Banco Santander-Chile Announces Third Quarter 2019 Earnings

SANTIAGO, Chile, Oct. 30, 2019 (GLOBE NEWSWIRE) -- 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 Chile
3. 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.


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