Banco Santander Chile (NYSE: BSAC; SSE: Bsantander) announced today
its unaudited results1 for the nine month period ended September
30, 2019 and third quarter 2019 (3Q19).
ROAE in the quarter, excluding
regulatory change in provisioning model, reached 19.5% in the
quarter
Net income attributable to shareholders
in 3Q19 totaled Ch$138,724 million (Ch$0.74 per share and
US$0.40 per ADR). This was a 6.9% increase compared to 3Q18 (from
now on YoY) and a decrease of 19.0% compared to 2Q19 (from now on
QoQ). In July 2019 the Bank recognized a one-time charge of Ch$ 31
billion for a regulatory change in the provisioning model for
commercial loans evaluated on a collective basis. ROAE in
3Q19, excluding this provision charge was 19.5% (16.7% including
said charge). These solid results in the quarter reflect the Bank’s
positive evolution of client activities, higher fee income, strong
client treasury results, stable asset quality and controlled
costs.
Net income attributable to shareholders
in 9M19 remained flat YoY with ROAE at 17.7% for the nine
month period, or 18.6% adjusting for the one-time provisioning
charge, and in line with guidance.
Record client growth in the quarter
In the quarter, total client growth reached a
record level driven by higher client satisfaction and new product
launches. As a reminder in 2Q19 the Bank announced various
initiatives and advances in our digital innovations, including a
3-year investment plan totaling US$380 million for 2019-2021
assigned for digital transformation. In previous quarters client
acquisition ranged between 30,000-40,000 a quarter compared to over
86,000 in 3Q19. Cross-selling among existing clients also
continued to rise in the quarter. Client loyalty continued to rise
in retail banking with loyal individual customers (clients with
>4 products plus minimum usage and profitability levels) in the
High-income segment growing 7.1% YoY and loyal Mid-income earners
growing 6.4% YoY.
Due to the success of the Life program we
extended our Life offer, launching Cuenta Life, a debit account
which also permits clients to accumulate merits for programmed
savings and the Life Latam credit card plan where clients earn
merits and accumulate LatamPass airmiles. Both of these programs
led to an acceleration of client acquisition in this segment. Total
Santander Life clients reached over 98,000 clients and with a total
loan amount of more than Ch$ 40 billion, increasing 116.5%YoY and
10.4% QoQ.
During July, the Bank carried out the
soft-launch of its new digital service called
Superdigital, which is a fully digital
transactional banking service that includes a pre-paid credit card.
This could 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, including subscription to platforms such
as Spotify, Netflix, Uber, etc. with our pre-paid digital credit
card. In one month of our soft-launch, this digital platform had
more than 10,000 clients.
The growth of mortgage loans, the improvements
in client service and our digital product offerings have also led
to record checking account opening in the quarter. According to the
last available data, Santander Chile’s market share in new account
openings reached 24.1% in 2019 and total checking accounts
surpassed 1 million.
Strong growth of non-interest bearing
demand deposits in the quarter
The Bank’s total deposits
increased 10.1% YoY and 3.8% QoQ in 3Q19. In 3Q19, the Central Bank
lowered the Monetary Policy Rate (MPR) again by 50bp to 2.0%.
The long-term part of the yield curve also continued to fall
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
increased 2.2% QoQ compared to a 6.7% QoQ rise in mutual
funds and a 3.7% QoQ rise in bonds
outstanding. The growth of our mortgage loan book also drove our
funding strategy of matching mortgage loan growth with long-term
bonds.
At the same time, 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 6.2% QoQ and 18.5% YoY. The Bank’s
liquidity ratios also remain ample in the quarter. Our liquidity
levels remain healthy with the LCR ratio at 126%
and the NSFR at 108% as of September 30, 2019.
Loan growth driven by retail banking in
the quarter
Total loans increased 6.4% YoY
and 2.6% QoQ. Retail banking loans increased 2.1%
QoQ and 8.8% YoY. In 3Q19, Loans to individuals
was the fastest growing segment and increased 1.9% QoQ and 9.6%
YoY. Consumer loans increased 8.1% YoY and 1.5%
QoQ. The growth of consumer loans is driven by loans to high-income
earners which grew 3.1% QoQ and 14.1% YoY. Mortgage
loans continued to grow healthily and increased 2.3% QoQ
and 11.0% YoY. Interest rates continued to fall and reached a new
all-time low, driving the increase in demand for new mortgages and
a high level of refinancing of existing mortgages. The Bank
continued to maintain an average loan-to-value ratio at origination
below 80%.
Loans to SMEs
increased 5.3% YoY and 3.1% 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 5.1%
YoY and 1.6% QoQ as this segment is more sensitive to the evolution
of the economy, growth in this segment is in line with the slower
economic growth and lower business confidence. Loans in
SCIB decreased 12.4% YoY but increased 13.6% QoQ due to
specific large loan projects and the depreciation of the Chilean
peso in the quarter, which led to a rise in translation gains for
loans denominated in USD in this segment.
Lower NIM in the quarter due to lower
QoQ inflation and sharp decline in long term rates
In 3Q19, Net interest income,
NII, decreased 2.5% compared to 3Q18 and 6.1% QoQ. The
Bank’s NIM in 3Q19 was 4.0%, lower than 4.4% in
previous quarters. The variation of the UF2 was 0.5%, lower
than the 1.2% of the previous quarter. In addition to this,
long-term interest rates declined 200bp in the quarter, leading to
a high level of mortgage refinancing which put downward pressure on
margins. This was partially offset by the Central Bank´s lowering
of the monetary policy rate by 50bp, which improved our time
deposit funding costs and the high level of growth of non-interest
bearing demand deposits.
For 2020 we expect NIM of 4.0- 4.1% supported by
the growth of our consumer loan book through the healthy growth of
our Life clients and our acquisition of 51% in Santander Consumer
Chile, lower impacts of loan refinancing and continued improvement
in funding costs driven by lower short-term rates.
Ch$31 billion one-time charge for
regulatory change in provisioning model
During the quarter provisions increased 51.7%
compared to 2Q19 and 20.2% compared to 3Q19 due to the recognition
of a one-time charge of Ch$31 billion for the
regulatory change in the provisioning model for loans evaluated on
a collective basis. Therefore Cost of credit
in 3Q19 reached 1.47%, however, adjusting for this one-time charge
it remained stable a 1.06%. The expected loan loss
ratio (Loan loss allowance over total loans) remained
stable at 2.6% in the quarter. The total NPL was
2.0% and the impaired loan ratio remained at 5.8%
as of September 30, 2019. These figures reflect the Bank’s strategy
of growth in less risky segments. The total Coverage
ratio remained healthy at 129.5% in the quarter.
Fee income increased 5.5% QoQ driven by
retail banking fees
In 3Q19, fee income increased 5.5% compared to
2Q19 and 3.8% compared to 3Q18. Fee growth in the quarter was
mainly led by retail banking in the following products: (i) a
rebound in credit card fees, which increased 21.5% QoQ; (ii) an
increase in insurance fees related to the increase in demand for
mortgages and the cross-selling of insurance products and (iii) an
increase in asset management fees as clients prefer mutual funds
with potential higher returns in a low interest rate environment.
Positive client and non-client treasury
results in the quarter
Results from Total financial transactions, net
was a gain of Ch$64,714 million in 3Q19, an increase of 135.1%
compared to 3Q18 and an increase of 32.0% compared to 2Q19. Demand
for treasury and market making products continued to grow strongly
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 this year,
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.
Moreover, the Bank recognized higher realized gains from sales
of its available for sale investment portfolio. The fixed income
portfolio is mainly composed of Chilean sovereign bonds and Central
Bank notes. Therefore, when a reduction in inflation is accompanied
by a lower rate environment, this portfolio revalues, partially
offsetting the negative impact of lower inflation on margins.
Efficiency ratio of 39.3% in the quarter
and 40.6% in 9M19
In 3Q19, operating expenses increased 4.1% YoY and a decreased
1.3% QoQ with the Bank’s efficiency ratio reaching
39.3% in the quarter and 40.6% in 9M19. The YoY increase is
explained by the constant investment the Bank is making in
technology and digital innovations, while the QoQ decrease in
expenses is mainly due to greater marketing expenses related to new
product launches that were incurred in 2Q19 which were not repeated
to the same extent this quarter. This is leading to greater
efficiency and productivity in branches and back office
functions.
Solid core capital of 10.2%The
Bank’s core capital ratio3 was 10.2% and the total BIS ratio4 was
12.8% as of September 30, 2019. Risk weighted assets
(RWA) increased 9.1% YoY. During the quarter, the
regulator published for consultation the new regulations that
defines how risk weighted assets for operational risk are
calculated and the systemic charge.
_______________________________________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 Chile3. Core Capital ratio = Shareholders’
equity divided by Risk-weighted Assets (RWA) according to CMF 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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