Q3 2021 Banco Santander-Chile Earnings Call
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Ladies and gentlemen, thank you for standing by who would like to welcome you to Banco Santander, Chile third quarter 'twenty conference call and the 29 Covid Cobra. Thank you. Thank you.
Sure.
This time, all participant lines Congress.
The format of today's call will be a presentation by Banco Santander, Chile management holds.
I had a question answer session. So without further Ado I would now like to pass the line to the CFO of the company Mr. Emiliano Muratore Emiliano. Please go ahead.
Good morning, everyone.
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Good morning, everyone welcome to Banco Santander, Chile third quarter, 2021 results webcast and conference call.
This is emiliano muratore, CFO and I'm joined today by Robert Moreno, Managing director of Investor Relations I'm glad you saw the chief economist from our research team.
Thank you for attending today's conference call. We hope you all continue to stay safe and healthy.
Yet again, the bank has achieved double results with a strong ROE and solid financial performance. Thanks to the success of our digital strategy and other initiatives.
But before we get into our results Claudio will start with an update on the economy and my first scenario beginning on slide four.
Thank you Emiliano.
Since our last call sanitary conditions in Chile have improved substantially.
The recent surge in daily Covid cases, due to the Delta variant new infections remain relatively low and the mortality rate has receded.
That is a core in a context, where more than 75% of the population have received the full immunization program and 25% have got the booster.
As a result, the state of emergency that ended in September has not been renewed and most of the sanitary restrictions have been lifted.
The economy has surpassed its pre pandemic level and its reach its potential although with some heterogeneity across sectors.
Growth has been led by consumption boost by government cash transfers and pension fund withdrawals.
Investment has also recovered but has not yet reached its trend.
Employment continue subdued with a labor force that is still substantially below its pre pandemic level.
Going forward, we should see further progress in employment as the sanitary conditions allow people to resume their participation in the labor market.
Overall, we have revised upward our growth estimate for the year from 8% to 11%.
In 2022 growth will moderate to a range between one and 2% as the fiscal impulse fades away and base effects kick in.
Inflation has accelerated in response to external cost to shocks and one off hikes in prices of certain services.
For the next few months, we should see further increases in inflation.
Due to a buoyant demand a depreciated currency and higher fuel prices.
We forecast CPI inflation, which closed the year at six 3% and next year will end up between four and 5% converted to the 3% target in 2023.
The central bank have accelerate the reduction of a monetary impulse by increasing the monetary policy rate twice since our last call why don't by 75 basis points and dealer base 125 basis points.
Thus the monetary policy rate has reached to seven 5% significantly above our initial estimate.
For the last monetary policy meeting of the year in December we expect the Central Bank will increase the monetary policy rate by another 75 basis points. So that it reaches its neutral level by the end of the year.
During next year, the monetary policy rate may rise further by the Central Bank will graduate the size of future monetary tightening according to the evolution of domestic demand.
Medium and long term interest rates have also increased substantially not only in response to expected tighter monetary policy, but also because of the possibility of a fourth pension fund withdrawal.
And the uncertainty regarding the political processing chiller.
In this context, the peso has depreciated despite favorable copper prices.
The government has begun the legislative procedure for the 2022 budget.
It considers a significant reduction in expenditures minus 22, 5% to reach out public deficit of two 8%.
With this gross public debt will remain below 40% by the end of next year.
The political situation in the country is challenging.
In a few weeks there will be presidential and parliamentary elections.
The result of the presidential election are still wide open and government program of some candidates have been taking in recent weeks.
In parallel the constitutional convention has approved it internal regulation ratifying the two third requirement.
Any article.
This month, they have begun writing the content of the constitutional text, which should be finished by June 2022.
Yeah.
Thank you Claudia.
We will now move on to explain our strong balance sheet and results.
Moving on to slide eight in.
In the third quarter, our net operating income increased one 2% Q on Q and 233, 7%.
Sorry, 33, 7% on a year on year basis, Florida quarterly net income in third Q totaled 176 billion.
An increase of 68% compared to the same quarter of last year compared to the second quarter net income decreased 5%, mainly due to higher other operating expenses net operating income on the other hand increased one 2% Q on Q.
Year to date net income increased 63% with our row, increasing from 12, 5% as of September 2020 to 21, 1% for September 2021.
Strong client growth higher net interest income a strong growth of fee income improvements in asset quality and cost control drove these results.
On slide nine we can see how the bank has significantly outperformed our peers and net interest margin efficiency and ultimately Roe.
Demonstrating that these impressive results are just are not just related to post COVID-19 reaction, but also due to the successful execution of our strategy, especially on the digital front.
One of the most important drivers of our results was net interest income as can be visualized on slide 10.
Despite asset growth being focused on lower yielding and less risky assets, we still managed to obtain a 13, 9% year on year increase in NII with a strong NIM of four 1% in the quarter.
U S inflation in the quarter reached one 3%. This has triggered the central bank to increase the monetary policy rate as was mentioned by Carl you previously.
Consequently, our cost of funds has started to rise and this lowered our nims by 10 basis points Q on Q.
This was compensated in part by the acceleration of loan growth in the quarter.
Going forward, we expect the monetary policy rate to continue increase which should put downward pressure on our nims on the other hand, and especially in the fourth quarter UF inflation should continue to accelerate reaching levels greater than 2% for the next quarter for this reason nims in <unk> <unk>.
Rebound from current levels, and we forecast a name level of around four 2% for the full year 2021.
As we can observe on slide 11 total deposits grew 16, 2% year on year, and one 3% Q on Q.
In previous quarters, we had seen a strong increase in noninterest bearing demand deposits, leading to a 24, 9% year on year increase time deposit growth accelerated in the quarter growing six 2% compared to June.
With the increase in interest rates, making this product more attractive.
However, as we can see on slide 12, the interest rate, we're paying on this product remains well below that of our peers and far below that of the monetary policy rate demonstrating our successful management of our cost of funds.
Also on this slide we show on the right on the right hand side that while there has been a slowdown of demand deposits from our larger commercial clients growth of retail demand deposits remained solid in the quarter.
On Slide 13, we review loan growth total loans increased three 1% Q on Q and two 5% year on year as loan growth among large corporate started accelerating in the quarter as large corporate funding in the form of corporate loans as the bond market remained illiquid.
Our middle market segment also sign saw signs of reactivation with loans growing two 7% Q on Q driven by the acceleration of economic activity in the quarter.
Translation.
Gains gains from the depreciation of the peso and U S also added to loan growth.
Loans to individuals increased two 6% Q on Q and seven 4% year over year, driven by mortgage loans that continued to grow solidly at 3% Q on Q and loans from our outer lending subsidiary increased 17, 5% as auto sales in Chile have shot upward.
In previous quarters. The SME loan book has seen strong growth due to the full lap it and forgot their active programs in the third quarter demand for this product continued to decelerate leading to a contraction of lending to Smes.
As of September 2021, the bank had dispersed 892 billion to the full lap Iraq Depot program, while the total for rapid loan book reached two four trillion pesos.
Regarding grace pyramids Grace periods payment holidays in general a 99, 5% of these grace periods are over and only 0.4% of all loans that had previously had a grace period or payment holidays are impaired.
Moving on to asset quality on slide 14.
On this slide we can see how the evolution of Asta asset quality remains solid the NPL and impaired loan ratio continuing to show positive trends. After the expert exploration of payment holidays. The coverage ratio of Npls remained high at 259% the NPL and impaired loan ratio decrease.
<unk> to $4, seven and one 2% respectively.
These positive trends were seeing across the different products as well.
As we can see on slide 15, these positive asset quality indicators led to a cost of credit of only one 1% in the quarter.
On slide 16, we take a quick look at noninterest income trends.
Fee income had an outstanding quarter, increasing 12% Q on Q, and almost 20% year over year, reflecting reflecting the fruits of our digital strategy and strong results from corporate banking.
Fee growth was driven by the strong opening of checking accounts. Thanks to the popularity of our life and Super digital product offerings.
Card fees increased 35% year over year due to greater card usage, while I'm certain insurance brokerage also growth of our digital platforms. Furthermore, getting at our acquiring business that we launched in the first quarter of this year has already contributed more than 3 billion vessels and fees since its launch.
Total income from financial transactions decreased 17% Q on Q client Treasury activities continued to perform solidly solidly growing five 8% Q on Q and 17% year over year. This was offset by a loss in non client treasury income due to the execution.
Various liability management operation to improve nims going forward that resulted in the initial loss mainly arising from the unwinding of interest rate hedges.
Alright.
Yes.
The rebound in revenues in the quarter was also accompanied by good cost control as shown on slide 17.
Operating expenses decreased one 4% year over year, despite higher inflation in the quarter the year on year growth of administrative expenses is due to costs associated to the launch of getting it and the advance of our digital initiatives in line with our $250 million investment plan for the years <unk>.
'twenty, one 'twenty two 'twenty three.
The depreciation of the peso and the rise in inflation is also negative negatively impacted our expenses. Despite this the bank's efficiency ratio reached an impressive 37, 7% year to date.
Regarding capital ratios on slide 18, the bank finished the quarter with a core capital ratio of nine 6% and a total bis ratio of 14, 2%.
At the same time in October the bank became the first Chilean bank to issue an HD, one perpetual bonds under the new Basel III regulations.
The issuance was for U S $700 million and with this one.
81 instrument in October our tier one ratio will increase by one six percentage points.
With our current profitability, we estimate a payout of 50% to 60% of 2021 earnings to be paid out in 2022, but do not rule out that we could pay this dividend in two tranches next year with the current share price and the forecast for loan growth in a row. This would signify a current debate.
Didn't yield of between 5% and 6% for the bankshares.
On slide 19, we can see the requirement of the requirement of the transition to Basel III year by year. The phasing of Basel III has commenced and will be fully in place by December 2025, the inclusion of market and operational risk weighted assets will begin in December of this year.
By the end of this year, we expect a minimum core capital ratio required for us will be eight 6%, including an additional buffer set by our board with a total <unk> ratio requirement of 12, 8%.
And the final portion of this presentation starting on slide 20, we will give an update on our moral significant strategic and business initiatives.
Moving on to slide 21 during the quarter, our key digital initiatives continued to advance with great success. This has led to improved important improvements in profitability and growth and satisfaction.
On Slide 22, we show, how Santander life and Super digital are still our heavy duty products and bringing new clients to the bank total life clients increased 126% year on year and in <unk> 'twenty, one life life opened over 90000, new checking accounts.
Reaching a total of 822000 clients.
Life clients also generated through September 2021, 49 billion pesos in revenue, which shows how this product line not only has a high growth rate, but also a rapid monetization.
Super digital saw record client growth in the quarter helped by alliances with companies such as corner shopping Uber as a way of attracting new clients at the end of September 2021, we reached 215000, a 95% year over year increase.
Further good news came from getting it our new acquiring business as shown on slide 23.
Get that was officially launched in February and has already sold over 40000 Pos.
And we sold 19000, just in the third quarter, an important fact to highlight is that 93% of the clients that have that are in getting at our Smes.
Our target clients in just eight months getting that already has a market share greater than 15% and pass it.
Our NPS score for this product is also a.
It was also strong at 74 points, helping to improve the overall N S. NPS score of the SME segment. This product has been quickly has been quick to monetize with already 3 billion peso in fees generated in fees since its launch.
On slide 24, we show, how our digital insurance brokerage platforms.
Also had a positive quarter clear continued to expand its product offer with 28000 insurance policies sold in the third quarter coming soon a new cycle cyclists and no insurance product for cyclists.
Auto Alto comparable also shined in the quarter the sale of our insurance policies to this platform increased 32% year over year.
On Slide 25, we show how the bank continues this process of transforming its branch network focusing on the work a fair model and closing less productive branches that have low client flow.
The work of our beginning to reopen and we recently opened a new work affair and Portland, Dallas Patagonia. Another eight work Fas are set to open during the rest of 2021.
With this change in our branch format, coupled with our other digital initiatives.
Activity continues to rise with volumes per branch, increasing 16, 6% year over year and volumes per employee rising 16, 7% in the same period.
Yes.
On slide 26, we show the tangible results of our initiatives through the record amount of current account openings compared to our peers with the latest information available from the CMS Santander has opened 630000 net current accounts compared to only 403000 accounts.
And the whole system combined without us with this we have been able to increase our market share by almost seven percentage points in 12 months from 22% to 29%.
We also show how this improve.
<unk> and our digital offer is pushing upward our net promoter score the graph on this slide demonstrates how the banks NPS has improved during the pandemic as our clients have found high value in our digital product offering we have overtaken our peers are now solidly established as number one for NPS in Chile.
With high points as well in product quality contact center and our webpage.
On slide 27, we show how these efforts are translating into record client growth with the introduction of digital products, coupled with higher NPS scores in a span of a few months, we quickly surpassed the 4 million client Mark.
On slide 28, we show that the year on year growth was.
Of clients has been driven across the board with total clients growing 14% year on year digital clients, increasing 39% at total clients with a current account increasing 45% year over year.
On slide 29, we get into our some of our recent developments and the ESG World.
Video just finished its annual review of the bank with a rating that puts us in the advanced category with 62 points.
Following from the last time, we were overview that we do.
So where we had we were a cloud qualified as robust we have moved from robust to advance. This is important because today. According to videos analysis and scoring system. We are number three among all.
Retail banks.
Regarding the ESG.
Topics as well on slide 30, we would like to remind you that you're all invited to our next ESG talk taking place on Tuesday November 16 at 850, New York time.
We're top management, including the CEO and the president of the bank together with other members of the board and management will present, a fascinating updates we have made in these themes and what is to come ahead. There will also be a live Q&A session. We hope to see you there virtually and make sure to sign up.
To conclude on the next slide we update our guidance for 2021. The positive results achieved these last three quarters permits us to be more optimistic than we were previously and we have again revised upward our outlook for this year.
As inflation and loan growth continued to gain momentum we expect to finish 2021 with a NIM of four 2% up from four 1% expected previously cost of credit should remain in the range of one to one 1% we are increasing fee growth to greater than 15% for this year based on that.
Strong client trends already mentioned.
Cost growth should remain below the fleet inflation and efficiency between 37%, 38% is what we are now forecasting <unk>.
All of this into account we are revising our guidance for ROE upwards to 21% for 2021.
At this time, we'd gladly will answer any questions you may have thank you.
Thank you very much for the presentation, we will not enter into the Q&A part of the call if youre dougens glad to telephone. Please press star two on your keypad that start to keep hot and wait for your name to be called.
1000, <unk> you May also ask a voice or text question.
We will now give a moment or so for questions.
Okay.
Our first question comes from Mr. Mario <unk>.
Peanuts from Jpmorgan. Please go ahead, Sir your line is open.
So again the first question comes from Mr. Mario <unk> from Jpmorgan. Please go ahead.
It will go to the next question.
Next question is from.
Mr. Carlos Gomez from HSBC.
Please go ahead, Sir your line is open.
Hi, good morning.
Deletions that result.
A couple of simple questions. The first one is at this point in time and given your experience to cut.
Cost of risk of about one 1% in the last few quarters, where do you think that with your current business mix is your normal cost of credit and when do we get there. He started 2022 event.
Does it kind of late.
And second and again I understand it's difficult to predict now what do you think loan growth is going to be for the next two or three years. Thank you.
Yeah.
Okay, Hi, Carlos Thank you.
Regarding the cost of credit.
Obviously as you see in our asset quality has done very well our hour coverage is quite high.
<unk>.
Now, we do expect more loan growth to slowly flow in so we think that a normalized cost of credit and without considering any type of movements on additional provisions okay.
Like to keep that stock of voluntary provisions, therefore, or any large unexpected event in the future. So a normalized cost of credit would probably be around 1%.
And regarding loan growth so.
Remember last year, we had a rather high loan growth during the pandemic given the given the different programs, especially Smes. This year since there's been a really high level of liquidity and companies and in household households have gotten a lot of money from pension funds from direct subsidies from the government.
So that had kept loan growth subdued as these programs come to an end, we think that loan growth should slowly recover okay.
As we said on our last call and as you saw in the third quarter and loan growth should finish the year.
<unk>, three or 4% for the full year.
And then going forward I think slowly as the pandemic ends and we enter kind of like a normal economic cycle.
Loan growth should return to the normal multiplier level so in general in Chile.
GDP loans to GDP grow around one five times in real terms real terms and then if you add on inflation, you're more or less get the nominal rate. We're expecting the next two three years. So if the economy grows 2% to 3%.
We should be getting.
Roughly around.
Six 5% to 7% nominal loan growth and normal years okay.
Thank you so much.
Thank you very much we will just try it once again to open myeloma line from Jpmorgan. Your line is once again open. Please go ahead.
Please make sure your performance on muted.
Yeah.
It will come back to that shortly again next question is from Mr and Mrs.
Alonso from Bank of America. Please go ahead Sir.
Hi, Good morning, General Claudia and Robert and all of your team. Thanks for your presentation kind of the opportunity.
My first question is on the political landscape.
Do you think that the boating on the Ford pension withdrawal well could be delayed after the elections.
And could you provide who are the candidates leading default on the presidential elections.
My second question is on your expectations for net interest income and NIM next quarter and next year.
Considering.
Our expectations on interest rates.
For the rest of the year next year and also the one for inflation.
What do you see the NIM pressure next year.
When do you see them recovering after the repricing of the loan book is this something that we can see maybe at the end of 2022 or it should be likely more in 2023.
And then my third question is on your medium term Roe expectations.
Considering that.
That's 21% this year.
We're not involved in pre pandemic levels.
But you will continue to see high dividend payments.
Don't you think that the 'twenty to 'twenty two 'twenty three our ROE should be more around the 19% 20%. Thank you.
Got you take the first one base, yes sure can you hear me, yes, yes.
Okay regarding the first question.
The fourth pension fund withdrawal could be voted after the election.
It's not yet clear.
Today, while we will know the schedule of the cyanide for next week.
At that moment, we will know whether it has been put on scheduled to be voted next week if that doesn't nucor.
There are high taxes that it will be voted after the first round and given that.
The chances that it will not.
The approved.
Our higher.
Candidates, leaving.
<unk> currently are.
To the left the capital body.
And then on the center right.
Cost.
In some polls cast appears to pass the first one.
But in our post hip your second to cover you bought it.
Desktop <unk> candidate from decreases of Democratic Party is currently in third place in most of the polls.
And so regarding to your question is about the NIM.
As you mentioned the.
They are the two main factors our inflation and also the short term interest rates going up.
This last quarter for this year as Robert mentioned, we are expecting like.
Quarterly deemed to be maybe between four 5% to $4 six I mean, considering the level of inflation will have in the quarter and that will take the full year came.
Around four 2%.
First quarter next year should be let's say similarly, considering.
Inflation expectations, we are we are.
Expect them for the first quarter, but it's also true that the industry will be will.
Keep going up the central Bank, we expect them to hike another 75 basis points in December and so considering all that we do expect next year NIM to be lower than this year I mean around like 4%.
And if it if inflation.
Hmm stay around the 455%, but we got to get slightly below that.
4% for the full year.
And.
We do expect by 2023 to have the repricing on the on the asset side, showing up and also being able to again build a NIM from 4% to upwards.
Sectary starting in 2023.
Regarding our expectations. It is allowed within the NIM issue and then we still expect we still see our long term or we range from 17, 2% to 19% and <unk>.
First year because of the inflation scenario.
We are able to sustain nims.
Above 4%, it's let's say reasonable to have.
Slightly higher expectation to be in the upper part of that range. As you mentioned that it's going to be mainly related to what's happening on the NII front.
Super Council cloud.
And just last question on the digital landscape.
We have been following all your digital initiatives.
And we have been recently seen that get that in Brazil west leased it.
So are you starting something similar to happen in Chile.
And on the other hand, we have seen that Dci is exploring to loan to launch digital bank. So you see it in your plans to do something similar or do we use to keep digital transformation within the traditional within the traditional bank.
Yes that you can do this because.
Mr Stent to give different valuations.
Payment companies.
Thanks.
Yes.
As you saw them in the numbers are quite impressive we are really happy with the speed that we have got in that business and there is no discussion yet regarding ownership of listing we are SaaS focused.
On growing and growing fast that gaining market share and then taking advantage of being.
The first move or you can say in entering that market. After after transplant and then our priority there.
To give that.
Growing growing fast and gaining market share.
And in the future. If there is any discussion regarding ownership of listing.
Got it with you, but they are not present at this moment.
And the digital okay. So yes.
So basically.
All familiar with our with our digital initiatives, obviously I think that's all been very very successful at Santana life is clearly the key here.
And Santander life.
Slowly transforming itself into our digital bank inside the bank. So basically today Santander life has been very much focused on.
Middle income segment.
It's growing very strongly and I think a really key thing about Santander life. Unlike a lot of other.
Digital banks that are just beginning.
It has rapidly monetize so as we said before.
Through September.
And Santander life is generating income of almost 50 billion vessels okay.
Santander life. Unlike a lot of these other digital platforms in Chile digital debit cards already has.
In checking.
Checking account balances.
Probably above $500 million, Okay, which is probably all the other digital debit cards in Chile, including Super digital combined okay.
<unk> life also has our loan portfolio, which hasn't been very aggressive, but but it surely should slowly start to become.
To grow more and more life is going to be launching new products. Okay.
And so basically life inside the bank is going to be expanding and is slowly transforming into our digital bank, but but until now it's not going to be a separate entity, okay, it's going to be in.
The bank very much integrated with the rest, but clearly taking over different products and segments. Okay.
Perfect. Thank you very much emiliano and Robert.
Thank you thanks. Thank.
Thank you very much. Our next question comes from Mr. Who wanted to calibrate from Scotiabank. Please go ahead Sir.
Hi, Thank you for taking my question. So my first question is related to getting it.
I think that the fees generated by this business went around 2 billion.
2 million pesos in this quarter so.
The growth was pretty significant so my question is what what do you think it could be a more normalized level of fees for again, what should we expect <unk> 2 billion to continually will be much higher what do you think about that.
And then the second question.
Related to the expenses expenses look under control.
I saw that the other operating expenses were around 76% quarter on quarter.
You mentioned that the drivers in the in the release that the drivers why provisions for non create contingencies and also insurance related to cyber security related to Santander life.
I was wondering where the bulk of it.
The amount.
Operating expenses that we saw in this quarter it is going.
Going to stay at similar levels and also if you can quantify.
What part of dose.
<unk> expenses.
Related to provisions of non create contingencies on what parts I related to insurance.
Tiger Security insurance group.
Okay. Thank you have a western I mean regarding <unk> that is we are in.
Faster drill sites of the vessels and then we are growing fast and also consider that.
The economy is also in the in the opening phase I mean living load balancer behind so.
I think that we will stay will keep grow in are growing fast and that is.
Not so easy to imagine what's the stable level of fee will be because as I said, we are we are targeting fast growth. There. So you would expect.
From getting that keep keep growing up.
As we grow and the number of supply and Pos is on.
Also the the amount of sales that the merchants are having in this opening in face of the economy. So you can expect growth to stay there for a while and I think we still have some let's say quarters ahead before we got to stay we've got to talk about.
Based on level of fees from from government.
Just to add onto what Emiliano said I think in our digital talk last year, we mentioned that we're looking at around $20 million in fee income from from getting at Okay. So I don't know what exchange rate, we use but lets say $16 million.
It would be more.
Vessels are normal level versus so we see a lot of growth.
You've seen the figures we're growing very quickly okay rigor.
Regarding your your other question, yes, the other operating expenses, there's a lot of things there and I'll explain that light first of all.
Yes, there are provisions for for non credit contingency so given that.
There is still risk regarding the pandemic and other and no not at all.
The pandemic has not only credit risk. So we set aside 7 billion vessels there.
On top of that.
Remember last year.
There was like a cyber security fraud law. So before we were very active in selling different kind of cyber security insurance for clients a lot of that was prohibited or water down. So the bank has and the banks have to cover.
Cover a lot a larger percentage of that so we have an insurance policy for that basically.
The actual amounts of frauds have gone down okay per client, but.
But the kind of this insurance policy.
The price goes up because of the amount of clients.
Rising so unlike got fraud per client basis on the actual number of fraud, it's coming down but since the client base is growing so strongly it is adding on to that cost. So it's kind of like an indirect costs because of the strong client growth okay.
And then the other thing there.
Remember that we still own 25% of transplants.
And even though we discontinued this in 2019.
As a discontinued operations given the losses <unk> bank has been recognizing we decided to kind of like do a catch up and recognized some of the losses <unk> Bank has has been accumulating okay. So that was around 3 billion vessels. The good news is that transpire new fee schedule.
It was approved I think by the courts. So the most likely thing is that <unk> profitability should begin begin to turn turnarounds.
And then finally remember that our lending is growing very strongly in Chile. So.
<unk> consumer finance, our subsidy for auto loans has had a very large increase in net income okay. So inside centenary consumers P&L an important cost is what they pay the dealers we have a.
A very strong <unk>.
<unk> venture with one of Chinas largest car dealers, which is ASIC arbor's yeah. Okay. So as their net interest income is rising as their loan growth is rising also what we pay to ask as it covers. It. Therefore this joint venture is also rising and that's there as well okay. So but that is also included in consumer finance.
P&L so despite the increase in that cost the earnings or something they consume are growing very strongly. So those are the factors. What do you expect going forward I would say the trans bond thing it shouldnt be repeated.
The provisions for other contingencies around $10 billion, which shouldn't be repeated but if we continue to grow strongly in auto loans and in client base the rest should be recurring okay.
But it has other benefits and other other lines obviously.
Alright, thank you.
Thank you very much. Our next question comes from Mr. Fernandez from Jpmorgan. Please go ahead Sir.
Hi, everybody. Thank you I hope you're hearing me because he had initially yes.
Your quick Confections, Hi, Hi, everybody. Good morning, I have a first question regarding the OCI like your available for sale.
They were very good but when we look through the shareholders equity decreased in the quarter and I guess this is related to the to the sharply increase in interest rates in Chile rates like we looked at the 10 year. It was a massive ramp.
So my question here is what should we expect here going forward I saw that there were some reclassification from your available for sale portfolio to hedge material. So she can explore this topic a little bit I think that would be <unk>.
And for those like what should happen.
And the second question and.
And I have a second question regarding payments.
Just some follow ups regarding trends if you have any update regarding the sale and regarding interchange fee caps any up to date on that topic. Thank you.
Hello, Julien. Thank you for your question regarding the OCI as you mentioned I mean, the the main driver of that has been the sharp increase in interest rates affecting the elevation.
Of our Alco portfolio.
We actively manage our interest rate risk.
Mainly because of that we were able to sustain our names above 4% significantly higher than our peers. During this last 12 to 18 months when the when the cycle was.
With rates very low ongoing I'm going now now the cycle changed and changed the quiet.
Dramatically and the timing I mean, very very fast J <unk> with Citi.
Bank.
Increasing the rates that I think that that's part of the.
The monitor.
Let's say that the typical one of the monetary cycle. Because also the inflation is going out and that's a positive for four asked about baby.
The different component. This time has been the pension fund withdrawals that basically forced a pension funds to disposed.
Oh kind of assets, including the.
Domestic bonds, so thats good.
A high pressure on rates and effective.
The value for the portfolio going forward.
Definitely.
To protect the potential further increase in longer rates.
Difficult to see.
This is similar to the ones, we haven't seen so far I mean, because when you compare <unk>.
Leon rates to other Latin American countries.
We are already let's say similar to countries with.
A much higher level of inflation, a much higher level of risk so.
First of all I think that there's not much room.
Yet to have rates going up but also it's true that in the.
In the short run there is there could be some temporary volatility coming from the pension funds withdrawals have been the fourth withdrawal is still to be decided.
The interest rate were.
40, 50 basis points higher a few weeks ago, then they went down because now you can argue that.
The market is pricing.
So starting the probability of the fourth with lower to be to be approved.
If it's not finally approved I think we got expect interest rates to go to go down a bit so.
Let's say so I mean, all of that up flowing forward that number will definitely tends to zero because the time will pass on the on the.
And we've got you can see that us up kind of opportunity cost that even though we don't see that as any potential.
Real loss, but its so in that today, we could buy those assets at higher higher yields.
The time value of money was the decrease in what the one time passes.
And they've got their number will be go into CEO of basically having it but positive OCI for the for the coming years regarding diversification as you as you saw in our numbers. There is a part of the portfolio that is roughly 25% to 30% of the portfolio that it's basically been used to.
Fulfilled their reserve requirement the technical reserve requirement that it.
Liquidity requirement.
Every bank has when your demand deposits exceed two five times your total equity.
Within the tier two.
So in our case, considering how fast how high we grew in demand deposits. We are having a strong requirement of that case, so we need to to fulfill that by having the sovereign bonds and also we are we did call out that all for the Central Bank.
<unk> that were implemented last year to provide liquidity to the system as part of the Kobe.
Compensating measures so that part of the portfolio that it's definitely held to maturity because we don't have an option either to let's say take the collateral out of the central bank neither to not fulfilled.
The technical reserve requirement.
We are having them to maturity and basically what we did was to reflect that new.
<unk> business model into the accounting treatment of that part of the portfolio basically changing those assets from available for sale to held to maturity and that's what you.
So on the on our financials.
Regarding payments.
Yes, so we have no update on the sale of transplant so what.
What we did do is we updated kind of like the valuation.
And in the in the P&L. So so so that we don't we don't have any backlog incentives.
And we were fully reflecting trans bank's book value in our in our books, we will own 25% of that but there's no. Other further update on the sale there regarding interchange fee as well as you know that the law was passed that governs theyre going to fixed interchange fees.
The commission is working they already started publishing.
Some of them what theyre looking at their methodology, but there there is no nothing yet that that they haven't stated anything yet regarding where actually interchange fees will end up so I think by March or February we should have more clarity.
But the working 100% on that so it's coming for sure by February or March and probably in the next call we might we might have.
A more clear update, but clearly that will have an impact on card fees.
Next year, we don't know how much yet and the good news is that people are using their cars more intensively clients is growing.
And in the long term.
The fixing of interchange fees will probably one permit.
Acquires it would be better numbers for acquirers like getting it and two it will probably therefore permit the acquiring business and the usage of cards to expand even further okay.
And almost a bricklayer you can use the acquired as a natural hedge rates are higher.
And for that matter.
Net net you lose in the beginning.
Okay, but in the long term it should let the market expand more.
No Super clear, thank you very much guys.
Thank you.
Our next question comes from Alonso Garcia from Credit Suisse. Please go ahead Sir.
Thank you and good morning, everyone and thank you for taking my question.
Most of my questions have been answered, but I just wanted to check with you guys you need.
We changed that you are aware of either at the CMS level or at the Congress or the constitutional assembly, but it will affect the banking Houston and my second question would be regarding the hiring reservoir technology in Chile, I mean, so far we have seen mortgages continued to grow nicely.
Good to hear from you we've got the margin you are seeing.
Lower demand on that product given the higher rate.
Scenario going forward. Thank you.
Can you comment.
Agenda.
Yes, well the remaining initiatives in Congress right now.
As the Fintech law that is at the very early stages.
Also the regulation of open banking.
And then there is a law that was introduced in Congress.
Put another cap to the macro.
Jim.
The cap on the on the maximum.
Right you can charge off rate to make the low makes some adjusting adjustment so that.
It might be.
Got it even further.
Those two initiatives are at the very early stages in Congress.
And there are many initiatives in Congress.
Begin.
It's a procedure.
Then after a while they do.
Do not continue.
Many initiatives in Congress.
Relative to demand dynamic that were attached to the declaration of a state of emergency.
The state of emergency was not renewed.
Some initiatives are not.
No now not on the table.
Okay. Thank you sorry, one thing.
And Claudio and.
Regarding the constitutional convention or anything if there is any other yes.
Regarding the constitutional convention as I mentioned at the beginning they begun writing the text just few weeks ago. So we are again.
Early stage, yet, where we'll have more insights.
Either first or second quarter of next year, having said that.
The constitutional convention will write down.
The blueprint of the Constitution with two separate beach.
Set of rules.
All the details have to be then.
Define in common law.
We will take place to occur.
Okay.
And rigor.
Regarding your question about long term interest rates on the mortgage market I mean definitely the mortgage market has been affected by by two main.
Factors first interest rates significantly higher I mean, 300, 400 basis points higher than a few months ago and also that because of this new environment, many banks, including us.
The maximum center you then you can ask a mortgage I mean from 32.
Around 20 years, so basically though those two factors are the same making the payments by the monthly payments go up by 30, 40, even 50% depending on the segment on the on the.
On the tenors and that it's definitely putting pressure on people in the total amount of money they can borrow.
To keep a reasonable relationship between the monthly payment and their salary.
Salary or their or their income so.
Lee if we don't see.
Normalization I would say a reduction in long term interest rate I think it's going to be very difficult to keep this double digit growth in mortgages.
That growth will slow down.
Let's say forced people to collect.
A higher amount of money for their down payments in order to get into the house at the end, that's let's say will normalize and you will see that shocked too to be diluted in time, but we are in the middle of that adjustment where you can expect.
Growth for mortgages to the slowdown in this.
This new rate environment.
Thank you.
Follow up on the first question.
Regarding this proposal in Congress to reduce their rental rate cut further I don't know if you could.
Provide some more color on and of course I understand.
Early stage at this point that not everything that gets Congress gets approval, but I mean, if you could comment on the likelihood that you see for it to be approved with supporting these these low it has found.
Further supporting Congress or anything that could help us assess its likelihood of being approved.
Approved eventually thank you.
I will I will touch up on that.
As I mentioned.
Larry.
Early stages in discussion.
In the past we have had.
Initiatives like that.
Yeah.
More than one more than once on those initiatives.
Just fade away or not.
No transform into law.
This initiative was.
Hmm.
I'll put it to be discussed with Congress in the context of a more broad law in term of consumption consumer protection.
I see that.
Now low probabilities of going through.
There are many issues in discussion in Congress right now and this is not really at the top priority in the political agenda. So I think.
As it have in the past.
I see that.
Up to now no chance of that.
Effectively.
B transform them to lock in.
And I'd also building on <unk> comments.
I agree with his view considering that also what we have commented on mortgages amended that has resonated.
Let's say, let's say political.
Environment and in general this sense that now people.
Cannot access mortgages as easy as they were axis accessing them before.
That's I think it's let's say people are.
Kind of worried.
I put in.
Lower carbon interest rate would also affect credit supply more on the consumer side and also I don't see that in this moment there is much room to keep.
Let's say restricted putting pressure on credit suppliers, we got that good.
Five five because at the end people need.
I need to borrow for their investment plans for their future plans.
And I agree that.
I don't see.
A high chance of that moving into at least the first.
Very clear thank you programs.
Thank you very much. Our next question comes from Mr. Daniel Mora from credit core capital. Please go ahead Sir.
Hi, good afternoon, and thank you for the presentation like yourself one short question we observe.
During the year.
The large corporate segment.
As presented at the reversal of provisions.
We expect reported a reversal of provisions in any order particular segment. Thank you so much.
Okay, Yeah, so basically.
This year the large corporate segment has seen a reversal of provisions on that well two things there first of all last year.
We.
Present information by segment remember any voluntary additional provisions we don't we don't assign to a segment that they have like they're assigned to our product but in the in the segment P&L not included okay. So.
Last year during the pandemic, obviously, we were worried about a lot of different segments of different companies and we downgraded.
We're very conservative in downgrading and set aside required provisions for the corporate segment Okay.
This year first of all a lot of those worries didnt Pan out. So some companies have improved their rating and that has resulted in a reversal and second of all remember as we mentioned in the second quarter I believe we sold two or three of our largest impaired loans, which had a high provision. So when you sell those loans, obviously you reversed the provision.
Going forward in.
The large corporate segment today.
Has a very very very good asset quality.
And given that the economy is recovering and we don't expect a large charge of provisions coming out of the corporate.
A large reverse so probably not either because those are a reflection more of the selling of these loans and notes.
Segments, and no I would say not a reversal because as the loan growth grows remember here every loan is born with a provision so.
So I wouldn't see any any reversals and any other than any of the other segments. Okay.
Thank you so much.
Okay. Thank you very much.
Our next question comes from and a lot more to do.
Please go ahead Sir.
Hi, Robert.
Logo. Thank you for taking my question, but first congratulations for the operational dynamic they can show.
When we compare to the other a lot.
Thanks.
But my question.
Well get that operation in Chile.
I noticed that the out of all the.
Question on holidays.
If I can.
Was just wondering if you could share with us some data related to acquired operations.
Jim.
Market share and also point of sale.
There are some figures on the press release, but in terms of market share.
If I look role nature that their market share.
Can you just confirm this.
Diesel market share things up.
In comparison to the last quarter.
How much.
<unk>.
Okay. So yeah. So there.
Has just started so in terms of Pos as our market share I believe today is greater than 15%.
We calculate in Chile, there's around 200.
That was on before we entered the market.
Yes.
Today, we are reaching 50000 so.
Yes, I mean from 15% to 20% market share in active pass in active pass this remember that around.
We have a lot of small smes.
All of them didn't have a Pos so I think we're expanding the market more than then.
And then getting more than people switching some of our clients are switched to our Pos but.
A majority of our clients that didn't have a Pos before so.
That's very good also from a margin perspective, but from a.
Total purchase value I would say today, our market share is probably around four 5%, but growing rapidly okay.
Yes, because although it's important to mention that until last month, we werent entering into the big merchants if it goes.
So how strong is still had they are fees fixed.
Basically the big merchants, we're having.
Low fee that it wasn't known attractive to us so we werent.
Entering that part of the market now that has changed because transplant finally got the approval to review their their fee.
No.
Schedule and so now we are entering into bigger merchants and also deployed a dimension that until September we did have our E. Commerce solution is still operate industry basically it was all physical transactions and as you can imagine in this new post COVID-19 being out of E com.
<unk> was a big drag for us that's already.
Part of the past I mean, we are also offering e-commerce solution and that will also help us to increase.
Our market share in the amount of sales.
So it's very helpful.
But system question.
Just wanted to know more about the brick and mortar branch office.
Especially if all the work the fabric.
<unk>.
With this positive outlook for the level of Covid cadence.
Presented on slide four.
What is the strategy going forward.
Akshay.
Think of that at all.
Patients to optimize some of the new strategic cost.
If you put your guidance, we'll give those.
Matching our numbers equal helps a lot.
Thank you.
Okay. So yeah, so basically.
We're in this investment plan that has different different branches you could decide different aspects to it. Okay. So we have the whole digital initiatives life, So very key Dod clad et cetera, et cetera, and part of our strategy is also.
Changing and renewing.
Modifying significantly.
The physical network, Okay, we've always talked about a digital strategy. Okay. So so our strategy is very much a mix between a strong digital and a strong physical network, but the physical network clearly evolving.
Finally over over the next few years and then the key to that is.
Work Cafe today, we basically have I would say three type of branches.
The traditional branch with additional banks like you see in most countries human tellers back office account managers and people standing in line Okay.
Then we have the work Cafe branch and then we have the Santander select which is the branches for more of the mid of mid high yet.
The mass wealthy is you could call. It. So when you look at our figures. We've clearly the focus of branch closures has been this Sunday select.
We've closed most of them those are obviously a segment of clients that don't go to the branch. So you don't need to have all these branches.
And a lot of the people in fact that that work that is something thats select are shifting to the word cafe.
The work of it.
It has the the it's very efficient okay. It's much more efficient than a traditional branch it doesn't have human tellers. It doesn't have a significant back office that doesn't have cash okay.
So the branch is fully dedicated to business. Okay. So another thing is in a traditional branch you might have three or four you might have space for three years or for relationship managers and our work Cafe you have space for around 15 to 20, okay. So in a similar space you have four or five times more.
Relationship managers, and you'll have a much nicer format, where.
Our work affairs are.
And something we call the work of our community, which is a basically a place where middle market mid market Smbs can go and do business, Okay, and where anyone can go and hang out.
Have a good coffee.
See the Internet and do business okay. So.
The idea of basically in the end is to slowly reduce the traditional branch.
Network format.
But in order to do that you have to begin to be able to eliminate some transactions at the branch okay. A lot of our branches.
When you see a long line or something it's usually non clients going to get their check get a cashier's check getting paid their salary or paying a bill. Okay. So that is obviously part because we're very strong cash management and so one way to get people out of the branches who are doing these low low value added.
<unk>.
As for those people to be able to get their salaries online. So that's we're super digital and light play a very important role for us to go to companies sign alliances and say okay. Today, you are paying workers a lot of these workers don't have a checking account and say look don't pay them anymore without continue paying them through something that is transactional service, but the positive than direct.
Through Super Digital life, Okay, and that way you remove people and the other thing is as we mentioned last quarter, we signed an agreement with Saturday bag semi bag has around 200.
Ranch's, where people can go and Cassia Chad get paid pay a bill so we uncluttered of the branches. Okay. So the idea here is that we don't have any specific.
I think number how many branches we can we will.
But definitely the square Footages will fall in the amount of branches, which will be shifting away from this kind of like back office old traditional style will all be evolving.
So this is more advanced.
Matt where basically you go to the branch to do business and not to do non value added services. Okay.
Well so Robert.
Altogether.
That's correct.
The opex.
Especially if you had to move.
It's been above or below the 16 shows for the fleets shortly.
Okay.
So that and the yen.
If you look at our cost you can see this is resulting so we've done a lot of investments, but youll see that cost. Despite the inflation or are at a low growth rate. Okay. So idea is to continue that trend okay.
Obviously inflation since two thirds of our costs are indexed to inflation and the exchange rate.
The depreciation of the best on the acceleration of inflation puts pressure, but with the opex that we have which has a very I think high return.
Could return and it has a very high.
Productivity contribution our goal in the next few years is to continue growing our cost at or slightly below inflation. Okay.
Those are much helpful.
Most Robert Okay.
Thank you very much our final voice question posed by a couple of questions.
Just wanted to tell Mr. Brian Flores from Citi. Please go ahead Sir.
Hi, Thank you for the opportunity to ask a question just a quick follow up on.
The politics side.
Have you heard of any initiatives by any of the.
Of the candidates you have mentioned.
Sorry can you hear me.
Yes, I didn't hear you go ahead.
Just any initiatives in any of the candidates.
You mentioned before.
And all.
That's good.
<unk>.
Great sort of on the servicing for the rest of the investors it could be capital gains or it could be a particular race in corporate tax.
Tax rates.
Anything on lease that you have heard of is relevant.
On your point of view.
Hum.
Yes.
Well, let me give you some context.
This government couple of months ago introduce a bill to improve fashions and attached to that Bill there was changes in the tax code, including.
Capital gains taxes on.
Stock transactions.
Currently.
Excluded from.
Taxes are excluded from capital gain transaction and the stock market and that bill already introduced them.
Now the last month.
Gone through further discussion right now we are.
In there.
In the middle of political campaign, and we have the election right now so it's very unlikely that that Bill go go farther.
Bought it in his program.
It has a very broad.
<unk> reform.
Got it.
His program.
Changing he had the program.
Until two or three weeks ago by then.
She is now producing a new program that is not yet there.
But in the original program he has.
In order to.
Increasing revenues for the government.
This broad.
Tax reform that included that includes.
Lowering aviation basically.
Hey.
Christian taxes or closing certain loopholes.
Thanks on wealth.
We wouldn't have that tax on top of that that is more like a.
First one on tax and also <unk>.
Increases in the corporate tax.
Tim.
But that is part of a much broader package in term of tax.
Tax reform a deal with a leading candidate.
And your cost.
Does not have a tax hikes in keith's program you'd rather have some.
Got in Texas.
<unk> program.
That is more or less what I have in mind.
Specific things for the financial sector are not included in none of the programs.
Bought it.
He had initially in his program a revision of international treaties, but ashish.
Heath.
Campaign.
Yes, I can.
Banking.
Moving away from that proposal.
That was originally a huge program, but I think now is not supporting this idea of revising international treaties that could introduce noise again.
Regarding international investment.
Very helpful. Thank you very much.
Sure.
Thank you very much we have a couple of follow ups.
Questions, which I'll now readout, perhaps starting with the first one regarding.
Fixed income and bond markets should we expect to see you in the bond market next year either for the 81.
So.
Is the plan, perhaps pairing by part of the deal you want soon having ESG day, what is the appetite for potential ESG labelled bond.
Yes so.
Regarding the last part I mean, we are expecting to finish our ESG framework by the end of the year, maybe early next year.
With that in place definitely we will try to get as much as we can of our funding from the market.
EOG labeled formats for that we have.
Thing that it's important to have a robust very formal framework in order to avoid any kind of reasonable.
In Washington, the argument or solar so that's why we have been working and we will comment later.
Next month in our dock.
<unk> about that.
<unk>.
Q1, yes.
What did they do one.
Last week I mean the bar.
Ryan company, but the debate is 100% of that that has been the policy in the group with that we.
We reached our one 5% of risk weighted assets and 81 and we have covered.
One needs for the next few years, I mean with risk weighted assets.
So in maybe in two or three years, we got to consider doing another transaction like that but for the time being we'll we'll that will be done with.
81 nations.
Hey, Thank you very much theres about five or six questions related to the mortgage segment I will try to group them.
First one is.
Considering the hike on long term rates the mortgage loan growth do you see the mortgage segment slowing down in 2022.
And how has it been keeping in October.
The second one related to this.
How will the recent increase in interest rates affect the bank in the industry.
And then regarding mortgages.
I wouldn't say that mortgages would fall, but definitely growth to slow down.
Dover.
<unk> already seen.
20% less of.
The number of mortgages being been sold are being signed with.
That.
Reduction in the new origination growth.
Growth would be slower, but I don't know.
I don't know if it will reach a point, where the outstanding would be.
Falling and.
Yes.
The new interest rate environment them into central bank hiking rates higher inflation.
It has.
Pulse and impact.
For banks I mean, you usually banks that have this long inflation exposure.
In the short run high inflation is positive, but that usually comes with the higher.
Short term interest rates.
That hits the <unk>.
And especially in the short run because you have faster.
Liar butter shorter tenure liabilities repricing.
And takes between two one to two years to have.
The repricing on assets compensate in the initial the initial chalk.
So so far the impact for us has been like like positive because the the.
The tightening cycle from the Central Bank has just begun.
Inflation fears have been.
Quite high.
And that's why for next year, we can expect.
Let's say.
Lower level of names because the central bank will keep.
Hygiene rates and inflation should be.
Lower than this year.
Okay. Thank you very much our next one is related to the mortgages we.
We saw the banking or there was introducing shorter terms for mortgages in recent weeks. When do you think the bank will consider reintroducing that 30 year mortgages.
What scenarios and in line with dish.
What are they related risks for the construction sector in the coming months, considering the buyers potentially pulling out of transactions.
Yes.
I don't have any specific.
I mean for the adamant.
Going back to 30 years will depend on how the market situation evolves in terms of level of rates and also access to capital markets in the in the domestic.
And the domestic market so.
So as of now we are staying at.
No longer than 20 years.
I don't have a specific time into to define when to go back to 30 years. We finally do it because it will depend on how the market evolves from the contractions.
Market, we have seen that in general the markets quite of self adjust so basically.
We expect the number of new projects to slowdown and in order to avoid creating an oversupply of square meters into into the market and so.
So we don't have a specific.
Concerns regarding that we think that the sector has gone through.
Other situations like this for different reasons.
It's just being able to to adjust the supply of new projects to the new environment, just adding onto what Emiliano said in during.
During the pandemic there wasn't very much construction so today.
The inventory or number of months before inventory wood.
It would.
The expire is very low so there is not an over there or in fact, whereas on the opposite side of the of the cycle very little inventory available.
Perfect. Thank you very much for for all this time for questions. We are seeing no further questions at this point I'll pass the line back to the team for the concluding remarks.
Thank you all very much for taking the time to participate in today's call. We look forward to speaking with you again soon.
Goodbye.
Thank you very much. This concludes today's call we will now be closing all the lines. Thank you have a good evening.