Ladies and gentlemen, thank you for standing by, and I would like to welcome you to Banco Santander-Chile 2Q 2024 Results Conference Call on the 2nd of August, 2024. At this time, all participant lines are in listen-only mode. The format of the call today will be a presentation by the management team followed by a question-and-answer session. So without further ado, I would now like to pass the line to Mr. Emiliano Muratore, the CFO of Banco Santander-Chile. Please go ahead, sir.

Good morning, everyone. Welcome to Banco Santander-Chile's second quarter 2024 results webcast and conference call. This is Emiliano Muratore, CFO, and I'm joined today by Cristian Vicuna, Chief of Strategic Planning and Investor Relations; and Carmen Gloria Silva, our Economist. The agenda for today is the following: first, Carmen Gloria will discuss the macro scenario, then Cristian will review the strategy and results of the second quarter and guidance for the year, and finally, we will have a Q&A session. Now I pass it on to Carmen Gloria.

Thank you, Emiliano. The Chilean economy has continued to show signs of recovery, although at a more moderate pace. Following a better-than-expected performance at the beginning of the year, the preliminary estimate for GDP growth for the second quarter is just 1.6% annually. This result has been influenced by transitory factors, such as the decline in educational services and the calendar effect. However, the seasonally adjusted activity index exhibited growth consistent with its strength. Domestic demand has been gradually recovering, especially in consumption, while investment performance has remained weak. The contribution of the mining sector to activity growth has been substantial, and the external impulse is greater, given the higher international copper prices and better terms of trade. The labor market continues to gain momentum with the participation rate approaching pre-pandemic levels. Real wages continue to rise, which, along with employment growth, have been supporting private consumption. Looking ahead, we estimate that the economy will continue to grow. However, the recent lower level of activity has led us to revise the annual GDP estimate downward this year, from 2.8% to 2.5% and 2.4% for 2025. The exchange rate appreciated by 4% in the second quarter, but exhibiting high volatility. The most important drivers were the rising copper prices and the shift in risk appetite from global investors. In the baseline scenario, we estimate that the local currency will continue a gradual process of convergence toward its equilibrium values, led by expectations of a greater interest rate differential, hovering at a level slightly below CLP900 as of December this year. In the first half of 2024, inflation followed the predicted trend with a decline in both the total and core indexes. This reflects a moderate pass-through of the depreciation of the peso in the first month of the year and the…

Thank you, Carmen Gloria. Turning our attention to Slide 7. Let me begin by reminding you of our commitment to our Chile First strategy. We aspire to lead the Chilean banking industry in terms of contribution to its various stakeholders. This strategy we have named Chile First with four pillars. The first two pillars focus on what we want to become and the second two pillars on how we want to do it. So, first and foremost, we are engaged in a transformative journey towards becoming a digital bank with branches. Our transformation into a digital bank is not only about adopting the cutting-edge technology, but also about having a friendly physical presence through our innovative work/cafes. These spaces are more than just places to interact with retail customers. They are dynamic hubs that promote connectivity for both customers and potential customers, with advanced technology and our commitment to excellent service, our work/cafes are designed to redefine the banking experience. The medium-term objective is to reach 5 million customers and 450,000 SME clients. Our second pillar is centered on providing specialized value-added services tailored to some business segments. Our commitment is to deliver premium transactional trade, foreign exchange, sustainable finance, and advisory products and services, ensuring our clients receive a top-notch experience. Examples of this include our corporate investment bank, our specialized attention model for commercial banking, our Santander Consumer business that offer cars financing and Getnet, our acquiring business. In our third pillar, we are committed to fostering innovation and propelling growth by challenging status quo and creating new business opportunities. A good example of this is the disruption we incurred in Chile with the four-part model wherein we introduced our acquiring business, Getnet, to the market. So, we aim to lead the change in redefining the banking landscape.…

Thank you, Cristian. Now, we will welcome to your questions, please.

[Operator Instructions] Our first question comes from Mr. Yuri Fernandes from JPMorgan. Please go ahead, sir.

Thank you. Hi, Emiliano. Good morning, Cristian. Congrats on the quarter. Cristian, I guess you already mentioned Bansa during the presentation, but can you provide more details like why is this no longer consolidated within the bank? I know it is small, but just to understand the moving parts on these Bansa deconsolidation, where is this going? Like, are you still consolidating any kind of equity income from this investment? Just any color on this? And then I can ask a second question. Thank you.

Hello, Yuri. So, regarding Bansa, basically, Bansa was the entity that was doing, what we call, the floor plan, basically the stock financing for dealers in the -- related to our auto loan business. So, even though because of legal restriction, the stock financing is not an activity that the bank or its subsidiaries or -- can do we -- that Bansa was the entity doing that business. Because of the commercial dependence to Santander Consumer Finance, which is the company that does the auto loan, basically, we don't do the stock finance by itself. We don't -- we do the stock finance because then we create what we call the retail part of the auto business. So that's why from the accounting point of view, Bansa was consolidating into Santander Consumer Finance, that is a subsidiary of the bank that consolidates into the bank. So basically, Bansa was moving down -- was moving up from Santander Consumer to the bank. But on the ownership point of view, neither a consumer, neither the bank owns a single dollar of Bansa. So basically, we were consolidated the balances on the asset on the liabilities. But 100% of the results of the company were taken out on the minority interest line. So now basically, Bansa, because of the relationship with the company that funds the activity in terms of lending, now it's like, let's say, more dependent on that company than on the commercial link to Santander Consumer. And that's why from the -- considering the accounting rules, it has to consolidate into the company that funds Bansa rather than consumer that was like, let's say, the commercial partner of Bansa. So basically, it's affecting the consolidated view in terms of asset and liability, but has, let's say, no impact on net income, neither let's say, ROE because 100% of that result was taken out on the minority interest line. I don't know if I was clear enough.

No, that's clear. But just to be clear, like do you receive any money, like any compensation on that, like the consolidation? Like, is this kind of a sale or...

No, it's not a sale because there was no ownership on Bansa, neither from the bank nor Santander Consumer. I mean, Bansa is, let's say, owned by other part of the Santander Group. So basically, it was a pure accounting consolidation because of the commercial, let's say, dependence on Santander Consumer to do the stock finance. But there was no ownership on Bansa, neither the revenues or the cost of that activity.

Got you. So, we never, like, owned the company. We're just consolidating for this regulation. Now you're no longer consolidation, but we're never the owner, you're just consolidating for...

Never the owner, no. So, if you look, even though the number is small, that, let's say, part of the minority interest that were taken out of the consolidated net income, now it will be smaller because we don't have to take out the Bansa apart. And before was, let's say, 100% taken out on the minority interest line.

No, super clear. Now, a little bit more structural question on loan growth. I know we are not discussing 2025 yet, but I think in 2024, it's pretty clear like the trends are better margins, you are doing very well on efficiency. Cristian and Emiliano, what can you expect on growth in Chile? Because over the past many years, we have been seeing very timid loan growth? And I don't know, like can you anticipate, I don't know, loan growth accelerating even further in 2025? Any kind of color on your expectations for maybe the industry like for us to maybe see high-single-digit? Like, what could we think about loan growth and where the growth will come from? Will it continue to be retail? Will it continue to be auto loans? Where can we be more positive on growth here? Thank you.

Yes. So, I mean, regarding loan growth, as you said, I mean, the last few years were very slow pace of growth. And actually, if you, let's say, take out the indexation effect of the US that in real terms, that was even lower. But it's important to mention that it was in the context of low GDP growth. And also, the fact that all the liquidity injected into households had through the pension fund withdrawals and the hopes that the government handed in during the pandemic. So, looking to 2025, with GDP expected to grow in the 2.4%, 2.5% in real terms and inflation is expected to be, let's say, between 3% to 3.5%, normally, GDP growing around 5%. We do expect the multiplier of loan growth to GDP to be again above 1%, maybe definitely not as high as it was maybe some years ago that it was closer to 2%. But we do expect the system as a whole to grow in nominal terms in that high-single-digits, 7% to 8%. And that's driven by consumer, and in our case, auto loans too, which is a relevant part of our consumer business and because of subfactors. First, GDP growth and activity improving, then rates much lower than in the past. So the -- let's say, the tendency of the propension for people to borrow at this level of rates is definitely higher than in the past. And also, the normalization of the liquidity position of households that was extremely high during the last two to three years. And now, let's say, it's going back to, let's say, normal -- to normal situation where people, let's say, will have a higher propensity to borrow. So, on the consumer part, we are, let's say, supportive. In terms of mortgages, we…

No. Super. Very good answer. Thank you guys, and again, congrats on the ROE improvement lately. Thank you.

Thank you.

Okay. Thank you very much. Next question comes from Beatriz Abreu from Goldman Sachs. Please go ahead, ma'am. Your line is open.

Hi, everyone. Good morning, and thank you for taking my question. I guess just a quick follow-up on the Bansa loans just to make sure that we understand. So, does that explain the contraction in the corporate CIB line? How much of the Bansa loans exclusion can be explained in that line just because of the big drop there quarter-over-quarter? And then just a second question on asset quality, right? So, NPLs did increase quite a bit this quarter. I guess, what gave you comfort to keep the cost of risk guidance at 1.3% this year? Is there any chance that you will have to increase provisions going forward in addition to this $18 billion one-time additional provisions for commercial loans that you mentioned? Thank you.

Thank you, Beatriz, for your question. I mean, regarding Bansa, that was part of the middle market segment. It's not part of the CIB. So, it's not -- it doesn't explain any of the CIB fall, but it's much more related to, let's say, the concentration of the CIB that there are few but larger tickets and some of them weren't renewed in the quarter. And so that explains the fall in CIB. Bansa is in the middle market. It's, let's say, a relevant part, but not most of the fall in middle market. It was like CLP250,000 portfolio that was deconsolidated. So, the trends or the drivers in commercial lending related to middle market and the CIB have more to do of, let's say, lack of demand in terms of credit and borrowing and, let's say, the regularities in the CIB segment that a few syndicated loans that were originated in lower level of rate environment and during the pandemic expired were renewed. But Bansa was not -- it's an element, but it was not the most part of the fall. And regarding cost of risk on asset quality, basically, we don't -- we are, let's say, in a high level of cost of risk compared to where we were in the past, and we do expect that to stay where it is. So, the 1.25% that we have year-to-date, we think that will be there for the rest of the year. So we are not seeing yet an improvement or a fall in cost of risk by either a further deterioration, considering what we are seeing in the behaviors of the portfolios. And also, as I said before, the level of rates, it's now definitely given some room for people regarding the burden of their payments in the consumer and also in the mortgage business. And so, we expect to stay where we are around like CLP40 billion in terms of net provisions a month, then that will take us to the 1.3% area cost of rate. For the year, even though -- and also, let's say, compensating this one-off that we are pointing out that we'll have in July, even considering that one-off, we reaffirmed the 1.3% for the year.

To add to Emiliano's answer, we are seeing mild improvements in the job market in terms of unemployment figures. And that makes us also be somehow a little more confident on our turnaround coming in the next semester or final quarters of the year. Starting to see early signs of improvement in the job market.

That's very clear. Thank you so much.

Okay. Thank you very much. Our next question comes from Mr. Eric Ito from Bradesco BBI. Please go ahead, sir. Your line is open. Mr. Eric Ito, your line is open in case you are muted. Okay. We'll come back to Eric's line in a second. In the meantime, we will take the line from Mr. Daniel Mora from Credicorp Capital. Please go ahead, sir. Your line is open.

Hi, good morning, and thank you for the presentation. I have just one question regarding the asset quality indicators. When do you expect to see the NPLs to start decreasing? Especially in the commercial segment, you already explained that this. The performance of the NPL has been explained by agriculture and also real estate. But I want to understand if those segments are under control and you now expect in the second half of the year and in 2025 to see an improvement? And also, I would like to understand what will be a normalized figure of NPLs considering the portfolio structure that you're having, the increase in SMEs, the increase in consumer auto loans? What will be a normalized figure of NPLs when economic activity recovers and rates and inflation will be normal? Thank you so much.

Thank you, Daniel. Answering your second question first, what we expect as a normal range of NPLs for the current type of portfolio that we have, it's something in the low-2%s, so something between 2.2% to 2.4%, a little over what we had at the beginning of the pandemic, that was somehow slightly higher than 2%. So, a little higher than that, especially because of the increased composition of the SME part in the commercial portfolio and an expectation of an increase in our consumer loan portfolio, too. So that's what we should expect as a stabilized figure in terms of NPLs. In terms of when are we expecting a turnaround on the commercial portfolio, we -- some part of the deterioration of the impaired ratio is explained by the decrease in the total size of the loan book of the portfolio in the quarter. So that figure actually is not as high as it seems like the 8.6% of the impaired ratio and the 3.8% of the NPLs actually suffering from the decrease that we mentioned in the quarter. So, having that in mind, we are seeing not a huge increase in the total impaired volume of the portfolio or the NPL figures. We are seeing some sign of decrease in the acceleration of those figures in absolute terms. So that makes us believe that we are close to the turnaround point in terms of, at least, of the absolute figures, and we are expecting this to happen in the next six to five months -- six to nine months.

Perfect. Thank you so much.

Okay. Once again, we will unmute Eric Ito's line. Eric Ito, Bradesco BBI, please go ahead, sir. Your line is open.

Hello, can you hear me?

Yes, please go ahead.

Okay. Hi, guys. Good morning. Thanks for taking my question here, and for the opportunity. I have two questions as well. First one is regarding the expectations for 2025. I think you already gave some expectations regarding loan growth, but maybe a quick follow-up on NIM. I think this year, we should have a quite volatile variation of NIMs because on the one hand, we have these changes in interest rates, we have the impact from FCIC, but I guess next year, we should have lower funding, lower inflation, and I guess, FCIC will not be an issue again. So, I just want to get what you guys are expecting for NIMs for 2025 considering the loan mix you guys will also have? And my second question is regarding efficiency ratio, mainly focused on fees. I think we should have the full impact from the interchange rate cap fully loaded in 2025. I think you guys estimate an impact of CLP50 billion for the full year. So I just wanted to get your sense on what -- how much can we expect fees to grow in 2025 as well? So, thank you.

Hello, Eric, thank you for your question. I will take the first one and I'll leave the second one for Cristian. So, regarding NIM outlook for 2025, as you said, I would say that maybe the biggest source of volatility for next year would be the level of inflation that should be slightly, or we'll say, below what we have this year. So that's going to be a headwind regarding NIM. But as you can see in the quarterly evolution, our NIM during the second quarter was like 3.6% in the second quarter. So going forward, we expect to be around that level. The inflation in the second quarter was relatively high. So going forward, it should be below that level. And with that, we see the second semester with a NIM level of 3.6%, 3.7%, and that takes us to this 3.3%, 3.5% full year for 2024. So for 2025, as I said, inflation should be a headwind bad, and interest rates should still fall in the short part of the curve and maybe, let's say, from 50 basis points to 100 basis points in the next 12 months. So that will take the yield curve to recover some positive slow. That's also going to be positive for NIM. And in terms of loan growth and loan mix, that also should be kind of positive. So, even though it's still early to call, we do see NIMs next year to around the level that we'll have during the second half of this year, let's say, 3.5%, 3.7%, subject to the evolution of inflation and rates.

Thank you, Emiliano. Regarding your fee question, Eric, so the main driver of our fee expansion, it's the growth in terms of our customer base and the increased customers' interactions. And you can see how that is translating into our checking account growth year-over-year and quarter-over-quarter. This growth has been sustained, and it's also impacted positively on our card fees figures because if you take into consideration that we have the impact of the interchange fee cap incorporated in the first half of the year figures, actually, the growth in the card transactional volume and fees is actually pretty impressive. We also expect Getnet to continue its growth performance, although at a slightly lower rate. And we are also seeing opportunities on the asset management business, because we are seeing some interest for customers to find higher-yielding assets from -- moving out from the deposits -- the time deposits that were where they put the money into 2022 and '23 with the high monetary policy rate. With all of that, we are expecting our fees figure to grow slightly higher than our stabilized net interest income figure. So, we should be aiming for a high-single-digit growth in fees for next year. That should consider also the impact of the card fees. So mid- to high-single-digit growth in total.

Great. And just a follow-up, if I may. You mentioned that customers are moving out from time deposits. Could you just recall us what's the cost of funding regarding this time deposits compared to the mutual funds that they are migrating in? Thank you.

Yeah. So let's say that the level are similar in the sense that today, when you look at the rate for time deposits compared to the yield on mutual funds on the clients, let's say, on the -- I don't know how to put it, but on the spot, or if you look at the number today, it's like the same. The point is that mutual funds, usually, the short part, the money market mutual funds are -- has like, let's say, 60 to 90 days average duration, and they don't go like mark-to-market on their net asset value. So, they have like a kind of lag into recognizing the fall of rates. So, we -- while you have the cycle of rates going down, and especially a sharp cycle as the one we are having, used to have mutual funds yielding a higher return on investors until the level of rates kind of plateau and stay. So, what I'm trying to say is that for the next still three to six months, you will have, let's say, higher yields on mutual funds until the level of rate stabilizes and you have some kind of in different levels. The point there is that when that happens by the end of this year, early next year, again, the slope of the curve will be positive again. And that will, let's say, give people more appetite to go a bit longer on their duration. And usually, that kind of extension in their duration, people tend to do it through mutual funds, fixed income mutual funds rather than taking longer-tenure deposits.

Very clear. Thank you.

Okay. Thank you very much. It looks like we have no further questions at this point. I'll pass the line to the management team for their concluding remarks.

So, thank you all very much for taking the time to participate in today's call. We look forward to speaking with you again soon.

Thank you very much. This concludes today's conference call. We'll now be closing all the lines. Thank you, and goodbye.