Banco Santander Brasil: A Lean Bank's Safe Haven in a Complex Environment

Banco Santander Brasil is a well-run, family-like business controlled by Banco Santander S.A. in a complex environment. The bank's lean approach has allowed it to maintain stability, despite macroeconomic challenges. Its cautious approach is expected to yield positive results in the long run.

Banco Santander Brasil (BSBR) has been navigating a complex macroeconomic environment in Brazil, characterized by high interest rates and challenging inflation rates. Despite these challenges, the bank has maintained its stability and profitability through a cautious, lean approach. Controlled by Banco Santander S.A. (SAN), BSBR has focused on serving loyal, high-margin clients efficiently, rather than chasing new customers and increasing risk.

The bank's strategy has been to prioritize operational efficiency and disciplined cost management, resulting in compelling efficiency levels among domestic incumbent peers. This approach has helped BSBR maintain robust shareholder remuneration, with projections indicating double-digit returns in the next two years. The bank's conservative stance, aimed at profitability over growth, has been well-aligned with the macro and sector challenges in Brazil.

In the first half of 2025, BSBR reported a return on equity (ROE) of 16%, below its target of 20%, but still a notable improvement from pre-4Q24 levels. The bank has seen a significant drop in non-performing loans (NPLs) and has maintained a capital ratio of 11.5%. However, it has faced challenges such as increased provisions for doubtful debts (PDD) and weak loan portfolio growth.

The bank's cautious approach has resulted in falling defaults but has also increased the cost of risk. BSBR has postponed its 20% ROE target for 2027, citing a more restrictive macro environment and a more selective credit cycle. The bank's strategy of focusing on higher margin segments and improving operational efficiency is expected to yield positive results in the long run.

BSBR's third-quarter results, expected on October 29, are anticipated to show a continuation of its defensive mode, prioritizing quality over growth. The bank is expected to focus on fee growth, revenue diversification, and ongoing expense reduction to improve its efficiency ratio and protect net profit.

Banco Santander's UK unit has set aside over £2 billion for compensation claims related to the motor finance mis-selling scandal, highlighting the bank's commitment to addressing past issues and maintaining its reputation. The bank's buyback program, which includes the repurchase of 603 million Euros worth of shares, demonstrates its confidence in its future prospects.

In conclusion, Banco Santander Brasil's lean approach and cautious strategy have allowed it to maintain stability and profitability despite macroeconomic challenges. Its focus on operational efficiency and high-margin clients is expected to yield positive results in the long run. The bank's ability to remunerate shareholders, with projections indicating a yield of close to 10% in 2027, further supports its attractiveness to investors.