Banco Santander - Chile ADS

Good morning, and welcome to Banco Santander Chile's fourth quarter 2022 results conference call. I will now hand over to Mr. Emiliano Muratore to begin the presentation.

Good morning, everyone. Welcome to Banco Santander Chile's fourth quarter 2022 results webcast and conference call. This is Emiliano Muratore, CFO, and I'm joined today by Robert Moreno, Head of Investor Relations, Cristian Vicuña, Head of Strategic Planning, and Claudio Soto, Chief Economist. Thank you for attending today's conference call. Today, we will be discussing the trends and results seen in the fourth quarter and give some insight into our expectations for this year. Our successful digital strategy and customer-oriented product offering continues to attract new clients, indicating great growth opportunity going forward. To begin, I invite Claudio Soto to give us an update on the macro scenario beginning on slide four.

Thank you, Emiliano. The economy has continued slowing down, although at a slower pace than expected. According to the latest figure of the central bank, GDP grew 2.7% in 2023, above our previous estimate of 2.25. Consumption has been more resilient than expected, and investment has rebounded, as postponed projects were resumed in the second part of last year. Also, a weak peso has helped the external sector of the economy. Going forward, we forecast the economy will continue slowing down as financial conditions remain tight. While political uncertainty has moderated, it is still relatively high and will continue conditioning investment. On the other hand, the economy will benefit from the reopening of China, which has pushed up copper prices. All in all, we estimate the economy will contract between 1 and 1.5%. In 2024, we would see a recovery back to its trend. The labor market remains relatively weak. Unemployment has been oscillating around 8%, and total employment is still below its pre-pandemic trend. This year, the unemployment rate may increase slightly as the economy moderates. The current account deficit which was widening until the third quarter of last year, should start shrinking during the following month as domestic demand contracts and terms of trade improve. Inflation remains elevated, but has shown some signs of slowing down. December CPI was in line with expectations after a negative surprise in October and a positive one in November, finishing the year with a 12.8% increase year-on-year. During the first quarter, CPI will continue increasing fast, in part due to seasonal factors. But from the second quarter onwards, we will see a moderation due to the slackness of the economy, the appreciation of the currency, and the fall of fewer prices. As a result, we expect the CPI inflation will be running at 4.75% by the year's end. The central bank concluded its hiking cycle with a monetary policy rate at 11.25% in October. We expect the board will begin an easing cycle during the second quarter as inflation moderates. Given the high level of the monetary policy rate, once they begin cutting, the board will proceed at a fast pace. As a result, we expect the monetary policy rate to finish the year between 6 and 6.5%. The government position improved in 2022 amid strong revenues and a sharp fall in expenditure. All in all, the fiscal balance ended with a surplus of 1.1% of GDP, somewhat lower than what we were expecting. Gross debt increased moderately up to 37% of GDP. This year, there will be a mild expenditure expansion with gross debt climbing up to 39% of GDP. As a result, public finance will remain in good shape. On slide five, we have the details of two of the main reforms of the government, a tax reform and a pension reform. So far, progress has been slow. For them to advance in Congress, a political agreement must be done with the opposition, who has a majority in the Senate. Therefore, the discussion on these reforms will require certain compromises by the government. We do not expect they are going to be approved anytime soon. On the 4th of January of 2023, the new FinTech law became officially a law. It updates the relation on the financial industry, recognizing the existence of new business models based on technology. According to the law, new technological players will be under the regulation perimeter of the CMF. the law regulates open finance, establishing that consumers are the owners of their financial information. Although there are pieces of regulation that are still due by the CMF, we consider this new law a step forward that opens different opportunities for the financial industry. On slides six and seven, we have some details about the new constitutional process, which should be finished by the end of this year. This new process entails proposing a new constitution with a defined framework of main ideas. The new text is expected to be ready by November 2023, and there will be a referendum with mandatory participation on December 17th, 2023 to accept or reject this new draft.