Banco Santander - Chile ADS

Gentlemen, thank you for standing by, and I would like to welcome you to Banco Santander Chile Results Conference call on the 2nd of February, 2024. At this time, all participant lines are in 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 now like to pass the line to Mr. Emiliano Muratore, the CFO. Please go ahead, sir.

Good morning, everyone. Welcome to Banco Santander Chile's fourth quarter 2023 results webcast and conference call. This is Emiliano Muratore, CFO, and I'm joined today by Cristian 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. Let's go down to business. We are here to discuss our performance during the fourth quarter. The macro conditions were more favorable as we anticipated in our last call, which helped our margins and net income recover. The Central Bank of Chile has continued its rate reduction strategy, which has had a positive impact on funding costs. We'll delve into the specifics of our quarterly results in a moment. Now I pass the line to Carmen Gloria for the macro update.

Thank you, Eliana. On slide five, I present a summary of the macro-overview in the countries. After a necessary process of macroeconomic adjustment, 2023 was marked as a year of strategic global economic growth, changing global financial conditions, and emerging geopolitical tensions. All of this occurred in a context where the process of inflationary convergence was consolidated, which would have facilitated the end of the cycle of great hikes by the main monetary authority. In this global environment, economic activity in Chile continued its deceleration during 2023. Its investment persisted in the adjustment process of previous years, and private consumption presented year-on-year reductions in response to elevated interest rates and the continually deteriorating labor market. Indeed, the labor force participation rate showed virtually no progress hovering around 61% of nearly the entire year, below pre-pandemic levels. And the unemployment rate escalated to 8.5%. Despite this weakness, economic activity was bolstered by strong change effects emanating from specific supply factors. On one hand, the added value of electricity generation received an additional impetus due to increased rainfall in the country. On the other hand, The mining sector displayed improved performance due to the start of new projects. The level of activity would have contracted marginally in 2023, exhibiting an annual variation of minus 0.2%, less than the previous year estimated. For the current year, economic activity is projected to grow at the rate of around 2%, propelled by a less restricted financial environment increased labor market dynamism during the latter half of the year, and the surge in mining production. This process will persist through 2025, culminating in an expansion of 2.5%. Domestic inflation continues its descent at a faster pace than anticipated. The CPI concluded 2023 with an annual variation of 3.9%. falling below what was projected. And the U.S. variation closed at 4.8%. The adjustment in the national energy prices, the weakness in domestic demand, a contractionary monetary policy, and the appreciation of the exchange rate at the first half of the year were crucial factors for this decline. In the next month, inflation will persist in this downward trend. until reaching 3% at the onset of the second quarter, and it will hover with some temporary increases around that value until the year's end. As of January 2024, a new consumer basket was considered in the CPA calculation. According to our preliminary analysis, this new basket would not introduce any barriers to prices by nine. Lower inflationary pressures permitted the continuation of the monetary normalization cycle. The central bank accumulated a reduction of 300 basis points in the monetary policy rate during 2023, concluding at 8.25%. For the third year, the reductions continued, with a cut of 100 basis points in January. And for the upcoming meeting to be held at the beginning of April, A new aggressive decrease is projected between 100 and 125 basis points, and it will descend to 4% at the year's end, close to its neutral value. The exchange rate has recently depreciated again beyond the value explained by its fundamentals. This upward trend exceeded that of certain other regional currencies, responding to the manual rate differential. In our central scenario, the exchange rate would rectify its deviation and appreciate it towards the year's end to level approaching 870 pesos. This in response to the anticipated weakening in the dollar globally, the recovery of international copper prices, and adjustment in the global monetary cycle, particularly by the Fed, which will alleviate pressures on the rate spread.