Banco Santander Chile Announces First Quarter 2020 Earnings

SANTIAGO, Chile, April 29, 2020 (GLOBE NEWSWIRE) -- Banco Santander Chile (NYSE: BSAC; SSE: Bsantander) announced today its unaudited results1 for the three month period ended March 31, 2020 and first quarter 2020 (1Q20).

ROAE of 16.8% reached in the first quarter of 2020

Net income attributable to shareholders in 1Q20 increased 23.4% QoQ and 14.8% YoY, totaling Ch$ 144,014 million (Ch$ 0.76 per share and US$ 0.36 per ADR) and achieving an ROAE of 16.8% for the quarter, compared to 13.9% in 4Q19 and 15.3% in 1Q19.  In 1Q20, net income was driven by strong results from client activities and a higher inflation rate. Total operating profit before provisions for loan losses totaled Ch$491,962 million in 1Q20 and increased 12.5% compared to 1Q19.

Impact of Covid-19 on the operations of the Bank

January and February were strong months for the Bank with net income in 2M20 growing 39.1% compared to 2M19 and ROAE reached 18.9%. The first case of Covid-19 in Chile was on March 3. As the global Covid-19 crisis progressed, and border closures and quarantine measures were implemented in Chile during March, the monthly results of the Bank started to show the initial effects of the crisis with lower growth of fees, lesser gains from financial transactions due to more volatile markets, and higher provisioning.

Due to the social unrest experienced in Chile in 4Q19, the Bank had already experienced a dress rehearsal for tele-working and as more protests were expected in March and April, the Bank had accelerated implementation of technological infrastructure that would permit the Bank to continue operating in case of disruptions.  From mid-March, the Bank started to roll out the tele-working plan due to COVID-19. Currently 95% of our central office employees are working from home. At the same time 86% of our branches are open. Banking was deemed an essential service by the authorities, so in areas not under quarantine branches must be available.

In terms of transactionality, the reduction in clients coming to our branches is being supported by our digital channels with the amount of digital transactions increasing 7.4% in 1Q20 compared to the same period last year and digital clients have increased 22.2% in the last 12 months.

Measures taken by Chilean authorities

The Government has announced various initiatives for different segments of the Chilean population such as tax breaks and one-off payments to vulnerable households. The Government, Central Bank and CMF (our regulator) have been working together with the banks to provide measures to ensure that companies have access to funding during this crisis.

Firstly, the Central Bank enabled two types of liquidity lines for banks, totaling US$24 billion. The first line is the facility available conditionally on loan growth (FCIC) to ensure that banks continue to finance and refinance households and businesses in Chile up to 15% of consumer and commercial loans. This line is secured with collateral with a maturity of up to 4 years. Banks can use government bonds, corporate bonds or highly rated large commercial loans as collateral for these lines. The second line available, the LCL, is part of this same 15% of the FCIC, however this is unsecured and available for banks for up to 2 years and each bank is limited by the liquidity reserve requirements by Central Bank. The rate to be charged on these credit lines is the Monetary Policy Rate, which as of March 31, 2020 was 0.5%. Ultimately these credit lines should provide the liquidity to banks to enable them to continue financing companies and individuals.  In 1Q20 the Bank had not used these lines, but as of the date of this report, the Bank has taken down Ch$1.162 trillion from these Central Bank funding facilities.

The Central Bank has also announced a temporary adjustment to the liquidity requirements of Banks, suspending the 30 and 90 day liquidity requirements and offering flexibility on the compliance with the LCR, remaining at 70% for 2020. Santander Chile has kept its policy of maintaining ample liquidity levels during this period. Our LCR reached 205% as of March 31, 2020.

The Government announced the extension of the Fogape fund, offering state guarantees for lending to SMEs, defined as companies with annual sales of up to 1,000,000 UF. The government estimates that this program will benefit 99.8% of the companies in Chile. The state will guarantee between 60-85% of the loans given by banks to qualifying companies, with loans to smaller companies receiving higher levels of guarantees.  These loans will have a maximum amount of 3 months of sales, a preferential interest rate of the Central Bank Monetary Policy Rate (currently at 0.5%) + 3% and a term of 24-48 months. There will also be a 6-month grace period, which also includes other loans with the same bank. The use of proceeds of these lines will be limited and cannot be used to distribute capital to owners, pay dividends or make new fixed asset investments. In addition, the CMF will permit for all commercial loans that are 30 days or less overdue, a grace period of up to 6 months with no impact of provisioning levels.

The CMF has announced measures for reprogramming loans to individuals. These are:

  • Mortgages: Maximum grace period of 6 months for debtors who are 0-30 days overdue.
  • Consumer loans: Maximum grace period of 3 months for debtors who are 0-30 days overdue.

The CMF also approved the freezing of provisions of these reprogrammed loans while they are in the payment holiday period. The CMF also announced the temporary extension in the write off in assets received in payment from 12 to 18 months, and the possibility to use the excess of mortgage guarantees to guarantee SME loans. For our larger commercial loans, provisions are estimated based on internal ratings which consider the following factors: industry or sector, business position, partners and management, financial situation, payment capacity and payment behavior.

In terms of capital ratios, the CMF announced flexibility for the implementation of Basel III in Chile, postponing phase in until December 2021.

Loan growth driven by Middle-market and large corporates in the quarter

Total loans increased 12.3% YoY and 5.0% QoQ, driven by higher demand for commercial loans from the Middle-market and CIB segment in the quarter.  On a year-on year basis, growth was driven by mortgage lending due to low interest rates in the second and third quarter of 2019 and by the acquisition of Santander Consumer S.A. in 4Q19 leading to consumer loan growth of 10.8% YoY.

In the quarter, loans from our Middle-market and CIB segments grew strongly 8.6% QoQ and 30.0% QoQ, respectively. Our strategy with these segments continues to focus on the overall profitability of clients. After the social unrest experienced in Chile in 4Q19, the first quarter of 2020 saw a relatively quick rebound of economic activity.  Once the COVID-19 crisis intensified, larger companies increased their demand for credit lines.

As of March asset quality remains stable with coverage of NPLs of 135.9%

During the quarter provisions increased 34.9% YoY and decreased 32.3% QoQ. The higher YoY expense is mainly due to the evolving Covid-19 crisis and strong loan growth of 12.3% YoY. The QoQ decrease is mainly explain by the strong increase in provisions in 4Q19, a slight deterioration in asset quality from the social unrest in Chile and an expected weaker economic scenario for 2020. Provisions in 4Q19 also included establishing additional provisions2 of Ch$16 billion for our consumer loan book analyzed on a group basis to cover possible higher risk levels and any greater provisions required by the bank regulator for this portfolio in 2020.

After the social unrest in 4Q19 the asset quality quickly started to show signs of rebounding, highlighting the responsible management of our loan book in recent years. The NPL ratio improved from 2.1% in 4Q19 to 2.0% in 1Q20, similar to 1Q19 and impaired loans ratio improved from 5.9% in 4Q19 and 1Q19 to 5.7% in 1Q20. The total Coverage ratio including the additional provisions reached 135.4% at year-end 2019. The expected loan loss ratio (Loan loss allowance over total loans) improved from 2.8% in 4Q19 to 2.7% in 1Q20.  The cost of credit for 1Q20 reached 1.2%, an improvement on the 1.9% in 4Q19.  Asset quality saw limited impact from the COVID-19 crisis in 1Q20.

Non-interest bearing demand deposits increase 7.3% QoQ and 29.6% YoY

The Bank’s total deposits increased 17.7% YoY and 7.5% QoQ in 1Q20. In the quarter, non-interest bearing demand deposits, which grew 7.3% QoQ and 29.6% YoY due to high growth of retail checking accounts and continued strength in the Bank’s transactional banking services for companies as they looked to increase their liquidity to confront the coming months. Account opening among retail clients was also strong in the quarter.  This also led to a high liquidity ratio at year-end with the Bank’s LCR and NSFR reaching 205% and 105%, respectively. 

In 2020, the Central Bank continued with its aggressive reduction of the Monetary Policy Rate (MPR). Despite this, time deposits increased 9.9% YoY and 7.7% QoQ, lowering time deposit funding costs.  The low rate environment also drove the 20.0% YoY and 7.0% QoQ rise in mutual funds brokered through the Bank, as clients searched for higher yielding investments.

Bonds grew 21.2% YoY and 8.8% QoQ in part due to the strong increase in mortgage growth over the last year, with our funding strategy aiming to match long-term assets with long-term bonds. In January, the Bank placed a 5 year bond in the international market for US$750 million. At the same time the Bank issued a subordinated bond totaling US$ 200 million to bolster Tier II and regulatory capital levels.

Payout reduced to 30% to support capital levels and client growth

Shareholders’ equity totaled Ch$3,494,433 million as of March 31, 2020 and grew 5.2% YoY and 3.1% QoQ.  The Bank’s core capital ratio3 was 9.7% and the total BIS ratio4 was 12.7% as of March 2020.  Risk weighted assets (RWA) increased 16.8% in YoY and 7.4% QoQ driven by loan growth and the depreciation of the Chilean peso. Approximately 12% of our assets are denominated in US$ and the depreciation of the peso against the US$ has led to an expansion of these loans when denominated in Chilean pesos. The Bank runs minimal foreign currency risk so a depreciation of the peso results in larger asset growth with no impact on equity and thus consuming capital.

In the recent past, the Bank has maintained a dividend policy of between 60-70% of net income. However, given the evolving Covid-19 crisis, the depreciation of the peso and the need to support clients during the current economic downturn, the Bank has proposed a dividend payout of 30% of 2019 net income to be approved at the next Shareholders’ meeting on April 30, 2020. Of the remaining 70% of 2019 net income, 40% will be assigned to reserves and 30% will continue as retained earnings. The dividend yield considering the stock price at the record date in Chile was 2.7%

As mentioned above, the Bank also issued a Tier II bond to bolster total regulatory capital levels. This issuance is considered as Tier II capital for our BIS ratio and helps soften the fall in this ratio due to the foreign exchange effects.

Higher NIMs in the quarter due to higher inflation and improved funding mix

In 1Q20, Net interest income, NII, increased 20.3% compared to 1Q19 and 3.3% compared to 4Q19. This rise was driven by strong growth of interest earning assets and a higher Net interest margin (NIM). The Bank’s NIM in 1Q20 was 4.2%, stable compared to 4Q19 and an improvement on the 3.9% in 1Q19.  The YoY increase in the NIM was mainly due to the higher UF inflation rate, a decrease of 250bp in the short-term interest rates, and the improved funding mix driven by the high growth of demand deposits.

Record client growth and client satisfaction. Number 1 in NPS.

The Bank’s business activity remained solid in 1Q20 with record account openings in the quarter, reflecting the strength of the Bank’s digital channels in capturing new clients and cross-selling existing ones.  In 2018, client acquisition ranged between 30,000-40,000 a quarter compared to 60,000 in 2019 and 87,000 in 1Q20. Santander Life continues to be the main contributor to new client growth due to the success of this product’s Merit Program and Digital On-boarding process. Superdigital also had a record quarter in terms of new clients entering this program. Furthermore, Santander Chile’s market share in new checking account openings reached 27.4% in 2019.

The rise in clients and cross-selling was also fueled by the ongoing improvements in client service. According to the latest surveys, we became Top 1 in Net Promoter Score (NPS), closing the gap with the leader.

Investment plans moving forward. Klare launched.

The Bank has announced a 3-year investment plan totaling US$380 million for 2019-2021 assigned for digital transformation, which includes expanding the transformation of branches and back-office functions, investment in cyber security and increasing access of clients and non-clients to financial services, mainly through digital channels. The Bank expects to continue forward with the main elements of this plan in 2020 with a special emphasis on further improving the digitalization and automatization process loan approvals, especially for SMEs. 

In April, Klare was officially launched ( This is an online digital platform for brokering insurance products of an insurtech that Santander supports. In the first stage, it will be offering mainly life insurance and expects to add on more products in the future. In this site individuals can easily compare and shop for a life insurance that suits their needs and budget. 

Fee income increasing 5.3% YoY driven by the rise in clients card fees

 The strength of client growth, rising client loyalty and our successful strategy in the card business drove fee income in the quarter, which increased 5.3% YoY.  Fees from retail banking increased 2.0% YoY and fees from the Middle-market segment rose 8.0% YoY.

Lower treasury income in the quarter

Results from Total financial transactions, net was a gain of Ch$22,847 million in 1Q20, a decrease compared to 1Q19 and 4Q19.  Client treasury services revenues, which make up the bulk of our treasury income, reached a solid gain of Ch$30,413 million in the quarter, an increase of 0.5% compared to 1Q19 and a decrease of 13.3% compared to 4Q19. With the uncertainty in the global markets and volatility of exchange rates, demand for treasury products remained high. Non-client treasury totaled a loss of Ch$7,566 million in the quarter main due to the increase in volatility in fixed income markets that led to a higher loss from the credit value adjustment of derivatives.

Productivity continues to rise. Efficiency ratio of 40.6% in the quarter

In 1Q20, operating expenses increased 6.2% YoY and 1.1%QoQ. The YoY growth was mainly due to the depreciation of the peso, the spike in inflation and the incorporation of Santander Consumer in the quarter. This affected mainly administrative expenses, many of which are either indexed to inflation or are denominated in foreign currency. Productivity continued to improve with volumes (loans plus deposits) per branch increasing 18.2% YoY and volumes per employee rising 16.6% YoY. YTD Operating expenses to total assets improved to 1.4% in 2020 compared to 1.8% in 2019 with the Bank’s efficiency ratio reaching 40.6% in 3M20.

Robert Moreno
Investor Relations
Banco Santander Chile
Bandera 140, Floor 20
Santiago, Chile
Tel: (562) 2320-8284


1 The information contained in this report is unaudited and is presented in accordance with Chilean Bank GAAP as defined by the Financial Markets Commission (CMF).

2 Additional provisions as defined by the CMF, which are not specific to any loan provisioning model and must be approved by the Board

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.