Banco Santander - Chile ADS

Good afternoon and welcome to Banco Santander Chile's first quarter 2023 results conference call. We are joined by Emiliano Muratore, Claudio Soto, Cristian Vicuña, and Robert Moreno. I will hand over to Emiliano to begin the presentation.

Good morning, everyone. Welcome to Banco Santander Chile's first quarter 2023 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 first quarter. While tight monetary policy continues to squeeze margins, our successful digital strategy and customer-oriented product offering continues to drive strong results from our business segments. I invite Claudio Soto to give us an update on the macro scenario beginning on slide three.

Claudio Soto Thank you, Emiliano. The economy continues its adjustment process after the overheating of 2021. GDP grew 2.4 percent in 2022 and contracted 2.5 percent in the first quarter of this year in response to tight financial conditions and a contracted fiscal policy. High interest rates have drained away excess liquidity from past pension fund withdrawals. The labor market remains relatively weak with low employment growth and an increasing unemployment. Real wages have contracted due to high inflation. Political uncertainty fell after the referendum that rejected the constitutional proposal of the Constitutional Convention last year. However, it remains relatively high as compared with the historical levels. In this context, we expect that GDP will have a mild contraction this year of around minus 0.25% before returning to trend next year. Domestic demand will remain subdued while the external sector will benefit from the reopening of China. Overall, the outlook for activity is better than what we were previously estimated. Which domestic demand and better terms of trade will help recovering the external accounts? During the first quarter, the trade balance reached $7.5 billion surplus, an historical record. For the year, we expect a current account deficit of 4% of GDP, down from the 9% of GDP deficit of last year. High copper prices, lower political uncertainty, and the global depreciation of the dollar have strengthened the Chilean currency. Inflation, although remains elevated, has begun to fall in line with our past forecasts. March CPI increased 11.1% year-on-year, and during the second quarter, CPI annual changes should reach a single digit. The slackness of the economy, the appreciation of the currency, and the fall of fuel prices will keep pushing down inflation, which we expect will be running at 5.1 U.S. variation by the year's end. The central bank has kept its monetary policy rate at 11.25 percent. Although the last inflation report had a relatively hawkish tone, we expect that the conditions for an easing cycle will be met at the beginning of the third quarter. as the fall in core inflation becomes entrenched. Given the high level of the monetary policy rate, once the boards begin cutting, they will proceed at a fast pace. As a result, we expect the monetary policy rate to finish the year between 7.5 and 8% above our previous estimates. Our baseline scenario assumes that the proposal for a new pension fund withdrawal that is currently being discussed in Congress is not approved. On page five, we have some of the reforms that are in the agenda of the government. One of the most important ones, the tax reform, was rejected in Congress last March. Currently, the government is trying to build an agreement for a new tax proposal. In the meantime, the discussion for increasing the mining royalty has advanced. The pension reform is still pending and should be announced during the second semester. The reduction in the number of weekly hours from 45 to 40 was approved during March. The new regulation introduces some more flexibility in the labor market and contemplates a five-year transition for the hours reduction. This week, the new interchange fee for credit and debit cards was officially published. The transition from the current fees to the new ones will be gradual and will start in six months' time. Also this year, the government has relaunched the Fogave scheme for SMEs and a Fogave scheme offering state currencies for the first-time mortgage buyers. Last week, the government announced a new national strategy for lithium involving the participation of both public and private companies. the use of greener technologies, and looking to add more value added in the production process. Finally, the constitutional process has continued as scheduled. The expert commission is preparing a preliminary draft for a new constitution that should be sent to the constitutional council in June. The members of this council will be elected on May 7th. The final text will be subject to a referendum with mandatory participation on December 17, 2023.