Banco Santander-Chile (BSANTANDER) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and I would like to welcome you to Banco Santander-Chile's Second Quarter 2026 Earnings Conference Call on August 5 2026. [Operator Instructions] So with this, I would now like to pass the line to Patricia Perez, the Chief Financial Officer. Please go ahead.

Good morning, everyone, and thank you for joining us today. I'm Patricia Perez, CFO of Banco Santander-Chile and I'm joined by Christian Vicuna, Head of Strategy and Investor Relations; and Andrés Sansone, Chief Economist. This quarter reinforces the strength of our franchise, high profitability, disciplined cost management and a solid capital position, while we continue to execute our strategy to deliver a simpler and enhanced value proposition to customers with a focus on sustainable growth and shareholder returns. First, Andreas will give you an overview of the economic and regulatory environment, Christian will then walk you through our strategy, our second quarter results and our updated view for 2026. Finally, we will conclude with a Q&A session. With that, let me turn it over to Andrés Sansone.

Thanks, Patricia. Let me start with the big picture. Since our last webcast, the global backdrop has remained complex, external inflationary pressures remain with geopolitical tensions driving oil prices and the inflationary scenario for Chile. At the same time, long-term rates have moved higher and expectations from monetary policy abroad have shifted upward, leading global financial conditions less supportive. For Chile, this has translated into a weaker peso around 930 pesos per dollar during the last month and renewed pressures on short-term inflation. Locally, the June CPI was flat once a month, but still above expectation bringing annual inflation to 4.3%, with the surprise mainly concentrated on food. Short-term inflation expectations have increased, and now we expect a variation of 4.4% in 2026 in the U.S., although the 2 year expectations remain [ end ] core at 3%. On activity, the economy continued to lose momentum during the first half of the year, the wines has been concentrated in 3 areas: first, supply shocks in natural resources sectors, particularly mining and fishing. Second, the impact of higher oil and fuel prices on household disposable income; and third, a slower-than-expected recovery in construction. Beyond these 3 factors, the labor market has also weakened with seasonal adjusted unemployment rising to 9.3%. Looking ahead, activity should improve gradually mining production faces a more favorable comparison base in the coming months. The mining and energy investment pipeline remains solid, and the recent fall in fuel prices should help restore part of the disposable income loss during the early shop. Pro growth reforms, if approved and effectively implemented can lift the country's potential growth over the medium term. Based on this information, our economic team has revised down its 2026 growth forecast with the economy now expected to expand close to 1% this year, although the outlook for 2027 remains more constructive, supported by investment and a low comparison base. In this context, we continue to expect the central bank to keep the policy rate at 4.5% for an extended period. And overall, the message is that the inflation risks have increased again, while activity, although improving at the margin will remain weak this year, making the macro scenario more challenging and calling for a more cautious monetary policy starts. Now turning to the regulatory and policy environment on Slide 5. The main development is the completion of the national reconstruction plants built passage through Congress. Yesterday, the senate approved the last outstanding provision, the bill is therefore now ready for an angmen, the bill includes several pro market initiatives aimed at activating growth on the business and investment side, the most relevant measures are the gradual reduction in the corporate tax rate from 27% to 23% between 2027 and 2029. The integration of the tax system investment incentives and tax stability, faster permitting process and the construction spend. We believe this measure should support private investment, improved business confidence and strengthen economic activity over time. Moreover, the bill includes household support measures such as the temporary VAT exception on new homes, housing reconstruction programs and improved housing affordability and employment support. If these are implemented effectively, these measures should support housing demand, mortgage origination and consumer activity. Complementing this, the government has just submitted a bill to extend and expand the mortgage interest rate subsidy and the fogiestate guarantee for first home purchases. The proposal raises the number of subsidies from 50,000 to 80,000 also lift the maximum value of eligible new homes from 4,000 USD to 6,000 USD and extend the program until May 2026. Combined with the temporary VAT exemption on new homes, this should improve affordability for [indiscernible] income households, helped absorb the stock of more than 100,000 unsold units and therefore, has the potential to support mortgage origination and a recovery in the construction sector. In addition, we continue to monitor other regulatory relevant changes, including the repos and securitization law the proposed model for market weight assets and advances toward internal models for Credit wise. With that, let me hand over to Christian.

Thank you, Andres. I will now walk you through our strategy, our second quarter 2026 results and our outlook for the rest of the year. Let me start with the strategy. At the center of what we do is a clear ambition to become a digital bank with a physical presence, leveraging our work offer branches to combine the convenience of the scale and the diesel banking with advice, service and proximity for our customers, leveraging the support of the Santander Group and its global platforms. We organized this around 3 pillars. First, in customer. We aim to offer the best value proposition to all our customer segments, grow active customers, increased transactionality and deepened loyalty. We aim to serve over 3.5 million active customers and we continue to see room to improve the customer experience, raise NPS and capture a greater share of wallet, especially in higher value segments. Second, think global, we are accelerating our digital transformation through global platforms and AI-enabled operating model. This allows us to simplify processes, improve the digital experience deploy capabilities faster and operate with greater agility, productivity and efficiency in an increasingly dynamic environment. Third, in value. Our goal here is to translate the strong customer franchise and an efficient operating move into recurring high-quality profitability. This means continuing to diversify revenues leveraging other income streams 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, deliver sustainable returns and an attractive payout to shareholders. This strategy is supported by [ adverse fly ] 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 of [indiscernible] model. Corporate and investment banking adds strength in advisory FX and transactional banking capabilities with a clear focus on sustainable solutions and capital optimization. Wealth Management and 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 bundling solutions. Retail remains the backbone of the balance sheet, representing 66% of loans, 48% of deposits and 69% of the margin. At the same time, we have meaningful contributions from CIB payments well into the fee business. The Santander Global platforms are helping us connect this business effectively improve efficiency and diversified revenues. That supports stable profitability through the cycle and reinforces our ability to deliver attractive shareholder returns. Before we move on, I want to pause for a moment on something we are generally proud of. The external recognition of our work has turned over the past year. It is a strong reflection of the progress we have made for our customers. Starting on the left, we have awards and recognitions recently, Euromoney named us Best Bank in Chile, Best Bank for ESG and Best Bank for SMEs for 2023 of their most important categories in a single year. This is in addition to the recognitions last year from leading finance and the banking where we were awarded the test bank in Chile for 2025 and Global Finance awarded Best Bank for SMEs in 2025. On the right, our ESG ratings and index inclusions sell a complementary story. For the first time, this year, we were included in the Dow Jones Best-in-Class World Index. This is an outstanding achievement being the only Chilean bank to qualify for the World Index. Furthermore, we hold an MSCI ESG rating of AA and a sustainability risk rating of 15.4 of low risk. These are independent rigorous assessment, but they confirm that the way we grow matter to us. We also wanted to briefly comment on an announcement we made last week. Santander is taking the naming rights of one of Chile's most iconic venues. From September, the 15,000-seat arena at the [indiscernible] becomes Santander Arena. This venue is ranked by poster among the top 3 venues in the world by annual attendance. More than just brand recognition -- this move allows us to connect with clients and potential clients in a highly engaging setting. We can leverage our payment capabilities with simple services and ECD onboarding, offering concert goers relevant, accessible solutions on the spot. This is a current example of the different ways we are implementing our strategy to become a digital bank and focusing on our customer needs and value creation. Let me now move to our financial performance on Slide 11. The second quarter showed exceptionally strong profitability, supported by the particularly high inflation in the quarter and continued execution of our strategy. Net income attributable to shareholders reached over CLP 382.6 billion in the quarter, increasing 40% Q-on-Q and also 40% year-on-year. This translated into a return of average equity of 31.5% in the quarter and 27.2% year-to-date. This quarter demonstrates the earning power of the bank when revenue tailwinds combined with a strong efficiency and disciplined risk management happens. On Slide 12, looking at the balance sheet, we saw better loan growth dynamics in the quarter, while customer funds also increased. Total loans reached CLP 41.4 trillion, up 1.2% year-to-date and 1.3% quarter-on-quarter. Mortgage loans grew 2.0% in the quarter, in part due to the impact of higher inflation, but also due to better new origination trends. Commercial loans increased 1.3% where we saw an incipient improvement in demand from our clients. Consumer lend overall was relatively stable with some pressure in credit cards and installment loans in part due to better liquidity for our clients in the quarter. On the other hand, Auto loans continued to shine, growing 1.8% in the quarter and 4.9% year-to-date. On the funding side, Total deposits reached CLP 32.4 trillion, increasing 6% year-to-date and 4.5% Q-on-Q. This was mainly driven by time deposits, which grew 11.8% year-to-date and 7% on the quarter, and it is worth mentioning the better growth of demand deposits during the quarter. Demand for mutual funds remained strong and therefore, total customer funds reached CLP 48.3 trillion, up 7.1% year-to-date and 4% on the quarter. Liquidity remains strong, comfortably above regulatory requirements. On Slide 13, we can see our net interest income and margins. In the first 6 months of 2026 combined net income from interest and readjustments reached CLP 1.11 trillion, increasing 7.4% year-on-year and 27% Q-on-Q. Driven by the strong inflation in the second quarter when the U.S. variation was 2.46%, which supported net readjustment income and dropped the quarterly NIM to 4.7%. Meanwhile, the monetary policy rate remained at 4.5% in the quarter. With this, our year-to-date NIM reached 4.3% up 16 basis points year-on-year and 89 basis points Q-on-Q. Client activity and the expansion of our client base remains a central part of our story. We reached 4.8 million total clients and 2.7 million active clients, meaning that 56% of total clients are active. Total customers increased 7% year-on-year, while active clients increased 1.3% year-on-year. Activity indicators remain positive, checking accounts increased 6% year-on-year. Credit card transactions increased 11%. Mutual fund assets under management increased 8%, and we now have 519,000 business current accounts. Fees plus financial transactions reached CLP 452 billion in the first half, growing 4.9% year-on-year. Within this, total fees were broadly stable year-on-year, while results from financial transactions increased 16%, supported by market-related income. In the quarter, we saw lower dynamics coming from lower transactionality and customer demand impacted by oil prices and lower results from financial transactions after a strong quarter driven by demand for market-making products and higher income from portfolio sales. On Slide 15, efficiency continues to be more [indiscernible] key differentiator. Our efficiency ratio reached 31.6% in the first half of 2026, positioning us as the most efficient bank in Chile based on the industry information available as of May. Operating expenses decreased 4.3% year-on-year with total core expenses down 3.5%. This continues to reflect the benefits of our diesel model, operating discipline and the normalization of technology-related costs after the cloud migration expenses that we had on the beginning of last year. Our recurrence ratio reached 64.1% meaning that fees generated from clients cover more than 60% of our core expenses. This reflects the benefits of our deal model and ongoing optimization of our branch network, reaching 91 work offers throughout Chile. On Slide 16, we show an overview of our cost of risk and asset quality. On the asset quality side, trends remained stable. Cost of risk was 1.38 year-to-date, broadly in line with our expected range and the quarterly cost of risk decreased to 1.22% in the second quarter from 1.55% in the first quarter. After the one-off provisioning event in the commercial portfolio at the beginning of the year was subsequently reversed in recent months. The bank continues to actively manage different parts of the portfolio. NPLs reached 3.4% of loans, while impaired loans reached 7.5% of loans. These indicators show a moderate increase. But the overall trend remains manageable and consistent with the macro environment that we saw on the past quarter. Capital remains a strength. Our BIS ratio stood at 16.4% and the CET1 at 11.1% as of June 2026. This places our CET1 ratio around 200 basis points above the regulatory minimum of 9.28% for 2026. Risk-weighted assets remain mainly concentrating in credit risk which accounts for around 70% of total risk-weighted assets, while market risk represents 18% and operational risk, 12%. The risk-weighted asset density stands at 62%. We also see positive regulatory developments. The proposed new models for market risk-weighted assets would incorporate the duration model for interest rate risk and improved netting of the real depositions used to mitigate interest rate risk. The definitive model is still pending publication, but the direction is positive. To conclude on Slide 19. Let me summarize our updated view for 2026. At the start of the year, our initial target assume mid-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 a return of average severity between 22% and 24%. Based on our performance so far this year, on the updated macro assumptions, we now expect loan growth to remain in the mid-single digits. NIM should be slightly higher, around 4.5% for the year. Noninterest income growth in the mid-single digits with efficiency improving further into the low 30s. Our cost of risk should be around 1.35 for the full year. The key change versus the initial view is that higher inflation has supported NIM and profitability, while our efficiency and risk metrics remain solid. At the same time, we remain cautious on the macro backdrop and continue to prioritize profitable growth, asset quality and capital discipline. Considering all this, we are expecting the bank to generate return over average equity of above 24% for this year. To sum up, Santander Chile delivered a strong set of results with a return over our [indiscernible] above our long-term target, solid customer activity, resilient asset quality. Furthermore, we saw the incipient signs of better loan demand and external factors such as the regulations that are currently under discussion should be positive for the bank coming periods. With that, I conclude the presentation. Thank you very much for the attention, and we will now be happy to take your questions.

[Operator Instructions] Our first question comes from Ernesto Gabilondo from Bank of America.

Congrats on your results. I have a couple of questions from my side. The first question is on the tax reform. If we assume a normalized inflation of 3% over the next years. How should we think about the evolution of your effective tax rate with the new tax reform and also, I believe this year 2026 will be untypical because high inflation is making it to be low. So also if you can comment how are you seeing 2026? And then with the implementation of the tax reform, how should be evolving in the next 3 years? And my second question is on your sustainable ROE. So we saw you are improving your ROE guidance to have an ROE above 24% in this year. But you are keeping a long-term ROE guidance of above 20%. So can you walk us through in when should we expect a more long-term ROE at the 20% level. Just to have an idea on how should we be thinking about that in the next years.

Thank you, Ernesto, for the questions. Regarding the effective tax rate, there are several things mix here, right? So the current tax rate in Chile is 27%. And the proposed is going to reduced effective tax rate gradually in a couple of years up to a level of 2023. So the effect is not going to be immediate in terms of the effective tax rate that the bank is going to be paying. But gradually, you're going to be seeing a natural push for a normalized effective tax rate going below to what we currently have. But at the same time, in this high inflation scenario, we're seeing a resizing of the equity tax book that it's used to calculate the effective tax rate, right? So we are seeing both phenomena at the same time. So we're totally pushing on to the low teens, the effective tax rate. I think that the more reasonable scenario is to expect an effective tax rate to the high teens or very low on a normalized scenario environment. So I hope that actually gives you an idea of where we should be on normal years after the tax reform is implemented. Regarding the long-term ROE, we have been able to deliver since the second quarter of 2024, sustained trend of ROEs above 20%. So but at the same time, we have been able to develop on our strategy and continue improving on efficiency. So our long-term ROE update was fairly recent. It's been a year since we updated our long-term ROE -- so it's probably something that we will review in the near term, but for the current period, we're still thinking that the scenario is that we are going to be delivering 20-plus and we hope to continue on sustaining the current performance.

Perfect. Chris, just a follow-up in terms of the effective tax rate. So you were saying we should expect something between the high teens below the low 20s. Is that correct?

Right. Yes. So 18 to 20 area is where this should be on a stabilized normal scenario, but that's going to take a couple of years, right?

And this gradual implementation is around 1.5% per year. Is that correct?

Yes. Exactly. That's correct.

Our next question comes from Yuri Fernandes from JPMorgan.

Congrats on the quarter. I have a question regarding the ROEs. I think the guidance is clear for this year above 24%, but it's a year with pretty high inflation. So my question is on a normalized base, right? Now you have the lower taxes. It helps a little bit. Do you have any idea what should we work on -- I don't know, like not a guidance for 2027, but in a few years, what would be the level of returns we should expect for Santander is 2022, a good number for you? And then I have a second question, just on regulation. I think tax is pretty positive, but sometimes we also hear some flexibilization on capital requirement in Chile. Sometimes I also hear about maybe some more flexibilization on interest rate gap. So are you seeing more good things to happen in the sector? Like can you give us an update on what should be the good news here for banks in Chile in the coming years?

Thank you for the questions, Yuri. So taking the ROE question first, and then I'll ask Andres and Patricia to contribute on the regulation front. We have been able to deliver on our strategy, right? So we have been able to sustain our -- and improve our levels of efficiency NIMs have remained stable for the last 2 years, taking inflation phenomenon side. We've been able to grow the customer base and at the same time delivering on the fee on the fee side of the business, right? So all of this included gives you an idea that it's very feasible for us to deliver on a normalized cycle, an ROE of above 20%. That's the area what we are aiming. While a little of inflation helps a little of less effective tax rate, of course, also helps -- so in normal years, we are aiming to push slightly above the 20% ROE, but considering that there might be years with a slowdown in in GDP expansion and inflation. We also have to take into consideration those sorts of periods where we might be in the very high teens to low 20s, right? So that's to give you an idea. We are going to try to update with this figure in the coming calls. And now I'll pass the call to Andres for regulation.

Okay. First of all, the national reconstruction plan is clearly the most important positive development currently on the table. Then we have this extension on the [indiscernible] mortgage guarantee program that will also support mortgage origination and help the normalized housing market. And from a capital perspective, we continue to see constructive discussions around the market risk-weighted asset framework. The proposal under discussion will better recognize hedging benefits and include duration based approach for interest rate risk, which could inventory trust rate into more efficient use of capital for the industry. We're also monitoring progress on the repos and securitization framework. And finally, advances to our internal models for credit risk remains an important medium-term opportunity. So overall, we see regulatory agenda becoming more growth oriented. The largest near-term impact is likely coming from the construction bill, while capital efficiency and investment-related measures will become increasingly relevant over the medium term.

Regarding capital regulation and market risk, in particular, based on the CMS estimates the industry could benefit from this new regulation, roughly 36% reduction in their market risk RWAs, right, which for Santander Chile would represent around 75 basis points of CET1, while the potential impact is clearly meaningful for us, it's important to note that the adoption is subject to a regulatory approval process that requires the submission of review reviewing the supporting documentation that the bank could deliver. So the proposal does not define the approval timelines. So we are like quite concert we are -- yes, remain conservative about the implementation date and timing we could benefit from that change. And regarding internal models, yesterday, the CMS just published a consultation paper that would allow banks to use internal models for both provision and regulatory capital which is broadly consistent with the direction and the regulator has been signaling over recent months. That said, this is a long-term initiative. We would expect any meaningful impact to materialize gradually over 3- to 5-year horizon, given the complexity of the approval and implementation process. And in our case, our internal model road map will remain aligned with the framework already defined for the European regulator. But we thing we have a strong starting position as we have been operating for several years with approved internal models are in part of our large corporate lending portfolio.

So to sum up, Judy, the regulator, in our view, is tackling the missing part of the implementation of the Basel III framework in Chile until December last year. All banks were focused on constructing all the pillars, buffers on CET1 requirement. And now the regulator is addressing the second part of the agenda, which is actually addressing the density of the assets, right? So we we think it's very constructive and it allows us to stay very optimistic about the developments of the industry in the upcoming years.

No, super clear, Christian and Patricia and Andres. And I see, maybe you agree with me, but you have this reconstruction deal driving potentially better economic growth and better loan growth? And maybe I ask for Andres is, what should we pay a patio for us to try to guess how the loan growth will accelerate. But you also have the regulator, right, helping the banks to unlock capital and maybe grow faster. So you have like the double tailwinds, right? You have the macro that I think is the most important one. But even on the sector specific, maybe after years of higher culture cyclical buffer and more capital, we are entering a phase that easier capital allocations may drive more growth for Chilean banks, right? So just a follow-up here for Andres, maybe what should the petition for us to see growth reaccelerating is, I don't know, employment is something going investments. What should be the lead indication for us to maybe get more confidence that the loan growth is coming back?

Yes. Our estimates suggest that the effect on the level of activity are significant. In the central scenario, the level of GDP will be around 6% higher by 2035. So it's around almost 0.5 point higher than in our baseline scenario for the next 10 years. So we will broadly think of growth closer to in the upcoming years. And the main channel is through investment. So that is also very positive for construction, employment on the bank side for all the commercial lending.