19 | 33 | 83 | ||||||||||||||||||||||||||||||||||||||||||
Income from companies accounted for by the equity method | 26 | 144 | 112 | 149 | 66 | 72 | ||||||||||||||||||||||||||||||||||||||||||
Fee and commission income | 3,653 | 20,388 | 20,607 | 20,392 | 17,728 | 15,816 | ||||||||||||||||||||||||||||||||||||||||||
Fee and commission expense | (917 | ) | (5,115 | ) | (4,378 | ) | (4,679 | ) | (3,596 | ) | (3,094 | ) | ||||||||||||||||||||||||||||||||||||
Gains (losses) on financial assets and liabilities (net) | 40 | 222 | 12,998 | 2,463 | (2,783 | ) | 969 | |||||||||||||||||||||||||||||||||||||||||
Exchange differences (net) | (692 | ) | (2,789 | ) | (2,806 | ) | 605 | 4,575 | 10,084 | (359 | ) | (2,002 | ) | (24,701 | ) | (2,789 | ) | (2,806 | ) | 605 | ||||||||||||||||||||||||||||
Other operating income (expenses) | (275 | ) | (1,108 | ) | (1,056 | ) | (672 | ) | (625 | ) | (347 | ) | (201 | ) | (1,119 | ) | (873 | ) | (1,108 | ) | (1,056 | ) | (672 | ) | ||||||||||||||||||||||||
Total income | 14,580 | 58,769 | 49,507 | 48,725 | 48,837 | 30,814 | 11,455 | 63,926 | 48,242 | 58,769 | 49,507 | 48,725 | ||||||||||||||||||||||||||||||||||||
Administrative expenses | (4,203 | ) | (16,942 | ) | (16,792 | ) | (16,121 | ) | (14,920 | ) | (14,515 | ) | (3,103 | ) | (17,316 | ) | (17,115 | ) | (16,942 | ) | (16,792 | ) | (16,121 | ) | ||||||||||||||||||||||||
Depreciation and amortization | (593 | ) | (2,392 | ) | (1,740 | ) | (1,662 | ) | (1,483 | ) | (1,490 | ) | (436 | ) | (2,434 | ) | (2,579 | ) | (2,392 | ) | (1,740 | ) | (1,662 | ) | ||||||||||||||||||||||||
Provisions (net)(2) | (913 | ) | (3,682 | ) | (2,000 | ) | (3,309 | ) | (2,725 | ) | (4,001 | ) | (391 | ) | (2,179 | ) | (1,657 | ) | (3,682 | ) | (2,000 | ) | (3,309 | ) | ||||||||||||||||||||||||
Impairment losses on financial assets (net)(3) | (3,317 | ) | (13,370 | ) | (12,713 | ) | (12,338 | ) | (13,301 | ) | (13,634 | ) | (3,067 | ) | (17,113 | ) | (17,450 | ) | (13,370 | ) | (12,713 | ) | (12,338 | ) | ||||||||||||||||||||||||
Impairment losses on other assets (net) | (33 | ) | (131 | ) | (508 | ) | (457 | ) | (114 | ) | (1,221 | ) | (30 | ) | (166 | ) | (85 | ) | (131 | ) | (508 | ) | (457 | ) | ||||||||||||||||||||||||
Gains (losses) on disposal of assets not classified as non-current assets held for sale | 3 | 11 | (25 | ) | (64 | ) | 4 | 781 | (3 | ) | (15 | ) | 231 | 11 | (25 | ) | (64 | ) | ||||||||||||||||||||||||||||||
Gains (losses) on non-current assets held for sale not classified as discontinued operations | 2 | 10 | 182 | (260 | ) | 87 | 50 | 9 | 48 | 77 | 10 | 182 | (260 | ) | ||||||||||||||||||||||||||||||||||
Operating profit before tax | 5,526 | 22,273 | 15,910 | 14,514 | 16,384 | (3,216 | ) | |||||||||||||||||||||||||||||||||||||||||
Operating income before tax | 4,435 | 24,750 | 9,664 | 22,273 | 15,910 | 14,514 | ||||||||||||||||||||||||||||||||||||||||||
Income taxes | (1,400 | ) | (5,642 | ) | (3,110 | ) | (5,376 | ) | (8,919 | ) | 13,050 | (1,647 | ) | (9,191 | ) | 3,787 | (5,642 | ) | (3,110 | ) | (5,376 | ) | ||||||||||||||||||||||||||
Consolidated Profit for the Year | 4,126 | 16,631 | 12,800 | 9,138 | 7,465 | 9,834 | ||||||||||||||||||||||||||||||||||||||||||
Consolidated net income for the Year | 2,788 | 15,559 | 13,451 | 16,631 | 12,800 | 9,138 |
(1) | Translated for convenience only using the selling rate as reported by the Brazilian Central Bank as of December 31, |
(2) | Mainly provisions for tax risks and legal obligations, and judicial and administrative proceedings of labor and civil lawsuits. For further discussion, see notes |
(3) |
9 |
Earnings and Dividend per Share Information
For the Year Ended December 31, | ||||||||||||||||||||
2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||
Basic and Diluted Earnings per 1,000 shares | ||||||||||||||||||||
From continuing and discontinued operations(1) | ||||||||||||||||||||
Basic Earnings per shares (reais) | ||||||||||||||||||||
Common Shares | 2,094.83 | 1,604.34 | 1,133.43 | 929.93 | 1,236.96 | |||||||||||||||
Preferred Shares | 2,304.32 | 1,764.78 | 1,246.77 | 1,022.92 | 1,360.66 | |||||||||||||||
Diluted Earnings per shares (reais) | ||||||||||||||||||||
Common Shares | 2,094.83 | 1,604.34 | 1,132.44 | 929.03 | 1,235.79 | |||||||||||||||
Preferred Shares | 2,304.32 | 1,764.78 | 1,245.69 | 1,021.93 | 1,359.36 | |||||||||||||||
Basic Earnings per shares (U.S. dollars) (2) | ||||||||||||||||||||
Common Shares | 519.72 | 414.05 | 342.63 | 285.34 | 316.78 | |||||||||||||||
Preferred Shares | 571.69 | 455.45 | 376.90 | 313.87 | 348.46 | |||||||||||||||
Diluted Earnings per shares (U.S. dollars) (2) | ||||||||||||||||||||
Common Shares | 519.72 | 414.05 | 342.33 | 285.06 | 316.48 | |||||||||||||||
Preferred Shares | 571.69 | 455.45 | 376.57 | 313.57 | 348.13 | |||||||||||||||
From continuing operations | ||||||||||||||||||||
Basic Earnings per shares (reais) | ||||||||||||||||||||
Common Shares | 2,094.83 | 1,604.34 | 1,133.43 | 929.93 | 1,236.96 | |||||||||||||||
Preferred Shares | 2,304.32 | 1,764.78 | 1,246.77 | 1,022.92 | 1,360.66 | |||||||||||||||
Diluted Earnings per shares (reais) | ||||||||||||||||||||
Common Shares | 2,094.83 | 1,604.34 | 1,132.44 | 929.03 | 1,235.79 | |||||||||||||||
Preferred Shares | 2,304.32 | 1,764.78 | 1,245.69 | 1,021.93 | 1,359.36 | |||||||||||||||
Basic Earnings per shares (U.S. dollars) (2) | ||||||||||||||||||||
Common Shares | 519.72 | 414.05 | 342.63 | 285.34 | 316.78 | |||||||||||||||
Preferred Shares | 571.69 | 455.45 | 376.90 | 313.87 | 348.46 | |||||||||||||||
Diluted Earnings per shares (U.S. dollars) (2) | ||||||||||||||||||||
Common Shares | 519.72 | 414.05 | 342.33 | 285.06 | 316.48 | |||||||||||||||
Preferred Shares | 571.69 | 455.45 | 376.57 | 313.57 | 348.13 | |||||||||||||||
Dividends and interest on capital per 1,000 shares (undiluted) |
For the Year Ended December 31, | ||||||||||||||||||||
2021 | 2020 | 2019 | 2018 | 2017 | ||||||||||||||||
Basic and Diluted Earnings per 1,000 shares | ||||||||||||||||||||
From continuing and discontinued operations(1) | ||||||||||||||||||||
Basic Earnings per shares (reais) | ||||||||||||||||||||
Common Shares | 1,981.65 | 1,713.45 | 2,094.83 | 1,604.34 | 1,133.43 | |||||||||||||||
Preferred Shares | 2,179.82 | 1,884.80 | 2,304.32 | 1,764.78 | 1,246.77 | |||||||||||||||
Diluted Earnings per shares (reais) | ||||||||||||||||||||
Common Shares | 1,981.65 | 1,713.45 | 2,094.83 | 1,604.34 | 1,132.44 | |||||||||||||||
Preferred Shares | 2,179.82 | 1,884.80 | 2,304.32 | 1,764.78 | 1,245.69 | |||||||||||||||
Basic Earnings per shares (U.S. dollars) (2) | ||||||||||||||||||||
Common Shares | 355.10 | 329.72 | 519.72 | 414.05 | 342.63 | |||||||||||||||
Preferred Shares | 390.61 | 362.69 | 571.69 | 455.45 | 376.90 | |||||||||||||||
Diluted Earnings per shares (U.S. dollars) (2) | ||||||||||||||||||||
Common Shares | 355.10 | 329.72 | 519.72 | 414.05 | 342.33 | |||||||||||||||
Preferred Shares | 390.61 | 362.69 | 571.69 | 455.45 | 376.57 | |||||||||||||||
From continuing operations | ||||||||||||||||||||
Basic Earnings per shares (reais) | ||||||||||||||||||||
Common Shares | 1,981.65 | 1,713.45 | 2,094.83 | 1,604.34 | 1,133.43 | |||||||||||||||
Preferred Shares | 2,179.82 | 1,884.80 | 2,304.32 | 1,764.78 | 1,246.77 | |||||||||||||||
Diluted Earnings per shares (reais) | ||||||||||||||||||||
Common Shares | 1,981.65 | 1,713.45 | 2,094.83 | 1,604.34 | 1,132.44 | |||||||||||||||
Preferred Shares | 2,179.82 | 1,884.80 | 2,304.32 | 1,764.78 | 1,245.69 | |||||||||||||||
Basic Earnings per shares (U.S. dollars) (2) | ||||||||||||||||||||
Common Shares | 355.10 | 329.72 | 519.72 | 414.05 | 342.63 | |||||||||||||||
Preferred Shares | 390.61 | 362.69 | 571.69 | 455.45 | 376.90 | |||||||||||||||
Diluted Earnings per shares (U.S. dollars) (2) | ||||||||||||||||||||
Common Shares | 355.10 | 329.72 | 519.72 | 414.05 | 342.33 | |||||||||||||||
Preferred Shares | 390.61 | 362.69 | 571.69 | 455.45 | 376.57 | |||||||||||||||
Dividends and interest on capital per 1,000 shares (undiluted) | ||||||||||||||||||||
Common Shares (reais) | 1,231.79 | 1,693.28 | 1,378.87 | 841.68 | 801.63 | |||||||||||||||
Preferred Shares (reais) | 1,354.97 | 1,631.71 | 1,516.76 | 925.85 | 881.80 | |||||||||||||||
Common Shares (U.S. dollars)(2) | 220.73 | 325.84 | 342.09 | 217.22 | 242.33 | |||||||||||||||
Preferred Shares (U.S. dollars)(2) | 242.80 | 313.99 | 376.30 | 238.94 | 266.57 | |||||||||||||||
Weighted average share outstanding (in thousands) – basic | ||||||||||||||||||||
Common Shares | 3,802,851 | 3,800,140 | 3,802,303 | 3,807,386 | 3,822,057 | |||||||||||||||
Preferred Shares | 3,664,423 | 3,664,666 | 3,663,444 | 3,668,527 | 3,683,145 | |||||||||||||||
Weighted average shares outstanding (in thousands) – diluted(3) | ||||||||||||||||||||
Common Shares | 3,802,851 | 3,800,140 | 3,802,303 | 3,807,386 | 3,825,313 | |||||||||||||||
Preferred Shares | 3,664,423 | 3,664,666 | 3,663,444 | 3,668,527 | 3,686,401 |
12
Common Shares (reais) | 1,378.87 | 841.68 | 801.63 | 666.21 | 784.90 | |||||||||||||||
Preferred Shares (reais) | 1,516.76 | 925.85 | 881.80 | 732.83 | 863.39 | |||||||||||||||
Common Shares (U.S. dollars)(2) | 342.09 | 217.22 | 242.33 | 204.42 | 201.01 | |||||||||||||||
Preferred Shares (U.S. dollars)(2) | 376.30 | 238.94 | 266.57 | 224.86 | 221.11 | |||||||||||||||
Weighted average share outstanding (in thousands) – basic | ||||||||||||||||||||
Common Shares | 3,802,303 | 3,807,386 | 3,822,057 | 3,828,555 | 3,839,159 | |||||||||||||||
Preferred Shares | 3,663,444 | 3,668,527 | 3,683,145 | 3,689,696 | 3,700,299 | |||||||||||||||
Weighted average shares outstanding (in thousands) – diluted(3) | ||||||||||||||||||||
Common Shares | 3,802,303 | 3,807,386 | 3,825,313 | 3,832,211 | 3,842,744 | |||||||||||||||
Preferred Shares | 3,663,444 | 3,668,527 | 3,686,401 | 3,693,352 | 3,703,884 |
(1) | Per share amounts reflect the effects of the bonus share issue and reverse share split for each period presented. |
(2) | Translated for convenience only using the selling rate as reported by the Brazilian Central Bank as of December 31, |
10 |
Balance Sheet Data
As of December 31, | As of December 31, | |||||||||||||||||||||||||||||||||||||||||||||||
2019 | 2019 | 2018 | 2017 | 2016 | 2015 | 2021 | 2021 | 2020 | 2019 | 2018 | 2017 | |||||||||||||||||||||||||||||||||||||
(in millions of U.S.$)(1) | (in millions of R$) | (in millions of U.S.$)(1) | (in millions of R$) | |||||||||||||||||||||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||||||||||||||||||
Cash and balances with the Brazilian Central Bank(2) | 4,993 | 20,127 | 19,464 | 20,642 | 26,285 | 89,143 | 2,985 | 16,657 | 20,149 | 20,127 | 19,464 | 20,642 | ||||||||||||||||||||||||||||||||||||
Financial assets held for trading | - | - | - | 86,271 | 131,245 | 50,537 | - | - | - | - | - | 86,271 | ||||||||||||||||||||||||||||||||||||
Financial Assets Measured At Fair Value Through Profit Or Loss | 8,024 | 32,342 | 43,712 | - | - | - | 3,379 | 18,859 | 60,900 | 32,342 | 43,712 | - | ||||||||||||||||||||||||||||||||||||
Financial Assets Measured At Fair Value Through Profit Or Loss Held For Trading | 14,147 | 57,021 | 68,852 | - | - | - | 12,646 | 70,571 | 95,843 | 55,396 | 68,852 | - | ||||||||||||||||||||||||||||||||||||
Non-Trading Financial Assets Mandatorily Measured At Fair Value Through Profit Or Loss | 42 | 171 | 917 | - | - | - | 156 | 870 | 500 | 171 | 917 | - | ||||||||||||||||||||||||||||||||||||
Other financial assets at fair value through profit or loss | - | - | - | 1,692 | 1,711 | 2,080 | - | - | - | - | - | 1,692 | ||||||||||||||||||||||||||||||||||||
Available-for-sale financial assets | - | - | - | 85,823 | 57,815 | 68,265 | - | - | - | - | - | 85,823 | ||||||||||||||||||||||||||||||||||||
Financial Assets Measured At Fair Value Through Other Comprehensive Income | 23,847 | 96,120 | 85,437 | - | - | - | 18,142 | 101,242 | 109,740 | 96,120 | 85,437 | - | ||||||||||||||||||||||||||||||||||||
Held to maturity investments | - | - | - | 10,214 | 10,048 | 10,098 | - | - | - | - | - | 10,214 | ||||||||||||||||||||||||||||||||||||
Loans and receivables(2) | - | - | - | 368,729 | 333,997 | 306,269 | - | - | - | - | - | 368,729 | ||||||||||||||||||||||||||||||||||||
Financial Assets Measured At Amortized Cost (2) | 117,766 | 474,681 | 429,731 | - | - | - | 113,474 | 633,241 | 554,925 | 474,681 | 429,731 | - | ||||||||||||||||||||||||||||||||||||
Hedging derivatives | 84 | 340 | 344 | 193 | 223 | 1,312 | 61 | 342 | 743 | 340 | 344 | 193 | ||||||||||||||||||||||||||||||||||||
Non-current assets held for sale | 329 | 1,325 | 1,380 | 1,155 | 1,338 | 1,237 | 146 | 816 | 1,093 | 1,325 | 1,380 | 1,155 | ||||||||||||||||||||||||||||||||||||
Investments in associates and joint ventures | 266 | 1,071 | 1,053 | 867 | 990 | 1,061 | 221 | 1,233 | 1,095 | 1,071 | 1,053 | 867 | ||||||||||||||||||||||||||||||||||||
Tax assets | 8,336 | 33,599 | 31,566 | 28,826 | 28,753 | 34,770 | 7,483 | 41,757 | 41,064 | 33,599 | 31,566 | 28,826 | ||||||||||||||||||||||||||||||||||||
Other assets | 1,256 | 5,061 | 4,800 | 4,578 | 5,104 | 3,802 | 1,084 | 6,049 | 7,222 | 5,061 | 4,800 | 4,578 | ||||||||||||||||||||||||||||||||||||
Tangible assets | 2,427 | 9,782 | 6,589 | 6,510 | 6,646 | 7,006 | ||||||||||||||||||||||||||||||||||||||||||
Property, plant and equipment | 1,574 | 8,784 | 9,537 | 9,782 | 6,589 | 6,510 | ||||||||||||||||||||||||||||||||||||||||||
Intangible assets | 7,591 | 30,596 | 30,019 | 30,202 | 30,237 | 29,814 | 5,517 | 30,787 | 30,766 | 30,596 | 30,019 | 30,202 | ||||||||||||||||||||||||||||||||||||
Total assets | 189,108 | 762,237 | 723,865 | 645,703 | 634,393 | 605,395 | 166,868 | 931,208 | 933,578 | 760,613 | 723,865 | 645,703 | ||||||||||||||||||||||||||||||||||||
Average total assets* | 182,476 | 735,507 | 685,531 | 637,511 | 605,646 | 571,918 | 168,834 | 942,177 | 854,615 | 735,507 | 685,531 | 637,511 | ||||||||||||||||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||||||||||||||||||||||
Financial liabilities held for trading | - | - | - | 49,323 | 51,620 | 42,388 | 6,622 | 36,953 | 75,020 | - | - | 49,323 | ||||||||||||||||||||||||||||||||||||
Financial Liabilities Measured At Fair Value Through Profit Or Loss Held For Trading | 11,428 | 46,065 | 50,939 | - | - | - | - | - | - | 44,440 | 50,939 | - | ||||||||||||||||||||||||||||||||||||
Financial Liabilities Measured At Fair Value Through Profit Or Loss | 1,320 | 5,319 | 1,946 | - | - | - | 1,337 | 7,460 | 7,038 | 5,319 | 1,946 | - | ||||||||||||||||||||||||||||||||||||
Financial liabilities at amortized cost | 142,712 | 575,230 | 547,295 | 478,881 | 471,579 | 457,282 | 134,413 | 750,094 | 707,289 | 575,230 | 547,295 | 478,881 | ||||||||||||||||||||||||||||||||||||
Deposits from the Brazilian Central Bank and deposits from credit institutions | 21,684 | 121,006 | 131,657 | 99,271 | 99,023 | 79,375 | ||||||||||||||||||||||||||||||||||||||||||
Customer deposits | 84,036 | 468,961 | 445,814 | 336,515 | 304,198 | 276,042 | ||||||||||||||||||||||||||||||||||||||||||
Marketable debt securities | 14,163 | 79,037 | 56,876 | 73,702 | 74,626 | 70,247 | ||||||||||||||||||||||||||||||||||||||||||
Subordinated debts | - | - | - | - | 9,886 | 519 | ||||||||||||||||||||||||||||||||||||||||||
Debt Instruments Eligible to Compose Capital | 3,520 | 19,641 | 13,120 | 10,176 | 9,780 | 8,437 | ||||||||||||||||||||||||||||||||||||||||||
Other financial liabilities | 11,011 | 61,449 | 59,823 | 55,566 | 49,783 | 44,261 | ||||||||||||||||||||||||||||||||||||||||||
Hedging derivatives | 80 | 447 | 145 | 201 | 224 | 163 | ||||||||||||||||||||||||||||||||||||||||||
Provisions(3) | 2,079 | 11,604 | 13,815 | 16,332 | 14,696 | 13,987 | ||||||||||||||||||||||||||||||||||||||||||
Tax liabilities | 1,465 | 8,175 | 10,130 | 10,960 | 8,075 | 8,248 | ||||||||||||||||||||||||||||||||||||||||||
Other liabilities | 1,882 | 10,501 | 14,051 | 10,921 | 9,095 | 8,014 | ||||||||||||||||||||||||||||||||||||||||||
Total liabilities | 147,878 | 825,234 | 827,488 | 663,404 | 632,270 | 558,615 | ||||||||||||||||||||||||||||||||||||||||||
Stockholders’ equity | 19,541 | 109,047 | 106,205 | 96,736 | 91,882 | 87,425 | ||||||||||||||||||||||||||||||||||||||||||
Other Comprehensive Income | (610 | ) | (3,406 | ) | (428 | ) | (86 | ) | (879 | ) | (774 | ) | ||||||||||||||||||||||||||||||||||||
Non-controlling interests | 60 | 334 | 313 | 559 | 593 | 437 | ||||||||||||||||||||||||||||||||||||||||||
Total Stockholders’ Equity | 18,990 | 105,974 | 106,090 | 97,209 | 91,595 | 87,088 | ||||||||||||||||||||||||||||||||||||||||||
Total liabilities and stockholders’ equity | 166,868 | 931,208 | 933,578 | 760,613 | 723,865 | 645,703 | ||||||||||||||||||||||||||||||||||||||||||
Average interest-bearing liabilities* | 116,074 | 647,752 | 573,429 | 491,187 | 463,388 | 416,816 | ||||||||||||||||||||||||||||||||||||||||||
Average total stockholders’ equity* | 18,828 | 105,070 | 101,531 | 95,836 | 89,263 | 87,868 |
* The average annual balance sheet data has been calculated based upon the average of the monthly balances at 13
Tabledates: as of ContentsDecember 31 of the prior year and for each of the month-end balances of the 12 subsequent months.
(1) Translated for convenience only using the selling rate as reported by the Brazilian Central Bank as of December 31, 2021, for reais into U.S. dollars of R$5.5805 to U.S.$1.00.
(2) In the fiscal year ended December 31, 2018, as a result of the implementation of IFRS 9, the balances related loans and receivables, assets held for trading, held to maturity, available for sale and compulsory deposits on time deposits were reclassified to new accounts prescribed by IFRS 9.
(3) Mainly provisions for tax risks and legal obligations, and judicial and administrative proceedings of labor and civil lawsuits.
(4) In the year ended December 31, 2021, we revisited the accounting treatment of electric energy sales contracts, which no longer include the amount of the principal and, therefore, only the adjustments to fair value and interest determined in these transactions are recorded in equity accounts. The financial information as of and for the years ended December 31, 2020 and 2019 presented in this annual report already reflects the aforementioned adjustments. See note 8 to our audited consolidated financial statements included elsewhere in this annual report.
Deposits from the Brazilian Central Bank and deposits from credit institutions | 24,629 | 99,271 | 99,023 | 79,375 | 78,634 | 69,451 | ||||||||||||||||||
Customer deposits | 83,488 | 336,515 | 304,198 | 276,042 | 247,445 | 243,043 | ||||||||||||||||||
Marketable debt securities | 18,285 | 73,702 | 74,626 | 70,247 | 99,843 | 94,658 | ||||||||||||||||||
Subordinated debts | - | - | 9,886 | 519 | 466 | 8,097 | ||||||||||||||||||
Debt Instruments Eligible to Compose Capital | 2,525 | 10,176 | 9,780 | 8,437 | 8,312 | 9,959 | ||||||||||||||||||
Other financial liabilities | 13,786 | 55,566 | 49,783 | 44,261 | 36,879 | 32,073 | ||||||||||||||||||
Hedging derivatives | 50 | 201 | 224 | 163 | 311 | 2,377 | ||||||||||||||||||
Provisions(3) | 4,052 | 16,332 | 14,696 | 13,987 | 11,776 | 11,410 | ||||||||||||||||||
Tax liabilities | 2,719 | 10,960 | 8,075 | 8,248 | 6,095 | 5,253 | ||||||||||||||||||
Other liabilities | 2,709 | 10,921 | 9,095 | 8,014 | 8,199 | 6,850 | ||||||||||||||||||
Total liabilities | 164,991 | 665,028 | 632,270 | 558,615 | 549,581 | 525,559 | ||||||||||||||||||
Stockholders’ equity | 23,994 | 96,711 | 91,882 | 87,425 | 85,435 | 83,532 | ||||||||||||||||||
Other Comprehensive Income | (21 | ) | (86 | ) | (879 | ) | (774 | ) | (1,348 | ) | (4,132 | ) | ||||||||||||
Non-controlling interests | 145 | 583 | 593 | 437 | 726 | 435 | ||||||||||||||||||
Total Stockholders’ Equity | 24,117 | 97,209 | 91,595 | 87,088 | 84,812 | 79,835 | ||||||||||||||||||
Total liabilities and stockholders’ equity | 189,108 | 762,237 | 723,865 | 645,703 | 634,393 | 605,395 | ||||||||||||||||||
Average interest-bearing liabilities* | 121,861 | 491,187 | 463,388 | 416,816 | 408,067 | 400,008 | ||||||||||||||||||
Average total stockholders’ equity* | 23,777 | 95,836 | 89,263 | 87,868 | 84,283 | 81,475 |
11 |
Selected Consolidated Ratios (*)
As of and for the Year Ended December 31, | ||||||||||||||||||||
2021 | 2020 | 2019 | 2018 | 2017 | ||||||||||||||||
(%) | ||||||||||||||||||||
Profitability and performance | ||||||||||||||||||||
Return on average total assets | 1.7 | 1.6 | 2.3 | 1.9 | 1.4 | |||||||||||||||
Asset quality | ||||||||||||||||||||
Impaired assets as a percentage of loans and advances to customers (gross)(1) | 5.5 | 5.5 | 6.7 | 7.0 | 6.7 | |||||||||||||||
Impaired assets as a percentage of total assets(1) | 2.9 | 2.5 | 3.1 | 3.1 | 3.0 | |||||||||||||||
Impairment losses to customers as a percentage of impaired assets(1) (4) | 105.9 | 103.8 | 87.8 | 90.3 | 80.5 | |||||||||||||||
Impairment losses to customers as a percentage of loans and advances to customers (gross) (5) | 5.8 | 5.8 | 5.9 | 6.3 | 5.4 | |||||||||||||||
Derecognized assets as a percentage of loans and advances to customers (gross) | 3.0 | 3.7 | 4.3 | 3.5 | 4.7 | |||||||||||||||
Impaired assets as a percentage of stockholders’ equity(1) | 25.5 | 21.8 | 24.3 | 24.5 | 22.0 | |||||||||||||||
Capital adequacy | ||||||||||||||||||||
Basel capital adequacy ratio(2) | 14.9 | 15.3 | 15.0 | 15.1 | 15.8 | |||||||||||||||
Efficiency | ||||||||||||||||||||
Efficiency ratio(3) | 27.1 | 35.5 | 28.8 | 33.9 | 33.1 |
* | The average annual balance sheet data has been calculated based upon the average of the monthly balances at 13 dates: as of December 31 of the prior year and for each of the month-end balances of the 12 subsequent months. |
Selected Consolidated Ratios (*)
As of and for the Year Ended December 31, | ||||||||||||||||||||
2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||
(%) | ||||||||||||||||||||
Profitability and performance | ||||||||||||||||||||
Return on average total assets | 2.3 | 1.9 | 1.4 | 1.2 | 1.7 | |||||||||||||||
Asset quality | ||||||||||||||||||||
Impaired assets as a percentage of loans and advances to customers (gross)(1) | 6.7 | 7.0 | 6.7 | 7.0 | 7.0 | |||||||||||||||
Impaired assets as a percentage of total assets(1) | 3.1 | 3.1 | 3.0 | 3.0 | 3.1 | |||||||||||||||
Impairment losses to customers as a percentage of impaired assets(1) (4) | 87.8 | 90.3 | 80.5 | 87.0 | 81.9 | |||||||||||||||
Impairment losses to customers as a percentage of loans and advances to customers (gross) (5) | 5.9 | 6.3 | 5.4 | 6.1 | 5.7 | |||||||||||||||
Derecognized assets as a percentage of loans and advances to customers (gross) | 4.3 | 3.5 | 4.7 | 4.3 | 4.4 | |||||||||||||||
Impaired assets as a percentage of stockholders’ equity(1) | 24.3 | 24.5 | 22.0 | 22.3 | 23.3 | |||||||||||||||
Capital adequacy | ||||||||||||||||||||
Basel capital adequacy ratio(2) | 15.0 | 15.1 | 15.8 | 16.3 | 15.7 | |||||||||||||||
Efficiency | ||||||||||||||||||||
Efficiency ratio(3) | 28.8 | 33.9 | 33.1 | 30.6 | 47.1 |
(1) | Impaired assets include all loans and advances past due by more than 90 days and other doubtful credits. For further information, |
(2) | Basel capital adequacy ratio is measured pursuant to Brazilian Central Bank |
14
Supervision—Capital Adequacy and Leverage – Basel.”
(3) | Efficiency ratio is determined by |
(4) | In |
(5) | In |
See also “Item 4. Information on the Company—B. Business Overview—Selected Statistical Information—Selected Credit Ratios.”
12 |
Selected Consolidated Ratios, Including Non-GAAP Ratios (*)
As of and for the Year Ended December 31, | As of and for the Year Ended December 31, | |||||||||||||||||||||||||||||||||||||||
2019 | 2018 | 2017 | 2016 | 2015 | 2021 | 2020 | 2019 | 2018 | 2017 | |||||||||||||||||||||||||||||||
(%) | (%) | |||||||||||||||||||||||||||||||||||||||
Profitability and performance | ||||||||||||||||||||||||||||||||||||||||
Net yield(1) | 6.8 | 6.9 | 6.4 | 6.2 | 6.6 | 5.9 | 6.0 | 6.8 | 6.9 | 6.4 | ||||||||||||||||||||||||||||||
Return on average stockholders’ equity(2) | 17.4 | 14.3 | 10.4 | 8.9 | 12.1 | 14.8 | 13.3 | 17.4 | 14.3 | 10.4 | ||||||||||||||||||||||||||||||
Adjusted return on average stockholders’ equity(2) | 24.7 | 21.0 | 15.4 | 13.3 | 18.5 | 20.2 | 18.4 | 24.7 | 21.0 | 15.4 | ||||||||||||||||||||||||||||||
Average stockholders’ equity as a percentage of average total assets(2)(*) | 13.0 | 13.0 | 13.8 | 13.9 | 14.2 | 11.2 | 11.9 | 13.0 | 13.0 | 13.8 | ||||||||||||||||||||||||||||||
Average stockholders’ equity excluding goodwill as a percentage of average total assets excluding goodwill(2)(*) | 9.6 | 9.3 | 9.8 | 9.7 | 9.8 | 8.4 | 8.8 | 9.6 | 9.3 | 9.8 | ||||||||||||||||||||||||||||||
Asset quality | ||||||||||||||||||||||||||||||||||||||||
Impaired assets as a percentage of credit risk exposure (3) | 6.0 | 6.2 | 5.8 | 6.3 | 6.0 | 4.9 | 5.0 | 6.0 | 6.2 | 5.8 | ||||||||||||||||||||||||||||||
Impaired assets as a percentage of stockholders’ equity excluding goodwill(2)(3) | 34.4 | 35.5 | 32.6 | 33.5 | 36.1 | 34.5 | 29.8 | 34.4 | 35.5 | 32.6 | ||||||||||||||||||||||||||||||
Liquidity | ||||||||||||||||||||||||||||||||||||||||
Loans and advances to customers, net as a percentage of total funding(4) | 62.9 | 60.6 | 62.7 | 58.0 | 59.3 | 70.2 | 76.3 | 62.9 | 60.6 | 62.7 | ||||||||||||||||||||||||||||||
Efficiency | ||||||||||||||||||||||||||||||||||||||||
Adjusted efficiency ratio(5) | 28.2 | 30.3 | 32.5 | 34.9 | 34.8 | 28.2 | 27.8 | 28.2 | 30.3 | 32.5 |
(*) The average annual balance sheet data has been calculated based upon the average of the monthly balances at 13 dates: at December 31 of the prior year and for each of the month-end balances of the 12 subsequent months.
(1) “Net yield” is defined as net interest income (including dividends on equity securities) divided by average interest earning assets.
(2) “Adjusted return on average stockholders’ equity,” “Average stockholders’ equity excluding goodwill as a percentage of average total assets excluding goodwill” and “Impaired assets as a percentage of stockholders’ equity excluding goodwill” are non-GAAP financial measures which adjust “Return on average stockholders’ equity,” “Average stockholders’ equity as a percentage of average total assets” and “Impaired assets as a percentage of stockholders’ equity,” to exclude the goodwill arising from the acquisition of Banco Real in 2008, Getnet Adquirência e Serviços para Meios de Pagamento S.A., or “GetNet” and Super Pagamentos e Administração de Meios Eletrônicos Ltda., or “Super”,“Super,” both in 2014, Banco Olé Bonsucesso Consignado S.A. (current name of(formerly known as Banco Bonsucesso Consignado S.A.) 60% in 2015 and the remaining 40% in 2020, and BW Guirapá I S.A. in 2016. Our calculation of these non-GAAP financial measures may differ from the calculation of similarly titled measures used by other companies. We believe that these non-GAAP financial measures supplement the GAAP information provided to investors regarding the substantial impact of the R$27 billion goodwill arising from the acquisition of Banco Real during the year ended December 31, 2008, the R$1.1 billion goodwill arising from the acquisition of GetNetGetnet and Super both during 2014, the acquisition of an interest in Banco Olé Bonsucesso Consignado S.A. in 2015.2015 (although Getnet and Super are no longer subsidiaries of Santander Brasil, the goodwill arising from their respective acquisitions continues to have an effect on our consolidated financial statements). Accordingly, we believe that the non-GAAP financial measures presented are useful to investors. The limitation associated with the exclusion of goodwill from stockholders’ equity is that it has the effect of excluding a portion of the total investment in our assets. We compensate for this limitation by also considering stockholders’ equity including goodwill.
(3) Credit risk exposure is the sum of the amortized cost amounts of loans and advances to customers (including impaired assets), guarantees and documentary credits. We include off-balance sheet information in this measure to better demonstrate our total managed credit risk. The reconciliation of the measure to the most comparable IFRS measure is disclosed in the table of non-GAAP financial measures presented immediately after these notes.
(4) Total funding is the sum of financial liabilities at amortized cost, excluding other financial liabilities. For a breakdown of the components of total funding, see “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Liquidity and Funding.”
(5) Adjusted efficiency ratio excludes the effect of the hedge for investments held abroad. This exclusion affects the income tax, gains (losses) on financial assets and liabilities and exchange rate differences line items but does not affect the “Net profitincome from continuing operations” line item because the adjustment to gains (losses) on financial assets and liabilities and exchange rate difference is offset by the adjustment to income tax. Our management believes that the adjusted efficiency ratio provides a more consistent framework for evaluating and conducting business, as a result of excluding from our revenues the effect of the volatility caused by possible gains and losses on our hedging strategies for tax purposes. The adjusted efficiency ratio excluding the hedge of investments held abroad is a non-GAAP measure. For more details,further information, see the table below.below and “—Reconciliation of Non-GAAP Measures and Ratios to Their Most Directly Comparable IFRS Financial Measures.”
For the Year Ended December 31, | For the Year Ended December 31, | |||||||||||||||||||||||||||||||||||||||
2019 | 2018 | 2017 | 2016 | 2015 | 2021 | 2020 | 2019 | 2018 | 2017 | |||||||||||||||||||||||||||||||
(in millions of R$, except percentages) | (in millions of R$, except percentages) | |||||||||||||||||||||||||||||||||||||||
Effects of the hedge for investments held abroad | 1,264 | 5,867 | 810 | (6,140 | ) | 10,919 | 2,512 | 13,583 | 1,264 | 5,867 | (810 | ) | ||||||||||||||||||||||||||||
Efficiency ratio | 28.8 | % | 33.9 | % | 33.1 | % | 30.6 | % | 47.1 | % | 27.1 | % | 35.5 | % | 28.8 | % | 33.9 | % | 33.1 | % | ||||||||||||||||||||
Adjusted efficiency ratio | 28.2 | % | 30.3 | % | 32.5 | % | 34.9 | % | 34.8 | % | 28.2 | % | 27.8 | % | 28.2 | % | 30.3 | % | 32.5 | % |
See also “Item 4. Information on the Company—B. Business Overview—Selected Statistical Information—Selected Credit Ratios.”
15
13 |
Reconciliation of Non-GAAP Measures and Ratios to Their Most Directly Comparable IFRS Financial Measures
Reconciliation of Non-GAAP Ratios to Their Most Directly Comparable IFRS Financial Measures
The information in the table below presents the calculation of specified non-GAAP financial measures to the most directly comparable IFRS financial measures. Our calculation of these non-GAAP financial measures may differ from the calculation of similarly titled measures used by other companies. We believe that these non-GAAP financial measures supplement the GAAP information provided to investors regarding the substantial impact of the R$1.1 billion goodwill arising from the acquisition of GetNetGetnet and Super both during 2014, the acquisition of Banco Olé Bonsucesso Consignado S.A. in 2015 and the significance of other factors affecting stockholders’ equity and the related ratios. See “Item 4. Information on the Company—A. History and Development of the Company—Important Events.” The limitation associated with the exclusion of goodwill from stockholders’ equity is that it has the effect of excluding a portion of the total investment in our assets. We compensate for this limitation by also considering stockholders’ equity including goodwill, as set forth in the above tables. Accordingly, while we believe that the non-GAAP financial measures presented are useful to investors and support their analysis, the non-GAAP financial measures have important limitations as analytical tools, and investors should not consider them in isolation or as substitutes for analysis of our results as reported under GAAP measures including under IFRS.
As of and for the Year Ended December 31, | ||||||||||||||||||||
2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||
(in millions of R$, except as otherwise indicated) | ||||||||||||||||||||
Return on average stockholders’ equity: | ||||||||||||||||||||
Consolidated profit for the year | 16,631 | 12,800 | 9,138 | 7,465 | 9,834 | |||||||||||||||
Average stockholders’ equity (*) | 95,836 | 89,263 | 87,868 | 84,283 | 81,475 | |||||||||||||||
Return on average stockholders’ equity (*) | 17.4 | % | 14.3 | % | 10.4 | % | 8.9 | % | 12.1 | % | ||||||||||
Adjusted return on average stockholders’ equity(*): | ||||||||||||||||||||
Consolidated profit for the year | 16,631 | 12,800 | 9,138 | 7,465 | 9,834 | |||||||||||||||
Average stockholders’ equity(*) | 95,836 | 89,263 | 87,868 | 84,283 | 81,475 | |||||||||||||||
Average goodwill(*) | 28,213 | 28,176 | 28,360 | 28,343 | 28,376 | |||||||||||||||
Average stockholders’ equity excluding goodwill(*) | 67,623 | 61,087 | 59,508 | 55,940 | 53,130 | |||||||||||||||
Adjusted return on average stockholders’ equity(*)(3) | 24.6 | % | 21.0 | % | 15.4 | % | 13.3 | % | 18.5 | % | ||||||||||
Average stockholders’ equity as a percentage of average total assets(*): | ||||||||||||||||||||
Average stockholders’ equity(*) | 95,836 | 89,263 | 87,868 | 84,283 | 81,475 | |||||||||||||||
Average total assets(*) | 735,507 | 685,531 | 637,511 | 605,646 | 571,918 | |||||||||||||||
Average stockholders’ equity as a percentage of average total assets(*) | 13.0 | % | 13.0 | % | 13.8 | % | 13.9 | % | 14.2 | % | ||||||||||
Average stockholders’ equity excluding goodwill as a percentage of average total assets excluding goodwill(*): | ||||||||||||||||||||
Average stockholders’ equity(*) | 95,836 | 89,263 | 87,868 | 84,283 | 81,475 | |||||||||||||||
Average goodwill(*) | 28,213 | 28,176 | 28,360 | 28,343 | 28,376 | |||||||||||||||
Average stockholders’ equity excluding goodwill(*) | 67,623 | 61,087 | 59,508 | 55,940 | 53,130 | |||||||||||||||
Average total assets(*) | 735,507 | 685,531 | 637,511 | 605,646 | 571,918 | |||||||||||||||
Average goodwill(*) | 28,213 | 28,176 | 28,360 | 28,343 | 28,376 | |||||||||||||||
Average total assets excluding goodwill(*) | 707,294 | 657,355 | 609,151 | 577,334 | 543,542 | |||||||||||||||
Average stockholders’ equity excluding goodwill as a percentage of average total assets excluding goodwill(*) | 9.6 | % | 9.3 | % | 9.8 | % | 9.7 | % | 9.8 | % | ||||||||||
Impaired assets as a percentage of stockholders’ equity: | ||||||||||||||||||||
Impaired assets | 23,426 | 22,426 | 19,145 | 18,887 | 18,599 | |||||||||||||||
Stockholders’ equity | 97,209 | 91,595 | 87,088 | 84,813 | 79,835 | |||||||||||||||
Impaired assets as a percentage of stockholders’ equity | 24.1 | % | 24.5 | % | 22.0 | % | 22.3 | % | 23.3 | % |
14 |
16
As of and for the Year Ended December 31, | ||||||||||||||||||||
2021 | 2020 | 2019 | 2018 | 2017 | ||||||||||||||||
(in millions of R$, except as otherwise indicated) | ||||||||||||||||||||
Return on average stockholders’ equity: | ||||||||||||||||||||
Consolidated net income for the year | 15,559 | 13,451 | 16,631 | 12,800 | 9,138 | |||||||||||||||
Average stockholders’ equity (*) | 105,070 | 101,531 | 95,836 | 89,263 | 87,868 | |||||||||||||||
Return on average stockholders’ equity (*) | 14.8 | % | 13.2 | % | 17.4 | % | 14.3 | % | 10.4 | % | ||||||||||
Adjusted return on average stockholders’ equity(*): | ||||||||||||||||||||
Consolidated net income for the year | 15,559 | 13,451 | 16,631 | 12,800 | 9,138 | |||||||||||||||
Average stockholders’ equity(*) | 105,070 | 101,531 | 95,836 | 89,263 | 87,868 | |||||||||||||||
Average goodwill(*) | 27,967 | 28,513 | 28,213 | 28,176 | 28,360 | |||||||||||||||
Average stockholders’ equity excluding goodwill(*) | 77,103 | 73,018 | 67,623 | 61,087 | 59,508 | |||||||||||||||
Adjusted return on average stockholders’ equity(*)(3) | 20.2 | % | 18.4 | % | 24.6 | % | 21.0 | % | 15.4 | % | ||||||||||
Average stockholders’ equity as a percentage of average total assets(*): | ||||||||||||||||||||
Average stockholders’ equity(*) | 105,070 | 101,531 | 95,836 | 89,263 | 87,868 | |||||||||||||||
Average total assets(*) | 942,177 | 854,615 | 735,507 | 685,531 | 637,511 | |||||||||||||||
Average stockholders’ equity as a percentage of average total assets(*) | 11.2 | % | 11.9 | % | 13.0 | % | 13.0 | % | 13.8 | % | ||||||||||
Average stockholders’ equity excluding goodwill as a percentage of average total assets excluding goodwill(*): | ||||||||||||||||||||
Average stockholders’ equity(*) | 105,070 | 101,531 | 95,836 | 89,263 | 87,868 | |||||||||||||||
Average goodwill(*) | 27,967 | 28,513 | 28,213 | 28,176 | 28,360 | |||||||||||||||
Average stockholders’ equity excluding goodwill(*) | 77,103 | 73,018 | 67,623 | 61,087 | 59,508 | |||||||||||||||
Average total assets(*) | 942,177 | 854,615 | 735,507 | 685,531 | 637,511 | |||||||||||||||
Average goodwill(*) | 27,967 | 28,513 | 28,213 | 28,176 | 28,360 | |||||||||||||||
Average total assets excluding goodwill(*) | 914,210 | 826,102 | 707,294 | 657,355 | 609,151 | |||||||||||||||
Average stockholders’ equity excluding goodwill as a percentage of average total assets excluding goodwill(*) | 8.4 | % | 8.8 | % | 9.6 | % | 9.3 | % | 9.8 | % | ||||||||||
Impaired assets as a percentage of stockholders’ equity: | ||||||||||||||||||||
Impaired assets | 26,923 | 23,176 | 23,426 | 22,426 | 19,145 | |||||||||||||||
Stockholders’ equity | 105,974 | 106,090 | 97,209 | 91,595 | 87,088 | |||||||||||||||
Impaired assets as a percentage of stockholders’ equity | 25.4 | % | 21.8 | % | 24.1 | % | 24.5 | % | 22.0 | % | ||||||||||
Impaired assets as a percentage of stockholders’ equity excluding goodwill: | ||||||||||||||||||||
Impaired assets | 26,923 | 23,176 | 23,426 | 22,426 | 19,145 | |||||||||||||||
Stockholders’ equity | 105,974 | 106,090 | 97,209 | 91,595 | 87,089 | |||||||||||||||
Goodwill | 27,915 | 28,360 | 28,375 | 28,378 | 28,364 | |||||||||||||||
Stockholders’ equity excluding goodwill | 78,059 | 77,730 | 68,834 | 63,217 | 58,724 | |||||||||||||||
Impaired assets as a percentage of stockholders’ equity excluding goodwill | 34.5 | % | 29.8 | % | 34.0 | % | 35.5 | % | 32.6 | % | ||||||||||
Impaired assets as a percentage of loans and receivables: | ||||||||||||||||||||
Loans and advances to customers, gross | 493,355 | 417,822 | 347,257 | 321,933 | 287,829 | |||||||||||||||
Impaired assets | 26,923 | 23,176 | 23,426 | 22,426 | 19,145 | |||||||||||||||
Impaired assets as a percentage of loans and receivables | 5.5 | % | 5.5 | % | 6.7 | % | 7.0 | % | 6.7 | % | ||||||||||
Impaired assets as a percentage of credit risk exposure: | ||||||||||||||||||||
Loans and advances to customers, gross | 493,355 | 417,822 | 347,257 | 321,933 | 287,829 | |||||||||||||||
Guarantees | 47,518 | 48,282 | 44,313 | 42,260 | 42,645 | |||||||||||||||
Credit risk exposure | 540,873 | 466,115 | 391,569 | 364,182 | 330,474 | |||||||||||||||
Impaired assets | 26,923 | 23,176 | 23,426 | 22,426 | 19,145 | |||||||||||||||
Impaired assets as a percentage of credit risk exposure | 5.0 | % | 5.0 | % | 6.0 | % | 6.2 | % | 5.8 | % | ||||||||||
Loans and advances to customers, net as a percentage of total funding: | ||||||||||||||||||||
Loans and advances to customers, gross | 493,355 | 417,822 | 347,257 | 321,933 | 287,829 | |||||||||||||||
Impairment losses(1) | 28,511 | 24,054 | 20,557 | 20,242 | 15,409 | |||||||||||||||
Total Funding(2) | 688,645 | 647,465 | 519,664 | 497,512 | 434,620 | |||||||||||||||
Loans and advances to customers, net as a percentage of total funding(2) | 75.8 | % | 60.8 | % | 62.9 | % | 60.6 | % | 62.7 | % |
Impaired assets as a percentage of stockholders’ equity excluding goodwill: | ||||||||||||||||||||
Impaired assets | 23,426 | 22,426 | 19,145 | 18,887 | 18,599 | |||||||||||||||
Stockholders’ equity | 97,209 | 91,595 | 87,088 | 84,813 | 79,835 | |||||||||||||||
Goodwill | 28,375 | 28,378 | 28,364 | 28,355 | 28,333 | |||||||||||||||
Stockholders’ equity excluding goodwill | 68,834 | 63,217 | 58,724 | 56,458 | 51,502 | |||||||||||||||
Impaired assets as a percentage of stockholders’ equity excluding goodwill | 34.0 | % | 35.5 | % | 32.6 | % | 33.5 | % | 36.1 | % | ||||||||||
Impaired assets as a percentage of loans and receivables: | ||||||||||||||||||||
Loans and advances to customers, gross | 347,257 | 321,933 | 287,829 | 268,438 | 267,266 | |||||||||||||||
Impaired assets | 23,426 | 22,426 | 19,145 | 18,887 | 18,599 | |||||||||||||||
Impaired assets as a percentage of loans and receivables | 6.7 | % | 7.0 | % | 6.7 | % | 7.0 | % | 7.0 | % | ||||||||||
Impaired assets as a percentage of credit risk exposure: | ||||||||||||||||||||
Loans and advances to customers, gross | 347,257 | 321,933 | 287,829 | 268,438 | 267,266 | |||||||||||||||
Guarantees | 44,313 | 42,260 | 42,645 | 33,265 | 43,611 | |||||||||||||||
Credit risk exposure | 391,569 | 364,182 | 330,474 | 301,703 | 310,887 | |||||||||||||||
Impaired assets | 23,426 | 22,426 | 19,145 | 18,887 | 18,599 | |||||||||||||||
Impaired assets as a percentage of credit risk exposure | 6.0 | % | 6.2 | % | 5.8 | % | 6.3 | % | 6.0 | % | ||||||||||
Loans and advances to customers, net as a percentage of total funding: | ||||||||||||||||||||
Loans and advances to customers, gross | 347,257 | 321,933 | 287,829 | 268,438 | 267,266 | |||||||||||||||
Impairment losses(1) | 20,557 | 20,242 | 15,409 | 16,435 | 15,233 | |||||||||||||||
Total Funding(2) | 519,664 | 497,513 | 434,620 | 434,502 | 425,209 | |||||||||||||||
Loans and advances to customers, net as a percentage of total funding(2) | 62.4 | % | 60.6 | % | 62.7 | % | 58.0 | % | 59.3 | % |
(*) | The average annual balance sheet data has been calculated based upon the average of the monthly balances at 13 dates: at December 31 of the prior year and for each of the month-end balances of the 12 subsequent months. |
(1) | Provision for impairment losses of loans and advances to customers. |
(2) | Total funding is the sum of financial liabilities at amortized cost, excluding |
The table below presents the reconciliation of our adjusted efficiency ratio to the most directly comparable IFRS financial measures for each of the periods presented.
As of and for the Year Ended December 31, | As of and for the Year Ended December 31, | |||||||||||||||||||||||||||||||||||||||
2019 | 2018 | 2017 | 2016 | 2015 | 2021 | 2020 | 2019 | 2018 | 2017 | |||||||||||||||||||||||||||||||
(in millions of R$, except as otherwise indicated) | (in millions of R$, except as otherwise indicated) | |||||||||||||||||||||||||||||||||||||||
Efficiency ratio | ||||||||||||||||||||||||||||||||||||||||
Administrative expenses | 16,942 | 16,792 | 16,121 | 14,920 | 14,515 | 17,316 | 17,115 | 16,942 | 16,792 | 16,121 | ||||||||||||||||||||||||||||||
Total income | 58,769 | 49,507 | 48,725 | 48,837 | 30,814 | 63,926 | 48,242 | 58,769 | 49,507 | 48,725 | ||||||||||||||||||||||||||||||
of which: | ||||||||||||||||||||||||||||||||||||||||
Gains (losses) on financial assets and liabilities (net) and exchange differences (net) | (326 | ) | (5,589 | ) | 1,574 | 7,591 | (9,918 | ) | (1,781 | ) | (11,703 | ) | (326 | ) | (5,589 | ) | 1,574 | |||||||||||||||||||||||
Efficiency ratio | 28.8 | % | 33.9 | % | 33.1 | % | 30.6 | % | 47.1 | % | 27.1 | % | 35.5 | % | 28.8 | % | 33.9 | % | 33.1 | % | ||||||||||||||||||||
Total Income | 58,769 | 49,507 | 48,725 | 48,837 | 30,814 | 63,926 | 48,242 | 58,769 | 49,507 | 48,725 | ||||||||||||||||||||||||||||||
Effects of the hedge for investments held abroad | 1,264 | 5,867 | 810 | 6,140 | (10,919 | ) | 2,512 | 13,583 | 1,264 | 5,867 | (810 | ) | ||||||||||||||||||||||||||||
Total income excluding effects of the hedge for investments held abroad | 57,505 | 43,640 | 47,915 | 42,697 | 41,733 | 66,438 | 61,825 | 60,033 | 55,374 | 47,915 | ||||||||||||||||||||||||||||||
Administrative expenses | 16,942 | 16,792 | 16,121 | 14,920 | 14,515 | 17,316 | 17,115 | 16,942 | 16,792 | 16,121 | ||||||||||||||||||||||||||||||
Efficiency ratio adjusted for effects of the hedge for investments held abroad | 29.5 | % | 38.5 | % | 33.6 | % | 34.9 | % | 34.8 | % | 26.1 | % | 27.7 | % | 28.2 | % | 30.3 | % | 33.6 | % |
15 |
Reconciliation of Non-GAAP Measures to Their Most Directly Comparable IFRS Financial Measures
The information in the table below presents the calculation of specified non-GAAP financial measures from each of their most directly comparable IFRS financial measures. Our calculation of these non-GAAP financial measures may differ from the calculation of similarly titled measures used by other companies. We believe that these non-GAAP financial measures supplement the GAAP information provided to investors regarding effects of the hedge for investments held abroad. The limitation associated with the exclusion of effects of the hedge for investments held abroad is that it has the effect
17
of excluding a portion of gains/losses on financial assets and liabilities (net) plus exchange differences (net) line item which is offset by excluding a portion in the Incomeincome tax line item. Accordingly, while we believe that the non-GAAP financial measures presented are useful to investors and support their analysis, the non-GAAP financial measures have important limitations as analytical tools, and investors should not consider them in isolation or as substitutes for analysis of our results as reported under GAAP measures including under IFRS.
As of and for the year ended December 31, | ||||||||||||||||||||
2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||
(in millions of R$, except as otherwise indicated) | ||||||||||||||||||||
Gains/losses on financial assets and liabilities (net) plus exchange differences (net) | (326 | ) | (5,589 | ) | 1,574 | 7,591 | (9,918 | ) | ||||||||||||
Effects on hedge for investment held abroad | 1,264 | 5,867 | 810 | (6,140 | ) | 10,919 | ||||||||||||||
Adjusted Gains/losses on financial assets and liabilities (net) plus exchange differences (net) | (938 | ) | (11,456 | ) | 764 | 1,451 | 1,001 | |||||||||||||
Total Income | 58,769 | 49,507 | 48,725 | 48,837 | 30,814 | |||||||||||||||
Effects on hedge for investment held abroad | 1,264 | 5,867 | 810 | 6,140 | (10,919 | ) | ||||||||||||||
Adjusted Total Income | 57,505 | 43,640 | 47,915 | 42,697 | 41,733 | |||||||||||||||
Operating profit before tax | 22,273 | 15,910 | 14,514 | 16,384 | (3,216 | ) | ||||||||||||||
Effects on hedge for investment held abroad | 1,264 | 5,867 | 810 | 6,140 | (10,919 | ) | ||||||||||||||
Adjusted Operating profit before tax | 21,009 | 10,043 | 13,704 | 10,244 | 7,703 | |||||||||||||||
Income Tax | (5,642 | ) | (3,110 | ) | (5,376 | ) | (8,919 | ) | 13,050 | |||||||||||
Effects on hedge for investment held abroad | (1,264 | ) | (5,867 | ) | (810 | ) | 6,140 | (10,919 | ) | |||||||||||
Adjusted Income tax | (6,906 | ) | (8,977 | ) | (6,186 | ) | (2,779 | ) | 2,130 | |||||||||||
Operating profit before tax – Commercial Banking | 18,375 | 12,397 | 11,220 | 12,652 | (5,565 | ) | ||||||||||||||
Effects on hedge for investment held abroad | 1,264 | 5,867 | 810 | 6,140 | (10,919 | ) | ||||||||||||||
Adjusted Operating Profit before tax – Commercial Banking | 17,111 | 6,530 | 10,411 | 6,512 | 5,354 |
As of and for the year ended December 31, | ||||||||||||||||||||
2021 | 2020 | 2019 | 2018 | 2017 | ||||||||||||||||
(in millions of R$, except as otherwise indicated) | ||||||||||||||||||||
Gains/losses on financial assets and liabilities (net) plus exchange differences (net) | (1,781 | ) | (11,703 | ) | (326 | ) | (5,589 | ) | 1,574 | |||||||||||
Effects on hedge for investment held abroad | 2,512 | 13,583 | 1,264 | 5,867 | 810 | |||||||||||||||
Adjusted Gains/losses on financial assets and liabilities (net) plus exchange differences (net) | (4,293 | ) | (25,286 | ) | (1,590 | ) | (11,456 | ) | 2,384 | |||||||||||
Total Income | 63,926 | 48,242 | 58,769 | 49,507 | 48,725 | |||||||||||||||
Effects on hedge for investment held abroad | 2,512 | 13,583 | 1,264 | 5,867 | (810 | ) | ||||||||||||||
Adjusted Total Income | 66,438 | 61,825 | 60,033 | 55,374 | 47,915 | |||||||||||||||
Operating income before tax | 24,750 | 9,664 | 22,273 | 15,910 | 14,514 | |||||||||||||||
Effects on hedge for investment held abroad | 2,512 | 13,583 | 1,264 | 5,867 | (810 | ) | ||||||||||||||
Adjusted Operating income before tax | 27,262 | 23,247 | 23,537 | 21,777 | 13,704 | |||||||||||||||
Income Tax | (9,191 | ) | 3,787 | (5,642 | ) | (3,110 | ) | (5,376 | ) | |||||||||||
Effects on hedge for investment held abroad | 2,512 | (13,583 | ) | (1,264 | ) | (5,867 | ) | 810 | ||||||||||||
Adjusted Income tax | (6,679 | ) | (9,796 | ) | (6,906 | ) | (8,977 | ) | (4,566 | ) | ||||||||||
Operating income before tax – Commercial Banking | 19,491 | 4,666 | 18,375 | 12,397 | 11,220 | |||||||||||||||
Effects on hedge for investment held abroad | 2,512 | 13,583 | 1,264 | 5,867 | 810 | |||||||||||||||
Adjusted Operating Income before tax – Commercial Banking | 22,003 | 18,249 | 19,639 | 18,264 | 12,030 |
Exchange Rates
The Brazilian foreign exchange system allows the purchase and sale of foreign currency and the international transfer ofreaisby any person or legal entity, regardless of the amount, subject to certain regulatory procedures.
Since 1999, the Brazilian Central Bank has allowed thereal/U.S. dollar exchange rate to float freely, which resulted in increasing exchange rate volatility. In the past,However, the Brazilian Central Bank has intervened occasionally to control high volatility in the foreignmoderate exchange rates.rate volatility. We cannot predict whether the Brazilian Central Bank or the Brazilian government will continue to permit thereal to float freely or will intervene in the exchange rate market through the return of a currency band system or otherwise. In the future, thereal may fluctuate substantially against the U.S. dollar.
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Furthermore, Brazilian law provides that, whenever there is a serious imbalance in Brazil’s balance of payments or there are compelling reasons to foresee a serious imbalance; temporary restrictions may be imposed on remittances of foreign capital abroad. Any such restrictions on remittances of foreign capital abroad may limit our ability to make distributions to holders of our American Depositary Receipts, or “ADRs”.“ADRs.” We cannot assure that such measures will not be taken by the Brazilian government in the future. Exchange rate fluctuations will affect the U.S. dollar equivalent of the price of our shares inreais on the São Paulo Stock Exchange, B3, S.A. – Brasil, Bolsa, Balcão, or “B3” as well as the U.S. dollar equivalent of any distributions we make with respect to our shares, which will be made exclusively inreais. Exchange rate fluctuations may also adversely affect our financial condition. For further information on these risks, see “—“Item 3. Key Information—D. Risk Factors—Risks Relating to Brazil and Macroeconomic Conditions in Brazil and Globally—Exchange rate volatility may have a material adverse effect on the Brazilian economy and on us.”
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The following tables set forth the selling rate, expressed inreais per U.S. dollar (R$/U.S.$), for the periods indicated:
Period-end | Average(1) | Low | High | ||
(per U.S. dollar) | |||||
Year: | |||||
2015 | 3.90 | 3.34 | 2.57 | 4.19 | |
2016 | 3.26 | 3.48 | 3.12 | 4.16 | |
2017 | 3.31 | 3.19 | 3.05 | 3.38 | |
2018 | 3.87 | 3.68 | 3.14 | 4.19 | |
2019 | 4.03 | 4.11 | 4.02 | 4.22 | |
Month Ended: | |||||
August 2019 | 4.15 | 4.03 | 3.84 | 4.17 | |
September 2019 | 4.16 | 4.12 | 4.06 | 4.19 | |
October 2019 | 4.02 | 4.09 | 3.99 | 4.18 | |
November 2019 | 4.24 | 4.16 | 3.99 | 4.26 | |
December 2019 | 4.03 | 4.11 | 4.02 | 4.22 | |
January 2020 | 4.28 | 4.15 | 4.02 | 4.28 | |
February 2020 | 4.50 | 4.34 | 4.24 | 4.50 | |
March 2020 (through March 5, 2020) | 4.62 | 4.53 | 4.49 | 4.62 |
Period-end | Average(1) | Low | High | |||||||||||||||
(per U.S. dollar) | ||||||||||||||||||
Year: | ||||||||||||||||||
2017 | 3.31 | 3.19 | 3.05 | 3.38 | ||||||||||||||
2018 | 3.87 | 3.68 | 3.14 | 4.19 | ||||||||||||||
2019 | 4.03 | 4.11 | 4.02 | 4.22 | ||||||||||||||
2020 | 5.20 | 5.16 | 4.02 | 5.94 | ||||||||||||||
2021 | 5.58 | 5.40 | 4.92 | 5.87 | ||||||||||||||
Month Ended: | ||||||||||||||||||
September 2021 | 5.44 | 5.28 | 5.16 | 5.44 | ||||||||||||||
October 2021 | 5.64 | 5.54 | 5.39 | 5.71 | ||||||||||||||
November 2021 | 5.62 | 5.56 | 5.41 | 5.67 | ||||||||||||||
December 2021 | 5.58 | 5.65 | 5.56 | 5.74 | ||||||||||||||
January 2022 | 5.36 | 5.53 | 5.36 | 5.70 | ||||||||||||||
February 2022 (through February 22, 2022) | 5.06 | 5.22 | 5.06 | 5.33 |
Source: Brazilian Central Bank.
(1) | Represents the average of the exchange rates at the close of each business day during the period. |
Our parent company, Santander Spain, reports its financial condition and operating results of operations in euros. As of December 31, 2019,2021, the exchange rate foreuro toreal was R$4.4097 6.3210 per €1.00.
3B. Capitalization and Indebtedness |
Not applicable.
3C. Reasons for the Offer and Use of Proceeds |
Not applicable.
3D. Risk Factors
This section is intended to be a summary of more detailed discussions contained elsewhere in this annual report. You should carefully read and consider the following risks, along with the other information included in this annual report on Form 20-F. The risks described below are not the only ones we face. Additional risks that we do not presently consider material, or of which we are not currently aware, may also affect us. Our business, results of operations or financial condition could be impacted if any of these risks materialize and, as a result, the market price of our Units and of our ADRs could be affected.
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Summary of Risk Factors
Summary of Risks Relating to Brazil and Macroeconomic and Political Conditions in Brazil and Globally
● | The Brazilian government has exercised significant influence over the Brazilian economy. The Brazilian government’s macroeconomic management strategies, as well as Brazilian political and economic conditions, could adversely affect us and the trading price of our securities. |
● | Inflation, government efforts to control inflation, and changes in interest rates may hinder the growth of the Brazilian economy and could have an adverse effect on us. |
● | Exposure to Brazilian federal government debt could have a material adverse effect on us. |
● | Fluctuations in interest rates and other factors may affect our obligations under legacy employee pension funds. |
● | Exchange rate volatility may have a material adverse effect on the Brazilian economy and on us. |
● | Infrastructure, labor force deficiency and other factors in Brazil may impact economic growth and have a material adverse effect on us. |
● | Disruption or volatility in global financial and credit markets could adversely affect the financial and economic environment in Brazil, which could have a material adverse effect on us. |
The below risks could materiallySummary of Risks Relating to the Brazilian Financial Services Industry and adversely affectedOur Business
● | The global COVID-19 pandemic has materially impacted our business, and the continuance of this pandemic or any future outbreak of any other highly contagious diseases or other public health emergency, could materially and adversely impact our business, financial condition, liquidity and results of operations. |
● | The strong competitive environment in the Brazilian financial services market may adversely affect us, including our business prospects. |
● | We may not be able to detect or prevent money laundering and other criminal activities fully or on a timely basis, which could expose us to additional liability and could have a material adverse effect on us. |
● | We are subject to increasing scrutiny and regulation from data protection laws. Failure to protect personal information could adversely affect us. |
● | We are exposed to risk of loss from legal and regulatory proceedings. |
● | Disclosure controls and procedures over financial reporting may not prevent or detect all errors or acts of fraud. |
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● | Changes in taxes and other fiscal assessments may adversely affect us. Furthermore, we are subject to review by tax authorities, and an incorrect interpretation by us of tax laws and regulations may have a material adverse effect on us. |
● | Our loan and investment portfolios are subject to risk of prepayment, which could have a material adverse effect on us. |
● | The credit quality of our loan portfolio may deteriorate and our loan loss reserves could be insufficient to cover our loan losses, which could have a material adverse effect on us. |
● | Liquidity and funding risks are inherent in our business, and since our principal sources of funds are short-term deposits, a sudden shortage of funds could cause an increase in costs of funding and an adverse effect on our revenues and our liquidity levels. |
● | The value of the collateral securing our loans may not be sufficient, and we may be unable to realize the full value of the collateral securing our loan portfolio. We may face significant challenges in possessing and realizing value from collateral with respect to loans in default. |
● | We may not effectively manage risks associated with the replacement or reform of benchmark indices. |
● | Failure to successfully implement and continue to improve our risk management policies, procedures and methods, including our credit risk management system, could materially and adversely affect us, and we may be exposed to unidentified or unanticipated risks. |
● | Failure to adequately protect ourselves against risks relating to cybersecurity could materially and adversely affect us. We are also subject to increasing scrutiny and regulation governing cybersecurity risks. |
● | We are subject to counterparty risk in our business. |
● | Our financial results are constantly exposed to market risk. We are subject to fluctuations in interest rates and other market risks, which may materially and adversely affect us. |
● | We engage in transactions with related parties that others may not consider to be on an arm’s- length basis. |
● | Our business is highly dependent on the proper functioning of information technology systems. |
Summary of Risks Relating to Our Controlling Shareholder, Our Units and operational state of our Company, and as result, could impact the investment of our shareholders.American Depositary Receipts (ADRs)
● | Our ultimate controlling shareholder has a great deal of influence over our business and its interests could conflict with ours. |
● | Our status as a controlled company and a foreign private issuer exempts us from certain of the corporate governance standards of the NYSE, limiting the protections afforded to investors. Furthermore, our corporate disclosure may differ from disclosure regularly published by issuers of securities in other countries, including the U.S. |
● | The liquidity and market prices of the units and the ADRs may be adversely affected by the cancellation of units or substantial sale of units and shares in the market, or by the relative volatility and limited liquidity of the Brazilian securities markets. |
● | The relative volatility and limited liquidity of the Brazilian securities markets may negatively affect the liquidity and market prices of the units and the ADRs. |
● | Holders of our units and our ADRs may not receive any dividends or interest on stockholders’ equity, may be unable to exercise preemptive rights with respect to our units underlying the ADRs, and may find it difficult to exercise voting rights at our shareholders’ meetings. |
● | Investors may find it difficult to enforce civil liabilities against us, our directors or officers. In addition, judgments of Brazilian courts with respect to our units or ADRs will be payable only in reais. |
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● | Holders of ADRs could be subject to Brazilian income tax on capital gains from sales of ADRs. Furthermore, if you exchange your ADRs for their underlying Units, you risk losing Brazilian tax advantages and the ability to remit foreign currency abroad. |
Risks Relating to Brazil and Macroeconomic and Political Conditions in Brazil and Globally
The COVID-19 pandemic has had, and is expected to continue to have, a negative impact on global, regional and Brazilian economies, and we would be materially adversely affected by a protracted economic downturn.
The COVID-19 pandemic added a new source of uncertainty to global economic activity and it has had, and is expected to continue to have, a negative impact on global, regional and national economies and to disrupt supply chains and reduce international trade and business activity. New variants of the virus have emerged against which existing vaccines and acquired immunity may not be effective. Restrictions will likely remain in place, suppressing activity, if the contagion does not subside. The materialization of these risks has affected global growth and may decrease investors’ interest in assets from Brazil, which has adversely affected the market price of our securities, possibly making it more difficult for us to access capital markets and, as a result, to finance our operations in the future.
The current COVID-19 pandemic and its potential impact on the global economy may affect our ability to meet our financial targets. A continued downturn in local, regional or global economic conditions may adversely affect our business, results of operations and financial condition.
The Brazilian government has exercised significant influence over the Brazilian economy. The Brazilian government’s macroeconomic management strategies, as well as Brazilian political and economic conditions, could adversely affect us and the trading price of our securities.
The Brazilian government has frequently intervened in the Brazilian economy and has on occasion made significant changes in policy and regulations. In the past, the Brazilian government has adopted measures, including, among others, changes in regulations, price controls, capital controls, changes in the exchange rate regime, and limitations on imports, which have affected Brazilian asset prices. Recently, the Brazilian government has adopted measures, including changes in tax policies, and constraints that have affected Brazilian asset prices and the trading price of our securities.
We and the trading price of our securities may be adversely affected by changes in policy, laws or regulations at the federal, state and municipal levels involving or affecting factors such as:
interest rates; |
currency volatility; |
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inflation; |
reserve requirements; |
capital requirements; |
liquidity of capital and lending markets; |
non-performing loans; |
tax policies; |
the regulatory framework governing our industry; |
exchange rate controls and restrictions on remittances abroad; and |
other political, social and economic developments in or affecting Brazil. |
Uncertainty over whether the Brazilian government will implement changes in policy or regulation, createsas well as uncertainties related to the 2022 Brazilian presidential election, create instability in the Brazilian economy, increasing the volatility of the Brazilian securities markets, which may have an adverse effect on us and our securities. Recent economic and political instability has led to a negative perception of the Brazilian economy and higher volatility in the Brazilian securities markets, which also may adversely affect us and our securities. The overall trend of the Brazilian political and economic arenas may also affect the business of the Brazilian financial industry.
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We are not able to fully estimate the impact of global and Brazilian political and macroeconomic developments and economic regulatory policy changes on our business and lending activity, nor are we able to predict how current or future measures implemented by regulatory policy-makerspolicymakers may impact our business. In addition, due to the current political instability, there exists substantial uncertainty regarding future economic policies and we cannot predict what policies will be adopted by the Brazilian government and whether these policies will negatively affect the economy or our business or financial performance. Any changes in regulatory capital requirements for lending, reserve requirements, or product and service regulations, among others, or continued political uncertainty may materially adversely affect our business.
Political instability in Brazil may adversely affect Brazil’s economy and investment levels, and have a material adverse effect on us.
Brazil’s political environment has historically influenced, and continues to influence, the performance of the country’s economy by impacting the confidence of investors and the general public, which has historically resulted in economic deceleration and heightened volatility in the securities issued by Brazilian companies.
In recent years, there has been significant political turmoil in connection with the impeachment of the former president (who was removed from office in August 2016) and ongoing investigations of her successor (who left office in January 2019) as part of the ongoingLava Jato investigations.
There are uncertainties regarding the ability of the current government to implement policies and reforms, as well as external perception regarding the Brazilian economy and political environment, all of which could have a negative impact on our business and the price of our securities. In addition, a tax reform proposed in 2021 that has not been voted on, suggests the revocation of the income tax exemption on the payment of dividends, which, if enacted, would increase the tax expenses associated with any dividend or distribution by Brazilian companies, could impact our capacity to receive future cash dividends or distributions net of taxes from our subsidiaries. Any such new policies or changes to current policies may have a material adverse effect on us.
Furthermore, Brazil’s federal budget has been in deficit since 2014. Similarly, the governments of Brazil’s constituent states are also facing fiscal concerns due to their high debt burdens (particularly following the COVID-19 pandemic and the need for the Brazilian government to fund extensive economic relief programs), declining revenues and inflexible expenditures.
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Uncertainty about the Brazilian government’s implementation of changes in policies or regulations that affect such implementation, as well as uncertainty arising from the 2022 Presidential election, may contribute to economic instability in Brazil and increase the volatility of securities issued abroad by Brazilian companies, including our securities.
Ongoing investigations relating to corruption and diversion of public funds that are being conducted by the Brazilian federal police as well as other Brazilian and non-Brazilian regulators and law enforcement officials may adversely affect the growth of the Brazilian economy and could have a material adverse effect on us.
Certain Brazilian companies active in the oil and gas, energy, construction, and infrastructure sectors are facinghave faced investigations by the CVM, the U.S. Securities and Exchange Commission, or the “SEC,” the U.S. Department of Justice, the Brazilian Federal Police and the Brazilian Federal Prosecutor’s Office, the Comptroller General of Brazil, and other relevant governmental authorities, in connection with corruption allegations (theLava Jato investigations). The Brazilian Federal Police insare also investigating allegations of improper payments made by Brazilian companies to officials of the Board of Tax Appeals (Conselho Administrativo de Recursos Fiscais), or “CARF”,“CARF,” a tax appeals tribunal (the so-calledOperação Zelotes)Zelotes). It is alleged that the purpose of such improper payments was to induce those officials to reduce or waive certain tax-related penalties imposed by the Brazilian Federal Revenue Authority, which were under appeal in the CARF. Such investigations involve and/or involved several companies and individuals, including representatives of various companies, politicians and third parties. Certain of these individuals are being investigated by the Brazilian Federal Police and others were formally charged and are facing criminal proceedings and/or have already been convicted by the Brazilian Federal Courts.
Depending on the duration and outcome of such investigations, the companies involved may face a reduction in their revenues, downgrades from rating agencies or funding restrictions, among other negative effects. Given the significance of the companies cited in these investigations in the Brazilian economy, the investigations and their fallout have had an adverse effect on Brazil’s economic growth prospects in the near short to medium term.
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Furthermore, the negative effects on such companies and others may also impact the level of investments in infrastructure in Brazil, which may lead to lower economic growth or contraction in the near to medium term (accordingterm. According to data from the IBGE, the Brazilian economy’s gross domestic product, or “GDP,” contracted by 3.3% in 2016, butthen increased by 1.3% in 2017, and1.8% in 2018 and 1.1%1.2% in 2019)2019. In 2020, Brazilian GDP contracted by 3.9% as a result of the adverse macroeconomic effects of COVID-19 pandemic. In 2021, Brazilian GDP is estimated to have increased by 4.6%. In addition, although we have reduced our exposure to companies involved in theLava Jato and other government investigations, we cannot assure that new investigations will not be launched or that additional persons will not become subject to investigation. To the extent that the repayment ability of these companies is hampered by any fines and/or other sanctions that may be imposed upon them or reputational or commercial damage as a result of the Lava Jato investigations, we may also be materially adversely affected.
As a result of the allegations under theLava Jato investigations and the economic downturn, Brazil was downgraded to non-investment grade status by SStandard & Poor's, or “S&P,” in September 2015, by Fitch Ratings, or “Fitch,” in December 2015, by Moody’s Investor Service, or “Moody’s,” in February 2016, and downgraded again by Fitch in May 2016. In addition, Brazil was further downgraded by S&P to BB- with a stable outlook in January 2018 as a result of the failure of the prior Brazilian government to approve certain reforms.reforms, Brazil’s sovereign rating is currently rated by the three major risk-ratingrisk- rating agencies as follows: BB- by S&P (stable outlook) and Fitch (negative outlook) and Ba2 by Moody’s.Moody’s (stable outlook). Further downgrading of Brazil’s credit rating could reduce the trading price of units and ADRs. Various major Brazilian companies were also downgraded. Such downgrades have further worsened the conditions of the Brazilian economy and the condition of Brazilian companies, especially those relying on foreign investments. In addition, theLava Jatoinvestigations have also reached members of the executive and legislative branches of the Brazilian government, which has caused considerable political instability, and, as a result, persistently poor economic conditions in Brazil could have a material adverse effect on us. It is difficult to predict the effects of such political instability, which may include further deteriorations in Brazil’s economic conditions.
Inflation, government efforts to control inflation, and changes in interest rates may hinder the growth of the Brazilian economy and could have an adverse effect on us.
The Brazilian government’s measures to fight inflation, principally through the Brazilian Central Bank, that have had significant effects on the Brazilian economy and our business, and can continue to do so. Tight monetary policies with high compulsory reserve requirements may restrict Brazil’s growth and the availability of credit, reduce our loan volumes, and increase our loan loss provisions. Conversely, less strict government and Brazilian Central Bank policies and interest rate decreases may trigger increases in inflation, and, consequently, growth volatility and the need for sudden and significant interest rate increases, which could negatively affect our spreads.
In DecemberThe SELIC rate had been on a downward trend since mid-2016. The SELIC rate reached a high as 14.25% as of October, 2016, before decreasing to 13.75% p.a. by the end of 2016. The SELIC rate fell further to 7.00% p.a. by the end of 2017, and to 6.50% p.a. in March 2018. The SELIC rate remained at this level until June 2019, when it resumed its downward trend, ending 2019 at 4.50% p.a. As a result of the negative economic impact of the COVID-19 pandemic, the SELIC rate (the basic interest ratecontinued to fall during 2020, and reached a historical low of 2.00% p.a. by the end of the year and remained at that level until mid-March 2021, when it reached 2.75%. As a result of inflationary pressures that have arisen in Brazil) was lowered to 13.75%,Brazil and globally in January 2017, the SELIC rate was further lowered to 13.0%,late 2021 and to 12.25% in February 2017. In May 2017, the Monetary Policy Committee (Comitê de Política Monetária) ofearly 2022, the Brazilian Central Bank or “COPOM”, decided to lowerstarted tightening monetary policy: the SELIC rate to 10.25%, then lowering it toreached 6.25% p.a. in late September 2021, 7.75% p.a. in late October 2021, 9.25% in July 2017, to 7.50% in October 2017 and to 7.0%p.a. in December 2017. In2021, and reached 10.75% p.a. in February 2018,2022. As of the COPOM lowereddate of this annual report, the SELIC rate to 6.75% and then to 6.50% in March 2018 and kept throughout the year 2018. In 2019, the
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COPOM continued this trend for the first half of the year until August 2019, when the rate was lowered to 6.00%, and then successively lowered further to 5.50% in September 2019, 5.00% in October 2019 and 4.50% in December 2019. In February 2020, the COPOM cut the SELIC rate to 4.25%.
is 10.75% p.a..
The majority of our income, expenses, assets and liabilities are directly tied to interest rates. Therefore, our results of operations and financial condition are affected by inflation, interest rate fluctuations and related government monetary policies, all of which may materially and adversely affect the growth of the Brazilian economy, our loan portfolios, our cost of funding and our income from credit operations. We estimate that, in 2019,2021, a 1.0% increase or decrease in the basicbase interest rate would have resulted in a decrease or increase, respectively, in our net interest income of R$334553 million. Any changes in interest rates may negatively impact our business, financial condition and results of operations. In addition, increases in base interest rates may adversely affect us by reducing the demand for our credit and investment products, increasing funding costs, and increasing in the short run the risk of default by our customers.
Inflation adversely affects our personnel and other administrative expenses that are directly or indirectly tied to inflation indexes, generallysuch as the consumer price index (Índice de Preços ao Consumidor – Amplo), or “IPCA,”IPCA, and the general index of market prices (Índice Geral de Preços-Mercado), or “IGPM.”IGP-M. For example, considering the amounts in 2019,2021, each additional percentage point change in inflation would impact our personnel and other administrative expenses by approximately R$9390 million and R$7683 million, respectively.
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Inflation, has increased duringas measured by the IPCA, reached 4.52% in 2020, compared to 4.31% in 2019, reaching 4.31% for the 12-month period ending December 31, 2019 (compared to 3.75% in 2018),mainly as a result of temporary supply shocks affecting the current market conditions.prices of foodstuff items. These inflationary pressures have persisted in 2021 and have also been compounded by additional ones, including climate events that hit electricity generation and led to an increase in energy prices, disruption in supply chains and the depreciation of the real, among others. As a result, inflation as measured by the IPCA reached 10.06% in 2021, significantly above the target of 3.75% set for the period.
Inflation, government measures to curb inflation, and speculation related to possible measures regarding inflation may significantly contribute to uncertainty regarding the Brazilian economy and weaken investors’ confidence in Brazil. Future Brazilian governmental actions, intervention in the foreign exchange market, and actions to adjust or fix the value of thereal,, may trigger increases in inflation and adversely affect the performance of the Brazilian economy as a whole. Any of these actions may adversely affect our asset quality. Furthermore, Brazil’s high rate of inflation, compounded by high and increasing interest rates, declining consumer spending and increasing unemployment, may have a material adverse impact on the Brazilian economy as a whole, as well as on us.
Exposure to Brazilian federal government debt could have a material adverse effect on us.
We invest in Brazilian federal government sovereign bonds. As of December 31, 2019,2021, approximately 17.8%18.4% of our total assets, and 78.4%76.1% of our securities portfolio, consisted of debt securities issued by the Brazilian federal government. Any failure by the Brazilian Government to make timely payments under the terms of these securities, or a significant decrease in their market value, will have a material adverse effect on us.
Fluctuations in interest rates and other factors may affect our obligations under legacy employee pension funds.
We sponsor defined benefit pension plans and a healthcare plan thatfor former and current employees, most of which were inherited from Banespa (though we discontinued the use of defined benefit pension plans for our employees in 2005).
In order to determine the funded status of each legacy defined benefit pension plan and, consequently, the carried reserves necessary to pay future beneficiaries, we use certain actuarial techniques and assumptions, which are inherently uncertain and involve the exercise of significant judgment, including with respect to interest rates, which are a key assumption in determining our current obligations under the legacy pension plans. For further information, refer tosee note 2221 to our audited consolidated financial statements.statements included elsewhere in this annual report.
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Changes in the present value of our obligations under our legacy defined benefit pension plans could require us to increase contributions, which would divert resources from use in other areas of our business. Any such increase may be due to factors over which we have no or limited control. Increases in our pension liabilities and obligations could have a material adverse effect on our business, financial condition and results of operations.
DecreasesIncreases in interest rates can increasedecrease the present value of obligations under our legacy defined benefit pension plans and may materially and adversely affectlifetime medical assistance plan. Therefore, in 2021, there were two factors that contributed to the funded statusreduction of our legacy defined benefit plansprovisions when compared to 2020: first, increases in interest rates, and require ussecondly, the greater-than-average profitability of investments indexed to make additional contributions to these plans to meet our pension funding obligations.the IGP-M.
As of December 31, 2019, we had2021, our provisions for pensions and similar obligations totaled R$2.7 billion (out of total provisions for legal and administrative proceedings, commitments, pensions and other obligations in the amountmatters of R$16 million. See more11.6 billion). For additional information, insee note 2321 to our audited consolidated financial statements included in this annual report.
Exchange rate volatility may have a material adverse effect on the Brazilian economy and on us.
The Brazilian currency has experienced frequent and substantial variations in relation to the U.S. dollar and other foreign currencies. The Brazilian government has implemented various economic plans and used various exchange rate policies, including sudden devaluations, periodic mini-devaluations (during which the frequency of adjustments has ranged from daily to monthly), exchange controls, dual exchange rate markets and a floating exchange rate system.
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Although long-term depreciation of therealis generally linked to the rate of inflation in Brazil, depreciation of therealoccurring over shorter periods of time has resulted in significant variations in the exchange rate among thereal,, the U.S. dollar and other currencies. FromAs a result of fluctuations in commodity prices, international developments and periods of progress and setbacks on the domestic front—such as during the presidential impeachment process in 2016, or the approval of the national pension system reform in 2019—the real has weakened over the last few years. After having ended 2013 to 2014, thereal depreciated against the U.S. dollar due to a decrease in commodities prices, reachingwith an exchange rate of R$2.34 per U.S.$1.00, on December 31, 2013 andthe real/U.S. dollar exchange rate was R$2.65 per U.S.$1.00 on December 31, 2014. During 2015, due2014, depreciating further to the poor economic conditions in Brazil, including as a result of political instability, thereal devalued at a much higher rate than in previous years. On September 24, 2015, thereal depreciated to R$4.20 per U.S.$1.00. Overall, in 2015, thereal depreciated 47% against the U.S. dollar, reaching R$3.91 per U.S.$1.00 on December 31, 2015. In 2016,Despite the instability caused by a change in the country’s presidency, the real faced continuing fluctuations, primarily as a result of Brazil’s political instability, but had appreciated 17.0% year-over-year against the U.S. dollar as of December 31, 2016 to R$3.26 per U.S.$1.00. In 2017, therealremained relatively stable against the U.S. dollar, with an exchange rate of R$3.31 per U.S.$1.00 as of December 31, 2017. In 2018, thereal2017, but continued to depreciate againstin the U.S. dollar with the exchange ratefollowing years, reaching R$3.883.87 per U.S.$1.00 as of December 31, 2018. In 2019, thereal continued to depreciate against the U.S. dollar, with the exchange rate reaching2018, and R$4.03 per U.S.$1.00 as of December 31, 2019. On March 5,In 2020, in response to the turbulence and uncertainty caused by the COVID-19 pandemic, the real depreciated significantly against the U.S.$ dollar, but finished the year at R$5.20 per U.S.$1.00. In 2021, the fallout of the COVID-19 pandemic continued to weigh on the performance and prospects of the Brazilian economy. The adverse economic effects of the COVID-19 pandemic have led to pressure on the Brazilian government to increase its support for the economy, which has led it to increase its already high indebtedness. Along with an ongoing perception that the Brazilian government could continue such support and further increase its indebtedness, this has led to a depreciation of the real. As of December 31, 2021, the exchange rate was R$4.505.58 per U.S.$1.00. There can be no assurance that therealwill not substantially depreciate or appreciate further against the U.S. dollar.
In the year ended December 31, 2019,2021, a variation of 1.0% in the exchange rate ofreais to U.S. dollars would have resulted in a variation of income on our net foreign exchange position denominated in U.S. dollars of R$1,2641.17 million.
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Depreciationdepreciation of thereal relative to the U.S. dollar has created additional inflationary pressures in Brazil, which has led to increases in interest rates and limited Brazilian companies’ access to foreign financial markets and prompted the adoption of recessionary policies by the Brazilian government. Depreciation of therealmay also, in the context of an economic slowdown, lead to decreased consumer spending, deflationary pressures and reduced growth of the Brazilian economy as a whole, and thereby harm our asset base, financial condition and results of operations. Additionally, depreciation of therealcould make our foreign-currency-linked obligations and funding more expensive, negatively affect the market price of our securities portfolios, and have similar consequences for our borrowers. Conversely, appreciation of therealrelative to the U.S. dollar and other foreign currencies could lead to a deterioration of the Brazilian balance of payments, as well as dampenhinder export-driven growth. Depending on the circumstances, either a depreciation or appreciation of therealcould materially and adversely affect the growth of the Brazilian economy and our business, financial condition and results of operations.
Infrastructure, workforce deficiency and other factors in Brazil may impact economic growth and have a material adverse effect on us.
Our performance depends on the overall health and growth of the Brazilian economy. Brazilian gross domestic product, or “GDP”“GDP,” growth has fluctuated over the past few years, with a contraction of 3.5%3.3% in 2016 andfollowed by a three-year streak of growth of 1.0% and 1.1% in 2017 (1.3%), 2018 (1.8%) and 2018, respectively,2019 (1.2%). In 2020, the Brazilian GDP contracted by 3.9% as a result of the effects of the COVID-19 pandemic, and a growthdespite the significant economic support measures put in place by the Brazilian government (although it is believed that these measures averted an even stronger contraction).We estimate that Brazilian GDP increased by 4.6% in 2021 due to the extension of 1.0%income supports programs and the relaxation of certain mobility restrictions that allowed some businesses to resume their activities (e.g., after having contracted by 3.9% in 2019.2020, we estimate that the services sector increased by 4.8% in 2021). Growth ishas been limited by the lack of private and public investments, resulting in potential energy shortages and deficient transportation, declining logistics and telecommunication sectors, and a lack of a qualified labor force. In addition, the growth and performance of the Brazilian economy may be impacted by other factors such as nationwide strikes, natural disasters or other disruptive events. Additionally, travel restrictions or potential impacts on personnel due to the COVID-19 pandemic may disrupt our business and adversely affect the financial condition of our customers. Any of these factors could lead to labor market volatility and generally impact income, purchasing power and consumption levels, which could limit growth, increase delinquency rates and ultimately have a material adverse effect on us.
Developments and the perception of risk in other countries may adversely affect the Brazilian economy and market price of Brazilian issuers’ securities.
The market value of securities of Brazilian issuers is affected by economic and market conditions in other countries, including the United States, European countries (including Spain, where Santander Spain, our controlling shareholder, is based), and in other Latin American and emerging market countries. Although economic conditions in Europe and in the United States may differ significantly from economic conditions in Brazil, investors’ reactions to developments in these countries may have an adverse effect on the market value of securities of Brazilian issuers. In particular, investor perceptions of the risks associated with our securities may be affected by perception of risk conditions in Spain. Additionally, crises in other emerging market countries may diminish investor interest in securities of Brazilian issuers, including our securities. This could adversely affect the market price of our securities, restrict our access to capital markets and compromise our ability to finance our operations in the future on favorable terms, or at all.
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In 2019, 20182021, 2020 and 2017,2019, there was an increase in volatility in all Brazilian markets due to, among other factors, uncertainties about how monetary policy adjustments in the United States would affect the international financial markets and the increasing risk aversion to emerging market countries. In 2021 and 2020, the fallout of the COVID-19 pandemic has also affected the performance of Brazilian markets. These uncertainties adversely affected us and the market value of our securities.
In addition, we continue to be exposed to disruptions and volatility in the global financial markets because of their effects on the financial and economic environment, particularly in Brazil, such as a slowdown in the economy, an increase in the unemployment rate, a decrease in the purchasing power of consumers and the lack of credit availability. We lend primarily to Brazilian borrowers, and these effects could materially and adversely affect our customers and increase our non-performing loans, resulting in increased risk associated with our lending activity and requiring us to make corresponding revisions to our risk management and loan loss reserve models.
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A global economic downturn could have a material adverse effect on us.
The global macroeconomic environment is facing challenges, including the economic slowdown in China andsetbacks derived from the Eurozone, the end of funding by the U.S. Federal Reserve, the uncertain impact of Brexit and potential adoption of U.S. tariffs on steel imported from Brazil and Argentina.COVID-19 pandemic. There is considerable uncertainty over the long-term effects of the expansionary monetary and fiscal policies adopted by the central banks and financial authorities of some of the world’s leading economies, including the United States.
Pandemics, epidemics or outbreaks of infectious diseases can have an adverse effect on the global market and economy, as well as on our operations. Historically, some epidemics and regional or global outbreaks, such as Zika virus, Ebola virus, H5N5 virus (popularly known as avian influenza), foot-and-mouth disease, H1N1 virus (influenza A, popularly known as swine flu), middle east respiratory syndrome (MERS) and severe acute respiratory syndrome (SARS) have affected certain sectors of the economy in the countries where these diseases have spread.
On March 11, 2020, World Health Organization, or “WHO,” declared that the COVID-19 epidemic rose to the level of a pandemic. This declaration triggered severe measures by government officials around the world with the aim of controlling the spread of COVID-19, including restrictions on the flow of people, with limitations on travel, use of public transport, quarantines and lockdowns, prolonged closure of commercial establishments, interruptions in the supply chain and reduction of consumption in general. These measures, combined with the uncertainties caused by the COVID-19 pandemic, had an adverse impact on the economy and the global capital market, including Brazil, including causing eight circuit breakers in B3 negotiations throughout March 2020. The price of most of the assets traded on B3 was adversely affected due to the COVID-19. Impacts similar to these may reoccur, causing the prices of securities traded on the B3 to fluctuate.
In addition, any material changes in the economy and the global capital market, including Brazil, may decrease the interest of investors in Brazilian assets, including our ADRs, which may adversely affect the market price of our securities, in addition to making it difficult for us to access the capital markets and finance our operations, including on acceptable terms.
There have also been concerns over conflicts, unrest and terrorist threats in the Middle East, Europe and Africa, which have resulted in volatility in oil and other markets. The United States and China have recently been involved in controversy over trade barriers in China that threatened a trade war between the countries and have implemented or proposed to implement tariffs on certain imported products. Sustained tension between the United States and China over trade policies could significantly undermine the stability of the global economy. In 2022, the military conflict between the Russian Federation and Ukraine is contributing to further increases in the prices of energy, oil and other commodities and to volatility in financial markets globally, as well as a new landscape in relation to international sanctions. It is unclear whether these challenges and uncertainties will be contained or resolved, and what effects they may have on the global political and economic conditions in the long term.
In addition, on January 31, 2020, the UK ceased to be a member of the EU, on withdrawal terms that established a transition period until December 31, 2020. During the transition period, the UK continued to be treated as an EU member state and applicable EU legislation continued to be in force. A trade deal was agreed between the UK and the EU prior to the end of the transition period and the new regulations came into force on January 1, 2021. Uncertainty remains around the terms of the UK’s relationship with the European Union and the lack of a fully comprehensive trade agreement may negatively impact the economic growth of both regions. Similarly, an adverse effect on the UK and the European Union may have an adverse effect on the wider global economy or market conditions and investor confidence. This could, in turn, have a material adverse effect on our operations, financial condition and prospects and/or the market value of our securities.
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Moreover, the risk of returning to a fragile and volatile environment and to heightened political tensions in Europe exists if, among others, the policies implemented to provide relief to the economies most affected by the COVID-19 pandemic do not succeed, the reforms aimed at improving productivity and competition fail, the banking union and other measures of European integration do not take hold or anti-European groups become more widespread. A deterioration of the economic and financial environment in Europe could have a material adverse impact on the global economy, affecting our operating results, financial position and prospects. In addition, growing protectionism and trade tensions, such as the tensions between the United States and China in recent years, could have a negative impact on the global economy, which would also impact our operating results, financial condition and prospects.
Any slowdown or instability in the global economy could impact income, purchasing power and consumption levels in Brazil, among other things, which could limit growth, increase delinquency rates and ultimately have a material adverse effect on us while also creating a more volatile economy, limiting potential access to capital and liquidity. In addition, any global economic slowdown or uncertainty may result in volatile conditions in the global financial markets, which could have a material adverse effect on us, including on our ability to access capital and liquidity on financial terms acceptable to us, if at all. Any such adverse effect on capital markets funding availability or costs or in deposit rates could have a material adverse effect on our interest margins and liquidity.
Disruption or volatility in global financial and credit markets could adversely affect the financial and economic environment in Brazil, which could have a material adverse effect on us.
Volatility and uncertainty in global financial and credit markets have generally led to a decrease in liquidity and an increase in the cost of funding for Brazilian and international issuers and borrowers. Such conditions may adversely affect our ability to access capital and liquidity on financial terms acceptable to us, if at all.
Part of our funding originates from repurchase agreements which are generally short-term and volatile in terms of volume, as they are directly impacted by market liquidity. As these transactions are typically guaranteed by Brazilian government securities, the value and/or perception of value of the securities may significantly impact the availability of funds, as the cost of funding will increase if the quality of the Brazilian government securities used as collateral is adversely affected as a result of conditions in financial and credit markets, making this source of funding inefficient for us.
If the size and/or liquidity of the Brazilian government bond and/or repurchase agreement markets decrease, or if there is increased collateral credit risk and we are unable to access capital and liquidity on financial terms acceptable to us or at all, our financial condition and the results of our operations may be adversely affected.
The exit of the United Kingdom (the “UK”) from the European Union (the “EU”) and the definition of its future relationship with the EU could adversely impact global economic or market conditions, as well as our operations, financial condition and prospects.
On 31 January 2020 the UK ceased to be a member of the EU on withdrawal terms which establish a transition period until 31 December 2020 during which the UK will be treated as if it were still a member of the European Union. Although the withdrawal agreement foresees the possibility to extend the transition period for one or two more years after the 31 January 2020, this is not automatic and the UK has enshrined the 31 December 2020 date in domestic legislation passing the withdrawal agreement as the end of the transition period, signaling a current desire not to extend it. Uncertainly remains around the terms of the UK's relationship with the EU at the end of the transition period. If the transition period were to end without a comprehensive trade agreement, the UK’s and Europe’s
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economic growth may be negatively impacted. The uncertainty regarding and terms of the UK’s future relationship with the EU, as well as any adverse effect which it may have on the UK, the EU and the wider global economy could adversely affect global economic or market conditions and investor confidence. This could, in turn, have a material adverse effect on our operations, financial condition and prospects and/or the market value of our securities.
Our operations and results may be negatively impacted by the coronavirus outbreak.
Global or national health concerns, including the outbreak of pandemic or contagious disease, such as the recent coronavirus, may adversely affect us.
Since December 2019, a novel strain of coronavirus has spread in China and other countries. Such events could cause disruption of regional or global economic activity, which could affect our operations and financial results. The extent to which the coronavirus impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the coronavirus and the actions to contain the coronavirus or treat its impact, among others.
Risks Relating to the Brazilian Financial Services Industry and Our Business.Business
The global COVID-19 pandemic has materially impacted our business, and the continuance of this pandemic or any future outbreak of any other highly contagious diseases or other public health emergency, could materially and adversely impact our business, financial condition, liquidity and results of operations.
Climate change can create transition risks, physical risksHealth and safety restrictions adopted in 2020 and 2021 to contain the impact of the COVID-19 pandemic, including imposing mass quarantines, shelter-in-place orders, medical screenings, travel restrictions and limiting public gatherings, resulted and many continue to result in a severe decrease of global economic activity and decreases in production and demand, which led to sharp declines in the GDP of those countries that were most affected by the pandemic, including Brazil. Some of these measures remained in force as of the date of this annual report. Other consequences included increased unemployment levels, sharp decreases and high volatility in the stock markets, disruption of global supply chains, exchange rate volatility, steady customer draws on lines of credit, decline in real estate prices, and uncertainty in relation to the future impact in regional and global economies in the medium and long term. These measures have also negatively impacted, and could continue to negatively impact, businesses, market participants, our counterparties and customers, and the global economy for a prolonged period of time.
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Many governments and regulatory authorities, including central banks, have acted, and may further act, to provide relief from the economic and market disruptions resulting from the COVID-19 pandemic, including providing fiscal and monetary stimuli to support the global economy, lowering federal funds rates and interest rates, and granting partial or total deferral (grace period) of principal and/or interest payments due on loans. Furthermore, it is unclear how the macroeconomic business environment or societal norms may be impacted after the pandemic. The post-COVID-19 environment may undergo unexpected developments or changes in the financial markets, fiscal, tax and regulatory environments as well as customer and corporate client behavior which could have an adverse impact on our business.
It is difficult to predict how effective these and other measures taken to mitigate the economic effects of the pandemic will be. For more information on the measures taken by the Brazilian Central Bank to combat the COVID-19 pandemic, see “Item 4. Information on the Company—B. Business Overview—Regulation and Supervision—Other Applicable Laws and Regulations—Regulatory Developments Related to COVID-19.”
In 2021, high vaccination rates in many countries and a progressive relaxation of health and safety restrictions, together with the fiscal and monetary policy measures implemented, contributed to an increase in employment levels and recovery of the global economy generally, with some variations across sectors and geographies. However, the pandemic remains dynamic and the emergence of variants resistant to existing vaccines remains uncertain. In addition, certain adverse consequences of the pandemic continue to impact the macroeconomic environment and may persist for some time, including labor shortages and disruptions of global supply chains, that are contributing to rising inflationary pressures.
If new COVID-19 waves or variants of the virus force countries to re-adopt measures that restrict economic activity, the macroeconomic environment could deteriorate and adversely impact our business and results of operations, which could include, but is not limited to (i) a continued decreased demand for our products and services; (ii) protracted periods of lower interest rates and resulting pressure on our margins; (iii) further material impairment of our loans and other assets including goodwill; (iv) decline in value of collateral; (v) constraints on our liquidity due to market conditions, exchange rates and customer withdrawal of deposits and continued draws on lines of credit; and (vi) downgrades to our credit ratings. See also “Our cost of funding is affected by our credit ratings, and any risks may have an adverse effect on both variables. Any downgrade in (i) the rating of Brazil’s, (ii) our controlling shareholders, or (iii) our credit rating would likely increase our cost of funding, requiring us to post additional collateral under some of our derivative and other contracts and adversely affect our interest margins and results of operations.”
Moreover, our operations could still be impacted by risks from remote working arrangements or bans on non-essential activities. For example, some of our branches in Brazil have been closed and others have been functioning with reduced hours for a significant period of time. During 2020, we had more than half of our total workforce working remotely, which has increased cybersecurity risks given greater use of computer networks outside the corporate environment.
During 2021, there was a progressive move to return to the office while still maintaining flexibility to work remotely, particularly during the peaks of the COVID-19 waves. If we become unable to successfully operate our business from remote locations including, for example, due to failures of our technology infrastructure, increased cybersecurity risks, or governmental restrictions that affect our operations, this could result in business disruptions that could have a material and adverse effect on our business.
We may also be adversely affected by measures taken by the Brazilian and other governments to mitigate the effects of the COVID-19 pandemic. For example, in 2020, a temporary suspension on dividends and other distributions was enacted in Brazil through Resolution No. 4,820, limiting the distributions to shareholders 30% of adjusted net profit (following amendments enacted on December 23, 2020). As a result, we only distributed R$3,837 million in 2020 compared to R$10,800 million in 2019. This restriction was not applied in 2021, but we cannot assure you that the Brazilian Central Bank or other government agencies will not apply similar measures to us in the future, whether in an effort to mitigate the effects of the COVID-19 pandemic or otherwise.
The COVID-19 pandemic may persist for some time, which could affect the global economy and/or adversely affect us.our business, financial condition, liquidity or results of operations, and may also increase the likelihood and/or magnitude of other risks described in this “Item 3. Key Information—D. Risk Factors.” The extent to which the consequences of the COVID-19 pandemic affect our business, financial condition, liquidity and results of operations will depend on future developments that remain uncertain, including the rate of distribution and ad ministration of vaccines globally, the severity and duration of any resurgence of COVID-19 variants, future actions taken by governments, central banks and other third parties in response to the pandemic, and the effects on our customers, counterparties, employees and third-party service providers.
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For more information about specific measures that we have adopted and the impact on our business operations, see “Item 4. Information on the Company—A. History and Development of the Company—Impact of COVID-19” and “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Principal Factors Affecting Our Financial Condition and Results of Operations—Impact of COVID-19.”
Climate changeOur growth, asset quality and profitability, among others, may imply three primary drivers of financial risk that couldbe adversely affect us:affected by a slowdown in Brazil, as well as volatile macroeconomic and political conditions.
• Transition risks associated with the move to a low-carbon economy, both at idiosyncraticA slowdown or recession in Brazil and systemic levels,other major world economies, such as throughthe severe recession caused by COVID-19 that started in 2020, could lead major financial institutions, including some of the world’s largest global commercial banks, investment banks, mortgage lenders, mortgage guarantors and insurance companies to experience significant difficulties, including runs on deposits, the need for government aid or assistance or the need to reduce or cease providing funding to borrowers (including to other financial institutions). The year 2021 was marked by an accelerated recovery in the level of activity in the main global economies, as a result of the expansionary monetary and fiscal policy, regulatoryincluding reductions in interest rates. As a result, inflation rates have increased considerably in Brazil and technological changes.around, due to the strong increase in aggregate demand and bottlenecks in supply and production chains due to unavailability of inputs.
In Brazil, this process of generalized increase in prices was intensified by the depreciation of the Brazilian real against the U.S. dollar and other leading currencies, leading the Brazilian Central Bank to start raising interest rates. This increase in interest rates may have an adverse effect on economic growth in 2022 and 2023. It is also widely expected that Brazil will experience greater economic volatility in 2022 as a result of the Presidential elections which are scheduled to take place in the second half of the year.
• PhysicalVolatile conditions in financial markets could also have a material adverse effect on us, including on our ability to access capital and liquidity on financial terms acceptable to us, if at all. If capital markets financing ceases to become available, or becomes excessively expensive, we may be forced to raise the rates we pay on deposits to attract more customers and become unable to maintain certain liability maturities. Any such increase in capital markets funding availability or costs or in deposit rates could have a material adverse effect on our interest margins and liquidity.
In particular, we face, among others, the following risks related to extreme weather impactsthe economic downturn and longer-term trends, which could result in financial losses that could impair asset values and the creditworthiness of our customers.volatile conditions:
• Liability risks derived from parties who may suffer losses from the effects of climate change and may seek compensation from those they hold responsible such as state entities, regulators, investors and lenders.
These primary drivers could materialize, among others, in the following financial risks:
• Credit risks: Physical climate change could lead to increased credit exposure, and companies with business models not aligned with the transition to a low-carbon economy may face a higher risk of reduced corporate earnings and business disruption due to new regulations or market shifts.
• Market risks: Market changes in the most carbon-intensive sectors could affect energy and commodity prices, corporate bonds, equities and certain derivatives contracts. Increasing frequency of severe weather events could affect macroeconomic conditions, weakening fundamental factors such as economic growth, employment and inflation.
• Operational risks: Severe weather events could directly impact business continuity and operations both of customers and ours.
• Reputational risk could also arise from shifting sentiment among customers and increasing attention and scrutiny from other stakeholders (investors, regulators, etc.) on our response to climate change.
● | reduced demand for our products and services; |
● | strong political polarization of the political scenario in Brazil, aggravated by the socioeconomic impacts of the pandemic; |
● | intensification of government action in banking regulation (BC#, CSLL, IOF and Tax Reform), technological disruptions (PIX and Open Finance) and the entry of new players including large technology companies, fintech and marketplaces) have made and may continue to make our industry more competitive and potentially less profitable; |
● | increased inflationary pressure, continued high unemployment and continued reductions in growth prospects could make the economic environment more unpredictable and adversely affect our results of operations; |
● | increased regulation of our industry and compliance with such regulation will continue to increase our costs and may affect the pricing for our products and services, increase our regulatory risks and limit our ability to pursue business opportunities; and |
● | inability of our borrowers to comply with their existing obligations on a timely basis, whether in part or at all. Continued macroeconomic uncertainty may adversely affect customers’ income across both our retail and corporate business, and may adversely affect the recoverability of our loans, resulting in increased loan losses. |
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Any of the conditions describeddevelopments mentioned above couldmay have a material adverse effect on our business, financial condition and results of operations, including without limitation as a result of a higher cost of capital and limitations on the availability of funding given the market’s requirement for a higher risk premium due to market conditions, expectations for the sector and availability of liquidity in the Brazilian and global economy.
Each of these factors could also affect the credit quality of our counterparties, due to the slowdown in the Brazilian economy as a whole, reduction in purchasing power and operating margins. The process we use to estimate losses inherent in our credit exposure requires complex judgments, including forecasts of economic conditions and how these economic conditions might impair the ability of our borrowers to repay their loans. The degree of uncertainty concerning economic conditions may adversely affect the accuracy of our estimates, which may, in turn, impact the reliability of the process and the sufficiency of our loan loss allowances.
The value and liquidity of the portfolio of investment securities that we hold may be adversely affected.
The recoverability of our loan portfolios and our ability to increase the amount of loans outstanding and our results of operations and financial condition in general, are dependent to a significant extent on the level of economic activity in Brazil. See “—The credit quality of our loan portfolio may deteriorate and our loan loss reserves could be insufficient to cover our loan losses, which could have a material adverse effect on us.”
In addition, we are exposed to sovereign debt in Brazil. Our net exposure to Brazilian sovereign debt as of December 31, 2021 was R$171.4 billion (or 18.4% of our total assets as of that date) and consistent principally of National Treasury Bills (LTN), Treasury Bills (LFT) and National Treasury Notes (NTN-A, NTN-B, NTN-C e NTN-F). Recessionary conditions in Brazil would likely have a significant adverse impact on our loan portfolio and sovereign debt holdings and, as a result, on our financial condition, cash flows and results of operations.
Our revenues are also subject to risk of deterioration from unfavorable political and diplomatic developments, social instability, international conflicts, and changes in governmental policies, including expropriation, nationalization, international ownership legislation, interest-rate caps, tax and monetary policies.
The economy of Brazil has experienced significant volatility in recent decades. This volatility resulted in fluctuations in the levels of deposits and in the relative economic strength of various segments of the Brazilian economy to which we lend. In addition, Brazil is affected by commodities price fluctuations, which in turn may affect financial market conditions through exchange rate fluctuations, interest rate volatility and deposits volatility. Furthermore, the Brazilian government has implemented fiscal and monetary policies and initiatives to mitigate the effects of the COVID-19 pandemic on the economy, individual businesses and households. These fiscal and monetary policy measures have accelerated the economic recovery in 2021 but have significantly increased public debt. Among the risks that could lead to an economic slowdown and financial markets falls are (i) the rise in energy prices that can cause inflation; (ii) the breakdown of global supply chains; (iii) excess liquidity and low interest rates, which has already led to an increase in inflation; and (iv) further tightening of monetary and public deficit policies. Negative and fluctuating economic conditions, such as slowing or negative growth and a changing interest rate environment, could impact our profitability by causing lending margins to decrease and credit quality to decline and leading to decreased demand for higher margin products and services.
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The strong competitive environment in the Brazilian financial services market may adversely affect us, including our business prospects.
The Brazilian financial markets, including the banking, insurance and asset management sectors, are highly competitive, with this competition increasing in recent years. We face significant competition in all of our main areas of operation from other Brazilian and international banks, as well as state-owned institutions, including through portability of loans.
Non-traditional providers of banking services, such as Internet-basedinternet-based e-commerce providers, mobile telephone companies and Internetinternet search engines, as well as payment services for blockchainblock-chain technologies, may offer and/or increase their offerings of financial products and services directly to customers. These non-traditional providers of banking services currently have an advantage over traditional providers because they are not subject to banking regulation. Several of these competitors may have long operating histories, large customer bases, strong brand recognition and significant financial, marketing and other resources. They may adopt more aggressive pricingprices and rates and devote more resources to technology, infrastructure and marketing. For more information, see “Item 4. Information on the Company—B. Business Overview—Regulation and Supervision—Other Applicable Laws and Regulations—Regulation of New Financial Institutions That Operate in Online Lending.”Supervision”
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New competitors have entered and may continue to enter the market or existing competitors may adjust their services with unique product or service offerings or approaches to providing banking services. If we are unable to successfully compete with current and new competitors, or if we are unable to anticipate and adapt our offerings to changing banking industry trends, including technological changes, our business may be adversely affected. In addition, our failure to effectively anticipate or adapt to emerging technologies or changes in customer behavior, including among younger customers, could delay or prevent our access to new digital-based markets, which would in turn have an adverse effect on our competitive position and business. Furthermore, the widespread adoption of new technologies, including distributed ledger, artificial intelligence and/or biometrics, to provide services such as cryptocurrencies and payment systems,payments, could require substantial expenditures to modify or adapt our existing products and services as we continue to grow our internet and mobile banking capabilities. Our customers may choose to conduct business or offer products in areas that may be considered speculative or risky. Such new technologies and mobile banking platforms could negatively impact the value of our investments in bank premises, equipment and personnel for our branch network. The persistence or acceleration of this shift in demand toward internet and mobile banking may necessitate changes to our retail distribution strategy. Our failure to swiftly and effectively implement changes to our distribution strategy swiftly and effectively could have an adverse effect on our competitive position.
In particular, we face the challenge to compete in an ecosystem where the relationship with the consumer is based on access to digital data and interactions. This access is increasingly dominated by digital platforms who are already eroding our results in very relevant markets such as payments. In addition, neobanks (i.e., banks that are fully digital) have begun operating in Brazil and have drawn significant numbers of customers. This privileged access to data can be used as a leverage to compete with us in other adjacent markets and may reduce our operations and margins in core businesses such as lending or wealth management. The alliances that our competitors are starting to build with major technology companies can make it more difficult for us to successfully compete with them and could adversely affect us.
Increasing competition could also require that we increase our rates offered on deposits or lower the rates we charge on loans, which could also have a material adverse effect on our profitability, as well as limit our ability to increase our customer base and expand our operations, andfurther increasing competition for investment opportunities.
In addition, if our customer service levels wereare perceived by the market to be materially below those of our competitor financial institutions, we could lose existing and potential business. If we are not successful in retaining and strengthening customer relationships, we may lose market share, incur losses on some or all of our activities, or fail to attract new deposits or retain existing deposits, which could have a material adverse effect on us.
Our ability to maintain our competitive position depends, in part, on the success of new products and services that we offer to our customers, as well as our ability to offer products and services that meet the customers’ needs throughout their entire life cycle, and we may not be able to manage emerging risks as we expand our range of products and services, which could have a material adverse effect on us.
The success of our operations and our profitability depends, in part, on the success of new products and services we offer our customers and our ability to offer products and services that meet the customers’ needs during their entire life cycle. However, our customers’ needs and/or desires may change over time, and such changes may render our products and services obsolete, outdated or unattractive and we may not be able to develop new products that meet our customers’ changing needs and/or desires. Our success is also dependent on our ability to anticipate and leverage new and existing technologies that may have an impact on products and services in the banking industry. Technological changes may further intensify and complicate the competitive landscape and influence client behavior. If we cannot respond in a timely fashion to the changing needs and/or desires of our customers, we may lose them, which could in turn materially and adversely affect us. In addition, the cost of developing products is likely to affect our results of operations.
As we expand the range of our products and services, some of which may be at an early stage of development, in certain regional markets where we operate, we will be exposed to new and potentially increasingly complex risks, such as conduct risk arising from relationships with customers, and development expenses. Our employees and risk management systems, as well as our experience and that of our partners may not be sufficient to enable us to properly manage such risks. Any or all of these factors, individually or collectively, could have a material adverse effect on us.
While we have successfully increased our customer service levels in recent years, should these levels ever be perceived by the market to be materially below those of our competitor financial institutions, we could lose existing and potential business. If we are not successful in retaining and strengthening customer relationships, we may lose market share, incur losses on some or all of our activities or fail to attract new deposits or retain existing deposits, which could have a material adverse effect on our operating results, financial condition and prospects.
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We are subject to extensive regulation and regulatory and governmental oversight, which could adversely affect our business, operations and financial condition.
The Brazilian financial markets are subject to extensive and continuous regulatory control by the Brazilian government, principally by the Brazilian Central Bank, the CVM and the CMN, which, in each case, materially affects our business. We have no control over the issuance of new regulations that may affect our operations, including in respect of:
minimum capital requirements; |
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reserve and compulsory deposit requirements; |
limits on investments in fixed assets; |
lending limits and other credit restrictions, including compulsory allocations; |
limits and other restrictions on interest rates and fees; |
limits on the amount of interest banks can charge or the period for capitalizing interest; and |
accounting and statistical requirements. |
The regulationregulations governing Brazilian financial institutions isare continuously evolving, and the Brazilian Central Bank has reacted actively and extensively to developments in our industry.
Changes in regulations in Brazil and international markets may expose us to increased compliance costs and limit our ability to pursue certain business opportunities and provide certain products and services. Brazilian regulators are constantly updating prudential standards in accordance with the recommendations of the Basel Committee on Banking Supervision, in particular with respect to capital and liquidity, which could impose additional significant regulatory burdens on us. For example, future liquidity standards could require us to maintain a greater proportion of our assets in highly liquid but lower-yielding financial instruments, which would negatively affect our net interest margin. There can be no assurance that future changes in regulations or in their interpretation or application will not have a material adverse effect on us.
As some of the banking laws and regulations have been recently issued or become effective, the manner in which those laws and related regulations are applied to the operations of financial institutions is still evolving. Moreover, to the extent that these recently adopted regulations are implemented inconsistently in Brazil, we may face higher compliance costs. The measures of the Brazilian Central Bank and the amendment of existing laws and regulations, or the adoption of new laws or regulations, could adversely affect our ability to provide loans, make investments or render certain financial services. No assurance can be given generally that laws or regulations will be adopted, enforced or interpreted in a manner that will not have a material adverse effect on our business and results of operations. Furthermore, regulatory authorities have substantial discretion in how to regulate banks, and this discretion, and the regulatory mechanisms available to the regulators, have been increasing during recent years. RegulationRegulations may be imposed on an ad hoc basis by governments and regulators in response to a crisis, and these may especially affect financial institutions such as those whichthat may be deemed to be systemically important. In addition, the volume, granularity, frequency and scale of regulatory and other reporting requirements require a clear data strategy to enable consistent data aggregation, reporting and management. Inadequate management information systems or processes, including those relating to risk data aggregation and risk reporting, could lead to a failure to meet regulatory reporting requirements or other internal or external information demands, and we may face supervisory measures as a result.
We may also be subject to potential impacts relating to regulatory changes affecting our controlling shareholder, Santander Spain, due to continued significant financial regulatory reform in jurisdictions outside of Brazil that directly or indirectly affect Santander Spain’s businesses, including Spain, the European Union, the United States and other jurisdictions. In Spain and in other countries in which Santander Spain’s subsidiaries operate (including Brazil), there is continuing political, competitive and regulatory scrutiny of the banking industry. Political involvement in the regulatory process, in the behavior and governance of the banking sector and in the major financial institutions in which the local governments have a direct financial interest, and in their products and services and the prices and other terms they applyapplied to them, is likely to continue. Changes to current legislation and their implementation through regulation (including additional capital, leverage, funding, liquidity and tax requirements), policies (including fiscal and monetary policies established by central banks and financial regulators, and changes to global trade policies), and other legal and regulatory actions may impose additional
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regulatory burdens on Santander Group, including Santander Brasil, in these jurisdictions. In the European Union, these reforms could include changes relating to capital requirements, liquidity and funding, or other measures, implemented as a result of the unification of the European banking system under a European Banking Union. In the United States, many changes have occurred as a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) and its implementing regulations, most of which are now in place. In May 2018, the United States Congress passed, and President Donald Trump signed into law,government enacted the Economic Growth, Regulatory Relief, and Consumer Protection Act, or “EGRRCPA,” the first major piece of legislation rebalancing the financial regulatory landscape since the passage of the Dodd-Frank Act. The U.S. financial regulatory agencies have begun to propose regulations implementing EGRRCPA, but the ultimate impact of these reforms on our operations is currently uncertain. For more information, see “Item 4. Information on the Company—B. Business Overview—Regulation and Supervision—Other Applicable Laws and Regulations—U.S. Banking Regulation.” We cannot predict the outcome of any financial regulatory reforms in the European Banking Union, the United States or other jurisdictions, and we cannot yet determine their effects on Santander Spain and, consequently, their effects on us, but regulatory changes may result in additional costs for us.
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We are subject to potential intervention by any of our regulators or supervisors.
Our business and operations are subject to increasingly significant rules and regulations set by the Brazilian Central Bank, the CVM and the CMN, thatwhich are required to conduct banking and financial services business. These apply to business operations, affect financial returns, and include reserve and reporting requirements and conduct-of-business regulations.
In their supervisory roles, the Brazilian Central Bank the CVM, and the CMN seek to maintain the safety and soundness of financial institutions with the aim of strengthening the protection of customers and the financial system. Their continuing supervision of financial institutions is conducted through a variety of regulatory tools, including the collection of information by way of prudential returns, reports obtained from skilled persons, visits to firms and regular meetings with management to discuss issues such as performance, risk management and strategy. As a result, we face increased supervisory scrutiny (resulting in increasing internal compliance costs and supervision fees), and in the event of a breach of our regulatory obligations we are likely to face more stringent regulatory fines.
We are subject to regulation on a consolidated basis and may be subject to liquidation or intervention on a consolidated basis.
We operate in a number of credit and financial services related sectors through entities under our control. For certain purposes related to regulation and supervision, the Brazilian Central Bank treats us and our subsidiaries and affiliates as a single financial institution. While our consolidated capital base provides financial strength and flexibility to our subsidiaries and affiliates, their individual activities could indirectly put our capital base at risk. Any investigation or intervention by the Brazilian Central Bank, particularly in the activities carried out by any of our subsidiaries and affiliates, could have a material adverse impact on our other subsidiaries and affiliates and, ultimately, on us. If we or any of our financial subsidiaries become insolvent, the Brazilian Central Bank may carry out an intervention or liquidation process on a consolidated basis rather than conduct such procedures for each individual entity. In the event of an intervention or a liquidation process on a consolidated basis, our creditors would have claims to our assets and the assets of our consolidated financial subsidiaries. In this case, claims of creditors of the same nature held against us and our consolidated financial subsidiaries would rank equally in respect of payment. If the Brazilian Central Bank carries out a liquidation or intervention process with respect to us or any of our financial subsidiaries on an individual basis, our creditors would not have a direct claim on the assets of such financial subsidiaries, and the creditors of such financial subsidiaries would have priority in relation to our creditors in connection with such financial subsidiaries’ assets. The Brazilian Central Bank also has the authority to carry out other corporate reorganizations or transfers of control under an intervention or liquidation process.
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Increases in reserve, compulsory deposit and minimum capital requirements may have a material adverse effect on us.
The Brazilian Central Bank has periodically changed the level of reserves and compulsory deposits that financial institutions in Brazil are required to maintain, , as well as determined compulsory allocation requirements to finance government programs, with these changes continuing to be a potential area of risk as they may increase the reserve and compulsory deposit or allocation requirements in the future or impose new requirements, which as a result could reduce our liquidity to fund our loan portfolio and other investments and, as a result, may have a material adverse effect on us.
Compulsory deposits and allocations generally do not yield the same return as other investments and deposits because a portion of compulsory deposits and allocations:
do not bear interest; and |
must be used to finance government programs, including a federal housing program and rural sector subsidies. |
In recent years, the CMN and Brazilian Central Bank published several rules to implement Basel III in Brazil. This new set of regulations covers the revised definition of capital, capital requirements, capital buffers, credit valuation adjustments, exposures to central counterparties, leverage and liquidity coverage ratios, and treatment of systemically important financial institutions. No assurance can be
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given that the Basel III rules will be adopted, enforced or interpreted in a manner that will not have an adverse effect on us. Furthermore, in January 2017, the CMN issued a new rule by means of which the Brazilian Central Bank established the terms for segmentation for financial institutions, financial institution groups, and other institutions authorized to operate by the Brazilian Central Bank for proportional application of the prudential regulation, considering the size, international activity and risk profile of members of each segment. We have been categorized by the Brazilian Central Bank in segment 1, the highest level for application of regulation for banks in Brazil.
For more information on the rules implementing Basel III, see “Item 4. Information on the Company—B. Business Overview—Regulation and Supervision—Capital Adequacy and Leverage—Basel”Leverage - Basel—Basel III” and “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Liquidity and Funding—Capital Management.”
We may not be able to detect or prevent money laundering and other criminal activities fully or on a timely basis, which could expose us to additional liability and could have a material adverse effect on us.
We are required to comply with applicable anti-money laundering, or “AML,” anti-terrorism, anti-bribery and corruption, sanctions and other laws and regulations applicable to us. These laws and regulations require us, among other things, to conduct full customer due diligence (including sanctions and politically exposed person screening) and keep our customer, account and transaction information up to date. We have implemented financial crime policies and procedures in place detailing what is required from those responsible. We are also required to conduct AML training for our employees and to report suspicious transactions and activity to appropriate law enforcement following full investigation by the Special Incidents area.
Financial crime has becomecontinues to be the subject of enhanced regulatory scrutiny and supervision by regulators globally. AML, anti-bribery, anti-corruption and sanctions laws and regulations are increasingly complex and detailed. The Basel Committee is now introducingKey standard-setting and regulatory bodies continue to provide guidelines to strengthen the interaction and cooperation between prudential and AML/Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT supervisors.supervisors). Compliance with these laws and regulations requires automated systems, sophisticated monitoring and skilled compliance personnel.
We maintain updated policies and procedures aimed at detecting and preventing the use of our banking network for money laundering and other financial crime related activities. However, emerging technologies, such as cryptocurrencies and blockchain,innovative payment methods, could limit our ability to track the movement of funds and therefore, present a risk to our Company. Our ability to comply with the legal requirements depends on our ability to improve detection and reporting capabilities and reduce variation in control processes and oversight accountability. These require implementation and embedding within our business effective controls and monitoring, which in turn requires ongoing changes to systems and operational activities. Financial crime is continually evolving and, as noted, is subject to increasingly stringent regulatory oversight and focus. This requires proactive and adaptable responses from us so that we are able to deter threats and criminality effectively. Even known threats can never be fully eliminated, and there will be instances where we may be used by other parties to engage in money laundering and other illegal or improper activities. In addition, we rely heavily on our employees to assist us by spotting such activities and reporting them, and our employees have varying degrees of experience in recognizing criminal tactics and understanding the level of sophistication of criminal organizations. Where we outsource any of our customer due diligence, customer screening or anti-financial crime operations, we remain responsible and accountable for full compliance and any breaches. If we are unable to apply the necessary scrutiny and oversight of third parties to whom we outsource certain tasks and processes, there remains a risk of regulatory breach.
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Additionally, in 2015 and early 2016, pursuant to a new resolution issued by the United Nations Security Council, as well as a recently enacted lawlaws and regulations issued by the Brazilian Central Bank forrequiring the implementation of the aforementioned resolution in Brazil, additional compliance requirements were imposed on us and on other financial institutions operating in Brazil, which relate to the local
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enforcement of sanctions imposed by the United Nations Security Council resulting from certain resolutions. We believe we already have the control and compliance procedures in place to satisfy such additional compliance requirements. However, we continue to evaluate their impact on our control and compliance procedures and whether adjustments will need to be made to our control and compliance procedures as a result.
If we are unable to comply fully comply with applicable laws, regulations and expectations, our regulators and relevant law enforcement agencies have the ability and authority to impose significant fines and other penalties on us, including requiring a complete review of our business systems, day-to-day supervision by external consultants and ultimately the revocation of licenses.
The reputational damage to our business and global brand would be severe if we were found to have breached AML, anti-bribery, anti-corruption or sanctions requirements. Our reputation could also suffer if we are unable to protect our customers’ data and bank products and services from being accessed or used for illegal or improper purposes.
TheFurthermore, the Brazilian Public Federal Public Prosecutor’s Office (Ministério Público Federal), or “MPF,” has charged one of our officers in connection with the alleged bribery of a Brazilian tax auditor to secure favorable decisions in tax cases, resulting in a claimed benefit of R$83 million (approximately U.S.$2515 million) benefit tofor us. On October 23, 2018, the officer was formally indicted and asked to present his defense. On November 5, 2018 the officer in question presented his defense. The proceedings isare currently in course.ongoing. We are not a party to these proceedings. We have voluntarily provided information to the Brazilian authorities and have relinquished the benefit of certain tax credits to which the allegations relate in order to show good faith.
In addition, we rely upon ourexpect relevant counterparties to a large degree to maintain and appropriately apply their own appropriate compliance measures, procedures and internal policies. Such measures may not be completely effective in preventing third parties from using our (and our relevant counterparties’) services as a conduit for illicit purposes (including illegal cash operations) without our (or our relevant counterparties’) knowledge. If we are associated with, or even accused of being associated with, breaches of AML, anti-terrorism, or sanctions requirements, our reputation could suffer and/or we could become subject to fines, sanctions and/or legal enforcement (including being added to “black“watch lists” that would prohibit certain parties from engaging in transactions with us), any one of which could have a material adverse effect on our operating results, financial condition and prospects.
We are subject to increasing scrutiny and regulation from data protection laws, including penalties in the event of noncompliance with the terms and conditions of certain new European and Brazilian regulations.
We receive, maintain, transmit, store and otherwise process proprietary, sensitive and confidential data, including public and non-public personal information of our customers, employees, counterparties and other third parties, including, but not limited to, personally identifiable information and personal financial information. The collection, sharing, use, retention, disclosure, protection, transfer and other processing of this information is governed by stringent federal, state, local and foreign laws, rules and regulations, and the regulatory framework for data privacy and cybersecurity is in considerable flux and evolving rapidly. As data privacy and cybersecurity risks for banking organizations and the broader financial system have significantly increased in recent years, data privacy and cybersecurity issues have become the subject of increasing legislative and regulatory focus.
On May 25, 2018, the Regulation (EU) 2016/279 of the European Parliament and of the Council of April 27, 2016 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data (the “General Data Protection Regulation” or “GDPR”) became directly applicable in all member states of the European Union.
In addition to the GDPR, we will soon face new regulations from Brazilian authorities. The Brazilian General Data Protection Act (Law no. 13,709/2018), or “LGPD,”LGPD was approved in the Federal Official Gazette on August 14, 2018 and, as amended by the Law no.No. 13,853/2019, will taketook effect in September 2020, with the exception of its Articles 52, 53 and 54, which address administrative penalties, which entered into force on August 2020.1, 2021. Law no.No. 13,853/2019 also set up the National Data Protection Authority for purposes of monitoring, implementing and supervising compliance with the LGPD in Brazil. The LGPD also brings about deep changes in the conditions for personal data processing, with a set of rules to be observed in activities such as collection, processing, storage, use, transfer, sharing and erasure of information concerning identified or identifiable natural persons in Brazil.persons.
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Although a number of basic existing principles have remained the same, the GDPRLGPD has introduced extensive new obligations on data controllers and rights for data subjects. The LGPD applies to
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individuals, as well as private and public entities, regardless of the country where they are headquartered or where data is hosted, as long as (i) data processing takes place in Brazil; (ii) the data processing activity is intended to offer or supply goods or services or to process data of individuals located in Brazil; or (iii) the data subjects are located in Brazil at the time their personal data is collected. The application of the LGPD will apply irrespective of industry or business when dealing with personal data and is not restricted to data processing activities performed through digital media and/or on the Internet.
internet.
The GDPR has also introduced new fines and penalties for a breach of requirements, including fines for systematic breaches of up to the higher of 4% of annual worldwide turnover or €20 million, and fines of up to the higher of 2% of annual worldwide turnover or €10 million (whichever is highest) for other specific infringements. The LGPD similarly sets out several penalties, which include warnings, blocking and erasure of data, public disclosure of the offense, and fines of up to two percent (2%)2% of the economic group’s turnover in Brazil in the preceding year, capped at R$50 million per offense.
The implementation of the GDPR and of the LGPD has required substantial amendments to our procedures and policies. The changes have impacted, and could further adversely impact, our business by increasing our operational and compliance costs. Further, there is a risk that the measures may not be implemented correctly or that there may be partial non-compliancenoncompliance with the new procedures. If there are breaches of the GDPR and or the LGPD obligations, as the case may be, we could face significant administrative and monetary sanctions, as well as reputational damage, which could have a material adverse effect on our operations, financial condition and prospects. Furthermore, following any such breach, we may be ordered to change our business practices, policies or systems in a manner that adversely impacts our operating results.
For more information on the rules implementing LGPD, see “Item 4. Information on the Company—B. Business Overview—Regulation and Supervision—Other Applicable Laws and Regulations—Data Protection Requirements.”
We are exposed to risk of loss from legal and regulatory proceedings.
We face risk of loss from legal and regulatory proceedings, including tax proceedings that could subject us to monetary judgments, fines and penalties. The current regulatory and tax enforcement environment in Brazil reflects an increased supervisory focus on enforcement, combined with uncertainty about the evolution of the regulatory regime, and may lead to material operational and compliance costs.
We are from time to time subject to regulatory investigations and civil and tax claims and party to certain legal proceedings incidental to the normal course of our business, including in connection with conflicts of interest, lending activities, relationships with our employees, economic plans, and other commercial or tax matters. In view of the inherent difficulty of predicting the outcome of legal matters, particularly where the claimants seek very large or indeterminate damages, or where the cases present novel legal theories, involve a large number of parties or are in the early stages of investigation or discovery, and we cannot state accuratelywith certainty what the eventual outcome of these pending matters will be. The amount of our reserves in respect to these matters, which is calculated based on the probability of loss of each claim, is substantially less than the total amount of the claims asserted against us, and, in light of the uncertainties involved in such claims and proceedings, there is no assurance that the ultimate resolution of these matters will not significantly exceed the reserves currently accrued by us. As a result, the outcome of a highly uncertain matter may become material to our operating results. As of December 31, 2019,2021, we had provisions for taxes, other legal contingencies and other provisions forof R$11,3668,876 million.
See more information in note 2322 to our audited consolidated financial statements included in this annual report.report and in “Item 8. Financial Information—A. Consolidated Statements and Other Financial Information—Legal Proceedings.”
We may face operational difficulties under the Brazilian instant payment scheme.
On November 16, 2020, the Brazilian Central Bank instituted its instant payment scheme, or “PIX,” as well as the Instant Payment System (Sistema de Pagamentos Instantâneos), or “SPI,” which enables participants to settle electronic transfers of funds in real time and is available for 24 hours a day, seven days a week, and every day in the year.
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As a direct participant of the PIX, we may face operational issues, as well as difficulties in adapting to the requirements established by the PIX payment scheme regulations and by the other applicable rules, mainly related to the minimum level of service to be provided on a recurring basis to customers, as well as recent new security and fraud prevention requirements set forth by the Brazilian Central Bank. The Brazilian Central Bank has also enacted a new rule to be implemented by July 2022 setting a limited amount of R$ 1,000.00 for PIX transactions carried out between 8 p.m. (or, at the user’s discretion, between 10 p.m.) and 6 a.m. As a result, we may be the target of administrative sanctions and/or judicial claims, either by the Brazilian Central Bank itself or as a result of complaints brought by our customers. Furthermore, as a consequence of potential administrative sanctions or judicial claims, we may face difficulties in retaining customers in relation to Santander SX, our solution for our customers to access PIX, which may have a material adverse effect on our financial results, as well as our reputation.
In addition, the Brazilian Central Bank may issue new and stricter rules applicable to PIX participants, including new operational capacity requirements. The imposition by the Brazilian Central Bank of new requirements may adversely affect our operations.
For more information related to the PIX and the SPI, see “Item 4. Information on the Company—B. Business Overview—Regulation and Supervision—Other Applicable Laws and Regulations—Brazilian Payment and Settlement System.”
Disclosure controls and procedures over financial reporting may not prevent or detect all errors or acts of fraud.
Disclosure controls and procedures, including internal controls over financial reporting, are designed to provide reasonable assurance that information required to be disclosed by the companyus in reports filed or submitted under the U.S. Securities Exchange Act of 1934, as amended, (theor the “Exchange Act”)Act,” is accumulated and communicated to management, and recorded, processed, summarized and reported within the time periods specified in the U.S. Securities and Exchange Commission’s rules and
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forms.
These disclosure controls and procedures have inherent limitations, which include the possibility that judgments in decision-making can be faulty and result in errors or mistakes. Additionally, controls can be circumvented by any unauthorized override of the controls. Consequently, our business is exposed to risk from potential noncompliance with policies, employee misconduct, or negligence and fraud, which could result in regulatory sanctions, civil claims, and serious reputational or financial harm. In recent years, a number of multinational financial institutions have suffered material losses due to the actions of “rogue traders” or other employees. It is not always possible to deter employee misconduct, and the precautions we take to prevent and detect this activity may not always be effective. Accordingly, because of the inherent limitations in the control system, misstatements due to error or fraud may occur and not be detected.
We are subject to review by tax authorities, and an incorrect interpretation by us of tax laws and regulations may have a material adverse effect on us.
The preparation of our tax returns requires the use of estimates and interpretations of complex tax laws and regulations and is subject to review by taxingtax authorities. We are subject to the income tax laws of Brazil. These tax laws are complex and subject to different interpretations by the taxpayer and relevant governmental taxingtax authorities, leading to disputes, which are sometimes subject to prolonged evaluation periods until a final resolution is reached. In establishing a provision for income tax expense and filing returns, we must make judgments and interpretations about the application of these inherently complex tax laws. If the judgment, estimates and assumptions we use in preparing our tax returns are subsequently found to be incorrect, there could be a material adverse effect on us. The interpretations of Brazilian taxingtax authorities are unpredictable and frequently involve litigation, which introduces further uncertainty and risk as to tax expense.
Changes in taxes and other fiscal assessments may adversely affect us.
The Brazilian government regularly enacts reforms to the tax and other assessment regimes to which we and our customers are subject. Such reforms include changes in tax rates and, occasionally, enactment of temporary levies, the proceeds of which are earmarked for designated governmental purposes. The effects of these changes and any other changes that result from enactment of additional tax reforms cannot be quantified and there can be no assurance that any such reforms would not have an adverse effect upon our business. Furthermore, such changes may produce uncertainty in the financial system, increasing the cost of borrowing and contributing to the increase in our non-performing credit portfolio.
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Changes in tax policy, including the creation of new taxes, may occur with relative frequency and such changes could have an adverse effect on our financial position or operating results. For example, in 2011, the Brazilian government established the Tax on Financial Transactions (the “IOF Tax”). It applied, which used to be charged at a rate of 1.0% per day onover the notional value of increased foreign exchange exposure, but has currently been reduced the rate to zero with respect to foreign exchange. The IOF Tax rates applicable to local loans toof individuals and legal entities have been frequently adjusted (both increases and decreases) in recent years. The currently applicable IOF Tax rates applicable to local loans are approximately 1.5% for legal entities and 3.0% for individuals, but could change in the future. We cannot estimate the impact that a change in tax laws or tax policy could have on our operations. For example, the IOF Tax is a tool used by the Brazilian government to regulate economic activity, which does not directly impact our results of operations, though changes in the IOF Tax can impact our business volumes generally.
Also, the Brazilian Congress may discuss broad tax reforms in Brazil to improve the efficiency of allocation of the economic resources, as proposed by the executive branch of the Brazilian federal government. Major tax reforms in Brazil have been discussed over the last few years. We cannot predict if tax reforms will be implemented in the future. The effects of these changes, if enacted, and any other changes that could result from the enactment of additional tax reforms, cannot be quantified.
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Our loan and investment portfolios are subject to risk of prepayment, which could have a material adverse effect on us.
Our fixed-rate loan and investment portfolios are subject to prepayment risk, which results from the ability of a borrower or issuer to pay a debt obligation prior to maturity. Generally, in a low interest rate environment, prepayment activity increases, which reduces the weighted average terms of our earning assets and could have a material adverse effect on us. We would also be required to amortize net premiums or commissions into income over a shorter period of time, thereby reducing the corresponding asset yield and net interest income. Prepayment risk also has a significant adverse impact on credit card and collateralized mortgage loans, since prepayments could shorten the weighted average life of these assets, which may result in a mismatch in our funding obligations and reinvestment at lower yields. Prepayment risk is inherent to our commercial activity, and an increase in prepayments could have a material adverse effect on us.
The credit quality of our loan portfolio may deteriorate and our loan loss reserves could be insufficient to cover our loan losses, which could have a material adverse effect on us.
Risks arising from changes in credit quality and the recoverability of loans and amounts due from counterparties are inherent to a wide range of our businesses. Non-performing or low credit quality loans can negatively impactedimpact our results of operations as the amount of our reported non-performing loans may increase in the future as a result of growth in our total loan portfolio, including as a result of loan portfolios that we may acquire in the future (the credit quality of which may turn out to be worse than we had anticipated), or other factors, including factors beyond our control, such as adverse changes in the credit quality of our borrowers and counterparties or a general deterioration in economic conditions in Brazil and globally.globally, including as a result of the COVID-19 pandemic. In 2021, as a response to the macroeconomic shock of the COVID-19 pandemic, we used a part of the provision overlay on expected credit losses created in 2020. If we wereare unable to control the level of our non-performing or poor credit quality loans, this could have a material adverse effect on us.
Our provisions for impairment losses are based on our current assessment, as well as expectations, concerning various factors affecting the quality of our loan portfolio. These factors include, among other things, our borrowers’ financial condition, repayment abilities intentions, the realizable value of any collateral, the prospects for support from any guarantor, government macroeconomic policies, interest rates, and the legal and regulatory environment. As
Since, many of these factors are beyond our control and there is no infallible method for predicting loan and credit losses, we cannot assure you that our current or future provisions for impairment losses will be sufficient to cover actual losses. If our assessment of and expectations concerning the abovementioned factors differ from actual developments, if the quality of our total loan portfolio deteriorates, for any reason, or if the future actual losses exceed our estimates of expectedincurred losses, we may be required to increase our provisions for impairment losses, which may adversely affect us. If we were unable to control or reduce the level of our non-performing or poor credit quality loans, this could have a material adverse effect on us.
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On December 31, 2021, our credit risk (which includes gross loans and advances to customers, guarantees and documentary credits) amounted to R$540,873 million (compared to R$466,104 million as of December 31, 2020).
Economic uncertainty may lead to a contraction in our loan portfolio.
The recent slow growth rate of the Brazilian economy in 2021, 2020, 2019 and 2018, and 2017 and recession in 2016,as well as a slowdown in the growth of customer demand, an increase in market competition, changes in governmental regulation, and a decreaserecent increase of the SELIC rate, since 2017as well as a recession in 2016 have adversely affected the rate of growth of our loan portfolio in recent years. Ongoing economic uncertainty could adversely affect the liquidity, businesses and financial condition of our customers, as well as lead to a general decline in consumer spending, a rise in unemployment and an increase in household indebtedness. All of thisthese factors could lead to a decrease in demand for borrowings in general, which could have a material adverse effect on our business.
Liquidity and funding risks are inherent in our business, and since our principal sources of funds are short-term deposits, a sudden shortage of funds could cause an increase in costs of funding and an adverse effect on our revenues and our liquidity levels.
Liquidity risk is the risk that we either do not have available sufficient financial resources available to meet our obligations as they fall due, or that we can only secure them onlysuch financial resources at excessive cost. This risk is inherent in any retail and commercialwholesale banking business and can be heightened by a number of enterprise-specific
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factors, including over-relianceoverreliance on a particular source of funding, changes in credit ratings or market-wide phenomena such as market dislocation.dislocation, including as a result of the COVID-19 pandemic, Constraints in the supply of liquidity, including in interbank lending, can materially and adversely affect the cost of funding of our business, and extreme liquidity constraints may affect our current operations, our growth potential and our ability to fulfill regulatory liquidity requirements.
Our cost of obtaining funds is directly related to prevailing interest rates and to our credit spreads, withand increases in these factors increasingraise the cost of our funding. Credit spread variations are market-driven and may be influenced by market perceptions of our creditworthiness. Changes to interest rates and our credit spreads occur continuously and may be unpredictable and highly volatile.
Disruption and volatility in the global financial markets could have a material adverse effect on our ability to access capital and liquidity on financial terms acceptable to us. If wholesale markets financing ceases to become available, or becomes excessively expensive, we may be forced to raise the rates we pay on deposits, with a view to attracting more customers, and/or to sell assets, potentially at depressed prices. The persistence or worsening of these adverse market conditions or an increase in base interest rates could have a material adverse effect on our ability to access liquidity and cost of funding.
We rely primarily on retail deposits as our main source of funding. As of December 31, 2019, 80.6%2021, 87% of our customer deposits had remaining maturities of one year or less, or were payable on demand, while 31.6%55% of our assets havehad maturities of one year or more, resulting in a mismatch between the maturities of liabilities and the maturities of assets.assets, The ongoing availability of this type of funding is sensitive to a variety of factors beyond our control, including: general economic conditions, the confidence of retail depositors in the economy and in the financial services industry, the availability and extent of deposit guarantees, as well as competition for deposits between banks or with other products. Any of these factors could significantly increase the amount of retail deposit withdrawals in a short period of time, thereby reducing our ability to access retail deposit funding on economically appropriate and reasonable terms, or at all, in the future. If these circumstances were to arise, this could have a material adverse effect on our operating results, financial condition and prospects.
Central banks around the world have taken extraordinary measures to increase liquidity in the financial markets as a response to the financial crisis and the COVID-19 crisis. As a result of inflationary pressures in late 2021 and early 2022 central banks have begun to reduce or discontinue these measures. If current credit facilities wereare rapidly removed or significantly reduced, this could have a material adverse effect on our ability to access liquidity and on our funding costs.
Additionally, our activities could be adversely impacted by liquidity tensions arising from generalized drawdowns of committed credit lines to our customers.
Our ability to manage our funding base may also be affected by changes to the regulation on compulsory reserve requirements in Brazil. For more information on the rules on compulsory reserve requirements, see “Item 4. Information on the Company—B. Business Overview—Regulation and Supervision—Other Applicable Laws and Regulations—Compulsory Reserve Requirements.”
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We cannot assure that in the event of a sudden or unexpected shortage of funds in the banking system, we will be able to maintain levels of funding without incurring high funding costs, a reduction in the term of funding instruments or the liquidation of certain assets. If this were to happen, we could be materially adversely affected. Finally, the implementation of internationally accepted liquidity ratios might require changes in business practices that affect our profitability. The liquidity coverage ratio, or “LCR,” is a liquidity standard that measures if banks have sufficient high-quality liquid assets to cover expected net cash outflows over a 30-day liquidity stress period. TheFor the observations in this disclosure (exercise(exercised with daily balances for October, November and December 2019) the institution2021), Santander Brasil had aan LCR of 126.7%148.5%, above the 100% minimum requirement. The Net Stable Funding Ratio, or “NSFR,” provides a sustainable maturity structure of assets and liabilities suchso that banks maintain a stable funding profile in relation to their activities. The NSFR, which must remain at a minimum of 100% beginning from October 1, 2018 according to CMN rules, stands at over 112.3%111.7% for us as of December 31, 2019.
2021.
Our cost of funding is affected by our credit ratings, and any risks may have an adverse effect on both variables. Any downgrade in (i) the rating of Brazil’s, (ii) our controlling shareholders, or (iii) our credit rating would likely increase our cost of funding, requiring us to post additional collateral under some of our derivative and other contracts and adversely affect our interest margins and operations results.
results of operations.
Credit ratings affect the cost and other terms upon which we are able to obtain funding. Rating agencies regularly evaluate us, and their ratings of our long-term debt are based on a number of factors, including our financial strength, conditions that affect the financial services industry and the economic environment in which we operate. In addition, due to the methodology of the main rating agencies, our credit rating is affected by the rating of Brazilian sovereign debt and the rating of our controlling shareholders. If Brazil’s sovereign debt or the debt of our controlling shareholder were downgraded, our credit rating would also likely be downgraded to a similar degree.
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Any downgrade in Brazil’s sovereign credit ratings, those of our controlling shareholder, or in our ratings, would likely increase our borrowing costs. For example, a ratingsrating downgrade could adversely affect our ability to sell or markettrade some of our products, such as subordinated securities, engage in certain longer-term and derivatives transactions, and retain our customers, particularly customers who need a minimum rating threshold in order to invest. In addition, under the terms of certain derivative contracts and other financial commitments, we may be required to maintain a minimum credit rating or risk termination of such contracts or require the posting of collateral. Any of these results of a ratings downgrade could reduce our liquidity and have an adverse effect on us, including our operating results and financial condition.
While certain potential impacts of these downgrades are contractual and quantifiable, the full consequences of a credit rating downgrade are inherently uncertain, as they depend upon numerous dynamic, complex and interrelated factors and assumptions, including market conditions at the time of any downgrade, whether the downgrade of our long-term credit rating indirectly downgrades our short-term credit rating, and assumptions about the potential behaviors of various customers, investors and counterparties. Actual outflows could be higher or lower than any hypothetical examples, depending upon certain factors, including: the credit rating agency issuing the downgrade, any management or restructuring actions that could be taken to reduce cash outflows, and the potential liquidity impact from loss of unsecured funding (such as from money market funds) or loss of secured funding capacity. Although unsecured and secured funding stresses are included in our stress-testing scenarios and a portion of our total liquid assets is held against these risks, a credit rating downgrade could still have a material adverse effect on us.
Santander Spain’s long-term debt is currently rated investment grade by the major rating agencies: A2 stable outlook by Moody’s, A with a stablenegative outlook by Standard & Poor’s Ratings Services, or “S&P,” and A- with a stablenegative outlook by Fitch Ratings Ltd., or “Fitch”.“Fitch.” In February 2017, S&P revised the outlook from stable to positive, reflecting the revised funding plans announced by Santander Spain, which give S&P comfort that Santander Spain will build a substantial additional loss-absorbing capacity buffer over the next two years. In June 2017, S&P revised the outlook from positive to stable as a result of the risks associated with the acquisition of Banco Popular Español, S.A. by Santander Spain. FollowingApril 2018, following the upgrade of the Spanish sovereign debt rating, in April 2018 S&P and Moody’s upgraded their ratings of Santander Spain from A- to A and from A3 to A2, respectively, and in July 2018, Fitch confirmed its rating and outlook. In 2019, the agencies maintained their 2018 analysis, considering, in some cases, a positive rating depending Santander Spain’s performance in 2019. However, due to the crisis caused by the COVID-19 pandemic and the macroeconomic deterioration in 2020, S&P and Fitch revised the outlook to negative, while Moody’s maintained its rating and outlook. In 2021, Fitch revised the outlook to stable and S&P revised its outlook to negative, considering the strength of Santander Spain’s geographic diversification and the fact that it has the potential to withstand an additional deterioration of its assets’ quality in some geographies and business segments. Santander Spain’s long-term debt in foreign currency is currently rated A+ with a negative outlook by S&P, and A2 with a stable outlook by Moody’s.
Santander Brasil’sOur long-term debt in foreign currency is currently rated BB- with a stable outlook by S&P and Ba3Ba1 with a stable outlook by Moody’s.
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S&P lowered Brazil’s credit rating in September 2015 from BBB- to BB+ (a non-investment-grade rating), and then again in mid-February 2016 from BB+ to BB with a negative outlook, mainly due to the continuing weak economic conditions of Brazil, political instability, the ongoingLava Jato investigations, and uncertainty as to whether the Brazilian government will enact reforms in the 2016 federal budget to improve the country’sBrazil’s fiscal accounts and economic situation. In January 2018, Brazil was further downgraded by S&P to BB- with a stable outlook as a result of the failure of the prior Brazilian government to approve certain reforms. Fitch also lowered Brazil’s credit rating in December 2015 from BBB to BB+ (a non-investment grade rating), and then again in May 2016 from BB+ to BB, citing Brazil’s worsening economic outlook and growing political crisis as reasons for downgrading the country.Brazil. In February 2018, Fitch further downgraded Brazil to BB-. Moody’s lowered Brazil’s credit rating from Baa2 to Baa3 (the lowest investment grade rating) in August 2015, and then to Ba2 (a non-investment-grade rating). Brazil’s sovereign rating is currently rated by the three major risk rating agencies as follows: BB- (stable) by S&P and Fitch, and Ba2 (stable) by Moody’s. Any further downgrade in Brazil’s sovereign rating would likely increase our funding costs and adversely affect us, including our asset quality.
As a result of the lowering of Brazil’s sovereign credit rating, our long-term foreign currency credit rating was lowered during the course of 2015 and in early 2016. On August 12, 2015, Moody’s lowered our credit rating from Baa2 to Baa3, lowering it again on February 25, 2016 to Ba3, and in March and
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May 2017, it affirmed the rating at Ba3.of Ba1. On September 10, 2015, S&P lowered our credit rating from BBB- to BB+ (a non-investment-grade rating), lowering it again on February 17, 2016 to BB and maintaining the rating at BB in August 2017 while changing the outlook to negative. In January 2018, Santander Brasil waswe were downgraded by S&P to BB- with a stable outlook from BB with a negative outlook. In February 2019, Santander Brasil was upgraded by S&P to BB- with a stable outlook from BB- with a negative outlook. We are currently rated as follows: Ba1BB- by S&P and Ba3Ba1 by Moody’s, both with a stable outlook. Any further downgrade in our long-term debt in foreign currency would likely increase our funding costs and adversely affect our interest margins and results of operations.
We cannot assure that the rating agencies will maintain their current ratings or outlooks, or with regard to those rating agencies that have a negative outlook with respect to us or our controlling shareholder, there can be no assurances that such agencies will revise such outlooks upward. In general, the future evolution of our ratings will be linked, to a large extent, to the macroeconomic outlook and to the impact of the COVID-19 pandemic (including, for example, additional waves, new lockdowns, etc.) on our asset quality, profitability and capital, as well as on the rating of Santander Spain. Our failure to maintain favorable ratings and outlooks would likely increase our cost of funding and adversely affect our interest margins and results of operations.
The effectiveness of our credit risk management is affected by the quality and scope of information available in Brazil.
In assessing customers’ creditworthiness, we rely largely on the credit information available from our own internal databases, certain publicly available customer credit information, information relating to credit contracted, which is provided by the Brazilian Central Bank and other sources. Due to limitations in the availability of information and the developing information infrastructure in Brazil, our assessment of credit risk associated with a particular customer may not be based on complete, accurate or reliable information. In addition, we cannot assure that our credit scoring systems collect complete or accurate information reflecting the actual behavior of customers or that their credit risk can be assessed correctly. Without complete, accurate and reliable information, we have to rely on other publicly available resources and our internal resources, which may not be effective. As a result, our ability to effectively manage our credit risk and subsequently our allowances for impairment losses may be materially adversely affected.
Our hedging strategy may not be able to prevent losses.
We use a range of strategies and instruments, including entering into derivative and other transactions, to hedge our exposure to market, credit and operational risks. Nevertheless, we may not be able to hedge all risks to which we are exposed, whether partially or in full. Furthermore, the hedging strategies and instruments on which we rely may not achieve their intended purpose. Any failure in our hedging strategy or in the hedging instruments on which we rely could result in losses to us and have a material adverse effect on our business, financial condition and results of operations.
Inadequate pricing methodologies for insurance, pension plan and premium bond products may adversely affect us.
We establish prices and make calculations in relation to our insurance and pension products based on actuarial or statistical estimates. The pricing of our insurance and pension plan products is based on models that include a number of assumptions and projections that may prove to be incorrect, since these assumptions and projections involve the exercise of judgment with respect to the levels and timing of receipt or payment of premiums, contributions, provisions, benefits, claims, expenses, interest, investment results, retirement, mortality, morbidity, and persistence. We could suffer losses due to events that are contrary to our expectations as a result of, among others, incorrect biometric and economic assumptions or the use of incorrect actuarial bases in the calculation of contributions and provisions.
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Although the pricing of our insurance and pension plan products and the adequacy of the associated reserves are reassessed on a yearly basis, we cannot accurately determine whether our assets supporting our policy liabilities, together with future premiums and contributions, will be sufficient for the payment of benefits, claims and expenses. Accordingly, the occurrence of significant deviations from our pricing assumptions could have an adverse effect on the profitability of our insurance and pension products. In
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addition, if we conclude that our reserves and future premiums are insufficient to cover future policy benefits and claims, we will be required to increase our reserves and record these effects in our financial statements, which may have a material adverse effect on us.
Social and environmental risks may have a material adverse effect on us.
As part of the risk analysis we undertake with respect to our customers, we take into account environmental factors (such as soil and water contamination, vegetation suppression, or lack of environmental authorizations) as well as social factors (such as the existence of working conditions akin to slavery). We are also exposed to the risk that our assessment that a product or service we provide is socially or environmentally responsible will be challenged by customers, regulators or third parties. Any failure by us to identify and accurately assess these factors and the potential risks to us before entering into proposed transactions with our customers may result in damage to our image and reputation, as well as have a material adverse effect on our business, results of operations and financial condition.
Furthermore, the Brazilian Central Bank has recently issued new regulations and standards applicable to us relating to the management and governance of social, environmental and climate risks by financial institutions. These rules relate both to risks resulting from our products, services and activities, and to risks arising out of the activities of our counterparties, controlled entities, suppliers and outsourced service providers. The majority of these regulations will enter into effect in July 2022. Any failure by us to adequately identify and assess these risks may subject us to future sanctions by the Brazilian Central Bank, as well as have a material adverse impact on our business and financial condition. For more information on the new regulatory requirements issued by the Brazilian Central Bank relating to environmental, social and governance requirements applicable to Brazilian financial institutions, see “Item 4. Information on the Company—B. Business Overview—Regulation and Supervision—Other Applicable Laws and Regulations—Environmental, Social and Governance (ESG) requirements applicable to financial institutions.”
The value of the collateral securing our loans may not be sufficient, and we may be unable to realize the full value of the collateral securing our loan portfolio.
The value of the collateral securing our loan portfolio may fluctuate or decline due to factors beyond our control, including among others,as a result of a prolonged COVID-19 pandemic or a weaker than expected economic recovery after the COVID-19 pandemic and macroeconomic factors globally and in Brazil, as well asforce majeure events. events, such as natural disasters (including as a result of climate change). We may also not have sufficiently recent information on the value of collateral, which may result in an inaccurate assessment for impairment losses of our loans secured by such collateral. If any of the above were to occur, we may need to make additional provisions to cover actual impairment losses of our loans, which may materially and adversely affect our results of operations and financial condition.
We may face significant challenges in possessing and realizing value from collateral with respect to loans in default.
If all resources appliedwe are unable to recover ofsums owed to us under secured loans in default through extrajudicial measures are not sufficient,such as restructurings, our last recourse with respect to such loans may be to enforce the collateral secured in our favor by the applicable borrower. Depending on the type of collateral granted, we mayeither have to enforce thesuch collateral through the courts or through extrajudicial measures. However, we may face delays oneven where the enforcement mechanism is duly established by the law, Brazilian law allows borrowers to challenge the enforcement in the courts, even if such challenge is unfounded, which can delay the realization of value from the collateral due to juridical measures foreseen bycollateral. In addition, our secured claims under Brazilian law will in certain cases rank below those of preferred creditors such as challenge in the courts, ranking of preferred creditors.employees and tax authorities. As a result, we may not be able to realize value from the collateral, or may only be able to do so to a limited extent or after a significant amount of time, thereby potentially adversely affecting our financial condition and results may be potentially affect by the inability to realize the value of the collateral, in full or at all or, by delay in realizing such collateraloperations.
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We are subject to market, operational and other related risks associated with our derivative transactions and our investment positions that could have a material adverse effect on us.
We enter into derivative transactions for trading purposes, as well as for hedging purposes. We are subject to market, credit and operational risks associated with these transactions, including basis risk (the risk of loss associated with variations in the spread between the asset yield and the funding and/or hedge cost) and credit or default risk (the risk of insolvency or other inability of the counterparty to a particular transaction to perform its obligations thereunder, including providing sufficient collateral). We also hold securities in our own portfolio as part of our investment and hedging strategies.
Financial instruments, including derivative instruments and securities represented 86.7%88.6% of our total assets as of December 31, 2019. 2021. As of December 31, 2021, the notional value of derivatives in our books amounted to R$2,427,444 million (with a market value of R$21,125 million of debit balance and R$24,619 million of credit balance).
Any realized or unrealized future gains or losses from these investments or hedging strategies could have a significant impact on our income. These gains and losses, which we account for when we sell or mark to market investments in financial instruments, can vary considerably from one period to another. If, for example, we enter into derivatives transactions to protect ourselves against decreases in the value of thereal or in interest rates and thereal instead increases in value or interest rates increase, we may incur financial losses. We cannot forecast the amount of gains or losses in any future period, and the variations experienced from one period to another do not necessarily provide a meaningful forward-looking reference point. Gains or losses in our investment portfolio may create volatility in net revenue levels, and we may not earn a return on our consolidated investment portfolio, or on a part of the portfolio in the future. Any losses on our securities and derivative financial instruments could materially and adversely affect our operating income and
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financial condition. In addition, any decrease in the value of these securities and derivatives portfolios may result in a decrease in our capital ratios, which could impair our ability to engage in lending activity at the levels we currently anticipate.
The execution and performance of these transactions depend on our ability to maintain adequate control and administration systems. Our ability to adequately monitor, analyze and report derivative transactions continues to depend, largely, on our information technology systems. These factors further increase the risks associated with these transactions and could have a material adverse effect on us.
We may not effectively manage risks associated with the replacement or reform of benchmark indices.
Interest rate, equity, foreign exchange rate and other types of indices, which are deemed to be “benchmarks” are“benchmarks,” including those in widespread and long-standing use, have been the subject of ongoing international, national and other regulatory scrutiny and initiatives and proposals for reform. Some of these reforms are already effective while others are still to be implemented or are under consideration. These reforms have caused and may in the future cause benchmarks to perform differently than in the past, or to disappear entirely, or have other consequences, which cannot be fully anticipated.
Any of the benchmark reforms which have been proposed or implemented, or the general increased regulatory scrutiny. For example, regardingscrutiny of benchmarks, could also increase the costs and risks of administering or otherwise participating in the setting of benchmarks and complying with regulations or requirements relating to benchmarks. Such factors may have the effect of discouraging market participants from continuing to administer or contribute to certain benchmarks, trigger changes in the rules or methodologies used in certain benchmarks or lead to the disappearance of certain benchmarks.
Any of these developments, and any future initiatives to regulate, reform or change the administration of benchmarks, could result in adverse consequences to the return on, value of and market for loans, mortgages, securities, derivatives and other financial instruments whose returns are linked to any such benchmark, including those issued, funded or held by us.
Various regulators, industry bodies and other market participants in the U.S. and other countries have worked to develop, introduce and encourage the use of alternative rates to replace certain benchmarks. A transition away from the widespread use of interest rate benchmarks to alternative rates has begun and will continue over the course of the next few years. While central bank-sponsored committees in 2017,various jurisdictions have recommended alternative rates for various important interest rate benchmarks, if a particular benchmark were to be discontinued and an alternative rate had not been successfully introduced to replace that benchmark, this could result in widespread dislocation in the UK’sfinancial markets, engender volatility in the pricing of securities, derivatives and other instruments, and suppress capital markets activities, all of which could have adverse effects on our results of operations. In addition, the transition of a particular benchmark to a replacement rate could affect hedge accounting relationships between financial instruments linked to that benchmark and any related derivatives, which could adversely affect our results.
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On 5 March 2021, the U.K. Financial Conduct Authority, or the “FCA,” announced that it will no longer persuade or compel banks to submit rates for the calculation ofwhich regulates the London interbank offered rate or “LIBOR,” benchmark(LIBOR), published an announcement to confirm the dates immediately after 2021. This announcement indicates that the continuation ofwhich all LIBOR on the current basis cannot andsettings will not be guaranteed after 2021. Therefore, after 2021 LIBOR mayeither cease to be produced. The Bankprovided by any administrator or no longer be representative: December 31, 2021 for all EUR, GBP, JPY and CHF LIBOR tenors and 1-week and 2-month USD LIBOR tenors, and June 30, 2023 for the remaining USD LIBOR tenors (overnight, 1-, 3-, 6- and 12-month). Therefore, since January 1, 2022, most LIBOR settings have ceased to be available. While publication of Englandthe 1-, 3- and 6-month GBP and JPY tenors will continue at least until the end of 2022 on the basis of a “synthetic” methodology, these rates are solely available for use in legacy transactions. In addition, while certain USD LIBOR tenors are expected to continue to be published until June 30, 2023, U.S. regulators and the FCA have published guidance instructing banks to cease entering into new contracts referencing USD LIBOR no later than December 31, 2021, with limited exceptions.
In October 2020, the International Swaps and Derivatives Association, or “ISDA,” launched the 2020 IBOR Fallbacks Protocol, which amends the ISDA’s interest rate definitions used among protocol adherents, to incorporate new fallbacks for legacy non-cleared derivatives linked to LIBOR and certain other interest rate benchmarks. The protocol became effective as of January 25, 2021. We have adhered to this new protocol. Similarly, ISDA’s IBOR Fallbacks Supplement also amended ISDA’s standard definitions to incorporate these new fallbacks in new derivatives entered into on or after that same effective date. Following December 31, 2021, derivatives referencing non-USD LIBOR that were amended through adherence to the 2020 IBOR Fallbacks Protocol or that incorporate the IBOR Fallbacks Supplement are working with market participants to catalyze a transition toor will be valued using Sonia. In addition, the European Money Market Institute (“EMMI”) announced the discontinuationadjusted version of the Euro OverNight Index Average, or “EONIA,” after January 3, 2022 and that from October 2, 2019 until its total discontinuation it will be replacedapplicable risk-free reference rate selected as an alternative to the applicable IBOR by the euro short-term rate,appropriate national committee.
With respect to USD LIBOR-linked contracts that are governed by New York law, New York State has enacted legislation that will replace references to LIBOR in certain contracts with a benchmark based on the Secured Overnight Financing Rate (SOFR), including any spread adjustment, recommended by the Federal Reserve Board, the Federal Reserve Bank of New York or “€STR,”) plusthe Alternative Reference Rates Committee (the ARRC) convened by the Federal Reserve Board and the Federal Reserve Bank of New York. The Federal Reserve Bank of New York currently publishes the SOFR based on overnight U.S. Treasury repurchase agreement transactions, which has been recommended as the alternative to USD LIBOR by the ARRC.
Our exposure to LIBOR-linked contracts as of December 31, 2021 was limited and related only to USD LIBOR. In 2021, we adopted the SOFR (Secured Overnight Finance Rate) as a spread of 8.5 basis points. replacement for USD LIBOR for new agreements and since January 1, 2022 we are no longer entering into new USD LIBOR transactions. We are communicating with our customers to amend existing agreements to include appropriate fallback clauses for when USD LIBOR ceases to be published.
These and other reforms have caused and may in the future cause benchmarks to perform differently than in the past, or to disappear entirely, or have other consequences, which cannot be fully anticipated, which introducesintroduce a number of risks for us. These risks include (i) legal risks arising from potential changes required to documentation for new and existing transactions; (ii) risk management, financial and accounting risks arising from market risk models and from valuation, hedging, discontinuation and recognition of financial instruments linked to benchmark rates; (iii) business risk that theof a decrease in revenues of products linked to LIBOR (in particular those indices that will be replaced) decrease;replaced; (iv) pricing risks arising from how changes to benchmark indices could impact pricing mechanisms on some instruments; (v) operational risks arising from the potential requirement to adapt IT systems, trade reporting infrastructure and operational processes; and (vi) conduct risks arising from the potential impact of communication with customers and engagement during the transition period.period and inquiries, reviews or other actions from regulators regarding our preparation, readiness and transition plans and (vii) litigation risks and risks relating to other disputes and actions with clients, counterparties, investors and other parties regarding our existing products and services, which could adversely impact our profitability. The replacement benchmarks and their transition path have been defined, but, with respect to some benchmarks, the mechanisms for implementation are under development. Accordingly, it is not currently possible to determine whether, or to what extent, any such changes would affect us. However, the implementation of alternative benchmark rates may have a material adverse effect on our business, results of operations, financial condition and prospects. We may also be adversely affected if the change restricts our ability to provide products and services or if it necessitates the development of additional information technology systems.
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Failure to successfully implement and continue to improve our risk management policies, procedures and methods, including our credit risk management system,systems, could materially and adversely affect us, and we may be exposed to unidentified or unanticipated risks.
TheRisk management of risk is an integral part of our activities. We seek to monitor and manage our risk exposure through a variety of separate but complementary financial, credit, market, operational, compliance and legal reporting systems, among others. We employ a broad and diversified set of risk monitoring and risk mitigation techniques, which may not be fully effective in mitigating our risk exposure in all economic market environments or against all types of risk, including risks that we may fail to identify or anticipate.
We use certain qualitative tools and metrics for managing market risk, including our use of value at risk, or “VaR,” and statistical modeling tools, which are based upon our use of observed historical market behavior. We apply statistical and other tools to these observations to arrive at quantifications of our risk exposures. These qualitative tools and metrics may fail to predict future risk exposures. These risk exposures could, for example, arise from factors we did not anticipate or correctly evaluate in our statistical models. This would limit our ability to manage our risks. OurThus, our losses thus could be significantly greaterhigher than the historical measures indicate. In addition, our quantified modeling doesstatistical models may not
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take all risks into account. Our more qualitative approach to managing those risks could prove insufficient, exposing us to material unanticipated losses. We could face adverse consequences as a result of decisions, which may lead management to, based on models that are poorly developed, implemented or used, or as a result of the modeled outcome, misunderstand or misuse such information for purposes for which it was not designed. In addition, if existing or potential customers or counterparties believe our risk management is inadequate, they could take their business elsewhere or seek to limit their transactions with us. Any of these factors could have a material adverse effect on our reputation, as well as our revenues and profits. We also face risks from operational losses that may occur due to inadequate processes, people and systems failures or even from external events like natural disasters, terrorism, robbery and vandalism. Despite the operational risk management process supported by the Board and the internal audit tests, the internal controls and procedures effectiveness may not be fully adequate or sufficient to avoid all the known and unknown operational risks. We have suffered losses from operational risk in the past, including losses related to the migration of customer accounts in connection with acquisitions, phishing scams perpetuated by third parties, and information system platform upgrades. There can be no assurance that we will not suffer material losses from operational risk in the future, including losses related to security breaches.
As a retail bank, one of the main types of risks inherent in our business is credit risk. For example, an important feature of our credit risk management system is to employ an internal credit rating system to assess the particular risk profile of a customer.individual customers and SMEs. As this process involves detailed analyses of the customer, taking into account both quantitative and qualitative factors, it is subject to human or IT systems errors. In exercising their judgment on current or future credit risk behavior of our customers, our employees may not always be able to assign an accurate credit rating, which may result in oura higher exposure to higher credit risks than indicated by our risk rating system.
Some of the models and other analytical and judgment-based estimations we use in managing risks are subject to review by, and require the approval of, our regulators. If models do not comply with all their expectations, our regulators may require us to make changes to such models, may approve them with additional capital requirements, or we may be precluded from using them. Any of these potential situations could limit our ability to expand our businesses or have a material impact on our financial results.
Failure to effectively implement, consistently monitor or continuously refine our credit risk management system may result in an increase in the level of non-performing loans and a higher risk exposure for us, which could have a material adverse effect on us.
Failure to adequately protect ourselves against risks relating to cybersecurity could materially and adversely affect us. We are also subject to increasing scrutiny and regulation governing cybersecurity risks.
We face various cybersecurity risks, including but not limited to: penetration of our information technology systems and platforms by ill-intentioned third parties, infiltration of malware (such as computer viruses) into our systems, contamination (whether intentional or accidental) of our networks and systems by third parties with whom we exchange data, unauthorized access to confidential customer and/or proprietary data by persons inside or outside our organization, ransomware affecting our services and cyber-attacksend-user technology, social engineering and phishing attacks, and cyberattacks causing systems degradation or service unavailability that may result in business losses.
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We may not be able to successfully protect our information technology systems and platforms against such threats. We have seen in recent years computer systems of companies and organizations being increasingly targeted, and the techniques used to obtain unauthorized, improper or illegal access to information technology systems have become increasingly complex and sophisticated. Furthermore, such techniques change frequently and are often not recognized or detected until after they have been launched and can originate from a wide variety of sources, including not only by cyber criminals, but also by activists and rogue states. We have been and continue to be subject to a range of cyber-attacks,cyberattacks, such as denial of service, malware and phishing. Cyber-attacksCyberattacks could give rise to the loss of significant amounts of customer data and other sensitive information, as well as significant levels of liquid assets (including cash). In addition, cyber-attackscyberattacks could give rise to the disablement ofdisrupt our information technologyelectronic systems used to service our customers.
If we fall victim to successful cyber-attackscyberattacks or experience cybersecurity, operational or security incidents in the future, we
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may incur substantial costs and suffer other negative consequences, such as remediation costs (liabilities for stolen assets or information, or repairs of system damage, among others), increased cybersecurity protection costs, lost revenues arising from the unauthorized use of proprietary information or the failure to retain or attract customers following an attack, as already mentioned, litigation and legal risks, increased insurance premiums, reputational damage affecting our customers’ and investors’ confidence, as well as damages to our competitiveness, stock price and long-term shareholder value.
We are also subject to increasing scrutiny and regulation governing cybersecurity risks. Such regulation is fragmented and constantly evolving.evolving, and includes CMN Resolution No. 4,893/2021. See “Item 4B—4. Information on the Company��B. Business Overview—Regulation and Supervision—Other Applicable Laws and Regulations—Regulations on Cybersecurity”.Cybersecurity.” We could be adversely affected if new legislation or regulations are adopted or if existing legislation or regulations are modified such that we are required to alter our systems or require changes to our business practices or policies. A failure to implement all or some of these new global and local regulations, that in some cases have severe sanctions regimes, could also have a material adverse effect on us. If we fail to effectively manage our cybersecurity risk, for example, by failing to update our systems and processes in response to new threats, this could harm our reputation and adversely affect our operating results, financial condition and prospects through the payment of customer compensation or other damages, litigation expenses, regulatory penalties and fines and/or through the loss of assets. Furthermore, upon a failure to comply with applicable law and regulation, we may be ordered to change our business practices, policies or systems in a manner that adversely impacts our operating results.
In addition, we may also be subject to cyber-attackscyberattacks against critical infrastructures of Brazil. Our information technology systems are dependent on such critical infrastructure, and any cyber-attackcyberattack against such critical infrastructure could negatively affect our ability to service our customers. As we do not operate such critical infrastructure, we have limited ability to protect our information technology systems from the adverse effects of such a cyber-attack.cyberattack. See “Item 4. Information on the Company—B. Business Overview.”
It is important to highlight that even when a failure of or interruption in our systems or facilities is resolved in a timely manner or an attempted cyber incident or other security breach is successfully avoided or thwarted, normally substantial resources are expended in doing so, and we may be required to take actions that could adversely affect customer satisfaction or behavior, as well as represent a threat to our reputation.
For additional information, see also “—We are subject to increasing scrutiny and regulation from data protection laws, including penalties in the event of noncompliance with the terms and conditions of certain new European and Brazilian regulations” and “—Failure to protect personal information could adversely affect us.”
We are subject to counterparty risk in our business.
We are exposed to counterparty risk in addition to credit risks associated with lending activities. Counterparty risk may arise from, for example, investing in securities of third parties, entering into derivative contracts under which counterparties have obligations to make payments to us, or executing securities, futures, currency or commodity trades from proprietary trading activities that fail to settle at the required time due to non-delivery by the counterparty or systems failure by clearing agents, clearing houses or other financial intermediaries.
We routinely transact with counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks, mutual funds, hedge funds and other institutional customers. Defaults by, and even rumors or questions about the solvency of, certain financial institutions and the financial services industry generally have led to market-wide liquidity problems and could lead to losses or defaults by other institutions. Many of the routine transactions we enter into expose us to significant credit risk in the event of default by one of our significant counterparties.
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If these risks give rise to losses, this could materially and adversely affect us. We have a diversified loan portfolio, with no specific concentration exceeding 10% of total loans. Furthermore, currently, 0.9%1.2% of our loan portfolio is allocated to our largest debtor and 6.9%7.4% to our next 10 largest debtors.
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However, we cannot assure this will continue to be the case. If counterparty risks give rise to losses, this could materially and adversely affect our results of operations and financial condition.
Our financial results are constantly exposed to market risk. We are subject to fluctuations in interest rates and other market risks, which may materially and adversely affect us and our profitability.
The COVID-19 pandemic has caused and may continue to cause significant market volatility which may materially and adversely affect us and our trading and banking book.
Market risk refers to the probability of variations in our interest income/(charges) or in the market value of our assets and liabilities due to volatility of interest rate, inflation, exchange rate, commodity price or equity price. Changes in interest rates affect the following areas, among others, of our business:
● | interest income / (charges); |
● | the volume of loans originated; |
● | credit spreads; |
● | the market value of our securities holdings; |
● | the value of our loans and deposits; and |
● | the value of our derivatives transactions. |
Interest rates are sensitive to many factors beyond our control, including increased regulation of the financial sector, monetary policies and domestic and international economic and political conditions. Variations in interest rates could affect the interest earned on our assets and the interest paid on our borrowings, thereby affecting our interest income/(charges), which comprises the majority of our revenue, reducing our growth rate and potentially resulting in losses. In addition, costs we incur as we implement strategies to reduce interest rate exposure could increase in the future (which, in turn, will impact our results).
Due to the historically low interest rate environment in Brazil in recent years, the rates on many of our interest-bearing deposit products have been priced at or near zero or negative, limiting our ability to further reduce rates and thus negatively impacting our margins.
Interest rates have been increasing in Brazil since March 2021. Increases in interest rates may reduce the volume of loans we originate. We have generally observed an inversely proportional relationship between interest rates and credit demand. We believe this is due to the fact that higher interest rates increase transaction costs and therefore discourage consumption. However, the demand for certain products and services, such as overdrafts and revolving checks, is not significantly affected by increases in interest rates. As a result of these factors, we estimate that the recent increases in interest rates could result both in decreased demand for credit products but also in changes to the overall composition of our portfolio.
Sustained high interest rates may dampen economic growth. Higher interest rates have historically discouraged customers from borrowing and have resulted in increased delinquencies in outstanding loans and deterioration in the quality of assets.
Increases in interest rates may reduce the value of our financial assets and may reduce gains or require us to record losses on sales of our loans or securities. In particular, certain assets are constantly marked-to-market and are therefore affected by changes in prevailing interest rates. This process may result in significant reductions in book values and to impairment losses.
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We are also exposed to foreign exchange rate risk as a result of mismatches between assets and liabilities denominated in different currencies. Fluctuations in the exchange rate between currencies may negatively affect our earnings and value of our assets and securities.
We are also exposed to equity price risk in our investments in equity securities in the banking book and in the trading portfolio. The performance of financial markets may cause changes in the value of our investment and trading portfolios. The volatility of world equity markets due to the continued economic uncertainty and sovereign debt crisis has had a particularly strong impact on the financial sector. Continued volatility may affect the value of our investments in equity securities and, depending on their fair value and future recovery expectations, could become a permanent impairment which would be subject to write-offs against our results.
Market conditions have resulted and could result in material changes to the estimated fair values of our financial assets. Negative fair value adjustments could have a material adverse effect on our operating results, financial condition and prospects.
In the past, financial markets have been subject to significant stress resulting in steep falls in perceived or actual financial asset values, particularly due to volatility in global financial markets and the resulting widening of credit spreads, including as a result of the COVID-19 pandemic. We have material exposures to securities, loans and other investments that are recorded at fair value and are therefore exposed to potential negative fair value adjustments. Asset valuations in future periods, reflecting then-prevailing market conditions, may result in negative changes in the fair values of our financial assets and these may also translate into increased impairments. In addition, the value ultimately realized by us on disposal may be lower than the current fair value. Any of these factors could require us to record negative fair value adjustments, which may have a material adverse effect on our operating results, financial condition or prospects.
In addition, to the extent that fair values are determined using financial valuation models, such values may be inaccurate or subject to change, as the data used by such models may not be available or may become unavailable due to changes in market conditions, particularly for illiquid assets, and particularly in times of economic instability. In such circumstances, our valuation methodologies require us to make assumptions, judgements and estimates in order to establish fair value, and reliable assumptions are difficult to make and are inherently uncertain and valuation models are complex, making them inherently imperfect predictors of actual results. Any consequential impairments or write-downs could have a material adverse effect on our operating results, financial condition and prospects.
We face risks related to market concentration.
Concentration risk is an essential factorthe risk associated with potential high financial losses triggered by significant exposure to particular component of risk, whether it be related to a particular counterparty, industry or geographic concentration. Examples of such risks include significant exposure to a single counterparty, to counterparties operating in the managementsame economic sector or geographical region, or to financial instruments that depend on the same index or currency.
We believe that an excessive concentration with respect to a particular risk factor could generate a relevant financial loss for us, especially if the risk is one described in this annual report. We recognize the importance of creditthis risk and is therefore monitored continuously. Aspects such as the economic sector, concentrationpotential impacts that may affect our portfolio and results of risk in certain groups of customers and products, are assessed monthly as part of the Risk Appetite exercise. This risk arises from the imperfect diversification of credit portfolios, which may derive from “name concentration” (incomplete diversification of the borrower's idiosyncratic risk) and “concentration sector ”(existence of multiple systematic risk factors, generally related to sectors of the economy, but also has other sources as origin, such as geographic location or factors macroeconomic conditions).
We acknowledge that any excessive concentration of risk could have a material adverse effect on us if the relevant risk materializes and generates a substantial financial loss.
operations.
The financial problems faced by our customers could adversely affect us.
MarketPotential market turmoil and economic recession could materially and adversely affect the liquidity, credit ratings, businesses and/or financial conditions of our borrowers, which could in turn increase our non-performingnonperforming loan ratios, impair our loan and other financial assets, and result in decreased demand for borrowings in general. We have credit exposure to borrowers whichthat have entered or may shortly enter into bankruptcy or similar proceedings. We may experience material losses from this exposure.
In addition, our customers may further significantly decrease their risk tolerance to non-deposit investments such as stocks, bonds and mutual funds, which would adversely affect our fee and commission income. Any of the conditions described above could have a material adverse effect on us.
We engage in transactions with related parties that others may not consider to be on an arm’s- lengtharm’s-length basis.
We and our affiliates have entered into a number of services agreements pursuant to which we render and/or receive services, such as administrative, accounting, finance, treasury, legal services and others from (or provide such services to) related parties. We are likely to continue to engage in transactions with such related parties (including our controlling shareholder) that others may not consider to be on an arm’s-length basis. Future conflicts of interests may arise between us and any of our affiliates, or among our affiliates, which may not be resolved in our favor. See “Item 7. Major Shareholders and Related Party Transactions.”
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Changes in accounting standards could impact reported earnings.
The accounting standard setters and other regulatory bodies periodically change the financial accounting and reporting standards that govern the preparation of our consolidated financial statements. These changes can materially impact how we record and report our financial condition and results of operations. In some cases, we could be required to apply a new or revised standard retroactively, resulting in the restatement of prior period financial statements.
For further information about developments in financial accounting and reporting standards see note 1 to our audited consolidated financial statements included elsewhere in this annual report.
Our financial statements are based in part on assumptions and estimates which, if inaccurate, could cause material misstatement ofthat impact the results of our operations and financial position.
operations.
The preparation of financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities, income and expenses. Due to the inherent uncertainty in making estimates, actual results reported in future periods may be based upon amounts whichthat differ from those estimates. Estimates, judgments and assumptions are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Revisions to accounting estimates
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are recognized in the period in which the estimate is revised and in any future periods affected. The accounting policies deemed critical to our results and financial position, based upon materiality and significant judgments and estimates, include impairment of loans and advances,financial assets measured at amortized cost, goodwill impairment, valuation of financial instruments, impairment of available-for-sale financial assets measured at fair value through other comprehensive income, deferred tax assets provision, and pension obligation for liabilities.
If the judgment, estimates and assumptions we use in preparing our consolidated financial statements are subsequently found to be incorrect, there could be a material effect on our results of operations and a corresponding effect on our funding requirements and capital ratios.
Our business is highly dependent on the proper functioning of our information technology systems.
Our business is highly dependent on the ability of our information technology systems to accurately process a large number of transactions across numerous and diverse markets and products in a timely manner, and on our ability to rely on our digital technologies, computer and email services, software, and networks, as well as on the secure processing, storage and transmission of confidential data and other information in our computer systems and networks. The proper functioning of our financial control, risk management, accounting, customer service and other data processing systems is critical to our business and our ability to compete effectively.
We do not operate all of our redundant systems on a real-time basis and cannot assure that our business activities would not be materially disrupted if there were a partial or complete failure of any of these primary information technology systems or communication networks. Such failures could be caused by, among other things, major natural catastrophes, software bugs, computer virus attacks, conversion errors due to system upgrading, security breaches caused by unauthorized access to information or systems, or intentional malfunctions or loss or corruption of data, software, hardware or other computer equipment. Any such failures could disrupt our business and impair our ability to provide our services and products effectively to our customers, which could adversely affect our reputation as well as our business, results of operations and financial condition.
Our ability to remain competitive and achieve further growth will depend in part on our ability to upgrade our information technology systems and increase our capacity on a timely and cost-effective basis. We must continually make significant investments and improvements in our information technology infrastructure in order to remain competitive. We cannot assure that in the future we will be able to maintain the level of capital expenditures necessary to support the improvement or upgrading of our information technology infrastructure. Any substantial failure to improve or upgrade our information technology infrastructure and management systems effectivelyin an effective, timely and cost-effective manner, including in response to new or onmodified cybersecurity and data privacy laws, rules and regulations could have a timely basis could materially and adversely affectmaterial adverse effect on us.
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Failure to protect personal information could adversely affect us.
We receive, maintain and store confidential personal information of our customers and counterparties, including, but not limited to, personally identifiable information and personal financial information in the ordinary course of our banking operations. The sharing, use, disclosure and protection of this information are governed by various Brazilian and foreign laws.
Although we have procedures and controls in place to safeguard personal and other confidential or sensitive information in our possession, unauthorized disclosuresaccess or security breachesdisclosures could subject us to legal actions and administrative sanctions, as well as damages and reputational harm that could materially and adversely affect our operating results, financial condition and prospects. Further,Furthermore, our business is exposed to risk from employees’ potential non-compliance with policies, employee misconduct, or negligence andor fraud, which could result in regulatory sanctions and serious reputational orand financial harm. It is not always possible to deter or prevent employee misconduct, and the precautions we take to detect and prevent this activity may not always be effective. We also face the risk that the design of our controls and procedures prove to be inadequate or are circumvented such that the data we hold is incomplete, not recoverable or not securely stored. In addition, we may be required to report events related to information security issues, (including any cyber security issues), events where customer information may be compromised, unauthorized access to our systems and other security
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breaches, to the relevant regulatory authorities. Any material disruption or slowdown of our systems could cause information, including data related to customer requests, to be lost or delivered to our customers with delays or errors, which could reduce demand for our services and products and could materially and adversely affect us. In addition, ifIf we cannot maintain an effective and secure electronic data and information, management systemand processing systems or if we fail to maintain complete physical and electronic records, this could result in disruptions to our operations, claims from customers, regulators, employees and other parties, violations of applicable privacy and other laws, regulatory sanctions and serious reputational and financial harm to us. Moreover, as a result of the COVID-19 pandemic, we have increased the number of employees working remotely, which may increase the vulnerability of our systems and impact our ability to conduct business.
Furthermore, data breaches and other security incidents with respect to our or our third-party vendors’ systems could adversely affect our business or reputation, and create significant legal, regulatory or financial exposure. Although we work with our clients, vendors, service providers, counterparties and other third parties to develop secure data and information processing, collection, authentication, management, usage, storage and transmission capabilities and to ensure the eventual destruction of sensitive and confidential information, including personal information, to prevent against information security risk, we routinely manage personal, confidential and proprietary information by electronic means, and we, our third-party vendors or other third parties with which we do business may be the target of attempted cyberattacks or subject to other information security incidents or breaches. This is especially applicable in the current environment, which is still being affected by the COVID-19 pandemic, and the shift to work-from-home policies for a significant portion of our workforce, as they access our secure networks remotely (see “—The global COVID-19 pandemic has materially impacted our business, and the continuance of this pandemic or any future outbreak of any other highly contagious diseases or other public health emergency, could materially and adversely impact our business, financial condition, liquidity and results of operations”). If we cannot maintain effective and secure electronic data and information (including personal information), management and processing systems or if we fail to maintain complete physical and electronic records, this could result in disruptions to our operations, litigation or claims from customers, regulators, employees and other third parties, violations of applicable privacy and other laws, rules or regulations, regulatory sanctions and serious reputational and financial harm to us.
For additional information, see also “—We are subject to increasing scrutiny and regulation from data protection laws, including penalties in the event of noncompliance with the terms and conditions of certain new European and Brazilian regulations” and “—Failure to adequately protect ourselves against risks relating to cybersecurity could materially and adversely affect us. We are also subject to increasing scrutiny and regulation governing cybersecurity risks.”
Damage to our reputation could cause harm to us.
Maintaining a positive reputation is critical to protect our brand, attract and retain customers, investors and employees and conduct business transactions with counterparties. Damage to our reputation cancould therefore cause significant harm to our business and prospects. Harm to our reputation cancould arise from numerous sources, including, among others, employee misconduct, including the possibility of fraud perpetrated by our employees, litigation or regulatory enforcement, failure to deliver minimum standards of service and quality, dealings with sectors that are not well perceived by the public, ratings downgrades, significant fluctuations in our share price, dealing with customers in sanctions lists, rating downgrades, significant variations in the price of our ADRs throughout the year, compliance failures, unethical behavior, and the activities of customers, service providers and other counterparties, including activities that negatively affect the environment. Further, negative publicity regarding us may result in harm to our prospects.
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Actions by the financial services industry generally or by certain members of, or individuals in, the industry can also affect our reputation. For example, the role played by financial services firms in the financial crisis and the seeming shift toward increasing regulatory supervision and enforcement has caused public perception of us and others in the financial services industry to decline.
We could suffer significant reputational harm if we fail to identify and manage potential conflicts of interest properly. The failure, or perceived failure, to adequately address conflicts of interest could affect the willingness of clientscustomers to deal with us or give rise to litigation or enforcement actions against us. Therefore, there can be no assurance that conflicts of interest will not arise in the future that could cause material harm to us.
We may be the subject of misinformation and misrepresentations deliberately propagated to harm our reputation or for other deceitful purposes, or by profiteering short sellers seeking to gain an illegal market advantage by spreading false information about us. There can be no assurance that we will effectively neutralize and contain false information that may be propagated regarding us, which could have an adverse effect on our operating results, financial condition and prospects.
We plan to continue to expand our operations and we may not be able to manage such growth effectively, which could have an adverse impact on us, including our profitability.
We may also not be successful in any reorganizations, dispositions or spin-offs we undertake.
We allocate management and planning resources to develop strategic plans for organic growth and to identify possible acquisitions and disposals and areas for restructuring our businesses. From time to time, we evaluate acquisition and partnership opportunities that can offer additional value to our shareholders and are consistent with our business strategy. However, we may not be able to identify suitable acquisition or partnership candidates, and our ability to benefit from any such acquisitions and partnerships will depend in part on our successful integration of those businesses. Any such integration entails significant risks such as unforeseen difficulties in integrating operations and systems and unexpected liabilities or contingencies relating to the acquired businesses, including legal claims. We cannot provide assurance that we will, in all cases, be able to manage our growth effectively or deliver our strategic growth objectives. Challenges that may result from our strategic growth decisions include our ability to:
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manage efficiently the operations and employees of expanding businesses; |
maintain or grow our existing customer base; |
assess the value, strengths and weaknesses of investment or acquisition candidates, including local regulation that can reduce or eliminate expected synergies; |
finance and integrate strategic investments or acquisitions; |
align our current information technology systems adequately with those of an enlarged group; |
apply our risk management policy effectively to an enlarged group; and |
manage a growing number of entities without |
Any failure to manage growth effectively could have a material adverse effect on our operating results, financial condition and prospects.
In addition, any acquisition or venture could result in the loss of key employees and inconsistencies in standards, controls, procedures and policies.
Moreover, the success of the acquisition or venture will at least in part be subject to a number of political, economic and other factors that are beyond our control. Any of these factors, individually or collectively, could have a material adverse effect on us.
Similarly, we cannot ensure that we will be able to successfully divest or spin off businesses or other assets that we have identified for this purpose, or that any completed divestment or spin-off will achieve the expected strategic benefits, operational efficiencies or opportunities, or that the divestment or spin-off will ultimately maximize shareholder value.
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We may not realize the anticipated benefits from the Spin-Off, and the Spin-Off could harm our business.
We completed the Spin-Off of our merchant acquiring business, conducted through Getnet and its consolidated subsidiaries, in October 2021. We cannot assure you that the Spin-Off will achieve the expected strategic benefits, operational efficiencies or opportunities we envisaged, or that it will ultimately maximize shareholder value.
Furthermore, on April 15, 2021, we entered into the Getnet Partnership Agreement with Getnet, which provides a framework for our relationship with Getnet following the Spin-Off. Pursuant to the Partnership Agreement, both parties have the right to terminate the Partnership Agreement at will, upon one-year prior written notice to the other party. In case of fault by the other party, as described by the Partnership Agreement, such as due to insolvency, bankruptcy, loss of material license, among others, the non-defaulting party is free to terminate the Partnership Agreement by means of a simple notification sent to the other party. We may suffer a material adverse effect if the Getnet Partnership Agreement is terminated or not renewed, or if we are unable to enter into a favorable agreement with a new partner in the event of termination of the Getnet Partnership Agreement.
Goodwill impairments may be required in relation to acquired businesses.
We have made business acquisitions in the past and may make further acquisitions in the future. It is possible that the goodwill which has been attributed, or may be attributed, to these businesses may have to be written down if our valuation assumptions are required to be reassessed as a result of any deterioration in their underlying profitability, asset quality and other relevant matters. Impairment testing in respect of goodwill is performed annually, or more frequently if there are impairment indicators present, and comprises a comparison of the carrying amount of the cash-generating unit with its recoverable amount. Goodwill impairment does not, however, affect our regulatory capital. There can be no assurances that we will not have to write down the value attributed to goodwill in the future, which would adversely affect our results and net assets.
We rely on recruiting, retaining and developing appropriate senior management and skilled personnel.
Our continued success depends in part on the continued service of key members of our senior executive team and other key employees. The ability to continue to attract, train, motivate and retain highly qualified and talented professionals is a key element of our strategy. The successful implementation of our strategy and culture depends on the availability of skilled and appropriate management, both at our head office and in each of our business units. If we or one of our business units or other functions fails to staff its operations appropriately, or loses one or more of its key senior executives or other key employees and fails to replace them in a satisfactory and timely manner, our business, financial condition and results of operations, including control and operational risks, may be adversely affected.
Our ability to attract and retain qualified employees is affected by perceptions of our culture and management, our profile in the markets in which we operate and the professional opportunities we offer.
In addition, the financial industry has experienced and may continue to experience more stringent regulation of employee compensation, which could have an adverse effect on our ability to hire or retain the most qualified employees. If we fail or are unable to attract and appropriately train, motivate and retain qualified professionals, our business may also be adversely affected.
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We rely on third parties and affiliates for important products and services.
Third-party vendors and certain affiliated companies provide key components of our business infrastructure such as loan and deposit servicing systems, back office and business process support, information technology production and support, internet connections, and network access.access (including cloud-based services). Relying on these third parties and affiliated companies can be a source of operational and regulatory risk to us, including with respect to security breaches affecting such parties. We are also subject to risk with respect to security breaches affecting the vendors and other parties that interact with these service providers. As our interconnectivity with these third parties and affiliated companies increases, we face the risk of operational failure with respect to their systems. We may be required to take steps to protect the integrity of our operational systems, thereby increasing our operational costs. In addition, certain problems caused by these third parties or affiliated companies could affect our ability to deliver products and services to customers. ReplacingWhile we have diversified providers for the main services and keep strict and close monitoring on them, in some instances, replacing these third-party vendors could also entail delays and expense. Further, the operational and regulatory risk we face as a result of these arrangementsarrange ments may be increased to the extent that we restructure such arrangements. Restructurings could involve significant expense to us and entail significant delivery and execution risk, which could have a material adverse effect on our business, operations and financial condition.
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Past performance of our loan portfolio may not be indicative of future performance; changes in the profile of our business may adversely affect our loan portfolio. In addition, the value of any collateral securing our loans may not be sufficient, and we may be unable to realize the full value of the collateral securing our loan portfolio.
Our historical loan loss experience may not be indicative of our future loan losses. While the quality of our loan portfolio is associated with the default risk in the sectors in which we operate, changes in our business profile may occur due, among other factors, to our organic growth, merger and acquisition activity, changes in local economic and political conditions, a slowdown in customer demand, an increase in market competition, changes in regulation and in the tax regimes applicable to the sectors in which we operate and, to a lesser extent, other related changes in countries in which we operate and in the international economic environment. In addition, the market value of any collateral related to our loan portfolio may fluctuate, from the time we evaluate it at the beginning of the trade to the time such collateral can be executed upon, due to the factors related to changes in economic, political or sectorial factors beyond our control, and we may be unable to realize the full value of the collateral securing our loan portfolio.
We rely on models for many of our decisions. Their inaccurate or incorrect use could have a material adverse effect on us.
We use models for approval (scoring/rating), capital calculation, behavior, provisions, market risk, operational risk, compliance and liquidity. A model is a system, approach or quantitative method that applies statistical, economic, financial or mathematical theories, techniques or hypotheses to transform input data into quantitative estimates. It involves simplified representations of real world relationships between characteristics, values and observed assumptions that allows us to focus on specific aspects.
Model risk is the negative consequence of decisions based on inaccurate, improper or incorrect use of models. Sources of model risk include (i) incorrect or incomplete data in the model itself or the modelling method used in systems; and (ii) incorrect use or implementation of the model.
Model risk can cause financial loss, erroneous commercial and strategic decision-making or damage to our transactions any of which could have a material adverse effect on our operating results, financial condition and prospects. In addition, our models and the underlying methodologies are subject to scrutiny from our supervisors, who could identify potential weaknesses or deficiencies that may result in enforcement actions, including sanctions, fines and/or the imposition of stricter capital requirements, as well as mandates and recommendations with respect to the methodologies underlying our models, which could also lead us to more onerous or inefficient capital consumptions.
Unprecedented movement in economic and market drivers related to the COVID-19 pandemic required monitoring and adjustment of financial models (including credit loss models, capital models, traded risk models and models used in the asset/liability management process) to comply with the guidance and recommendations of standard setters, regulators and supervisors, particularly for credit loss models. It also resulted in the use of mitigants for model limitations, such as adjustments to model outputs to reflect consideration of management judgment. The performance and usage of models was and may continue to be impacted by the consequences of the COVID-19 pandemic. In addition, data obtained during the COVID-19 pandemic may not be representative and may distort the calibration of the models in the future, which could have a material adverse effect on us.
In addition, the fair value of our financial assets, determined using financial valuation models, may be inaccurate or subject to change and, as a consequence, we may have to register impairments or write-downs that could have a material adverse effect on our operating results, financial condition and prospects. See “—Market conditions have resulted and could result in material changes to the estimated fair values of our financial assets. Negative fair value adjustments could have a material adverse effect on our operating results, financial condition and prospects.
Climate change can create transition risks, physical risks and other risks that could adversely affect us.
There is an increasing concern over the risks of climate change and related environmental sustainability matters. Climate change may imply three primary drivers of financial risk that could adversely affect us:
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● | Transition risks associated with the move to a low-carbon economy, both at idiosyncratic and systemic levels, such as through policy, regulatory and technological changes, which could increase our expenses and impact our strategies. |
● | Physical risks related to discrete events, such as flooding and wildfires, and extreme weather impacts and longer term shifts in climate patters, such as extreme heat, sea level rise and more frequent and prolonged drought, which could result in financial losses that could impair asset values and the creditworthiness of our customers. Such events could disrupt our operations or those of our customers or third parties on which we rely and do business with, including through direct damage to assets and indirect impacts from supply chain disruption and market volatility. |
● | Liability risks derived from parties who may suffer losses from the effects of climate change and may seek compensation from state entities, regulators, investors and lenders, among others. |
These primary drivers could materialize, among others, in the following financial risks:
● | Credit risks: Physical climate change could lead to increased credit exposure and companies with business models not aligned with the transition to a low-carbon economy may face a higher risk of reduced corporate earnings and business disruption due to new regulations or market shifts. |
● | Market risks: Market changes in the most carbon-intensive sectors could affect energy and commodity prices, corporate bonds, equities and certain derivatives contracts. Increasing frequency of severe weather events could affect macroeconomic conditions, weakening fundamental factors such as economic growth, employment and inflation. |
● | Operational risks: Severe weather events could directly impact business continuity and operations both of customers and ours. |
● | Reputational risk: our reputation and client relationships may be damaged as a result of our practices and decisions related to climate change, social and environmental matters, or to the practices or involvement of our clients, in certain industries or projects associated with causing or exacerbating climate change. |
As a financial institution, we are already subject to certain regulatory environmental, social and governance, or “ESG,” requirements as detailed under “Item 4. Information on the Company—B. Business Overview—Regulation and Supervision—Other Applicable Laws and Regulations—Environmental, Social and Governance (ESG) requirements applicable to financial institutions.” These requirements may increase going forward as a result of the increasing importance of ESG matters. This and other changes in regulations in Brazil and international markets may expose us to increased compliance costs, limit our ability to pursue certain business opportunities and provide certain products and services, each of which could adversely affect our business, financial condition and results of operations.
As climate risk is interconnected with all key risk types, we have developed and continue to enhance processes to embed climate risk considerations into our risk management strategies established for risks; however, because the timing and severity of climate change may not be predictable, our risk management strategies may not be effective in mitigating climate risk exposure.
Any of the conditions described above could have a material adverse effect on our business, financial condition and results of operations.
Risks Relating to Our Controlling Shareholder, Our Units and American Depositary Receipts (ADRs)
Our ultimate controlling shareholder has a great deal of influence over our business, and its interests could conflict with ours.
Santander Spain, our ultimate controlling shareholder, currently owns, directly and indirectly, approximately 89.5%89.53 % of our total capital (not including the shares held by Banco Madesant – Sociedade Unipessoal).capital. Due to its share ownership, our controlling shareholder has the power to control us and our subsidiaries, including the power to:
elect a majority of our directors that appoint our executive officers, set our management policies and exercise overall control over our |
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influence the appointment of our principal officers; |
declare the payment of any dividends; |
agree to sell or otherwise transfer its controlling stake in our |
determine the outcome of substantially all actions requiring shareholder approval, including amendments of our bylaws, transactions with related parties, corporate reorganizations, acquisitions and dispositions of assets, and dividends. |
In December 2012, primarily in response to the requirements of the European Banking Authority, Santander Spain adopted a corporate governance framework (Marco de Gobierno Interno del Grupo Santander) to organize and standardize the corporate governance practices of certain companies of the Santander Group (including us). We adopted this corporate governance framework in May 2013, subject to the precedence of applicable Brazilian laws, regulations and limitations. Our corporate governance model was further amended in 2015 to reflect certain new requirements imposed on our parent company, Santander Spain, by the European Central Bank, the Bank of Spain and regulators in different jurisdictions. See “Item 16G. Corporate Governance.”
We operate as a stand-alone subsidiary within the Santander Group. Our controlling shareholder has no liability for our banking operations, except for the amount of its holdings of our capital stock and for other specific limited circumstances under Brazilian law. The interests of Santander Spain may differ from the interests of our other shareholders, and the concentration of control in Santander Spain
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will limit other stockholders’ ability to influence corporate matters. As a result, we may take actions that our other shareholders do not view as beneficial.
Our status as a controlled company and a foreign private issuer exempts us from certain of the corporate governance standards of the New York Stock Exchange, or “NYSE”,“NYSE,” limiting the protections afforded to investors.
We are a “controlled company” and a “foreign private issuer” within the meaning of the NYSE corporate governance standards. Under the NYSE rules, a controlled company is exempt from certain NYSE corporate governance requirements. In addition, a foreign private issuer may elect to comply with the practice of its home country and not to comply with certain NYSE corporate governance requirements, including the requirements that (i) a majority of the board of directors consists of independent directors, (ii) a nominating and corporate governance committee be established that is composed entirely of independent directors and has a written charter addressing the committee’s purpose and responsibilities, (iii) a compensation committee be established that is composed entirely of independent directors and has a written charter addressing the committee’s purpose and responsibilities, and (iv) an annual performance evaluation of the nominating and corporate governance and compensation committees be undertaken. Although we have similar practices, they do not entirely conform to the NYSE requirements; therefore, we currently use these exemptions and intend to continue using them. Accordingly, you will not have the same protections provided to shareholders of companies that are subject to all NYSE corporate governance requirements.
The liquidity and market prices of the units and the ADRs may be adversely affected by the cancellation of units or substantial sale of units and shares in the market.
market, or by the relative volatility and limited liquidity of the Brazilian securities markets.
Holders of units may present these units or some of these units for cancellation in Brazil in exchange for the common shares and preferred shares underlying these units. If unit holders present a significant number of units for cancellation in exchange for the underlying common shares and preferred shares, the liquidity and price of the units and ADRs may be materially and adversely affected.
Also, sales of a substantial number of our units, common shares or preferred shares in the future, or the anticipation of such sales, could negatively affect the market prices of our units and ADRs. If, in the future, substantial sales of units, common shares or preferred shares are made by existing or future holders, the market prices of the ADRs may decrease significantly. As a result, holders of ADRs may not be able to sell their ADRs at or above the price they paid for them.
The relative volatility and limited liquidity of the Brazilian securities markets may negatively affect the liquidity and market prices of the units and the ADRs.
The B3 is significantly less liquid than the NYSE or other major exchanges in the world. As of December 31, 2019,2021, the aggregate market capitalization of the B3 was equivalent to approximately R$ 4.84.5 trillion (U.S.$1.2 trillion)0.8 billion), and the top ten stocks in terms of trading volume accounted for approximately 36%43% of all shares traded on B3 in the year ended December 31, 2019.2021. In contrast, as of December 31, 2019,2021, the aggregate market capitalization of the NYSE was approximately U.S. 24.1$27.7 trillion. Although any of the outstanding shares of a listed company may trade on the B3, in most cases fewer than half of the listed shares are actually available for trading by the public, the remainder being held by small groups of controlling persons, government entities or a principal shareholder.
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The uncertainties caused by the outbreak of COVID-19 had an adverse impact on the global economy and global capital markets, including in Brazil, during the course of 2020 and, to a lesser extent, 2021 and early 2022. As a result of this volatility, the B3’s circuit breaker mechanism was triggered eight times during March 2020. The prices of most of the securities traded on the NYSE and the B3, including the price of our securities, was adversely affected by the COVID-19 pandemic. Impacts similar to those described above may reoccur, which may result in volatility in the prices of our securities traded on the NYSE and on the B3. We cannot assure you that the price of our securities will not fall below the lowest levels at which our securities traded during the ongoing pandemic.
The relative volatility and limited liquidity of the Brazilian securities markets may substantially limit your ability to sell the units or ADRs at the time and price you desire and, as a result, could negatively impact the market price of these securities.
If securities analysts do not publish research or reports about our business or if they downgrade our ADRs or securities issued by other companies in our sector, the price and trading volume of our ADRs and/or our shares could decline.
The trading market for our ADRs and our shares has been affected in part by the research and reports that industry and financial analysts publish about us or our business. We do not control these
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analysts. Furthermore, if one or more of the analysts downgrade our ADRs, our shares or our industry, change their views regarding the shares of any of our competitors, or other companies in our sector, or publish inaccurate or unfavorable research about our business, the market price of our ADRs and/or shares could decline. If one or more of these analysts stops providing reports or fails to publish reports on us regularly, we could lose visibility in the market, which in turn could cause our ADR and/or share price or trading volume to decline.
The economic value of your investment may be diluted.
We may, from time to time, need additional funds, and we may issue additional units or shares. Any additional funds obtained by such a capital increase may dilute your interest in our company.
Company or decrease the market price of our shares, units or ADRs.
Discontinuation of the current corporate governance practices may negatively affect the price of our ADRs and units.
After completion of the voluntary exchange offers by Santander Spain in Brazil and in the United States (respectively, the “Brazilian Exchange Offer” and the “U.S. Exchange Offer”) for the acquisition of up to all of our shares that were not held by the Santander Group at that time, we are no longer subject to the obligations of the special listing segment of B3 known as Corporate Governance Level 2 (the “Level 2 Segment”). Currently, we voluntarily comply with certain of the corporate governance requirements for companies listed on the Level 2 Segment.
Discontinuation, in whole or in part, of our existing corporate governance practices or minimum protections may adversely affect your rights as a security holder and may result in a decrease of the price of our shares, units and ADRs.
Holders of our units and our ADRs may not receive any dividends or interest on stockholders’ equity.
According to our By-Laws, we must generally pay our shareholders at least 25.0% of our annual net income as dividends or interest on stockholders’ equity, as calculated and adjusted under Brazilian Corporate Law, or “adjusted net income,” which may differ significantly from our net income as determined under IFRS. This adjusted net income may be used to increase capital or to absorb losses, or otherwise retained as allowed under Brazilian Corporate Law, and may not be available to be paid as dividends or interest on stockholders’ equity. Additionally, Brazilian Corporate Law allows a publicly traded company, like ours, to suspend the mandatory distribution of dividends and interest on stockholders’ equity in any particular year if our board of directors informs our shareholders that such distributions would be inadvisable in view of our financial condition or cash
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availability. We paid R$10.810.9 billion, R$6.63.8 billion and R$6.310.8 billion (R$2.90,2.94, R$1.771.03 and R$1.682.90 per unit, respectively) as dividends and interest on stockholders’ equity (considering gross value) in 2019, 20182021, 2020 and 2017,2019, respectively, in accordance with our dividend policy, but there can be no assurance that dividends and interest on stockholders’ equity will be paid in the future. We are also subject to Brazilian banking regulations that may limit the payment of dividends or interest on stockholders’ equity. SeeThese regulations have recently included a temporary restriction on dividend distributions and other payments as a result of measures taken by the Brazilian Central Bank to combat the COVID-19 pandemic’s effect on the Brazilian financial sector (see “Item 4. Information on the Company—B. Business Overview—Regulation and Supervision—Other Applicable Laws and Regulations—Regulatory Developments Related to COVID-19—Temporary Suspension of Dividend Distributions and Other Payments” and “Item 8. Financial Information—A. Consolidated Statements and Other Financial Information—History of Payment of Dividends and Interest Attributable to Stockholders’Shareholders’ Equity.”
Although this restriction has not been reinstated in 2021, we cannot assure you that it will not be reinstated in the future.
Holders of ADRs may find it difficult to exercise voting rights at our stockholders’shareholders’ meetings.
Holders of ADRs will not be our direct shareholders and will be unable to enforce directly the rights of shareholders under our By-Laws and Brazilian Corporate Law. Holders of ADRs may exercise voting rights with respect to the units represented by ADRs only in accordance with the deposit agreement governing the ADRs. Holders of ADRs will face practical limitations in exercising their voting rights because of the additional steps involved in our communications with ADR holders. For example, we are required to publish a notice of our stockholders’ meetings in specified newspapers in Brazil. Holders of our units will be able to exercise their voting rights by attending a stockholders’ meeting in person or voting by proxy. By contrast, holders of ADRs will receive notice of a stockholders’ meeting by mail from the ADRs depositary following our notice to the depositary requesting the depositary to do so. To
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exercise their voting rights, holders of ADRs must instruct the ADR depositary on a timely basis on how they wish to vote. This voting process necessarily will take longer for holders of ADRs than for holders of our units or shares. If the ADR depositary fails to receive timely voting instructions for all or part of the ADRs, the depositary will assume that the holders of those ADRs are instructing it to give a discretionary proxy to a person designated by us to vote their ADRs, except in limited circumstances.
Holders of ADRs also may not receive the voting materials in time to instruct the depositary to vote the units underlying their ADRs. In addition, the depositary and its agents are not responsible for failing to carry out voting instructions of the holders of ADRs or for the manner of carrying out those voting instructions. Accordingly, holders of ADRs may not be able to exercise voting rights, and they will have little, if any, recourse if the units underlying their ADRs are not voted as requested.
Holders of ADRs could be subject to Brazilian income tax on capital gains from sales of ADRs.
Law No. 10,833 of December 29, 2003 provides that the disposal of assets located in Brazil by a nonresident to either a Brazilian resident or a nonresident is subject to taxation in Brazil, regardless of whether the disposal occurs outside or within Brazil. This provision results in the imposition of income tax on the gains arising from a disposal of our units by a nonresident of Brazil to another nonresident of Brazil. It is unclear whether ADRs representing our units, which are issued by the ADR depositary outside Brazil, will be deemed to be “property located in Brazil” for purposes of this law. We believe ADRs do not qualify as property located in Brazil and, thus, should not be subject to Brazilian income tax. Nevertheless, there is no judicial guidance as to the application of Law no. 10,833 of December 29, 2003 and, accordingly, we are unable to predict whether Brazilian courts may decide that it applies to dispositions of our ADRs between non-residentsnonresidents of Brazil. However, in the event that the disposition of assets is interpreted to include a disposition of our ADRs, this tax law would accordingly impose withholding taxes on the disposition of our ADRs by a nonresident of Brazil to another nonresident of Brazil. See “Item 10. Additional Information—E. Taxation—Brazilian Tax Considerations.”
Any gain or loss recognized by a U.S. taxpayer will generally be treated as U.S. source gain or loss. A U.S. taxpayer would not be able to credit any Brazilian tax imposed on the disposition of our units or ADRs against such person’s U.S. federal income tax liability, unless such credit can be applied (subject to applicable limitations) against tax due on other income of such person from foreign sources. See “Item 10. Additional Information—E. Taxation—Material U.S. Federal Income Tax Considerations for U.S. Holders.”
Our corporate disclosure may differ from disclosure regularly published by issuers of securities in other countries, including the United States.
Issuers of securities in Brazil are required to make public disclosures that are different from, and that may be reported under presentations that are not consistent with, disclosures required in other countries, including the United States. In particular, for regulatory purposes, we currently prepare and will continue to prepare and make available to our shareholders statutory financial statements in accordance with IFRS as issued by the IASB and Brazilian GAAP, both of which differ from U.S. GAAP in a number of respects. In addition, as a foreign private issuer, we are not subject to the same disclosure requirements in the United States as a domestic U.S. registrant under the Exchange Act, including the requirements to prepare and issue quarterly reports, the proxy rules applicable to domestic U.S. registrants under Section 14 of the Exchange Act or the insider reporting and short-swing profit rules under Section 16 of the Exchange Act. Accordingly, the information about us available to you will not be the same as the information available to shareholders of a U.S. company and may be reported in a manner with which you are not familiar.
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Investors may find it difficult to enforce civil liabilities against us or our directors and officers.
The majority of our directors and officers reside outside of the United States. In addition, all or a substantial portion of our assets and the assets of our directors and officers are located outside of the United States. Although we have appointed an agent for service of process in any action against us in the United States with respect to our ADRs, none of our directors or officers has consented to service
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of process in the United States or to the jurisdiction of any U.S. court. As a result, it may not be difficultpossible for investorsholders of our shares, units and/or ADRs to effect service of process against these other persons within the United States or other jurisdictions outside Brazil or to enforce against these other persons judgments obtained in the United States or other jurisdictions outside Brazil. Holders of our ADRs may face greater difficulties in protecting their interests due to actions by us or our directors or executive officers than would shareholders of a U.S. corporation, because judgments of U.S. courts for civil liabilities based upon the U.S. federal securities laws may only be enforced in Brazil if the judgment meets the following conditions: (i) it must comply with the formalities necessary for enforcement under the laws of the jurisdiction in which it was rendered; (ii) it must have been issued by a competent jurisdiction/court after proper service of process on the parties, which service must comply with Brazilian law if made in Brazil, or after sufficient evidence of the parties’ absence (revelia) has been given, as required by applicable law; (iii) it must be final, binding and therefore not subject to appeal (res judicata) in the jurisdiction in which it was issued; (iv) it must be apostilled by a competent authority of the country from which the document emanates according to the Hague Convention of 5 October 1961 Abolishing the Requirement of Legalization for Foreign Public Documents or, if such persons.
country is not signatory of the Hague Convention, it must be duly authenticated by a competent Brazilian consulate in the country where the foreign judgment is issued; (v) it must be accompanied by a translation thereof into Portuguese made by a certified translator in Brazil, unless an exemption is provided by an international treaty to which Brazil is a signatory; (vi) it must not be contrary to Brazilian national sovereignty, good morals or public policy or violate the dignity of the human person (as set forth in Brazilian law); (vii) it must not relate to a matter which is also subject to a similar proceeding in Brazil involving the same parties, based on the same grounds and with the same object, which has already been judged by a Brazilian court (res judicata); and (viii) it must not violate the exclusive jurisdiction of Brazilian courts pursuant to the provision of Article 23 of the Brazilian Code of Civil procedure (Law No. 13,105/2015). Judgments which meet these criteria are not subject to an analysis of the merits or a retrial by Brazilian courts.
Judgments of Brazilian courts with respect to our units or ADRs will be payable only in reais.
Our By-Laws provide that we, our shareholders, our directors and officers and the members of our fiscal council shall submit to arbitration any and all disputes or controversies that may arise amongstamong ourselves relating to, or originating from, the application, validity, effectiveness, interpretation, violations and effects of violations of the provisions of Brazilian Corporate Law, our By-Laws, the rules and regulations of the CMN, the Brazilian Central Bank and the CVM, as well as other rules and regulations applicable to the Brazilian capital markets and the rules and regulations of the Arbitration Regulation of the Market Arbitration Chamber. However, in specific situations, including whenever precautionary motions are needed for protection of rights, the dispute or controversy may have to be brought to a Brazilian court. If proceedings are brought in the courts of Brazil seeking to enforce our obligations in respect of the units or ADRs, we will not be required to discharge our obligations in a currency other thanreais. Under Brazilian exchange control limitations and according to Brazilian laws, an obligation in Brazil to pay amounts denominated in a currency other thanreais may be satisfied in Brazilian currency only at the exchange rate, as determined by the Brazilian Central Bank or competent court, in effect on the date the judgment is obtained, and such amounts are then adjusted to reflect exchange rate variations through the effective payment date. The then-prevailing exchange rate may not afford non-Brazilian investors with full compensation for any claim arising out of or related to our obligations under the units or ADRs.
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Holders of ADRs may be unable to exercise preemptive rights with respect to our units underlying the ADRs.
Holders of ADRs will be unable to exercise the preemptive rights relating to our units underlying ADRs unless a registration statement under the Securities Act is effective with respect to the shares for which those rights are exercisable or an exemption from the registration requirements of the Securities Act is available. We are not obligated to file a registration statement with respect to the shares relating to these preemptive rights or to take any other action to make preemptive rights available to holders of units or ADRs. We may decide, at our discretion, not to file any such registration statement. If we do not file a registration statement or if we and the ADR depositary decide not to make preemptive rights available to holders of units or ADRs, those holders may receive only the net proceeds from the sale of their preemptive rights by the depositary, or if they are not sold, their preemptive rights will be allowed to lapse.
As a holder of ADRs, you will have different shareholders’ rights than do shareholders of companies incorporated in the United States and certain other jurisdictions.
Our corporate affairs are governed by our By-Laws and by Brazilian Corporate Law, which may differ from the legal principles that would apply if we were incorporated in a jurisdiction in the United States or in certain other jurisdictions outside Brazil.
Under Brazilian Corporate Law, holders of the ADRs are not our direct shareholders and will have to exercise their voting rights through the depositary. Therefore, holders of ADRs may have fewer and less well-defined rights to protect their interests relative to actions taken by our board of directors or the holders of our common shares under Brazilian law than under the laws of other jurisdictions outside Brazil.
Although Brazilian Corporate Law imposes restrictions on insider trading and price manipulation, the form of these regulations and the manner of their enforcement may differ from that in the U.S. securities markets or markets in certain other jurisdictions. In addition, in Brazil, self-dealing and the preservation of shareholder interests may be regulated differently, which could potentially disadvantage you as a holder of the preferred shares underlying ADRs.
If you exchange your ADRs for their underlying Units, you risk losing Brazilian tax advantages and the ability to remit foreign currency abroad.
Brazilian law requires that parties obtain registration with the Brazilian Central Bank in order to remit foreign currencies, including U.S. dollars, abroad. The Brazilian custodian for the Units must obtain the necessary registration with the Brazilian Central Bank for payment of dividends or other cash distributions relating to the Units or after disposal of the Units. If you exchange your ADRs for the underlying Units, however, you may only rely on the custodian’s certificate for five business days from the date of exchange. Thereafter, you must obtain your own registration in accordance with the rules of the Brazilian Central Bank and the CVM, in order to obtain and remit U.S. dollars abroad after the disposal of the Units or the receipt of distributions relating to the Units. If you do not obtain a certificate of registration, you may not be able to remit U.S. dollars or other currencies abroad and may be subject to less favorable tax treatment on gains with respect to the Units. For more information, see “Item 10. Additional Information—D. Exchange Controls.”
If you attempt to obtain your own registration, you may incur expenses or suffer delays in the application process, which could delay your receipt of dividends or distributions relating to the Units or the return of your capital in a timely manner. The custodian’s registration and any certificate of foreign capital registration you may obtain may be affected by future legislative changes. Additional restrictions applicable to you, to the disposal of the underlying Units or to the repatriation of the proceeds from disposal may be imposed in the future.
Holders of the ADRs may not be entitled to a jury trial with respect to claims arising under the deposit agreement, which could be less favorable or less desirable to the plaintiff(s) in any such action.
The deposit agreement provides that, to the extent permitted by law, holders of the ADRs waive the right to a jury trial of any claim they may have against us or the depositary arising out of or relating to our shares, the ADRs or the deposit agreement. The deposit agreement, including the waiver of the right to jury trial, governs the rights of the initial holders of the ADRs as well as the rights of subsequent holders that acquire holders of the ADRs in the secondary market.
If you or any other holders or beneficial owners of the holders of the ADRs bring a claim against us or the depositary in connection with matters arising under the deposit agreement or the ADRs, you or such other holder or beneficial owner may not be entitled to a jury trial with respect to such claims, which may have the effect of limiting and discouraging lawsuits against us and/or the depositary. Any plaintiff(s) in such an action may believe that a non-jury trial would be less favorable to the plaintiff(s) or otherwise less desirable.
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ITEM 4. INFORMATION ON THE COMPANY
4A. History and Development of the Company |
General
We are a publicly held corporation (sociedade(sociedade anônima)nima) of indefinite term, incorporated under Brazilian law on August 9, 1985. Documentation of our incorporation is duly registered with the Commercial Registry of the State of São Paulo (Junta(Junta Comercial do Estado de São Paulo or “JUCESP”), under NIRE (Registry Number) 35300332067. Our corporate name is Banco Santander (Brasil) S.A. and our commercial name is Banco Santander. Our headquarters are located in Brazil, in the city of São Paulo, state of São Paulo, at Avenida Presidente Juscelino Kubitschek, 2,041 and 2,235, Bloco2041, Suite 281, Block A, Condomínio WTORRE JK - Vila Olímpia, 04543-011.Nova Conceição, 04543-011, in the city of São Paulo, state of São Paulo, Federative Republic of Brazil. Our telephone number is 55-11-3553-3300+55-11-3553-3300 and theour website is https://www.santander.com.br/ri. In addition, the SEC maintains a website at www.sec.gov that contains information filed by us electronically. The information contained on our website, any website mentioned in this annual report or any website directly or indirectly linked to these websites, is not part of, and is not incorporated by reference in, this annual report and you should not rely on such information.
Our agent for service is Mercedes Pacheco, Managing Director – Senior Legal Counsel, Banco Santander, S.A., New York Branch, 45 E. 53rd Street New York, New York 10022.
History
We are currently the third-largest privately ownedthird largest privately-owned bank in Brazil, and the only international bank with scale in the country. With high value added offers, wethat operates countrywide. We operate in both the retail and wholesale segments with high-added value offers, which allows us to meet the needs ofprovide our products and services to individuals, small and medium enterprises, and large corporate customers.
We are part of the Santander Group, a Spanish bankfinancial institution founded in Spain in 1857, and that has expanded globally through numerous acquisitions. We believe that this give us an advantage over our competitors. Although, underUnder the Santander Group’s business model each major unit is autonomous and required to be self-sufficient in terms of capital and liquidity,liquidity. However, our relationship with the Santander Group allows us to:
access the Santander Group’s global |
provide our customers with the benefits of a strong presence in certain international markets, predominantly in Latin America and Western Europe; |
develop our employees’ skills |
Our history in the Brazilian banking industry goes back to the 1970’s1970s and is as summarized in the following figure:
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Santander Brasil Timeline
In 1957, the Santander Group entered the Brazilian market for the first time through an operating agreement with Banco Intercontinental do Brasil S.A. In 1970, the Santander Group opened a representative office in Brazil, followed by its first branch in 1982. The foundation of Santander Brasil was in 1985 through an acquisition of a local bank.
InSince the 1990s, the Santander Group has sought to establishestablished its presence in Latin America, particularly in Brazil, by capitalizing on organic growth as well asand pursuing an acquisition strategy, including the following most notable acquisitions:
In November 2000, the Santander Group acquired Banespa, a bank owned by the State of São Paulo |
On July 24, 2008, Santander Spain took an indirect share control of Banco Real, which |
Since October 7, 2009, our units, and common and preferred shares have been listed and traded on B3 under the tickers “SANB11”,symbols: “SANB11,” “SANB3” and “SANB4”, respectively, while our“SANB4,” respectively. Our ADRs representing American Depositary Shares (or “ADSs”) have been registered with the SEC under the Securities Act and are listed and traded on the NYSE under the ticker “BSBR”.symbol “BSBR.” For further information, see “Item 9. The Offer and Listing—A. Offering and Listing Details.”
Important Events
We have set forth below important recent events in the development of our business. For further information, please refersee to Notenote 3 Basis of consolidation of IFRS Financial Statements to our audited consolidated financial statements included elsewhere in “Item 18. Financial Statements” of this annual report.
Plans to Optimize Our Capital Structure
On September 26, 2013, we announced that, in order to optimize our capital structure, our board of directors submitted a proposal to optimize the composition of our regulatory capital to our shareholders for their approval (“PR Optimization Plan”). The aim was to establish a more efficient capital structure, consistent with recent capital rules and aligned with our business strategy and asset growth plan. The PR Optimization Plan was composed of the following items: (i) an equity distribution to the shareholders of Santander Brasil in the total amount of R$6 billion, with no reduction in the number of shares; (ii) the issuance abroad of capital instruments to compose Tier I and Tier II of our regulatory capital; and (iii) a bonus share program and an adjustment in the composition of the Units, followed by a reverse share split, with the purpose of eliminating trading in cents of reais.
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On November 5, 2018, our board of directors approved the issuance, through our Cayman Islands branch, of debt instruments to form part of our Tier 1 and Tier 2 regulatory capital in the aggregate amount of U.S.$2.5 billion, pursuant to an offering made to non-U.S. Persons under Regulation S of the U.S. Securities Act of 1993, as amended, or the “Notes Offering.” In addition, our board of directors also approved the redemption of debt instruments issued to form part of our Tier 1 and Tier 2 regulatory capital, as set out in the board’s resolution of January 14, 2014. The proceeds from the Notes Offering were used to fund this redemption. On December 18, 2018, the Brazilian Central Bank authorized the transactions contemplated in the Notes Offering and the redemption, which were completed on January 29, 2019.
Sale of equity stake in Super PagamentosSantander Securities Services Brasil Distribuidora de Títulos e Administração de Meios EletrônicosValores Mobiliários S.A.
, or “SSS DTVM.”
On February 28, 2020,June 19, 2014, we soldexecuted preliminary documents containing the main terms and conditions of the sale of our qualified custody business and the sale of our subsidiary SSS DTVM, which renders third-party fund administration services, to Superdigital Holding Company, S.L., a holding company indirectly controlledowned by Santander Spain and a group of private equity funds managed by Warburg Pincus. Following the sale, we will continue to act as the administrator of the funds, as per CVM Instruction No. 306, dated as of May 5, 1999, as amended.
The closing of the transaction occurred on August 31, 2015, when all of our entire equity interestshares in Super Pagamentos e Administração de Meios Eletrônicos S.A. (“Superdigital”).SSS DTVM were formally transferred to Santander Securities Brasil and SSS DTVM acquired our qualified custody business. We received consideration of R$270859 million for our interest in Superdigital. As a result, we are no longer a shareholder of Superdigital.
Put optionat the closing of the remaining equity interest in Banco Olé Consignado S.A. against Aymoré Crédito, Financiamento e Investimento S.A.
On March 14, 2019, the minority shareholdertransaction which generated gains of Banco Olé formalized its interest in exercising the put option right providedR$751 million before taxes recorded in the Investment Agreement executed with Aymoré CFI, on July 30, 2014, to sell its 40% equity interest in Banco Olé to Aymoré CFI, a controlled entity of Santander Brasil.
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On January31, 2020, Santander Brasil and the shareholders of Bosan Participações S.A. (holding company whose single asset are the shares representing 40% of the corporate capital of Banco Olé) have entered into the definitive agreements and performed the closing acts related to the purchase and sale of all shares issued by Bosan, upon transferring Bosan’s shares to Santander Brasil and the payment to the sellers of the total price of R$1,608,772,783,47. As a result, Santander Brasil became, directly and indirectly, the holder of all shares issued by Banco Olé.
“Other non-financial gains/losses” line.
Establishment of the Credit Intelligence Bureau
On January 20, 2016, we entered into a non-binding memorandum of understanding with Banco Bradesco S.A., Banco do Brasil S.A., Caixa Econômica Federal and Itaú Unibanco S.A., for the creation of a credit intelligence bureau, GestoraCredit Intelligence Bureau (Gestora de Inteligência de Crédito S.A., or “CIB”). The CIB was structured as a corporation and each of Santander Brasil, Banco Bradesco S.A., Banco do Brasil S.A., Caixa Econômica Federal and Itaú Unibanco S.A. havehas a 20% ownership stakeequity interest in the corporation.
The purpose of the CIB is to develop a database that, in conformitycompliance with the applicable laws,law, will collect, reconcile and handleprocess the credit information of registered individuals and legal entities who expressly authorize the inclusion of their credit information on such database. We believe this initiative will lead to an increased degree of efficiency and improvements in our credit management activities, and will also facilitate the disbursement of long and medium-term lines of credit to participants in the Brazilian Financial System and to other corporate entities. At the extraordinary shareholders’ meeting held on October 5, 2017, a capital increase in an amount of R$285,205 thousand was approved as a result of which CIB’s database.capital stock increased from R$65,823 thousand to R$351,028 thousand. On April 14, 2017, the definitive documents were signedexecuted by theCIB’s shareholders. The necessary regulatory authorizations, including those issued by the Brazilian Central Bank and theby CADE, have already been granted. The CIB became fully operational in 2019.
Joint Venture withFormation of Banco Hyundai Capital Services, Inc.
Brasil S.A.
On April 28, 2016, our wholly-owned subsidiary Aymoré Crédito, Financiamento e Investimento S.A., or “Aymoré CFI,” entered into a joint venture with Hyundai Capital Services, Inc., or “Hyundai Capital”,Capital,” for the purposes of incorporating (i) Banco Hyundai Capital Brasil S.A. and (ii) an insurance brokerage company. These entities were incorporated to provide, respectively, auto financefinancing and insurance brokerage services and products to consumers through the Hyundai dealerships in Brazil.
Aymoré CFI holdsowns a 50% equity stakeinterest in Banco Hyundai Capital Brasil S.A., whileand Hyundai Capital holdsowns the remaining 50% equity interest.
On February 21, 2019, the Brazilian Central Bank granted Banco Hyundai Capital Brasil S.A. the authorization to operate as a banking entity. Banco Hyundai Capital Brasil S.A. began operating in the first half of 2019.
On April 30, 2019, the Brazilian Central Bank authorized the formation of the insurance brokerage company. The insurance brokerage company was incorporated on July 2, 2019 and began operating in November 2019.
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Accession to Certain Tax Payment Plans
AcquisitionIn August 2017, we joined the PERT. The program allows for certain tax debts to be repaid in installments. In connection with our participation in this program, we are repaying in installments certain amounts due as a result of equity stakelawsuits and administrative proceedings relating to corporate income tax and social security contributions for the periods from 1999 to 2005 in Ipanema Empreendimentos e Participações S.A., currently named Return Capital Serviços de Recuperação de Créditos S.A. (“Return Credit Management”),a total amount of R$492 million in January 2018 (taking into account the reduction arising from our participation in the program). A payment of R$191.9 million was due in August 2017 and Gestora de Investimentos Ipanema S.A., currently named Return Gestão de Recursos S.A. (“Return Asset” and, together with Return Credit Management,a further payment of R$299.7 million was due by January 2018, both of which we have made within the “Return Entities”)
On October 16, 2019, Atual Companhia Securitizadora de Créditos Financeiros, or “Atual,” informed the remaining shareholders of the Return Entities´ of its decision to exercise its call option for shares representing the remaining 30% of the Return Entities’ total voting capital owned for a value of approximately R$17 million. The transaction was completed on November 1, 2019.prescribed time limits. As a result of this transaction, Atual currently owns 100%our participation, we recorded expenses in an amount of R$364 million (after tax) in the third quarter of 2017.
In October 2017, we joined the Incentive Payment Programs and Installments (Programas de Parcelamento Incentivado) created by the cities Rio de Janeiro and São Paulo. The program allows for certain tax debts to be repaid in installments. In connection with our participation in these programs, we are repaying in installments certain amounts due as a result of lawsuits and administrative proceedings relating to ISS for the periods from 2005 to 2016 in a total amount of R$293 million as of December 31, 2017. As we had made provisions for these losses, we registered income of R$435 million as a result of the Return Entities’ issued and outstanding share capital. The Return Entities are activereversal of certain provisions, net of tax effects, in the credit recovery intelligence sector, providing services such as credit portfolio evaluation and pricing, collection, management and recoveryan amount of non-performing loans.
R$96 million.
Joint Venture with HDI Seguros
On December 20, 2017, we entered into binding agreements with HDI Seguros for the formation
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of a partnership throughinvolving the creation of a new insurance company called Santander Auto S.A., or “Santander Auto”.Auto.” Sancap Investimentos e Participações S.A., a company controlled by Santander Brasil, will hold 50% of the issued share capital of Santander Auto with the remaining 50% being held by HDI Seguros.Seguros, Santander Auto will focus on offering motor insurance policies through a fully digital platform. The transaction closed on October 9, 2018 when the documentation to form Santander Auto S.A. was executed.executed and we and HDI Seguros undertook a joint capital contribution of R$15 million into Santander Auto. On January 11, 2019, Santander Auto was granted regulatory authorization to begin operations by SUSEP.SUSEP and effectively started its operations in the second half of 2019.
Sale of equity interest in BW Guirapá I S.A.
On December 22, 2017, Santander Investimentos, Corretora de Seguros, Cia. de Ferro Ligas da Bahia – Ferbasa S.A. and Brazil Wind S.A. entered into an agreement for the sale of 100% of the shares issued by BW Guirapá I S.A. held by Santander Corretora de Seguros and Brazil Wind to Cia. de Ferro Ligas da Bahia – Ferbasa S.A. The transaction also encompassed the seven wind farms organized as special purpose companies held by BW I. The base consideration paid was R$450 million, and an additional amount of up to R$35 million may still be paid if certain contractual targets are met. The transaction closed on April 2, 2018.
Acquisition of Isban Brasil S.A. and Produban Serviços de Informática S.A. Companies
On February 19 and 28, 2018, respectively, we purchased all shares issued by Isban Brasil from Ingenería de Software Bancário, S.L., and all shares issued by Produban Serviços de Informática S.A. from Produban Servicios Informáticos Generales, S.L., for R$61,078 thousand and R$42,731 thousand, respectively. While all parties to these transactions are ultimately controlled by Santander Spain, the transactions were conducted on an arm’s length basis. On February 28, 2018, Isban Brasil was merged into Produban Serviços de Informática S.A. and on the same date, Produban Serviços de Informática S.A. changed its corporate name to Santander Brasil Tecnologia S.A.
Creation of PI Distribuidora de Títulos e Valores Mobiliários S.A.
On May 3, 2018, our indirectly controlled subsidiary Santander Finance Arrendamento Mercantil S.A. was converted into a securities brokerage company and had its corporate name changed to SI Distribuidora de Títulos e Valores Mobiliários S.A. The conversion was approved by the Brazilian Central Bank on November 21, 2018.
On December 17, 2018, SI Distribuidora de Títulos e Valores Mobiliários S.A. changed its name to PI Distribuidora de Títulos e Valores Mobiliários S.A., or “PI DTVM.” The corporate name change was approved by the Brazilian Central Bank on January 22, 2019.
PI DTVM began its operations in March 2019. PI DTVM is a securities brokerage company, with an open digital platform, which willwhose focus is to broaden the portfolio of financial products we are able to offer to our clients.customers.
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Formation of BEN Beneficios
On June 11, 2018, we incorporated BEN Beneficios, Benefícios e Serviços S.A., or “Ben,” an entity fully held by Santander Brasil, whose purpose is to create, supply and administer various types of vouchers and tickets used to provide employee benefits (such as for meals, transportation and cultural events) in the form of printed electronic and magnetic cards.cards, BEN Beneficios began operating in the second quarter of 2019.
Formation of Esfera Fidelidade S.A.
Esfera Fidelidade was incorporated on August 14, 2018 as our wholly-owned subsidiary. Esfera Fidelidade was formed to develop and manage customer loyalty programs. The company started its operations in November 2018.
Investment in Loop Gestão de Pátios S.A.
In 2018, Webmotors, a company in which we own an indirect 70% equity interest, entered into an agreement with Allpark Empreendimentos, Participações e Serviços S.A. and Celta L.A. Participações S.A. to acquire a 51% stake in Loop through a capital increase and issuance of new shares by Loop which were fully subscribed and paid-in by Webmotors. Loop conducts physical and virtual car auctions. This acquisition has enabled Webmotors to expand its service portfolio and strengthen its competitive position. The transaction was completed on September 25, 2018 for the amount of R$23.9 million.
Acquisition of residual equity stake in Getnet
On December 19, 2018, the minority shareholders of Getnet exercised their right to sell all of their shares to Santander Brasil, or the “Put Option”,Option,” pursuant to the Shares’Share Purchase and Sale Agreement and Other Covenants executed between the parties on April 4, 2014, or “SPA”.“SPA.” On the exercise date of the Put Option, we entered into a binding amendment to the SPA, to acquire all of the Getnet shares owned by minority shareholders, corresponding to 11.5% of the entity’s equity interest, in the amount of R$1.4311.4 billion. The acquisition transaction was approved by the Brazilian Central Bank on February 18, 2019 and the transaction closed on February 25, 2019. We subsequently spun-off Getnet to our shareholders as a result of which Getnet is no longer a subsidiary of Santander Brasil, see “—A. History and Development of the Company—The Getnet Spin-Off.”
Put option of the remaining equity interest in Banco Olé Consignado S.A. against Aymoré Crédito, Financiamento e Investimento S.A.
On March 14, 2019, the minority shareholder of Banco Olé Consignado S.A., or “Banco Olé” formalized its interest in exercising the put option right provided in the Investment Agreement executed with Aymoré CFI on July 30, 2014, to sell its 40% equity interest in Banco Olé to Aymoré CFI, a controlled entity of Santander Brasil. On January 31, 2020, Santander Brasil and the shareholders of Bosan Participações S.A. (a holding company whose single asset is the shares representing 40% of the corporate capital of Banco Olé) entered into the definitive agreements and performed the closing acts related to the purchase and sale of all shares issued by Bosan, upon the transfer of Bosan’s shares to Santander Brasil and payment of the total price of R$1,608.8 million to the sellers. As a result, Santander Brasil currently ownsbecame, both directly and indirectly, the holder of all shares issued by Banco Olé.
Acquisition of Summer Empreendimentos Ltda.
On May 14, 2019, we and our wholly-owned subsidiary Santander Holding Imobiliária S.A., or “SHI,” entered into a binding document with the shareholders of Summer Empreendimentos Ltda., or “Summer,” for the acquisition of Summer’s issued share capital. The acquisition was approved by the Brazilian Central Bank on September 16, 2019 and concluded on September 20, 2019. We now hold, directly and indirectly through SHI, 100% of Getnet’s issuedSummer’s share capital. Initially, Summer was not consolidated in our financial statements because it was treated as a temporary investment (non-current assets for sale). However, the investment is no longer considered temporary, and outstanding share capital.
therefore Summer is included in our consolidated financial statements.
Sale of equity stake in CIBRASEC – Companhia Brasileira de Securitização
On July 24, 2019, we completed the sale to ISEC Securitizadora S.A. (“ISEC”) of our entire equity interest in CIBRASEC – Companhia Brasileira de Securitização, (“Cibrasec”)or “Cibrasec,” to ISEC Securitizadora S.A., correspondingor “ISEC.” Our interest amounted to 4,000 common shares and 50 Class A preferred shares, representing, in the aggregate, approximately 9.72% of Cibrasec’s total capital stock. The transaction was effected pursuant to the Shares Purchase and Other Covenants Agreement executed on the same date byamong Santander Brasil, the other shareholders of Cibrasec, ISEC and Cibrasec, who acted as an intervening party. We received consideration of R$9.8 million for our interest in Cibrasec. As a result, we are no longer a shareholder of Cibrasec.
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Projections Disclosure
Acquisition of equity stake in Ipanema Empreendimentos e Participações S.A., currently named Return Capital Serviços de Recuperação de Créditos S.A. (“Return Credit Management”), and Gestora de Investimentos Ipanema S.A., currently named Return Gestão de Recursos S.A. (“Return Asset” and, together with Return Credit Management, the “Return Entities”)
On October 8,16, 2017, Santander Brasil, through its wholly-owned subsidiary Atual Companhia Securitizadora de Créditos Financeiros, or “Atual,” acquired a direct equity interest in Return Credit Management, and an indirect equity interest in Return Asset corresponding to 70% of Return Entities’ share capital.
On October 16, 2019, Atual informed the remaining shareholders of the Return Entities of its decision to exercise its call option for shares representing the remaining 30% of the Return Entities’ total voting capital owned for a value of approximately R$17 million. The transaction was completed on November 1, 2019. As a result of this transaction, Atual currently owns 100% of the Return Entities’ issued and outstanding share capital. The Return Entities are active in the credit recovery intelligence sector, providing services such as credit portfolio evaluation and pricing, collection, management and recovery of non-performing loans.
Incorporation of the spun-off portion of Integry Tecnologia e Serviços A.H.U Ltda.
On October 31, 2019, we approved a spin-off of Integry Tecnologia e Serviços AHU Ltda, or “Integry,” a then wholly-owned subsidiary of Getnet (which was itself a subsidiary of Santander Brasil until the completion of the Getnet Spin-Off). Subsequently on December 20, 2019, Getnet and Santander Merchant Platform Solutions, S.L., or “SMPS Global,” a company based in Spain and controlled by Santander Spain, entered into a share purchase agreement as a result of which SMPS Global now holds 100% of Integry’s share capital. On December 23, 2019, Integry changed its name to Santander Merchant Platform Solutions Brasil Ltda.
Sale of equity stake in Super Pagamentos e Administração de Meios Eletrônicos S.A.
On February 28, 2020, we sold our entire equity interest in Super Pagamentos e Administração de Meios Eletrônicos S.A., or “Superdigital,” to Superdigital Holding Company, S.L., a company indirectly controlled by Santander Spain, for the amount of R$270 million as consideration. As a result of such transaction, we are no longer a shareholder of Superdigital.
Disclosure of Projections
On July 29, 2020, we informed the market that we have decidedwill no longer disclose guidance, as previously announced in the material fact dated October 8, 2019. This decision comes in response to disclose projections (guidance)the ongoing uncertainty with respect to the impact of the COVID-19 pandemic on our business, financial condition, assets, liquidity, cash flows and results of operations, as well as on the macroeconomic environment in Brazil and globally.
Acquisition of direct equity interest in Toque Fale Serviços de Telemarketing LTDA
On March 24, 2020, we acquired all of the outstanding share of Toque Fale Serviços de Telemarketing Ltda., or “Toque Fale,” held by our then subsidiaries Getnet and Auttar HUT Processamento de Dados LTDA for an amount of R$1.1 million, corresponding to the equity value of the quotas on February 29, 2020. As a result, we became the direct holders of 100% of Toque Fale’s share capital.
Purchase of Equity Interest in Gira – Gestão Integrada de Recebíveis do Agronegócio S.A.
On August 11, 2020, Santander Brasil executed a share purchase and sale agreement and other covenants with the shareholders of Gestão Integrada de Agronegócio S.A., or “Gira” to acquire 80% of Gira’s share capital. Gira is a technology company that operates in the management of agribusiness receivables and whose platform has the potential to make agricultural credit transactions more secure. This increased layer of security is achieved through the use of applications, such as geolocation of productive areas, capture and analysis of agronomic data and permanent monitoring of production performance for sites involved in credit transactions. Gira’s solutions also include the review and digital registration of collateral provided under commercial contracts and continuous observation of crop development as a way of monitoring risks. The applicable regulatory approvals were received on December 18, 2020 and the closing of the transaction took place on January 8, 2021. As a result, Santander Brasil now holds an 80% equity interest in Gira.
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Merger of Banco Olé Consignado S.A. into Banco Santander (Brasil) S.A.
Following the acquisition of the remaining equity interest over Banco Olé Consignado S.A., through the holding company Bosan Participações S.A., together referred to as “Olé Companies,” the shareholders of Santander Brasil and the Olé Companies approved the merger of Olé Companies into Santander Brasil, as provided by the general meetings held on August 31, 2020. As a result, the Olé Companies ceased to exist and were succeeded by Santander Brasil. The incorporation of the Olé Companies has been approved by the Brazilian Central Bank and is in the process of being registered with the applicable commercial registries (juntas comerciais).
Purchase of Equity Interest in Toro Corretora de Títulos e Valores Mobiliários Ltda.
On September 29, 2020, Santander Brasil’s subsidiary, PI DTVM, entered into an investment and other covenant agreement with the shareholders of Toro Controle e Participações S.A., or “Toro Controle,” to invest in Toro Controle. Toro Controle is the holding company of Toro Corretora de Títulos e Valores Mobiliários Ltda, or “Toro Corretora,” and Toro Investimentos S.A., or “Toro Investimentos,” which jointly run an investment platform focused on the retail market, founded in Belo Horizonte in 2010. We refer to Toro Controle, Toro Corretora and Toro Investimentos as “Toro.” As a result of the transaction, and the subsequent merger of Toro Controle into Toro Corretora, PI DTVM holds 60% of Toro Corretora’s share capital.
In addition, PI DTVM and Toro Corretora combined their market experiences to develop a complete platform of fixed and variable income products. This platform is based on shared expertise, technology and operate in the growing Brazilian investment market. The completion of the transaction occurred in April, 2021, following the execution of certain customary agreements between the parties, the fulfillment of customary conditions precedent and the receipt of certain regulatory approvals, including the approval of the Brazilian Central Bank.
Capital reduction of Norchem Holding e Negócios S.A. and Norchem Participações e Consultoria S.A.
On October 8, 2020, the shareholders of Norchem Holding e Negócios S.A. and Norchem Participações e Consultoria S.A., which we refer to jointly as the “Norchem Companies,” approved a capital reduction in the two Norchem Companies, in the amounts of R$14.7 million and R$19.9 million, respectively. As a result, we ceased to be shareholders of the Norchem Companies.
Dissolution and liquidation of Santander Brasil, Establecimiento Financiero de Credito, S.A.
On November 12, 2020, we approved the dissolution and liquidation of Santander Brasil, Establecimiento Financiero de Credito, S.A., a Spanish entity wholly-owned by us, which we used primarily for sourcing funds in the international banking and capital markets to provide credit lines for us that are extended to our indicatorscustomers for working capital and trade-related financings. The capital invested abroad was repatriated to Brazil in November 2020. The deed of dissolution and liquidation of the entity was registered with the Mercantile Registry of Madrid and effective on December 15, 2020. These activities are now carried out by our Luxembourg branch.
Acquisition of Paytec Tecnologia em Payments Ltda, and Paytec Logística e Armazém EIRELI
On December 8, 2020, we entered into a quota purchase agreement with the owners of Paytec Tecnologia em Payments Ltda, and Paytec Logística e Armazém Eireli (jointly “Paytec”) for the yearacquisition of 2022. While we believe that the projections,entirety of Paytec’s issued share capital. Paytec is a logistics operator with Brazil-wide coverage which we intend to disclose, are basedfocuses on reasonable assumptions made by our management, such projections are nevertheless subject to significant uncertainties and matters outside of our control, including: the future average growth of our loan portfolio, returnpayments market. The transaction closed on equity (ROE), cost
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to income (end of term), the future average growth in the number of our active customers and ourProspera (microcredit) customers.
March 12, 2021.
Buyback Program
On November 1, 2019,February 2, 2021, our board of directors approved, in continuation ofcontinuity with the buyback program set to expirethat expired on November 5, 2019,4, 2020, a new buyback program of our units and ADRs. Our units and ADRs issued by us,will be acquired either directly or through our branch in the Cayman Islands, to be held in treasury or subsequently sold. The buyback program will covercovers the acquisition of up to 37,256,07236,956,402 units or ADRs, representing a combination of 37,256,07236,956,402 common and 37,256,07236,956,402 preferred shares, corresponding to approximately 1% of our share capital. The term of the buyback program is up to 1218 months beginning November 5, 2019,on February 3, 2021 and expiring on NovemberAugust 2, 2022.
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Corporate reorganization Santander Leasing S.A. Arrendamento Mercantil and Banco Bandepe S.A.
On May 11, 2021, Santander Brasil and Banco Bandepe SA, or “Bandepe,” entered into an Agreement for the Purchase and Sale of Shares through which Santander Brasil acquired the entire equity interest held by Bandepe in Santander Leasing S.A. Arrendamento Mercantil, or “Santander Leasing,” which amounted to 21.42% of Santander Leasing’s share capital. As a result, Santander Brasil became the sole shareholder of Santander Leasing. On May 27, 2021, an incorporation of all the shares of Bandepe by Santander Leasing was approved, in order to convert Bandepe into a wholly-owned subsidiary of Santander Leasing. As a result, the capital stock of Santander Leasing increased by approximately R$5.4 billion.
Acquisition of Equity Interest in Monetus Investimentos Ltda. and Monetus Corretora de Seguros Ltda.
On June 15, 2021, Pi DTVM, Toro Corretora and Toro Investimentos SA, or “Toro Investimentos” entered into an investment agreement and other covenants with the partners of Monetus Investimentos Ltda. and Monetus Corretora de Seguros Ltda., or, collectively, “Monetus,” by means of which Toro Investimentos will hold, upon the closing of the transaction, 100% of the capital stock of Monetus. Monetus, originally from Belo Horizonte in the state of Minas Gerais, carries out its activities through an automated investment application. Taking into account a customer’s needs and risk profile, this application automatically creates, executes and tracks a diversified and personalized investment strategy to provide optimal service to customers. The transaction is subject to the execution of the definitive agreements and the occurrence of certain conditions usual to this type of transaction, including the applicable regulatory approvals.
Acquisition of Equity Interest in Mobills Labs Soluções em Tecnologia Ltda. and Mob Soluções em Tecnologia Ltda.
On June 15, 2021, Pi DTVM, Toro Corretora and Toro Investimentos S.A. executed an investment agreement and other covenants with the partners of Mobills Labs Soluções em Tecnologia Ltda., and Mob Soluções em Tecnologia Ltda (jointly “Mobills”), by which, once the transaction is concluded, Toro Investimentos will hold 100% of the capital stock of Mobills. Domiciled in Ceará, Mobills has a variety of financial applications that have a large user base, especially related to financial planning. After the conditions precedent established in the investment agreement were fulfilled, the transaction closed on January 4, 2020.2022.
Acquisition of Equity Interest in Solutions 4 Fleet Consultoria Empresarial Ltda.
On July 13, 2021, Aymoré Crédito, Financiamento e Investimento S.A., or “Aymoré,” and the partners of Solution 4 Fleet Consultoria Empresarial Ltda., or “Solution4Fleet,” executed a certain Investment Agreement and Share Purchase and Sale Agreement, by means of which Aymoré will hold, upon the closing of the transaction, 80% of the capital stock of Solution4Fleet, or “Solution4Fleet Transaction.” Solution4Fleet specializes in structuring vehicle rental and subscription businesses – long-term rental for individuals. The transaction closed on October 8, 2021 after the applicable conditions precedent were fulfilled.
Acquisition of equity interest in Car10 Tecnologia e Informação S.A. and Pag10 Fomento Mercantil Eireli.
On July 13, 2021, Webmotors S.A., or “Webmotors,” the shareholders of Car10 Tecnologia e Informação S.A., or “Car10 Tecnologia,” and Pag10 Fomento Mercantil Eireli, or “Pag10,” and, together with Car10 Tecnologia, “Car10,” entered into certain agreements for the acquisition by Webmotors of 66.7% of the capital stock of Car10 Tecnologia, which is the sole holder of Pag10. Car10 acts as a marketplace that brings together more than 7,000 service providers such as workshops and autocenters, auto body and paint, and cleaning and sanitizing, as well as emergency assistance and towing. The transaction closed on September 20, 2021.
Acquisition of equity interest in Liderança Serviços Especializados em Cobranças Ltda. and Fozcobra Agência de Cobranças Ltda.
On August 4, 2021, Atual Serviços de Avaliação de Créditos e Meios Digitais S.A., or “Atual,” a wholly-owned subsidiary of Santander Brasil and the shareholders of Liderança Serviços Especializados em Cobranças Ltda., or “Liderança,” entered into a certain Agreement for the Assignment of Quotas and Other Covenants, for the acquisition by Atual of 100% of the capital stock of Liderança. Liderança operates in the industry of overdue credit recovery, providing extrajudicial collection services to financial institutions and other industries, and has a subsidiary: Fozcobra Agência de Cobranças Ltda. The transaction closed on October 1, 2021. Subsequently, Fozcobra Agência de Cobranças Ltda. was merged into Liderança on October 4, 2021.
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Acquisition of Equity Interest in Apê11 Tecnologia e Negócios Imobiliários Ltda.
On September 2, 2021, Santander Holding Imobiliária S.A., or “SHI,” a wholly-owned subsidiary of Santander Brasil, entered into a Share Purchase and Sale Agreement and Investment Agreement with the shareholders of Apê11 Tecnologia e Negócios Imobiliários Ltda., or “Apê11,” for the acquisition of 90% of the capital stock of Apê11. Apê11 acts as a collaborative marketplace, pioneering the digitization of the purchase journey of houses and apartments. After the conditions precedent established in the agreement were fulfilled, the closing of the transaction occurred on December 16, 2021.
Issuance of Notes
OnIn November 5, 2018,and December 2021, Santander Brasil issued Financial Bills with a subordination clause, to be used to compose our board of directors approved the issuance, through our Cayman Islands branch, of debt instruments to form part of our Tier 1 and Tier 2 regulatory capital, in the aggregatetotal amount of U.S.$2.5 billion, pursuant to an offering made to non-U.S. Persons under Regulation SR$5.5 billion. The Financial Bills have a term of the U.S. Securities Act of 1993, as amended, or the “Notes Offer”.
Our board of directors also approved theten years, and redemption of instruments issued to form part of our Tier 1 and Tier 2 regulatory capital,repurchase options in accordance with the board resolutionapplicable regulations. The Financial Bills had an estimated impact of January 14, 2014. The redemption were carried out with funds raised through the Notes Offer.92 basis points on our Tier 2 regulatory capital.
Acquisition of Equity Interest in CSD Central de Serviços de Registro e Depósito aos Mercados Financeiro e de Capitais S.A.
On December 18, 2018,January 21, 2022, Santander Corretora de Seguros, Investimentos e Serviços S.A., or “Santander Corretora,” together with other investors (including Banco BTG Pactual S.A. and CBOE III, LLC) entered into an investment agreement with CSD Central de Serviços de Registro e Depósito aos Mercados Financeiro e de Capitais S.A., or “CSD BR,” and its shareholders for the acquisition of a minority equity interest in CSD BR. CSD BR operates as a register of financial assets, derivatives, securities and insurance policies, authorized by the Brazilian Central Bank, authorized the transactions contemplated in the Notes OfferCVM and the redemption,SUSEP. Subject to closing, Santander Corretora’s interest in CSD BR will be 20%. The closing of the transaction is subject to the conclusion of definitive agreements and the implementation of certain customary conditions precedent, including the receipt of applicable regulatory approvals.
The Getnet Spin-Off
On February 25, 2021, further to the Material Facts disclosed on November 16, 2020 and February 2, 2021, we announced that our Board of Directors approved the spin-off of our merchant acquiring business, which werewas undertaken by our then-subsidiary Getnet, in order to concentrate the technology and payments businesses of Santander Group within PagoNxt, a new technology-focused global payment platform. On March 31, 2021, the shareholders of Santander Brasil approved the Spin-Off. As a result of the Spin-Off, each holder of our common shares, preferred shares and Santander Brasil units, including the custodian for the Santander Brasil ADS facility, received Getnet common shares, preferred shares and Getnet units, at the rate of 0.25 common share, preferred share or Getnet Unit, as the case may be, for each one common share, preferred share or Santander Brasil Unit issued by us held at close of trading on the B3 on the relevant record date. Additionally, each holder of Santander Brasil ADSs representing Santander Brasil units received Getnet ADSs, each representing two Getnet units, at a rate of 0.125 Getnet ADS for each Santander Brasil ADS held at the close of trading on the NYSE on the relevant ADS record date. The Getnet common shares, preferred shares and Getnet units are traded on B3, and Getnet ADSs are traded on Nasdaq under the symbol “GET.” The Spin-Off was completed on January 29, 2019.October 26, 2021.
As a result of the Spin-Off, Santander Brasil’s share capital was reduced by a total amount of R$2 billion, without the cancellation of shares, with Santander Brasil’s share capital decreasing from R$57 billion as of December 31, 2020 to R$55 billion as of December 31, 2021, and we stopped consolidating Getnet within our results of operations on March 31, 2021. On April 15, 2021, we entered into the Getnet Partnership Agreement, which provides a framework for our relationship with Getnet following the Spin-Off. See “ Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Spin-Off of Getnet and Related Arrangements—Partnership Agreement.”
The charts below set forth a summary of our simplified corporate structure before and after the Spin-Off and after the reorganization of the PagoNxt group, of which Getnet forms part:
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Corporate Structure Prior to the Spin-Off
Corporate Structure After the Spin-Off
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Corporate Structure After the Reorganization of the PagoNxt Group
Impact of COVID-19
We are closely monitoring the evolution of the COVID-19 pandemic in Brazil and globally, in order to take preventive measures to minimize the spread of the virus, ensure the continuity of operations and safeguard the health and safety of our personnel. Based on the information available as of the date of this annual report, we present below a summary of the main effects of the COVID-19 pandemic on our business and results of operations:
● | As the COVID-19 pandemic escalated in Brazil starting March 2020, we adjusted our operations to be able to continue providing our products and services to our customers while ensuring the health and safety of our employees. We have prioritized the safety and health of our employees and customers by adhering to prevention and care measures recommended by the Brazilian health and labor ministries, while striving to minimize the impact on our business. From the beginning, we implemented remote working arrangements to safeguard employees most at risk from COVID-19. We have also provided telemedicine services in addition to standard medical support to support the care of our employees and their families. Furthermore, we have instituted a protocol for mapping, protecting, and monitoring all contaminated individuals and those in contact with them, as well as a remote working strategy that evolved in lockstep with the pandemic. We supported our employees throughout the COVID-19 pandemic by offering them and their dependent remote medical care through an agreement with a leading Brazilian hospital. We also provided advance payment of thirteenth salary installments in April 2020 (these are normally paid in April and November of each year). |
● | From March 2020 to October 2021, our branches operated with reduced service hours; from 9:00 a.m. to 2:00 p.m. from March 2020 to July 2020 and then from 9:00 a.m. to 3:00 p.m. until October 2021. From November 2021 through to the date of this annual report, we have been expanding our service hours in our branches from 9:00 a.m. to 4:00 p.m. We adopted a staggered entry system in branches with heavy customer traffic in order to reduce the total number of customers in the branch at any given time. We also reserved the period from 9:00 a.m. to 10:00 a.m. for customers who would are more vulnerable to COVID-19. To provide continuous service and meet the increased demand of our call centers, we temporarily relocated retail employees to our call centers to help deal with the increased demand for remote banking services. In line with our commitment to clear customer communication, we launched the “Overcome Together” and “Santander Supports You” websites, which gathered resources and initiatives related to our business. |
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● | We have offered individual, microentrepreneur and SME customers the possibility of deferring their loan payments for up to 60 days. In May 2020, we allowed an extension for an additional 30 days, as a result of which our deferred loan portfolio reached a total of R$49.8 billion as of June 30, 2020, R$40.6 million as of December 31, 2020 and R$25.9 million as of December 31, 2021. At the same time, we continuously monitored our loan quality indicators, which remained at acceptable levels throughout the COVID-19 pandemic and through the date of this annual report. We also participated in government programs created in 2020 that granted special credit lines for businesses, particularly in retail, to minimize the negative effects of the pandemic including CMN Resolution No. 4,846, which was published on August 24, 2020 and regulated lending under the Emergency Employment Support Program, initially established by Provisional Measure No. 944/2020. For more information, see “—B. Business Overview—Regulation and Supervision—Other Applicable Laws and Regulations—Regulatory Developments Related to COVID-19” As a result, our total portfolio balance of government-sponsored loans reached R$10.3 billion as of December 31, 2021. |
● | The onset of COVID-19 had a negative impact on our net fee and commission income, especially in the first half of 2020, due to a lower volume of customer transactions, which adversely affected the total amounts we were able to charge in credit and debit card fees. As a result, we experienced reductions in the growth rates of our net fee and commission income and of our net interest income from the six months ended June 30, 2019 to the six months ended June 30, 2020, as compared to the growth rates of our net fee and commission income and of our net interest income from the six months ended June 30, 2018 to the six months ended June 30, 2019. These reductions were due to the abovementioned lower transaction volumes, a higher share of global wholesale banking in the loan portfolio, alongside a shift in the product mix, with a decreased share of higher risk products, such as credit cards and overdrafts. In 2021, in particular in the second half of the year, there was a recovery in economic activity. As a result, in the year ended December 31, 2021, our net interest income increased by 15.5% compared to the year ended December 31, 2020 (although our net fee and commission income decreased by 5.9% in the same period), our sales through physical distribution channels increased (by 46% in the year ended December 31, 2021 compared to the year ended December 31, 2020) and so did our sales through digital channels (which increased by 45% in the year ended December 31, 2021 compared to the year ended December 31, 2020) and we added 784,000 new customers in December 2021 (which is 78% more than in December 2020). For more information, see “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Results of Operations for the Years Ended December 31, 2021, 2020 and 2019—Results of Operations—Net Interest Income” and “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Results of Operations for the Years Ended December 31, 2021, 2020 and 2019—Results of Operations—Net Fee and Commission Income.” |
● | In 2020, we constituted an additional provision in the amount of R$3,200 million. This provision was calculated based on the analysis of the potential macroeconomic effects and took into account not only quantitative and qualitative indicators, but also the adequate and accurate identification of risks and a collective assessment of exposures. In 2021 as a response to the macroeconomic shock of the COVID-19 pandemic, we used a part of the provision overlay on expected credit losses created in 2020, as further explained under “Item 5. Operating and Financial Review and Prospects—A. Operating Results— Results of Operations for the Years Ended December 31, 2021, 2020 and 2019—Results of Operations—Impairment Losses on Financial Assets (Net).” However, we also experienced an improvement in our loan portfolio, in particular with respect to individuals as loans to individuals increased by 17% in the year ended December 31, 2021 compared to the year ended December 31, 2020. For more information, see “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Results of Operations for the Years Ended December 31, 2021, 2020 and 2019— Results of Operations—Impairment Losses on Financial Assets (Net).” |
● | In 2020, the National Monetary Council, or “CMN,” and the Brazilian Central Bank introduced measures to minimize the impact of COVID-19 on the financial system. With respect to liquidity, these changes included: (i) a reduction in the time deposit reserve requirement from 31% to 17%; and (ii) an increase in the additional limit on the reserve requirement treated as High Quality Liquidity Assets from 15% to 30%, ensuring greater liquidity in a stress scenario. In addition, a temporary suspension on dividends and other distributions was enacted through Resolution No. 4,820, limiting the distributions to shareholders 30% of adjusted net profit (following amendments enacted on December 23, 2020). As a result, we only distributed R$3,837 million as dividends and interest on equity in 2020 compared to R$10,800 million in 2019. This suspension on the payment of dividends was not renewed in 2021. The CMN also published Resolution No. 4,783, which temporarily reduced the capital conservation buffer (where all rates relate |
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to the total amount of risk-weighted assets) required from financial institutions from 2.5% to 1.25% as of the second quarter of 2020, leading our Basel ratio to reach 15.3% as of December 31, 2020. In 2021, the time deposit reserve requirement increased from 17% to 20% as of November 2021, and the capital conservation buffer required from financial institutions rose from 1.25% to 1.625% as of April, 2021, with this percentage increasing gradually until April 2022, when it will reach 2.5%. For more information, see “—B. Business Overview—Regulation and Supervision—Other Applicable Laws and Regulations—Regulatory Developments Related to COVID-19” and “—B. Business Overview—Regulation and Supervision—Other Applicable Laws and Regulations—Compulsory Reserve Requirements.”
● | We experienced an increase in digital business. Specifically, we recorded an increase of 45% in the number of new contracts originated through digital channels in the year ended December 31, 2021 compared to the year ended December 31, 2020. |
See also “Item 3. Key Information—3D. Risk Factors—Risks Relating to the Brazilian Financial Services Industry and Our Business— The global COVID-19 pandemic has materially impacted our business, and the continuance of this pandemic or any future outbreak of any other highly contagious diseases or other public health emergency, could materially and adversely impact our business, financial condition, liquidity and results of operations” and “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Principal Factors Affecting Our Financial Condition and Results of Operations—Impact of COVID-19.”
Capital Expenditures and Divestitures
Our main capital expenditures include investments in our Information Technology (“IT”)information technology platform. Our ITinformation technology platform focuses on our customers and supports our business model. In 2019, 20182021, 2020 and 2017,2019, total investments in ITinformation technology were R$1,8581,905 million, R$1,2761,432 million, and R$1,1321,858 million, respectively.
In 2021, 2020 and 2019, we realized meaningful transformationscontinually improved in our operations and technologic infrastructure,technology platforms by means of investment in our digital applications, especially through the implementation of various and modernnew solutions in the areas of Artificial Intelligence (Machine Learning,artificial intelligence (machine learning, AIOPs), Micro Services, BPM, Block Chain, Cybernetic Insurance, Facial Recognition, MultiCloud,micro services, blockchain technology, cyber insurance, facial recognition and cloud-based technologies, among others. The application of these new technologies allowed the renovation ofimproved our digital channels for continually improve the experience of interaction between clients and the bank, searching for offer services more and more practical and intuitive, besides makes possible the launch of products all digital and innovativewith our customers enabled us to provide solutions across credit, consortium, payroll loan, insurance, private banking, cards, payments, agribusiness, investments to better address client needs. We also continued to invest in the areas of Credit, Consortium, Payments, Agribusiness, Investments, in a way to serve the demands and expectations of the modern client.
In theour physical service’s scope (Branch,distribution network (branches, PABs and PAEs), applying new functionalities, including: biometrybiometric identification for clients PJ in transactions with card,corporate customers, digital purchase and payment of exchange, by digital treasure, administration of single line for a more efficient organization of the service and recognition of preferential clients in the totem of branches, searching for more security, agility and service’s personalization.among other initiatives. For more details about our technology and infrastructure, of Technology, consultsee the item “ “—B. Business Overview - Overview—Technology and Infrastructure”.Infrastructure.”
Our ongoing capital expenditures consist primarily of investments in information technology. We expect to fund our ongoing capital expenditures principally from our cash flow from operations.
Our major divestituredivestitures in the past three fiscal years and until the date of this annual report waswere the Spin-Off of Getnet and the sale of BW I in 2017.Super Pagamentos.
For more information, see “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Principal Factors Affecting the Comparability of Our Financial Condition and Results of Operations and “—Important Events—Sale of BW Guirapá I S.A.Operations.”).
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4B. Business Overview |
Our Strategy
Our strategy is centered on endeavoring to endeavor to grow in agenerate profitable, recurring, and sustainable manner by providing services with excellence and consistently strive to enhance customer satisfaction levels, expandgrowth. We believe the expansion of our customer base over the years is due to our ability to capture new customers and increase their loyalty. We have achieved this by offering a comprehensive portfolio of products and services, with a particular emphasis on quality and a constant drive to improve customer satisfaction. We serve our customers through multi-channel solutions which we believe enable us to provide a tailored and human service which is responsive to the loyaltyneeds of our customers. We rely on our four integrated service channels to do offer our services to our customers: digital, remote, physical and external channels.
To accomplish this goal,We recorded net income of R$15,559 million, R$13,451 millionand R$16,631 million in the years ended December 31, 2021, 2020 and 2019, an increase of 15.7% in the year ended December 31, 2021 compared to the year ended December 31, 2020. In the years ended December 31, 2021, 2020 and 2019 we achieved capital adequacy ratios of 14.9%, 15.3% and 15.0% respectively. In the years ended December 31, 2021, 2020 and 2019, we have been deeply focusedachieved efficiency ratios of 27.1%, 35.5% and 28.8%, and adjusted efficiency ratios of 28.2%, 27.7% and 28.2%, respectively. In addition, we achieved an adjusted return on understanding howaverage stockholders’ equity of 20.2%, 18.4% and 24.6% in 2021, 2020 and 2019, respectively. Adjusted return on average stockholders’ equity is a non-GAAP financial measure. For further information, see “Item 3. Key Information—A. Selected Financial Data—Reconciliation of Non-GAAP Measures and Ratios to Their Most Directly Comparable IFRS Financial Measures.” We believe these metrics demonstrate our track record of consistent performance and the Brazilian market works to address its demands effectively. As a consequenceresults of our initiatives, Santander Brasil has made substantial progress in all key business areas, highlighted by a remarkable ROE evolution in the last five years. We believeconstant efforts to improve our productivity.
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In recent years, we have been ableundergone significant transformations, thereby enabling us to redirectidentify and capitalize on business opportunities. We have expanded our efforts toward a customer-centric business model with efficiencyplatform to diversify our offering of products and risk model accuracy.services:
● | In 2016, we initiated our commercial transformation by implementing new work models, streamlining processes and digitalizing our operations. We have sought to introduce a culture of innovation, while remaining cognizant of our surroundings and customer demands. This led us to expand our vehicle financing offering at a time when the market was moving in the opposite direction. |
● | In 2017, we took steps to improve service quality and we placed customer satisfaction to the core of our strategy. We believe we were industry pioneers in implementing and publicly disclosing our net promoter score, or NPS, as a measure of customer satisfaction. |
● | In 2018, alongside our culture of service, we advanced our pursuit of efficiency by bringing an industrial cost approach into our banking business, covering three critical fronts: organization, technology, and culture. We believe this strategy has already yielded positive results and that it will enable us to further optimize our productivity while also improving customer experience on our platforms. |
● | In 2019, we expanded our ecosystem by introducing new, innovative products into the market. We launched Sim, emDia, Santander Auto, Auto Compara and Ben Visa Vale while repositioning ourselves in the card market, as well as refocusing our efforts on customer and account holder loyalty. |
● | In 2020, we focused our efforts on assisting customers in facing the challenges posed by the COVID-19 pandemic by providing products and services adapted to the new reality brought in by the pandemic. We did so by improving and expanding our digital channels in order to deliver to our customers robust self-service banking at a time when in-person service delivery was not possible. We also reaffirmed our commitment to efficiency and rapid response to emerging market trends by launching SX Santander to offer customers exclusive benefits, differentiating ourselves from the Brazilian Central Bank’s PIX instant payment solution. |
● | Finally, in 2021 we redoubled our efforts to improve customer experience and satisfaction across all channels. Our strategy is to convert new customers into loyal customers (we define loyal customers as those who purchase six or more products), thus, generating profitability for the bank and satisfaction in using the bank for our customers. We seized on the opportunities we saw in the market and managed to reach 53.4 million customers as of December 31, 2021, including adding more than 784,000 new customers in December 2021. We achieved this while also maintaining high levels of customer loyalty, reaching eight million loyal customers as of December 31, 2021 (an increase of 32% compared to December 31, 2020). The combined effect of the growth in our customer base and our levels of customer loyalty enabled us to increase our customer base by 11% as of December 31, 2021 compared to December 31, 2020. We also further improved our digital operations by expanding our offerings through this channel, which has grown significantly, as evidenced by an increase of 45% in financial products and services purchased through this channel in the year ended December 31, 2021 compared to the year ended December 31, 2020. In addition, we continued to focus on streamlining processes, digitalizing our operations, and reducing paper consumption to enable us to operate faster and more efficiently. As a result, we have achieved: (i) faster service, as the lead time to open a business current account decreased by 78% in the year ended December 31, 2021 compared to the year ended December 31, 2020 and (ii) improved efficiency, with 87.0% of credit card bills issued in digital or email format in the year ended December 31, 2021, an increase of 13 p.p. compared to the year ended December 31, 2020. |
● | We strive to continuously improve our customer experience through the addition of new services, the expansion of our offering, and the enhancement and deeper integration of our channels. |
We have sought to identifyconsolidated and improved our different typesfour service channels through which customers can select the product or solution that best meets their needs. Our digital channel averaged 442 million total visits per month in 2021, adding 554,000 new accounts in December 2021. Similarly, the physical channel, which consists of our branch network that is expanding into Brazil’s rural areas, recorded a monthly average of more than 15 million visits by customers and their specific consumption needs. Based on that, we have adoptedpotential customers, serving as a strategy which relies on serving our customers wherever and whenever they want, through multi-channel (digital and/or physical) solutions that deliver a customized and innovative portfoliocrucial pillar for business origination. In the remote channel, with the implementation of services and products.
We endeavor to seize all the opportunities presented to us by our ecosystem in order to cross-sell and upsell our products and services. For example, our automotive-related ecosystem consisting of Santander Financiamentos, Webmotors and Olé Consignado, has been instrumental in attracting new customers to Santander Brasil. Moreover, we have invested in initiatives that we believe have growth potential, such BEN, Sim, emDia, Santander Auto and PI. We believe that continuing to cross-sell and upsell across our business and investing in initiatives, which we believe to be promising, are key pillars for us to attract new customers and retain existing ones.
Further evidence that we are on the right track is the fact that in 2019 we were recognized by Euromoney Awards for Excellence as the Best Bank in Brazil and the Best Bank in Latin America.
Below we outline the main initiatives we have taken during these last years:
• Net promoter score or NPS. We introduced the NPS as our main customer satisfaction metric in 2017 and in 2018, we were pioneers in disclosing this index to the market. After each interaction with Santander Brasil, our customers are asked randomly to rate their experience following the NPS methodology. Nowadays, we take into account our NPS with respect to our compensation (profit sharing) metrics, affecting virtually every department and position level at the organization, including the administrative and commercial departments. Additionally, and reinforcing our commitment to service excellence, we invited our senior management to become personally involved in enhancing customer satisfaction, by getting in touch with at least three detractors (unsatisfied customers) in order to understand and solve their problems and turn them into promoters (satisfied customers). We ended 2019 with an NPS of 56 points and we believe that this high level in satisfaction translates into an expansion of our loyal customer base.
• Operational excellence.With the goal of fine-tuning the customer journey and boosting efficiency, we have transformed several aspects of our operational model. First, we switched to an industrial approach, which means that we now have an end-to-end view of the customer experience, reducing manual activities and dispersion, as well as enhancing cost transparency. Additionally, this year we launchedSX Negócios, a new service model, we have redefined our model to move away from a call center and toward a business channel. We have built a platform to capture new business, processing over 25 million support requests per month in large partthe year ended December 31, 2021, 4.6 million of which are handled by humans. The external channel is comprised of bank correspondents, which are entities allowed to provide specific services to customers, including customer services, on behalf of another financial institutions, and our business verticals, such as payroll-deductible loans, Prospera and Olé Consignado.
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We believe that our digital platform enables us not only to offer our customers a comprehensive set of services but also to benefit from the business generation potential which arises from the ease with which customers are able to purchase our products and services through our digital sales channels. Sales of our low-income portfolio, where we have transformed five types of careers into a single businessproducts and service manager career, further optimizingservices through our customer service at our branches, generating more business and delivering greater efficiency. With these changes, we have already obtained notable results, such as a decreasedigital channels increased by 45% in the time needed for customersyear ended December 31, 2021, compared to finalize the purchase of certain products andyear ended December 31, 2020, including an increase in the number of agreements issued.premium bonds (capitalização) contracts of 360% and 23% in premiums written in open insurance contracts (considering life insurance, personal accident insurance, home insurance, and other types of insurance) in each case in the year ended December 31, 2021 compared to the year ended December 31, 2020. GENT&, our artificial intelligence channel, recorded over 18.5 million interactions in December 2021 and is currently capable of answering more than 26,000 questions.
• Digital strategy.We are in constant digital transformationbelieve that our business has the potential to better serve our customers. We have implemented a collaborative work system in our organization based on the “Agile” methodology, commonly used in IT. This new approach consistsgrow by means of multidisciplinary teams, with employees from
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businessinnovation and technology, areas, who are given autonomy to make decisions rapidly. Thanks to that, we have been able to offerin conjunction with user experience enhancements and steady evolution in the quality of our services. Our products, services, and services, as well as add system updates throughbusinesses form part of the daily lives of all our available channels quickly. These tools include: (i) providing a wide range ofcustomers, whether businesses or individuals, and include, among others, payment solutions (i.e., payment platforms), investment and advisory services, across all channels according to customers' choices and/or needs; (ii) giving customers the ability to meet all their needs through digital channels;vehicle and (iii) integrating all service channels to ensure that customers have a homogeneous experience, regardless of the channel chosen.
• Optimization of commercial tools.We have simplified day-to-day operations of branch staff, so that they can spend more time meeting customer needs. As part of this initiative, we provided our employees with new features in our customer relationship tool (CRM) that centralizes all the information they need for their daily commercialconsumer goods financing, mortgage loans, payroll-deductible and financial activities. We have also implemented time-saving tools, which reduce the amount of information and steps required to perform operational tasks.
• Greater empowerment and incentives for branch staff.We have sought to decentralize the management of branch resources. Branch managers are now responsible for managing the expenses of their branches, and each branch has its own results report. This gives branch employees and managers a higher sense of autonomy and responsibility,agribusiness loans, as well as the feelingproducts and services offered through our wholesale unit. We also endeavor to maintain sound risk management, which entails continuously improving our credit granting models to maintain our credit risk indicators at acceptable levels.
In order to strengthen our platform, we have launched new businesses that continue to evolve and support our customer loyalty strategy, such as (i) Ben, which grew its customer base to 565,000 cards as of December 31, 2021 along with 2,675 human resources customers and 365,432 partner establishments as of the same date; (ii) Sim, which surpassed the five million customer mark and reached a loan portfolio of R$1.6 billion as of December 31, 2021; (iii) emDia, which increased recovered credit volume by 12% in the year ended December 31, 2021 compared to the year ended December 31, 2020, and (iv) Santander Auto, where the percentage of new consumer finance contract purchasers who also acquired insurance reached 20% in 2021, resulting in over R$210 million in written premiums in 2021. In 2020, we also announced the acquisition of securities brokerage firm Toro Corretora to complement our investment platform and broaden our product offering. Finally, in 2021, we launched Auto Compara, a fully online auto insurance comparison and offering platform that is now also available to non-customers. Auto Compara had an average of 350,000 website visits in the year ended December 31, 2021 and we increased by 26% in premiums written during the year. Additionally, we reinforced our position in the automotive and real estate industries by completing acquisitions of businesses and solutions to expand our business and build a more comprehensive platform.
As a result of our efforts to constantly improve our business, we were recognized the Best Bank in Brazil in 2021 by The Banker Magazine.
Our People
Our people are a key pillar of our strategy, supported by a culture that values employees, promotes diversity, encourages efficiency, and fosters innovation, while also preparing us for a new cycle and enabling us to continue anticipating market trends. Our performance is the embodiment of our culture, with our people serving as the catalyst for the transformation. Thus, we have built a diverse and engaged team. We value meritocracy, diversity, and inclusion, as evidenced by the fact that, as of December 31, 2021, 31% of our leadership positions were held by women, 27% of our employees were black employees, and 5% were held by people with disabilities. We also place a premium on proactive knowledge acquisition: in 2021, over 3,200 courses were held on the Santander Academy platform, with 78% of them being taught by employees. Close leadership and open communication are ingrained in our DNA. Our actions are backed by a culture that is increasingly centered on our people – 94% of whom are proud to work for Santander, according to the Great Place to Work, or “GPTW,” survey from 2021. As a result of our efforts, we have been named one of the top 10 best companies to work for in Brazil by GPTW 2021, appearing in the following categories: Ethnic-Racial, Women, LGBTQI+, Early Childhood, 50+, and Healthy Management. Additionally, we were honored with the following awards: (i) Ethnic-Racial by Exame magazine’s Diversity Guide, (ii) Diversity and Inclusion by Euromoney’s Awards for Excellence, and (iii) Bloomberg’s Gender Equality Index. Finally, we were also included on the GPTW B3 index.
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Social and Environmental Initiatives
Similarly, and consistent with our strategy of responsible growth, we recognize our role as a financial institution in Brazil’s development. Hence, for twenty years, we have sought to foster sustainable businesses. We highlight our Amigo de Valor program, one of the main social programs in Brazil today, started in 2002. In 2021, we continued to advance initiatives that reflect how sustainability and social issues are embedded in every layer of our organization:
● | In the social realm, we lead initiatives that have impacted more than one million people over the last three years. For the past 19 years, we have worked to protect, promote, and defend the rights of children and adolescents in vulnerable situations through the Amigo de Valor program, benefiting thousands of people and raising R$20 million in 2021 through employee and customer contributions. Since 2002, we have been promoting financial inclusion by means of Prospera Santander Microfinance (Prospera Santander Microfinanças), which had 708,000 active customers and a R$1.9 billion portfolio as of December 31, 2021, with the goal of helping microentrepreneurs thrive and thereby develop the communities in which they operate, while also providing business management guidance. Likewise, for more than two decades, we have consistently invested in education, as we believe that it is the foundation for societal transformation. Finally, we have awarded higher education scholarships since 2005, including 33,000 scholarships in 2021 alone. |
● | With respect to our environmental initiatives, we offer a comprehensive suite of financing solutions for the development of sustainable businesses, both for individuals and businesses, which we accelerated in 2021, generating R$ 51.6 billion in sustainable businesses in the year ended December 31, 2021. We pioneered green financing, with over R$ 1.3 billion loans linked to environmental, social and governance, or “ESG,” goals and green loans in our portfolio as of December 31,2021, in addition to being among the leaders in CBIOs (decarbonization credit). We are also active solar energy loans, financing photovoltaic panels for individuals, companies, and agribusinesses, disbursing R$ 2.3 billion in the year ended December 31, 2021. In 2021, we also launched a financing facility exclusively for bicycles. |
We implement routine socioenvironmental risk assessment, for which we rely on a Socioenvironmental Questionnaire, or “QSA,” by means of which we collect information on customers that have environmental practices, including data on carbon emissions, management of offsets and extreme weather events. The QSA is applied to the Wholesale and Business 3 segments, as well as to Retail customers. This analysis is part of their own branch's success. Additionally,the annual credit review for 14 sectors in which we operate, all of which are potentially affected by climate change according to the Task Force on Climate-related Financial Disclosures, or “TCFD.”
Since 2016, we have taken climate change issues into consideration in the credit rating of Wholesale customers, and, since 2020, we have used a water stress calculator in our socioenvironmental assessments. This tool considers our customers’ economic activity, watershed location and measures taken to save water. It has been developed considering customer vulnerability to climate change in general, even as a result of changes in legislation or consumer preferences.
Regarding decarbonization targets, in 2021 we announced our intention to achieve net zero carbon emissions by 2050 to support the goals of the Paris Agreement on climate change using 100% renewable energy sources by 2025 and eradicating single-use plastic from all our operations. We have been carbon neutral since 2010, fully offsetting our emission sources.
In July 2021, we established a forum with the goal of preventing greenwashing by seeking to ensure that operations which we describe as green, social, or sustainable comply with Santander Group’s taxonomy and market standards. The forum, which is composed of senior executives from the Sustainability, Risk, Social and Environmental Risk, Business, Compliance, and Legal departments, also assesses reputational risks associated with our operations. Out of a total of 40 proposals to label a particular service of product as being “green” which were reviewed by the forum in 2021, 31 have been approved.
In addition, we have developed products that contribute to lowering the impact on climate change, such as:
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● | Low Carbon CDB, we launched the Low Carbon CDB, a sustainable, low risk investment aimed at companies that want to have more sustainable investments in their portfolio capable of reducing their greenhouse gas emissions. The resources of the investments in CDB will be used to finance sustainable projects of companies that promote actions to reduce greenhouse gas emissions. |
● | Carbonômetro (Carbon meter), a tool that calculates the daily greenhouse gas emissions of our operations. |
● | Carbon Calculator, which encourages employees of Santander Brasil and affiliates to calculate their carbon footprint. |
● | "The Future of the Carbon Market in Brazil” live video. We produced a live video to discuss the future of the carbon market in Brazil and the challenges and opportunities for the business sector. |
In July 2020, we announced a plan to promote sustainable development in the Amazon, in collaboration with two other largest private-sector banks in Brazil. Part of this plan, named “Plano Amazônia,” aims to eliminate deforestation in the supply chain for cattle farms for beef processors in the Amazon, aiming to finance the cultivation of local crops, such as açaí, Brazilian nuts and cocoa, and to identify opportunities for the development of bioeconomy chains. In 2021, we also launched the new commercial network Rede Norte Amazônica, in order to expand our operations in the region, and we have established the North Amazon Network, a business unit comprised of four Brazilian states (Amazonas, Acre, Rondônia, and Roraima), with the objective of fostering business in the region and a particular focus on sustainability. Since its creation, we have made some adjustmentsover R$ 270 million in credit lines available to cooperatives and agribusinesses, as well as to producers of Amazonian products who adopt sustainable practices.
In 2021, we inaugurated Brazil’s first sustainable train station in partnership with the compensation structureState Government of branch employeesSão Paulo, maximizing on-site natural resource efficiency by means of solar energy panels and managers to ensure thata water reuse system. Furthermore, in collaboration with the variable componentsInternational Finance Corporation, a World Bank Group institution, and the State Government of their compensation depend onSão Paulo, we supported the performance of the branch where they work.Pinheiros River clean-up program.
• Culture strengthening. We believe that committed employees make the business sustainable. With that in mind, we have established clear and horizontal communication of senior management with employees, promoting meritocracy and diversity. In line with this practice, Santander Academy encourages our staff to assume a proactive role in their technical training and has been attended by 75% of total employees, who act as internal multipliers. As a result, in 2019, we were recognized for the fourth consecutive yearalso use ESG as one of the Best Companies to Workcriteria for evaluating our executives, evidencing how deeply embedded the subject is in Brazil, according to the GPTW (Great Place to Work) survey.our culture.
Finally, aligned with the Santander Group’s responsible growth strategy, Santander Brasil has made several public commitments to society, including: (i) having 30%In recognition of our leadership positions held by women by 2024 (today women account for 26% of leading roles at Santander Brasil); (ii) having 100% of our operations powered by renewable energy by 2025; and (iii) eradicating single-use plastic consumption at our facilities by 2020. Another equally important componentefforts, we have received several ESG accolades in fulfilling our responsibilities to society is2021, including Exame magazine’s Best ESG Bank, the “Prospera” microcredit program, through which we help Brazilians in low-income communities to prosper by giving them access to credit and financial products, and which contributed to placing us in the top spot among banks on Fortune magazine’s 2019 “Change the World” list. Finally, we were namedEco Brazil Award, Época Negócios 360°’s Most Sustainable Company, of the Year on Exame Magazine’s diversity ranking, in addition to being recognized asnamed to Fortune magazine’s Change the financial institution with the best inclusion and diversity practices in the country.World list.
Our Business
We provide our 26.3complete portfolio of products and services to our 30 million active customers as of December 31, 2019 with our complete portfolio of products and services2021 through the following business divisions:segments:
• Commercial Banking:This includes individuals and companies (except for global corporate customers, managed by our Global Wholesale Banking). Revenue from this segment is rendering of banking and financial products and services to our account holder and non-account holder customers.
• Global Wholesale Banking:We offer a wide range of national and international tailored financial services and structured solutions for our global corporate customers, principally local and multinational corporations, and it also carries out proprietary trading activities.
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● | Commercial Banking: provides services and products to individuals and companies (except for global corporate customers who are managed by our Global Wholesale Banking). The revenue from this segment is derived from the banking and financial products and services available to our account and non-account holders. |
● | Global Wholesale Banking: offers a wide range of national and international tailored financial services and structured solutions for our global corporate customers, comprised mostly of local and multinational corporations. |
We outline below the operatingbusiness divisions underfor each of our operating segments, as well as the breakdown of our net interest income and profitoperating income before tax by segment:
Commercial Banking | Global Wholesale Banking |
●Individuals | |
●SMEs | |
For the Year Ended December 31, | ||||||||||||||||||||||||
2019 | 2018 | 2017 | 2019 | 2018 | 2017 | |||||||||||||||||||
Net interest income | Operating profit before tax | |||||||||||||||||||||||
(R$ millions) | ||||||||||||||||||||||||
Commercial Banking (1) | 42,044 | 39,391 | 32,392 | 18,657 | 12,397 | 11,220 | ||||||||||||||||||
Global Wholesale Banking | 2,277 | 2,531 | 2,554 | 3,616 | 3,512 | 3,293 | ||||||||||||||||||
Total | 44,321 | 41,922 | 34,946 | 22,273 | 15,909 | 14,513 |
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For the Year Ended December 31, | ||||||||||||||||||||||||
Net interest income | Operating income before tax | |||||||||||||||||||||||
2021 | 2020 | 2019 | 2021 | 2020 | 2019 | |||||||||||||||||||
(R$ millions) | ||||||||||||||||||||||||
Commercial Banking(1) | 46,236 | 41,457 | 42,044 | 19,491 | 4,666 | 18,375 | ||||||||||||||||||
Global Wholesale Banking | 5,082 | 2,985 | 2,277 | 5,260 | 4,998 | 3,898 | ||||||||||||||||||
Total | 51,318 | 44,443 | 44,321 | 24,750 | 9,664 | 22,273 |
(1) |
The following table shows a managerial breakdown of our loans and advances by customer type at the dates indicated:
As of December 31, | Change between 2018 | Change between 2017 | ||||||||||||||||||
2019 | 2018 | 2017 | and 2019 | and 2018 | ||||||||||||||||
(R$ millions) | ||||||||||||||||||||
Individuals | 156,177 | 133,603 | 107,610 | 16.9 | % | 24.2 | % | |||||||||||||
Consumer Finance | 48,421 | 40,964 | 33,170 | 18.2 | % | 23.5 | % | |||||||||||||
SMEs | 53,119 | 49,624 | 46,879 | 7.0 | % | 5.9 | % | |||||||||||||
Corporate(1) | 89,539 | 97,742 | 100,171 | -8.4 | % | -2.4 | % | |||||||||||||
Total Credit Portfolio | 347,257 | 321,933 | 287,829 | 7.9 | % | 11.8 | % |
As of December 31, | Change between 2020 and 2021 | Change between 2019 and 2020 | ||||||||||||||||||
2021 | 2020 | 2019 | ||||||||||||||||||
(R$ millions) | ||||||||||||||||||||
Individuals | 203,678 | 174,042 | 156,177 | 17.0 | % | 11.4 | % | |||||||||||||
Consumer Finance | 55,441 | 51,637 | 48,421 | 7.4 | % | 6.6 | % | |||||||||||||
SMEs | 59,602 | 54,525 | 53,119 | 9.3 | % | 2.6 | % | |||||||||||||
Corporate(1) | 174,634 | 137,618 | 89,539 | 26.9 | % | 53.7 | % | |||||||||||||
Total Credit Portfolio | 493,355 | 417,822 | 347,257 | 18.1 | % | 20.3 | % |
(1) | For purposes of loan portfolio presentation, “corporate” includes companies with annual gross revenues exceeding R$200 million, including our Global Corporate Banking customers. |
Commercial Banking
Retail
1. Retail
Individuals
We have structured thisthe individual customer service segment as follows:
Private Banking– is responsible for select group of customers with at least R$5.0 million in assets available for investment. In this segment, we offer a complete and tailored portfolio of onshore and offshore financial products and services, investment advice, loans and asset management through a dedicated manager for investments and banking services.
● | Private Banking – is responsible for customers with at least R$5.0 million in assets available for investment. In this segment, we offer a complete and tailored portfolio of financial products and services, investment advice, loans and asset management through a dedicated manager for investments and banking services. |
● | Santander Select – is responsible for customers with a monthly income above R$10,000, and R$30,000 in investments, or more than R$100,000 in investments. The offer here consists of a value proposition with differentiated products and services, exclusive service spaces, relationship managers who serve a small number of customers and provide asset management advisory services, |
• Santander Select– is responsible for customers with a monthly income above R$20,000, or a monthly income above R$10,000 and R$30,000 in investments, or more than R$ 300,000 in
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investments. The offer here consists of a value proposition with differentiated products and services, exclusive service spaces, relationship managers who serve a small number of customers and provide asset management advisory services.
Furthermore, we also support our Select and Van Gogh customers through our Santander Direct channel, Santander Direct is suited to customers who want more flexible service hours, from 8:00 a.m., to 10:00 p.m. and who prefer using a remote method, such as telephone, e-mail or chat, as well as • Santander Van Gogh– is responsible for customers with a monthly income from R$4,000 to R$10,000, or with investments above R$40,000. Our goal is to understand the needs of our customers at each stage of their life● Santander Van Gogh – is responsible for customers with a monthly income ranging from R$4,000 to R$10,000, or with investments above R$40,000. Our goal is to understand the needs of our customers at each stage of their lives and provide them with financial advice through a multi-channel solution, including financial products and services, as well as financial advice, ● Santander Especial – is responsible for customers who earn up to R$4,000 per month. Our business model offers simple and efficient solutions with an attractive cost benefit to the customer, primarily through electronic channels. financial advice.
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• We launched the following products or functionalities for retail customers in 2021:
● | Santander Especial – New customers who opened their accounts on our digital channels have access to Santander Direct. |
● | New account digital process - |
Small and Medium Enterprises (SMEs)
We serve SMEs under the “Santander Negócios e Empresas” brand, with the following customer service segmentation model:
● | Empresas 3 Núcleos (Core Companies) – responsible for companies with annual revenues between R$30 million and R$200 million. Our service model is based on dedicated relationship managers, a team of experts for more complex demands and loan managers specializing in risk management. We also provide specialized services to multinational, technology companies and other major corporations in order to meet their specific needs. |
● | Empresas 2 Polo (Hub Companies) – responsible for companies with annual revenues between R$3 million and R$30 million. We offer these customers
Consumer Finance We provide consumer credit to finance motor vehicles, goods and services directly or through intermediate agencies, Santander Financiamentos is our main service channel, but we also operate under multiple brands. The following table sets forth certain key financial and operating data regarding our consumer finance business for the periods indicated:
Corporate Our corporate banking segment aims to be the main distribution channel of the Santander Group to Brazilian and foreign and/or multinational corporate clients. The product offering ranges from simple cash accounts to
mergers and acquisitions advisory services. We leverage our strength in consumer finance, asset and wealth management, payments and markets to serve our clients and their shareholders, employees, clients and suppliers. We serve companies with annual gross revenues in excess of than R$200 million located across Brazil by physical and digital channels. Our corporate banking segment has been constantly evolving as a segment relying on a disciplined analytical toolkit, consistent communication and workforce upskilling. Global Wholesale Banking Santander Corporate & Investment Banking (SCIB) SCIB is the global business unit that serves customers, who, due to their size and complexity, require tailored services or high-value-added wholesale products. In this segment, we provide a wide range of domestic and international financial services to large Brazilian and multinational companies. Our customer portfolio comprises a range of industries, including telecommunications, retail, aviation, real estate and logistics, power, construction and infrastructure, natural resources, food, agribusiness and financial institutions. Our customers in the SCIB segment benefit from Santander Group’s global structure of services, which is supported by its worldwide-integrated wholesale banking network and global services solutions, as well as local market expertise and provision of integrated services. Our Portfolio of Products and Services Payments Credit and Debit Cards We operate in the credit and debit card market by issuing these products to our customers (including both account and non-account holders), with the majority of customers being individuals. Our strategy is to offer credit and debit cards that are compatible with the income level and lifestyle of each of our customers. In order to reach a greater number of customers and remain competitive, we launched the SX card in November 2020, as part of the SX strategy detailed below. This product benefits highly engaged and transactional customers, facilitating the exemption from annual card fees. In addition, we also took the opportunity with the SX card to launch a more modern and ambitious card design for our customers. To improve customer experience for the high-income segment, where we are aiming to increase market share and brand awareness, we launched the Gold, Platinum and Centurion products with American Express which include NFC technology, the accumulation of Esfera points that do not expire and still allow access to Membership Rewards, an exclusive American Express program. In line with Santander Brasil’s global purpose of becoming NetZero by 2050, we launched cards made from recycled material in July 2021. The new cards made of recycled material were issued to customers who already had an SX or Elite card, close to expiry. We expect to make the official launch for the first quarter of 2022, with the issuance of 100% of SX and Elite cards with recycled material. Currently, we are the only bank in Brazil that issues cards made from recycled material. In the SMEs segment, believing in the great potential of microentrepreneurs, or “MEI,” who represent more than half of the companies in Brazil, we developed an exclusive card for this segment. The MEI card grants customers discounts on purchases made with partners, chosen according to the microentrepreneurs field of activity, as a result of which cardholders have access to exclusive offers for the purchase of input for their companies. In addition, there is the possibility of an annual fee waiver by binding the card by using the card on a monthly basis or by registering with the PIX system. In line with the objective of becoming an open financial services platform, in November 2021 we launched a partnership with Samsung, a solution that offers digital account opening, card sales and SIM loans on the first screen of Samsung pay. The objective is to provide a simple and fluid journey within the app that is already used on a daily basis to pay for on-the-go purchases. We also improved our digital journey to provide better customer self-service, which we believe is a key component for higher customer engagement. A recent novelty is “Clique e Retire,” a new physical card delivery system that provides a quick, autonomous solution for customers by allowing them to opt to collect their cards from self-service machines.
The following table sets forth certain key financial and operating data regarding our credit card business for the periods indicated.
Not applicable.
Not applicable.
Not applicable. ITEM 10. ADDITIONAL INFORMATION
Not applicable.
Below we provide a summary of the important provisions of our By-Laws and of the corporate and Brazilian capital markets legislation and regulations. This description is not intended to be exhaustive. It is based on our By-Laws (an English translation of which is attached as an exhibit to this annual report), as well as on the legislation and regulations applicable to companies and the Brazilian capital market currently in effect. Registration and Business Purpose We are a publicly held company, incorporated under Brazilian law. Our documents of incorporation are duly registered with JUCESP, under NIRE 35300332067. Pursuant to article 4 of our By-Laws, our corporate purpose is to (i) participate in asset, liability and accessory transactions related to our respective authorized portfolios (commercial, investment, credit, financing and investment, real estate credit and leasing), (ii) carry out foreign exchange transactions; (iii) manage investment portfolios; (iv) any other transaction that would be allowed by law and regulations in force; and (v) participate, as shareholder or quotaholder, in other companies.
Brazilian Corporate Law imposes on the members of the Board of Directors and Officers the duty of diligence during the performance of their functions, as well as the duty of loyalty to the company, besides prohibiting members of the Board of Directors and the Officers from: (i) receiving any type of direct or indirect personal advantage from third parties, by virtue of the position occupied, without authorization in the By-Laws or from a shareholders’ meeting; (ii) taking part in any corporate transaction in which he or she has an interest that conflicts with our interest or in the decisions made by other directors on the matter; (iii) use any commercial opportunity which may come to his or her knowledge, by virtue of his or her position, for his or her own benefit or that of a third party, whether or not harmful to the company; (iv) fail to exercise or protect the company’s rights or to take advantage of a commercial opportunity of interest to the company, in seeking to obtain advantages for himself or herself or for a third party; and (v) acquire for resale with profit property or rights which he or she knows the company needs or which the company intends to acquire. As In addition to these provisions, Article 10 of our By-Laws provides that members of the Board of Directors and Officers are forbidden to be involved in the analysis, approval or settlement of business deals or loans relating to a company where they (i)
Rights of Common Shares and Preferred Shares Each common share gives its holder the right to a vote at general meetings, however, the preferred shares do not grant voting rights in our shareholders’ general meetings, except as related to the following matters:
Nevertheless, these rights can only be exercised by the holders of shares who maintained their holding for at least three months before the date of the annual shareholders’ meeting. The Brazilian Corporate Law also permits a multiple vote procedure to be adopted, upon request by shareholders representing at least 10% of our voting capital. Pursuant to CVM Instruction 282 of June 26, 1998, the percentage needed to call for a multiple vote to elect members of the board of directors, in public companies with capital stock exceeding R$100 million, is 5% of the voting capital per request of multiple vote. The holders of preferred shares are entitled to the following rights according to our By-Laws:
Common shares not belonging to the controlling shareholders also give their holders tag-along rights in the event that our control is transferred on the same terms and conditions as those granted to our controlling shareholders. The shareholders’ general meeting may decide on conversion of the preferred shares into common shares. The Brazilian Corporate Law sets forth that shares without voting rights or shares with restricted rights, including our preferred shares, shall be granted unrestricted voting rights if the company ceases to distribute, during three consecutive fiscal years, any fixed or minimum dividend granted to these shares, until the respective distributions are made.
According to our By-Laws, the dividends that are not claimed by shareholders within three years, from the beginning of their payment, shall prescribe to our benefit. Under the Brazilian Corporate Law, any change in the preferences or changes which would have
an adverse financial effect on the rights of holders of preferred shares, or any change that results in the creation of a more favored class of preferred shares, must be approved by a resolution at a general shareholders’ meeting and will become valid and effective only after approval by a majority of our preferred shareholders. Brazilian Corporate Law also sets forth that the following shareholders’ rights cannot be repealed or modified by our By-Laws or decisions made at shareholders’ meetings:
Description of Units The Units are share deposit certificates, each representing one common share and one preferred share, all of them free and unencumbered. The shares represented by the Units shall be registered in a trust account linked to the Units, and their ownership can only be transferred by means of transfer of the corresponding Units, upon written instructions from the holder. Earnings from the Units and the amount received in the case of redemption or repayment shall only be paid to the holder of the Units registered in the books of the custodian. None of the shares underlying the Units, the earnings thereon or the corresponding redemption or repayment amounts may be pledged, encumbered or in any other way given in guarantee by the holder of the Units, nor may they be subject to attachment (penhora), seizure (arresto), impounding (sequestro), search and apprehension (busca e apreensão), or to any other lien or encumbrance. The Units are held by us (except units that underlie the ADSs which are held by our affiliate, Santander Caceis Brasil Distribuidora de Títulos e Valores Mobiliários S.A.), as the custodian, in book-entry form in an account opened in the holder’s name. The transfer of ownership is effected by debiting the seller’s Unit account and crediting the buyer’s Unit account according to a written transfer order issued by the seller or a court authorization or transfer order delivered to the custodian, all of which are retained by the custodian. Dividends, interest on shareholders’ equity and/or cash bonuses shall be paid to the custodian and the custodian shall then transfer the amount to the custody agents for payment to the Unit holders. The pledge, usufruct, right of succession, fiduciary transfer in guarantee and any other conditions, onus or encumbrances on the Units must be registered in the custodian’s records, as well as noted in the corresponding statement of account of Units. The custodian shall provide Unit holders with a statement of account at the end of each month in which there is movement and, when there is no movement, at least once a year. The statement shall show the date and place of issue, the name and details of the holder of the Unit account, an indication that it is a statement of Unit account, details of the shares deposited, a statement that the shares deposited, their earnings and any amounts received in the event of redemption or repayment shall only be paid to the holder of the Unit account or to the holder’s order in writing, our charge for the deposit, if any, and the addresses where Unit holders may obtain assistance. Upon a written order issued by the holder of the Unit account to a broker authorized by the stock exchange where the Units are traded, the custodian shall block the corresponding Units and transfer them to the buyer upon receipt of a confirmation of the sale from the stock exchange.
The Unit holder shall have the right, at any time, to instruct a broker to cancel Units and transfer the underlying shares. The broker must request to us, as the agent, to transfer the Units to the share deposit accounts held by the custodian in the holder’s name. The Unit holder shall bear any transfer and cancellation costs involved. Similarly, the holder may instruct a broker to assemble Units by transferring the number of shares that jointly represent a Unit, which shall be registered by the custodian in a trust account linked to the Units.
The right to cancel Units may be suspended in the event of a public offering for distribution of Units, either in the domestic or the international market, in which case the suspension may not last longer than 180 days. Units subject to any lien or encumbrance may not be cancelled. The following rules apply to the exercise of the rights granted to the shares represented by Units:
In the event of a capital increase, by means of the issuance of shares that may be converted into new Units, Unit holders may exercise the Unit holders will be entitled to receive any shares issued as a result of our spin-off, consolidation or merger. General Meetings At our duly convened general meetings, our shareholders are authorized to make resolutions on matters relating to our activities and to make decisions deemed to be in our best interests. Our shareholders are exclusively responsible for approving the financial statements at the annual general meeting, and to decide on the destination of net earnings and the distribution of dividends for the year immediately preceding the meeting. The members of the Board of Directors and Fiscal Councilare, as a general rule, elected at annual general meetings unless for an exceptional reason they have to be elected at an extraordinary general meeting.
An extraordinary general meeting may be held at any time, including together with an annual general Quorum of General Meetings As a general rule, the Brazilian Corporate Law sets forth that a general meeting can be held if shareholders holding at least 25% of the voting capital stock are present, at the first call, and at the second call if any number of holders of voting shares are present. If the shareholders have been convened to resolve on amendments to the By-Laws, the quorum at the first call must be at least
The CVM may authorize the aforementioned quorum, set forth in the Brazilian Corporate Law, to be reduced in the case of a publicly held company with widely held shares, and where the last three general meetings have been attended by shareholders representing less than half the voting shares. In general, the approval of any matter must occur through votes of shareholders attending a general meeting in person, or through a proxy, corresponding to at least the majority of the common shares represented at the meeting, and abstentions are not taken into account for this calculation. Nevertheless, the affirmative vote of shareholders representing at least Call Notice of The Brazilian Corporate Law requires all general meetings to be called by a minimum of three entries in the Official Gazette of the State of São Paulo and in other mass circulation newspapers in São Paulo, where the B3 is located. Our call notices for meetings are currently published in the Official Gazette of the State of São Paulo, the official journal of São Paulo state, and in the Valor Econômico newspaper. The first call must be published not more than 30 days before the date of the meeting, and the second call not more than eight days in advance. However, in certain circumstances, at the request of any shareholder, the CVM may (i) after consulting us, require the shareholders’ meeting to be postponed and held 30 days after the first call; and/or (ii) suspend for up to 15 days the advance notice required for an extraordinary general meeting, to give the shareholder time to understand and analyze the proposals to be voted on at the meeting. The call notices must give full details of the agenda for the meeting (the term “general matters” being prohibited) and the adequate supporting documents must be available to the public on the CVM’s website from the date of publication of the first call. Place of Our Shareholders’ General Meetings Our shareholders’ meetings are held at our headquarters at Avenida Presidente Juscelino Kubitschek,
Responsibility for Calling General Meetings It is usually the responsibility of our Board of Directors to call a general meeting, provided that such meetings may also be called by the following persons or bodies: (i) any shareholder, when our directors fail to call a meeting within 60 days of the date required by law or by our By-Laws; (ii) shareholders representing a minimum of 5% of our capital stock, if our managers fail to call a meeting, within eight days, in response to a justified request submitting matters to be discussed; (iii) shareholders representing a minimum of 5% of our capital stock, if our Board of Directors Conditions for Admission to Shareholders attending general meetings must prove that they are the holders of shares with voting rights, as set forth in the Brazilian Corporate Law. Our shareholders may be represented by a proxy (including a public proxy in accordance with CVM Instruction 481, of December 17, 2009, as amended), appointed not more than one year before the date of the meeting, and this representative must be a shareholder, a manager, a lawyer or, in the case of a publicly held company, as ours is, a financial
Remote Voting The CVM
regulations. Policy on Trading in Our Own Securities The objective of our Policy on Trading in Our Own Securities, prepared in accordance with CVM The purpose of this policy is to avoid insider trading (the furnishing of privileged information from which third parties may benefit) and to ensure transparency in the trading of our Among other matters, persons subject to our policy shall refrain from buying or selling, by themselves through direct dependents or by using directly or indirectly controlled companies, any securities issued by us, or backed by them, as well as their respective derivatives, including:
Our policy also establishes that our controlling shareholders, officers, and members of our Board of Directors, members of our Fiscal Council (when there is an active one) and members of any other bodies with technical or consulting functions created by a provision in the By-Laws, shall not trade securities issued by us or their respective derivatives on the same day that we, our controlled or associated companies or any other company under their common control are selling shares held in treasury or purchasing shares to be held in treasury, or while holding open orders to deal in our shares. However, such prohibition shall not apply if the acquisition or sale of our shares by us has the specific purpose of managing the risk arising out of our activities as market maker of certain funds indexes.
Right to Withdrawal The Brazilian Corporate Law gives our shareholders the right to withdraw from Santander Brasil, upon reimbursement of the equity value of their shares, if the shareholder disagrees with or abstains from voting on certain resolutions approved in shareholders’ general meetings. According to the Brazilian Corporate Law, the right of withdrawal may be exercised in the following circumstances, among others as provided by law: (i) a change in the preferences, privileges or repayment or redemption conditions granted to our preferred shares, or the creation of a new, more favored class of shares (in which case, only a shareholder who is adversely affected by such change or creation shall have the right of withdrawal); (ii) spin-off (subject to the conditions below); (iii) a reduction in our mandatory dividend; (iv) a change in our corporate purpose; (v) a merger or incorporation with another company in specific circumstances (as described below); (vi) our joining to a group of companies, as defined in the Brazilian Corporate Law; (vii) a corporate transformation; (viii) the takeover of all of our shares by another Brazilian company, so as to make us its The Brazilian Corporate Law also provides that a spin-off of a company shall entitle its shareholders to withdraw only if it results in: (i) a change in the corporate purpose, unless the assets spun off are transferred to a company whose principal activity coincides with the business purpose of the spun-off company; (ii) a reduction in the mandatory dividend; or (iii) becoming part of a group of companies, as defined in the Brazilian Corporate
days following the end of the period for exercising the right, if we consider that the payment of the price for buying out dissident shareholders would put our financial stability at risk. Shareholders who exercise the right to withdrawal shall receive the equity value of their shares, based on the latest balance sheet approved at a general meeting. If, however, the resolution giving rise to the right of withdrawal was passed more than 60 days after the date of the latest approved balance sheet, a shareholder may call for a special balance sheet to be prepared as of a date not more than 60 days before the resolution, to assess the value of the Redemption of Shares According to the Brazilian Corporate Law, we may redeem our shares by means of a resolution passed at a general meeting by votes representing at least 50% of the shares affected by the redemption. Shares may be redeemed out of retained profits, revenues reserves or capital reserves. If not all of the shares are to be redeemed, a lottery ballot shall be held. If custody shares are selected in the ballot and the custody agreement does not provide for the situation, the financial institution must specify the proportion of shares to be redeemed.
Our shareholders have preemptive rights to subscribe for shares in any capital increase, in proportion to their shareholding at the time of the increase. Our shareholders also have preemptive rights in any offer of our shares or subscription warrants. A period of not less than 30 days from the publication of the notice to shareholders of the capital increase is allowed for the exercise of preemptive rights, and these rights are transferable. However, according to the Brazilian Corporate Law and our By-Laws, our shareholders do not have preemptive rights in cases of granting or exercise of any share call option. In addition, our Board of Directors may exclude the preemptive right of our shareholders or reduce the exercise period, in the issuance of shares and subscription warrants whose placement is made through sale on stock exchange or public subscription, or share exchange, in a public offering of control acquisition.
Purchase of Our Own Shares Our By-Laws authorize our Board of Directors to approve the purchase of our own shares. In any of the following circumstances, the decision will only become effective upon prior approval at a shareholders meeting: (i) acquisition on an organized securities market involving more than 5% of our outstanding shares of a certain type or class in less than 18 months; (ii) acquisition on an organized securities market for prices 10% above the market price; (iii) acquisition aiming at changing or preserving our share control composition or our management structure; or (iv) where the counterparty in an acquisition out of the organized securities markets is related to us (according to the applicable accounting rules). The decision to purchase our shares will be disclosed to the markets and the respective trade will be settled within 18 months from the approval. The decision to acquire our shares is also subject to certain restrictions. It may not, among We may not hold in treasury more than 10% of our outstanding shares of a certain type or class, including shares held by our subsidiaries and affiliated companies and the shares corresponding to the economical exposure arising from derivatives or deferred settlement transactions entered into by us, our
subsidiaries and affiliated companies. This limit does not apply to reimbursed shares, forfeited shares, or acquisitions in the scope of a public offering for acquisition of shares, which will be subject to specific laws and regulation. We may purchase our shares on the stock exchange, but not for a price above the market value. Acquisitions by means of private transactions must observe the applicable limitations and the approval by the shareholders meeting may be required. We may also buy our own shares in the event that we should cease to be a publicly held company., We may also purchase or issue put or call options on our shares. On September 18, 2017, our shareholders approved the cancellation of 64,551,366 shares held in treasury, representing 32,275,683 common shares and 32,275,683 preferred shares. Such treasury shares corresponded, as of that date, to the totality of the shares then held in treasury. On November 1, 2019, our Board of Directors approved the Unit repurchase program to cover the acquisition of up to 37,256,072 Units or ADRs, representing 37,256,072 common shares and 37,256,072 preferred shares by us or our branch in Cayman, corresponding to approximately 1% of the totality of our corporate capital. The repurchase program On February 2, 2021, our Board of Directors approved the Unit repurchase program to cover the acquisition, by us or our branch in Cayman, of up to 36,956,402 Units or ADRs, representing 36,956,402 common shares and 36,956,402 preferred shares, corresponding to approximately 1% of the totality of our corporate capital. The repurchase program ends on August 2, 2022. Cancellation of Registration as a Publicly Held Company We may cancel our registration as a publicly held company and, for this purpose, our controlling shareholders must necessarily make a public offer to acquire all our shares in the market, according to the Brazilian Corporate Law and the regulations issued by the CVM. The minimum offer price must be at least equal to the economic value of our shares, as valued by a specialized company using any generally accepted and recognized valuation method, or any other criteria defined by the CVM. The valuation report must be prepared by a specialized and experienced appraiser, who is independent of Santander Brasil, our management team and our controlling shareholders and who shall be chosen by the board of directors. The controlling shareholder shall bear the costs of preparing the valuation report. Disposal of Control Our By-Laws state that disposal of control of our company, either in a single transaction or in a series of transactions, must be subject to the condition, whether a suspensive or resolutory condition, that the acquirer is obligated to make a public offer to acquire all the shares held by our other shareholders, both common and preferred. This is further pursuant to the conditions and deadlines required by the current legislation, ensuring that they receive equal treatment with respect to the controlling shareholder in the disposal.
This offer will still be required (i) in cases where there is assignment for consideration of rights to subscribe for shares that may result in the disposal of the company’s control; and (ii) in case of disposal of control of a company that holds the controlling power over us. Requirement for Disclosure of Information As a publicly held company, we must comply with the requirements for disclosure of information set forth by the Brazilian Corporate Law and the CVM. Periodic and Occasional Disclosure of Information The regulations applicable to publicly held companies issued by the CVM, including CVM
According to CVM Instruction 480, of December 7, 2009, as amended, the reference form CVM Instruction 457, of July 13, 2007, as amended, or “CVM Instruction 457,” provides that we are also subject to the disclosure of our consolidated financial statements based on IFRS within four months of the end of each reporting period. The financial statements mentioned by CVM Instruction 457 must be disclosed in their entirety, together with (i) the management report, (ii) explanatory note expressly stating without reservation that the consolidated financial statements are in accordance with IFRS as issued by the IASB and Brazilian GAAP, and (iii) the opinion of the independent auditors. Within 15 days following the term established by Brazilian law for disclosure of our quarterly information, we must: (i) disclose our full quarterly information translated Disclosure of Information Our Officers, members of our Board of Directors, Fiscal Council, if in operation, and any technical or consulting body created by our By-Laws must disclose to us the securities issued by us, our controlling or controlled companies, when publicly held, and the derivatives and other securities referenced by such securities that are held by them, as well as the trades with such securities. This obligation includes the securities held by the spouses, companions and any dependents of the aforementioned persons, as well as the companies directly or indirectly controlled by them. We are obliged to send such information to CVM and B3 within Disclosure of Information CVM The
Such obligations also apply to (i) the acquisition of any right over our shares and other securities subject to disclosure; and (ii) execution of any derivative financial instruments referenced in our shares, even without physical settlement provisions. Our Investor Relations Officer is responsible for sending this information to the CVM and to the B3 as soon as received. Disclosure of Material Facts The Brazilian Securities Market Law and CVM Examples of material facts are: the signing of shareholders’ agreements, the transfer of control of the company, a consolidation, merger or spin-off involving the company or associated companies, the change in rights and advantages of the securities issued by the company, the split or reverse split of shares, among others. Our Investor Relations Officer is responsible for the disclosure of any material facts to the market. The applicable regulation authorizes us, on an exceptional basis, to request confidential treatment of certain material developments from the CVM when our management believes that disclosure of the respective fact to the public could result in adverse consequences to us.
For the two years immediately preceding the publication of this annual
Foreign Investment in Brazil Foreign Direct Investment Foreign direct investment in Brazil is regulated by Law No. 4,131,
Foreign capital must be registered with the Brazilian Central Bank through the Electronic Registration System – Foreign Direct Investment, or the “Registro Declaratório Eletrônico – Investimento Externo Direto,” within 30 days of the flow of funds into Brazil in accordance with Law No. 4,131. The registration of foreign capital is required for the remittance of profits abroad, the repatriation
of capital and the registration of reinvestments. Investments will always be registered in the foreign currency in which they are
On December 28, 2006, Law No. 11,371 allowed the registration of the foreign capital invested in Brazilian companies but not yet duly registered and not subject to other types of registration. For the purposes of such registration the amount of foreign capital inreais to be registered must be evidenced in the accounting records of the relevant Brazilian company and must be registered prior to the last business day of the subsequent calendar year during which the company becomes obligated to register the capital. Other than such registration, foreign investment is not subject to government approvals or authorizations and there are no requirements regarding minimum investment or local participation in capital (except in very limited cases such as in regard to financial institutions, insurance companies and other entities subject to specific regulations). Foreign participation, however, is limited (that is, subject to approvals) or forbidden in several sectors. Foreign investments in currency must be officially channeled through financial institutions duly authorized to deal in foreign exchange. Foreign currency must be converted into Brazilian currency and vice versa through the execution of an exchange contract. Foreign investments may also be made through the contribution of assets and equipment intended for the local production of goods and services.
Capital Markets Investment Investors residing outside Brazil, including institutional investors, are authorized to purchase securities in Brazil on the Brazilian stock exchange, provided that they comply with the registration requirements set forth in the applicable regulation enacted by CMN and the CVM. Since March 30, 2015, portfolio investments The main purpose of CMN Resolution 4,373 is to facilitate the entry of foreign investors in the Brazilian financial and capital markets. It introduced, among other things, the possibility for foreign investors of making investments in local currency with funds held in foreign bank accounts of the non-resident investor, or with bills of payment denominated inreais but issued abroad. With certain limited exceptions, under CMN Resolution 4,373 investors are permitted to carry out any type of transaction in the Brazilian capital markets involving a security traded on a stock or futures exchange or an organized over-the-counter market, but may not transfer the ownership of investments made under such regulation to other non-Brazilian holders through private transactions. Investments and remittances outside Brazil of gains, dividends, profits or other payments under Santander Brasil’s shares are made through the commercial rate exchange market. Under CMN Resolution 4,373, an investor residing outside Brazil must:
Securities and other financial assets held by foreign investors pursuant to said regulation must be registered or maintained in deposit accounts or under the custody of an entity duly licensed by the Brazilian Central Bank or the CVM. In addition, securities trading by foreign investors is generally restricted to transactions involving securities listed on the Brazilian stock exchanges or traded in organized over-the-counter markets licensed by the CVM.
CVM
The following summary contains a description of certain Brazilian and U.S. federal income tax consequences of the ownership and disposition of units or ADRs, but it does not purport to be a comprehensive description of all the tax considerations that may be relevant to the ownership or disposition of units or ADRs. The summary is based on the tax laws of Brazil and regulations thereunder and on the tax laws of the United States and regulations thereunder, as of the date hereof, which are subject to change. Although there is at present no income tax treaty between Brazil and the United States, the tax authorities of the two countries have had discussions that may culminate in a treaty. No assurance can be given, however, as to whether or when a treaty will enter into force or how it will affect the U.S. Holders (as defined below) of units or ADRs. Prospective holders of units or ADRs should consult their tax advisors as to the tax consequences of the acquisition, ownership, and disposition of units or ADRs in their particular circumstances. Brazilian Tax Considerations The following discussion is a summary of the Brazilian tax considerations relating to the acquisition, exchange, ownership, and disposition of units or ADRs by a Non-Resident Holder. The discussion is based on Brazilian law as currently in effect, which is subject to change, possibly with retroactive effect, and to differences of interpretation. Any change in such law may change the consequences described below. The tax consequences described below do not The description below is not intended to constitute a complete analysis of all tax consequences relating to the acquisition, exchange, ownership, and disposition of our units or
Income Tax Dividends Dividends paid by a Brazilian company, such as ourselves, including stock dividends to a Non-Resident Holder are currently not subject to withholding income tax in Brazil, to the extent that such amounts are related to profits generated since January 1, 1996. Dividends relating to profits generated prior to January 1, 1996 may be subject to Brazilian withholding tax at varying rates, depending on the year the profits were generated. Interest Attributable to Shareholders’ Equity Law 9,249, dated December 1995, as amended, allows a Brazilian corporation, such as ourselves, to make distributions to shareholders of interest on net equity and to treat those payments as a deductible expense for purposes of calculating Brazilian corporate income tax and social contribution on net profits, subject to the limits described below. These distributions may be paid in cash. For tax purposes, this interest is limited to the daily pro rata variation of the Long-Term Rate (Taxa de Longo Prazo – TLP), as determined by the Brazilian Central Bank from time to time, and the amount of this deductible expense may not exceed the greater of:
Payment of interest on shareholders’ equity to a Non-Resident Holder is subject to withholding income tax at the rate of 15%, or 25% for individuals or entities residing in a “Tax Haven.” According to Brazilian legislation, a “Tax Haven” jurisdiction is one in which there is no income taxation or where the local income tax rate is generally applied at rates under 20%. Ordinance 488 dated December 12, 2014 provided for the possibility of that 20% threshold being reduced to 17% if the corresponding jurisdictions are aligned with international standards of fiscal transparency in accordance with rules to be established by the Brazilian tax authorities, or where local legislation imposes restrictions on disclosure regarding shareholder composition or investment ownership. These payments may be included, at their net value, as part of any mandatory dividend, as discussed above under Distributions of interest on shareholders’ equity to Non-Resident Holders may be converted into U.S. dollars and remitted outside Brazil, subject to applicable exchange controls, if the investment is registered with the Brazilian Central Bank.
Capital Gains (i) Taxation of Capital Gain Earned in the Country in a Transaction Not Carried Out on the Brazilian Stock Exchange (Or Similar Exchange) According to Law 10,833/03, the gains recognized on a disposition of assets located in Brazil, such as our units, by a Non-Resident Holder, could be subject to withholding tax in Brazil. This rule is applicable regardless of whether the disposition occurs in Brazil or abroad and regardless of whether the disposition is made to an individual or entity resident or domiciled in Brazil. As a general rule, capital gains realized as a result of a disposition of units are the positive difference between the amount realized on the disposition of the units and the acquisition cost of such units. Historically, the income tax on these gains had to be withheld at source and the tax rate would vary depending on the domicile of the Non-Resident Holder:
The tax must be withheld and paid by the buyer or, in cases where the buyer and seller are domiciled abroad, a legal representative of buyer shall be designated for the payment of the tax. (ii) Taxation of the Capital Gains Earned in the Country in a Transaction Carried Out on the Brazilian Stock Exchange (Or Similar Exchange) There could also be the levy of income tax on net gains earned by a Non-Resident Holder on the disposition of units sold on the Brazilian stock exchange, commodities or futures exchange (or similar exchange). The tax rate will vary according to the type of investment registration made by the Non-Resident Holder at the Brazilian Central Bank, as well as the location of the beneficiary:
Any other gains realized on a disposition of units that is not carried out in an exchange environment or that is conducted in the non-organized “OTC market” are subject to the same rules set forth in item “(i) Taxation of Capital Gain Earned in the Country in a Transaction Not Carried Out on the Brazilian Stock Exchange
(iii) Capital Reduction In case of a capital reduction by a Brazilian corporation, such as ourselves, the positive difference between the amount received by the Non-Resident Holder and the acquisition cost of the shares is treated as capital gain derived from a transaction held out of a Brazilian exchange described above in (i) and is therefore currently subject to withholding tax at the following progressive rates: (i) 15% for the portion of the gains up to R$5 million, (ii) 17.5% for the portion of the gain that exceeds R$5 million but does not exceed R$10 million, (iii) 20% for the portion of the gain that exceeds R$10 million but does not exceed R$30 million, and (iv) 22.5% for the portion of the gain that exceeds R$30 million for a Non-Resident Holder not located in a Tax Haven or up to 25% for a Non-Resident Holder located in a Tax Haven. Although subject to interpretation, in the case of Non-Resident Holders carrying out investments pursuant to CMN Resolution 4,373, it is possible to sustain that the income tax should not apply at progressive rates under Law 13,259/ Sale of ADRs Pursuant to Section 26 of Law
Gains on the Units Non-Resident Holders may exchange ADRs for the underlying units, sell the units on the Brazilian stock exchange and the sale proceeds may be remitted abroad. As a general rule, the exchange of ADRs for shares is not subject to income taxation in Brazil. Upon receipt of the underlying units in exchange for ADRs, Non-Resident Holders may also elect to register with the Brazilian Central Bank the U.S. dollar value of such units Alternatively, the Non-Resident Holder is also entitled to register with the Brazilian Central Bank the U.S. dollar value of such units as a foreign direct investment Gains on the The deposit of units in exchange for ADRs by a Non-Resident Holder may be subject to Brazilian income tax on capital gains if the acquisition cost of the units is lower than the market price for such units. The difference between the acquisition cost and the average price of the units is considered a capital gain currently subject to income tax at the following progressive rates: (i) 15% for the portion of the gains up to R$5 million, (ii) 17.5% for the portion of the gain that exceeds R$5 million but does not exceed R$10 million, (iii) 20% for the portion of the gain that exceeds R$10 million but does not exceed R$30 million, and (iv) 22.5% for the portion of the gain that exceeds R$30 million), or 25.0% for Tax Haven residents. If a Non-Resident Holder that is a foreign direct investor under Law Pursuant to CMN Resolution 4,373 the progressive rates of Law 13,259/16 to capital gains obtained by Non-Resident Holders not located in a Tax Haven will be applicable and for Non-Resident Holders (whether they are considered to be Non-Resident Holders as a result of CMN Resolution
However, in certain circumstances, there may be arguments to sustain the position that such taxation is not applicable to 4,373 Holders that are not resident or domiciled in a Low or Nil Tax Jurisdiction, which should be subject to the assessment of the withholding income tax at a fixed 15% rate.
Tax on Foreign Exchange Transactions (IOF/Exchange) The Tax on Foreign Exchange Transactions, or “IOF/Exchange,” is due on the conversion of Brazilian or foreign currency, or any document that represents it, into an available equivalent amount. Currently, for most foreign exchange transactions, the IOF/Exchange rate is 0.38%. However,
Under the provisions of the Law, the Brazilian government may increase any of these rates at any time, up to 25%. However, any increase in rates may only apply to future transactions. Tax on Transactions Involving Bonds and Securities and Derivatives Brazilian law imposes a Tax on Transactions Involving Bonds and Securities, known as “IOF/Bonds Tax.” Currently, the IOF Bonds Tax is due at a daily rate of 1.0%, limited to 96.0% of the income generated by fixed income bonds, on the redemption amount or the amount received from assignment or renegotiation. The rate is reduced to zero as from the thirtieth day. The rate of IOF/Bonds Tax applicable to transactions of variable income securities, including those traded in stock, commodities or futures markets that involve shares, or units composed of shares, is reduced to zero. The IOF Derivatives Tax was established by Decree 7,563 of September 16, 2011, with the original levy of 1% on the notional value of the adjusted purchase sale or maturity of financial derivative contract in Other Brazilian Taxes The inheritance and gift tax, or Material U.S. Federal Income Tax Considerations for U.S. Holders The following summary describes the material U.S. federal income tax consequences of the ownership and disposition of ADRs or units, but it does not purport to be a comprehensive description of all of the tax considerations that may be relevant to a particular person’s decision to acquire such securities. This summary does not address “Medicare contribution tax” consequences and applies only to U.S. Holders (as defined below) that hold ADRs or units as capital assets for U.S. federal income tax purposes and does not address special classes of holders, such as:
If an entity that is classified as a partnership for U.S. federal income tax purposes holds units or ADRs, the U.S. federal income tax treatment of a partner will generally depend on the status of the partner and upon the activities of the The summary is based upon the Internal Revenue Code of 1986, as amended, or the As used herein, a “U.S. Holder” is, for U.S. federal income tax purposes, a beneficial owner of ADRs or units that is:
In general, for U.S. federal income tax purposes, U.S. Holders of ADRs will be treated as the owners of the underlying units represented by those
Taxation of Distributions Distributions paid on our units or ADRs (including distributions to shareholders that are treated as interest on net equity for Brazilian tax purposes and amounts withheld in respect of Brazilian tax), other than certain pro rata distributions of our common shares, will be treated as dividends to the extent paid out of our current or accumulated earnings and profits (as determined under U.S. federal income tax principles). Because we do not maintain calculations of our earnings and profits under U.S. federal income tax principles, it is expected that distributions generally will be reported to U.S. Holders as dividends. These dividends will be included in a U.S. Holder’s income on the date of the U.S. Holder’s (or in the case of ADRs, the depositary’s) receipt of the dividend, and will not be eligible for the “dividends received deduction” generally allowed to corporations receiving dividends from domestic corporations under the Code. The amount of the distribution will equal the U.S. dollar value of thereaisreceived, calculated by reference to the exchange rate in effect on the date that distribution is received (which, for U.S. Holders of ADRs, will be the date on which the distribution is received by the depositary), whether or not the depositary or U.S. Holder in fact converts anyreais received into U.S. dollars at that time. If the dividend is converted into U.S. dollars on the date of receipt, a U.S. Holder generally will not be required to recognize foreign currency gain or loss in respect of the dividend income. A U.S. Holder may have foreign currency gain or loss if the dividend is converted into U.S. dollars after the date of receipt. Any gains or losses resulting from the conversion ofreais into U.S. dollars will be treated as ordinary income or loss, as the case may be, of the U.S. Holder and will generally be U.S. source.
Subject to applicable limitations (including the requirement that the ADRs be readily tradable on an established securities market in the United States) Sale or Other Disposition of ADRs or Units Subject to the discussion of the passive foreign investment company rules below, gain or loss realized by a U.S. Holder on the sale or exchange of ADRs or units will be subject to U.S. federal income tax as capital gain or loss in an amount equal to the difference between the U.S. Holder’s adjusted tax basis in the ADRs or units and the amount realized on the disposition, in each case as determined in U.S. dollars. Such gain or loss will be long-term capital gain or loss to the extent that the U.S. Holder’s holding period with respect to the ADRs or units exceeds one
Foreign Tax Credits Subject to certain generally applicable limitations, which may vary depending upon a U.S. Holder’s circumstances, Because a U.S. Holder’s gains from the sale or exchange of ADRs or units will generally be treated as U.S. source income, the limitation described above may preclude a U.S. Holder from claiming a credit for all or a portion of the foreign taxes imposed on any such gains. U.S. Holders should consult their tax advisors as to whether these Brazilian taxes may be creditable against the U.S. Holder’s U.S. federal income tax liability on foreign-source income from other sources. Instead of claiming a credit, a U.S. Holder may, at its election, deduct such otherwise creditable Brazilian income taxes in computing taxable income, subject to generally applicable limitations under U.S. law. An election to deduct foreign taxes instead of claiming foreign tax credits applies to all foreign taxes paid or accrued in the taxable year. The Brazilian IOF/Exchange Tax imposed on the purchase of units and the IOF/Bonds Tax on the deposit of units in exchange for ADRs (as discussed above under “—Brazilian Tax Considerations”) will not be treated as creditable foreign tax for U.S. federal income tax purposes. U.S. Holders should consult their tax advisors as to whether those taxes would be deductible for U.S. federal income tax purposes. The rules governing foreign tax credits are complex and, therefore, U.S. Holders are urged to consult their own tax advisors to determine whether they are subject to any special rules that limit their ability to make effective use of foreign tax credits. Passive Foreign Investment Company Rules Based on proposed Treasury Regulations, including regulations which are proposed to be effective for taxable years beginning after December 31, 1994, we believe we were not a passive foreign investment company (a “PFIC”) for our taxable year ended December 31,
If we were a PFIC for any taxable year during which a U.S. Holder held our ADRs or units, any gain recognized by a U.S. Holder on a sale or other disposition of ADRs or units would be allocated ratably over the U.S. Holder’s holding period for the ADRs or units. The amounts allocated to the taxable year of the sale or other exchange and to any year before we became a PFIC would be taxed as ordinary income. The amount allocated to all other taxable years would be subject to tax at the highest rate in effect for individuals or corporations, as appropriate, for that taxable year, and an interest charge would be imposed on the resulting tax liability for each of those taxable
If we were to be treated as a PFIC in any taxable year in which a U.S. Holder held units or ADRs, a U.S. Holder would generally be required to file IRS Form 8621 with its annual U.S. federal income tax returns, subject to certain exceptions. In addition, if we were to be treated as a PFIC in a taxable year in which we pay a dividend or the prior taxable year, the preferential dividend rates discussed above with respect to certain dividends paid to non-corporate holders would not apply. Information Reporting and Backup Withholding Payments of dividends and sales proceeds that are made within the United States or through certain U.S.-related financial intermediaries generally are subject to information reporting, and may be subject to backup withholding unless (i) the U.S. Holder is an exempt recipient or (ii) in the case of backup withholding, the U.S. Holder provides a correct taxpayer identification number and certifies that it is not subject to backup withholding. The amount of any backup withholding from a payment to a U.S. Holder will be allowed as a credit against the U.S. Holder’s U.S. federal income tax liability and may entitle the U.S. Holder to a refund, provided that the required information is timely furnished to the IRS. Certain U.S. Holders who are individuals (and specified entities that are formed or availed of for purposes of holding certain foreign financial assets) may be required to report information relating to their ownership of an interest in certain foreign financial assets, including stock of a non-U.S. entity, subject to certain exceptions (including an exception for publicly traded stock and interests held in custodial accounts maintained by a U.S. financial institution). U.S. Holders are urged to consult their tax advisors regarding the effect, if any, of this requirement on the ownership and disposition of ADRs or units. FATCA The United States has enacted legislation, commonly referred to as “FATCA,” that generally imposes a reporting and withholding regime with respect to certain U.S. source payments (including interest and dividends), and to payments of gross proceeds from the disposition of property that can produce U.S. source interest and dividends and certain payments made by entities that are classified as financial institutions under FATCA. However, regulations proposed in 2018 (the preamble to which specifies that taxpayers are permitted to rely on them pending finalization) eliminate the withholding requirement on payments of gross proceeds of a taxable disposition. The United States has entered into an intergovernmental agreement regarding the implementation of FATCA with Brazil, or the
10F. Dividends and Paying Agents |
Not applicable.
10G. Statement by Experts |
Not applicable.
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10H. Documents on Display |
We are subject to the information requirements of the Exchange Act, except that as a foreign issuer, we are not subject to the proxy rules or the short-swing profit disclosure rules of the Exchange Act. In accordance with these statutory requirements, we file with or furnish reports and other information to the SEC. Reports and other information filed or furnished by us to the SEC may be inspected and copied at the public reference facilities maintained by the SEC at Room 1024, 100 F Street, N.E., Washington, D.C. 20549. Copies of such material may also be inspected at the offices of the NYSE, 11 Wall Street, New York, New York 10005, on which our ADRs are listed. In addition, the SEC maintains a website that contains information which we have filed electronically with the SEC, which can be accessed over the Internetinternet at http://www.sec.gov.
We also file consolidated financial statements and other periodic reports with the CVM located at Rua Sete de Setembro, 111, Rio de Janeiro, Rio de Janeiro 20159-900, Brazil. The CVM maintains an Internetinternet website that contains reports and other information about issuers, like us, that file electronically with the CVM.CVM, The address of that website is http://www.cvm.gov.br. We also file consolidated financial statements and other periodic information with the B3. The address of the B3 website is http://www.bmfbovespa.com.br.
10I. Subsidiary Information |
Not applicable.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Overview
In addition to establishing and applying our local risk management policies and procedures, we have incorporated the Santander Group’s global risk management functions at various levels of our organization, including financial, credit, market, operational and compliance risk, to ensure a consistent worldwide approach
worldwide.
In addition, committees led by senior management are responsible for controlling risks by overseeing credit approval and compliance with the exposure policies defined and approved by the Bank’s board of directors.
The Control department and Risk Consolidation department provided their respective Risk management reports to senior management. Likewise, the reports for senior management of the Santander Group’s financial entities and foreign branches are generated mainly by the risk control departments of each of those entities and branches.
The presentation of such information to senior management is designed to enhance the understanding and management of risks for the Santander Group’s administrative bodies and branches. The type of information and highlights in each report varies depending on the intended audiences within senior management, such as the Santander Group, its financial entities, or its foreign branches. Information can be transmitted to senior management through our intranet risk reporting tool, by e-mail or through live presentations.
Information, analyses and decisions are also disseminated through the channels described below, fostering communication among all areas of the organization:
i. | internal department mailboxes, which allow for the exchange of information within groups and areas; |
ii. | periodic meetings (departmental, monthly, quarterly, off-site, conventions), which allow for regular exchange of information on an in-person basis; |
iii. | our regulations portal, which is an internal portal within our intranet where we maintain our current risk management policies; |
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iv. | e-mail; |
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v. | video and teleconferences with Santander Spain; and |
vi. | risk committees, including the executive risk committee for Brazil and the Risk control committee. |
Information is prepared with the goal of improving risk management and is classified into two groups:
i. | Standard information: this information is generated on a regular basis and with fixed content, subject to revision, made available to senior management for select target areas, depending on the type of information included in the report. The reports are used to facilitate knowledge about the risk for which the Risk Management department is responsible, including credit use, instrument valuation and results, as well as the analyses needed to manage these risks and optimize capital. |
ii. | Non-standard information: this includes presentations and information not included in the reports above prepared for our senior management on an ad hoc basis or upon specific request. When the request for certain information becomes more regular, such reporting is integrated into automated “Standard |
iii. | Each report varied by the nature of the information and its frequency. The nature of the information provided is either quantitative or qualitative. |
Quantitative Information. Quantitative information includes risk metrics that permit our senior management to better analyze situations, trends and developments in each segment, activity or portfolio, relating to planned scenarios or defined limits, with emphasis on any scenarios falling outside such limits. Quantitative information primarily addressed the liquidity and market risk (trading and banking book) which includes, among other items, measurements of positions, mark-to-market valuations, sensitivity analyses, volume analyses, measures of liquidity gaps and country risk models, impacts of risks on results, economic risks, stress test simulations and back-testing.
Qualitative Information. Qualitative information includes internal and external events relating to the economic, financial or competitive environment, and an evaluation and analysis of the causes and known or foreseeable consequences of such events. These also include measures used to prepare such models.
The frequency with which quantitative and qualitative risk management information is prepared depends on the information provided, as follows:
Daily information:
i. | liquidity and market risk: includes data on treasury limits (VaR, positions, sensitivity of linear and non-linear econometric models) and the principal changes in the treasury portfolio. Also includes |
Weekly information:
i. | focuses on generating updated high-level information in different segments (focused on solvency risk) or portfolios (focused on market risk), as well as a summary of the relevant facts and expected short-term changes; |
ii. | is generated for our senior management, including the chief executive officer and vice president executive officers of retail, risks and finance, and an independent member of our board of directors; and |
iii. | is drawn from our risk management framework and policies globally and is validated by local market risk areas. |
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Monthly information:
i. | liquidity and market risk: |
Monthly information is generally more detailed than weekly information.
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Risk Management Committees
The following table describes the main risk committees in Brazil (which are responsible for credit decisions and for ongoing control of credit risk matters), including their responsibilities, members and frequency of meetings.
Committee | Main Responsibilities | Members | Meeting Frequency | ||
Executive Risk Committee | Enable the application, at the local level, of the Santander Group’s risk |
| CEO | Weekly | |
Approves the risk appetite secondary metrics that will be proposed to the board of directors of Santander Brasil; | Vice President Executive Officer (Chief Risk Officer) | ||||
Manage exposures from different |
| Vice President Executive Officer of Legal and Corporate Affairs | |||
Approve risk proposals for credit and market operations, including, among others, underwriting operations of fixed and variable income, customer limits for Treasury products, ALCO (Assets and Liabilities Committee) limits, debt restructuring proposals and payment arrangements; |
| Executive Superintendent of Wholesale’s Risks | |||
Handle general issues related to market risk, cross-border limits, country risk, global banking operations, and market risk approvals; | Vice-President Executive Officer of Corporate and Investment Banking | ||||
Adopt and, if necessary, validate, portfolio sales or individual asset-credits; | Vice President Executive Officer of Corporate | ||||
Approve predefined internal risk regulations | Vice President Executive Officer of Private Banking and Wealth |
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Management | |||||
Authorize management tools, improvement initiatives, follow up on projects and any other relevant activities related to risk management; |
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● | Approve the policy and standards of methodological models and validate their effectiveness; | ● | |||
Be aware of and take the necessary measures regarding risk to comply with the recommendations and directions issued by supervisory authorities in the exercise of its functions and the internal audit of the Bank; | ● | ||||
Provide information to the board of directors and to the executive committee and assistance, if needed, in order to execute the tasks assigned to risk management by applicable law, the by-laws, the board of directors´ rules of procedure and the regulation of the Risk Executive Committee; and | ● | ||||
Approve the creation, modification and termination of other committees or decision bodies and their regulations and delegate to those committees or people empowerment on decision-making and risk | ● |
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| ||
Risk Control Committee | Oversee the Risk Identification and Assessment (RIA) exercise; | Chief Financial Officer | Biweekly | ||
Conduct a full segment and regular follow up of all risks, including Conduct Risk, checking if the risk profile is set in accordance with the risk |
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appetite, the commercial and strategic plan and the budget approved by the board of directors; | ● | Chief Risk Officer Chief IT Officer· Vice President Executive Officer of Communication and Marketing | |||
Conduct an independent and periodic control report on risk management activities, which includes: | Executive | ||||
Full risk profile view of the different businesses, including among others, benchmarking of the main competitors of the Bank and monitoring of key strategic projects; | Executive Superintendent of GIR and Relationship with Supervisors |
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●Approve the secondary metrics of Risk Appetite,
●Monitor all relevant aspects of capital management and its ●Approve, review and guarantee the correct and effective risk governance, including the control and decision forums, structures, policies and reports to ensure that all relevant risks are identified, managed and reported, ●Approve and review the Strategic, Financial, Business Continuity and Recovery Plans |
●Vice President Executive Officer of Legal and Corporate Affairs ●Chief Data Officer ●Audit Director ●Chief Information Security Officer | ||
|
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●aspects related to capital management, including: ●Present the impact of new regulations and the results of the elaboration of QIS (Quantitative Impact Study); ●Review and evaluate responses to additional requests made by regulators regarding capital management issues; ●Carry out the analysis and supervision of the results of the capital adequacy assessment exercises and their main components (schedule, assumptions, economic scenarios, methodologies, results, capital buffer, contingency plans and other relevant aspects) of the following processes: ICAAP, TEBU (Bottom-up Stress Test), Strategic. |
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The Executive Risk Committee and Risk Control Committee, which are described above in detail above, make decisions with regard to risk management in Brazil with representatives of our senior management, including our Chief Executive Officer (CEO), our Vice President Executive Officer of Risk Management (CRO) and other members of the Executive Committee. The main responsibilities of the Executive Risk Committee and Risk Control Committee include defining our level of risk tolerance, monitoring our loan portfolios and market conditions, as well as following up on any recommendations made by the Brazilian Central Bank. They also raise any matters to our board of directors that exceed the authority of the committee. Each of our risk management committees havehas certain authority and approval levels, in each case subject to Brazilian law and regulations. Decisions at the committee level are intended to be collegial in a manner to ensure that differing opinions are all considered.
Credit Risk
Santander Group’s risk management model is based on a prudent management, driven by the risk appetite defined by the unit and approved by the headquarters. We operate within the limits of the Santander Group's risk management guidelines and Brazilian Central Bank regulations, in order to protect and optimize capital and promote profitability. One of our credit risk management principles is that of independence among our business areas, providing sufficient autonomy for proper risk management. Another important characteristic of our risk management is the direct involvement of senior management in the decision-making process through credit committees. Our credit risk management process, especially new loan approval and risk monitoring, is structured according to our customer and product classifications, and is divided into retail and wholesale lending.
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Retail Lending
In retail banking, credit requests made by individuals are analyzed by a credit approval system, which assigns a credit rating based on our policies and approved scoring model, which takes into account the credit history of the individual, the individual’s relationship with us and the type of credit requested.
These requests can come from one of our many service channels, including branches, internet banking, mobile applications and ATMs.
We use two distinct scoring models depending on the phase ofin which the customer is in with respect to their interaction with us (the “application” phase and the “behavior” phase). A credit scoring model is applied in the application phase when the customer begins a relationship with us and a behavioral scoring model is used when the customer has
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already had a relationship with us for a period established by our risk management policies (i.e., during the “ongoing” phase). This policy allows us to evaluate our existing customers with a more complete analysis than if we applied a pure scoring model for all customers.
For financing products offered to SMEs (retail businesses), the method used to grantevaluate if approval should be granted is determined based on internally-developed credit risk approval limits, developed internally, as well as the customer´s creditworthiness. These approval methods include system automation, or manual individual analysis, which generates a credit risk rating based on our internal models. Additional information, such as the characteristics of the financing product being offered, including related terms and conditions, as well as collateral granted in connection therewith, is also taken into account in the approval process.
Pre-approved limits on lines of credit for a both individuals or anand SMEs are granted based on creditworthiness, as determined by our scoring criteria. Credit limits are managed based on the performance of the customers, taking into accountconsidering each customer’s risk profile.
Credit authorizationsauthorization limits are established through policies which define rules and responsibilities of each member ofthese are automatically applied to all credit requests. When an automatic credit decision results in the committee. We have established procedures and authorized certain organizational bodiescustomer’s needs, the commercial area has the authority to approve credit requests in amounts greater than those delegated to individual branches (bothsubmit a request for individuals and SMEs).manual approval. Such approvals are madesubjected to review by analysts or committees, depending on the relevant authorized organizational body through applyingvalue of the relevant scoring model and individualized analysis.
loan sought.
The following table presents the individuals or organizational bodies authorized to make extensions of credit to retail borrowers for the amounts specified:
Authorization Required | Amount | |
Branch | Up to R$500 thousand | |
Decision | Up to R$30 million | |
Retail Risk Higher Committee and | Up to R$680 million |
(1) For individuals, the maximum value is R$200,000. For SMEs the maximum is R$500,000.
(2) Members of risk decision-making centers include superintendents and other representatives of the risk area.
(3)(2) Members of the higher Risk Committee include, among others, the Chief Executive Officer of the group, the officers of Wholesale, Retail, Market Risk, Recovery and representatives of the Risk and Compliance Departments.
There is also a more robust model called Rating Plus which is addressed to mid-size companies a few other retail clients. This model combines the clients’ internal and external financial behavior, information obtained from their balance sheets and a questionnaire that is adapted in accordance with the companies’ individualities.
The evaluation made by Rating Plus seeks to attribute an internal classification for the costumers defining their risk level in comparison with their creditworthiness. The classification as well as the credit analyses for these clients are usually made manually through specific proposals or limits.
Wholesale Lending
In Wholesalewholesale banking, each customer is analyzed on an individual basis.basis, Commercial and risk areas analyze the client'sclient’s needs and indicators, checkinganalyzing profitability, creditworthiness and adequacy into the risk appetite metrics of Santander Group RAS – Risk Appetite Statement, in order to determine and take the proposed limitsubmit it for approval.
Wholesale lending risk appetite metrics and limits are set annually and tracked monthly through reports sent to the headquarters of the Santander headquarters.Group. These limits are defined considering the risk appetite of Santander Brasil and the wider Santander Group, in line with current regulations (Brazilian Central Bank and European
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Central Bank), and the expectations of the commercial area. Individual and sectoral portfolio concentrations are monitored to mitigate the risk of the portfolio.
All credit requests from our wholesale customers must be approved by a credit committee, which are outlined below:
Authorization Required | Limit |
Territorial Committee | Up to R$50 million |
Superior and High Risk Committee | Up to R$170 million |
Wholesale Committee | Up to R$ |
Executive Risk Committee | Up to R$1 billion |
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Credit Monitoring
Credit lines to retail banking SME customers are reviewed weekly, whereas individual clientscustomers are systematically reviewed daily, based on the client’s credit rating. This process allows for improvements in credit exposure forto customers who present good credit quality. FurtherAdditional specific early warnings are automatically generated when deterioration of a customer’s credit quality is identified. When this occurs, a process to reduce credit risk and prevent default is implemented. For SMEs, this includes monthly monitoring of their financial performance, the financial situation of each enterprise is discussed by specific committees in the presence of the commercial area.area, These processes are implemented, with the goal of continuously improving the quality of our loan portfolio.
Credit lines to wholesale customers and related credit quality are reviewed on an annual basis.basis, When any specific concern the credit quality of a certain customer, we use a customer monitoring system known as SCAN (Santander Customer Assessment Note), which allows possible actions to be taken under the following categories: “monitoring,” “intensive monitoring,” “proactive monitoring” or “block and exit.” A customer subject to action under one of these categories will be reviewed on a quarterly or a semi-annual basis, depending on the situation.
We use proprietary internal rating models to measure the credit quality of a given customer or transaction.transaction, Each rating relates to a certain probability of default or non-payment, determined on the basis of the customer’s history, with the exception of certain portfolios classified as “low default portfolios.” These ratings and models are used in our loan approval and risk monitoring processes.
The table below shows the internal risk rating levels and their corresponding probability of default:
Internal Risk Rating | Probability of Default |
Low | |
Medium-low | |
Medium | |
Medium-high | |
High |
For a breakdown of our portfolio by internal risk rating, see “Item 4. Information on the Company—B. Business Overview—Selected Statistical Information —Assets —InternalInformation—Short-Term Borrowings—Internal Risk Rating.”
Recovery
Our business recovery area is responsible for all nonperforming portfolios. This area uses statistical tools to study the behavior of clientscustomers and then defines, implements and monitors strategies related to these portfolios, seeking to ensure maximum recovery subject to applicable Brazilian law and regulation.
Customers with greater probability of payment are classified as low-risk customers and those with a low probability are classified as high risk. The aforementioned risk classification determines the intensity of collection efforts expended.
The channels of operation are defined as “Mapa de Responsabilidade,” (Responsibility Map), using the time value of default versus risk value, in addition to other characteristics, to create strategies for recovery.
Our credit recovery tools include daily contact through our call center, inclusion of defaulting clientscustomers within external sources of credit protection, sending collection letters, and direct contact through our branch network. In addition to the aforementioned tools, we use the following strategies:
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Internal teams specialized in restructuring and debt recovery work directly with defaulting |
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We use specialized external firms to collect, report and assess high-risk customers. These firms are remunerated according to pre-established percentages applied to the amounts recovered. |
● | In addition, we use digital channels as a mean of increasing the availability of renegotiation offers to our customers. |
Once we have exhausted all of the credit recovery resources available to us, we conduct sales of any remaining nonperforming loans. These sales are held periodically through an auction process, with the aim of obtaining optimal prices in the markets and thereby reducing the impact on us.
Assets and Liabilities Committee
Our asset and liability management strategy is defined by our assets and liabilities committee (ALCO), which operates under the guidelines and procedures established by the Santander Group. Members of the committee include our Chief Executive Officer, Chief Risk Officer, Vice President Executive Officer - Finance and Strategy, Vice President Executive Officer - CFO, Director - Financial Management and the Chief Economist. The assets and liabilities committee establishes strategies, policies and procedures with the objective of managing our balance sheet and risk structure.
Market Risk
Types of market risk
Interest rate risk
Interest rate risk is the possibility that changes in interest rates could adversely affect the value of a financial instrument, a portfolio or our operations as a whole. We are exposed to interest rate risk whenever there is a mismatch between interest rate sensitive assets and liabilities, subject to any hedging we have engaged in using interest rate swaps or other off-balance sheet derivative instruments. Interest rate risk arises in connection with both our trading and non-trading activities.
Credit spread risk
Credit spread risk arises due to changes in credit spread curves associated with specific issuers and debt types may adversely affect the value of a financial instrument, a portfolio or Santander Group as a whole.
Exchange rate risk
Exchange rate risk arises due to the sensitivity of a foreign currency position in relation to a base currency (in our case,reais) due to a potential change in exchange rates. We are exposed to foreign exchange rate risk as a result of mismatches between assets and liabilities, and off-balance sheet items denominated in different currencies, either as a result of trading or in the normal course of business. We maintain non-trading open currency positions arising from our investments in overseas subsidiaries (such as our Cayman Islands and Luxembourg branches), affiliates and their respective currency funding. Our principal non-trading currency exposure is the U.S. dollar, which, as mandated by our policies, is hedged to thereal within established limits.
Equity price risk
Equity price risk arises due to the sensitivity of an investment position in equity markets to adverse movements in the market prices or in response to expectations of future dividends. Among other instruments, equity price risk affects positions in shares, stock market indices and derivatives using shares as the underlying asset (puts, calls, and equity swaps). We are exposed to equity price risk in both our trading and non-trading investments in equity securities.
Commodities price risk
Commodities price risk relates to the potential negative effect of changes in commodity prices.
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Our exposure to this risk is not significant and ismostly concentrated in derivative operations involving commodities for clients.customers.
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Inflation risk
Inflation risk is the risk that changes in inflation rates may adversely affect the value of a financial instrument, a portfolio or Santander Group as a whole.
Volatility risk
Volatility risk is the sensitivity of a portfolio to volatility in a number of risk factors, including interest rates, exchange rates, share prices and commodity prices. This risk is applicable to financial instruments which have volatility as a variable in their valuation model.
Other, more complex, risks to which we may be exposed include:
Correlation risk
Correlation risk is the sensitivity to changes in the relation between risk factors, whether of the same type (for example, between two exchange rates) or of a different nature (for example, between an interest rate and the price of a commodity).
Market liquidity risk
Market liquidity risk is the possibility of a Bank entity or the Santander Group as a whole finding itself unable to exit or close a position in time without affecting the market price or the cost of the transaction. This risk can be caused by a decrease in the number of market participants or institutional investors, the execution of large volumes of operations, market instability or increases of the concentration existing in certain products and currencies. Market depth is the main liquidity driver in our trading portfolio, even though our policy is to trade the most liquid assets.assets, Our liquidity risk also arises in non-trading activity, due to the maturity gap between assets and liabilities mostly in the retail banking business.
Risk of prepayment or cancellation
In certain transactions, the relevant loan agreement allows, explicitly or implicitly, voluntary prepayment prior to maturity without any penalty, which creates a risk that the cash flows received as a result of the prepayment will be reinvested at a potentially lower interest rate. This mainly affects loans or mortgage securities.
mortgage.
Underwriting risk
Underwriting risk occurs in the underwriting of a placement of securities or another type of debt, assuming the risk of partially owning the issue or the loan due to non-placement of all or any proportion of any issuance among potential buyers.
Derivatives used in Managing Market Risks
We use derivatives both in trading and non-trading activities to manage market risks. Trading derivatives are used to eliminate, reduce or modify risk in trading portfolios (interest rate, foreign exchange, commodities and equity price risk), and to provide financial services to customers. Our principal counterparties (in addition to customers) for this activity are financial institutions and the B3. Our principal derivative instruments include interest rate swaps, interest rate futures, foreign exchange forwards, foreign exchange futures, foreign exchange options, cross currency swaps, commodities derivatives, equity index futures and equity options and interest rate options. With respect to non-trading activity, derivatives are used in order to manage interest rate risks and foreign exchange risks arising from asset and liability management activity. We also use interest rate and foreign exchange linear derivatives in non-trading activity. As no market exists in Brazil, we do not use credit derivatives
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Activities subject to market risk
Our market risk area is responsible for measuring, controlling and monitoring risk, in respect to the above identified areas, as a result of changes in market factors. Market risk arises due to changes and potential volatility in interest rates, exchange rates, share prices and commodities prices, as well as due to liquidity risk of the various products and markets in which we operate.
The following outlines the main source of risk for which we are exposed:
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Trading book
The trading book includes financial services to customers and purchase-sale and positioning mainly in fixed income, equity and currency products. The trading book comprises our proprietary positions in financial instruments held for resale and/or bought to take advantage of current and/or expected differences between purchase and sale prices. This portfolio also includes positions in financial instruments deriving from market-making and sales activities. As a result of trading fixed income, equity, commodities and foreign exchange products, we are exposed to their respective market risks. We are also exposed to volatility when non-linear derivatives are used.
Non-trading book (banking/structural)
The non-trading book consists of market risks inherent in the balance sheet, excluding the trading portfolio. These include:
i. | Structural interest rate risks. This arises from mismatches in the maturities and re-pricing of all assets and liabilities. |
ii. | Structural exchange rate risk/hedging of |
Market Risk Management Framework
Our board of directors is responsible for establishing our policies, procedures and limits with respect to market risk, including which businesses to invest in and maintain. The risk committee monitors our overall performance in relation the risks we assume. Together with the local and global assets and liabilities committees, each market risk unit measures and monitors our market and liquidity risk and provides figures to the assets and liabilities committees to use in managing such risks.
Market risk is regulated and controlled through certain policies, set forth in our market and liquidity risk management policies manual, as well as through specific exposure limits established for the entire Santander Group. In addition, authorized products are listed and reviewed periodically.
These policies, procedures and limits on market risk are applicable to all units, businesses or portfolios susceptible to market risk, and are built on five basic pillars, which we believe are vital for correct management of market risks:
i. | Market and structural risk measurement, analysis and control; |
ii. | Calculation, analysis, explanation and reconciliation of profit and loss (P&L); |
iii. | Definition, capture, validation and distribution of market data; |
iv. | Definition of limits, products and underlyings; and |
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v. | Consolidation of |
In turn, our market risk management is guided by the following basic principles:
i. | Independence of the trading and balance sheet activities; |
ii. | Global overview of the risks taken; |
iii. | Definition of limits and empowerment; |
iv. | Control and oversight; |
v. | Homogeneous aggregated metrics; |
vi. | Homogeneous and documented methodologies; |
vii. | Measuring risk; |
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viii. | Information consolidation; and |
ix. | Contingency plans and technical |
Structure of Limits Regarding Market Risk
The market risk limit structure represents Santander Brasil’s risk appetite and is aligned with our global market risk management policies, which encompass all of our business units and serve to:
i. | identify and define the main types of risk incurred in a manner consistent with our business strategy; |
ii. | quantify and report to our business segments with respect to appropriate risk levels and risk profile in line with senior management’s assessment of risks to help avoid any of our business segments taking undesired risks; |
iii. | provide flexibility to our business segments to timely and efficiently establish risk positions that are responsive to market changes and our business strategies, and always within risk levels acceptable to Santander Brasil; |
iv. | allow the individuals and teams originating new business to take prudent risks that will help attain budgeted results; |
v. | establish investment alternatives by limiting equity requirements; and |
vi. | define the range of products and underlying assets within which each unit of treasury can operate, taking into consideration our risk modeling and valuation systems and our liquidity tools. This will help to constrain market risk within our defined risk strategy. |
Global market risk management policies define our risk limit structure while the risk committee reviews and approves such policies. Business managers administer their activities within these limits. The risk limit structure covers both our trading and non-trading portfolios and includes limits on fixed income instruments, equity securities, foreign exchange and derivative instruments.
Limits considered to be global limits refer to the business unit level. To date, system restrictions prevent intra-day limits. Our business units must comply with approved limits. Potential excesses require a range of actions carried out by the global market risk function unit including (i) providing risk-reducing suggestions and controls, which are the result of breaking “alarm” limits and (ii) taking executive actions that require risk takers to close out positions in order to reduce risk levels.
The market risk limits used by us are established along different metrics intended to cover all activity subject to market risk from many perspectives, applying criteria we believe to be conservative.
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The principal limits include:
Trading limits
i. VaR limits;
ii. | limits of equivalent positions and/or nominal; |
iii. | sensitivity limits to interest rates; |
iv. | vega limits; and |
v. | limits aimed at reducing the volume of effective losses or protecting results already generated during the period: |
loss trigger; and |
stop loss. |
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Structural limits
i. | structural interest rate risk of the balance sheet: |
sensitivity limit of net interest margin (“NIM”) over a one year horizon; and |
sensitivity limit of market value of equity (“MVE”); |
ii. | structural exchange rate risk comprised of the net position in each currency; and |
iii. | liquidity risk: limits defined for short, long and concentration metrics and considering BAU and Stress scenario. |
Market Risk Statistical Tools
Locally, we use a variety of mathematical and statistical models, including VaR models, historical simulations and stress testing to measure, monitor, report and manage market risk. Such numbers, produced locally, also serve as input for global activities such as evaluations of RORAC, and to allocate economic capital to various activities in order to evaluate the RORAC of such activities.
Trading Activity
VaR: as calculated by us, our internal VaR model is an estimate of the expected maximum loss in the market value of a given portfolio over a one-day time horizon at a 99% confidence level, subject to certain assumptions and limitations discussed below. Our standard methodology is based on historical simulation of 520 days and is calculated using the VaR methodology “full revaluation.” In order to capture recent market volatility in the model, the reported VaR is the higher between the 1% percentile and the 1% weighted percentile of the simulated PnL distribution. The first VaR figure gives the same weight to all observed values, and the second one applies an exponential declining factor to give a higher weight for the most recent observations. This methodology makes our VaR numbers react very quickly to changes in current volatility, significantly reducing the likelihood of back testing exceptions. We use VaR estimates to alert senior management whenever the statistically estimated losses in our portfolios exceed prudent levels. |
1. | Assumptions and limitations: our VaR methodology should be interpreted in light of the limitations that (i) a one-day time horizon may not fully capture the market risk of positions that cannot be liquidated or hedged within one day and (ii) at present, we compute VaR at the close of business and trading positions may change substantially during the course of the trading day. |
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2. | Calibration measures: in order to calibrate our VaR model, we use back testing, which is a comparative analysis between VaR estimates and the daily clean Profit and Loss (theoretical result generated assuming the mark-to-market daily variation of the portfolio considering only the movement of the market variables). The purpose of these tests is to verify and measure the precision of the models used to calculate VaR. |
Stressed VaR: our stressed VaR model uses the same calculation methodology as VaR with the following two exceptions: (i) the stressed VaR uses a window of |
Stress Test: this is a simulation technique, which consists of estimating the potential impact on results by applying different stress scenarios to all the trading portfolios and considering the same assumptions according to the relevant risk factor. These scenarios can replicate events that happened in the past (such as crisis events) or hypothetical scenarios. These results are analyzed at least monthly and, along with the VaR provide a fuller spectrum of the risk profile. |
Sensitivities: our market risk sensitivity measures gauge the change (or sensitivity) of the market value of an instrument or portfolio to changes in each of the risk factors. The sensitivity of the value of an instrument to changes in market factors may be obtained through analytical approximations by partial derivatives or through a full revaluation of the portfolio. |
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Non-trading Activities
Interest rate gap of assets and liabilities: focuses on lags or mismatches between changes in the value of assets, liabilities and off-balance sheet items. Gap analysis provides a basic representation of the balance sheet structure and allows for the detection of interest rate risk by concentration of maturities. It is also a useful tool for estimating the impact of future interest rate movements on NIM or equity. All on- and off-balance sheet items must be broken down by their flows and analyzed in terms of re-pricing and maturity. In the case of those items that do not have a contractual maturity, an internal model of analysis is used and estimates are made of their duration and sensitivity. |
NIM sensitivity: measures the change in the short- and medium-term in the accruals expected over a 12-month horizon, in response to a shift in the yield curve. The yield curve is calculated by simulating the NIM, with a shift in the yield curve, as well as for the current scenario. The sensitivity is the difference between the calculation of the two margins. |
MVE sensitivity: Net worth sensitivity measures the interest risk implicit in net worth (equity) over the entire life of the operation on the basis of the effect that a change in interest rates has on the current values of financial assets and liabilities. This is an additional measure to the sensitivity of the NIM. |
Value at risk: The VaR for balance sheet activity and investment portfolios. |
Analysis of results arising from the interest rate scenarios established by Circular No. 3,876 of the |
Liquidity risk: our ability to finance our commitments at reasonable market prices, as well as to carry out our business plans with stable sources of funding. We permanently monitor maximum gap profiles. The measures used to control liquidity risk are the liquidity gap, stress scenarios and contingency plans. |
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Liquidity gap: provides information on contractual and expected cash inflows and outflows for a certain period of time, for each of the currencies in which we operate. The gap measures the net need or excess of funds at a |
Analysis of scenarios/contingency plan: includes the local and external activities and consists of a formal set of preventive and corrective actions taken in times of liquidity crises. Using analysis of historical scenarios and simulations of impacts on bank liquidity, we define action plans and contingencies to establish roles and responsibilities and levels to trigger the contingency plan. Each unit should prepare its contingency plan. Additionally, Santander Spain must be periodically informed about the contingency plan of each subsidiary. The frequency with which this plan must be updated depends on market liquidity conditions.
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Quantitative Analysis
Trading Activity
Quantitative Analysis of Daily VaR in 2019
2021
Our risk performance with regard to trading activity in financial markets between 20172019 and 2019,2021, measured by daily VaR (measured at a 99% of confidence level, over a one day time frame), is shown in the following graph.
During 2019,2021, VaR presented a low volatility, fluctuatingfluctuated between R$20.830 million and R$85.440 million, (on March 21 2019, when it was announced the arrest of Michel Temer), with an average of R$41.934.5 million. The histogram below shows the distribution of average risk in terms of VaR in 20192021 where the accumulation of days with VaR levels between R$3020 million and R$6040 million can be observed in 88.9%79.8% of the distribution.
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VaR by Risk Factor
The minimum, maximum, average and year-end 20192021 VaR values by risk factor were as follows:
2018 | 2019 | 2020 | 2021 | |||||||||||||||||||||||||||||||||||||
Period End | Low | Average | High | Period End | Period End | Low | Average | High | Period End | |||||||||||||||||||||||||||||||
(in millions of R$) | (in millions of R$) | |||||||||||||||||||||||||||||||||||||||
Trading VaR | 46.5 | 20.8 | 41.9 | 85.4 | 20.9 | 31.6 | 16.7 | 34.5 | 63.1 | 34.4 | ||||||||||||||||||||||||||||||
Diversification Effect | (23.8 | ) | 1.7 | (11.4 | ) | (32.8 | ) | (10.7 | ) | (33.7 | ) | (5.2 | ) | (27.6 | ) | (54.4 | ) | (12.8 | ) | |||||||||||||||||||||
Interest Rate VaR | 33.9 | 14.7 | 31.0 | 66.0 | 16.7 | 26.6 | 12.7 | 31.8 | 72.3 | 34.9 | ||||||||||||||||||||||||||||||
Equity VaR | 11.6 | 2.0 | 8.6 | 29.2 | 7.4 | 2.8 | 2.6 | 7.5 | 21.5 | 6.4 | ||||||||||||||||||||||||||||||
Foreign Exchange VaR | 24.6 | 1.6 | 13.8 | 31.3 | 7.5 | 35.6 | 4.0 | 19.0 | 48.9 | 5.9 | ||||||||||||||||||||||||||||||
Commodities VaR | 0.2 | 0.0 | 0.0 | 0.4 | 0.0 | |||||||||||||||||||||||||||||||||||
Commodity VaR | 0.3 | 0.1 | 3.8 | 21.4 | 0.1 |
The average VaR for 20192021 was R$41.934.5 million, with most of the risk due to interest rate positions. Santander Brasil was relatively conservative in equity and commodities trading activity.
activity in line with the approach taken over the last few years.
The average VaR of the threefour main risk factors, interest rates, equity prices, and exchange rates and commodities were R$31.031.8 million, R$8.67.5 million, R$19.0 million and R$13.83.8 million respectively, with a negative average diversification effect of R$11.427.6 million. The chart below shows the evolution of the VaR interest rates (IR), VaR exchange rates (FX) and, VaR equity prices (EQ) (atand Commodities (CM), at a 99% confidence level, over a day time frame and a 15 day15-day moving average).average.
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Risk Management of Structured Derivatives
Our structured derivatives activity is mainly focused on designing investment products and managing hedging risks for clients.customers. Our risk management is focused on ensuring that the net risk exposure is the lowest possible. These transactions include options on equities, currencies, fixed-income instruments.
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The chart below shows the VaR Vega performance of our structured derivatives business in 2019, 20182021, 2020 and 2017.2019. In the most recent year, this figure fluctuated around an average of R$4.58.23 million. In general, the periods with higher VaR Vega levels are related to episodes of significant increases in market volatility.
Scenario analysis
Different stress test scenarios were analyzed during 2019.2021, A correlation break scenario generated the results presented below.
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Worst Case Scenario
The table below shows the maximum daily losses for each risk factor (fixed-income, equities and currencies) as of December 31, 2019,2021, in a scenario that uses historical volatilities and simulates variations of the risk factors for +/-3 and +/-6 standard deviations on a daily basis.basis, From this group of scenarios, we generate a table of stress test results, which identifies the largest loss per risk factor.factor, The sum of the largest losses of each risk factor is the result of the Worst Case Scenario, which considers the break of correlation between risk factors.
Worst Case Stress Test | Exchange Rate | Fixed Income | Equity | Total | Exchange Rate | Fixed Income | Equity | Total | ||||||||||||||||||||
(in millions of R$) | (in millions of R$) | |||||||||||||||||||||||||||
Total trading | (54.8) | (79.0 | ) | (35.1 | ) | (168.8 | ) | (14.5) | (19.7 | ) | (14.8 | ) | (49.0 | ) |
The stress test shows that the economic loss suffered by the group in the marked-to-market result would be, if this scenario materialized in the market, R$168.8180.2 million.
Non-trading Activity
Quantitative Analysis of Interest Rate Risk in 2019
2021
Convertible Currencies
At the end of 2019,2021, the sensitivity of NIM at one year, to a parallel rise of 100 basis points in the local yield curve was R$334553 million.
In addition, at the end of 2019,2021, the sensitivity of net worthMVE to parallel rises of 100 basis points in the yield curves was R$2,0631,678.0 million in the local currency yield curve.
Structural Gap
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The following table shows the managerial gaps between the re-pricing dates of our assets and liabilities as of December 31, 20192021 in millions ofreais. reais.
Total | 0-1 month | 1-3 months | 3-6 months | 6-12 months | 1-3 years | 3-5 years | > 5 years | Not Sensitive | ||||||||||||||||||||||||||||
(in millions of R$) | ||||||||||||||||||||||||||||||||||||
Structural Gap | ||||||||||||||||||||||||||||||||||||
Money Market | 309,426 | 115,341 | 859 | 1,347 | 21,303 | 18,675 | 37,938 | 20,504 | 93,459 | |||||||||||||||||||||||||||
Loans | 470,730 | 138,528 | 62,721 | 50,867 | 60,773 | 56,304 | 54,350 | 47,394 | (208 | ) | ||||||||||||||||||||||||||
Permanent | 15,836 | - | - | - | - | - | - | - | 15,836 | |||||||||||||||||||||||||||
Other | 199,895 | 35,519 | - | 23 | - | 2 | - | - | 164,351 | |||||||||||||||||||||||||||
Total Assets | 995,886 | 289,388 | 63,580 | 52,237 | 82,076 | 74,981 | 92,288 | 67,898 | 273,437 | |||||||||||||||||||||||||||
Money Market | (126,572 | ) | (73,371 | ) | (1,934 | ) | (2,839 | ) | (4,595 | ) | (18,206 | ) | (7,959 | ) | (13,862 | ) | (3,807 | ) | ||||||||||||||||||
Deposits | (498,828 | ) | (305,888 | ) | (16,114 | ) | (6,422 | ) | (10,091 | ) | (13,844 | ) | (15,886 | ) | (93,436 | ) | (37,147 | ) | ||||||||||||||||||
Equity and Other | (370,486 | ) | (63,009 | ) | (23,483 | ) | (16,556 | ) | (23,913 | ) | (1,462 | ) | (5,224 | ) | (3,319 | ) | (233,521 | ) | ||||||||||||||||||
Total Liabilities | (995,886 | ) | (442,267 | ) | (41,531 | ) | (25,817 | ) | (38,599 | ) | (33,512 | ) | (29,069 | ) | (110,617 | ) | (274,474 | ) | ||||||||||||||||||
– Balance Gap | 0 | (152,879 | ) | 22,049 | 26,420 | 43,478 | 41,469 | 63,219 | (42,719 | ) | (1,037 | ) | ||||||||||||||||||||||||
Off-Balance Gap | 18,976 | 22,280 | (4,189 | ) | 496 | (957 | ) | (23,496 | ) | 4,750 | 3,164 | 16,929 | ||||||||||||||||||||||||
Total Structural Gap | 18,976 | (130,599 | ) | 17,860 | 26,916 | 42,520 | 17,973 | 67,969 | (39,556 | ) | 15,892 | |||||||||||||||||||||||||
Accumulated Gap | 18,976 | (111,623 | ) | (93,763 | ) | (66,847 | ) | (24,327 | ) | (6,354 | ) | 61,615 | 22,060 | 37,951 |
Total | 0-1 month | 1-3 months | 3-6 months | 6-12 months | 1-3 years | 3-5 years | > 5 years | Not Sensitive | ||||||||||||||||||||||||||||
(in millions of R$) | ||||||||||||||||||||||||||||||||||||
Structural Gap | ||||||||||||||||||||||||||||||||||||
Money Market | 272,311 | 83,617 | 696 | 1,208 | 11,398 | 23,946 | 19,059 | 37,881 | 94,506 | |||||||||||||||||||||||||||
Loans | 337,639 | 80,230 | 43,964 | 41,351 | 48,774 | 59,367 | 22,408 | 25,053 | 16,492 | |||||||||||||||||||||||||||
Permanent | 16,782 | - | - | - | - | - | - | - | 16,782 | |||||||||||||||||||||||||||
Other | 231,613 | 50,960 | 259 | 129 | 36 | - | - | - | 180,230 | |||||||||||||||||||||||||||
Total Assets | 858,346 | 214,808 | 44,919 | 42,687 | 60,207 | 83,314 | 41,467 | 62,934 | 308,009 | |||||||||||||||||||||||||||
Money Market | (122,348 | ) | (74,002 | ) | (1,917 | ) | (3,293 | ) | (3,208 | ) | (3,950 | ) | (13,957 | ) | (8,457 | ) | (13,564 | ) | ||||||||||||||||||
Deposits | (404,842 | ) | (200,816 | ) | (5,377 | ) | (6,174 | ) | (9,587 | ) | (24,901 | ) | (13,092 | ) | (27,995 | ) | (116,899 | ) | ||||||||||||||||||
Equity and Other | (331,156 | ) | (54,789 | ) | (11,339 | ) | (6,784 | ) | (7,361 | ) | (722 | ) | (599 | ) | (2,490 | ) | (247,074 | ) | ||||||||||||||||||
Total Liabilities | (858,346 | ) | (329,607 | ) | (18,633 | ) | (16,251 | ) | (20,156 | ) | (29,573 | ) | (27,648 | ) | (38,942 | ) | (377,537 | ) | ||||||||||||||||||
– Balance Gap | - | (114,799 | ) | 26,286 | 26,437 | 40,052 | 53,741 | 13,819 | 23,993 | (69,528 | ) | |||||||||||||||||||||||||
Off-Balance Gap | - | 58,910 | (7,262 | ) | (3,197 | ) | (13,889 | ) | (19,836 | ) | (2,377 | ) | (11,425 | ) | 30,838 | |||||||||||||||||||||
Total Structural Gap | - | (55,889 | ) | 19,024 | 23,240 | 26,162 | 33,905 | 11,442 | 12,568 | (38,689 | ) | |||||||||||||||||||||||||
Accumulated Gap | - | (55,890 | ) | (36,866 | ) | (13,626 | ) | 12,536 | 46,441 | 57,883 | 70,451 | 31,762 |
240
The interest rate risk of our balance sheet management portfolios, measured by the sensitivity of the net margin to a parallel movement of 100 basis points, increased R$135121 million during 2019,2021, reaching a maximum of R$334607 million in December.June, The sensitivity of the market value decreased R$20293 million during 2019,2021, reaching a maximum of R$2,3421,882 million in October.September, The main factors in 20192021 that influenced the sensitivity were the volatility of the interest curve, updating of methodologies and the effects of strategies in the business areas.
The following chart shows our NIM and MVE sensitivity during each month in 2019.2021.
261 |
Interest Rate Risk Profile as of December 31, 20192021
The currency gap tables below show the managerial distribution of risk by maturity and currency in Brazil as of December 31, 20192021 in millions ofreais.
Total | 0-1 month | 1-3 months | 3-6 months | 6-12 months | 1-3 years | 3-5 years | > 5 years | Not Sensitive | Total | 0-1 month | 1-3 months | 3-6 months | 6-12 months | 1-3 years | 3-5 years | > 5 years | Not Sensitive | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Gaps in Local currency | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Gaps in local currency | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Money Market | 243,106 | 82,104 | 646 | 1,023 | 10,980 | 21,542 | 12,671 | 30,916 | 83,223 | 268,082 | 112,019 | 823 | 1,060 | 18,672 | 15,816 | 22,730 | 18,170 | 78,792 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loans | 285,391 | 61,762 | 30,786 | 32,699 | 43,599 | 58,580 | 20,151 | 23,682 | 14,132 | 382,313 | 90,863 | 49,412 | 41,903 | 52,908 | 54,584 | 53,957 | 43,028 | (4,344 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Permanent | 16,782 | - | - | - | - | - | - | - | 16,782 | 15,804 | - | - | - | - | - | - | - | 15,804 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Others | 103,613 | 24,461 | - | - | - | - | - | - | 79,153 | 128,760 | 18,923 | - | 23 | - | 2 | - | - | 109,812 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total Assets | 648,892 | 168,326 | 31,432 | 33,722 | 54,579 | 80,122 | 32,823 | 54,598 | 193,289 | 794,960 | 221,806 | 50,235 | 42,986 | 71,580 | 70,402 | 76,687 | 61,198 | 200,064 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Money Market | (104,130 | ) | (72,943 | ) | (609 | ) | (1,126 | ) | (2,662 | ) | (3,583 | ) | (2,187 | ) | (7,456 | ) | (13,564 | ) | (99,888 | ) | (71,740 | ) | (1,006 | ) | (1,901 | ) | (3,868 | ) | (3,020 | ) | (6,747 | ) | (7,986 | ) | (3,620 | ) | ||||||||||||||||||||||||||||||||||||
Deposits | (385,544 | ) | (194,698 | ) | (3,876 | ) | (4,431 | ) | (8,136 | ) | (21,281 | ) | (11,499 | ) | (26,695 | ) | (114,927 | ) | (463,227 | ) | (290,333 | ) | (5,332 | ) | (4,382 | ) | (7,209 | ) | (8,943 | ) | (11,999 | ) | (89,470 | ) | (45,558 | ) | ||||||||||||||||||||||||||||||||||||
Equity and Other | (177,481 | ) | (27,448 | ) | - | - | - | - | - | 309 | (150,342 | ) | (214,666 | ) | (24,490 | ) | (44 | ) | (66 | ) | (132 | ) | (264 | ) | 3,149 | (3,319 | ) | (189,499 | ) | |||||||||||||||||||||||||||||||||||||||||||
Total Liabilities | (667,155 | ) | (295,089 | ) | (4,486 | ) | (5,557 | ) | (10,799 | ) | (24,864 | ) | (13,686 | ) | (33,842 | ) | (278,832 | ) | (777,780 | ) | (386,563 | ) | (6,383 | ) | (6,349 | ) | (11,209 | ) | (12,227 | ) | (15,597 | ) | (100,775 | ) | (238,677 | ) | ||||||||||||||||||||||||||||||||||||
Off-Balance Gap | (56,847 | ) | 57,544 | 8,092 | 1,330 | (4,276 | ) | (14,620 | ) | (485 | ) | (10,361 | ) | (62,310 | ) | 36,988 | 23,679 | 8,421 | (585 | ) | (1,113 | ) | (21,346 | ) | 5,925 | 3,083 | 18,923 | |||||||||||||||||||||||||||||||||||||||||||||
Gap | (75,111 | ) | (69,218 | ) | 35,039 | 29,496 | 39,504 | 40,638 | 18,652 | 10,396 | (147,854 | ) | 54,167 | (141,078 | ) | 52,274 | 36,052 | 59,258 | 36,829 | 67,016 | (36,494 | ) | (19,690 | ) |
Total | 0-1 month | 1-3 months | 3-6 months | 6-12 months | 1-3 years | 3-5 years | > 5 years | Not Sensitive | ||||||||||||||||||||||||||||
Gaps in foreign currency | ||||||||||||||||||||||||||||||||||||
Money Market | 41,344 | 3,322 | 36 | 287 | 2,631 | 2,859 | 15,208 | 2,334 | 14,667 | |||||||||||||||||||||||||||
Loans | 88,417 | 47,664 | 13,309 | 8,964 | 7,865 | 1,720 | 393 | 4,366 | 4,135 | |||||||||||||||||||||||||||
Permanent | 31 | - | - | - | - | - | - | - | 31 | |||||||||||||||||||||||||||
Others | 71,135 | 16,595 | - | - | - | - | - | - | 54,539 | |||||||||||||||||||||||||||
Total Assets | 200,927 | 67,582 | 13,345 | 9,251 | 10,496 | 4,579 | 15,600 | 6,700 | 73,373 | |||||||||||||||||||||||||||
Money Market | (26,684 | ) | (1,630 | ) | (928 | ) | (938 | ) | (727 | ) | (15,186 | ) | (1,212 | ) | (5,876 | ) | (187 | ) | ||||||||||||||||||
Deposits | (35,601 | ) | (15,555 | ) | (10,782 | ) | (2,040 | ) | (2,882 | ) | (4,901 | ) | (3,887 | ) | (3,966 | ) | 8,411 | |||||||||||||||||||
Equity and Other | (155,821 | ) | (38,519 | ) | (23,439 | ) | (16,490 | ) | (23,781 | ) | (1,198 | ) | (8,373 | ) | - | (44,022 | ) | |||||||||||||||||||
Total Liabilities | (218,106 | ) | (55,704 | ) | (35,148 | ) | (19,468 | ) | (27,390 | ) | (21,285 | ) | (13,472 | ) | (9,842 | ) | (35,797 | ) | ||||||||||||||||||
Off-Balance Gap | (18,012 | ) | (1,399 | ) | (12,610 | ) | 1,081 | 156 | (2,150 | ) | (1,175 | ) | 81 | (1,994 | ) | |||||||||||||||||||||
Gap | (35,192 | ) | 10,479 | (34,413 | ) | (9,136 | ) | (16,738 | ) | (18,857 | ) | 953 | (3,061 | ) | 35,582 |
241
262 |
Total | 0-1 month | 1-3 months | 3-6 months | 6-12 months | 1-3 years | 3-5 years | > 5 years | Not Sensitive | ||||||||||||||||||||||||||||
Gaps in foreign currency | ||||||||||||||||||||||||||||||||||||
Money Market | 29,206 | 1,513 | 50 | 185 | 418 | 2,404 | 6,388 | 6,965 | 11,283 | |||||||||||||||||||||||||||
Loans | 52,248 | 18,469 | 13,178 | 8,651 | 5,175 | 787 | 2,256 | 1,371 | 2,360 | |||||||||||||||||||||||||||
Permanent | 1 | - | - | - | - | - | - | - | 1 | |||||||||||||||||||||||||||
Others | 128,000 | 26,500 | 259 | 129 | 36 | - | - | - | 101,077 | |||||||||||||||||||||||||||
Total Assets | 209,454 | 46,482 | 13,487 | 8,965 | 5,629 | 3,191 | 8,644 | 8,336 | 114,720 | |||||||||||||||||||||||||||
Money Market | (18,218 | ) | (1,060 | ) | (1,308 | ) | (2,167 | ) | (546 | ) | (367 | ) | (11,770 | ) | (1,001 | ) | - | |||||||||||||||||||
Deposits | (19,298 | ) | (6,118 | ) | (1,501 | ) | (1,743 | ) | (1,451 | ) | (3,620 | ) | (1,593 | ) | (1,300 | ) | (1,972 | ) | ||||||||||||||||||
Equity and Other | (153,675 | ) | (27,340 | ) | (11,339 | ) | (6,784 | ) | (7,361 | ) | (722 | ) | (599 | ) | (2,799 | ) | (96,732 | ) | ||||||||||||||||||
Total Liabilities | (191,191 | ) | (34,518 | ) | (14,148 | ) | (10,694 | ) | (9,357 | ) | (4,709 | ) | (13,961 | ) | (5,100 | ) | (98,705 | ) | ||||||||||||||||||
Off-Balance Gap | 56,847 | 1,366 | (15,354 | ) | (4,527 | ) | (9,613 | ) | (5,216 | ) | (1,893 | ) | (1,064 | ) | 93,149 | |||||||||||||||||||||
Gap | 75,110 | 13,329 | (16,015 | ) | (6,256 | ) | (13,342 | ) | (6,733 | ) | (7,209 | ) | 2,172 | 109,165 |
Market Risk: VaR Consolidated Analysis
Our total daily VaR as of December 31, 20182020 and December 31, 2019,2021, broken down by trading and structural (non-trading) portfolios, is set forth below. Our VaR data for trading and non-trading portfolios were summed and thus do not reflect the diversification effect.
2019 | 2018 | |||||||||||||||||||
Low | Average | High | Period End | Period End | ||||||||||||||||
(in millions of R$) | ||||||||||||||||||||
Trading | 20.8 | 41.9 | 85.4 | 20.9 | 46.5 | |||||||||||||||
Non-trading | 1,336.3 | 1,915.0 | 2,203.7 | 1,755.1 | 1,743.7 | |||||||||||||||
Diversification effect | - | - | - | - | - | |||||||||||||||
Total | 1,357.1 | 1,956.9 | 2,289.1 | 1,776.0 | 1,790.2 |
2021 | 2020 | |||||||||||||||||||
Low | Average | High | Period End | Period End | ||||||||||||||||
(in millions of R$) | ||||||||||||||||||||
Trading | 16.7 | 34.5 | 63.1 | 34.4 | 31.6 | |||||||||||||||
Non-trading | 1,663.4 | 2,451.7 | 4,274.1 | - | 1,755.1 | |||||||||||||||
Diversification effect | - | - | - | - | - | |||||||||||||||
Total | 1,680.1 | 2,486.2 | 4,337.2 | 34.4 | 1,786.7 |
Note: | VaR figures for trading and non-trading portfolios were added, thus disregarding the diversification effect. |
Our daily VaR estimates of interest rate risk, foreign exchange rate risk and equity price risk were as set forth below:
242
Interest Rate Risk
2019 | 2018 | |||||||||||||||||||
Low | Average | High | Period End | Period End | ||||||||||||||||
(in millions of R$) | ||||||||||||||||||||
Interest rate risk | ||||||||||||||||||||
Interest rate risk | ||||||||||||||||||||
Trading | 14.7 | 31.0 | 66.0 | 16.7 | 33.9 | |||||||||||||||
Non-trading | 1,336.3 | 1,915.0 | 2,203.7 | 1,755.1 | 1,743.7 | |||||||||||||||
Diversification effect | - | - | - | - | - | |||||||||||||||
Total | 1,351.0 | 1,946.0 | 2,269.7 | 1,771.8 | 1,777.6 |
2021 | 2020 | |||||||||||||||||||
Low | Average | High | Period End | Period End | ||||||||||||||||
(in millions of R$) | ||||||||||||||||||||
Interest rate risk | ||||||||||||||||||||
Trading | 12.7 | 31.8 | 72.3 | 34.9 | 26.6 | |||||||||||||||
Non-trading | 1,663.4 | 2,451.7 | 4,274.1 | - | 1,364.7 | |||||||||||||||
Diversification effect | - | - | - | - | - | |||||||||||||||
Total | 1,676.1 | 2,483.5 | 4,346.4 | 34.9 | 1,391.3 |
Note: | VaR figures for trading and non-trading portfolios were added, thus disregarding the diversification effect. |
Foreign Exchange Rate Risk
2019 | 2018 | |||||||||||||||||||
Low | Average | High | Period End | Period End | ||||||||||||||||
(in millions of R$) | ||||||||||||||||||||
Exchange rate risk | ||||||||||||||||||||
Trading | 1.6 | 13.8 | 31.3 | 7.5 | 24.6 | |||||||||||||||
Non–trading | N.A. | N.A. | N.A. | N.A. | N.A. | |||||||||||||||
Diversification effect | - | - | - | - | - | |||||||||||||||
Total | 1.6 | 13.8 | 31.3 | 7.5 | 24.6 |
2021 | 2020 | |||||||||||||||||||
Low | Average | High | Period End | Period End | ||||||||||||||||
(in millions of R$) | ||||||||||||||||||||
Exchange rate risk | ||||||||||||||||||||
Trading | 4.0 | 19.0 | 48.9 | 5.9 | 35.6 | |||||||||||||||
Non–trading | - | - | - | - | - | |||||||||||||||
Diversification effect | - | - | - | - | - | |||||||||||||||
Total | 4.0 | 19.0 | 48.9 | 5.9 | 35.6 |
Note: | VaR figures for trading and non-trading portfolios were added, thus disregarding the diversification effect. |
Equity Price Risk
2019 | 2018 | |||||||||||||||||||
Low | Average | High | Period End | Period End | ||||||||||||||||
(in millions of R$) | ||||||||||||||||||||
Equity price risk | ||||||||||||||||||||
Trading | 2.0 | 8.6 | 29.2 | 7.4 | 11.6 | |||||||||||||||
Non–trading | N.A. | N.A. | N.A. | N.A. | N.A. | |||||||||||||||
Diversification effect | - | - | - | - | - | |||||||||||||||
Total | 2.0 | 8.6 | 29.2 | 7.4 | 11.6 |
2021 | 2020 | |||||||||||||||||||
Low | Average | High | Period End | Period End | ||||||||||||||||
(in millions of R$) | ||||||||||||||||||||
Equity price risk | ||||||||||||||||||||
Trading | 2.6 | 7.5 | 21.5 | 6.4 | 2.8 | |||||||||||||||
Non–trading | - | - | - | - | - | |||||||||||||||
Diversification effect | - | - | - | - | - | |||||||||||||||
Total | 2.6 | 7.5 | 21.5 | 6.4 | 2.8 |
Note: | VaR figures for trading and non-trading portfolios were added, thus disregarding the diversification effect. |
263 |
Commodity Price Risk
2019 | 2018 | |||||||||||||||||||
Low | Average | High | Period End | Period End | ||||||||||||||||
(in millions of R$) | ||||||||||||||||||||
Commodities price risk | ||||||||||||||||||||
Trading | 0.0 | 0.0 | 0.4 | 0.0 | 0.2 | |||||||||||||||
Non–trading | N.A. | N.A. | N.A. | N.A. | N.A. | |||||||||||||||
Diversification effect | - | - | - | - | - |
243
At December 31, | ||||||||||||||||||||
2021 | 2020 | |||||||||||||||||||
Low | Average | High | Period End | Period End | ||||||||||||||||
(in millions of R$) | ||||||||||||||||||||
Commodity price risk | ||||||||||||||||||||
Trading | 0.1 | 3.8 | 21.4 | 0.1 | 0.3 | |||||||||||||||
Non-trading | N.A. | N.A. | N.A. | N.A. | N.A | |||||||||||||||
Diversification effect | - | - | - | - | - | |||||||||||||||
Total | 0.1 | 3.8 | 21.4 | 0.1 | 0.3 |
Our daily VaR estimates by activity were as set forth below:
2019 | 2018 | |||||||||||||||||||
Low | Average | High | Period End | Period End | ||||||||||||||||
(in millions of R$) | ||||||||||||||||||||
Trading | ||||||||||||||||||||
Interest rate risk | 14.7 | 31.0 | 66.0 | 16.7 | 33.9 | |||||||||||||||
Exchange rate risk | 1.6 | 13.8 | 31.3 | 7.5 | 24.6 | |||||||||||||||
Equity | 2.0 | 8.6 | 29.2 | 7.4 | 11.6 | |||||||||||||||
Commodities price risk | 0.0 | 0.0 | 0.4 | 0.0 | 0.2 | |||||||||||||||
Total Trading | 20.8 | 41.9 | 85.4 | 20.9 | 46.5 | |||||||||||||||
Non-trading | ||||||||||||||||||||
Interest rate | 1,336.3 | 1,915.0 | 2,203.7 | 1,755.1 | 1,743.7 | |||||||||||||||
Exchange rate | N.A. | N.A. | N.A. | N.A. | N.A. | |||||||||||||||
Equity | N.A. | N.A. | N.A. | N.A. | N.A. | |||||||||||||||
Total Non-Trading | 1,336.3 | 1,915.0 | 2,203.7 | 1,755.1 | 1,743.7 | |||||||||||||||
Total (Trading + Non-Trading) | 1,357.1 | 1,956.9 | 2,289.1 | 1,776.0 | 1,790.2 | |||||||||||||||
Interest rate | 1,351.0 | 1,946.0 | 2,269.7 | 1,771.8 | 1,777.6 | |||||||||||||||
Exchange rate | 1.6 | 13.8 | 31.3 | 7.5 | 24.6 | |||||||||||||||
Equity | 2.0 | 8.6 | 29.2 | 7.4 | 11.6 | |||||||||||||||
Commodities price risk | 0.0 | 0.0 | 0.4 | 0.0 | 0.2 |
2021 | 2020 | |||||||||||||||||||
Low | Average | High | Period End | Period End | ||||||||||||||||
(in millions of R$) | ||||||||||||||||||||
Trading | ||||||||||||||||||||
Interest rate risk | 26.8 | 12.7 | 31.8 | 72.3 | 34.9 | |||||||||||||||
Exchange rate risk | 2.8 | 2.6 | 7.5 | 21.5 | 6.4 | |||||||||||||||
Equity price risk | 35.6 | 4.0 | 19.0 | 48.9 | 5.9 | |||||||||||||||
Commodity price risk | 0.3 | 0.1 | 3.8 | 21.4 | 0.1 | |||||||||||||||
Total Trading | 31.6 | 16.7 | 34.5 | 63.1 | 34.4 | |||||||||||||||
Non-trading | ||||||||||||||||||||
Interest rate risk | 1,663.4 | 2,451.7 | 4,274.1 | - | 1,755.1 | |||||||||||||||
Exchange rate risk | N.A. | N.A. | N.A. | N.A. | N.A. | |||||||||||||||
Equity price risk | N.A. | N.A. | N.A. | N.A. | N.A. | |||||||||||||||
Commodity price risk | N.A. | N.A. | N.A. | N.A. | N.A. | |||||||||||||||
Total Non-Trading | 1,663.4 | 2,451.7 | 4,274.1 | - | 1,755.1 | |||||||||||||||
Total (Trading + Non-Trading) | 1,663.4 | 2,451.7 | 4,274.1 | - | 1,755.1 | |||||||||||||||
Interest rate risk | 1,663.4 | 2,451.7 | 4,274.1 | - | 1,755.1 | |||||||||||||||
Exchange rate risk | 1.4 | 9.3 | 42.4 | 35.6 | 7.5 | |||||||||||||||
Equity price risk | 1.2 | 5.8 | 34.0 | 2.8 | 7.4 | |||||||||||||||
Commodity price risk | - | 0.2 | 2.5 | 0.3 | - |
Note: | VaR figures for trading and non-trading portfolios were added, thus disregarding the diversification effect. |
Operational Risk
We have adopted the definition of the Basel Committee and Brazilian Central Bank for operational risk, which is defineddefines operational risk as the possibility of losses resulting from inadequate processes, people and systems, failures, or even from external events. This definition includes the legal risk associated with the inadequacy or deficiency in executed agreements, as well as penalties for noncompliance with legal provisions and damages for third parties resulting from our activities. This definition does not include strategic risk. Operational risk losses mayevents might result in financial losses, adversely affectingadverse effects on the continuity of our business, and also negatively affect ournegative effects on public image.
image and customer experience.
To accomplish our operational risk objectives, we have established a risk model based on three lines of defense, with the objective ofaimed at continuously improving and developing our management and control of operational risks. The three lines of defense are as follows:
are:
First line of defense: all business and support areas within Santander Brasil are responsible for identifying, managing, mitigating and reporting operational |
244
Second line of defense: the operational |
264 |
Third line of defense: the Internal Audit |
The objectives of ourthe operational risk management model are:
to disseminate a culture of operational risk management and control, to foster the prevention of risk events and operational risks losses, and to mitigate their financial, |
to provide support to decision-makers within Santander Brasil; |
to ensure there is sufficient coverage to cover the |
to maintain control of operational risk in a manner which is consistent with business strategy. |
The following bodies are involved in the implementation of risk management model in order to ensure we have a structured process of operational risk management and decision maker:
Risk Control Committee (Comitê de Controle de Riscos): |
Operational Risk |
Our risk management model assists managers in achieving their strategic objectives by contributing to the decision-making process and by reducingseeking to reduce operational risk exposure and losses. It is compliant with the applicable regulatory requirements.
Social and Environmental Risk
Since 2002, we have remained at the forefront of social and environmental risk analysis in Brazil. We consider social and environmental risk when deciding whether to extend credit. Our Social and Environmental Responsibility Policy, (PRSA), whichor “PRSA,” complies with National Monetary Council Resolution 4,327/2014 and the SARB 14 self-regulation issued by Febraban,Febraban. Our PRSA establishes guidelines and consolidates specific policies for social-environmental practices used inapplicable to business and stakeholder relations.relations, such as relations with suppliers. These practices includinginclude social and environmental risk management, impacts and opportunities related themes, such as, adequacyassessment in the concessiongranting or use of credit, supplier management and analysis of the social and environmental risk whichusing credit. This is carried out through the analysis of the socio-environmental practices of wholesale and Empresas Nucleo (Core Companies) SMESSME customers, thatwhich have limits or credit risk greater than R$5 million and are included inbelong to one of the 14 sectors of social and environmental attention,focuses.
Furthermore, the Brazilian Central Bank has recently issued new regulations and standards applicable to us relating to the management and governance of social, environmental and climate risks by financial institutions. These rules relate both to risks resulting from our products, services and activities, and to risks arising out of the activities of our counterparties, controlled entities, suppliers and outsourced service providers. One such regulation is National Monetary Council Resolution 4,945/2021, which will revoke Resolution 4,327/2014 and institute new guidelines applicable to the PRSA. The majority of these regulations will enter into effect in orderJuly 2022. See “Item 4. B Information on the Company—B, Business Overview—Regulation and Supervision—Other Applicable Laws and Regulations—Environmental, Social and Governance (ESG) requirements applicable to financial institutions.”
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We have been signatories of the Equator Principles since 2009. The Equator Principles are a framework used by financial institutions to determine, assess and manage environmental and social risk in projects, and are based on the Performance Standards on Social and Environmental Sustainability of International Finance Corporation (IFC) and the World Bank Group.
In 2016, we started to take into account climate change related matters in the credit rating of wholesale customers. In 2020, we began to use a water stress calculator in our socio-environmental assessments. This tool considers the client’s economic activity, hydrographic basin location and measures adopted to save water. It was developed considering the customer’s vulnerability to climate change in general, including as a result of changes in legislation or consumer preferences.
We believe that assessing the socio-environmental risk in our operations, also enables us to mitigate issues of operational, capital, credit and reputational risk. In 2019,2021, we screened 1,340911 wholesale corporate customers, and 6971,049 Empresas Nucleo (Core Companies) customers, as well as 49and 28 major new projects (including both those that are and that are not subject to the Equator Principles and not subject, for these types of risks.Principles). Furthermore, wholesale segment customers are screened for environmental and social concerns by the new customers´customer acceptance area,department, when
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initiating they begin their commercial relationship with us. Since 2009, we are a signatory ofSee “Item 3. Key Information—D. Risk Factors—Risks Relating to the Equator Principles, whose standards are applied in order to mitigate socialBrazilian Financial Services Industry and Our Business—Social and environmental risks when financing large projects.may have a material adverse effect on us.”
Cyber SecurityCybersecurity Risk
We have extensive security measures in place to mitigate the risk of cyber-securitycybersecurity threats affecting our technology platforms and our business. We have taken into consideration the practices set forth in the ISO-27002 security standard to assist us in formulating such security measures. Our security measures, include, but are not limited to access and privilege management, segregation of test and production environments, network security analysis, cyber incident management, baseline configuration of hardware and software, activity log correlation, malware prevention and remediation, and security analysis of third-party operations. We employ a range of security processes, solutions and dissemination of these measures, including regular compliance checks and continuous monitoring of network activity by our Security Operations Center (SOC). We also perform periodic reviews of cyber-securitycybersecurity threats and related controls, including periodic penetration tests performed by independent third parties. In addition, we are constantly investing in technology and security solutions, as well as conducting user training and awareness efforts. Furthermore, we cooperate and exchange information and experience relating to cyber-securitycybersecurity with local and international security communities, such as local telecommunications companies and other financial institutions, and as a member of the Financial Services - Information Sharing and Analysis Center community. See “Item 3. Key Information—D. Risk Factors—Risks Relating to the Brazilian Financial Services Industry and Our Business—Failure to adequately protect ourselves against risks relating to cybersecurity could materially and adversely affect us. We are also subject to increasing scrutiny and regulation governing cybersecurity risks.”
Other Information
Volatile market conditions arising from the COVID-19 pandemic may result in significant changes in macroeconomic conditions, foreign exchange rates, interest rates, and the prices of our securities, which may adversely affect us, see “Item 3. Key Information—D. Risk Factors—Risks Relating to the Brazilian Financial Services Industry and Our Business— The global COVID-19 pandemic has materially impacted our business, and the continuance of this pandemic or any future outbreak of any other highly contagious diseases or other public health emergency, could materially and adversely impact our business, financial condition, liquidity and results of operations,” “Item 4. Information on the Company—A. History and Development of the Company—Impact of COVID-19” and “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Principal Factors Affecting Our Financial Condition and Results of Operations—Impact of COVID-19.”
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
12A. Debt Securities |
Not applicable.
12B. Warrants and Rights
Not applicable.
12C. Other Securities
Not applicable.
Not applicable.
12D. American Depositary Receipts |
Depositary
The Bank of New York Mellon, or BNYM, has acted as depositary in relation to our ADR program since October 20, 2015. The principal executive office of BNYM is located at 240 Greenwich Street, New York, New York 10286, United States.
Fees and Expenses
BNYM, as depositary, may charge the following fees and expenses to the ADR holders, any party depositing or withdrawing Units or any party surrendering ADRs or to whom ADRs are issued (including, without limitation, issuance pursuant to a stock dividend or stock split declared by us or an exchange of stock regarding the ADRs or the deposited securities or a distribution of ADRs), as applicable:
a fee of U.S.$5.00 or less for each 100 ADRs (or portion thereof) issued, delivered or surrendered, as the case may be; |
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a fee of U.S.$0.05 or less per ADR (or portion thereof) for any cash distribution made pursuant to the deposit agreement; |
a fee of U.S.$0.05 or less per ADR (or portion thereof) per annum for depositary services; |
a fee for the distribution of securities or of rights (where the depositary will not exercise or sell those rights on behalf of the ADR holders), such fee being in an amount equal to the fee for the execution and delivery of ADRs which would have been charged as a result of the deposit of such securities under the deposit agreement entered into with BNYM (for these purposes treating all such securities as if they were Units) but which securities are instead distributed by the depositary to the ADR holders; |
such registration fees as may from time to time be in effect for the registration of transfers of Units generally on the registrar’s unit register and applicable to transfers of Units to or from the name of the depositary or its nominee or the name of the custodian for the depositary or its nominee on the making of deposits or withdrawals; |
certain other cable and facsimile transmission fees and expenses; |
such expenses as are incurred by the depositary in the conversion of foreign currency; |
stock transfer or other taxes and other governmental charges; and |
any other charges payable by the depositary or the custodian of the depositary, any of the depositary’s or such custodian’s agents or the agents of the depositary’s or such custodian’s agents, in connection with the servicing of Units or other deposited securities (which charges shall be assessed against the ADR holders as of the date or dates set by the depositary in accordance with the deposit agreement which we have entered into with BNYM and shall be payable at the sole discretion of the depositary by billing those ADR holders for those charges or by deducting those charges from one or more cash dividends or other cash distributions). |
The depositary may collect any of its fees by deduction from any cash distribution payable, or by selling a portion of any securities to be distributed, to ADR holders that are obligated to pay those fees.
We will pay all other charges and expenses of the depositary and any agent of the depositary (except the custodian) pursuant to agreements from time to time between us and the depositary. The fees described above may be amended from time to time.
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Direct and Indirect Payments
BNYM has agreed to reimburse us for certain expenses related to the establishment and maintenance of the ADR program including, among others, expenses incurred in connection with investor relations activities and any other ADR program expenses. Under certain circumstances, including the removal of BNYM as depositary, we are required to repay to BNYM amounts reimbursed in prior periods. For the year ended December 31, 2019,2021, such reimbursements amounted to U.S.$3,23.2 million.
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ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
No matters to report.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
No matters to report.
ITEM 15. CONTROLS AND PROCEDURES
15A. Disclosure Controls and Procedures |
As of December 31, 2019,2021, with the supervision and participation of our management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), we performed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). As described below, there are inherent limitations to the effectiveness of any control system, including disclosure controls and procedures. Accordingly, even effective disclosure controls and procedures can provide only reasonable assurance of achieving their control objectives.
Based on such evaluation, our CEO and CFO concluded that our disclosure controls and procedures are effective in ensuring that information we are required to disclose in the reports we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosures.
In addition, to thisas required by the Brazilian Central Bank through CMN Resolution 4,968/21 and in accordance with the applicable legal requirements (Resolutions 2,554/98 andBrazilian Central Bank Circular 3,467/09), we are in process of preparing130/21, the report onrelated to the evaluationquality and adequacy of the Bank's internal control environment. This reportcontrols will be issued within 45 days after the determined period of 45 (forty-five) daysexpected date of publication of the our Brazilian GAAP financial statements, which is scheduled to be March 13, 202018, 2022 (Brazilian Central Bank – GAAP).
15B. Management’s Annual Report on Internal Control over Financial Reporting |
Our management is responsible for establishing and maintaining an adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act.
Our internal control over financial reporting process is designed by, or under the supervision of, our principal executive and financial officers and also incorporates supervision from effected by our Board of Directors, management and other personnel. The purpose is to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes, in accordance with generally accepted accounting principles. For us, generally accepted accounting principles refer to IFRS as issued by the IASB.
Our internal control over financial reporting includes those policies and procedures that:
pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; |
provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and officers; and |
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provide reasonable assurance of prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the consolidated financial |
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projected effectiveness of controls in future periods is subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures deteriorates.
We have adapted our internal control over financial reporting to the international standards and comply with the guidelines set by the Committee of Sponsoring Organizations of the Treadway Commission, or “COSO,” in its Internal Control – Integrated Framework 2013. These guidelines have been extended and implemented for the Group,Santander Brasil group, applying a common methodology and standardizing the procedures for identifying processes, risks and controls.
Risk Management Integrated Framework
The documentation process in our companies has been constantly directed and monitored by a global coordination team, which sets development guidelines and supervises execution at the unit level.
The general framework is consistent, as it assigns specific responsibilities to management regarding the structure and effectiveness of the processes related directly and indirectly with the production of consolidated financial statements, as well as the controls needed to mitigate the risks inherent in these processes.
With the supervision and participation of management, including our CEO and CFO, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2019,2021, based on the framework set by the COSO Integrated Framework 2013.
Based on this assessment, which was carried out through March 6, 2020,February 24, 2022, our management concluded that as of December 31, 2019,2021, its internal control over financial reporting was effective based on those criteria.
PricewaterhouseCoopers Auditores Independentes Ltda. which has audited theour consolidated financial statements of Santander Brasil for the year ended December 31, December 2019,2021, has also audited the effectiveness of Santander Brasil’sour internal controlcontrols over financial reporting under auditing standards of the Public Company Accounting Oversight Board (United States) as stated in their report appearing in our consolidated financial statements included in “Item 18.18, Financial Statements.”
For the report, dated March 6, 2020February 24, 2022, from PricewaterhouseCoopers Auditores Independentes Ltda., our registered public accounting firm, on the effectiveness of our internal control over financial reporting as of December 31, 2019,2021, see “Item 18. Financial Statements.”
15D. Changes in Internal Control over Financial Reporting |
There was no change in our internal control over financial reporting that occurred during the period covered by this annual report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
16A. Audit Committee Financial Expert
The Board of Directors has determined that one of the members of our audit committee, Mr. Luiz Carlos NanniniMs. Maria Elena Cardoso Figueira is an “Audit Committee Financial Expert” and meets the requirements set forth by the SEC and NYSE. HeShe is, as are all other current members of the Audit Committee,audit committee, deemed independent under the applicable Brazilian law and the regulations of the SEC and NYSE.
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For more details about the Audit Committee,audit committee, refer to “Item 6. Directors, Senior Management and Employees—C. Board Practices—Board Advisory Committees—Audit Committee”Committee.”
16B. Santander Brasil’s Code of Ethical Conduct
The Code of Ethical Conduct, the central element the Governance Compliance, is applicable to the members of the Boards of Directors, Executive Officers and to all employees and trainees (“Persons Subject to the Code of Ethical Conduct”) of Santander Brasil and its subsidiaries. It defines the principles that should guide both the personal and professional behavior of the Persons Subject to the Code of Ethical Conduct. They must know the Code of Ethical Conduct and seek to promote it, by championing and striving for its enforcement, and also have the obligation to attend and participate in all assigned training activities in order to become appropriately acquainted with the Code of Ethical Conduct. The Persons Subject to the Code of Ethical Conduct should be guided by ethical principles and rules of conduct that are consistent with our values.
The Code of Ethical Conduct helps us to establish respectful and transparent relationships and aims for the accomplishment of Santander Brasil’s obligations to its customers, employees, shareholders, partners, regulators and society as a whole. The Code of Ethical Conduct should also be a reference for compliance with legal duties and for the maintenance of commercial relationships founded on trust with partners and clients.customers.
The full version of the Santander Code of Ethical Conduct, which does not form part of this annual report on Form 20-F, is available on our website at https://www.santander.com.br/ri.ri/estatuto-codigo-politicas.
16C. Principal Accountant Fees and Services
The balance of “Other general administrative expenses—Technical reports” includes the fees paid by the consolidated companies (detailed in the accompanying Appendix I of the consolidated financial statements included elsewhere in this annual report) to PricewaterhouseCoopers Auditores Independentes Ltda. for the fiscal years ended December 31, 2019, December 31, 20182021, 2020 and December 31, 2017,2019, as follows:
For the year ended December 31, | For the year ended December 31, | |||||||||||||||||||||||
2019 | 2018 | 2017 | 2021 | 2020 | 2019 | |||||||||||||||||||
(in R$ millions) | (in R$ millions) | |||||||||||||||||||||||
Audit of the annual financial statements of the companies audited (constant scope of consolidation) | 25.2 | 19.9 | 17.5 | 26.3 | 24.0 | 25.2 | ||||||||||||||||||
Audit related | 0.1 | 0.5 | 3.9 | 0.2 | 0.4 | 0.1 | ||||||||||||||||||
Tax | - | - | - | |||||||||||||||||||||
All other | 0.3 | 0.1 | 1.3 | 0,4 | - | 0.3 | ||||||||||||||||||
Total | 25.6 | 20.5 | 22.7 | 26.9 | 24.4 | 25.6 |
The approximate value of withholding taxes in respect of the audit fees for the year ended December 31, 20192021 according to applicable law totaled R$3.61.9 million.
The services commissioned from our auditors meet the independence requirements stipulated by the Brazilian Central Bank and CVM regulation and by the Sarbanes-Oxley Act of 2002, and they did not involve the performance of any work that is incompatible with the audit function.
If we are required to engage an auditing firm for audit and audit-related services, those services and any fees paid to the auditing firms must be pre-approved by the audit committee.
Our Audit Committee pre-approves all audit and non-audit services to be performed by our registered public accounting firm.
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16D. Exemptions from the Listing Standards for Audit Committees
Under NYSE and SEC rules for listed companies, we must comply with Rule 10A-3 under the Securities Exchange Act (Listing Standards Relating to Audit Committees)., Rule 10A-3 provides that we should establish an Audit Committeeaudit committee composed of members of the Board of Directors, meet the requirements specified in the listing standards, or appoint and establish a board of auditors or similar body to perform the role of the Audit Committee,audit committee, in reliance on the general exemption of audit committees of foreign private issuers set forth in Rule 10A-3(c) (3) of the Securities Exchange Act.
In accordance with the rules of the Brazilian Central Bank, we constituted a body similar to the Audit Committeeaudit committee of the Board of Directors of an American company, which we refer to as our “Audit Committee.”
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Our Audit Committee observescomplies with Brazilian legislation, including CMN and Brazilian Central Bank regulations, and performs all the functions of an Audit Committee under Rule 10A-3. As provided inUnder Brazilian law, including Brazilian Central Bank regulations, an audit committee is a statutory board, separate from the board of directors and created by a shareholders’ resolution. The members of the audit committee may be members of the board of directors, provided that they meet certain independence requirements. All members of our Board of Directors and the Audit Committee and distinct statutory entities. Moreover, according toaudit committee meet such independence requirements. In addition, under Brazilian law, the function of hiring independent auditors is reserved for the board of directors. As a power reserved exclusively to the Board of Directorsresult, as specified in Section 3(a)(58) of the company, under the specific and express recommendation issued from the Audit Committee, as the case may be, for the engagement or replacementExchange Act, our board of independent auditors, and our Board of Directors actsdirectors functions as our audit committee for the purposespurpose of nominatingapproving any engagement of our independent auditors for audit and non-audit services provided to our subsidiaries or to us.
Pursuant to Exchange Act Rule 10A-3(c)(3), which provides for an exemption under the rules of the SEC regarding the audit committees of listed companies, a foreign private issuer, such independent auditors.
as us, is not required to have an audit committee equivalent to or comparable with a U.S. audit committee, if the foreign private issuer has a body established and selected pursuant to home country legal or listing provisions expressly requiring or permitting such a body, and if the body meets certain requirements. As a foreign private issuer, we rely on the exemption under Rule 10A-3(c)(3) of the Exchange Act with respect to our Audit Committee, and we believe that our audit committee complies with the aforementioned exemption requirements. Except in these respects, our Audit Committee is comparable to an Audit Committeeaudit committee performs the functions of the boardaudit committees of U.S. companies.
16E. Purchases of Equity Securities by the Issuer and performs the same functions of an American company. Our Audit Committee is able to act independently in carrying out the responsibilities of an Audit Committee under the Sarbanes-Oxley Act, meets the exemption requirements of Rule 10A-3(c)(3) and therefore is in compliance with Rule 10A-3 of the Securities Exchange Act.
Affiliated Purchasers
The following table reflects purchases of our equity securities, including in the form of ADRs, by us or our affiliates in 2019.
2021.
Santander Brasil – Buyback Program Units
Months | Total Number of Units Purchased (3) | Average Price Paid per Unit in U.S.$ (4) | Total Number of Units Purchased as Part of Publicly Announced Plans or Programs (1) (5) | Maximum Number of Units that May Yet Be Purchased Under the Plans or Programs (2) | ||||||||||||||
November 2020 | ||||||||||||||||||
December 2020 | ||||||||||||||||||
January 2021 | ||||||||||||||||||
February 2021 | 447 | 4.9208 | 447 | - | ||||||||||||||
March 2021 | - | - | - | - | ||||||||||||||
April 2021 | - | - | - | - | ||||||||||||||
May 2021 | - | - | - | - | ||||||||||||||
June 2021 | - | - | - | - | ||||||||||||||
July 2021 | 868,600 | 8.0397 | 868,600 | - | ||||||||||||||
August 2021 | - | - | - | - | ||||||||||||||
September 2021 | - | - | - | - | ||||||||||||||
October 2021 | - | - | - | - | ||||||||||||||
November 2021 | - | - | - | - | ||||||||||||||
December 2021 | - | - | - | - | ||||||||||||||
Total | 869,047 | 12.96 | 869,047 | 36,956,402 |
Months | Total Number of Units Purchased (3) | Average Price Paid per Unit in U.S.$ (4) | Total Number of Units Purchased as Part of Publicly Announced Plans or Programs (1) (5) | Maximum Number of Units that May Yet Be Purchased Under the Plans or Programs (2) | ||||||||||||
November 2018 | 1,438,400 | 10.7684 | 1,438,400 | - | ||||||||||||
December 2018 | 818,500 | 11.0285 | 818,500 | - | ||||||||||||
January 2019 | 683,500 | 12.9728 | 683,500 | - | ||||||||||||
February 2019 | 1,579,900 | 12.9271 | 1,579,900 | - | ||||||||||||
March 2019 | 1,098,900 | 11.4158 | 1,098,900 | - | ||||||||||||
April 2019 | - | - | - | - | ||||||||||||
May 2019 | 894,000 | 10.9507 | 894,000 | - | ||||||||||||
June 2019 | 718,400 | 11.6827 | 718,400 | - | ||||||||||||
July 2019 | - | - | - | - | ||||||||||||
August 2019 | 632,800 | 10.3023 | 632,800 | - | ||||||||||||
September 2019 | - | - | - | - | ||||||||||||
October 2019 | 659,200 | 11.9678 | 659,200 | - |
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November 2019 | 199,000 | 10.6889 | 199,000 | - | ||||||||||||
December 2019 | - | |||||||||||||||
Total | 8,722,600 | 115 | 8,722,600 | 37,753,760 |
(1) | The buyback program, as approved by our board of directors on November |
August 2, 2022. The repurchase plans define |
(2) The number entered in the “Total” row of the column “Maximum Number (or Approximate Dollar Value) of units that May Yet Be Purchased Under the Plans or Programs” refers to the number of Units which may be repurchased in the periods as approved by our board of directors. The total number of Units that may be repurchased for the period from February 3, 2021 to August 2, 2022 as approved by our board of directors is 36,956,402.
For further information on our buyback program, please see “Item 4. Information on the Company—A. History and Development of the Company—Important Events—Buyback Program.”
16F. Change in Registrant’s Certifying Accountant
Not applicable.
16G. Corporate Governance
In December 2012, primarily in response to the requirements of the European Banking Authority, Santander Spain adopted a corporate governance framework (Marco de Gobierno Interno del Grupo Santander). The purpose of the framework is to organize and standardize the corporate governance practices of Santander Spain and its most significant subsidiaries, including us, in order to enhance the ability of Santander Spain to manage the risks arising from Santander group operations around the world.
The three pillars of the framework are (i) an organizational model based on functions subject to internal governance, (ii) terms of reference according to which Santander Spain exercises control and oversight over its subsidiaries and participates in specific decisions as their controlling shareholder, and (iii) corporate models establishing common guidelines for the management and control of Santander Spain’s subsidiaries, subject to local autonomy considerations. In general, the framework purports to implement organizational and procedural changes rather than mandating particular substantive outcomes. However, in some cases, and subject to the limitations there set forth, the framework states that Santander Spain may require that its subsidiaries make substantive changes or take specific actions. The framework enables Santander Spain to participate in the decision-making processes of its subsidiaries by requiring its approval of certain decisions that may have a significant impact on the Santander Group as a whole due to their significance or potential risk, such as decisions relating to mergers and acquisitions, capital structure, dividends and risk tolerance, among other things. The framework also requires that a single person at each subsidiary be in charge of each function subject to internal governance and gives Santander Spain the authority to participate in the appointment, evaluation and compensation of each such person.
By its own terms, the framework as a whole is premised on the legal and financial autonomy of the subsidiaries and does not empower Santander Spain to supplant its subsidiaries’ decision-making processes. Moreover, each of the three pillars of the framework is explicitly made subject to local legal requirements. We approved the adoption of this corporate governance framework in May 2013, and have approved all subsequent amendments since then (the latest one was approved in December 2019), subject to the precedence of applicable Brazilian laws and regulations and the limitations imposed thereby such as banking secrecy laws, and subject also to our corporate governance practices, including our policies for related party transactions and for disclosure of material acts and facts.
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As a result of the precedence given to local legal requirements in the framework itself and in our adopting resolutions, we do not expect that the adoption of the corporate governance framework will affect our ability to comply with applicable corporate governance regulations, including the rules of the Brazilian Central Bank, CVM and B3, and SEC and NYSE rules applicable to foreign private issuers.
Pursuant to Section 303A.11 of the Listed Company Manual of the NYSE, we are required to provide a summary of the significant ways in which our corporate governance practices differ from those required for United States resident companies under the NYSE listing standards. Section 303A of the NYSE Listed Company Manual sets forth certain corporate governance requirements that a company must satisfy to be listed on the NYSE. However, exemptions from many of the requirements are available to foreign private issuers such as us. As a foreign private issuer, we are permitted to and we will, follow home country practice in lieu of the NYSE corporate governance standards, from which we are exempt.
A discussion of the significant differences between Brazilian corporate governance standards that govern our practices and the NYSE standards applicable to U.S. companies follows below. It includes only a brief summary description of our corporate governance practices.
Principal Differences between Brazilian and U.S. Corporate Governance Practices
We are also subject to the NYSE corporate governance listing standards. As a foreign private issuer, the standards applicable to us are considerably different than the standards applied to U.S. listed companies. Under the NYSE rules, we are required only to: (i) have an Audit Committee or audit board, pursuant to an applicable exemption available to foreign private issuers, that meets certain requirements, as discussed below, (ii) provide prompt certification by our Chief Executive Officer of any material noncompliance with any applicable NYSE corporate governance rules, (iii) submit an executed written affirmation annually to the NYSE and submit an interim written affirmation each time a change occurs to the board or any of the committees subject to Section 303A of the NYSE rules, and (iv) provide a brief description of the significant differences between our corporate governance practices and the NYSE, corporate governance practicepractices required to be followed by U.S. listed companies. The discussion of the significant differences between our corporate governance practices and those required of U.S. listed companies follows below, as required for foreign private issuers by NYSE Rule 303A.11.
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Majority of Independent Directors
The NYSE rules require that a majority of the board must consist of independent directors. As a company with a majority of our voting shares being beneficially owned by another entity (Santander Spain), we are not required to comply with this rule. Independence is defined by various criteria, including the absence of a material relationship between the director and the listed company. Currently, our Board of Directors must have at least five members, at least 20.0% of which must be independent, as determined pursuant to Article 14 of our By-Laws.By-Laws, Currently, fivefour members of our Board of Directors are deemed independent (representing 56%36% of the composition of our Board of Directors). Also, Brazilian Corporate Law, the Brazilian Central Bank and the CVM have established rules that require directors to meet certain qualification requirements and that address the compensation, duties and responsibilities of, as well as the restrictions applicable to, a company’s executive officers and directors. While we believe that these rules provide adequate assurances that our directors are independent and meet the requisite qualification requirements under Brazilian law, we believe that such rules would permit us to have directors that would not otherwise pass the test for director independence established by the NYSE.NYSE, Brazilian Corporate Law requires that our directors shall be elected by our shareholders at an annual shareholders’ meeting. Currently, all of our directors are elected by our shareholders after recommendation of the Nomination and Governance Committee, for a term of two years.
Executive Sessions
NYSE rules require that the non-management directors must meet at regularly scheduled executive sessions without management present.present, Brazilian Corporate Law does not have a similar provision. According to Brazilian Corporate Law, up to one thirdone-third of the members of the Board of Directors can be elected from management members. Our Chief Executive Officer, Mr. Sergio Agapito Lires Rial,Mario Roberto Opice Leão, is a
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member of our Board of Directors. There is no requirement that our non-management directors meet regularly without management. As a result, the non-management directors on our board do not typically meet in executive session.
Committees
NYSE rules require that listed companies have a Nominating/Corporate Governance Committee and a Remuneration Committee composed entirely of independent directors and governed by a written charter addressing the committee’s required purpose and detailing its required responsibilities. As a company whose majority of voting shares is held by another group, we are not required to comply with this rule. The responsibilities of the Nominating/Corporate Governance Committee include, among other things, identifying and selecting qualified board member nominees and developing a set of corporate governance principles applicable to the company. The responsibilities of the Remuneration Committee, in turn, include, among other things, reviewing corporate goals relevant to the Chief Executive Officer’s compensation, evaluating the Chief Executive Officer’s performance, approving the Chief Executive Officer’s compensation levels and recommending to the board non-chief executive officer compensation, incentive compensation and equity-based plans.
In February 2017, our Board of Directors approved the terms for the establishment of our Nomination and Governance Committee. The Nomination and Governance Committee also oversees corporate governance at Santander Brasil.
CMN rules require us to have a compensation committeeCompensation Committee composed of at least three members. We have created the compensation committeeCompensation Committee whose function is to advise our Board of Directors on matters in connection with, but not limited to (i) fixed and variable compensation policies and benefits and (ii) the long-term incentive plan.
See “Item 6. Directors, Senior Management and Employees—C. Board Practices” for a complete description of all of our board advisory committees.
Pursuant to Brazilian Corporate Law, the aggregate compensation for our directors and executive officers is established by our shareholders.
Audit Committee and Audit Committee Additional Requirements
NYSE rules require that listed companies have an Audit Committeeaudit committee composed that (i) is composed of a minimum of three independent directors who are all financially literate, (ii) meets the SEC rules regarding Audit Committeesaudit committees for listed companies, (iii) has at least one member who has accounting or financial management expertise and (iv) is governed by a written charter addressing the committee’s required purpose and detailing its required responsibilities.
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CMN rules require us to have an Audit Committeeaudit committee of at least three independent members. The Audit Committeeaudit committee is elected by the Board of Directors.Directors, SEC Rule 10A-3 provides that the listing of securities of foreign private issuers will be exempt from the Audit Committeeaudit committee requirements if the issuer meets certain requirements. Our Audit Committee allows us to meet the requirements set forth by this rule. See “Item 16D. Exemptions from the Listing Standards for Audit Committees.”
Shareholder Approval of Equity Compensation Plans
NYSE rules require that shareholders be given the opportunity to vote on all equity compensation plans and material revisions thereto, with limited exceptions.exceptions, Under Brazilian Corporate Law, shareholders must approve all stock option plans. In addition, any issuance of new shares that exceeds our authorized share capital is subject to shareholder approval.approval, Our shareholders do not have the opportunity to vote on all equity compensation plans.
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Corporate Governance Guidelines
NYSE rules require that listed companies adopt and disclose corporate governance guidelines. Wecomply with the corporate governance guidelines under applicable Brazilian law. The corporate governance guidelines applicable to us under Brazilian law are consistent with the guidelines established by the NYSE.
Pursuant to the practices of corporate governance guidelines, on September 22, 2010, our Board of Directors approved a policy that regulates related party transactions, which was last revised on March 27, 2019. This policy provides rules which aim to ensure that all decisions, in particular those involving related parties and other situations with potential conflict of interests will be aligned with our interests and those of our shareholders. The policy applies to all employees, Directors and Executive Officers of Santander Brasil.
Code of Business Conduct and Ethics
NYSE rules require that listed companies adopt and disclose a code of conduct and ethics for Directors, Officers and employees, and promptly disclose any waivers of the code for Directors or Executive Officers. Applicable Brazilian law does not have a similar requirement. We adopted a Code of Ethical Conduct on February 27, 2009, last revised on September 28, 2016, which regulates the set of ethical principles that shall guide the conduct of our employees, officers and directors of Santander Brasil, as well as of its affiliates. Our Code of Ethical Conduct complies with the requirements of the Sarbanes-Oxley Act and the NYSE rules.
Internal Audit Function
NYSE rules require that listed companies maintain an internal audit function to provide management and the Audit Committeeaudit committee with ongoing assessments of the company’s risk management processes and system of internal controls.
OurCMN rules also require us to have an internal audit function, and our internal audit department works independently to conduct structured examinations, analyses, surveys and fact-finding to evaluate the integrity, adequacy, effectiveness, efficiency and economy of the information systems processes and internal controls related to our risk management. The internal audit department reports on an ongoing basis to the Audit Committee.audit committee. In carrying out its duties, the internal audit department has access to all documents, records, systems, locations and professionals involved with the activities under review.
Other Corporate Frameworks
On the recommendation of our controlling shareholder, our Board of Directors analyzed and approved the adoption of a series of corporate frameworks to matters such as: (i) internal audit; (ii) accounting and disclosure of financial information; (iii) risk control; (iv) communication and branding; (v) human resources; (vi) information technology; and (vii) money-laundering protection. Currently, we have a total of 16 frameworks (Marcos Corporativos)(Marcos Corporativos) in force. We believe that these frameworks once all of them have been adopted, will continue to enhance the formalization of our governance and internal controls structures.
Website
Our corporate governance codes, which do not form part of this annual report, are available to the public on our website in Portuguese and English at www.santander.com.br under the heading “Investor Relations—Corporate Governance.” The information contained on our website, any website mentioned in this annual report, or any websiteanywebsite directly or indirectly linked to these websites is not part, of and is not incorporated by reference in, this annual report.
16H. Mine Safety Disclosure
Not applicable.
16I. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
255
275 |
ITEM 17. FINANCIAL STATEMENTS |
We have responded to Item 18 in lieu of this item.
ITEM 18. FINANCIAL STATEMENTS |
Consolidated Financial Statements are filed as part of this annual report, see pages 1 to 159.starting on page F-1.
ITEM 19. EXHIBITS |
(a) Index to Consolidated Financial Statements
Page | |
Independent auditor’s Report | |
Consolidated Balance Sheets as of December 31, 2021, 2020 and 2019 | F-4 |
Consolidated Statement of Income for the years ended December 31, 2021, 2020 and 2019 | |
Consolidated | |
Consolidated | |
Consolidated Statement of Cash | |
Notes to the Consolidated Financial Statements for the years ended December 31, 2021, 2020 and 2019 | |
F-13 |
(b) List of Exhibits.
We are filing the following documents as part of this annual report on Form 20-F:
256
276 |
SIGNATURES* Certain information has been omitted from this exhibit pursuant to Item 4 of the Instructions As To Exhibits of Form 20-F because it is both not material and is the type that the registrant treats as private or confidential. The registrant hereby agrees to furnish an unredacted copy of the exhibit and its materiality and privacy or confidentiality to the U.S. Securities and Exchange Commission upon request.
277 |
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
BANCO SANTANDER (Brasil) S.A. | ||
By: | /s/ | |
Name: | ||
Title: Chief Executive Officer |
Date: March 6, 2020February 28, 2022
278 |
Banco Santander (Brasil) S.A.
Consolidated Financial Statements
Prepared in accordance with International Financial Reporting
Standards - IFRS
December 31, 2021
257
BANCO SANTANDER (BRASIL) S.A. | |||||
CONSOLIDATED FINANCIAL STATEMENTS | |||||
INDEX | |||||
Report of independent registered public accounting firm | |
| |
Banco Santander (Brasil) S.A.
Report of Independent Registered Public Accounting Firmindependent registered public
accounting firm
December 31, 2021
Report of independent registered public accounting firm
To the Board of Directors and Stockholders of
Banco Santander (Brasil) S.A.
Opinions on the Financial Statementsfinancial statements and Internal Control
internal control over Financial Reportingfinancial reporting
We have audited the accompanying consolidated balance sheets of Banco Santander (Brasil) S.A. and its subsidiaries (the “Company”"Company") as of December 31, 2019, 20182021, 2020 and 2017,2019, and the related consolidated income statements, statements of income, comprehensive income, statements of changes in stockholders’stockholders' equity and cash flow statementsflows for each of the three years in the period ended December 31, 2019,2021, including the related notes (collectively referred to as the “consolidated"consolidated financial statements”statements"). We also have audited the Company’sCompany's internal control over financial reporting as of December 31, 2019,2021, based on criteria established inInternal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2019, 20182021, 2020 and 2017,2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 20192021 in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019,2021, based on criteria established inInternal Control - Integrated Framework(2013) issued by the COSO.
Change in Accounting Principle
As discussed in Note 1.c.2.1.iii to the consolidated financial statements, the Company changed the manner in which it accounts for financial instruments in 2018.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Item 15B –- Management´s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on the Company’sCompany's consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
PricewaterhouseCoopers, Av. Francisco Matarazzo 1400, Torre Torino, São Paulo, SP, Brasil, 05001-903, Caixa Postal 60054, T: +55 (11) 3674 2000, www.pwc.com.br |
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis,
F-1
evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Supplemental Information
The reconciliation of stockholders' equity and net income –- BRGAAP vs IFRS as of and for the years ended December 31, 2019, 20182021, 2020 and 20172019 and the statements of value added for the years ended December 31, 2019, 20182021, 2020 and 2017,2019, included in APPENDIX I and II respectively, have been subjected to audit procedures performed in conjunction with the audit of the Company’sCompany's consolidated financial statements. This supplemental information is the responsibility of the Company’sCompany's management. Our audit procedures included determining whether the supplemental information reconciles to the consolidated financial statements or the underlying accounting and other records, as applicable, and performing procedures to test the completeness and accuracy of the information presented in the supplemental information. In forming our opinion on the supplemental information, we evaluated whether the supplemental information, including its form and content, is presented in conformity with Brazilian Corporate Law. In our opinion, the reconciliation of stockholders' equity and net income –- BRGAAP vs IFRS as of and for the years ended December 31, 2019, 20182021, 2020 and 20172019 and the statements of value added for the years ended December 31, 2019, 20182021, 2020 and 20172019 are fairly stated, in all material respects, in relation to the consolidated financial statements as a whole.
Definition and Limitationslimitations of Internal Controlinternal
control over Financial Reportingfinancial reporting
A company’scompany's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’scompany's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’scompany's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
Critical audit matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit
F-2
committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Measurement of expected credit losses
As described in Notes 1.c.2.1.iii, 2.i,1.c.2.1.ii, 2.h, 9, 43.h and 47.b46.b to the consolidated financial statements, management measures the expected credit losses at the probability-weighted estimate of credit losses, that involves management’smanagement's judgment, as set forth in IFRS 9 - Financial Instruments. At December 31, 2019,2021, the impairment losses on loans and receivables was BRL 22,625,75028,510,660 thousand on total loans and receivables at amortized cost of BRL 347,256,660493,354,702 thousand. Management calculates expected credit losses (‘ECL’ECL') using three main components: a probability of default (‘PD’PD'), loss given default (‘LGD’LGD') and exposure at default (‘EAD’EAD') including individual and collective models. The ECL measurement is based on management’smanagement's estimate of present value expected to be received, including the use of a variety of assumptions such as historical loss experience, credit quality, portfolio size, concentration, economic factors and estimated future cash flows. Additionally, management has assessed the Covid-19 pandemic impact in the estimation of credit losses process. In this assessment, management has considered forward-looking information, including changes in macroeconomic scenarios, impacting the calculation model for provisioning expected credit losses.
The principal considerations for our determination that performing procedures relating to the measurement of expected credit losses is a critical audit matter are (i) there was significant judgment used by management in determining the expected credit losses, in particular the assumptions used in determining the PD and LGD, which in turn led to a high degree of auditor judgment, subjectivity and effort in performing procedures and in evaluating audit evidence obtained relating to these assumptions; and (ii) the audit effort involved use of professionals with specialized skill and knowledge to assist in evaluating those assumptions.assumptions; and (iii) the consideration of the Covid-19 pandemic impacts in measuring then expected credit losses with the current scenario of uncertainty.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included understanding and testing the effectiveness of controls relating to management’smanagement's measurement of expected credit losses, which included controls over the assumptions used. These procedures also included, among others: (i) the involvement of professionals with specialized skill and knowledge to assist in testing management’smanagement's process for determining the expected credit losses, including evaluating the appropriateness of the methodology and models, testing the accuracy and completeness of data used, and evaluating the reasonableness of significant assumptions; (ii) the analysis of management’smanagement's accounting policies in comparison with IFRS 9; and (iii) analysis over management’smanagement's disclosures in the financial statements.statements; and (iv) understanding of the procedures adopted by management in considering the impacts of Covid-19 in the estimation of additional expected credit loss, evaluating the reasonableness of the estimation considering models, assumptions and data used.
Provisions for judicial and administrative proceedings
As described in Notes 1.c.2.1.v, 2.r1.c.2.1.iv, 2.q and 2322 to the consolidated financial statements, Provisions for judicial and administrative proceedings are recorded when their risk of loss are considered probable and the amounts can be reliably measured, based on the nature, complexity and history of lawsuits and the opinion of legal counsel. At December 31, 2019,2021, the Company has recorded provisions for judicial and administrative proceedings of BRL 9,226,7357,668,914 thousand. The Company also discloses the contingency in circumstances where management concludes no loss is probable or reasonably estimable, but it is reasonably possible that a loss may be incurred.
F-3
The principal considerations for our determination that performing procedures relating to provisions for judicial and administrative proceedings is a critical audit matter are there was significant judgment by management when assessing the likelihood of a loss being incurred and the potential amount of the judicial and administrative proceedings. This in turn led to a high degree of auditor judgment and effort in evaluating management’smanagement's assessment of the provisions for judicial and administrative proceedings, including the involvement of professionals with specialized skills and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included the understanding and testing the design and the effectiveness of controls relating to identifying, assessing, monitoring, measuring, recording, and disclosing the provisions for judicial and administrative proceedings, including the completeness and accuracy of the data used. Our procedures also included testing the recognition and measurement of the Company’sCompany's provisions for judicial and administrative proceedings and performing external confirmation procedures with law firms responsible for a sample of the judicial and administrative proceedings to evaluate the reasonableness of management’smanagement's assessment of the provisions. With the assistance of our professionals with specialized skill and knowledge, we evaluated the reasonableness management’smanagement's assessment of a sample of proceedings taking into account the individual progress of similar proceedings.
Valuation of Level 3 financial instrumentsSão Paulo, February 24, 2022
As described in Notes 1.c.2.1.ii, 2.e and 30 to the consolidated financial statements, if there is low liquidity, the Company uses valuation techniques based on internal models with the use of significant non-observable inputs for which the determination of fair value requires significant management judgment or estimation. At December 31, 2019, the Company has recorded as level 3 fair value measurements certain financial instruments including financial assets of BRL 4,322,668 thousand and financial liabilities of BRL 2,164,757 thousand. The Company determines the fair value of certain Level 3 financial instruments using quantitative models that utilize multiple significant non-observable inputs, including long-dated volatility, estimated future inflation and forward price, as applicable.
The principal considerations for our determination that performing procedures relating to these financial instruments is a critical audit matter due to a high degree of management judgment in the valuation process since the techniques carried out with internal models are based on subjective non-observable inputs. This in turn led to a high degree of auditor judgment and effort in performing procedures, including the involvement of professionals with specialized skill and knowledge to assist in evaluating certain audit evidence.
F-4
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included the understanding and testing the effectiveness of controls relating to valuation models, significant non-observable inputs, and data. Our procedures also included, the involvement of professionals with specialized skill and knowledge to calculate an independent estimate of fair value for a sample of certain financial instruments and compare management’s estimate with the independently developed estimate of fair value. Developing the independent estimate involved testing the completeness and accuracy of data provided by management and evaluating the reasonableness of management’s assumptions used to develop the significant non-observable inputs.
/s/PricewaterhouseCoopers Auditores Independentes Ltda.
São Paulo, Brazil
March 6, 2020
We have served as the Company’sCompany's auditor since 2016.
* Values expressed in thousands, except when indicated.
Consolidated Balance Sheet
Assets | Note | 2021 | 2020 | 2019 | ||||||||||||
Cash | 4 | 16,657,201 | 20,148,725 | 20,127,364 | ||||||||||||
Financial assets measured at fair value through profit or loss | 18,858,842 | 60,900,466 | 32,342,306 | |||||||||||||
Debt instruments | 6 | 3,122,017 | 3,545,660 | 3,735,076 | ||||||||||||
Balances with the Brazilian Central Bank | 15,736,825 | 57,354,806 | 28,607,230 | |||||||||||||
Financial assets measured at fair value through profit or loss held for trading | 70,570,665 | 95,843,126 | 55,396,069 | |||||||||||||
Debt instruments | 6 | 47,752,595 | 68,520,799 | 34,885,631 | ||||||||||||
Equity instruments | 7 | 2,020,610 | 1,818,276 | 2,029,470 | ||||||||||||
Trading derivatives | 8.a | 20,797,460 | 25,504,051 | 18,480,968 | ||||||||||||
Non-trading financial assets mandatorily measured at fair value through profit or loss | 870,162 | 499,720 | 171,453 | |||||||||||||
Equity instruments | 7 | 477,707 | 438,912 | 171,453 | ||||||||||||
Loans and advances to customers | 9 | 392,455 | 60,808 | — | ||||||||||||
Financial assets measured at fair value through other comprehensive income | 101,241,787 | 109,740,387 | 96,120,233 | |||||||||||||
Debt instruments | 6 | 101,212,600 | 109,668,214 | 95,962,927 | ||||||||||||
Equity instruments | 7 | 29,187 | 72,173 | 157,306 | ||||||||||||
Financial assets measured at amortized cost | 633,241,352 | 554,924,796 | 474,680,904 | |||||||||||||
Loans and amounts due from credit institutions | 5 | 95,664,754 | 112,849,776 | 109,233,128 | ||||||||||||
Loans and advances to customers | 9 | 464,451,587 | 393,707,229 | 326,699,480 | ||||||||||||
Debt instruments | 6 | 73,125,011 | 48,367,791 | 38,748,296 | ||||||||||||
Hedging derivatives | 8.a | 342,463 | 743,463 | 339,932 | ||||||||||||
Assets held for sale | 10 | 816,345 | 1,092,909 | 1,325,335 | ||||||||||||
Investments in associates and joint ventures | 11 | 1,232,646 | 1,094,985 | 1,070,762 | ||||||||||||
Tax assets | 41,757,332 | 41,063,782 | 33,599,178 | |||||||||||||
Current | 4,117,035 | 3,082,084 | 3,304,116 | |||||||||||||
Deferred | 23.d | 37,640,297 | 37,981,698 | 30,295,062 | ||||||||||||
Other assets | 15 | 6,049,028 | 7,222,411 | 5,061,337 | ||||||||||||
Property, plant and equipment | 12 | 8,783,785 | 9,537,111 | 9,781,957 | ||||||||||||
Intangible assets | 30,786,788 | 30,766,498 | 30,595,788 | |||||||||||||
Goodwill | 13 | 27,915,469 | 28,360,137 | 28,375,004 | ||||||||||||
Other intangible assets | 14 | 2,871,319 | 2,406,361 | 2,220,784 | ||||||||||||
Total assets | 931,208,396 | 933,578,379 | 760,612,618 | |||||||||||||
The accompanying notes are an integral part of these consolidated financial statements. |
F-5
| |
|
* Values expressed in thousands, except when indicated. |
Liabilities and stockholders' equity | Note | 2021 | 2020 | 2019 | ||||||||||||
Financial liabilities measured at fair value through profit or loss held for trading | 36,952,567 | 75,020,184 | 44,439,835 | |||||||||||||
Trading derivatives | 8.a | 24,172,008 | 29,212,238 | 20,604,182 | ||||||||||||
Short positions | 8.b | 12,780,559 | 45,807,946 | 23,835,653 | ||||||||||||
Financial Liabilities Measured at Fair Value Through Profit or Loss | 7,459,784 | 7,038,467 | 5,319,416 | |||||||||||||
Deposits from Brazilian Central Bank and deposits from credit institutions | 20 | 7,459,784 | 7,038,467 | 5,319,416 | ||||||||||||
Financial Liabilities at Amortized Cost | 750,093,694 | 707,288,791 | 575,230,401 | |||||||||||||
Deposits from Brazilian Central Bank and deposits from credit institutions | 16 | 121,005,909 | 131,656,962 | 99,271,415 | ||||||||||||
Customer deposits | 17 | 468,961,069 | 445,813,972 | 336,514,597 | ||||||||||||
Marketable debt securities | 18 | 79,036,792 | 56,875,514 | 73,702,474 | ||||||||||||
Debt instruments eligible to compose capital | 19 | 19,641,408 | 13,119,660 | 10,175,961 | ||||||||||||
Other financial liabilities | 20 | 61,448,516 | 59,822,683 | 55,565,954 | ||||||||||||
Hedging derivatives | 8.a | 446,973 | 144,594 | 200,961 | ||||||||||||
Provisions | 11,604,482 | 13,814,978 | 16,331,825 | |||||||||||||
Provisions for pensions funds and similar obligations | 21 | 2,728,126 | 3,929,265 | 4,960,620 | ||||||||||||
Provisions for judicial and administrative proceedings, commitments and other provisions | 22 | 8,876,356 | 9,885,713 | 11,371,205 | ||||||||||||
Tax liabilities | 8,175,023 | 10,130,248 | 10,960,075 | |||||||||||||
Current | 5,949,833 | 5,583,653 | 5,419,202 | |||||||||||||
Deferred | 23.d | 2,225,190 | 4,546,595 | 5,540,873 | ||||||||||||
Other liabilities | 24 | 10,501,378 | 14,051,245 | 10,920,944 | ||||||||||||
Total liabilities | 825,233,901 | 827,488,507 | 663,403,457 | |||||||||||||
Stockholders' equity | 27 | 109,046,574 | 106,205,067 | 96,736,290 | ||||||||||||
Share capital | 55,000,000 | 57,000,000 | 57,000,000 | |||||||||||||
Reserves | 48,880,561 | 40,414,981 | 34,877,493 | |||||||||||||
Treasury shares | (713,039 | ) | (791,358 | ) | (681,135 | ) | ||||||||||
Option for acquisition of equity instrument | — | — | (67,000 | ) | ||||||||||||
Profit for the year attributable to the parent | 15,528,052 | 13,418,529 | 16,406,932 | |||||||||||||
Less: dividends and remuneration | (9,649,000 | ) | (3,837,085 | ) | (10,800,000 | ) | ||||||||||
Other Comprehensive Income | (3,406,428 | ) | (428,080 | ) | (85,710 | ) | ||||||||||
Stockholders' Equity Attributable to the Parent | 105,640,146 | 105,776,987 | 96,650,580 | |||||||||||||
Non - controlling interests | 26 | 334,349 | 312,885 | 558,581 | ||||||||||||
Total stockholders' equity | 105,974,495 | 106,089,872 | 97,209,161 | |||||||||||||
Total liabilities and stockholders' equity | 931,208,396 | 933,578,379 | 760,612,618 |
The accompanying Notes are an integral part of these consolidated financial statements.
Assets | Note | 2019 | 2018 | 2017 |
Cash and Balances With The Brazilian Central Bank | 4 | 20,127,364 | 19,463,587 | 20,642,321 |
Financial Assets Held For Trading | - | - | 86,271,097 | |
Debt instruments | 6 | - | - | 34,879,681 |
Equity instruments | 7 | - | - | 489,770 |
Trading derivatives | 8.a | - | - | 17,070,125 |
Balances With The Brazilian Central Bank | - | - | 33,831,521 | |
Financial Assets Measured At Fair Value Through Profit Or Loss | 32,342,306 | 43,711,800 | - | |
Debt instruments | 6 | 3,735,076 | 3,171,746 | - |
Balances With The Brazilian Central Bank | 28,607,230 | 40,540,054 | - | |
Financial Assets Measured At Fair Value Through Profit Or Loss Held For Trading | 57,020,903 | 68,852,314 | - | |
Debt instruments | 6 | 34,885,631 | 50,066,469 | - |
Equity instruments | 7 | 2,029,470 | 766,333 | - |
Trading derivatives | 8.a | 20,105,802 | 18,019,512 | - |
Non-Trading Financial Assets Mandatorily Measured At Fair Value Through Profit Or Loss | 171,453 | 917,477 | - | |
Equity instruments | 7 | 171,453 | 298,297 | - |
Loans and advances to customers | 9 | - | 619,180 | - |
Other Financial Assets At Fair Value Through Profit Or Loss | - | - | 1,692,057 | |
Debt instruments | 6 | - | - | 1,658,689 |
Equity instruments | 7 | - | - | 33,368 |
Available-For-Sale Financial Assets | - | - | 85,823,384 | |
Debt instruments | 6 | - | - | 84,716,747 |
Equity instruments | 7 | - | - | 1,106,637 |
Financial Assets Measured At Fair Value Through Other Comprehensive Income | 96,120,233 | 85,436,677 | - | |
Debt instruments | 6 | 95,962,927 | 85,395,691 | - |
Equity instruments | 7 | 157,306 | 40,986 | - |
Held to maturity investments | 6 | - | - | 10,214,454 |
Loans and Receivables | - | - | 368,729,006 | |
Loans and amounts due from credit institutions | 5 | - | - | 78,692,334 |
Loans and advances to customers | 9 | - | - | 272,420,157 |
Debt instruments | 6 | - | - | 17,616,515 |
Financial Assets Measured At Amortized Cost | 474,680,904 | 429,731,475 | - | |
Loans and amounts due from credit institutions | 5 | 109,233,128 | 91,859,759 | - |
Loans and advances to customers | 9 | 326,699,480 | 301,072,207 | - |
Debt instruments | 6 | 38,748,296 | 36,799,509 | - |
Hedging Derivatives | 8.a | 339,932 | 343,934 | 192,763 |
Non-Current Assets Held For Sale | 10 | 1,325,335 | 1,380,231 | 1,155,456 |
Investments in Associates and Joint Ventures | 11 | 1,070,762 | 1,053,315 | 866,564 |
Tax Assets | 24 | 33,599,178 | 31,565,767 | 28,825,741 |
Current | 3,304,116 | 3,885,189 | 4,047,663 | |
Deferred | 30,295,062 | 27,680,578 | 24,778,078 | |
Other Assets | 15 | 5,061,337 | 4,800,467 | 4,578,270 |
Tangible Assets | 12 | 9,781,957 | 6,588,975 | 6,509,883 |
Intangible Assets | 30,595,788 | 30,018,988 | 30,202,043 | |
Goodwill | 13 | 28,375,004 | 28,378,288 | 28,364,256 |
Other intangible assets | 14 | 2,220,784 | 1,640,700 | 1,837,787 |
TOTAL ASSETS | 762,237,452 | 723,865,007 | 645,703,039 | |
The accompanying Notes are an integral part of these consolidated financial statements. |
Consolidated Financial Statements | December 31, 2021 | F-5 |
* Values expressed in thousands, except when indicated. |
Consolidated Statement of Income
F-6
Note | 2021 | 2020 | 2019 | |||||||||||||
Interest and similar income | 31 | 77,987,308 | 62,774,940 | 72,841,060 | ||||||||||||
Interest expense and similar charges | 32 | (26,668,842 | ) | (18,332,228 | ) | (28,519,953 | ) | |||||||||
Net interest income | 51,318,466 | 44,442,712 | 44,321,107 | |||||||||||||
Income from equity instruments | 33 | 90,040 | 33,754 | 18,933 | ||||||||||||
Income from companies accounted for by the equity method | 11 | 144,184 | 112,261 | 149,488 | ||||||||||||
Fee and commission income | 34 | 20,388,089 | 20,606,707 | 20,392,458 | ||||||||||||
Fee and commission expense | 35 | (5,114,788 | ) | (4,378,493 | ) | (4,679,306 | ) | |||||||||
Gains (losses) on financial assets and liabilities (net) | 36 | 221,782 | 12,998,060 | 2,462,545 | ||||||||||||
Financial assets at fair value through profit or loss | 1,555,837 | 711,949 | 252,253 | |||||||||||||
Financial assets measured at fair value through profit or loss held for trading | 3,519,626 | 12,122,794 | 2,391,080 | |||||||||||||
Non-trading financial assets mandatorily measured at fair value through profit or loss | 205,016 | 172,828 | 11,501 | |||||||||||||
Financial instruments not measured at fair value through profit or loss | (665,853 | ) | (239,054 | ) | (57,522 | ) | ||||||||||
Other | (4,392,844 | ) | 229,543 | (134,767 | ) | |||||||||||
Exchange differences (net) | 37 | (2,002,286 | ) | (24,700,962 | ) | (2,788,537 | ) | |||||||||
Other operating expense (net) | 38 | (1,119,380 | ) | (872,510 | ) | (1,107,719 | ) | |||||||||
Total income | 63,926,107 | 48,241,529 | 58,768,969 | |||||||||||||
Administrative expenses | (17,316,419 | ) | (17,114,960 | ) | (16,941,526 | ) | ||||||||||
Personnel expenses | 39 | (9,025,702 | ) | (8,871,482 | ) | (9,327,714 | ) | |||||||||
Other administrative expenses | 40 | (8,290,717 | ) | (8,243,478 | ) | (7,613,812 | ) | |||||||||
Depreciation and amortization | (2,433,921 | ) | (2,579,127 | ) | (2,391,857 | ) | ||||||||||
Tangible assets | 12 | (1,850,780 | ) | (2,039,805 | ) | (1,870,836 | ) | |||||||||
Intangible assets | 14 | (583,141 | ) | (539,322 | ) | (521,021 | ) | |||||||||
Provisions (net) | (2,179,417 | ) | (1,656,547 | ) | (3,681,586 | ) | ||||||||||
Impairment losses on financial assets (net) | (17,112,734 | ) | (17,450,188 | ) | (13,369,905 | ) | ||||||||||
Financial assets measured at amortized cost and contingent commitments | (17,112,734 | ) | (17,450,188 | ) | (13,369,905 | ) | ||||||||||
Impairment losses on other assets (net) | (165,799 | ) | (84,908 | ) | (131,435 | ) | ||||||||||
Other intangible assets | 14 | (30,160 | ) | (66,269 | ) | (103,924 | ) | |||||||||
Other assets | (135,639 | ) | (18,639 | ) | (27,511 | ) | ||||||||||
Gains (losses) on disposal of assets not classified as assets held for sale | 41 | (15,113 | ) | 230,713 | 10,646 | |||||||||||
Gains (losses) on assets held for sale not classified as discontinued operations | 42 | 47,625 | 77,463 | 9,843 | ||||||||||||
Operating income before tax | 24,750,329 | 9,663,975 | 22,273,149 | |||||||||||||
Income taxes | 23 | (9,191,005 | ) | 3,786,778 | (5,641,699 | ) | ||||||||||
Consolidated net income for the period | 15,559,324 | 13,450,753 | 16,631,450 | |||||||||||||
Profit attributable to the parent | 15,528,052 | 13,418,529 | 16,406,932 | |||||||||||||
Profit attributable to non-controlling interests | 26 | 31,272 | 32,224 | 224,518 |
TableThe accompanying Notes are an integral part of Contentsthese consolidated financial statements.
| |
|
Liabilities and Stockholders' Equity | Note | 2019 | 2018 | 2017 |
Financial Liabilities Held For Trading | - | - | 49,322,546 | |
Trading derivatives | 8.a | - | - | 16,514,154 |
Short positions | 8.b | - | - | 32,808,392 |
Financial Liabilities Measured At Fair Value Through Profit Or Loss Held For Trading | 46,064,669 | 50,938,992 | - | |
Trading derivatives | 8.a | 22,229,016 | 18,243,315.00 | - |
Short positions | 8.b | 23,835,653 | 32,695,677.00 | - |
Financial Liabilities Measured At Fair Value Through Profit Or Loss | 5,319,416 | 1,946,056 | - | |
Deposits from Brazilian Central Bank and deposits from credit institutions | 21 | 5,319,416 | 1,946,056.00 | - |
Financial Liabilities at Amortized Cost | 575,230,401 | 547,295,169 | 478,880,704 | |
Deposits from Brazilian Central Bank and deposits from credit institutions | 16 | 99,271,415 | 99,022,806 | 79,374,685 |
Customer deposits | 17 | 336,514,597 | 304,197,800 | 276,042,141 |
Marketable debt securities | 18 | 73,702,474 | 74,626,232 | 70,247,012 |
Subordinated debts | 19 | - | 9,885,607 | 519,230 |
Debt Instruments Eligible to Compose Capital | 20 | 10,175,961 | 9,779,944 | 8,436,901 |
Other financial liabilities | 21 | 55,565,954 | 49,782,780 | 44,260,735 |
Hedging Derivatives | 8.a | 200,961 | 223,520 | 163,332 |
Provisions | 16,331,825 | 14,695,898 | 13,986,916 | |
Provisions for pensions funds and similar obligations | 22 | 4,960,620 | 3,357,654 | 3,923,457 |
Provisions for judicial and administrative proceedings, commitments and other provisions | 23 | 11,371,205 | 11,338,244 | 10,063,459 |
Tax Liabilities | 24 | 10,960,075 | 8,074,764 | 8,248,019 |
Current | 5,419,202 | 5,043,375 | 5,751,488 | |
Deferred | 5,540,873 | 3,031,389 | 2,496,531 | |
Other Liabilities | 25 | 10,920,944 | 9,095,148 | 8,013,921 |
Total Liabilities | 665,028,291 | 632,269,547 | 558,615,438 | |
Stockholders' Equity | 28 | 96,736,290 | 91,944,333 | 87,425,075 |
Share capital | 57,000,000 | 57,000,000 | 57,000,000 | |
Reserves | 34,877,493 | 30,440,288 | 28,966,451 | |
Treasury shares | - 681,135 | (461,432) | (148,440) | |
Option for Acquisition of Equity Instrument | - 67,000 | (1,017,000) | (1,017,000) | |
Profit for the year attributable to the Parent | 16,406,932 | 12,582,477 | 8,924,064 | |
Less: dividends and remuneration | - 10,800,000 | (6,600,000) | (6,300,000) | |
Other Comprehensive Income | - 85,710 | (878,863) | (774,368) | |
Stockholders' Equity Attributable to the Parent | 96,650,580 | 91,065,470 | 86,650,707 | |
Non - Controlling Interests | 27 | 558,581 | 529,990 | 436,894 |
Total Stockholders' Equity | 97,209,161 | 91,595,460 | 87,087,601 | |
Total Liabilities and Stockholders' Equity | 762,237,452 | 723,865,007 | 645,703,039 |
The accompanying Notes are an integral part of these consolidated financial statements.
Consolidated Financial Statements | December 31, 2021 | F-6 |
* Values expressed in thousands, except when indicated. |
Consolidated Statement of Comprehensive Income
2021 | 2020 | 2019 | ||||||||||
Consolidated Profit for the Year | 15,559,324 | 13,450,753 | 16,631,450 | |||||||||
Other comprehensive income that will be reclassified subsequently to profit or loss when specific conditions are met: | (3,245,041 | ) | (897,996 | ) | 1,468,651 | |||||||
Financial assets measured at fair value through other comprehensive income | (2,389,705 | ) | (1,003,155 | ) | 1,352,702 | |||||||
Financial assets measured at fair value through other comprehensive income | (4,255,996 | ) | (1,976,013 | ) | 2,926,285 | |||||||
Income taxes | 1,866,291 | 972,858 | (1,573,583 | ) | ||||||||
Cash flow hedges | (855,335 | ) | 105,159 | 115,949 | ||||||||
Valuation adjustments | (1,628,393 | ) | 168,015 | 270,119 | ||||||||
Amounts transferred to income statement | — | — | 6,767 | |||||||||
Income taxes | 773,058 | (62,856 | ) | (160,937 | ) | |||||||
Other comprehensive income that will not be reclassified to net income: | 266,692 | 555,624 | (675,497 | ) | ||||||||
Defined benefits plan | 266,692 | 555,624 | (675,497 | ) | ||||||||
Defined benefits plan | 592,967 | 1,110,034 | (1,358,578 | ) | ||||||||
Income taxes | (326,275 | ) | (554,410 | ) | 683,081 | |||||||
Total comprehensive income | 12,580,976 | 13,108,381 | 17,424,604 | |||||||||
Attributable to the parent | 12,549,704 | 13,076,157 | 17,200,086 | |||||||||
Attributable to non-controlling interests | 31,272 | 32,224 | 224,518 | |||||||||
Total comprehensive income | 12,580,976 | 13,108,381 | 17,424,604 | |||||||||
The accompanying Notes are an integral part of these consolidated financial statements. |
F-7
| |
|
* Values expressed in thousands, except when indicated. |
Consolidated Statement of Changes in Stockholders’ Equity
Stockholders´ Equity Attributable to the Parent | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Note | Share Capital | Reserves | Treasury shares | Option for acquisition of equity instrument | Profit attributed to the parent | Dividends and remuneration | Total stockholders´ equity | Financial assets measured at fair value through other comprehensive income | Defined benefits plan | Adjustments investment abroad | Gains and losses - cash flow hedge and investment | Total | Non-controlling interests | Total stockholders' | ||||||||||||||||||||||||||||||||||||||||||||||
Balance on december 31, 2018 | 57,000,000 | 30,440,288 | (461,432 | ) | (1,017,000 | ) | 12,582,477 | (6,600,000 | ) | 91,944,333 | 1,992,581 | (3,071,040 | ) | 859,370 | (659,774 | ) | 91,065,470 | 529,990 | 91,595,460 | |||||||||||||||||||||||||||||||||||||||||
Total comprehensive income | — | — | — | — | 16,406,932 | — | 16,406,932 | 1,352,702 | (675,497 | ) | — | 115,949 | 17,200,086 | 224,518 | 17,424,604 | |||||||||||||||||||||||||||||||||||||||||||||
Net profit | — | — | — | — | 16,406,932 | — | 16,406,932 | — | — | — | — | 16,406,932 | 224,518 | 16,631,450 | ||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income | — | — | — | — | — | — | — | 1,352,702 | (675,497 | ) | — | 115,949 | 793,154 | — | 793,154 | |||||||||||||||||||||||||||||||||||||||||||||
Financial assets measured at fair value through other comprehensive income | — | — | — | — | — | — | — | 1,352,702 | — | — | — | 1,352,702 | — | 1,352,702 | ||||||||||||||||||||||||||||||||||||||||||||||
Employee benefit plan | — | — | — | — | — | — | — | — | (675,497 | ) | — | — | (675,497 | ) | — | (675,497 | ) | |||||||||||||||||||||||||||||||||||||||||||
Gain and loss - cash flow and investment hedge | — | — | — | — | — | — | — | — | — | — | 115,949 | 115,949 | — | 115,949 | ||||||||||||||||||||||||||||||||||||||||||||||
Appropriation of net income from prior years | — | 12,582,477 | — | — | (12,582,477 | ) | — | — | — | — | — | — | — | — | - | |||||||||||||||||||||||||||||||||||||||||||||
Option to acquire own instrument | (1,598,336 | ) | — | 950,000 | — | — | (648,336 | ) | — | — | — | — | (648,336 | ) | — | (648,336 | ) | |||||||||||||||||||||||||||||||||||||||||||
Dividends and interest on capital | 27. | b | — | (6,600,000 | ) | — | — | — | (4,200,000 | ) | (10,800,000 | ) | — | — | — | — | (10,800,000 | ) | — | (10,800,000 | ) | |||||||||||||||||||||||||||||||||||||||
Share based compensation | 39. | b | — | 50,886 | — | — | — | — | 50,886 | — | — | — | — | 50,886 | — | 50,886 | ||||||||||||||||||||||||||||||||||||||||||||
Treasury shares | 27. | d | — | — | (219,703 | ) | — | — | — | (219,703 | ) | — | — | — | — | (219,703 | ) | — | (219,703 | ) | ||||||||||||||||||||||||||||||||||||||||
Treasury shares income | 27. | d | — | 5,796 | — | — | — | — | 5,796 | — | — | — | — | 5,796 | — | 5,796 | ||||||||||||||||||||||||||||||||||||||||||||
Other | — | (3,618 | ) | — | — | — | — | (3,618 | ) | — | — | — | — | (3,618 | ) | (195,927 | ) | (199,545 | ) | |||||||||||||||||||||||||||||||||||||||||
Balance on december 31, 2019 | 57,000,000 | 34,877,493 | (681,135 | ) | (67,000 | ) | 16,406,932 | (10,800,000 | ) | 96,736,290 | 3,345,283 | (3,746,537 | ) | 859,370 | (543,825 | ) | 96,650,580 | 558,581 | 97,209,161 |
Note | 2019 | 2018 | 2017 | |
Interest and similar income | 32 | 72,841,060 | 70,478,393 | 71,418,349 |
Interest expense and similar charges | 33 | (28,519,953) | (28,557,051) | (36,471,860) |
Net interest income | 44,321,107 | 41,921,342 | 34,946,489 | |
Income from equity instruments | 34 | 18,933 | 32,623 | 83,120 |
Income from companies accounted for by the equity method | 11 | 149,488 | 65,958 | 71,551 |
Fee and commission income | 35 | 20,392,458 | 17,728,452 | 15,815,543 |
Fee and commission expense | 36 | (4,679,306) | (3,596,293) | (3,093,675) |
Gains (losses) on financial assets and liabilities (net) | 37 | 2,462,545 | (2,782,802) | 969,090 |
Financial assets held for trading | - | - | 1,174,111 | |
Financial Assets At Fair Value Through Profit Or Loss | 252,253 | (138,673) | - | |
Financial Assets Measured At Fair Value Through Profit Or Loss Held For Trading | 2,391,080 | (2,764,859) | - | |
Non-Trading Financial Assets Mandatorily Measured At Fair Value Through Profit Or Loss | 11,501 | 61,239 | - | |
Other financial instruments at fair value through profit or loss | - | - | 30,694 | |
Financial instruments not measured at fair value through profit or loss | (57,522) | (138,104) | (122,115) | |
Other | (134,767) | 197,595 | (113,600) | |
Exchange differences (net) | 38 | (2,788,537) | (2,806,471) | 605,056 |
Other operating expense (net) | 39 | (1,107,719) | (1,055,850) | (672,013) |
Total Income | 58,768,969 | 49,506,959 | 48,725,161 | |
Administrative expenses | (16,941,526) | (16,792,138) | (16,120,595) | |
Personnel expenses | 40 | (9,327,714) | (9,206,007) | (8,937,278) |
Other administrative expenses | 41 | (7,613,812) | (7,586,131) | (7,183,317) |
Depreciation and amortization | (2,391,857) | (1,739,959) | (1,662,247) | |
Tangible assets | 12 | (1,870,836) | (1,216,704) | (1,190,967) |
Intangible assets | 14 | (521,021) | (523,255) | (471,280) |
Provisions (net) | (3,681,586) | (1,999,604) | (3,309,239) | |
Impairment losses on financial assets (net) | (13,369,905) | (12,713,435) | (12,338,300) | |
Loans and receivables | 9.c | - | - | (12,338,141) |
Financial Assets Measured At Amortized Cost and contingent commitments | (13,369,905) | (12,713,532) | - | |
Gains (losses) due to derecognition of financial assets measured at amortized cost | - | 97 | (159) | |
Impairment losses on other assets (net) | (131,435) | (508,310) | (456,711) | |
Other intangible assets | 14 | (103,924) | (300,865) | (306,110) |
Other assets | 14 | (27,511) | (207,445) | (150,601) |
Gains (losses) on disposal of assets not classified as non-current assets held for sale | 42 | 10,646 | (25,476) | (64,302) |
Gains (losses) on non-current assets held for sale not classified as discontinued operations | 43 | 9,843 | 181,734 | (260,083) |
Operating Income Before Tax | 22,273,149 | 15,909,771 | 14,513,684 | |
Income taxes | 24 | (5,641,699) | (3,109,853) | (5,375,636) |
Consolidated Net income for the period | 16,631,450 | 12,799,918 | 9,138,048 | |
Profit attributable to the Parent | 16,406,932 | 12,582,477 | 8,924,064 | |
Profit attributable to non-controlling interests | 27 | 224,518 | 217,441 | 213,984 |
Earnings Per Share (Brazilian Reais) | 29 | |||
Basic earnings per 1,000 shares | ||||
Common shares | 2,094.83 | 1,604.34 | 1,133.43 | |
Preferred shares | 2,304.32 | 1,764.78 | 1,246.77 | |
Diluted earnings per 1,000 shares | ||||
Common shares | 2,094.83 | 1,604.34 | 1,132.44 | |
Preferred shares | 2,304.32 | 1,764.78 | 1,245.69 | |
Net Profit attributable - Basic | ||||
Common shares | 7,965,194 | 6,108,349 | 4,332,026 | |
Preferred shares | 8,441,738 | 6,474,128 | 4,592,038 | |
Net Profit attributable - Diluted | ||||
Common shares | 7,965,194 | 6,108,349 | 4,331,955 | |
Preferred shares | 8,441,738 | 6,474,128 | 4,592,109 | |
Weighted average shares outstanding (in thousands) - Basic | ||||
Common shares | 3,802,303 | 3,807,386 | 3,822,057 | |
Preferred shares | 3,663,444 | 3,668,527 | 3,683,145 | |
Weighted average shares outstanding (in thousands) - Diluted | ||||
Common shares | 3,802,303 | 3,807,386 | 3,825,313 | |
Preferred shares | 3,663,444 | 3,668,527 | 3,686,401 |
Consolidated Financial Statements | December 31, 2021 | F-8 |
* Values expressed in thousands, except when indicated. |
Stockholders´ Equity Attributable to the Parent | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Note | Share Capital | Reserves | Treasury Shares | Option for Acquisition of Equity Instrument | Profit Attributed to the Parent | Dividends and Remuneration | Total Stockholders´ Equity | Financial Assets Measured at Fair Value Through Other Comprehensive Income | Defined Benefits plan | Adjustments investment abroad | Gains and losses - Cash flow hedge and Investment | Total | Non-controlling Interests | Total Stockholders' Equity | ||||||||||||||||||||||||||||||||||||||||||||||
Balance on December 31, 2019 | 57,000,000 | 34,877,493 | (681,135 | ) | (67,000 | ) | 16,406,932 | (10,800,000 | ) | 96,736,290 | 3,345,283 | (3,746,537 | ) | 859,370 | (543,825 | ) | 96,650,580 | 558,581 | 97,209,161 | |||||||||||||||||||||||||||||||||||||||||
Total comprehensive income | — | — | — | — | 13,418,529 | — | 13,418,529 | (1,003,154 | ) | 555,624 | — | 105,159 | 13,076,158 | 32,224 | 13,108,382 | |||||||||||||||||||||||||||||||||||||||||||||
Net profit | — | — | — | — | 13,418,529 | — | 13,418,529 | — | — | — | — | 13,418,529 | 32,224 | 13,450,753 | ||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income | — | — | — | — | — | — | — | (1,003,154 | ) | 555,624 | — | 105,159 | (342,371 | ) | — | (342,371 | ) | |||||||||||||||||||||||||||||||||||||||||||
Financial Assets Measured at Fair Value Through Other Comprehensive Income | — | — | — | — | — | — | — | (1,003,154 | ) | — | — | — | (1,003,154 | ) | — | (1,003,154 | ) | |||||||||||||||||||||||||||||||||||||||||||
Employee benefit plan | — | — | — | — | — | — | — | — | 555,624 | — | — | 555,624 | — | 555,624 | ||||||||||||||||||||||||||||||||||||||||||||||
Gain and loss - Cash flow and investment hedge | — | — | — | — | — | — | — | — | — | — | 105,159 | 105,159 | — | 105,159 | ||||||||||||||||||||||||||||||||||||||||||||||
Appropriation of net income from prior years | — | 16,406,932 | — | — | (16,406,932 | ) | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
Option to Acquire Own Instrument | — | (67,000 | ) | — | 67,000 | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
Dividends and interest on capital from prior years | 27.b | — | (10,800,000 | ) | — | — | — | 10,800,000 | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
Dividends and interest on capital | 27.b | — | — | — | — | — | (3,837,085 | ) | (3,837,085 | ) | — | — | — | — | (3,837,085 | ) | — | (3,837,085 | ) | |||||||||||||||||||||||||||||||||||||||||
Treasury shares | 27.d | — | — | (110,223 | ) | — | — | — | (110,223 | ) | — | — | — | — | (110,223 | ) | — | (110,223 | ) | |||||||||||||||||||||||||||||||||||||||||
Other | — | (2,443 | ) | — | — | — | — | (2,443 | ) | — | — | — | — | (2,443 | ) | (277,920 | ) | (280,363 | ) | |||||||||||||||||||||||||||||||||||||||||
Balance on December 31, 2020 | 57,000,000 | 40,414,981 | (791,358 | ) | — | 13,418,529 | (3,837,085 | ) | 106,205,067 | 2,342,129 | (3,190,913 | ) | 859,370 | (438,666 | ) | 105,776,987 | 312,885 | 106,089,872 |
Consolidated Financial Statements | December 31, 2021 | F-9 |
* Values expressed in thousands, except when indicated. |
Stockholders´ Equity Attributable to the Parent | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Note | Share Capital | Reserves | Treasury Shares | Option for Acquisition of Equity Instrument | Profit Attributed to the Parent | Dividends and Remuneration | Total Stockholders´ Equity | Financial Assets Measured at Fair Value Through Other Comprehensive Income | Defined Benefits plan | Adjustments investment abroad | Gains and losses - Cash flow hedge and Investment | Total | Non-controlling Interests | Total Stockholders' Equity | ||||||||||||||||||||||||||||||||||||||||||||||
Balance on December 31, 2020 | 57,000,000 | 40,414,981 | (791,358 | ) | — | 13,418,529 | (3,837,085 | ) | 106,205,067 | 2,342,129 | (3,190,913 | ) | 859,370 | (438,666 | ) | 105,776,987 | 312,885 | 106,089,872 | ||||||||||||||||||||||||||||||||||||||||||
Total comprehensive income | — | — | — | — | 15,528,052 | — | 15,528,052 | (2,389,705 | ) | 266,692 | — | (855,335 | ) | 12,549,704 | 31,272 | 12,580,976 | ||||||||||||||||||||||||||||||||||||||||||||
Net profit | — | — | — | — | 15,528,052 | — | 15,528,052 | — | — | — | — | 15,528,052 | 31,272 | 15,559,324 | ||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income | — | — | — | — | — | — | — | (2,389,705 | ) | 266,692 | — | (855,335 | ) | (2,978,348 | ) | — | (2,978,348 | ) | ||||||||||||||||||||||||||||||||||||||||||
Financial Assets Measured at Fair Value Through Other Comprehensive Income | — | — | — | — | — | — | — | (2,389,705 | ) | — | — | — | (2,389,705 | ) | — | (2,389,705 | ) | |||||||||||||||||||||||||||||||||||||||||||
Employee benefit plan | — | — | — | — | — | — | — | — | 266,692 | — | — | 266,692 | — | 266,692 | ||||||||||||||||||||||||||||||||||||||||||||||
Gain and loss - Cash flow and investment hedge | — | — | — | — | — | — | — | — | — | — | (855,335 | ) | (855,335 | ) | — | (855,335 | ) | |||||||||||||||||||||||||||||||||||||||||||
Appropriation of net income from prior years | — | 13,418,529 | — | — | (13,418,529 | ) | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
Spin-Off | 27.a & 27.c | (2,000,000 | ) | (1,167,674 | ) | — | — | — | — | (3,167,674 | ) | — | — | — | — | (3,167,674 | ) | — | (3,167,674 | ) | ||||||||||||||||||||||||||||||||||||||||
Dividends and interest on capital from prior years | 27.b | — | (3,837,085 | ) | — | — | — | 3,837,085 | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
Dividends and interest on capital | 27.b | — | — | — | — | — | (9,649,000 | ) | (9,649,000 | ) | — | — | — | — | (9,649,000 | ) | — | (9,649,000 | ) | |||||||||||||||||||||||||||||||||||||||||
Treasury shares | 27.d | — | — | 78,319 | — | — | — | 78,319 | — | — | — | — | 78,319 | — | 78,319 | |||||||||||||||||||||||||||||||||||||||||||||
Other | — | 51,810 | — | — | — | — | 51,810 | — | — | — | — | 51,810 | (9,808 | ) | 42,001 | |||||||||||||||||||||||||||||||||||||||||||||
Balance on December 31, 2021 | 55,000,000 | 48,880,561 | (713,039 | ) | — | 15,528,052 | (9,649,000 | ) | 109,046,574 | (47,576 | ) | (2,924,221 | ) | 859,370 | (1,294,001 | ) | 105,640,146 | 334,349 | 105,974,495 |
The accompanying Notes are an integral part of these consolidated financial statements.
F-8
| |
|
2019 | 2018 | 2017 | ||
Consolidated Profit for the Year | 16,631,450 | 12,799,918 | 9,138,048 | |
Other Comprehensive Income that will be reclassified subsequently to profit or loss when specific conditions are met: | 1,468,651 | 558,967 | 1,194,335 | |
Available-for-sale financial assets | - | - | 1,147,384 | |
Valuation adjustments - Gains (Losses) | - | - | 1,789,286 | |
Amounts transferred to income statement | - | - | 30,694 | |
Income taxes | - | - | (672,596) | |
Financial Assets Measured At Fair Value Through Other Comprehensive Income | 1,352,702 | 475,809 | - | |
Financial Assets Measured At Fair Value Through Other Comprehensive Income | 2,926,285 | 388,481 | - | |
Gains (Losses) on financial assets previously classified as available-for-sale and reclassified to the income statement (net) | - | 7,982 | - | |
Gains (Losses) on financial assets previously classified as available-for-sale and reclassified to reserves (net) | - | 296,802 | - | |
Income taxes | (1,573,583) | (217,456) | - | |
Cash flow hedges | 115,949 | 83,158 | 46,951 | |
Valuation adjustments | 270,119 | 140,811 | 73,238 | |
Amounts transferred to income statement | 6,767 | (6,767) | - | |
Income taxes | (160,937) | (50,886) | (26,287) | |
Other Comprehensive Income that will not be Reclassified to net Income: | (675,497) | (366,660) | (620,903) | |
Defined benefits plan | (675,497) | (366,660) | (620,903) | |
Defined benefits plan | (1,358,578) | (418,768) | (992,156) | |
Income taxes | 683,081 | 52,108 | 371,253 | |
Total Comprehensive Income | 17,424,604 | 12,992,225 | 9,711,480 | |
Attributable to the parent | 17,200,086 | 12,774,784 | 9,497,496 | |
Attributable to non-controlling interests | 224,518 | 217,441 | 213,984 | |
Total Comprehensive Income | 17,424,604 | 12,992,225 | 9,711,480 |
* Values expressed in thousands, except when indicated. |
The accompanying Notes are an integral partConsolidated Statement of these consolidated financial statements. Cash Flows
Note | 2021 | 2020 | 2019 | |||||||||||||
1. Cash Flows From Operating Activities | ||||||||||||||||
Consolidated profit for the year | 15,559,324 | 13,450,753 | 16,631,450 | |||||||||||||
Adjustments to profit | (13,898,808 | ) | (31,268,076 | ) | 14,654,879 | |||||||||||
Depreciation of tangible assets | 12.a | 1,850,780 | 2,039,805 | 1,870,836 | ||||||||||||
Amortization of intangible assets | 14 | 583,141 | 539,322 | 521,021 | ||||||||||||
Impairment losses on other assets (net) | 165,799 | 84,908 | 131,435 | |||||||||||||
Provisions and impairment losses on financial assets (net) | 19,292,151 | 19,106,735 | 17,051,491 | |||||||||||||
Net gains (losses) on disposal of tangible assets, investments and non-current assets held for sale | 41&42 | (32,512 | ) | (308,176 | ) | (20,489 | ) | |||||||||
Income from companies accounted by the equity method | 11.a | (144,184 | ) | (112,261 | ) | (149,488 | ) | |||||||||
Changes in deferred tax assets and liabilities | 23.d | 2,265,227 | (8,232,869 | ) | (2,912,279 | ) | ||||||||||
Monetary adjustment of escrow deposits | (433,629 | ) | (219,447 | ) | (574,399 | ) | ||||||||||
Recoverable taxes | (217,820 | ) | (120,220 | ) | (182,469 | ) | ||||||||||
Effects of changes in foreign exchange rates on cash and cash equivalents | — | — | 99 | |||||||||||||
Effects of changes in foreign exchange rates on assets and liabilities | (35,669,654 | ) | (44,250,466 | ) | (2,609,679 | ) | ||||||||||
Other | (1,558,107 | ) | 204,593 | 1,528,800 | ||||||||||||
Net (increase) decrease in operating assets | 22,502,791 | (139,525,961 | ) | (42,332,510 | ) | |||||||||||
Financial assets measured at fair value through profit or loss | 42,041,624 | (26,198,034 | ) | 11,080,730 | ||||||||||||
Financial assets measured at fair value through profit or loss held for trading | 50,833,925 | (43,070,163 | ) | 11,831,411 | ||||||||||||
Non-trading financial assets mandatorily measured at fair value through profit or loss | (370,442 | ) | (328,267 | ) | 746,024 | |||||||||||
Financial assets measured at fair value through other comprehensive income | 4,094,548 | (14,905,798 | ) | (8,835,552 | ) | |||||||||||
Financial assets measured at amortized cost | (86,179,125 | ) | (80,800,357 | ) | (60,461,392 | ) | ||||||||||
Other assets | 12,082,261 | 25,776,658 | 3,306,269 | |||||||||||||
Net increase (decrease) in operating liabilities | (12,821,626 | ) | 200,930,390 | 41,219,165 | ||||||||||||
Financial liabilities measured at fair value through profit or loss held for trading | (38,067,617 | ) | 33,203,455 | (4,874,323 | ) | |||||||||||
Financial liabilities measured at fair value through profit or loss | 421,317 | 1,516,522 | 3,373,359 | |||||||||||||
Financial liabilities at amortized cost | 30,512,246 | 165,920,919 | 40,961,046 | |||||||||||||
Other liabilities | (5,687,572 | ) | 289,494 | 1,759,083 | ||||||||||||
Tax paid | 23.a | (4,534,538 | ) | (1,269,150 | ) | (5,301,184 | ) | |||||||||
Total net cash flows from operating activities (1) | 6,807,143 | 42,317,956 | 24,871,800 | |||||||||||||
2. Cash Flows From Investing Activities | ||||||||||||||||
Investments | (2,679,473 | ) | (2,019,278 | ) | (3,500,499 | ) | ||||||||||
Acquisition of subsidiary, less net cash in the acquisition | (13,746 | ) | (13,570 | ) | (746 | ) | ||||||||||
Tangible assets | 12.a | (1,162,774 | ) | (1,235,923 | ) | (1,924,783 | ) | |||||||||
Intangible assets | (1,202,416 | ) | (769,785 | ) | (1,519,725 | ) | ||||||||||
Corporate Restructuring | (300,537 | ) | — | (55,245 | ) | |||||||||||
Disposal | 752,781 | 856,181 | 987,164 | |||||||||||||
Tangible assets | 12.a | 37,576 | 47,096 | 29,911 | ||||||||||||
Non - current assets held for sale | 563,205 | 663,067 | 808,980 | |||||||||||||
Dividends and interest on capital received | 152,000 | 146,018 | 148,273 | |||||||||||||
Total net cash flows from investing activities (2) | (1,926,692 | ) | (1,163,097 | ) | (2,513,335 | ) | ||||||||||
3. Cash Flows From Financing Activities | ||||||||||||||||
Acquisition of own shares | 27.d | 78,319 | (110,223 | ) | (219,703 | ) | ||||||||||
Issuance of Instruments Eligible to Compose Capital | 19 | 5,500,000 | — | — | ||||||||||||
Issuance of other long-term financial liabilities | 18 | 101,784,961 | 60,047,656 | 53,017,039 | ||||||||||||
Dividends and interest on capital paid | (9,907,319 | ) | (10,280,430 | ) | (6,953,718 | ) | ||||||||||
Payments of other long-term financial liabilities | 18 | (97,220,580 | ) | (82,900,914 | ) | (61,914,716 | ) | |||||||||
Payments of subordinated liabilities | 19 | — | — | (9,885,607 | ) | |||||||||||
Payments of interest of Debt Instruments Eligible to Compose Capital | 19 | (911,306 | ) | (914,645 | ) | (328,892 | ) | |||||||||
Net increase in non-controlling interests | 17,415 | 6,842 | (14,266 | ) | ||||||||||||
Capital Increase in Subsidiaries, by Non-Controlling Interests | — | — | 100,000 | |||||||||||||
Total net cash flows from financing activities (3) | (658,510 | ) | (34,151,714 | ) | (26,199,863 | ) | ||||||||||
Exchange variation on Cash and Cash Equivalents (4) | — | — | (99 | ) | ||||||||||||
Net Increase in Cash (1+2+3+4) | 4,221,941 | 7,003,145 | (3,841,497 | ) | ||||||||||||
Cash and cash equivalents at beginning of year | 28,446,808 | 21,443,663 | 25,285,160 | |||||||||||||
Cash and cash equivalents at end of year | 32,668,749 | 28,446,808 | 21,443,663 | |||||||||||||
The accompanying Notes are an integral part of these consolidated financial statements. |
F-9
| |
|
Stockholders´ Equity Attributable to the Parent | Non-controlling Interests | Total Stockholders' Equity | ||||||||||||||
Note | Share Capital | Reserves | Treasury Shares | Option for Acquisition of Equity Instrument | Profit Attributed to the Parent | Dividends and Remuneration | Total Stockholders´ Equity | Financial Assets available for sale | Financial Assets Measured At Fair Value Through Other Comprehensive Income | Defined Benefits plan | Translation adjustments investment abroad | Gains and losses - Cash flow hedge and Investment | Total | |||
Balance at December 31, 2016 | 57,000,000 | 27,881,326 | (514,034) | (1,017,000) | 7,334,563 | (5,250,000) | 85,434,855 | 666,190 | - | (2,083,477) | 859,370 | (789,883) | 84,087,055 | 725,504 | 84,812,559 | |
Total comprehensive income | - | - | - | - | 8,924,064 | - | 8,924,064 | 1,147,384 | - | (620,903) | - | 46,951 | 9,497,496 | 213,984 | 9,711,480 | |
Net profit | - | - | - | - | 8,924,064 | - | 8,924,064 | - | - | - | - | - | 8,924,064 | 213,984 | 9,138,048 | |
Other comprehensive income | - | - | - | - | - | - | - | 1,147,384 | - | (620,903) | - | 46,951 | 573,432 | - | 573,432 | |
Financial Assets Measured At Fair Value Through Other Comprehensive Income | - | - | - | - | - | - | - | 1,147,384 | - | - | - | - | 1,147,384 | - | 1,147,384 | |
Pension plans | - | - | - | - | - | - | - | - | - | (620,903) | - | - | (620,903) | - | (620,903) | |
Gain and loss - Cash flow and investment hedge | - | - | - | - | - | - | - | - | - | - | - | 46,951 | 46,951 | - | 46,951 | |
Appropriation of net income from prior years | - | 7,334,563 | - | - | (7,334,563) | - | - | - | - | - | - | - | - | - | - | |
Dividends and interest on capital | 28.b | - | (5,250,000) | - | - | - | (1,050,000) | (6,300,000) | - | - | - | - | - | (6,300,000) | - | (6,300,000) |
Share based compensation | 40.b | - | 37,161 | - | - | - | - | 37,161 | - | - | - | - | - | 37,161 | - | 37,161 |
Treasury shares | 28.d | - | (744,419) | 365,643 | - | - | - | (378,776) | - | - | - | - | - | (378,776) | - | (378,776) |
Capital restructuring | - | - | (49) | - | - | - | (49) | - | - | - | - | - | (49) | - | (49) | |
Treasury shares income | 28.d | - | (2,498) | - | - | - | - | (2,498) | - | - | - | - | - | (2,498) | - | (2,498) |
Other | 0 | - | (289,682) | - | - | - | - | (289,682) | - | - | - | - | - | (289,682) | (502,594) | (792,276) |
Balance at December 31, 2017 | 57,000,000 | 28,966,451 | (148,440) | (1,017,000) | 8,924,064 | (6,300,000) | 87,425,075 | 1,813,574 | - | (2,704,380) | 859,370 | (742,932) | 86,650,707 | 436,894 | 87,087,601 | |
Change in the initial adoption of IFRS 9 | - | (1,245,023) | - | - | - | - | (1,245,023) | (1,813,574) | 1,516,772 | - | - | - | (1,541,825) | - | (1,541,825) | |
Balances on January 1, 2018 | 57,000,000 | 27,721,428 | (148,440) | (1,017,000) | 8,924,064 | (6,300,000) | 86,180,052 | - | 1,516,772 | (2,704,380) | 859,370 | (742,932) | 85,108,882 | 436,894 | 85,545,776 | |
Total comprehensive income | - | - | - | - | 12,582,477 | - | 12,582,477 | - | 475,809 | (366,660) | - | 83,158 | 12,774,784 | 217,441 | 12,992,225 | |
Net profit | - | - | - | - | 12,582,477 | - | 12,582,477 | - | - | - | - | - | 12,582,477 | 217,441 | 12,799,918 | |
Other comprehensive income | - | - | - | - | - | - | - | - | 475,809 | (366,660) | - | 83,158 | 192,307 | - | 192,307 | |
Financial Assets Measured At Fair Value Through Other Comprehensive Income | - | - | - | - | - | - | - | - | 475,809 | - | - | - | 475,809 | - | 475,809 | |
Pension plans | - | - | - | - | - | - | - | - | - | (366,660) | - | - | (366,660) | - | (366,660) | |
Gain and loss - Cash flow and investment hedge | - | - | - | - | - | - | - | - | - | - | - | 83,158 | 83,158 | - | 83,158 | |
Appropriation of net income from prior years | - | 8,924,064 | - | - | (8,924,064) | - | - | - | - | - | - | - | - | - | - | |
Option to Acquire Own Instrument | - | 106,440 | - | - | - | - | 106,440 | - | - | - | - | - | 106,440 | (106,440) | - | |
Dividends and interest on capital | 28.b | - | (6,300,000) | - | - | - | (300,000) | (6,600,000) | - | - | - | - | - | (6,600,000) | - | (6,600,000) |
Share based compensation | 40.b | - | (17,854) | - | - | - | - | (17,854) | - | - | - | - | - | (17,854) | - | (17,854) |
Treasury shares | 28.d | - | - | (312,305) | - | - | - | (312,305) | - | - | - | - | - | (312,305) | - | (312,305) |
Capital restructuring | - | - | (687) | - | - | - | (687) | - | - | - | - | - | (687) | - | (687) | |
Treasury shares income | 28.d | - | (15,868) | - | - | - | - | (15,868) | - | - | - | - | - | (15,868) | - | (15,868) |
Other | - | (40,517) | - | - | - | - | (40,517) | - | - | - | - | (40,517) | 44,690 | 4,173 | ||
Balance at December 31, 2018 | 57,000,000 | 30,377,693 | (461,432) | (1,017,000) | 12,582,477 | (6,600,000) | 91,881,738 | - | 1,992,581 | (3,071,040) | 859,370 | (659,774) | 91,002,875 | 592,585 | 91,595,460 |
F-10
| |
* Values expressed in thousands, except when indicated. |
Stockholders´ Equity Attributable to the Parent | Non-controlling Interests | Total Stockholders' Equity | ||||||||||||||
Note | Share Capital | Reserves | Treasury Shares | Option for Acquisition of Equity Instrument | Profit Attributed to the Parent | Dividends and Remuneration | Total Stockholders´ Equity | Financial Assets available for sale | Financial Assets Measured At Fair Value Through Other Comprehensive Income | Defined Benefits plan | Translation adjustments investment abroad | Gains and losses - Cash flow hedge and Investment | Total | |||
Balance at December 31, 2018 | 57,000,000 | 30,377,693 | (461,432) | (1,017,000) | 12,582,477 | (6,600,000) | 91,881,738 | - | 1,992,581 | (3,071,040) | 859,370 | (659,774) | 91,002,875 | 592,585 | 91,595,460 | |
Total comprehensive income | - | - | - | - | 16,406,932 | - | 16,406,932 | - | 1,352,702 | (675,497) | - | 115,949 | 17,200,086 | - | 17,200,086 | |
Net profit | - | - | - | - | 16,406,932 | - | 16,406,932 | - | - | - | - | - | 16,406,932 | - | 16,406,932 | |
Other comprehensive income | - | - | - | - | - | - | - | - | 1,352,702 | (675,497) | - | 115,949 | 793,154 | - | 793,154 | |
Financial Assets Measured At Fair Value Through Other Comprehensive Income | - | - | - | - | - | - | - | - | 1,352,702 | - | - | - | 1,352,702 | - | 1,352,702 | |
Pension plans | - | - | - | - | - | - | - | - | - | (675,497) | - | - | (675,497) | - | (675,497) | |
Gain and loss - Cash flow and investment hedge | - | - | - | - | - | - | - | - | - | - | - | 115,949 | 115,949 | - | 115,949 | |
Appropriation of net income from prior years | - | 12,582,477 | - | - | (12,582,477) | - | - | - | - | - | - | - | - | - | - | |
Own Instrument Acquisition Option | - | (1,598,336) | - | 950,000 | - | - | (648,336) | - | - | - | - | - | (648,336) | - | (648,336) | |
Dividends and interest on capital | 28.b | - | (6,600,000) | - | - | - | (4,200,000) | (10,800,000) | - | - | - | - | - | (10,800,000) | - | (10,800,000) |
Share based compensation | - | 50,886 | - | - | - | - | 50,886 | - | - | - | - | - | 50,886 | - | 50,886 | |
Treasury shares | 28.d | - | - | (219,703) | - | - | - | (219,703) | - | - | - | - | - | (219,703) | - | (219,703) |
Treasury shares income | 28.d | - | 5,796 | - | - | - | - | 5,796 | - | - | - | - | - | 5,796 | - | 5,796 |
Other | - | 58,976 | - | - | - | - | 58,976 | - | - | - | - | - | 58,976 | (34,004) | 24,972 | |
Balance at December 31, 2019 | 57,000,000 | 34,877,492 | (681,135) | (67,000) | 16,406,932 | (10,800,000) | 96,736,289 | - | 3,345,283 | (3,746,537) | 859,370 | (543,825) | 96,650,580 | 558,581 | 97,209,161 |
Cash and cash equivalents components | Note | 2021 | 2020 | 2019 | ||||||||||||
Cash | 4 | 16,657,201 | 20,148,725 | 20,127,364 | ||||||||||||
Loans and other | 5 | 16,011,548 | 8,298,083 | 1,316,299 | ||||||||||||
Total of cash and cash equivalents | 32,668,749 | 28,446,808 | 21,443,663 | |||||||||||||
Non-cash transactions | ||||||||||||||||
Foreclosures loans and other assets transferred to non-current assets held for sale | 10 | 235,904 | 445,173 | 735,864 | ||||||||||||
Dividends and interest on capital declared but not paid | 27.b | 249,000 | 1,177,085 | 7,800,000 | ||||||||||||
Supplemental information | ||||||||||||||||
Interest received | 77,987,308 | 62,774,940 | 72,841,060 | |||||||||||||
Interest paid | (26,668,842 | ) | (18,332,228 | ) | (28,519,953 | ) |
The accompanying Notes are an integral part of these consolidated financial statements.
F-11
| |
|
Note | 2019 | 2018 | 2017 | |
1. Cash Flows From Operating Activities | ||||
Consolidated profit for the year | 16,631,450 | 12,799,918 | 9,138,048 | |
Adjustments to profit | 14,654,877 | 14,765,404 | 17,015,113 | |
Depreciation of tangible assets | 12 | 1,870,836 | 1,216,704 | 1,190,967 |
Amortization of intangible assets | 14 | 521,021 | 523,255 | 471,280 |
Impairment losses on other assets (net) | 131,435 | 508,310 | 456,711 | |
Provisions and Impairment losses on financial assets (net) | 17,051,491 | 14,713,039 | 15,647,539 | |
Net Gains (losses) on disposal of tangible assets, investments and non-current assets held for sale | 42&43 | (20,489) | (156,258) | 324,385 |
Income from companies accounted by the equity method | 11 | (149,488) | (65,958) | (71,551) |
Changes in deferred tax assets and liabilities | 24.d | (2,912,281) | (1,594,440) | (406,395) |
Monetary Adjustment of Escrow Deposits | (574,399) | (664,003) | (637,124) | |
Recoverable Taxes | (182,469) | (222,402) | (210,834) | |
Effects of Changes in Foreign Exchange Rates on Cash and Cash Equivalents | 99 | - | - | |
Effects of Changes in Foreign Exchange Rates on Assets and Liabilities | (2,609,679) | 1,173,757 | 33,691 | |
Other | 1,528,800 | (666,600) | 216,444 | |
Net (increase) decrease in operating assets | (42,332,510) | (79,913,313) | (16,745,263) | |
Balance with the Brazilian Central Bank | 855 | 16,629,126 | (7,043,255) | |
Financial assets held for trading | - | - | 44,950,707 | |
Financial Assets Measured At Fair Value Through Profit Or Loss | 11,080,730 | (8,791,116) | - | |
Other Financial Assets Measured At Fair Value Through Profit Or Loss | - | 1,692,154 | 18,988 | |
Financial Assets Measured At Fair Value Through Profit Or Loss Held for Trading | 11,831,411 | (16,412,738) | - | |
Non-Trading Financial Assets Mandatorily Measured at Fair Value Through Profit or Loss | 746,024 | (419,851) | - | |
Available-for-sale financial assets | - | - | (27,214,188) | |
Financial Assets Measured At Fair Value Through Other Comprehensive Income | (8,835,552) | (4,323,459) | - | |
Loans and receivables | - | - | (30,256,590) | |
Financial Assets Measured At Amortized Cost | (60,462,247) | (75,906,801) | - | |
Held to maturity investments | - | - | (26,266) | |
Other assets | 3,306,269 | 7,619,372 | 2,825,341 | |
Net increase (decrease) in operating liabilities | 41,219,167 | 64,293,934 | 44,163,382 | |
Financial liabilities held for trading | - | - | (2,297,323) | |
Financial Liabilities Measured At Fair Value Through Profit Or Loss held for trading | (4,874,323) | 1,616,446 | - | |
Financial Liabilities Measured At Fair Value Through Profit Or Loss | 3,373,359 | 1,946,056 | - | |
Financial liabilities at amortized cost | 40,961,046 | 57,833,935 | 43,702,283 | |
Other liabilities | 1,759,085 | 2,897,497 | 2,758,422 | |
Tax paid | 24.a | (5,301,184) | (3,668,571) | (3,280,230) |
Total net cash flows from operating activities (1) | 24,871,800 | 8,277,372 | 50,291,050 | |
2. Cash Flows From Investing Activities | ||||
Investments | (3,500,499) | (3,157,794) | (2,197,918) | |
Capital increase in Investments in associates and Joint Ventures | 11 | - | (36,051) | (34,154) |
Acquisition of subsidiary, less net cash in the acquisition | (746) | (111,224) | (275,091) | |
Tangible assets | 12.a | (1,924,783) | (1,394,299) | (1,106,406) |
Intangible assets | (1,519,725) | (1,616,222) | (738,554) | |
Corporate Restructuring | 10 | (55,245) | 2 | (43,713) |
Disposal | 987,164 | 797,716 | 744,913 | |
Capital reduction of investee in joint control | 11.b | - | - | - |
Tangible assets | 12&42 | 29,911 | 122,009 | 37,467 |
Non - current assets held for sale | 10 | 808,980 | 563,607 | 434,553 |
Dividends and interest on capital received | 148,273 | 112,100 | 272,893 | |
Total net cash flows from investing activities (2) | (2,513,335) | (2,360,078) | (1,453,005) | |
3. Cash Flows From Financing Activities | ||||
Acquisition of own shares | 28.d | (219,703) | (312,305) | (378,776) |
Issuance of Debt Instruments Eligible to Compose Capital | 20 | - | 9,347,750 | - |
Issuance of other long-term financial liabilities | 18 | 53,017,039 | 73,765,081 | 59,663,420 |
Dividends and interest on capital paid | (6,953,718) | (6,076,073) | (5,652,081) | |
Payments of other long-term financial liabilities | 18 | (61,914,716) | (78,903,009) | (97,009,957) |
Payments of subordinated liabilities | 19 | (9,885,607) | (544,566) | - |
Payments of interest of Debt Instruments Eligible to Compose Capital | 20 | (328,892) | (683,783) | (623,146) |
Net increase in non-controlling interests | 27 | (14,266) | 55,869 | (296,184) |
Capital Increase in Subsidiaries, by Non-Controlling Interests | 27 | 100,000 | 48,000 | - |
Total net cash flows from financing activities (3) | (26,199,863) | (3,303,036) | (44,296,724) | |
Exchange variation on Cash and Cash Equivalents (4) | (99) | - | - | |
Net Increase in Cash (1+2+3+4) | (3,841,497) | 2,614,258 | 4,541,321 | |
Cash and cash equivalents at beginning of year | 25,285,160 | 22,670,902 | 18,129,581 | |
Cash and cash equivalents at end of year | 21,443,663 | 25,285,160 | 22,670,902 | |
Cash and cash equivalents components | ||||
Cash and Balances With The Brazilian Central Bank | 4 | 20,128,219 | 19,463,587 | 20,642,321 |
Loans and other | 5 | 1,315,444 | 5,821,573 | 2,028,581 |
Total of cash and cash equivalents | 21,443,663 | 25,285,160 | 22,670,902 | |
Non-cash transactions | ||||
Foreclosures loans and other assets transferred to non-current assets held for sale | 10 | 735,864 | 785,139 | 524,497 |
Dividends and interest on capital declared but not paid | 28.b | 4,800,000 | 4,800,000 | 4,455,000 |
Supplemental information | ||||
Interest received | 71,777,476 | 70,831,205 | 73,094,248 | |
Interest paid | (27,654,965) | (29,796,455) | (37,948,828) |
The accompanying Notes are an integral part of these consolidated financial statements.
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* Values expressed in thousands, except when indicated. |
1. | Introduction, basis of presentation of the consolidated financial statements and other information |
a) | Introduction |
Banco Santander (Brasil) S.A. (Banco Santander or Bank), directly and indirectly controlled by Banco Santander, S.A., headquartered in Spain (Banco Santander Spain), is the lead institution of the Financial and Prudential Conglomerates (Conglomerate Santander) before the Central Bank of Brazil (Bacen), established as a joint-stock corporation, with head office at Avenida Presidente Juscelino Kubitschek, 2041 and 2235 – Building A - Vila Olímpia, in the City of São Paulo, State of São Paulo. Banco Santander operates as a multiple service bank, conducting its operations by means of its commercial, investment, loans, mortgage loans, leasing and foreign exchange portfolios. Through its subsidiaries, also operates in the segments of payments, management of shares’ club, securities and insurance brokerage operations, capitalization plans,premium bonds, consumer finance, payroll loans, digital platforms, benefit vouchers, management and recovery of non-performing loans and private pension products. The operations are conducted within the context of a group of institutions that operates in the financial market on an lintegratedintegrated basis. The corresponding benefits and costs of providing services are absorbed between them and are conducted in the normal course of business and under commutative conditions.
The Board of Directors authorized the issuance of the Financial Statements for the year ended on December 31, 2019,2021, at the meeting held on March 6, 2020.February 24, 2022.
These Financial Statements and the accompanying documents were the subject of an unqualified report of the Independent Auditors and a recommendation for approval issued by the Company's Audit Committee and a favorable opinion of the Company's Fiscal Council.
b) | Basis of presentation of the condensed consolidated financial statements |
The consolidated financial statements have been prepared in accordance with the standards of the International Financial Reporting Standards (IFRS) issued by the International Accountant Standards Board (IASB), and interpretations issued by the IFRS Interpretations Committee (current name International Financial Reporting Interpretations Committee - IFRIC). All relevant information specifically related to the financial statements of Banco Santander, and only in relation to these, are being evidenced, and correspond to the information used by Banco Santander in its management.
As described in FN 8 a.1), the comparative information for prior periods was adjusted to reflect the remeasurement of the commercialization of electric energy operation.
c) Other information
c.1) Adoption of new standards and interpretations
• IFRS 16- as ofThe following standard changes were adopted for the first time for the year beginning January 1, 2019, the Bank adopted IFRS 16, which replaces IAS 17.2021:
As permitted byThe changes provided for in Phase 2 of the specific transition provisions, Banco Santander opted to applyIBOR reform address issues that may affect the regulations inFinancial Statements during the reform of a retrospective modified manner,benchmark interest rate, including the effects of which were appliedchanges in contractual cash flows or hedging relationships arising from the substitution of a rate for a alternative reference rate (replacement issues). The effective date of application of this change was January 1, 2019.2021.
The changes in accounting practices resulting fromGroup's contracts linked to LIBOR were reviewed between the adoption of IFRS 16 were appliedparties and updated by the respective alternative rates disclosed, plus a spread. Management has verified that the updated cash flows are economically equivalent to the right of use assets as part of tangible assets and lease liabilities as other liabilities in the balance sheet.
In adopting IFRS 16, the Bank recognized lease liabilities involving leasesoriginal ones, so that had already been classified as "commercial leases" in accordance with the principles of IAS 17 - Leases.there were no material impacts related to this replacement.
ForTherefore, the initial application of the standard, the Bank used the following permitted practical expedients:implementations above had no significant impact on these Financial Statements.
• The exclusion of the initial direct costs for the measurement of the right to use asset at the date of initial application;
• It was decided not to separate the service provision component embedded in lease agreements; and
• The Bank also decided not to apply IFRS 16 to contracts that were not identified as containing a lease under IAS 17 and IFRIC 4 - Determination as to whether a Contract contains a Lease.
In addition, the following recognition exemptions are also used:
• The accounting of operating leases with a remaining term of less than 12 months as of January 1, 2019 as short-term leases;
• The accounting for operating leases whose underlying asset is of immaterial;
• Until January 1, 2019, leases of fixed assets, in which the Bank as the lessee, held substantially all the risks and benefits of the property, were classified as financial leases. The balances presented are immaterial.
The majority of the lease contracts in which the bank is a lessor relates to real estate and equipment at the branches.
Banco Santander does not have rights-of-use assets that fall within the definition of investment properties
Lease agreements are formalized, analyzed and negotiated individually and contain a wide range of different terms and conditions. The Bank evaluates the term of the contract, as well as the intention to remain in the real estate. Thus, estimates of terms may vary according to contractual conditions, considering extension options, and also according to legal provisions.
The Bank assumes that the fines for contractual termination charged before the maturity date are not significant.
Lease agreements do not contain restrictive clauses, but leased assets can not be used as collateral for loans.
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In their initial recognition, leases are recognized as a right of use asset and a corresponding liability on the date the leased asset becomes available for use by the Group.
The right of use to be recorded is measured at cost against the lease liability, which represents the present value of the lease payments that are not made to date. Lease payments are discounted using the incremental interest rate incremental borrowing interest rate. There is no onerous contract that required an adjustment in usage rights to be recorded as assets on the date of the initial adoption.
The use rights are measured at amortized cost in accordance with the following:
• The value of the initial measurement of the lease liability;
• Any lease payments made before or on the start date of any incentive received;
• any directly attributed initial cost; and
• Restoration costs, if the requirements of IAS 37 are met for the recording of Provisions, Contingent Liabilities and Contingent Assets.
The recognized rights of use assets related to each type of asset are as follows:
12/31/2018 | Adoptions Effects - IFRS 16 | 01/01/2019 | |
Real Estate and Properties | - | 2,373,959 | 2,373,959 |
Data processing systems | - | 91,791 | 91,791 |
Total | - | 2,465,750 | 2,465,750 |
The Santander Group uses as an incremental rate the rate of interest that a lessee would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment, by term, guarantee and similar economic scenario, represented in Santander Brasil by the funding cost curve of a risk-free asset, applied individually to each contract according to the estimates projected as the lease term.
Lease liabilities include the net present value of the following lease payments:
• Reduced fixed payments of any incentive;
• Variable payments that are based on a rate or indexer;
• Expected amounts to be paid by the lessee based on the residual value of collateral;
• The exercise price of a call option, if the lessee is reasonably certain about the exercise of the option; and
• Payment of penalties for the termination of the lease if the term of the operation reflects the exercise of the option by the lessee.
In the analysis of the Santander Group's contracts, only contracts with fixed and non-incentive payments or residual guarantee values were identified or the purchase option was embedded, thus, the effects on the accounting of liabilities arising from the initial adoption:
Effects on accounting for the year ended on December 31, 2019 due to the initial adoption (there were no impacts on the results of the comparative periods generated by the initial adoption):
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Effects on the accounting of the financial liability on the period ended December 31, 2019:
Below is presented the projected inflation (IGP-M) on December 31, 2019:
After the initial measurement, the values of the assets recorded as right of use are being updated using the cost method, so any accumulated depreciation is deducted monthly, according to the criteria of CPC 27 - Property, Plant and Equipment depreciation of the right-of-use asset and any remeasurement of the lease liability, when applicable.
The initially recorded lease liability is updated monthly by increasing the liability amount of the interest portion of each lease and reducing the amount of monthly lease payments and corrected for any remeasurement lease, when applicable. The majority of the lease contracts in which the bank is a lessor relates to real estate and equipment at the branches.
The lease liability is remeasured, in case of changes in the lease term or in the contract value, the amount resulting from the new determination of the lease liability is recorded as a contra entry to the corresponding right of use asset.
The effects of adopting IFRS 16 impacts exclusively the operating segment Commercial Bank.
•IFRIC 23- Published in June 2017 by the IASB, IFRIC 23 - Uncertainty over Income Tax Treatments on Profit has mandatory application as of January 1, 2019 and aims to clarify procedures for the application of recognition and measurement requirements established in the IAS 12 of Taxes on Profit when there is uncertainty about the treatments to be adopted for the Taxes on Profit.
The Bank carried out analyzes on the procedures already adopted for accounting and presentation of Income Taxes in relation to the content of IFRIC 23 and it was possible to conclude that there are no impacts on the disclosures made up to December 31, 2018, as well as from the adoption of the new standard on January 1, 2019.
StandardsRules and interpretations that will come into effect after December 31, 20192021
AtOn the date of preparation of these consolidated financial statements, the following standards and interpretations that have effective adoption date after December 31, 2019January 1, 2022 and have not yet been adopted by the Bank are:
● | Amendment to IAS 37 “Provision, Contingent Liabilities and Contingent Assets”: in May 2020, the IASB issued this amendment to clarify that, for the purpose of assessing whether a contract is onerous, the cost of contract performance includes the incremental costs of performance contract and an allocation of other costs that are directly related to its performance. The effective date of application of this change is the 1st. January 2022. |
• IFRS 17- In May 2017, the IASB issued the IFRS for insurance contracts to replace IFRS 4. IFRS 17 is scheduled to be implemented January 1, 2021. The purpose of this standard is to demonstrate greater transparency and useful information in condensed financial statements, one of the main changes being the recognition of profits as the delivery of insurance services, in order to evaluate
● | IFRS 17 - In May 2017, the IASB issued the IFRS for insurance contracts that aims to replace IFRS 4. The implementation date of IFRS 17 is January 1, 2023. This standard is intended to demonstrate greater transparency and information useful in financial statements, one of the main changes being the recognition of earnings as the measure of delivery of insurance services, in order to assess the performance of insurers over time. Banco Santander is evaluating the possible impacts when adopting the standard. |
Consolidated Financial Statements | December 31, 2021 | F-13 |
* Values expressed in thousands, except when indicated. |
● | Amendment to IFRS 3 “Business Combinations”: issued in May 2020, with the aim of replacing the references from the older version of the conceptual framework to the newer one. The amendment to IFRS 3 is effective from January 1, 2022. |
● | Annual improvements – 2018-2020 cycle: in May 2020, the IASB issued the following amendments as part of the annual improvement process, applicable from January 1, 2022: |
(i) | IFRS 9 - "Financial Instruments" - clarifies which fees should be included in the 10% test for writing off financial liabilities. |
(ii) | IFRS 16 - "Leases" - amendment to example 13 in order to exclude the example of lessor payments related to improvements in the leased property. |
(iii) | IFRS 1 "Initial Adoption of International Financial Reporting Standards" - simplifies the application of said standard by a subsidiary that adopts IFRS for the first time after its parent, in relation to measuring the accumulated amount of exchange rate variations. |
● | Classification of Liabilities, amendments to IAS 1 “Presentation of Financial Statements”, considering non-current liabilities those in which the entity has the possibility of deferring payment for more than 12 months from the closing date of the reporting period. The amendments to IAS 1 are effective as of January 1, 2023. |
● | Modification of IAS 8 – Presentation of Financial Statements and IAS 8 Accounting Policies: changes in accounting estimates and errors, which use a consistent definition of materiality for the purpose of making material judgements and deciding on the information to be included in the financial statements. The amendments to IAS 1 are effective as of January 1, 2023. |
● | Deferred Tax related to Assets and Liabilities arising from a Single Transaction – Amendments to IAS 12 1 January 2023: The amendments to IAS 12 Income Taxes require companies to recognise deferred tax on transactions that, on initial recognition, give rise to equal amounts of taxable and deductible temporary differences. They will typically apply to transactions such as leases of lessees and decommissioning obligations and will require the recognition of additional deferred tax assets and liabilities. The amendments to IAS 12 are effective as of January 1, 2023. |
There are no other IFRS standards or IFRIC interpretations that have not yet come into effect that could have a material impact on the Bank's financial statements.
•Amendments to IFRS 9, IFRS 7 and IAS 39 - In September 2019, the IASB changed its IFRS 9 and IAS 39 standards as well as the related disclosure standard, IFRS 7, on some requirements for hedge accounting. The changes were implemented on January 1, 2020. The amendments modify some specific requirements on hedge accounting in order to clarify potential effects of the uncertainty caused by the IBOR reform project. In addition, such changes require entities to provide additional information about their hedge relationships that are directly affected by these uncertainties. Banco Santander concluded that there are no significant impacts as from the adoption of the new standards on January 1, 2020.
c.2) Estimates used
The consolidated results and the calculation of consolidated equity are impacted by the accounting policies, assumptions, estimates and measurement methods used by the Bank's directors in the preparation of interim consolidated financial statements. The Bank makes estimates and assumptions that affect the reported amounts of assets and liabilities of future periods. All estimates and assumptions required, in accordance with IFRS, are the best estimates in accordance with the applicable standard.
In interim consolidated
Consolidated financial statements,management, as estimates are made by managementthe note of the Bank and the consolidated entities in order to quantify certain assets, liabilities, revenuesincome and expenses and disclosures of explanatory notes.
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c.2.1) Critical estimates
The main estimates were discussed in detail for the preparation of the consolidated financial statements as of December 31, 2019. In the exercise ended December 31, 2019, there were no significant changes in the estimates made at the end of the year 2018, in addition to those indicated in these statements financial statements, especially arising from the application of IFRS 16.
The critical estimates and assumptions that have the most significant impact on the accounting balances of certain assets, liabilities, revenues and expenses and in the disclosure of explanatory notes, are described below:
i. Corporate Income Tax (IRPJ) and Social Contribution on Net Income (CSLL), Social Integration Program (PIS) and Contribution for the Financing of Social Security
The income tax expense is obtained by adding the Income Tax, Social Contribution, PIS and Cofins. Current Income Tax and Social Contribution arise from the application of the respective tax rates on the real income, and the rates of PIS and Cofins applied on the respective calculation basis provided for in the specific legislation, together with the changes in deferred tax assets and liabilities recognized in the consolidated statement of income. The CSLL rate, for banks of any kind, was increased from 15% to 20% effective as of March 1, 2020, pursuant to article 32 of Constitutional Amendment 103, published on November 13, 2019.
Deferred tax assets and liabilities include temporary differences, identified as the amounts expected to be paid or recovered on the differences between the carrying amounts of the assets and liabilities and their respective bases of calculation, and accumulated tax credits and tax losses. These amounts are measured at the rates that are expected to be applied in the period in which the asset is realized or the liability is settled. Deferred tax assets are only recognized for temporary differences to the extent that it is considered probable that the consolidated entities will have sufficient future taxable profits against which the deferred tax assets may be used and the deferred tax assets do not result from the initial recognition (except in one combination of business) of other assets and liabilities in an operation that does not affect either the taxable income or the taxable income. Other deferred tax assets (tax credits and accumulated tax losses) are only recognized if it is considered probable that the consolidated entities will have sufficient future taxable income for them to be used.
The deferred tax assets and liabilities recognized are revalued at the balance sheet date, and the appropriate adjustments are made based on the findings of the analyzes carried out. The expected realization of the Bank's deferred tax assets is based on projections of future results and based on a technical study.
Additional details are in notes 2.aa.
ii. Valuation of the fairFair value assessment of certain financial instruments
Financial instruments are initially recognized at fair value and those that are not measured at fair value through profit or loss are adjusted for transaction costs.
Financial assets and liabilities are subsequently measured, at the end of each period, using valuation techniques. This calculation is based on assumptions, which take into account theconsider Management's judgment based on information and market conditions existing at the balance sheet date.
Banco Santander classifies the measurements at fair value measurements using the hierarchy of fair value hierarchy that reflects the model used in the measurement process, segregating the financial instruments betweeninto Levels I, II or III.
Additional details are in notesNotes 2.e and 47.c8& 46.c8 of the Consolidated Financial Statements as of December 31, 2019, which2021 present the accounting practice and sensitivity analysis for the Financial Instruments.Instruments, respectively.
iii. IFRS 9 - Financial Instruments:issued in its final format in July 2014, the International Accounting Standards Board (IASB) approved IFRS 9, which replaced IAS 39 Financial Instruments, in accordance with the guidelines defined by the G20 by finance ministers of the world's 20 largest economies) in April 2009, establishing requirementsii. Allowance for the recognition and measurement of financial instruments. This standard was adopted from January 1, 2018.
Provisions forloan losses on receivablesdue to impairment
The book valuecarrying amount of non-recoverable financial assets is adjusted by recording a provision for loss of debit from "Lossesimpairment chargeable to “Losses on financial assets (net) -– Financial assets measured at amortized cost"cost” in the consolidated statement of income. The reversal of previously recorded losses is recognized in the consolidated income statement of income in the period in which the impairment loss decreases and can be objectively related to a recovery event.
Consolidated Financial Statements | December 31, 2021 | F-14 |
* Values expressed in thousands, except when indicated. |
To determine the balance of "Provision for impairment", Banco Santander first assesses whether there is objective evidence of impairment individually for financial assets that are significant, and individual or collective for non-recoverable financial assets.
In order to individually measure the impairment loss onof loans assessed for impairment, the Bank considers the counterparty's conditions, of the counterparty, such as its economic and financial situation, level of indebtedness, capacity to generate income, generation capacity, cash flow, management,administration, corporate governance and quality of internal controls, payment history, industry experience, contingencies and credit limits, as well as asset characteristics, of assets, such as their nature and purpose, type, sufficiency and guarantees of liquidity level and total credit value , and also based on historical impairment experience of impairment and other circumstances known at the time of the valuation.
In order toTo measure the impairment loss onof loans collectively assessed collectively for impairment, the Bank separates financial assets into groups taking into accountconsidering the characteristics and similarities of credit risk, ie,that is, according to the segment, type of assets, guarantees and other factors associated with the historical impairment experience of impairment and other circumstances known at the time of the valuation.
Further details are in note 2.i ofNotes 2.h & 46.b2 to the Consolidated Financial Statements as of December 31, 2019, which2021, present the sensitivity analysisaccounting practice and measures for Financial Instruments.
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Transitionmeasuring credit risk, respectively.
As permitted by the transitional provisions of IFRS 9, the Group chose not to restate comparative figures, upon initial adoption in January 1, 2018. Any adjustments in the carrying amounts of financial assets and liabilities at the transition date were recognized in the initial net income and other reserves of the current period. The Group also opted to continue applying the hedge accounting requirements of IAS 39 in adopting IFRS 9.
Financial assets and liabilities
Initial Recognition and Measurement
The Bank initially recognizes loans and advances, deposits, debt securities issued and subordinated liabilities at the date of origin.
All other financial instruments (including regular purchases and sales of financial assets) are recognized on the trade date, which corresponds to the date on which the Bank becomes part of the contractual provisions of the instrument.
A financial asset or liability is initially measured at fair value, plus, in the case of an item not designated at fair value through profit or loss, transaction costs directly attributable to its acquisition or issue.
Ranking
Financial assets
On initial recognition, a financial asset is classified as measured at amortized cost, at fair value through Other Comprehensive Income or at fair value through profit or loss.
A financial asset is measured at amortized cost if it meets the following conditions and is not designated at fair value through profit or loss:
• The asset is maintained within a business model whose objective is to maintain assets to receive contractual cash flows;
• The contractual terms of the financial asset generate, at specific dates, cash flows that refer exclusively to payments of principal and interest on the principal amount outstanding.
A debt instrument is measured at fair value through Other Comprehensive Income if it meets the following conditions and is not designated at fair value through profit or loss:
• The asset is maintained within a business model whose objective is achieved through the receipt of contractual cash flows and the sale of financial assets; and
• The contractual terms of the financial asset generate, at specific dates, cash flows that refer exclusively to payments of principal and interest on the outstanding principal amount.
In the initial recognition of an equity instrument not held for trading, the Bank may irrevocably elect to present subsequent changes in fair value through Other Comprehensive Income. This option is made considering each investment individually and was not used by the Bank.
All other financial assets are classified as measured at fair value through profit or loss.
In addition, at initial recognition, the Bank may irrevocably designate at fair value through profit or loss a financial asset that would otherwise meet the measurement requirements at amortized cost or at fair value through Other Comprehensive Income, if such designation eliminate or substantially reduce an accounting mismatch that may exist. This option was not used by the Bank.
Business model evaluation
The Bank evaluates the objective of a business model in which an asset is maintained at the portfolio level, for better reflecting how the business is managed and what information is provided to Management. The information considered includes:
- Defined policies and objectives for the portfolio and the application of these policies in practice. Including, if Management's strategy is focused on earning contractual interest income, maintaining a specific interest rate profile, aligning the duration of the assets;
- How the performance of the portfolio is evaluated and reported to the Bank's Management;
- The risks that affect the performance of the business model (and financial assets held within that business model) and how those risks are managed;
- How the managers of the business are remunerated - for example, if the remuneration is based on the fair value of the managed assets or the contractual cash flows received;
- The frequency, volume and timing of sales in prior periods, the reasons for such sales and their expectations about future sales. However, sales activity information is not considered in isolation, but as part of an overall assessment of the Bank's stated purpose of managing financial assets.
Financial assets held for trading or managed, whose performance is valued at fair value, are measured at fair value through profit or loss, since (i) they are not held to receive contractual cash flows (ii) nor maintained to receive cash flows and sell financial assets.
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Assessment to determine whether contractual cash flows refer exclusively to payments of principal and interest
For the purposes of this valuation, "principal" is defined as the fair value of the financial asset at initial recognition. "Interest" is defined as the consideration for the value of the currency over time and for the credit risk associated with the principal amount outstanding for a specific period and for other underlying risks and costs of the borrowings (eg liquidity risk and costs) as well as the profit margin.
In assessing whether contractual cash flows refer exclusively to payments of principal and interest, the Bank considers the contractual terms of the instrument. This includes assessing whether the financial asset contains a contractual term that could change the term or value of the contractual cash flows so that it would not meet this condition. In carrying out the evaluation, the Bank considers:
- contingent events that would alter the value and term of the cash flows;
- leverage;
- terms of advance payment and extension;
- terms limiting the Bank's right to cash flows of assets; and
- resources that modify the consideration of the value of the currency in time, for example, periodic readjustment of interest rates.
Reclassification of categories of financial assets
Financial assets are not reclassified subsequent to their initial recognition, except in the period after the Bank changes its business model to manage financial assets.
Derecognition of Financial Assets
The Bank derecognizes a financial asset when the contractual rights to the cash flows of the asset expire or when it transfers the rights to the receipt of the contractual cash flows in a transaction in which essentially all the risks and benefits of ownership of the financial asset are transferred or in which the Bank does not transfer or retain substantially all the risks and rewards of ownership of the financial asset and does not control the financial asset.
The difference between the carrying amount of the asset (or book value allocated to the portion of the asset disposed) and the sum (i) of the consideration received (including any new assets obtained, less any new liabilities assumed) and (ii) any accumulated gains or losses recognized in "Other Comprehensive Income" is recorded in the income statement.
As from the date of the adoption of IFRS, mentioned above, any accumulated gains / losses recognized in "Other Comprehensive Income" in relation to equity instruments designated at fair value through Other Comprehensive Income are not recorded in the statement of income through the write-off of these securities.
The Bank carries out transactions in which it transfers the assets recognized in its balance sheet, but maintains all or substantially all the risks and benefits of the assets transferred or part thereof. In these cases, the transferred assets are not downloaded. Examples of such operations include assignments of co-sponsored loan portfolios.
In operations in which the Bank does not retain or transfer substantially all the risks and rewards of ownership of a financial asset and hold control of the asset, the Bank continues to recognize the asset in the extent of its continued involvement, determined by the extent to which it is exposed to changes in the value of the transferred asset.
Derecognition of Financial Liabilities
The Bank derecognizes a financial liability when its contractual obligations are terminated, canceled or when they expire.
Effective interest rate
The effective interest rate is one that exclusively discounts future cash payments or receipts estimated during the expected life of the financial asset or financial liability at the gross carrying amount of a financial asset (i.e. its amortized cost before any provision for reduction recoverable amount) or the amortized cost of a financial liability. The calculation does not consider expected credit losses and includes transaction costs, premiums or discounts and fees paid or received that are an integral part of the effective interest rate, such as origin taxes.
Changes in financial assets and liabilities
Financial assets
If the terms of a financial asset are modified, the Bank assesses whether the cash flows of the modified asset are substantially different. If the cash flows are substantially different, the contractual rights to the cash flows of the original financial asset will be considered as due. In this case, the original financial asset is written off and a new financial asset is recognized at fair value.
If the cash flows of the modified asset measured at amortized cost are not substantially changed, the change does not result in a derecognition of the financial asset. In this case, the Bank recalculates the gross carrying amount of the financial asset and recognizes the amount resulting from the adjustments to the gross carrying amount as gain or loss of change in profit or loss. If such a change is made due to the financial difficulties of the debtor, gains or losses are presented together with the impairment losses. In other cases, they are presented as interest income.
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Interest Revenue
Interest income is calculated by applying the effective interest rate to the gross carrying amount of the financial assets, except:
(a) Financial assets acquired or originated with credit impairment, for which the original effective interest rate adjusted to the credit is applied to the amortized cost of the financial asset.
(b) Financial assets that are not acquired or originated with credit impairment, but subsequently presented a default event (or "stage 3"), for which interest income is calculated by applying the effective interest rate to its net amortized cost of the provision.
Equity Instruments
Equity instruments are those that meet the definition of stockholders 'equity from the issuer's point of view, that is, instruments that do not contain a contractual obligation to pay and show a residual interest in the issuer's stockholders' equity. Examples are equity instruments that include common shares.
Generally, all equity instruments are measured at fair value through profit or loss, except where the Bank's management has elected, at the time of initial recognition, the irrevocable designation of an equity investment at fair value through Other Comprehensive Income. The Bank's policy is to designate capital investments as measured at fair value against Other Comprehensive Income when these investments are held for other purposes that do not generate investment returns, in which case the fair value gains and losses are recognized in Other Comprehensive Income and are not subsequently reclassified to profit or loss, including the sale of the asset. Impairment losses (and the reversal of impairment losses) are not accounted for separately from other changes in fair value. With respect to dividends, when they represent a return on such investments, they continue to be recognized in income as other income when the Bank has the right to receive payments.
Gains and losses on investments measured at fair value through profit or loss are included under "Financial Assets measured at fair value through profit or loss" in the Statement of Income.
Financial Liabilities
The Bank derecognizes a financial liability when its terms are modified and the cash flows of the modified liability are substantially different. In this case, a new financial liability is recognized at fair value based on the modified terms. The difference between the carrying amount of the extinguished financial liability and the new financial liability with modified terms is recognized in the income statement.
Offsetting
Financial assets and liabilities are offset and the net amount presented in the balance sheet when, and only when, the Bank currently has a legally enforceable right to offset the amounts and the intention to liquidate them on a net basis, or realize the asset and settle the liability simultaneously.
Revenues and expenses are presented on a net basis only when permitted by IFRSs or for gains or losses resulting from a group of similar operations, such as in the Bank's trading activity.
Measurement at fair value
"Fair value" corresponds to the price that would be received on the sale of an asset or paid in the transfer of a liability in an organized transaction between market participants at the measurement date in the main market or, in the absence thereof, the most advantageous market to which the Bank has access on that date.
When one is available, the Bank measures the fair value of an instrument based on the price quoted in that market for that instrument. A market is considered active if the transactions for the asset or liability occur with sufficient regularity and volume to provide price information on an ongoing basis.
If there is no quoted price in an active market, the Bank uses valuation techniques to maximize the use of relevant observable information and minimize the use of unobservable information. The chosen valuation technique incorporates all the factors that would be considered by the participants of the active market in the price of an operation.
The best evidence of the fair value of a financial instrument, at initial recognition, usually corresponds to the price of the transaction, that is, the fair value of the consideration paid or received. If the Bank determines that the fair value at initial recognition differs from the price of the transaction and the fair value is not evidenced by a price quoted in an active market for an identical asset or liability or based on an assessment technique for which any non-observable information is considered to be irrelevant to the measurement, the financial instrument will initially be measured at fair value, adjusted to defer the difference between the fair value at the initial recognition and the transaction price. This difference is subsequently recognized in profit or loss appropriately based on the life of the instrument, but until the valuation is fully supported by observable market data or the transaction is terminated.
If an asset or liability measured at fair value has a purchase price and a sale price, the Bank measures the assets and the positions purchased at a purchase price and the liabilities and the positions sold at a sale price.
The fair value of a financial liability with a cash demand (for example, a cash deposit) is not less than the amount payable on demand, discounted from the first date on which payment of the amount could be required.
Impairment
The Bank recognizes adjustments for expected credit losses in respect of the following financial instruments that are not measured at fair value through profit or loss:
- financial assets that are debt instruments;
- lease receivables;
- financial guarantee contracts issued; and
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- loan commitments issued.
No impairment loss is recognized in equity instruments.
The Bank measures the impairment adjustments equal to the expected credit losses during the maturity, except for the instruments below, for which they are recorded as expected credit losses in 12 months:
- debt instruments with a low credit risk at the closing date; and
- other financial instruments (other than lease receivables) in which credit risk has not increased substantially since its initial recognition.
Adjustments for losses on lease receivables are always measured at an amount equal to the expected credit losses during the maturity.
Measurement of expected credit losses
Expected credit losses are a probability-weighted estimate of credit losses. They are measured as follows:
- financial assets not subject to impairment at the closing date: as the present value of all cash shortages, ie the difference between the cash flows due to the entity under the contract and the cash flows the Bank expects to receive;
- financial assets subject to impairment at the closing date: as the difference between the gross carrying amount and the present value of the estimated future cash flows;
- loan commitments to be released: as the present value of the difference between the contractual cash flows due to the Bank if the commitment is used in full and the cash flows that the Bank expects to receive; and
- financial guarantee contracts: expected payments to reimburse the holder, less any amounts that the Bank expects to recover.
Modified Assets
If the terms of a financial asset are renegotiated or modified or an existing financial asset is replaced by a new asset due to financial difficulties of the debtor, it is necessary to assess whether the financial asset should be written off and the expected credit losses are measured as follows:
- If the expected restructuring does not result in derecognition of the existing asset, the cash flows expected and arising from the modified financial asset are included in the calculation of the cash deficiencies of the existing asset.
- If the expected restructuring results in a derecognition of the existing asset, the expected fair value of the new asset is treated as the final cash flow of the financial asset existing at the time of its derecognition.
This amount is included in the calculation of the cash insufficiencies arising from the existing financial asset discounted from the estimated date of the derecognition until the closing date, using the original effective interest rate of the existing financial asset.
Determination of significant increases in credit risk
At each balance sheet date, the Bank assesses whether the financial assets carried at amortized cost and the financial instruments at fair value through Other Comprehensive Income are subject to impairment, as well as other financial instruments subject to this assessment.
A financial asset is "subject to impairment" when one or more events that have a negative impact on the estimated future cash flows of the financial asset have occurred.
Evidence that a financial asset is subject to impairment includes the following observable data:
- significant financial difficulty of the debtor or issuer;
- delays in contractual obligations;
- breach of contract, such as defaults or delays;
- the restructuring of a loan or advance by the Bank under conditions which the Bank would not consider as interesting to carry out;
- the likelihood of the debtor going bankrupt or making another financial reorganization; or
- the disappearance of an active market for a security due to financial difficulties.
A financial instrument that has been renegotiated due to deterioration in the condition of the borrower is generally considered to be subject to impairment unless there is evidence that the risk of not receiving the contractual cash flows has been significantly reduced and there is no other indicator of impairment.
Provision for expected credit losses in the balance sheet
Provisions for expected credit losses are presented in the balance sheet as follows:
- financial assets measured at amortized cost: as a deduction from the gross book value of the assets;
- loan commitments and financial guarantee contracts: as a provision; and
- debt instruments measured at fair value through Other Comprehensive Income: no provision for losses is recognized in the balance sheet, since the carrying amount of these assets corresponds to the fair value.
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Objective evidence of impairment
At each closing date, the Bank assesses the existence of objective evidence that financial assets not measured at fair value through profit or loss were reduced in their recoverable value. A financial asset or group of financial assets presents a reduction in its recoverable amount when objective evidence shows that a loss event occurred after the initial recognition of the asset (s) and that the loss event had an impact on the cash flows. cash of the asset (s) that could be estimated safely.
Objective evidence that financial assets have had a decline in their recoverable value include:
- significant financial difficulty of a debtor or issuer;
- default or default by a debtor;
- the restructuring of a loan or advance by the Bank under conditions which the Bank would not consider as interesting to carry out;
- indications that a debtor or issuer could go bankrupt;
- the disappearance of an active market for a security; or
- observable data related to a group of assets, such as adverse changes in the payment status of borrowers or issuers in the group, or economic conditions correlated with default in the group.
Loans that have been renegotiated due to deterioration in the debtor's condition are generally considered as reduced to recoverable value unless there is evidence that the risk of not receiving the contractual cash flows has been significantly reduced and there is no other indicator of impairment.
All loans and advances and securities measured at individually significant amortized cost were subject to a specific impairment test. Loans and advances and securities measured at amortized cost not considered as individually significant were collectively tested for impairment by grouping loans and advances and securities at amortized cost with similar credit risk characteristics.
Individual or collective evaluation
An individual measurement of impairment was based on Management's best estimate of the present value of the cash flows expected to be received. In estimating these cash flows, Management has judged the financial position of a debtor and the net realizable value of any underlying collateral. Each asset reduced to its recoverable value was evaluated for its merits, while the test strategy and estimated cash flows considered to be recoverable were approved by the Bank's credit risk managers.
In assessing the need for a collective provision for losses, management considered factors such as credit quality, portfolio size, concentrations and economic factors. To estimate the necessary provision, assumptions were made to define how inherent losses were modeled and to determine the required data parameters, based on historical experience and current economic conditions.
Measurement of impairment
Impairment losses on assets measured at amortized cost were calculated as the difference between the book value and the present value of the estimated future cash flows, discounted at the effective interest rate of the asset. Impairment losses on assets measured at fair value through Other Comprehensive Income were calculated as the difference between book value and fair value.
Reversal of impairment
For assets measured at amortized cost: If an event occurred after the impairment caused a reduction in the value of the impairment loss, the reduction in the impairment loss was reversed through profit or loss.
For debt securities measured at fair value through Other Comprehensive Income: If, in a subsequent period, the fair value of a debt security reduced to recoverable value has increased and this increase could be objectively tied to an event occurring after recognition of the impairment loss, the impairment loss was reversed through profit or loss; otherwise, any increase in fair value was recognized through Other Comprehensive Income.
Any subsequent recovery in the fair value of an equity instrument measured at fair value through Other Comprehensive Income and reduced to recoverable value was recognized at any time in Other Comprehensive Income.
The reconciliation of stockholders' equity resulting from the initial adoption of IFRS 9 is as follows:
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Designation at fair value through profit or loss
Financial assets
At initial recognition, the Bank designated certain financial assets at fair value through profit or loss, as this designation eliminates or significantly reduces accounting mismatch that may arise.
Values of expected credit losses
Information, assumptions and techniques used in the estimation of impairment
Classification of financial instruments by stages
The portfolio of financial instruments subject to impairment is divided into three levels, based on the stage of each instrument related to its level of credit risk:
- Stage 1: It is understood that a financial instrument at this stage does not have a significant increase in risk since its initial recognition. The provision on this asset represents the expected loss resulting from possible default during the next 12 months;
- Stage 2: If a significant increase in risk has been identified since the initial recognition, without materializing deterioration, the financial instrument will be framed within this stage. In this case, the amount referring to the provision for expected loss for delinquency reflects the estimated loss of the residual life of the financial instrument. For the assessment of the significant increase in credit risk, the quantitative measurement indicators used in the normal management of credit risk will be used, as well as other qualitative variables, such as the indication of being an undeveloped operation if considered as refinanced or included operations in a special agreement; and
- Stage 3: A financial instrument is recorded within this stage when it shows signs of deterioration evident as a result of one or more events that have already occurred and which materialize at a loss. In this case, the amount relating to the provision for losses reflects the expected losses due to credit risk over the expected residual life of the financial instrument.
Impairment estimation methodology
The measurement of the expected loss is made through the following factors:
- Exposure at Default or EAD: is the transaction value exposed to credit risk, including the current available balance balance that could be provided at the time of default. The models developed incorporate assumptions about the changes in the payment schedule of operations.
- Probability of Default (PD): is defined as the probability that the counterparty can meet its obligations to pay the principal and / or interest. For the purposes of IFRS 9, both will be considered: PD - 12 months (Stage 1), which is the probability that the financial instrument will default during the next 12 months as well as PD - life time (Stage 2 and 3), which considers the probability that the transaction between in default between the balance sheet date and the residual maturity date of the transaction. The standard requires that future information relevant to the estimation of these parameters should be considered.
- Losses given default (LGD): is the resulting loss in the event of default, that is, the percentage of exposure that can not be recovered in the event of default. It depends mainly on the guarantees associated with the operation, which are considered as risk mitigation factors associated with each credit financial asset and the expected future cash flows to be recovered. As established in the regulations, future information should be taken into account for its estimation.
- Discount rate: is the rate applied to estimated future cash flows over the expected life of the asset, to bring them to present value.
In order to estimate the aforementioned parameters, the Bank has applied its experience in the development of internal models for the calculation of parameters both for the purposes of the regulatory environment and for internal management.
Definition of default
The Bank considers that a financial asset is in a default situation when:
- it is likely that the debtor will not fully pay its credit obligations to the Bank; or
- the debtor has significant credit obligations to the Bank overdue for more than 90 days as a general rule.
Overdrafts are considered past due if the customer violates a recommended limit or has been granted a lower limit than the current outstanding amount.
When assessing whether a debtor is in default, the Bank considers indicators:
- qualitative - eg breaches of covenants;
- quantitative - for example, the status of past due and non-payment of another obligation of the same issuer to the Bank; and
- based on data collected internally and obtained from external sources.
Allowance for losses
The following tables present the reconciliations of the opening and closing balances of the provision for losses by category of financial instrument. The terms expected credit losses in 12 months, expected credit losses during the maturity and impairment losses recoverable amounts are explained in the accounting practices note. The values for December 31, 2017 represent a provision for loan losses and reflect the measurement basis in accordance with IAS 39.
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As of January 1, 2018, the Allowance for Loan Losses balance related to IFRS 9 segregated by stages was represented by: Stage 1 – 20%, Stage 2 – 15% and Stage 3 – 65%. The segregation in stages related December 31, 2019, is in note 9.c.
Financial Assets and Liabilities
A. Classification of Financial Assets and Liabilities at the Initial Adoption of IFRS 9
The table below presents the financial assets classified in accordance with IAS 39 and the new measurement categories in accordance with IFRS 9.
IFRS 9 adoption first adoption effects on the Financial Assets and Liabilities (In R$ Millions) | Original classification in accordance with IAS 39 | Balance 12/31/2017 | Reclassifications | Remeasurement | Balance 01/01/2018 | New classification in accordance with IFRS 9 | |
Financial Assets | IAS 39 | Loans and receivables | 355,246,574 | 354,317,416 | - | 354,317,416 | Measured at Amortized cost |
492,429 | 5,197 | 497,626 | Measured Mandatorily Measured At Fair Value Through Profit Or Loss | ||||
436,729 | (7,179) | 429,550 | Measured at Fair value through other comprehensive income | ||||
Available-for-sale | 85,823,384 | 4,762,234 | 3,791 | 4,766,025 | Measured at Amortized cost | ||
79,954,513 | - | 79,954,513 | Measured at Fair value through other comprehensive income | ||||
1,106,637 | 15,997 | 1,122,634 | Measured at Fair value through profit and loss | ||||
Held to maturity investments | 10,214,454 | 10,214,454 | - | 10,214,454 | Measured at Amortized cost | ||
Held for trading | 86,271,097 | 86,271,097 | - | 86,271,097 | Measured at Fair value through profit and loss Held For Trading | ||
Other financial assets measured at fair value through profit and loss | 1,692,057 | 1,692,057 | - | 1,692,057 | Measured at Fair value through profit and loss | ||
Total (1) | 539,247,566 | 539,247,566 | 17,806 | 539,265,372 |
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IFRS 9 adoption first adoption effects on the Financial Assets and Liabilities (In R$ Millions) | Original classification in accordance with IAS 39 | Balance 12/31/2017 | Reclassifications | Remeasurement | Balance 01/01/2018 | New classification in accordance with IFRS 9 | |||
Financial liabilities | IAS 39 | Held for trading | 49,322,546 | - | - | 49,322,546 | Measured At Fair Value Through Profit Or Loss Held For Trading | ||
Amortized cost | 478,880,704 | - | - | 478,880,704 | Measured at Amortized cost | ||||
Total | 528,203,250 | - | - | 528,203,250 |
iv.iii. Provisions for pension funds
Defined benefit plans are recorded based on an actuarial study, performedcarried out annually by a specialized company, at the end of each year, effective for the subsequent period and are recognized in the consolidated income statement of income under Interest and similar expenses and Provisions (net).
The present value of thea defined benefit obligation is the present value, without deduction ofless any plan assets, from theof expected future payments requirednecessary to settle the obligation resulting from the employee'semployee service in current and past periods.
Additional details arecan be found in note 2.x of2.w to the Consolidated Financial Statements as of December 31, 2019.2021.
v. iv. Provisions, assets and contingent liabilities
Provisions for judicial and administrative proceedings are constituted when the risk of loss of the judicial or administrative action is assessed as probable and the amounts involved are measurable with sufficient security, based on the nature, complexity and history of the actions and the opinion of the legal advisors internal and external.
Explanatory note 2.r2.q to the Bank's consolidated financial statements for the year ended December 31, 2019,2021, features information on provisions and contingent assets and liabilities. There were no significant changes in provisions and contingent assets and liabilities of the Bank between December 31, 20182020 and December 31, 2019,2021, the date of preparation of these consolidated financial statements.
vi.v. Goodwill
The goodwill recorded is subject to the impairment test, at least once a year or in a shorter period, in the event of any indication of impairment of the asset.
The basis used for the recoverability test is the value in use and, for this purpose, the cash flow is estimated for a period of 5 years. Cash flow was prepared considering several factors, such as: (i) macroeconomic projections of interest rates, inflation, exchange rate and others; (ii) behavior and growth estimates of the national financial system; (iii) increased costs, returns, synergies and investment plan; (iv) customer behavior; and (v) growth rate and adjustments applied to flows in perpetuity. The adoption of these estimates involves the probability of future events occurring and the alteration of any of these factors could have a different result. The cash flow estimate is based on a valuation prepared by an independent expert annually or whenever there is evidence of a reduction in its recoverable amount, which is reviewed and approved by Management.
management.
Further details are in note 13.
vi. Expectation of realization of tax credits
Deferred tax assets and liabilities include temporary differences, identified as the amounts expected to be paid or recovered on differences between the book values of assets and liabilities and their respective calculation bases, and accumulated tax credits and losses and the negative CSLL base. These amounts are measured at the rates expected to be applied in the period in which the asset is realized or the liability is settled. Deferred tax assets are only recognized for temporary differences to the extent that it is considered probable that the consolidated entities will have sufficient future taxable profits against which the deferred tax assets can be used, and the deferred tax assets do not result from the initial recognition (except in a business combination) of other assets and liabilities in an operation that affects neither taxable income nor taxable income. Other deferred tax assets (tax credits and accumulated tax losses) are only recognized if it is considered probable that the consolidated entities will have sufficient future taxable profits to be used.
Consolidated Financial Statements | December 31, 2021 | F-15 |
* Values expressed in thousands, except when indicated. |
Deferred tax assets and liabilities recognized are revalued on the date of each balance sheet, making appropriate adjustments based on the findings of the analyzes carried out. The expectation of realization of the Bank's deferred tax assets is based on projections of future results and based on a technical study.
For further details, see note 2.z to the Consolidated Financial Statements of December 31, 2021.
2. | Accounting policies and method of measurement |
The accounting policies and method of measurement applied in preparing the consolidated financial statements were as follows:
a) Foreign currency transactions
The financial statements are presented in Brazilian Reais, the functional and reporting currency of Banco Santander and its subsidiaries.
The assets and liabilities and foreign subsidiary are converted to Real as follows:
- Assets and liabilities are translated at the exchange rate at the balance sheets date.
- Revenues and expenses are translated at the monthly average exchange rates.
- Gain and losses on translation of net investment are recorded in the statement of comprehensive income, in “exchange rate of investees located abroad”.
b) Basis of consolidation
i. Subsidiaries
“Subsidiaries” are defined as entities over which the Bank has control. Control is based on whether the Bank has: i) power over the investee; ii) exposure, or rights, to variable returns from its involvement with the investee; and iii) the ability to use its power over the investee to affect the amount of the returns, as set forth in the law, the Bylaws or agreement.
Consolidation of a subsidiary begins when the Bank obtains control over the subsidiary and ceases when the Bank loses control of the subsidiary. Specifically, income and expense of a subsidiary acquired or disposed during the year are included in the consolidated income statement and other comprehensive income from the date the Bank gains controls until the date when the Bank ceases to control the
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subsidiary.
Profit or loss and each component of Other Comprehensive Income are attributed to the owners of the Bank and to the non-controlling interests even if the effect is attributed to non-controlling interests. Total comprehensive income of subsidiaries is attributed to the owners of the Bank and to the non-controlling interest even if this generates a negative balance for non-controlling interests. All transactions, balances, income and expenses between the companies of the Santander Group are eliminated in the consolidated financial statements.
Changes in the Santander Group’s interest in a subsidiary that do not result in loss of control are registered as equity transactions. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognized directly in equity and attributed to owners of the Company.
When the Bank loses control of a subsidiary,controlled delivery, or the profit or loss on disposal is calculated asrecognized in the income statement and is the difference betweenbetween: (i) the aggregatesum of the fair value of the considerationdeliveries received and the fair value of any retained interestthe residual interest; and (ii) the previous carrying amountprior balance of the assets (including goodwill), and liabilities of the subsidiary and any non-controlling interests. Amountsnon-equity interests, if any. All amounts previously recognized in other comprehensive income in relation“Other Comprehensive Income” related to are accounted for as if the Bank had directly disposed of the corresponding assets or liabilities of the subsidiary are registered (i.e., reclassified to income statement or transferred directly to retained earnings) in the same manneranother equity account, as it would be required if the relevant assetsmandatory or liabilities are disposed of.mandatory authorized by IFRS). The fair value of anyan investment retained inheld on the former subsidiary at the date whenof loss of control got lost is considered as the fair value on initial recognition for subsequent accounting under IAS 39IFRS 9 Financial Instruments: Recognition and MeasurementInstruments or, when applicable, the costsrecognition on initial recognition of an investment in an associate or jointly controlled entity.joint venture.
ii. Interests in joint ventures (jointly controlled entities) and associates
Joint ventures mean interests in entities that are not subsidiaries but which are jointly controlled by two or more unrelated entities. This is evidenced by contractual arrangements whereby two or more entities (“ventures”) acquire interests in entities (jointly controlled entities) so that strategic financial and operating decisions affecting the joint venture require the unanimous consent of the ventures.
Consolidated Financial Statements | December 31, 2021 | F-16 |
* Values expressed in thousands, except when indicated. |
Associates are entities over which the Bank is in a position to exercise significant influence (significant influence is the power to participate in the financial and operating decisions of the investee) but it does not control or has joint control over the investee.
In the consolidated financial statements, interest in joint ventures and investments in associates are registered using the equity method, i.e. at the Bank’s share of net assets of the investee, after taking into consideration the dividends received from capital reductions and other related transactions. Relevant information regarding companies registered under the equity method by the Bank is provided in note 11.
iii. Business combinations, acquisitions and disposals
A business combination is the combination of two or more separate entities or economic units into one single entity or group of entities and is registered in accordance with IFRS 3 - “Business Combinations”.
Business combinations are carried out so that the Bank obtains control over an entity and are recognized for accounting purposes as follow:
• The Bank measures the cost of the business combination, defined as the fair value of the assets offered, the liabilities incurred and the equity instruments issued, if any.
• The fair values of the assets, liabilities and contingent liabilities of the acquired entity or business, including any intangible assets which might not have been recognized by the acquiree, are estimated at the acquisition date and recognized in the consolidated financial statement.
• The excess of the acquisition cost over the fair value of the identifiable net assets acquired are recognized as goodwill (note 13). The excess of fair value of the identifiable net assets over the acquisition cost is an advantageous purchase gain and it is recorded as income on the date of the acquisition.
The note 3 includes a description of the most significant transaction carried out in 2018, 20172021, 2020 and 2016.2019.
iv. Investment Funds
These include investment funds in which the Santander Group companies hold a substantial interest or the entirety of the interests and are therefore exposed to, or have rights, to variable returns and have the ability to affect those returns through power over the fund, in accordance with IFRS 10 - Consolidated Financial Statements and are therefore, consolidated in these financial statements.
c) Definitions and classification of financial instruments
i. Definitions
“Financial instrument” is any contract that gives rise to a financial asset of one entity and, simultaneously, to a financial liability or financial interest of another entity.
“Equity instrument” is any agreement that evidences a residual interest in the asset of the issuing entity after deducting all of its liabilities.
“Financial derivative” is a financial instrument whose value changes in response to the change in an observable market variable (such as an interest rate, foreign exchange rate, financial instrument price, market index or credit rating), whose initial investment is zero or very small compared with other financial instruments with a similar response to changes in market factors, and which is settled at a future date.
“Hybrid financial instruments” are contracts that simultaneously include a non-derivative host contract together with a derivative, known as an embedded derivative, that is not separately transferable and has the effect to make part of the cash flow of the hybrid contract vary similar to a stand-alone derivative.
The following transactions are not treated for accounting purposes as financial instruments:
Consolidated Financial Statements | December 31, 2021 | F-17 |
* Values expressed in thousands, except when indicated. |
• Investments in subsidiaries, jointly controlled entities and associates (note 3&11).
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• Rights and obligations under employee benefit plans (note 22)21).
ii. Classification of financial assets for measurement purposes
Financial assets are initially classified into the various categories used for management and measurement purposes, unless they have to be presented as Non-current assetsAssets held for sale or they relate to Cash, cash balances at Central Banks and other deposits on demand, Changes in the fair value of hedged items in portfolio hedges of interest rate risk (asset side), Hedging derivatives and Investments, which are reported separately.
Financial assets are included for measurement purposes in one of the following categories:
• Financial Assets Measured Atat Fair Value Through Profit Oror Loss Held Forfor Trading: this category includes the financial assets acquired to generate short-term profit resulting from the fluctuation of its prices and financial derivatives not classified as hedging instruments, whose primary intention of the Bank is to trade them frequently.
• Financial Assets Measured Atat Fair Value Through Profit Oror Loss: this category includes the financial assets that did not meet the pre-established criteria when evaluating the SPPI Test (Solely Payment of Principal and Interest).
• Non-Trading Financial Assets Mandatorily Measured Atat Fair Value Through Profit Oror Loss: this category includes the financial assets that at the time of initial designation was made the fair value option.
• Other Financial Assets AtMeasured at Fair Value Through Profit Or Loss (applicable for comparatives): this category includes hybrid financial assets not held for trading that are measured entirely at fair value and financial assets not held for trading that are included in this category in order to provide more relevant information, either because this eliminates or significantly reduces recognition or measurement inconsistencies (accounting mismatches) that would otherwise arise from measuring assets or liabilities or recognizing the gains or losses on them on different bases, or because a group of financial assets or financial assets and liabilities is managed and its performance is evaluated on a fair value basis, in accordance with a documented risk management or investment strategy, and information about the group is provided on that basis to the Group's key management personnel.
Financial instruments included in this category (and “Other financial liabilities at fair value through profit or loss”) are permanently subject to a consistent system of measurement, manage and control of all risks and returns that enables all the financial instruments involved to be identified and monitored and allows the effective reduction of risk checked. Financial assets may only be included in this category on the date they are acquired or originated.
• Financial Assets Measured At Fair Value Through Profit Or Loss: are stated at fair value. This category does not include debt instruments classified as “Held-to-maturity investments” or “Financial assets at fair value through profit or loss”, and equity instruments issued by entities other than subsidiaries, associates and jointly controlled entities, provided that such instruments have not been classified as “Financial assets held for trading” or as “Other financial assets at fair value through profit or loss”.
The results risingResults arising from changes in fair value are recognized at the Financial Assets Measured At Fair Value Through Other Comprehensive Income line in the Shareholders´item adjustment to market value in equity, except for cumulativewith the exception of impairment losses, which are recognized in statement of profit or loss. When the investment is solddisposed of or has evidencesevidence of decreases on thea decline in fair value due to impairment,non-recovery, the result previously recognized result ataccumulated in the same Shareholders´ Equity line, mentioned aboveaccount of adjustments to fair value in equity is reclassified to the statement of profit or loss.income.
• Financial Assets Measured Atat Amortized Cost: this category includes financing granted to third parties, based on their nature, irrespective of the type of borrower and the form of financing, including finance lease transactions in which the consolidated entities act as lessors. The consolidated entities generally intend to hold the loans and credits granted by them until their final maturity and, therefore, they are presented in the consolidated balance sheets at their amortized cost (which includes the required adjustments to reflect estimated impairment losses).
• Held-to-maturity investments(applicable for comparatives): this category includes debt instruments traded in an active market, with fixed maturity and with fixed or determinable payments, for which the Bank has both the intention and proven ability to hold to maturity. These investments are measured at amortized cost less any impairment, with revenue recognized on an effective yield basis.
iii. Classification of financial assets for presentation purposes
Financial assets are classified by nature into the following headings in the consolidated financial statements:
• Cash and balances with the Bacen: cash balances and balances receivable on demand relating to deposits with Bacen and credit institutions.
Consolidated Financial Statements | December 31, 2021 | F-18 |
* Values expressed in thousands, except when indicated. |
• Financial Assets Measured At Amortized Cost: includes the debit balances of all credit and loans granted by the Bank, other than those represented by securities, as well as finance lease receivables and other debit balances of a financial nature in favor of the Bank, such as checks drawn on credit institutions, balances receivable from clearing houses and settlement agencies for transactions on the stock exchange and organized markets, bonds given in cash, capital calls, fees and commissions receivable for financial guarantees and debit balances arising from transactions not originating in banking transactions and services, such as the collection of rentals and similar itemsitems.
• Loans and other amounts with credit institutions: credit of any nature in the name of financial institutions.
• Loans and advances to clients: includes debit balances of all the remaining credit and loans granted by the Bank, including money market operations through centralized counterparties.
• Debt instruments: bonds and other securities that represent a debt for their issuer, that generate an interest return, and that are in the form of certificates or book entries.
• Equity instruments: Financial instruments issued by other entities, such as shares, which have the nature of equity instruments for the issuer, other than investments in subsidiaries, joint ventures or associates. Investment fund units are included in this item.
• Trading derivatives: includes the fair value in favor of the Bank of derivatives which do not form part of hedge accounting.
• Hedging derivatives: includes the fair value in favor of the Bank of derivatives designated as hedging instruments in hedge accounting.
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• Investments in associates and jointly controlled companies: includes the investments made in the share capital of associates and jointly controlled companies.
iv. Classification of financial liabilities for measurement purposes
Financial liabilities are classified for measurement purposes into one of the following categories:
• Other Financial Assets At Fair Value Through Profit Or Loss: this category includes financial liabilities incurred for the purpose of generating a profit in the near term from fluctuations in their prices, financial derivatives not designated as hedging instruments, and financial liabilities arising from the outright sale of financial assets acquired under reverse repurchase agreements ("reverse repos") or borrowed (short positions).
• Other Financial Assets At Fair Value Through Profit Or Loss: financial liabilities are included in this category when they provide more relevant information, either because this eliminates or significantly reduces recognition or measurement inconsistencies (accounting mismatches) that would otherwise arise from measuring assets or liabilities or recognizing the gains or losses on them on different bases, or because a group of financial liabilities or financial assets and liabilities is managed and its performance is evaluated on a fair value basis, in accordance with a documented risk management or investment strategy, and information about the group is provided on that basis to the Group's key management personnel.
• Financial liabilities at amortized cost: financial liabilities, irrespective of their instrumentation and maturity, not included in any of the above-mentioned categories which arise from the ordinary borrowing activities carried on by financial institutions.
v. Classification of financial liabilities for presentation purposes
Financial liabilities are classified by nature into the following items in the consolidated financial statements:
• Deposits from Bacen: deposits of any nature received from Bacen.
• Deposits from credit institutions: deposits of any nature, including credit received and money market operations in the name of credit institutions.
• Client deposits: includes deposits of any nature such as demand deposits, saving deposits and time deposits including money market operation received from client.
• Marketable debt securities: includes the amount of bonds and other debt represented by marketable securities, other than subordinated liabilities.
Consolidated Financial Statements | December 31, 2021 | F-19 |
* Values expressed in thousands, except when indicated. |
• Trading derivatives: includes the fair value, with a negative balance for the Bank, of derivatives which do not form part of hedge accounting.
• Short positions: includes the amount of financial liabilities arising from the outright sale of financial assets purchased under reverse repurchase agreements or borrowed.
• Subordinated liabilities: amount of financing received which, for the purposes of payment priority, ranks behind ordinary debt. This category also includes the financial instruments issued by the Bank which, although equity for legal purposes, do not meet the requirements for classification as equity.
• Other financial liabilities: includes the amount of payment obligations having the nature of financial liabilities not included in other items, and liabilities under financial guarantee contracts, unless they have been classified as non-performing.
• Hedging derivatives: includes the fair value of the Bank's liability in respect of derivatives, including embedded derivatives separated from hybrid financial instruments, designated as hedging instruments in hedge accounting.
•Equity instruments: financial instruments issued by other entities, such as shares, with the nature of equity instruments for the issuer, except investments in subsidiaries, jointly controlled entities or associates.
d) Funding, debt notes issued and other liabilities
Funding debt rates and other liabilities Instruments are recognized initially at fair value, considered primarily as the transaction price. They are subsequently measured at amortized cost and its expenses are recognized as a financial cost.
Among the liabilities initial recognition methods, it is important to emphasize those compound financial instruments which are classified as such due to the fact that the instruments contain both, a debt instrument (liability) and an embedded equity component (derivative).
The recognition of a compound instrument consists of a combination of (i) a main instrument, which is recognized as an entity’s genuine liability (debt) and (ii) an equity component (derivative convertible into ordinary share).
The issue of "Notes" must be registered in specific heading liabilities and updated according to the agreed rates and adjusted by the effect of exchange rate variations, when denominated in foreign currency. All remuneration related to these instruments, such as interest and Exchange variation (difference between the functional currency and the currency in which the instrument was named) shall be recognized as expenses for the period, according to the accrual basis.
The relevant details of these issued instruments are described in explanatory note 20.19.
e) Measurement of financial assets and liabilities and recognition of fair value changes
In general, financial assets and liabilities are initially recognized at fair value which, in the absence of evidence to the contrary, is deemed to be the transaction price. Financial instruments not measured at fair value through profit or loss, are adjusted by the transaction costs. Financial assets and liabilities are subsequently measured at each period-end as follows:
i. Measurement of financial assets
Financial assets are measured at fair value, without deduction of estimated costs of transaction that may be incurred on their disposal, except for loans and receivables, held-to-maturity investments, equity instruments whose fair value cannot be determined in a sufficiently objective manner and financial derivatives that have as equity instruments subject and are settled by delivery of those instruments.
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The fair value of a financial instrument on a given date is taken to be the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. The most objective and common reference for the fair value of a financial instrument is the price that would be paid for it on an active, transparent and deep market (quoted price or market price).
If there is no market price for a given financial instrument, its fair value is estimated on the basis of valuation techniques commonly used by the international financial community, according to the specific features of the instrument to be measured and, particularly, the various types of risk associated with it.
Consolidated Financial Statements | December 31, 2021 | F-20 |
* Values expressed in thousands, except when indicated. |
All derivatives are recognized in the balance sheets at fair value from the trade date. If the fair value is positive, they are recognized as assets and if the fair value is negative, they are recognized as liabilities. The changes in the fair value of derivatives from the trade date are recognized in “Gains (losses) on financial assets and liabilities” in the consolidated income statement. Specifically, the fair value of standard financial derivatives included in the portfolios of financial assets or liabilities held for trading is deemed to be their daily quoted price and if, for exceptional reasons, the quoted price cannot be determined on a given date, these financial derivatives are measured using methods similar to those used to measure over the counter “OTC” derivatives.
The fair value of OTC derivatives is taken to be the sum of the future cash flows arising from the instrument, discounted to present value at the date of measurement (“present value” or “theoretical close”) using valuation techniques commonly used by the financial markets: “net present value” (NPV), option pricing models and other methods.
“Financial Assets Measured At Amortized Cost” and “Held-to-maturity investments” are measured at amortized cost using the effective interest method. “Amortized cost” is the acquisition cost of a financial asset or liability plus or minus, as appropriate, the principal repayments and the cumulative amortization (taken to the income statement) between the difference of the initial cost and the maturity amount. In the case of financial assets, amortized cost furthermore includes any reductions for impairment or uncollectibility. In the case of loans and receivables hedged in fair value hedges, the changes in the fair value of these assets related to the risk or risks being hedged are recognized.
The “effective interest rate” is the discount rate that exactly matches the initial amount of a financial instrument to all its estimated cash flows of all kinds over its remaining life. For fixed rate financial instruments, the effective interest rate coincides with the contractual interest rate established on the acquisition date plus, where applicable, the fees and transaction costs that, because of their nature, form part of their financial return. In the case of floating rate financial instruments, the effective interest rate coincides with the rate of return prevailing in all connections until the next benchmark interest reset date.
Equity instruments whose fair value cannot be determined in a sufficiently objective manner are measured at acquisition cost adjusted, where appropriate, by any related impairment loss.
The amounts at which the financial assets are recognized represent, in all material respects, the Bank’s maximum exposure to credit risk at each reporting date. Also, the Bank has received collateral and other credit enhancements to mitigate its exposure to credit risk, which consist mainly of mortgage guarantees, cash collateral, equity instruments and personal security, assets leased out under leasing and renting agreements, assets acquired under repurchase agreements and securities loans and derivatives.
ii. Measurement of financial liabilities
In general, financial liabilities are measured at amortized cost, as defined above, except for those included under “Financial Assets Measured Atat Fair Value Through Profit Oror Loss” and “Other financial liabilities at fair value through profit or loss” and financial liabilities designated as hedge items (or hedging instruments) in fair value hedges, which are measured at fair value.
iii. Recognition of fair value changes
As a general rule, changes in the carrying amount of financial assets and liabilities are recognized in the consolidated income statement, distinguishing between those arising from the accrual of interest and similar items -which are recognized under “Interest and similar income” or “Interest expense and similar charges”, as appropriate - and those arising for other reasons, which are recognized at their net amount in the heading “Gains (losses) on financial assets and liabilities (net)”.
Adjustments due to changes in fair value arising from Available-for-sale financial assets are recognized temporarily in equity in then heading “Other Comprehensive Income”. Items charged or credited to this account remain in the Bank’s consolidated equity until the related assets are written-off, whereupon they are charged to the consolidated income statement.
iv. Hedging transactions
The consolidated entities use financial derivatives for the following purposes: i) to provide these instruments to clients who request them in the management of their market and credit risks; ii) to use these derivatives in the management of the risks of the Bank entities' own positions and assets and liabilities (“hedging derivatives”); and iii) to obtain gains from changes in the prices of these derivatives (“financial derivatives”).
Financial derivatives that do not qualify for hedge accounting are treated for accounting purposes as trading derivatives.
Consolidated Financial Statements | December 31, 2021 | F-21 |
* Values expressed in thousands, except when indicated. |
A derivative qualifies for hedge accounting if all the following conditions are met:
1. The derivative hedges one of the following three types of exposure:
a. Changes in the fair value of assets and liabilities due to fluctuations, among other, in the interest rate and/or exchange rate to which the position or balance to be hedged is subject (“fair value hedge”);
b. Changes in the estimated cash flows arising from financial assets and liabilities, commitments and highly probable forecast transactions (“cash flow hedge”);
c. The net investment in a foreign operation (hedge of a net investment in a foreign operation).
2. It is effective in offsetting exposure inherent in the hedged item or position throughout the expected term of the hedge, which means that:
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a. At the date of arrangement the hedge is expected, under normal conditions, to be highly effective (prospective effectiveness).
b. There is sufficient evidence that the hedge was actually effective during the whole life of the hedged item or position (retrospective effectiveness).
3. There must be adequate documentation evidencing the specific designation of the financial derivative to hedge certain balances or transactions and how this effective hedge was expected to be achieved and measured, provided that this is consistent with the Bank’s management of own risks.
The changes in value of financial instruments qualifying for hedge accounting are recognized as follows:
a. In fair value hedges, the gains or losses arising on both the hedging instruments and the hedged items (attributable to the type of risk being hedged) are recognized directly in the consolidated income statement.
b. In cash flow hedges, the effective portion of the change in value of the hedging instrument is recognized temporarily in equity under “Other comprehensive Income - Cash flow hedges” until the forecast transactions occur, when it is recognized in the consolidated income statement, unless, if the forecast transactions result in the recognition of non-financial assets or liabilities, it is included in the cost of the non-financial asset or liability. The ineffective portion of the change in value of hedging derivatives is recognized directly in the consolidated income statement.
c. The ineffective portion of the gains and losses on the hedging instruments of cash flow hedges and hedges of a net investment in a foreign operation are recognized directly under “Gains (losses) on financial assets and liabilities (net)” in the consolidated income statement.
If a derivative designated as a hedge instrument no longer meets the requirements described above due to expiration, ineffectiveness or for any other reason, the derivative is classified as a derivative measured at fair value through profit or loss.
When fair value hedge accounting is discontinued (expired, sold our no longer meet hedge accounting criteria) the adjustments previously recognized on the hedged item are transferred to profit or loss at the effective interest rate re-calculated at the date of hedge discontinuation. The adjustments must be fully amortized at maturity.
When cash flow hedges are discontinued, any cumulative gain or loss on the hedging instrument recognized in equity in the heading "Other comprehensive Income” (from the period when the hedge was effective) remains recognized in equity until the forecast transaction occurs at which time it is recognized in profit or loss, unless the transaction is no longer expected to occur, in which case any cumulative gain or loss is recognized immediately in profit or loss.
For the accounting and disclosure of the hedge accounting structures as of December 31, 2019, the bank used the faculty of IFRS 9, to maintain the practices determined by IAS 39.
f) Settlement of financial assets and liabilities
Write-off of Financial Assets
The Bank derecognizes a financial asset when the contractual rights to the cash flows from the asset expire or when it transfers the rights to receive the contractual cash flows in a transaction in which essentially all the risks and rewards of ownership of the financial asset are transferred or in which the Bank does not transfer or retain substantially all the risks and rewards of ownership of the financial asset and does not control the financial asset.
Consolidated Financial Statements | December 31, 2021 | F-22 |
* Values expressed in thousands, except when indicated. |
On derecognition of a financial asset, the difference between the carrying amount of the asset (or carrying amount allocated to the portion of the asset derecognized) and the sum of (i) the consideration received (including any new asset obtained, less any new liability assumed) and (ii) any accumulated gains or losses recognized in “Other Comprehensive Income” are recorded in income.
As of the IFRS opening date, mentioned above, any accumulated gains/losses recognized in “Other Comprehensive Income” in relation to equity instruments designated at fair value through Other Comprehensive Income are not recorded in income upon derecognition of these securities.
The Bank carries out operations in which it transfers the assets recognized in its balance sheet, but retains all or substantially all the risks and benefits of the transferred assets or part of them. In these cases, the transferred assets are not written off. Examples of these operations include assignments of loan portfolios with recourse. In transactions in which the Bank does not retain or transfer substantially all the risks and rewards of ownership of a financial asset and controls the asset, the Bank continues to recognize the asset to the extent of its continuing involvement, determined by the extent to which it is exposed to changes in the value of the transferred asset.
Write-off of Financial Assets by Assignment of Credit
The accounting treatment of transfers of financial assets depends on the extent to which the risks and rewards associated with the transferred assets are transferred to third parties:
1. If the Bank transfers substantially all the risks and rewards to third parties-unconditional sale of financial assets, sale of financial assets under an agreement to repurchase them at their fair value at the date of repurchase, sale of financial assets with a purchased call option or written put option that is deeply out of the money, securitization of assets in which the transferor does not retain a subordinated debt or grant any credit enhancement to the new holders, and other similar cases, the transferred financial asset is derecognized and any rights or obligations retained or created in the transfer are recognized simultaneously.
2. If the Bank retains substantially all the risks and rewards associated with the transferred financial asset -sale of financial assets under an agreement to repurchase them at a fixed price or at the sale price plus interest, a securities lending agreement in which the borrower undertakes to return the same or similar assets, and other similar cases, the transferred financial asset is not derecognized and continues to be measured by the same criteria as those used before the transfer. However, the following items are recognized:
a. An associated financial liability, for an amount equal to the consideration received; this liability is subsequently measured at amortized cost.
b. The income from the transferred financial asset not derecognized and any expense incurred on the new financial liability.
3. If the Bank neither transfers or retains substantially all the risks and rewards associated with the transferred financial asset - sale of financial assets with a purchased call option or written put option that is not deeply in or out of the money, securitization of assets in which the transferor retains a subordinated debt or other type of credit enhancement for a portion of the transferred asset, and other similar cases, the following distinction is made:
a. If the transferor does not retain control of the transferred financial asset, the asset is derecognized and any rights or obligations retained or created in the transfer are recognized.
b. If the transferor retains control, it continues to recognize the transferred financial asset for an amount equal to its exposure to changes in value and recognizes a financial liability associated with the transferred financial asset. The net carrying amount of the transferred asset and the associated liability is the amortized cost of the rights and obligations retained, if the transferred asset is measured at amortized cost, or the fair value of the rights and obligations retained, if the transferred asset is measured at fair value.
Write-off of Financial Liabilities
The Bank writes off a financial liability when its contractual obligations are extinguished, canceled or when they expire.
g) Offsetting of financial instruments
Financial asset and liability balances are offset (i.e. reported in the consolidated balance sheets at their net amount) only if the Bank and their subsidiaries currently have a legally enforceable right to set off the recognized amounts and intend either to settle on a net basis, or to realize the asset and settle the liability simultaneously.
Offsetting Agreements and Obligations Settlement (CMN Resolution 3.263/2005) - Thesimultaneously, as provided for in IFRS 7 / IAS 32, additionally the Bank has an agreement for the clearing and settlement of obligations under the National Financial System (SFN), signed with individuals and legal entities, whether or not members
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of the SFN, resulting in higher financial settlement guarantee, with the parties that have this modality of agreement. These agreements establish that payment obligations to Banco Santander arising from credit and derivative operations, in the event of default by the counterparty, will be offset against Banco Santander's payment obligations with the counterparty.
Consolidated Financial Statements | December 31, 2021 | F-23 |
* Values expressed in thousands, except when indicated. |
The following table provides details of financial assets and liabilities subject to offsetting at December 31, 2019, 20182021, 2020 and 2017:2019:
Thousand of reais | 2021 | |||||||||||
Assets: | Financial assets, gross | Financial assets offset in the balance sheet, gross | Financial assets offset in the balance sheet, net | |||||||||
Derivatives | 21,575,848 | (435,925) | 21,139,923 | |||||||||
Liabilities: | Financial liabilities, gross | Financial liabilities offset in the balance sheet, gross | Financial liabilities offset in the balance sheet, net | |||||||||
Derivatives | 25,054,906 | (435,925) | 24,618,981 | |||||||||
Thousand of reais | 2020 | |||||||||||
Assets: | Financial assets, gross | Financial assets offset in the balance sheet, gross | Financial assets offset in the balance sheet, net | |||||||||
Derivatives | 26,808,181 | (560,666) | 26,247,515 | |||||||||
Financial liabilities, gross | Financial liabilities offset in the balance sheet, gross | Financial liabilities offset in the balance sheet, net | ||||||||||
Liabilities: | ||||||||||||
Derivatives | 29,917,498 | (560,666) | 29,356,832 | |||||||||
Thousand of reais | 2019 | |||||||||||
Assets: | Financial assets, gross | Financial assets offset in the balance sheet, gross | Financial assets offset in the balance sheet, net | |||||||||
Derivatives | 19,279,829 | (458,929) | 18,820,900 | |||||||||
Liabilities: | Financial liabilities, gross | Financial liabilities offset in the balance sheet, gross | Financial liabilities offset in the balance sheet, net | |||||||||
Derivatives | 21,264,072 | (458,929) | 20,805,143 |
Thousand of reais | 2019 | ||
Assets: | Financial assets, gross | Financial assets offset in the balance sheet, gross | Financial assets offset in the balance sheet, net |
Derivatives | 20,904,663 | (458,929) | 20,445,734 |
Repurchase agreements | 28,717,976 | - | 28,717,976 |
Liabilities: | Financial liabilities, gross | Financial liabilities offset in the balance sheet, gross | Financial liabilities offset in the balance sheet, net |
Derivatives | 22,888,906 | (458,929) | 22,429,977 |
Repurchase agreements | 103,124,238 | - | 103,124,238 |
Thousand of reais | 2018 | ||
Assets: | Financial assets, gross | Financial assets offset in the balance sheet, gross | Financial assets offset in the balance sheet, net |
Derivatives | 18,667,611 | (304,165) | 18,363,446 |
Repurchase agreements | 44,836,491 | - | 44,836,491 |
Liabilities: | Financial liabilities, gross | Financial liabilities offset in the balance sheet, gross | Financial liabilities offset in the balance sheet, net |
Derivatives | 18,771,000 | (304,165) | 18,466,835 |
Repurchase agreements | 101,647,013 | - | 101,647,013 |
Thousand of reais | 2017 | ||
Assets: | Financial assets, gross | Financial assets offset in the balance sheet, gross | Financial assets offset in the balance sheet, net |
Derivatives | 17,262,888 | - | 17,262,888 |
Repurchase agreements | 34,505,671 | - | 34,505,671 |
Liabilities: | Financial liabilities, gross | Financial liabilities offset in the balance sheet, gross | Financial liabilities offset in the balance sheet, net |
Derivatives | 16,677,486 | - | 16,677,486 |
Repurchase agreements | 97,421,579 | - | 97,421,579 |
h) Regular way of financial assets purchases
Regular way of financial assets purchases are recognized on trade date. The assets are settled when the rights to receive cash flows have expired or the Bank has transferred substantially all the risks and rewards of ownership.
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i) Impairment of financial assets
i. Definition
A financial asset is considered impaired when there is objective evidence that events have occurred which:
• Give rise to an adverse impact on the future cash flows that were estimated at the transaction date, in the case of debt instruments (loans and debt securities);
Consolidated Financial Statements | December 31, 2021 | F-24 |
* Values expressed in thousands, except when indicated. |
• In the case of equity instruments, mean that their carrying amount may not be fully recovered.
• Arising from the violation of terms of loans, and
• During the Bankruptcy process.
As a general rule, the adjustment of the value of the impaired financial instruments is recognized in the consolidated income statement for the period in which the impairment becomes evident, and the reversal, if any, of previously recognized impairment loss is recognized in the consolidated income statement for the period in which the impairment is reversed or reduced.
ii. Debt instruments carried at amortized cost
The amount of an impairment loss incurred for determination of the recoverable amount on a debt instrument measured at amortized cost is equal to the difference between its carrying amount and the present value of its estimated future cash flows (excluding future credit losses that have not been incurred) discounted the original effective interest rate of the financial asset (or the effective interest rate computed at initial recognition), and is presented as a reduction of the asset balance and recorded in income statements.
In estimating the future cash flows of debt instruments the following factors are taken into account:considered:
• All the amounts that are expected to be obtained over the remaining life of the instrument, in this case, the provided guarantees. The impairment loss takes into accountconsiders the likelihood of collecting accrued interest receivable.
• The various types of risk to which each instrument is subject; and
• The circumstances in which collections will foreseeably be made.
These cash flows are subsequently discounted using the instrument's effective interest rate.
Specifically, in regards to recoverable amount losses resulting from materialization of the insolvency risk of the obligors (credit risk), a debt instrument is impaired due to insolvency when there is evidence of a deterioration of the obligor's ability to pay, either because it is in arrears or for other reasons.
The Bank has certain policies, methods and procedures for covering its credit risk arising from insolvency allocable to counterparties.
These policies, methods and procedures are applied in the granting, in the examination and to document debt instruments, and contingent liabilities and commitments, the identification of their recoverable amount and the calculation of the amounts necessary to cover the related credit risk.
The procedures applied in the identification, measurement, control and reduction of the exposure to credit risk, are based on an individual basis or grouped by similarity.
• Clients with individual management: Wholesale clients, financial institutions and certain companies. Risk management is performed through an analysis complemented by tools to support the decision-making based in internal risk assessment.
• Clients with standardized management: individuals and companies not classified as individual clients. Risk management models based on automated decision-making and risk assessment procedure, complemented, when the model is not comprehensive or accurate enough, by teams of analysts specialized in this type of risk. The credits related to clients standardized, are usually considered not recoverable when they have historical loss experience and delay greater than 90 days.
Regarding the provision for impairment losses from credit risk, the Bank evaluates all loans. Loans are either individually or collectively evaluated for impairment. Loans accounted as amortized cost, which are not individually evaluated for impairment, are collectively evaluated for impairment, grouping them considering the similarity of risk. Loans individually evaluated for impairment are not included in balances that are collectively evaluated for impairment.
The Bank first assesses whether objective evidence of impairment loss individually for financial assets are individually significant, and individually or collectively for financial assets are not individually significant.
To measure the impairment loss on loans individually evaluated for impairment, the Bank considers the conditions of the borrower, such as his economic and financial situation, level of indebtedness, ability to generate income, cash flow , management, corporate governance and quality of internal controls, payment history, industry expertise, contingencies and credit limits, as well as characteristics of assets, such as their nature and purpose, type, sufficiency and liquidity level guarantees and total amount of credit, as well as based on historical experience of impairment and other circumstances known at the moment of evaluation.
Consolidated Financial Statements | December 31, 2021 | F-25 |
* Values expressed in thousands, except when indicated. |
To measure the impairment loss on loans collectively evaluated for impairment, the Bank segregates financial assets into groups considering the characteristics and similarity of credit risk, in other words, according to segment, the type of assets, guarantees and other factors associated as the historical experience of impairment and other circumstances known at the time of assessment.
In some cases, the observable data required to estimate the amount of an impairment loss on a financial asset may be limited or no longer fully relevant to current circumstances.
In such cases, an entity uses its experienced judgment to estimate the amount of any impairment loss. Similarly, an entity uses its experienced judgment to adjust observable data for a group of financial assets to reflect current circumstances.
The impairment loss is calculated by using statistical models that consider the following factors:
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• Exposure at default (EAD) is the amount of risk exposure at the date of default by the counterparty. The timing of default is considered in the PD measurement.
• In accordance with IFRS, the exposure at default used for this calculation is the current exposure, as reported in the balance sheets.
• Probability of default, or “PD”, is the probability of the borrower failing to meet its principal and/or interest payment obligations.
PD is measured using a time horizon of one year; that is, it quantifies the probability of the borrower default in the coming year. A loan will be defaulted if either the principal or interest become past due by ninety days or more or the loan is active but there are doubts about the solvency of the counterparty (subjective doubtful assets).
• LossesLoss is given default, or “LGD”, is the loss arising in the event of default.
LGD calculation is based on the net charge offs on defaulted loans, taking into accountconsidering the guarantees/collateral associated with the loans, the income and expenses associated with the recovery process and the timing of default.
• Loss identification period, or "LIP - Loss identification period", is the period of time between the occurrence of a loss event and the identification of evidence of such loss. In other words, it represents the time horizon from the occurrence of the credit loss to the effective confirmation of such loss.
• In addition, prior to loans be written-off (which is only done after the Bank have completed all recovery efforts and after about 360 days late), it is registered fully provision of the loan´s remaining balance so this provision (allowance for loan losses) fully covers the losses. Thus, the Bank concludes that its loan loss allowance methodology has been developed to meet its risk metrics and capture loans that could potentially become impaired.
iii. Debt or equity instruments classified as financial assets measured at fair value through other comprehensive income
The difference between the amortized cost and fair value of debt or equity instruments classified as available for sale are recorded in equity under "Other Comprehensive Income."
When there is objective evidence that the aforementioned differences are due to a prolonged decline in fair value, they are no longer recognized in equity and are reclassified, at the cumulative amount at that date, to the consolidated income statement. Losses from a prolonged decline in fair value relating to an investment in equity instruments are not reversed in subsequent periods.
j) i) Repurchase agreements
Purchases (sales) of financial instruments under a non-optional resale (repurchase) agreement at a fixed price (repos) are recognized in the consolidated financial statements as financing granted (received), based on the nature of the debtor (creditor), under Loans and advances with Bacen, Loans and advances to credit institutions or Loans and advances to clients (Deposits from Bacen, Deposits from credit institutions or Client deposits).
Differences between the purchase and sale prices are recognized as interest over the duration of the contract.
Consolidated Financial Statements | December 31, 2021 | F-26 |
* Values expressed in thousands, except when indicated. |
j) Accounting for leases
As of January 1, 2019, the Bank adopted IFRS 16, which replaces IAS 17.
I. Lease Identification
Upon adoption of IFRS 16, the Bank recognizes lease liabilities, following the principles of IFRS 16 - Leases.
k)The following exemptions from recognition are also being used:
• Accounting for leases with a remaining term of less than 12 months as at 1 January 2019 as short-term leases;
i. Financial • Accounting for leases where the underlying asset is of low value;
Financial• Until January 1, 2019, leases until December 31, 2018, are leases that transferof fixed assets, in which the Bank, as lessee, held substantially all the risks and rewards incidentalof ownership were classified as leases. The balances shown are immaterial.
The Bank leases several properties and equipment. Predominantly, the assets subject to ownershipthe lease agreements are real estate business related to the branches.
Banco Santander does not have right-of-use assets that meet the definition of investment properties.
II. Lease Term
Lease agreements are individually formalized, analyzed and renegotiated and contain a wide range of different terms and conditions. The Bank assesses the term of the contract, as well as the intention to remain in the properties. Thus, time estimates may vary according to contractual conditions, considering extension options, and also according to legal provisions.
The Bank assumes that the fines for contractual termination charged before the due date do not make up a significant portion.
Lease agreements does not contain restrictive clauses, but leased assets cannot be used as collateral for loans.
Consolidated Financial Statements | December 31, 2021 | F-27 |
* Values expressed in thousands, except when indicated. |
III. Initial Measurement
On their initial recording, leases are recognized as a right-of-use asset and a corresponding liability on the date the leased asset becomes available for use by the Group.
The right of use to be recorded is measured at cost as a contra entry to the lessee. From January 1, 2019, see note 1.c.1.
When the consolidated entities act as the lessors of an asset, the sum oflease liability that represents the present value of lease payments that are not made to date. Lease payments are discounted using the lessee's incremental borrowing rate. There is no onerous contract that required an adjustment to the rights of use to be recorded as assets on the date of first-time adoption.
Rights of use are measured at amortized cost in accordance with the following:
• The initial measurement value of the lease liability;
• Any lease payments receivable frommade before or on the commencement date less any incentive received;
• Any directly attributable upfront cost; and
• Restoration costs, if the requirements of IAS 37 are met for recording Provisions, Contingent Liabilities and Contingent Assets.
Grupo Santander uses as an incremental rate the interest rate it would have to pay when borrowing the funds necessary to obtain the asset with a value similar to the asset subject to the lease, for a term, guarantee and similar economic scenarios, represented in Santander Brasil, by the curve cost of funding (funding) of a free asset, applied individually to each contract in accordance with the estimates projected as the lease term.
Lease liabilities include the net present value of the following lease payments:
• Reduced fixed payments of any incentive;
• Variable payments that are based on a rate or index;
• Amounts expected to be paid by the lessee includingbased on the residual value of guarantees;
• The exercise price of a call option, if the lessee’s purchaselessee has reasonable certainty about exercising the option; and
• Payment of penalties for terminating the lease if the term of the transaction reflects the exercise of the option atby the endlessee.
Lease liabilities are mainly adjusted for inflation (IGP-M), whose estimated projections on the base date of December 31, 2021 are presented below:
IGP-M Projection (annual) | |
Until 3 months | 17.8% |
From 3 to 12 months | 6.6% |
From 1 to 3 years | 3.5% |
From 3 to 5 years | 3.5% |
More than 5 years | 3.5% |
IV. Subsequent Measurement
After the initial measurement, the values of the assets recorded as right of use are being updated using the cost method, thus any accumulated depreciation is deducted monthly, in accordance with the criteria of IAS 16 / CPC 27 - Fixed Assets on asset depreciation right of use and corrected any remeasurement of the lease termliability, where applicable.
The lease liability initially recorded is updated monthly by increasing the amount of the liability for the interest portion of each lease agreement and reducing the amount of monthly lease payments and corrected for any lease remeasurement, when such exercise priceapplicable.
The lease liability is sufficiently below fair value at the option date such that it is reasonably certain that the option will be exercised, is recognized as lending to third parties and is therefore included under Financial Assets Measured At Amortized Costremeasured, in the consolidated financial statements.
The finance income arising from these contracts is creditedevent of changes in the heading “Interest and similar income” inlease term or contract value, the consolidated income statement in order to achieve a constant rate of return overamount resulting from the deadlinenew determination of the lease.lease liability is recorded as a contra entry to the corresponding right-of-use asset.
Consolidated Financial Statements | December 31, 2021 | F-28 |
* Values expressed in thousands, except when indicated. |
l) Non-current assets
The effects of the adoption of IFRS 16 have an impact exclusively on the operating segment – Commercial Banking.
k) Assets held for sale
“Non-current assetsAssets held for sale” includes the carrying amount of individual items or disposal groups or items forming part of a business unit earmarked for disposal (“Discontinued operations”), whose sale in their present condition is highly probable and is expected to occur within one year, the property or other non-current assets received by the consolidated entities as total or partial settlement of their debtors' payment obligations to them are deemed to be non-current assets held for sale through the completion of actions which normally occurs up to one year.
Non-current assetsAssets held for sale are measured at the lower of fair value less costs to sell and their carrying amount at the date of classification in this category. These assets held for sale are not depreciated.
Impairment losses on an asset or disposal group arising from a reduction in its carrying amount to its fair value (less costs to sell) are recognized in the heading “Gains (losses) on disposal and expenses of non-current assets held for sale not classified as discontinued operations” in the consolidated income statement. The gains on a non-current asset held for sale resulting from subsequent increases in fair value (less costs to sell) increase its carrying amount and are recognized in the consolidated income statement up to an amount equal to the impairment losses previously recognized.
m) l) Residual maturity periods and average interest rates
The analysis of the maturities of the balances of certain items in the consolidated financial statements at December 31, 2019, 20182021, 2020 and 20172019 is provided in note 44-d.43-d.
n) m) Tangible assets
“Tangible assets” includes the amount of buildings, land, furniture, vehicles, computer hardware, right-of-use of assets and other fixtures owned by the Bank, including tangible assets received by the Bank in full or partial satisfaction of financial assets representing receivables from third parties which are intended to be held for continuing use and tangible assets acquired under finance leases are presented at acquisition cost, less the related accumulated depreciation and any impairment losses (net carrying amount higher than recoverable amount).
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amount).
Depreciation is calculated, using the straight-line method, on the basis of the acquisition cost of the assets less their residual value. The land on which the buildings and other structures are located has an indefinite life and, therefore, it is not depreciated.
The Depreciation expense on tangible asset depreciation chargeassets is recognized in the consolidated statement of income statement and is basically calculated basically using the following depreciation rates (based on the average years of estimated maturityuseful lives of the variousdifferent assets):
Annual Rate | |||||||||||
Buildings for own use | 4% | ||||||||||
Furniture | 10% | ||||||||||
Fixtures | 10% | ||||||||||
Office and IT equipment | 20% | ||||||||||
Leasehold improvements | 10% or up to contractual maturity |
The Bank assesses at end of each reporting period, if there is indication that the items of tangible assets carrying amount may be impaired, that is if there is an asset with its carrying amount bigger than its recoverable amount, either for useuse or sale.
Once an impairment loss of tangible assets is identified, it is adjusted to reach its recoverable amount by recognizing an impairment loss recorded in the heading "Impairment loss on other assets (Net)". Additionally, the value of depreciation of that asset is recalculated in order to adjust the value of the life of the asset.
Consolidated Financial Statements | December 31, 2021 | F-29 |
* Values expressed in thousands, except when indicated. |
In case of evidence or indication of a recovery of a tangible asset value, the Bank recognizes the reversal of the impairment loss amount recorded in prior years and should adjust the future depreciation expenses according to the lifetime value of the asset. Under no circumstance, a reversal of impairment loss of an asset will increase its carrying amount higher than the amount that it would have had no impairment loss been recognized in prior years.
Upkeep and maintenance expenses relating to property, plant and equipment for own use are recognized as an expense in the period in which they are incurred.
o) n) Intangible assets
Intangible assets are identifiable non-monetary assets (separable from other assets) without physical substance which arise as a result of a legal transaction or software development. Only assets whose cost can be estimated reliably and from which the consolidated entities consider it probable that future economic benefits will be generated are recognized.
Intangible assets are recognized initially at acquisition or production cost and are subsequently measured deducting any accumulated amortization and any accumulated impairment losses.
i. Goodwill
In the acquisition and/or merger of investment in subsidiary, any difference between the investment cost and the investor's share in net fair value of assets, liabilities and contingent liabilities of the investee (subsidiary or affiliate) is accounted for in accordance with IFRS 3 "Business Combination ".
Goodwill is only recognized when it has been acquired for consideration and represents, therefore, a payment made by the acquirer in anticipation of future economic benefits from assets of the acquired entity that are not capable of being individually identified and separately recognized.
At the end of each annual reporting period or whenever there is any indication of impairment goodwill is reviewed for impairment (i.e. a reduction in its recoverable amount to below its carrying amount) and, if there is any impairment, the goodwill is written down with a charge to Impairment on non financial assets (net) - Intangible assets in the consolidated income statement.
The net fair value adjustments of assets, liabilities and contingent liabilities of the investee in relation to their carrying amount are allocated to individual identifiable assets acquired and liabilities assumed that comprise them based on their respective fair values at the date of purchase.
In the case of a business combination made in stages, prior interest in the acquired is measured again at fair value at the acquisition date when control of the acquired is obtained.
ii. Other intangible assets
Other intangible assets are non-monetary assets without physical substance. Generally arising from software development and acquisition of rights that can generate benefits for the Bank. They can have characteristics of definite or indefinite period.
Other intangible assets can have an indefinite maturityuseful life -when, based on an analysis of all the relevant factors, it is concluded that there is no foreseeable limit to the period over which the asset is expected to generate net cash inflows for the consolidated entities- or a finite maturity,useful life, in all other cases.
Intangible assets with indefinite maturityuseful lives are not amortized, but rather at the end of each reporting period or whenever there is any indication of impairment the consolidated entities review the remaining maturityuseful lives of the assets in order to determine whether they continue to be indefinite and, if this is not the case, to take the appropriate steps.
Intangible assets with finite maturityuseful lives are amortized over those maturityuseful lives using methods similar to those used to depreciate tangible assets. The amortization expense is recognized under "Depreciation and amortization" in the consolidated income statement.
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The Bank assesses at the end of each period, if there is any indication that the items of intangible assets may present an impairment loss, i.e. an asset that presents the carrying amount higher than the net realizable value. After identifying any reduction in impairment loss, it is adjusted to reach its fair value.
Measurement of the recoverable amount of other intangible assets - software is made based on the value in use, as well as the analysis of the discontinuity of the asset in relation to the activities of the Bank.
Consolidated Financial Statements | December 31, 2021 | F-30 |
* Values expressed in thousands, except when indicated. |
Expenditures for acquisition and development of software are amortized over a maximum period of 5 years.years.
p)
o) Other assets
Other Assets include the balances of all prepayments and accrued income (excluding accrued interest), acquired client list, the net amount of the difference between pension plan obligations and the fair value of the plan assets with a balance on the entity’s behalf, when this net amount shall be disclosed in the consolidated financial statements, and the amount of any other assets not included in other items.
The Bank uses the value in use of client relationship as a basis for measuring the impairment since it is not reasonably possible to determine the net value of sales, because there is no basis for making a reliable estimate of the value to be obtained by selling the asset in a transaction at cumulative basis, between knowledgeable, willing parties. The value in use of client lists acquired related to the purchase of the "payroll" will be determined individually. An analysesanalysis that aims to demonstrate the expectation of generating future economic benefit and the present value of expected cash flows is prepared by the business areas. Quarterly, these analyses are reviewed based on the actual cash flows of each business (value in use), which are compared with the carrying amount, checking whether there is a need to record a loss on non-recoverability.
q) p) Liabilities for insurance contracts
The liabilities for insurance contracts are comprised substantially by actuarial provisions for current and future benefits (PMBaC and PMBC). Insurance contracts are contracts under which the Bank accepts a significant risk, other than a financial risk, from a policyholder by agreeing to compensate the beneficiary on the occurrence of an uncertain future event by which the policyholder will be adversely affected.
Insurance liabilities are recognized when the contract is entered into and the premiums are charged. Contracts that have been classified as insurance are not reclassified subsequently. The liability is derecognized when the contract expires or is cancelled.
All valuation methods used by the subsidiaries are based on the general principle that the carrying amount of the net liability must be sufficient to meet any reasonably foreseeable obligation resulting from the insurance contracts. Investment assumptions are either determined by the local regulator and based on management’s future expectations. In the later case, the anticipated future investment yield is set by management, considering the available market information and economic indicators. A significant assumption related to estimated gross profits on variable annuities, is the annual long-term growth rate of the underlying assets.
At each financial statement date an assessment is made in order to verify whether the actuarial provisions are adequate.
In the years ended December 31, 2019, 20182021, 2020 and 2017,2019, as determined by IFRS 4 - Contracts classification and subsequent amendments, the adequacy of the technical provisions constituted were evaluated through Liability Adequacy Test (LAP).
At December 31, 2019,2021, the LAT indicated the need for the additional constitution of technical provisions amounted to R$215,754209,277 (12/31/20182020 - R$130,307285,554 and 12/31/20172019 - R$85,395)357,539) for Indemnity Funds for Benefit (FGB) plans.
r) q) Provisions for legal and administrative proceedings, commitments and other provisions
Banco Santander and its subsidiaries are involved in lawsuits and administrative proceedings related to tax, labor and civil, in the normal course of their activities.
The provisions include legal obligations, lawsuits and administrative proceedings related to tax and social security obligations, whose object is to challenge their legality or constitutionality, regardless of the assessment that the probability of success, the amounts are fully recognized in the financial statements.
Provisions are reviewed at each financial statement date and adjusted to reflect the current best estimate and may be fully or partially reversed or reduced when the outflows of resources and obligations relevant to the process are no longer probable, including decay of legal deadlines, among others.
Consolidated Financial Statements | December 31, 2021 | F-31 |
* Values expressed in thousands, except when indicated. |
Provisions for the lawsuits and administrative proceedings are recorded when their risk of loss is considered probable and the amounts can be reliably measured, based on the nature, complexity and history of lawsuits, the legal opinion of the internal and external advisors, based on the best available information. For those lawsuits for which the risk of loss is possible, are not recorded and the information is disclosed in the financial statements and for the lawsuits for which the risk of loss is remote, no disclosure is required.
Contingent assets are not recognized, except when there are guarantees or favorable lawsuits decisions, about which features no longer fit, characterizing the gain as practically certain. Assets with probable success, if any, are only disclosed in the financial statements.
On the favorable decisions to Santander, the counterparty has the right, in the event of specific legal requirements, to file a rescission lawsuit within a period determined by current legislation. Rescission lawsuits are considered as new events and will be evaluated for contingent liability purposes if and when they are filed.
s) r) Other liabilities
“Other liabilities” includes the balance of all accrued expenses and deferred income, excluding accrued interest, and the amount of any other liabilities not included in other categories.
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t) s) Share-based compensation
The Bank has long-term compensation plans with vesting conditions. The main vesting conditions are: (1) service conditions, since it is necessary that the participant continues to be employed by the Bank during the term of the Plan for his rights to vest; (2) performance conditions, since the number of Units that ultimately vest will be determined according to the result of certain performance parameter of the Bank, such as: total Shareholder Return (TSR) and may be reduced in case of failure to achieve the goals of reducing the Return on Risk Adjusted Capital (RORAC), comparison between actual and budget in each year, as determined by the Board of Directors and (3) market conditions, since some parameters are linked to the market price of the Bank´s shares. The Bank measures the fair value of the services rendered by reference to the fair value of the equity instruments granted at the grant date, taking into accountconsidering the market conditions for each plan when estimating the fair value.
Settlement in shares
The Bank measures the fair value of the services received by reference to the fair value of the equity instruments granted at the grant date, taking into accountconsidering the market conditions for each grant when estimating the fair value. In order to recognize the personnel expenses against equity reserves throughout the vesting period, as the services are received, the Bank considers the treatment of service conditions and recognize the amount for the services received during the vesting period based on the best available estimate of the number of equity instruments expected to vest. Semi-annually, the Bank reviews the estimate of the number of equity instruments expected to vest.
Settlement in cash
For cash-settled share-based compensation (in the form of share appreciation rights), the Bank measures the fair value of services rendered and the corresponding liability incurred, based on the fair value of the share appreciation rights at the grant date and until the liability is settled. The Banks remeasures the fair value of the liability at the end of each reporting period and at the date of settlement, with any changes in fair value recognized in profit or loss for the period. In order to recognize the personnel expenses against a provision in “other liabilities” throughout the vesting period, reflecting the period as the services are received, the Bank bases the total liability on the best estimate of the number of share appreciation rights that will vest at the end of the vesting period and recognizes the amount for the services received during the vesting period based on such best available estimate. Periodically, the Bank reviews such estimate of the number of share appreciation rights that will vest at the end of vesting period.
u) t) Recognition of income and expenses
The most significant criteria used by the Bank to recognize its income and expenses are summarized as follows:
i. Interest income, interest expenses and similar items
Interest income, interest expenses and similar items are generally recognized on an accrual basis using the effective interest method.
Consolidated Financial Statements | December 31, 2021 | F-32 |
* Values expressed in thousands, except when indicated. |
ii. Commissions, fees and similar items
Fees and commission income and expenses are recognized in the income statement using criteria that vary according to their nature (note 35)34). The main criteria are as follows:
• Fee and commission income and expenses relating to financial assets and financial liabilities measured at fair value through profit or loss are recognized when paid;
• Those arising from transactions or services that are performed over a period of time are recognized over the life of these transactions or services; and
• Those relating to services provided in a single act are recognized when the single act has been performed.
iii. Non-financial income and expenses
These are recognized for accounting purposes on an accrual basis.
iv. Deferred collections and payments
These are recognized for accounting purposes at the amount resulting from discounting the expected cash flows at market rates.
v. Loan arrangement fees
Loan arrangement fees, mainly loan origination and application fees, are accrued and recognized in the income statement over the term of the loan. In the case of loan origination fees, the portion relating to the associated direct costs incurred in the loan arrangement is recognized immediately in the consolidated income statement.
v) u) Guarantees
v.1) Financial guarantees
“Financial guarantees” are defined as contracts whereby an entity undertakes to make specific payments for a third party if the latter does not do so, irrespective of the various legal forms they may have, such as guarantees, irrevocable documentary credits issued or confirmed by the entity, among others.
The Bank initially recognizes the commission of the financial guarantees as liability in the consolidated financial statements at fair value, which is generally the present value of the fees, commissions and similar interest receivable from these contracts over their term.
Financial guarantees, regardless of the guarantor, type of instrument or other circumstances, are reviewed periodically so as to determine the credit risk to which they are exposed and, if appropriate, to consider whether a provision is required. The credit risk is determined by application of criteria similar to those established for quantifying impairment losses on debt instruments measured at amortized cost.
The provisions made for these transactions are recognized in the heading “Provisions - Provisions for contingent liabilities, commitments and other provisions” in the consolidated financial statements (note 23)22).
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If a specific provision is required for financial guarantees, the related unearned commissions are recognized in the heading “Financial liabilities at amortized cost – Other financial liabilities” in the consolidated financial statements are reclassified to the appropriate provision.
v.2) Guarantees and Credit Risk Mitigation Policy
Banco Santander controls the credit risk using the collateral in its operations. Each business unit is responsible for credit risk management and formalizes the use of collateral in its lending policies.
Banco Santander uses guarantees in order to increase its ability to recover operations subject to credit risk. The guarantees can be fiduciary, real, legal structures with power mitigation and compensation agreements. Annually the bank reviews its guarantees policies to capture changes in the market, in the caracteristicscharacteristics of the assets given as guarantees and the conditions of the assets, thosethese are examples of technical parameters reviewed.
Credit limits are continually monitored and changed in client behavior function. Thus, the potential loss values represent a fraction of the amount available.
w)
Consolidated Financial Statements | December 31, 2021 | F-33 |
* Values expressed in thousands, except when indicated. |
v) Assets under management and investment and pension funds managed by the Bank
Assets owned by third parties and managed by the consolidated entities are not presented in the consolidated financial statements. Management fees are included in “Fee and commission income” in the consolidated income statement. Note 44-b43-b contains information on the third-party assets managed by the Bank.
The investment funds and pension funds managed by the consolidated entities are not recorded in the consolidated financial statements since the related assets are owned by third parties. The fees and commissions earned in the year for the services rendered by the Bank entities to these funds (asset management and custody services) are recognized in the heading “Fee and commission income” in the consolidated income statement.
x) w) Post-employment benefits
Post-employment benefit plans include the commitments of the Bank: (i) addition to the benefits of public pension plan; and (ii) healthcare in case of retirement, permanent disability or death for those employees, and their direct beneficiaries.
Defined contribution plans
Defined contribution plans isare the post-employment benefit plan which the Bank, and its subsidiaries, as the sponsoring entity pays fixed contributions into a pension fund, not having a legal or constructive obligation to pay further contributions if the fund does not hold sufficient assets to pay all benefits relating to services provided in the current and in previous periods.
The contributions made are recognized in the heading "Interest Expense and Similar Charges" in the income statement.
Defined benefit plans
Defined benefit plan is the post-employment benefit plan which is not a defined contribution plan and is shown in Note 22.21. For this type of plan, the sponsoring entity's obligation is to provide the benefits agreed with the former employees, assuming the potential actuarial risk that benefits will cost more than expected.
For defined benefit plan, the amendment of IAS 19 established fundamental changes in the accounting for and disclosure of employee post-employment benefits such as removing the corridor approach in the accounting for the obligation of the plans, as well as changes in the criteria for recognition of conventional interest of plan assets (valuation based on the discount rate actuarial liability).
In addition, there is full recognition in liabilities heading of actuarial losses (actuarial deficit) not recognized previously when they occur, which its counterparty is a heading in the stockholders’ equity (Other Comprehensive Income).
Main Definitions
- The present value of the defined benefit obligation is the present value without any deduction from the plan assets, of expected future payments required to settle the obligation resulting from employee service in the current and past periods.
- Deficit or surplus is: (a) the present value of the defined benefit obligation, less (b) the fair value of plan assets.
- The sponsoring entity may recognize the plan assets in the financial statements when they meet the following characteristics: (i) the fund assets are sufficient to meet all employee benefit plan or the sponsor obligations; or (ii) the assets are returned to the sponsoring entity in order to reimburse it for employee benefits already paid.
- Actuarial gains and losses correspond to changes in the present value of defined benefit obligation resulting from: (a) adjustments by experience (the effects of differences between the actuarial assumptions adopted and what has actually occurred); and (b) effects of changes in actuarial assumptions.
- Current service cost is the increase in the present value of the defined benefit obligation resulting from employee service provided in the current period.
- The past service cost is the change in present value of defined benefit obligation for employee service provided in prior periods resulting from a change in the plan or reductions in the number of employees covered.
Consolidated Financial Statements | December 31, 2021 | F-34 |
* Values expressed in thousands, except when indicated. |
Post-employment benefits are recognized in income in the headings "Interest expense and similar Charges" and "Provisions (net)".
The defined benefit plans are recorded based on an actuarial study, conducted annually by an external consulting firm, at the end of each year to be effective for the subsequent period.
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y) x) Other long-term employee benefits
“Other long-term employee benefits”, defined as obligations to early retirees considered as those who have ceased to render services at the entity but who, without being legally retired, continue to have economic rights relating to the entity until they acquire the legal status of retiree, long-service bonuses, obligations for death of spouse or disability before retirement that depend on the employee's length of service at the entity and other similar items, are treated for accounting purposes, where applicable, as established above for defined benefit post-employment plans, except that all past service costs and actuarial gains and losses are recognized immediately (note 22)21).
z) y) Termination benefits
Termination benefits are recognized when there is a detailed formal plan identifying the basic changes to be made, provided that implementation of the plan has begun, its main features have been publicly announced or objective facts concerning its implementation have been disclosed.
aa) z) Income taxes (IRPJ), Social Contribution (CSLL), Social Integration Program (PIS) and Tax for Social Security Financing (COFINS)
The income tax expense is obtained by adding the Income tax is calculated atTax, Social Contribution, PIS and COFINS. Current Income Tax and Social Contribution arise from the rateapplication of 15% plus a surcharge of 10% leviedthe respective rates on taxable income, and the PIS and COFINS rates applied on the profit, after adjustments determined byrespective calculation base provided for in the specific legislation, also added to the changes in deferred tax legislation. The social contribution (CSLL) is calculated atassets and liabilities recognized in the rate of 15% for financial institutions and 9% for other companies, levied on the profit, after considering the adjustments determined by tax legislation.consolidated income statement. The CSLL rate, for banks of any kind, was increasedraised from 15% to 20%, effective as of March 1, 2020, pursuant to article 32 of Constitutional Amendment 103, published on November 13, 2019.
The IRPJ charge is calculated at the rate of 15%, plus a surcharge of 10%, applied on profit, after making the adjustments determined by tax legislation. The CSLL is calculated at the rate of 15% for financial institutions and legal entities of private insurance and capitalization and 9% for other companies, levied on profit, after considering the adjustments determined by tax legislation.
The CSLL rate for banks of any kind, financial institutions, private insurance companies and capitalization companies (financial sector companies) was increased by 5% for the base period between July 1, 2021 and 31 December 2021, pursuant to Law 14,183/2021 (result of the conversion into the Provisional Measure Law (MP) 1,034/2021).
The expense for corporate income tax is recognized in the consolidated income statement, except when it results from a transaction recognized directly in equity, in which case the tax effect is also recognized in equity.
The current income tax expense is calculated as the sum of the current tax resulting from application of the appropriate tax rate to the taxable profit for the year (net of any deductions allowable for tax purposes), and of the changes in deferred tax assets and liabilities recognized in the consolidated income statement.
Tax assets classified as "Current" are amounts of tax to be recovered within the next twelve months.
Tax liabilities includes the amount of all tax liabilities (except provisions for taxes), which are broken down into “current” amount payable in respect of the income tax on the taxable profit for the year and other taxes in the next twelve months.
Deferred tax assets and liabilities include temporary differences, which are identified as the amounts expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities and their related tax bases, and tax loss and tax credit carry forwards. These amounts are measured at the tax rates that are expected to apply in the period when the asset is realized or the liability is settled.
Deferred tax assets are only recognized as temporary differences to the extent that it is considered probable that the consolidated entities will have sufficient future taxable profits against which the deferred tax assets can be utilized, and the deferred tax assets do not arise from the initial recognition (except in a business combination) of other assets and liabilities in a transaction that affects neither taxable profit or accounting profit. Other deferred tax assets (tax loss and tax credit carry forwards) are only recognized if it is considered probable that the consolidated entities will have sufficient future taxable profits against which they can be utilized.
Due to the change in social contribution tax rate, the group companies made the remeasurement of tax credit assets and deferred liabilities at the rates applicable to the period in which estimates the realization of assets and settlement of liabilities.
Income and expenses recognized directly in stockholders equity are accounted as temporary differences.
The deferred tax assets and liabilities recognized are reassessed at each financial statementsstatement date in order to ascertain whether they still exist, and the appropriate adjustments are made on the basis of the findings of the analyses performed.
Under the current regulation, the expected realization of tax credits is based on the Bank's projections of future results and on technical technical analysis of the realization of the temporary differences, as shown in Note 24.note 23.
Consolidated Financial Statements | December 31, 2021 | F-35 |
* Values expressed in thousands, except when indicated. |
PIS (Social Integration Program)
• IFRIC 23 - Published in June 2017 by the IASB, IFRIC 23 - Uncertainty about the Treatment of Income Tax on Income is mandatory from January 1, 2019 and COFINS (Taxaims to clarify procedures for Social Security Financing) have been computed at a combined ratethe application of 4.65% on certain gross revenuesrecognition and expenses. Financial institutions may deduct financial expensesmeasurement requirements established in determining the PIS/COFINS tax basis. PIS and COFINS are considered a profit-base component (net basis of certain revenues and expenses), therefore and accordingly to IAS 12 itIncome Taxes when there is recordeduncertainty as income taxes.to the treatment to be adopted for Income Taxes. Said standard did not generate significant impacts on these Financial Statements.
ab)aa) Consolidated cash flow statements
The following terms are used in the consolidated cash flow statements with the following meanings:
• Cash flows: inflows and outflows of cash and cash equivalents, which are short-term, highly liquid investments that are subject to an insignificant risk of changes in value and original maturity of three months or less.
• Operating activities: the primary revenue-generating activities of credit institutions and other activities that are not investing or financing activities.
• Investing activities: the acquisition and disposal of long-term assets and other investments not included in cash and cash equivalents.
• Financing activities: activities that result in changes in the size and composition of the equity and liabilities that are not operating activities.
In preparing the consolidated cash flows statement, the high liquidity investments with insignificant risk of changes in their values were classified as "Cash and cash equivalents". The Bank classifies as cash and cash equivalents balances recorded in the headings "Cash and balance with the Brazilian Central Bank""Cash" and "Loans and amounts due from credit institutions" in the consolidated financial statements, except restricted resources and long-term transactions.
The interest paid and received correspond to operating activities of Banco Santander.
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Consolidated Financial Statements | December 31, 2021 | F-36 |
* Values expressed in thousands, except when indicated. |
3. | Basis of consolidation |
Below are highlighted the controlled entities and investment funds included in the consolidated financial statements of Banco Santander. Similar information regarding companies accounted by the equity method by the Bank is provided in Note 11.
Quantity of Shares or Quotas Owned (in Thousands) | 12/31/2021 | |||||
Investments | Activity | Common Shares and Quotas | Preferred Shares | Direct Participation | Consolidated Participation | |
Controlled by Banco Santander | ||||||
Atual Serviços de Recuperação de Créditos e Meios Digitais S.A. | Recovery of Defaulted Credits | 2,142,011 | - | 100.00% | 100.00% | |
Aymoré Crédito, Financiamento e Investimento S.A. (Aymoré CFI) | Financial | 2,877 | - | 100.00% | 100.00% | |
BEN Benefícios e Serviços S.A. (BEN Benefícios) | Other Activities | 90,000 | - | 100.00% | 100.00% | |
Esfera Fidelidade S.A. | Other Activities | 10,001 | - | 100.00% | 100.00% | |
GIRA - Gestão Integrada de Recebíveis do Agronegócio S.A. | Tecnology | 381 | - | 80.00% | 80.00% | |
Rojo Entretenimento S.A. | Other Activities | 7,417 | - | 94.60% | 94.60% | |
Sanb Promotora de Vendas e Cobrança Ltda. | Other Activities | 30,988 | - | 100.00% | 100.00% | |
Sancap Investimentos e Participações S.A. (Sancap) | Holding | 23,538,159 | - | 100.00% | 100.00% | |
Santander Brasil Administradora de Consórcio Ltda. (Santander Brasil Consórcio) | Buying Club | 436,441 | - | 100.00% | 100.00% | |
Santander Corretora de Títulos e Valores Mobiliários S.A. (Santander CCVM) | Broker | 14,067,640 | 14,067,640 | 99.99% | 100.00% | |
Santander Corretora de Seguros, Investimentos e Serviços S.A. (Santander Corretora de Seguros) | Other Activities | 7,184 | - | 100.00% | 100.00% | |
Santander Holding Imobiliária S.A. | Holding | 558,601 | - | 100.00% | 100.00% | |
Santander Leasing S.A. Arrendamento Mercantil (Santander Leasing) | Leasing | 164 | - | 100.00% | 100.00% | |
F1RST Tecnologia e Inovação Ltda. | Other Activities | 196,979 | - | 100.00% | 100.00% | |
Paytec Tecnologia em Pagamentos Ltda. | Other Activities | 348 | - | 100.00% | 100.00% | |
SX Negócios Ltda. | Other Activities | 75,050 | - | 100.00% | 100.00% | |
Controlled by Aymoré CFI | ||||||
Bank PSA | Bank | 105 | - | 0.00% | 50.00% | |
Bank Hyundai Capital Brasil S.A. | Bank | 150,000 | - | 0.00% | 50.00% | |
Solutions 4Fleet | Other Activities | 328 | - | 0.00% | 80.00% | |
Controlled by Santander Leasing | ||||||
Bank Bandepe S.A. | Bank | 3,589 | - | 0.00% | 100.00% | |
PI Distribuidora de Títulos e Valores Mobiliários S.A. | Leasing | 348 | - | 0.00% | 100.00% | |
Controlled by Sancap | ||||||
Santander Capitalização S.A. (Santander Capitalização) | Capitalization | 64,615 | - | 0.00% | 100.00% | |
Evidence Previdência S.A. | Private Pension | 42,819,564 | - | 0.00% | 100.00% | |
Controlled by Santander Holding Imobiliária S.A. | ||||||
Summer Empreendimentos Ltda. | Other Activities | 17,084 | - | 0.00% | 100.00% | |
Apê11 Tecnologia e Negócios Imobiliários S.A. | Other Activities | 3,808 | - | 0,00% | 90,00% | |
Controlled by Atual Serviços de Recuperação de Créditos e Meios Digitais S.A. | ||||||
Return Capital Serviços de Recuperação de Créditos S.A. | Collection and Recover of Credit Management | 200 | - | 0.00% | 100.00% | |
Liderança Serviços Especializados em Cobranças Ltda. | Collection and Recover of Credit Management | 250 | - | 0.00% | 100.00% | |
Controlled by Paytec Tecnologia em Pagamentos Ltda. | ||||||
Paytec Logística e Armazém Ltda. | Other Activities | 100 | - | 0.00% | 100.00% | |
Controlled by PI Distribuidora de Títulos e Valores Mobiliários S.A. | ||||||
Toro Corretora de Títulos e Valores Mobiliários Ltda. | Broker | 19,140 | - | 0.00% | 60.00% | |
Controlled by Toro Corretora de Títulos de Valores Mobiliários Ltda. | ||||||
Toro Investimentos S.A. | Broker | 98,400 | - | 0.00% | 100.00% | |
Jointly Controlled Companies by Sancap | ||||||
Santander Auto S.A. | Other Activities | 22,452 | - | 0.00% | 50.00% | |
Consolidated Financial Statements | December 31, 2021 | F-37 |
* Values expressed in thousands, except when indicated. |
Consolidated Investment Funds
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F-38
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Santander Fundo de Investimento |
Santander Fundo de Investimento Diamantina Multimercado Crédito Privado de Investimento no Exterior (Santander FI Diamantina); |
Santander Fundo de Investimento Guarujá Multimercado Crédito Privado de Investimento no Exterior (Santander FI Guarujá); |
Santander Fundo de Investimento Unix Multimercado Crédito Privado (Santander FI Unix); |
Santander Fundo de Investimento SBAC Referenciado DI Crédito Privado (Santander FI SBAC); |
● | Santander Paraty QIF PLC (Santander Paraty) (2); |
Prime 16 – Fundo de Investimento Imobiliário (atual denominação do BRL V - Fundo de Investimento Imobiliário - FII) (1); |
Santander FI Hedge Strategies Fund (Santander FI Hedge Strategies) (2); |
Fundo de Investimento em Direitos Creditórios Multisegmentos NPL Ipanema VI - Não Padronizado (Fundo Investimento Ipanema NPL VI) (3); |
Santander Hermes Multimercado Crédito Privado Infraestrutura Fundo de Investimentos (4); |
● | Fundo de Investimentos em Direitos Creditórios Atacado – Não Padronizado (5); |
● | Atual - Multimarket Investment Fund Private Credit Investment Abroad (6); |
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Verbena FCVS – Fundo de Investimento em Direitos Creditó |
(a) Company over which(1) Banco Santander was a creditor of certain overdue credit operations that had real estate as collateral. The operation for the Bank is exposed, or has rights,recovery of these credits consists of the contribution of properties as collateral to variable returnsthe capital of the Real Estate Investment Fund and have the abilityconsequent transfer of the Fund's quotas to affect those returnsBanco Santander, by means of a payment in payment of the aforementioned credit operations. At the Extraordinary General Meeting (AGE) held on October 30, 2018, the change of name from BRL V - Fundo de Investimento Imobiliário - FII to Prime 16 - Fundo de Investimento Imobiliário was approved.
(2) Banco Santander, through its subsidiaries, holds the powerrisks and benefits of decision,Santander Paraty and the Santander FI Hedge Strategies Sub-Fund, residing in accordance with IFRS 10 -Ireland, and both are fully consolidated in their Consolidated Financial Statements. In the Irish market, an investment fund cannot act directly and, for this reason, it was necessary to create another structure (a sub-fund), Santander FI Hedge Strategies. Santander Paraty does not have an equity position, and all records come from the financial position of Santander FI Hedge Strategies.
(3) This fund was created and started to be consolidated in September 2017. It refers to a structure in which Banco Santander and its subsidiariessold certain credit operations, which had already been transferred to losses (operations overdue for more than 360 days) to this fund. Atual Serviços de Recuperação de Creditos e Meios Digitais S.A. (current corporate name of Atual Companhia Securitizadora de Creditos Financeiros), a company controlled by Banco Santander, holds 100% of the shares of these investment funds.in this fund.
(4) This fund was consolidated in November 2018 and is controlled through Banco Bandepe S.A.
(1) In the EGM held on April 30,(5) This fund started to be consolidated in June 2019 an increaseand is controlled through Atual Serviços de Recuperação de Creditos e Meios Digitais S.A.
(6) This fund started to be consolidated in capitalAugust 2020 and is controlled through Atual Serviços de Recuperação de Creditos e Meios Digitais S.A.
(7) This fund was consolidated in the amount of R$79,537 was approved, from R$95,349 to R$174,886 divided into 174,885,602 shares, with a nominal value of R$1.00 (one real) each. In the EGM held on August 15, 2019, a capital increase was approved, based on statutory reserves, in the amount of R$64,000, from R$174,886 to R$238,886 divided into 238,885,602 shares, with a nominal value of R$1.00 (one real) each.
(2) In the EGM held on December 7, 2018, a capital increase in the amount of R$2,000,000 was approved, from R$2,787,689 to R$4,787,689,February 2021 and is controlled through the issue of 1,405,667 (one million , four hundred and five thousand, six hundred and sixty-seven) new registered common shares, without par value. The shareholder Banco Santander subscribed all the new shares issued and paid upBrasil S.A. It holds 100% of the shares correspondingin this fund.
Corporate movements were implemented in order to 50%reorganize the operations and activities of the capital increase. entities in accordance with the business plan of the Santander Conglomerate.
i) Acquisition of equity interest in Apê11 Tecnologia e Negócios Imobiliários Ltda.
On September 16, 2019,2, 2021, Santander Holding Imobiliária S.A. (“SHI”) – a wholly owned subsidiary of the remaining 50% was paid.
(3) InCompany – celebrated, with the EGM held on April 26, 2019, a capital increase in the amountpartners of R$137,880 was approved, from R$726,561 to R$864,441 without the issue of new shares.
(4) In the EGM held on April 26, 2019, a capital increase in the amount of R$1,689 was approved, from R$296,000 to R$297,689 without the issue of new shares. In the EGM held on August 15, 2019, a capital increase in the amount of R$60,000 was approved, from R$297,689 to R$357,689 without the issue of new shares.
(5) On February 25, 2019, Banco Santander acquired all the shares of Getnet SA's Minority Shareholders, corresponding to 11.5% of Getnet SA's share capital, pursuant to the “ShareApê11 Tecnologia e Negócios Imobiliários Ltda. (“Apê11”), certain Share Purchase and Sale Agreement and Investment Agreement, by which, once the transaction is carried out, it will hold 90% of the capital stock of Apê11 (“Transaction”). Apê11 acts as a collaborative marketplace, pioneering the digitization of the purchase journey of houses and apartments. After the fulfillment of the precedent conditions established in the Share Purchase and Sale Investment Agreement, the closing of the Transaction was formalized on December 16, 2021.
Consolidated Financial Statements | December 31, 2021 | F-38 |
* Values expressed in thousands, except when indicated. |
ii) Acquisition of equity interest in Liderança Serviços Especializados em Cobranças Ltda. and Fozcobra Agência de Collections Ltda.
On August 4, 2021, Atual Serviços de Recovery de Créditos e Meios Digitais S.A. (“Atual”) – a wholly-owned subsidiary of the Company – celebrated, with the partners of Liderança Serviços Especializados em Cobranças Ltda. (“Liderança”), a certain Agreement for the Assignment of Quotas and Other Covenants, whereby, once the transaction is carried out, it will hold 100% of Getnet SA,the share capital of Liderança (“Transaction”). Liderança operates in the area of overdue credit recovery, providing extrajudicial collection services to financial institutions of different sizes, retail networks, telecommunications operators and automakers, among others, and has a subsidiary, Fozcobra Agência de Cobranças Ltda. After the fulfillment of the precedent conditions established in the Agreement for the Assignment of Quotas and Other Covenants, the closing of the Transaction was formalized on October 1, 2021. Subsequently, Fozcobra was merged into Leadership on October 4, 2021.
iii) Acquisition of Equity Interest in Solutions 4Fleet Consultoria Empresarial Ltda.
On July 13, 2021, Aymoré Crédito, Financiamento e Investimento S.A. (“Aymoré”), celebrated with approvalthe partners of Solution 4Fleet Consultoria Empresarial Ltda. (“Solutions 4Fleet”), certain Investment Agreement and Share Purchase and Sale Agreement, by Bacenwhich, once the transaction is carried out, Aymoré will hold 80% of the capital stock of Solution 4Fleet (“Transaction”). Solutions 4Fleet specializes in structuring vehicle rental and subscription businesses – long-term rental for individuals. After the fulfillment of the precedent conditions established in the Share Purchase and Sale Investment Agreement, the closing of the Transaction was formalized on February 18, 2019.October 8, 2021.
iv) Acquisition of equity interest in Car10 Tecnologia e Informação S.A and Pag10 Fomento Mercantil Eireli.
(6)On July 13, 2021, Webmotors S.A. (“Webmotors”), celebrated with the partners of Car10 Tecnologia e Informação S.A. (“Car10 Tecnologia”) and Pag10 Fomento Mercantil Eireli (“Pag10” and, together with Car10 Tecnologia, “Car10”), certain Investment Agreements and Share Purchase and Sale Agreements, under which, once the transaction is carried out, Webmotors will hold approximately 66.7% of the share capital of Car10 Tecnologia, which, in turn, is the sole holder of Pag10 (“Transaction”). Car10 acts as a marketplace that brings together more than 7,000 service providers such as workshops and autocenters; auto body and Paint; and cleaning and sanitizing, as well as emergency assistance and towing. After compliance with the condition’s precedent established in the Investment Agreement for the Purchase and Sale of Shares, the closing of the Transaction was formalized on September 20, 2021.
v) Acquisition of Equity Interest in Monetus Investimentos Ltda. and Monetus Corretora de Seguros Ltda.
On June 15, 2021, Pi Distribuidora de Títulos e Valores Mobiliários S.A. (“Pi”), Toro Corretora de Títulos e Valores Mobiliários S.A. (“Toro CTVM”), and Toro Investimentos S.A. (“Toro Investimentos” and, together, with Toro CTVM, “Toro”) entered into, with the partners of Monetus Investimentos Ltda., and Monetus Corretora de Seguros Ltda. (jointly “Monetus”), investment agreement and other covenants, whereby, once the transaction is carried out, Toro Investimentos will hold 100% of the capital stock of Monetus (“Transaction”). Monetus, originally from Belo Horizonte, carries out its activities through an automated investment application based on objectives, after considering the client's needs and risk profile, the application automatically creates, executes and tracks a diversified and personalized investment strategy that use the platform to undertake and serve customers in the best way. The execution of the Transaction will be subject to the execution of the definitive instruments and the implementation of certain usual conditions in this type of transaction, including the applicable regulatory approvals.
vi) Acquisition of Equity Interest in Mobills Labs Soluções em Tecnologia Ltda. and Mob Soluções em Tecnologia Ltda.
On June 15, 2021, Pi Distribuidora de Títulos e Valores Mobiliários S.A. (“Pi”), Toro Corretora de Títulos e Valores Mobiliários S.A. (“Toro CTVM”), and Toro Investimentos S.A. (“Toro Investimentos” and, together, with Toro CTVM, “Toro”) entered into, with the partners of Mobills Labs Soluções em Tecnologia Ltda., and Mob Soluções em Tecnologia Ltda. (together “Mobills”), an investment agreement and other covenants, by which, once effective In the EGMtransaction, Toro Investimentos will hold 100% of the capital stock of Mobills (“Transaction”). Based in Ceará, Mobills has a variety of financial applications that have a large user base, especially related to financial planning. The execution of the Transaction will be subject to the execution of the definitive instruments and the implementation of certain usual conditions in this type of transaction, including the applicable regulatory approvals.
vii) Corporate reorganization Santander Leasing S.A. Arrendamento Mercantil and Banco Bandepe S.A.
On May 11, 2021, Banco Santander (Brasil) S.A. (“Banco Santander”) and Banco Bandepe S.A. (“Bandepe”) entered into a Share Purchase Agreement through which Banco Santander acquired the entire interest shareholding held on April 2, 2019,by Bandepe in Santander Leasing S.A. Arrendamento Mercantil (“Santander Leasing”), which corresponds to 21.42%. In this operation, Banco Santander became the sole shareholder of Santander Leasing. On May 27, 2021, the merger of all the shares of Bandepe by Santander Leasing was resolved, in order to convert Bandepe into a capitalwholly owned subsidiary of Santander Leasing (“Incorporation of Shares”). The Merger of Shares resulted in an increase in the amountcapital stock of Santander Leasing of R$200,000 was approved, from R$347,135 to R$547,135, represented by 17,114,176,389 (seventeen 5,365,189,080.65 (five billion, onethree hundred and fourteensixty-five million, one hundred and seventy-six sixeighty-nine thousand, three hundredeighty reais and eighty-nine)sixty-five cents), in reason for the merger of shares issued by Banco Bandepe held by Banco Santander.
Consolidated Financial Statements | December 31, 2021 | F-39 |
* Values expressed in thousands, except when indicated. |
viii) Partial spin-off and segregation of Getnet Adquirência e Serviços para Meios de Pagamentos S.A.
After the approval of the studies and favorable proposal of the Board of Directors of Santander Brasil, on March 31, 2021, the shareholders of Santander Brasil approved the partial spin-off of Santander Brasil, for the segregation of shares owned by them issued by Getnet Acquirência e Serviços for Meios de Pagamentos S.A. (“Getnet”), with a version of the split portion for Getnet itself. Upon completion of the spin-off, the shareholders of Santander Brasil will become direct shareholders of Getnet in proportion to their participation in the capital of Santander Brasil and the shares and Units of Santander Brasil will be traded with the right to receive the shares and Units of issue of Getnet.
As a result of the Spin-off, Santander Brasil's share capital was reduced in the total amount of 2,000,000 (two billion reais), without the cancellation of shares, with Santander Brasil's share capital increasing to 57,000,000 (fifty-seven billion reais) to 55,000,000 (fifty-five billion reais).
ix) Signing of an agreement for the Acquisition of Paytec Tecnologia em Pagamentos Ltda. and Paytec Logística e Armazém Eireli.
On December 8, 2020, Banco Santander celebrated, with the partners and owners of Paytec Tecnologia em Pagamentos Ltda. and Paytec Logística and Armazém Eireli (together “Paytec”), a share purchase and sale agreement, transfer of ownership and other covenants, whereby, once the transaction is carried out, it will hold 100% of the share capital of Paytec. Paytec acts as a logistics operator with national coverage and focused on the payments market. After approval of the transaction by the Central Bank of Brazil, the transaction was carried out on March 12, 2021, with Banco Santander now holding 100% of the share capital of the Paytec companies.
x) Dissolution and liquidation of Santander Brasil, Establecimiento Financiero de Credito, S.A.
On November 12, 2020, by decision of its sole partner, the dissolution and liquidation of Santander Brasil, Establecimiento Financiero de Credito, S.A. (which had its corporate name changed to Santander Brasil, SAU), an offshore entity headquartered in Spain, was approved. fully owned by Banco Santander Brasil, which acted to complement the foreign trade strategy for corporate clients (large Brazilian companies and their operations abroad) and to offer financial products and services. The capital invested abroad was repatriated in November 2020. The company's dissolution and liquidation deed were registered commonin the Madrid Registry with effect from December 15, 2020. These activities are now carried out by the Bank's branch in Luxembourg.
xi) Disposal of Investments in Norchem Holding e Negócios S.A. and Norchem Participações e Consultoria S.A.
On October 8, 2020, Banco Santander (Brasil) S.A. withdrew from the shareholder structure of Norchem Participações e Consultoria SA (NPC) and Norchem Holding e Negócios S.A. (NHN), upon capital reduction in the amounts of R$19,950 million and R$14,770 million, respectively, and consequent cancellation of shares without par value.held by Banco Santander (Brasil) S.A.
xii) Acquisition of Equity Interest in Toro Controle
On September 29, 2020, Pi Distribuidora de Títulos e Investimentos S.A. (“Pi”), which is indirectly controlled by Banco Santander, entered into an investment agreement with the shareholders of Toro Controle e Participações S.A. (“Toro Controle”) and other covenants. Toro Controle had been a holding company that, ultimately, had controlled Toro Corretora de Títulos e Valores Mobiliários Ltda. (“Toro CTVM”) and Toro Investimentos S.A. (“Toro Investimentos” and, together, “Toro”). Toro is an investment platform founded in Belo Horizonte in 2010. In 2018, it received the EGMnecessary authorizations and started its operation as a securities brokerage aimed at the retail public. After compliance with all applicable conditions precedent, including approval by the Central Bank of Brazil, the transaction was carried out on April 30, 2021, with the acquisition of shares representing 60% of the capital stock of Toro Controle and its immediate incorporation by Toro CTVM, so that Pi became the direct holder of the equivalent of 60% of the share capital of Toro CTVM which, in turn, holds 100% of the share capital of Toro Investimentos.
xiii) Signing of an Agreement for the Acquisition of Equity Interest in Gira – Gestão Integrada de Recebíveis do Agronegócio S.A.
On August 11, 2020, Banco Santander signed a share purchase and sale agreement and other agreements with the shareholders of Gira – Integrated Management of Receivables of Agronegócio S.A. Gira is a technology company that operates in the management of agribusiness receivables and has a robust technological platform, capable of adding greater security to agricultural credit operations. Upon compliance with the conditions established in the contract, in particular the applicable regulatory approvals, the parties formalized the definitive instruments on January 8, 2021. With the completion of the transaction, Banco Santander now holds 80% of Gira's share capital.
xiv) Acquisition of direct equity interest in Toque Fale Serviços de Telemarketing Ltda.
On March 24, 2020, the Bank acquired the shares representing the entire share capital of Toque Fale Serviços de Telemarketing Ltda. (“Toque Fale”) for R$1,099 million, corresponding to the book value of the shares on February 29, 2020, previously held on November 11, 2019,by Getnet Acquirência e Serviços para Meios de Pagamento S.A. and Auttar HUT Processamento de Dados Ltda. As a result, the Bank became a direct shareholder of Toque Fale and holder of 100% of its capital.
Consolidated Financial Statements | December 31, 2021 | F-40 |
* Values expressed in thousands, except when indicated. |
xv) Disposal of the equity interest held in Super Pagamentos e Administração de Meios Eletrônicos S.A.
On February 28, 2020, the equity interest held in Super Pagamentos e Administração de Meios Eletrônicos S.A. was sold to Superdigital Holding Company, SL, a company indirectly controlled by Banco Santander, S.A., of the shares representing the totality of the share capital increase inof Super Payments and Administration of Meios Eletrônicos S.A. (“Superdigital”) for the amount of R$300,000 was approved, from R$547,135 to R$847,135, represented by 23,538,159,258 (twenty-three billion, five hundred and thirty-eight million, one hundred and fifty and nine thousand two hundred and fifty-eight) registered common shares, without par value.270 million. As a result, the Bank is no longer a shareholder of Superdigital.
xvi) Acquisition of Summer Empreendimentos Ltda.
(7) At the AGE held on January 31, 2019, a capital increase in the amount of R$100,000 was approved, through the issue of 92,174,394 (ninety-two million, one hundred and seventy-four thousand, three hundred and ninety-four) new common shares, nominative and without par value, increasing the share capital from R$270,000 to R$370,000. The shares issued due to the capital increase were fully subscribed by the shareholder Banco Santander. In the Extraordinary General Meeting held on June 25, 2019, a capital increase in the amount of R$375,000 was approved, from R$370,000 to R$745,000 through the issue of 335,240,479 (three hundred and thirty-five million, two hundred and forty thousand, four hundred and seventy-nine) new common shares, registered and without par value. In the Extraordinary General Meeting held on July 25, 2019, a capital increase in the amount of R$100,000 was approved, from R$745,000 to R$845,000 through the issue of 89,007,566 (eighty-nine million, seven thousand, five hundred and sixty-six) new common shares, registered and without par value. In the EGM held on September 25, 2019, a capital increase in the amount of R$195,000 was approved, from R$845,000 to R$1,040,000 through the issue of 171,775,899 (one hundred and seventy one million, seven hundred and seventy-five thousand, eight hundred and ninety-nine) new common shares, nominative and without par value. In the EGM held on October 23, 2019, a capital increase in the amount of R$257,000 was approved, from R$1,040,000 to R$1,297,000 through the issue of 225,715,791 (two hundred and twenty-five million, seven hundred and fifteen thousand seven hundred and ninety-one) new common shares, nominative and without par value.
(8) On May 14, 2019, Banco Santander (Brasil) S.A. and its wholly-ownedwholly owned subsidiary Santander Holding Imobiliária S.A. (“SHI”) entered into a binding document with the partners of Summer Empreendimentos Ltda. (“Summer”) establishing the terms of the negotiation of purchase and sale of quotasshares representing the total shareentirety of Summer's capital of Summer Empreendimentos.stock. The conclusion of the transaction is subject to the implementation of conditions precedent usual for this type of transaction, including prior authorization by Bacen. In the EGM held on April 18, 2019, a capital increase in the amount of R$86,000acquisition was approved from R$24,500 to R$110,500 through the issue of 108,271,434 (one hundredby BACEN on September 16, 2019 and eight million, two hundred and seventy-one thousand, four hundred and thirty-four) new common shares, registered and without par value. In the EGM held on May 30, 2019, a capital increase in the amount of R$119,162 was approved, from R$110,500 to R$229,662 through the issuance of 151,009,682 (one hundred and fifty-one million, nine thousand, six hundred and eighty and two) new common shares, nominative and without par value, at the issue price of R$0.7891 per share. In the EGM heldconcluded on September 20, 2019, aso that SHI now holds 99.999% and Banco Santander 0.001% of the shares representing Summer's capital increase instock. Due to the amount of R$45,250Entity's short-term sale plan, Summer was approved, from R$229,662 to R$274,642 through the issuance of 57,894,063 (fifty-seven million, eight hundred and ninety-four thousand and sixty and three) new common shares, registered and without parinitially recorded as an Asset Held by Sale, at its cost value. In June 2020, with the EGM held on November 6, 2019, a capital increase in the amount of R$10,000 was approved, from R$274,642 to R$284,642 through the issue of 12,970,169 (twelve million, nine hundred and seventy thousand, one hundred and sixty-nine ) new common shares, registered and without par value.
(9) Investment transferred from non-current assets held for sale in June 2018.
(10) Company incorporated on June 11, 2018. In the EGM held on March 27, 2019, a capital increase in the amount of R$49,999 was approved, from R$45,001 to R$90,000, through the issue of 44,999,000 (forty-four million, nine hundred and ninety-nine thousand) new registered common shares, without par value. The shareholder Banco Santander subscribed all the new shares issued and paid up the shares corresponding to 100%non-execution of the capital increase.established plan, Summer became part of the scope of Banco Santander's Consolidated Financial Statements.
(11) Company incorporated on August 14, 2018xvii) Sale option of interest in Banco Olé Consignado S.A. and beginning its activities in November 2018.
(12) In the AGE of February 9, 2018, the shareholdersmerger of Banco Olé Consignado approved the capital increase in the amount of R$120,000, from R$400,000 to R$520,000, through the issuance of 57,089,392 (fifty-seven million, eighty-nine thousand, three hundredS.A. and ninety-two) common shares, registered and without par value, fully subscribed and paid up by the shareholders on the date of the EGM, in proportion to their respective interest in the share capital. The capital increase was approved by Bacen on March 15, 2018.
(13) The pre-operating company BHJV Assessoria e Consultoria em Gestão Empresarial Ltda., Was incorporated on April 11, 2018 and transformed into Banco Hyundai Capital Brasil S.A. on December 13, 2018. Aymoré CFI, wholly owned subsidiary of Banco Santander , has effective operational control of the company. At the EGM held on February 19, 2019, a capital increase in the amount of R$200,000 was approved, through the issuance of 200,000,000 (two hundred million) new common shares, nominative and without par value, with the capital of R$100,000 to R$300,000. The shares issued due to the capital increase were fully subscribed by the shareholders Aymoré Financiamentos CFI in the amount of R$100,000 and Hyundai Capital Services Inc. in the amount of R$100,000.
(14) In the EGM held on May 3, 2018, the Company's shareholders approved its transformation into a securities distribution company, and the change of its corporate name to SI Distribuidora de Tulos e Valores Mobiliários S.A. The transformation process was approved by Bacen on November 21, 2018. In the EGM held on December 17, 2018, SI Distribuidora de Tulos e Valores Mobiliários S.A. approved the change of its corporate name to PI Distribuidora de Titulos e Valores Mobiliários S.A..The change process was approved by Bacen on January 22, 2019.
(15) In the EGM held on April 2, 2019, a capital increase in the amount of R$200,000 was approved, from R$250,000 to R$450,000 through the issue of 12,987,012,987 (twelve billion, nine hundred and eighty-seven million, twelve thousand, nine hundred and eighty-seven) new common shares, nominative
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and without par value. In the EGM held on November 11, 2019, a capital increase in the amount of R$300,000 was approved, from R$450,000 to R$750,000 through the issue of 17,241,379,310 (seventeen billion, two hundred and forty-one million, three hundred and seventy-six million nine thousand three hundred and ten) new common shares, nominative and without par value.
(16) The AGE held on July 12, 2018, approved the change of the corporate name of Ipanema Empreendimentos eBosan Participações S.A. to Return Capital Serviços de Recuperação de Crutos S.A. The AGE held on July 12, 2018, approved the amendment to corporate name of Gestora de Investimentos Ipanema S.A. for Return Gestão de Recursos S.A. In an AGE held on November 11, 2019, the Company's capital increase in the amount of R$300,000 was approved by the issue of 17,241,379,310 (seventeen billion, two hundred and forty-one million, three hundred and seventy-nine thousand and three hundred and ten) new common shares, nominative and without par value.
(17) On November 1, 2019, Atual Serviços de Recuperação de Creditos concluded the acquisition of the shares issued by Return Capital Serviços e Recuperação de Creditos S.A. for the amount of R$17,000, previously held by minority shareholders, equivalent to 30% of the share capital of the company.
(18) In the EGM held on October 31, 2019, the partial spin-off of Integry Tecnologia e Serviços AHU Ltda. Was approved, with version of the spun-off portion of its equity to Getnet. At the EGM of December 16, 2019, the change of the company's name to Santander Merchant Platform Solutions Brasil Ltda was approved. (“SMPS Brasil”). On December 20, 2019, a purchase and sale agreement was signed for the totality of the company's shares for the amount of R$3 million by Santander Merchant Platform Solutions (Spain).
(19) On March 14, 2019, the minority shareholder of Banco Olé Bonsucesso Consignado S.A. (“Banco Olé”) formalized its interest in exercising the put option provided for in the Investment Agreement, signedentered into on July 30, 2014, for the sale of its interest in 40% stake in the share capital of Olé ConsignadoConsigned to Banco Santander. Santander (Brasil) S.A. (“Banco Santander”).
On December 20, 2019, the parties entered into a binding agreement for the acquisition, by Banco Santander, of all shares issued by Bosan Participações S.A. (holding company whose only asset isare shares representing 40% of Banco Olé's share capital), for the amount total of R$1.6 billion to be paid on the closing date of the Transaction. The completion of the Transaction will be subject to the signing of the definitive instruments and the implementation of certain suspensive conditions usual in this type of transaction. On October 23, 2019, Aymoré CFI had its share capital reduced, without the cancellation of shares, by transferring the common shares representing its equity interest held in Banco Olé Consignado and Super Payments to Banco Santander. On December 23, 2019, the necessary conditions for the completion of the transaction were fulfilled so that Olé Consignado and Super Payments became directly controlled by Banco Santander.
The events decribed above were implemented in order to reorganize the operations and activities of entities according to the business plan of the Conglomerate Santander, those movements have not affected the segment reporting once the companies are related to the commercial Banking segment and did not lead to a creation of a new segment.
a) Put option of equity interest in Banco Olé Consignado S.A.
On March 14, 2019, the minority shareholder of Banco Olé Bonsucesso Consignado S.A. (Olé Consignado) formalized its interest to exercise the put option right provided in the Investment Agreement, executed on July 30, 2014, to sell its 40% equity interest in the capital stock of Olé Consignado to Banco Santander (Brazil) S.A. (“Banco Santander”).
On December 20, 2019, the parties entered into a binding agreement for the acquisition, by Banco Santander, of the all the shares issued by Bosan Participações S.A. (holding company whose only asset are shares representing 40% of the capital of Banco Olé), for the total amount of R $ 1.6 billion (“Operation”Transaction”), to be paid on the closing date of the Operation.Transaction.
b) IncorporationOn January 31, 2020, the Bank and the shareholders of Bosan Participações S.A. (“Bosan”) concluded the definitive agreement and signed the purchase and sale agreement for 100% of the spun-off portionshares issued by Bosan, through the transfer of Integry Tecnologia e Serviços A.H.U Ltda.
On October 31, 2019,Bosan's shares to Bank and payment to sellers in the partial spin-off operationtotal amount of Integry Tecnologia e Serviços AHU Ltda. (“Integry”),R$1,608,772. As a wholly owned subsidiary of Getnet Adquirência e Serviços para Meios de Pagamento S.A. (“Getnet”), with version of the spun-off portion of its assets and liabilities, to Getnet was approved. The incorporation of the spun-off portion by Getnet is pending approval by the Central Bank of Brazil.
On December 20, 2019, Getnet and Santander Merchant Platform Solutions, S.L. (“SMPS Global”), company based in Spain and controlled byresult, Banco Santander S.A. (Santander Spain) executed a Purchasebecame, directly and Sale Agreement of the quotas corresponding to 100% of Integry capital stock. As a consequence, SMPS Global has becomeindirectly, the holder of 100% of the shares representatives of the capital stock of Integry. On December 23, 2019, Integry had its corporate name changed to Santander Merchant Platform Solutions Brasil Ltda.
c) Acquisition of residual equity interest in Return Capital Serviços e Recuperação de Crédito S.A.
Banco Olé.
On November 01,2019, Atual Serviços de Recuperação de Créditos e Meios Digitais S.A. (“Atual”), wholly owned subsidiary byAugust 31, 2020, Banco Santander shareholders approved the merger by the Bank of Banco Olé Consignado S.A. and the minority shareholders of Return Capital Serviços e Recuperação de CréditoBosan Participações S.A. (“Return Capital”) executed the Shares’ Sale and Purchase Agreement and Other Covenants of Return Capital,The mergers did not result in which Atual committed to acquire all of the minority shareholders’ shares, corresponding to 30% of Return Capital capital stock. The acquisition was closed on November 01, 2019. As a consequence, Atual has become the holder of 100% of the shares representatives of the capital stock of Return Capital.
d) Acquisition of Residual Interestan increase in Getnet S.A.
On December 19, 2018, Banco Santander and the Getnet S.A. Minority shareholders entered into an amendment to the Getnet S.A. Share Purchase and Sale Agreement, in which Banco Santander committed to acquire all the shares of the Minority Shareholders, corresponding to 11.5% of the share capital of Getnet SA, for the amount of R $ 1,431,000. The acquisition was approved by BACEN on February 18, 2019 and concluded on February 25, 2019, so that Banco Santander now holds 100% of the shares representing the share capital of Getnet S.A.Brasil.
e) Transfer of Control of Banco Olé Bonsucesso Consignado S.A. and Super Pagamentos e Administração de Meios Eletrônicos S.A.
On October, 23 2019, Aymoré Crédito, Financiamento e Investimento S.A. (“Aymoré”) had its capital stock reduced, without cancellation of shares, through the transfer of the common shares representing its equity held in Banco Olé Bonsucesso Consignado S.A. (“Olé”) and Super Pagamentos e Administração de Meios Eletrônicos S.A. (“Super”) to Banco Santander. On December 23, 2019 all the prior
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4. | |
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conditions for the capital stock reduction were accomplished: (i) previous authorization by Bacen; and (ii) term of opposition of the company creditors established as per art. 174 of Law 6.404/76; and, thus, Olé and Super become directly controlled by Banco Santander.
f) Acquisition of Summer Empreendimentos Ltda.
On May 14, 2019, Banco Santander (Brasil) S.A. (“Banco Santander”) and its wholly owned subsidiary Santander Holding Imobiliária S.A. (“SHI”) executed a binding agreement with the partners of Summer Empreendimentos Ltda (“Summer”) defining the negotiation terms for the purchase and sale of shares fully representing the capital of Summer. The acquisition was approved by BACEN on September 16, 2019 and closed on September 20, 2019. As a consequence SHI has become the holder of 99.999% and Banco Santander 0.001% of the shares representing the capital stock of Summer.
g) Formation of Esfera Fidelidade S.A.
On August 14, 2018, Esfera Fidelidade S.A. was incorporated, with equity fully owned by Banco Santander. Esfera Fidelidade S.A. act in the development and management of customer loyalty programs.. The company started its operation in November 2018.
h) Investment in Loop Gestão de Pátios S.A.
On June 26, 2018, Webmotors S.A., company with 70% interest indirectly owned by Banco Santander, signed an investment agreement with Allpark Empreendimentos, Participações e Serviços S.A. and Celta LA Participações S.A., in order to acquire an equity interest corresponding to 51% of the capital stock of Loop Gestão de Pátios S.A. (“Loop”), through capital increase and issuance of new shares of Loop to be fully subscribed and paid-in by Webmotors S.A.. Loop operates in the segment of commercialization and physical and virtual auction of motor vehicles. On September 25, 2018, the transaction was completed with increase of the capital stock, in the amount of R$23,900, through issuance of shares representing 51% of equity interest in Loop, which were fully subscribed and paid-in by Webmotors S.A.
i) Formation of BEN Benefícios e Serviços S.A.
On June 11, 2018, BEN Benefícios e Serviços S.A. (“Ben”), with equity fully owned by Banco Santander, was incorporated, to act in the supply and administration of meal, food, transportation, cultural and similar vouchers, via printed or electronic and magnetic cards.
j) Partnership with Hyundai Capital Services, Inc.
On April 28, 2016, Aymoré Crédito, Financiamento e Investimento S.A. (“Aymoré”) and Banco Santander executed with Hyundai Capital Services, Inc. (“Hyundai Capital”) the necessary documents for the formation of Banco Hyundai Capital Brasil S.A. (“Banco Hyundai”) and an insurance brokerage company with the purpose to provide, respectively, auto finance and financial and insurance brokerage services to clients and dealers of Hyundai in Brazil.
k.i) Banco Hyundai Capital Brasil S.A.
On April 11, 2018, the parties incorporated, with an equity interest of 50% held by Aymoré and 50% held by Hyundai Capital, a non-operational entity named BHJV Assessoria e Consultoria em Gestão Empresarial Ltda. On May 8, 2018, Aymoré and Hyundai Capital took resolution on the conversion of BHJV Assessoria into the non-operational joint-stock corporation named Banco Hyundai Capital Brasil S.A. On December 13, 2018, the incorporation procedure of Banco Hyundai was concluded.
On February 21, 2019, the authorization to operate granted by BACEN for the functioning of Banco Hyundai was published in the Federal Official Gazette. Banco Hyundai began operations in April 2019.
k.ii) Hyundai Corretora de Seguros Ltda.
On April 30, 2019, BACEN authorized Banco Santander to hold an indirect interest in a company to be incorporated under the name Hyundai Corretora de Seguros Ltda. (“Hyundai Corretora”). Hyundai Corretora was incorporated on July 22, 2019. On September 10, 2019 the company got the registration of the company as insurance brokerage with SUSEP. Hyundai Corretora began operations in November 2019.
l) Creation of PI Distribuidora de Títulos e Valores Mobiliários S.A.
On May 3, 2018, Santander Finance Arrendamento Mercantil S.A., an indirectly controlled subsidiary of Banco Santander, was converted into a distribution company of bonds and securities and had its corporate name changed to SI Distribuidora de Títulos e Valores Mobiliários S.A. The conversion process of approved by BACEN on November 21, 2018. On December 17, 2018, SI Distribuidora de Títulos e Valores Mobiliários S.A. had its corporate name changed to PI Distribuidora de Títulos e Valores Mobiliários S.A., being the corporate name change process approved by BACEN on January 22, 2019. The company started its operations on March 14, 2019.
Cash and balances with the Brazilian Central Bank |
Cash and balances with the Brazilian Central Bank
Thousand of reais | 2019 | 2018 | 2017 | 2021 | 2020 | 2019 | |||||
Cash and cash equivalents | 20,127,364 | 19,463,587 | 20,642,321 | Cash and cash equivalents | 16,657,201 | 20,148,725 | 20,127,364 | ||||
of which: | |||||||||||
Cash | 4,877,849 | 4,235,096 | 4,661,348 | 4,026,282 | 4,266,197 | 4,877,849 | |||||
Cash and Foreign currency application abroad | 15,249,515 | 15,228,491 | 15,980,973 | Cash and Foreign currency application abroad | 12,630,919 | 15,882,528 | 15,249,515 | ||||
Total | 20,127,364 | 19,463,587 | 20,642,321 | 16,657,201 | 20,148,725 | 20,127,364 |
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5. | Loans and amounts due from credit institutions |
The breakdown, by classification, type and currency, of the balances of “Loans and amounts due from credit institutions” in the consolidated financial statements is as follows:
Thousand of reais | 2021 | 2020 | 2019 | |
Classification: | ||||
Financial Assets Measured at Amortized Cost | 95,664,754 | 112,849,776 | 109,233,128 | |
Of which: | ||||
Loans and amounts due from credit institutions, gross | 95,686,579 | 112,858,840 | 109,246,671 | |
Impairment losses (note 9.c) | (21,825) | (9,064) | (13,543) | |
Loans and amounts due from credit institutions, net | 95,664,754 | 112,849,776 | 109,233,128 | |
Loans and amounts due from credit institutions, gross | 95,686,579 | 112,858,840 | 109,247,248 | |
Type: | ||||
Time deposits | 73,780,552 | 63,673,689 | 66,908,232 | |
Reverse repurchase agreements (1) | 4,129,438 | 699,034 | 100,246 | |
Escrow deposits | 10,200,137 | 10,773,280 | 11,424,537 | |
Other accounts (2) | 7,576,452 | 37,712,838 | 30,814,233 | |
Total | 95,686,579 | 112,858,840 | 109,247,248 |
(1) | Guaranteed by debt instruments. |
(2) | Changes refers substantially to the effect of the write-off of receivables from Getnet spin-off. |
Thousand of reais | 2019 | 2018 | 2017 | |||
Classification: | ||||||
Loans and receivables | - | - | 65,209,902 | |||
Financial Assets Measured At Amortized Cost | 109,233,128 | - | - | |||
Of which: | ||||||
Loans and amounts due from credit institutions, gross | 109,246,671 | 79,620,562 | 65,278,917 | |||
Impairment losses (note 9.c) | (13,543) | (13,561) | (69,015) | |||
Loans and amounts due from credit institutions, net | 109,233,128 | 79,607,001 | 65,209,902 | |||
Loans and amounts due from credit institutions, gross | 109,247,248 | 79.620.562 | 65,278,917 | |||
Thousand of reais | 2019 | 2018 | 2017 | |||
Type: | ||||||
Time deposits (2) | 66,908,232 | 64,547,525 | 53,128,272 | |||
Reverse repurchase agreements (1) (2) | 100,246 | 3,728,963 | 270,735 | |||
Escrow deposits | 11,424,537 | 10,182,936 | 10,136,079 | |||
Cash and Foreign currency investments(2)(3) | - | - | - | |||
Other accounts (3) | 30,814,233 | 1,161,138 | 1,743,831 | |||
Total | 109,247,248 | 79,620,562 | 65,278,917 |
(1) Guaranteed by debt instruments.
Consolidated Financial Statements | December 31, 2021 | F-41 |
* Values expressed in thousands, except when indicated. |
(2) Includes R$100,246 of short-term transactions with a low risk of change in value, considered cash equivalents.
(3) In 2019, the balances related to compulsory deposits were reclassified from cash and reserves at the Central Bank of Brazil to the item Loans and other amounts withdue from credit institutions for better presentation and, consequently, the respective comparative balances also have been reclassified.- Currency
Thousand of reais | 2019 | 2018 | 2017 | |||
Currency: | ||||||
Brazilian Real | 107,693,973 | 91,419,015 | 63,397,123 | |||
US dollar | 1,401,601 | 422,247 | 15,044,088 | |||
Euro | 151,097 | 32,058 | 307,633 | |||
Pound sterling | - | - | 3,585 | |||
Other currencies | - | - | 8,920 | |||
Total | 109,246,671 | 91,873,320 | 78,761,349 |
Thousand of reais | 2019 | 2018 | 2017 | |||
Cash equivalents: | ||||||
Short-term transactions and low risk of change in its value | 1,216,192 | 5,821,573 | 2,028,581 |
Thousand of reais | 2021 | 2020 | 2019 | |||||
Currency: | ||||||||
Brazilian Real | 91,889,990 | 109,287,868 | 107,693,973 | |||||
US dollar | 2,445,781 | 2,778,911 | 1,401,601 | |||||
Euro | 1,350,808 | 792,061 | 151,674 | |||||
Total | 95,686,579 | 112,858,840 | 109,247,248 |
Cash equivalents
Thousand of reais | 2021 | 2020 | 2019 | |
Cash equivalents: | ||||
Short-term transactions and low risk of change in its value (1) | 16,011,548 | 8,298,083 | 1,316,299 |
(1) | The Amount refers to investments in the open market (repurchase agreements) and investments in interbank deposits (CDI) at |
short term
Note 44-d43-d contains a detail of the residual maturity periods of financial assets measured at amortized cost.
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6. | Debt instruments |
The breakdown, by classification, type and currency, of the balances of “Debt instruments” is as follows:follows:
Thousand of reais | 2019 | 2018 | 2017 | |||
Classification: | ||||||
Financial assets held for trading (1) | - | - | 34,879,681 | |||
Financial Assets Measured At Fair Value Through Profit Or Loss | 3,735,076 | 3,171,746 | - | |||
Financial Assets Measured At Fair Value Through Profit Or Loss Held For Trading | 34,885,631 | 50,066,469 | - | |||
Other Financial assets designated at fair value through profit or loss | - | - | 1,658,689 | |||
Financial assets - available-for-sale | - | - | 84,716,747 | |||
Financial Assets Measured At Fair Value Through Other Comprehensive Income (1) | 95,962,927 | 85,395,691 | - | |||
Investments Held-to-Maturity | - | - | 10,214,454 | |||
Loans and receivables | - | - | 17,616,515 | |||
Financial Assets Measured At Amortized Cost | 38,748,296 | 36,799,509 | - | |||
Of which:
| ||||||
Debt Instruments | 40,803,323 | 39,513,460 | 20,400,082 | |||
Impairment losses | (2,055,027) | (2,713,951) | (2,783,567) | |||
Total | 173,331,930 | 175,433,415 | 149,086,086 | |||
Type: | ||||||
Government securities - Brazil (2) | 135,848,053 | 116,531,146 | 122,362,389 | |||
Debentures and Promissory notes | 13,874,883 | 10,555,952 | 12,097,230 | |||
Other debt securities | 23,608,994 | 48,346,317 | 14,626,467 | |||
Total | 173,331,930 | 175,433,415 | 149,086,086 |
Thousand of reais | 2021 | 2020 | 2019 | ||
Classification: | |||||
Financial assets measured at fair value through profit or loss | 3,122,017 | 3,545,660 | 3,735,076 | ||
Financial assets measured at fair value through profit or loss held for trading | 47,752,595 | 68,520,799 | 34,885,631 | ||
Financial assets measured at fair value through other comprehensive income | 101,212,600 | 109,668,214 | 95,962,927 | ||
Financial assets measured at amortized cost | 73,125,011 | 48,367,791 | 38,748,296 | ||
Of which: | |||||
Debt instruments | 74,315,903 | 49,945,226 | 40,803,323 | ||
Impairment losses | (1,190,892) | (1,577,435) | (2,055,027) | ||
Total | 225,212,223 | 230,102,464 | 173,331,930 | ||
Type: | |||||
Government securities - brazil (1) | 171,436,589 | 191,896,439 | 135,848,053 | ||
Debentures and promissory notes | 19,881,934 | 17,071,856 | 13,874,883 | ||
Other debt securities (2) | 33,893,700 | 21,134,169 | 23,608,994 | ||
Total | 225,212,223 | 230,102,464 | 173,331,930 |
(1) |
Includes, substantially, National Treasury Bills (LTN), Treasury Bills (LFT) e National Treasury Notes (NTN-A, NTN-B, NTN-C e NTN-F). |
(2) | Substantially refer to securities issued by the Official Credit Institute (ICO) of Spain. |
The debt instruments are composed, majority by:by:
Thousand of reais | 2021 | 2020 | 2019 | ||||||||
Currency: | |||||||||||
Brazilian Real | 208,599,863 | 207,752,590 | 164,447,235 | ||||||||
US dollar | 16,612,360 | 22,292,647 | 8,884,695 | ||||||||
Euro | - | 57,227 | - | ||||||||
Total | 225,212,223 | 230,102,464 | 173,331,930 |
Consolidated Financial Statements | December 31, 2021 | F-42 |
* Values expressed in thousands, except when indicated. |
Debt Instruments linked to
Thousand of reais | 2021 | 2020 | 2019 | ||
Debt Instruments linked to: | |||||
Repo Operations | 76,211,049 | 101,371,733 | 102,849,859 | ||
Operations guarantees in B3 S.A. - Brasil, Bolsa, Balcão (B3 S.A.) | 19,470,624 | 12,963,251 | 6,618,651 | ||
Associated to judiciary deposits and other guarantees (1) | 23,291,528 | 9,665,135 | 9,573,331 | ||
Total | 118,973,201 | 124,000,119 | 119,041,841 |
(1) | Substantially refers to securities issued by the Official Credit Institute (ICO) of Spain. |
Thousand of reais | 2019 | 2018 | 2017 | |||
Currency: | ||||||
Brazilian Real | 164,447,235 | 166,743,410 | 137,420,134 | |||
US dollar | 8,884,695 | 8,690,005 | 11,665,952 | |||
Euro | - | - | - | |||
Total | 173,331,930 | 175,433,415 | 149,086,086 |
Thousand of reais | 2019 | 2018 | 2017 | |||
Debt Instruments linked to: | ||||||
Repo Operations | 102,849,859 | 90,909,891 | 77,781,728 | |||
Banco Central Mandatory Deposits | - | 1,449,207 | 2,305,158 | |||
Operations guarantees in B3 S.A. - Brasil, Bolsa, Balcão (B3 S.A.) | 6,618,651 | 17,985,160 | 6,273,561 | |||
Associated to judiciary deposits and other guarantees | 9,573,331 | 2,078,042 | 4,743,298 | |||
Total | 119,041,841 | 112,422,300 | 91,103,745 |
Note 44-d43-d contains details of the residual maturity periods of financial assets measured at fair value through Other Results Comprehensive and corresponding financial assets measured at amortized cost.
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a) Breakdown
The breakdown, by classification and type, of the balances of “Equity instruments” is as follows:follows:
Thousand of reais | 2019 | 2018 | 2017 | 2021 | 2020 | 2019 | |
Classification: | |||||||
Financial assets held for trading | - | 489,770 | |||||
Financial Assets Measured At Fair Value Through Profit or Loss Held For Trading | 2,029,470 | 766,333 | - | ||||
Non-Trading Financial Assets Mandatorily Measured At Fair Value Through Profit or Loss | 171,453 | 298,297 | - | ||||
Other Financial assets designated at fair value through profit or loss | - | 33,368 | |||||
Financial assets available-for-sale | - | 1,106,637 | |||||
Financial Assets Measured At Fair Value Through Other Comprehensive Income | 157,306 | 40,986 | - | ||||
Financial assets measured at fair value through profit or loss held for trading | Financial assets measured at fair value through profit or loss held for trading | 2,020,610 | 1,818,276 | 2,029,470 | |||
Non-trading financial assets mandatorily measured at fair value through profit or loss | Non-trading financial assets mandatorily measured at fair value through profit or loss | 477,707 | 438,912 | 171,453 | |||
Financial assets measured at fair value through other comprehensive income | Financial assets measured at fair value through other comprehensive income | 29,187 | 72,173 | 157,306 | |||
Total | 2,358,229 | 1,105,616 | 1,629,775 | 2,527,504 | 2,329,361 | 2,358,229 | |
Type: | |||||||
Shares of Brazilian companies | 665,027 | 783,475 | 389,113 | Shares of Brazilian companies | 1,869,824 | 1,953,128 | 665,027 |
Shares of foreign companies | - | 1,933 | 5,347 | Shares of foreign companies | 48,825 | 13,617 | - |
Investment funds (1) | 1,693,202 | 320,208 | 1,235,315 | 608,855 | 362,616 | 1,693,202 | |
Total | 2,358,229 | 1,105,616 | 1,629,775 | 2,527,504 | 2,329,361 | 2,358,229 |
(1) | Composed mainly by investment on fixed income, public and private securities. |
b) Changes
The changes in the balance of “Equity instruments – Financial assets measured at fair value through profit or loss held for trading” were as follows:
Equity instruments - Financial assets measured at fair value through profit or loss held for trading
Thousand of reais | 2019 | 2018 | 2017 | 2021 | 2020 | 2019 | ||
Balance at beginning of year | 766,333 | 489,770 | 398,461 | Balance at beginning of year | 1,818,276 | 2,029,470 | 766,333 | |
Net additions (disposals) | 1,267,243 | 277,462 | 90,696 | |||||
Valuation adjustments | (4,106) | (899) | 613 | |||||
Net additions (disposals) / adjustments | Net additions (disposals) / adjustments | 202,334 | (211,194) | 1,263,137 | ||||
Balance at end of year | 2,029,470 | 766,333 | 489,770 | 2,020,610 | 1,818,276 | 2,029,470 |
The changes in the balance of “Equity instruments – Non-Trading Financial Assets Mandatorily Measured at Fair Value Through Profit or Loss” were as follows:
Equity instruments - Non-Trading Financial Assets Mandatorily Measured At Fair Value Through Profit Or Loss” were as follows:Loss
Thousand of reais | 2021 | 2020 | 2019 | |
Balance at beginning of year | 438,912 | 171,453 | 298,297 | |
Net additions (disposals) / adjustments | 38,795 | 267,459 | (126,844) | |
Balance at end of year | 477,707 | 438,912 | 171,453 |
Thousand of reais | 2019 | 2018 | 2017 | |
Balance at beginning of year | 298,297 | 33,368 | 42,455 | |
Net additions (disposals) | (126,893) | 143,291 | (1,586) | |
Valuation adjustments | 49 | 121,638 | (7,501) | |
Balance at end of year | 171,453 | 298,297 | 33,368 |
Consolidated Financial Statements | December 31, 2021 | F-43 |
* Values expressed in thousands, except when indicated. |
The changes in the balance of “Equity instruments – Financial Assets Measured Atat Fair Value Through Other Comprehensive Income” were as follows:
Equity instruments - Financial Assets Measured At Fair Value Through Other Comprehensive Income
Thousand of reais | 2019 | 2018 | 2017 | 2021 | 2020 | 2019 | ||
Balance at beginning of year | 40,986 | 1,106,637 | 1,985,473 | Balance at beginning of year | 72,173 | 157,306 | 40,986 | |
Net additions (disposals) | 238,758 | (1,034,219) | (830,395) | |||||
Valuation adjustments | (122,438) | (31,432) | (48,441) | |||||
Net additions (disposals) / adjustments | Net additions (disposals) / adjustments | (42,986) | (85,133) | 116,320 | ||||
Balance at end of year | 157,306 | 40,986 | 1,106,637 | 29,187 | 72,173 | 157,306 |
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8. | Derivative financial instruments and |
The main risk factors associated to derivatives contracted are related to exchange rates, interest rates and equities.stocks. To manage these and other market risk factors the Bank uses practices which include the measurement and follow up of the limit´s usage previously defined on internal committees, as well as the daily follow up of the portfolios values in risk, sensitivities and changes in the interest rate and exchange exposure, liquidity gaps, among other practices which allow the control and follow up on the main risk metrics that can affect the Bank´s position in the several markets which it acts. Based on this management model the Bank has accomplished its goal, using operations with derivatives, in optimize the relation risk/benefits even in situation with great volatility.
The derivatives fair value is determined through quotation of market prices. The swaps contracts fair value is determined using discounted cash flow modeling techniques, reflecting suitable risk factors. The fair value of NDF and Future contracts are also determined based on the quotation of market prices for derivatives traded in specific chamber (i.e..(i.e. stock Exchange for example) or using the same methodology applied for swap contracts. The fair value of options derivatives (call and put) is determined based on the mathematical models, such as Black & Scholes, using yield rates, implied volatilities and the fair value of the corresponding asset. The current market prices are used to price the volatilities. For the derivatives which do not have prices directly disclosed by specific chamber, their fair values are obtained through pricing models which use market information, based on disclosed prices of more liquid assets. Interest rate curves and market volatilities are extracted from thesesthese prices to be used as first input in these models.
a) Trading and hedging derivatives
a.1) Derivatives recorded in the balance sheet and compensation accounts
Portfolio summary of trading derivative and used as hedge
2021 | 2020 | 2020 | 2020 | 2019 | 2019 | 2019 | ||
As Previously Reported | Adjustment | As Revised | As Previously Reported | Adjustment | As Revised | |||
Assets | ||||||||
Swap Differentials Receivable | 7,641,355 | 14,729,642 | - | 14,729,642 | 14,634,863 | - | 14,634,863 | |
Option Premiums to Exercise | 1,385,889 | 4,974,618 | - | 4,974,618 | 1,065,753 | - | 1,065,753 | |
Forward Contracts and Others | 12,112,679 | 9,166,360 | (2,623,106) | 6,543,254 | 4,745,118 | (1,624,834) | 3,120,284 | |
Total | 21,139,923 | 28,870,620 | (2,623,106) | 26,247,514 | 20,445,734 | (1,624,834) | 18,820,900 | |
Liabilities | ||||||||
Swap Differentials Payable | 8,538,705 | 18,327,611 | - | 18,327,611 | 16,458,397 | - | 16,458,397 | |
Option Premiums Launched | 2,256,244 | 4,926,994 | - | 4,926,994 | 1,699,729 | - | 1,699,729 | |
Forward Contracts and Others | 13,824,032 | 8,725,333 | (2,623,106) | 6,102,227 | 4,271,851 | (1,624,834) | 2,647,017 | |
Total | 24,618,981 | 31,979,938 | (2,623,106) | 29,356,832 | 22,429,977 | (1,624,834) | 20,805,143 |
In 2021, the Company revisited the accounting treatment in relation to the electric energy commercialization contracts, which no longer include the amount of the "principal" and, therefore, only the adjustments to fair value and interest determined in these operations are recorded in equity accounts.
a.1) Derivatives RecordedFor better comparability purposes, the amounts of “principal” of energy trading operations recorded in equity accounts, on December 31, 2020 and 2019, were reduced from the headings of “Derivatives => Forward and Other Contracts” in the Balance Sheetamounts of BRL 2,623,106 (2019 - BRL 1,624,834), with corresponding impact on total assets and Compensation Accountsliabilities and between the lines "Financial assets measured at fair value in profit or loss held for trading" and "Financial liabilities measured at fair value in Income Held for Trading" in the statement of cash flows as of December 31, 2020 and 2019. There was no change in the balance of stockholders' equity or income. The financial statements as of December 31, 2020 and 2019, presented for comparison purposes, already include the aforementioned adjustments.
Consolidated Financial Statements | December 31, 2021 | F-44 |
* Values expressed in thousands, except when indicated. |
Summary by Category
Portfolio Summary of Trading Derivative and Used as Hedge
2019 | 2018 | 2017 | |||
Assets | |||||
Swap Differentials Receivable | 14,634,863 | 14,640,289 | 15,781,207 | ||
Option Premiums to Exercise | 1,065,753 | 716,936 | 553,217 | ||
Forward Contracts and Others | 4,745,101 | 3,006,221 | 928,464 | ||
Total | 20,445,717 | 18,363,446 | 17,262,888 | ||
Liabilities | |||||
Swap Differentials Payable | 16,458,397 | 15,952,283 | 14,643,016 | ||
Option Premiums Launched | 1,699,729 | 563,787 | 385,183 | ||
Forward Contracts and Others | 4,271,852 | 1,950,765 | 1,649,287 | ||
Total | 22,429,978 | 18,466,835 | 16,677,486 |
Summary by Category | ||||||||||||||||
Trading | 2021 | 2020 | 2019 | |||||||||||||
Notional (1) | Curve Value | Fair Value | Notional (1) | Curve Value | Fair Value | Notional (1) | Fair Value | |||||||||
Swap | 837,762,019 | (1,804,744) | (897,350) | 398,925,842 | (3,076,947) | (3,597,969) | 561,967,799 | (1,823,534) | ||||||||
Assets | 418,137,448 | 13,162,674 | 7,641,355 | 278,752,387 | 6,249,519 | 14,729,642 | 282,164,189 | 147,010,930 | ||||||||
CDI (Interbank Deposit Rates) | 66,837,268 | 318,541 | (778,177) | 41,316,315 | 326,586 | 3,010,880 | 40,550,627 | 16,908,791 | ||||||||
Fixed Interest Rate - Real | 231,741,021 | 9,269,271 | 6,412,471 | 54,159,848 | 4,013,563 | 9,607,342 | 47,140,927 | - | ||||||||
Indexed to Price and Interest Rates | 2,089,110 | - | (234,488) | 5,124,411 | - | - | 2,388,118 | - | ||||||||
Foreign Currency | 91,837,446 | 799,550 | 2,003,728 | 178,076,136 | 959,322 | 1,039,529 | 192,084,517 | 130,102,139 | ||||||||
Others | 25,632,603 | 2,775,313 | 237,822 | 75,676 | 950,048 | 1,071,891 | - | - | ||||||||
Liabilities | 419,624,571 | (14,967,418) | (8,538,705) | 120,173,455 | (9,326,465) | (18,327,611) | 279,803,610 | (148,834,464) | ||||||||
CDI (Interbank Deposit Rates) | 321,402,883 | (4,171,481) | (12,327,484) | 33,239,801 | (6,911,748) | (13,693,733) | 24,353,405 | - | ||||||||
Fixed Interest Rate - Real | 48,874,762 | (6,760,576) | 2,467,425 | 45,088,689 | (2,183,507) | (2,772,479) | 67,937,624 | (24,079,732) | ||||||||
Indexed to Price and Interest Rates | 22,827,336 | - | (728,677) | 33,026,692 | - | (450,958) | 125,829,755 | (123,445,067) | ||||||||
Foreign Currency | 887,129 | (28,407) | 2,287,852 | 6,636,885 | (25) | 153,695 | 60,394,529 | - | ||||||||
Others | 25,632,461 | (4,006,955) | (237,822) | 2,181,388 | (231,186) | (1,564,135) | 1,288,297 | (1,309,665) | ||||||||
Options | 1,130,172,099 | (595,345) | (885,703) | 2,043,286,085 | (282,110) | 47,624 | 1,446,536,133 | (1,222,465) | ||||||||
Purchased Position | 564,829,758 | 1,240,879 | 1,385,889 | 1,006,266,897 | 1,869,806 | 4,974,618 | 678,089,904 | 381,706 | ||||||||
Call Option - US Dollar | 9,898,179 | 271,464 | 382,237 | 1,188,387 | 47,898 | 39,202 | 171,871 | (281) | ||||||||
Put Option - US Dollar | 4,094,316 | 140,280 | 187,123 | 1,948,673 | 79,019 | 109,075 | 1,456,975 | 4,355 | ||||||||
Call Option - Other | 31,248,540 | 459,995 | 510,976 | 134,761,947 | 558,794 | 1,093,583 | 98,154,363 | 818,664 | ||||||||
Interbank Market | 28,499,055 | 444,446 | 495,214 | 101,421,659 | 557,167 | 556,039 | 98,154,363 | 819,262 | ||||||||
Others (2) | 2,749,485 | 15,549 | 15,763 | 33,340,288 | 1,627 | 537,544 | - | (598) | ||||||||
Put Option - Other | 519,588,723 | 369,140 | 305,553 | 868,367,889 | 1,184,095 | 3,732,758 | 578,306,695 | (441,032) | ||||||||
Interbank Market | 519,588,723 | 369,140 | 305,553 | 864,852,555 | 1,183,630 | 3,729,297 | 578,306,695 | (440,959) | ||||||||
Others (2) | - | - | - | 3,515,334 | 464 | 3,461 | - | (73) | ||||||||
Sold Position | 565,342,341 | (1,836,224) | (2,256,244) | 1,037,019,188 | (2,151,915) | (4,926,994) | 768,446,229 | (1,604,171) | ||||||||
Call Option - US Dollar | 4,111,016 | (170,553) | (152,348) | 1,537,670 | (70,201) | 699,243 | 254,945 | (1,472) | ||||||||
Put Option - US Dollar | 4,017,161 | (348,715) | (287,825) | 2,315,919 | (137,061) | (192,335) | 263,994 | (2,842) | ||||||||
Call Option - Other | 33,383,234 | (719,460) | (872,335) | 130,919,394 | (588,023) | (453,919) | 174,166,802 | (440,731) | ||||||||
Interbank Market | 31,730,928 | (713,773) | (858,586) | 120,156,285 | (566,813) | (464,405) | 174,166,802 | (440,959) | ||||||||
Others (2) | 1,652,305 | (5,687) | (13,749) | 10,763,109 | (21,210) | 10,486 | - | 228 | ||||||||
Put Option - Other | 523,830,930 | (597,497) | (943,736) | 902,246,206 | (1,356,630) | (4,979,984) | 593,760,488 | (1,159,126) | ||||||||
Interbank Market | 523,830,930 | (597,497) | (943,736) | 869,328,317 | (1,350,314) | (4,597,427) | 593,760,488 | (1,159,038) | ||||||||
Others (2) | - | - | - | 32,917,888 | (6,316) | (382,557) | - | (88) | ||||||||
Futures Contracts | 287,984,278 | - | - | 270,258,566 | - | - | 433,873,180 | - | ||||||||
Purchased Position | 148,237,279 | - | - | 110,275,866 | - | - | 72,912,029 | - | ||||||||
Exchange Coupon (DDI) | 85,931,389 | - | - | 12,438,695 | - | - | 7,394,951 | - | ||||||||
Interest Rates (DI1 and DIA) | 28,491,764 | - | - | 97,837,171 | - | - | 55,430,519 | - | ||||||||
Foreign Currency | 33,797,350 | - | - | - | - | - | 9,978,419 | - | ||||||||
Indexes (3) | 16,776 | - | - | - | - | - | - | - | ||||||||
Others | - | - | - | - | - | - | 108,140 | - | ||||||||
Sold Position | 139,746,999 | - | - | 159,982,699 | - | - | 360,961,151 | - | ||||||||
Exchange Coupon (DDI) | 60,606,204 | - | - | 73,114,014 | - | - | 146,032,485 | - | ||||||||
Interest Rates (DI1 and DIA) | 53,267,620 | - | - | 67,958,767 | - | - | 196,170,105 | - | ||||||||
Foreign Currency | 25,678,296 | - | - | 18,653,658 | - | - | 17,305,604 | - | ||||||||
Indexes (3) | 194,879 | - | - | 256,261 | - | - | 290,254 | - | ||||||||
Treasury Bonds/Notes | - | - | - | - | - | - | 1,162,703 | - | ||||||||
Forward Contracts and Others | 167,611,313 | 2,836,843 | (1,711,352) | 165,663,806 | 2,693,759 | 441,028 | 169,401,317 | 483,267 | ||||||||
Purchased Commitment | 93,097,212 | 5,345,415 | 12,112,679 | 96,309,648 | 1,370,654 | 6,543,254 | 79,970,842 | 3,120,284 | ||||||||
Currencies | 83,752,185 | 2,738,485 | 8,501,934 | 87,254,202 | 1,370,654 | 5,026,566 | 78,344,925 | 2,794,330 | ||||||||
Others | 9,345,027 | 2,606,930 | 3,610,745 | 9,055,447 | - | 1,516,688 | 1,625,917 | 325,954 | ||||||||
Sold Commitment | 74,514,101 | (2,508,572) | (13,824,032) | 69,354,158 | 1,323,105 | (6,102,227) | 89,430,475 | (2,647,017) | ||||||||
Currencies | 71,611,500 | (1,141,826) | (11,932,009) | 64,986,757 | 1,323,328 | (4,846,929) | 87,801,864 | (2,275,227) | ||||||||
Others | 2,902,602 | (1,366,746) | (1,892,023) | 4,367,401 | (223) | (1,255,298) | 1,628,611 | (371,790) |
F-45
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|
Summary by Category | |||||||
Trading | 2019 | 2018 | 2017 | ||||
Notional (1) | Fair Value (4) | Notional (1) | Fair Value (4) | Notional (1) | Fair Value (4) | ||
Swap | (1,823,534) | (1,431,110) | 1,108,760 | ||||
Assets | 282,164,189 | 147,010,930 | 177,233,869 | 44,487,274 | 202,081,214 | 57,294,179 | |
CDI (Interbank Deposit Rates) | 40,550,627 | 16,908,791 | 36,135,015 | 24,267,591 | 33,289,522 | 22,409,496 | |
Fixed Interest Rate - Real | 47,140,927 | - | 47,968,999 | - | 95,700,715 | - | |
Indexed to Price and Interest Rates | 2,388,118 | - | 2,581,215 | - | 5,592,892 | - | |
Foreign Currency | 192,084,517 | 130,102,139 | 90,495,240 | 20,219,683 | 67,493,635 | 34,884,683 | |
Others | - | - | 53,400 | - | 4,450 | - | |
Liabilities | 279,803,610 | (148,834,464) | 176,385,349 | (45,918,384) | 199,709,355 | (56,185,419) | |
CDI (Interbank Deposit Rates) | 24,353,405 | - | 11,801,600 | - | 16,664,176 | - | |
Fixed Interest Rate - Real | 67,937,624 | (24,079,732) | 88,317,044 | (23,075,374) | 114,055,076 | (21,687,884) | |
Indexed to Price and Interest Rates | 125,829,755 | (123,445,067) | 24,308,601 | (21,775,017) | 40,146,968 | (34,107,210) | |
Foreign Currency | 60,394,529 | - | 50,748,008 | - | 28,420,467 | - | |
Others | 1,288,297 | (1,309,665) | 1,210,096 | (1,067,993) | 422,668 | (390,325) | |
Options | 1,446,536,133 | (1,222,465) | 335,073,080 | 153,149 | 190,061,609 | 168,034 | |
Purchased Position | 678,089,904 | 381,706 | 149,076,796 | 716,936 | 87,503,833 | 553,217 | |
Call Option - US Dollar | 171,871 | (281) | 14,518,058 | 239,079 | 9,369,821 | 169,542 | |
Put Option - US Dollar | 1,456,975 | 4,355 | 8,893,620 | 90,736 | 5,130,392 | 42,389 | |
Call Option - Other | 98,154,363 | 818,664 | 3,118,344 | 131,297 | 1,953,481 | 59,220 | |
Interbank Market | 98,154,363 | 819,262 | 639,488 | 4,537 | 1,185,310 | 389 | |
Others(2) | - | (598) | 2,478,856 | 126,760 | 768,171 | 58,831 | |
Put Option - Other | 578,306,695 | (441,032) | 122,546,774 | 255,824 | 71,050,139 | 282,066 | |
Interbank Market | 578,306,695 | (440,959) | 121,782,816 | 217,726 | 70,295,282 | 257,943 | |
Others(2) | - | (73) | 763,958 | 38,098 | 754,857 | 24,123 | |
Sold Position | 768,446,229 | (1,604,171) | 185,996,284 | (563,787) | 102,557,776 | (385,183) | |
Call Option - US Dollar | 254,945 | (1,472) | 7,615,856 | (101,034) | 5,595,163 | (117,059) | |
Put Option - US Dollar | 263,994 | (2,842) | 12,160,912 | (169,431) | 5,919,598 | (77,145) | |
Call Option - Other | 174,166,802 | (440,731) | 31,679,919 | (66,002) | 19,880,180 | (35,961) | |
Interbank Market | 174,166,802 | (440,959) | 29,609,298 | (13,195) | 19,151,110 | (515) | |
Others(2) | - | 228 | 2,070,621 | (52,807) | 729,070 | (35,446) | |
Put Option - Other | 593,760,488 | (1,159,126) | 134,539,597 | (227,320) | 71,162,835 | (155,018) | |
Interbank Market | 593,760,488 | (1,159,038) | 133,703,672 | (179,841) | 70,494,622 | (126,743) | |
Others(2) | - | (88) | 835,925 | (47,479) | 668,213 | (28,275) | |
Futures Contracts | 433,873,180 | - | 289,508,200 | - | 161,725,596 | - | |
Purchased Position | 72,912,029 | - | 86,203,734 | - | 54,806,022 | - | |
Exchange Coupon (DDI) | 7,394,951 | - | 20,590,068 | - | 9,616,936 | - | |
Interest Rates (DI1 and DIA) | 55,430,519 | - | 32,690,685 | - | 26,456,303 | - | |
Foreign Currency | 9,978,419 | - | 32,456,813 | - | 16,733,437 | - | |
Indexes(3) | - | - | 466,168 | - | 1,780,311 | - | |
Others | 108,140 | - | - | - | 219,035 | - | |
Sold Position | 360,961,151 | - | 203,304,466 | - | 106,919,574 | - | |
Exchange Coupon (DDI) | 146,032,485 | - | 146,948,795 | - | 55,016,928 | - | |
Interest Rates (DI1 and DIA) | 196,170,105 | - | 54,160,203 | - | 51,135,994 | - | |
Foreign Currency | 17,305,604 | - | 1,992,574 | - | 745,849 | - | |
Indexes(3) | 290,254 | - | 202,894 | - | 20,803 | - | |
Treasury Bonds/Notes | 1,162,703 | - | - | - | - | - | |
Forward Contracts and Others | 169,401,317 | 473,249 | 90,910,841 | 1,055,456 | 47,823,561 | (720,823) | |
Purchased Commitment | 79,970,842 | 426,991 | 38,666,269 | 1,303,561 | 23,506,096 | 647,376 | |
Currencies | 79,969,759 | 426,986 | 38,095,625 | 1,250,706 | 21,525,220 | 618,007 | |
Others | 1,083 | 5 | 570,644 | 52,855 | 1,980,876 | 29,369 | |
Sold Commitment | 89,430,475 | 46,258 | 52,244,572 | (248,105) | 24,317,465 | (1,368,199) | |
Currencies | 89,426,698 | 46,170 | 51,958,529 | (252,160) | 22,096,104 | (1,364,617) | |
Others | 3,777 | 88 | 286,043 | 4,055 | 2,221,361 | (3,582) |
(1) Accrued notional.
(2) Includes options of index, mainly being options involving US treasury, shares and stock indexes.
(3) Includes Bovespa and S&P index.
(4) The balances of Swaps are disclosed netting the receivables and payables differentials per indexes. If the net balance is positive it is being disclosed on the asset side and if is negative on the liability side.
F-46
Nominal value of updated contracts. |
(2) | Includes options of index, mainly being options involving US treasury, shares and stock indexes. |
(3) | Includes Bovespa and S&P index. |
| |
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* Values expressed in thousands, except when indicated. |
a.2) Derivatives Financial Instruments by Counterparty
Notional | 2019 | ||||
Related | Financial | ||||
Customers | Parties | Institutions(1) | Total | ||
"Swap" | 66,976,262 | 38,784,704 | 176,403,223 | 282,164,189 | |
Options | 17,041,979 | 154,903 | 1,429,326,073 | 1,446,522,955 | |
Futures Contracts | 1,430,470 | - | 432,442,712 | 433,873,182 | |
Forward Contracts and Others | 47,199,547 | 118,612,607 | 3,589,163 | 169,401,317 |
(1) Notional 2021 Related Financial Customers Parties Institutions (1) Total Swap 152,650,125 233,667,783 31,819,540 418,137,448 Options 1,127,446,708 1,641,361 1,084,030 1,130,172,099 Futures Contracts 287,984,278 - - 287,984,278 Forward Contracts and Others 70,457,399 96,857,222 296,692 167,611,313
(1) | Includes trades with B3 S.A. and other securities and commodities exchanges. |
Notional | 2020 | 2019 | |||||
Related | Financial | ||||||
Customers | Parties | Institutions (1) | Total | Total | |||
Swap | 40,241,232 | 97,784,443 | 140,726,712 | 278,752,387 | 282,164,189 | ||
Options | 23,788,051 | 922,740 | 2,018,575,293 | 2,043,286,085 | 1,446,522,955 | ||
Futures Contracts | 3,198,239 | - | 267,060,326 | 270,258,566 | 433,873,182 | ||
Forward Contracts and Others | 67,837,797 | 49,447,532 | 45,755,371 | 163,040,700 | 169,401,317 |
(1) | Includes trades with B3 S.A. and other securities and commodities exchanges. |
Notional | 2018 | ||||
Related | Financial | ||||
Customers | Parties | Institutions(1) | Total | ||
"Swap" | 34,296,821 | 32,669,900 | 110,267,148 | 177,233,869 | |
Options | 14,636,017 | 1,086,323 | 319,350,740 | 335,073,080 | |
Futures Contracts | - | - | 289,508,200 | 289,508,200 | |
Forward Contracts and Others | 39,024,978 | 48,641,894 | 3,243,969 | 90,910,841 |
(1) Includes trades with B3 S.A. and other securities and commodities exchanges.
Notional | 2017 | ||||
Related | Financial | ||||
Customers | Parties | Institutions(1) | Total | ||
"Swap" | 32,912,721 | 19,599,395 | 149,569,098 | 202,081,214 | |
Options | 11,263,513 | 1,240,309 | 177,557,787 | 190,061,609 | |
Futures Contracts | - | - | 161,725,596 | 161,725,596 | |
Forward Contracts and Others | 25,470,287 | 18,816,991 | 3,536,283 | 47,823,561 |
(1) Includes trades with B3 S.A. and other securities and commodities exchanges.
a.3) Derivatives Financial Instruments by Maturity
Notional | 2021 | ||||||
Up to | From 3 to | Over | |||||
3 Months | 12 Months | 12 Months | Total | ||||
Swap | 30,501,795 | 99,817,727 | 287,817,926 | 418,137,448 | |||
Options | 749,406,698 | 128,500,299 | 252,265,102 | 1,130,172,099 | |||
Futures Contracts | 167,320,563 | 45,239,639 | 75,424,076 | 287,984,278 | |||
Forward Contracts and Others | 72,761,669 | 67,060,436 | 27,789,208 | 167,611,313 | |||
Notional | 2020 | 2019 | |||||
Up to | From 3 to | Over | |||||
3 Months | 12 Months | 12 Months | Total | Total | |||
Swap | 58,388,872 | 98,073,784 | 122,289,731 | 278,752,387 | 282,164,189 | ||
Options | 931,156,902 | 572,661,800 | 539,467,382 | 2,043,286,084 | 1,446,522,962 | ||
Futures Contracts | 181,521,486 | 36,328,390 | 52,408,689 | 270,258,566 | 433,873,181 | ||
Forward Contracts and Others | 104,098,351 | 33,788,798 | 25,153,551 | 163,040,700 | 169,401,317 |
Notional | 2019 | ||||
Up to | From 3 to | Over | |||
3 Months | 12 Months | 12 Months | Total | ||
"Swap" | 58,298,876 | 106,268,113 | 117,597,200 | 282,164,189 | |
Options | 681,033,183 | 646,187,139 | 119,302,640 | 1,446,522,962 | |
Futures Contracts | 140,882,437 | 179,337,860 | 113,652,884 | 433,873,181 | |
Forward Contracts and Others | 91,779,011 | 50,070,366 | 27,551,940 | 169,401,317 | |
Notional | 2018 | ||||
Up to | From 3 to | Over | |||
3 Months | 12 Months | 12 Months | Total | ||
"Swap" | 12,347,864 | 70,975,477 | 177,233,869 | 260,557,210 | |
Options | 63,376,042 | 220,982,952 | 335,073,080 | 619,432,074 | |
Futures Contracts | 67,578,078 | 62,708,213 | 159,221,909 | 289,508,200 | |
Forward Contracts and Others | 31,255,384 | 19,469,147 | 40,186,310 | 90,910,841 |
F-47
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* Values expressed in thousands, except when indicated. |
a.4) Derivatives by Market Trading
Notional | Stock | Over the | 2019 | |
Exchange(1) | Counter | Total | ||
"Swap" | 150,179,790 | 131,984,399 | 282,164,189 | |
Options | 1,423,788,845 | 22,734,117 | 1,446,522,962 | |
Futures Contracts | 433,873,181 | - | 433,873,181 | |
Forward Contracts and Others | 42,651,980 | 126,749,337 | 169,401,317 |
(1) Notional Stock Exchange (1) Over the Counter 2021 Total Swap 111,418,682 306,718,767 418,137,448 Options 1,094,484,434 35,687,665 1,130,172,099 Futures Contracts 287,984,278 - 287,984,278 Forward Contracts and Others 7,108,898 160,502,415 167,611,313
(1) | Includes trades with B3 S.A. |
Notional | Stock Exchange (1) | Over the Counter | 2020 | 2019 | |||
Total | Total | ||||||
Swap | 82,122,957 | 196,629,429 | 278,752,387 | 282,164,189 | |||
Options | 1,940,172,322 | 103,113,762 | 2,043,286,084 | 1,446,522,962 | |||
Futures Contracts | 270,258,566 | - | 270,258,566 | 433,873,181 | |||
Forward Contracts and Others | 25,182,494 | 137,858,206 | 163,040,700 | 169,401,317 |
(1) | Includes trades with B3 S.A. |
Notional | Stock | Over the | 2018 | |
Exchange(1) | Counter | Total | ||
"Swap" | 39,880,578 | 137,353,291 | 177,233,869 | |
Options | 307,644,530 | 27,428,550 | 335,073,080 | |
Futures Contracts | 289,508,200 | - | 289,508,200 | |
Forward Contracts and Others | 323,413 | 90,587,428 | 90,910,841 |
(1) Includes trades with B3 S.A.
Notional | Stock | Over the | 2017 | |
Exchange(1) | Counter | Total | ||
"Swap" | 67,112,505 | 134,968,709 | 202,081,214 | |
Options | 172,144,700 | 17,916,909 | 190,061,609 | |
Futures Contracts | 161,725,596 | - | 161,725,596 | |
Forward Contracts and Others | 395,212 | 47,428,349 | 47,823,561 |
(1) Includes trades with B3 S.A.
a.5) Information on Credit Derivatives
Banco Santander uses credit derivatives with the objectives of performing counterparty risk management and meeting its customers' demands, performing protection purchase and sale transactions through credit default swaps and total return swaps, primarily related to Brazilian sovereign risk securities.
TotalReturn Swaps – TRS
Credit derivatives are where the exchange of the return of the reference obligation occurs through a cash flow and where, in the event of a credit event, the protection buyer is usually entitled to receive from the protection seller the equivalent of the difference between the and the fair value (market value) of the reference obligation on the settlement date of the contract.
Credit Default Swaps – CDS
TheseThey are credit derivatives where, in the event of a credit event, the protection buyer is entitled to receive from the protection seller the equivalent ofto the difference between the face value of the CDS agreementcontract and the fair value (market value) of the reference obligation on the settlement date of the contract. In return, the seller receives compensationa fee for the sale of the protection.
Below, the composition of the Credit Derivatives portfolio shown by its reference value and effect on the calculation of Required Shareholders' Equity (PLE).
Composition of the Credit Derivatives portfolio shown by its reference value and effect in the calculation of Required Stockholders' Equity.Equity
2021 | 2020 | 2019 | |||||||||
Nominal Value | Nominal Value | Nominal Value | Nominal Value | Nominal Value | Nominal Value | ||||||
Retained Risk | Transferred Risk - | Retained Risk | Transferred Risk - | Retained Risk | Transferred Risk - | ||||||
Total Rate of Return Swap | Credit Swap | Total Rate of Return Swap | Credit Swap | Total Rate of Return Swap | Credit Swap | ||||||
Credit swaps | 3,984,392 | - | 3,483,628 | 519,670 | 2,435,880 | - | |||||
Total | 3,984,392 | - | 3,483,628 | 519,670 | 2,435,880 | - |
F-48
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2019 | 2018 | ||||||||
Nominal Value | Nominal Value | Nominal Value | Nominal Value | ||||||
Retained Risk | Transferred Risk - | Retained Risk | Transferred Risk - | ||||||
Total Rate of Return Swap | Credit Swap | Total Rate of Return Swap | Credit Swap | ||||||
Credit Swaps | 2,435,880 | - | 1,959,128 | 416,541 | |||||
Total | 2,435,880 | - | 1,959,128 | 416,541 |
(*) In 2017, there was no CDS operations that the Bank was into.
Value referring to the premium paid on CDS for use as collateral (transfer of risks) in the amount of R$602.
The effect in the Required Stockholder’s Equity of the risk received was R$3.286.
During the period, there was no occurrence of credit event related to thetriggering events generated byprovided for in the contracts.
2019 | 2018 | |||||
Over | Over | |||||
Maximum Potential for Future Payments – Gross | 12 Months | Total | 12 Months | Total | ||
Per Instrument | ||||||
CDS | 2,435,880 | 2,435,880 | 1,959,128 | 1,959,128 | ||
Total | 2,435,880 | 2,435,880 | 1,959,128 | 1,959,128 | ||
Per Risk Classification | ||||||
Below Investment Grade | 2,435,880 | 2,435,880 | 1,959,128 | 1,959,128 | ||
Total | 2,435,880 | 2,435,880 | 1,959,128 | 1,959,128 | ||
Per Reference Entity | ||||||
Brazilian Government | 2,435,880 | 2,435,880 | 1,959,128 | 1,959,128 | ||
Total | 2,435,880 | 2,435,880 | 1,959,128 | 1,959,128 |
Consolidated Financial Statements | December 31, 2021 | F-47 |
* Values expressed in thousands, except when indicated. |
2021 | 2020 | 2019 | |||||||
Over | Over | Over | |||||||
Maximum Potential for Future Payments - Gross | 12 Months | Total | 12 Months | Total | 12 Months | Total | |||
Per Instrument | |||||||||
CDS | 3,984,392 | 3,984,392 | 4,003,298 | 4,003,298 | 2,435,880 | 2,435,880 | |||
Total | 3,984,392 | 3,984,392 | 4,003,298 | 4,003,298 | 2,435,880 | 2,435,880 | |||
Per Risk Classification | |||||||||
Below Investment Grade | 3,984,392 | 3,984,392 | 4,003,298 | 4,003,298 | 2,435,880 | 2,435,880 | |||
Total | 3,984,392 | 3,984,392 | 4,003,298 | 4,003,298 | 2,435,880 | 2,435,880 | |||
Per Reference Entity | |||||||||
Brazilian Government | 3,984,392 | 3,984,392 | 4,003,298 | 4,003,298 | 2,435,880 | 2,435,880 | |||
Total | 3,984,392 | 3,984,392 | 4,003,298 | 4,003,298 | 2,435,880 | 2,435,880 |
a.6) Hedge Accounting
There are three types of hedge accounting: Fair Value Hedge, Cash Flow Hedge and Foreing Currency Investments Hedge.
The derivatives used as hedging instruments are represented as follows:
a.6.I ) Fair Value Hedge
Banco Santander’s fair value hedging strategy consists of hedging the exposure to changes in fair value related to recognized assets and liabilitiesliabilities.
The fair value strategy adopted by management segregates transactions by risk factor (e.g. Real/Dollar foreign exchange risk, fixed Reais interest rate risk, Dollar foreign exchange coupon risk, inflation risk, interest rate risk, etc.). The transactions generate exposures that are consolidated by risk factor and compared with internal pre-established limits.
In order to hedge the changes of fair value in receivables and interest payments, Santander uses interest rate Swap contracts related to pre-fixed (pre defined(pre-define interest rate at inception) assets and liabilities.
Banco Santander applies fair value hedge as follows:
•Designates Foreign Currency + Coupon versus %CDI and Pre - Real Interest Rate or contracts dollar futures (DOL, DDI/DI) as derivatives instruments in Hedge Accounting structures, with foreign currency loan operations being the object of such transactions.
• The Bank has a portfolio of credit assets denominated in US dollars at the fixed rate in the balance sheet of Santander EFC, whose operations are recorded in Euro. As a way of managing this mismatch, the Bank designates each Euro Floating Foreign Currency swap versus Fixed Dollar as the market risk hedge of the corresponding loan.
• The Bank has a portfolio of assets indexed to the Euro and traded at offshore branches. In the transaction, the value of the asset in Euro will be converted to the Dollar by the rate of the exchange contract of the transaction. As from the conversion, the principal amount of the funding, already expressed in US dollars, will be adjusted by a floating or fixed rate. The assets will be covered with Swap Cross Currency in order to cross the risk in Euro for LIBOR + Coupon.
F-49
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• The Bank has a pre-fixed interest rate risk generated by government securities (NTN-F and LTN) in the Financial Assets portfolio measured through Other Comprehensive Income. To manage this mismatch, the entity contracts DI futures on the Stock Exchange and designates them as a derivative instrument in a hedge accounting framework.
• The Bank has pre-fixed interest rate risk on its liabilities through issues of real estate credit bills (LCI). To manage this risk, the entity contracts DI futures on the Exchange and designates them as a hedging instrument in a hedge accounting structure.
• The Bank has a risk to the IPCA index generated by the issuance of Guaranteed Real Estate Bills. To manage this risk, the Bank contracts IPCA futures (DAP) on the Exchange and designates them as a hedging instrument in a Hedge Accounting structure.
• The Bank has a risk to the IPCA (Broad pricing to consumers index) generated by debentures in the portfolio of securities available for sale. To manage this mismatch, it contracts IPCA (DAP) futures on the Stock Exchange and designates them as a derivative instrument in a Hedge Accounting structure.
In order to assess the effectiveness and measure the ineffectiveness of the strategies, the institution complies with international accounting standard IAS 39, which requires that the effectiveness test be performed at the beginning (prospective test) of the hedge structure and be repeated periodically (prospective and retrospective tests) in order to demonstrate that the hedge ratio remains effective.
Consolidated Financial Statements | December 31, 2021 | F-48 |
* Values expressed in thousands, except when indicated. |
To assess the effectiveness and measure the ineffectiveness of the strategies, the Bank follows IAS 39, which requires that the effectiveness test be performed at the beginning (prospective test) of the hedge structure, and repeated periodically (prospective and retrospective test) to demonstrate that the hedge relationship remains effective.
a) Prospective test: according to the standard, the prospective test must be done on the start date (inception) and quarterly to demonstrate that the expectation regarding the effectiveness of the hedge relationship is high.
a.1) The initial prospective test (at inception):it is restricted to a qualitative review of the critical terms and conditions of the instrument and the hedged object, to a conclusion that changes in the market value of both instruments are expected to completely cancel each other out.
a.2) The prospective periodic test: the sensitivity of the present value of the hedged object and the hedging instrument to a parallel variation of 10 Basis Points in the interest rate curve will be computed periodically. For the purposes of effectiveness, the ratio of the two sensitivities must be between 80% and 125%.
b) Retrospective test: the retrospective effectiveness test will be conducted by comparing the market to market (mtm) variation of the hedge instrument from the beginning date with the variation of the hedge object's mtm from the beginning.
In fair value hedges, gains or losses, both on hedge instruments and on hedged items (attributable to the type of risk being protected) are recognized directly in the consolidated income statement.
Attributable to the type of risk being hedged
2019 | 2018 | 2017 | ||||||||||
Hedge Structure | Accumulated Effective Portion | Ineffective Portion | Accumulated Effective Portion | Ineffective Portion | Accumulated Effective Portion | Ineffective Portion | ||||||
Fair Value Hedge | ||||||||||||
Government Bonds (LTN, NTN-F) | (2,853,807) | - | (1,381,156) | - | (388,446) | - | ||||||
Eurobonds | - | - | - | - | - | - | ||||||
LEA Government Bonds | (61,761) | - | (191,472) | - | (1,200) | - | ||||||
Resolution 2,770 | (94) | - | 689 | - | 304 | - | ||||||
Trade Finance Off | (4,015) | - | (58,020) | - | (57,386) | - | ||||||
Total | (2,919,677) | - | (1,629,959) | - | (446,728) | - |
2021 | 2020 | 2019 | ||||||
Hedge Structure | Effective Portion Accumulated | Portion Ineffective | Effective Portion Accumulated | Portion Ineffective | Effective Portion Accumulated | Portion Ineffective | ||
Fair Value Hedge | ||||||||
Brazilian Treasury Bonds (LTN, NTN-F) | 3,756,394 | 0 | (2,183,841) | 0 | (2,853,807) | 0 | ||
Bonds (LEA) | 0 | 0 | - | 0 | (61,761) | 0 | ||
Resolution 2770 | 0 | 0 | - | 0 | (94) | 0 | ||
Trade Finance Off | 728 | 0 | (5,092) | 0 | (4,015) | 0 | ||
Total | 3,757,122 | 0 | (2,188,933) | 0 | (2,919,677) | 0 |
Hedge Instruments
12/31/2019 | |||||||
Hedge Instruments | Hedge Objects | ||||||
Accrued | Adjustment to | Accounting | Accrued | Adjustment to | Accounting | ||
Strategies | Cost | Market Value | Value | Cost | Market Value | Value | |
Swap Contracts | 3,249,742 | 101,264 | 3,351,005 | 3,555,326 | 662,773 | 4,218,099 | |
Credit Operations Hedge | 1,118,210 | 28,993 | 1,147,202 | 1,423,809 | 63,231 | 1,487,040 | |
Hedge of Securities | 2,131,532 | 72,271 | 2,203,802 | 2,131,517 | 599,542 | 2,731,059 | |
Future Contracts | 789,631 | - | 789,631 | 45,427,125 | 3,000,490 | 48,427,614 | |
Hedge of Securities | 789,631 | - | 789,631 | 45,427,125 | 3,000,490 | 48,427,614 |
12/31/2021 | ||||||||
Hedge | ||||||||
Hedge Instruments | Objects | |||||||
Curve | Adjustment to | Accounting | Curve | Adjustment to | Accounting | |||
Strategies | Value | Market Value | Value | Value | Market Value | Value | ||
Swap Contracts | 84,767 | (2,204) | 82,563 | 84,937 | 3,175 | 88,112 | ||
Credit Operations Hedge | 84,767 | (2,204) | 82,563 | 84,937 | 3,175 | 88,112 | ||
Future Contracts | 41,437,967 | (7,913) | 41,430,054 | 46,351,128 | (2,031,108) | 44,320,021 | ||
Credit Operations Hedge | 2,850,589 | (14,439) | 2,836,150 | 2,738,830 | 15,685 | 2,754,515 | ||
Hedge of Securities | 38,587,378 | 6,527 | 38,593,904 | 43,612,299 | (2,046,793) | 41,565,506 | ||
12/31/2020 | ||||||||
Hedge | ||||||||
Hedge Instruments | Objects | |||||||
Curve | Adjustment to | Accounting | Curve | Adjustment to | Accounting | |||
Strategies | Value | Market Value | Value | Value | Market Value | Value | ||
Future Contracts | 46,649,331 | - | 46,649,331 | 42,529,036 | 2,802,690 | 45,331,727 | ||
Hedge of Securities | 46,649,331 | - | 46,649,331 | 42,529,036 | 2,802,690 | 45,331,727 | ||
12/31/2019 | ||||||||
Hedge | ||||||||
Hedge Instruments | Objects | |||||||
Curve | Adjustment to | Accounting | Curve | Adjustment to | Accounting | |||
Strategies | Value | Market Value | Value | Value | Market Value | Value | ||
Swap Contracts | 3,249,741 | 101,264 | 3,351,004 | 3,555,326 | 662,773 | 4,218,099 | ||
Credit Operations Hedge | 1,118,210 | 28,993 | 1,147,202 | 1,423,809 | 63,231 | 1,487,040 | ||
Hedge of Securities | 2,131,532 | 72,271 | 2,203,802 | 2,131,517 | 599,542 | 2,731,059 | ||
Future Contracts | 789,631 | - | 789,631 | 45,427,125 | 3,000,490 | 48,427,614 | ||
Hedge of Securities | 789,631 | - | 789,631 | 45,427,125 | 3,000,490 | 48,427,614 |
(*) | The Bank has market risk hedge strategies, the objects of which are assets in its portfolio, which is why we demonstrate the passive edge of the respective instruments. For structures whose instruments are futures, we show the balance of the calculated daily adjustment, recorded in a clearing account. |
12/31/2018 | |||||||
Hedge Instruments | Hedge Objects | ||||||
Accrued | Adjustment to | Accounting | Accrued | Adjustment to | Accounting | ||
Strategies | Cost | Market Value | Value | Cost | Market Value | Value | |
Swap Contracts | 3,908,082 | 140,447 | 4,048,529 | 3,921,249 | 65,014 | 3,986,263 | |
Credit Operations Hedge | 1,152,249 | 115,180 | 1,267,429 | 1,166,387 | 50,668 | 1,217,055 | |
Hedge of Securities | 2,755,833 | 25,267 | 2,781,100 | 2,754,862 | 14,346 | 2,769,208 | |
Future Contracts | 41,286,091 | - | 41,286,091 | 44,130,671 | (205,941) | 43,924,730 | |
Hedge of Securities | 41,286,091 | - | 41,286,091 | 44,130,671 | (205,941) | 43,924,730 |
F-50
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* Values expressed in thousands, except when indicated. |
(*) The Bank has market risk hedge strategies, the objects of which are assets in its portfolio, which is why we demonstrate the passive edge of the respective instruments. For structures whose instruments are futures, we show the balance of the calculated daily adjustment, recorded in a clearing account.
a.6.I)a.6.II) Cash Flow Hedge
The Bank's cash flow hedge strategies consist of hedging exposure to changes in cash flows, interest payments and exchange rate exposure, which are attributable to changes in interest rates on recognized assets and liabilities and changes exchange rates for unrecognized assets and liabilities.
The Bank applies the cash flow hedge as follows:
• Enters into fixed-rate asset swaps and foreign currency liabilities and designates them as a hedging instrument in a Cash Flow Hedge structure, with the object of foreign currency loan operations negotiated with third parties through offshore agencies and securities Brazilian foreign debt held to maturity.
• It contracts Dollar futures or DDI + DI futures (Synthetic Dollar Futures) and designates them as a protection instrument in a Cash Flow Hedge structure, having as object item the Bank's credit portfolio in Dollars and Promissory Notes in securities portfolio available for sale.
• The Bank has a post-fixed interest rate risk (varies according to an index) arising from the treasury billsportfolio of credit classified as available for sale, which present expected cash flows subject to Selic variations over their duration. To manage these fluctuations, the Bank contracts DI futures and designates them as a protection instrument in a Cash Flow Hedge structure.
• Banco RCI Brasil SA has hedge operations whose purpose is to raise funds with bills of exchange (LF), bills of exchange (LC) and certificates of interbank deposits (CDI)assets indexed to CDIthe Euro and uses interesttraded at Offshore agencies. In the transaction, the value of the asset in Euro will be converted to Dollar at the exchange contract rate swapsfor entering the transaction. As of the conversion, the principal amount of the transaction, already expressed in dollars, will be corrected by a floating or pre-fixed rate. The assets will be hedged with Swap Cross Currency, in order to make pre-fixed funding and predicting future cash flows.transfer the risk in Euro to IBOR + Coupon.
To assess the effectiveness and measure the ineffectiveness of these strategies, Banco Santander follows IAS 39, which indicates that the effectiveness test must be carried out in the design / design/start of the hedge structure (prospective test) and repeated periodically (prospective and retrospective test) for demonstrate that the expectation of the hedge relationship remains effective (between 80 and 125%).
In this hedge strategy, the effectiveness tests (prospective / (prospective/retrospective) are conducted by comparing two proxies, one for the hedged object and the other for the instrument.
The hedge object proxy is a “conceptual” swap, where the passive “tip” simulates the part of the Stable Portion to be protected and the active pre-fixed “tip” is identical to the set of futures designated as a hedge, being consistent with market rates practiced on the day the hedge is designated. The hedge instrument proxy is a “conceptual” swap, where the active “tip” is made up of the number of futures contracts designated as hedging, and the passive pre-fixed “tip” is the rate negotiated in the acquisition of these contracts. The proxy is stable throughout the strategy since the contracts are maintained until maturity.
Any ineffectiveness is recognized in the income statement in the line Gains (losses) on financial assets and liabilities (net).
a) Prospective Test: according to the regulations, the prospective test must be performed on the start date and quarterly to demonstrate that the expectation regarding the effectiveness of the hedge relationship is high, however the tests are carried out monthly for proactive monitoring and more efficient projections, in addition to better maintenance of testing-related routines.
a.1) Periodic Prospective Test:Market Risk makes the projections of three scenarios for the tests, being: 1st 10bps on the curve; 2nd 50bps on the curve and 3rd 100bps on the curve. Using the validated estimates, prospective tests are performed by valuing the two variable legs of the transaction to market.
a.2) Initial Prospective Test:the methodology of the periodic prospective test should also be applied on the start date of each new strategy.
b) Retrospective test:test: it must be performed monthly with historical data to demonstrate cumulatively that the hedge was effective, according to the methodology presented above. Any ineffectiveness is recognized in the income statement.
Consolidated Financial Statements | December 31, 2021 | F-50 |
* Values expressed in thousands, except when indicated. |
The Ineffective portion is recognized throughmeasured using the prospective hedge test.test and if identified recognized in the income statement in the line Gains (losses) on financial assets and liabilities (net).
Effectiveness should be between 80% and 125%.
In cash flow hedges, the effective portion of the variation in the value of the hedge instrument is temporarily recognized in equity under the caption “Other comprehensive income - cash flow hedges” (Note 26)25) until the anticipated transactions occur, when this portion is recognized in the consolidated income statement, except if the anticipated transactions result in the recognition of non-financial assets or liabilities, this portion will be included in the cost of the financial asset or liability. The non-effective portion of the variation in the value of foreign exchange hedge derivatives andis recognized directly in the consolidated income statement. And the ineffective portion of the gains and losses on cash flow hedge instruments in an operation abroad is recognized directly in “Gains (losses) on financial assets and liabilities (net)” in the income statements.consolidated statements of income.
Hedge Structure - Cash Flow
2021 | 2020 | 2019 | ||||||
Hedge Structure | Effective Portion Accumulated | Portion Ineffective | Effective Portion Accumulated | Portion Ineffective | Effective Portion Accumulated | Portion Ineffective | ||
Cash Flow Hedge | ||||||||
Eurobonds | 0 | 0 | 14,666 | 0 | (6,074) | 0 | ||
Trade Finance Off | (236,630) | 0 | 58,088 | 0 | 139,852 | 0 | ||
Government Securities (LFT) | (982,648) | - | 727,437 | - | 503,665 | - | ||
Bank Deposit Certificate - CDB | 402,779 | - | - | - | - | - | ||
Total | (816,500) | - | 800,190 | - | 637,443 | - |
Hedge Instruments / Hedge Object
F-51
12/31/2021 | ||||||||
Hedge Instruments | Hedge Object | |||||||
Curve | Accounting | Adjustment to | Curve | Market | Accounting | |||
Strategies | Value | Value - liability | Market Value | Value | Value | Value | ||
Future Contracts | 110,932,644 | (616,062) | 110,316,582 | 128,673,067 | (8,912,769) | 119,760,298 | ||
Credit Operations Hedge (1) | 28,542,862 | (577,845) | 27,965,018 | 28,659,545 | 1,508,397 | 30,167,942 | ||
Hedge of Securities | 71,320,781 | (26) | 71,320,756 | 89,837,000 | (10,543,430) | 79,293,570 | ||
Funding Hedge | 11,069,000 | (38,191) | 11,030,809 | 10,176,522 | 122,264 | 10,298,786 | ||
12/31/2020 | ||||||||
Hedge Instruments | Hedge Object | |||||||
Accounting | Adjustment to | Market | Accounting | |||||
Strategies | Value - liability | Market Value | Value | Value | ||||
Swap Contracts | 1,428,053 | 1,428,053 | 1,302,666 | 1,302,666 | ||||
Hedge of Securities | 1,428,053 | 1,428,053 | 1,302,666 | 1,302,666 | ||||
Future Contracts | 19,500,234 | 19,500,234 | 23,447,934 | 23,447,934 | ||||
Credit Operations Hedge (1) | 19,500,234 | 19,500,234 | 23,447,934 | 23,447,934 | ||||
12/31/2019 | ||||||||
Hedge Instruments | Hedge Object | |||||||
Accounting | Adjustment to | Market | Accounting | |||||
Strategies | Value - liability | Market Value | Value | Value | ||||
Swap Contracts | 1,361,658 | 35,110 | 1,396,768 | 1,324,685 | ||||
Credit Operations Hedge | 435,872 | (3,494) | 432,378 | 399,831 | ||||
Hedge of Securities | 925,786 | 38,604 | 964,390 | 924,854 | ||||
Future Contracts | 54,460,972 | - | 54,460,972 | 7,726,566 | ||||
Credit Operations Hedge (1) | 50,975,253 | - | 50,975,253 | 4,506,878 | ||||
Hedge of Securities | 3,485,719 | - | 3,485,719 | 3,219,688 |
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2019 | 2018 | 2017 | ||||||||||
Hedge Structure | Accumulated Effective Portion | Ineffective Portion | Accumulated Effective Portion | Ineffective Portion | Accumulated Effective Portion | Ineffective Portion | ||||||
Cash Flow Hedge | ||||||||||||
Eurobonds | (6,074) | - | (8,925) | - | (25,576) | - | ||||||
Trade Finance Off | 139,852 | - | (16,453) | (3,981) | (94,896) | 9,267 | ||||||
Government Bonds (LFT) | 503,665 | - | 331,922 | - | 129,995 | - | ||||||
Bancary Deposit Receipt - CDB | - | - | 1,225 | - | 129,995 | - | ||||||
Total | 637,443 | - | 307,769 | (3,981) | 139,518 | 9,267 |
12/31/2019 | ||||
Hedge Instruments | Hedge Object | |||
Accrued | Adjustment to | Market | Accrued | |
Strategies | Cost | Market Value | Value | Cost |
Swap Contracts | 1,361,658 | 35,110 | 1,396,768 | 1,324,685 |
Credit Operations Hedge | 435,872 | (3,494) | 432,378 | 399,831 |
Hedge of Securities | 925,786 | 38,604 | 964,390 | 924,854 |
Future Contracts | 54,460,972 | - | 54,460,972 | 7,726,566 |
Credit Operations Hedge (1) | 50,975,253 | - | 50,975,253 | 4,506,878 |
Hedge of Securities | 3,485,719 | - | 3,485,719 | 3,219,688 |
12/31/2018 | ||||
Hedge Instruments | Hedge Object | |||
Accrued | Adjustment to | Market | Accrued | |
Strategies | Cost | Market Value | Value | Cost |
Swap Contracts | 2,227,004 | (24,206) | 2,202,798 | 2,423,678 |
Credit Operations Hedge | 1,032,283 | 68,730 | 1,101,012 | 1,198,921 |
Hedge of Securities | 1,194,721 | (92,936) | 1,101,786 | 1,224,757 |
Future Contracts | 44,541,939 | - | 44,541,939 | 17,224,115 |
Credit Operations Hedge (1) | 44,000,952 | - | 44,000,952 | 16,910,915 |
Hedge of Securities | 540,987 | - | 540,987 | 313,200 |
(*) The Bank has cash flow hedge strategies, the objects of which are assets in its portfolio, which is why we have shown the liability side of the respective instruments. For structures whose instruments are futures, we show the notional's balance, recorded in a memorandum account.
(1) Updated value of the instruments on December 31, 2019 is R$8,425,386 (12/31/2018 - R$16,738,641).
Consolidated Financial Statements | December 31, 2021 | F-51 |
* Values expressed in thousands, except when indicated. |
In Consolidated, the mark-to-market effect of swap and future asset contracts corresponds to a credit in the amount of R$11,063193,793 (12/31/20182020 - R$19,523)11,169) and is recorded in equity, reduced tax effects, of which R$6,327569 will be realized against revenue in the next twelve months.
a.7)
a.6) Derivative Financial Instruments - Margins Pledged as Guarantee
The margin given in guarantee for transactions traded at B3 S.A. with its own and third party derivative financial instruments is composed of federal public securities.
Composed of government securities
2019 | 2018 | 2017 | |
Financial Treasury Letters – LFT | 5,342,992 | 7,552,926 | 708,960 |
National Treasury Letters – LTN | 1,086,556 | 3,392,886 | 4,371,286 |
National Treasury Notes – NTN | 660,918 | 873,134 | 1,193,315 |
Total | 7,090,466 | 11,818,946 | 6,273,561 |
2021 | 2020 | 2019 | |||||
Financial Treasury Bills - LFT | 31,305,549 | 4,363,666 | 5,342,992 | ||||
National Treasury Bills - LTN | 3,751,223 | 6,155,276 | 1,086,556 | ||||
National Treasury Notes - NTN | 7,725,538 | 2,814,274 | 660,918 | ||||
Total | 42,782,310 | 13,333,215 | 7,090,466 |
b) Short Positions
As of December 31, 2019,2021, the balance of short positions totaled R$23,501,417 (201812,780,599 (2020 - R$32,695,67745,807,946 and 20172019 - R$32,808,392)23,835,653) which includes the amount of financial liabilities resulting from the direct sale of financial assets purchased under commitments for resale or borrowed.
F-52
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9. | Loans and advances to clients |
a) Breakdown
The breakdown, by classification, of the balances of “Loans and advances to clients” in the consolidated financial statements is as follows:
Thousand of reais | 2019 | 2018 | 2017 | 2021 | 2020 | 2019 | |||||
Classification: | |||||||||||
Non-Trading Financial Assets Mandatorily Measured At Fair Value Through Profit Or Loss | - | 619,180 | - | ||||||||
Loans and Receivables | - | 272,420,157 | |||||||||
Financial Assets Measured At Amortized Cost | 326,699,480 | 301,072,207 | - | ||||||||
Non-trading financial assets mandatorily measured at fair value through profit or loss | Non-trading financial assets mandatorily measured at fair value through profit or loss | 392,455 | 60,808 | - | |||||||
Loans and receivables | Loans and receivables | - | - | - | |||||||
Financial assets measured at amortized cost | Financial assets measured at amortized cost | 464,451,587 | 393,707,229 | 326,699,480 | |||||||
Of which: | |||||||||||
Loans and receivables at amortized cost | 347,256,660 | 321,314,010 | 287,829,213 | Loans and receivables at amortized cost | 492,962,247 | 417,761,218 | 347,256,660 | ||||
Impairment losses | (20,557,180) | (20,241,803) | (15,409,056) | (28,510,660) | (24,053,989) | (20,557,180) | |||||
Loans and advances to customers, net | 326,699,480 | 301,691,387 | 272,420,157 | Loans and advances to customers, net | 464,844,042 | 393,768,037 | 326,699,480 | ||||
Loans and advances to customers, gross | 347,256,660 | 321,933,190 | 287,829,213 | Loans and advances to customers, gross | 493,354,702 | 417,822,026 | 347,256,660 | ||||
Thousand of reais | Thousand of reais | 2021 | 2020 | 2019 | |||||||
Type: | |||||||||||
Loans operations (1) | 457,384,432 | 390,941,415 | 329,910,319 | ||||||||
Lease Portfolio | 2,532,048 | 2,096,240 | 2,111,842 | ||||||||
Repurchase agreements | Repurchase agreements | 6,044,808 | 4,530,041 | 10,500 | |||||||
Other receivables (2) | 27,393,414 | 20,254,330 | 15,223,999 | ||||||||
Total | 493,354,702 | 417,822,026 | 347,256,660 |
(1) | Includes loans and other loans with credit characteristics. |
(2) | Refers substantially to Foreign Exchange Transactions and Other Receivables with credit granting characteristics. |
Thousand of reais | 2019 | 2018 | 2017 |
Type: | |||
Loans operations(1) | 329,910,319 | 308,364,517 | 272,561,017 |
Lease Portfolio | 2,111,842 | 1,836,504 | 1,888,444 |
Repurchase agreements | 10,500 | 509,147 | 403,415 |
Other receivables(2) | 15,223,999 | 11,223,022 | 12,976,337 |
Total | 347,256,660 | 321,933,190 | 287,829,213 |
(1) Includes loans and other loans with credit characteristics.
(2) Refers substantially to Foreign Exchange Transactions and Other Receivables with credit granting characteristics.
Note 44-d43-d contains a detaildetails of the residual maturity periods of loans and receivables.
financial assets measured at the corresponding amortized cost. There are no loans and advances to clients for materialcustomers in significant amounts without fixed maturity dates.
Consolidated Financial Statements | December 31, 2021 | F-52 |
* Values expressed in thousands, except when indicated. |
b) Detail
Following is a detail,Below, the details, by loancondition and type and status, borrowerof credit, debtor sector and interest rate formula, of the loans and advances to clients,customers, which reflect the Bank’sBank's exposure to credit risk in its core business,main activity, gross of impairment losses:reduction losses to recoverable value:
Thousand of reais | 2019 | 2018 | 2017 | 2021 | 2020 | 2019 | |||||
Loan borrower sector: | |||||||||||
Commercial, and industrial | 145,387,439 | 146,293,616 | 140,619,110 | Commercial, and industrial | 215,967,128 | 191,281,653 | 145,387,439 | ||||
Real estate - construction | 39,720,713 | 36,515,352 | 34,808,681 | ||||||||
Real estate-construction | Real estate-construction | 54,738,606 | 45,791,869 | 39,720,713 | |||||||
Installment loans to individuals | 160,036,668 | 137,287,593 | 110,512,978 | Installment loans to individuals | 220,115,963 | 178,652,145 | 160,036,668 | ||||
Lease financing | 2,111,840 | 1,836,629 | 1,888,444 | 2,533,004 | 2,096,359 | 2,111,840 | |||||
Total | 347,256,660 | 321,933,190 | 287,829,213 | 493,354,702 | 417,822,026 | 347,256,660 |
Interest rate formula
Thousand of reais | 2021 | 2020 | 2019 | |||||||
Interest rate formula: | ||||||||||
Fixed interest rate | 337,583,246 | 292,884,352 | 258,760,620 | |||||||
Floating rate | 155,771,456 | 124,937,674 | 88,496,040 | |||||||
Total | 493,354,702 | 417,822,026 | 347,256,660 | |||||||
Debt sector by maturity
Thousand of reais | 2019 | 2018 | 2017 |
Interest rate formula: | |||
Fixed interest rate | 258,760,620 | 240,772,724 | 202,592,491 |
Floating rate | 88,496,040 | 81,160,466 | 85,236,722 |
Total | 347,256,660 | 321,933,190 | 287,829,213 |
2021 | ||||||||||
Debt Sector by Maturity | Less than 1 year | % of total | Between 1 and 5 years | % of total | More than 5 years | % of total | Total | % of total | ||
Commercial and industrial | 165,729,422 | 61.37% | 73,723,212 | 45.81% | 8,221,617 | 13.18% | 247,674,251 | 50.20% | ||
Real estate | 3,985,684 | 1.48% | 10,137,988 | 6.30% | 40,614,935 | 65.12% | 54,738,607 | 11.10% | ||
Installment loans to individuals | 99,050,959 | 36.68% | 75,832,619 | 47.12% | 13,525,262 | 21.69% | 188,408,840 | 38.19% | ||
Lease financing | 1,284,868 | 0.48% | 1,238,498 | 0.77% | 9,638 | 0.02% | 2,533,004 | 0.51% | ||
Loans and advances to customers, gross | 270,050,934 | 100.00% | 160,932,317 | 100.00% | 62,371,452 | 100.00% | 493,354,702 | 100.00% | ||
2020 | ||||||||||
Debt Sector by Maturity | Less than 1 year | % of total | Between 1 and 5 years | % of total | More than 5 years | % of total | Total | % of total | ||
Commercial and industrial | 127,569,542 | 58.23% | 60,190,422 | 40.94% | 3,521,688 | 6.81% | 191,281,652 | 45.78% | ||
Real estate | 3,419,553 | 1.56% | 8,973,495 | 6.10% | 33,398,822 | 64.54% | 45,791,870 | 10.96% | ||
Installment loans to individuals | 87,174,594 | 39.79% | 76,667,187 | 52.15% | 14,810,364 | 28.62% | 178,652,145 | 42.76% | ||
Lease financing | 899,055 | 0.41% | 1,182,713 | 0.80% | 14,591 | 0.03% | 2,096,359 | 0.50% | ||
Loans and advances to customers, gross | 219,062,744 | 100.00% | 147,013,817 | 100.00% | 51,745,465 | 100.00% | 417,822,026 | 100.00% | ||
2019 | ||||||||||
Debt Sector by Maturity | Less than 1 year | % of total | Between 1 and 5 years | % of total | More than 5 years | % of total | Total | % of total | ||
Commercial and industrial | 102,083,249 | 54.83% | 39,408,727 | 33.44% | 3,895,463 | 9.01% | 145,387,439 | 41.87% | ||
Real estate | 3,633,231 | 1.95% | 8,145,568 | 6.91% | 27,941,913 | 64.65% | 39,720,713 | 11.44% | ||
Installment loans to individuals | 79,624,744 | 42.76% | 69,034,596 | 58.58% | 11,377,328 | 26.33% | 160,036,668 | 46.09% | ||
Lease financing | 855,624 | 0.46% | 1,252,673 | 1.06% | 3,543 | 0.01% | 2,111,840 | 0.61% | ||
Loans and advances to customers, gross | 186,196,848 | 100.00% | 117,841,564 | 100.00% | 43,218,247 | 100.00% | 347,256,660 | 100.00% | ||
F-53
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|
2019 | ||||||||
Debt Sector by Maturity | Less than 1 year | % of total | Between 1 and 5 years | % of total | More than 5 years | % of total | Total | % of total |
Commercial and industrial | 102,083,249 | 54.83% | 39,408,727 | 33.44% | 3,895,463 | 9.01% | 145,387,439 | 41.87% |
Real estate | 3,633,231 | 1.95% | 8,145,568 | 6.91% | 27,941,913 | 64.65% | 39,720,713 | 11.44% |
Installment loans to individuals | 79,624,744 | 42.76% | 69,034,596 | 58.58% | 11,377,328 | 26.33% | 160,036,668 | 46.09% |
Lease financing | 855,624 | 0.46% | 1,252,673 | 1.06% | 3,543 | 0.01% | 2,111,840 | 0.61% |
Loans and advances to customers, gross | 186,196,848 | 100.00% | 117,841,564 | 100.00% | 43,218,247 | 100.00% | 347,256,660 | 100.00% |
2018 | ||||||||
Debt Sector by Maturity | Less than 1 year | % of total | Between 1 and 5 years | % of total | More than 5 years | % of total | Total | % of total |
Commercial and industrial | 109,802,828 | 58.92% | 32,538,999 | 32.77% | 3,951,789 | 10.90% | 146,293,616 | 45.44% |
Real estate | 4,298,925 | 2.31% | 7,964,308 | 8.02% | 24,252,119 | 66.90% | 36,515,352 | 11.34% |
Installment loans to individuals | 71,433,099 | 38.33% | 57,808,600 | 58.21% | 8,045,894 | 22.20% | 137,287,593 | 42.64% |
Lease financing | 838,659 | 0.45% | 997,644 | 1.00% | 326 | 0.00% | 1,836,629 | 0.57% |
Loans and advances to customers, gross | 186,373,511 | 100.00% | 99,309,551 | 100.00% | 36,250,128 | 100.00% | 321,933,190 | 100.00% |
2017 | ||||||||
Debt Sector by Maturity | Less than 1 year | % of total | Between 1 and 5 years | % of total | More than 5 years | % of total | Total | % of total |
Commercial and industrial | 103,377,571 | 61.65% | 31,262,492 | 37.90% | 5,979,047 | 19.25% | 140,619,110 | 48.85% |
Real estate | 7,791,753 | 5.35% | 10,970,004 | 13.29% | 16,046,924 | 51.65% | 34,808,681 | 12.09% |
Installment loans to individuals | 62,078,225 | 32.29% | 39,393,699 | 47.74% | 9,041,054 | 29.10% | 110,512,978 | 38.40% |
Lease financing | 1,000,418 | 0.71% | 886,833 | 1.07% | 1,193 | 0.00% | 1,888,444 | 0.66% |
Loans and advances to customers, gross | 174,247,967 | 100.00% | 82,513,028 | 100.00% | 31,068,218 | 100.00% | 287,829,213 | 100.00% |
F-54
| |
* Values expressed in thousands, except when indicated. |
Thousand of reais | 2019 | 2018 | 2017 |
Maturity | |||
Less than 1 year | 186,196,849 | 186,373,511 | 174,247,968 |
Between 1 and 5 years | 117,841,564 | 99,309,551 | 82,513,030 |
More than 5 years | 43,218,247 | 36,250,128 | 31,068,215 |
Loans and advances to customers, gross | 347,256,660 | 321,933,190 | 287,829,213 |
Internal risk classification | |||
Low | 257,133,115 | 240,440,294 | 226,098,497 |
Medium-low | 56,549,196 | 50,485,682 | 33,635,378 |
Medium | 11,754,806 | 11,967,262 | 10,423,293 |
Medium - high | 8,512,386 | 7,722,198 | 8,215,024 |
High | 3,307,156 | 11,317,754 | 9,457,021 |
Loans and advances to customers, gross | 347,256,660 | 321,933,190 | 287,829,213 |
Maturity
Thousand of reais | 2021 | 2020 | 2019 | |||||
Maturity | ||||||||
Less than 1 year | 270,050,934 | 219,062,744 | 186,196,849 | |||||
Between 1 and 5 years | 160,932,317 | 147,013,817 | 117,841,564 | |||||
More than 5 years | 62,371,451 | 51,745,465 | 43,218,247 | |||||
Loans and advances to customers, gross | 493,354,702 | 417,822,026 | 347,256,660 | |||||
Internal risk classification | ||||||||
Low | 374,505,212 | 347,315,357 | 257,133,115 | |||||
Medium-low | 79,216,725 | 24,277,404 | 56,549,196 | |||||
Medium | 14,589,977 | 26,231,871 | 11,754,806 | |||||
Medium - high | 9,413,110 | 3,896,457 | 8,512,386 | |||||
High | 15,629,678 | 16,100,937 | 13,307,156 | |||||
Loans and advances to Customers, gross | 493,354,702 | 417,822,026 | 347,256,660 | |||||
c) Impairment losses
The following tables below show the reconciliationreconciliations of the initialbeginning and finalending balances of the provisionallowance for losses by category of financial instrument. The terms ofexpected credit losses expected inover 12 months, expected credit losses expected during the maturityover their useful life and impairment losses are explained in the note on accounting practices. practices note.
The comparative values referring to 01/01/2018 represent the provision for losses of credit on 12/31/2017 after the initial adoption adjustments of IFRS 9 (note 1)
The variationschanges in the provisions for impairment losses due to non-recovery in the balances of the item “Financial"Financial assets measured at amortized cost" are as follows:
Considering the amounts recognized in "Loss due to impairment of the amount of the recoverable value against the result" and the "Recoveries of loans written off as loss", and "PDD of Avals", the "Loss with financial assets - Financial assets measured at amortized cost" totaled in December 31, 2021, R$17,112,734 (2020 - R$17,450,188 and 2019 - R$13,369,905).
Changes in the allowances for the impairment losses on the balances of Loans and receivables
Thousand of reais | 2021 | |||||||
Stage 1 | Stage 2 | Stage 3 | ||||||
Credit losses expected in 12 months | Expected credit losses over a useful life not subject to impairment | Expected credit losses during the useful life subject to impairment | Total | |||||
Balance at beginning of year | 5,837,199 | 4,928,606 | 14,874,684 | 25,640,489 | ||||
Impairment losses charged to income for the year | 3,200,608 | 4,883,553 | 8,902,534 | 16,986,695 | ||||
Transfers between stages | (553,054) | 31,154 | 10,221,329 | 9,699,429 | ||||
Movement of the period | 3,753,662 | 4,852,399 | (1,318,795) | 7,287,266 | ||||
Of which: | ||||||||
Commercial and industrial | 347,359 | 1,779,043 | 1,213,907 | 3,340,309 | ||||
Real estate-construction | 4,411 | (50,798) | 162,418 | 116,031 | ||||
Installment loans to individuals | 2,851,686 | 3,155,946 | 7,524,183 | 13,531,815 | ||||
Lease financing | (2,848) | (638) | 2,026 | (1,460) | ||||
Variation by Stage | (2,060,142) | (4,058,304) | 6,118,446 | - | ||||
Write-off of impaired balances against recorded impairment allowance | - | - | (12,903,807) | (12,903,807) | ||||
Of which: | ||||||||
Commercial and industrial | - | - | (5,153,345) | (5,153,345) | ||||
Real estate-construction | - | - | (166,579) | (166,579) | ||||
Installment loans to individuals | - | - | (7,575,967) | (7,575,967) | ||||
Lease financing | - | - | (7,916) | (7,916) | ||||
Balance at end of year | 6,977,664 | 5,753,855 | 16,991,855 | 29,723,376 | ||||
Of which: | ||||||||
Loans and advances to customers | 6,861,404 | 5,703,285 | 15,945,970 | 28,510,659 | ||||
Loans and amounts due from credit institutions (Note 5) | 21,825 | - | - | 21,825 | ||||
Provision for Debt Instruments (Note 6) | 94,435 | 50,570 | 1,045,887 | 1,190,892 | ||||
Recoveries of loans previously charged off | - | - | 1,536,336 | 1,536,336 | ||||
Of which: | ||||||||
Commercial and industrial | - | - | 462,523 | 462,523 | ||||
Real estate-construction | - | - | 64,257 | 64,257 | ||||
Installment loans to individuals | - | - | 1,002,257 | 1,002,257 | ||||
Lease financing | - | - | 7,299 | 7,299 | ||||
Discount granted | - | - | (1,662,375) | (1,662,375) |
Consolidated Financial Statements | December 31, 2021 | F-54 |
* Values expressed in thousands, except when indicated. |
Thousand of reais | 2021 | 2020 | 2019 | |||||
Balance at beginning of year | 25,640,489 | 22,625,750 | 22,969,315 | |||||
Impairment losses charged to income for the year | 16,986,695 | 18,311,441 | 14,361,382 | |||||
Of which: | ||||||||
Commercial and industrial | 3,340,309 | 6,918,671 | 2,376,910 | |||||
Real estate-construction | 116,031 | 81,415 | 94,957 | |||||
Installment loans to individuals | 13,531,815 | 11,308,689 | 11,866,475 | |||||
Lease financing | (1,460) | 2,666 | 23,040 | |||||
Write-off of impaired balances against recorded impairment allowance | (12,903,808) | (15,296,703) | (14,704,948) | |||||
Of which: | ||||||||
Commercial and industrial | (5,153,346) | (4,616,722) | (5,713,369) | |||||
Real estate-construction | (166,579) | (232,262) | (108,294) | |||||
Installment loans to individuals | (7,575,967) | (10,433,131) | (8,834,391) | |||||
Lease financing | (7,916) | (14,588) | (48,893) | |||||
Balance at end of year | 29,723,376 | 25,640,488 | 22,625,750 | |||||
Of which: | ||||||||
Loans and advances to customers | 28,510,659 | 24,053,989 | 20,557,180 | |||||
Loans and amounts due from credit institutions (Note 5) | 21,825 | 9,065 | 13,543 | |||||
Provision for Debt Instruments (Note 6) | 1,190,892 | 1,577,435 | 2,055,027 | |||||
Recoveries of loans previously charged off | 1,536,336 | 861,253 | 991,476 | |||||
Of which: | ||||||||
Commercial and industrial | 462,523 | 422,023 | 519,594 | |||||
Real estate-construction | 64,257 | 55,631 | 46,639 | |||||
Installment loans to individuals | 1,002,257 | 370,491 | 417,477 | |||||
Lease financing | 7,299 | 13,107 | 7,767 |
Considering the amounts recognized in “Loss due to impairment of income against income” and “Recoveries of loans written off as loss”, and “Available allowances” the “Losses on financial assets - Financial assets measured at amortized cost” are as follows:
Thousand of reais | 2019 | ||||
Stage 1 | Stage 2 | Stage 3 | |||
Credit losses expected in 12 months | Expected credit losses over a maturity not subject to impairment | Expected credit losses during the maturity subject to impairment | Total | ||
Balance at beginning of year | 3,917,278 | 3,779,119 | 15,272,918 | 22,969,315 | |
Impairment losses charged to income for the year | 1,549,095 | 365,191 | 12,447,096 | 14,361,382 | |
Transfers between stages | (1,386,769) | (784,480) | 9,478,698 | 7,307,449 | |
Movement of the period | 2,935,864 | 1,149,671 | 2,968,398 | 7,053,934 | |
Of which: | |||||
Commercial and industrial | (463,647) | (77,270) | 2,917,827 | 2,376,910 | |
Real estate - construction | (44,548) | 29,206 | 110,299 | 94,957 | |
Installment loans to individuals | 2,060,043 | 415,895 | 9,390,537 | 11,866,475 | |
Lease financing | (2,753) | (2,640) | 28,433 | 23,040 | |
Variation by Stage | (1,107,772) | (850,621) | 1,958,393 | - | |
Write-off of impaired balances against recorded impairment allowance | - | - | (14,704,948) | (14,704,948) | |
Of which: | |||||
Commercial and industrial | - | - | (5,713,369) | (5,713,369) | |
Real estate - construction | - | - | (108,294) | (108,294) | |
Installment loans to individuals | - | - | (8,834,391) | (8,834,391) | |
Lease financing | - | - | (48,893) | (48,893) | |
Balance at end of year | 4,358,601 | 3,293,690 | 14,973,459 | 22,625,750 | |
Of which: | |||||
Loans and advances to customers | 4,291,734 | 3,282,252 | 12,983,194 | 20,557,180 | |
Loans and amounts due from credit institutions (Note 5) | 13,543 | - | - | 13,543 | |
Provision for Debt Instruments (Note 6) | 53,324 | 11,438 | 1,990,265 | 2,055,027 | |
- | |||||
Recoveries of loans previously charged off | - | - | 991,476 | 991,476 | |
Of which: | |||||
Commercial and industrial | - | - | 519,594 | 519,594 | |
Real estate - construction | - | - | 46,639 | 46,639 | |
Installment loans to individuals | - | - | 417,477 | 417,477 | |
Lease financing | - | - | 7,767 | 7,767 | |
F-55
| |
|
Thousand of reais | 2018 | |||||
Stage 1 | Stage 2 | Stage 3 | ||||
Credit losses expected in 12 months | Expected credit losses over a maturity not subject to impairment | Expected credit losses during the maturity subject to impairment | Total | |||
Balance at beginning of year | 3,833,553 | 3,767,490 | 13,122,019 | 20,723,062 | ||
Impairment losses charged to income for the year | 83,725 | 389,100 | 13,067,280 | 13,540,105 | ||
Transfers between stages | (1,096,539) | (273,048) | 4,502,795 | 3,133,208 | ||
Movement of the period | 1,180,264 | 662,148 | 8,564,485 | 10,406,897 | ||
Of which: | ||||||
Commercial and industrial | (311,546) | (161,669) | 4,093,507 | 3,620,292 | ||
Real estate - construction | (10,173) | (28,581) | 231,655 | 192,901 | ||
Installment loans to individuals | 406,011 | 581,068 | 8,721,164 | 9,708,243 | ||
Lease financing | (567) | (1,718) | 20,954 | 18,669 | ||
Write-off of impaired balances against recorded impairment allowance | - | (377,471) | (10,916,381) | (11,293,852) | ||
Of which: | ||||||
Commercial and industrial | - | (132,770) | (3,848,644) | (3,981,414) | ||
Real estate - construction | - | (877) | (189,783) | (190,660) | ||
Installment loans to individuals | - | (243,824) | (6,855,729) | (7,099,553) | ||
Lease financing | - | - | (22,225) | (22,225) | ||
Balance at end of year | 3,917,278 | 3,779,119 | 15,272,918 | 22,969,315 | ||
Of which: | ||||||
Loans and advances to customers | 3,831,812 | 3,727,264 | 12,682,727 | 20,241,803 | ||
Loans and amounts due from credit institutions (Note 5) | - | 13,561 | - | 13,561 | ||
Provision for Debt Instruments (Note 6) | 85,465 | 38,296 | 2,590,190 | 2,713,951 | ||
- | ||||||
Recoveries of loans previously charged off | - | - | 826,573 | 826,573 | ||
Of which: | ||||||
Commercial and industrial | - | - | 345,085 | 345,085 | ||
Real estate - construction | - | - | 103,433 | 103,433 | ||
Installment loans to individuals | - | - | 369,557 | 369,557 | ||
Lease financing | - | - | 8,498 | 8,498 |
| ||||
Taking into account these amounts recognizedtotaled in “Impairment losses charged to income for the year” and the "Recoveries of loans previously charged off", the "Impairment losses on financial assets - Loans and receivables” amounted on December 31, 2021, R$17,112,734 (2020- R$17,450,188 and 2019
F-56
| |
|
R$13,369,905 (2018 - R$12,713,532 and 2017 - R$12,338,141)13,369,905).
The balances of the provision for losses due to non-recovery by debtor sector are as follows:
Thousand of reais | 2021 | 2020 | 2019 | |||||
Commercial and industrial | 8,324,614 | 9,757,193 | 7,455,243 | |||||
Real estate - Construction | 154,248 | 193,935 | 344,782 | |||||
Installment loans to individuals | 21,240,296 | 15,675,765 | 14,800,208 | |||||
Lease financing | 4,218 | 13,594 | 25,517 | |||||
Total | 29,723,376 | 25,640,488 | 22,625,750 |
Thousand of reais | 2019 | 2018 | 2017 |
Commercial and industrial | 7,455,243 | 10,791,702 | 10,338,225 |
Real estate - Construction | 344,782 | 358,119 | 493,422 |
Installment loans to individuals | 14,800,208 | 11,768,124 | 7,373,969 |
Lease financing | 25,517 | 51,370 | 56,022 |
Total | 22,625,750 | 22,969,315 | 18,261,638 |
d) Impaired assets
The details of the changes in the balance of the financial assets classified as “Loans and receivables – loans and advances to clients” (as defined at Note 1.i) and considered to be impaired due to credit risk are as follows:
Loans and receivables - loans and advances to customers
Thousand of reais | 2021 | 2020 | 2019 | |||||
Balance at beginning of year | 23,176,039 | 23,426,076 | 22,425,801 | |||||
Net additions | 18,428,727 | 14,757,908 | 16,000,733 | |||||
Written-off assets | (14,681,454) | (15,007,946) | (15,000,458) | |||||
Balance at end of year | 26,923,312 | 23,176,039 | 23,426,076 |
Thousand of reais | 2019 | 2018 | 2017 |
Balance at beginning of year on 01/01/2018 previously to the initial adoption IFRS 9) | 22,425,801 | 19,144,995 | 18,887,132 |
IFRS9 initial adoption effects | - | 702,992 | - |
Balance at beginning of year on 01/01/2018 after the initial adoption IFRS 9) | 22,425,801 | 19,847,987 | 18,887,132 |
Net additions | 16,000,733 | 13,871,666 | 13,679,423 |
Written-off assets | (15,000,458) | (11,293,852) | (13,421,560) |
Balance at end of year | 23,426,076 | 22,425,801 | 19,144,995 |
Following is a detail of the financial assets considered to be impaired classified by age of the oldest past-due amount:
Thousand of reais | 2019 | 2018 | 2017 |
With no Past-Due Balances or Less than 3 Months Past Due | 11,729,920 | 12,000,867 | 10,844,831 |
With Balances Past Due by | |||
3 to 6 Months | 3,961,042 | 3,473,591 | 4,123,796 |
6 to 12 Months | 5,721,762 | 4,929,099 | 3,791,805 |
12 to 18 Months | 985,476 | 1,144,035 | 271,965 |
18 to 24 Months | 523,441 | 325,701 | 20,825 |
More than 24 Months | 504,435 | 552,508 | 91,773 |
Total | 23,426,076 | 22,425,801 | 19,144,995 |
Debt Sector | |||
Commercial and industrial | 10,072,655 | 11,832,302 | 11,993,953 |
Real estate - Construction | 826,863 | 1,035,352 | 781,886 |
Installment loans to individuals | 12,497,179 | 9,499,148 | 6,304,134 |
Lease financing | 29,379 | 58,999 | 65,022 |
Total | 23,426,076 | 22,425,801 | 19,144,995 |
F-57
| |
|
* Values expressed in thousands, except when indicated. |
Thousand of reais | 2021 | 2020 | 2019 | |||||
With no Past-Due Balances or Less than 3 Months Past Due | 12,885,506 | 12,966,813 | 11,729,920 | |||||
With Balances Past Due by | ||||||||
3 to 6 Months | 4,717,302 | 3,049,974 | 3,961,042 | |||||
6 to 12 Months | 6,866,628 | 4,798,859 | 5,721,762 | |||||
12 to 18 Months | 1,253,046 | 1,243,809 | 985,476 | |||||
18 to 24 Months | 659,702 | 607,527 | 523,441 | |||||
More than 24 Months | 541,129 | 509,056 | 504,435 | |||||
Total | 26,923,312 | 23,176,039 | 23,426,076 | |||||
Thousand of reais | 2021 | 2020 | 2019 | |||||
Debt Sector | ||||||||
Commercial and industrial | 11,439,692 | 10,558,213 | 10,072,655 | |||||
Real estate - Construction | 470,115 | 456,130 | 826,863 | |||||
Installment loans to individuals | 14,996,152 | 12,144,238 | 12,497,179 | |||||
Lease financing | 17,353 | 17,458 | 29,379 | |||||
Total | 26,923,312 | 23,176,039 | 23,426,076 |
e) Loan past due for less than 90 days but not classified as impaired
Thousand of reais | Thousand of reais | 2019 | % of total loans past due for less than 90 days | 2018 | % of total loans past due for less than 90 days | 2017 | % of total loans past due for less than 90 days | Thousand of reais | 2021 | % of total loans past due for less than 90 days | 2020 | % of total loans past due for less than 90 days | 2019 | % of total loans past due for less than 90 days | ||
Commercial and industrial | Commercial and industrial | 3,517,086 | 15.42% | 4,424,143 | 19.77% | 3,559,349 | 19.90% | Commercial and industrial | 4,892,277 | 20.68% | 5,131,885 | 25.80% | 3,517,086 | 15.42% | ||
Real estate - Construction | 5,781,977 | 25.35% | 4,527,432 | 20.23% | 4,879,563 | 27.29% | Real estate - Construction | 3,605,641 | 15,24% | 3,085,498 | 15.51% | 5,781,977 | 25.35% | |||
Installment loans to individuals | Installment loans to individuals | 13,489,513 | 59.13% | 13,255,646 | 59.24% | 9,266,366 | 51.82% | Installment loans to individuals | 15,150,254 | 64.04% | 11,660,666 | 58.62% | 13,489,513 | 59.13% | ||
Financial Leasing | Financial Leasing | 24,325 | 0.11% | 167,741 | 0.75% | 176,528 | 0.99% | Financial Leasing | 10,961 | 0,05% | 13,292 | 0.07% | 24,325 | 0.11% | ||
Total(1) | 22,812,900 | 100.00% | 22,374,962 | 100.00% | 17,881,806 | 100.00% | 23,659,133 | 100.00% | 19,891,340 | 100.00% | 22,812,900 | 100.00% |
(1) | Refers exclusively to loans between 1 and 90 days. |
f) Lease at present value
As at December 31, 2019, 20182021, 2020 and 20172019 there were no leasing agreements or commitments that are considered individually relevantrelevant.
Breakdown by maturity
Gross investment in lease transactions
Thousand of reais | 2021 | 2020 | 2019 | |||||
Overdue | 3,531 | 2,740 | 3,233 | |||||
Due to: | ||||||||
Up to 1 year | 1,067,567 | 952,172 | 978,748 | |||||
From 1 to 5 years | 1,642,506 | 1,394,525 | 1,442,244 | |||||
Over 5 years | 132,459 | 20,128 | 4,014 | |||||
Total | 2,846,063 | 2,369,565 | 2,428,239 |
Thousand of reais | 2019 | 2018 | 2017 | |
Overdue | 3,233 | 4,817 | 11,412 | |
Due to: | ||||
Up to 1 year | 978,748 | 975,183 | 1,057,023 | |
From 1 to 5 years | 1,442,244 | 1,160,986 | 1,101,104 | |
Over 5 years | 4,014 | 1,071 | 2,177 | |
Total | 2,428,239 | 2,142,057 | 2,171,716 |
Consolidated Financial Statements | December 31, 2021 | F-56 |
* Values expressed in thousands, except when indicated. |
g) Transfer of financial assets with retention of risks and benefits
On December 31, 2019,2021, the amount recorded on “Loans and advances to clients” related to loan portfolio assigned is R$76,028 (201840,790 (2020 - R$122,27155,284 and 20172019 - R$431,397)76,028) and R$75,500 (201840,511 (2020 - R$126,90655,105 and 20172019 - R$428,248)75,500) of “Other financial liabilities - Financial Liabilities Associated with Assets Transfer” (Note 21)20).
The assignment operation was carried out with a co-obligation clause, with compulsory repurchase in the following situations:
- defaulted contracts for a period of more than 90 consecutive days;
- contracts subject to renegotiation;
- contracts subject to portability, pursuant to Resolution 3,401 of the National Monetary Council (CMN);
- contracts subject to intervention.
10. | Non-current assets held for sale |
At December 31, 2019, 20182021, 2020 and 2017,2019, the total amount of non-current assets held for sale includes foreclosed assets and other tangible assets. The change in the "Non-current assets"Assets held for sale" is as follows:follows:
Thousand of reais | 2019 | 2018 | 2017 | 2021 | 2020 | 2019 | ||||||
Balance at beginning of year | 1,598,367 | 1,507,548 | 1,418,308 | 1,362,602 | 1,580,496 | 1,598,367 | ||||||
Loan repayments - repossession of assets | 735,864 | 785,139 | 524,497 | 235,904 | 445,173 | 735,864 | ||||||
Capital Increase in Companies held for sale (1) | 55,245 | - | 66,197 | - | 55,245 | |||||||
Additions / disposals (net) due to change in the scope of consolidation (2) | - | (130,713) | - | |||||||||
Sales | (808,980) | (563,607) | (434,553) | (599,283) | (663,067) | (808,980) | ||||||
Others | - | (704) | ||||||||||
Final balance, gross | 1,580,496 | 1,598,367 | 1,507,548 | 1,065,420 | 1,362,602 | 1,580,496 | ||||||
Impairment losses (3) | (255,161) | (218,136) | (352,092) | |||||||||
Impairment losses (2) | (249,075) | (269,693) | (255,161) | |||||||||
Impairment as a percentage of foreclosed assets | 16.14% | 13.65% | 23.37% | 23.38% | 19.79% | 16.14% | ||||||
Balance at end of year | 1,325,335 | 1,380,231 | 1,155,456 | 816,345 | 1,092,909 | 1,325,335 |
(1) | On September 20, 2019, Santander Holding Imobiliária completed the acquisition of the company Summer Empreendimentos Ltda. (“Summer”), whose main asset is a branch located on Avenida Faria Lima in the city of São Paulo, for the amount of R$45,245. |
F-58
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transaction, a structured plan for the sale of this company to a third party was formalized in the short term. In December 2019, Santander Holding Imobiliária carried out a capital increase in Summer in the amount of R$ 10,000.
In |
11. | Investments in associates and joint ventures |
Jointly controlled
Banco Santander considers investments classified as jointly controlled when they possess a shareholders' agreement, which sets that the strategic, financial and operating decisions requires the unanimous consent of all investors.
Significant Influence
Associates are entities over which the Bank is in a position to exercise significant influence (significant influence is the power to participate in the financial and operating decisions of the investee) but it does not control or has joint control over the investee.
a) Breakdown
Jointly controlled and Significant Influence - Participation
Participation % | ||||||
Jointly Controlled by Banco Santander | Activity | Country | 2019 | 2018 | 2017 | |
Banco RCI Brasil S.A. | Bank | Brazil | 39.89% | 39.89% | 39.89% | |
Norchem Participações e Consultoria S.A. (1) | Other Activities | Brazil | 50.00% | 50.00% | 50.00% | |
Cibrasec - Companhia Brasileira de Securitização(1)(4) | Securitization | Brazil | 0.00% | 9.72% | 9.72% | |
Estruturadora Brasileira de Projetos S.A. - EBP (1)(4)(6) | Other Activities | Brazil | 11.11% | 11.11% | 11.11% | |
Gestora de Inteligência de Crédito (2) | Credit Bureau | Brazil | 20.00% | 20.00% | 20.00% | |
Campo Grande Empreendimentos (10) | Other Activities | Brazil | 25.32% | 25.32% | 25.32% | |
Banco Hyundai Capital Brasil S.A. (11) | Bank | Brazil | 50.00% | 50.00% | 0.00% | |
Santander Auto S.A. (12) | Other Activities | Brazil | 50.00% | 50.00% | 0.00% | |
Jointly Controlled by Santander Corretora de Seguros (current corporate name of Santander Participações S.A.) | ||||||
Webmotors S.A. (7) | Other Activities | Brazil | 70.00% | 70.00% | 70.00% | |
Tecnologia Bancária S.A. - TECBAN (1) | Other Activities | Brazil | 18.98% | 19.81% | 19.81% | |
Hyundai Corretora de Seguros | Insurance Broker | Brazil | 50.00% | 50.00% | 50.00% | |
PSA Corretora de Seguros e Serviços Ltda. (8)(9) | Insurance Broker | Brazil | 50.00% | 50.00% | 50.00% | |
Significant Influence of Banco Santander | ||||||
Norchem Holding e Negócios S.A. (1) | Other Activities | Brazil | 21.75% | 21.75% | 21.75% |
Investments | ||||
2019 | 2018 | 2017 | ||
Jointly Controlled by Banco Santander | 595,230 | 613,366 | 495,264 | |
Banco RCI Brasil S.A. | 509,890 | 458,292 | 427,801 | |
Norchem Participações e Consultoria S.A. | 21,078 | 26,105 | 25,550 | |
Cibrasec - Companhia Brasileira de Securitização | - | 7,298 | 7,438 | |
Estruturadora Brasileira de Projetos S.A. - EBP | 3,889 | 3,690 | 4,707 | |
Gestora de Inteligência de Crédito | 47,744 | 59,098 | 29,513 | |
Campo Grande Empreendimentos | 255 | 255 | 255 | |
Banco Hyundai Capital Brasil S.A. (anteriormente denomina da BHJV Assessoria e Consultoria Empresarial Ltda.) | - | 51,073 | - | |
Santander Auto S.A. | 12,374 | 7,555 | - | |
Participation % | |||||||||
Jointly Controlled by Banco Santander | Activity | Country | 2021 | 2020 | 2019 | ||||
Banco RCI Brasil S.A. | Bank | Brazil | 39.89% | 39.89% | 39.89% | ||||
Norchem Participações e Consultoria S.A. (1) | Other Activities | Brazil | 0.00% | 0.00% | 50.00% | ||||
Estruturadora Brasileira de Projetos S.A. - EBP (1)(2) | Other Activities | Brazil | 11.11% | 11.11% | 11.11% | ||||
Gestora de Inteligência de Crédito (1) | Credit Bureau | Brazil | 19.45% | 20.00% | 20.00% | ||||
Campo Grande Empreendimentos (5) | Other Activities | Brazil | 25.32% | 25.32% | 25.32% | ||||
Santander Auto S.A. | Other Activities | Brazil | 50.00% | 50.00% | 50.00% | ||||
Jointly Controlled by Santander Corretora de Seguros (current corporate name of Santander Participações S.A.) | |||||||||
Webmotors S.A. (3) | Other Activities | Brazil | 70.00% | 70.00% | 70.00% | ||||
Tecnologia Bancária S.A. - TECBAN (1) | Other Activities | Brazil | 18.98% | 18.98% | 18.98% | ||||
Hyundai Corretora de Seguros | Insurance Broker | Brazil | 50.00% | 50.00% | 50.00% | ||||
PSA Corretora de Seguros e Serviços Ltda. (4) | Insurance Broker | Brazil | 50.00% | 50.00% | 50.00% | ||||
Jointly Controlled by Aymoré CFI | |||||||||
Solutions 4Fleet | Other Activities | Brazil | 80.00% | 0.00% | 0.00% | ||||
Significant Influence of Banco Santander | |||||||||
Norchem Holding e Negócios S.A. (1) | Other Activities | Brazil | 0.00% | 0.00% | 21.75% |
Jointly Controlled by Santander Corretora de Seguros (current corporate name of Santander Participações SA) | 454,280 | 419,016 | 350,440 | |
Webmotors S.A. | 296,216 | 273,721 | 197,930 | |
Tecnologia Bancária S.A. - TECBAN | 156,589 | 144,090 | 151,019 | |
Hyundai Corretora de Seguros | 934 | - | - | |
PSA Corretora de Seguros e Serviços Ltda. | 541 | 1,205 | 1,491 | |
Significant Influence of Banco Santander | 21,252 | 20,933 | 20,860 | |
Norchem Holding e Negócios S.A. | 21,252 | 20,933 | 20,860 | |
Total | 1,070,762 | 1,053,315 | 866,564 |
F-59
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Results of Investments | ||||
2019 | 2018 | 2017 | ||
Jointly Controlled by Banco Santander | 92,976 | 41,212 | 39,904 | |
Banco RCI Brasil S.A. | 105,250 | 46,244 | 44,384 | |
Norchem Participações e Consultoria S.A. | 975 | 1,120 | 1,333 | |
Cibrasec - Companhia Brasileira de Securitização | 75 | 193 | 389 | |
Estruturadora Brasileira de Projetos S.A. - EBP | 199 | (1,017) | (1,560) | |
Gestora de Inteligência de Crédito | (11,354) | (6,466) | (4,642) | |
Banco Hyundai Capital Brasil S.A. (anteriormente denomina da BHJV Assessoria e Consultoria Empresarial Ltda.) | - | 1,083 | - | |
Santander Auto S.A. | (2,169) | 55 | - | |
Jointly Controlled by Santander Corretora de Seguros (current corporate name of Santander Participações SA) | 55,936 | 24,161 | 30,430 | |
Webmotors S.A. | 42,848 | 30,626 | 21,290 | |
Tecnologia Bancária S.A. - TECBAN | 12,498 | (6,929) | 8,307 | |
Hyundai Corretora de Seguros | (66) | - | - | |
PSA Corretora de Seguros e Serviços Ltda. | 656 | 464 | 833 | |
Significant Influence of Banco Santander | 576 | 585 | 1,217 | |
Norchem Holding e Negócios S.A. | 576 | 585 | 1,217 | |
Total | 149,488 | 65,958 | 71,551 |
2019 | ||||
Total assets | Total liabilities | Total Income(11) | ||
Jointly Controlled by Banco Santander | 14,121,618 | 12,502,780 | 206,482 | |
Banco RCI Brasil S.A. | 13,452,716 | 12,174,504 | 263,851 | |
Norchem Participações e Consultoria S.A. | 69,865 | 27,709 | 1,949 | |
Estruturadora Brasileira de Projetos S.A. - EBP | 35,314 | 311 | 1,790 | |
Gestora de Inteligência de Crédito | 527,362 | 288,643 | (56,769) | |
Santander Auto S.A. | 36,361 | 11,613 | (4,339) | |
Jointly Controlled by Santander Corretora de Seguros (current corporate name of Santander Participações SA) | 2,873,140 | 1,628,364 | 125,439 | |
Webmotors S.A. | 484,454 | 60,734 | 61,212 | |
Tecnologia Bancária S.A. - TECBAN | 2,382,907 | 1,564,801 | 63,046 | |
Hyundai Corretora de Seguros Ltda. | 1,909 | 41 | (132) | |
PSA Corretora de Seguros e Serviços Ltda. | 3,870 | 2,788 | 1,313 | |
Significant Influence of Banco Santander | 126,937 | 29,226 | 2,650 | |
Norchem Holding e Negócios S.A. | 126,937 | 29,226 | 2,650 | |
Total | 17,121,695 | 14,160,370 | 334,571 |
F-60
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2018 | |||||||||
Total assets | Total liabilities | Total Income(11) | |||||||
Jointly Controlled by Banco Santander | 10,500,055 | 8,755,688 | 80,954 | ||||||
Banco RCI Brasil S.A. | 9,849,508 | 8,679,715 | 115,928 | ||||||
Norchem Participações e Consultoria S.A. | 79,633 | 27,423 | 2,240 | ||||||
Cibrasec - Companhia Brasileira de Securitização | 80,300 | 3,893 | 1,989 | ||||||
Estruturadora Brasileira de Projetos S.A. - EBP | 33,389 | 176 | (9,151) | ||||||
Gestora de Inteligência de Crédito | 338,382 | 42,894 | (32,328) | ||||||
Banco Hyundai Capital Brasil S.A. (anteriormente denomina da BHJV Assessoria e Consultoria Empresarial Ltda.) | 103,703 | 1,557 | 2,166 | ||||||
Santander Auto S.A. | 15,140 | 30 | 110 | ||||||
Jointly Controlled by Santander Corretora de Seguros (current corporate name of Santander Participações SA) | 2,463,262 | 1,573,082 | 9,703 | ||||||
Webmotors S.A. | 221,313 | 60,905 | 43,751 | ||||||
Tecnologia Bancária S.A. - TECBAN | 2,238,156 | 1,510,794 | (34,976) | ||||||
PSA Corretora de Seguros e Serviços Ltda. | 3,793 | 1,383 | 928 | ||||||
Significant Influence of Banco Santander | 123,959 | 27,714 | 2,690 | ||||||
Norchem Holding e Negócios S.A. | 123,959 | 27,714 | 2,690 | ||||||
Total | 13,087,276 | 10,356,484 | 93,347 | ||||||
2017 | |||||||||
Total assets | Total liabilities | Total Income(11) | |||||||
Jointly Controlled by Banco Santander | 9,432,738 | 8,043,604 | 43,866 | ||||||
Banco RCI Brasil S.A. | 9,057,261 | 7,985,647 | 74,452 | ||||||
Norchem Participações e Consultoria S.A. | 78,674 | 27,574 | 2,665 | ||||||
Cibrasec - Companhia Brasileira de Securitização | 86,378 | 9,884 | 4,000 | ||||||
Estruturadora Brasileira de Projetos S.A. - EBP | 42,627 | 264 | (14,040) | ||||||
Gestora de Inteligência de Crédito | 167,798 | 20,235 | (23,211) | ||||||
Jointly Controlled by Santander Corretora de Seguros (current corporate name of Santander Participações SA) | 1,967,989 | 1,077,782 | 74,861 | ||||||
Webmotors S.A. | 490,458 | 50,413 | 31,264 | ||||||
Tecnologia Bancária S.A. - TECBAN | 1,472,774 | 1,025,593 | 41,932 | ||||||
PSA Corretora de Seguros e Serviços Ltda. | 4,757 | 1,776 | 1,665 | ||||||
Significant Influence of Banco Santander | 122,176 | 26,267 | 5,597 | ||||||
Norchem Holding e Negócios S.A. | 122,176 | 26,267 | 5,597 | ||||||
Total | 11,522,903 | 9,147,653 | 124,324 |
b) Changes
The changes in the balance of this item in the years ended December 31, 2019, 2018 and 2017 were:
2019 | 2018 | 2017 | |||||||
Jointly Controlled by Banco Santander | |||||||||
Balance at beginning of year | 1,032,382 | 845,704 | 969,097 | ||||||
Additions / disposals (net) due to change in the scope of consolidation | (51,073) | - | - | ||||||
Additions /disposals (5) | 746 | 119,557 | 34,154 | ||||||
Capital reduction | - | 36,051 | - | ||||||
Share of results of entities accounted for using the equity method | 148,912 | 65,373 | 70,334 | ||||||
Dividends proposed/received | (69,904) | (35,351) | (200,620) | ||||||
Others | (11,553) | 1,048 | (27,261) | ||||||
Balance at end of year | 1,049,510 | 1,032,382 | 845,704 | ||||||
Significant Influence of Banco Santander | |||||||||
Balance at beginning of year | 20,933 | 20,860 | 20,980 | ||||||
Share of results of entities accounted for using the equity method | 576 | 585 | 1,217 | ||||||
Dividends proposed/received | (257) | (512) | (1,337) | ||||||
Balance at end of year | 21,252 | 20,933 | 20,860 |
F-61
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(1) Companies with a delay of one month forone-month lag in the equity calculation. To registeraccount for the equity income, itthe position of 11/30/2021 was used on 12/31/2019 the position of 11/30/2019.2021.
(2) Company incorporated in April 2017 and is in the pre-operational phase. Pursuant to the shareholders' agreement, control is shared between shareholders who hold 20% of their capital share each. At the Extraordinary General Meeting held on July 6, 2017, the capital increase of Gestora de Crédito was approved in the total amount of R$65,822, so that the capital share increased from R$1 to R$65,823, through the issue of 6,582,200 (six million, five hundred and eighty-two thousand and two hundred) new shares, of which 3,291,100 (three million, two hundred and ninety-one thousand and one hundred), 1,316,440 (one million, three hundred and sixteen thousand, four hundred and forty) preferred shares Class A and 1,316,440 (one million, three hundred and sixteen thousand, four hundred and forty) preferred shares Class B and 658,220 (six hundred and fifty eight thousand, two hundred and twenty) class C preferred shares, with no par value, at the issue price of R$10.00, corresponding to the equity value of the shares. The shares issued in the capital increase were fully subscribed on the same date by the shareholders in the proportion of 20% of their capital share each.
(3) In 2017 refers to the incorporation of Gestora de Inteligência de Crédito - partnership between Banco Santander and other banks from brazilian market (according to note 3).
(4) Although the participations wasinterest is less than 20%, the Bank exercises jointly-control overjoint control in the entity together with the other major stockholders'majority shareholders, through a stockholders'shareholders' agreement wherein which no business decision can be taken by a single stockholder.shareholder.
(5) At(3) Although the EGM held in October 5, 2017, it was approved the share capital increase of the Gestora de Crédito in the amount of R$285,205, that way its share capital increased from R$65,823 to R$351,028, through the issuance of 29,013,700 new shares, being 14,506,850 as ordinary shares, 5,802,740 preferred shares Class A, 5,802,740 preferred shares Class B, and 2,901,370 preferred shares Class C, without par value, at the issuance price of R$ 9,83 per share. It was also approved by unanimous decision the payment timetable of the new shares issuance made by the Management of Gestora de Crédito. That way, the share capital increase was fully subscribed at the same day by the shareholders in the proportion of 20% of each interest which were partially paid.
(6) According to its Bylaws, EBP was formed in order to carry out projects to contribute for the brazilian economic and social development for the period of 10 years. After the conclusion of the timetable set EPB closes its activities this year of 2018. The dissolution of its rights and liquidation were aproved in the EGM held on january 29, 2018.
(7) Although participation exceeds 50%, in accordance with the shareholders' agreement, the control is shared by Santander Corretora de Seguros (Current corporate name of Santander Participações S.A.), and Carsales.com.Carsales.com Investments PTY LTDLTD. (Carsales), shareholder based in Australia..
(8) Pursuant to(4) In accordance with the shareholders' agreement, the control is shared by Santander Corretora de Seguros (current corporate name of Santander Participações SA) and PSA Services LTD.
(9) In December 2017, according to the contractual change, the PSA Corretora de Seguros shareholders decided to increase its share capital in R$401, that way the share capital increased(5) Interest arising from R$ 500 to R$901, through the issuance of 400,532 new shares, which each new share has the value of R$1. The new shares issued were subscribed and paid at the same date, in local currency, according to the proportion of each shareholder equivalent to 50% to the company´s share capital, that is, 200.266 shares.(10) Participation resulting from the credit recovery from theof Banco Comercial ande de Investimentos Sudameris S.A. incorporated, merged in 2009 by Banco ABN AMRO Real S.A., which in the same year was incorporatedmerged into the Banco Santander (Brasil) S.A., one of the Company partner.Company's partners. The partners are conducting the procedures for extinctionthe dissolution of the company, whosewhich depends on the sale of a property. Once it has been sold, the liquidation of the company will be liquidated and each partner will receive itstheir share of the equity.
Consolidated Financial Statements | December 31, 2021 | F-57 |
* Values expressed in thousands, except when indicated. |
Jointly controlled and Significant Influence - Investments
Investments |
2021 | 2020 | 2019 | |||||||
Jointly Controlled by Banco Santander | 628,040 | 590,219 | 595,230 | ||||||
Banco RCI Brasil S.A. | 591,745 | 544,236 | 509,890 | ||||||
Norchem Participações e Consultoria S.A. | - | - | 21,078 | ||||||
Estruturadora Brasileira de Projetos S.A. - EBP | 1,257 | 1,273 | 3,889 | ||||||
Gestora de Inteligência de Crédito | 13,522 | 28,680 | 47,744 | ||||||
Campo Grande Empreendimentos | 255 | 255 | 255 | ||||||
Santander Auto S.A. | 21,261 | 15,775 | 12,374 | ||||||
Jointly Controlled by Santander Corretora de Seguros (current corporate name of Santander Participações S.A.) | 593,002 | 504,766 | 454,280 | ||||||
Webmotors S.A. | 359,092 | 316,597 | 296,216 | ||||||
Tecnologia Bancária S.A. - TECBAN | 232,109 | 186,357 | 156,589 | ||||||
Hyundai Corretora de Seguros | 1,260 | 1,044 | 934 | ||||||
PSA Corretora de Seguros e Serviços Ltda. | 541 | 768 | 541 | ||||||
Jointly Controlled by Aymoré CFI | 11,604 | - | - | ||||||
Solutions 4Fleet | 11,604 | - | - | ||||||
Significant Influence of Banco Santander | - | - | 21,252 | ||||||
Norchem Holding e Negócios S.A. | - | - | 21,252 | ||||||
Total | 1,232,646 | 1,094,985 | 1,070,762 |
Jointly controlled and Significant Influence - Results of Investments
Results of Investments | |||||||||
2021 | 2020 | 2019 | |||||||
Jointly Controlled by Banco Santander | 54,493 | 50,915 | 92,976 | ||||||
Banco RCI Brasil S.A. | 62,813 | 72,057 | 105,250 | ||||||
Norchem Participações e Consultoria S.A. | - | 333 | 975 | ||||||
Cibrasec - Companhia Brasileira de Securitização | - | - | 75 | ||||||
Estruturadora Brasileira de Projetos S.A. - EBP | (16) | 9 | 199 | ||||||
Gestora de Inteligência de Crédito | (14,419) | (19,064) | (11,354) | ||||||
Santander Auto S.A. | 6,115 | (2,421) | (2,169) | ||||||
Jointly Controlled by Santander Corretora de Seguros (current corporate name of Santander Participações S.A.) | 91,833 | 61,380 | 55,936 | ||||||
Webmotors S.A. | 45,817 | 38,823 | 42,848 | ||||||
Tecnologia Bancária S.A. - TECBAN | 45,752 | 22,219 | 12,498 | ||||||
Hyundai Corretora de Seguros | 216 | 110 | (66) | ||||||
PSA Corretora de Seguros e Serviços Ltda. | 48 | 226 | 656 | ||||||
Jointly Controlled by Aymoré CFI | (2,142) | - | - | ||||||
Solutions 4Fleet | (2,142) | - | - | ||||||
Significant Influence of Banco Santander | - | (33) | 576 | ||||||
Norchem Holding e Negócios S.A. | - | (33) | 576 | ||||||
Total | 144,184 | 112,261 | 149,488 |
Consolidated Financial Statements | December 31, 2021 | F-58 |
* Values expressed in thousands, except when indicated. |
Jointly controlled and Significant Influence - Total
2021 | |||||||||
Total Assets | Total Liabilities | Total Income | |||||||
Jointly Controlled by Banco Santander | 12,488,103 | 12,473,458 | 95,420 | ||||||
Banco RCI Brasil S.A. | 11,147,493 | 11,080,238 | 157,462 | ||||||
Estruturadora Brasileira de Projetos S.A. - EBP | 11,339 | 11,476 | (136) | ||||||
Gestora de Inteligência de Crédito | 1,173,234 | 1,237,937 | (74,136) | ||||||
Santander Auto S.A. | 156,037 | 143,807 | 12,230 | ||||||
Jointly Controlled by Santander Corretora de Seguros (current corporate name of Santander Participações S.A.) | 3,055,130 | 2,824,094 | 231,035 | ||||||
Webmotors S.A. | 342,195 | 276,743 | 65,452 | ||||||
Tecnologia Bancária S.A. - TECBAN | 2,707,571 | 2,542,515 | 165,056 | ||||||
Hyundai Corretora de Seguros Ltda. | 3,353 | 2,921 | 431 | ||||||
PSA Corretora de Seguros e Serviços Ltda. | 2,011 | 1,915 | 96 | ||||||
Controlled by Aymoré CFI | 14,871 | 17,548 | (2,677) | ||||||
Solutions 4Fleet. | 14,871 | 17,548 | (2,677) | ||||||
Total | 15,558,104 | 15,315,100 | 323,778 | ||||||
2020 | |||||||||
Total Assets | Total Liabilities | Total Income | |||||||
Jointly Controlled by Banco Santander | 12,900,571 | 11,255,396 | 51,847 | ||||||
Banco RCI Brasil S.A. | 11,620,304 | 10,255,995 | 99,951 | ||||||
Norchem Participações e Consultoria S.A. | 70,475 | 27,781 | 534 | ||||||
Estruturadora Brasileira de Projetos S.A. - EBP | 11,562 | 39 | 148 | ||||||
Gestora de Inteligência de Crédito | 1,126,424 | 933,115 | (45,410) | ||||||
Santander Auto S.A. | 71,807 | 38,466 | (3,376) | ||||||
Jointly Controlled by Santander Corretora de Seguros (current corporate name of Santander Participações SA) | 2,952,308 | 1,692,770 | 68,469 | ||||||
Webmotors S.A. | 512,687 | 78,856 | 21,529 | ||||||
Tecnologia Bancária S.A. - TECBAN | 2,435,377 | 1,612,822 | 46,735 | ||||||
Hyundai Corretora de Seguros Ltda. | 2,076 | 251 | (43) | ||||||
PSA Corretora de Seguros e Serviços Ltda. | 2,168 | 841 | 247 | ||||||
Significant Influence of Banco Santander | 126,877 | 29,391 | (225) | ||||||
Norchem Holding e Negócios S.A. | 126,877 | 29,391 | (225) | ||||||
Total | 15,979,756 | 12,977,558 | 120,091 | ||||||
2019 | |||||||||
Total Assets | Total Liabilities | Total Income | |||||||
Jointly Controlled by Banco Santander | 14,121,618 | 12,502,780 | 206,482 | ||||||
Banco RCI Brasil S.A. | 13,452,716 | 12,174,504 | 263,851 | ||||||
Norchem Participações e Consultoria S.A. | 69,865 | 27,709 | 1,949 | ||||||
Estruturadora Brasileira de Projetos S.A. - EBP | 35,314 | 311 | 1,790 | ||||||
Gestora de Inteligência de Crédito | 527,362 | 288,643 | (56,769) | ||||||
Santander Auto S.A. | 36,361 | 11,613 | (4,339) | ||||||
Jointly Controlled by Santander Corretora de Seguros (current corporate name of Santander Participações S.A.) | 2,873,140 | 1,628,364 | 125,439 | ||||||
Webmotors S.A. | 484,454 | 60,734 | 61,212 | ||||||
Tecnologia Bancária S.A. - TECBAN | 2,382,907 | 1,564,801 | 63,046 | ||||||
Hyundai Corretora de Seguros Ltda. | 1,909 | 41 | (132) | ||||||
PSA Corretora de Seguros e Serviços Ltda. | 3,870 | 2,788 | 1,313 | ||||||
Significant Influence of Banco Santander | 126,937 | 29,226 | 2,650 | ||||||
Norchem Holding e Negócios S.A. | 126,937 | 29,226 | 2,650 | ||||||
Total | 17,121,695 | 14,160,370 | 334,571 |
Consolidated Financial Statements | December 31, 2021 | F-59 |
* Values expressed in thousands, except when indicated. |
(11) Company incorporated on December 13, 2018, upon transformation of BHJV Assessoria e Consultoria em Gestão Empresarial Ltda. Aymoré CFI, a wholly-owned subsidiary of Banco Santander, holds the company's operational control. (Note 3).
In 2019, based on the shareholders' agreement, it was concluded that Banco SantanderThe Bank has theno guarantees granted to companies with joint control and therefore, began to consolidate the Company.significant influence.
(12) Insurance company incorporated on October 9, 2018, through transformation of the corporate vehicle L.G.J.S.P.E. Empreendimentos e Participações S.A., submitted to Susep to obtain authorization to operate. In accordance with the shareholders' agreement, the control is shared by Sancap and HDI Seguros S.A., (Note 3).
(*) The Bank does not have collateral with associates and joint ventures.
(**) The Bank does not have contingent liabilities with significant possible risk of loss as possible related to investments in affiliatesfor companies with joint control and significant influence.
(***) Asb) Changes
The changes in the balance of this item in the years ended December 31, 2021, 2020 and 2019 2018were:
Jointly controlled and 2017,Significant Influence - Changes in the balances of Assets, Liabilities and Profit refer to 100% of the company balance sheet. There is no balance for the caption "Other Comprehensive Income" in these companies, except for the RCI Bank which recorded R$57,139 (2018- R$30,357 and 2017 - R$40,671).
2021 | 2020 | 2019 | |||||||
Jointly Controlled by Banco Santander | |||||||||
Balance at beginning of year | 1,094,985 | 1,049,510 | 1,032,382 | ||||||
Additions / disposals (net) due to change in the scope of consolidation | (739) | (41,851) | (51,073) | ||||||
Additions /disposals | 13,746 | 13,571 | 746 | ||||||
Share of results of entities accounted for using the equity method | 144,184 | 112,293 | 148,912 | ||||||
Dividends proposed/received | (66,878) | (59,784) | (69,904) | ||||||
Others | 47,348 | 21,246 | (11,553) | ||||||
Balance at end of year | 1,232,646 | 1,094,985 | 1,049,510 | ||||||
Significant Influence of Banco Santander | |||||||||
Balance at beginning of year | - | 21,252 | 20,933 | ||||||
Share of results of entities accounted for using the equity method | - | (33) | 576 | ||||||
Dividends proposed/received | - | (239) | (257) | ||||||
Alienation | - | (20,980) | - | ||||||
Balance at end of year | - | - | 21,252 |
c) Impairment losses
No impairment losses were recognized on investments in associates and joint ventures in 2019, 20182021, 2020 and 2017.2019.
d) Other information
Details of the principal jointly controlled entities:
Banco RCI Brasil S.A.:A company incorporated in the form of a joint stock company with headquarters in Paraná, aims to the main practice of investment, leasing, credit, financing and investment operations, with a view to sustain the growth of the automotive brands Renault and Nissan in the Brazilian market, with operations focused on, mainly to financing and leasing to the final consumer. It is a financial institution that is part of the RCI Group Banque and Santander Conglomerate, their operations being conducted in the context of a set of institutions that operate in the financial market. According to the Shareholders' Agreement, the main decisions that impact this company is taken jointly between Banco Santander and other controlling shareholders.
Webmotors S.A.: A company incorporated in the form of a privately held company with headquarters in São Paulo and has as its object
development, implementation and / or availability of electronic catalogs, space, product, services or means for the sale of products and / or services related to the automobile industry, on the Internet through the "website" www.webmotors.com.br (owned by Webmotors) or other means related to electronic commerce activities and other uses or applications of the Internet, as well as participation in the capital of other companies and the management of related businesses and ventures. It is a member of the Santander Economic-Financial Conglomerate (Conglomerado Santander) and Carsales.com Investments PTY LTD (Carsales), with its operations conducted in the context of a set of institutions that act in an integrated manner. According to the Shareholders' Agreement, the main decisions that impact this company are taken jointly between Banco Santander and other controllers.
F-62
| |
|
2019 | 2018 | 2017 | |||||||
Banco RCI Brasil | Webmotors | Banco RCI Brasil | Webmotors | Banco RCI Brasil | Webmotors | ||||
Current assets | 12,052,008 | 241,919 | 9,849,508 | 221,313 | 9,057,261 | 490,458 | |||
Current liabilities | 10,781,921 | 61,290 | 8,679,715 | 60,905 | 7,985,647 | 50,413 | |||
Cash and cash equivalents | 489,400 | 1,667 | 37,115 | 1,034 | 47,782 | 1,989 | |||
Depreciation and amortization | (1,666) | (9,234) | (977) | (7,423) | (1,600) | 16,353 | |||
Revenue | 661,215 | 165,049 | 1,316,687 | 167,881 | 1,315,695 | 127,064 | |||
Interest income | 1,401,154 | 5,079 | 1,290,703 | 4,134 | 1,294,119 | 7,178 | |||
Interest expense | (547,546) | - | (575,944) | - | (626,654) | - | |||
Tax Income / (expense) | (83,455) | (26,863) | (147,266) | (16,013) | (122,544) | (12,568) | |||
Current financial liabilities (excluding trade and other payables and provisions) | 4,178,761 | 53,807 | 3,130,908 | 49,709 | 3,897,010 | 33,320 | |||
Non-current financial liabilities (excluding trade and other payables and provisions) | 6,470,081 | 1,006 | 4,813,909 | 5,458 | 4,058,986 | 3,247 |
Consolidated Financial Statements | December 31, 2021 | F-60 |
* Values expressed in thousands, except when indicated. |
Principal jointly controlled entities
2021 | 2020 | 2019 | |||||||
Banco RCI Brasil | Webmotors | Banco RCI Brasil | Webmotors | Banco RCI Brasil | Webmotors | ||||
Current assets | 10,187,883 | 342,195 | 11,270,565 | 276,170 | 12,052,008 | 241,919 | |||
Current liabilities | 8,754,744 | 71,742 | 9,825,654 | 220,707 | 10,781,921 | 61,290 | |||
Cash and cash equivalents | 341,015 | 2,746 | 201,142 | 1,411 | 489,400 | 1,667 | |||
Depreciation and amortization | (1,628) | (19,152) | (1,577) | (14,949) | (1,666) | (9,234) | |||
Revenue | 637,856 | 331,586 | 732,253 | 277,270 | 661,215 | 165,049 | |||
Interest income | 1,308,649 | 3,938 | 1,354,283 | 2,283 | 1,401,154 | 5,079 | |||
Interest expense | (592,776) | - | (483,506) | - | (547,546) | 0 | |||
Tax Income / (expense) | (105,266) | (32,819) | (169,957) | (26,314) | (83,455) | (26,863) | |||
Current financial liabilities (excluding trade and other payables and provisions) | 3,293,251 | 58,910 | 3,279,806 | 58,910 | 4,178,761 | 53,807 | |||
Non-current financial liabilities (excluding trade and other payables and provisions) | 5,218,945 | 796 | 5,947,683 | 796 | 470,081 | 1,006 |
12. |
Tangible assets of the Bank relate to property plant and equipment for the its own use. The Bank does not have tangible assets held as investment property nor leased out under operating leases. The Bank is also not a part of any financial lease contracts as of and during fiscal years ended December 31, 2019, 2018 and 2017.
a) Breakdown
The detail, by class of asset, of the tangible assets in the consolidated balance sheets is as follows:
Tangible assets in the consolidated balance sheets
Thousand of reais | |||||||||||||||||
Cost | Land and buildings | IT equipment and fixtures | Furniture and vehicles | Right-of-use of Assets | Others | Total | Land and buildings | IT equipment and fixtures | Furniture and vehicles | Leased Fixed Assets | Others | Total | |||||
Balance at December 31, 2016 | 2,711,193 | 3,367,015 | 7,858,881 | - | 3,759 | 13,940,848 | |||||||||||
Balance on December 31, 2018 | 2,779,038 | 4,628,325 | 9,231,131 | - | 1,683 | 16,640,177 | |||||||||||
Initial adoption IFRS 16 | - | - | - | 2,465,750 | - | 2,465,750 | |||||||||||
Additions | - | 382,571 | 723,835 | - | - | 1,106,406 | 85,333 | 826,685 | 1,012,395 | - | 370 | 1,924,783 | |||||
Additions resulting mergers | - | - | - | 689,982 | - | 689,982 | |||||||||||
Cancellation of lease agreements | - | - | - | (72,951) | - | (72,951) | |||||||||||
Write-off | (52,102) | (180,036) | (31,053) | - | - | (263,191) | (17,041) | (122,926) | (122,279) | - | - | (262,246) | |||||
Transfers | (9,779) | 718,666 | (721,520) | - | - | (12,633) | (7,160) | 13,236 | 51,445 | - | - | 57,521 | |||||
Balance at December 31, 2017 | 2,649,312 | 4,288,216 | 7,830,143 | - | 3,759 | 14,771,430 | |||||||||||
Additions | 2,534 | 450,857 | 942,358 | - | 381 | 1,396,130 | |||||||||||
Write-off | (18,230) | (162,497) | (199,877) | - | - | (380,604) | |||||||||||
Change in the scope of consolidation | 99,759 | 19,517 | 17,749 | - | 1,302 | 138,327 | |||||||||||
Transfers | 45,663 | 32,232 | 640,758 | - | (3,759) | 714,894 | |||||||||||
Balance at December 31, 2018 | 2,779,038 | 4,628,325 | 9,231,131 | - | 1,683 | 16,640,177 | |||||||||||
Balance on December 31, 2019 | 2,840,170 | 5,345,320 | 10,172,692 | 3,082,781 | 2,053 | 21,443,016 | |||||||||||
Initial adoption IFRS 16 | - | 2,465,750 | - | - | - | - | - | - | - | - | |||||||
Additions | 85,333 | 826,685 | 1,012,395 | 689,982 | 370 | 2,614,765 | 8,831 | 559,388 | 667,704 | - | - | 1,235,923 | |||||
Additions resulting mergers | - | - | - | 738,603 | - | 738,603 | |||||||||||
Cancellation of lease agreements | - | (72,951) | (72,951) | - | - | - | (246,308) | - | (246,308) | ||||||||
Write-off | (17,041) | (122,926) | (122,279) | - | - | (262,246) | (23,771) | (2,241,220) | (416,600) | - | (2,681,591) | ||||||
Transfers | (7,160) | 13,236 | 51,445 | - | - | 57,521 | (8,485) | 120,158 | 39,861 | - | (806) | 150,728 | |||||
Balance at December 31, 2019 | 2,840,170 | 5,345,320 | 10,172,692 | 3,082,781 | 2,053 | 21,443,016 | |||||||||||
Balance on December 31, 2020 | 2,816,745 | 3,783,646 | 10,463,657 | 3,575,076 | 1,247 | 20,640,371 | |||||||||||
Accumulated depreciation | Land and buildings | IT equipment and fixtures | Furniture and vehicles | Right-of-use of Assets | Others | Total | |||||||||||
Balance at December 31, 2016 | (594,210) | (2,509,099) | (4,172,234) | - | - | (7,275,543) | |||||||||||
Initial adoption IFRS 16 | - | - | - | - | - | - | |||||||||||
Additions | (81,910) | (499,542) | (609,515) | - | - | (1,190,967) | 32,959 | 435,858 | 693,957 | - | - | 1,162,774 | |||||
Additions by Company Acquisition | - | - | - | 103,449 | - | 103,449 | |||||||||||
Cancellation of lease agreements | - | - | - | (254,101) | - | (254,101) | |||||||||||
Write-off | 37,136 | 154,471 | 22,196 | - | - | 213,803 | (50,181) | (1,584,956) | (402,817) | - | - | (2,037,954) | |||||
Transfers | 9,734 | (437,527) | 427,506 | - | - | (287) | - | 651,607 | (468,561) | - | - | 183,046 | |||||
Balance at December 31, 2017 | (629,250) | (3,291,697) | (4,332,047) | - | - | (8,252,994) | |||||||||||
Balance on December 31, 2021 | 2,799,523 | 3,286,155 | 10,286,236 | 3,424,424 | 1,247 | 19,797,585 | |||||||||||
Additions | (82,714) | (485,607) | (649,557) | - | - | (1,217,878) | |||||||||||
Write-off | 8,816 | 140,332 | 109,447 | - | - | 258,595 | |||||||||||
Change in scope of consolidation | (5,602) | (1,448) | (7,136) | - | - | (14,186) | |||||||||||
Transfers | (52,094) | (76,292) | (631,965) | - | - | (760,351) | |||||||||||
Balance at December 31, 2018 | (760,844) | (3,714,712) | (5,511,258) | - | - | (9,986,814) | |||||||||||
Additions | (93,455) | (482,256) | (730,993) | (564,132) | - | (1,870,836) | |||||||||||
Write-off | 10,517 | 148,486 | 65,016 | 8,316 | - | 232,335 | |||||||||||
Transfers | 15,091 | 10,272 | (9,183) | - | - | 16,180 | |||||||||||
Balance at December 31, 2019 | (828,691) | (4,038,210) | (6,186,417) | (555,816) | - | (11,609,134) | |||||||||||
Losses from non-recovery (impairment) | |||||||||||||||||
Balance at December 31, 2016 | (13,031) | - | (5,841) | - | - | (18,872) | |||||||||||
Impacts on results | 9,784 | - | 1,047 | - | - | 10,831 | |||||||||||
Transfers | - | (512) | - | - | (512) | ||||||||||||
Balance at December 31, 2017 | (3,247) | - | (5,306) | - | - | (8,553) | |||||||||||
Impacts on results | (10,607) | - | (49,556) | - | - | (60,163) | |||||||||||
Transfers | (5) | - | 4,333 | - | - | 4,328 | |||||||||||
Balance at December 31, 2018 | (13,859) | - | (50,529) | - | - | (64,388) | |||||||||||
Impacts on results | (587) | - | 13,050 | - | - | 12,463 | |||||||||||
Transfers | - | - | - | ||||||||||||||
Balance at December 31, 2019 | (14,446) | - | (37,479) | - | - | (51,925) | |||||||||||
Carrying amount | |||||||||||||||||
Balance at December 31, 2017 | 2,016,815 | 996,519 | 3,492,790 | - | 3,759 | 6,509,883 | |||||||||||
Balance at December 31, 2018 | 2,004,335 | 913,613 | 3,669,344 | - | 1,683 | 6,588,975 | |||||||||||
Balance at December 31, 2019 | 1,997,033 | 1,307,110 | 3,948,796 | 2,526,965 | 2,053 | 9,781,957 |
F-63
| |
|
* Values expressed in thousands, except when indicated. |
Accumulated depreciation | Land and buildings | IT equipment and fixtures | Furniture and vehicles | Leased Fixed Assets | Others | Total |
Balance on December 31, 2018 | (760,844) | (3,714,712) | (5,511,258) | - | - | (9,986,814) |
Additions | (93,455) | (482,256) | (730,993) | (564,132) | - | (1,870,836) |
Write-off | 10,517 | 148,486 | 65,016 | 8,316 | - | 232,335 |
Transfers | 15,091 | 10,272 | (9,183) | - | - | 16,180 |
Balance on December 31, 2019 | (828,691) | (4,038,210) | (6,186,418) | (555,816) | - | (11,609,135) |
Additions | (86,954) | (537,908) | (846,881) | (568,062) | - | (2,039,805) |
Write-off | 11,020 | 2,263,857 | 359,618 | - | - | 2,634,495 |
Transfers | 1,765 | 66,717 | (88,612) | - | - | (20,130) |
Balance on December 31, 2020 | (902,860) | (2,245,544) | (6,762,293) | (1,123,878) | - | (11,034,575) |
Additions | (108,946) | (291,174) | (896,705) | (553,955) | - | (1,850,780) |
Write-off | 38,337 | 940,737 | 448,471 | 572,833 | - | 2,000,378 |
Transfers | - | 10 | (102,187) | - | - | (102,177) |
Additions by Company Acquisition | - | - | - | - | - | - |
Change in scope of consolidation | - | - | - | - | - | - |
Balance on December 31, 2021 | (973,469) | (1,595,971) | (7,312,714) | (1,105,000) | - | (10,987,154) |
Losses from non-recovery (impairment) | ||||||
Balance on December 31, 2018 | (13,859) | - | (50,529) | - | - | (64,388) |
Impacts on results | (587) | - | 13,050 | - | - | 12,463 |
Balance on December 31, 2019 | (14,446) | - | (37,479) | - | - | (51,925) |
Impacts on results | (11,162) | - | 7,789 | - | (13,387) | (16,760) |
Balance on December 31, 2020 | (25,608) | - | (29,690) | - | (13,387) | (68,685) |
Impacts on results | 3,310 | - | 38,729 | - | - | 42,039 |
Balance on December 31, 2021 | (22,298) | - | 9,039 | - | (13,387) | (26,646) |
Carrying amount | ||||||
Balance on December 31, 2019 | 1,997,033 | 1,307,110 | 3,948,795 | 2,526,965 | 2,053 | 9,781,957 |
Balance on December 31, 2020 | 1,888,277 | 1,538,102 | 3,671,674 | 2,451,198 | (12,140) | 9,537,111 |
Balance on December 31, 2021 | 1,803,756 | 1,690,184 | 2,982,561 | 2,319,424 | (12,140) | 8,783,785 |
The depreciation expenses has been included in the heading “Depreciation and amortization” in the income statement.
b) Tangible asset purchase commitments
On December 31, 20192021 the Bank has no contractualowns R$58,413 on commitments for the acquisition of tangible assets (2018(2020 - R$3.2 million0 and 20172019 R$75.00 million).
13. | Intangible assets - Goodwill |
Goodwill is the differenceexcess between the acquisition cost and the Bank's participationinterest in the net fair value of the acquiree's assets, liabilities and contingent liabilities of the acquired company.liabilities. When the differenceexcess is negative (negative goodwill), it is immediately recognized immediately throughin the income statement. In accordance with IFRS 3 Business Combinations,IAS 36, goodwill is stated at cost and is not amortized but tested annually for impairment purposes or whenever there is an evidence of reduction on the recoverable valueimpairment of the cash generatingcash-generating unit to which the goodwillit was allocated. Goodwill is recognizedrecorded at cost considering theless accumulated impairment losses. ImpairmentRecognized impairment losses related toon goodwill are not reversible.reversed. Gains and losses related toon the saledisposal of an entity include the carrying amount of goodwill relating to the entity sold.
The goodwill recorded is subject to impairment test (note 2.o.i)2.n.i) and has been allocated according to the operating segments (note 45)44).
Based on the assumptions described bellow,below, no impairment loss was recognized for goodwill at December 31, 2019, 20182021, 2020 and 2017.2019.
Consolidated Financial Statements | December 31, 2021 | F-62 |
* Values expressed in thousands, except when indicated. |
Breakdown
Thousand of reais | 2021 | 2020 | 2019 | |||||
Breakdown | ||||||||
Banco ABN Amro Real S.A. (Banco Real) | 27,217,565 | 27,215,749 | 27,217,565 | |||||
Toro Corretora de Títulos e Valores Mobiliários Ltda. | 305,937 | - | - | |||||
Liderança Serviços Especializados em Cobranças Ltda. | 237,663 | - | - | |||||
Olé Consignado (current denomination of Banco Bonsucesso Consignado) | 62,800 | 62,800 | 62,800 | |||||
Solutions 4Fleet Consultoria Empresarial S.A. | 32,613 | - | - | |||||
Return Capital Serviços de Recuperação de Créditos S.A. (current denomination of Ipanema Empreendimentos e Participações S.A.) | 24,346 | 24,346 | 24,346 | |||||
Santander Brasil Tecnologia S.A. | 16,381 | 16,381 | 16,382 | |||||
Paytec Tecnologia em Pagamentos Ltda. | 11,336 | - | - | |||||
GIRA, Gestão Integrada de Recebíveis do Agronegócio S.A. | 5,271 | - | - | |||||
Banco PSA Finance Brasil S.A. | 1,557 | 1,557 | 1,557 | |||||
Getnet Adquirência e Serviços para Meios de Pagamento S.A. (Santander Getnet) | - | 1,039,304 | 1,039,304 | |||||
Super Pagamentos e Administração de Meios Eletrônicos Ltda. (Super) | - | - | 13,050 | |||||
Total | 27,915,469 | 28,360,137 | 28,375,004 |
Main assumptions
Thousand of reais | 2019 | 2018 | 2017 | ||||
Breakdown | |||||||
Banco ABN Amro Real S.A. (Banco Real) | 27,217,565 | 27,217,565 | 27,217,565 | ||||
Olé Consignado (Current Company name of Banco Bonsucesso Consignado) | 62,800 | 62,800 | 62,800 | ||||
Super Pagamentos e Administração de Meios Eletrônicos Ltda. (Super) | 13,050 | 13,050 | 13,050 | ||||
Banco PSA Finance Brasil S.A. | 1,557 | 1,557 | 1,557 | ||||
Getnet Adquirência e Serviços para Meios de Pagamento S.A. (Santander Getnet) | 1,039,304 | 1,039,304 | 1,039,304 | ||||
Return Capital Serviços de Recuperação de Créditos S.A. (Current Company name of Ipanema Empreendimentos e Participações S.A.) | 24,346 | 27,630 | 28,120 | ||||
Santander Brasil Tecnologia S.A. | 16,382 | 16,382 | - | ||||
Others | - | - | 1,860 | ||||
Total | 28,375,004 | 28,378,288 | 28,364,256 | ||||
| |||||||
Commercial Banking | |||||||
2019 | 2018 | 2017 | |||||
Main assumptions: | |||||||
Basis of determining recoverable amounts | Value in use: cash flows | ||||||
Period of the projections of cash flows(1) | 5 years | 5 years | 5 years | ||||
Growth rate perpetual (1) | 4.8% | 5.1% | 8.3% | ||||
Discount rate(2) | 12.5% | 13.6% | 14.6% |
(1) Commercial Banking 2021 2020 2019 Main assumptions: Basis of determining recoverable amounts Value in use: cash flows Period of the projections of cash flows (1) 5 years 5 years 5 years Growth rate perpetual (1) 4.8% 4.3% 4.8% Discount rate (2) 12.3% 12.4% 12.5%
(1) | The projections of cash flow are prepared using Management´s growth plans and internal budget, based on historical data, market expectations and conditions such as industry growth, interest rate and inflation. |
(2) | The discount rate is calculated based on the capital asset pricing model (CAPM). The discount rate before tax is 18.77% (2020 – 19.56% and 2019 – 17.88%). |
Changes of cash flowgoodwill
Thousand of reais | 2021 | 2020 | 2019 | |||||
Balance at beginning of the year | 28,360,137 | 28,375,004 | 28,378,288 | |||||
Additions (loss): | ||||||||
Getnet Adquirência e Serviços para Meios de Pagamento S.A. (Santander Getnet) | (1,039,304) | - | - | |||||
Toro Corretora de Títulos e Valores Mobiliários Ltda. | 305,937 | - | - | |||||
Liderança Serviços Especializados em Cobranças Ltda. | 237,663 | - | - | |||||
Solution 4Fleet Consultoria Empresarial S.A. | 32,613 | - | - | |||||
Paytec Tecnologia em Pagamentos Ltda. | 11,336 | - | - | |||||
GIRA, Gestão Integrada de Recebíveis do Agronegócio S.A. | 5,271 | - | - | |||||
Others | 1,816 | (14,867) | (3,284) | |||||
Balance at end of the year | 27,915,469 | 28,360,137 | 28,375,004 |
Goodwill tests are prepared using Management´s growth plansperformed annually or when there are indications of impairment. A quantitative goodwill impairment test is carried out annually in the second half of 2021 and internal budget, based on historical data, market expectations and conditions such as industry growth, interest rate and inflation.
(2) The discount rate is calculated based on the capital asset pricing model (CAPM). The discount rate before tax is 17,78% (2018 - 19.33% and 2017 - 20.42%).
Thousand of reais | 2019 | 2018 | 2017 | ||||
Balance at beginning of the year | 28,378,288 | 28,364,256 | 28,355,039 | ||||
Additions (loss): | |||||||
BW Guirapá (Note 3.c) | - | - | (22,320) | ||||
Banco PSA Finance Brasil S.A. | - | - | 1,557 | ||||
Return Capital Serviços de Recuperação de Créditos S.A. (current name of Ipanema Empreendimentos e Participações S.A.) | (3,284) | (490) | 28,120 | ||||
Produban Serviços de Informática S.A. | - | 16,382 | - | ||||
Others | - | (1,860) | 1,860 | ||||
Balance at end of the year | 28,375,004 | 28,378,288 | 28,364,256 |
Goodwill is tested for impairment at the end of each year or whenever therean analysis is any indicationcarried out on the existence of signs of impairment. OverFor the twelve-month period ended December 31,year 2021, 2020 and 2019, there waswere no evidenceindications of impairment that would have led to the need to update the test performed in 2018 before its regular performance.impairment.
F-64
| |
|
In the goodwill impairment test, discount rates and perpetuity growth are the most sensitive assumptions for calculating the present value (value in use) of discounted future cash flows. With a variation of +0.25% or -0.25% in these rates, the value of future cash flows discounted to present value continues to indicate the absence of impairment.Right-of-use of Assets
Consolidated Financial Statements | December 31, 2021 | F-63 |
* Values expressed in thousands, except when indicated. |
14. | Intangible assets - Other intangible assets |
The details, by asset category, of the other intangible assets in the consolidated balance sheets are as follows:
Cost | IT developments | Other assets | Total | ||||
Balance at December 31, 2016 | 5,866,944 | 405,998 | 6,272,942 | ||||
Additions | 824,411 | 12,072 | 836,483 | ||||
Write-off | (125,307) | (7,096) | (132,403) | ||||
Transfers | 4,633 | - | 4,633 | ||||
Balance at December 31, 2017 | 6,570,681 | 410,974 | 6,981,655 | ||||
Additions | 804,782 | 137 | 804,919 | ||||
Write-off | (477,434) | (40) | (477,474) | ||||
Transfers | 11,567 | - | 11,567 | ||||
Additions by Acquisitions of Subsidiaries | 590 | - | 590 | ||||
Corporate Restructuring | 87 | - | 87 | ||||
Balance at December 31, 2018 | 6,910,273 | 411,071 | 7,321,344 | ||||
Additions | 1,290,686 | 15,757 | 1,306,443 | ||||
Write-off | (2,544,403) | (130,622) | (2,675,025) | ||||
Transfers | (26,758) | (2,481) | (29,239) | ||||
Balance at December 31, 2019 | 5,629,798 | 293,725 | 5,923,523 | ||||
Accumulated amortization | |||||||
Balance at December 31, 2016 | (3,120,982) | (277,155) | (3,398,137) | ||||
Additions | (449,709) | (21,571) | (471,280) | ||||
Write-off | 854 | 5,500 | 6,354 | ||||
Transfers | 17,402 | 464 | 17,866 | ||||
Balance at December 31, 2017 | (3,552,435) | (292,762) | (3,845,197) | ||||
Additions | (504,009) | (19,246) | (523,255) | ||||
Write-off | 25,242 | - | 25,242 | ||||
Transfers | (1,000,893) | 58 | (1,000,835) | ||||
Additions by Acquisitions of Subsidiaries | (583) | - | (583) | ||||
Corporate Restructuring | (15) | - | (15) | ||||
Balance at December 31, 2018 | (5,032,693) | (311,950) | (5,344,643) | ||||
Additions | (501,682) | (19,339) | (521,021) | ||||
Write-off | 2,326,982 | 79,945 | 2,406,927 | ||||
Transfers | (241,395) | (288) | (241,683) | ||||
Balance at December 31, 2019 | (3,448,788) | (251,632) | (3,700,420) | ||||
Losses from non-recovery (Impairment) – IT | IT developments | Other assets | Total | ||||
Balance at December 31, 2016 | (977,711) | (15,291) | (993,002) | ||||
Impact on net profit (1) | (306,110) | - | (306,110) | ||||
Write-off | 441 | - | 441 | ||||
Balance at December 31, 2017 | (1,283,380) | (15,291) | (1,298,671) | ||||
Impact on net profit (1) | (300,865) | - | - | (300,865) | |||
Transfers | 1,263,535 | - | 1,263,535 | ||||
Balance at December 31, 2018 | (320,710) | (15,291) | (336,001) | ||||
Impact on net profit (1) | (103,924) | - | (103,924) | ||||
Write-off | 422,315 | 15,291 | 437,606 | ||||
Balance at December 31, 2019 | (2,319) | - | (2,319) | ||||
Carrying amount | |||||||
Balance at December 31, 2017 | 1,734,866 | 102,921 | 1,837,787 | ||||
Balance at December 31, 2018 | 1,556,870 | 83,830 | 1,640,700 | ||||
Balance at December 31, 2019 | 2,178,691 | 42,093 | 2,220,784 |
(1) It refersCost IT Developments Other Assets Total Balance on December 31, 2018 6,910,273 411,071 7,321,344 Additions 1,290,686 15,757 1,306,443 Write-off (2,544,403) (130,622) (2,675,025) Transfers (26,758) (2,481) (29,239) Balance on December 31, 2019 5,629,798 293,725 5,923,523 Additions 990,184 73,238 1,063,422 Write-off (240,626) (7,803) (248,429) Transfers (25,515) 3,036 (22,479) Balance on December 31, 2020 6,353,841 362,196 6,716,037 Additions 1,429,459 71,103 1,500,562 Write-off (633,534) (3,270) (636,804) Transfers (124,157) - (124,157) Balance on December 31, 2021 7,025,609 430,029 7,455,638 Accumulated amortization Balance on December 31, 2018 (5,032,693) (311,950) (5,344,643) Additions (501,682) (19,339) (521,021) Write-off 2,326,982 79,945 2,406,927 Transfers (241,395) (288) (241,683) Balance on December 31, 2019 (3,448,788) (251,632) (3,700,420) Additions (534,000) (5,322) (539,322) Balance on December 31, 2020 (3,982,788) (256,954) (4,239,742) Additions (569,370) (13,771) (583,141) Write-off 343,216 (4,558) 338,658 Balance on December 31, 2021 (4,208,942) (275,283) (4,484,225) Losses from non-recovery (Impairment) - IT IT developments Other assets Total Balance on December 31, 2018 (320,710) (15,291) (336,001) Impact on net profit (1) 110,466 - 110,466 Write-off 207,925 15,291 223,216 Balance on December 31, 2019 (2,319) - (2,319) Impact on net profit (1) (66,269) - (66,269) Transfers (1,346) - (1,346) Balance on December 31, 2020 (69,934) - (69,934) Impact on net profit (1) (23,066) (7,094) (30,160) Write-off - - - Balance on December 31, 2021 (93,000) (7,094) (100,094) Carrying amount Balance on December 31, 2019 2,178,691 42,093 2,220,784 Balance on December 31, 2020 2,301,119 105,242 2,406,361 Balance on December 31, 2021 2,723,667 147,652 2,871,319
(1) | Refers to the impairment |
software was recorded due to obsolescence function and disruptiondiscontinuity of thesethe referred systems.
The amortizationAmortization expenses has beenwere included in the heading “Depreciationunder "Depreciation and amortization”amortization" in the income statement.
F-65
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|
Consolidated Financial Statements | December 31, 2021 | F-64 |
* Values expressed in thousands, except when indicated. |
15. | Other assets |
The breakdown of the balance of “Other assets” is as follows:follows:
Thousand of reais | 2019 | 2018 | 2017 | ||
Contracts costs | 1,926,536 | 1,674,187 | 1,679,305 | ||
Prepayments and accrued income | 1,059,223 | 685,755 | 784,456 | ||
Contractual guarantees of former controlling stockholders (Note 23.c.5) | 102,903 | 605,638 | 707,130 | ||
Actuarial asset (Note 22) | 346,422 | 273,281 | 198,189 | ||
Other receivables(1) | 1,626,253 | 1,561,606 | 1,209,190 | ||
Total | 5,061,337 | 4,800,467 | 4,578,270 |
(1) Thousand of reais 2021 2020 2019 Customer relationships 922,860 1,873,048 1,926,536 Prepayments and accrued income 797,365 1,007,792 1,059,223 Contractual guarantees of former controlling stockholders (Note 22.c.5) 496 496 103,272 Actuarial asset (Note 21) 287,808 361,149 346,422 Other receivables (1) 4,040,499 3,979,926 1,625,884 Total 6,049,028 7,222,411 5,061,337
(1) | Corresponds mainly to receivables from third parties. |
16. | Deposits from the Brazilian Central Bank and Deposits from credit institutions |
The breakdown, by classification, type and currency, of the balances of these items is as follows:
Thousand of reais | 2019 | 2018 | 2017 | ||
Classification: | |||||
Financial liabilities at amortized cost | 99,271,415 | 99,022,806 | 79,374,685 | ||
Total | 99,271,415 | 99,022,806 | 79,374,685 | ||
Type: | |||||
Deposits on demand(1) | 685,026 | 709,605 | 306,081 | ||
Time deposits(2) | 56,602,470 | 47,227,456 | 52,739,163 | ||
Repurchase agreements | 41,983,919 | 51,085,745 | 26,329,441 | ||
Of which: | |||||
Backed operations with Private Securities(3) | 9,506,255 | 6,977,766 | - | ||
Backed operations with Government Securities | 32,477,663 | 44,107,979 | 26,329,441 | ||
Total | 99,271,415 | 99,022,806 | 79,374,685 |
(1) Non-interest bearing accounts.
(2) Includes operations with credit institutions resulting from exportClassification, type and import financing lines, transfers fromcurrency, of the country (BNDES and Finame) and abroad, and other credit lines abroad.balances
(3) Refers primarily to repurchase agreements backed by own-issued debentures.
Thousand of reais | 2019 | 2018 | 2017 | ||
Currency: | |||||
Reais | 58,282,793 | 74,159,613 | 56,562,950 | ||
Euro | 39,522 | 105,119 | 407,814 | ||
US dollar | 40,949,100 | 24,758,074 | 22,156,054 | ||
Other currencies | - | - | 247,867 | ||
Total | 99,271,415 | 99,022,806 | 79,374,685 |
F-66
Thousand of reais | 2021 | 2020 | 2019 | |||
Classification: | ||||||
Financial liabilities at amortized cost | 121,005,909 | 131,656,962 | 99,271,415 | |||
Total | 121,005,909 | 131,656,962 | 99,271,415 | |||
Type: | ||||||
Deposits on demand (1) | 126,203 | 296,340 | 685,026 | |||
Time deposits (2) | 75,754,363 | 76,489,490 | 56,602,470 | |||
Repurchase agreements | 45,125,343 | 54,871,132 | 41,983,919 | |||
Of which: | ||||||
Backed operations with Private Securities (3) | 13,478,131 | 13,843,463 | 9,506,255 | |||
Backed operations with Government Securities | 31,647,212 | 41,027,669 | 32,477,663 | |||
Total | 121,005,909 | 131,656,962 | 99,271,415 |
| |
|
(3) | Refers primarily to repurchase agreements backed by own-issued debentures. |
Deposits from the Brazilian Central Bank and Deposits from credit institutions - by currency
Thousand of reais | 2021 | 2020 | 2019 | |||
Currency: | ||||||
Reais | 62,322,887 | 77,743,482 | 58,282,793 | |||
Euro | 9,309 | 13,156 | 39,522 | |||
US dollar | 58,673,713 | 53,900,324 | 40,949,100 | |||
Total | 121,005,909 | 131,656,962 | 99,271,415 |
17. | Client deposits |
The breakdown, by classification and type, of the balance of “Customer deposits” is as follows:
Balance of Customer deposits
Thousand of reais | 2019 | 2018 | 2017 | |||
Classification: | ||||||
Financial liabilities at amortized cost | 336,514,597 | 304,197,800 | 276,042,141 | |||
Total | 336,514,597 | 304,197,800 | 276,042,141 | |||
Type: | ||||||
Demand deposits | ||||||
Current accounts(1) | 28,231,479 | 18,853,519 | 17,559,985 | |||
Savings accounts | 49,039,857 | 46,068,346 | 40,572,369 | |||
Time deposits | 200,739,544 | 190,982,541 | 146,817,650 | |||
Repurchase agréments | 58,503,717 | 48,293,394 | 71,092,137 | |||
Of which: | ||||||
Backed operations with Private Securities(2) | 9,506,255 | 6,977,766 | 33,902,890 | |||
Backed operations with Government Securities | 48,997,462 | 41,315,628 | 37,189,247 | |||
Total | 336,514,597 | 304,197,800 | 276,042,141 |
(1) Non-interest bearing accounts.
(2) Refers primarily to repurchase agreements backed by own-issued debentures.
Thousand of reais | 2021 | 2020 | 2019 | ||||||
Classification: | |||||||||
Financial liabilities at amortized cost | 468,961,069 | 445,813,972 | 336,514,597 | ||||||
Total | 468,961,069 | 445,813,972 | 336,514,597 | ||||||
Type: | |||||||||
Demand deposits | |||||||||
Current accounts (1) | 41,742,247 | 35,550,105 | 28,231,479 | ||||||
Savings accounts | 65,248,913 | 62,210,443 | 49,039,857 | ||||||
Time deposits | 280,955,456 | 269,929,085 | 200,739,544 | ||||||
Repurchase agreements | 81,014,453 | 78,124,340 | 58,503,717 | ||||||
Of which: | |||||||||
Backed operations with Private Securities (2) | 20,103,099 | 14,944,250 | 9,506,255 | ||||||
Backed operations with Government Securities | 60,911,354 | 63,180,090 | 48,997,462 | ||||||
Total | 468,961,069 | 445,813,972 | 336,514,597 |
(1) | Non-interest bearing accounts. |
(2) | Refers primarily to repurchase agreements backed by own-issued debentures. |
Note 44-d43-d contains a detail of the residual maturity periods of financial liabilities at amortized cost.
F-67
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|
Consolidated Financial Statements | December 31, 2021 | F-65 |
* Values expressed in thousands, except when indicated. |
18. | Marketable debt securities |
The breakdown, by classification and type, of the balance of “Marketable debt securities” is as follows:
Thousand of reais | 2019 | 2018 | 2017 | 2021 | 2020 | 2019 | |||||
Classification: | |||||||||||
Financial liabilities at amortized cost | 73,702,474 | 74,626,232 | 70,247,012 | 79,036,792 | 56,875,514 | 73,702,474 | |||||
Total | 73,702,474 | 74,626,232 | 70,247,012 | 79,036,792 | 56,875,514 | 73,702,474 | |||||
Type: | |||||||||||
Real estate credit notes - LCI (1) | 21,266,079 | 27,159,982 | 27,713,873 | 21,459,182 | 18,846,138 | 21,266,079 | |||||
Eurobonds | 8,715,382 | 4,516,647 | 1,992,828 | 12,952,068 | 9,399,277 | 8,715,382 | |||||
Treasury Bills (2) | 27,587,340 | 30,721,206 | 31,686,259 | 25,074,264 | 12,749,911 | 27,587,340 | |||||
Agribusiness credit notes - LCA | 14,776,877 | 11,925,018 | 8,854,052 | 16,989,434 | 14,746,831 | 14,776,877 | |||||
Guaranteed Real Estate Credit Notes (3) | 1,356,796 | 303,379 | - | Guaranteed Real Estate Credit Notes (3) | 2,561,845 | 1,133,356 | 1,356,796 | ||||
Total | 73,702,474 | 74,626,232 | 70,247,012 | 79,036,792 | 56,875,514 | 73,702,474 |
(1) | Real estate credit bills are fixed-income securities backed by real estate credits and guaranteed by mortgage or fiduciary sale of real estate. On December 31, 2021, they mature between 2022 and 2028 (2020 - with maturity between 2021 to 2027 2019 - with maturity between 2020 to 2026). |
(2) | The main characteristics of the financial bills are a minimum term of two years, a minimum face value of R$50 and early redemption permit of only 5% of the issued amount. As of December 31, 2021, they mature between 2022 and 2031 (2020 – with maturity between 2021 to 2025 and 2019 – with maturity between 2020 to 2025). |
(3) | Guaranteed Real Estate Bills are fixed-income securities backed by real estate credits guaranteed by the issuer and by a pool of real estate credits separated from the other assets of the issuer. As of December 31, 2021, they have a maturity period between 2022 and 2035 (12/31/20120- with a maturity period between 2021 and 2023). |
Indexers
Indexers: | Domestic | Abroad | ||||||
Treasury Bills | 100% to 112% of CDI | - | ||||||
100% of IGPM | - | |||||||
100% of IPCA | - | |||||||
Pre fixed: 3.41% to 16.97% | - | |||||||
104.75% of SELIC | - | |||||||
Real estate credit notes - LCI | 86% to 105.8% of CDI | - | ||||||
Pre fixed: 3.03% of 13.29% | - | |||||||
- | ||||||||
1.5% to | - | |||||||
100% of TR | - | |||||||
Agribusiness credit notes - LCA | 70% to 104% of CDI | - | ||||||
3.33% to 12.33% da SELIC | ||||||||
Guaranteed Real Estate Credit Notes - LIG | 94% to 98% of CDI | - | ||||||
| ||||||||
| ||||||||
Eurobonds | - | 0.0% to | ||||||
- | ||||||||
CDI+6.4% |
(1) Real Estate Credit Notes are fixed income securities pegged by mortgages and mortgage-backed securities or liens on property. On December 31, 2019, have maturities between 2020 and 2026 (2018 - there are maturities between 2019 to 2026 and 2017 - there are maturities between 2018 to 2026).
(2) The main features of the Treasury Bills are the minimum period of two years, minimum notional of R$300 and permission for early redemption of only 5% of the issued amount. On December 31, 2019, have a maturity between 2020 to 2025 (2018 - have a maturity between 2019 to 2025 and 2017 - there are maturities between 2018 to 2025).
(3) Guaranteed Real Estate Letters are real estate investment securities guaranteed by the issuer and by a pool of real estate credits separated from the other assets of the issuer. As of December 31, 2019 maturity until 2020 and 2021 (2018 - have a maturity until 2021).
Consolidated Financial Statements | December 31, 2021 | F-66 |
* Values expressed in thousands, except when indicated. |
The breakdown, by currency, of the balance of this account is as follows:
Thousand of reais | |||||||
Currency: | 2021 | 2020 | 2019 | ||||
Real | 66,084,725 | 47,490,706 | 64,987,092 | ||||
US dollar | 12,952,068 | 9,384,808 | 8,715,382 | ||||
Total | 79,036,792 | 56,875,514 | 73,702,474 |
Thousand of reais | |||||||||||
Currency: | 2019 | 2018 | 2017 | ||||||||
Real | 64,987,092 | 70,109,585 | 68,335,103 | ||||||||
US dollar | 8,715,382 | 4,516,647 | 1,911,909 | ||||||||
Total | 73,702,474 | 74,626,232 | 70,247,012 | ||||||||
Average interest (%) | Average interest (%) | ||||||||||
Currency: | 2019 | 2018 | 2017 | 2021 | 2020 | 2019 | |||||
Real | 5.0% | 5.5% | 1.5% | 2.5% | 5.0% | ||||||
US dollar | 4.1% | 5.9% | 6.8% | 5.7% | 5.2% | 4.1% | |||||
Total | 4.5% | 5.6% | 5.7% | 3.5% | 3.9% | 4.5% |
F-68
| |
|
The variations in the balance “Obligations for bonds and securities” were as follows:follows:
Thousand of reais | 2019 | 2018 | 2017 | 2021 | 2020 | 2019 | |||||
Balance at beginning of the year | 74,626,232 | 70,247,012 | 99,842,955 | 56,875,514 | 73,702,474 | 74,626,232 | |||||
Issuances | 53,017,039 | 73,765,081 | 59,663,420 | 101,784,961 | 60,047,656 | 53,017,039 | |||||
Payments | (61,914,716) | (78,903,009) | (97,009,957) | (97,220,580) | (82,900,914) | (61,914,716) | |||||
Interest (Note 33) | 5,138,306 | 4,606,949 | 7,901,199 | ||||||||
Interest (Note 32) | 4,536,849 | 2,785,942 | 5,138,306 | ||||||||
Exchange differences and Others | 2,835,613 | 4,910,199 | (150,605) | 13,060,048 | 3,240,356 | 2,835,613 | |||||
Balance at end of the year | 73,702,474 | 74,626,232 | 70,247,012 | 79,036,792 | 56,875,514 | 73,702,474 |
(1) | Exchange variation linked to “Obligations for bonds and securities” are related to Eurobonds. |
On December 31, 2019, 20182021, 2020 and 2017,2019, none of these instruments was convertible into Bank shares or granted privileges or rights which, in certain circumstances, make them convertible into shares.
The note 44-d43-d contains a detail of the residual maturity periods of financial liabilities at amortized cost in each year.
The breakdown of "Bonds and other securities" is as follows:follows:
Issuance | Maturity | Currency | Interest rate (p.y) | 2019 | 2018 | 2017 | Issuance | Maturity | Currency | Interest rate (p.y) | 2021 | 2020 | 2019 | ||
Eurobonds | 2015 | 2018 | USD | 2.2% | - | 40,333 | 2017 | 2020 | BRL | 4.4% | - | 929,042 | |||
Eurobonds | 2017 | 2018 | USD | Zero Coupon to 2.4% | - | 1,195,668 | 2018 | 2020 | USD | Until 3.5% | - | 37,476 | |||
Eurobonds | 2017 | 2019 | USD | LIBOR 3M + 1.00% | - | 194,243 | 165,677 | 2018 | 2020 | USD | Over 3.5% | - | 35,438 | ||
Eurobonds | 2018 | 2021 | BRL | 4.4% | 63,181 | 855,035 | - | 2019 | 2020 | USD | 0% to 4.4% | - | 3,556,724 | ||
Eurobonds | 2018 | 2024 | USD | 2.4% a 10.0% | 664,996 | 19,386 | - | 2017 | 2025 | USD | 4.4% | 117,150 | 14,469 | 63,181 | |
Eurobonds | 2018 | 2019 | USD | Zero Coupon to 9% | - | 197,055 | - | 2018 | 2025 | USD | 0% to 4.4% | 771,300 | - | ||
Eurobonds | 2018 | 2019 | USD | LIBOR 3M + 0.95% | - | 34,776 | - | 2017 | 2024 | USD | 2.4% to 10% | - | 853,929 | 664,996 | |
Eurobonds | 2018 | 2020 | USD | Up to 3.5% | 37,476 | 1,211,361 | - | 2018 | 2024 | USD | 6.6% to 6.7% | - | 1,625,192 | 1,260,099 | |
Eurobonds | 2018 | 2019 | USD | LIBOR 1M + 1.5% | - | 1,287,821 | - | 2018 | 2025 | USD | Until 9% | - | 1,720,187 | 1,427,601 | |
Eurobonds | 2017 | 2020 | BRL | 4.4% | 929,042 | 639,275 | 541,487 | 2019 | 2025 | USD | 0% to 4.4% | 225,533 | - | ||
Eurobonds | 2018 | 2020 | USD | Above 3.5% | 35,438 | 2019 | 2026 | USD | 4.4% | 75,716 | - | ||||
Eurobonds | 2018 | 2024 | USD | 6.6% to 6.7% | 1,260,099 | 2019 | 2027 | USD | 0% to 4.4% | 632,831 | - | ||||
Eurobonds | 2018 | 2025 | USD | Up to 9% | 1,427,601 | 2020 | 2022 | USD | 4.4% | 306,253 | - | ||||
Eurobonds | 2019 | 2020 | USD | 0% to 4.4% | 3,556,724 | 2020 | 2023 | USD | 0% to 4.4% | 455,666 | - | ||||
Eurobonds | 2019 | 2027 | USD | CDI + 6.4% | 727,118 | 2019 | 2027 | USD | CDI+6.4% | - | 1,279,506 | 727,118 | |||
Eurobonds | 2020 | 2021 | USD | 0% to 4% | - | 3,252,482 | - | ||||||||
Eurobonds | 2020 | 2021 | USD | CDI+1.9% | - | 170,257 | - | ||||||||
Eurobonds | 2020 | 2022 | USD | 0% to 4% | - | 16,923 | - | ||||||||
Eurobonds | 2020 | 2022 | USD | CDI+1.9% | - | 121,926 | - | ||||||||
Eurobonds | 2020 | 2025 | USD | 0% to 8% | 46,655 | 22,888 | - | ||||||||
Eurobonds | 2020 | 2023 | USD | CDI+1.9% | - | 223,435 | - | ||||||||
Eurobonds | 2020 | 2024 | USD | CDI+1.9% | - | 98,082 | - | ||||||||
Eurobonds | 2021 | 2022 | USD | 0% a 4.4% | 2,005,534 | - | |||||||||
Eurobonds | 2021 | 2022 | USD | Until 9% | 41,749 | - | |||||||||
Eurobonds | 2021 | 2022 | USD | CDI+1.9% | 205,624 | - | |||||||||
Eurobonds | 2021 | 2022 | USD | CDI + 2.65% | 181,116 | - | |||||||||
Eurobonds | 2021 | 2023 | USD | 0% to 4.4% | 408,824 | - | |||||||||
Eurobonds | 2021 | 2023 | USD | CDI+1.9% | 157,370 | - | |||||||||
Eurobonds | 2021 | 2023 | USD | CDI + 2.65% | 5,316 | - | |||||||||
Eurobonds | 2021 | 2024 | USD | 0% to 4.4% | 246,192 | - | |||||||||
Eurobonds | 2021 | 2025 | USD | 0% to 4.4% | 593,036 | - | |||||||||
Eurobonds | 2021 | 2026 | USD | 0% to 4.4% | 3,890,578 | - | |||||||||
Eurobonds | 2021 | 2026 | USD | CDI + 2.65% | 210,639 | - | |||||||||
Eurobonds | 2021 | 2027 | USD | 0% to 4.4% | 101,029 | - | |||||||||
Eurobonds | 2021 | 2028 | USD | Until 9% | 30,126 | - | |||||||||
Eurobonds | 2021 | 2028 | USD | CDI+6.4% | 26,018 | - | |||||||||
Eurobonds | 2021 | 2031 | USD | 0% a 4.4% | 2,217,811 | - | |||||||||
Other | 13,707 | 77,695 | 49,663 | - | - | 13,707 | |||||||||
Total | 8,715,382 | 4,516,647 | 1,992,828 | 12,952,068 | 9,399,276 | 8,715,382 |
19. |
The detail of the balance of “Subordinated liabilities” is as follows:
Thousand of reais | |||||||||||
Issuance | Maturity(1) | Amount (millions) | Interest rate | 2019 | 2018 | 2017 | |||||
Subordinated Liabilities | May-08 | May-15 to May-18 | R$283 | CDI (2) | - | - | 109,572 | ||||
Subordinated Liabilities | May-08 to June-08 | May-15 to June-18 | R$268 | IPCA (3) | - | - | 409,658 | ||||
Notes (4) | January-14 | Perpetual | R$3.000 | 7.375% | - | 4,906,880 | - | ||||
Notes (4) | January-14 | January-24 | R$3.000 | 6.000% | - | 4,978,727 | - | ||||
Total | - | 9,885,607 | 519,230 |
(1) Subordinated time deposits issued by Banco Santander S.A. with yield paid at the end of the term together with the principal.
(2) Between December 2017 and May 2018, indexed by 100% and 112% of the CDI.
(3) Between December 2017 and June 2018, indexed by the IPCA (extended consumer price index) plus interest of 8.3% p.a. to 8.4% p.a.
(4) On December 18, 2018, the Bank Central of Brazil issued approval for the repurchase of the notes issued on January 29, 2014, this approval led to the reclassification of these instruments from the Debt Instruments Eligible to Compose Capital to Subordinated Debt (Note 20).
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The detail by currency, of the balance of “Subordinated liabilities” is as follows:
Thousand of reais | Average Interest Rate (%) | ||||||||
Currency: | 2019 | 2018 | 2017 | 2019 | 2018 | 2017 | |||
Real | - | 9,885,607 | 519,230 | 0.0% | 4.9% | 7.5% | |||
Total | - | 9,885,607 | 519,230 | 0.0% | 4.9% | 7.5% |
Changes in the balance of "Subordinated liabilities" in twelve-months period ended December 31, 2019, 2018 and 2017 were as follows:
2019 | 2018 | 2017 | ||||
Balance at beginning of year | 9,885,607 | 519,230 | 466,246 | |||
Payments | (9,885,607) | (544,566) | - | |||
Interest (Note 33) | - | 25,336 | 52,984 | |||
Transfers (Note 20) | - | 9,885,607 | - | |||
Balance at end of year | - | 9,885,607 | 519,230 |
Note 44-d contains a detail of the residual maturity periods of subordinated liabilities at each year-end.
Debt Instruments Eligible to Compose Capital |
Details of the balance of "Debt Instruments Eligible to Compose Capital" for the issuance of such instruments to compose the Tier I and Tier II of regulatory capital due to the Regulatory Capital Optimization Plan, (Note 28.e), are as follows:
2019 | 2018 | 2017 | ||||||
Issuance | Maturity | Issuance Value | Interest Rate (p.a.)(3) | |||||
Tier I (1)(5) | Jan-14 | no maturity (perpetual) | R$3,000 | 7.375% | - | - | 4,187,531 | |
Tier II (2) (5) | Jan-14 | jan-24 | R$3,000 | 6.000% | - | - | 4,249,370 | |
Tier I(4) | Nov-18 | no maturity (perpetual) | US$1,250 | 7.250% | 5,092,153 | 4,893,668 | - | |
Tier II (4) | Nov-18 | nov/18 | US$1,250 | 6.125% | 5,083,808 | 4,886,276 | - | |
Total | 10,175,961 | 9,779,944 | 8,436,901 |
Consolidated Financial Statements | December |
* Values expressed in |
2021 | 2020 | 2019 | |||||
Issuance | Maturity | Issuance Value | Interest Rate (p.a.) | ||||
Tier I (1) | nov-18 | No-Maturity (Perpetual) | US$1,250 | 7.250% | 7,050,080 | 6,554,451 | 5,092,153 |
Tier II (1) | nov-18 | nov/28 | US$1,250 | 6.125% | 7,038,527 | 6,565,209 | 5,083,808 |
Financial Bills - Tier II (2) | nov-21 | nov-31 | R$ 5,300 | CDI+2% | 5,351,046 | - | - |
Financial Bills - Tier II (2) | dez-21 | dez-31 | R$ 200 | CDI+2% | 201,755 | - | - |
Total | 19,641,408 | 13,119,660 | 10,175,961 |
(1) | The |
(2) | Letras Financeiras issued in November 2021 have a redemption and repurchase option. |
2019 | 2018 | 2017 | |||||
Balance at beginning of the year | 9,779,944 | 8,436,901 | 8,311,918 | ||||
Issuance - Tier I | - | 4,673,875 | - | ||||
Issuance - Tier II | - | 4,673,875 | - | ||||
Interest payment Tier I (1) | 272,947 | 331,677 | 273,123 | ||||
Interest payment Tier II (1) | 230,594 | 272,539 | 222,065 | ||||
Exchange differences / Others | 221,368 | 1,960,467 | 252,941 | ||||
Payments of interest - Tier I | (178,278) | (381,008) | (344,867) | ||||
Payments of interest - Tier II | (150,614) | (302,775) | (278,279) | ||||
Repurchase | - | (9,885,607) | - | ||||
Balance at end of the year | 10,175,961 | 9,779,944 | 8,436,901 |
(1) The remuneration of interest relating to the Debt Instruments Eligible to Compose Capital Tier I and II was recorded against income for the period as "Interest expense and similar charges" (Note 33).
On November 5, 2018, the Board of Directors approved the issuance of the equity instruments, which was held on November 8, 2018. Such issuance was in the form of Notes issued in US dollars, US$2.5 billion, for payment in Tier I and Tier II of Reference Equity. The offer of these notes was made outside Brazil and the United States of America, for non-US Persons, based on Regulation S under the Securities Act, and was fully paid in by Santander España, controlling shareholder of Banco Santander Brasil. On the same date, the Board of Directors approved the redemption of the Tier I and Tier II notes issued on January 29, 2014, in the total amount of U$2.5 billion (Note 26.e).
The specific characteristics of Notes issued to make up Tier I are: (a) Principal: US$1.250 billion (b) Interest Rate: 7.25% p.a; (c) no
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maturity (perpetual); (d) Periodicity of payment of interest: semiannually from May 8, 2019.
The specific characteristics of Notes issued to make up Tier II are: (a) Principal: US$1.250 billion; (b) Interest Rate: 6.125% p.a.; (c) Maturity Term: on November 8, 2028; and (d) Periodicity of payment of interest: semiannually, as of May 8, 2019.
Notes have the following common characteristics:
(a) Unit value of at least US$150 thousand and in integral multiples of US$1 thousand in excess ofwhich exceeds such minimum value;
(b) The Notes may be repurchased or redeemed by Banco Santander after the fifth5th (fifth) anniversary as offrom the date of issue of the Notes, at the Bank's sole discretion of the Bank or as a result ofdue to changes in the tax legislation applicable to the Notes; or at any time, due to the occurrence of certain regulatory events.
On December 18, 2018, the Bank issued approval for the Notes to comprise Tier I and Tier II of Banco Santander's Reference Equity as of such date, as well as the repurchase of the notes issued on January 29, 2014. As a result,Changes in the balance relating to the notes issued on January 29, 2014 were reclassified fromof Debt Instruments Eligible to Compose Capital to Subordinated Debts (Note 19).
2021 | 2020 | 2019 | |||||
Balance at beginning of the year | 13,119,660 | 10,175,961 | 9,779,944 | ||||
Issuance - Tier II | 5,500,000 | - | - | ||||
Interest payment Tier I (1) | 505,300 | 506,771 | 272,947 | ||||
Interest payment Tier II (1) | 449,899 | 402,622 | 230,594 | ||||
Exchange differences / Others | 977,855 | 2,948,951 | 221,368 | ||||
Payments of interest - Tier I | (493,071) | (495,789) | (178,278) | ||||
Payments of interest - Tier II | (418,235) | (418,856) | (150,614) | ||||
Balance at end of the year | 19,641,408 | 13,119,660 | 10,175,961 |
(1) | The remuneration of interest relating to the Debt Instruments Eligible to Compose Capital Tier I and II was recorded against income for the period as "Interest expense and similar charges" (Note 32). |
Other financial liabilities |
The breakdown of the balances of these items is as follows:
Thousand of reais | 2019 | 2018 | 2017 | 2021 | 2020 | 2019 | ||||||||||
Credit card obligations | 38,531,519 | 39,761,739 | 32,049,712 | 45,976,315 | 48,912,963 | 38,531,519 | ||||||||||
Unsettled financial transactions | 7,239,785 | 3,356,871 | 3,905,236 | 10,861,143 | 7,210,396 | 7,239,785 | ||||||||||
Dividends and Interest on Capital payable | 7,826,247 | 4,508,569 | 4,553,914 | 1,029,952 | 1,223,310 | 7,826,247 | ||||||||||
Tax collection accounts - Tax payables | 883,768 | 1,205,746 | 1,077,860 | 969,939 | 864,292 | 883,768 | ||||||||||
Liability associated with the transfer of assets (Note 9.g) | Liability associated with the transfer of assets (Note 9.g) | 75,500 | 126,906 | 428,248 | Liability associated with the transfer of assets (Note 9.g) | 40,511 | 55,105 | 75,500 | ||||||||
Other financial liabilities | 6,328,551 | 2,769,005 | 2,245,765 | 10,030,440 | 8,595,084 | 6,328,551 | ||||||||||
Total | 60,885,370 | 51,728,836 | 44,260,735 | 68,908,300 | 66,861,150 | 60,885,370 |
(1) | Includes operations to settle with B3 S.A. (Current Company Name of BM&FBovespa) and payment orders in foreign currency. |
(2) | Refers substantially to cancelable financial liabilities, designated at fair value through profit or loss. |
(1) As of December 31, 2019, it includes the financial liability in the total amount of R$1,600 million (2018 - R$519 million and 2017 - R$484 million), related to the commitment of the put option of the shares held by Banco Bonsucesso (Note 3.a ) and R$0 (2018 - R$1,427 million and 2017 - R$1,223 million), referring to the put option for the shares issued by Getnet SA, which was authorized by BACEN on February 18, 2019 and settled on February 25, 2019.
(2) Includes operations to settle with B3 S.A. (Current Company Name of BM&FBovespa) and payment orders in foreign currency.
21. | Provisions for pensions and similar obligations |
On December 31, 20192021 the balance of provisions for pension funds and similar obligations totaled R$4,956,851 (20182,728,126 (2020 - R$3,357,6543,929,265 and 20172018 - R$3,923,457)4,960,620).
Consolidated Financial Statements | December 31, 2021 | F-68 |
* Values expressed in thousands, except when indicated. |
i.
I. Supplemental Pension Plan
Banco Santander and its subsidiaries sponsor the closed pension entities for the purpose of granting pensions and supplementary pensions over those granted by the Social Security, as defined in the basic regulations of each plan.
Banesprev - Fundo Banespa de Seguridade Social (Banesprev) |
- Plan I: defined benefit plan fully sponsored by Banco Santander, it covers employees hired after May 22, 1975 called Participants Recipients, and those hired until May 22, 1975 called Participants Aggregates, who are also entitled to death benefits. This plan is closed to new entrants since March 28, 2005.
- Plan II: defined benefit plan, constituted from July 27, 1994, effective of the new text of the Statute and Regulations of the Basic Plan II, Plan I participants who chose the new plan began to contribute to the rate of 44.9% stipulated by the actuary for funding each year, introduced in April 2012 extraordinary cost to the sponsor and participants, as agreed with the PREVIC - Superintendence of Pension Funds, due to deficit in the plan. This plan is closed to new entrants since June 3, 2005.
- Plan V:III: defined benefit plan fully sponsored by Banco Santander, it covers employees hired until May 22, 1975, closed and paid off.
- Supplemental Pension Plan Pré 75: defined benefit plan was created in view of the privatization of Banespa and is managed by Banesprev and offered only to employees hired before May 22, 1975, which its effective date is January 1, 2000. This plan is closed to new entrants since April 28, 2000.
- Plan III:I: variable contribution plan, for employees hired after May 22,1975, previously served by the Plans I and II. This plan receives contributions from the sponsor and the participants. The benefits are in the form of defined contribution during the period of contribution and defined benefit during the receipt of benefit, if paid as monthly income for life. Plan is closed to new entrants since September 1, 2005.
- Plan IV:II: variable contribution plan, designed for employees hired as of November 27, 2000, in which the sponsor only contributes to the risk benefits and administrative expenses. In this plan the benefit is set in the form of defined contribution during the period of contribution and defined benefit during the receipt of benefits in the form of monthly income for life, in whole or in part of the benefit. The risk benefits of the plan are in defined benefit. This plan is closed to new entrants since July 23, 2010.
- Three plans (DCA, DAB and CACIBAN): additional retirement and former employees associated pension, arising from the process of acquisition of the former Banco Meridional, established under the defined benefit plan. The plans were closed to new participants prior to the acquisition of Grupo Bozano Simonsen by Banco Santander in November 1999.
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- Plan Sanprev I: defined benefit plan, established on September 27, 1979, covering employees enrolled in the plan sponsor and it is in process of extinction since June 30, 1996.
- Plan Sanprev II: plan that provides insurance risk, pension supplement temporary, disability retirement annuity and the supplemental death and sickness allowance and birth, including employees enrolled in the plan sponsor and is funded solely by sponsors through monthly contributions, as indicated by the actuary. This plan is closed to new entrants since March 10, 2010.
- Plan Sanprev III: variable contribution plan covering employees of the sponsors who made the choice to contribute, by contribution freely chosen by participants from 2% of their salary. That the benefit plan is a defined contribution during the contribution and defined benefit during the receipt of the benefit, being in the form of monthly income for life, in whole or in part of the benefit. This plan is closed to new entrants since March 10, 2010.
Sanprev – Santander Associação de Previdência (Sanprev) |
Closed-End Private Pension Entity (EFPC) that used to manage three benefit plans, 2 in the Defined Benefit modality and 1 in the modality of Variable Contribution, whose process of management transfer of these plans to Banesprev occurred in January 2017. According to Portaria 389 of PREVIC, of May 8, 2018, it was approved the closure of the authorization of operation of Sanprev.
Bandeprev - Bandepe Previdência Social (Bandeprev) |
Defined benefit plan, sponsored by Banco Bandepe and Banco Santander, managed by Bandeprev. The plans are divided into basic plan and special retirement supplement plan, with different eligibility requirements, contributions and benefits by subgroups of participants. The plans are closed to new entrants since 1999 for Banco Bandepe’s employees and for others since 2011.
Other Plans |
SantanderPrevi - Sociedade de Previdência Privada (SantanderPrevi): it´s a closed-end private pension entityentity with the purpose of constitution and implementation of social security pension plans, complementary to the social security contribution, in the form of actual legislation.
Consolidated Financial Statements | December 31, 2021 | F-69 |
* Values expressed in thousands, except when indicated. |
The Retirement Plan of SantanderPrevi is structured as Defined Contribution and closed to new members since July 2018 as approved by PREVIC, with contributions shared between sponsors and plan participants. The appropriate values by the sponsors in the year of 20192021 was R$110,325 (201869,142 (2020 – R$89,95969,142 e 20172019 – R$86,449)110,325).
It has 10 cases of lifetime income with benefits arising from the previous plan.
SBPREV - Santander Brasil Open Pension Plan:As from January 2, 2018, Santander started to offer this new optional supplementary pension plan for new employees hired and for employees who are not enrolled in any other pension plan managed by the Closed Entities Complementary Pension Plan of the Group. This new program includes the PGBL- Free Benefit Generation Plan and VGBL-Free Benefit Generator Life managed by Icatu Seguros, the Open Entity of Complementary Pension Plan, which are open for new accessions, with similar characteristics to SantanderPrevi's plan. the instituting / stipulating companies and the participants in the plans.Theplans. The appropriated values by the sponsors in the year of 20192021 were R R$8,917 (201817,880 (2020 – R$ $1,597)14,054).
ii.II. Health and Dental Care Plan
• Cabesp - Caixa Beneficente dos Funcionários do Banco do Estado de São Paulo S.A.:
Entity that covers health and dental care expenses of employees hired until Banespa privatization in 2000, as defined in the entity's bylaws.
• HolandaPrevi’s Retirees (current corporate name of SantanderPrevi):
For the health care plan Retirement has lifetime nature and is a closed group. In his termination the employee should have completed 10 years of employment with Banco Real and 55 years of age. In this case it was offered the continuity of health care plan where the employee pays 70% and the Bank pays 30% of the monthly payment. This rule lasted until December, 2002 and after this period that the employee got terminated with the status Retired Holandaprevi, he pays 100% of the health plan monthly payment.
• Former employees of Banco Real S.A. (Retiree by Circulars):
It grants entitlement to healthcare to former employees of Banco Real, with lifetime benefit it was granted in the same condition as the active employee, in this case, with the same coverage and plan design.
Eligible only for basic plans and premium apartment, if the beneficiary chooses for the apartment plan he pays the difference between the plans plus the co-participation in the basic plan. Not allowed new additions of dependents. It is subsidized in 90% of the plan.
• Bandeprev’s retirees:
Health care plan granted to Bandeprev’s retirees as a lifetime benefit, for which Banco Santander is responsible for subsidizing 50% of the benefits of employees retired until November 27, 1998. For whom retired after this date, the subsidy is 30%.
• Directors with Lifetime Benefits (Lifetime Directors):
Lifetime health care benefit granted to a small closed group of former directors coming from Banco Sudameris, being 100% subsidized by the Bank.
• Health Directors:
Directors, Executive Directors, Vice-President Directors and Chief Executive Officer, may, by choice, choose to remain medical assistance, in case of termination of the link with Banco Santander or companies in its conglomerate without cause; as long as they comply the following requirements: have contributed for at least 3 (three) years to the health plan; having served as a director at Banco Santander or companies its conglomerate for at least 3 (three) years; be 55 years of age. The plan will be maintained in the same way as the DIRECTOR enjoyed at the time of his dismissal, including the payment of his share, which must be paid by bank slip. The
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dependents active at the time of termination will be kept on the same plan as the director, and the inclusion of new dependents in no chance.
• Free Clinic:
Health care plan (free clinic) is offered for a lifetime to retirees who have contributed to the Foundation Sudameris for at least 25 years and has difference in default if the user chooses apartment. The plan is only offered in standard infirmary where the cost is 100% of the Foundation Sudameris.
Consolidated Financial Statements | December 31, 2021 | F-70 |
* Values expressed in thousands, except when indicated. |
• Life insurance for Banco Real’s retirees (Life Insurance):
For Retirees from Circulars: indemnity in case of Natural Death, Disease Disability, Accidental Death. The subsidy is 45% of the value. It is a closed group.
• Life Insurance Assistance Boxes (Life Insurance):
Included in the bulk of the life insurance in December 2018 the insurance of the retirees of the DCA, DAB and CACIBAN plans. This insurance was granted to retirees of the former Southern Bank, coverage was according to the choice of retiree at the time of joining the benefit. The Bank's allowance is 50% of the premium amount for the holder and some retirees have the spouse clause bearing 100% of the cost. The plan is closed for new participants.
Additionally, it is assured to retired employees, since they meet to certain legal requirements and fully pay their respective contributions, the right to be maintaining as a beneficiary of the Banco Santander health plan, in the same conditions for healthcare coverage, taken place during their employment contract. Banco Santander provisions related to thisthese retired employees are calculated using actuarial based in the present value of the current cost.
iii.III. Actuarial Techniques
The amount of the defined benefit obligations was determined by independent actuaries using the following actuarial techniques:
• Valuation method:
Projected unit credit method, which uses each year of service as giving rise to an additional unit of benefit entitlement and measures each unit separately.
• Nominal discount rate for actuarial obligation and calculation of interest on assets:
assets
- Banesprev, Sanprev, SantanderPrevi, Bandeprev and Other Plans – 7.1% (20188.39% (2020 – 9.1%6.8% e 20172019 – 9.53%7.1%).
- Cabesp, Law 9,656 and others obligations – 7.2% (20188.44% (2020 – 9.3% 7.1% e 20172019 – 9.65% 7.2%).
• Estimated long-term inflation rate:
rate
- Banesprev, Sanprev, SantanderPrevi, Bandeprev and Other Plans – 3.5% (20183.0% (2020 – 4.0% 3.3% e 20172019 – 4.0%3.5%).
• Estimate salary increase rate:
rate
- Banesprev, Sanprev, SantanderPrevi, Bandeprev Básico and Other Plans – 4.0% (20183.52% (2020 – 5.0% 3.8% e 20172019 – 5.0% 4.0%).
The funding status of the defined benefit obligations in 20192021 and in the last 2 years are as follows:
Funding status of the defined benefit obligations
2019 | 2018 | 2017 | 2021 | 2020 | 2019 | ||||||||
Present value of the obligations - Post-employment plans: | Present value of the obligations - Post-employment plans: | Present value of the obligations - Post-employment plans: | |||||||||||
To current employees | 687,786 | 716,492 | 796,243 | 320,202 | 478,837 | 687,786 | |||||||
Vested obligations to retired employees | 27,369,696 | 23,296,715 | 21,205,366 | Vested obligations to retired employees | 26,183,758 | 28,202,580 | 27,369,696 | ||||||
28,057,482 | 24,013,207 | 22,001,609 | |||||||||||
Total | 26,503,960 | 28,681,417 | 28,057,482 | ||||||||||
Less: | |||||||||||||
Fair value of plan assets | 25,822,890 | 22,708,990 | 20,689,637 | 28,321,826 | 28,634,891 | 25,822,890 | |||||||
Unrecognized assets(1) | (1,346,547) | (1,079,808) | (1,090,682) | (3,645,083) | (2,762,220) | (1,346,547) | |||||||
Provisions – Post-employment plans, net | Provisions – Post-employment plans, net | 3,581,139 | 2,384,025 | 2,402,654 | Provisions – Post-employment plans, net | 1,827,217 | 2,808,746 | 3,581,139 | |||||
Present value of the obligations - Other similar obligations: | Present value of the obligations - Other similar obligations: | Present value of the obligations - Other similar obligations: | |||||||||||
To current employees | 204,439 | 184,606 | 228,107 | 97,004 | 135,902 | 204,439 | |||||||
Vested obligations to retired employees | 6,047,368 | 4,604,466 | 4,815,654 | Vested obligations to retired employees | 5,026,865 | 5,782,124 | 6,047,368 | ||||||
6,251,807 | 4,789,072 | 5,043,761 | |||||||||||
Total | 5,123,869 | 5,918,026 | 6,251,807 | ||||||||||
Less: | |||||||||||||
Fair value of plan assets | 5,222,517 | 4,157,251 | 3,721,147 | 5,096,262 | 5,398,667 | 5,222,517 | |||||||
Unrecognized assets(1) | - | (68,527) | - | (585,495) | (240,010) | - | |||||||
Provisions – Other similar obligations, net | Provisions – Other similar obligations, net | 1,029,290 | 700,348 | 1,322,614 | Provisions – Other similar obligations, net | 613,101 | 759,370 | 1,029,290 | |||||
Total provisions for pension plans, net | 4,610,429 | 3,084,373 | 3,725,268 | Total provisions for pension plans, net | 2,440,318 | 3,568,115 | 4,610,429 | ||||||
Of which: | |||||||||||||
Actuarial provisions | 4,960,620 | 3,357,654 | 3,923,457 | 2,728,126 | 3,929,265 | 4,960,620 | |||||||
Actuarial assets (note 15) | 350,191 | 273,281 | 198,189 | 287,808 | 361,149 | 350,191 |
(1) | Refers to fully funded surplus plans Banesprev I and III, Sanprev I,II and III and |
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* Values expressed in thousands, except when indicated. |
On the fourth quarter of 2018, the Management settled the actuarial deficit of Banesprev V and DAB in 2017 in the amount of R$ 295,529 and R$ 1,246, respectively, and the contribution in the estimated amount of R$ 152,329 to cover the actuarial deficit from 2018 to Banesprev Pré 75.
In the first half of 2018, there was an increase in the cost contribution established for a post-employment benefit plan, which is calculated as a percentage of the total monthly compensation of members. The increase in the contribution resulted in a decrease in the past service cost due to changes in the plan. The envisaged changes implied a reduction in the present value of the obligations of the defined benefit plan, which is supported by actuarial valuations.
The amounts recognized in the consolidated income statement in relation to the aforementioned defined benefit obligations are as follows:
Post-Employment Plans | |||||||||
2021 | 2020 | 2019 | |||||||
Staff costs - Current service costs (note 39) | 1,799 | 4,186 | 2,774 | ||||||
Interest and similar income and expenses - Interest cost (net) (notes 31 and 32) | (81,681) | 108,268 | 149,232 | ||||||
Interest and similar income and expenses - Interest on unrecognized assets (notes 31 and 32) | 252,608 | 97,291 | 100,346 | ||||||
Other movements - Extraordinary charges | 2,117 | 16,786 | (1,101) | ||||||
Total | 174,843 | 226,532 | 251,251 |
Post-Employment Plans | ||||
2019 | 2018 | 2017 | ||
Staff costs - Current service costs (note 40) | 2,774 | 3,142 | 14,605 | |
Interest and similar income and expenses - Interest cost (net) (notes 32 and 33) | 149,232 | 124,754 | 70,429 | |
Interest and similar income and expenses - Interest on unrecognized assets (notes 32 and 33) | 100,346 | 104,160 | 105,832 | |
Other movements (1) | (1,101) | 12,432 | 5,323 | |
Total | 251,251 | 244,488 | 196,189 | |
Other Similar Obligations | ||||
2019 | 2018 | 2017 | ||
Staff costs - Current service costs (note 40) | 8,142 | 5,797 | 5,476 | |
Interest and similar income and expenses - Interest cost (net) (notes 32 and 33) | 61,845 | 76,124 | 99,575 | |
Interest and similar income and expenses - Interest on unrecognized assets (notes 32 and 33) | 3,173 | 15,521 | - | |
Other movements (1) | 22,624 | (816,230) | - | |
Total | 95,784 | (718,788) | 105,051 |
Amounts recognized in the consolidated income statement in relation to defined benefit obligations - Other Similar Obligations
Other Similar Obligations | |||||||||
2021 | 2020 | 2019 | |||||||
Staff costs - Current service costs (note 39) | 6,820 | 5,860 | 8,142 | ||||||
Interest and similar income and expenses - Interest cost (net) (notes 31 and 32) | 14,985 | 71,374 | 61,845 | ||||||
Interest and similar income and expenses - Interest on unrecognized assets (notes 31 and 32) | 31,500 | - | 3,173 | ||||||
Other movements - Extraordinary charges(2) | (135) | (142) | 22,624 | ||||||
Total | 53,170 | 77,092 | 95,784 |
The changes in the present value of the accrued defined benefit obligations were as follows:
Post-Employment Plans | Post-Employment Plans | ||||||||||||
2019 | 2018 | 2017 | 2021 | 2020 | 2019 | ||||||||
Present value of the obligations at beginning of year | Present value of the obligations at beginning of year | 24,013,207 | 22,001,609 | 20,769,126 | Present value of the obligations at beginning of year | 28,681,417 | 28,057,482 | 24,013,207 | |||||
Current service cost (Note 40) | 2,774 | 3,142 | 14,605 | ||||||||||
Current service cost (Note 39) | Current service cost (Note 39) | 1,799 | 4,186 | 2,774 | |||||||||
Interest cost | 2,087,484 | 2,029,099 | 2,170,639 | 1,971,031 | 1,940,515 | 2,087,484 | |||||||
Benefits paid | (1,960,103) | (1,876,014) | (1,834,681) | (2,159,866) | (2,060,960) | (1,960,103) | |||||||
Actuarial (gains)/losses | 3,908,350 | 1,674,908 | 871,308 | (1,992,512) | 722,261 | 3,908,350 | |||||||
Others | 5,770 | 180,463 | 10,612 | 2,091 | 17,933 | 5,770 | |||||||
Present value of the obligations at end of year | Present value of the obligations at end of year | 28,057,482 | 24,013,207 | 22,001,609 | Present value of the obligations at end of year | 26,503,960 | 28,681,417 | 28,057,482 | |||||
Other Similar Obligations | |||||||||||||
2019 | 2018 | 2017 | |||||||||||
Present value of the obligations at beginning of year | 4,789,072 | 5,043,761 | 4,246,489 | ||||||||||
Current service cost (Note 40) | 8,142 | 5,797 | 5,476 | ||||||||||
Interest cost | 443,837 | 438,567 | 447,653 | ||||||||||
Benefits paid | (378,782) | (346,185) | (339,538) | ||||||||||
Actuarial (gains)/losses | 1,366,837 | 455,193 | 683,681 | ||||||||||
Other (1) | 22,701 | (808,061) | - | ||||||||||
Present value of the obligations at end of year | 6,251,807 | 4,789,072 | 5,043,761 |
(1) In the year ended December 31, 2018 there was an increase in the cost contribution established for a postemployment benefit plan, which is calculated as a percentage of the total monthly compensation of associates. The increase in the contribution resulted in a decrease in the past service cost, due to changes in the plan. The envisaged changes implied a reduction
Consolidated Financial Statements | December 31, 2021 | F-72 |
* Values expressed in thousands, except when indicated. |
Changes in the present value of the obligations of theaccrued defined benefit plan, which is supported by actuarial valuations. In the Consolidated Statements of Income, this amount was recorded under Provision (Net).obligations - Other Similar Obligations
F-74
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Other Similar Obligations | |||||||||
2021 | 2020 | 2019 | |||||||
Present value of the obligations at beginning of year | 5,918,026 | 6,251,807 | 4,789,072 | ||||||
Current service cost (Note 39) | 6,820 | 5,860 | 8,142 | ||||||
Interest cost | 417,536 | 448,836 | 443,837 | ||||||
Benefits paid | (373,341) | (337,742) | (378,782) | ||||||
Actuarial (gains)/losses | (845,173) | (450,735) | 1,366,837 | ||||||
Other | - | - | 22,701 | ||||||
Present value of the obligations at end of year | 5,123,869 | 5,918,026 | 6,251,807 |
The changes in the fair value of the plan assets were as follows:
Post-Employment Plans | ||||||||||
2021 | 2020 | 2019 | ||||||||
Fair value of plan assets at beginning of year | 28,634,891 | 25,822,890 | 22,708,990 | |||||||
Interest (Expense) Income | 2,052,712 | 1,832,247 | 1,938,252 | |||||||
Remeasurement - Actual return (loss) on plan assets excluding the amounts included in net interest expense | (791,317) | 2,994,598 | 3,087,544 | |||||||
Contributions/(surrenders) | 589,006 | 49,716 | 51,807 | |||||||
Of which: | ||||||||||
By the Bank | 585,437 | 44,970 | 44,752 | |||||||
By plan participants | 3,569 | 4,746 | 7,055 | |||||||
Benefits paid | (2,159,866) | (2,060,960) | (1,960,103) | |||||||
Exchange differences and other items | (3,600) | (3,600) | (3,600) | |||||||
Fair value of plan assets at end of year | 28,321,826 | 28,634,891 | 25,822,890 |
Post-Employment Plans | ||||
2019 | 2018 | 2017 | ||
Fair value of plan assets at beginning of year | 22,708,990 | 20,689,637 | 20,116,916 | |
Interest (Expense) Income | 1,938,252 | 1,904,345 | 2,100,211 | |
Remeasurement - Actual return (loss) on plan assets excluding the amounts included in net interest expense | 3,087,544 | 1,347,689 | 268,309 | |
Contributions/(surrenders) | 51,807 | 481,959 | 38,883 | |
Of which: | ||||
By the Bank | 44,752 | 472,723 | 27,439 | |
By plan participants | 7,055 | 9,236 | 11,444 | |
Benefits paid | (1,960,103) | (1,876,014) | (1,834,682) | |
Exchange differences and other items | (3,600) | 161,374 | - | |
Fair value of plan assets at end of year | 25,822,890 | 22,708,990 | 20,689,637 | |
Other Similar Obligations | ||||
2019 | 2018 | 2017 | ||
Fair value of plan assets at beginning of year | 4,157,251 | 3,721,147 | 3,310,895 | |
Interest (Expense) Income | 381,992 | 362,444 | 348,078 | |
Remeasurement - Actual return (loss) on plan assets excluding the amounts included in net interest expense | 915,626 | 304,632 | 303,504 | |
Contributions/(surrenders) | 107,037 | 72,548 | 61,803 | |
Of which: | ||||
By the Bank | 107,037 | 72,548 | 61,803 | |
Benefits paid | (339,389) | (310,458) | (303,133) | |
Exchange differences and other items | - | 6,938 | - | |
Fair value of plan assets at end of year | 5,222,517 | 4,157,251 | 3,721,147 |
Changes in the fair value of the plan assets - Other Similar Obligations
Other Similar Obligations | ||||||||||
2021 | 2020 | 2019 | ||||||||
Fair value of plan assets at beginning of year | 5,398,667 | 5,222,517 | 4,157,251 | |||||||
Interest (Expense) Income | 402,551 | 377,462 | 381,992 | |||||||
Remeasurement - Actual return (loss) on plan assets excluding the amounts included in net interest expense | (521,100) | (34,409) | 915,626 | |||||||
Contributions/(surrenders) | 151,926 | 132,416 | 107,037 | |||||||
Of which: | ||||||||||
By the Bank | 151,926 | 132,416 | 107,037 | |||||||
Benefits paid | (335,781) | (299,319) | (339,389) | |||||||
Fair value of plan assets at end of year | 5,096,263 | 5,398,667 | 5,222,517 |
Breakdown of gains (losses) actuarial by experience, financial assumptions and demographic hypotheses:
Opening of gains (losses) Actuarial from experience, financial assumptions and demographic hypotheses
Post-Employment Plans | ||||
2019 | 2018 | 2017 | ||
Experience Plan | (446,444) | (803,717) | 686,204 | |
Changes in Financial Assumptions | (2,615,119) | (871,176) | (1,557,689) | |
Changes in Financial Demographic | 1,228 | - | 146 | |
Gain (Loss) Actuarial - Obligation | (3,060,335) | (1,674,893) | (871,339) | |
Return on Investment, Return Unlike Implied Discount Rate | 2,624,960 | 1,344,089 | 270,158 | |
Gain (Loss) Actuarial - Asset | 2,624,960 | 1,344,089 | 270,158 | |
Changes in Surplus / Deficit Uncollectible | (164,428) | 117,320 | (15,690) | |
Other Similar Obligations | ||||
2019 | 2018 | 2017 | ||
Experience Plan | (209,175) | (79,810) | (303,396) | |
Changes in Financial Assumptions | (1,157,662) | (376,949) | (380,285) | |
Changes in Financial Demographic | - | - | - | |
Gain (Loss) Actuarial - Obligation | (1,366,837) | (456,759) | (683,681) | |
Return on Investment, Return Unlike Implied Discount Rate | 915,626 | 307,048 | 303,504 | |
Gain (Loss) Actuarial - Asset | 915,626 | 307,048 | 303,504 | |
Changes in Surplus Uncollectible | 71,698 | (52,604) | - |
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* Values expressed in thousands, except when indicated. |
Post-Employment Plans | |||||||||
2021 | 2020 | 2019 | |||||||
Experience Plan | (2,640,120) | (807,895) | (446,444) | ||||||
Changes in Financial Assumptions | 4,632,632 | 85,634 | (2,615,119) | ||||||
Changes in Financial Demographic | - | - | 1,228 | ||||||
Gain (Loss) Actuarial - Obligation | 1,992,512 | (722,261) | (3,060,335) | ||||||
Return on Investment, Return Unlike Implied Discount Rate | (791,317) | 2,994,598 | 2,624,960 | ||||||
Gain (Loss) Actuarial - Asset | (791,317) | 2,994,598 | 2,624,960 | ||||||
Changes in Surplus / Deficit Uncollectible | (630,255) | (1,318,382) | (164,428) |
Opening of gains (losses) Actuarial from experience, financial assumptions and demographic hypotheses - Other Similar Obligations
Other Similar Obligations | |||||||||
2021 | 2020 | 2019 | |||||||
Experience Plan | (290,878) | 289,237 | (209,175) | ||||||
Changes in Financial Assumptions | 1,136,497 | 182,120 | (1,157,662) | ||||||
Changes in Financial Demographic | (446) | (20,621) | - | ||||||
Gain (Loss) Actuarial - Obligation | 845,173 | 450,735 | (1,366,837) | ||||||
Return on Investment, Return Unlike Implied Discount Rate | (521,100) | (34,409) | 915,626 | ||||||
Gain (Loss) Actuarial - Asset | (521,100) | (34,409) | 915,626 | ||||||
Changes in Surplus Uncollectible | (313,984) | (240,010) | 71,698 |
The experience adjustments arising from plan assets and liabilities are shown bellow:
Post - Employment Plans | |||||||||
2019 | 2018 | 2017 | |||||||
Experience in Net Assets Adjustments | 3,087,544 | 1,347,689 | 268,309 | ||||||
Other Similar Obligations | |||||||||
2019 | 2018 | 2017 | |||||||
Experience in Net Assets Adjustments | 915,626 | 304,632 | 303,504 |
Post - Employment Plans | ||||||||||
2021 | 2020 | 2019 | ||||||||
Experience in Net Assets Adjustments | (791,317) | 2,994,598 | 2,624,960 |
Other Similar Obligations | ||||||||||
2021 | 2020 | 2019 | ||||||||
Experience in Net Assets Adjustments | (521,100) | (34,409) | 915,626 |
The amounts of actuarial obligation of defined benefit plans not covered and defined benefit plans partially or totally covered are shown below:
2019 | 2018 | 2017 | ||||||
815,929 | 700,347 | 701,551 | ||||||
33,493,360 | 28,101,932 | 26,343,818 |
2021 | 2020 | 2019 | |||||||
Defined benefit plans uninsured | 613,101 | 759,370 | 815,929 | ||||||
Defined benefit plans partially or totally covered | 31,014,727 | 33,840,073 | 33,493,360 |
The main categories of plan assets as a percentage of total plan assets are as follows:
2019 | 2018 | 2017 | |||||||
Equity instruments | 0.00% | 4.81% | 4.60% | ||||||
Debt instruments | 92.92% | 94.59% | 94.70% | ||||||
Properties | 0.26% | 0.28% | 0.35% | ||||||
Other | 6.82% | 0.32% | 0.35% |
2021 | 2020 | 2019 | |||||||
Debt instruments | 96.68% | 97.41% | 92.92% | ||||||
Properties | 0.17% | 0.17% | 0.26% | ||||||
Other | 3.15% | 2.45% | 6.82% |
Consolidated Financial Statements | December 31, 2021 | F-74 |
* Values expressed in thousands, except when indicated. |
The expected return on plan assets was determined based on the market expectations for returns over the duration of the related obligations.
The actual return on plan assets was R$6,301,111 (20181,198,815 (2020 - R$3,823,0044,826,845 e 20172019 - R$3,021,950)6,301,111).
The following table shows the estimated benefits payable for the next 10ten years from December 31, 2019:2021:
2020 | 2,195,627 | |
2021 | 2,232,813 | |
2022 | 2,292,622 | |
2023 | 2,350,054 | |
2024 | 2,406,310 | |
2025 to 2029 | 12,762,480 | |
Total | 24,239,906 |
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2022 | 2,511,841 | ||||||||
2023 | 2,561,598 | ||||||||
2024 | 2,608,572 | ||||||||
2025 | 2,651,957 | ||||||||
2026 | 2,691,303 | ||||||||
2027 to 2031 | 13,884,478 | ||||||||
Total | 26,909,749 |
Assumptions about the rates related to medical care costs have a significant impact on the amounts recognized in income. The change of one percentage point in the medical care cost rates would have the effects as follows:
Sensitivity | |||||||||
2019 | 2018 | 2017 | |||||||
Current Service Cost and Interest | Present Value of Obligations | Current Service Cost and Interest | Present Value of Obligations | Current Service Cost and Interest | Present Value of Obligations | ||||
Discount Rate | Discount Rate | ||||||||
(+)0,5% | (31,672) | (440,072) | (29,066) | (307,980) | (28,742) | (301,237) | |||
(-)0,5% | 35,572 | 494,257 | 32,403 | 343,340 | 31,876 | 334,085 | |||
Boards of Mortality | |||||||||
Applied (+) 2 years | (51,720) | (718,632) | (45,937) | (486,742) | (43,310) | (453,912) | |||
Applied (-) 2 years | 56,687 | 787,636 | 49,355 | 522,958 | 45,808 | 480,101 | |||
Cost of Medical Care | |||||||||
(+)0,5% | 38,388 | 533,380 | 35,949 | 380,906 | 31,758 | 332,850 | |||
(-)0,5% | (35,060) | (487,146) | (32,100) | (340,122) | (28,501) | (298,705) |
Sensitivity | ||||||||||
2021 | 2020 | 2019 | ||||||||
Current Service Cost and Interest | Present Value of Obligations | Current Service Cost and Interest | Present Value of Obligations | Current Service Cost and Interest | Present Value of Obligations | |||||
Discount Rate | ||||||||||
(+)0,5% | (25,444) | (305,114) | (28,711) | (402,547) | (31,672) | (440,072) | ||||
(-)0,5% | 28,133 | 337,349 | 32,099 | 450,049 | 35,572 | 494,257 | ||||
Boards of Mortality | ||||||||||
Applied (+) 2 years | (44,619) | (535,039) | (47,637) | (667,904) | (51,720) | (718,632) | ||||
Applied (-) 2 years | 47,934 | 574,793 | 54,226 | 760,289 | 56,687 | 787,636 | ||||
Cost of Medical Care | ||||||||||
(+)0,5% | 31,280 | 375,089 | 34,718 | 486,769 | 38,388 | 533,380 | ||||
(-)0,5% | (28,762) | (344,891) | (31,637) | (443,569) | (35,060) | (487,146) |
The following table shows the durationduration of the actuarial liabilities of the plans sponsored by Banco Santander:
Plans | Post - Employment Plans | |||||||||
Duration (in years) | ||||||||||
Banesprev Plans I | 12.57 | |||||||||
Banesprev Plans II | 12.92 | |||||||||
Banesprev Plans III | 11.54 | |||||||||
Banesprev Plans IV | 14.82 | |||||||||
Banesprev Plans V | 9.51 | |||||||||
Banesprev Pre-75 | 10.45 | |||||||||
Sanprev I | 6.79 | |||||||||
Sanprev II | 12.76 | |||||||||
Sanprev III | 11.06 | |||||||||
Bandeprev Basic | 10.53 | |||||||||
Bandeprev Special I | 7.23 | |||||||||
Bandeprev Special II | 6.46 | |||||||||
SantanderPrevi | 8.11 | |||||||||
CACIBAN / DAB / DCA | 7.27/ 5.93/ 6.47 |
Consolidated Financial Statements | December 31, 2021 | F-75 |
* Values expressed in thousands, except when indicated. |
Duration of the actuarial liabilities of the plans sponsored - Other Similar Obligations
Plans | Other Similar Obligations | |||||||||
Cabesp | 16.03 | |||||||||
Bandepe | 18.03 | |||||||||
Free Clinic | 12.28 | |||||||||
Lifetime officers | 9.36 | |||||||||
Health officers | 30.28 | |||||||||
Circulars(1) | 11.62 E 12.97 | |||||||||
Life Insurance | 8.04 |
(1) The duration 11.1512.15 refers to the plan of Former Employees of Banco ABN Amro and 11.93 to the plan of Former Employees of Banco Real.
F-77
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Actuarial Assumptions Adopted in Calculations
2019 | 2018 | 2017 | 2021 | 2020 | 2019 | ||||||||||||||
Pension | Health | Pension | Health | Pension | Health | Pension | Health | Pension | Health | Pension | Health | ||||||||
Nominal Discount Rate for Actuarial Obligation | Nominal Discount Rate for Actuarial Obligation | 7.1% | 7.2% | 9.1% | 9.3% | 9.5% | 9.7% | Nominal Discount Rate for Actuarial Obligation | 8.4% | 8.4% | 6.8% | 7.1% | 7.1% | 7.2% | |||||
Rate Calculation of Interest Under Assets to the Next Year | Rate Calculation of Interest Under Assets to the Next Year | 7.1% | 7.2% | 9.1% | 9.3% | 9.5% | 9.7% | Rate Calculation of Interest Under Assets to the Next Year | 8.4% | 8.4% | 6.8% | 7.1% | 7.1% | 7.2% | |||||
Estimated Long-term Inflation Rate | Estimated Long-term Inflation Rate | 3.5% | 4.0% | Estimated Long-term Inflation Rate | 3.0% | 3.0% | 3.3% | 3.3% | 3.5% | 3.5% | |||||||||
Estimated Salary Increase Rate | Estimated Salary Increase Rate | 4.0% | 5.0% | Estimated Salary Increase Rate | 3.5% | N/A | 3.8% | N/A | 4.0% | 4.0% | |||||||||
Mortality tables | Mortality tables | AT2000 | Mortality tables | AT2000 | AT2000 | AT2000 | AT2000 | AT2000 | AT2000 |
22. | Provisions for judicial and administrative proceedings, commitments and other provisions |
a) Breakdown
The breakdown of the balance of “Provisions” is as follows:
The breakdown of the balance of Provisions
Thousand of reais | 2019 | 2018 | 2017 | ||||||||
Pension fund provisions and similar requirements (2) | 4,960,620 | 3,357,654 | 3,923,457 | ||||||||
Provisions for lawsuits and administrative proceedings, commitments and other provisions | 11,371,205 | 11,338,244 | 10,063,459 | ||||||||
Judicial and administrative proceedings under the responsibility of former controlling stockholders (Note 15) | 103,272 | 605,638 | 707,131 | ||||||||
Judicial and administrative proceedings | 9,226,735 | 9,507,240 | 8,365,320 | ||||||||
Of which: | |||||||||||
Civil | 3,201,061 | 3,377,338 | 2,522,005 | ||||||||
Labor | 3,504,296 | 3,819,107 | 3,448,388 | ||||||||
Tax and Social Security | 2,521,378 | 2,310,795 | 2,394,927 | ||||||||
Provisions for contingent commitments (Note 23.b) | 683,918 | 626,267 | - | ||||||||
Others provisions(1) | 1,357,280 | 599,099 | 991,008 | ||||||||
Total | 16,331,825 | 14,695,898 | 13,986,916 |
Thousand of reais | 2021 | 2020 | 2019 | |||
Pension fund provisions and similar requirements | 2,728,126 | 3,929,265 | 4,960,620 | |||
Provisions for lawsuits and administrative proceedings, commitments and other provisions | 8,876,356 | 9,885,713 | 11,371,205 | |||
Judicial and administrative proceedings under the responsibility of former controlling stockholders (Note 15) | 496 | 496 | 103,272 | |||
Judicial and administrative proceedings | 7,668,914 | 8,648,892 | 9,226,735 | |||
Of which: | ||||||
Civil | 3,231,004 | 3,429,155 | 3,201,061 | |||
Labor | 2,071,811 | 2,886,990 | 3,504,296 | |||
Tax and Social Security | 2,366,099 | 2,332,747 | 2,521,378 | |||
Provisions for contingent commitments (Note 22.b.1) | 908,027 | 724,779 | 683,918 | |||
Others provisions | 298,919 | 511,546 | 1,357,280 | |||
Total | 11,604,482 | 13,814,978 | 16,331,825 |
Consolidated Financial Statements | December 31, |
b) ChangesContents
* Values expressed in thousands, except when indicated.
b) Changes
The changes in “Provisions” were as follows:
Changes in Provisions
Thousand of reais | 2021 | |||||
Pensions (1) | Other Provisions | Total | ||||
Balance at beginning of year | 3,929,265 | 9,885,713 | 13,814,978 | |||
Additions charged to income: | ||||||
Interest expense and similar charges | 217,413 | - | 217,413 | |||
Personnel Expenses (Note 39) | 8,619 | - | 8,619 | |||
Constitutions / Reversals and Adjustment of provisions | (1,618) | 1,997,788 | 1,996,170 | |||
Other Comprehensive Income | (833,511) | - | (833,511) | |||
Additions to provisions for contingent commitments | - | 183,248 | 183,248 | |||
Payments to external funds | (619,086) | - | (619,086) | |||
Amount paid | - | (3,222,395) | (3,222,395) | |||
Transfer to other assets - actuarial assets (Note 15) | 27,045 | - | 27,045 | |||
Transfers, exchange differences and other changes | - | 32,002 | 32,002 | |||
Balance at end of year | 2,728,126 | 8,876,356 | 11,604,482 |
Thousand of reais | 2019 | 2020 | |||||||||||||
Pensions (1) | Other Provisions | Total | Pensions (1) | Other Provisions | Total | ||||||||||
Balance at beginning of year | Balance at beginning of year | 3,357,654 | 11,338,244 | 14,695,898 | Balance at beginning of year | 4,960,620 | 11,365,589 | 16,326,209 | |||||||
Additions charged to income: | Additions charged to income: | Additions charged to income: | |||||||||||||
Interest expense and similar charges | Interest expense and similar charges | 314,596 | - | 314,596 | Interest expense and similar charges | 276,933 | - | 276,933 | |||||||
Personnel Expenses (Note 40) | 10,917 | - | 10,917 | ||||||||||||
Personnel Expenses (Note 39) | Personnel Expenses (Note 39) | 10,046 | - | 10,046 | |||||||||||
Constitutions / Reversals and Adjustment of provisions | Constitutions / Reversals and Adjustment of provisions | 21,523 | 2,936,187 | 2,957,710 | Constitutions / Reversals and Adjustment of provisions | 13,044 | 1,565,402 | 1,578,446 | |||||||
Other Comprehensive Income | 1,416,815 | - | 1,416,815 | (1,133,245) | - | (1,133,245) | |||||||||
Additions to provisions for contingent commitments | - | (57,651) | (57,651) | - | 40,861 | 40,861 | |||||||||
Payments to external funds | Payments to external funds | (187,667) | - | (187,667) | Payments to external funds | (215,829) | - | (215,829) | |||||||
Amount paid | - | (2,870,703) | (2,870,703) | - | (3,136,423) | (3,136,423) | |||||||||
Transfer to other assets - actuarial assets (Note 15) | Transfer to other assets - actuarial assets (Note 15) | 23,014 | - | 23,014 | Transfer to other assets - actuarial assets (Note 15) | 17,695 | - | 17,695 | |||||||
Transfers, exchange differences and other changes | Transfers, exchange differences and other changes | - | 19,512 | 19,512 | Transfers, exchange differences and other changes | - | 50,284 | 50,284 | |||||||
Balance at end of year | 4,956,852 | 11,365,589 | 16,322,441 | 3,929,265 | 9,885,713 | 13,814,978 |
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Thousand of reais | 2019 | |||||
Pensions (1) | Other Provisions | Total | ||||
Balance at beginning of year | 3,357,654 | 11,338,244 | 14,695,898 | |||
Additions charged to income: | ||||||
Interest expense and similar charges | 314,596 | - | 314,596 | |||
Personnel Expenses (Note 39) | 10,917 | - | 10,917 | |||
Constitutions / Reversals and Adjustment of provisions | 21,523 | 2,936,187 | 2,957,710 | |||
Other Comprehensive Income | 1,416,815 | - | 1,416,815 | |||
Additions to provisions for contingent commitments | - | (57,651) | (57,651) | |||
Payments to external funds | (183,899) | - | (183,899) | |||
Amount paid | - | (2,865,087) | (2,865,087) | |||
Transfer to other assets - actuarial assets (Note 15) | 23,014 | - | 23,014 | |||
Transfers, exchange differences and other changes | - | 19,512 | - | 19,512 | ||
Balance at end of year | 4,960,620 | 11,371,205 | 16,331,825 |
For further information, see note 22. Provisions for pension funds and similar obligations. |
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Thousand of reais | 2018 | ||||||||
Pensions (1) | Other Provisions | Total | |||||||
Balance at beginning of year | 3,923,456 | 10,063,459 | 13,986,915 | ||||||
Additions charged to income: | |||||||||
Interest expense and similar charges | 320,559 | - | 320,559 | ||||||
Personnel Expenses (Note 40) | 8,939 | - | 8,939 | ||||||
Constitutions / Reversals and Adjustment of provisions | (801,332) | 3,556,512 | 2,755,180 | ||||||
Other Comprehensive Income | 483,058 | - | 483,058 | ||||||
Additions to provisions for contingent commitments | - | (48,246) | (48,246) | ||||||
Payments to external funds | (594,024) | - | (594,024) | ||||||
Amount paid | - | (2,247,172) | (2,247,172) | ||||||
Transfer to other assets - actuarial assets (Note 15) | 16,998 | - | 16,998 | ||||||
Transfers, exchange differences and other changes | - | 13,691 | 13,691 | ||||||
Balance at end of year | 3,357,654 | 11,338,244 | 14,695,898 |
Thousand of reais | 2017 | ||||||||
Pensions (1) | Other Provisions | Total | |||||||
Balance at beginning of year | 2,710,626 | 9,065,864 | 11,776,490 | ||||||
Additions charged to income: | |||||||||
Interest expense and similar charges | 275,836 | - | 275,836 | ||||||
Personnel Expenses (Note 40) | 20,081 | - | 20,081 | ||||||
Constitutions / Reversals and Adjustment of provisions | 1,723 | 3,112,684 | 3,114,407 | ||||||
Other Comprehensive Income | 1,028,090 | - | 1,028,090 | ||||||
Payments to external funds | (127,357) | - | (127,357) | ||||||
Amount paid | - | (2,123,483) | (2,123,483) | ||||||
Transfer to other assets - actuarial assets (Note 15) | 14,457 | - | 14,457 | ||||||
Transfers, exchange differences and other changes | - | 8,394 | 8,394 | ||||||
Balance at end of year | 3,923,456 | 10,063,459 | 13,986,915 |
(1) For further information, see note 15. Provisions for pension funds and similar obligations.
* Values expressed in thousands, except when indicated. |
b.1) Provisions for contingent payments
According to note 2.iii.ix,1.iii, IFRS 9 requires that the provision for expected credit losses be recorded for contracts of financial guarantees rendered, which have not yet been honored. Provision expense reflecting credit risk should be measured and accounted for when the honor of these guarantees occurs and the client accused does not comply with its contractual obligations. The movement of these provisions in 20192021 and 20182020 is as follows:
Movement of provisions
Thousand of reais | 2019 | 2018 | ||
Balance at beginning of year (in 1/01/2018 after the initial adoption of the IFRS 9) | 626,267 | 674,513 | ||
Creation of provision for contingent commitments | 57,651 | (48,246) | ||
Balance at end of year | 683,918 | 626,267 |
Thousand of reais | 2021 | 2020 | 2019 | |||
Balance at beginning of year | 724,779 | 683,918 | 626,267 | |||
Creation of provision for contingent commitments | 183,248 | 40,861 | 57,651 | |||
Balance at end of year | 908,027 | 724,779 | 683,918 |
c) Provisions for Civil, Labor, Tax and Social Security, ContingenciesLabor and Civil Provisions
Banco Santander and its subsidiaries are involved in lawsuits and administrative proceedings related to tax, labor, social security and civil arising in the normal course of its activities.
The provisions were constituted based on the nature, complexity, lawsuits historic and company´s assessment of lawsuit losses based on the opinions of internal and external legal advisors. The Santander has the policy to constitute provision of full amount of lawsuits who’s the result of loss assessment is probable. The legal obligation of tax and social security were fully recognized in the financial statements.
Management understands that the provisions made are sufficient to meet legal obligations and any losses arising from legal and administrative proceedings as follows:
c.1) Lawsuits and Administrative Proceedings – related to Tax and Social Security
The main legal obligations and administrative proceedings, recorded at the line of “Tax Liabilities – Current”, recorded integrality as an obligation are described as follows:
Main lawsuits and administrative proceedings related to legal obligations, tax and social security
• PIS and Cofins - R$3,755,556 (20184,075,496(2020 - R$3,632.467 and 2017 - R$3,501,464)3,993,873): Banco Santander and its subsidiaries filed lawsuits seeking to eliminate the application of Law 9,718/1998, which modified the calculation basis for PIS and Cofins to cover all revenues of legal entities and not only those arising from the provision of services and sale of goods. Regarding the Banco Santander Process, on April 23, 2015, a STF decision was issued admitting the Extraordinary Appeal filed by the Federal Government regarding PIS and denying
F-79
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the follow-up to the Extraordinary Appeal of the Federal Public Prosecutor regarding Cofins. Both appealed this decision, without any success, so that the suit relating to Cofins is defined, ruling the judgment of the Federal Regional Court of the 4th Region of August 2007, favorable to Banco Santander. Pursuant to the STF, Banco Santander’s PIS and the PIS and Cofins of other subsidiaries are pending final judgment.
Main lawsuits and administrative proceedings with probable loss risk
Banco Santander and its subsidiaries are parties in lawsuits and administrative proceedings related to tax and social security matters, which their risk of loss areis classified as probable, based on the opinion of legal counsel. Those are thede main themes ofat the proceedings:
• Provisional Contribution on Financial Transactions (CPMF) on Customer Operations - R$906,355 (2018945,715 (2020 - R$729,919 and 2017 - R$714,604):924,457 ): in May 2003, the Federal Revenue Service issued a tax assessment against Santander Distribuidora de Títulos e Valores Mobiliários Ltda. (Santander DTVM) and another tax assessment against Banco Santander Brasil S.A. The tax assessments refer to the collection of CPMF tax on transactions conducted by Santander DTVM in the cash management of its customers’ funds and clearing services provided by Banco to Santander DTVM in 2000, 2001 and 2002. Based on the risk assessment of legal counsel, the tax treatment was accurate. Santander DTVM had a favorable decision at the Board of Tax Appeals (CARF). Banco Santander had aan unfavorable decision and was considered responsible for the collection of the CPMF tax. Both decisions were appealed by the respective losing party to the highest jurisdiction of CARF. In June 2015, Bank and DTVM had obtained a non favorablenon-favorable decision at CARF. On July 3, 2015, Banco and Santander Brasil Tecnologia S.A. (current name of Produban Serviços de Informática S.A. and Santander DTVM) filed a lawsuit seeking to cancel both tax debts. This lawsuit was ruled groundless and is currently awaiting judgment by the Regional Federal Court (TRF 3). Based on the legal advisors' assessment, a provision was set up to cover the loss considered probable in the lawsuit.
Consolidated Financial Statements | December 31, 2021 | F-78 |
* Values expressed in thousands, except when indicated. |
• Social Security Contribution (INSS) - R$282,053 (201853,936 (2020 - R$273,233 and 2017 - R$265.022):51,409 ): Banco Santander and its subsidiaries are involved in administrative and judicial proceedings regarding the collection of income tax on social security and education allowance contributions over several funds that, according to the evaluation of legal advisors, do not have nature of salary.
• Tax on Services (ISS) - Financial Institutions - R$224,631 (2018283,528 (2020 - R$228.403263,183 and 20172019 - R$228.403)224,631):Banco Santander and its subsidiaries discuss administrative and legal requirements, by several municipalities, of the payment of ISS on various revenues arising from operations that are usually not classified as services (Note 23.c.4(Part of this process is at risk of possible loss as per note note 22.c.4 – Possible Risk Loss).
c.2) LawsuitsLegal and Administrative ProceedingsLawsuits of a Labor Nature
These are lawsuits filed by labor Unions, Associations, the Public ProsecutorsMinistry of Labor and former employees claiming labor rights they believe aredeem to be due, especiallyin particular the payment for overtimeof “overtime” and other labor rights, including lawsuits related to retirement benefit lawsuits.benefits.
For claimslawsuits considered to becommon and similar and usual,in nature, provisions are recognizedrecorded based on the payments and successes historic.historical average of closed proceedings. Claims that do not fitmeet the previousabove criteria have their provisions constituted according toare provisioned based on an individual assessment performed,carried out, and the provisions being constitutedare set up based on the probable risk of loss, as probable,in the law and jurisprudence according toin case law, in accordance with the assessment of loss madecarried out by the legal counsel.advisors.
Former employees of Banespa employees. Action distributed in 1998 by the Association of Retired Persons of Banespa Retired Association (AFABESP) requiringrequesting the payment of a semiannual bonus provided for in the regulations of Banco Banespa regulations,for approximately 8,400 former employees (retirees), according to which the payment will be made in the event that the Bank makes a profit and the distribution of this profit is approved by the board of directors. management or, alternatively, PLR, to retired employees of the extinct Banco do Estado de São Paulo SA - Banespa, hired until May 22, 1975. The bonus was not paid in 1994 and 1995 because theBanespa bank did not make a profit during these years. Partial payments were made between 1996 and 2000 as approved by the board of directors. The aforementionedSaid clause was excluded from the regulation in 2001. The lawsuitRegional Labor Court and the Superior Labor Court ordered Santander Brasil, as successor to Banespa, to pay the semiannual bonus for the periods relating to the second semester of 1996 and the semesters of 1997. On March 20, 2019, a decision of the Federal Supreme Court (Supreme Federal Court, or “STF”) rejected the extraordinary appeal filed by Banco Santander, which did not resolve the merits of the case. We filed a rescission action to annul the sentence due to the lack of legitimacy of AFABESP (second precedent No. 573.232 of the STF) or to recognize the nullity of the TRT judgment that did not notify Banco Santander about the modifying effects of the decision, as well as to suspend the execution in the main process. The rescission action was uphelddismissed, and this decision was filed a motion for clarification, due to the absence of an explicit statement about the arguments brought by the Bank. Regarding the Motions for Clarification, the points of omission were not answered as required by law, which is why an Extraordinary Appeal was filed, which was denied by the TST. From this decision, the Bank filed an interlocutory appeal, which is pending admissibility, considering that the decisions rendered by the Superior Labor Court. The Bank filedCourt contradict the appropriate funds withalready peaceful position in the STF (precedent No. 573,232), according to which duethe Association needs a specific power of attorney to a monocratic decision, rejected the appeal. A rescissory action was brought to dismisssue in judgment, and also the decision affronts constitutional precepts about access to justice (item XXXV of art. 5 of the CF) by determining excessive collection of costs. In relation to the main action, and suspend execution. There isin August 2021, a preliminary injunction in forcedecision was rendered that authorizesdetermined that the execution be carried out individually in the court corresponding to each defendant and AFABESP filed an appeal, however, so far there has been no decision in this regard.
Our legal advisors classified the risk of necessary enforcement acts to proceed with the execution until the attachment, however, any acts of seizure of assets or blocking of cash are prohibited until the judgmentloss as probable. The current decisions of the rescission action. Ascourt, and neither of the court in the main proceedings, do not define a specific amount to be paid by the substituted, and the amounts must be calculated in regular settlement of the sentence.
On December 31, 2019,2021, the case is classified as a probable loss and the provision was recordedconstituted based on the estimated loss.loss
c.3) LawsuitsCivil Judicial and Administrative Proceedings of Civil
These contingencies areprovisions generally caused by:arise from: (1) Lawsuits with a request forlawsuits requesting revision of contractual terms and conditions or requests for monetary adjustments, including supposedalleged effects of the implementation of various government economic plans, (2) lawsuits deriving ofarising from financing agreements,contracts, (3) lawsuits of execution;execution actions; and (4) lawsuits of indemnity by loss and damage.damages claims. For civil lawsuitsactions considered common and similar in nature, provisions are recorded based on the historical average of cases closed.closed proceedings. Claims that do not fitmeet the previousabove criteria are provisioned according tobased on an individual assessment performed,carried out, and the provisions are set up based on the probable risk of loss, as probable,in the law and jurisprudence according toin case law, in accordance with the assessment of loss madecarried out by the legal counsel.advisors.
Consolidated Financial Statements | December 31, 2021 | F-79 |
* Values expressed in thousands, except when indicated. |
The main processes with the classification oflawsuits classified as risk of probable loss as probable are described below:
• Lawsuits for Indemnity -Actions seeking indemnity- These refer to compensation for material and emotionaland/or moral damage, regardingrelating to the consumer relationship, on matters relateddealing mainly with issues relating to credit cards, direct consumer credit, bankchecking accounts, collection and loans and other operations.matters. In the civil lawsuitsactions related to causes considered to be similar and usual provisions are recordedfor the business, in the normal course of the Bank's activities, the provision is constituted based on the historical average of cases closed. Civil lawsuitsclosed processes. Claims that do not fit intomeet the previousabove criteria are provisioned according to thebased on an individual assessment made, beingcarried out, and the provisions recognizedare set up based on the probable risk of loss, as probable,in the law and jurisprudence according toin case law, in accordance with the assessment of loss madecarried out by the legal counsel.advisors.
• Economic Plans – they referred- Refer to lawsuits filed by savings accountholders, related to supposed inflation purgelegal disputes, claiming alleged inflationary purges arising from the Economic Plans (Bresser, Verão, Collor I and II), based on the understandingas they understand that such plans violated acquired rights relatingrelated to the application of inflation indexes on Savingindices supposedly due to Savings Accounts, LawsuitsJudicial Deposits and Time Deposits (CDB)(CDBs). Provisions arising from suchThe lawsuits are recordedprovisioned based on the individual evaluationindividualized assessment of loss madecarried out by externalthe legal consultants.advisors.
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The Banco Santander is also party into public class lawsuitscivil actions, on the same matter, filed by consumer rights organizations,protection entities, the Public Prosecutor’s Offices andMinistry or Public Defender’s Offices.Defenders. The constitution of a provision is made only for the lawsuitscases with the classification ofprobable risk, as probable, based on therequests for individual execution orders.executions. The STFissue is still analyzingunder review at the subject and has already orderedSTF. There is jurisprudence in the suspension of all the procedures except those that were not already decided in courts or in phase of definitive execution. There are decisionsSTF favorable to banks at the STF with regard to theBanks regarding economic phenomenon similar to thethat of savings, accounts, as in the case of monetary restatementcorrection of time deposits - CDB(CDBs) and agreements (present value table)corrections applied to contracts (table).
However, the Supreme Court´s jurisprudence of the STF has not come to a conclusion regardingyet been consolidated on the constitutionality of the norms that changed Brazil’smodified the monetary standard.standard in Brazil. On April 14, 2010, the STJ was recently decidedSupreme Court of Justice (STJ) ruled that the deadline for bringing public civil actions discussing the filingpurges is 5 years from the date of civil lawsuits that argue the government's purge is five years,plans, but this decision has not been handed down on the lawsuits yet.yet become final. Thus, with this decision, a majority lawsuits,large part of the actions, as they were filedproposed after thea period of five5 years, is likely towill probably be rejected,dismissed, reducing the valuesamounts involved. Still, the STFThe STJ also decided that the deadlineperiod for individual savers to become party on the public civil litigations,qualify for Public Civil Actions is also five5 years, counted from the final and unappealable decision of the respective sentence. Banco Santander believes in the success of the argumentstheses defended inbefore these courts based onfor their content and the legal basis.foundation.
At the end of 2017, the Federal General Union LawCounsel (AGU), Bacen, Institute ofthe Consumer ProtectionDefense Institute (Idec), the Brazilian Savings Front of the Money savers (Febrapo), and the Brazilian Federation of Banks Federation (Febraban) have signed an agreement withthat seeks to end the purpose to close all lawsuits related tolegal disputes over the Economic Plans.
The discussionsDiscussions focused on the definition ofdefining the amount that would be paid to each personauthor, according to the outstanding balance in the saving account.passbook on the date of the plan. The total amountvalue of the payments will depend on the number of the additional clients,subscriptions, and also on the number of money savers that approvedwho have proven in court the courtsexistence of the existance of their account and the balance inon the birthdayanniversary date of the indexes changes.change in the indices. The term of agreement negotiated between the parties was submitted to the STF, which approved the terms of the agreement.
Recently, the STF ordered the suspension of all economic plan (in the country), for two years considering the judicial homologation.
The Management considers that the accrued provisions are due to charge interest in accordance with the plans, including considering the agreement approved by the STF.
In a decision handed down by the STF, there was a national suspension of all processes that deal with the issue for the period of validity of the agreement, with the exception of cases in which the sentence was definitively complied with.
On March 11, 2020, the agreement was extended by means of an amendment, with the inclusion of actions that involve only the discussion of the Collor I Plan. June 2020
Management considers that the provisions made are sufficient to cover the risks involved with the economic plans, considering the approved agreement.
c.4) Civil, Labor, Tax and Social Security, SocialLabor and Civil Contingent Liabilities Contingent Classified withas Risk of Possible Loss Risk as Possible:
Refer to lawsuitsThese are legal and administrative proceedings involvingof a tax, social security, labor and civil mattersnature classified, bybased on the opinion of legal counsels withadvisors, as a possible risk of loss, riskand therefore not provisioned.
Tax lawsuits classified as possible which they were not recorded.
The tax lawsuits classification with loss risk as possiblelosses totaled R$25,380 million, being29,498,172 in the Consolidated, with the main lawsuits being as follow:follows:
• INSS on Profits or ResultsProfit Sharing (PLR) - the Bank and theits subsidiaries have several lawsuitslegal and administrative proceedings arising from questioningquestionings by the tax authorities in connection withregarding the taxation forcollection of social security purposes of certain items which are not considered to be employee remuneration.contributions on payments made as profit sharing. As of December 31, 2018,2021, the amounts related to these proceedings totaledamount was approximately R$5,052 million.7,340,746.
• Tax on Services (ISS) - Financial Institutions - Banco Santander and its subsidiaries discuss administrativeare discussing administratively and legal requirements,in court the demand, by several municipalities, of the payment of ISS on various revenues arising from operations that are not usually not classified as services. Onservices rendered. As of December 31, 2019,2021, the amounts related to these proceedings totaledamount was approximately R$3,139 million.4,145,661.
Consolidated Financial Statements | December 31, 2021 | F-80 |
* Values expressed in thousands, except when indicated. |
• UnapprovedNon-Approved Compensation - The the Bank and its affiliates discuss administrativeare discussing administratively and legal proceedingsjudicially with the Federal Revenue Office to grantService the non-approval of tax reliefoffsets with credits arising from overpayments. Onoverpayments or undue payments. As of December 31, 2019,2021, the amounts related to these proceedings totaledamount was approximately R$4,835 million.5,351,349.
• Goodwill Amortization of Banco RealReal's Goodwill - the Federal Tax OfficeRevenue Service of Brazil issued infraction noticesa tax assessment notice against the Bank to requiredemand the income taxpayment of IRPJ and social payments,CSLL, including late payment charges, for the period of 2009.2009 base period. The Tax Authorities considered that the goodwill related to the acquisition of Banco Real, amortized for accounting purposes prior to thebefore its merger, could not be deduceddeducted by Banco Santander for tax purposes. The infractiontax assessment notice was contested. On July 14, 2015,duly challenged and we are currently awaiting judgment before the Police Judging RFB decided favorably to Banco Santander, fully canceling the tax debt. On November 10, 2016, the appeal was filed, prompting the Bank to lodge an appeal with CARF, which is awaiting judgment. OnCARF. As of December 31, 2019,2021, the balanceamount was approximately R$1,419 million.1,466,444.
•Losses on Credit LossesOperations - the Bank and its subsidiaries challenged the tax assessments issued by the Federal Revenue Services claimingof Brazil alleging the improper deduction of losses on credit operations from the IRPJ and CSLL calculation bases for credit losses because they fail to meetallegedly not complying with the relevant requirements underof applicable law.laws. As of December 31, 20192021, the amount related to this claim iswas approximately R$607 million.1,175,511.
• Use of CSLL Tax Loss and Negative Basis – Tax Loss -Tax assessmentsassessment notices issued by the Brazilian Federal Revenue Service in 2009 for alleged undue compensation of CSLL tax loss carryforwards and negative basis, of CSLL, as a consequenceresult of tax assessments drawn upassessment notices issued in previous periods. Judgment is pendingAwaiting judgment at the administrative level. As of December 31, 2019,2021, the amount was approximately R$1,055 million.1,092,625.
• Goodwill Amortization of Banco Sudameris –Goodwill - the Tax Authorities havetax authorities issued infractiontax assessment notices to requiredemand the income taxpayments of IRPJ and social contribution payments,CSLL, including late payment charges, relatingreferring to the tax deduction of the amortization of the goodwill frompaid on the acquisition of Banco Sudameris, relatedreferring to the base period of 2007 to 2012. Banco Santander timely presented its appeals,the respective administrative defenses, which were judged unfavorably. Currently, the processes are pending. Onawaiting judgment at CARF. As of December 31, 2019,2021, the amounts related to these proceedings totaledamount was approximately R$635 million.569,114.
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• IRPJ and CSLL - Capital Gain - the Federal Tax OfficeInternal Revenue Service of Brazil issued infraction noticesa tax assessment notice against Santander Seguros (legal successor company of ABN AMRO Brasil Dois Participações S.A.SA (AAB Dois Par), charging income Taxtax and Social Contributionsocial contribution related to related basethe fiscal year de 2005. The Federal Tax OfficeRevenue Service of Brazil claims that the capital gain in saleson the sale of the shares fromof Real Seguros S.ASA and Real Vida e Previdência S.A.SA by AAB Dois Par should be taxed by theat a rate of 34%34.0% instead 15%.of 15.0 %. The assessment was contestedchallenged administratively based on the understanding that the tax treatment adopted atin the transaction was in complianceaccordance with current tax lawslegislation and the capital gain was taxed properly.duly taxed. The administrative proceeding ended unfavorably to the Company. In July 2020, the Company filed a lawsuit seeking to cancel the debt. The lawsuit is awaiting trial. Thejudgment. Banco Santander is responsible for any adverse outcome in this lawsuitproceeding as the former controlling shareholder of the Zurich Santander Brasil Seguros e Previdência S.A. stockholder. As of December 31, 2019,2021, the amount related to this lawsuit iswas approximately R$400 million.496,231.
The laborLabor claims with classification of loss riskclassified as possible loss totaled R$ 134 million,267,267 in the Consolidated, excluding the lawsuitsprocess below:
Readjustment of the Pension Supplements of Banesprev retirement complements by the IGPDI- lawsuit – action filed in 2002 in the Federal Court by the Association of Retired Employees of the Banco do Estado deBank of the State of São Paulo S.A. - Banespa, requesting the readjustment of the retirementpension supplementation by the IGPDI for Banespa retirees who have been admitted until May 22 of 1975. The judgment granted the correction, but only in the periods in which no other form of adjustment could bewas applied. The Bank and Banesprev have appealed this decision and although the appeals have not yet been judged, the Bank's success rate in this matter in the High Courts is around 90%.are still pending judgment. In Provisional Execution, calculations were presented by the Bank and Banesprev with "zero" result due to the exclusion of participants who, among other reasons, are listedappear as authorsplaintiffs in other lawsuitsactions or have already had some type of adjustment.readjustment. The amount related to this claiminvolved is not disclosed due to the current procedural stage of the lawsuitcase and such disclosure may impactpotentially affecting the progress of the claim.action.
The liabilitiesLiabilities related to civil lawsuits with classificationpossible risk of loss risk as possible totaled R$2,058 million, being2,380,226 in the Consolidated, with the main lawsuits as follow:lawsuits:
• Action for Indemnity Lawsuit Arising of the Banco Bandepe - related to mutual agreement on appeal to the Justice Superior Court (STJ - Superior Tribunal de Justiça).
Indemnity Lawsuit RelatedReferring to Custody Services - provided by Banco Santander at an earlyinitial stage which was notand still without a sentence handed down yet.down.
• LawsuitAction Arising from a Contractual Dispute - in the acquisition of Banco Geral do Comércio S.A. onSA under appeal toby the Court of Justice of the State of São Paulo (TJSP - Tribunal de Justiça do Estado de São Paulo)(TJSP).
c.5) Other Lawsuits Underfor the ResponsibilityLiability of Former Controlling StockholdersControllers
ReferThey refer to tax, labor and civil lawsuits, in the amounts of R$102.482, R$213 and R$578 (2018496 (12/31/2020 - R$598,544, R$327 and R$6,767)496), respectively, which the responsible people wereof responsibility of the former controlling stockholderscontrollers of the Bankbanks and acquired companies. Based on the agreement signed contracts, these lawsuits haveactions are guaranteed full reimbursement from part ofby the former controllers, whose respective dutiesrights were recorded in other receivables – others.
In the year ended December 31, 2019, the Bank signed a contract with a former controller, in which the registered obligations became the Bank's responsibility.assets.
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* Values expressed in thousands, except when indicated. |
23. | Tax assets and liabilities |
a) Income and Social Contribution Taxes
The total charge for the year can be reconciled to accounting profit as follows:
Thousand of reais | 2019 | 2018 | 2017 | 2021 | 2020 | 2019 | ||||||
Operating Profit Before Tax | 22,273,149 | 15,909,771 | 14,513,684 | Operating Profit Before Tax | 24,750,329 | 9,663,975 | 22,273,149 | |||||
Interest on capital(1) | - | (4,080,000) | (3,800,000) | |||||||||
Operating Profit Before Tax | 22,273,149 | 11,829,771 | 10,713,684 | Operating Profit Before Tax | 24,750,329 | 9,663,975 | 22,273,149 | |||||
Rates (25% income tax and 15% social contribution tax) | (8,909,260) | (5,323,397) | (4,821,158) | |||||||||
PIS and COFINS (net of income and social contribution taxes) (2) (6) | (1,983,839) | (1,490,190) | (1,427,960) | |||||||||
Rates (25% income tax and 25% social contribution tax) | Rates (25% income tax and 25% social contribution tax) | (12,375,164) | (4,348,789) | (8,909,260) | ||||||||
PIS and COFINS (net of income and social contribution taxes) (1) | PIS and COFINS (net of income and social contribution taxes) (1) | (1,679,789) | (1,589,260) | (1,983,839) | ||||||||
Non-taxable/Non-deductible: | Non-taxable/Non-deductible: | |||||||||||
Equity in affiliates | 59,795 | 29,681 | 32,198 | 72,114 | 85,723 | 59,795 | ||||||
Goodwill(3) | (137,175) | (101,305) | (669,963) | |||||||||
Exchange variation - foreign branches (4) | 715,424 | 2,792,995 | 440,857 | |||||||||
Net Indeductible Expenses of Non-Taxable Income (6) | 214,242 | 384,554 | 194,737 | |||||||||
Goodwill | (559,247) | (183,854) | (137,175) | |||||||||
Exchange variation - foreign branches (2) | Exchange variation - foreign branches (2) | 768,902 | 6,831,484 | 715,424 | ||||||||
Net Indeductible Expenses of Non-Taxable Income (3) | Net Indeductible Expenses of Non-Taxable Income (3) | (230,958) | (57,663) | 214,242 | ||||||||
Adjustments: | ||||||||||||
Constitution of income and social contribution taxes on temporary differences | 70,223 | 136,353 | 1,138,005 | Constitution of income and social contribution taxes on temporary differences | 264,191 | 551,983 | 70,223 | |||||
Interest on capital(1) | 1,064,000 | - | - | |||||||||
Effects of change in rate of social contribution taxes (5) | 2,796,493 | (90,013) | (1,427,667) | |||||||||
Effects of change in rate of social contribution taxes | Effects of change in rate of social contribution taxes | 1,820,072 | 1,478,138 | 1,604,000 | ||||||||
CSLL Aliquot Differential Effect (4) | CSLL Aliquot Differential Effect (4) | 1,192,687 | 353,777 | 2,796,493 | ||||||||
Other adjustments | (71,602) | 551,469 | 1,165,315 | 1,536,187 | 665,239 | (71,602) | ||||||
Income taxes | (5,641,699) | (3,109,853) | (5,375,636) | (9,191,005) | 3,786,778 | (5,641,699) | ||||||
Of which: | ||||||||||||
Current tax (6) | (6,692,328) | (4,704,293) | (4,969,241) | (8,087,119) | (5,111,380) | (6,692,328) | ||||||
Deferred taxes | 1,050,629 | 1,594,440 | (406,395) | (1,103,886) | 8,898,158 | 1,050,629 | ||||||
Taxes paid in the year | (5,301,184) | (3,668,571) | (3,280,230) | Taxes paid in the year | (4,534,538) | (1,269,150) | (5,301,184) |
(1) | PIS and COFINS are considered as components of the profit base (net base of certain income and expenses); therefore, and in accordance with IAS 12, they are accounted for as income taxes. |
(2) | Permanent differences related to investment in overseas subsidiaries are considered to be non-taxable/deductible (see details below). |
(3) | Mainly includes the tax effect on income from judicial deposit updates and other income and expenses that do not qualify as temporary differences |
(4) | Effect of the rate differential for other non-financial and financial companies, whose social contribution rates are 9% and 20% |
(1) Amount distributed to shareholders as interest attributable to shareholders’ equity. For accounting purposes, although the interest should be reflected in the income statement for tax deduction, the charge is reversed before the calculation
Currency Hedge of the net income in the financial statements and deducted from the shareholders’ equity since it is considered as dividend.
(2) PIS and COFINS are considered a profit-base component (net basis of certain revenues and expenses), therefore and accordingly to IAS 12 they are recorded as income taxes.
(3) The difference between the tax basis and accounting basis of goodwill on acquisition of Banco ABN Amro Real S.A. is a permanent and definitive difference. Administration in this case the possibility of loss on impairment or disposal is remote and only applies to the entity as a whole and according to the characteristics of the business combination performed, it is not possible to segregate and identify the business originally acquired. Therefore deferred tax liability is not record.
(4) Permanent difference related of foreign currency exchange variation on investments abroad nontaxable/ deductible (see details below).
(5) Effect of the rate differential for other non-financial corporations, with a social contribution rate of 9%, as well as the effect of the additional 5% applicable to financial institutions, valid until the end of 2018.
(6) Includes mainly the tax effect on expenses with donations, revenues from judicial deposit updates and other income and expenses that do not qualify as temporary differences.
Exchange Hedge of Grand Cayman branch inAgency, Luxembourg and of Santander Brasil EFC
Banco Santander operates an agencya branch in the Cayman Islands, a branch in Luxembourg and a subsidiary called Santander Brasil Establecimiento Financiero de Credito, EFC, or "Santander Brasil EFC" (an independent subsidiary in Spain), which arethat is used primarily to raise funds in the international capital and financial markets, to provide the Bank with lines of credit lines that are extended to its clientscustomers for financing foreign trade and working capital financing.capital. of spinning.
To hedge thecover exposure to exchange rate variations, the Bank uses derivatives and funding (economic hedge). In accordance withfunding. Under Brazilian tax rules, gains or losses arising from the impact of the appreciation or depreciationdevaluation of the Real on foreign investments arewere not taxable, but from January 2021 onwards, they became taxable or deductible for PIS / Cofins / PIS/Cofins/IR / CSLL purposes,purposes. /CSLL, while the gains or losses of theon derivatives used as hedgeshedging are taxable or deductible. The purpose of these derivatives is to protect net income after taxes.
F-83
TableLaw 14,031, of ContentsJuly 28, 2020, determined that as of January 2021, 50% of the exchange rate variation on investments abroad must be computed in the determination of taxable income and the basis for calculating the Social Contribution on Net Income ( CSLL) of the investing company domiciled in the country. As of 2022, the exchange variation will be fully computed in the taxable bases of IRPJ and CSLL.
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Tax distinct treatment from such exchange rate differences results in volatility in "Operating Income Before Tax" and "Income taxes". The foreign exchange variations recorded as a result of foreign investments in the year ended on December 31, 2019, 20182021, 2020 and 2017.2019.
2019 | 2018 | 2017 | |||
Exchange differences (net) | |||||
Result generated by the exchange rate variations on the Bank's investment in the Cayman, Luxemburg and EFC Branch | 1,512,322 | 6,673,535 | 892,863 | ||
Gains (losses) on financial assets and liabilities (net) | |||||
Result generated by derivative contracts used as hedge | (2,776,601) | (12,540,855) | (1,702,557) | ||
Income Taxes | |||||
Tax effect of derivative contracts used as hedge - PIS / COFINS | (106,497) | 255,481 | 80,170 | ||
Tax effect of derivative contracts used as hedge - IR / CS | 1,370,776 | 5,611,839 | 729,524 |
Foreign exchange variations recorded as a result of foreign investments
2021 | 2020 | 2019 | ||||||||
Exchange differences (net) | ||||||||||
Result generated by the exchange rate variations on the Bank's investment in the Cayman, Luxemburg and EFC Branch | 3,862,128 | 16,791,857 | 1,512,322 | |||||||
Gains (losses) on financial assets and liabilities (net) | ||||||||||
Result generated by derivative contracts used as hedge | (6,374,108) | (30,374,869) | (2,776,601) | |||||||
Income Taxes | ||||||||||
Tax effect of derivative contracts used as hedge - PIS / COFINS | 275,052 | 311,819 | (106,497) | |||||||
Tax effect of derivative contracts used as hedge - IR / CS | 2,236,928 | 13,271,193 | 1,370,776 | |||||||
Consolidated Financial Statements | December 31, 2021 | F-82 |
* Values expressed in thousands, except when indicated. |
b) Effective tax rate calculation
The effective tax rate is as follows:
The effective tax rate
Thousand of reais | 2019 | 2018 | 2017 | 2021 | 2020 | 2019 | |||||||
Operating Profit Before Tax | Operating Profit Before Tax | 22,273,149 | 15,909,771 | 14,513,684 | Operating Profit Before Tax | 24,750,328 | 9,663,975 | 22,273,149 | |||||
Income tax | 5,641,699 | 3,109,853 | 5,375,636 | 9,191,005 | (3,786,778) | 5,641,699 | |||||||
Effective tax rate | 25.33% | 19.55% | 37.04% | 37.13% | (39.18%) | 25.33% |
c) Tax recognized in equity
In addition to the income tax recognized in the consolidated income statement, the Bank recognized the following amounts in consolidated equity:
Thousand of reais | 2019 | 2018 | 2017 | |
Tax credited to equity | 3,517,590 | 2,785,330 | 3,373,984 | |
Measurement of available-for-sale securities | - | - | 1,016,121 | |
Measurement at fair value through other comprehensive income | 416,748 | 369,805 | - | |
Measurement of cash flow hedges | 186 | 2,081 | 1,063 | |
Measurement of investment hedges | 562,353 | 562,353 | 562,353 | |
Defined benefit plan | 2,538,303 | 1,851,091 | 1,794,447 | |
Tax charged to equity | (3,952,457) | (2,168,758) | (2,541,177) | |
Measurement of available-for-sale securities | - | - | (2,426,459) | |
Measurement at fair value through other comprehensive income | (3,618,126) | (1,997,600) | - | |
Measurement of cash flow hedges | (322,080) | (163,038) | (111,134) | |
Defined benefit plan | (12,251) | (8,120) | (3,584) | |
Total | (434,867) | 616,572 | 832,807 |
The Bank recognized the following amounts in consolidated equity
Thousand of reais | 2021 | 2020 | 2019 | ||||||
Tax credited to equity | 4,583,297 | 3,008,035 | 3,517,590 | ||||||
Measurement at fair value through other comprehensive income | 1,978,165 | 472,472 | 416,748 | ||||||
Measurement of cash flow hedges | 388,307 | 1,533 | 186 | ||||||
Measurement of investment hedges | 562,353 | 562,353 | 562,353 | ||||||
Defined benefit plan | 1,654,472 | 1,971,677 | 2,538,303 | ||||||
Tax charged to equity | (2,349,500) | (3,087,311) | (3,952,457) | ||||||
Measurement at fair value through other comprehensive income | (2,340,394) | (2,700,991) | (3,618,126) | ||||||
Measurement of cash flow hedges | - | (386,284) | (322,080) | ||||||
Defined benefit plan | (9,106) | (36) | (12,251) | ||||||
Total | 2,233,797 | (79,276) | (434,867) |
Relates to deferred taxes recognized in equity due to temporary differences accounted for in equity.
d) Deferred taxes
The detail of the balances of “Tax assets – Deferred” and “Tax liabilities – Deferred” is as follows:
Thousand of reais | 2019 | 2018 | 2017 |
Tax assets: | 30,295,062 | 27,680,578 | 24,778,078 |
Of which: | |||
Temporary differences (1) | 29,565,702 | 26,416,527 | 23,375,600 |
Tax loss carry forwards | 367,120 | 846,587 | 866,579 |
Social contribution taxes 18% | 362,240 | 417,464 | 535,899 |
Total deferred tax assets | 30,295,062 | 27,680,578 | 24,778,078 |
Tax liabilities: | 5,540,873 | 3,031,389 | 2,496,531 |
Of which: | |||
Excess depreciation of leased assets | 148,839 | 123,257 | 124,909 |
Adjustment to fair value of trading securities and derivatives | 5,392,034 | 2,908,132 | 2,371,622 |
Total deferred tax liabilities | 5,540,873 | 3,031,389 | 2,496,531 |
(1) Temporary differences relate mainly to impairment losses on loansBalances of Tax assets - Deferred and receivables and provisions for lawsuitsTax liabilities - Deferred
Thousand of reais | 2021 | 2020 | 2019 | ||||||
Tax assets: | 37,640,297 | 37,981,698 | 30,295,062 | ||||||
Of which: | |||||||||
Temporary differences (1) | 32,884,314 | 32,113,436 | 29,565,702 | ||||||
Tax loss carry forwards | 4,755,983 | 5,693,104 | 367,120 | ||||||
Social contribution taxes 18% | - | 175,158 | 362,240 | ||||||
Total deferred tax assets | 37,640,297 | 37,981,698 | 30,295,062 | ||||||
Tax liabilities: | 2,225,190 | 4,546,595 | 5,540,873 | ||||||
Of which: | |||||||||
Excess depreciation of leased assets | - | 166,903 | 148,839 | ||||||
Adjustment to fair value of trading securities and derivatives | 2,225,190 | 4,379,692 | 5,392,034 | ||||||
Total deferred tax liabilities | 2,225,190 | 4,546,595 | 5,540,873 |
(1) | Temporary differences that refer mainly to impairment losses on loans and receivables, provisions for legal and administrative proceedings and the effect of the fair value of financial instruments. |
F-84
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* Values expressed in thousands, except when indicated. |
The changes in the balances of “Tax Assets – Deferred” and “Tax Liabilities – Deferred” in the last three years were as follows:
Thousand of reais | Balances at December 31, 2018 | Adjustment to Income | Valuation adjustments(1) | Other(2) | Acquisition / Merger | Balance at December 31, 2019 | |||||
Tax assets: | 27,680,578 | 3,693,727 | 471,499 | (1,550,742) | - | 30,295,062 | |||||
Temporary differences | 26,416,527 | 4,240,405 | 471,499 | (1,562,729) | - | 29,565,702 | |||||
Tax loss carry forwards | 846,587 | (491,454) | - | 11,987 | - | 367,120 | |||||
Social contribution taxes 18% | 417,464 | (55,224) | - | - | - | 362,240 | |||||
Tax liabilities: | 3,031,389 | 781,448 | 1,773,065 | (45,029) | - | 5,540,873 | |||||
Temporary differences | 3,031,389 | 781,448 | 1,773,065 | (45,029) | - | 5,540,873 | |||||
Total | 24,649,189 | 2,912,279 | (1,301,566) | (1,505,713) | - | 24,754,189 | |||||
Thousand of reais | Balances at December 31, 2017 | Adjustment to Income | Valuation adjustments(1) | Other(2) | Acquisition / Merger | Balance at December 31, 2018 | |||||
Tax assets: | 24,778,078 | 1,674,317 | (186,260) | 1,369,934 | 44,509 | 27,680,578 | |||||
Temporary differences | 23,375,600 | 1,812,744 | (186,260) | 1,369,934 | 44,509 | 26,416,527 | |||||
Tax loss carry forwards | 866,579 | (19,992) | - | - | - | 846,587 | |||||
Social contribution taxes 18% | 535,899 | (118,435) | - | - | - | 417,464 | |||||
Tax liabilities: | 2,496,531 | 79,877 | 607,773 | (153,623) | 831 | 3,031,389 | |||||
Temporary differences | 2,496,531 | 79,877 | 607,773 | (153,623) | 831 | 3,031,389 | |||||
Total | 22,281,547 | 1,594,440 | (794,033) | 1,523,557 | 43,678 | 24,649,189 | |||||
Thousand of reais | Balances at December 31, 2016 | Adjustment to Income | Valuation adjustments(1) | Other(2) | Acquisition / Merger | Balance at December 31, 2017 | |||||
Tax assets: | 24,437,112 | 668,483 | 254,733 | (620,401) | 38,151 | 24,778,078 | |||||
Temporary differences | 23,398,886 | 304,231 | 254,733 | (620,401) | 38,151 | 23,375,600 | |||||
Tax loss carry forwards | 382,867 | 483,712 | - | - | - | 866,579 | |||||
Social contribution taxes 18% | 655,359 | (119,460) | - | - | - | 535,899 | |||||
1,268,037 | 262,088 | 582,363 | 378,693 | 5,350 | 2,496,531 | ||||||
Temporary differences | 1,268,037 | 262,088 | 582,363 | 378,693 | 5,350 | 2,496,531 | |||||
Total | 23,169,075 | 406,395 | (327,630) | (999,094) | 32,801 | 22,281,547 |
(1) It relates to deferred taxes recognizedChanges in equity due to temporary differences accounted in equity.the balances of Tax Assets - Deferred and Tax Liabilities - Deferred
Thousand of reais | Balances at December 31, 2018 | Adjustment to Income | Valuation adjustments (1) | Other (2) | Acquisition / Merger | Balance on December 31, 2021 |
Tax assets: | 37,981,699 | (3,609,495) | 1,696,091 | 1,572,002 | - | 37,640,297 |
Temporary differences | 32,113,436 | (2,497,215) | 1,696,091 | 1,572,002 | - | 32,884,315 |
Tax loss carry forwards | 5,693,104 | (937,121) | - | - | - | 4,755,983 |
Social contribution taxes 18% | 175,159 | (175,159) | - | - | - | - |
Tax liabilities: | 4,546,595 | (1,344,268) | (977,137) | - | - | 2,225,190 |
Temporary differences | 4,546,595 | (1,344,268) | (977,137) | - | - | 2,225,190 |
Total | 33,435,104 | (2,265,227) | 2,673,228 | 1,572,002 | - | 35,415,107 |
Thousand of reais | Balances at December 31, 2017 | Adjustment to Income | Valuation adjustments (1) | Other (2) | Acquisition / Merger | Balance on December 31, 2020 |
Tax assets: | 30,295,060 | 8,362,100 | (400,583) | (418,784) | 161,603 | 37,999,396 |
Temporary differences | 29,565,700 | 3,223,197 | (400,583) | (418,784) | 161,603 | 32,131,133 |
Tax loss carry forwards | 367,120 | 5,325,984 | - | - | - | 5,693,104 |
Social contribution taxes 18% | 362,240 | (187,081) | - | - | - | 175,159 |
Tax liabilities: | 5,540,873 | 129,231 | (1,063,160) | (60,349) | - | 4,546,595 |
Temporary differences | 5,540,873 | 129,231 | (1,063,160) | (60,349) | - | 4,546,595 |
Total | 24,754,187 | 8,232,869 | 662,577 | (358,435) | 161,603 | 33,452,801 |
Thousand of reais | Balances at December 31, 2016 | Adjustment to Income | Valuation adjustments (1) | Other (2) | Acquisition / Merger | Balance on December 31, 2019 |
Tax assets: | 27,680,578 | 3,693,727 | 471,499 | (1,550,744) | - | 30,295,060 |
Temporary differences | 26,416,527 | 4,240,405 | 471,499 | (1,562,731) | - | 29,565,700 |
Tax loss carry forwards | 846,587 | (491,454) | - | 11,987 | - | 367,120 |
Social contribution taxes 18% | 417,464 | (55,224) | - | - | - | 362,240 |
3,031,389 | 781,448 | 1,773,065 | (45,029) | - | 5,540,873 | |
Temporary differences | 3,031,389 | 781,448 | 1,773,065 | (45,029) | - | 5,540,873 |
Total | 24,649,189 | 2,912,279 | (1,301,566) | (1,505,715) | - | 24,754,187 |
(2) In 2019, it mainly refers to net of deferred taxes amounted to R$1,595,773 (2018 - R$1,216,311 and 2017 - R$241,708), which have the same counterparty and realization period.
(1) | It relates to deferred taxes recognized in equity due to temporary differences accounted in equity. |
(2) | In 2021, it mainly refers to net of deferred taxes amounted to R$1,572,003 (2020 - R$1,358,435 and 2019 - R$1,505,715), which have the same counterparty and realization period. |
e) Expected realization of deferred tax assets
Tax assets | Tax liabilities | ||||||||||
Year | Temporary differences | Tax loss carry forwards | Social contribution taxes 18% | Total | Temporary differences | Total | |||||
2020 | 8,945,648 | 74,742 | 362,240 | 9,382,630 | 1,838,874 | 1,838,874 | |||||
2021 | 8,275,410 | 43,711 | - | 8,319,121 | 1,834,781 | 1,834,781 | |||||
2022 | 7,562,496 | 22,820 | - | 7,585,316 | 1,760,167 | 1,760,167 | |||||
2023 | 819,647 | 23,194 | - | 842,841 | 15,954 | 15,954 | |||||
2024 | 2,682,021 | 39,116 | - | 2,721,137 | 15,954 | 15,954 | |||||
2025 a 2027 | 662,021 | 163,172 | - | 825,193 | 45,301 | 45,301 | |||||
2028 a 2029 | 618,459 | 365 | - | 618,824 | 29,842 | 29,842 | |||||
Total | 29,565,702 | 367,120 | 362,240 | 30,295,062 | 5,540,873 | 5,540,873 |
Expected realization of deferred tax assets
Tax assets | Tax liabilities | ||||||||
Year | Temporary differences | Tax loss carry forwards | Total | Temporary differences | Total | ||||
2022 | 10,032,946 | 1,917,879 | 11,950,826 | 573,982 | 573,982 | ||||
2023 | 10,544,315 | 1,781,778 | 12,326,093 | 573,982 | 573,982 | ||||
2024 | 8,684,796 | 987,568 | 9,672,364 | 458,404 | 458,404 | ||||
2025 | 1,870,257 | 40,732 | 1,910,989 | 546,114 | 546,114 | ||||
2026 | 976,574 | 7,063 | 983,637 | 12,717 | 12,717 | ||||
2027 a 2031 | 775,250 | 21,139 | 796,388 | 59,991 | 59,991 | ||||
Total | 32,884,138 | 4,756,159 | 37,640,297 | 2,225,190 | 2,225,190 |
F-85
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Consolidated Financial Statements | December 31, 2021 | F-84 |
* Values expressed in thousands, except when indicated. |
24. | Other liabilities |
The breakdown of the balance of “Other Liabilities” is as follows:
Thousand of reais | 2019 | 2018 | 2017 | ||||||||
Accrued expenses and deferred income (1) | 5,038,011 | 3,193,291 | 3,036,374 | ||||||||
Transactions in transit (3) | 785,418 | 925,336 | 980,501 | ||||||||
Provision for payment of variable remuneration | 317,539 | 260,739 | 270,626 | ||||||||
Liabilities for insurance contracts | 1,901,801 | 1,797,167 | 1,587,603 | ||||||||
Other(2) | 2,878,175 | 2,918,615 | 2,138,817 | ||||||||
Total | 10,920,944 | 9,095,148 | 8,013,921 |
(1) Corresponds, mainly, to payments to be made - personnel expenses.
(2) Includes credits for funds to be released, such as Administratives expenses, amounts due to associates and suppliers.
(3) Thousand of reais 2021 2020 2019 Accrued expenses and deferred income (1) 2,649,744 5,115,936 5,038,011 Transactions in transit (3) 796,671 674,162 785,418 Provision for share-based payment 319,660 325,930 317,539 Liabilities for insurance contracts 2,011,596 1,987,577 1,901,801 Other (2) 4,723,707 5,947,640 2,878,175 Total 10,501,378 14,051,245 10,920,944
(1) | Corresponds, mainly, to payments to be made - personnel expenses. |
(2) | Includes credits for funds to be released, such as Administratives expenses, amounts due to associates and suppliers. |
(3) | Includes mainly the amounts to transfer to the credit card companies (resources in transit) and amount to release referred to the real estate credits.
The balances of Other Comprehensive Income include the amounts, net of the related tax effect, of the adjustments to assets and liabilities recognized temporarily in equity stated in the Consolidated Statement of Changes in Equity and Consolidated Statements of Comprehensive Income until they are extinguished or realized, when they are recognized in the consolidated income statement. The amounts attributable to subsidiaries, investments in associates and joint ventures are presented, on a line by line basis, in the appropriate items based on their nature. It should be noted that the consolidated Statements of Comprehensive Income includes the changes to Other Comprehensive Income as follows: - Revaluation gains (losses): This includes the amount of the gains, net of losses incurred in the year, recognized directly in equity. The amounts recognized in equity in the year remain under this heading, even if in the same year they are transferred to the income statement or to the initial carrying amount of the assets or liabilities or are reclassified to another heading. - Amounts transferred to income statement: This includes the amount of the revaluation gains (losses) previously recognized in equity, even in the same year, which are subsequently recognized in the income statement. - Amounts transferred to the initial carrying - Other transfers: This includes the amount of the transfers made in the year between the various Other Comprehensive Income items. In the Consolidated Statements of Comprehensive Income, the amounts in "Other Comprehensive Income" are recognized gross, including the amount relating to non-controlling interests, and the corresponding tax effect is presented under a separate heading, except in the case of entities accounted for using the equity method, the amounts for which are presented net of the tax effect. a) Financial assets measured at fair value through other comprehensive income a.1) Financial assets measured at fair value through other comprehensive income Other Comprehensive Income – Financial assets measured at fair value through other comprehensive income includes the net amount of unrealized changes in the fair value of assets classified as available-for-sale financial assets (see Notes 6 and 7), net of taxes. The breakdown, by type of instrument and geographical origin of the issuer, of Other Comprehensive Income Financial assets measured at fair value through other comprehensive income (IFRS 9) on December 31,
At each reporting date, the Bank assesses whether there is any objective evidence indicating that the available-for-sale financial assets (debt securities and equity instruments) are impaired. b) Cash flow hedges Other Comprehensive c) Hedges of net investments in foreign operations and Translation adjustments foreign investment Other Comprehensive Other Comprehensive
"Non-controlling interests" refer to the net equity value attributable to equity instruments that do not belong, directly or indirectly, to the Bank, including the portion of the annual profit attributed to the subsidiaries.
a) Breakdown
The detail, by company, of the balance of “Equity - Non-controlling interests” is as follows:
Balance of Profit attributable to non-controlling interests
b) Changes
The changes in the balance of “Non-controlling interests” are summarized as follows:
a) Capital
According to the by-laws, Banco Santander's capital stock may be increased up to the limit of its authorized capital, regardless of statutory reform, by resolution of the Board of Directors and through the issuance of up to (nine billion, ninety million, nine hundred and nine thousand and ninety) shares, subject to the established legal limits on the number of preferred shares. Any capital increase that exceeds this limit will require stockholders' approval.
At the Extraordinary Shareholders' Meeting held on March 31, 2021, it was approved in the context of the partial spin-off of Santander Brasil, which resulted in the segregation of the shares of its ownership issued by Getnet Adquirência e Serviços para Meios de Contas SA. (“Getnet”), with version of the spun-off portion for Getnet, the reduction in the share capital of Santander Brasil in the total amount of two billion reais, without the cancellation of shares, increasing the share capital of Santander Brasil from fifty-seven billion reais to fifty-five billion of reais.
b) Dividends and Interest on Capital
Before the Annual
c) Reserves
The reserves are allocated as follows after the deductions and statutory provisions, from the net income:
Legal reserve
In accordance with Brazilian Corporate Law, 5% is transferred to the legal reserve, until it reaches 20% of the share capital. This reserve is designed to ensure the integrity of the capital and can only be used to offset losses or increase capital.
Capital reserve
The Bank´s capital reserve consists of: goodwill reserve for subscription of shares and other capital reserves, and can only be used to absorb losses that exceed retained earnings and profit reserves, redemption, reimbursement or acquisition of shares for the Bank´s own issue; capital increase, or payment of dividends to preferred shares under certain circumstances.
Reserve for equalization dividend
After the allocation of dividends, the remaining balance if any, may, upon proposal of the Executive Board and approved by the Board of Directors, be allocated to reserve for equalization of dividends, which will be limited to 50% of the capital. This reserve aims to ensure funds for the payment of dividends, including as interest on own capital, or any interim payment to maintain the flow of shareholders remuneration.
At the Extraordinary General Meeting held on March 31, 2021, it was approved in the context of the partial spin-off of Santander Brasil, which resulted in the segregation of the shares owned by it issued by Getnet Adquirência e Serviços para Meios de Pagamentos S.A. (“Getnet”), with version of the spun-off portion to Getnet, the reduction of reserves for equalization of dividends of Santander Brasil in the total amount of R$1,167,674. The reduction includes the remaining balance of the equity of the spun-off portion, as well as the write-off of the option to acquire an equity instrument. d) Treasury shares
The
Additionally, in the year ended December 31,
a) Basic earnings per share
b) Diluted earning per share
Diluted earnings per share
Under IFRS 13, the fair value measurement uses a fair value hierarchy that reflects the model used in the measurement process which should be in accordance with the following hierarchical levels: Level 1: Determined on the basis of public (unadjusted) quoted prices in highly active markets for identical assets and liabilities, these include public debt securities, stocks, derivatives listed. Level 2: They are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices). Level 3: They are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs). Trading Financial Assets, Other financial assets at fair value on through income statement, Available-for-sale financial assets and Financial liabilities held for trading. Level 1: The securities with high liquidity and quoted prices in active market are classified as level 1. At this level there were classified most of the Brazilian Government Securities (mainly LTN, LFT, NTN-B, NTN-C and NTN-F), shares in stock exchange and other securities traded in the active market.
Level 2: When quoted price cannot be observed, the Management, using its own internal models, make its best estimate of the price that would be set by the market. These models use data based on observable market parameters as an important reference. Various techniques are used to make these estimates, including the extrapolation of observable market data and extrapolation techniques. The best evidence of fair value of a financial instrument on initial recognition is the transaction price, unless the fair value of the instrument can be obtained from other market transactions carried out with the same instrument or similar instruments or can be measured using a valuation technique in which the variables used include only data from observable market, especially interest rates. These securities are classified at level 2 of the fair value hierarchy and Level 3: When there is information that is not based on observable market data, Banco Santander uses internally developed models, from curves generated according to the internal model. Level 3 comprises mainly unlisted shares. Derivatives Level 1: Derivatives traded on stock exchanges are classified in Level 1 of the hierarchy.
Level 2: For derivatives traded over the counter, the valuation (primarily swaps and options) usually uses observable market data, such as: exchange rates, interest rates, volatility, correlation between indexes and market liquidity. When pricing the financial instruments aforementioned, it is used the Black-Scholes Model (exchange rate options, interest rate options; caps and floors) and the present value method (discount of future values by market curves). Level 3: Derivatives not traded
The
Summary of the fair values of financial assets and liabilities
Movements in fair value of Level 3 The following tables demonstrate the movements during Fair value hierarchy
Fair value movements linked to credit risk Changes in fair value attributable to changes in credit risk are determined based on
credit risk, as it estimates the change in margin
Financial assets and liabilities not measured at fair value
The financial assets owned by the Bank are measured at fair value in the accompanying consolidated balance sheets, except for loans and receivables.
Similarly, the Bank’s financial liabilities except for financial liabilities held for trading and those measured at fair value - are measured at amortized cost in the consolidated balance sheets.
i) Financial assets measured at other than fair value
Below is a comparison of the carrying amounts of financial assets of the Bank measured by a value other than the fair value and their respective fair values on December 31, Comparison of the carrying amounts of the Bank's financial assets measured at other than fair value and their respective fair values
ii) Financial liabilities measured at other than fair value
Following is a comparison of the carrying amounts of Bank´s financial liabilities measured by a value other than fair value and their respective fair values on December 31,
During 2020, The Bank reclassified R$ 73,075,341 of “Deposits of Brazil's Central Bank and deposits of credit institutions” and R$ 390,760,088 of “Customer deposits” from level 2 to level 3, as there was no active trading market for these instruments.”
Comparison of the carrying amounts of the Bank's financial liabilities measured at other than fair value and their respective fair values
The methods and assumptions used to estimate the fair values summarized in the tables above are set forth below:
- Loans and amounts due from credit institutions and from clients – Fair value are estimated for groups of loans with similar characteristics. The fair value was measured by discounting estimated cash flow using the average interest rate of new contracts. That is, the future cash flow of the current loan portfolio is estimated using the contractual rates, and then the new loans spread over the risk free interest rate are incorporated to the risk free yield curve in order to calculate the loan portfolio fair value. In terms of behavior assumptions, it is
important to highlight that a prepayment rate is applied to the loan portfolio, thus a more realistic future cash flow is achieved.
- Deposits from Bacen and credit institutions and Client deposits – The fair value of deposits was calculated by discounting the difference between the cash flows on a contractual basis and current market rates for instruments with similar maturities. For variable-rate deposits, the carrying amount was considered to approximates fair value.
Bonds and Debt Instruments Eligible for Capital – refer to the transaction fully agreed with a related party, in the context of the Capital Optimization Plan, whose book value is similar to the fair value.
The valuation techniques used to estimate each level are defined in note 2.e.
Management revised the criteria assigned to classify the fair value level of assets and liabilities measured at amortized cost, presented exclusively for disclosure purposes, and concluded that they are better classified as level 3 in light of observable market data.
As
The Basel index is calculated
Financial Conglomerate
Banco Santander, quarterly discloses Pillar III information relating to risk management, Regulatory Capital and Risk Weighted Assets. A report with further details of the structure and methodology will be disclosed on the website www.ri.santander.com.br/ri.
Financial institutions are required to maintain investments in permanent assets compatible with adjusted regulatory capital. Funds invested in permanent assets, calculated on a consolidated basis, are limited to 50% of adjusted regulatory capital, as per prevailing regulation. Banco Santander classifies for said index. The Bank is
The breakdown of the main items of interest and similar charges accrued in
The breakdown of the main items of interest
“Income from equity instruments” includes the dividends and payments on equity instruments out of profits generated by investees after the acquisition of the equity interest.
The breakdown of the balance of this item is as follows:
Breakdown of the balance of this item
The heading “Fee and commission income” comprises the amount of all fees and commissions accruing in favor of the Bank in the year, except those that form an integral part of the effective interest rate on financial instruments.
The breakdown of the balance of this item is as
Fee and commission expense” shows the amount of all fees and commissions paid or payable in the year, except those that form an integral part of the effective interest rate on financial instruments.
The breakdown of the balance of this item is as follows: Amount of all fees and commissions paid or payable in the year
Gains (losses) on financial assets and liabilities (net) includes the amount of the valuation adjustments of financial instruments, except those attributable to interest accrued as a result of application of the effective interest method and to allowances, and the gains or losses derived from the sale and purchase thereof.
The breakdown of the balance of this item, by type of instrument, is as follows:
a) Breakdown
The breakdown of “Personnel expenses” is as follows:
b) Share-Based Compensation
Banco Santander has long-terms compensation plans linked to the market price of the shares. The members of the Executive Board of Banco Santander are eligible for these plans, as well as other members selected by the Board of Directors, whose selection will take into account seniority of the group. For the Board of Directors members in order to be eligible, it is necessary to exercise Executive Board functions. These amounts are recorded under Other liabilities (Note b.1) Local
(**) Target of the plan in SAN shares and options, to be paid in
The calculation of payment for
Each participant has a
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