Welcome to the Banco Santander-Chile Second Quarter 2016 Earnings Conference Call. [Operator Instructions]. And now I would like to introduce you host for today's conference Raimundo Monge, Director of Strategic Planning. Sir, please go ahead.

Okay. Good morning ladies and gentlemen. Thank you very much for attending the call. My name is Raimundo Monge and I'm Director of Strategic Planning at the Bank and I'm joined today by Emiliano Muratore, our Chief Financial Officer; and Robert Moreno, Manager of Investor Relations. Thank you for attending today's conference call in which we will discuss our performance in the second quarter. Let us start our call with a brief update of the outlook for the Chilean economy. According to market consensus the economy should manage to grow this year close to 1.7% and recover something will be 2% and 2.4% in 2017. Although the mining sector has been weak there are other sectors are showing positive growth trend such as non-mining exports. The communication sector, utility and infrastructure. Unemployment which until now has been resilient has shown lately the weaknesses and for this reason there shouldn’t be any interest rate hike this year. Inflation could also stabilize below 4%, a level that Central Banks feels comfortable with finishing this year with a level close to 3.3% to 3.5%. Loan growth in the banking system remains relatively stable. As of May, loans were growing at 8% year-on-year, as affected the growth rate of mortgage loans has been [indiscernible] but the positive growth of most non-mining sectors and the stability of employment has kept long term eProject spend [indiscernible] rate. Asset quality has been improving, a reflect of loan growth of investor segment and a health corporate loan portfolio. For the entire year 2016 we continue to expect loan and deposit growth of around 7% or 8%. Now we will give further details into the implementation of our strategy and how it's benefiting our client activity on results this quarter. Net income attributable to shareholders in the second quarter…

[Operator Instructions]. Our first question comes from Nicolas Riva with Citi. Your line is open.

My first question is on asset quality, so the NPR ratio improved 30 basis points quarter-on-quarter across all the segments, that looks very good. Now your NPLs came down in pesos of CLP73 billion and you wrote off CLP50 million for the NPL, for pension, what's actually negative CLP23 billion. However if you still booked CLP83 million, way above the NPL formation. My question really is why did you book this number of loans loss provisions, for example if I look at your coverage ratio now it's 140% which is high relative to your history. So maybe you’re been conservative in case the economic deteriorates but again my question would be why this level of loan loss provisions given improvement in NPR. And then my second question on operating expense is you booked a CLP10 billion for this one time severance payments in the second quarter, but if I take that out your OpEx actually went down 2% year-on-year so what is behind this decline in operating expenses year-on-year and also if you’re going to be see more headcount reductions and more around payments in the third quarter? Thank you

Okay. Concerning to the first part there are two things there, number one is that as you the regulation has changed in many aspects, to some extent it's forcing banks to set provisions in many cases by passing your internal models that was the case in a large corporate lending where you’ve to set a minimum provision regardless of the status of the clients, it also happens with mortgages that’s knowing this year we started with a new provision model that you’ve to provision according to the standard models [indiscernible] or your internal model whomever is more conservative and accordingly we have guidelines that we have to follow that sometimes topple [ph] your provisions levels with the reality of your non-performing loan formation. So that is part of [indiscernible] that we’re forced to take provisions that they are probably not anything they need it. So that’s one element. And the second element is that we have been as we have commented in the press release we have been forcing [indiscernible] in the low-end of the consumer market in anticipation of further deterioration of the macro conditions especially employment. So it's a mix set of prudents, we’re ready to take a provisions when you’ve the revenues to do so and secondly the regulations that are in some cases forcing us to set provisions that we think we don’t need it and that’s why the coverage ratio has been trending up. So it's something that -- at the end it's no problem to be conservative especially given that the macroenvironment is not at the stated level that most economies believe it should be in the economy. So that’s why it's prudent and regulation. In terms of OpEx, I don’t know how you do the calculation but it gives you the sense of…

One follow-up, Raimundo the CLP172 billion in operating expense is for the second quarter, is including the CLP10 billion for the one-time difference payments? It is right?

No. The severance expense was booked in other operating expense, it's not on the--

Okay, so that’s why you said that your operating expenses were up 4% year-on-year. Okay, understood. Thanks.

That’s right, we will be talking about the specific line for operating expenses that exclude this one-time--

Our next question comes from [indiscernible] with Scotiabank. Your line is now open.

I wanted to understand a little bit about the reversal that you registered in the mortgage segment about 4.3 billion and I wanted to understand what caused this reversal and if we should expect further reversals in the coming quarters and also going back to the question of severance payments, 10 billion, I wanted to know if we should expect further one-time expenses coming up until the end of the year. Thank you.

Okay, in terms of the reversal the mortgage business is, as you know we have model that our and sometimes the health of the loans is improved and that’s why sometimes you see reversal, there is timing -- last number of the quarter has been [indiscernible]. So it's not been unusual, we have been -- we’re moving into the upper end of the market the mortgage and the fact that we’re limiting those to zero, mortgage -- loan to value higher than 80%, at the end it represents -- you’ve a younger or better quality mortgage portfolio that’s resulting that so it's nothing really very important to mention -- it's sometimes happen our overall portfolio improves. And incorporate as well, one more point, we’re also improving our recovery, so we’re doing a number of things to try to stabilize and not to have a track because of the mortgage -- remember that the [Technical Difficulty] is very low yield, low risk as well, that’s why no surprises sometimes we have different provisions because you simply improve your commercial effort and recovery effort as well. In terms of [Technical Difficulty] we don’t foresee that for the remaining of the year but of course it's something you normally do to get rid of [Technical Difficulty] but we don’t foresee extraordinary programs, but the one we concluded in second quarter.

So just one follow-up on the provision. I was under the impression at the end of last year that a level more reasonable for provisional expenses would be about a 100 billion, and you provide me wrong in the first and second quarter so I wanted to get some feedback how do you see this line? 1.3% cost of credit is reasonable going forward?

Yes, what happened is that if you back up a little bit we have been changing the mix for the last 3 or 4 years away from the low-end into the upper end and that has an impact in your gross already which is what we have seen in the last few years -- this margin has been trending down especially declining within this margin trending down be you’re originating new business at lower prices than the old portfolio. And then eventually you see that the spreads of the new business starts -- it's deemed the same or [indiscernible] which -- that moment by the end of last year, second half end of second half. So now on that’s what you see our net interest margin has been fairly stable, has been 4.8 in net interest margin in the last three quarters in a row reflecting that the suites of the mix is logical and concluded and as a consequence from now should be relevantly stable or pricing it your mix is a little bit better. While the provision inside, the same movement as we expected but lag in time because of course the marginal growth that you originate doesn’t have a meaningful impact in provisions except once time passes and that’s why we think the downward trend on the cost of credit still has room to improve upon going forward. We have been hinted that probably next year should be something close to 1.2, 1.3 so we think there is room but of course the negative element is that the macro conditions have been weak so there are two clashing forces, one positive that the origination model that we’re using and the mix effect has been dominating but of course this is assuming our central market scenario in which the economic bounces, they are a little bit -- regarding their latest approach we have seen in the last years in -- or something similar, so again there are two clashing forces, one is beneficial because the new business much better in terms of quality and the [indiscernible] have a very quarter improved. However the negative force [Technical Difficulty] really soft and as a consequence -- we don’t know final result will be. We think that there are still room to improve and we recall that next year provision expense will be relatively low and as a consequence cost of very good will go down 10 to 15 basis point but again it's something that with more open due to the more uncertain marketable securities that we might face.

[Operator Instructions]. Our next question comes from the line of Carlos Macedo with Goldman Sachs. Your line is open.

Couple of questions, first question, the success that you had in implementing this new select model has been pretty impressive, have you seen any response from your competitors, are they trying to pursue similar models, are they going out of their way to retain their clients? I mean what has been the response? Because at this point you’ve enough of a track record there to show your success. Second question, I will ask after your respond to my first.

[Technical Difficulty] has been quite successful. We have been fortunate that -- only changes and [Technical Difficulty] but at the same time what we’re basically leveraging in a very successful product, in credit card has been very successful and as a consequence we had a number of many clients that have in the credit card, today through a new [indiscernible] mode you can offer them -- more growth supply of product with very high quality service and the CRM also have failed in the process. So we think we have a right approach for tackling this more demanding consumers, model, in terms of competition of course you see that the competitors are trying to have a credit card are comparable to ours but probably note it's as comprehensive as the one we have or things like that. So we have to rush things to get and the way to do that is basically by getting new ideas and new tricks and as we talked in the call these customer journey [ph] the starting point are usually the high end of customers and there we learn how to response etcetera and the CRM is more or less the same. It's a tool that is very nicely fitted for more demand in customers and also for more comprehensive clients that not only have a loan or a credit card but also have insurance, mutual fund etcetera. So if you want to know what's going on with the risk, but at least in our case we think we have a proven model that is delivering goods results and now the challenge is how to kind of move down market with what we have learned in the other market.

Now second question, you highlight that you’ve 45 branches in the new model and you aim to push out more branches in this model because obviously they are a lot more profitable and makes sense. What are the costs associated with expanding and building out these branches, is it something that we should expect to see your expense line in the next 2 or 3 years?

No, because today the bulk of the kind of one-time expense have been assumed most of the changes are related with the IT investments simplifying your process, [indiscernible] to the largest sense. From now on what you can start doing is changing the format of the brands for cost involved but it's not meaningful and that’s why we think that we can't contain the cost growth by financing most of the new investment and expenses, replacing expenses does that was really incurred or by releasing square feet, the branches we closed and replacing by the new square feet of branches where it's needed, so tune in. So we don’t foresee a net increase given that most of the heavy investments have already been done in the last 2 or 3 years.

I'm showing no further questions at this time. I would like to turn the call back to Mr. Raimundo for closing remarks.

Okay. Well thank you all very much for taking the time to participate in today's call. We look forward to speaking with you again soon. Have a good day.