Q4 2021 Banco Santander-Chile Earnings Call
Good afternoon, ladies and gentlemen, welcome to Banco Santander Chile's fourth quarter 2021 results conference call on the third of February .
'twenty two.
At this time all participant lines are in listen only mode. The format of today's recorded call will be a presentation by Banco Santander, Chile management team followed by a question and answer session. Today's host is Mr. Emiliano Muratore, Chief Financial Officer of the company. So without further Ado I would now like to pass the line. Mr. Emiliano. Please go ahead, Sir the floor is yours.
Yes.
Thank you Michael.
Everyone welcome to Banco Santander, Chile's fourth quarter, 2021 results webcast and conference call.
This is emiliano muratore, CFO and I'm joined today by brother Moreno, Managing director of Investor Relations and capital, obviously loves economist from our research team.
Thank you for attending today's conference call. We hope you all continue to stay safe and healthy.
Steve.
The bank rounded off 2021, with another solid quarter with a strong ROE and solid financial performance.
Thanks to our successful digital strategy rising NPS levels strong margins sound asset quality and impressive efficiency levels.
Before we get into the results capability, our and economies in our research Department will start with an update on the macro scenario beginning on slide four.
Okay.
Thank you I mean, yeah.
Since our last call the number of public contagion hasn't quite substantially due to the fastest breasts off the omicron variant.
Despite the new infections, the number of deaths associated to the pandemic has decreased and the health system remains in good shape.
This has a score in that context, what more than 86% of the population have received the full amortization program.
Children.
And 63% the fourth start.
Some my son, he thought we were sick house had been imposed.
While others have been lifted.
For now we expect this new wave will have a relatively muted impact on the economic outlook.
Moving onto the slide five we will now give our outlook for the economy in 2022.
During the last year, the Chilean economy saw strong recovery.
Chris and mobility, thanks to the fast vaccine Nitro rollout and significant liquidity, thank Jack sense through pension funds withdrawal from public process for about 7% of GDP.
Let the GDP growth of about 12%.
With this growth economic output not only recover its pre pandemic level, but also expanded beyond it threatened.
Strong domestic demand the depreciation of the currency and international pressures led to a sharp pricing inflation, which ended the year at seven 2% is.
Its highest level since the commodities boom in 2000.
Our long file.
Our Hep C a deficit in the current blackout.
The Central Bank has moved quickly racing the monetary policy rate by 500 basis points since you and up to five 5%.
Bob it's neutral value.
It's likely that the board will always the policy rate again in March.
Ending the hiking cycle with the rates between six 5% and 7% by the end of the first quarter.
With inflation and growth probably moderating in the second half of the year, we see some room for rate cuts by the year end.
For this reason we forecast the monetary policy rate to reach five 5% by year end.
Meanwhile, public spending with liquid substantially in 2022 about 20%.
This compounded with the monetary construction, and then naturally cyclical adjustments or some durable goods spending.
Will it slow down the economy.
Households, still have a relevant volume of liquid assets that could be spent in the short run.
If that were the case then activity could expand by more this year on the other hand.
<unk>, which experienced a substantial recovery did the reposition of obsolete inventory will.
We will be affected by tighter financial conditions and domestic political uncertainty related to the constitutional process.
Well there is no clarity regarding basic feed her role it would be difficult for that.
Progress in new larger scale projects.
For our baseline scenario shown on slide six we estimate that economy with wrong by around two 5% this year.
During the first half of the year, the GDP growth rate will remain high.
While the second half, we'll see negative rates.
With which the activity gang converged to its trend.
A delay in the in the conception of Justin profit cause the growth to values near 4%.
But this would imply a more intense adjustment with the construction activity during 'twenty 'twenty three.
Inter a significant moderation in beckman golf by the domestic political situation or the worsening of the flooring is scenario who'll substantially hampered activities during this year.
We saw 1% growth.
So a lot of other pandemic related risks.
Inflation will remain high until the end of the year first half.
A period in which it could reach 8%.
It could then start to decline gradually ending in 2022 between 5% and five 5%.
Own words, the convergence towards the 3% target will develop slowly.
I think during 2024.
Due to the device operating in the closure of gaps.
Overall and as we show in the slide seven.
Another relevant aspect for growth in the medium term is the development of institutional events and specifically the.
The drafting of the new Constitution, and the New Bridge administration.
While these processes could grade noise and volatility in markets. We believe the balance of power in the Congress and the two thirds majority of requirements in the constitutional convention should offer greater stability.
Which could be favorable for investment and development.
<unk>.
Yeah.
Thank you Carmen good audience, we will now move on excuse me.
Slide eight to focus on the evolution of our various digital initiatives and 2021.
On slide nine we summarize our strategic initiatives.
The identified those that we classify as Ronda bank that contribute to.
Two consumer satisfaction and productivity such as life the work.
Our Santander Green initiatives and prosperity and initiative launched in the last few weeks. The bank also has a strategy to change the bank transforming the bank into a platform. So that our clients can use us as a channel rather than just as a traditional banking service.
This includes our initiatives such as Super digital getting that Claire and I will do compiler.
This strategy has led to.
Important to mention profitability client growth and satisfaction in 2021.
On slide 10.
We show key data for Santander life, our most successful initiatives Santander life achieved in 2020 , one a net promoter score of 76, making it one of the highest ranked product offerings in the bank.
Client growth also remained strong with Santander life, reaching over 900000 clients as of year end, an increase of 86% year over year.
Of these clients, 66% or active meaning that their life account.
Is there may not count, but only 17% are considered loyal are fully cross sold clients demonstrating the high cross selling opportunities we have in this new segment.
Santander life is also rapidly monetizing as of year end life clients had $1.2 billion of demand deposits, surpassing by many times the amount the amount of clients have deposited and similar competing platforms.
On the loan side life clients had a total of $270 million and consumer loans is 38, a 43% year over year increase. These clients are also beginning to purchase other products such as mutual funds and time deposits have grown 148 and 130 <unk>.
Scent, respectively year over year overall, something their life achieved an impressive gross income of 81 billion pesos in 2021 with the majority of this income coming from rich resources.
On slide 11.
So the high growth superb digital obtained last year Super digital as a prepaid digital product aimed at the Unbanked chic a low cost banking account super digital clients have grown 119% year over year, reaching over 284000 active clients. This growth has been held.
By alliances with companies such as corner shopping Uber as a way of attracting new clients. Furthermore, in January but that's going to start this initiative by the U N with Mastercard and Microsoft that looks to offer tools for woman and tribute nurse chose Super digital financial platform for Chile.
Our new acquiring business had a phenomenal first year of existence as shown on slide 12.
Getting that was officially launched in February 2021 and sold over 68000 P. O S is with over 21000 in the fourth quarter alone 92% of getting that clients are Smes, our target clients and just 11 months getting that already has a market share greater than 20% in P. O S. Our NPS score for this.
Product is also strong at 74 point. This product has been quick to monetize generating 7 billion pistols infused since its launch.
On slide 13, we introduced the latest our latest digital initiative called <unk>, which we launched in January of this year.
But it is a platform similar to life aimed at micro entrepreneurs, just like life stay that prospera seeks to increase bank penetration levels by first focusing on transactional services were off by offering a checking account with a cheap monthly fee. There is no requirement of a prior relationship with their bank or minimum sales lead.
<unk> also includes the option to Fireeye. Many P O S for a one time charge, allowing new clients to rapidly be able to sell their products using our acquiring services.
On Slide 14, you can see how the bank continues this process of transforming the branch network focusing on the war Cafe model and closing less productive branches over all our branch strategy coupled with our other digital initiatives is driving an important rise in productivity with volumes for her alright with volumes for point of sale.
Increasing 19% year over year and volumes per employee increasing almost 14% year over year.
As can be seen on slide 15, these digital platforms and branch structure have been well received by our clients. The graph on this slide demonstrates how the bank has consolidated its leading position in NPS among our main competitors.
On slide 16, we show how these efforts are translating into record client growth with the introduction of our digital products a more productive branch network, coupled with higher coupled with higher NPS scores, we surpassed the 4 million client Mark in 2020 one since the beginning of the pandemic total class have have increased.
70% in the same period total digital clients have grown 62%.
Moving forward to slide 17, we show how this growth in client led to record checking account openings in 2020 one.
In 2020 one one out of every two accounts opened in the Chilean system was open that something that as a result, our market share in checking accounts increased 410 basis points, so almost 29% and <unk>.
2020 , one we pushed forward, our ESG product offering through our something there where does it end.
<unk> products in retail banking and green financing CIB as can be seen on slide 18.
And then where does it all of our products and services to help our retail clients become greener for companies. We have also provided funding and structuring for the main ESG bond and loan facilities in Chile with these initiatives. We expect to have the most comprehensive ESG product offering to help our clients and help Chile reached a demanding emission target.
Set by the government for 2030.
In the fourth quarter, we also held our E N G talked with the market.
This event, our CEO outlined our 10 responsible banking commitments to be reached by 2025, the main commandments work.
First of all to be the best company to work for in Chile to increase the percentage of women in managerial positions to 30% by 2025 eliminate completely the gender pay gap by 2025 to our financial products such as life financially empower more than 20, sorry 2 million people by 2025.
Finance projects for at least $1.5 billion to our ESG framework.
25.
To ensure that 100% of the electrical energy we use comes from renewable sources.
An important step taken last year to reach this goal.
As we announced in our used truck is G talked in November was that Santander, Chile would be the first bank to produce its own renewable energy and agreement was signed in which six solar plant of 300 kilowatts, each will be built and fully operational this year.
And finally to be carbon neutral by 2025, and our own operations and by 2050, we should be 100% carbon neutral, including the impact on emissions of our loan portfolio.
On slide 20, we can see how our efforts are being recognized by the various ESG indices and.
In the fourth quarter, Dow Jones sustainability index confirmed us as the only Chilean bank to qualify for the emerging markets Index did you Iris has classified as advanced ranking us number three among all the retail banks. They evaluate we have an a score from as MSCI and we are included in the FTSE for good index.
Our emerging markets.
Emerging lot kind of markets and emerging global as well as the S. N P keeps at ESG index.
Moving forward to slide 21, we will now look at our financial results.
22 shows the strong results obtained by the bank.
And last year in 2021 net income was up 49, 8% with ROE increasing from $14 five in 2020 to $22 seven in 2021.
Client activity has played an important role in boosting results. The net contribution of our business segments, which includes among other things the impacts of inflation on results grew 31, 7% in 2021 with results from retail banking increased 21, 6% middle market 18%.
CIB doubled its results.
On slide 23, we can see how the bank has significantly outperformed our peers and net interest margin.
We should see and ultimately ROE demonstrating that these impressive results are not just related to post COVID-19 reaction reactivation or the macro environment, 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 24.
NII increased 14.7% Q on Q, driven by volume growth and a higher inflation rate in the fourth quarter UF inflation rate reached 3%.
And compared to one 3% in the third quarter driving nims to four 5% in the quarter.
At the same time as high inflation rate has triggered the central bank to sharply increase the monetary policy rate. They should put pressure some pressure on margins in the short run wrote run higher rates drives up funding cost quicker than asset yields this will be partially offset by higher loan growth, which lead should lead toward.
Better yielding asset mix.
This reason nims in 2022 should be in the range of $3 nine 4% for the full year.
Margins also benefit continued to benefit from the improved funding mix as can be observed on slide 25 total deposits grew 11, 5% year over year, but decreased $6 one to one two.
We continue to see a strong increase in noninterest bearing demand deposits that increased three 1% Q on Q and 22, 9% year on year.
While the time deposits decreased 18, 9% Q on Q.
On Slide 26, we review loan growth, which accelerated in the fourth quarter.
Total loans increased 2.5, Q on Q and 6.5 year over year during the quarter. Our CIB segment experienced stocks strong growth of 12, 6% Q on Q as the economy reopens and large corporate soft funding in the form of corporate loans as the bond market remained illiquid.
Our middle market segment also saw signs of reactivation with loans growing two 2% Q over Q.
Depreciation of the peso also resulted in a translation loss.
Other loans denominated in foreign loans dominated and foreign currency.
Loans to individuals increased nine 2% year over year and three 5% during Q consumer.
Consumer loans increased two 9% Q over Q. This was driven by 11, 2% increase in Santander consumer our subsidiary that sells out alone, which represents 14, 5% of total consumer though.
Spike contracting four 3% year over year other forms of consumer lending increased one 7% Q on Q.
As the economy continues to reopen and travel restrictions were lifted.
Mortgage loans increased 11, 8% year on year, and three 9% Q over Q.
U S inflation rate of 3% in the quarter also resulted in a positive translation impact on mortgage loans as most of these loans are denominated in U S.
Moving on to asset quality on slide 27.
We can see how the evolution of asset quality remains solid the NPL and impaired loan ratio decreased 4.5, and one 2% respectively by year end the coverage ratio of Npls also remained high at 270%. These positive trends were seen equally across.
Different product.
As we can see on slide 28 is positive asset quality indicators led to a cost of credit of 1.2 for 2020 one.
Given the uncertainty around the COVID-19 crisis. The board felt it was prudent to take on additional provisions to ensure a high coverage ratios during the pandemic and total the bank has set aside since for the fourth quarter of 2019.
Hundred and 58 billion in additional provision, including 60 billion in the fourth quarter.
We exclude these additional provision cost of risk for the year would have been 0.8% with a quarterly cost of risk of 0.7% in the fourth quarter.
On slide 29, we take a quick look at noninterest income trends.
Income had an outstanding quarter, increasing 10, 7% Q on Q and 24, 5% year over year, reflecting the fruits of our digital strategy and the strong growth in client during recent months.
The growth was driven by strong opening a checking account thanks to the popularity of life and Super digital product offering card fees increased 30% year over year.
Later card usage filing an insurance brokerage also groups through our digital platforms like Claire and I'll talk about it.
Furthermore, getting at our acquiring business that we launched in the first quarter of 2021 has already contributed 7 billion vessels and fees since its launch.
As shown on slide 30, the rebound in revenues in the quarter was also accompanied by good cost control. The bank is currently carrying out its 260 million dollar investment plan for the years 'twenty to 'twenty two 'twenty.
The focus on digital initiatives, both at the front and back end of operations.
<unk> expenses increased 4.1% year over year, despite higher inflation in the year and the execution of our investment plan.
The year over year growth of administrative expenses was mainly due to higher expenses related to spending and I T.
As the bank focus its efforts on improving the digital platforms for our clients as well as greater marketing expenses, especially in the fourth quarter. The bank booked $4 7 billion in <unk> 'twenty, one and expenses forgetting it.
Finally, various administrative expenses such as rental expenses are either denominated in foreign currencies are the U S. Therefore, the depreciation of the peso and the ryzen inflation had a negative impact on administrative expenses in the quarter. This rise in administrative expenses was offset by lower personnel expenses as productivity.
Yeah.
Hank Sufficiency ratio reached an impressive 36, 6% year to date with a ratio of 33, 8% in the fourth quarter.
Regarding capital ratios on slide 31, we have finally entered.
Basel III.
Our risk weighted assets as of December 2021 are now reported under Basel, III and have increased four 1% quarter on quarter compared to December .
Compared to September due to the incorporation of market and operational risk weighted assets into the bank's total risk weighted asset.
On slide 32 show, how our capital ratios for yearend and fully loaded under Basel III.
As of December 2021 our core capital ratio was nine 6% with a total V. I S ratio of 15 nine it.
It is important to point out the various changes will be phased in for our core capital ratio, which should drive them upward in January these changes will already show an impact with our core capital ratio improving to 10, 5%.
Our fully loaded core capital ratio in January is estimated to reach 10, 6% well above the 9.4% minimum set out set by our regulators and board for the bank by 2025.
This includes all of the buffers and the pillar two requirement of zero percent recently set by the CMS for us.
Therefore, we do not see foresee any changes in our capital strategy, our dividend policy since the implementation of Basel III estimated payout of 50% to 60% of 2021 earnings to be paid in April 2022.
If approved by the board and shareholders.
This would imply a current dividend yield of between five and 6% for the bankshares.
To conclude on the next slide.
Our strong 2020 results reasonably positive outlook for 2022.
Following guidance effect using a base scenario GDP growth of around 2% with U S inflation of $5 five and an average monetary policy rate of 6%.
Under this scenario loan growth should reach 6% to 8% in nominal terms driven by consumer and commercial.
This points to a NIM for 2022 of between $3 94 per cent.
Cost of risk should be in the range of zero point 95, 1% buying.
Find growth.
She continues to drive non NII, which didn't grow in the mid to high single digit range, we expect cost to grow below inflation and an effective tax rate of around 20%.
All in this should lead to an ROE of approximately 20% in 2022.
With this I finish my presentation at this time, we'd gladly will answer any questions that you may have.
Thank you very much for the presentation, we will now be moved into the question and answer part of the call.
If you have any questions. Please press star two on your key pads, that's start to Wade through an entity called <unk>.
If you have dialed in via the web you May also ask a voice or text question.
We will now give a moment or so for the questions to come in.
Yeah.
Thank you. Our first question comes from Mr. Ernesto <unk> from Bank of America. Please go ahead, Sir your line is open.
Thank you hi, good morning, Robert Good morning, everyone. Congrats in your fourth quarter results are three questions from my side. The first one is on the political landscape.
We have seen some moderation of the new government Howard.
How do you see that potential risks.
I would like to hear your thoughts on the tax reform the change to the constitution and the pension reform.
On the tax reform.
I believe your effective tax rate of the Chilean banks remains a low when compared to other sectors.
Example, andina the effective tax rate.
30%.
So considering this tax reform into aggressive social spending.
Paul If you have a new government do you think they could be exploring believe me some of the deductions on the tax rate of the Chilean banks.
So that's the first question.
Second question is on that and your expectations on asset quality. As you mentioned you are expecting that customer base to a 0.91% of progress gross loans.
Just wondering if these considering any potential release of provisions.
And then my last question is on your router, we expectations are as you mentioned in your presentation you're expecting.
Approximately 20.
20% yeah.
He's putting that into our numbers.
This imply earnings contraction in this year.
Would that be reasonable induced mutations thank you.
Hello, Ernesto Thank you for your questions go.
Go into the first one about the political landscape.
I think that too much of the uncertainty has already been cleared.
We know the government.
Net.
So so far the reaction from the market has been like positive going forward.
The constitutional reform.
Is that dependent thing too to be known about that we still believe that the two thirds core room that is required to approve any of the articles of the constitution is.
Hey, good safety net to to have a broad consensus regarding the constitution in that.
We saved us positive thinking about the outcome regarding.
That's potential tax reform that has been announced.
From the upcoming government.
Actually there are not any significant or deductions, especially applied to bantam and it depends on.
The general tax law and.
The effect of the inflation on the non monetary assets and liabilities. So so far there hasn't been any discussion regarding.
In fact, our banks regarding the tax reform.
We all know that that performance is coming it's one of the priorities that.
That has been set by the government that actually buy by.
<unk> said that they'll come in a minister of finance and in that regard also part of the strategy going forward from the government apart from the tax reform I think that it could be.
Fiscal prudency in general terms in order to reach our.
And more balanced fiscal situation.
That's what has been.
Announced.
By the government so far so go into do a question.
Nothing is specifically regarding banks it has to be put on the table.
And we don't foresee anything special for banks in that regard go into your second question about our asset quality.
No I'd start considering any reverse a reversal of a voluntary provision this is like the <unk>.
Base case for the underlying let's say cost of risk for this year and yes, I made regarding the guy that was it.
The bottom line as well.
<unk>, two maybe at or around flat considering to comparing to last year was slightly negative net income of setups in absolute terms.
Okay. That's super helpful. Thank you very much and just any comments on that.
Shall pension reform.
No actually that's subject to be now part of that reform hasn't really now passed by the current government with this universal guaranteed pension that it too.
The thing that they bought.
And pillar of the of the new or the future is a systemic and we'll know more about the that are coming forward I mean, but the first priority is stated by the upcoming government has been the tax reform and maybe.
After that they will tackle the bedroom for him but.
Nothing special to comment on that.
Perfect. Thank you very much.
Yeah.
Thank you very much.
Our next question comes from Mr. Quantity from Scotiabank. Please go ahead, Sir your line is open.
Hi, good morning, Congratulations on good results. Thank you for taking my question.
The first one is related to dividend.
The Samsung India 2022 guidance.
The second one needs related to Santander life.
Can you provide us with an estimate or some information.
Help us think about the unit economics for example on the client acquisition cost.
So in terms of revenues expectations for Santander life, the new products that are expected.
I remember you had mentioned that.
Do you expected revenues for this year for <unk>.
<unk> around 60 to 70 billion.
They ended up the revenue send it up being 81 billion so better than expected. So I was wondering.
What's the expectation for 2022.
Yeah.
What would be the breakdown of revenues by.
Bye bye.
By interest income.
So thank you for your questions.
Bob I'm, taking the first one you take the the second so regarding desktop itself for dividend policy. We are not planning any any change we are assuming a range from 50% to 60% payout I mean, the final proposal will come from the board and I will finally be decided at the board.
But that range is the one implied in the guidance that Robert mentioned.
Bob.
I'll go with the second one.
You're on mute Hello, Yes, I'm here I'm here I'm here.
Santander life, Yes, as you said, it's it's had a very good performance is generating good good income level.
Yeah.
So there's some economics and.
But on the license fee structure is actually very simple. So we don't charge for transferring money, we're taking money out at a T and there's no like hidden fees, it's one flat fee.
Just to have the account.
It's in U S. But it's it's it's roughly 3000 vessels a little less per month.
So initially the the main source of income is a client who signs up and gets a full blown checking account with no restrictions just not a debit card or a prepaid card. It's a full blown checking account has no minimum income level requirements et cetera.
Yeah, but you have this.
This is flat fee. So now that we have 800000 clients.
You multiply that by.
By the fee that is kind of like the fixed risk free income that that that that these clients will generate so.
2022 of the fact that you know the client base has been growing very very strong and we're starting the year with 800000 and last year. We started the year I believe with something less than 300000.
You already have a big growth in the base fee. Okay. At the same time as we said and a lot of these new digital platforms, even even super digital have a lot of clients, but they don't have very much money in checking accounts okay. There.
Paid digital debit cards.
Most of the platforms, probably have $15 million to $20 million in demand deposits, which is life is a full blown checking account than it has a lot of active users we already have $1 billion equivalent in vessels and in noninterest bearing checking account money or.
Yeah, basically taken account that yields.
At least monetary policy rate okay.
At the same time and something that life already has around $240 million.
And so an equivalent in vessels and in consumer loans. So there we believe there's a lot of room for growth.
And obviously, we're not going to go crazy with it.
You know the idea is to give them a loans to those people have an income you know you can open a checking account without the income, but but the LOE and you need to go through various other filters. So so yeah, but it is an attractive product and we expect to grow last year lending and something their life and even though it's way below the deposits it's growing 30%.
And on top of that we are selling and very simple mutual funds investment products that also generate fee.
So as you can see.
The monetization of the income potential life I think is very strong for 2022.
And should grow at least what what what the the client base is growing at.
At the same time the cost the acquisition cost.
It's actually very low it's around one dollar on a marginal basis just because the.
The great majority of the clients are done digitally in fact more than 70% of.
Something that life clients become a client.
Through their smartphone okay.
That's a little bit some some detail on something that's life.
Okay.
Thank you.
That's very helpful.
Thank you very much.
Yeah.
I think it will be moving to the next question.
Next question comes from Mr. Carlos Gomez Lopez from HSBC Securities. Please go ahead, Sir your line is open.
Hi, Robert.
And just look at structural changes that we see in the system.
We know that the Hudson to partner with a long term funding for mortgages.
Now that there is no more what drove us with some funds.
Okay.
Jason.
How do you ambition.
Your growth in long term assets purchase mortgages.
Mexico.
The.
Paper.
Okay.
Yeah.
Hello, Carlos Thank you for your question yes.
Ted I mean part of the impact.
The impact of the pension withdrawal has been.
Weakening of the.
Of the local capital markets and.
Our cup of capabilities or capacity to raise long term funding.
I think that that now that <unk>.
Got him better.
A new bedroom funded withdraws.
Are unlikely to happen in the short term at least according to what has been the stated recently by the they will come and go.
<unk>.
We see that as a positive going forward I mean, there we have we have seen some.
New activity in the.
And the local capital market, we do foresee that our capacity too.
We too are to raise a fund in the U S in the.
Mr. <unk> would it be theyre not in the same.
Mt are the same.
That was before but well be there I'd also it's worth it to go.
Went out there all of our efforts.
And globalize them to go into international markets I mean, we've begun that process a.
More than 10 years ago, I mean, now we have access to the Japanese the suites the U S market.
The rest of Asia, also and and Thats been our strategy, even way before that the pension funds.
Has suffered.
We're also because we always thought that depending our long term funding in a few names Chico's IBM you were talking about from five to 10 relevant.
The local players.
Not a good position to be in and that's why we did all this effort to two.
To globalize our funding base.
Going forward, we do we do expect to be able to to fund the long term assets between local and international markets, but it's also true that.
The demand for long term assets, let's say for long term mortgages now.
It is showing.
A slowdown in considering the new level of rates because the.
The funding.
I'll be there, but the level of rates.
Hi.
Let's say, making the demand or the appetite for mortgages to slow down and so the combination of those two is seeing those two things I mean slower demand.
Combination between domestic and international markets leave us comfortable that we will be able to to keep the business healthy way going forward.
Thank you.
Thank you very much our.
Our next question comes from Mr. Jordan Hymowitz from Philadelphia Financial. Please go ahead, Sir your line is open.
Alright, thanks, guys.
Couple of questions first of all what was the net interest margin in the month of December not the average for the quarter.
Bob do you have that number in mind.
And so I mean, if you want I'll look it up real quickly and then we'll go to the next question and I'll jump in and and and and and saying Okay. Okay. Second you keep guidance pre the NIM for the year next year, but what do you think it'll be in the first quarter of this year.
Both.
Yeah.
Hello, Okay, Yes, Hello, Hello, Okay. So for the first quarter of this year.
And we're expecting M. A R. R U S inflation expectations is around one 5% okay.
And which should give us a and obviously in a short term rates are also higher.
We're looking at a NIM.
Close to around 4% for the for the first quarter Okay.
And that's more or less at expectations with.
Inflation, which is still relatively high but coming down from the 3%, but also a higher a higher short term rates.
I'm, sorry, what was it four 5% and in the fourth quarter.
Yeah and in the fourth quarter the full the NIM for the fourth quarter was $4 five and for this first quarter it should be around 4% herself.
So you expect it to fall 50 basis points in the first quarter.
Yes, yes.
Yeah, Okay, and the name for the summer was 4%.
Okay, and just finally, if inflation stays at the current 6.5% or 6.6% what do you think the ROE will be in 2022 it would it still be around 27 28.
It's that's even.
If you take only the place for part of it will be positive for named software or way, but then that would imply the central bank hiking rates are even higher than what is expected in the market and that will like.
The balance of a significant part of the of the benefits coming from a place that's 11 in 2020 . One we have a high inflation rates not so high yet because the central bank started hiking process by late in the year. So this year, we are starting with higher rates and if that isn't the scenario of inflation that jeremie.
And.
Finally happens to central Bank.
Should rates should raised.
Our raised rates a foster.
Hardware and so we don't see that can be the combination of two things should they buy those kind of are we understood.
If you turn to the around 20%. We are we are like I did.
Okay. Thank you.
Yes.
Thank you very much. Our next question comes from Mr. Alonso Garcia from Credit Suisse. Please go ahead Sir.
Hi, Good morning, everyone and thank you for taking my question I have actually two questions.
My first is regarding a follow up on Costa Bruce I mean, you mentioned that you are not considering in the guidance. The reverse how many have you done all the provisions that you have created for Kobe. So my question is is.
Is there a timing or something.
Something you are waiting to see to happen before feeling confident about reversing this.
Do you sense.
Any color on that would be very helpful.
Hum.
That happened this year with that'd be something for next year right and my second question is if you could give us an update on the regulation.
Oftentimes excusing Sheila.
And how could that impact your your business considering the new structure of your acquiring business now that you have a.
Isn't it.
If there is any other regulation on that.
Regarding the vacuum and Seaspan being discussed, but we haven't commented on this call. Thank you very much.
Thank you I'll answer very appropriate questions regarding the.
Potential reversal of provisions are as I said, I mean, we're not expecting.
I expected that for this year and as of now we see those ISR.
Basically a protection for a downturn in the credit cycle right. I mean, so is that a great asset quality and the credit situation. We're also for the system mistakes.
In this condition.
The one we are expecting we don't.
We don't foresee a stopping those are what are the type of issues because as I said, we see it more as a.
As a way to get their balance rainy days or worst worst scenario going forward rather than reverse it need to let's say to go see them.
And then lowered the underlying cost of risk. We are we are seeing which are we see it as a hub.
And relatively good so for.
As of now we say it that way I mean, they are doing that during the year, we'll see how asset quality.
Alex on the macro scenario evolves.
Could make us more than us I mean, the board could made the board to reassess the situation about us up now that is the situation.
And regarding their interchange fees, we are just.
Today's away from from knowing the the regulation, it's supposed to be published during the first half of February and two.
Take it to be in place by April .
So we don't have any specific information about the final outcome and it's likely to have the fees.
Reduce them in the eye.
No no no what I suspect in the fees to go up.
It's important what you the final outcome will know it's like soon so for the next.
Just a few weeks in the next call we'll have more more even for Morro guide us to share in that regard, but I think it's important to what you mentioned that in our case they interchange fees I mean going down will affect our issuer business. But then we have our acquired business. That's what we are doing and get net and also remember that we see.
We will own 25% of Grasberg. So at the end the reduction in.
In the interchange fee potential reduction is going to be a positive for the acquiring business, we are going to capture part of that through.
Our 100% ownership in the net and also through the <unk>.
25%, we own drive spreads so that the net effect for us was.
The.
Lets say lower than other banks that currently have the Asia part, but as I said, we'll know more soon.
We'll share more more information regarding that in the next call.
Yeah.
Thank you.
Is there anything else.
Being disclosed either in the convention or in the.
Congress regarding regulations for the banking system.
No I think that the interchange pieces like the.
The most.
Relevant that it's a very close to be to be known and there is.
Nothing really on the bar from that there was a there is a.
Perfect.
Congress regarding their interest rates go up.
That is has been there for a while I mean, the Hudson to let's say a biased.
And we haven't heard any any news regarding.
Regarding that there is a on the positive side. The this project to have the.
But to the credit Bureau, integrating all the credit providers, not just the banks, including retailers an.
Auto loans provided us I know that that's already in Congress are there has been some discussion regarding the benefits of that all of that and it's not so evident how fast that will.
We'll move forward, but that is something positive to happen in the future if that project finally moved for a while.
Have a great positive.
Positive credit Bureau, with all the information and not just the one from from from banks.
Yeah.
Very clear thank you very much.
Hello, Michael.
Thank you very much we'll take the next two voice question then if we move to the next questions. The next question is from Mr. Yuri Fernandes from Jpmorgan. Please go ahead Sir.
Thank you everyone for the potential for asking questions I have a follow up on margins should kind of refresh us the sensitivity I read.
Carphone many calls something between 10 bps for rates in 'twenty beeps for inflation, but you took in refresh something has change.
Given your guidance of NIM compression in 2020 true that would be great I have a second question regarding gets met a very good with that you have like these the seat growth the seven business.
Year to date and my question is if you have like a guidance for forgets net growth in 2020 true.
What's that.
Is about is that the net Jimmy D or like what is that fee. So we can have more visibility on you know like on the economics of all forget Tonight.
And last but not least on OCI.
No, it's a better quarter for the mark to market on your equity.
Portion so as you can explain us what happened. If this is relates to the curbs the Chile with interest rates in Chile, or you can do as it relates to something else you may prove on your balance sheet. So we can understand how OCI may evolve, which totaled 22. Thank you very much.
Bob do you take the first two items I think the third sure okay. So.
Regarding our net interest margins.
Today as you correctly have sensitivity bowls to inflation and to the short term interest rates.
For every 100 percentage.
Point increase in short term rates and on average short term interest rates you have a sensitivity of negative sensitivity in the first 12 months of around 10 basis points.
And for inflation and for every 100 basis points rise or fall in the U S.
Paired to the previous year sensitivity.
It is between 15 and 20 points. Okay, obviously, the why I say that range, because we do move around.
The GAAP and you have inflation you have more flexibility, it's not so easy.
On the on the rate side, but we do have flexibility in terms of moving the gap and with inflation today I would say.
Given that we're expecting as does our economists said more inflation in the first half and we'll probably have a little more exposure to the U S inflation and I'll, probably then lower the guy by by year end. So those are the two like around 10 basis points for the the short term rate and 15 to 20.
On on on U S inflation, and then going forward, obviously in 2023, where we should expect and also probably.
And in this year.
Is that loan growth should continue to pick option.
Asset yield should slowly start to incorporate the higher yields are.
And that's why we think in 2023, there should be stability or maybe increase in margin inflation is obviously important in bank results.
That would be ridiculous to say to the contrary right.
Remember last year, we had a very good results no doubt.
And then in the fourth quarter, we had ROE is a 28%, but obviously, it's that high inflation isn't sustainable alright, and just because of the price level, but it's also the ROE isn't sustainable because that leads to higher rates. So kind of the above normal ROE is in the fourth quarter you kind of go back to the mean and now now that rates are.
So that's why we think this ROE guidance of 20% considering.
More normal level.
Okay regarding getting that so.
We finished like $7 billion in fees, obviously, a higher every quarter and we already have around them.
Probably more than 70000 Pos is now in in January and yeah, not see is basically the MTR minus minus the interchange fee.
You can get and that has that's really good news in the sense that last year. We must have had an average of 20 30000. Pos is this year, we're probably going to have an average of probably I don't know somewhere between.
80 to 100000, POS says so and on top of that the M D R's.
Sure sorry, not interchange fees should come start to come down.
And also with the changes in the fees and interchange fees. There's obviously, a one time hit as the bank as an issuer, but it should be able to.
Permit acquirers to enter more markets. Okay. Today again that has been really focusing on small businesses. It's a good. It's a good segment, we're providing very good service.
But with.
With the change in interchange fees.
Should permit us to go go after or are there other clients.
And so as we said in our Investor day, two years ago.
We think that in.
KED Natkin nicking can be generating income off of 2000 $30 million.
Which would be roughly around 20 30 billion peso and fees.
I don't know if you reach that this year, but but but it's definitely going in that direction.
And regarding the OCI since.
As you set them in the fourth quarter, we got.
An improvement there considering the.
The evolution of rates and inflation.
But give us in the market and for 2022 I could say that.
The worst they are just behind because.
The level of rates during the last part of it.
Last year was really high with all the withdrawals noise and the elections since.
Since then even even in January we have already seen.
For the <unk>.
<unk> from the levels of December at the same four for breakeven inflation. So going forward for this year and then you have the time decay because at the end of a significant part of the impact in 2020 . One it was like the type of Tomorrow Tomorrow.
The market of the of.
Those positions on just with the weather.
With the time, passing that value basically it gets better because.
There is less time before maturity.
And so for 2022 without the Spectre, let's say negative impact coming from the OCI.
Should be from no drive to positive how positive will depend on the on the on the evolution of rates.
The markets evolve, but we shouldn't have the same situation we had in 2020, when considering the ending point of last year.
Oh amazing Super clear and congrats on the 28% or what you guys. Thank you. Thank.
Thank you.
Thank you very much. Our next question comes from Santiago Alba from credit core capital. Please go ahead. Your line is open.
Hi can you hear me.
Yes, yes. Please go ahead.
Okay.
Legal fees related to vehicle item.
There was already answered.
As soon as the way the bank reversed to maintain a conservative approach in terms of provision expenses and asset quality indicators remain under control any of you are observing some difficulties in the payment of some claims that existed in our Brooklyn, India, whether it'd be indicators.
Later also considering <unk> coverage ratio.
270%.
Bob.
Yes.
Just.
Basically and Tina.
And Chilean gap, we've done additional provisions and then basically every quarter.
Fourth quarter and as we said it in in Chilean credit risk. Thanks.
Although I FRS nine and the additional provisions are a pretty much a discretion of the board and our board obviously supported with managements views is that.
<unk>.
There are still risks in the economy are.
Coming from the pandemic basic Okay in fact tower and the Omnicom crisis hasn't been so bad even all contagion levels are going through the roof.
The fact is that to the board at least to the end of last year felt it prudent.
The continuous savings as well.
Adding voluntary provisions.
For a rainy day and our guidance for this year, we don't expect to add on any more voluntary provisions, but while we're not expecting to reverse them and with idea there that those are for exceptional events.
In terms of credit risk, we don't see any any and we don't have any pending issues on the corporate side or any clients. In fact, the opposite 2021 and we saw quite evolution of asset quality across the board, but it is also true that eventually kind of these these these usage of pension fund monies direct government travel.
First we will be drawing up and theres still a lot of liquidity in households, today, but that will eventually dry up.
And that is why.
And in our cost of risk cost of risk last year, excluding any voluntary provisions was like 0.8, okay.
And this year our cost of risk the forecast we have in the guidance is 0.9% to 1% and that's kind of a jump that reflects.
Some deterioration in asset quality on the margin just because it's impossible to keep these levels that we saw last year. Once again, excluding voluntary provision so going forward I think the coverage ratio will remain high it could come down a bit.
The cost of risk on a on a comparable basis without voluntary provision should go from the 0.8 last year, 0.9% to 1% and in that range will depend on how good the economy, yet and if some unexpected tail event happen.
Happened as we've seen in the last 10 years in the last 10 years.
Pandemics, we've seen riots routine earthquake.
Those provisions in the balance sheet.
So absorbed with us okay.
Thank you very much for answering my question.
Thank you very much we have also detected a question from the line of Citibank analyst team from San Paolo will just open the line in case there was a question there.
Please go ahead with your question.
Okay, well, we'll just come back to this line it looks like it's muted in the meantime, we will go back to the tax questions.
We acknowledge fluence justifying his question about interchange piece of regulation, we believe that it was already answered.
If you have a follow up question. Please raise your hand, and we will open your lines.
The next question is about.
The main risks to inflation in 2022 do you believe it could persist at a level above 2021 inflation, what did your impact on and I am in our own E. For every 10 basis point increase in inflation.
Okay. Thank you Michael I think that the sensitivities were already mentioned.
By Robert then regarding the the risk I think that.
And there are there is this all inflation pressures are.
Across the board I mean worldwide.
The supply chain.
And I know that Uh huh.
It's a likely at what our forecast is our expectation that shows that we are expecting inflation to be above the target from the simpler back but not as high as it was in 2020 one.
So our base case or are you still have that.
Slides a reduction in inflation trend into the central Bank.
Target then and the risks I think I think they are they are coming more from from abroad and put all of these are.
International inflation pressure or something.
I don't see many.
Our internal risk off inflation go in I am definitely any of those.
Our board.
Risk appears especially the.
There was the coming from the domestic situations that the central Bank and I think will be.
More aggressive.
Rates on that.
Good like counterbalance the positive coming from from an from inflation.
Okay. Thank you very much a question about normalized auto E.
What is normalized net income growth for the group.
Bob.
Yeah. So.
We believe that in if we return to a situation, where we have GDP growing two and a half 3% and on.
On a normalized basis with the inflation's going back to 3% on the central bank rates more or less at 3% and three and a half a neutral rate and as we said before the ROE.
In your guidance is around 17% to 19%.
And therefore.
We think that the net income growth should be pretty much in line and given that we're probably paying a payout of $50 to 60%. If we are able to keep those Roe.
And more or less in that range net income growth should be.
Similar to loan growth, which for Chile of Chinas growing two or 3% and a real a real GDP.
Nominal loan growth should be roughly.
Around six 7% and that should give you a kind of like the normalized.
Net income growth what could drive this upward and basically and what could be at the higher range of the row are driving this upward is obviously our continued success in our digital strategy. Okay. I think that's that's that's should pull could pull up our or our forecast.
Normalized ROE and net income.
Versus what I, just stated and what could pull it down really is the political economic environment and maybe some type of regulations that are always out there.
Hey.
Great. Thank you very much the final text question, how do you think the pension withdrawals affected consumer loan demand.
How does the absence affect your forecast thank you.
So I mean definitely there withdrawals are affected.
Consumer loans, the mindset to the to the downside.
Significant way I mean, there is there were there was a lot of liquidity in People's accounts.
Ah buckets, so that made them demand less great I'm the situation is still <unk>.
Similar to that I mean, there is still a lot of liquidity around so that's why we are not.
And a rebound in consumer the lowest demand in the first half of the year first quarter for second quarter bad in the loan growth expectations that Robert It was mentioned in between 6% to 8%. We are already factoring in that that situation begins to revert.
By the end of the year I.
So people start to consume and to use that if we do they have and they just start to demand more mark great on them. That's why we also think that the loan growth in terms of the mix could be like positive two two names because from the starting point, we have seen we'd see maybe consumer loans.
It's growing in the in the upper part of that 6% to 8% range and that is that it would contribute to that to the mix 'em too to support the name, but but definitely withdrawals were were a significant pressure on <unk>.
Be.
It won't be there going forward and that should support consumer loan demand and growth.
Yeah.
Perfect. Thank you very much what I am seeing no further questions at this point, perhaps I'll pass the line.
Back to the management team for your concluding remarks.
Okay. Thank you Michael so thank you all very much for taking the time to participate in today's call. We look forward to speaking with you soon.
Okay.
Thank you very much. This concludes today's call. We will now be closing older lines have a great day.