Banco Santander-Chile ($BSANTANDER)

Ladies and gentlemen, thank you for standing by, and I would like to welcome you to Banco Santander-Chile's First Quarter 2026 Earnings Conference Call on the 6 of May 2026. [Operator Instructions]. So with this, I would now like to pass the line to Ms. Patricia Perez, Chief Financial Officer. Please go ahead, ma'am.

Good morning, everyone, and thank you for joining us today. I am Patricia Perez, CFO of Banco Santander-Chile. I'm joined today by Cristian Vicuna, Head of Strategy and Investor Relations, and Andres Sansone, Chief Economist. We will begin with Andres, who will provide another view of the economic and political impartment, Cristian will then walk you through our strategic priorities and review our first quarter results in more detail. We will conclude with a Q&A session. With that, I will now turn the call over to Andres.

Thanks, Patricia. Let me start with the big picture, since our last webcast, the global backdrop has become more challenging and more uncertain. The main change has been the geopolitical shock in the Middle East and effects on energy markets. Our baseline scenario assumes that the country gradually [indiscernible] but leaves lasting damage, which means oil prices do not return to the levels prevailing before the conflict. At the same time, we remain purely [indiscernible] more advanced scenario, especially if supply disruptions [ proceed ] for longer or infrastructure damage proves more permanent. This matters for Chile to several channels: first, higher oil prices raised imported inflation on more terms of trade outside copper. Second, the external environment becomes less supportive for monetary issue globally, as energy prices have lift inflation expectations and reduced the room for central banks to cut wage. And third, even though financial markets have shown resilience, especially in equities, long-term rates remain elevated and [ low ] and uncertainty is still high. For Chile, this means that even if copper remains relatively supportive, the net external backdrop is no longer clearly benign. Turning to domestic activity. The most recent relevant information is the March monthly economic activity indicators. Based on the preliminary [ inquiries ], we estimate that the economy contracted year-on-year in the first quarter of 2026 or minus 0.2% quarter-on-quarter, making this the first quarterly set back since early 2023. Non-mining sector will have grown only 0.1% year-on-year and be flat sequentially. Altogether, from our perspective, the growth outlook for 2026 became more challenging and more dependent on the evolution of the external scenario. In our reference scenario, we assume that WTi oil remains around $100 per barrel during the second quarter of this year and then gradually declines ending the year around $80, $85 per barrel without returning to pre-conflict levels. Under this assumption, Chile's economic will still grow 2% in 2026, but of course, we all deal to the downside. The main impact is on prices rather than activity in our base case, inflation will end in 2026 between 4% and 4.5%, and given that the inflation shock will give you as temporary and activity will slowly slow -- only moderately. The Central Bank will keep the policy rate unchanged at 4.5% through 2026, and in this same baseline scenario, we expect the exchange rate to close the year around CLP 890 per dollar. So going to the next slide, we can see the current regulatory and policy environment. The main development so far has been the announcement of the National Construction and Economic Development Plan, which is centered on measures aimed at improving competitiveness supporting private investment and reducing [indiscernible] bottlenecks. Its core components include a reduction in the corporate tax rate of 37% to 23%. Further integration of the tax system, tax stability incentive for strategic sectors such as mining, technology and energy and target measures to support formal employment, construction and housing activity. In our view, the project is positive in direction, particularly in its core components in improving competitiveness, lowering the corporate tax burden and streamlining permits, all of which should be supportive of investment and medium-term growth. In that sense, the plan helps offset part of the weak cyclical starting point that we are seeing in early 2026. And it is consistent with a more favorable medium-term supply side history for Chile. While the direction of this initiative -- initiative is positive for growth. Their credibility will also depend on the acceptance of a clear fiscal roadmap, while higher growth should eventually generate additional revenues, the project still requires a clear fiscal roadmap, especially during the transitional period. We'll see a policy mix that is more supportive of growth but where fiscal anchor remains an important issue to monitor. With that, let me hand over to Cristian.

Thank you, Andres. I will now walk you through our strategy, our first quarter 2026 results and our outlook going forward. Let me start with our strategy. At the center of our strategy is a clear ambition to become a digital bank with a physical presence, leveraging our award [indiscernible] branches to combine the convenience and scale of digital banking with advice, service and proximity to our customers. We organized this around three pillars: First, think customer. Our objective here is to offer the best value proposition for every client segment, grow active customers increased transactionality and deepen loyalty. We aim to serve over 3.5 million active customers, and we continue to see room to improve the customer experience rates, Net Promoter Scores and capture greater share of wallet, especially in higher value segments. Second, things global. We are accelerating our digital transformation through global platforms and artificial intelligence-enabled operating modes. This allows us to simplify processes, improve the digital experience, deploy capabilities faster and operate with greater agility, productivity and efficiency. Third, think value. Our low here is to translate the customer franchise and efficient operating model into more stable and improving profitability. This means continuing to diversify revenues towards fees, recurring income streams and other higher quality businesses while maintaining a strong focus on returns and capital discipline. Overall, our strategy is designed to grow customers and loyalty, increase transactionality, improve the quality of revenues and as a result, delivering sustainable returns and an attractive payout to shareholders. This strategy is supported by a diversified platform with 5 complementary business lines. Retail and Commercial remains the core of the franchise, where we are simplifying products and processes and continuing to build on the work [indiscernible]. Corporate and Investment Banking adds strength in advisory, FX and transactional banking with a clear focus on our Sustainable Solutions and capital optimization. Wealth Management & Insurance strengthens our advisory-led model, renews our private banking proposition and reinforces our position in insurance and mutual funds. Consumer Banking supports our leadership in Auto Financing, including new and electric vehicles while also expanding our presence in used car financing, and through Getnet, our payment business, is helping us reach new client segments with value-added services and simple bundle solutions. Retail remains the backbone of the balance sheet, representing 66% of loans, 48% of deposits and 69% of margin. At the same time, we have meaningful contributions from CIB payments, [ Wealth ] into the fee business. The Santander global platforms are helping us connect this business effectively, improve efficiency and diversify revenues, that supports stable profitability throughout the cycle and reinforces our ability to deliver attractive shareholder returns. Let me now move to our financial performance for the quarter. On Slide 10, in terms of balance sheet, we saw stable loan evolution with some divergence across segments. Consumer lending show resilience, particularly in auto loans and credit cards, while mortgage and consumer loans remain softer. On the funding side, total deposit increase supported by growth in demand deposits and our recovery in time deposits. Importantly, liquidity remains strong and well above regulatory requirements. On Slide 11, Net interest income showed high single-digit growth year-on-year, reflecting improved margins and funding costs, which decreased to 3.2% in the first quarter in line with the reduction in the average monetary policy rate from 5% to 4.5%. Our net interest margins stand at 3.8% year-to-date below last periods due to lower inflation in the quarter, 0.3% compared to the first quarter of 2025. One of the key highlights this quarter is the continued strength in fee income and client activity. Total fees increased 4.5% year-on-year, while fee plus financial transactions grew over 9% driven by a strong performance in Asset Management and market-related income. At the same time, we continue to expand our client base, reaching 4.8 million total customers with 2.4 million active clients. The number of current accounts increased 7% year-on-year, supporting 4% growth in active clients and 10% growth in total clients. This translated into a 12% increase in credit card transactions and an 11% increase in [indiscernible] time volumes. Client satisfaction remains high across our products. This is a reflection on how our strategy is successfully monetizing digital growth through higher transactionality and engagement. On Slide 13, efficiency remains a key differentiator for Santander Chile. We achieved an efficiency ratio of 32.5% positioning us as one of the most efficient banks in the system. Operating expenses decreased 6.2% year-over-year due to the phasing out of cloud migration costs that happened in early 2025 and generated higher technology and data processing expenses. Additionally, our [ recurrence ] ratio reached nearly 69%, meaning that a large portion of our costs is covered by recurring fee income. This reflects the benefits of our digital model and ongoing optimization of our branch network, reaching 94 work office throughout Chile. On Slide 14, we show an overview of our cost of risk and asset quality. The cost of risk reached 1.55%, mainly driven by a one-off provisioning event in the commercial portfolio. Importantly, underlying trends remain stable with NPL and impaired loan ratio showing only moderate increases. The bank has been actively managing different parts of the portfolio increasing loan [indiscernible] that is reflected in the increase of the impaired loan ratio, while our nonperforming loans with 90 days overdue or more has stabilized. We maintain our guidance for cost of risk for the full year. On Slide 15, we report BIS ratio of 16.4%, well above regulatory requirements with a strong CET1 of 10.9% fully loaded well above our minimum of 9.08%. In addition, our risk-weighted assets composition is approximately 70% from credit risk, 19% from market risk and 11% from operational risk. It is worth noting that our market risk risk-weighted assets is relatively high compared to the industry average, which impacts the overall mix. However, we expect this to gradually decrease with the implementation of upcoming regulatory changes from the CMA. Our risk-weighted asset density stands at around 63%, reflecting a relatively lower level compared to the average Chilean banks. In line with our policy as Santander shareholders' meeting held at April 28 we approved a 60% dividend payout, equivalent to a 4.5% dividend yield, reflecting the strength of our [indiscernible] and our continued commitment to delivering attractive shareholder returns. During the meeting, shareholders also elected the Board of Directors approving the proposed list of candidates, which ensures the continued strength of our corporate governance and supports the bank's strategic goals for the coming period. To conclude the results section, profitability remains strong with a return over average equity of 23% in the quarter. Net income increased sequentially, highlighting the resilience of our business model and our ability to consistently generate earnings while continuing to invest in growth and digital transformation. Finally, on Slide18 we show our guidance for 2026 as well as the main areas where we now see pressure relatively to those original assumptions. When we set our initial targets, we were looking at a U.S. variation of around 2.9% for the year with a GDP growth of 2.4%. And with this, with the middle single-digit loan growth, NIMs of around 4%, noninterest income growth in the mid- to high single digits and an efficiency ratio in the mid-30s, cost of risk of around 1.3% and an ROE between 22% and 24%. Since then, the environment has become a lot more volatile as we recently discussed with Andres. Particularly given the current global backdrop. In that context, we think it is more appropriate to discuss the direction of the pressures on our initial guidance rather than provide a formal numerical update, which so many moving parts today. What we are seeing is that the higher inflation creates a strong upward pressure on interest income and NIMs. It will also support efficiency in the short term as revenue tends to adjust faster while cost remains relatively stable. On the other hand, more demanding macro environment might potentially generate some pressure on the portfolio's growth or risks, particularly as we move further into the year and think about the medium-term impact. So while there are clear relevant -- supportive factors for revenues and profitability, there are also some offsetting risks, and that's why we prefer to remain cautious about giving a more specific update at this stage. To sum up, the key message is that the current environment will be supported for the top line trends and returns and well above our initial targets. But given the level of uncertainty, we think it's prudent to frame this directionally rather than revised guidance with precise numbers today. Finally, I would also like to highlight that beyond our financial performance this quarter, we have just been informed that we are the first Chilean bank to be included in the Dow Jones Best In Class World Index, ranking among the 25 most sustainable banks globally. With that, I will conclude my presentation. Thank you so much for your attention, and we will now be happy to take your questions.

[Operator Instructions] Our first question comes from Mr. Tito Labarta from Goldman Sachs.

Two questions, if I may. I guess, first on the guidance, as you mentioned, right, there's some positive short-term impacts from the higher inflation. But there could be some negative consequences down the road. Just how do you think about the timing of that? Like when could just higher inflation, higher rates potentially put some pressure on credit quality and also on loan growth as you kind of reiterated the mid-single digits, but any concerns about how that loan growth could evolve, particularly if inflation remains elevated and any asset quality risk arise? And then second question, somewhat related to that, we saw some of the retailers posting very strong loan growth in Chile, like almost high teens, just kind of curious how you're seeing the competitive environment, particularly with some of these retailers that have banking operations?

Thank you, Tito. Well, regarding timing, we're going to see most of the impact of the increased inflation yields this second quarter in our NIM. There is a potential lower NIM third quarter because of the concentration of the inflation news on the second quarter and some -- some lower inflations in the third, but that's a very, very liquid and volatile moving part as of now. We expect loan growth to remain in the mid-single digits, but we are also seeing some lower expectation of GDP expansion, so that might translate into lower dynamics more skewed toward the final part of the year. And consequentially, if this inflation translates into some pressure in the household economy, on their ability to perform that could trigger some impacts mostly for the final part of the year or the first half of 2027. But this is all very volatile and liquid. And regarding your question on growth, actually, in our portfolio, we have seen good demand from the current portfolio and also from the auto lending portfolio. Actually, the auto lending portfolio has been growing double digits year-over-year. So that's a sign of how that part of the market is performing quite well. I think that in our case, it's more concentrated, the more muted performance is concentrated on the mortgage and the corporate portfolio. And we are seeing some early signs in the mortgage growth in the month of March. So we're a little more -- a little bit more optimistic on that part of the portfolio. And so I think that the things -- that we are seeing on retailer might also be translating on our retail part of the portfolio soon.

Okay. Great. That's very helpful. And it doesn't just increase the competitive environment at all, you're not seeing any competition on spreads or anything? From the retailer side of things yet?

Spreads in the middle market portfolio and the corporate portfolio are quite tight as local market conditions. So we see a lot of competition on that part of the market.

Our next question comes from Mr. Ernesto Gabilondo from Bank of America.

My first question will be on the tax reform. Could you provide us what is the latest update on the tax reform? And when do you expect its implementation? And my second question is on NIMs. As you mentioned, NIMs should be benefiting from high inflation levels, especially in the second half. But just wanted to understand, for example, in terms of the interest rate, not for this year, but maybe for next year that some economies are expecting it could be higher. How do we understand the sensitivity to rates to your balance sheet? Because I remember in the past, you tend to benefit when you have lower rates. So once we have the possibility to have higher rates, I would like to understand if you will be hedging or if you will give -- your same sensitivity?

Thank you, Ernesto. Let me take the opportunity to pass this first question to Anders. We have him here regarding the tax reform.

On the tax side, the made proposal showed reduction in the corporate tax rate from 27% to 23% between '26 and '29. Together with full integration of the tax system over time and that stability mechanism [indiscernible] strategic sectors, mining, energy and technology. Of course, these measures are clearly aimed at improving competitiveness, so attractive investment and strengthening the supply side of the economy. In terms of implementation, we will highlight two points. First, the direction, of course, is pro growth, but the main open issue is the [ digital ] transition. We expect that the [indiscernible] should vote this proposal during May before the first speech of the President on June 1. And then during July, August, we see a discussion in the senate. So we should see this tax reform or broader reform being approved by September of October, if there is no -- any change in the world.

Thank you, Andres. Regarding our perspective on sensitivities. We currently -- so we have two types of sensitivities in our balance sheet, right? So we have a sensitivity to inflation that impacts our net interest margin through the readjustment line, and that's what's going to be more impacted in the second quarter because of the higher inflation figures. Our sensitivity has remained stable on -- our sensitivity inflation on about 14 to 15 basis points of NIM, for 100 basis points of U.S. valuation, right? So that has remained stable. We are also a little bit more neutral on the rate scenario, which I think is positive -- to your second question. Our current sensitivity is on the 5 basis points per 100 basis points of average monetary policy rate variation on a year. So that's 5 basis points for every 100 basis points of monetary policy rate. It's quite neutral -- and actually, our balance sheet was positioned in that way since early last year as we saw little room for further rate caps -- from where the levels were at the time. I mean it has been consistent with our macro vision this year.

Yes. Regarding the macro perspective, as Andres already mentioned, we are expecting a monetary policy rate for this year that remain stable. And for 2027, depending on the inflation perspective and how steeply is the inflation that we are having right now. The market is expecting 2 hikes for next year of 25 basis points each. So we will -- in that scenario, we will be talking about 2.5 basis points in NIM according to the sensitivity Cristian already mentioned.

Our next question comes from Mr. Yuri Fernandes from JPMorgan.

I have one on cost of risk on the corporate case. If you can comment a little bit, provide more color, like is this over? Is this fully provisioned? How big was this? Just to understand if we should see eventually reversals like if you can recover some of those values. So just trying to understand, I get that the cost of risk this quarter was impacted by this corporate case? If you can provide a little bit of more color, we appreciate. Then a second question regarding capital. The CMF put out for consultation, the internal risk models. I think this has been a discussion for years in Chile. There is an estimate from the regulator about $10 billion to be released eventually. But I don't know if you have your own estimate. I know the rules are not done yet. I also know that the risk [indiscernible] Chile is very high. If you can comment a little bit on what you expect on this potential tailwind for capital? We also appreciate. And finally, just on the ROE guidance, I know you kept the guidance unchanged and an inflation should be a tailwind for margins. My question is why keeping the guidance unchanged given inflation is expected to be a good tailwind for the near term?

So let me take your last question first because I think the message, it's very relevant, and then we'll dig on -- we'll dig down on the other two. So we're not sustaining guidance. What we don't know is -- what are the final effects of all these moving parts in our total results, right? So the situation in Iran, still not out of the equation. So our scenario is moving, and you are very familiar with this, of course, every single day. It's not a week. What we see is that we are going to be above the upper bound of our ROE target for this year, meaning that -- the 22% ROE is completely out of the equation, which should be 25% ROE and above, right? But what we don't know is what are the final effects of all these moving parts this very early in this year. So we are going to probably going to be delivering a more clear view in our next call in the first days of -- in final days of July, early August. So that's regarding guidance. Regarding capital, do you want to comment?

Yes. I mean that the CMF is proposing several measures, I would say, in order to reduce the density of Chilean banks, which is still high, even though we are fully implemented, we have fully implemented Basel III frameworks. So one of the levers is market risk. We already have a proposal from the CMF and we will have a benefit from that rule when it applies. And the other lever is [indiscernible] -- right now, we do have a framework of internal models, but still very conservative read or related what we have in developed markets, right? So they will propose a new -- a new framework, where it will be more convenient for banks to present the proposals to CMF. It's going to take long from our experience in Europe could take around 2 to 3 years to be implemented. But in our view, is in the right direction and -- the second part, it's going to take longer.

Thank you. So to complement here, -- what has been happening here in Chile with the implementation of the Basel III framework is that we started with all the buffers and pillars, and that's fully implemented. So now our minimum CET1 requirement is 9.2% fully loaded with all the pillars and [indiscernible] has been concluded, but there has been little to no discussion on the density of assets of the framework. So this is the second part of the story that we were waiting. I think we have discussed this with several of you in the last year or so. The density of risk-weighted assets in markets is quite high, especially when you compare it to the European framework, and there is also some room in the credit intensity of risk weighted assets. So the President of the CMF has been announcing several several implementations of [indiscernible] and some revisions of the regulation in order to advance into improving the density of the assets. Our -- our stance here is that we believe that probably the most potential scenario is that the Chilean general system will work with more rooms between the actual CET1 level and the minimum requirements. So it's natural to expect that we will be as a system performing closer to other markets that have a lower density. It's too soon to tell where that will also translate into capital releases as we don't know many of the [ legal ] details of the upcoming changes. But we know for sure that there is one that has been recently approved about an improvement in the density of market risk, but it's moving onto more of the developed frameworks in the way that the market risk is calculated and that will create some potential impacts on the system and on us, particularly as we have a relevant stake in risk-weighted asset density in market risk. So that's on capital. And our perspective is that CMF is moving naturally on the consequential next step of the implementation of the framework, which is reviewing the density of assets, right. And then on the credit risk, it's -- to your question, we are not seeing particular pressure on any of the portfolios. The impact that we suffer in the first quarter in the corporate portfolio, it's actually more of a process of recovery taking longer, and we expect that to be reversed towards the final part of the second quarter or the first part of the third quarter. So that's why we are not moving our guidance in terms of the expectations on the cost of risk for the year. So we are still expecting to be in the neighborhood of the 1.3%.

Super clear, Christian. And actually, the NPL for mortgage was down, right? And the message on capital is clear. It will take some time. Once this happens, you should unlock capital, maybe you can grow faster, maybe you can return capital to shareholders. But eventually, this can be a tailwind for us here. So very clear.

Our next question comes from Neha Agal from HSBC Global Research.

Just a quick one on asset quality, with the inflation running on the higher side. As you mentioned, we could see some pressure on asset quality, which pockets of the loan book you're being a bit more cautious on -- or the growth that you had budgeted in the beginning of the year, will actually be weaker because of this changed outlook that we are seeing now. If you could just give us some sense in terms of the cadence of how cost of risk could evolve in the coming quarters? That would be very helpful.

Thank you, Neha. So regarding asset quality, let me take the part of the first part of your question. So what are the most potential portfolio that could be impacted by higher inflation. Well naturally the mortgage portfolio readjusts on U.S. valuation, right? So that's the part that puts some pressure on families. And especially in the lower part of the portfolio, it's where we could see some impacts moving on to the final part of the year or early next year. But perhaps still a little too soon to tell. We haven't seen those impacts yes. In terms of the commercial portfolio, we think that a part of the portfolio that we are very cautious on is particularly the agriculture portfolio, especially exporters, as those guys depends a lot on climate conditions, and we are expecting relevant movements in [indiscernible] this year. So we still haven't seen any natural phenomena going on, but they have been broadly discussed topic regarding how strong those phenomenons are moving. And such, we're taking a very cautious stance on that part of the portfolio. And we are seeing very positive trends on the mining industry and the mining servicing industry and also in energy. So those are our perspective like the more cautious and more optimistic parts of our portfolio in corporates. And in going also how this will translate into our -- how the cost of risk should move. We should see normal second quarter in terms of cost of risk. There is this reverse of the impact that we saw in the first quarter that might come on the second or the third quarter. On the -- for the final quarter of the year, we're still seeing the 1.3%, 1.35% area, but subject to how this inflation translates into the into our portfolio right.

[Operator Instructions] Our next question comes from Mr. Daniel Mora from CrediCorp Capital.

Perfect. I have just 1 question regarding loan growth. Can you provide the loan growth expectations by segment? I would like to understand what will be the drivers growth considering the loan growth in the first quarter. And also if it is a concern to you the loss of market share during the last year. Do you expect to regain market share in any particular segment?

Thank you, Daniel. So regarding the loan growth, what we are expecting after general part of the portfolio is mid-single digits so around 5% [indiscernible]. That's the general expectation. We believe that there's good performance on the consumer part of the portfolio, particularly auto loans and credit cards. But should translate into installment loan later on the year, we are a bit more optimistic in that area. We are seeing some really good signs in the mortgage book. So we should start some growth, but mid-single-digit product portfolio, it's safe to assume. And our growth has been muted in the middle market and corporate portfolio. So we're not seeing that growing double digits in our case, but going to market rate growth in that part of the portfolio is expected from our side. And regarding market share, we have been able to defend our market share in the consumer part of portfolio pretty much. I think that the product has been more impacted has been the commercial part, especially the other part of the commercial portfolio, not the [indiscernible] part and mortgage most of our market share has been decreasing. And I think that we remain with the willingness to be relevant in the market. So we'll capture all the growth opportunities that we'll see. We have the capabilities for growth. We have the capital. So we'll be monitoring the market and looking at opportunities to to implement that growth in our portfolios looking forward.

Thank you. It looks like we have no further questions at this point. I'll be passing the line back to the management team for the concluding remarks.

Well, with that, thank you all very much for taking the time to participate in today's call. We look forward to speaking with you again.

Thank you very much. This concludes today's conference call. We'll now be closing all the lines. Thank you, and goodbye.