Banco Santander Chile (NYSE: BSAC; SSE: Bsantander) announced today
its unaudited results1 for the six month period ended June 30, 2019
and second quarter 2019 (1Q19).
Net income attributable to shareholders increases 10.8%
YoY in 2Q19. ROAE of 21.1% in the quarter
Net income attributable to shareholders
in 2Q19 totaled Ch$171,232 million (Ch$0.91 per share and
US$0.54 per ADR), increasing 36.5% compared to 1Q19 (from now on
QoQ) and 10.8% compared to 2Q18 (from now on YoY). ROAE in
2Q19 was 21.1%. This strong quarter was the highest quarterly
results since 4Q13. The solid results in the second quarter
compensate the weaker first quarter of the year negatively affected
by the low inflation rate. Therefore, on an accumulated basis,
Net income attributable to shareholders in 6M19
decreased 2.9% YoY with ROAE at 18.2% for the six month period, in
line with guidance.
Important push in digital innovations in the
quarter
In the quarter, the Bank made important advances
in digital innovations. As a reminder, the Bank has announced a
3-year investment plan totaling US$380 million for 2019-2021
assigned for digital transformation.
The Bank continues to advance with its
intentions to enter the acquiring business in 2020 with the aim of
significantly modernizing and expanding the access of SMEs to POS
terminals. In this regard, in the quarter the Bank and Evertec,
Inc. announced the signing of an agreement under which Evertec will
provide acquiring processing services, as well as other solutions,
to the Bank as we move ahead in our plans to enter the merchant
acquiring business in Chile. We calculate that 70% of small
commerce in Chile do not have a POS
During July, the Bank carried out the
soft-launch of its new digital service called
Superdigital, which is a fully digital banking
service that includes a pre-paid credit card. This will allow the
more than 4 million persons in the workforce who do not have access
to a credit card to access traditional banking services, as well as
the digital economy, by enabling them to make online purchases with
our pre-paid digital credit card.
Our Santander Life program continues to grow
with over 54,000 credits cards issued and a total loan amount of
more than Ch$ 35,720 million, increasing 166.1%YoY and 13.7% QoQ.
Due to the success of the Life program we extended our Life offer,
launching Cuenta Life, a debit account with no credit approval
necessary and Life Latam credit card plan where clients earn merits
and accumulate Latam airmiles.
Furthermore, in June the Bank launched the Super
Hipoteca, a 40-year mortgage available for first buyers under the
age of 35. We are the only bank in the Chilean market to offer a
mortgage above 30 years, and while the interest rate is higher
(30-40 bp), the monthly installments paid by clients are around 10%
less than a 30-year mortgage.
As a reminder in March 2019 the Bank announced
it was entering the auto financing business and had agreed with
SKBergé Financiera S.A. to acquire its 49% share ownership in
Santander Consumer Chile S.A., for Ch$59,063 million. Currently,
Banco Santander S.A. (Spain), parent company of the Bank owns 51%
of the shares of Santander Consumer Chile S.A., and the remaining
49% is owned by SKBergé Financiera S.A. In 1Q19, the latest data
available, Santander Consumer Chile’s net profit was Ch$3,674
million, increasing 61.9% compared to 1Q18. The ROE in 1Q19 was
21.7%. The loan book totaled Ch$406,619 million and increased 26.4%
YoY. We have now received the approval of the antitrust commission
and await final approvals from the CMF in the coming months. This
transaction should finalize by the end of August.
Loan growth driven by retail banking in
the quarter
Total loans increased 6.4% YoY
and 1.6% QoQ led by retail banking and offset by a fall in low
yielding Corporate loans. Retail banking loans
increased 2.5% QoQ and 8.8% YoY. In 2Q19, Loans to
individuals increased 2.5% QoQ and 10.1% YoY.
Mortgage loans continued to grow healthily and
increased 3.1% QoQ and 11.9% YoY. Interest rates are at an all-time
low, driving the increase in mortgages, particularly among high
income clients, which increased by 4.7% in the quarter.
Consumer loans increased 7.5% YoY and 1.4% QoQ.
The growth of consumer loans is driven by loans to high-income
earners which grew 3.6% QoQ.
Loans to SMEs
performed well in the quarter, increasing 2.2% QoQ with growth in
the quarter being led by the larger SMEs. The Bank continues
to maintain a conservative stance regarding loan growth in this
segment by focusing on larger, less risky SMEs that will generate
non-lending revenues as well.
Middle-market loans grew 6.6%
YoY and decreased 0.1% QoQ and Loans in SCIB
decreased 1.7% in the quarter, leading to a YoY decrease of 19.8%.
However Middle-market’s overall contribution to income increased by
1.7% YoY and SCIB increased by 26.4% YoY driven by client treasury
revenues.
Funding mix improves in the quarter.
Checking account holders surpass 1 million
The Bank’s total deposits
increased 5.9% YoY and 2.7% QoQ in 2Q19. The Bank continued to see
positive growth of its checking account base and cash management
business that led to a strong rise in non-interest bearing
demand deposits of 4.5% QoQ and 9.6% YoY. According to the
last available data, Santander Chile’s market share in new account
openings reached 24.4% in 2019 and total checking accounts
surpassed 1 million.
At the same time, in 2Q19, the Central Bank
lowered the Monetary Policy Rate (MPR) by 50bp to 2.5%. The
long term part of the yield curve also fell significantly. This led
to lower growth of time deposits, a shift of savings to mutual
funds and the compression of issuance spreads in the local bond
market. Therefore, time deposits grew 1.4%
QoQ compared to a 7.7% QoQ rise in mutual funds
and a 4.7% QoQ rise in bonds outstanding. The
growth of our mortgage loan book, also drove our funding strategy
of matching those long term assets with long-term bonds.
The Bank’s liquidity ratios also remains ample
in the quarter. Our liquidity levels remain healthy with the LCR
ratio at 123% and the NSFR at 111% as of June 30, 2019.
Margins recover with higher inflation in
2Q19
In 2Q19, Net interest income,
NII, increased 4.8% compared to 2Q18 and 14.8% QoQ. The
Bank’s NIM in 2Q19 was 4.4%, recovering from the
3.9% in 1Q19 and slightly lower than the 4.5% in 2Q18. The
variation of the UF2 was 1.2% rebounding after the weak first
quarter of 2019 when this variation was 0.0%. In June the Central
Bank also lowered the monetary policy rate by 50bp. Both these
factors lead to a higher margin in the quarter. This was partially
offset by the lower spread earned over non-interest bearing demand
deposits.
Positive evolution of asset quality
continues in the quarter
During the quarter provisions increased 0.1%
compared to 1Q19 and decreased 4.6% compared to 2Q18. Cost
of credit in 2Q19 remained stable at 1.0% along with the
expected loan loss ratio (Loan loss allowance over
total loans) which remained at 2.6% in the quarter. The
total NPL ratio improved to 1.9% and the
impaired loan ratio also improved to 5.8% as of
June 30, 2019. These figures reflect the Bank’s strategy of growth
in less risky segments. The total Coverage ratio
improved to 137.6% in the quarter.
Non-net interest income rises 20.1% YoY
in 2Q19. Higher revenue for client treasury offset lower fee
income
In 2Q19, non-interest income
(fee income plus financial transactions, net) increased 6.8% QoQ
and 20.1% YoY.
In 2Q19, fee income decreased
3.8% compared to 1Q19 and 13.8% compared to 2Q18. On a YoY
comparison fees decreased 13.8% due to: (i) lower fees from the
collection of insurance fees due to a change in methodology
implemented in 2H18 for estimating refunds of insurance premiums
collected, (ii) lower credit card fees due to adjustments in the
manner in which the costs of our cobranding agreement are
recognized. Previously clients received their airmiles once a
month, whereas now they receive them on a weekly basis. Therefore,
in the quarter, the Bank recognized a greater expense of Ch$2bn due
to this change, and (iii) a decrease in Corporate banking fees due
to lower income from financial advisory.
Results from Total financial
transactions, net totaled a gain of Ch$49,016 million in
2Q19, an increase of 164.1% compared to 2Q18 and an increase of
26.2% compared to 1Q19. Client treasury services
revenues reached a gain of Ch$35,956 million in the quarter, an
increase of 52.3% compared to 2Q18 and 18.8% compared to 1Q19.
Demand for treasury and market making products increased in the
quarter with the greater recent uncertainty in global markets and
volatility of rate and FX markets. While fee income has been weaker
in the middle-market and corporate banking in the semester, the
increase in demand for hedging products reflects a shift in the
demand of our commercial clients and the Bank’s ability to capture
these profit generating business, strengthened by our good customer
service and product offer.
Efficiency ratio of 40.3% in the quarter
and 41.4% in 1H19
In 2Q19, operating expenses increased 3.0% YoY
and 6.4% QoQ with the Bank’s efficiency ratio
reaching 40.3% in the quarter and 41.1% in 1H19.
Personnel expenses increased
0.7% YoY and 10.8% QoQ in 2Q19. During the quarter, headcount
continued to decrease, 2.3% YoY and 0.8% QoQ, however this was
compensated by the yearly adjustment of salaries for inflation.
Administrative expenses
decreased 2.2% YoY and increased 3.4% QoQ in 2Q19. This YoY
decrease was mainly due to an accounting change as the Bank adopted
IFRS 16 which modified the presentation of our leases. The Bank
rents around 75% of its branches and buildings. As of January 1,
2019, instead of recognizing an expense for rental of these
properties, the Bank recognizes the associated amortization and
depreciation. Without this effect, administrative expenses would
have increased 10% YoY.
During the quarter we continued to spend on
marketing, communications and technology developments as well as
improvements to our branches, or points of sale, reaching a total
of 46 Work Cafés by the end of the quarter. Also in 2Q19 we
continued to pilot the Work Café 2.0 and the Select Private banking
branch, building on the Work Café concept, in line with our plan to
start increasing points of sale throughout the next few
years. Our initial indicators show that the opening of
account plans goes up 2-4 times in the Work Café 2.0 compared to
traditional branches and the Investment hubs sell twice as many
mutual funds.
Amortization expenses increased
32.5% Yoy and decreased 2.5% QoQ. The YoY increase was mainly due
to the implementation of IFRS 16 previously mentioned. This
resulted in a Ch$8.1 billion increase in the quarter and a total of
Ch$15.9 billion in the six month period. Without this effect,
amortization expenses would have decreased around 9% YoY.
Also this expense has increased due to the investment in software
and digital banking the Bank is carrying out as part of our plan to
improve productivity and efficiency as well as the depreciation of
branches.
Core capital reached 10.4%
The Bank’s core capital ratio3 was 10.4% and the total BIS
ratio4 was 13.1% as of June 30, 2019. The Bank also paid its annual
dividend in April, corresponding to a payout of 60% of 2018
earnings and with a dividend yield of 3.7%, considering the
dividend record date in Chile. Risk weighted assets increased 5.2%
YoY, below the growth of core shareholders’ equity which grew 9.5%
YoY.
______________________________
1. The information contained in this report
is unaudited and is presented in accordance with Chilean Bank GAAP
as defined by the Superintendency of Banks of Chile (SBIF).
2. UF or Unidad de Fomento, an inflation indexed unit used in
Chile
3. Core Capital ratio = Shareholders’ equity divided by
Risk-weighted Assets (RWA) according to SBIF BIS I definitions.
4. BIS ratio: Regulatory capital divided by RWA.
CONTACT INFORMATION
Robert Moreno
Investor Relations
Banco Santander Chile
Bandera 140, Floor 20
Santiago, Chile
Tel: (562) 2320-8284
Email: irelations@santander.cl
Website: www.santander.cl
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