Executive Summary / Key Takeaways

• Banco Santander Brasil (BSBR) is executing a profound transformation, shifting from traditional banking to a customer-centric financial services powerhouse, underpinned by robust digital innovation and a diversified business portfolio.
• The company's proactive risk management, initiated in late 2021, has cultivated healthier loan vintages, positioning it for profitable credit expansion in 2024 despite macroeconomic headwinds like declining Selic rates.
• BSBR's technological edge, particularly its extensive cloud adoption, investments in Generative AI, and efficient digital platforms, is a critical differentiator, driving significant cost reductions and enhancing customer experience.
• Strategic growth areas like Select (high-income), Agribusiness, and Consumer Finance are demonstrating strong performance and market share gains, contributing to expanding revenues and a positive outlook for 2024.
• A new share buyback program, approved on September 26, 2025, underscores management's confidence in capital efficiency and commitment to maximizing shareholder value.

A Brazilian Banking Powerhouse Redefines its Future

Banco Santander (Brasil) S.A. (BSBR) stands as a prominent force in the dynamic Brazilian financial landscape, operating across commercial and global wholesale banking segments. As part of the global Santander network, BSBR leverages its international connections while deeply embedding itself in the local market. The company's overarching strategy centers on becoming the premier customer-centric financial services provider in Brazil, a vision that has guided its evolution and strategic responses to competitive pressures.

The Brazilian banking sector is intensely competitive, with BSBR contending with formidable rivals such as Itaú Unibanco (ITUB), Banco Bradesco (BBD), and the state-owned Banco do Brasil (BBAS3). While Itaú often leads in digital innovation and retail market penetration, and Bradesco boasts an extensive domestic branch network, BSBR distinguishes itself through its global linkages, specialized expertise in areas like agribusiness, and a rapidly evolving technological infrastructure. Banco do Brasil, with its state backing, holds a dominant position in agricultural and government-related financing. BSBR's strategic adaptability and focus on niche, profitable segments allow it to carve out a unique competitive space, even as it faces challenges in matching the sheer scale or digital agility of some rivals.

BSBR's journey towards customer-centricity began notably in 2017 with its pioneering public tracking of the Net Promoter Score (NPS), starting at 40 points and reaching 57 by Q1 2022, with a goal of 60-plus. This commitment to customer advocacy has since permeated all aspects of its operations. A pivotal strategic adjustment occurred from late 2021 into 2022, as the company proactively tightened its risk appetite in individual and small and medium-sized enterprise (SME) segments, anticipating a deterioration in credit portfolios due to worsening macroeconomic conditions. This selective approach, while initially moderating loan growth, was a deliberate move to cultivate healthier new vintages and ensure more predictable asset quality over the long term.

Technological Edge: The Engine of Efficiency and Innovation

At the core of Santander Brasil's strategic transformation is its profound commitment to technological differentiation and innovation. The company views technology not merely as a support function but as a "major business center," integral to its operational efficiency, cost reduction, and the development of new revenue streams.

BSBR has achieved significant milestones in its cloud adoption strategy, with 95% of its operations already running in the cloud and a clear trajectory towards 100%. This extensive cloud migration directly translates into tangible benefits, including enhanced efficiency and substantial cost reductions across its operations. The company has successfully doubled the number of transactions while simultaneously reducing the unit cost by almost half. Furthermore, the cost to serve digital clients decreased by 31% in the 12 months leading up to Q4 2022, reaching R$18 per month. Operational specifics highlight this efficiency, with lead times for personal mortgages reduced to a market-best 19 business days and for agri-related products by 23%.

The bank is also making strategic investments in cutting-edge technologies like Generative AI. This initiative aims to enhance customer interaction through remote channels and chat, while also improving internal processes such as coding and development, ultimately fostering the creation of new businesses. BSBR's innovation extends to its participation in DREX, the Central Bank of Brazil's digital currency initiative, where its first innovation proved successful. The company is also expanding its "Banking as a Service" agenda, aiming to integrate Santander more deeply into customers' daily financial experiences.

These technological advancements are not isolated efforts; they are deeply integrated into BSBR's strategic framework. The company has introduced 27 business domains from 2022 to 2023, actively merging this structure with its product agenda to ensure end-to-end operational efficiency. For investors, this technological leadership represents a significant competitive moat. It enables BSBR to offer faster, more personalized services at a lower cost, enhancing customer loyalty and driving superior financial performance through improved margins and market positioning. This focus on digital prowess helps BSBR compete effectively against agile fintechs and established rivals, ensuring its long-term growth strategy is well-supported by a robust and evolving technological roadmap.

Strategic Growth Pillars and Financial Performance

BSBR's strategic initiatives are yielding tangible results across its diverse business segments, reflecting its commitment to customer-based monetization and portfolio diversification. The company’s focus on "principality"—becoming the main bank for its nearly 65 million customers—is a central driver.

The Select (high-income) segment is a standout performer, with its customer base growing over 50% year-on-year and surpassing 1.2 million clients by the end of 2023, exceeding its 1 million target. A new target of 2 million Select clients has been set. This segment's loan portfolio now represents 27% of the individual retail portfolio, driven by the higher loyalty and revenue generation of these clients. The expansion of the AAA investment advisory service into "AAA patrimonial" for insurance and consortiums further solidifies this segment's profitability.

In Mass Retail, where the segment historically generated negative results, BSBR is implementing a "more remote and digital agenda" combined with a significant simplification of its offerings. The product portfolio has been reduced by 31%, with cards alone seeing over a 50% reduction, aiming for greater user-friendliness and engagement to drive profitability.

Agribusiness has emerged as a powerful growth engine, with the portfolio reaching almost R$54 billion in Q4 2023, a 42% increase from December 2022 and nearly doubling since December 2021. This impressive growth, which surpassed the R$50 billion target for 2023, underscores the bank's strategic relevance in the sector. The Consumer Finance operation, the largest in Brazil, achieved a historical record in loan origination volume in Q4 2023, holding a 21% market quota with an ambition to reach 25%. Auto loans within this segment grew 5.5% quarter-on-quarter in Q4 2023, marking its best performance of the year.

The SME and Wholesale (large corporate) segments also demonstrated strong performance, with portfolio expansion growing two digits year-on-year in Q4 2023. BSBR maintains its position as the leading FX bank in Brazil and was recognized as the best cash management bank in Brazil and Latin America. The Cards business saw billings grow 11% in Q4 2023, a significant recovery from previous periods, reflecting a "smart, precise, and technical" approach to sales.

Financially, BSBR reported a net income of R$9.45 billion in 2023, recovering from R$14.29 billion in 2022. Net Interest Income (NII) in Q4 2023 grew almost 5% year-on-year, driven by both client and market NII. The cost of credit showed a downward trend, closing 2023 at 4%, with management expressing comfort in its evolution, particularly in retail. The efficiency ratio, while affected by seasonality in Q4 2023, remains a core focus, with the company aiming to grow expenses below revenue growth.

Capital Strength and Shareholder Returns

Santander Brasil maintains a robust capital position, with its core capital reaching 11.5% in Q4 2023, a level considered adequate for its long-term growth strategy. The bank aims to consistently maintain its Core Equity Tier 1 ratio between 11% and 12%. The loans to deposits ratio stood at 92% in Q4 2023, marking the best level in the company's history and indicating strong liquidity management.

Further demonstrating its commitment to shareholder value, the Board of Directors approved a new share buyback program on September 26, 2025. This program authorizes the purchase of up to 37,463,477 Units or ADRs, representing approximately 1% of the total capital stock, until March 26, 2027. The buyback is intended to optimize the capital structure and provide shares for long-term incentive plans, signaling management's confidence in the company's valuation and future prospects. BSBR's payout ratio, around 50%, reflects a balanced approach to capital allocation, supporting both growth and shareholder remuneration.

Outlook and Risk Considerations

Looking ahead to 2024, Santander Brasil's management expresses optimism for continued revenue expansion, anticipating positive trends in both client and market NII. The company expects the positive momentum in credit performance and revenue generation to intensify. The cost of credit is projected to continue its downward trend, providing a favorable backdrop for profitability. While a declining Selic interest rate presents a challenge for liability NII across the industry, BSBR plans to offset this through increased volume in investments and liabilities, enhanced pricing efficiency, and strong asset-side credit NII growth.

Despite this positive outlook, investors should consider several key risks. The price ceiling pressure on INSS payroll loans, for instance, is a concern, as it is viewed as detrimental to consumers and has led to a significant reduction in origination volumes, potentially impacting the industry by R$25-R30 billion annually. While BSBR has diversified its payroll loan offerings, this regulatory intervention creates an ongoing challenge. Furthermore, while the bank has proactively managed its credit portfolio, a slight increase in NPL formation due to higher delinquency in the renegotiated loan portfolio was observed in Q4 2023, though this was an expected outcome of the portfolio purging process. The broader macroeconomic environment in Brazil, including potential shifts in consumer spending and investment, will continue to influence the bank's performance.

Conclusion

Santander Brasil is undergoing a significant strategic evolution, transforming into a customer-centric financial services leader powered by advanced digital capabilities. Its proactive risk management, diversified growth engines in high-potential segments like Select and Agribusiness, and a relentless pursuit of operational efficiency through technology, position it for sustained profitable growth. The recent share buyback program further reinforces management's commitment to shareholder value. While macroeconomic factors and competitive pressures remain, BSBR's strategic clarity, technological leadership, and disciplined capital management underscore a compelling investment thesis for discerning investors seeking exposure to a resilient and evolving Brazilian banking powerhouse.