Good morning, ladies and gentlemen, and thank you for standing by. I would like to welcome you to Banco Santander-Chile Third Quarter 2024 Earnings conference call on the 30th of October 2024. Please note that at this point, all participants' lines are in mute-only mode. After the call, there'll be an opportunity to ask questions. So, with this, I would now like to pass the line to Mr. Cristian Vicuna, the Head of Investor Relations. Please go ahead, sir.

Thank you. Good morning, everyone. Welcome to Banco Santander-Chile Third Quarter 2024 Results webcast and conference call. This is Cristian Vicuna, Chief of Strategic Planning and Investor Relations. As many of you know, Emiliano, our past CFO, left the bank last month. We thank him for his contribution and wish him well in his future endeavors. In the interim, I'm glad to introduce Patricia Perez, who leads the ALM and Financial Team, ensuring continuity and a focus on our strategic goals. Without further ado, let me pass the microphone to Patricia, Interim CFO.

Thanks, Cristian and welcome everyone to our quarterly review of results. First, let me give you some insight about myself. I've been with Santander for over 17 years. In my past responsibilities, I've been Head of Capital Management, Funding and Debt Agencies, and most recently, Head of Assets and Liability Management. I am delighted to share with you a strong third quarter and our outlook for the rest of 2024 and some insights into 2025. Also, I just wanted to highlight our impressive results in the Dow Jones Sustainability Index, where we obtained 80 points and 6-point increase compared to last year, placing us as the best Chilean bank and in the top 3% of all banks worldwide for sustainability. From the economic team, Carmen Gloria Silva is here with us, and we are pleased to announce that from November, Andrés Sansone will be joining us as the bank's chief economy. Carmen Gloria will take the role of Head of Public Policy. The agenda for today is first, Carmen Gloria will discuss the macro scenario, then Cristian will review the strategy and results of the third quarter and guidance. Finally, we will have a Q&A session. Thank you very much.

Thank you, Patricia. The Chilean economy has continued to recover. The preliminary estimate of GDP growth for the third quarter is 2.6% year-on-year compared to 1.6% previously. This implies an increase of 0.9% quarter-to-quarter seasonally adjusted, which can be seen across all economic sectors, reflecting activity that beyond short-term fluctuations associated with weather events and calendar effects continues to improve. Thus, for this year, we maintain our forecast of 2.4% GDP growth, supported by more comfortable financial conditions and a consistently growing wage bill. In fact, the labor market, which exhibited a significant improvement in the first-half of the year, slowed down during the third quarter, affected by seasonal factors. Going forward, we estimate that the labor market will resume its recovery due to a more dynamic economy with an employment rate closing the year at around 8% and continuing the trend in 2025, ending in 7.8%. Both locally and externally, various central banks are expected to continue with monetary normalization next year, which will boost the economy. Added to this is the lower inflationary environment and greater dynamism in the labor market, which will allow the recovery of banking credit and the consolidation of consumption. Investment, after closing this year with an estimated annual drop of 1% will return to positive growth rates in 2025, thanks to less stringent financial conditions, greater mining production, and the consolidation of non-mining projects. Therefore, we estimate GDP growth of around 2.1% to 2.3% in 2025, placing it around its trend level. In the third quarter, inflation has been impacted by volatile components. On the one hand, food prices have pushed downwards while energy prices have risen. Going forward, inflation will continue to rise due to the increase in the price of electricity in October and January, which will lead inflation to close…

Thank you, Carmen Gloria. Turning our attention to slide eight, let me walk you through our Chile First strategy latest advances. 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. 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 affairs. 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 a commitment to excellent service, our work affairs 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 pension model for commercial banking, our Santander Consumer business that offer car 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 incur in Chile with the four-part model when we introduced our acquiring business, Getnet, to the market. So, we aim to lead the change in redefining the banking landscape. We…

Thank you very much for the presentation. We'll now be moving to the Q&A part of the call. [Operator Instructions] Our first question comes from Mr. Yuri Fernandes from J.P. Morgan. Please go ahead, sir. Your line is open.

Thank you and good morning, Cristian and everybody and congrats on improving margins and ROE. I have a quick one regarding your payout and your capital base. When we look to the core capital, you have 10.7. That is comfortable. I know Chilean regulators they are very conservative so this number in other countries could be even higher. But my question is, you should have 18 to 20 ROEs, right, and you mentioned the guidance for next year of mid-single digits long growth. With 70% payout, that's fine. But in the case we see a faster long growth in Chile, how do you see your payout? Do you believe you can keep this 70% payout? Or eventually we could see a lower payout? I'm just trying to understand the moving parts between growth, ROE, and your payout position. That would be my first question. The second one is regarding asset quality. On your presentation, Cristian, you mentioned that you are seeing some stabilization in commercial loans. So, just trying to understand, where are we in the credit cycle in Chile if you are forecasting NPLs to move down? Related to this is your coverage. I understand that mortgages and other loans, as you said, they matter for the mix, but just trying to understand what level of coverage should we work with Santander Chile today? Because I think it's 120% today, in the past was 130%, just trying to understand if the 120% level is the level that we should work with, or if eventually we could see the coverage moving up as your NPLs go down. Thank you.

Thank you, Yuri, for that question. I'll take the asset quality question so I'll now pass the word to Patricia.

Well, thanks, Yuri, for your question. Regarding the current capital, our fully loaded requirement is 9%. So, we are already well above the minimum. On top of that, we maintain a 1% buffer that allow us to be comfortable with our normal growth and the usual annual dividend payment of 60% to 70% of earnings. This change that we made during this year allow us to maintain a more stable core capital ratio, reflecting a dividend provision in line with what's being paid historically.

Yes, to complement that, we think that it depends also on the lines of assets that grow. They have different risk-weighted assets, wages. Retail growth, it's pretty much considered there, and corporate and mortgage have a lower risk-weighted asset so we should be fine with sustaining this sort of levels of dividends for next year even if industry loan growth is slightly higher. Regarding asset quality, yes, we're still at levels of NPLs around 3, and we are going to probably remain at this stage for one or two quarters. We're seeing some improving early signs in the asset quality of the commercial portfolio, but it's still too soon to tell. So, I assess that we're going to remain at these levels for the upcoming two quarters. Regarding your coverage question, let's look at the specific parts of the coverage. So, in consumer lending, we have around 350+ percent coverage, so that we're very comfortable there. In the commercial book, we have around above 100% coverage, and about 60% of the lending in that portfolio has collateral, and 100% of the mortgage carry collateral. So, the coverage that we have now is around 40%. We are comfortable with the current levels of coverage that we have in every specific part of the portfolio.

Super clear, Cristian and Patricia. Just asking this on coverage, because we always go back to historical, it was like 130, but as you said, mortgages used to be 30% of our loans. Now are some 40%, and it plays a role on this. Thank you very much.

Thank you, Yuri.

Thank you.

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

Yes. Hi, everyone. Thank you for the call and for taking my question. I have a question on the loan growth outlook. You gave the preliminary guidance for 2025 of mid-single digit loan growth, right? Growth around these levels would imply a one-time multiplier to GDP under your own nominal GDP growth expectations, right? But I saw that you're expecting an improvement in unemployment, improvement in inflation, interest rates should come down next year. I guess my question is, why aren't you seeing higher loan growth for next year and what would need to happen for loan growth to pick up next year? Also, if you maybe could provide a high level of growth expectations that you're seeing in between the loan segments. That would be super helpful. Thank you.

I'll take a part of this question and maybe then Carmen or Patricia can compliment. Regarding what we are seeing, this year the industry is going 2% nominal as of September. So, today's figures are reasonably out. That implies a negative real growth for the industry. What we are expecting is to move back to levels of one-time GDP plus inflation, but that is a relevant change from the level of speed that we are seeing now and the dynamic that we're looking at the industry. That's what makes us believe that we're going to be close to one-time GDP plus inflation and around that area. There is a scenario where investment pickups depending on the political outcomes of the presidential election of next year and that might create some space for more loan growth, especially in the second-half. But we are not seeing those signs at present yet. Regarding the perspective inside our portfolio, what we are seeing is that actually consumer, it's starting to recover in the country. Macro figures are out today too. Actually consumption is part of the improvement. Also, we are seeing a good to okay demand in the retail part of SMEs. Those two parts, we are very comfortable. We will be delivering on the mid-single digits, maybe slightly higher. What we're not seeing there yet is the large corporate demand.

That's very helpful. Thank you.

Thank you very much. [Operator Instructions] Next question comes from Ms. Neha Agarwala from HSBC Global Research. Please go ahead, ma'am. Your line is open.

Hi. Thank you for taking my question. Good to see the ROE and that the guidance has been improved. What are the headwinds that could jeopardize the ROE outlook that we have? What are the expectations from next year we have elections? So, what are the things that you are cautious about, which could lead to fluctuation in the ROE guidance? I'll start with that one.

Why don't you take this, Patricia?

Yes. Well, looking ahead to 2025, we see our net interest margin stabilizing in the high 3s, considering the downwards pressure on inflation while our fees should remain strong with better efficiency. Also, our cost of risk should stabilize around the current level. So, in terms of headwinds, I would say we can have less inflation that we are projecting as of now, and also the cost of risk. That I would say are the risks for next year. I don't know if you, Cristian, can add something.

Yes. Well, actually regarding the macro scenario, what we're seeing as potential headwinds are mostly external. Actually, political tensions in Middle East, US election, copper prices, oil prices are the moving parts that might affect the macro scenario in general for the economy and that could impact on the performance. But operationally, the bandwidth is pretty solid.

Perfect. Any investments that you have planned in terms of branch network expansion or hiring that you have planned for next year that could have an impact on the cost to income ratio?

Regarding the investment part, what we are doing and we have discussed this is that we are deploying relevant technological updates for the platform of the bank. So, currently, we are now in the final stages of updating our core banking system. So, the Gravity Santander Group solution, this is going to be very relevant for us in terms of experience, stability and elasticity of our systems. The investments that we're doing is that it's a normal update on our branch network to implement more of a work of flavor on the part that it's not updated yet. We are still doing that part gradually. Most of the investment is focused on updating the technological platform of the bank.

But you should not expect any runoff large expenses that could put pressure on earnings?

Not on the core expenses. We might have some one-time restructuring charges similar to the ones that we had this year that we use them to control the cost expansion of the other lines. Net, we should be something very similar. We are guiding mid-30s efficiency.

Last question is on digital. Santander Life is doing well. You have many other initiatives on the digital side. Getnet is doing well. But your competitors are also being more aggressive, giving out more aggressive targets in terms of what they want to do on the digital side. How do you see the competition with your peers in terms of digital? Do you think that has intensified? Do you see Santander to have an advantage? What are these advantages that make you ahead of the curve? Thank you so much.

Thank you, Neha. Regarding the study, well, we have been very, very aggressive, if I say, first mover in terms of digital onboardings and customer acquisition strategies. We started this back in late 2016 with the first digital life account. Then, we moved into the current digital account back in 2020 during the pandemic. Now, we have deployed the Mas Lucas account and we are also reducing strategically our cost to serve every one of those single accounts to make them profitable. Competition is catching up. It's true. We're seeing some interesting moves from other players that are asking for banking licenses on a pure digital movement. But I think we are well-prepared in our experience. We can lever the cross-selling capabilities of the different product offerings that we have on the bank and the high levels of experience to achieve a very good recurrence ratio and a high increase on our net fees figures. I think that the strategy of digitalizing ourselves and forcing us to transform faster is giving good results.

Thank you so much.

Thank you, Neha.

Thank you. Thank you very much for the question. [Operator Instructions] We'll give another moment or so for any additional questions to come through. Okay, it looks like there are no further questions at this point. I'll be passing the line back to the team for the concluding remarks.

Thank you everybody for joining us today on our call, and we look forward to meeting you on our end of year 2024 call in the first days of February. Thank you very much.

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