Ladies and gentlemen, thank you for standing by. And I would like to welcome you to Banco Santander-Chile Q1 2022 Results Conference Call on 29th of April 2022. At this time all participant lines are in listen-only mode. The format of the call will be a presentation by the management team, followed by a question-and-answer session. So without further ado, I would now like to pass to Mr. Emiliano Muratore. Please go ahead sir, your line is open.

Good morning, everyone. Welcome to Banco Santander-Chile first quarter 2022 results webcast and conference call. This is Emiliano Muratore, CFO and I'm joined today by Robert Moreno, Managing Director and Head of Investor Relations, and Claudio Soto, Chief Economist. Thank you for attending today's conference call. We hope you all continue to stay safe and healthy. The bank has continued with strong momentum into 2022 with a strong ROE and solid financial performance, thanks to our successful digital strategy, strong client growth, sound asset quality and impressive efficiency levels. As many of you probably already noticed in first quarter 2022 Chilean banks moved one step closer to adopted full IFRS accounting standards. With the adoption of IFRS 9 for valuating financial instruments with the exception of the methodology for calculating expected loss for credit risk, which is still calculated using the expected loss models defined by our regulator, the CMF. At the same time all Chilean banks have adopted a new financial statement preparation standard. We have restated our historical figures to match the current forward and this restatement is included in our new management commentary. If you have further questions about this new format, don’t hesitate to contact our IR department for help. When we get into our results, Claudio Soto will start with an update on the macro scenario beginning with Slide four.

Thank you, Emiliano. Since our last call, the pandemic in Chile has proceeded substantially and you can pay off a drop and sanitary restrictions have been lifted. After finishing 2022, 2021 significantly above trend the economy has begun it's slowed down a little earlier than expected. Monetary tightening by the Central Bank in the second part of last year a physical construction this year and political uncertainty has led to a moderation in domestic demand. These factors will continue pushing down the economy during the rest of 2022. The negative impact on global growth of the war in Ukraine, we’re also affect local activity. All in all we expect GDP will grow by 1.5% this year as seen on Slide five. Inflation has continued increasing, the consumer price index CPI rose 9.4% year-on-year in March, its highest rate in more than 10-years. Behind this phenomenon, where global pressures are relatively weak currency and second round effects from past price hikes in the context of still abundant domestic liquidity. Next few years also reflected the impact of the war in Ukraine, which pushed up local food prices. We estimate inflation will keep rising, until the end of the second quarter, reaching 11% after that it should be begin slowing down as global prices soften and local activity moderates. The Central Bank has continued tightening its monetary policy by raising the monetary policy rate 150 basis points in March, reaching 7%. We expect the monetary authority will increase its policy rate by 100 basis point in the meeting next week and eventually by another 50 basis point in June. This implies finishing the hiking cycle with a monetary policy rate at 8.5% after that they should keep their rate on hold during the third quarter and begin cutting by the end of…

Thank you, Claudio. We will now move on to Slide seven to focus on the evolution of our various digital initiatives this year. On Slide eight, we summarize our main initiatives, which have been key elements for our recent success in client growth and satisfaction. In the next few slides, I will update the evolution of the main initiatives outlined here. On Slide nine, we begin with our most successful initiative, which is Santander Life, client growth continues strong with Santander Life reaching over 970,000 clients, an increase of 60% year-over-year, Life’s active clients defined as those in which Santander is their main bank increased 52% year-on-year and loyal clients, which are those that are active and are also profitably using a majority of Life products rose 49% year-over-year. And the Loyal Life’s clients are also rapidly monetizing with gross income around $30 million in the first quarter, a 62% increase, compared to the same quarter of last year. Demand deposits remained high at $1.1 billion, a 53% increase surpassing by many times the amount clients have deposited in similar competing platforms. On the loan side, Life Clients had a total of $310 million in consumer loans, increasing 38% in consumer credit and 98% in credit card loans. These clients are also beginning to purchase other products such as, mutual funds and time deposits -- time thought deposits, which have grown 77% year-on-year and 161% respectively. Slide 10, we show the high growth Superdigital is obtaining -- Superdigital is a prepaid digital debit -- digital product and that the unbanked who seek a low cost bank account. Superdigital clients have grown 95% year-over-year, reaching over 292,000 clients. This growth has been helped by alliances with companies such as Cornershop and Uber, furthermore in January 2022, Todas Conectadas initiatives by the…

Thank you very much. We will now move to the Q&A part of the call. [Operator Instructions] Our first question comes from Mr. Tito Labarta from Goldman Sachs. Please go ahead sir, your line is open.

Hi, good morning, Robert, thanks for the call and taking my question. I guess my question is on your margins a little bit. Just, I mean, I know you lowered the guidance a bit, because of the higher interest rates. But just to think maybe and how that's going to evolve, so do you think you kind of see that immediate impact next quarter from the higher rates and maybe some more margin pressure in the short-term, but let's say if inflation remains high, is there maybe some upside to that margin outlook in particularly maybe thinking going into 2023 that’s your inflation and expectations for then. But how you think that can continue to evolve, just given the dynamics between inflation and policy rates, if you can give some more color on that would be helpful.

Hello, Tito, this is Emiliano. Thank you for your questions. I mean, regarding, I mean the future for NIMs, I mean, second quarter shouldn't be, let's say significantly worse, it could be around the first quarter, because we already know the March inflation that which was high was like 1.9% for the month, so that's going to be a significant part of the US variation for the second quarter. We'll now -- next week the CPI for April and so the second quarter shouldn't be, let's say, bad in that sense, the second half could be the one bringing the headwinds and how hard the headwinds will be will depend on the combination of where the inflation stays and how the Central Bank reacts to that. So that trends that trending down of NIMs should come in the second half and maybe with the third quarter being dependent on the timing of the Central Bank decisions on most of the inflation figures, but maybe the fourth quarter -- the third quarter could be the bottom. And then in the fourth quarter, when the Central Bank might start cutting rates depending on the evolution of inflation and activity. We can start to see like every balance in that sense. For 2023, the big question will be the combination of interest rates and inflation. So if inflation stay high, it will be positive for us. I mean, that maybe the Central Bank will be more modest in cutting rates in that environment. But the overall effect will depend on the reaction of the Central Bank to the inflation.

Great, thank you, Emiliano, that's helpful and then looking here your inflation forecast for 2023, 4.4% with the month every positive rate coming down to 4.75% in that scenario. How do you think about your margin should that come -- can it remain stable, let's say, the second half of 2022, could you get --

This year, yes. I mean the question mark for there is where we end up this year, but let's say that combination could be stable around where we are going to be this year.

Okay. And would it be more stable would say the second half of the year when you see the pressure or there to be a little bit of upside.

No, no, we don’t know for the --

With the full-year. Okay, all right, perfect. That's helpful. Thank you, Emiliano.

Thank you very much. We'll now be moving to the next question from Mr. Alonso Garcia from Credit Suisse. Please go ahead sir, your line is open.

Hi, good morning everyone. Thank you for taking my question. My question is on asset quality, I mean you continue to report healthy asset quality metrics across the different segments. And your guidance reinforces the positive outlook for asset quality. This year, but just wanted to ask, I mean how -- I mean the factor behind you feeling comfortable with asset quality remaining well under control this year in an environment of lower GDP growth, rising inflation, so just wanted to understand your -- what you're seeing in terms of asset quality in this environment? Thank you. A - Emiliano Muratore Okay. So with rising rates and higher inflation and lower growth, obviously there could be some pressures on asset quality. So we see what we did in the first quarter and if you look at the coverage ratios, I think it's more clear. Basically, there was some a little bit of increase in NPLs in consumer. But we basically used the coverage, so the coverage came down, but from like 600%, 500%. So -- and we didn't touch, first of all, we didn't touch any of the voluntary additional provisions basically in consumer lending as people, you know, have less liquidity and there might be some weakness or more than weakness I think consumer NPLs will slowly go back to where they were before the pandemic and the short social offers. But we already have that very well covered and basically we've used coverage in that portfolio. So really shouldn't affect too much the cost of risk. Now in Chile as you know, a lot of our mortgages are all of our mortgage are index to inflation and for the back book, the increase in rates for the back book doesn't effect, because the real rate is fixed over the life of the mortgage, but obviously the variable part of people's mortgage instalments comes from the increase in inflation. So I think there could be some risk there. Now, when you look at the figures in the first quarter, asset quality and mortgage did very well. But to be prudent in what we did is that we did increase the coverage and mortgage. So the increase in provisions in the quarter were mainly through mortgages even though mortgages asset quality remain very good. We increased mortgage, I think to the highest coverage we've had in many years to 130% that's out -- that's excluding the value of collateral. So basically, we've covered around two years of future potential charge-offs. So I think that's the benefit of having high coverage that we basically tweaked a bit the coverage ratios among the different products. So that's why we were able to remain try and clear with our cost of risk outlook for the rest of the year given the current outlook for the economy, okay?

Thanks. That's very clear. Thank you very much.

Thank you very much. Our next question comes from Mr. Ernesto Gabilondo from Bank of America. Please go ahead sir, your line is open.

Thank you. Good morning everyone, thanks for taking my call. My first question is also in terms of loan growth and in terms of the macro expectations. So I agree with you on your expectations of 1.5% GDP growth for this year? However, if we go beyond that instead, look into 2023. Well, you still as continue to have a pension reform, then you need to however tax reform to finance it, and then you're having tighter fiscal and monetary policy. So just wondering how do you see the GDP growth expectation for 2023? And how can that translated into loan growth?

,: Yes, I mean, what Claudio mentioned in terms of nominal GDP being like in the mid single-digits and then I think that the multiplier of loan growth to that is not so easy to predict, I mean, considering where we are coming from the pandemic, the deleverage from the families, that expansion plan would roll out. So I would say that we’re going to be around those of mid single-digits maybe from 5% to 7% nominal growth to -- of loans coming from that 0% to 1% GDP growth and inflation being in the 4% to 5% range.

Perfect. Thank you, and then my second question is on your ROE. We have seen, you have increased the target 21%, 22% for this year. However, at some point we should expect lower inflation, so what do you see the sustainable or long-term ROE?

Yes, I mean we gave our 18% to 19% range for long-term ROE. I mean, we don’t change that them in the first half -- I mean first quarter and first half considering the inflation levels and that are showing above 20% ROE that we don’t -- we haven't changed our long-term expectations in terms of ROE, because at the end after this high inflation period, the inflation will converge, I mean the Central Bank will take rates down again and we can’t go back to the, say, a more normalized scenario of this 18% to 90% range.

Okay, perfect. Thank you very much.

Thank you very much. We will be moving to the next caller. The next question comes from Mr. Carlos Gomez from HSBC. Please go ahead sir, your line is open.

Yes, hello, good morning. I wanted to ask you about the impact of the withdrawls from the pension fund on your business now and in the future from what we read there has already been an increase in long-term mortgage rates and a reduction in terms and which at the banks lend. How did you see that evolving? And how you see that impacting loan growth in the long run? And second I wanted to ask about the decline in deposits that we have seen in the last two quarters. Again, I think it is related to the withdrawal from the pension fund, do you see that continuing and is funding a concern for the next two or three years? Thank you.

Hello, Carlos, thank you for your question. I mean, regarding the impact of the pension fund withdrawals, I think we are still seeing the effects of the withdrawals in the sense that there is still -- there is significant amount of liquidity around the system in terms of demand deposits and time deposits and also as you said, the fact that the pension funds needed to sell long-term assets in the market pushed long-term interest rates up that, that made mortgages -- new mortgages more expensive. So that reduced the demand for mortgages, and I would think that, that's going to be the case for a while, I mean, we don't see long-term rates falling sharply. So the -- then the level of new origination in mortgages for the next, I don't know 12 to 24 months definitely will be lower than the ones we had in the past. It's also true that in nominal terms, the mortgage portfolio will be growing with inflation. So in terms of the nominal size of the portfolio, you can still have growth to the high single-digit numbers let's say supported by inflation. And also the effect of that withdrawals was like a reduction in the consumer loans demand. I mean people have liquidity, so they are demanding less credit, that's why you see like the numbers for us and for the system in consumer loans are modest or even falling, but that will change after people use the money they have and we see that happening more towards the end of this year maybe next year. What we are seeing in terms of deposit behavior is that we are seeing people first spending part of the money they have in their checking accounts. And also, let's say, considering the higher opportunity cost that the level of rates is creating people are shifting from demand deposits to time deposit basically, because now the yields and the rates are, let's say more attractive to them. So that's part of our pressure of NIMs, but it's not a concern in terms of the funding of the business, because we keep the deposit, I mean, it's more expensive on a time deposit format then on a checking account, but we still have the funding for our business. And moving to the first part with the demand on the mortgage business being slower than in the past, we don't foresee significant pressure in the long-term funding needs for us. We still have access to the domestic market, which is, let's say still there in circumstance. And also the international markets have proven to be very accessible for us, so with -- funding it's not a concern for the near future.

Okay, that's clear. Thank you.

Thank you very much. Our next question comes from Mr. Yui Fernandez from JP Morgan. Please go ahead sir, your line is open.

Thank you all and thank you for the opportunity and congrats on the very strong ROE. I had a quick one regarding the number of clients, we saw some stabilization regarding loyal clients and digital clients. So just would like to know your view for this year, the thing is like the growth goes slow down. Are you seeing more competition for our clients? Or is this just seasonal like first Q versus first Q, so that's the first one. And a follow-up on funding, I totally understand that like funding is not an issue regarding the mouth, but how do you see them in the positive world, right, because they are still at the very high level, although they decrease this quarter, they are still, I don't know 62% of your total deposits? And when you go back to the historical demand deposits they were around 40% of Santander total deposits. So how quickly we believe demand deposits were shrink, the thing is like a one, two year, again assuming all new pension withdrawing in Chile, right? Like how long do you think like pension -- sorry deposits may kind of normalized, because this has been a very good tailwind for banks. And I don't know, like with rates at seven and more. We could see, you know, like a quick shift here on demand deposits, so just want to hear your thoughts on this?

Thank you. Okay, so regarding clients and I think there's various factors, one is seasonality in the summer months always the things slow down a bit. The second factor is, we did do some changes as we always upgrading our site or app and there was a little bit of disruption there, we're always trying to boost cyber security and I think that affected in the very short-term. Our NPS, which we saw and the growth of digital clients, but I think it was momentary and now I think things are back on track. And the third, it's true that there is definitely more competition, there's a lot of good platforms. I think we're still leading in any case, we should see a client growth, especially digital client growth start to recover. As you know, as people adjust to the new format and the new cyber security features. So we're already seeing in March and April that recovering. With the new products through life especially like what the Life -- I think that's going to be another game changer that's going to slowly gain momentum and getting that continues to the well. So overall I think if there's going to be more competition, we're going to start launching some new things in the next few quarters. All of that should give the boost again to client growth. So we still think that's going to move forward after a slight dip, especially in the digital side. It was basically in the month of January and February, March, there is already a pickup.

And regarding the mix of the basket or the trends for deposits going forward, I think, first, the Board has to mention that apart from the pension fund withdrawals and let's say all the fiscal hubs. Also we did a significant improvement in all the transactional business with company. So, if he goes to Slide 21, you could see there that the evolution of the retail part, individual loss on the corporate part, middle market and SCIB is quite different. So we are still keeping a significant part of the demand deposits coming from corporate. Basically because apart from the let's say reasonable optimization of their margins and their financial business, that money is more related to the, kind of, let's say loyalty and the transactional relationship with the bank that still strong and we are positive going forward. It's also important dimension go into your mix between time deposits and demand deposits to go into some years before now that also there the system and also we had a significant pool of time deposits coming from institutional investors, I mean pension funds, I mean that's not going to come to come back. So I think that it's a long-term effect, where the share of demand deposits for the -- for us as total deposit will stay higher than the one we -- it was in the past. So what we're going to your question, we don't see like in the -- especially in the retail part the opportunity cost and also the usage of the liquidity from households will put a headwind in demand deposit growth going forward and maybe some shift to time deposit, but then when you see the overall and good on the corporate segment, we don't see a faster significant shift. Rates are already at 7%, so let's say, a big part of that opportunity cost shift has already passed. And so we are not concerned of having a rapid or sharp mix shift from demand to time deposits in an overall deposit base during the next months.

And also typically, the concern was inflation coming down and demand deposits coming down, right. That would be painful. And also guys, congrats on the new release, that's my final comment here, it was very good, like the new formations are bringing should they release. Thank you very much.

Okay, thank you for your comments, Yui.

Thank you very much. Our next question comes from Mr. Juan Recalde from Scotiabank. Please go ahead, sir.

Hi, thank you for taking my question. The question is regarding fee income growth, we saw very strong growth of around 17% year-on-year in the quarter? I was wondering how sustainable is this, and what is your expectation for fee income growth for 2022 and 2023?

Okay. Yes, so we've had, I think, probably one of the more better parts of our results have been the positive effects of all the growth in clients and in transactionality on fee growth. And we've seen fees grow across the board, and I think that's good news for the rest of the year. As a side now I remember that and as we mentioned in the management commentary in the script, we have to begin to absorb beginning in April, the new interchange fees, and that's going to cost us this year MXN29 billion. So basically April through December, so that will probably lower a bit. The ongoing growth of fees especially through cards, even though it should have a slight benefit for Getnet, so overall fee growth will probably not continue the trends we saw in the first quarter because of this, even though the other -- the non-credit card related products, which should continue to have a very good year, because of the increase in transactionality, okay. So this 17% growth in fees will probably come down by the end of the year as we absorb these MXN29 billion, so that was probably around 8% or 9%. And the next year, once we have this absorbed we should go back to growth in the teens, because the client growth, the transactionality should continue to push fees. So this is kind of like a one-off that we absorbed this year and then we should continue growing. So we have them even though there are some pressure in margins as we mentioned, I think the fee part is quite clear. And the other thing is that the treasury income -- treasury in the first quarter was like MXN57 billion, we have very good a client treasury non-client, which was a loss last year. Non-client treasury should be more or less positive or not repeating the loss. So when you add fees and the treasury, and I mean that's basically non-net interest income that should grow around 15% this year. So I think that, that's one of the positives we have this year. So even though we have to adopt the interchange fee, the rest of the fee products should grow well and our treasury should also have a good year and that should continue through next year as well.

That's very clear. Thank you for the comments.

Thank you very much. We have received three text questions. I will read them out individually. So the first one is, any potential regulatory risk for the bank to flag pertaining to constitutional convention?

Well, in term of the constitutional convention, it is hard to foresee right now. What are the specific implications for the financial industry in general. The constitutional is defining political rules is the final list of social right and then the working of the political system and the legislative and judiciary system. So it's hard to think right now too specific the impact on the financial industry. Regarding other type of regulations, one of the things that is going on right now is the fintech regulation that is being discussed with Congress another regulation to have it consolidated debt repository to -- that is something that has been discussed for many years already in Chile. But now it's a battle in congress.

Hey, thank you very much for that. The next text question considering the current economic slowdown, how do you see loan growth evolving in 2022, especially in the retail segment? Do you think loan growth of 8% to 10% is feasible in this context?

Yes, hi. I think so in part because inflation went up and so eveything that's denominated in U.S., so really we didn't really change our nominal loan growth forecast too much versus the previous guidance. What really changed was the inflation went up, so the real loan growth is actually around almost zero. So basically loans will still -- we're not seeing terrific numbers in loan originations, you know, except for auto loans, the rest of the consumer loans just kind of stalled new mortgage originations have fallen. And there is some interesting activity in the [Technical Difficulty] really the most recent push is translation gain through the US, okay, to higher inflation.

Okay, thank you very much. The next text question is about inflation again. So how much inflation is too much in the sense that even higher inflation is good for market margins, there must be a point where it begins to affect customers’ lower consumption, higher delinquency et cetera? Thank you.

That's a difficult question to ask, we think that we are still at levels of inflation where those pressures exist are still manageable by our clients and by our self and we also have, let's say trust in the Central Bank doing their work in helping the inflation to converse. I will also -- the GDP forecast for the economy should help to have inflation converging and the one coming from abroad, the important inflation coming from all the situation in Ukraine and all the supply change disruptions that also should fade away in the future, maybe not so soon. But yes a bit away from now.

Okay, thank you very much. We have a final voice question from an individual analyst. This is Mike George will open the microphone, please go ahead, sir. Okay. I believe we have no further questions. And at this point, I'll pass the line back to the management team for the concluding remarks.

Okay, thank you, Michael. Thank you all very much for taking the time to participate in today's conference call. We look forward to speaking with you soon again. Goodbye.

Thank you very much. This concludes our call for today, we’ll now be closing all the lines. Thank you and have a great weekend. Bye-bye.