Q2 2023 Banco Santander-Chile Earnings Call
Okay.
Hello, and welcome to Banco de Chile, Banco Santander, Chile second quarter 2023 results conference call. We are joined today, but he's CFO Emiliano Muratore, Chief strategic planning ahead of IR Christina.
And Chief Economist Claudio Soto I'll now hand, the line over to Indiana to begin the presentation. Please go ahead Sir.
Good morning, everyone welcome to Banco Santander, Chile's second quarter 2023 results webcast and conference call. This is <unk> CFO and I'm joined today like with Jimmy Cornea, Chief of strategic planning and Investor Relations.
Although chief economist.
Thank you for attending today's conference call today, we will be discussing the trends and results of the second quarter I am pleased to share that our digital strategy and customer centric product offerings have been instrumental in driving robust results across all business segments, particularly witnesses witnessing exceptional growth.
In no known NII revenues.
In addition to this success our relentless focus on cost discipline has allowed us to partially offset the NII pressures arising from the non clients NIM during this period of lower inflation and higher rates.
Looking ahead, we are optimistic about the benefits, our well positioned balance sheet will reap from the Chilean central bank eastern cycle of interest rates, which commenced last week.
This shift is anticipated to trigger a significant recovery in our names and we expect this positive impact to manifest in the final months of this year.
To begin I invite Claudio Soto to give us an update on the macro scenario beginning on slide five.
Thank you Emiliano.
During the second quarter economic activity contracted significantly due to continued tight financial conditions and less favorable external conditions for the country.
Also a poor mining performance affected by the delay of large investment project has an impact on activity.
In the coming months, we will continue to see a weak economy with consumption falling at significant rates and low investment base.
Based on the information available we have revised downward our activity estimate for this year from minus <unk>, 75% to minus 1%.
However, next year, the economy should rebound and grow at around 2%.
The contraction of GDP has generated a significant slack in the economy.
This together with an appreciated peso the normalization of raw material prices and a reduction in international logistic costs have cost inflation to drop rapidly.
Thus the CPA.
After closing 2022, we then and well.
Variation of 12, 8% today stands at seven 6%.
In this context, the central Bank of Chile began the process of monetary issue with a sharp cut of 100 basis points in the monetary policy rate at its slight meeting.
The rate drop was from higher than expected by the market.
Because of that.
The adjustment in some financial crisis.
The peso tended to depreciate and swap rates fell significantly indicating that the next rate cuts would be more intense than we expected.
Until a few weeks ago.
In recent days the peso has continued to depreciate due to global factors associated with greater risk aversion. After the downgrade of the U S seller note.
Looking ahead, we estimate that despite the recent depreciation of the peso inflation will continue to drop rapidly and we close 2023 at around 4% to then reached the target of 3% during the second quarter of 2024.
This will give the room for the central bank to continue cutting the monetary policy rate at that at least 100 basis 100 basis points in each of the following meetings during the year.
<unk> reached the MPR will close at around 725 per.
Percent in the second part of 'twenty 'twenty four the rate will reach its neutral level, which we estimate at 425%.
On page six we give you an update on proposed regulations at the political level. After the reduction of the tax reform in Congress last March the government has announced a fiscal tact.
The idea is to implement measures against tax aviation and to boost growth with the aim of increasing fiscal revenues and thus financing a series of expenses in the areas of health pensions and public security <unk>.
Next March there will be a newbuild with appropriate tax a tax reform, although details are still unknown.
On the other hand, the government has salmon various actors to unlock the pension reform, which has failed to advance in Congress.
And financial matters, the Central Bank of Chile decided to activate the counter cyclical counter cyclical capital requirement.
Setting it at 0.5% of risk weighted assets.
This is a precautionary measure against financial risks from the external scenario.
Thanks have until May 2012, before to continue constitute that requirement.
Thank you Claudia.
I would like to start by reminding you of our to the FERC strategy on page eight.
Where we are aiming to become the best bank for our customers employees communities and shareholders.
We want to achieve this plan through the four pillars of our strategy.
First to become a digital bank with branches.
Digital bank with work ethics to reach customers with state of the art technology on the best level of service.
Second.
With specialized and value added services for our corporate middle market and private banking businesses that focus on value added transactional trade FX and advisory products and services.
Third searching for growth opportunities, we want to break Providence in the banking sectors, finding new business opportunities in leading the sustainable transformation of our clients and finally, a key enabler.
Organization that is agile collaborative and high performing in which a diverse culture with exceptional people cannot balanced based on merit.
To elaborate on our first strategic pillar of Adidas Bank with work a fifth we highlight the success of our Ddos products such as the Santander life accounts.
Which has over 1 million clients with access to a simple current account and the opportunity to buy other products such as time deposits mutual funds and access to credit lines and loans when they meet the bank's risk requirements. We also offer our mass Lucas our new site on savings accounts that was one.
In March this year and is gaining traction everyday.
The Onboarding process is 100% digital there are no passports only facial recognition.
This account has no fixed or variable costs and accept deposits for up to 5 million pesos.
Thanks to these successful initiatives, we have around 2 million diesel clients, who are able to carry out their banking needs through the website or phone up the advances in our digital strategy have allowed us to deepen our branch innovations. Many of you have had the opportunity to experience our work a fair branches are.
These old branches with a co working space and we have reinforced our branch network with the work of express branches a format that aims to consolidate cash operation in a transaction.
With our work actually look and feel and a state of the art technology behind the scenes to offer our customers an efficient and more secure experience.
We have opened four work of espresso centers in vignette Rancagua Santiago Center, unless Congress and we are looking for further expanding the model in our dense areas in Chile.
On page 10.
We can see the results in the ambassadors on our digitalization and simplification in the reduction of our branch footprint.
June our total network reached 260 branches down 16% from June 2020 to.
31% of our branches currently our cashless, meaning that there is no back office and at the branches a business center oriented towards advisory new business and customer experience.
At the same time, our productivity is rising with loan and deposit volumes per branch, increasing 22% year over year and in the same indicator per employee rising six 8% in the same period.
Moving on to page 11, we can see how our SME footprint rone is growing strongly with the joint offer we'd get Nick Firstly, our Ddos life accounts for SME continued to drive a 17% year over year, increasing total clients of that segment, reaching more than 300.
SME and a 13% year over year increase in active SME clients. Furthermore, if we can see their current accounts for businesses as reported by the CMS. We have increased our business accounts by 31% representing 33, 5% of the market share of April 2023.
Get our acquiring business also continues to contribute to the success of attracting more SME clients gathered continues to focus on the development of companies of different sizes and improving customer experiences through the integrated payment solutions to business in total get there has now deployed more than 200.
19000.
Across the country with over 150000, SME is getting its clients, which have been growing 83% year over year in the first six months of the year get them has generated fees of $21 billion vessels.
Some results on how productivity has been achieved through a committed and talented workforce are shown in page 12, we can see how our strategy is leading to a cost structure, where it cost us less to serve our clients compared to our competitors in terms of recurrence rfps generated by our customers.
Ill cover almost 60% of our expenses compared to an average of 43% in the industry are costs represent only one 1% of our assets compared to one 5% in the industry and the operating cost to serve all of our loans is two 3%.
Cost per branch is 3000 144 million pesos compared to over four 4 million average ranch in the system.
Our current account.
Zero point $35 million per account less than half the industry average of <unk> 8 million per account. These indicators show how the organization is transforming to be more agile collaborative and high performance.
On page 13 in terms of in terms of NPS, we continue to lead our peers in service quality with 56 points over the last year, we have seen on slide <unk> results due to ongoing improvements in cyber security for our 2 million digital clients our life clients continued to surplus.
Our clients in satisfaction with the bank with an NPS of 72 points demonstrating the strength of our diesel channels on our website in both the score highly with $70 69 points respectively.
Furthermore, euromoney have recognized us as the best Bank in Chile, demonstrating the impressive results of our study compared to our local peers.
Another point to highlight was the progress made in our commitment to our responsible banking objectives, our progress to meet our goals such as diversity and inclusion are well on track.
We have a market leading range of sustainable products that help care for climate change with Santander.
In 2022, we managed to support numerous customers with sustainable operations in our businesses and corporate banking.
Business. So far in 2023, we have disbursed $140 million for Green finance in the first half of the year. We believe that this will be one of the fastest growing areas in the coming years.
This has resulted in being ranked first in the main sustainability indices suffered such a sustained <unk> and MSCI.
We're also the only Chilean bank included in the down Jones sustainability index for our global emerging.
<unk> companies.
Now, let's talk about the trends in our results and balance sheet.
Page 17, we show our results for the quarter.
Our operating segments that exclude the corporate centers and <unk> continued to perform well with a 38, 8% year over year increase in their net contribution in.
An important expansion and income lines and fees and fees with costs and risks under control demonstrating the results of our strategy across the segments. The accumulated net income as of June 2023 totaled 263 billion peso decreasing 50% year over year.
The other hand, the book value of our equity increased 16% year over year with our <unk> per share and dividend per share growing 23%.
With those two effect of net income and equity the accumulated Roe.
<unk> 12, 9% in the first months in the first six months of 2023.
Moving on to page 18.
The results of Santander CIB corporate investment banking have continued to be impressive increasing 84, 5% year over year.
Net contribution from the Midland market of Corporate's increased 38% year over year. Both of these commercial segments experienced an important rising deposit spread.
As well as high growth of fees and pressuring.
The focus of this segments continues to be on non lending activities driving profitability.
On slide 19.
We can see that retail banking results increased 21% year over year, driven by the greater client based on more activity by our clients.
Our active and digital clients increased four 2% year over year and diesel clients increased one 3%.
While our active SME clients outgrown, 13% compared to June last year the.
The margin increased 18, 5% year on year due to a better mix of funding our loan growth piece. In this segment increased strongly by 29% year over year, driven by card fees due to greater usage and increasing the client base.
Well as the fees generated by getting that provision increased 50, 557% year over year due to the normalization of the liquidity of our clients in recent periods operating profit increase in a controlled manner by four 5% year over year as the bank continues its ddos transformation generating great.
Their operating efficiencies.
In terms of loan growth in the second quarter loan growth remained subdued as the economy continued to feel the effects of the high interest rates.
During the quarter, the CIB segment decreased one 4% quarter over quarter as the short term loan operations carried out in 2020 to come to you.
The Midland market segments loan portfolio slightly increased <unk>, 2% quarter over quarter, mainly driven by positive translation gains on U S denominated loans.
Earlier this year, we launched specialist attention models for the agro.
Ultimate live in multi Latina sectors that will enhance loan and income growth in this sector in the coming quarters.
Retail banking loans grew one 3% Q on Q led by a two 4% quarter on quarter growth in mortgage loan and a one 3%.
In consumer loans origination of new mortgage loans has remained.
Subdued due to a higher interest rates and the impact of the inflation on the value they will need other equipment.
Regarding consumer loans between the end of 2019 on 2021, these loans decreased 7% as clients reduced large purchases such as travel on the wholesale which fuels credit card loans at the same time, many clients paid off credit card debt with the liquidity obtained from government products.
Pension fund withdrawals at the end of 2022.
Also liquidity levels return to normal and holiday travel resumes.
Card loans began to grow again, increasing total balance compared to pre pandemic levels.
As for Smes the demand for new loans continued to remain subdued as clients continue to pay back therefore, GAAP loans disbursed in 2000 22021.
Overall loans have grown 3% year over year, and we maintain our guidance of year over year over year loan growth of mid single digits.
Yeah.
Slide 21.
Liquidity levels remained strong in the quarter. The bank's total deposits increased <unk>, 3% Q on Q2, 2% year over year. The increase was driven by time deposits that increased four 4% quarter on quarter and 25% year over year as the high interest rates continue to attract clients.
Yeah.
While our demand deposits have decreased 15, 15, 6% year on year, our market share in demand deposits have increased from 19, 9% to 21, 7%.
Bond issued increased 7% and two 6% the last quarter.
During the year the bank has issued bonds for $1 7 million U S.
383000 million pesos.
$30 million and $17 5 billion Japanese yen, taking advantage of attractive opportunities in the various fixed income markets locally and abroad.
The banks liquidity coverage ratio LCR, which measures the present such of liquid assets over net cash outflows as of June 32023 was 175% well above the minimum.
At the same date, the banks net stable funding ratio.
<unk>, which measures the personal touch of illiquid assets financed through stable funding sources, Richard 109, 4% also well above the current legal minimum set for this ratio.
In terms of margins the bank's NIM in the quarter reached two 2%.
The variation of the UF continued to decelerate, while short term interest rates remained high both of these factors continue to weigh on the bank's NIM.
As show on this slide this is mainly a phenomenon that affects our non client NIM or the net interest margin from our ALLL activities, including the U S GAAP and our liquidity the.
Client NIM, which is defined us NII from our business segments over interest, earning assets has increased as deposits and loan spreads have risen.
The bank is well positioned for a falling real rates the sensitivities to inflation and interest rates remain stable through the first quarter with 100 basis point drop in inflation will pressure down our nims by 15 basis points and 100 basis drop in the average interest rates will increase our <unk>.
NIM by 30 basis points, given the negative U S variation in July and the recent 100 basis point drop in the monetary policy rate, we expect our U S variation of four three at an average monitory policies rate of 10, 3% for 2023 with our Nims showed.
Sign of a solid recovery in the fourth quarter to reach an estimated total NIM.
Two 3% for 2023.
Moving on to asset quality on slide 23.
NPL ratio rose to two 1% gradually returning to pre pandemic levels.
Our liquidity levels return to normal in the economy feels the squeeze from high interest rates.
The coverage of Npls.
June 2023 reached 165% and there has been no reversal of the of the voluntary provisions.
As we can see on slide 24. This overall positive asset quality indicators lead to our cost of credit of one point.
19% in 2023 in line with our guidance for this year.
On slide 25, we move on to non net interest income revenue sources, which continue showing exceptional growth trends.
Income from fees and Treasury rose, 61% compared to the second quarter of 'twenty two and.
Six 6% quarter on quarter, driven by higher usage of folks in all segments.
We expect these trends to continue in 'twenty three.
A gradual implementation of the new interchange fee regulation will start by yearend and we estimate a negative impact in peace and 24 of 25 billion peso from 47 billion pesos in 2025.
As shown on slide 26.
We also can see the bank's efforts to continue increasing productivity encore to control costs.
Operating expenses decreased seven 5% year over year and increased two 2% quarter on quarter.
Continuous ahead with its $260 million.
In technology investment plan for the year, 23% to 25 and the cost of these investments we're expecting costs to fall in absolute terms in 2023.
Moving onto slide 27, we observed a positive evolution of our capital ratios.
At the end of the second quarter of 'twenty three the bank reported a core equity ratio of 11%.
And our bis ratio of 17, 5% after distribution of the annual dividend that amounted to 60% of 2022 earnings.
In may the regulator announced that from next year of the Chilean banks will need to include a counter cyclical buffer of <unk>, 5%. This together with the conservation buffer of two 5% on the systemic buffer for something there or one 5% means that our minimum minimum full.
Loaded seat one will be nine zero percent in December 2025.
Below on the right, we summarized our requirement levels by our regulator, including the potential buffer requirements and additional capital.
On slide 29, we conclude with some guidance.
Our strategy of a diesel bandwidth work are first we will continue to provide us with a greater digital client base and solid fee growth.
And impressive operating efficiencies.
Our updated macro scenario for 2023 is now a GDP contraction of 1% our U S.
<unk> of four 3% and an average interest rate of 10, 3% for the year.
In terms of loan growth, we expect mid single digit growth with a focus on all segments as mentioned the bank is well positioned for a falling real rates and so with further cuts in rates as expected on a U S variation of four 3% for the year, we expect nims of two 3% for the full.
Year with solid client Nims.
With the upward trend to continue into the next year.
Non NII growth should surplus 20% this year on the back of strong client acquisition and usage figures.
Cost control will be a major focus and we expect the decrease of low single digits in our total cost base.
Asset quality has now almost normalized on the cost of risk should remain at a manageable level of one one to one 2% for the rest of the year.
In summary, due to our updated inflation expectations, we expect our ROE to be in the neighborhood of 15% for the full year on our long term ROE expectations remained unaltered up 17% to 19%.
With this I.
Finished the presentation and now we will gladly answer any question you may have all come to the award the award to our moderator.
Thank you very much for the presentation, we will now be moving to the Q&A part of the call.
Knowledge the questions that came in Hollywood. If you have any questions. Please press star two on.
On the keypad Thats start to on to keep has plenty voice questions away to a name to be called.
You May also ask a voice or text question. If you have dialed in via the web.
Okay. Thank you very much our first question comes from Mr. <unk> from Scotiabank. Please go ahead Sir.
Hi, good morning, Emiliano, creating claudia thanks for the opportunity to ask questions I have two questions I'll ask the first one and then the second so the first one is in terms of NIM. The NIM projections for 2023 is expected now to be around two 3%.
And in the past Daedalus mentioned that in 2024, it could rebound to $3 three or.
Three 5% so under the current macro.
Outlook, how do you see NIM in 2024.
Hello, and thank you for your question I mean, I think that.
What you mentioned still hold something like.
We expect.
The NIM for this year to close around <unk> by the fourth quarter I think by the end of the year to be around three.
And for the next year according to the Ria rates we are.
Anticipating for next year I mean, combining.
Rates to trajectory with the inflation has slowed down to be in the $3 five area for the full year.
2024.
Thank you and my second question is related to this because so next year. The GIC facility is expected to be repaid and my understanding is that also some derivatives will expire next year in the first half of the year.
So I was wondering if you can talk about the expected impact of these two factors.
She facility and repaid on Sunday.
Right.
Yes, absolutely so in our case I mean, the Fca's CIC.
Was mainly floated I mean for us, it's like a floating and floating rate liability that is empowered to what has been affected.
Our names during the last two years because of interest rates short term interest rates been.
As high as they are and they were but they're.
The good part of this.
Thing is that for us the maturity or the.
The exploration of the FCA will be like another non relevant for our for our NII.
That number of the NIM will improve because we will have.
A significant part of the balance sheet like the leveraging fully with with it.
Low NIM and that will make the overall NIM of the bank to to to improve but going to your question in our case the exploration of the FCA will be no material for for the NII of the.
The bank.
Thank you for the comment.
Okay. Thank you very much. Our next question comes from Mr. <unk> from Bank of America. Please go ahead Sir.
Thank you hi, good morning, Emiliano, Claudio and Christian Thanks for the opportunity to ask questions.
So my first question is on your ROE guidance.
I remember you were guiding before between 15 to 17.
Now you're expecting the low part of the range.
On your progression of low inflation levels.
So just wondering how should we think about the arrow next year.
Clive.
Just wanted to understand how would be approaching.
<unk>.
From target.
Then my second question is on your reserve coverage ratio of 175%.
Given your credit group respond for mid to high income segment.
Human segment.
What would be the logo you'll be comfortable to maintain for the next years.
And then my final question is from Gary.
Tax rate.
We have seen in heartburn.
Because of high inflation, we're now thinking that we're going into a lower.
Then I'll completion, how should we think.
Correct exactly should be normalizing. Thank you.
Okay.
Thank you I'd like to thank you for your question I'll take the first one and I leave the other two to Christy in terms of the ROE path going forward I mean, we expect to be next year in the in the long term range that we are mentioning them in from 17 to 19.
And what part of that range will be basically will depend on.
The path of rates I mean, as I mentioned before with the with <unk>.
NIM for the year being three five according to our expectation of where rates next year being around like two 2% for the full year that would take us maybe closer to the higher part of the of that range.
And looking forward to 2025, which is <unk>.
Long term, we still hold our our long term ROE range, we think that we will stay will stay there.
Higher necessarily history.
Regarding your credit risk question, we we are seeing the portfolio behaving.
One to one to one to cost of credit levels on the with.
<unk>.
We anticipated that we expected that the lower velocity of the economies also is also increasing a little our npls to levels pre pandemic.
So we expect this situation to continue in this area, we are not seeing the portfolio deteriorating further so we're comfortable with the one.
One 1% to $1 two levels.
And regarding the tax rate the effective tax rate tax rate.
Chilean banks because of this inflation exposition.
Get there their credit book in terms of the taxes readjusted by inflation, so a lower inflation.
We will make our effective tax rate increase in the upcoming quarters, and we expect it to get back to the levels. We've seen when inflation is usually lower so so closer to 22023%.
Perfect. Thank you very much Emiliano Christian just a follow up in terms of the.
We're mentioning customer rates, but in terms of your reserve coverage ratio.
You feel comfortable to maintain these levels.
We well Thats a board decision, but we haven't made any decisions in order to take her use of our additional provisions. So coverage will remain in the same area.
Okay perfect. Thank you very much.
Hey, Thank you. Thank you very much for that the next question comes from Tito <unk> from Goldman Sachs. Please go ahead Sir.
Hi, Good morning, Thank you for the call and taking my question also I had one question just on your fee income the non NII, which is growing around 20%. This year just to think about.
That can continue to evolve.
2025, how should we think about.
NII growth.
Going forward. Thank you.
Hi, Peter this is Chris again.
Well no.
Having a very good year on NII and figures so we're growing higher than 20%. So thats very good news for us and we expect.
The reason this is happening is because we're increasing our customer base now.
Now we are reaching the profits of that growth.
So we expect this trend to continue further back to lower down a little so.
We're looking at 10% ish.
Figures for the $24 25.
Factoring in the headwinds from the interchange fees going down in the next two years. So factoring in that we think that we can be in the low double digits growth in terms of fees.
Okay perfect. Thank you.
Okay. Thank you very much for the question next question comes from Mr. Yuri Fernandes from Jpmorgan. Please go ahead Sir.
Hey, guys. Thank you very much I have two questions one on U S yet and the other on cost.
Let's start with the U S GAAP.
Saw that this quarter Youll get moved up.
I'd like to understand the rationale here because given inflations moving lower.
And you haven't been reducing your.
Over the past quarters adjusts would like to understand a little bit why the gap is higher now I'm not sure if the cost of derivatives is moving up technique.
Stephanie.
Cost me to hedge at these.
<unk> explained the higher GAAP, but thats the first one and regarding the cost.
I would like to check our investment plan you put out in the presentation. The $260 million plan. This is not new right. We knew about it but how much of the plan has been implemented this year because youre operating expenses are super Super Stretchy Super Good right.
Can't get to the other lines also most surprise, but given you have such a big investment blend. My concern is that you may need to accelerate the execution of disciplined for 2020 for 2025.
And these with higher taxes, eventually make pressure your bottom line and your ROE target so trying to understand like how much you're like asking a bolt investment plan.
Understand how your operating expenses may evolve and linear near future. Thank you.
Okay.
Hello, Julio. Thank you for your question so regarding regarding the U S. GAAP as you mentioned I mean, we in the second quarter increased I mean, basically that's because of.
The relatives that were expiring expiring in like let's say we had.
Inflation in at high levels on those derivatives expire that produce like.
Net increase in the in the mismatch and the reason why let's say we didn't keep it down.
Basically because we saw that.
Inflation implied in that EBIT bridge going forward is like in line with what we are expecting and considering that the latest.
Evolution of the FX rate.
I think that we can have some let's say upwards pressure in headline inflation for the rest of the year. So basically the decision is if were looking what the market has today, which is around like 3% dependent on the terabytes and inflation of 3%, we can let's say looking that and reduce that.
GAAP and in that case, the readjustment, we adjustment that readjustment will be lower but.
The module will be would be higher or what we can expect from from that 3%, which is implied in a we don't see.
A clear call of the inflation being a far away from what the derivatives are discounted.
That connects to your point about the cost that basically when we when we hedge and we operate in the <unk> market. We don't do it at mid prices I'm basically trying to lock in the 3% would imply to leave some.
Basis points of inflation on the table when you hedge and Thats why we are let's say comfortable not because we don't.
We don't feel that.
We are not.
Growing the risk, but the law.
Level of the price.
We could hedge it's reasonable for us and that's why we keep with respect to grow the gap further it will stay like around.
Where we were in the second.
In the second quarter, but Thats. The reason why you saw the jump from first quarter to second quarter.
And.
Regarding cost going forward.
The investment plan.
Keeps the same basic.
Basically our efforts are making room in Opex general to make room for investment, especially in all the digitalization and all the transformation of the of the branches network.
We keep our long term target and ambition to have costs all in costs growing below inflation and that holds for for next year or two where where we plan to have.
All in expenses growing growing below inflation with inflation expectations being around three.
3% for next year.
Most super clear so cost below inflation for the next year in the U S Gateway mean, our roundtables.
Seven 7 million appraisals kind of kind of lateral I suppose undertakes thank you very much.
Thank you very much. Our next question comes from Daniel Mora IBM from credit core capital. Please go ahead Daniel Your line is open.
Hi, good morning, and thank you for the presentation I have just two questions. The first one yourself on <unk> regarding the NIM I would like to understand that.
Negative part that is impacting to lead the NIM related to the swap of interest rates, how each going to bowl with a decrease in interest rates. We expected for the rest of 2023 and also beginning of 'twenty 'twenty four and.
What could be the impact.
Of the exploration of the FSC related to these swap of interest rates.
Just understand what will be the process there and the second question.
Yes regarding to Npls.
<unk> seen in recent quarters that the commercial NPL has been.
Above peers and also above the industry level I would like to understand.
If you're seeing any risk in any company or any economic sector that you have explained used performance on what will be the expectations going forward. Thank you so much.
Hello, and thank you for your questions I'll.
I'll take the first one and I'll leave the second one for Visteon I mean regarding the NIM possible and then on clients I mean negative will let's say.
Rebound them into positive territory in the coming quarter.
Quarters, I mean, we we.
Basically we expect that to be.
More closer to the.
5% negative during the next year in order to have the clients nims at around 4%.
And then on clients in the minus <unk> five and that's that.
Up to the three 5%, where we were talking before I mean basically the main driver of the of the new.
Client NIM improving is there.
<unk> fell in interest rates short term interest rates combined with.
This the process of getting the curve.
Steeper from where we are now I mean, we have a very steep curve.
On the negative slope territory.
Going forward, we'll have that going more to flat at the beginning and gaining some.
Positive slow by by the end of next year and that will.
Hum.
Non clients of NIM because of the of the positive with level of the curve and.
And that with the <unk>.
With the CIC basically that.
Case, considering that we have that liability floated.
We'll benefit in the next quarter or two the reduction of the interest rate will reduce the cost of that and at the maturity will be kind of neutral for us because basically we have short term.
<unk>.
To pay that off and basically we'll have.
We want to monetize policy rates asset falling together with.
The ability of that for US. It's also floated to the monetary policy rate. So we'll be we'll be kind of neutral or not much relevant for our.
Going forward because.
And thats what they are.
Ability with a similar yield will let's say go away with the exploration of that.
So hi, Daniel this is Cristiano regarding your NPL question in the commercial portfolio.
Actually the commercial NPL has increased from two 5% to two 9% in the first six months of the year in our impaired loan ratio about has increased from 7% to seven 6% in the first six months of the year. So all in all.
We're seeing a slight deterioration in the SME portfolio, but nothing to be really conservative on the on the higher net lending names, we haven't seen the middle market or the CIB portfolio actually being very stressed.
I will say that the sectors that we are seeing our argue on some construction.
But those are very very.
A small part of our total portfolio.
There is some some further details on page 38 of the management commentary.
Thank you so much <unk>.
Okay. Thank you very much next question comes from Isabelle Irish from bearing asset management. Please go ahead ma'am your line is open.
Hello My.
My question is actually on maintenance, which was partially full but an extension.
On the funding cost.
Let's get.
Hi recession demand trends.
Turning to project, how sticky is that.
Does that persist for a long time and how quickly does that does.
Does that shift back thank you.
Well. Thank you everyone for your question. So what we're seeing is the.
Reasonable.
Economic decision of.
A person that has money in their account and its moving them to time deposits too to obtain the benefits of our higher interest rate demand deposits demand deposits are paying ceiling chiller and time deposits are paying about 1% per month for the last 12 months so that we're seeing.
Trends of re portfolio <unk> of our deposits that we expect to start reversing launched.
Interest rates in <unk>.
In the monetary policy rate in the coming months starts further decreasing so.
We don't have <unk>.
So two dvd's yet of how this effect will will evolve, but well definitely we are going to see.
Further more.
Further reduce movement from demand and time deposits.
Thank you.
Okay.
Thank you very much our next question comes from.
From HSBC Global Research. Please go ahead maam.
Hi, Thank you for taking my question.
Just one quick question, how should we think about the ask a question on cost of risk. So next levels, where we are seeing.
Normalization, but should we see some stability into a 24.
And then in terms of going back to normalized levels.
On slide 24.
But we should watch out for.
And why.
For today for any portion of the rule.
The normalized level. Thank you so much.
I mean in terms of.
So asset quality, Meanwhile, remember that because.
Cost of risk for next year I mean, we.
We still hold a significant amount of voluntary provisions that will lets say serve us kind of backstop in case that.
The behavior or the asset quality deteriorated, so we feel comfortable to be.
Round 1.1, 0.2% we are in terms of cost of risk come in having the possibility of tapping the voluntary provisions in case.
The situation goes.
Those wars.
In terms of the risk for the.
Back to normal that ROE next year.
Basically I would say that it goes to again to the to the NIM part because you just mentioned that the.
Asset quality part, we feel like comfortable to stay around there in terms of names will depend on how this reduction of where rates are.
Yes.
Goals going forward.
We already started the cycle I mean, Brazil, followed and.
We have that will help developed economies stealing them in the diet and in.
Part of the cycle. So going forward why are we by the end of next year, we see nominal rates in the four 5% by the end of next year and.
That implicitly has but also the fair than the developed countries start in eastern cycles by the second half of.
<unk> next year, and if you put yourself in a scenario where that doesn't happen on inflation.
Internationally stays up in developed economies.
Doesn't.
Don to start the Arison cycles, you can argue that the floor for the rate in Chile will be maybe higher than that 4% to 5% and that will create some pressure on the on the NIM normalization for for us and that might be one of the.
The things that could deviate.
The path to normal are always but apart from that I don't see I don't know Chris.
And we view it.
Do you see any other.
Yes.
Well.
No not really all I want to reinforce <unk> point, so well.
Actually the rate path.
The inflation are probably the main the main effects to be monitoring.
We're seeing asset quality stable from what we are looking out now. So so we're confident that we can deliver on our on our cost figures.
On fees.
Well, we already mentioned and what we expect so all in all we.
We feel that we are going back into our regular.
Profitability levels of debt.
Pre pandemic.
Thank you so much.
Okay. Thank you very much our final question comes from Mister and we'll start with you can quote from <unk>. Please go ahead, Sir your line is open.
Hello, Thanks for taking my question.
And you mentioned earlier in your presentation that took up a launch.
We will reactivate.
Great.
Great growth.
I was wondering what Keith Martin on these loans on how do they compare to normal normal margin.
And <unk> loans.
Yes. So thank you think of a question, yes, I mean basically in the SME portfolio have like two to four system in first we have like the maturity of the initial for loans that were granted.
In 2020 to entertain any one those are let's say our maturity on going away those were set with very low rates. Because we are the prevailing prevailing rates at that moment. So those were really low yielding and lowest spreads loans and those are going away then.
New ones, the new full levels, where the program itself was set in this new rate environment.
So actually the spreads.
Not as slow as was the beginning and it's in line or slightly higher than the average.
Therefore for SME so that.
Great.
Western regarding if you want the average spread of the portfolio the dynamic of the old ones going away and the new one center in at average or slightly higher than average spreads for the portfolio.
Tailwind for the the average spread of the Smes going forward.
The program is still is still there and it's.
A significant part of the of the new origination.
<unk>.
It's different to the original one where in terms of pricing was.
Kind of a sacrifice for us in this case is more more in line with the rest of the of the portfolio.
Okay perfect. Thanks.
Yes.
Okay. Thank you very much it looks like we have no further questions at this point I'll pass the line back to the management team for the concluding remarks.
Thank you all very much for taking the time to participate in today's call. We look forward to speaking with you again soon.
Okay. Thank you very much. This concludes today's conference call will now be closing old Orange, Thank you and goodbye.