Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):
Yes _______ No ___X____
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):
Yes _______ No ___X____
Indicate by check mark whether by furnishing the information contained in this Form, the Registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934:
Yes _______ No ___X____
If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): N/A
Independent auditor's report
To the Board of Directors and Stockholders
Banco Santander (Brasil) S.A.
Introduction
We have reviewed the interim consolidated balance sheet of Banco Santander (Brasil) S.A. a nd its subsidiaries ("Bank") as at March 31, 2017, and the related consolidated statements of income, comprehensive income, changes in equity and cash flows for the quarter then ended, and a summary of significant accounting policies and other explanatory information.
Management is responsible for the preparation and fair presentation of these interim consolidated financial statements in accordance with the International Accounting Standard (IAS) 34 - Interim Financial Reporting issued by the International Accounting Standards Board (IASB) . Our responsibility is to express a conclusion on these interim consolidated financial statements based on our review.
Scope of review
We conducted our review in accordance with Brazilian and International Standards on Reviews of Interim Financial Information (NBC TR 2410 – Review of Interim Financial Information Performed by the Independent Auditor of the Entity and ISRE 2410 – Review of Interim Financial Information Performed by the Independent Auditor of the Entity, respectively). A review of interim information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Brazilian and International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the accompanying interim consolidated financial statements referred to above do not present fairly, in all material respects, the financial position of Banco Santander (Brasil) S.A., and its subsidiaries as at march 31, 2017, their consolidated financial performance and its cash flows for the quarter then ended, in accordance with the International Accounting Standard (IAS) 34 - Interim Financial Reporting issued by the International Accounting Standards Board (IASB).
PricewaterhouseCoopers, Av. Francisco Matarazzo 1400, Torre Torino, São Paulo, SP, Brasil 05001-903,
Caixa Postal 61005 T: (11) 3674-2000, www.pwc.com/br
1
Banco Santander (Brasil) S.A.
Other matters
Complementary information - Statements of value added
We have also reviewed the consolidated statements of value added for the quarter ended March 31, 2017, prepared under the responsibility of the management, whose presentation is required by Brazilian Corporate Law by publicly-held companies. These statements have been submitted to the same review procedures described above and, based on our review, nothing has come to our attention that causes us to believe that they have not been prepared, in all material respects, in a manner consistent with the interim consolidated financial statements taken as a whole.
São Paulo, April 25, 2017
PricewaterhouseCoopers
Auditores Independentes
CRC 2SP000160/O-5
Edison Arisa Pereira
Accountant
CRC 1SP127241/O-0
2
3
4
|
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|
BANCO SANTANDER (BRASIL) S.A. |
|||||
|
CONSOLIDATED INCOME STATEMENTS |
|||||
|
Thousands of Brazilian Real, except for per share data |
|||||
|
|
|
Note |
1/01 to
|
1/01 to
|
|
|
Interest and similar income |
|
|
|
19,123,901 |
18,868,432 |
|
Interest expense and similar charges |
|
|
|
(10,899,863) |
(11,272,589) |
|
Net Interest Income |
|
|
|
8,224,038 |
7,595,843 |
|
Income from equity instruments |
|
|
|
10,491 |
3,907 |
|
Income from companies accounted for by the equity method |
6 |
|
5,444 |
16,155 |
|
|
Fee and commission income |
|
|
|
3,738,169 |
3,066,751 |
|
Fee and commission expense |
|
|
|
(702,131) |
(659,707) |
|
Gains (losses) on financial assets and liabilities (net) |
|
|
|
1,334,832 |
2,693,482 |
|
Financial assets held for trading |
|
|
|
1,313,819 |
2,596,000 |
|
Other financial instruments at fair value through profit or loss |
|
|
53,214 |
65,669 |
|
|
Financial instruments not measured at fair value through profit or loss |
|
|
(68,928) |
16,426 |
|
|
Other |
|
|
|
36,727 |
15,387 |
|
Exchange differences (net) |
|
|
|
509,496 |
1,135,503 |
|
Other operating income (expense) |
|
|
|
(102,409) |
(87,716) |
|
Total Income |
|
|
|
13,017,930 |
13,764,218 |
|
Administrative expenses |
|
|
|
(3,852,742) |
(3,562,387) |
|
Personnel expenses |
|
13-a |
|
(2,157,822) |
(1,962,060) |
|
Other administrative expenses |
|
13-b |
|
(1,694,920) |
(1,600,327) |
|
Depreciation and amortization |
|
|
|
(398,763) |
(353,296) |
|
Tangible assets |
|
|
|
(291,978) |
(276,133) |
|
Intangible assets |
|
|
|
(106,785) |
(77,163) |
|
Provisions (net) |
|
|
|
(975,182) |
(798,810) |
|
Impairment losses on financial assets (net) |
|
|
|
(3,285,397) |
(2,757,652) |
|
Loans and receivables |
|
4-b.2 |
|
(3,285,854) |
(2,748,361) |
|
Other financial instruments not measured at fair value through profit |
|
|
|
457 |
(9,291) |
|
Impairment losses on other assets (net) |
|
|
|
(42,057) |
(40,839) |
|
Other intangible assets |
|
|
|
- |
(6,594) |
|
Other assets |
|
|
|
(42,057) |
(34,245) |
|
Gains (losses) on disposal of assets not classified as non-current assets held for sale |
|
|
(2,105) |
2,411 |
|
|
Gains (losses) on non-current assets held for sale not classified as discontinued operations |
|
|
(121,013) |
6,118 |
|
|
Operating Income Before Tax |
|
|
|
4,340,671 |
6,259,763 |
|
Income taxes |
|
12 |
|
(2,332,858) |
(4,429,086) |
|
Consolidated Net income for the period |
|
|
|
2,007,813 |
1,830,677 |
|
Profit attributable to the Parent |
|
|
|
1,961,763 |
1,804,663 |
|
Profit attributable to non-controlling interests |
|
|
|
46,050 |
26,014 |
5
6
7
8
|
|
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|
BANCO SANTANDER (BRASIL) S.A. |
|||||
|
CONSOLIDATED CASH FLOW STATEMENTS |
|||||
|
Thousands of Brazilian Real |
|||||
|
Note |
1/01 to 3/31/2017 |
1/01 to 3/31/2016 |
|||
|
1. Cash Flows From Operating Activities |
|
|
|
|
|
|
Consolidated Net income for the period |
|
|
2,007,813 |
|
1,830,677 |
|
Adjustments to profit |
|
|
5,790,117 |
|
8,589,118 |
|
Depreciation of tangible assets |
|
|
291,978 |
|
276,133 |
|
Amortization of intangible assets |
|
|
106,785 |
|
77,163 |
|
Impairment losses on other assets (net) |
|
|
42,057 |
|
40,839 |
|
Provisions and Impairment losses on financial assets (net) |
|
|
4,260,579 |
|
3,556,462 |
|
Net Gains (losses) on disposal of tangible assets, investments and non-current assets held for sale |
|
|
123,118 |
|
(8,529) |
|
Share of results of entities accounted for using the equity method |
|
6-a |
(5,444) |
|
(16,155) |
|
Changes in deferred tax assets and liabilities |
|
|
1,013,326 |
|
3,514,505 |
|
Monetary Adjustment of Escrow Deposits |
|
|
(146,357) |
|
(189,072) |
|
Recoverable Taxes |
|
|
(90,399) |
|
(69,634) |
|
Effects of Changes in Foreign Exchange Rates on Cash and Cash Equivalents |
129,509 |
|
1,426,195 |
||
|
Other |
|
|
64,965 |
|
(18,789) |
|
Net (increase) decrease in operating assets |
|
|
8,749,440 |
|
942,368 |
|
Balance with the Brazilian Central Bank |
|
|
7,752,422 |
|
(2,094,213) |
|
Financial assets held for trading |
|
|
7,267,382 |
|
(7,875,162) |
|
Other financial assets at fair value through profit or loss |
|
|
(75,062) |
|
(177,989) |
|
Available-for-sale financial assets |
|
|
(4,856,973) |
|
(1,332,185) |
|
Loans and receivables |
|
|
(3,508,125) |
|
10,135,787 |
|
Held to maturity investments |
|
|
467,875 |
|
853,263 |
|
Other assets |
|
|
1,701,921 |
|
1,432,867 |
|
Net increase (decrease) in operating liabilities |
|
|
2,655,567 |
|
(7,904,936) |
|
Financial liabilities held for trading |
|
|
(2,077,908) |
|
(6,256,831) |
|
Financial liabilities at amortized cost |
|
|
5,528,282 |
|
(702,100) |
|
Other liabilities |
|
|
(794,807) |
|
(946,005) |
|
Tax paid |
|
|
(247,792) |
|
(560,978) |
|
Total net cash flows from operating activities (1) |
|
|
18,955,145 |
|
2,896,249 |
|
2. Cash Flows From Investing Activities |
|
|
|
|
|
|
Investments |
|
|
(325,007) |
|
(382,909) |
|
|
|
|
(2,408) |
|
- |
|
Tangible assets |
|
7 |
(175,006) |
|
(204,874) |
|
Intangible assets |
|
|
(147,593) |
|
(178,035) |
|
Disposal |
|
|
76,591 |
|
71,155 |
|
Tangible assets |
|
|
4,450 |
|
5,927 |
|
Non-Current Assets Held For Sale |
|
|
26,959 |
|
46,808 |
|
Dividends and interest on capital received |
|
|
45,182 |
|
18,420 |
|
Total net cash flows from investing activities (2) |
|
|
(248,416) |
|
(311,754) |
|
3. Cash Flows From Financing Activities |
|
|
|
|
|
|
Acquisition of own shares |
|
|
77,443 |
|
1,523 |
|
Issuance of other long-term liabilities |
|
9-b.3 |
10,002,848 |
|
11,474,437 |
|
Dividends paid and interest on capital |
|
|
(4,200,977) |
|
(2,778,024) |
|
Payments of other long-term liabilities |
|
9-b.3 |
(22,799,908) |
|
(17,041,686) |
|
Payments of Debt Instruments Eligible to Compose Capital |
|
9-b.5 |
(225,428) |
|
(287,961) |
|
Net increase (decrease) in non-controlling interests |
|
|
57 |
|
(87,667) |
|
Total net cash flows from financing activities (3) |
|
|
(17,145,965) |
|
(8,719,378) |
|
Exchange variation on Cash and Cash Equivalents (4) |
|
|
(129,509) |
|
(1,426,195) |
|
Net Increase (decrease) in Cash (1+2+3+4) |
|
|
1,431,255 |
|
(7,561,078) |
|
Cash and cash equivalents at beginning of period |
|
|
18,129,581 |
|
33,131,614 |
|
Cash and cash equivalents at end of period |
|
|
19,560,836 |
|
25,570,536 |
9
10
11
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• Available for sale equity instruments will be classified into fair value, and depending on the nature of the investment, their variations will be recorded in the income statement or in other comprehensive income (irrevocably). |
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• Financial instruments currently classified into fair value through profit or loss will generally continue to be classified into this category, not expecting reclassifications. |
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1.b) Credit risk impairment model |
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The most important new development compared with the current model is that the new accounting standard introduces the concept of expected loss, whereas the current model (IAS 39) is based on incurred loss. |
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Scope of application |
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The IFRS 9 asset impairment model is applicable to financial assets classified in categories: amortized cost, debt instruments valued at fair value through other comprehensive income, leasing receivables, and contingent risks and commitments not valued at fair value and availability of credit lines. |
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Classification of financial instruments by phases |
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The financial instruments portfolio for impairment purposes will be divided into three categories, depending on the phase each instrument has with regard to its credit risk: |
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- Stage 1: a financial instrument is in phase 1 when there has been no significant increase in its risk since it was initially registered. If applicable, the valuation correction for losses will amount to the possible credit expected losses arising from possible defaults with a period of 12 months following the reporting date. |
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- Stage 2: if there has been a significant increase in risk since the date in which the instrument was initially registered, but the impairment has not actually materialized, then the financial instrument will be included in this stage. In this case, the amount of the valuation correction for losses will be the expected losses owing to defaults throughout the residual life of the financial instrument. In order to assess the significant increase in credit risk, both quantitative indicators used in the ordinary credit risk management and other qualitative variables such as the forbearance flag for not impaired exposures or the facilities are included in a special debt sustainability agreement shall be taken into account. |
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- Stage 3: a financial instrument will be included in this phase when it is considered to be effectively impaired. In this case, the amount of the valuation correction for losses will be the expected credit risk losses throughout the residual life of the financial instrument. |
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Impairment estimation methodology |
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Expected loss is measured using the following factors: |
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- Exposure at Default (EAD): is the amount of the transaction exposed to credit risk including the ratio of current undrawn exposure that could be drawn at default. Developed models incorporate hypotheses considering possible modifications in the payment schedule. |
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- Probability of Default (PD): is the likelihood that a counterparty will fail to meet its obligation to pay principal or interest. For the purposes of IFRS 9, this will consider both PD-12 months, which is the probability of the financial instrument entering default within the next 12 months, and also lifetime PD, which is the probability of the transaction entering into default between the reporting date and the transaction’s residual maturity date. Future information of relevance is considered to be needed to estimate these parameters, according to the standard. |
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- Loss Given Default (LGD): is the loss produced in the event of default. In other words, this reflects the percentage of exposure that could not be recovered in the event of a default. It depends mainly on the ability to demand additional collateral, which is considered as credit risk mitigants associated with each financial asset, and the future cash flows that are expected to be recovered. According to the standard, forward-looking information must be taken into account in the estimation. |
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- Discount rate: the rate applied to the future cash flows estimated during the expected life of the asset, and which is equal to the net present value of the financial instrument at its carrying value. When calculating the discount rate, expected losses for default when estimating future cash flows are not generally taken into account, except in cases in which the asset is considered to be impaired, in which case the interest rate applied will take into account such losses, and it will be known as the effective interest rate adjusted for credit risk. |
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In order to estimate the above parameters, the Bank has applied on its experience in developing internal models for the estimation of parameters both for regulatory and management purposes. |
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Apart from using present and past information, the Bank currently uses forward-looking information in internal management and regulatory processes, considering several scenarios. In this sense, the Bank will re-use its experience in the management of such information and maintain consistency with the information used in the other processes. |
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Use of present, past and future information |
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1.c) Accounting of hedges |
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|
IFRS 9 includes new hedge accounting requirements which have a twofold objective: to simplify current requirements, and to bring hedge accounting in line with risk management, so allowing there to be a greater variety of derivative financial instruments which may be considered to be hedging instruments. |
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|
However, the Bank (at the moment) decided to keep its Hedge Accounting hedges in line with the accounting guidelines established in IAS 39, having seen the pronouncement provided by the Board of the IASB. |
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|
Once the analysis of the advantages and disadvantages of the proposal is completed, the Bank shall make its decision for hedge accounting under IFRS 9. |
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|
2. IFRS 9 implementation strategy |
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|
The Santander Spain Group together with its subsidiaries has established a global work stream with the aim of adapting its processes to the new classification standards for financial instruments, accounting of hedges and estimating credit risk impairment, so that such processes are applicable in a uniform way for all Bank units, and, at the same time, can be adapted to each unit’s individual features. |
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12
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Accordingly, the Bank is working towards defining an objective internal model and analyzing all the changes which are needed to adapt accounting classifications and credit risk impairment estimation models in force in each unit to the previous definitions. |
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|
In principle, the governance structure currently implemented at both corporate level and in each one of the units, is intended to comply with the requirements set out in the new standards. |
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|
The project’s main phases and milestones |
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|
In 2016, the Bank has successfully completed the design and development phase of the implementation plan. The major milestones achieved include the definition of functional requirements as well as the design of an operational model adapted to the requirements of IFRS 9. At the IT environment, the technological needs have been identified as well as the necessary adaptations to the existing control environment. |
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|
The Bank is currently in the implementation phase of the models and requirements defined. The objective of the Bank at this stage is to ensure an efficient implementation, optimizing its resources as well as the designs elaborated in previous stages. |
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|
Once the implementation phase is completed, the Bank will test the effective performance of the model through several simulations and ensuring that the transition to the new operating model meets the objectives established in the previous phases. This last stage includes the parallel execution of the provisions calculation. |
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|
• IFRS 15 - Revenue from Customers Contracts : The standard was issued in May 2014 and applies to an annual reporting period beginning on January 1, 2018. The standard specifies how and when an entity will recognize revenue as well as requiring such entities to provide users of financial statements with more informative, relevant disclosures. The standard provides five basic principles to be applied to all contracts with customers, which are: i) identify the contract with the customer; ii) identify the implementing obligations under the contract; iii) determine the transaction price; iv) allocate the transaction price to performance obligations; and v) recognize revenue at the moment (or the extent to which) the entity carrying out an obligation of execution. |
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|
• IFRS 16 - Leases Contracts - The standard was issued in January 2016 and the effective date after January 1 st , 2019. This standard contains a new approach to lease accounting that requires a lessee to recognize assets and liabilities for the rights and obligations created by leases. |
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|
• Amendment to IFRS 2 - Share-based payment – The standard was issued in June 2016, and the effective date after January,1st 2018. This standard is intended to clarify a) Effects of vesting conditions on the measurement of a cash-settled share-based payment b) Accounting for a modification to the terms and conditions of a share-based payment that changes the classification of the transaction from cash-settled to equity-settled and c) Classification of share-based payment transactions with net settlement features. |
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|
The potential impacts of changes in force from April 1, 2017 are under review by the Bank, which should be completed by the entry into force of the standard. |
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c) Estimates made |
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|
The consolidated results and the determination of consolidated equity are influenced by the accounting policies, assumptions, estimates and measurement bases used by the management of the Bank in preparing the 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 conformity with IFRS, are best estimates undertaken in accordance with the applicable standard. |
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|
In the consolidated financial statements estimates were made by the management of the Bank and of the consolidated entities in order to quantify certain assets, liabilities, revenues, expenses, and disclosure notes. |
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|
c.1) Critical estimates |
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|
The main estimates were discussed in detail for the consolidated financial statements as of December 31, 2016. In the period ended March 31, 2017, there were no significant changes in the estimates made at the end of the year 2016, in addition to those indicated in these interim financial statements. |
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|
The estimates and critical assumptions that have the most significant impact on the carrying amounts of certain assets, liabilities, revenues and expenses and the disclosure of explanatory notes, are described below: |
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|
i. Allowance for loan losses |
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|
The carrying amount of impaired financial assets is adjusted by recording a provision for losses on debts of "Impairment Losses on Financial Assets (Net) - Loans and Receivables" in the consolidated income statement. The reversal of previously recorded losses is recognized in the consolidated income statement in the period in which the impairment decrease and it can be related objectively to an event of recovery. |
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|
To determine the balance of “Provision for Impairment Losses”, Banco Santander first assesses whether there is objective evidence of impairment loss individually for financial assets that are significant, and individually or collectively for financial assets that are not significant. |
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|
To measure the impairment loss on loans individually evaluated for impairment, the Bank considers the conditions of the borrower, such as their 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 its 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. |
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|
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. |
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|
For further details, see note 2.i of the Complete Financial Statements as of December 31, 2016. |
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|
ii. Income Tax (IRPJ) and Social Contribution on Net Income (CSLL) |
||||||||||||||||
|
The current income tax expense is calculated by sum of the current tax, social contribution, pis and cofins 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. |
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13
|
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 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 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. |
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|
The deferred tax assets and liabilities recognized are reassessed at each balance sheets 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 based on the Bank's projections of future results and based on technical study. |
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|
For further details, see note 2.aa of the Complete Financial Statements as of December 31, 2016. |
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|
iii. Fair value measurement of certain financial instruments |
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|
Financial instruments are initially recognized at fair value, which is considered equivalent to the transaction price, until proven otherwise, and those that are not measured at fair value through profit are adjusted by the transaction costs. |
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|
Financial assets and liabilities are subsequently measured at each period-end by using valuation techniques. This calculation is based on assumptions, which take into account management's judgment based on existing information and market conditions at the date of financial statements. |
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|
Banco Santander classifies fair value measurements using a fair value hierarchy that reflects the model used in the measurement process, segregating financial instruments between Level I, II or III. |
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|
For further details, see note 2.e of the Complete Financial Statements as of December 31, 2016 and 48.c8 which present the sensitivity analysis for Financial Instruments. |
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|
iv. Post-employment benefits |
||||||||||||||||
|
The defined benefit plans are recorded based on an actuarial study, conducted annually by specialized company, at the end of each year to be effective for the subsequent period and are recognized in income in "Interest expense and similar Charges" and "Provisions (net)". |
||||||||||||||||
|
The present value of the defined benefit obligation is the present value without any assets deductions of expected future payments required to settle the obligation resulting from employee service in the current and past periods. |
||||||||||||||||
|
For further details, see note 2.x of the Complete Financial Statements as of December 31, 2016. |
||||||||||||||||
|
v. Provisions, contingent assets and liabilities |
||||||||||||||||
|
Provisions for the judicial and administrative proceedings are recorded when the risk of loss of administrative or judicial proceeding is considered probable and the amounts can be reliably measured, based on the nature, complexity and history of lawsuits and the opinion of legal counsel internal and external. |
||||||||||||||||
|
Provisions are made when the risk of loss of judicial or administrative proceedings is assessed as probable and the amounts involved can be measured with sufficient accuracy, based on best available information. They are fully or partially reversed when the obligations cease to exist or are reduced. Given the uncertainties arising from the proceedings, it is not practicable to determine the timing of any outflow (cash disbursement). |
||||||||||||||||
|
Note 2 to the Bank's consolidated financial statements for the year ended December 31, 2016 includes information on provisions and the contingent assets and liabilities. There were no significant changes in the Bank’s provisions and contingent assets and liabilities between December 31, 2016 and these interim financial statements' reporting date of March 31, 2017. |
||||||||||||||||
|
For further details, see note 2.r of the Complete Financial Statements as of December 31, 2016. |
||||||||||||||||
|
vi. Goodwill |
||||||||||||||||
|
The goodwill recorded is subject to impairment test at least annually or in a short period, if any indication of impairment of assets. |
||||||||||||||||
|
The recoverable goodwill amounts are determined from value in use calculations. For this purpose, we estimate cash flow for a period of 5 years. We prepare cash flows considering several factors, including: (i) macro-economic projections, such as interest rates, inflation and exchange rates, among other, (ii) the performance and growth estimates of the Brazilian financial system, (iii) increased costs, returns, synergies and investment plans, (iv) the behavior of customers, and (v) the growth rate and long-term adjustments to cash flows. These estimates rely on assumptions regarding the likelihood of future events, and changing certain factors could result in different outcomes. The estimate of cash flows is based on valuations prepared by independent research company or whenever there is evidence of reduction to its recoverable amount, which is reviewed annually or whenever there is an evidence of reduction on its recoverable value and approved by the Executive Board. |
||||||||||||||||
|
For additional details see note 8.a. |
||||||||||||||||
|
d) Comparative information |
||||||||||||||||
|
These interim financial statements include the comparable interim period of March 31, 2016 for the income statement, statement of comprehensive income, statement of changes in equity, and statement of cash flows. A comparative statement of financial position is December 31, 2016. |
||||||||||||||||
|
e) Seasonality of the Bank’s transactions |
||||||||||||||||
|
Considering the activities conducted by the Bank and its subsidiaries, their transactions are not cyclical or seasonal in nature. Accordingly, no specific disclosures are provided in these explanatory notes to the interim financial statements for the three-month period ended March 31, 2017. |
||||||||||||||||
14
|
f) Materiality |
||||||||||||||||
|
In determining the disclosures to be made in relation to the various items in the financial statements or other matters, the Bank, in accordance with IAS 34, took into account their materiality in relation the interim financial statements. |
||||||||||||||||
|
g) Consolidated cash flow statements |
||||||||||||||||
|
In preparing the consolidated cash flow statements, the high liquidity investments with insignificant risk of changes in value and with original maturity of ninety days or less were classified as “cash and cash equivalents”. The Bank classifies as cash and cash equivalents the balances recorded under “Cash and balance with the Brazilian Central Bank” and "Loans and amounts due from credit institutions" in the consolidated balance sheet, except for restricted resources and long term transactions. |
||||||||||||||||
|
The interest paid and received correspond primarily to operating activities of Banco Santander. |
||||||||||||||||
|
h) Functional and presentation currency |
||||||||||||||||
|
The consolidated interim financial statements of Banco Santander are presented in Brazilian Real, the functional currency of these statements. |
||||||||||||||||
|
For each subsidiary, entity abroad and investment in an unconsolidated company, Banco Santander has defined the functional currency. The assets and liabilities of these entities with functional currency other than the Brazilian Real are translated as follows: |
||||||||||||||||
|
- Assets and liabilities are translated at the exchange rate at the balance sheet 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”. |
||||||||||||||||
|
i) Funding, debt notes issued and other liabilities |
||||||||||||||||
|
Funding debt rates 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 at specific account 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 accounted for as expenses for the period, according to the accrual basis. |
||||||||||||||||
|
The relevant details of these issued instruments are described in note 9-b.5. |
||||||||||||||||
|
j) Measurement of financial assets and liabilities and recognition of fair value changes |
||||||||||||||||
|
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 under “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 under “Other Comprehensive Income”. Items charged or credited to this account remain in the Bank’s consolidated equity until the related assets are write-off, whereupon they are charged to the consolidated income statement. |
||||||||||||||||
|
Hedging transactions |
||||||||||||||||
|
The consolidated entities use financial derivatives for the following purposes: i) to provide these instruments to customers 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. |
||||||||||||||||
|
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: |
||||||||||||||||
|
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. |
||||||||||||||||
15
16
17
18
19
| a) breakdown | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Participation % |
||
|
Jointly Controlled by Banco Santander |
|
|
|
Activity |
|
Country |
|
|
|
3/31/2017 |
|
12/31/2016 |
||||
|
Banco RCI Brasil S.A. |
|
|
|
Financial |
|
Brazil |
|
|
|
39.89% |
|
39.89% |
||||
|
Norchem Participações e Consultoria S.A. (1) |
|
|
|
Other Activities |
|
Brazil |
|
|
|
50.00% |
|
50.00% |
||||
|
Cibrasec - Companhia Brasileira de Securitização (1) |
|
|
|
Securitization |
|
Brazil |
|
|
|
9.72% |
|
9.72% |
||||
|
Estruturadora Brasileira de Projetos S.A. - EBP (1) |
|
|
|
Other Activities |
|
Brazil |
|
|
|
11.11% |
|
11.11% |
||||
|
Campo Grande Empreendimentos |
|
|
|
Other Activities |
|
Brazil |
|
|
|
25.32% |
|
25.32% |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jointly Controlled by Santander S.A. Serviços Técnicos, Administrativos e de Corretagem de Seguros (Santander Serviços) |
||||||||||||||||
|
Webmotors S.A. (4) |
|
|
Other Activities |
|
Brazil |
|
|
|
70.00% |
|
70.00% |
|||||
|
Tecnologia Bancária S.A. - TECBAN (1) |
|
Other Activities |
|
Brazil |
|
|
|
19.81% |
|
19.81% |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jointly Controlled by Santander Participações S.A.
|
||||||||||||||||
|
PSA Corretora de Seguros e Serviços Ltda. (3) |
|
|
Insurance Broker |
|
Brazil |
|
|
|
50.00% |
|
50.00% |
|||||
|
Significant Influence of Banco Santander
|
||||||||||||||||
|
Norchem Holding e Negócios S.A. (1) |
|
|
Other Activities |
|
Brazil |
|
|
|
21.75% |
|
21.75% |
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments |
||||
|
3/31/2017 |
12/31/2016 |
|||||||||||||||
|
Jointly Controlled by Banco Santander |
|
|
|
568,409 |
578,761 |
|||||||||||
|
Banco RCI Brasil S.A. |
|
|
|
528,763 |
|
538,756 |
||||||||||
|
Norchem Participações e Consultoria S.A. (1) |
|
|
|
|
|
26,819 |
|
26,302 |
||||||||
|
Cibrasec - Companhia Brasileira de Securitização (1) |
|
|
|
7,292 |
|
7,435 |
||||||||||
|
Estruturadora Brasileira de Projetos S.A. - EBP (1) |
|
|
|
5,535 |
|
6,268 |
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jointly Controlled by Santander Serviços |
|
|
|
394,474 |
|
389,678 |
||||||||||
|
Webmotors S.A. (4) |
|
|
|
|
|
|
|
|
252,090 |
|
246,965 |
|||||
|
Tecnologia Bancária S.A. - TECBAN (1) |
|
|
|
|
|
|
|
142,384 |
|
142,713 |
||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
Jointly Controlled by Santander Participações S.A. |
|
|
|
|
|
743 |
|
658 |
||||||||
|
PSA Corretora de Seguros e Serviços Ltda. (3) |
|
|
|
|
|
|
|
|
743 |
|
658 |
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant Influence of Banco Santander |
|
|
|
|
|
21,332 |
|
20,980 |
||||||||
|
Norchem Holding e Negócios S.A. (1) |
|
|
|
|
|
|
|
|
21,332 |
|
20,980 |
|||||
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
984,958 |
|
990,077 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Results of Investments |
||
|
1/01 to
|
1/01 to
|
|||||||||||||||
|
Jointly Controlled by Banco Santander |
|
|
|
|
210 |
|
6,957 |
|||||||||
|
Banco RCI Brasil S.A. |
|
|
|
|
|
324 |
|
7,265 |
||||||||
|
Norchem Participações e Consultoria S.A. (1) |
|
|
|
|
|
517 |
|
489 |
||||||||
|
Cibrasec - Companhia Brasileira de Securitização (1) |
|
|
|
|
|
102 |
|
(221) |
||||||||
|
Estruturadora Brasileira de Projetos S.A. - EBP (1) |
|
|
|
|
|
(733) |
|
(576) |
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jointly Controlled by Santander Serviços |
|
|
|
|
4,798 |
|
9,455 |
|||||||||
|
Webmotors S.A. (4) |
|
|
|
|
|
5,126 |
|
5,460 |
||||||||
|
Tecnologia Bancária S.A. - TECBAN (1) |
|
|
|
|
|
(328) |
|
3,995 |
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jointly Controlled by Santander Getnet |
|
|
|
|
|
- |
|
(556) |
||||||||
|
iZettle do Brasil Meios de Pagamento S.A. (1) (2) |
|
|
|
|
|
|
|
|
- |
|
(556) |
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jointly Controlled by Santander Participações S.A. |
|
|
|
|
|
84 |
|
- |
||||||||
|
PSA Corretora de Seguros e Serviços Ltda. (3) |
|
|
|
|
|
|
|
|
84 |
|
- |
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant Influence of Banco Santander |
|
|
|
|
|
|
|
352 |
|
299 |
||||||
|
Norchem Holding e Negócios S.A. (1) |
|
|
|
|
|
|
352 |
|
299 |
|||||||
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
5,444 |
|
16,155 |
20
21
22
23
24
25
|
b) Provisions for civil, labor, tax and social security contingencies |
|||||||||||||||||
|
Banco Santander and its subsidiaries are involved in litigation and administrative tax, labor and civil proceedings arising in the normal course of its activities. |
|||||||||||||||||
|
The provisions were constituted based on the nature, complexity and history of actions and evaluation loss of company stock businesses based on the opinions of internal and external legal advisors. The Santander has the policy to accrue the full amount of lawsuits whose loss valuation is probable. The legal obligation statutory tax and social security were fully recognized in the financial statements. |
|||||||||||||||||
|
Management understands that the provisions recorded are sufficient to meet legal obligations and losses from lawsuits and administrative proceedings as follows: |
|||||||||||||||||
|
b.1) Lawsuits and Administrative Tax and Social Security |
|||||||||||||||||
|
The main lawsuits related to tax legal obligations, recorded in the line "Tax Liabilities - Current", fully registered as obligation, are described below: |
|||||||||||||||||
|
• PIS and Cofins - R$3,355,048 (12/31/2016 - R$3,290,900): 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 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. The Banco Santander's PIS and the PIS and Cofins liabilities of the other controlled companies are pending final judgment by the STF. |
|||||||||||||||||
|
• Increase in CSLL tax rate - R$868,003 (12/31/2016 - R$851,744) – The Bank and its subsidiaries are discussing the increase in the CSLL tax rate, from 9% to 15%, established by Executive Act 413/2008, which subsequently became Law 11,727/2008, in April 2008. Judicial proceedings are pending of judgment. |
|||||||||||||||||
|
Banco Santander and its subsidiaries are parties to judicial and administrative proceedings related to tax and social security matters, which are classified based on the opinion of legal counsel as probable loss risk. |
|||||||||||||||||
|
The main topics discussed in these lawsuits are: |
|||||||||||||||||
|
• CSLL - equal tax treatment - R$54,704 (12/31/2016 - R$54,245) - The Bank and its subsidiaries filed a lawsuit challenging the application of an increased CSLL rate of 18% for financial companies, applicable until 1998, compared to the CSLL rate of 8% for non-financial companies on the basis of the constitutional principle of equal tax treatment. |
|||||||||||||||||
|
• Tax on Services for Financial Institutions (ISS) - R$642,730 (12/31/2016 - R$621,437): The Bank and its subsidiaries filed lawsuits, in administrative and judicial proceedings, some municipalities collection of ISS on certain revenues derived from transactions not usually classified as services. |
|||||||||||||||||
|
• Social Security Contribution (INSS) - R$254,741 (12/31/2016 - R$266,391): The Bank 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. |
|||||||||||||||||
|
• Provisional Contribution on Financial Transactions (CPMF) on Customer Operations - R$697,487 (12/31/2016 – R$689,987) : 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 Bank to Santander DTVM in 2000, 2001 and the first two months of 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 a 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 Santander DTVM had obtained a non favorable decision at CARF. On July 3rd , 2015 Bank and Produban Serviços de Informática S.A. (actual Santander DTVM company name) filed lawsuit aiming to cancel both tax charges, on March 31, 2017 amounting R$1,397 million. Based on the assessment of legal counsel, provision was made to cover the probable loss in the lawsuit. |
|||||||||||||||||
|
b.2) Lawsuits and Administrative Proceedings - Labor Contingencies |
|||||||||||||||||
|
These are lawsuits brought by labor Unions, Associations, Public Prosecutors and former employees claiming labor rights they believe are due, especially payment for overtime and other labor rights, including retirement benefit lawsuits. |
|||||||||||||||||
|
For claims considered to be similar and usual, provisions are recognized based on the history of payments and successes. Claims that do not fit the previous criteria are accrued according to individual assessment performed, and provisions are based on the probable loss, the law and jurisprudence according to the assessment of loss made by legal counsel. |
|||||||||||||||||
|
b.3) Civil judicial and administrative proceedings |
|||||||||||||||||
|
These provisions are generally caused by: (1) Action with a request for revision of contractual terms and conditions or requests for monetary adjustments, including supposed effects of the implementation of various government economic plans, (2) action deriving of financing agreements, (3) execution action; and (4) action indemnity by loss and damage. For civil actions considered common and similar in nature, provisions are recorded based on the average of cases closed. Sawsuits that do not fit the previous criteria are accrued according to individual assessment performed, and provisions are based on the probable loss, the law and jurisprudence according to the assessment of loss made by legal counsel. |
|||||||||||||||||
|
The main lawsuits classified as probable loss are described below: |
|||||||||||||||||
|
Lawsuits for indemnity - seeking indemnity for property damage and/or emotional distress, regarding the consumer relationship on matters related to credit cards, consumer credit, bank accounts, collection and loans and other operations. In the civil lawsuits considered to be similar and usual, provisions are recorded based on the average of cases closed. Civil lawsuits that do not fit into the previous criterion are accrued according to the individual assessment made, and provisions are recognized based on the probable loss, the law and jurisprudence according to the assessment of loss made by legal counsel. |
|||||||||||||||||
26
|
Economic Plans - efforts to recover actions with collective the deficient inflation adjustments in savings accounts arising from the Economic Plans (Bresser, Verão, Collor I and II). These refer to the lawsuits filed by savings accountholders disputing the interest credited by the Banco Santander under such plans as they considered that such legal amendments infringed on the rights acquired with regard to the application of the inflation indexes. Provisions are recorded based on the average losses of cases closed. |
|||||||||||||||||
|
Civil lawsuits that do not fit into the previous criterion are accrued according to the individual assessment made, and provisions are recognized based on the probable loss, the law and jurisprudence according to the assessment of loss made by legal counsel. The Banco Santander is also a party in public class action suits on the same issue filed by consumer rights organizations, Public Prosecutor’s Offices and Public Defender’s Offices. In these cases, the provision is made only after the final unappeasable sentence is handed down on the lawsuits, based on the individual execution orders. The Superior Tribunal da Justiça (STJ - Justice Superior Court) decided against the bank’s. The STF is still analyzing the subject and has already ordered the suspension of all the procedures except those that were not already decided in trial courts and those who have a final decision. However, the assessment of this question is paralyzed in the Supreme Court for lack of quorum, considering that some of his ministers declared themselves unable to judge the matter and therefore is likely to judgment remains paralyzed for several years yet. There are decisions favorable to banks at the STF with regard to the economic phenomenon similar to that of savings accounts, as in the case of monetary restatement of time deposits - CDB and agreements (present value table). |
|||||||||||||||||
|
Moreover, there are precedents at the STF regarding the constitutionality of the norms that changed Brazil’s monetary standard. On April 14, 2010, in the STJ was recently decided that the deadline for the filing of civil lawsuits that argue the government's purge of five years, but this decision not handed down on the lawsuits yet. Thus, with this decision, a majority stake, as was proposed after the period of 5 years is likely to be rejected, reducing the values involved. Still, the STF decided that the deadline for individual savers to qualify in the public civil litigations, also is five years, counted from the final judgment of their sentence. Banco Santander believes in the success of the arguments defended in these courts based on their content and the sound legal basis. |
|||||||||||||||||
|
b.4) Civil, labor, tax and social security contingencies classified as possible loss risk |
|||||||||||||||||
|
Refer to judicial and administrative proceedings involving civil, labor, tax and social security matters assessed by the legal counsels as possible loss risk, which were not being accrued as a provision. |
|||||||||||||||||
|
Tax lawsuits classified as possible loss risk, totaled R$18,525 million, including the following main lawsuits: |
|||||||||||||||||
|
• Credit Losses - The Bank and its companies challenged the tax assessments issued by the Federal Revenue Services claiming improper deduction of losses on loans on Income Tax of Legal Entities IRPJ and CSLL bases for allegedly failing to meet the relevant requirements under applicable law. As of March 31, 2017 the amount related to this challenge is approximately R$797 million. |
|||||||||||||||||
|
• INSS on Profit Sharing Payments (“PLR”) – The Bank and the subsidiaries are involved in several legal and administrative proceedings against the tax authorities in connection with the taxation for social security purposes of certain items which are not considered to be employee remuneration. As of March 31, 2017 amounts related to these proceedings totaled approximately R$3,730 million. |
|||||||||||||||||
|
• IRPJ and CSLL - Capital Gain - The Federal Revenue Service of Brazil issued infraction notices against Santander Seguros, successor company of ABN AMRO Brasil Dois Participações S.A. (AAB Dois Par), charging income Tax and Social Contribution to related base year 2005. The Federal Revenue Service of Brazil claiming that capital gain in sales shares of Real Seguros S.A and Real Vida Previdência S.A. by AAB Dois Par should be taxed an rate of 34% instead 15%. The assessment was contested administratively based on understanding tax treatment adopted at the transaction was in compliance and capital gain was taxed properly. The administrative process is awaiting trial. The Banco Santander is responsible for any adverse outcome in this process as Former Controller of Stockholders Zurich Santander Brasil Seguros e Previdência S.A. As of March 31, 2017 the amount related to this proceeding is approximately R$283 million. |
|||||||||||||||||
|
• Goodwill amortization of Banco Real – The Brazilian Federal Revenue issued infraction notices against the Bank to require the income tax and social payments, including late charges, for the base period of 2009. The Tax Authorities considered that the goodwill related to acquisition of Banco Real, amortized for accounting purposes prior to the merger, could not be deduced by Banco Santander for tax purposes. The infraction notices was contested. On July 14, 2015, the Police Judging RFB decided favorably to Banco Santander, fully canceling the tax debt. This decision will craft appealed before the CARF. On March 31, 2017, the figure was R$1,281 million. |
|||||||||||||||||
|
• Goodwill amortization of Banco Sudameris – The Tax Authorities have issued infraction notices to require the income tax and social contribution payments, including late charges, relating to tax deduction of amortization of goodwill from the acquisition of Banco Sudameris, related period of 2007 to 2012. Banco Santander presented the respective administrative defenses, which are pending. On March 31, 2017, the figure was R$581 million. |
|||||||||||||||||
|
• Unrecognized Compensation – R$2,151 million: The Bank and its affiliates discuss administrative and legal proceedings with the Brazilian Federal Revenue, the not ratification of tax offsets with credits due to overpayment or undue payment. |
|||||||||||||||||
|
The labor lawsuits classified as possible loss risk totaled R$14 million, excluding the lawsuit below: |
|||||||||||||||||
|
• Semiannual Bonus or Profit Sharing - a labor lawsuit relating to the payment of a semiannual bonus or, alternatively, profit sharing, to retired employees from the former Banco do Estado de São Paulo S.A. - Banespa, that had been hired up to May 22, 1975, filed as Banespa’s Retirees Association. This lawsuit was dismissed against the Bank by the Superior Labor Court. The STF rejected the extraordinary appeal of the Bank by a monocratic decision maintaining the earlier condemnation. Santander brought Regimental Appeal which awaits decision by the STF. The Regimental Appeal is an internal appeal filed in the STF itself, in order to refer the monocratic decision to a group of five ministers. The 1st Class of the STF upheld the appeal by the Bank and denied the Afabesp. The materials of the extraordinary appeal of the Bank now proceed to the STF for decision on overall impact and judgment. The amount related to this claim is not disclosed due to the current stage of the lawsuit and the possible impact such disclosure may have on the progress of the claim. |
|||||||||||||||||
|
Readjustment of Banesprev retirement complements by the IGPDI - lawsuit filed in 2002 in Federal Court by the Association of Retired Employees of the Bank of the State of São Paulo requesting the readjustment of the supplementation of retirement 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 was 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 regard in the High Courts is around 90%. 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 listed as authors in other actions or have already had some type of adjustment. The amount related to this action is not disclosed due to the current stage of the process and the possible impact that such disclosure may generate on the progress of the action. |
|||||||||||||||||
|
The liabilities related to civil lawsuits with possible loss risk totaled R$1,218 million, the main lawsuit as follows: |
|||||||||||||||||
27
|
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 related to custody services - provided by Banco Santander (Brasil) S.A. at an early stage and still not handed down; |
|
Lawsuit arising out of a contractual dispute - the acquisition of Banco Geral do Comércio S.A. on appeal to the Court of the State of São Paulo (TJSP - Tribunal de Justiça do Estado de São Paulo). |
28
29
30
31
32
33
34
35
36
37
|
Thousands of Real |
|
1/01 to 3/31/2017 |
||||||||||||||
|
|
Parent (1) |
Joint-controlled
|
Other Related-Party (2) |
|||||||||||||
|
Income |
|
|
|
|
|
|
|
|
|
|
|
(64,584) |
|
21,584 |
|
(336,240) |
|
Interest and similar income - Loans and amounts due from credit institutions |
|
|
|
21,132 |
|
20,311 |
|
133 |
||||||||
|
Banco Santander Spain |
|
21,132 |
|
- |
|
- |
||||||||||
|
Banco RCI Brasil S.A. |
|
- |
|
20,311 |
|
- |
||||||||||
|
Abbey National Treasury Services Plc |
|
- |
|
- |
|
133 |
||||||||||
|
Interest expense and similar charges - Customer deposits |
|
|
|
|
|
- |
|
(2,032) |
|
(5,039) |
||||||
|
ISBAN Brasil S.A. |
|
- |
|
- |
|
(501) |
||||||||||
|
Santander Securities Services Brasil Participações S.A. |
|
- |
|
- |
|
(1,864) |
||||||||||
|
Santander Brasil Gestão de Recursos Ltda |
|
- |
|
- |
|
(2,211) |
||||||||||
|
Santander Cultural |
|
- |
|
- |
|
(10) |
||||||||||
|
Webmotors S.A. |
|
- |
|
(2,032) |
|
- |
||||||||||
|
Produban Serviços de Informática S.A. |
|
- |
|
- |
|
(417) |
||||||||||
|
Others |
|
|
|
|
|
|
|
|
|
|
|
- |
|
- |
|
(36) |
|
Interest expense and similar charges - Deposits from credit institutions |
|
(4,214) |
|
(520) |
|
(198,631) |
||||||||||
|
Banco Santander Spain |
|
(4,214) |
|
- |
|
- |
||||||||||
|
Banco RCI Brasil S.A. |
|
- |
|
(520) |
|
- |
||||||||||
|
Santander Securities Services Brasil DTVM S.A |
|
|
|
- |
|
- |
|
(6,697) |
||||||||
|
SAM Brasil Participações |
|
- |
|
- |
|
(32) |
||||||||||
|
Real Fundo de Investimento Multimercado Santillana Credito Privado |
|
- |
|
- |
|
(191,522) |
||||||||||
|
Santander Asset Management, S.A. SGIIC. |
|
- |
|
- |
|
(380) |
||||||||||
|
Fee and commission income (expense) |
|
|
|
|
|
|
|
(1,442) |
|
3,825 |
|
490,546 |
||||
|
Banco Santander Spain |
|
(1,442) |
|
- |
|
- |
||||||||||
|
Banco RCI Brasil S.A. |
|
- |
|
3,822 |
|
- |
||||||||||
|
Banco Santander International |
|
- |
|
- |
|
3,658 |
||||||||||
|
Webmotors S.A. |
|
- |
|
3 |
|
- |
||||||||||
|
Zurich Santander Brasil Seguros S.A. |
|
- |
|
- |
|
59,592 |
||||||||||
|
Zurich Santander Brasil Seguros e Previdência S.A. |
|
- |
|
- |
|
426,892 |
||||||||||
|
Other |
|
- |
|
- |
|
404 |
||||||||||
|
Debt Instruments Eligible to Compose Capital |
|
|
|
|
|
|
|
(54,978) |
|
- |
|
- |
||||
|
Banco Santander Spain (2) |
|
(54,978) |
|
- |
|
- |
||||||||||
|
Gains (losses) on financial assets and liabilities and exchange differences (net) |
|
(25,082) |
|
- |
|
(373,705) |
||||||||||
|
Banco Santander Spain |
|
(25,082) |
|
- |
|
- |
||||||||||
|
Real Fundo de Investimento Multimercado Santillana Credito Privado |
|
- |
|
- |
|
(368,204) |
||||||||||
|
Abbey National Treasury Services Plc |
|
- |
|
- |
|
2,387 |
||||||||||
|
Other |
|
- |
|
- |
|
(7,888) |
||||||||||
|
Administrative expenses and amortization |
|
|
|
|
|
|
|
- |
|
- |
|
(244,690) |
||||
|
ISBAN Brasil S.A. |
|
- |
|
- |
|
(86,668) |
||||||||||
|
Produban Serviços de Informática S.A. |
|
- |
|
- |
|
(53,000) |
||||||||||
|
Aquanima Brasil Ltda. |
|
- |
|
- |
|
(6,411) |
||||||||||
|
TECBAN - Tecnologia Bancaria Brasil |
|
- |
|
- |
|
(63,686) |
||||||||||
|
Produban Serviços de Informática S.A. (Produban Spain) |
|
- |
|
- |
|
(8,737) |
||||||||||
|
Santander Securities Services Brasil DTVM S.A |
|
- |
|
- |
|
(9,999) |
||||||||||
|
Ingeniería de Software Bancario, S.L. |
|
- |
|
- |
|
(15,337) |
||||||||||
|
Other |
|
- |
|
- |
|
(852) |
||||||||||
|
Other Administrative expenses - Donation |
|
- |
|
- |
|
(4,854) |
||||||||||
|
Santander Cultural |
|
- |
|
- |
|
(1,004) |
||||||||||
|
Fundação Santander |
|
- |
|
- |
|
(350) |
||||||||||
|
Fundação Sudameris |
|
- |
|
- |
|
(3,500) |
||||||||||
38
39
40
41
42
43
44
45
46
47
48
|
APPENDIX I – STATEMENTS OF VALUE ADDED |
|||||||||||||||||
|
The following Statements of value added is not required under IAS 34 but being presented as supplementary information as required by Brazilian Corporate Law for publicly-held companies, and has been derived from the Bank´s consolidated financial statements prepared in accordance with IAS 34. |
|||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1/01 to 3/31/2017 |
1/01 to 3/31/2016 |
||||||||||||||||
|
Interest and similar income |
|
19,123,901 |
|
|
|
18,868,432 |
|
|
|||||||||
|
Fee and commission income (net) |
|
3,036,038 |
|
|
|
2,407,044 |
|
|
|||||||||
|
Impairment losses on financial assets (net) |
|
(3,285,397) |
|
|
|
(2,757,652) |
|
|
|||||||||
|
Other income and expense |
|
55 7 ,937 |
|
|
|
236,514 |
|
|
|||||||||
|
Interest expense and similar charges |
|
(10,899,863) |
|
|
|
(11,272,589) |
|
|
|||||||||
|
Third-party input |
|
(1,514,332) |
|
|
|
(1,445,812) |
|
|
|||||||||
|
Materials, energy and other |
|
(124,259) |
|
|
|
(139,961) |
|
|
|||||||||
|
Third-party services |
|
(1,190,003) |
|
|
|
(1,109,503) |
|
|
|||||||||
|
Impairment of assets |
|
(42,057) |
|
|
|
(40,839) |
|
|
|||||||||
|
Other |
|
(158,013) |
|
|
|
(155,509) |
|
|
|||||||||
|
Gross added value |
|
7,01 8 ,284 |
|
|
|
6,035,937 |
|
|
|||||||||
|
Retention |
|
|
|
|
|
|
|
|
|||||||||
|
Depreciation and amortization |
|
(398,763) |
|
|
|
(353,296) |
|
|
|||||||||
|
Added value produced |
|
6,619,521 |
|
|
|
5,682,641 |
|
|
|||||||||
|
Added value received from transfer |
|
|
|
|
|
|
|
|
|||||||||
|
Investments in affiliates and subsidiaries |
|
5,444 |
|
|
|
16,155 |
|
|
|||||||||
|
Added value to distribute |
|
6,62 4 ,965 |
|
|
|
5,698,796 |
|
|
|||||||||
|
Added value distribution |
|
|
|
|
|
|
|
|
|||||||||
|
Employee |
|
1,906,224 |
|
28.8% |
|
1,718,447 |
|
30.2% |
|||||||||
|
Compensation |
|
1,382,798 |
|
|
|
1,309,345 |
|
|
|||||||||
|
Benefits |
|
353,759 |
|
|
|
347,612 |
|
|
|||||||||
|
Government severance indemnity funds for employees - FGTS |
|
102,362 |
|
|
|
80,301 |
|
|
|||||||||
|
Other |
|
|
|
|
|
|
|
|
|
67,305 |
|
|
|
(18,811) |
|
|
|
|
Taxes |
|
|
|
|
|
|
|
|
|
2,510,605 |
|
37.9% |
|
1,964,730 |
|
34.5% |
|
|
Federal |
|
|
|
|
|
|
|
|
|
2,508,901 |
|
|
|
1,835,058 |
|
|
|
|
State |
|
|
|
|
|
|
|
|
|
- |
|
|
|
235 |
|
|
|
|
Municipal |
|
|
|
|
|
|
|
|
|
1,704 |
|
|
|
129,437 |
|
|
|
|
Compensation of third-party capital - rental |
|
200,323 |
|
3.0% |
|
184,942 |
|
3.2% |
|||||||||
|
Remuneration of interest on capital |
|
2,00 7 ,813 |
|
30.3% |
|
1,830,677 |
|
32.1% |
|||||||||
|
Dividends and interest on capital |
|
- |
|
|
|
- |
|
|
|||||||||
|
Profit Reinvestment |
|
1,96 1 ,763 |
|
|
|
1,804,663 |
|
|
|||||||||
|
Profit (loss) attributable to non-controlling interests |
|
46,050 |
|
|
|
26,014 |
|
|
|||||||||
|
Total |
|
6,62 4 ,965 |
|
100.0% |
|
5,698,796 |
|
100.0% |
|||||||||
49
50
51
52
|
(2) In the third quarter of 2016, after Getnet got from the Bacen approval to act as a payment institution, the activities of acquiring, as well as their related assets and liabilities are now recorded in this entity. |
|||||||||||||||||||
|
Balances reported above are in accordance with accounting practices established by Brazilian Corporate Law and standards established by the CMN, the Bacen and document template provided in the Accounting National Financial System Institutions (Cosif) and the CVM, that does not conflict with the rules of Bacen. |
|||||||||||||||||||
|
3) Other Significant Events |
|||||||||||||||||||
|
3.1) Functional Currency |
|||||||||||||||||||
|
|
|||||||||||||||||||
|
Banco Santander reevaluated the investment structure of the wholly-owned subsidiary in Madrid (EFC), as it noted that due to the change in the strategy of the operation in practice, this subsidiary has a business model in which the Bank has a significant influence on driving and decision-making of its activities. According to the concept discussed in IAS 21, Management concluded that the functional currency of this investment is the Real and, therefore, this change becomes effective prospectively as from January 2017. In addition, the Hedge Accounting structure of Foreign investment that Banco Santander had on this investment was discontinued as of the date of change of the functional currency. In this way, the functional currency of Santander EFC and the Cayman agency is Real and the exchange rate differences of operations in foreign currency are recorded in the income statement. In order to hedge the exchange rate exposures, the Bank uses derivatives, and for both investments abroad the Bank does not apply Hedge Accounting. Foreign exchange variations on foreign currency transactions and the effect of derivatives used in economic protection (futures contracts) are recorded in the income statement. |
|||||||||||||||||||
|
|
|||||||||||||||||||
|
3.2) Corporate Restructuring |
|||||||||||||||||||
|
The Bank implemented several social movements in order to reorganize the operations and activities of entities according to the business plan of the Banco Santander. |
|||||||||||||||||||
|
a) Partnership Formation with the Hyundai Group in Brazil |
|||||||||||||||||||
|
On April 28, 2016, the Aymoré CFI and Banco Santander entered into a transaction for the formation of a partnership with Hyundai Motor Brasil Montadora de Automóveis Ltda. (Hyundai Motor Brazil) and Hyundai Capital Services, Inc. (Hyundai Capital) for the constitution of Banco Hyundai Capital Brasil S.A. and an insurance brokerage company to provide, respectively, auto finance and insurance brokerage services and products to consumers and Hyundai dealerships in Brazil. The partnership capital structure will have a shareholding of 50% (fifty percent) of Aymoré, 25% (twenty five percent) of Hyundai Capital and 25% (twenty five percent) of Hyundai Motor Brazil. The closing of the transaction shall be subject to the fulfillment of certain conditions precedent usual in similar transactions, including obtaining the applicable regulatory approvals. |
|||||||||||||||||||
|
b) Investment in the Company Super Pagamentos e Administração de Meios Eletrônicos LTDA. (“Super Pagamentos”) |
|||||||||||||||||||
|
On January 4, 2016, Aymoré CFI informed the owners of the shares representing the remaining 50% of Super Pagamentos´s total voting capital its Decision to exercise the call option for the acquisition of such shares, for a value of approximately R$113 million. The transaction was concluded on March 10, 2016. |
|||||||||||||||||||
|
Before the event, qualified Aymoré as Company purchased the remaining equity instruments of Super Pagamentos entity and should therefore consider the paid value of goodwill for expected future profitability (goodwill) as a reduction of shareholders' equity, since, according to the IFRS 10 this transaction is characterized as transactions between partners. For the same reason, the amount paid for the equity value of the interest participation acquired from non-controlling shareholder is a movement among Stockholders' Equity accounts. |
|||||||||||||||||||
|
c) Agreement on the Acquisition, of part of the Financial Operation of PSA Group in Brazil and a Consequent Creation of a Joint Venture |
|||||||||||||||||||
|
On August 1, 2016, after the fulfillment of the applicable conditions precedent, including obtaining the appropriate regulatory approvals, Aymoré CFI and Banco Santander, in the context of a partnership between the Banque PSA Finance ("Banque PSA") and Santander Consumer Finance in Europe for joint operation of the vehicle financing business of PSA brands (Peugeot, Citroën and DS), signed definitive documents for the formation of a financial cooperation with Banque PSA for offering a range of financial and insurance products to consumers and dealers of PSA in Brazil. |
|||||||||||||||||||
|
The main vehicle of financial cooperation is Banco PSA Finance Brasil S.A. who is being held in the proportion of 50% by Aymoré CFI, a subsidiary of Banco Santander, and 50% by Banque PSA. The purchase price was equal to the book value (proportional) on the closing date (08/01/2016). The operation also included the acquisition by Banco Santander subsidiary, 100% of PSA Finance Arrendamento Mercantil S.A., whose price was equivalent to 74% of the equity value on the closing date, and also 50% of PSA Corretora de Seguros e Serviços Ltda., whose price was equal to the book value (proportional) on the closing date. |
|||||||||||||||||||
|
Banco Santander started to consolidate these entities from August 1, 2016. |
|||||||||||||||||||
|
d) Other Corporate Events |
|||||||||||||||||||
|
We also performed the following corporate actions: |
|||||||||||||||||||
|
• On July 14, 2016, was completed the sale transaction of 100% of the shares representing the capital stock of Mantiq by Banco Santander and the Santander Participações to Angra Ventures Participações Ltda. |
|||||||||||||||||||
|
• In June 2016 the holding in the iZettle S.A. Brazil was sold in its entirety. |
|||||||||||||||||||
|
• On April 30, 2015, the merger and consequent extinction of the company Go Pay by Getnet it were formalized. |
|||||||||||||||||||
|
3.3) Subsequent Events |
|||||||||||||||||||
|
|
|||||||||||||||||||
|
3.3.1) Public offering of Qatar Holding LLC |
|||||||||||||||||||
|
On April 11, 2017, Banco Santander in Brasil informed its shareholders and the market in general, in furtherance of the material facts disclosed on March 28, 2017 and April 6, 2017, the settlement of the secondary public offering for the distribution of 80,000,000 units issued by Banco Santander in Brasil and held by Qatar Holding LLC (Selling Shareholder), including in the form of American Depositary Shares (ADSs), having been allocated 22,000,000 Units for the Brazilian offering and 58,000,000 ADSs for the international offering. The price per Unit was set at R$25.00, resulting on a total amount of R$2 million. Additionally, the amount of Units of the international offering initially offered was increased by an additional batch of 12,000,000 Units. |
|||||||||||||||||||
|
|
|||||||||||||||||||
|
3.3.2) Distribution of Interest on Capital |
|||||||||||||||||||
|
The Board of Directors, at the meeting held on April 25th, 2017, approved the Board of Executive Officers’ proposal for the distribution of Interest on Banco Santander’s Equity, in the gross amount of R$500 million, which, after the deduction of the amount related to the Income Tax Withheld at Source, pursuant to the laws in force, result the net amount corresponding to R$425 million. |
|||||||||||||||||||
|
4) Strategy |
|||||||||||||||||||
|
Banco Santander is the only international bank with a scale in the country. The Bank is sure that the way to grow in a recurring and sustainable way is to provide excellent services to increase the level of satisfaction and obtain more clients, more linked. The Bank's operations are based on a close and lasting relationship with customers, suppliers and shareholders. For this, the purpose is to contribute to people and businesses to prosper, being a Simple, Personal and Fair Bank, with the following strategic priorities: |
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|
• Increase customer preference and engagement with segmented, simple, digital, innovative and efficient products and services through a multi-channel platform; |
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|
• Improve recurrence and sustainability, growing in businesses with greater revenue diversification, with a balance between credit, funding and service delivery. At the same time maintaining a preventive risk management and strict control of expenses; |
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|
• Maintain capital and liquidity discipline, to maintain soundness, address regulatory changes and seize growth opportunities; and |
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|
• Increase productivity through an intense schedule of business and operational improvements, enabling a complete portfolio of services. |
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|
In the first quarter of 2017, the Bank continued advancing on several strategic fronts, of which the following stand out: |
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53
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Digital Advances |
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|
Reinforcing the digital experience at the end of March 2017: |
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|
• Banco Santander surpassed the 2 million downloads mark of Santander Way - the Santander card management application; |
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|
• The digital process for the opening of a current account was launched, which is being carried out through mobile, tablet and internet; |
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|
• For the customers of Santander Corretora, the new Application was launched, which allows more agility in consultations, recommendations and investments; |
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|
• For SMEs, the Santander Companies APP, now transactional and not only advisory, was remodeled. In addition, the Santander ID was replaced, which replaces the token companies, with authentication technology with extra security in Internet Banking and In the Business Application, which is already integrated; |
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|
• For individual customers, more functionalities were made available in the application, ID Santander implemented, replacing the online security card and the new Internet Banking with more navigation facilities; |
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|
• With all these actions, Bando Santander continued to expand the number of digital customers, which reached 6.9 million + 1.8MM in twelve months and continues to expand digital transactions, which already represent 76% of total bank transactions, An increase of 7.7 percentage points in the last twelve months. |
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|
5) Rating Agencies |
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|
Banco Santander is rated by international ratings agencies and the ratings assigned reflect many factors including management quality, operating performance and financial strength, as well as other factors related to the financial sector and economic environment in which the Bank is inserted, having the long-term foreign currency rating limited to the sovereign rating. The table below presents the ratings assigned by the rating agencies Standard & Poor's and Moody's: |
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|
|
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|
6) Corporate Governance |
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|
The Board of Directors approved, in a meeting held on April 25, 2017, the Banco Santander's Interim Consolidated Financial Statements for the period ended March 31, 2017, prepared in accordance with the International Financial Reporting Standards (IFRS). |
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|
The Board of Directors was informed, in a meeting held on March 28, 2017, the resignation of Mr. Marcio Aurelio de Nobrega of his position as Director without specific designation of the Bank, in accordance with the letter of resignation presented to the Board of Directors on March 10, 2017. |
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54
|
The Board of Directors approved, in a meeting held on February 22, 2017, a review of Governance of the Board of Directors, in the following terms: (i) the amendment of the internal regulations of the Nominating, Governance and Compliance Committee, reflecting its scope and denomination, passing such a body to be called the Nominating and Governance Committee; (ii) the amendment of the internal regulations of the Sustainability and Society Committee, reflecting it denomination, passing such a body to be called the Sustainability Committee; (iii) the amendment of the internal regulations of the Risk Committee, reflecting its scope and denomination, passing such a body to be called the Risk and Compliance Committee; (iv) to appoint, as a member of the Compensation Committee, pursuant to Art. 17, XXI of the Bylaws, Mr. Celso Clemente Giacometti; (v) to appoint, as a member of the Nominating and Governance Committee, Mr. Luiz Fernando Sanzogo Giorgi. |
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|
7) Risk Management |
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|
7.1) Corporate Governance of the Risk Function |
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|
The organizational structure of the Executive Vice President of Risks, which is independent from commercial areas, is composed by areas responsible for the management of the financial and non-financial risks, with management segregated by segments (individuals retail, companies retail and wholesale). |
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|
A specific Control and Risks Consolidation department has the mission to report a consolidated view of all risks to the local management and to the Group’s governance, as well as to improve risk appetite and risk assessment exercise (Risk Identification & Assessment). It is also responsible for developing the relationship with supervisors and regulators on risks subjects, altogether with Santander Risk Group, in Spain. It is supported by: Enterprise Risk Management, Credit Consolidation and control, model risks, non-financial risks and associate companies risk control. |
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|
Another department includes a set of transverse functions (Governance, Policy, Risk Culture, Methodology, Stress Test, Capital and Risk MI) necessary for an advanced risk management model. |
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|
The structure of Banco Santander's risk committees is defined with a prudent management standard, appropriate to the business and always respecting the local regulatory and regulatory environment. |
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|
The governance model is structured both in a vision of Decision, focusing on examination and approval of credit proposals and limits, as in the Control, aiming the full control of risks |
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|
The fundamental principles that rule the risk governance model are: |
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|
• Independence of the risks in relation to business area; |
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|
• Involvement of management in Decision making; and |
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|
• Collegiate Decisions and consensus on credit operations. |
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|
The ERC - Executive Risk Committee is the local Decision-making forum with representatives of the Bank's management, including the CEO, Vice President and the other members of the Executive Board. |
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|
The CCR - Risk Control Committee is the control and monitoring local forum with representatives of the Bank's management, including the VPE of risks and the VPE of finance. |
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|
The relevant issues of risk management or those that exceed the jurisdiction of these committees are forward and Decided by the Board of Directors. |
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|
Further details of the structure, methodologies and control system related to risk management is described in the report available on the website www.santander.com.br. |
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|
7.2) Structure of Capital Management |
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|
The goal is to achieve an efficient capital structure, meeting the regulatory requirements and contributing to reach the goals regarding the classification of rating branches. The capital management including securitization, sale of assets, raising capital through shares issues, subordinated debt and hybrid instruments. |
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|
The capital management seeks to optimize value creation in the Banco Santander and the different business units. To this end, capital management, Return on Risk Adjusted Capital (RORAC) and the creation of data values for each business unit are generated. The Banco Santander uses a measurement model of economic capital in order to ensure it has enough capital available to support the risks of economic activity in different scenarios, with solvency levels agreed by the Group. |
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|
Projections of economic and regulatory capital are made based on financial projections (Balance Sheet, Income Statements, etc.) and macroeconomic scenarios estimated by the economic research service of the Financial Management area. The economic capital models are essentially designed to generate risk-sensitive estimates with two goals in mind: more precision in risk management and allocation of economic capital to various units of Banco Santander. |
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|
7.3) Credit Risk |
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|
Credit risk is the exposure to losses in the event of total or partial default of the clients or the counterparties in the fulfillment of their financial obligations with Banco Santander. Credit risk management seeks to provide support for the definition of strategies, in addition to setting limits, covering analysis of exposures and trends, as well as the effectiveness of credit policy. The objective is to maintain a risk profile and adequate minimum profitability that compensates the estimated default risk of the client and the portfolio, as defined by the Executive Committee. |
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|
7.4) Market Risk |
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|
Market risk is exposure to risk factors including interest rates, exchange rates, commodities prices, stock market prices and other values, according to the type of product, the volume of operations, terms and conditions of the agreement and underlying volatility. Market risk management includes practices of measuring and monitoring the use of limits that are pre-set by internal committees, of the value at risk of the portfolios, of sensitivity to fluctuating interest rates, of exposure to foreign exchange rates, of liquidity gaps, among other practices which the control and monitoring of the risks which might affect the position of Banco Santander portfolios in the different markets in which the Bank operates. |
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|
For this, the Bank it has developed its own Risk Management model, the following principles: |
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55
|
• Functional independence; |
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|
• Executive capacity sustained by knowledge and customer proximity; |
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|
• Global scope (different types of risk); |
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|
• Collective Decisions that evaluate all possible scenarios and not compromise the results of individual Decisions, including Executive Risk Committee (ERC), which sets limits and approves the transactions and the Executive Committee of Assets and Liabilities, which is responsible for the management of capital and structural risks, which includes country risk, liquidity and interest rates; |
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|
• Management and optimization of the risk/return; and |
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|
• Advanced methodologies for risk management, such as Value at Risk (VaR) (historical simulation of 521 days, with a confidence level of 99% and a time horizon of one day), scenarios, sensitivity of net interest income, asset value and sensitivity contingency plan. |
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|
The structure of market Risk is part of the Vice President of Risks, which implements the policies of risk. |
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|
7.5) Environmental and Social Risk |
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|
Social and environmental risk management for the wholesale banking customers is accomplished through a management system for customers who have credit limits or credit risk above R$1 million, which considers aspects such as contaminated land, deforestation, working conditions and other social and environmental points of attention in which there is possibility of penalties. A specialized team, with background in Biology, Geology, Health and Safety Engineering and Chemical Engineering, monitors the environmental practices of our wholesale clients. The financial analysis team studies the potential damage and impacts that adverse social and environmental situations may cause to the financial condition of customers and their guarantees. The analysis focuses on preserving capital and market reputation, and the dissemination of this practice is achieved by constant training of both commercial and risk areas on the application of social and environmental risk standards in the credit approval process for corporate client. |
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|
The Bank's Social and Environmental Risk Policy is included under the Social and Environmental Responsibility Policy of the Bank, in accordance with Resolution 4,327 of CMN. |
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|
7.6) Operational Risk Management, Internal Controls, Sarbanes-Oxley Act and Internal Audit |
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|
Operational risk losses can occur due to inadequate processes, people and systems failures or even from external events such as natural disasters, terrorism, robbery and vandalism. Operational risk losses may result in financial losses, adversely affect the continuity of the business and also negatively affect the public’s image of the Bank. |
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|
To accomplish the operational risk objectives, was established an operational risk model based on three lines of defense, with the objective of continuously improving and developing the management and control of operational risks. The three lines of defense are as follows: |
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|
• First line of defense: all business and support areas within Banco Santander are responsible for identifying, managing, mitigating and reporting operational risk; |
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|
• Second line of defense: the non-financial risk unit is responsible for monitoring and ensuring sound operational and technological risk management practices throughout the organization. It is also responsible for implementing and disseminating our operational risk culture, defining methodologies, policies, tools, training and applicable procedures and requirements for the effective management of operational risk and of ensuring there is adequate business contingency planning in place throughout the organization; and |
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|
• Third line of defense: the internal audit department is responsible for undertaking independent reviews of the risk management undertaken by the first and second lines of defense and for promoting continuous improvements in both of these lines of defense. |
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|
The objectives of the operational risk management model are: |
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|
• 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, legal and reputational impacts; |
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|
• to provide support to decision-makers within Banco Santander; |
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|
• to ensure the business continuity in a sustainable manner and to improve internal controls; and |
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|
• to maintain control of the operational risk in a manner which is consistent with our business strategy. |
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|
The following bodies are involved in the implementation of the risk management model: |
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|
• Risk Control Committee: A committee which aims to perform a holistic and periodic monitoring of the risks to which the Bank is exposed and to exercise independent control on the risk management activities; |
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|
• Operational Risk Operational Committee: A committee which aims to ensure and to foster the adequate monitoring, control and mitigation of operational risks; and |
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|
• Operational Risk Forum: An independent forum, responsible for implementing and disseminating cultural norms, methodologies, standards, policies, tools, training and procedures applicable and required for the effective and efficient management and control of operational risk. |
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|
The risk management model assists managers in achieving their strategic objectives by contributing to the decision-making process and by reducing operational risk losses. It is based on best market practice in the identification, assessment, monitoring, management and control of risks. It is compliant with the applicable regulatory requirements and seeks to ensure the sustained improvement of the internal controls environment. |
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|
Internal Audit reports directly to the Board of Directors, whose activities are supervised by the Audit Committee. |
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|
Internal Audit’s objective is to supervise the compliance, efficiency and effectiveness of internal control systems, as well as the reliability and quality of accounting information. Thus, all Banco Santander’s companies, business units, departments and core services are under its scope of application. The Internal Audit has quality certificate issued by the Institute of Internal Auditors (IIA). |
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56
|
The Audit Committee and the Board of Directors were informed on Internal Audit’s works to be done during the year 2016, according to its annual plan. |
|||||||||||||||||||
|
The Audit Committee favorably reviewed the annual work plan of the Internal Audit and approved of the activity report for the year 2017. |
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|
In order to perform its duties and reduce coverage risks inherent to Conglomerate's activities, the Internal Audit area has internally-developed tools updated whenever necessary. |
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|
Among these tools, it is worth mentioning the risk matrix, for it is used as a planning tool, prioritizing each unit’s risk level, based on, among others, its inherent risks, audit’s last rating, level of compliance with recommendations and size.
|
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|
Throughout the first quarter of 2017, internal control procedures and controls on information systems pertaining to units under analysis were assessed according to the work plan for 2017, taking into account their design and operating effectiveness. |
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|
8) People |
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|
When the discussion is about the growth and development of Banco Santander, a force stands out: the People. Having a motivated and dedicated employees is a Decisive factor in making the Bank in the best bank for customers and the best company for professionals. |
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|
Professionals are the strongest link between the Bank and customers and so, day after day, Banco Santander enhances their management practices because knows only with engaged professional, motivated, well trained and with full professional development, the Bank will manage to get more and better customers, satisfied, proud to do business with us and the Santander brand. |
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|
The daily performance of the Banco Santander with customers, employees, shareholders and society is guided by the purpose of the Bank to contribute to people and businesses to prosper and the way you act. |
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|
The Bank has a talented and dedicated team of about 47,000 employees only in Brazil. The Bank seeks professionals who identify with the Corporate Culture, to be a Simple Bank (with uncomplicated and easy services to operate), Personal (with solutions and channels that meet costumers needs and preferences) and Fair (promoting business and relationships that are good for customers, shareholders and employees). In addition to identifying with the culture, the Banco Santander's professionals act in their day to day aligned to it. |
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|
9) Sustainable Development |
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|
Sustainability is a strategic part of business, in Santander. It is a commitment that seeks results for business and society in a simple, personal and fair way, which is concretized through a strategy based in three pillars: Social and Financial Inclusion, Education and Social and Environmental Business and Management. Among the first quarter highlights of Social and Financial Inclusion are: Santander Microcredit, currently the largest productive and oriented microcredit operation among private banks in Brazil, offering credit and financial advice to low-income micro entrepreneurs, it disbursed approximately BRL 155 million, in 2017 (12.9% above the same period of 2016). On the other hand, in the scope of Private Social Investment, "Amigo de Valor", program, which allows the Bank, as well as its employees and clients to direct part of their due income tax to the Funds for the Rights of Children and Adolescents, has as one of its commitments for 2017, to accompany the development of 36 projects throughout Brazil, which must serve more than 4 thousand children and adolescents in situation of social risks. In 2017, the corporate program of volunteer "Escola Brasil" (PEB), reorganized its activities to disseminate and support the United Nations Sustainable Development Goals (SDG), the volunteers can use their ability in an activity related to a specific SDG, engaging partner schools to be agents of change in their communities. In relation to Education pillar, the Bank has partnerships with 390 higher education institutions and in the first quarter of 2017, Santander Universidades Brazil has granted 480 scholarships, of these 78 are international and 402 are national. In Social and environmental business and management, was carried out 4 sustainability events to small and medium enterprises in Avançar Negócios e Empresas Program and 1 event about sustainability in agribusiness, with focus on techniques of low carbon agriculture. About energy efficiency and renewable energy, was stimulated the growth of this sector in the market with financing for individuals or corporate entities, for example, realization of 185 contracts of Photovoltaic Solar Distributed Generation, as well as large operations, for example, the issuance of Greenbonds to CPFL in the amount of BRL 200 million. In acting on climate change, Banco Santander joined the CDP Supply Chain program, with the goal of engaging its suppliers to make their businesses more efficient and prepared for the low-carbon economy. In the first phase, 83 suppliers were involved, which will report their inventories, as well as risk and opportunity analysis in 2017, through the tool offered by CDP. |
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|
10) Independent Audit |
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|
It is part of Banco Santander´s policy to restrict the services provided by the independent auditors, so as to preserve the auditor’s independence and objectivity, in accordance with Brazilian and international standards, which provides the necessity of approval of any services by the Audit Committee of the Bank. |
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|
In compliance with CVM Instruction 381/2003, we hereby inform that in the period ended on March 31, 2017, were not provided non-audit services of the financial statements by PricewaterhouseCoopers, which cumulatively represent more than 5% of the related overall audit fee consideration. |
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|
In addition, the Bank confirms that PricewaterhouseCoopers has procedures, policies and controls to ensure its independence, including the review of work performed, including any services other than external audit. This evaluation is based on the applicable regulations and accepted principles that preserve the independence of the auditor: (i) the auditor should not audit their own work; (ii) the auditor should not perform management functions; and (iii) the auditor should not promote the interests of his client. Acceptance and professional services not related to external audit for the period ended March 31, 2017 did not affect the independence and objectivity in the conduct of external audit examinations of the Banco Santander and other Group entities, since the principles above were observed. |
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|
The Board of Directors
|
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|
(Authorized at the Meeting of the Board of April 25, 2017). |
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|
*** |
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57
|
|
||||||||||||||||
|
BANCO SANTANDER (BRASIL) S.A. |
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|
Executive’s Report of Financial Statements |
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|
For purposes of compliance with Article 25, § 1, VI, CVM Instruction 480, of December 7, 2009, the Executives' of Banco Santander (Brasil) S.A. (Banco Santander) (Company) state that they have discussed, reviewed and agreed with the Banco Santander's Financial Statements for the period ended March 31, 2017, the Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS) and the documents that comprise it, being: Management Reports, consolidated balance sheets, consolidated income statements, consolidated statements of comprehensive income, consolidated cash flow statements, consolidated statements of changes in equity and notes to the consolidated financial statements, prepared according IFRS issued by the International Accounting Standards Board (IASB). These financial statements and the documents that comprise it, have been the object of an unqualified opinion of the Independent Auditors and the Audit Committee of the Company. |
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|
Banco Santander Executives on March 31, 2017: |
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|
CEO |
||||||||||||||||
|
Sergio Agapito Lires Rial |
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|
Vice-President Senior Executive Officer |
||||||||||||||||
|
Conrado Engel |
||||||||||||||||
|
José de Paiva Ferreira |
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|
Vice-President Executive Officer and Investor Relations |
||||||||||||||||
|
Angel Santodomingo Martell |
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|
Vice-President Executive Officer |
||||||||||||||||
|
Alexandre Silva D'Ambrósio |
||||||||||||||||
|
Antonio Pardo de Santayana Montes |
||||||||||||||||
|
Carlos Rey de Vicente |
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|
Jean Pierre Dupui |
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|
João Guilherme de Andrade So Consiglio |
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|
Juan Sebastian Moreno Blanco |
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|
Manoel Marcos Madureira |
||||||||||||||||
|
Vanessa de Souza Lobato Barbosa |
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|
Executive Officer |
||||||||||||||||
|
Jose Alberto Zamorano Hernandez |
||||||||||||||||
|
José Roberto Machado Filho |
||||||||||||||||
|
Maria Eugênia Andrade Lopez Santos |
||||||||||||||||
|
Officer Without Designation |
||||||||||||||||
|
Alexandre Grossmann Zancani |
||||||||||||||||
|
Amancio Acúrcio Gouveia |
||||||||||||||||
|
Ana Paula Nader Alfaya |
||||||||||||||||
|
André de Carvalho Novaes |
||||||||||||||||
|
Cassio Schmitt |
||||||||||||||||
|
Cassius Schymura |
||||||||||||||||
|
Ede Ilson Viani |
||||||||||||||||
|
Felipe Pires Guerra de Carvalho |
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|
Flávio Tavares Valadão |
||||||||||||||||
|
Gilberto Duarte de Abreu Filho |
||||||||||||||||
|
Igor Mario Puga |
||||||||||||||||
|
Luis Guilherme Mattos de Oliem Bittencourt |
||||||||||||||||
|
Luiz Masagão Ribeiro Filho |
||||||||||||||||
|
Marcelo Malanga |
||||||||||||||||
|
Marcelo Zerbinatti |
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|
Marino Alexandre Calheiros Aguiar |
||||||||||||||||
|
Mário Adolfo Libert Westphalen |
||||||||||||||||
|
Nilton Sergio Silveira Carvalho |
||||||||||||||||
|
Rafael Bello Noya |
||||||||||||||||
|
Ramón Sanchez Díez |
||||||||||||||||
|
Reginaldo Antonio Ribeiro |
||||||||||||||||
|
Roberto de Oliveira Campos Neto |
||||||||||||||||
|
Robson de Souza Rezende |
||||||||||||||||
|
Ronaldo Wagner Rondinelli |
||||||||||||||||
|
Sérgio Gonçalves |
||||||||||||||||
|
Thomas Gregor Ilg |
||||||||||||||||
|
Ulisses Gomes Guimarães |
||||||||||||||||
58
59
|
Banco Santander (Brasil) S.A.
|
||
|
By:
|
/
S
/
Amancio Acurcio Gouveia
|
|
|
Amancio Acurcio Gouveia
Officer Without Specific Designation |
||
|
|
||
|
By:
|
/
S
/
Carlos Rey de Vicenti
|
|
|
Carlos Rey de Vicenti
Vice - President Executive Officer |
||
