Banco Santander - Chile ADS

Ladies and gentlemen, thank you for standing by. I would like to welcome you to Banco Santander's Chile first quarter 2025 earnings conference call on the 8th of May 2025. Please note that at this point, all participant lines are in lesson-only mode. After the call, there will be an opportunity to ask questions. So with this, I would like now to pass the line to Patricia Perez, the Chief Financial Officer. Please go ahead.

Good morning, everyone. Welcome to Banco Santander Chile's first quarter 2025 results webcast and conference call. This is Patricia Perez, CFO, and I'm joined today by Christian Vicuña, Head of Strategy and IR in Andres Sansone, our Chief Economist. Thank you, everyone, for joining us today to review our first quarter performance and results. Today, Andrés will start with an overview of the economic environment and then Cristian will go through the key strategy points and the results of the banks in the first quarter of the year. After that, we will have a Q&A session where we will be happy to answer your questions. So, let me hand over to Andrés.

Thanks, Patricia. On slide four, we have our current outlook. Since the last webcast, the trade conflict has increased uncertainty in global financial markets. In Chile, the peso briefly reached 1,000 pesos per dollar after the announcement in the Liberation Day, before returning to the 930-940 range, with our model suggesting it should be closer to 960-970. Long-term interest rates in Chilean pesos fell by around 30 basis points. And short-term rates in both pesos and inflation-linked U.S. also decreased, reflecting lower growth expectations and reduced inflationary pressures. Although the trade war poses a risk to Chile, given its high integration to global trade, the direct impact of U.S. tariff is limited. Chile received the basic 10 percent tariff, and the key products like copper and wood However, the indirect effects, how it will affect business and consumer confidence, could impact local investment and consumption. Despite this challenging environment, the Chilean economy started the year with a strong momentum. The monthly activity index for March exceeded expectations and the economy grew by 2% in the first quarter compared to last year. Activity remains heterogeneous, with export sectors, tourism, and investment in machinery leading the way, while construction still lacks. Due to the external shock, we now expect GDP to grow 2.1 percent in 2025, down from the original forecast of 2.4, and 1.7 percent in 2026, down from 2.1 percent. On inflation, the first quarter inflation closed in line with expectations, slightly below 5%, with core inflation showing clear signs of moderation. The inflation convergence process should continue and could accelerate due to weaker global and local demand. Additionally, global trade diversion triggered by tariffs could reduce the prices of imported supporting faster disinflation. We downgrade our forecast for the UF of 2.6 percent for the end of 2025, and 3 percent by year end in 2026, with risk still to the downside. The central bank kept the policy rate at 5 percent during its last meeting, and maintained a cautious tone due to external risks. However, with inflation slowing and activity weakening, we expect the central bank to resume cuts in June. In our base scenario, the policy rate will close 2025 at 4.5% and reach 4% in 2026, which is close to its neutral level. Finally, the Ministry of Finance published its public finance report of the year, highlighting a delay in reaching the structural deficit target. The original target of a minus 0.5% GDP deficit for next year is now expected to be met only in 2028. According to the 2024 national account, The structural deficit reached 3.3 percent of GDP, exceeding the 1.9 percent goal set in the fiscal policy decree. For 2025, the new target is 1.6 percent above the original 1.1 percent, with convergence now postponed to 2026. While the report reflects an effort to control spending and increase transparency, the overall fiscal situation remains tight. on slide five we present recent development to the regular regulatory framework the tax reform proposed by the ministry of finance which sought to reduce the corporate income tax from 27 percent to 24 percent and increase personal income taxes has been officially withdrawn from the legislative agenda meanwhile the senate approved a temporary reduction in the sme income tax rate, lowering it from 25 percent to 12.5 percent for the year 2027 and to 15 percent in 2020. Progress has also been made on the Mortgage Subsidy Bill, which passed its second constitutional stage following the Senate Finance Committee's approval to proceed with the legislation. The initiative seeks to reduce the excess supply of housing, thereby stimulating the real estate and construction sectors and reviving mortgage credit flows. The benefit is aimed at individuals purchasing new homes for sale valued up to 4,000 U.S. and including a 60 basis point interest rate subsidy and a state guarantee covering up 60% of the loan amount for half of the long term, with a cap of 50,000 eligible housing units. Regarding politics, only the ruling coalition, Unidad por Chile, will hold primary elections on June 29. The right-wing parties have opted not to participate. According to the last test, current poll, center-right candidate, Evelyn Maté, leads the presidential race with 22% support, followed by the right-wing candidate, José Antonio Kass, with 13%, and center-left candidate, Carolina Toa, 11%.