Banco Santander-Chile Announces First Quarter 2024 Earnings

Rhea-AI Summary

Banco Santander Chile announced its first-quarter 2024 earnings, reporting a net income decrease of 11.4% compared to the previous year. The bank showed a solid capital position with a CET1 ratio of 10.4% and a BIS ratio of 17.0%. Loan growth was driven by mortgages and commercial lending, while total deposits increased 2.5% QoQ. Interest income saw a recovery in 1Q24, and net income from fees increased 10.1% in the quarter. Support expenses grew 4.3% in line with guidance. The bank's efficiency ratio reached 47.4% as of March 31, 2024.

Positive

• The bank reported solid capital levels with a CET1 ratio of 10.4% and a BIS ratio of 17.0%.

• Total loans increased 1.1% QoQ and 5.5% YoY, driven mainly by mortgage loans and commercial loans.

• Interest income continued its recovery path in 1Q24, increasing by 30.9% compared to the same period in 2023.

Negative

• Net income attributable to owners of the Bank decreased by 11.4% compared to the same period from the previous year.

• Support expenses increased by 4.3% in 3M24, driving total operating expenses up by 19.5% compared to the same period in 2023.

• The bank's efficiency ratio reached 47.4% as of March 31, 2024, higher than 44.4% in the same previous period.

Insights

Financial Analyst

The reported decline in net income by 11.4% for Banco Santander Chile could reflect cautionary signs for investors as it can signal potential challenges in the bank's operations or competitive landscape. The bank attributes the net income decrease to a mix of increased loan loss provisions, restructuring costs and a higher effective tax rate. These factors are significant as they might indicate a more conservative approach to risk management, which could be either a response to anticipated economic headwinds or a strategic shift in the bank's operations. An increase in loan loss provisions is particularly noteworthy, as it may suggest a forecast of higher default rates among borrowers. Investors should monitor how these figures develop in subsequent quarters to discern whether these are temporary adjustments or part of a longer-term trend. The solid capital levels with a CET1 ratio of 10.4% and a BIS ratio of 17.0% are positive indicators of financial stability and regulatory compliance, which can provide some reassurance.

Market Research Analyst

The growth in mortgages and commercial loans reflects a recovering domestic demand side in Chile, which may entice investors interested in regional economic health as a proxy for the bank’s growth potential. The YoY loan growth of 5.5% and the notable increase in mortgage loans by 7.7% YoY could be seen as the result of an improving macroeconomic situation or the bank's competitive position in these segments. A diversified loan portfolio with a significant portion indexed to the UF suggests an attempt to hedge against inflation, thereby protecting the bank's and investors' returns. This strategy could be appealing to investors who are wary of inflationary pressures. The variation in the types of loans and the attention to foreign currency loans also suggest that the bank is balancing its portfolio to mitigate risks associated with exchange rate fluctuations and sector-specific downturns.

Investment Analyst

From an investment perspective, the increased net interest and readjustment income (NII) by 30.9% is a strong indicator of the bank's core revenue-generating capabilities. The rise in NIM from 2.2% to 2.7% is a significant metric as it suggests improved profitability from lending activities. The bank's ability to increase its net commissions by 10.1% in the quarter, achieving a recurrence ratio of nearly 49%, indicates a robust capability to generate stable fee-based income. This could be read as a positive sign for investors, signaling a diversified revenue stream beyond traditional interest income. The disclosed efficiency ratio of 47.4% points to higher costs relative to profits, which may concern investors looking for lean operations, though it's essential to contextualize these figures within the bank's broader strategic initiatives like digital banking transformations.

SANTIAGO, Chile, April 30, 2024 (GLOBE NEWSWIRE) -- Banco Santander Chile (NYSE: BSAC; SSE: Bsantander) announced today its results¹ for the three-month period ended March 31, 2024, and first quarter 2024 (1Q24).

Our CEO Strategy Update & 1Q24 results will be held on Tuesday, May 14, 2024 at 9.00am New York time. For more information please visit our website.

ROAE² of 11.2% in 1Q24³
As of March 31, 2024, net income attributable to owners of the Bank totaled $120 billion ($0.64 per share and US$0.26 per ADR), reflecting a decrease of 11.4% compared to the same period from the previous year, along with an ROAE of 11.2%. This variation is due to several factors. On the one hand, there is an increase of 30.9% in the net income from interest and readjustments although this increase is offset by higher loan loss provisions, an increase in other specific expenses related to provisions for restructuring, and a higher effective tax rate.

Solid capital levels with a CET1⁴ of 10.4% and a BIS ratio⁵ of 17.0%.
Our CET1 ratio remains solid at 10.4% and the total Basel III ratio reaches 17.0% at the end of March 2024. Risk-weighted assets (RWA) increased 5.5% since March 31, 2023 and 2.4% QoQ⁶. We are actively seeking to reduce our market risk-weighted assets through netting and novation of our derivatives portfolio, resulting in a 3.0% YoY decrease.

At the same time, core capital increased 4.8% since March 31, 2023 and decreased 4.3% QoQ primarily due to the increase in the provision for dividends related to the proposal by the Board for the distribution of 70% of the 2023 net income attributable to shareholders, which was approved in the Shareholders' Meeting in April 2024.

Loan growth led by mortgages and commercial lending
Total loans increased 1.1% QoQ and 5.5% compared to March 31, 2023, driven mainly by mortgage loans and commercial loans.

Approximately 58% of our portfolio is indexed to the UF⁷, mostly mortgage loans and around 36% of commercial loans. Regarding loans in foreign currency, around 23% of commercial loans are denominated in foreign currency, mainly in US dollars. These effects together with increasing demand due to the slightly more positive evolution of the economy in recent months led to a growth of 4.8% YoY and 1.5% QoQ in commercial loans.

Mortgages continue to grow above inflation, reaching growth of 7.7% YoY and 1.1% QoQ as clients adjusted to the conditions of market. Consumer loans increased 0.7% QoQ and 5.5% from March 31, 2023. After periods of contraction to the high liquidity of Chilean households in recent quarters we have seen an acceleration of credit card loans, mainly related to the increased use of cards.

Total deposits increase 2.5% QoQ driven by time deposits
The Bank's total deposits increased 2.5% QoQ and 8.4% since March 31, 2023. The increase was driven by time deposits which increased 18.5% since March 31, 2023, mainly in the CIB segment, because high rates led our clients to switch to more attractive deposits explaining the decrease of 2.2% since March 31, 2023 and 0.2% QoQ of demand deposits. It is important to note that the decrease in demand deposits is less pronounced than in previous quarters, while the rise in time deposits is also slowing down, as clients respond to lower interest rates.

Our clients' investments through mutual funds brokered by the Bank also grew in the quarter, reaching an increase of 12.7% QoQ and 35.5% since March 31, 2023.

Bonds increased 3.7% in the quarter and 11.4% since March 31, 2023. During 2024, the Bank has placed bonds for UF 5,132,000, CLP 55,050 million and CHF 225 million, taking advantage of attractive opportunities in the different fixed income markets at a national and international level.

The Bank's Liquidity Coverage Ratio (LCR) as of March 31, 2024, was 176.3% and the Bank's Net Stable Financing Ratio (NSFR), reached 101.6%, both well above the regulatory minimum established for this index.

Interest income continues its recovery path in 1Q24 in line with a lower MPR. Income from readjustments decreases due to lower UF variation in 1Q24.
Year to date net interest and readjustment income (NII) as of March 2024 increased 30.9% compared to the same period in 2023. This increase in NII was mainly due to higher interest income due to the effect of the lower monetary policy rate in our funding cost, which fell from 6.8% to 5.4% in 3M24.

The above is partially offset by lower income from readjustments which decreased 49.1% in 3M24 compared to the same period in 2023, given that the variation in the UF reached 0.8% in 3M24 compared to 1.3% in the same period in 2023.

With these two effects, the NIM⁸ increased from 2.2% in 3M23 to 2.7% in 3M24.

Net income from fees increases 10.1% in the quarter, with a recurrence ratio⁹ of 49%
Net commissions increased 10.1% QoQ due to the increase in clients and greater use of products such as mutual funds and insurance, where the Bank earns brokerage fees. With this, the recurrence ratio (total net commissions divided by total expenses) is 48.9% in 1Q24, demonstrating that almost half of the Bank's expenses are financed with commissions generated by our clients.

Cost of credit¹⁰ of 1.26% in 3M24, in line with the evolution of asset quality in conjunction with the economic scenario.
During the Covid-19 pandemic, asset quality benefited from state aid and withdrawals from pension funds, which produced a positive evolution of these during that period, later normalizing in line with the economy and the drainage of excess liquidity from households. More recently, the behavior of our clients is reflecting the state of the economy and the labor market, where non-performing loans (NPLs) are slightly higher than usual. Given the above, in 1Q24, the non-performing loan ratio increased to 2.5% in 1Q24 and the impaired portfolio ratio reached 5.8% in 1Q24. Finally, the expected loss ratio (provisions for credit risk divided by total loans) has increased slightly to 2.9% in 1Q24 product of higher provisions made in recent periods. With this our cost of risk reached 1.26% in 3M24.

Support expenses increased 4.3% in 3M24 in line with guidance
Support expenses (remunerations, administration and amortization) grew 4.3% YoY and decreased 2.2% QoQ. Total operating expenses increased 19.5% in 3M24 compared to the same period in 2023 driven by higher other operating expenses related to the restructuring of our branch network and the transformation to Work/café and also advances in Digital Banking.

The Bank's efficiency ratio¹¹ reached 47.4% as of March 31, 2024, higher than 44.4% in the same previous period, due to other operating expenses in the quarter. On the other hand, the ratio of costs to assets increases to 1.4% in 3M24 vs. 1.3% in the same period of the previous year.

Banco Santander Chile is one of the companies with the highest risk classifications in Latin America with an A2 rating from Moody's, A- from Standard and Poor's, A+ from Japan Credit Rating Agency, AA- from HR Ratings and A from KBRA. All our ratings as of the date of this report have a Stable Outlook.

As of March 31, 2024 we had total assets of Ch$ 74,780,252 million (U.S.$ 76,187 million), outstanding gross loans (including interbank loans) at amortized cost of Ch$ 41,360,775 million (U.S.$ 42,139 million), total deposits of Ch$ 30,416,891 million (U.S.$ 30,234 million) and shareholders’ equity of Ch$ 4,163,041 million (U.S.$ 4,241 million). The BIS capital ratio as of March 31, 2024, was 17.0%, with a core capital ratio of 10.4%. As of March 31, 2024 Santander Chile employed 8,976 people and has 246 branches throughout Chile.

CONTACT INFORMATION
Cristian Vicuña
Chief Strategy Officer and Head of Investor Relations
Banco Santander Chile
Bandera 140, Floor 20
Santiago, Chile
Email: irelations@santander.cl
Website: www.santander.cl 

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1 The information contained in this report is presented in accordance with Chilean Bank GAAP as defined by the Financial Markets Commission (FMC).
2 Accumulated Shareholders’ net income annualized, divided by annual average shareholders’ equity.
3 First quarter of 2024
4 Core capital divided by risk-weighted assets, according to BIS III definitions by the FMC
5 Regulatory capital divided by risk-weighted assets, according to BIS III definitions by the FMC.
6 Quarter on quarter, 1Q24 vs 4Q23
7 Unidad de Fomento: inflation- linked unit.
8 NIM = Annualized net income from interest and readjustments divided by interest generating assets.
9 Recurrence: Net fees divided by operating expenses.
10 Provision expense annualized divided by average loans.
11 Efficiency ratio: Operating expenses including impairment and other operating expenses divided by Operating income.

FAQ

What were Banco Santander Chile's net income and earnings per share for the first quarter of 2024?

Banco Santander Chile reported a net income attributable to owners of the bank of $120 billion ($0.64 per share and US$0.26 per ADR) for the first quarter of 2024.

How did the bank's capital levels perform in the first quarter of 2024?

The bank showed solid capital levels with a CET1 ratio of 10.4% and a BIS ratio of 17.0% in the first quarter of 2024.

What drove loan growth for Banco Santander Chile in the first quarter of 2024?

Loan growth was driven by mortgages and commercial lending for Banco Santander Chile in the first quarter of 2024.

What was the change in total deposits for Banco Santander Chile in the first quarter of 2024?

Total deposits for Banco Santander Chile increased by 2.5% QoQ in the first quarter of 2024.

How did interest income perform for Banco Santander Chile in the first quarter of 2024?

Interest income saw a recovery in 1Q24, increasing by 30.9% compared to the same period in 2023 for Banco Santander Chile.