Good day, ladies and gentlemen and welcome to the Q1 2015 Banco Santander-Chile Earnings Conference call. My name is Tia and I will be your operator for today. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of this conference. [Operator Instructions] I would like to turn the call over to your host for today, Raimundo Monge, Corporate Director of Strategic Planning. Please proceed.

Thank you very much. Good morning ladies and gentlemen, to all of you. Welcome to Banco Santander-Chile’s conference call for the first quarter 2015 results. Thank you for attending today’s conference call in which we will discuss our performance in this quarter. Following the webcast presentation we will answer your questions. Before we get into more details regarding our results, we would briefly give our latest update on the outlook for the Chilean economy in 2015 and 2016. Regarding economy, despite existence of internal and external uncertainties the overall outlook for the Chilean economy is improving. We expect the economy to grow close to 3% in 2015 and 3.6% in 2016. As a result of this moderate uptake in the economic growth expectations inflation expectations for the year has also gone up. The inflation rate measured by the variation of the U.S. and inflation linked unit and the most relevant indicator for the Bank should increase around 3% in 2015. Given this inflation outlook we expect the Central Bank not to cut interest rate any further during the year. The pickup in economic growth is being led by various factors first of all internal demand should expand 2.5% in 2015 and 3.5% in 2016. Secondly, the outlook of growth of Chile’s main trade partners especially the U.S. continues to be healthy. Export growth as measured in GDP figures should expand at around 4.6% in 2015. At the same time, the fall in international oil price is just another positive event for the Chilean economy as Chile imports most of its oil. Regarding investment in 2015 and ’16, we are expecting a slight recovery in investment levels following the contraction seen in 2014. This should be driven by the greater investment expected in infrastructure and the energy sectors. Finally, total consumption…

[Operator Instructions] The first question comes from the line of Guillermo Costa. Please proceed.

This is Guillermo Costa from NWB. So my first question is on asset quality, could you comment what is your expectation regarding the NPL ratio going forward? I mean you have been presenting a higher growth in the high income segment. Do you expect this to improve even for NPL ratio going forward? And my second question is about your competitors' perception of this segment. Have you been watching an increase in the competition in this segment?

In which segment?

In the high income individuals and also the mid-market companies.

Well in terms of non-performing loans, we think that going forward there are two forces here; one is that the economy for the second year will be showing longer than its potential growth and that could have an impact in job creation and impact also in salary growth. So that is kind of negative element to take into consideration. And the positive is that especially in retail, where we measure delinquency levels and by vintages, we have seen that our vintages the quality of the origination process has been steadily improving. So the two forces have been up to now more or less compensated and that’s why we have seen a stable or slightly lower levels. Going forward we think that we should maintain that at least for the year assuming the central scenario of growth of 3% in our non-performing levels in close to 2.7 and 2.6, but we don’t foresee these changes another up or down. In terms of the competitive landscape, I would say that most banks have been moving to the safer segments impart because of their softer market environment but also because the regulations to some extent has made the process of going to the low-end of the consumer market and the mortgage market, increasingly more difficult. There we are seeing some hints of banking penetration suffering in the market. So everybody is kind of moving to a segment that we have been targeting. There I would say that our competitive advantage today is mostly in terms of speed being a little bit faster than the rest in addressing the needs of the client and that’s why we launched the selective format a couple of year ago and that’s what today the bulk of our lending origination is done through pre-approved deals. That is providing…

The next question comes from the line of Fred de Mariz with UBS. Please proceed.

A few questions on my side, first on the tax rate, we saw that the taxes were a bit higher than usual in the quarter. Can you -- you mentioned your guidance for this year around 19%, 20% from the effective tax rate. Can you just comment on why the taxes reached this level in the quarter? That's my first question. Second question on the ROE, can you just remind us what's your guidance for sustainable ROE for this year and next year? And then a final question on the fee income, you gave some explanation in your press release on the fees. They tend to be quite volatile on the corporate side. I just was curious about your guidance for this year. I remember you were mentioning that fee income would grow together with the client base and just wanted to hear from you what the latest update is here? Thank you.

In terms of the tax situation in our first release we published hopefully a clarifying table. There the explanation is the following that for tax purposes our equity is adjusted by CPI and that is considered as a tax expense. Therefore, the higher the inflation levels, given that this is an expense, the lower the effective tax rate. And the opposite happens when you have zero inflation or negative inflation that the lower the inflation or the more negative inflation the higher is your effective rates that’s I would say one of the basic elements that they has resulted in an increase we are comparing a period of relatively high inflation last year with a period of zero slightly negative inflation this year. And the second element is that the after the tax reform that was approved last year our corporate tax rate has increased from 21% to 22.5% so the two elements combined. But the volatile element is linked to inflation. So as long as inflation goes by to sort 1% per quarter which we foresee to get a final inflation was 3% this year our effective rate will be lower than our statutory rate. But year-on-year we’ll be higher than last year it’s simply that it would be lower compared to what we have seen in the first Q. So that’s why rates will be closer to like 10%-20% for the whole year probably lower in the second, third and fourth than in the first Q. In terms of the ROE, we have been mentioning that our medium term ROE before taxes to be around 23-24 now the taxes are a little bit higher that means our after tax ROE could be around 18.5%-19%. But again as we always do the caveat a moving average of three-four quarters, because given the volatility that the inflation gives in our results every quarter it’s very difficult to have a specific comprehensive data year-on-year stable we think that they’re something around 18.5 or 19 as an average for four quarters is a good estimation. In terms of fees, as we have commented before fee tend to move very much in line with client activity and that’s why we don’t -- we maintain our basic guidance of fee growth of 6%-7% for this year as the first quarter is a little bit not a meaningful quarter because it’s holiday period it’s the summer vacations in the Southern Hemisphere and therefore especially in the corporate side it’s difficult to get fees on the corporate side. On the retail it’s more linked to use the products and it’s linked therefore to the number of clients and the number of products that has been used. And there we’re seeing encouraging trends in our retail customer base. So that’s why tend to be confident that the something close to 6%-7% for the year is achievable.

That's right. That's very clear. Thank you for this. Just a follow-up to clarify [Technical Difficult].

The next question comes from the line of Tito Labarta with Deutsche Bank. Please proceed.

A couple of questions first summing up on the asset quality one the provisioning side we saw the cost of credits this quarter fell to like 1.4% of loans, well below the levels we have been seeing. And you mentioned asset quality should be relatively stable going forward. So do you think the cost of credit should remain around these levels or was it a bit lower than normal this quarter and should kind of normalize back up? Just want to get a sense of how you see the cost of credit going forward. And my second question is on expenses, even though expenses fell in the quarter, it's still growing 10% year-over-year well above inflation. So I wanted to get a little bit more color on why growing so much year-over-year? I think you did mention that it should kind of moderate going forward. So where do you see that for the full year as well. Thank you.

In terms of asset quality our cost of credit has been trending down for some time. We think there is room there as we commented last year we had no big concerns about asset quality except in the SME segments. So we took a number of actions throughout the year especially in the second half we set the specific provisions for the segment and we moved from clients which were more transactionally rented one of the needs of the clients is to borrow but there are other needs that banks fulfill. And therefore today we are operating to a large extent with the SMEs that apart from borrowing need other services that provide lots of checking account and things like that. And that’s why we have improved the profitability and at the same time reduced delinquency levels on that segment. And that’s why today again as general we don’t have the big concerns about asset quality again assuming an economy that grows faster this year than last and but we don’t see big external shocks. In the central scenario, asset quality is stable or slightly improving and therefore the cost of credit that today is close to 1.5, probably moving that line for the rest of the year it could be marginally lower because we foresee growth a little bit higher than the figures for provisions. In terms of expenses, we think that again the first Q is not or the year-on-year growth as we saw in first Q is not a good indicator. We still maintain our basic guidance of growth cost growth of 6%-7% for the year and there are many things in the first Q that probably won't be repeated and among them volumes sales and things like that that we don’t repeat them throughout the year. In terms of the investment and changes of models, et cetera, they are considered in this 6%-7% growth of cost for the year. So, we foresee that -- we don’t see cost you can have control, actually we -- part of the tricks that have been delivered by the transformation project, but precise to make our people more productive and to make the job a little bit easier for them.

The next question comes from the line of Saul Martinez with JPMorgan. Please proceed.

Two questions, one a follow-up on the previous question on cost of risk. If I just look at this quarter, Raimundo, it was about 1.36%. That's the lowest level it's been at since 2011. So I just want to clarify that you feel there is still some incremental room for improvement relative to the 1Q level. And secondly, a related question, your risk adjusted debt interest margins from client activity stripping out obviously the inflationary impact have had a very nice bounce and you showed that on the slide if I look at -- in terms of adnominal growth rates was actually very strong this quarter. How do you see risk adjusted client net interest margins and net interest income evolving going forward? Is there additional room for expansion there?

Yes, in terms of cost of credit, we think that there is room because we have made big a shift in the profile of business and we have in our books. Remember that historically Santander was in the forefront of the process of increasing banking penetration et cetera and we to some extent didn’t put too much of attention in the high-end of the consumer market. Today because of regulation et cetera we have been moved to the opposite direction, so we are going into first set of segments that have lower delinquency levels and provide extra compensation in terms of higher checking balances and more fees and things like that. And that’s why we are moving into a different profile and that necessarily has a change in our risk profile and accordingly to the requirements of provision. Apart from that we have improved our tools for our ’15 and for originating away from loans where mostly granted one-by-one into pre-approved deals that we have a lot of information about clients and therefore we can produce -- increasingly narrower. And therefore we think we have an ability to price rate today is much more thinly than say three or four years ago. And that’s the combination of the tool are lower risk segment by itself, plus better tools of a segment, make us believe that we still can reduce in time the cost of sales. For this year we think we can maintain or see some slightly reduction, we’re not seeing a big reduction anywhere there. But this is a reflection of a relatively structural change that we have done in the segments we attend and in the way we’re reaching in our business. which is linked to the second part of your question, how high can we expect our client margins that operate to go and there is -- there are two forces; one is that that of course is our segments are lower risk and therefore that your gross margins they are under pressure, but stay free and therefore the provision expense is slower. Today we are seeing, we think that this should increase in time, when we talk about time is not on a quarter-by-quarter basis, but on a year-on-year basis, today -- very short-term the next is two quarters or something like that we think that will be not likely because most of our business or our growth is centered in mortgages which tends to be the relatively low yield and very safe business, but very low yielding and that has to do with changes in the tax performance, et cetera. So it is something that is simply a short-term movement that we don’t control and that’s why there are pressures that this we will cannot drive faster, but if you're asking me about what to expect in 2015 definitely be higher because we are pressing the correct keys we think.

If structurally it does move higher, would that cause you to reassess your long-term ROE assessment and could there even be some upside to 18.5%, 19% after tax ROE?

It could be, but remember that unfortunately factors will rise also to sales in the ’16 and ’17 as well. So that’s why we think that all these changes and the transformation project came in a period where we were facing headwinds and in terms of caps, of rates, in terms of limits to the fees, et cetera. So we think that we have been diligent to a large extent compensate for those drives but today it’s too early to say that we will to outpace that we have.

The next question comes from the line of Alonso Correa with Credit Suisse. Please proceed.

My question is regarding -- and apology if you have already addressed this but my line got disconnected briefly -- is regarding any potential impact on provisions stemming from the new standard methodology to provision the mortgage portfolio that is going to be affective next year? Thank you.

There are two things number one is that this provision guidance are still under discussions so they’re not a final say. And depending on how harsh or how soft is the final because remember that to go from the very basic to the more specific. The provision in the or the loss, the actual losses that we have been seeing in the last -- historically on the mortgage market has been less than 0.5% of the loans so this is -- has never over the last 20 or so years has never been a concern on the provision level. So that the Superintendency is putting a more demanding especially in terms of the type of mortgage to go forward. So if you don’t originate mortgages with a loan to value below 80% you would have to set increasingly the higher provisions. So the biggest changes in terms of signaling that this is the regulators doesn’t want the banks to move too much ahead of the loan to value of 80% at the region or more. So that means that all the business that is done above that could have an effect in terms of provision. So, we don’t have a firm calculation of the impact, it is something that starts in 2016. And the second element is that the banks are trying to or asking that this charge if at all should be done against reserves because it’s changing the rules. And historically that has been the case when you have a change in rules you don’t go through profit and loss you try to go through equity or capital base. So, depending on that, the impact can be zero or it goes against the equity. But at the end given that we don’t lose too much money, it’s simply that we are over provision or you have a sort of a buffer of capital index unless but of course we see changes in the mortgage market which up to now we haven’t seen. So, probably by the -- in the end -- rest of the year we will have a more precise calculation that we can share. But today it’s more of a discussion and will be applicable throughout the 2016.

There are no further questions in queue at this time.

Thank you all very much for taking the time to participating in today’s call. We look forward to speaking with you again soon. Have a good day.