Banco Santander-Chile Q1 2023 Earnings Call
[music].
Okay.
Okay.
Good afternoon, and welcome to Banco Santander Chile's first quarter 2023 results conference call. We're joined by Emiliano Muratore, Saudi Asato, Christiane Begonia, and Robert Moreno, I will hand over 2 million now to begin the presentation.
Yeah.
Good morning, everyone welcome to 1%.
First quarter 2023 results webcast and conference call.
This is <unk> CFO and I'm joined today by Robert Moreno head of Investor Relations Christian we Gonya head of strategic planning and Claudio Soto Chief economist.
Thank you for attending today's conference call today, we'll be discussing the trends and results <unk> seen in the first quarter, while tight monetary policy continues to squeeze margins, our successful digital strategy and customer oriented product offering continues to drive strong results from our business segments.
To begin I invite.
Give us an update on the macro scenario beginning on slide three.
Thank you in general.
Youre going to be continuous.
Processed after the overheating of 2021.
GDP grew two 4% in 2022 and contracted two 5% in the first quarter of this year you were supposed to tight financial conditions and have conducted fiscal policy.
High interest rates have been away excess liquidity from past pension fund withdrawals.
The labor market remains relatively weak with low employment growth and an increasing unemployment.
Real wages have contracted due to heightened inflation.
Political uncertainty after.
After the referendum that rejected the constitutional percent proposal of the constitutional convention last year.
However, it remains relatively high as compared with historical levels.
In this context, we expect that GDP will have a mild contraction this year of around minus zero point, 55% before returning to trend next year.
Domestic demand will remain subdued while the external sector will benefit from the reopening of China.
Overall the outlook for activity is better than what we previously estimated.
With domestic demand and better.
Terms of trade will help recovering the external accounts.
During the first quarter the trades, but has reached seven 5 billion surplus.
And historical record.
For the year, we expect our current account deficit or 4% of GDP down from the 9% of GDP deficit of last year.
High copper prices lower political uncertainty and the depreciation of the dollar has strengthened the Chilean currency.
Inflation, although remains elevated has begun to fall in line with our forecast.
Mark CPI increased 11, 1% year on year and during the second quarter.
And what changes should reach a single digit.
The select Ness of the economy, the precision of the currency in the full of your prices will keep pushing down mutation, which we expect will be running at same 0.1, you exploration by year's end.
The Central Bank has kept its monetary policy rate at 11, 25%.
The last nutrition report had ltvs, Pakistan, we expect that the conditions for an easing cycle will be made at the beginning of the third quarter.
As before and core inflation becomes entrenched.
Given the high level of the monetary policy rate once the board in cutting they will proceed at a fast pace.
A result, we expect expect the monetary policy rate to finish the year between seven five and 8% above our previous estimates.
Our baseline scenario assumes that the proposal for a new pension fund withdraw that is currently being discussed in Congress is not approved.
On page on page five we have some of the reforms that are in the agenda of the government.
One of the most important ones the tax reform was rejected in Congress last March.
Currently the government is trying to build an agreement for a new tax proposal.
Meantime, the discussion for an increasingly mining royalty has advanced.
The pension reform is still pending and should be announced during the second semester.
The reduction in the number of weekly hours from 45 to 40 was approved in March.
New regulation, introducing some more flexibility flexibility in the labor market and contemplate a five year transition for the hours reduction.
This week, the new interchange fee for credit and debit cards, what officially published the transition from the current phase to the new ones will be gradual and will start in six months time.
Also this year the government has relaunched the forgot the scheme for Smes and Olga scheme offering state guarantees for the first time mortgage five years.
Last week, the government announced a new national strategy for lithium in broadening the participation of both public and private companies.
The use of renal technologies and looking for us to add more value added in the production process.
Finally, the constitutional process has continued as scheduled the <unk>.
Expert Commission is preparing a preliminary draft for an eco solutions that should be sent to the constitutional counsel in June .
The remember the members of discounts will be elected on may 7th.
The final.
Will be subject to a referendum with mandatory participation on December 17 2023.
Thank you.
In my presentation page six I would like to start first by reviewing an update on the bite strategy.
Our purpose like the rest of Grupo Santander Sis to help people and businesses prosper with the mission of being the best financial services company, acting responsibly and gaining the loyalty of our clients shareholders collaborators and communities.
Our style of doing business is simple personal.
In our day to day behavior with all the stakeholders as summarized by the teams acronym.
And where are the one mission ourselves by 2026, we see ourselves as the leading financial services company in China for our clients collaborators communication with shareholders, we will focus on being obsessed for our clients their progress on their experiences for our collaborators we seek to maintain a committed on height.
Performance team for the community, we expect to be leaders in social and sustainable finance and finally for shareholders, we seek attractive and predictable returns and to be the leading bank in terms of profitability efficiency and recurring risk three revenues in Chile.
We want to achieve this plan through four pillars of our study under the Chiller first.
First to be at the Eagle Bank with relatives are the Eagle Bank with work office the.
So rich customers with state of the art technology at the best level of service.
We specialize in value added services for our corporate and wealth management businesses.
<unk> on value added transactional trade advisory products and services.
We're always searching for unexplored growth opportunities, we want to break paradigms in the banking sector, finding new business opportunities in leading the sustainable transformation of our clients.
And finally, a key enabler an organization that is collaborative and with a high performance and diverse cultures were exceptional people can advance based on merit.
As we can see on page nine we are also fully committed to diversity. For example, as of April we are the Chilean company with the highest percentage of women among the board.
Among all strengths, including deep signed Moreover, 56% of the bank's total employees are women and the percentage of women in the top managerial positions has increased from 18% in 2019 to currently 32%.
Another key innovation launch in the first quarter of 2023, what's the workup of espresso in this newly fully transactional branches. It takes on average less than five minutes, so pro forma for inflection with the highest level of security for our customers.
The state of the art technology with facial recognition and Ddos products.
All of this combined with the Great service experience of our World Cup vessel Thunder style we.
We have opened four work of express with sensors in vignette Bank, our Santiago Central unless Congress, where we serve over 50000 people weekly.
The NPS of these branches is an eye opening 96.
The work of face Pretzel will allows us to keep updating our branch network, while improving waiting times on NPS at the same time other traditional branches surrounding the workup espresso will be 100% dedicated to value added services.
Currently 28% of Santander, Chile branches do not perform transactional services are completely paperless, improving efficiency and productivity.
One on deposit volumes increased 22% year over year in the same indicator per employee rose nine 3% in the same period.
On page 12, we.
We show how life continues to shine with clients growing 17% year over year and total revenue generated by life, increasing by 40%.
Moving onto page 13, we show how life success has permitted the bank in a short period to achieve a market share of approximately 25% of checking account balances in Chile.
Now our aim is set on the large pocket of site and savings account deposits. This market in Chile totals $24 billion in deposits in which we only have a one 8% share of savings accounts on a seven 7% share of the fight account market.
In order to capture a greater share of these markets in the first quarter of 2023, we launched much Lucas.
<unk> is 100% diesel products that includes an interest bearing sight accounts plus of saving accounts.
On boarding process is 100% digital and there are no password only facial recognition.
And the account number is very easy to remember she lost contract called 66, plus your national IV number is.
This account has no fixed of BARDA or variable unaccepted deposits for up to 5 million pesos.
Moving on to page 16, we show how the success of get Neb continues our acquirer has sold more than 177 with a 17% market share in points of sales and a 7% and total purchases. According to our estimates fee.
Totaled more than 10 billion peso in the quarter and are growing more than 200%.
In the first quarter, we also introduced a new specialized attention more than an hour in our middle market segment for the agriculture, automotive and multi latina sector, which encompasses <unk> middle market corporations seeking to internationalize.
This new species specialized attention model seek to enhance our growth and market share in this highly attractive sectors of the Chilean economy, which are intense not only in lending, but also non lending products up swell.
Right.
Another point to highlight was the progress made in our commitment to the objectives of sustainable finance funded environment. We.
Have a market leading range of sustainable approach that help care for climate change with Santander.
And in 2022, we managed to support numerous customers with sustainable operations in our business and corporate banking businesses in total in 2022 with burst sustainable rates, both social and environmental for an amount of $230 million.
390% more than in 2021, making us the leader in the sprouts in Chile, We believe that this will be one of the fastest growing areas in the coming years.
The success and sustainable Finance has also been achieved in all of our all of our responsible banking objectives as shown on the next slide we achieved our goals in gender environmental social and educational targets.
This has resulted on being ranked the number one in the main sustainability indexes such as sustained Olympics MSCI.
We are also the only Chilean bank, including the Dow Jones sustainability index for our global emerging markets.
In terms of NPS, we continue to have an indicator of <unk> of our main peers in the first quarter of 2003, we did see a slight dip in our results. This was due to ongoing changes in our app to improve cyber security. We are fully committed to return to the number one spot.
The workup expresso should be key as the improvements of these models in terms of NPS at the branch level are substantial now I will turn it to Robert who will discuss our results.
Thank you again moving on to page 22, net income in the first quarter totaled 136 billion decreasing 42% year over year, and increasing 33% quarter on quarter and the quarter. The banks margins continued to be negatively affected by a high interest rate environment.
The bank ROE in the quarter reached 13%.
On the other hand, our business segments continued to show solid growth with an important expansion in net interest income and fees with costs and risks under control.
The contribution from our business segments and excludes the corporate center.
Increased 30% year over year.
The result of the net corporate and investment banking were CIB have remained impressive increasing 76, 7% year over year.
<unk> contribution from our middle market of corporate increased 31% year over year, while there is commercial segments experienced an important rise in deposit spreads as well as high growth of fees and treasury.
The results from retail banking Rose 10, 5% year over year also driven by ryzen deposit spread and greater fees fee income coupled with higher productivity levels.
In terms of loan growth in the first quarter loan growth decelerated as the economy feel the effects of Taiwan monetary policy slowing inflation rates and depreciation of the peso.
During the quarter the CIB segment decreased one 2% Q on Q influenced by combination gain.
Our translation losses caused by the six 5% appreciation of the best in the quarter.
Also explains the one zero percent Q2, a decrease in loans in our middle market segment as mentioned during the quarter, we launched specialized attention models for the agriculture, automotive and multi latina sectors, perhaps lower net income growth in the sector.
Retail banking loans grew one 1% Q on Q lessened by consumer loans, which will ensure which in turn was driven by good demand for credit card and auto.
Origination of new mortgage loans has decelerated with the slowdown in inflation and high interest rates.
As far as meeting the demand for new loans remained subdued as clients continue to pay back our rapid loans disbursed in 2020 and 2021, a new <unk> program was launched by the government in April to support mortgage growth.
So household and lending to SME.
We maintain our guidance of year over year loan growth of five 6%.
Liquidity levels remained strong in this quarter. The bank's total deposits increased three 7% Q on Q. The increase was driven by client deposits that increased nine 9% jewelry Q.
Bonds issued increased 17% year over year, and two 3% for the quarter. During the first quarter. The bank has issued various bonds in the local market and bond market in order to take advantage of the inverted yield curve the controlled funding costs.
The banks liquidity coverage ratio, which measures the percentage of liquid assets of a net cash outflow at the end of the quarter was 182% well above the minimum at the same date the banks net stable funding ratio, which measures the percentage of illiquid assets financed through stable funding sources reached 113%.
Also well above the current legal minimum set for this ratio.
In terms of margins the bank's NIM in the quarter remained stable Q on Q at two 2%.
The variation of the U S of U S continued to decelerate, while short term interest rates remain high.
These factors continue to weigh on the bank's NIM.
So on this slide this is mainly a phenomenon that affects our <unk> or the net interest margin from our <unk> activity.
In the U S GAAP and our liquidity.
Client NIM, which is defined as NII from our business segments over interest, earning assets has increased as deposit and loan spreads have risen.
On slide 27, we give further insights into our margin for the rest of 2023 for every 100 basis points decline and inflation are named pause on average by 15 to 20 basis points and for every 100 basis points rise in the average monetary policy rate, our NIM followed by around 30 basis.
We have updated our base case scenario for 2023 with our latest internal forecast by increasing the expected average monetary policy rate from nine 2% to 10, 4% this year and the UF inflation of five one.
Under this base case scenario the bank NIM in 2023 should reach two 4%.
Moving on to asset quality on slide 28.
Horizon, the NPL ratio to one 9%.
Gradually returning to pre pandemic levels as household liquidity and gradual return to normal in the economy feels the squeeze from high interest rates.
Average of NPL as of March 2023 reached 186% and there has been no reversal of the voluntary provisions.
As you can see on slide 29 is overall positive asset quality indicators led to a cost of credit of one 2% in 2023 in line with our guidance for this year.
On slide 30, we move on to non net interest income revenue sources, which continues showing exceptional growth trends income from fees and Treasury Rose 33, 8% year over year, and 20% Q on Q driven by higher usage of products in all segments. We expect these trends to continue.
<unk> for the rest of the year.
As shown on slide 31, we cannot we can see the bank's efforts to continue increasing productivity and to control costs operating expenses decreased one 2% year over year and 8% Q over Q.
The Bank continues ahead with its $260 million technology investment plan for the years 2023 to 2025.
Further these investments we're expecting cost to fall in absolute terms in 2023.
Moving on to Slide 32, we also observed a positive evolution of our capital ratios at the end of the first quarter. The bank reported a core equity ratio of 10 five.
It is important to point out that in March 2023, the bank changed its policy for provisioning of dividends in March the bank provision the full dividend, which was paid out in April 2023 equivalent to 60% of 2022 earnings following the board's approval upside dividend last year in the bank.
Last year, the full impact of the dividend was recognized in April therefore, the two equity basis are not entirely comparable.
As a result value added for our shareholders measured at the growth in book value plus dividends dispersed increased 23, 7% year over year.
On slide 33 will conclude with some guidance.
Despite 2023 being a somewhat more challenging year on the macro front, we believe our strong ally and activities will continue to expand.
Coupled with this we will continue with our investment program, which focus on digitalization and <unk>.
We also expect client growth remain robust.
Led by Santander life, yet net and now much Lucas.
In terms of loan growth, we expect mid single digit growth with a focus on all segments NIM should contract with two 4% with solid client nims as the monetary policy rate comes down we expect NIM to rebound.
NII growth and surpassed 20% this year on the back of strong client acquisition and usage figures.
Cost control will be a major focus and we expect a decrease of low single digits and our total cost base.
Asset quality should deteriorate somewhat of the cost of risk will remain at a manageable level of 111, 2%.
In summary, we started the year with the ROE is in the low teens as the year progresses ROE should improve for the full year and for the full year. We are guiding an roe of 15% to 17% lower than initial guidance. This is mainly due to higher average short term interest rates, partially offset by strong client profitability numbers.
<unk>.
Long term Roe.
Expectations remain unaltered at 17% to 19%.
With this I finish my presentation and now we will gladly answer any questions you may have.
Yes.
Thank you we will now move to the question and answer section. If you would like to ask a question. Please press star two on your phone and wait to be prompted.
So our first question comes from one <unk> at Scotiabank. Your line is open. Please go ahead.
Yes.
Hi, Thank you for taking my question. My question is related to the NIM.
No.
Do you have expectation cost decline.
Guidance for around two 4% NIM for 2023.
Im.
Wondering what kind of NIM can we expect for 2024, I'm just trying to understand what a more normalized NIM.
Thank you.
Hello, and thank you for.
To your question I mean.
On a more normalized NIM would be like around like 4%. That's on monetary policy. It's like on a normal level. That's we don't see that happening before 2025, maybe so in 2024 would be like in the middle from where we are this year at around 2425.
Next year being around 23233 to three five all dependent on the pace on the path of the monetary policy rate, but that would be like.
The trend going forward.
That's helpful. Thank you from Covid.
Thank you. So our next question comes from Nick Coppola from HSBC. Please go ahead.
Hi, Thank you for taking my question could you. Please explain once again work that you can reduce your guidance for this year.
Is it just the interest rates, which is higher than expected payments Sundance.
Regarding the.
NIM from the market.
When does when do you think that'll normalize be close too.
There is nothing else.
I need to any 24 teams right now could you. Please conclude thank you yes.
Yes, Hello, Nicole. Thank you. Thank you for your questions.
Adjustments in NIM guidance basically is late.
If you look at the the heat map the way we call that chart on the previous call basically what we did is we moved to the new average monetary policy rate and then your inflation. So, let's say that SaaS related to the to the delay in the interest rate cuts that we were expecting before and now.
We are expecting a bit later so there is.
No not more than that data into the new macro scenario. We are we are expecting now and so in terms of the non clients and Naeem go into neutral.
Again, it will depend on the level of interest rates.
According to the pace, we are expecting for the central bank to cut rates that should be more around this the second half of next year.
Okay.
Any changes that we should expect this year to next year.
A couple of times the bank. Thank you so much.
There is nothing in the agenda I mean now we have the interchange fees already known on the the transition period and I was so there are there are no.
I will let their issues being discussed.
And that we envision that could affect us in the coming months.
Thank you Tim.
Thank you we have a question from Tito <unk> from Goldman Sachs. Please go ahead.
Hi, Good morning, Thank you for the call and taking my questions.
Couple of questions just to understand a little bit.
Ro.
Evolution and the timing of when you expect rates to come down because again as long as rates remain high or we can be relatively low just given the guidance.
So should we expect sort of first half of the year you will be below.
<unk>, the ROE guidance of 15% to 17% and then maybe <unk> you start to go above that and then could you clarify when do you expect rate.
Start to come down in Chile, and then my second question is on your fee income, which is very strong.
Yes.
Is that growth that we're seeing sustainable how long can you continue to grow the fee income at that pace. Thank you.
Hello, and thank you for your question I mean regarding the timing for interest rate cuts. Our base case scenario is assuming a cut in July and then a small cut but the the current cycle starting in the third quarter and then continuing during the year. So.
With that.
Bob.
The trajectory of <unk>.
We will be the one you mentioned I mean, basically first half below the average for the year on the.
Third quarter is starting to rebound together with the NIM when the central Bank.
The reduction cycle.
I'll keep going up during the fourth the fourth quarter.
Additional cuts are made.
So Peter this is christie on regarding the fee question.
Of course this year is spectacular for us with.
More than 20% growth or over 15% to 20% growth. So it's looking really good.
He is very linked to our customer growth based on the performance of our getting that initial <unk> sun life's initiatives. So.
For the upcoming years, we of course expect to grow strongly hopefully better than the market, but I'll say that 20% figures.
For the long run are not why do we expect normal until let's say larger than 10%, but not in my plan.
Okay.
Okay. That's helpful. Thank you so much.
Thank you. Our next question comes from Carlos Gomez from HSBC. Please go ahead.
My questions asked and answered thank you.
Okay. Thank you.
Our next question then comes from Daniel Mora at Credit Corp. Please go ahead.
Hi, good morning, and thank you for the presentation.
Couple of questions. The first one is regarding the NIM.
You already explained the decrease in the guidance, but I would like to understand what will be this strategy of the <unk> that are currently impacting the net interest income I mean interest rates are you waiting for them to to decrease that.
Chris Op rates will improve the position of the derivatives, who are deploying our way for the exploration date of these assets what is the strategy there and the second one.
Regarding fees.
Very strong performance in the first quarter.
We don't consider them district.
Of the new regulation of interchange fees.
Do you expect these to continue in the coming years.
The current pace of growth and I would like to understand why are these in the order fees in the first quarter because we observe.
A strong increase in order fees interest much.
Thank you Daniele for your question I mean regarding your digital strategy I mean definitely that.
The portfolio will have the margin improving when interest rates start to fall.
Our today as CEO , so our expectation for monetary policy average for the year is like 10.4. When you look at what the market is pricing. This is slightly higher than that I mean like.
10.6, or so so that's why we are not like logging in that or fixing that level. Because we do expect that the trajectory will be slightly lower them faster than what the market does imply and that's why the strategy basically is like to wait to two rates to fall in.
To follow our our path, which is now a slightly.
Lower than what the market was.
Expecting I mean.
Late.
Last November the market was on the opposite side I mean, it was implying.
A more dovish trajectory to our view on that.
And in that moment, we we closed part of that sensitivity securing a more dovish path, but today, we don't see that opportunity because we are we our scenario.
On the on the lower part compared to what the market is.
The fees are related to government.
Alright, so regarding the fees similar to a previous question, we expect a very strong 2023, and then to grow.
A little slower, but better than the market, so probably something.
Higher than planned, but not the same timing that we're expecting for the year and regarding your question on the Rfps is mostly related to corporate investment banking advisory fees, so on M&A and structured.
Okay.
Perfect. Thank you so much.
Yeah.
Thank you. Our next question comes from Oliver <unk> UBS. Please go ahead.
Yes.
You guys for taking my question actually I, just have one related to deal pretty expensive.
The bank revised downwards the guidance.
For this year.
With the expectations for a negative growth in costs. So could you. Please just clarify a little bit more of the drivers behind this performance.
And if you could add.
If we could expect like a drop of 1% to 2% or maybe 5% of the operating expenses.
It would be helpful. Thank you.
Hello, and thank you for your question.
It's not like a minus 5% I mean, it's like more on the.
Low single digits.
Now that we are expecting on the on the drivers.
A combination of things for me first all the fraud controls that we are doing them in all the product expenses that we have.
On the bank or in the other operating expenses and that's something that we have been making good progress.
That number has.
Improved and he's going to help the loan growth or the loan the cost fell four days for this year and then all the work we are doing in the branch networks.
Optimization and also the transformation I mean, you saw the work effects Bristle initiative, which is also apart from driving NPS.
Up because clients are also happy it's a very efficient way to to deal with that transaction holiday coming for clients.
And in general terms, all the digitalization of the bank all the mass Lugano. The life initiatives. We are doing are taken productivity app, but by having.
New client growth and new client acquisition.
<unk> revenues have.
In.
Cost under under control on August 10, if you want to add on that.
We expect we expect these new initiatives to.
Keep us.
Allowing us to update the branch network as a whole lot and we see further improvements in how we would deploy all of our study.
Thank you.
Our next question comes from Yuri Fernandes with JP Morgan. Please go ahead.
Thank you guys I have a first one regarding expenses. It has been very good and has been delivering on these closing branches reduced a little bit the head count.
But we are seeing a super strong growth on fees right and I think part of that she is like.
Some administrative expenses, there shouldnt be somewhat related right like technologies software.
I don't know my question is how sustainable is for you to keep such a good level of G&A growth I understand the guidance is negative for this year, but my question is.
Should we see more investments in 2020 for like cocoa comfortable are you that this year is not a one off because you kind of built some provisions on costs last year, and we should CMO like a pick up in the coming years. That's the first one I have a follow up regarding the margin just a curiosity on that <unk>.
I think the FCC.
They explained part of your of your margins right like a part of your strategy on that sort of liability management and when your FTE instruments they should mature.
I don't know I think that our different mature dates depending on the program. So I'm not sure if March I'm not sure. If this is July .
2024, so just trying to understand when should we start to see you know like Euro <unk> instruments.
Getting paid thank you.
Okay. Thank you for your.
Your question regarding expenses.
I mean definitely you should not expect.
Costs fully in the following years I mean this is in that sense. This year is going to be.
One of our our usual target and what we have done basically.
Every year I would say in the latest period is to have costs growing below inflation. I mean that is that is like the starting point for our our strategies our inflation will be in the mid to low single digits.
Going forward and that's where we went to cost to be the composition of that cost.
We'll be shifting to what you mentioned I mean more on amortization of technology investments and digital initiatives.
And taking advantage of the improvements in the footprint of the.
The branch network because would we have in like less.
Help us to reduce the square feet off.
Of branches and that will help in that.
And that cost and also all the digitalization will increase the productivity per employee.
And so yes.
That sense, it's a one off.
The performance and cost for this year is part of the discipline.
Wind thing, we need to have with the revenue pressure, we are having coming from margin. So this is going to be tied to year on that time, we are delivering on that going forward we should.
To go back to a more normalized pace of cost growth.
A slightly below below inflation and regarding their FCC.
Cigarettes again matures.
Half of it in April a couple of weeks in July next year.
And as you said I mean, considering our strategy that basically has that.
Liability floated.
The maturity itself won't have a significant impact for us because basically we are already being the the floor. The cost of that so that we will be benefiting from interest rate going down starting the.
At the same day that the interest rates start to fall and so when the when the maturity happened.
Considering that we are already flowed it at the level of rates that will be at that moment I mean, let's say six seven whatever percent we have in.
A mid next year for us it won't have an impact because we are already with the liability at that level.
Hi.
If I explained the situation if I understood like the liabilities floating but your assets theyre not floating for Thats right. You bought I don't know fix it right. These permits on that so like the materials and correct me if I'm wrong, but maybe the maturity of the six would be a tailwind for your margins no no.
Is it not.
That's going to be.
A significant.
We win because we already have I'd, just say that we are talking on the on the liability side. Then we have the assets repricing in this context, we are already seeing.
Repricing on the asset side that will help us that yes.
Yes.
This is Robert as a tailwind in the sense that rates come down in detail okay.
Tim.
And when it expires it should be a tailwind.
Depending where rates, okay, but but in itself today, it's not you see it'll be a tailwind when rates start to go down okay.
Okay.
No perfect guys. Thank you if I may a third one just touching on asset quality. If you can provide some color for us like the trends, we're seeing like some worsening on consumer so just like your overall view on asset quality. Thank you.
Yes, I mean asset quality as you saw on the slide basically we are normalizing in terms of Npls.
Impaired loans impaired loans is still below pre pandemic levels.
That's what we see for for the year I mean, there's 12111, 2% cost of risk for the year is consistent with having the <unk>.
Similar to pre pandemic levels of asset quality, we are bright.
Confident that we can be there we still have the voluntary provisions as a way to to cope with that.
More dirty array data scenario engage that.
<unk> bad as you saw first quarter cost of risk was up one two.
That we can that we can keep at that level for for the rest of the year, which is definitely.
Higher level of cost of risk to the one we had this last couple of years back consistent with a more normalized scenario that that.
Certain sense is a bit of the flip side of the a slower base sell off rate tie off right. Scott that we have seen consistent with a not so weak economic scenario that is also let's say reflected in asset quality, which is normalizing to pre pandemic, but not in a extreme.
Or harder way.
Okay.
One thing that.
US being clarified to us regarding asset quality. This year is that the adjustment in the consumer portfolio of the new regulation that was being discussed its been delayed. So we don't expect this happening in 2023.
At least not be not before late this year and maybe next next year.
No no. That's good news guys. Thank you and congrats on the cost control okay. Thank you.
Thank you. Our next question comes from Ed I'll start from <unk>. Please go ahead.
Hello.
I'm sorry.
Davidson.
I have two questions. The first one related to <unk>.
Okay.
Monetary policy.
Steve.
Good how are you expecting.
Okay.
Before I went from now.
Okay.
With Q1.
Not quite as slope.
Some level of pricing.
Yes.
Gross.
Okay.
And going forward.
One would expect that.
And each cohort.
Prices.
Yes.
Good morning, guys.
Alright.
Okay. So.
And.
Yes, so when you say that's correct.
We have.
Some tightness in the NIM because of the high rates, but effectively effectively and you can see some of this already in the client the client name is hard to forecast.
You can see that our client NIM, which is basically the net interest margin of our business segments. Okay is rising because either reprice in their assets. Okay. So so.
Getting hurt more by the increasing cost of deposits, but assets are slowly beginning to reprice and spreads are rising even though loan growth isn't helping too much for that repricing you need quicker loan growth, but there has been definitely an.
An increase in loan spreads and also deposit spreads it is important in that.
Every money, we get in and checking account the spread rises with rates. So that's those.
Those are both.
A tailwind too.
March so.
Effectively.
Next year, a little bit what Emiliano said before as Maher as rates go down.
We will get our funding base will get cheaper the assets will be still repricing.
And then obviously.
You still have the headwind of lower inflation, but all in effectively NIM.
Should bottom out.
Everything goes as expected in the second or third quarter, and then slowly begin to recover next year. As you May know said $3 five around there and then in 2025, probably reached equilibrium rate and inflation should.
Should we go back to our historical levels of around four.
Okay perfect.
And the second question.
Total operating expense.
Previously Bob.
We expect that from here forward.
Thank you.
Maybe growing 7%.
Anthony.
But in the first quarter operating expense grew by 13%.
You are right to the consumer concern consolidated key here.
The remaining questions.
Yes.
When we talk about total expenses were included in other <unk>.
It is an expensive when you factor that in in that.
A number fell like one 2% in the.
In the first quarter and I think that that is like the line that.
You have to factor in and then we have dug in and that's why we talk about other expenses included in other operating expenses.
So its personnel.
Patient and others.
In the first quarter that number fell one 2%.
Sorry.
Final cooperate.
Okay.
When we talk about our operating expenses.
And just as they show up in the financials, now, which is personnel administrative depreciation amortization and other operating expenses.
The big <unk>.
Adam that's falling is other operating expenses, which has a lot to do with the improvements we have made.
<unk>.
In cyber security and the lower cost of our cyber fraud insurance and there is also an interest.
<unk> and personnel okay.
Okay perfect.
Okay. Thanks.
Thank you.
Sure.
Thank you and we have question from Ernesto <unk> from Bank of America. Please go ahead.
Thank you hi, good morning, Emiliano and Robert most of my questions have been answered so just kind of on a couple of questions.
The first one is a follow up your net income guidance on your ROE guidance.
When we incorporate the ROE.
<unk>, 17%.
This implies earnings contraction between 15% to 25% this year.
So I just wanted to double check if that sounds reasonable.
I believe last time, you were expecting a modest earnings contraction.
So as you have explained that.
<unk> you.
Lower interest rates.
Lee.
The key reason for Rob.
We are in the guidance and then my second question is on your <unk>.
Active tax rate.
We have seen the banks have.
Benefiting from high inflation before.
Having lower effective tax rates, but now that we're seeking.
A more normalized inflation level, how should we be thinking about the effective tax rate.
In the next few years.
So yes. Thank you for your question on NAFTA I mean.
Your assumption I call it like reasonable that it's consistent with the with Arrow.
Guidance to be around like 15% fall in net income and <unk>.
Yes, I mean basically the biggest.
Driver to our adjustment in guidance of names on ROE.
ROE has to do with the.
The monetary cycle.
Normalizing later than what we were expecting.
So we see the SaaS.
The process of normalization of names in row taken lower longer than we were expecting and that's in term for 'twenty to 'twenty. Three we will have let's say an impact for one or two quarters of that delay.
In the third quarter is starting to normalize in process going forward and also been closer to normal in 2024 and definitely in 2020 to 'twenty five.
The second one.
Yes.
Yes, so there yes effectively.
As rates and inflation go back to normal the tax rate should run okay.
There are we should also arise.
So today, we are paying like 12%, 13% effective tax rate of different effects and inflation is still high.
The lower net income also lowers the tax but effectively.
By next year.
Equation.
<unk> is back to more of a slower.
<unk> digit levels.
We shouldnt be growing by 20, I would say 2024, we should be.
Roughly close to the 18% effective tax rate 2025.
Around 'twenty, one 'twenty, two and it should stay around.
Around the sorry, and one thing regarding your first question is true that the net income falls, but we do see.
Yes.
A slight rise in book.
That's a key point in APAC.
We try to explain it a bit and one of the slides, but book value.
Given the way rates and inflation are moving which might have a negative impact on NIM, but in.
Capital has been positive so our book value is growing and I think thats that means we're still creating.
Perfect. Thank you very much emiliano and Robert.
Thank you.
I'm not seeing any more questions. So perhaps I can hand back $2 million for closing remarks.
Yeah, So Robert the Florida. Thank everyone just as a final note note. After 30 great years. Today is my last day at Santander, Chile has decided to move on to other projects I would like to thank the investor and analyst community community for your support.
Okay can be calling out along with Rowena value. We'll keep you guys cover for me. It has been an honor to be your IRR that please.
Please feel free to keep in touch and I'll be sending an email soon with my detail. Thanks. So thank you everyone.
I want to publicly thank Bob for his commitment his terrific job. During this three years without any doubt he made a huge positive impact.
On Santander Chile.
Banking sector as a whole.
He will be deeply missed.
Wish him the best of luck.
Neil State.
And.
And in this emotional note I. Thank you everyone for joining us today, and we look forward to speaking with you soon again.
Right.
Thank you that concludes the call for today, Thank you and have a nice day.