Banco Santander - Chile ADS

Ladies and gentlemen, thank you for standing by, and I would like to welcome you to Banco Santander Chile 2Q2024 results conference call on the 2nd of August 2024. 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 now like to pass the line to Mr. Emiliano Muratore, the CFO of Banco Santander Chile. Please go ahead, sir.

Good morning, everyone. Welcome to Banco Santander Chile's second quarter 2024 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. The agenda for today is the following. First, Carmen Gloria will discuss the macro scenario, Then Cristian will review the strategy and results of the second quarter and guidance for the year. And finally, we will have a Q&A session. Now I pass it on to Carmen Gloria.

Thank you, Emiliano. The Chilean economy has continued to show signs of recovery, although at a more moderate pace. Following a better than expected performance at the beginning of the year, the preliminary estimate for GDP growth for the second quarter is just 1.6% annually. This result has been influenced by transitory factors such as the decline in educational services and the calendar effect. However, the seasonally adjusted activity index exhibited growth consistent with this trend. Domestic demand has been gradually recovering especially in consumption, while investment performance has remained weak. The contribution of the mining sector to activity growth has been substantial, and the external impulse is greater, given the higher international copper prices and better terms of trade. The labor market continues to gain momentum, with the participation rate approaching repandemic levels. Real wages continue to rise which along with employment growth has been supporting private consumption. Looking ahead, we estimate that the economy will continue to grow. However, the recent lower level of activity has led us to revise the annual GDP estimate downward this year from 2.8% to 2.5% and to 2.4% for 2025. The exchange rate appreciated by 4% in the second quarter, but exhibiting high volatility. The most important drivers were the rising copper prices and the shift in risk appetite from global investors. In the baseline scenario, we estimate that the local currency will continue a gradual process of convergence toward its equilibrium values, led by expectations of a greater interest rate differential hovering at a level slightly below 900 pesos as of December this year. In the first half of 2024, inflation followed the predicted trend with a decline in both the total and core indexes. This reflects a moderate pass-through of the depreciation of the peso in the first month of the year and the increase in oil prices. Inflationary pressures are expected to rise in the coming months due to the anticipated adjustment in electricity rates and the rebound in domestic demand. Therefore, the CPI estimate has been raised from 3.9% to 4.3%, which means a U.S. variation of 4% this year and to 3.4% for 2025. Inflation is expected to reach the 3% target in the first quarter of 2026. The central bank continued with the rate-cutting process during the first half of 2024, accumulating a decline of 250 basis points in the monetary policy rate. In this week's meeting, the board held a rate at 5.75% and highlighted that it would up-gather the bulk of the cuts foreseen for this year. In the central scenario, the rate will be reduced further over the two-year horizon. With this, we estimate a reduction of between 25 and 50 basis points for the following meetings of the year, bringing the rate close to 5.25% by December 2024 and to its neutral value of 4.25% in the first quarter of 2026. On slide five, we present the advances in the relevant regulatory framework. The Tax Compliance Bill aims to increase tax revenue by 1.5% of GDP and reduce tax evasion and avoidance. This bill is currently being discussed in the Senate, where it has received support from opposition parties and was approved in general terms. Meanwhile, the pension system reform is still undergoing intense negotiation process in Congress to gain approval. The government presented new proposals related to the distribution of the 6% additional contribution, considering 3% to individual accounts and 3% to solidarity. The first impressions from opposition parties suggest that there's still a long way to go to reach an agreement. In July, the CMS published the regulatory framework for implementing the Open Finance System. The rule becomes effective 24 months after publication and considers the progressive submission of information to be shared by banks and payment card issuers within the next 18 months, with an additional 18-month period for the rest of the participants. Changes to the fraud law were approved with the aim of containing so-called self-fraud. The responsibility remains with the issuer, but now the client must file a complaint before requesting a reform. It also establishes situations where reimbursement can be suspended and thresholds for reimbursement are reduced. The consolidated debt registry law was published in June and will become effective in 21 months.