Banco Santander Chile (NYSE: BSAC; SSE: Bsantander) announced today
its unaudited results1 for the six month period ended June 30, 2020
and second quarter 2020 (2Q20).
Adjusted ROAE of 12.0% in the quarter.
Gross income up 7.1% YoY in 2Q20
Net income attributable to shareholders
in 2Q20 decreased 41.1% QoQ and 50.4% YoY, totaling
Ch$84,859 million (Ch$ 0.45 per share and US$ 0.22 per ADR). It is
important to point out that 2Q20 results include an additional
provision of Ch$30,000 million recognized in order to increase
coverage ratios considering the uncertainty surrounding the
potential impacts on credit quality of the COVID-19 crisis.
Excluding the additional provisions, the adjusted net
income was Ch$106,759 million and the adjusted
quarterly ROAE was 12.0%.
Total gross income (Net
interest income, Fees and Results from financial transactions)
remained strong, growing 7.1% compared to 1Q20 and 6.7% compared to
2Q19, demonstrating the Bank’s ability to continue to provide solid
income even during this pandemic. Furthermore, operating
expenses increased just 1.7% QoQ and 1.5% YoY and the
efficiency ratio reached the world class level of
38.9% in 2Q20.
Net income attributable to shareholders
in 6M20 decreased 22.9% YoY, totaling Ch$228,879 million
(Ch$1.21 per share and US$0.59 per ADR) with the Bank’s
ROAE in 6M20 at 13.0%. Excluding the additional
provisions, the adjusted net income was Ch$250,773
million and the adjusted ROAE in the first half of
2020 was 14.3%.
Loan growth driven by FOGAPE and
Corporate lines of credit in 2Q20
Total loans increased 13.5% YoY
and 2.7% QoQ, driven by higher demand for commercial loans from the
Middle-market and CIB segment in the quarter with the onset of the
COVID-19 crisis, as many companies began to takedown their approved
credit lines driving loan growth in the quarter. Simultaneously,
the Bank disbursed approximately Ch$1,484,935 million (or US$1.8
billion) of state guaranteed FOGAPE loans with the state guarantees
covering around 77% of loans on average.
Loans to individuals increased
8.1% YoY and decreased 1.3% QoQ. The quarterly decrease was mainly
due to the contraction of Consumer loans which
decreased 7.0% QoQ as clients have become more restrictive in their
consumption behavior and have focused on paying back their
loans.
Increasing coverage to 154% with
Ch$30,000 million additional provisions recognized in the
quarter
During the quarter, provision for loan
losses increased 150.3% YoY and 85.7% QoQ as the Bank is
proactively increasing provisions to anticipate the risk of the
loan portfolio due to the economic crisis in Chile. The
total coverage ratio, including the additional
provisions for consumer loans, reached 154.1% in 2Q20 and the
expected loan loss ratio (Loan loss allowance over
total loans) rose from 2.7% in 1Q20 to 2.9% in 2Q20. Since March
the Bank has offered grace periods to clients with good payment
behavior to ease their financial burden in the crisis. The
regulator has temporarily eased provisioning requirements for
reprogrammed loans, but Santander Chile has decided to maintain a
high cost of risk in order to minimize future provision needs. As a
result, the Bank decided to establish additional
provisions in the quarter amounting to Ch$30,000 million
which are allocated equally between the consumer, mortgage and
commercial portfolio. Including these Ch$30,000 million additional
provisions, the cost of credit in 2Q20 reached
2.2%. In July 2020, the Bank will recognize an additional Ch$30,000
million in additional provisions.
Strong deposit growth driven by a 39.3%
YoY rise in non-interest bearing demand deposits
The Bank’s total deposits
increased 20.5% YoY and 5.1% QoQ in 2Q20. In the quarter,
non-interest bearing demand
deposits grew 12.3% QoQ and 39.3% YoY due to high growth
of retail checking accounts and continued strength in the Bank’s
transactional banking services for companies as clients looked to
increase their liquidity to confront the months of quarantine. This
also led to a high liquidity ratio with the Bank’s
LCR and NSFR reaching 198% and
105%, respectively at the end of June 2020.
Time deposits increased 7.8%
YoY and decreased 0.5% QoQ. In March, the Central Bank
continued to lower its Monetary Policy Rate, which serves as the
reference rate for most CLP denominated deposits. At the same time
the Bank continued to enforce time deposit price discipline,
improving our time deposit funding cost in nominal pesos in
absolute terms and in comparison, to our main peers. The low rate
environment also drove the 24.3% YoY and 11.6% QoQ rise in
mutual funds brokered through the Bank as clients
searched for higher yielding investments.
Solid capital ratios
The Bank’s core capital ratio1
was 10.0% and the total BIS ratio2 was 14.6% as of
June 30, 2020. In April, the Bank’s shareholders agreed to
distribute a dividend payout of 30%, in line with the regulatory
minimum and lower than previous years, to ensure healthy capital
ratios during the pandemic.
As of the date of this report the CMF has
published for consultation a new treatment of the FOGAPE loans for
capital purposes. According to the proposal, the state guarantees
will no longer be considered in Tier II, and the risk
weighting of FOGAPE loans will be lowered from 100% to
10%. This regulatory change would increase our core
capital ratio by around 30bp when enacted.
___________________
1 Core Capital ratio = Shareholders’ equity
divided by Risk-weighted Assets (RWA) according to CMF BIS I
definitions.2 BIS ratio: Regulatory capital divided by
RWA.
Life and Superdigital driving digital
account openings
Santander Life continues to be
the main contributor to new client growth due to the success of
this product’s Merit Program and Digital On-boarding process. Total
new clients in Life in the first half of 2020 increased 274%
compared to 1H19. The lockdowns have increased the demand for
online banking services and Santander Life’s attractive product
offer has continued to drive demand for this product. Life already
has more than 215,000 clients, 75% of which were digitally
onboarded. Santander Life received an NPS score of 71, the highest
in the Bank.
In April, Superdigital was fully launched to the
public and had a record amount of accounts opened in the quarter,
rapidly reaching more than 70,000 clients. Superdigital is an
attractive and economical alternative for un banked Chileans to
manage the money received from the government initiatives during
the COVID-19 crisis.
The Bank’s current account opening
market share reaches 44%
The Bank’s market share in traditional checking
accounts remained strong in the first half. According to the latest
publicly available information, our market share in new account
openings reached 44%. These figures do not include the additional
clients entering the Bank through Santander Life and
Superdigital.
Our digital channels have proven vital during
the COVID-19 crisis providing clients with an easy access to our
transactional products.
Investment plan moves forward. Branch
transformation program to be accelerated
The Bank continues moving forward with its
3-year investment plan totaling US$380 million for 2019-2021
assigned for digital transformation, which includes new digital
products, expanding the transformation of branches and back-office
functions, investment in cyber security and increasing access of
clients and non-clients to financial services, mainly through
digital channels.
This strategy has been further validated by the
COVID-19 lockdowns, driving our clients to the digital channels we
have been developing. This has led to improving the digitalization
and automatization process for loan approvals, especially for SMEs
and the new FOGAPE loan.
In the second half of 2020, we will accelerate
our branch transformation process. During 2019, we started to pilot
the Workcafés 2.0 which is a more compact version of the original
Workcafé branches and like its predecessor have minimal back office
personnel, no tellers and high productivity levels. With the
COVID-19 pandemic, we have decided to accelerate our branch
transformation plan and these branches will become the building
block for our future branches. These new branches have shown
promising results in terms of profitability and efficiency.
Another part of our strategy is the payments
systems. During July the Bank officially created the Getnet
subsidiary, which has been approved by the regulator and so will be
up and running shortly.
In April, Klare was officially launched
(www.klare.cl). This is an online digital platform for brokering
insurance products of an insurtech that Santander supports. In the
first stage, it will be offering mainly life insurance and expects
to add on more products in the future. In this site individuals can
easily compare and shop for a life insurance that suits their needs
and budget.
Margins impacted by growth in lower risk
assets and supported by lower cost of funds
In 2Q20, Net interest income,
NII, increased 2.7% compared to 2Q19 and decreased 2.0%
compared to 1Q20. The Bank’s NIM in 2Q20 was 3.8%,
lower compared to the 4.2% in 1Q20 and 4.4% in 2Q19.
The low Central Bank rate of 0.5% had a positive
impact on deposit costs denominated in nominal pesos which comprise
most of our time deposits. Furthermore, in 2Q20 the 12.3% increase
in non-interest-bearing demand deposits in the quarter also had a
positive impact on margins. These positive effects were offset by
the abovementioned lower inflation of just 0.3% in the quarter and
growth in lower yielding but lower risk interest earning
assets.
Non- NII up 43.4% QoQ and 19.2%
YoY
Total non-interest income,
which is the sum of fee income and financial transactions, net
totaled Ch$139,483 million in 2Q20 and increased 43.4% QoQ and
19.2% YoY.
Results from Total financial
transactions, net was a gain of Ch$77,223 million in 2Q20,
an increase of 57.5% compared to 2Q19 and 238.0% compared to 1Q20.
Client treasury services revenues reached a gain
of Ch$45,537 million in the quarter, an increase of 26.6% compared
to 2Q19 and 49.8% compared to 1Q20, reflecting the demand on behalf
of clients for treasury products, mainly for their hedging needs
and market making. Non-client treasury
totaled a gain of Ch$31,686 million in the quarter. The Bank’s
fixed income liquidity portfolio is solely composed of Chilean
sovereign risk and U.S. treasuries. During the quarter, as
inflation expectations rapidly decelerated, rates declined across
the yield curve. This fall in inflation lowered margins but was
offset by the realized gains from the available for sale portfolio
(AFS).
Fee income
decreased 8.4% compared to 2Q19 and 16.3% compared to 1Q20. Fees in
the quarter were mainly affected by ongoing quarantines and lower
economic activity due to the COVID-19 crisis, especially in our
card business. We expect this trend to reverse as lockdowns are
eased. As mentioned above, client acquisition remains strong which
will also help to fuel future fee growth.
Productivity continues to rise.
Efficiency ratio of 38.9% in the quarter
In 2Q20 operating expenses increased 1.5% YoY
and 1.7% QoQ with the Bank’s efficiency ratio
reaching 38.9% in 2Q20 demonstrating good cost control.
Productivity continues to rise with volumes (loans plus deposits)
per branch increasing 20.5% YoY and volumes per employee rising
18.0% YoY despite the widespread lockdown throughout the quarter.
YTD operating expenses to total assets improved to 1.4% in 2Q20
compared to 1.8% in 2Q19.
Banco Santander Chile is the largest bank in the
Chilean market in terms of loans and assets. As of June 30, 2020,
the Bank had total assets of US$ 74.3 billion, loans net of
provisions of US$ 41.8 billion, deposits of US$ 32.3 billion, and
total equity of US$ 4.5 billion. The BIS capital ratio as of June
30, 2020 was 14.6%, with a core capital ratio of 10.0%. Banco
Santander Chile is one of the companies with the highest risk
classifications in Latin America with an A1 rating from Moody's, A
from Fitch, A from Standard and Poor's, and A+ from Japan Credit
Rating Agency.
CONTACT INFORMATION Robert
Moreno Investor Relations Banco Santander Chile Bandera 140, Floor
20 Santiago, Chile Tel: (562) 2320-8284
Email: irelations@santander.cl
Website: www.santander.cl
___________________1 The information contained
in this report is unaudited and is presented in accordance with
Chilean Bank GAAP as defined by the Financial Markets Commission
(CMF).
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