Banco Santander - Chile ADS

Ladies and gentlemen, thank you for standing by, and I would like to welcome you to Banco Santander Chile 3Q 2023 results conference call on the 3rd of November 2023. At this time, all participant lines are on listen-only mode. The format of the call today will be a presentation by the management team, followed by a question and answer session. So without further ado, I would like to pass the line to Mr. Emiliano Muratore, the CFO of the company. Please go ahead, sir.

Good morning, everyone. Welcome to Banco Santander Chile's third quarter 2023 results webcast and conference call. This is Emiliano Muratore, CFO, and I'm joined today by Christian Vicuña, Chief of Strategic Planning and Investor Relations, and Carmen Gloria Silva, our economist. First, I want to express my gratitude for your presence at this quarterly meeting. Today, our primary focus is to discuss our performance during the third quarter. We faced challenges such as lower inflation and elevated interest rates. Despite all this, our steadfast commitment to digital strategies and customer-centric products has enabled us to deliver on customer experience and business growth. The Central Bank of Chile has continued a rate reduction strategy, as Carmen Gloria will elaborate on shortly. We anticipate this move will have a positive impact on our funding costs and margins in the quarters to come. We look forward to a more in-depth discussion of this development as we delve into the specifics of our quarterly results.

Thank you, Emiliano. On slide five, I present a summary of the macro overview in the country. The economic activity remains weak. The adjustment cycle initiated last year after a strong overheating in 2021 has continued this year. Private consumption has had a sharp decline due to the withdrawal of liquidity. and a weak labor market. While the labor force participation has been increasing since the pandemic, it's still below its historical quarter, and the employment rate remains at high levels, around 9%. Investment, on the other hand, has tended to remain flat. The progress of large projects in mining and energy sectors has compensated for the contraction in real estate investment. In the first half, the economy contracted by 1% annually and expected to end 2023 with an annual variation of minus 0.5%. In 2024, economic activity will grow again, although at a moderate pace, reaching around 2%, driven by less stringent local financial conditions. The declining consumption has allowed the country's external accounts to improve, The current account deficit was 9% of GDP in 2022, and we project it will be 3% of GDP at the end of this year. The inflation has decreased rapidly. After reaching a maximum of 14% in August 2022, it ended at 5.1% last September. This reduction has been due to three main factors. The fall in international commodity prices. Second, the appreciation of the exchange rate during the first half of the year. And third, the contraction of domestic demand because of restricted financial conditions. Going forward, inflation will continue to decrease, but at slower pace due to more demanding comparison basis, the rebound exhibited by oil prices because of Middle East tensions, and the sharp depreciation of the Tesla since the beginning of July, even beyond its fundamentals. We estimate that the inflation will close in 2023 with a variation close to 4.7% in U.S. terms. In 2024, the process of convergence to the central bank's 3% target will continue, so the CPI will be around that figure in the last quarter of next year. The central bank began the monetary normalization cycle with a 100 basis point decrease in July, followed by another cut in September and October, bringing the monetary policy rate to 9%. The board has decided to slow the pace of rate cuts, taking into account the deterioration of external financial conditions. It also suspended both the foreign exchange reserve accumulation plan and the unwinding of its forward short position. After this decision, the exchange rate has appreciated significantly. And in our basic scenario, it will continue to fall to close this year around 875 pesos. For the next meeting in December, the central bank will continue with the monetary normalization process, although the pace in the rate cuts will be contingent to the evolution of external If volatility decreases, the monetary policy rate will end at 8.25%. In 2024, cuts are expected to continue. However, if the best scenario of higher fund longer prevails and there is no change in U.S. monetary policy, it will be difficult for the Central Bank of Chile to lower the interest rate beyond 5.5% due to a limited interest rate differential. The country's fiscal accounts have deteriorated. This year, we will see an increase in public expenses of around 2.2% and a contraction in revenues. This will lead to a fiscal deficit close to 2.5% of GDP, and the public debt will be around 40% of GDP, still well below other economies in the region. In more general terms, boosting medium-term economic growth is crucial. This requires transversal agreements that allow the implementation of a pro-growth agenda and reduce current political and economic uncertainty. The closure of the constitutional process, as well as the progress of structural reforms that promote savings and productivity, are essential in this regard.