Banco Santander-Chile(US:BSAC)2023-04-28 19:31Financial Data and Key Metrics Changes - In Q1 2023, net income totaled CLP 136 billion, a decrease of 42% year-over-year but an increase of 33% quarter-on-quarter [61] - The bank's return on equity (ROE) for the quarter reached 13%, with guidance for the full year adjusted to 15% to 17% due to higher than expected interest rates [70][114] - The net interest margin (NIM) remained stable at 2.2% quarter-on-quarter, with expectations for a decline to 2.4% for the year [64][69] Business Line Data and Key Metrics Changes - Retail banking loans grew by 1.1% quarter-on-quarter, driven by consumer loans, while origination of new mortgage loans has decelerated [63] - The net contribution from corporate and investment banking (CIB) increased by 76.7% year-over-year, with the middle market segment seeing a 31% increase [38] - Non-net interest income from fees and treasury rose by 33.8% year-over-year and 20% quarter-on-quarter, indicating strong performance across all segments [66] Market Data and Key Metrics Changes - The Chilean economy contracted by 2.5% in Q1 2023, with expectations for a mild contraction of around -0.25% for the year [19] - Inflation is projected to decrease to 5.1% by the end of the year, with the central bank maintaining a monetary policy rate of 11.25% [7][21] - The trade balance reached a surplus of CLP 7.5 billion, a historical record, with expectations for a current account deficit of 4% of GDP [6] Company Strategy and Development Direction - The bank aims to be a digital-first institution, focusing on specialized services for corporate and wealth management, and exploring new growth opportunities [12] - The introduction of Work/Café Expresso branches aims to enhance customer experience and operational efficiency, serving over 50,000 people weekly with a high NPS of 96 [13] - The bank is committed to sustainable finance, having supported sustainable operations for an amount of $230 million in 2022, a 390% increase from 2021 [33] Management's Comments on Operating Environment and Future Outlook - Management expects a gradual normalization of interest rates starting in the third quarter of 2023, which will positively impact ROE and NIM [54][70] - The bank anticipates continued strong client growth driven by digital initiatives and new product offerings, despite a challenging macroeconomic environment [45] - The outlook for asset quality remains stable, with a cost of credit expected to be manageable at 1.1% to 1.2% [69] Other Important Information - The bank's liquidity coverage ratio was 182%, well above the minimum requirement, indicating strong liquidity levels [41] - The core equity ratio at the end of Q1 2023 was 10.5%, reflecting a solid capital position [44] - The bank's operating expenses decreased by 1.2% year-over-year, with a focus on cost control and digitalization investments [67] Q&A Session Summary Question: What led to the reduction in ROE guidance? - Management indicated that the adjustment was primarily due to higher than expected interest rates, impacting the normalization process of NIMs and ROE [72][114] Question: Are there any regulatory changes expected? - Currently, there are no significant regulatory issues on the agenda that could affect the bank in the near term [73] Question: What is the outlook for operating expenses? - Management expects a one-off performance in cost control for this year, with a target for costs to grow below inflation in the future [84][103] Question: How sustainable is the current fee income growth? - The bank anticipates strong fee income growth this year, but expects a slowdown to above 10% in the following years [55][58] Question: What is the strategy regarding interest rate derivatives? - The bank has secured a more dovish path in the past but does not see significant opportunities currently due to the market's expectations [97] Question: What is the expected impact of asset quality on the bank? - Management noted that asset quality is normalizing, with NPL ratios returning to pre-pandemic levels, and expects to maintain a manageable cost of risk [86]