Banco Santander - Chile ADS

Ladies and gentlemen, thank you for standing by. I'd like to welcome you to the Banco Santander Chires second quarter 2025 earnings conference call on the 5th of August 2025. Please note that at this point all participants and lines are in listen-only mode. After the call there'll be an opportunity to ask questions. So with this I would now like to pass the line to Patricia Perez, the Chief Financial Officer. Please go ahead.

Good morning everyone. Welcome to Banco Santander Chires second quarter 2025 results webcast and conference call. This is Patricia Perez, CFO, and I'm joined today by Cristian Vicuña, head of strategy and IR, and Andres Zanzone, our chief economist. Thank you everyone for joining us today to review of our second quarter performance and results. Today Andres will start with another view of economic environment and then Cristian will go through the key strategy points and the results of the bank in the second quarter of the year. After that we will have a Q&A session where we will be happy to answer your questions. So then hand over to Andres.

Thanks Patricia. On slide four we have our current outlook. Since our last webcast, the Taurus Agenda has seen several developments. After postponing the implementation of new tarros from July 9 to August 1, the US reached trade agreements with multiple economies. This includes trade of around 20% on several Asian countries and 15% on the US. For Chile, the 10% trade will remain in place which corresponds to the new trade agreement. Although there were initial threats of a 50% trade on copper prices, the Trump administration ultimately decided not to apply it to good materials such as concentrate, cathode, anode, and copper scrap, all of which were excluded from the final decision. While market reaction has been relatively new so far, trade and geopolitical uncertainty has increased. During the quarter, the Pesos briefly reached 1,000 Pesos per dollar following the announcement of the on-duration date before returning to the 930-940 wage. However, renewed trade tensions have led to depreciation of the Pesos, currently trading around 970 Pesos per dollar above our model-based estimates of approximately 940. Long-term interest rates in Chilean Peso have declined, narrowing the spread against the US counterpart. On the CBT side, preliminary image figures suggest CBT grew .9% during the year in the second quarter or 3% when excluding mining. While we await the full national account report on August 18, which will also include first quarter revisions, the -than-expected performance in the first half introduced upward bias to our full-year 2025 growth forecast, currently at 2.1%. In terms of inflation, the second quarter inflation surpised on the downside, due to a drop in food prices and counts associated with server-take, with the annual change reaching .1% in June. We expect the inflation process to continue during the -to-demand environment both globally and domestically. Additionally, global trade diversions triggered by tariffs could reduce the prices of imported goods, supporting faster deflation. We maintain our forecast for the US at .6% at the end of 2025 and 3% by year-end in 2026, in line with the CBT's expectation, with risk till the downside. That's why the CBT made its first policy rate cut of the year, reducing the benchmark rate from 5% to .75% and similarly opening to another cut later this year. In our latest scenario, the policy rate will close 2025 at .5% and reach 4% in 2026, which is close to its neutral level. On slide five, we present recent developments in the regulatory framework. In the context of the fiscal pack, the government announced the submission of a proposal to amend the income tax, with a focus on SMEs. The reform extends most SMEs from the first category tax and also includes benefits for the middle class. The estimated cost of the measures is $1 billion annually to be offset by higher personal income tax rates for the upper income package. The proposal does not include changes to the corporate tax rate for large companies. On the housing front, the mortgage subsidy bill was approved on May 20, 2025. The legislation targets individual purchasing new homes valued at up to $4,000. It includes a 60 basis point subsidy on mortgage rates as well as a state guarantee of up to 50% for the long term, covering up to $50,000 in new homes. On June 18, the first auction was held with 12 financial institutions participating and a total of 10 million US awarded. In this initial auction, Santander secured .3% of the total, the highest among our peers and just below our national market share in this fund. Finally, regarding the political landscape, 2025 is the presidential election year in Chile. Elections will be held on November 16, with a potential runoff on December 14. Prime rights took place on June 29, with only the ruling coalition and the Portsillo participating. Their candidate, Jeanette Cara, was elected. Right wing parties choose not to participate in primaries. According to the latest cadet poll, right candidate José Antonio Cas lives the right with 30% support, followed closely by left wing candidate Danez Cara and central right candidate Evelín Matías with 14%. While the presidential race has gained visibility, we must not overlook the parliamentary elections where the entire lower house and nearly half of the Senate will be renewed. Polls show that the Chilean remain highly concerned with crime, security and the business environment. Simulations suggest the right wing candidates may gain ground in Congress driven by local campaigns emphasizing security. This implies that even if the left wing candidate wins the presidency, Congress will remain right, potentially moderating more radical policy initiatives. As such, while some electoral-related volatility is likely in the near term, we believe the longer term market impact will be needed. However, rising political polarization will likely continue to hinder the possibility of reaching meaningful agreements on legislation aimed at boosting long-term unity growth. And with that, I will now hand it over to Cristian. Thanks, Andrés. During the year, we have continued to make important advances in our citizens in 2025, and we are very proud as we can see on this right front. As we mentioned in our last call, we completed the milestone of upgrading our legacy main trend starters to the cloud in the project that we have named Gravity within Santander. So, since the first quarter, we are now operating 100% on the cloud, and we poured on the setting stone for digital hardware technologies to become a digital bandwidth branch, or WorkFest in Chile. In this line, we have launched some interesting initiatives in recent months. Firstly, we have enhanced the functionality of our smart POS, allowing merchants to carry out banking transactional services such as receiving the quantities and trusted draws, pop-ups, and payments of utility bills. In a hidden portal to open a temple, these are found through these points of sale. We have also launched Santander into Gomuna, a small transactional hub near local district authorities where we can offer financial services to the community. These efficient service points are extending our footprint in communities coming even closer to our clients in their -to-day life. With a longer-term view of expanding our client base, we have enabled a simple savings account for children from birth, looking to compete in this product that, up until now, has been mainly centralized through the space bank in Chile. Overall, this initiative aims to increase transactionality and strengthen our planning base going forward. During the first semester of 2025, we have continued to issue debt actively on the local and international markets, issuing in Swiss francs, Japanese yen, and US dollars. We have also been highly recognized on several fronts. We continue to be highly recognized in terms of sustainability with an A grade in the energy and sustainability index and 19.2 points in sustainability with low risk. We are proud to have won the best bank in Chile by EuroMoney and Best Credit Bank, and we also won the top and square certification for the seventh consecutive year. Furthermore, the mutual funds that we broker won over 40 awards in different categories. On slide eight, we can see that, yet again, the bank produced impressive results, reaching a narrowly of 25.1 percent in the first six months of 2025, with a net income of 550 billion pesos and a narrowly of 24.5 in the second quarter of the year, with a net income of 273 billion pesos. This is the fifth consecutive quarter with an ROE above 20 percent. As we will see on the coming slides, this is a result of sustained strong profitability in our main compliance group, cost control, and flow of strategy focused on a digital bank with work On slide nine, we can see how our rapidly expanding client base is leading to higher fee generation. We currently have 4.5 million clients, of which around 60 percent actively engage with us, and some 2.3 million are digital, accessing non-line platforms on a monthly basis. The number of current accounts is increasing 10 percent year on year, driving the 7 percent and 8 percent growth of our active clients and legal clients' productivity. With this increase in the client base, we are seeing a 12 percent yearly increase in credit card transactions and a 19 percent increase in mutual funds that we broker. Overall, our clients maintain high discretion level through the bank and our full offering. Furthermore, we continue to stand our footprint among companies, where we have increased the number of business-based accounts by 25 percent in the last 12 months. This is explained by the simple business accounts we offer to smaller companies, and the integrated payments offered through the Adnet. We now have more than 212,000 general clients, representing an annual increase of 21 percent, and getting them now have a market share of 20 percent in terms of numbers of transactions. As we don't see in the table on the right, the increase in our client base and proud business usage is translating into high fees and results from financial transactions, growing 16.3 percent year on year. Our main products, such as account fees, mutual fund fees, and the Adnet, continue to show strong results in the quarter, while card fees follow similar trends to the first quarter this year. On slide 10, we can see how our net interest margin has improved over the last 12 months to stabilize to the levels of around 4.1 percent. In the last year, our net has improved some hundred days' points. Firstly, when we compare the first six months of 2025 to those of 2024, we have a slightly higher US valuation, which, as you know, directly affects our read-adjustment income. The first half of 2024, our net interest margin was negatively affected by our balance sheet position related to the FDIC, the credit horizon given to us by the central bank. However, after the final payment of debt in July 2024, we have seen a marked improvement, representing 60 basis points of living in the series. Our types of scores of our cost of funds have led to a further 50 basis point improvement in our net interest margin. This has been compensated by a contraction of interest earned on our act which related to the decrease in our available portfolio due to the payment of the FDIC, and a stable long-booth year on year. In the quarter, our net interest margin remains stable, following the score of funds of the first quarter of the year. On slide 11, we can see how our recovery of income generation and tax cost control have improved our income performance metric. Our efficiency ratio reached 35.3%, the best in the student industry in 2025 so far, and our reference ratio reached 62%, meaning that over 60% of our expenses were financed by our FDIC generation. During the first half of 2025, we have seen an increase in our operating expenses related to the integration of our main-frame server to the cloud, leading to an increase in administrative expenses mainly in the first quarter of the year. However, overall, our cost will be no inflation in the year to come. In the quarter, we continue to look for efficiencies in our branch network, hoping some significant advances while we remodel and refurbish to ensure a more efficient usage of space while upgrading the static appearance in line with our work at LHC. It is thanks to these adjustments to our contact points with clients along with the evolution of our deep group platforms that we have been able to achieve these impressive levels of operating expense performance. On slide 12, we show an overview of our cost of risk and other As we have seen in previous quarters, our cost of trade has been higher than our historical levels due to an increase in non-performing loans in recent quarters. Also, it is important to note that in June 2025, similar to the previous year, we adjusted the valuation of guarantees in the commercial loan portfolio as part of our review of the provisioning model. This year, we immediately this impact by using 20 billion pesos of voluntary provisioned standards in previous years. From the graph on the right, you can see that our NTL and in her portfolio shows a reduction in absolute value and also a ratio in terms of total loans despite stable loans, demonstrating tangible improvements in our asset quality and early signs of asset quality recovery. On slide 13, we can follow the improvements by far. Firstly, in our mortgage loan book, we can see that in absolute value, the non-performing loans have now stabilized while the impaired loans increased marginally as more than income clients renegotiated their mortgage. Overall, we have seen fewer signs of stabilization of the asset quality of this portfolio. Regarding commercial loans, the bank's target reports on improving the portfolio with several renegotiation initiatives and writing up some individual clients. With this, we have seen an absolute value of non-performing loans and impaired loans fall relevantly and our NTL ratio is now at 3.6%. On the other hand, our consumer loans have remained healthy during this cycle thanks to our positioning of consumer lending to the mid to high income sectors. On slide 14, we can see the CEC1 ratio reached .9% in June 2025, far above from our minimum requirement of .08% all December 2025 and demonstrating some steady basis points of capital creation in the last 12 months. This was driven by our income generation in 2024 and 25 and compensated by the 70% dividend payment of our 2024 profits and the current 60% dividend provision of our 2025 profits accumulated so far. As we mentioned in our last call, we have a 25 basis on filler to charge of which we have fulfilled the 50% required by our regulators in June 2025. Recently at the beginning of July, the CMS published the definitive guidelines for filler to ensure the regulation adapts the metrics related to a market risk in the banking group and the definition of when a bank qualifies to be a prioritized bank. According to the CMS report, 10 banks could be classified as priority banks. This is the same number of banks who currently have a filler to charge. Banks will have to start reporting the new metrics related to the market risk of the banking group in December 2025 and the other assets will be implemented starting with the self-assessment of regulatory capital report to be submitted in April 2027. So let's start, let's look at our outlook for the rest of 2025 on strike 16. Firstly, we are considering a micro scenario of GDP growth of around 2.1 with a U.N. variation of .6% and average monetary country rate of 4.9%. Given the demand dynamics that we have seen this year so far, we are lowering our expectations for loan book growth to low single digits. At the beginning of the year, we were expecting a re-activation of the commercial loan book with stronger trans-time from the consumer loan book too. However, now we are starting August and we continue to see this demand and given the upcoming elections and the global uncertainty in the market, we expect our loan book to grow low single digits. On the other hand, our net interest margin should remain within guidance with the third quarter impacted by the lower expected inflation. We expect our non-NII guidance to grow high single digits with further interchange fee regulation not expected until the end of the year. Our efficiency levels should remain around the current levels so near 30s. Considering that we now see better current trends in terms of asset quality, but the cost of risk was .39% yesterday, we expect the cost of risk to improve slightly during the second semester to see the year around the .35% error. Overall, we continue to see solid profitability in what remains of the year, so we are expecting a narrowly of 21% to 23% range. With this, I finish the presentation, so now we can start the Q&A session.