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Banco Santander Chile Announces Second Quarter 2017 Earnings

Banco Santander Chile Announces Second Quarter 2017 Earnings

Santiago, Chile, July 28, 2017. Banco Santander Chile (NYSE: BSAC; SSE: Bsantander) announced today its unaudited results1 for the second quarter of 2017.

Net income increased 5.7% QoQ and 29.4% YoY in 2Q17. ROAE reached 20.8% in 2Q17

Net income attributable to shareholders in 2Q17 totaled Ch$150,436 million (Ch$0.80 per share and US$0.48/ADR), increasing 5.7% QoQ and 29.4% YoY. The Bank's ROAE[1] expanded in the quarter 370bp compared to 2Q16 and 130bp compared to 1Q17, reaching 20.8%, above initial guidance. Net income attributable to shareholders in 1H17 totaled Ch$292,811 million, increasing 21.1%, with a ROAE of 20.3% YTD.

The rise in the Bank's ROAE was driven by a solid growth of client revenues leveraged on a lower cost of credit and improved efficiency.  This is reflected in the 31.6% YoY rise in net contribution from our business segments[2]. This was led by a 47.2% increase in net contribution from our Retail Banking segment[3].

NIM[4], net of risk rises 36bp to 3.6%.

Total NIM was 4.6% in 2Q17, up 40bp QoQ YoY and 1bp YoY despite lower YoY inflation. This positive evolution of net interest margins in the quarter was mainly driven by our business segments. Net interest income from our business segments (Client NII) increased 3.0% QoQ and 11.4% YoY, with all business segments showing strong NII growth QoQ and YoY, despite average loans from reporting segments decreasing 0.8% QoQ and increasing slightly YoY by 4.1%. Client NIMs (defined as Client NII divided by average loans), which excludes the impact of inflation and the ALCO's liquidity portfolio, rose to 5.0% in 2Q17 compared to 4.8% in 1Q17 and 4.7% in 2Q16. The Bank has managed to gradually improve client NIMs by selectively growing the loan book and a lower cost of funding in line with lower Central Bank interest rates.

Even greater improvement was seen in the NIM net of risk[5] for 2Q17, which reached 3.6%, up 36bp from 1Q17 and 16bp from 2Q16. This also led to Client NIM net of risk increasing to the highest level in last five quarters.  In general asset quality indicators remained stable in the quarter. Total NPLs fell by 1.3% in 2Q17 to Ch$ 587,107 compared to 1Q17 however the NPL ratio remained stable at 2.2%, in particular, the NPL ratio of consumer loans decreased from 2.4% in 1Q17 to 2.0% in 2Q17 in line with the Bank's loan growth strategy of steering away from the low end of the consumer market. Similarly, the Bank's Expected loss ratio or Risk index, measured as Loan Loss Allowances (LLA) over total loans also remained stable at to 2.9% as of June 2017. As economic growth remained sluggish in the quarter there was some minor deterioration of the impaired loan ratio from 6.1% as of March 2017 to 6.3% as of June 2017.  Provision for loan losses increased 3.6% QoQ  due to a slight increase in impaired loans in the quarter, and decreased 8.3% YoY in 2Q17, reflecting the change in the loan mix as part of the  de-risking strategy enforced by the Bank which has led to a cost of credit[6]of 1.1% in 2Q17, an improvement on the 1.3% in 2Q16.

 Loan growth slows in the quarter as the Bank remains focused on profitability

Total loans decreased 1.1% QoQ and increased 2.9% YoY in 2Q17 as a consequence of the Bank's focus on profitability and risk coupled with slower economic growth. Loans to individuals continue to lead growth and expanded 0.4% QoQ and 5.2% YoY. Growth in loans to SMES has also been orientated on growing the loan book among larger, less risky SMEs and as with Middle-market companies and GCB, the Bank has continued to focus on generating non-lending revenues.

Rate cut and lower loan growth drives shift of time deposits towards fee generating mutual funds

In the quarter, the Bank focused on lowering its funding costs and optimizing liquidity levels. Lower demand for loans resulted in a spike in the Bank's liquidity levels. In order to optimize this and to improve funding costs, the Bank lowered its deposits rates in tandem with the lower Central Bank rates.  At the same time, the Bank stimulated a greater flow of customer funds to mutual funds, which in a lower rate environment is a more attractive option for clients and which generates higher fee income. As a result, total deposits decreased 4.2% QoQ and 4.8% YoY. On the other hand, Mutual funds brokered by the Bank increased 1.3% QoQ and 14.0% YoY.

Greater customer loyalty & satisfaction fueling solid fee growth

In 2Q17 fee income decreased 1.4% QoQ and increased 12.5% YoY. In retail banking, fees increased 1.7% QoQ and 8.1% YoY, mainly driven by rising client loyalty and cross-selling. Loyal individual customers[7] in the High-income segment grew 12.1% YoY. By products, the biggest contributors to fee income growth were collection of mortgage related insurance fees and asset management brokerage fees.

Sustained rise in productivity. Efficiency ratio[8] 40.4%

The Bank's efficiency ratio reached 40.4% in 2Q17 compared to 43.8% in the same period of last year. Operating expenses grew 3.4% QoQ and 1.4% YoY. The relatively low cost growth, below the YoY variation of the CPI Index, despite the fact that the most of our expenses are adjusted by inflation, is a direct consequence of the various initiatives that the Bank has been implementing to improve commercial productivity and efficiency. Personnel expenses increased 0.1% YoY in 2Q17. The slight increase in personnel expenses is mainly due to the rise in salaries as they are adjusted according to CPI inflation. However, this has been offset by a 5.0% decrease in total headcount in the last twelve months. Administrative expenses decreased 1.1% YoY in 2Q17. The Bank's digital transformation and new branch formats has led to greater efficiencies enabling the Bank to close 13.2% of the branch network and eliminate 28.6% of our ATMs in the past twelve months.

Core capital[9]ratio reached 10.8% as of June 2017.

The Bank's ROE in 2Q17 reached 20.8% and 20.3% for the first half of the year.  The Bank's Core capital ratio reached 10.7% at the end of 2Q17, 70bp higher than the levels as of June 2016. Compared to 1Q17, core capital levels only descended 20bp, despite the payment of the Bank's annual dividend in April equivalent to 70% of 2016 earnings. The total BIS ratio[10]reached 13.6% as of June 2017.  The YoY growth of RWA was 1.0% compared to 2.9% for loans.


Robert Moreno

Manager, Investor Relations Department

Banco Santander Chile

Bandera 140, Piso 20

Santiago, Chile

Tel: (562) 2320-8284



[1].      ROAE: Return on average equity: annualized quarterly net income attributable to shareholders divided by average equity attributable to shareholders in the quarter. Averages calculated using monthly figures.

[2].      Net contribution is defined as Net interest income + Net fee and commission income + Total financial transactions - provision for loan losses - operating expenses.

[3].      Retail banking = Individuals + Small and Mid-sized companies (SMEs).

[4]. Annualized Net interest income divided by average interest earning assets.

[5]. Annualized Net interest income minus annualized provisions divided by average interest earning assets.

[6]. Annualized provision for loan losses / average total loans. Averages are calculated using monthly figures.

[7]. Clients with >4 products plus minimum usage and profitability levels.

[8]. Efficiency ratio: Operating expenses excluding impairment and other operating expenses divided by Operating income. Operating income = Net interest income + Net fee and commission income + Total financial transactions, net + Other operating income minus other operating expenses.

[9]. Core capital ratio = Shareholders' equity divided by risk-weighted assets according to SBIF BIS I definitions.

[10]. BIS ratio: Regulatory capital divided by RWA.