Banco Santander Chile (BSAC) 2004 Q3 法說會逐字稿

Good day, everyone. Welcome to the Banco Santander third quarter 2004 earnings conference call. [OPERATOR INSTRUCTIONS]. And for introductions and opening remarks I would like to turn the call over to Mr Raimundo Monge.

Good afternoon ladies and gentlemen. Welcome to Banco Santander Santiago’s third quarter results conference call. I am Raimundo Monge, Director of Strategic Planning. I am joined today by Robert Morano, Manager of Investor Relations.

Thank you for joining us to discuss the Bank’s third quarter 2004 results and recent operating trends. Afterward we will be happy to answer your questions.

In the third quarter of 2004, net income totaled Ch$53,515m equivalent to Ch$0.28 per share and US$0.49 per ADR, increasing 6% compared to the third quarter of 2003. Net income before tax increased 11.5% compared to the third quarter of 2003. This increase was mainly due to our 32.2% rise in net operating income, that is, excluding non-operational items. This was mainly due to an 11.8% rise in net financial income, our higher net interest margin and the increase in market related gains and loan loss recoveries.

With these results the Bank ROE measured over average capital and reserves reached 26% in the quarter. One of the main drivers of the Bank positive results has been the strong growth in volumes. As of September 30, 2004, total loans, excluding interbank and past due loans, increased 2% compared to June 30, 2004.

This growth was led by a 7.2% growth in lending to middle and average income individuals. Lending to small and middle-sized corporations increased 4.5% between June 30, 2004 and September 30, 2004. Lending in the domestic segment increased 4.9% in the same period. As a result, the Bank’s market share continued to rise in the high-yielding products and segments.

During the year the Bank’s market share increased 200 basis points in consumer lending, 180 basis points in residential mortgage loans and 140 basis points in commercial loans.

Core deposits also expanded at a rapid pace in the quarter. The balance of total customer funds increased 9.1% between the second and the third quarter of this year, and 21.7% in 12 months. The Bank has increased its deposit base in order to fund the rapid growth of the loan portfolio. As a result, market share in total customer funds increased to 20.5% as of September 2004.

The growth in customer funds was strong in all products. Time deposits increased 13%, led by growth of time deposist in the large corporate segment. Non-interest-bearing demand deposits grew 3% in the quarter and 26.3% in 12 months. The growth of demand deposits between the second and third quarter was led by a 6.6% increase in these deposits amongst retail clients.

Far from focusing on lending, the Bank has concentrated on increasing its checking account base among retail clients, which is a more stable and cheaper source of funding.

With this strong rate, the Bank has continued to gain market share across the board in customer funds. In the first 9 months of the year, market share of demand deposits expanded 310 basis points and the market share of mutual funds has increased 110 basis points.

Together with increasing volumes the Bank experienced a rise in net financial income and margins in the quarter. Net financial income in 3Q result 2004 increased 11.8% compared to the third quarter of 2003. The net interest margin rose from 4.2% in the third quarter of 2003 to 4.5% in the last quarter.

This positive evolution in the net interest margins was due to various efforts, most importantly the improve asset link. The improvement of the Bank’s funding mix has also supported margins together with inflation and has partially compensated the low interest rate environment that we have been facing.

Despite rapid growth of the Bank’s retail portfolio, asset quality indicators continue to improve. Banking loans at September 30, 2004 decreased 7.2% compared to June 30, 2004 and 27% compared to September last year. As a result of these decreases in past due loans the coverage ratio that is reserved over past due loans improved to 123.7% at the end of the quarter.

The required reserve-over-loan ratio, as defined by the Superintendency of Banks, which basically measures the effective loss of the loan portfolio, decreased from 2.25% last year to 1.91% at the end of this third quarter. These also compare favorably to the indicator for the Chilean banking system as a whole that reached 2.06% as of August 2004, the latest figure available.

The Bank’s fee income decreased 4.7% compared to the third quarter of 2003, but increased 6.9% compared to the second quarter 2004, and has shown a steady upward trend since the fourth quarter of last year.

Usage fees have continuously been growing during the year. For example, fees from Asset Management were 56.5%, fees from the sale of Insurance products was up 18.3% and ATM fees grew 15.6%. The rise in mutual fund fees is directly related to the increase in funds under management over the last 12 months.

The launching of new products and in the daily marketing campaigns have positively impacted the sale of various insurance products. It [indiscernible] to know that the more than 80% of our clients do not have either a mutual fund or an insurance product with us.

It is important to point out that as a result of the Bank’s promotional policy regarding fees and other indicators, customer base and cross-selling indicators have been improving steadily during the year.

Amongst all the retail clients the cross-selling -- excluding Banefe -- the cross-selling ratio increased to 3.25 products per client compared to 3.19 by the end of the second quarter. Among clients with checking accounts this ratio reached 7.7 products that are actually being used.

The total amount of checking accounts is increased 15% on an annualized basis between the second and the third quarter of the year. As a result, checking account fees have risen 5.2% and credit card fees rose 7.1% in Q3 compared to the second quarter of 2004.

The Bank expects that the number of clients and checking accounts -- expect that actual number of clients and checking account hold arises, the number of products used per client will grow as well, becoming the main driver of a sustainable increase in fee income.

Banefe has also experienced a shift of its place of growth. In August, the Bank’s consumer division, Santander Banefe, introduced a new corporate image and slogan, and initiated a strong marketing campaign. Banefe also opened its eleventh new mini-branch this year. As a result, Banefe’s loan portfolio grew at it’s faster pace of the year in 3Q 2004, and the amount of clients has increased. Banefe’s client base has risen 5.1%, year to date, and is nearing the 1m client mark.

The Bank’s efficiency ratio reached 39.7% in the third quarter of 2004 compared to 45.1% in the same quarter of 2003. Excluding amortization and depreciation expense, the efficiency ratio reached a record low level of 34.3% during this quarter.

Operating expenses increased 5.6% in the third quarter compared to the third quarter of 2003. This rise was mainly due to investments being carried out to expand the retail banking business. The Bank has begun to invest in a series of projects to expand its presence in retail banking. These investment projects fall in line with the Bank’s strategy of shifting the asset mix towards higher yielding segments.

In conclusion, during the third quarter of 2004 the Bank has begun to observe positive trends in the main operating income items, on reflection of the improved economic scenario and the Bank’s successful business strategy. For this reason we believe the outlook is positive.

In the quarter, net interest income commenced to fully reflect the strong loan growth observed since the beginning of the year, especially in higher-yielding segments. At the same time, an improvement in the funding mix has also helped to boost margins despite the lower-interest environment.

This has been achieved without affecting asset quality. In the quarter, the Bank coverage ratio continued to improve and past due loans levels have continued to decrease in absolute terms. Banefe has grown at a significant pace on a sequential basis, and the Bank achieved excellent efficiency indicators while investing -- investments are still being made in expanding our presence in retail banking.

For these reasons we are confident that Santander Santiago is well positioned for growth in the coming quarters.

At this time we will gladly answer any questions you might have.

Thank you very much. [OPERATOR INSTRUCTIONS].

Our first question today will come from Mario Pierry with Deutsche Ixe.

Good afternoon, everybody. My question is to do with if you booked significant trading gains this quarter of Ch$25.7b. You explained on your press release that about 10b from this was from the recovery process of some sub-standard loans. I wanted to know how you explain or what -- why was the other portion of this so large? What explains such a large trading gain this quarter, even excluding these extra gains that you have?

So the information there is basically that there have been some movements in the long-term interest rates. That has been taken -- the Bank has taken advantage of them and they are being [basically] trading gains and also the marked to market power of our trading portfolio. So it has a lot to do with short term movements in the loan rates, and the Bank was able to capitalize on that.

Okay. If you could also comment on your tax rate this quarter. Apparently it came up, I’m calculating an effective tax rate of 21.4%. It has been running at about 17%. Was there anything that explains that?

No, the information there is the following, that at the end of the day what you really have to comply is with the rate throughout the year. Because basically what you’re doing on a quarter on quarter basis is your provision for the final payment. You have to do it to the Internal Revenue Service.

So in addition to that sometimes the effective rate it has to do with the way you generate your -- remember that what you’re seeing is the financial figures for the Bank. There is a kind of parallel financial account that is exempt for tax purposes.

So sometimes they move consistent ways. But at the end of the day, what we expect for the year is something very close to the statutory rate of 17%, with movement on a quarterly basis, but on a year on year basis it should be much closer to the 17% statutory rate.

Okay Raimundo. Thank you very much. That’s very clear, thank you.

[OPERATOR INSTRUCTIONS]. Adrian Bartell with J P Morgan has a question.

Hi Raymondo. Good afternoon. My question has to do with the level of provisions that you recorded this quarter. I’m just wondering, we also saw a similar level in the previous one, if basically this is the level of provisions on an absolute basis that we should assume going forward.

And my second question with regards to your capitalization. In this quarter you recorded a 13.1% BIS ratio, and I just wanted to know under -- given this ratio how much would you be expecting to pay in dividends next year?

Thank you.

Okay, regarding provision, I would say that the net provision charge or the net charge-off ratio, which is around 1 to 1.1% it should be around that level.

Remember here that there are basically 3 forces coming into -- [to bear in mind that] net charge-off ratio. One is the time that the Bank is growing in -- especially in retail segment. That should have a negative effect in the charge-off, because of course the part of the loan book is growing faster has more risk, which is basically small and middle-sized companies and individuals, which of course is compensated in the margin line as we saw before. But that is a negative trend toward the net charge-off ratio.

And then, 2 positive forces. 1 being that the economy is recovering and that means that the cash flow of the companies and the prospects of jobs and more stable salaries [are paid] are higher. So, that is a positive force.

And the second positive force is that when the loan book starts to grow usually the average age of the loans tends to get shorter, and that means that the interest also improve. So at the end it would seem that in the last 2 quarters we are approaching our cruise control speed for net charge-off ratio of something between 1% up to 1.1% of total loans on an annualized basis.

Regarding the capitalization, as you correctly mentioned our BIS ratio is 13.1%. There, as you know, the Bank -- the merger of Banco Santander Chile with Banco Santiago was approved with the sole – with not any requirement except to keep at all times a minimum [buffer] ratio of 12%, which is higher than for the rest of the system.

So, the dividend policy that will be proposed in the shareholding meetings will be a mix of how our growth prospects for the next year vis-a-vis in order to regain part of that. But still we have to, well, to grow with our current capital base.

So, we don’t have at this time any hint of where the dividend policy will be going. But of course, if we reduce the payout it will be merely a reflection that our growth opportunities are higher.

At this point -- in this point the Bank has been quite flexible in the present year when growth was subdued because economy was not growing fast, we preferred to increase the dividend if we see good growth opportunities as we have seen in the last 2 or 3 quarters in the retail. And we need to retain more profit I think it would be a good business decision for shareholders as well. But at this point we don’t have any prospect or any position because it will depend on how things evolve on the growth -- on the growth side.

Thank you Raimundo.

[OPERATOR INSTRUCTIONS]. At this time there are no more questions in the queue. I will now turn the conference back over to Mr Raimundo Monge for any closing additional remarks.

Okay, thank you very much for taking the time to participate in today’s call. We look forward to speaking with you again soon. Have a nice weekend.

And that does conclude today’s conference call. Thank you very much for joining us. You may now disconnect.