Banco Santander-Chile Announces Second Quarter 2019 Earnings

SANTIAGO, Chile, July 26, 2019 (GLOBE NEWSWIRE) -- 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.



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