Banco Santander Chile (BSAC) 2004 Q4 法說會逐字稿

Good morning everyone and welcome to the Banco Santander fourth quarter 2004 earnings conference call. [OPERATOR INSTRUCTIONS] For opening remarks and introductions I will turn the conference over to Raimundo Monge, Director of Strategic Planning. Please go ahead, sir.

Thank you very much. Good morning ladies and gentlemen. Welcome to Banco Santander-Santiago's fourth quarter results conference call. I am Raimundo Monge, Director of Strategic Planning for the Bank, and I am joined today by Robert Morano, Manager of Investor Relations. Thank you for joining us to discuss the Bank's fourth quarter 2004 results and recent operating trends. Afterwards, we will be happy to answer your questions. If you kindly go to Slide No 3 on the work presentation, you will see that the Agenda for today's call will include a brief discussion about the Bank's strong commercial growth seen during 2004, especially in retail banking. Secondly the results of [indiscernible] in the fourth quarter and, finally some strategic priorities we'll have for 2005. Next Slide. For Banco Santander-Santiago, 2004 was characterized by a refocus on commercial growth, especially in retail banking. As of December 31 2004, total loans, excluding the sale of Santiago Express, and [indiscernible] losses increased 1.4% compared to the end of the third quarter, with a strong growth in retails segments and products. Total loan growth was 11.7% on real terms. Next Slide. Consumer loans, adjusted for the sale of Santiago Express, grew 8.2% compared to the end of third quarter 2004 and 28.3% year on year. Credit card loans grew 8.1% quarter on quarter and 18.2% year on year. In the same period, residential mortgage lending was up 4.9% and 27.0% respectively. Commercial loans rose 4.3% quarter on quarter and 16.8% year on year, driven mainly by loans granted to high yielding small and mid-size companies. Next Slide. In terms of lending by business segment, loans to individuals, excluding the sale of Santiago Express increased 4.7% between September 30 and December 31 2004 and 22.9% year on year. This solid growth in this highly profitable segment, was mainly driven by the higher economic activity, low interest rates and investment made throughout 2004 to expand market share in this segment. Lending to small and mid-sized enterprises increased 5.6% quarter on quarter and 20.7% year on year. The higher growth rate of the economy and lower rates has led to a large demand in this business segment. The Bank is also placing in larger emphasis on expanding its presence among SMEs due to the low penetration and attractive profitability levels of this segment. Total loans in corporate banking segments decreased 7% between September 30 and December 31 2004 and were flat year on year. This decrease was mainly due to the translation loss produced by the appreciation of the peso against the US dollar as loans denominated in foreign currency. In the fourth quarter of 2004, the Bank also reduced its business activities of guaranteeing certain foreign trade operations, due to a decrease in spreads in these products, which affected the balance of contingent loans in the quarter. Corporate banking follows a strict profitability driven strategy, which is focused mainly on increasing the share of non-lending activities such as cash management, treasury services, corporate finance and advisory services. Next Slide. As a result of this solid growth rate, the Bank's market share in key products rose significantly in the year. Market share in both consumer and mortgage lending increased 160 basis points in the year 2004 to 24.8% and 23.5% respectively. Market share in commercial loans went up 130 basis points in 2004 to 20.3%. Next Slide. The Bank also significantly strengthened its core deposit base in 2004. Total customers' funds increased 1.8% between the third and the fourth quarter 2004 and 20.7% year on year. Market share in total customer funds increased 80 basis points to 20.6% at the end of the year 2004. Next slide. In 4Q 2004, short term interest rates continued to rise as economic growth gained momentum. As a result, the demand for time deposit rose. Time deposit increased 9.8% in this area and 23.8% year on year. The average balance of the [indiscernible] increased 2.9% in this series and 29.6% year on year. Assets under management decreased 12.2% during the fourth quarter of 2004. So a rise in short term interest rates has resulted in shift away from short term money market funds into [indiscernible] of profits. This was an industry-wide phenomena and the market share of assets managed remain stable at 20.6%. However, funds under management increased 28.9% on a year on year basis to the end of last year. Next slide. In the fourth quarter, the bank also successfully issued bonds in the US market to strengthen the capital gains and fund future growth. In this period the bank issued a 5 year closing senior note for $400m and a 10 year fixed subordinated bond for $300m. These bonds were issued at attractive rates above the Chilean [sovereign] spread and obtained the best credit rating for any private [currency] in Latin America. The senior bond received an A rating from Standard & Poors and an A2 rating from Moodys which is above the sovereign rating for Chile. The subordinated bond was swapped into a variable rate in Chilean pesos, equivalent to a 30 base deposit rate and can be considered as Tier 2 capital. It is also important to point out that the Moodys recently changed the outlook for the Bank's foreign currency deposit rate to positive, following a similar change for the Republic of Chile. These are the highest ratings for the Bank deposits in Latin America. Next Slide. Now we'll turn for a quick look at fourth quarter results. Next Slide. In the fourth quarter of 2004, net income totaled CLP53.935b. That is CLP0.29 per share and $0.53 per ADR. Although net income was lower than in the same quarter 2004, due to lower trading gains and loan loss recoveries, core revenues -- that is net financial income plus fees increased 16.7% in the fourth quarter 2004 compared to the fourth quarter 2003, and 8.6% compared to the third quarter 2004. Net income is closely linked to the higher commercial activity already described. In addition, throughout 2004 the Bank adopted a strategy of increasing fee income in retail banking by incrementing the client base, product usage and cross selling ratios which has begun to bear fruit. Next Slide. Net financial income in the fourth quarter 2004 increased 12.3% compared to the fourth quarter of 2003. Average interest earning assets increased 13.7% in the same period. The net interest margin remains stable at 4.7% in the fourth quarter compared to the fourth quarter of 2003. This evolution was mainly due to an improved asset and funding mix, higher inflation and high interest rates, which tend to be beneficial for the Bank's margins. Next Slide. The Bank's margin has evolved more favorably than the margin of the Chilean Financial System as a whole, as a result of the improvements in both asset and funding mix. On an unconsolidated basis, the gap between the Bank's net interest margin and the Banking industry as a whole margin, was 35 basis points at the end of the year 2004. Net Slide. In addition, the Bank's net income, adjusted for the sale of the collections subsidiary CNR sold in the year 2003, was 20.4% up compared to the fourth quarter 2003 figure and 16.6% up compared to the third quarter of the year 2004. This growth was led by an increase in various fee income lines and segments. Next Slide. Throughout 2004, the Bank adopted a strategy of increasing fee income in retail banking by incrementing the client base, product usage and cross-selling ratios. The Bank invested in 2004 CLP11.353b to expand and improve its distribution capacity in retail banking. As a result, full retail checking account clients rose 42%. The amount of clients considered cross-sold, those clients that use 5 or more products, increased 28.9% and clients accretion levels decreased to 8.2% from 15.7% at the end of the year 2003. Credit card invoicing market share increased to 36.5% in the year 2004, while market share in terms of total number of credit cards rose to 34.3% in 2004. Next Slide. As a result of the separating trends, core revenues have been increasing in line with this higher retail banking activity, as we've seen in the slides. Next Slide. The Bank has kept a sound asset quality in this period. Past-due loans at December 31 decreased 4.5% compared to September 30 2004 and 24.6% year on year. As a result of these decreasing past-due loans, the coverage ratio improved to 128.5% and the required reserves over total loans ratio as defined by Superintendency of Banks which measured the expected loss of the loan portfolio, reached 1.96% as of the year end 2004 from 1.91% in the third quarter and 2.16% in the fourth quarter 2003. Total provisions, net of loan loss recoveries, increased 182% compared to fourth quarter 2003. This rise was mainly due to the reversal of loan loss provisions recorded in the fourth quarter 2003, as a result of the implementation of the new provisions guidelines established by the Bank and the Superintendency of Banks, which, among other things, resulted in the elimination of voluntary loan loss reserves, which were reversed in the fourth quarter 2003. The rise in total provisions, net of loan loss recovery was finally offset by a 9.7% decrease in charge-offs in the fourth quarter 2004 compared to the same period of 2003. This was mainly due to the improved economic environment, which reduced charge-offs especially in the SME segment. Next Slide. In fourth Q 2004, operating expenses increased 13.1% compared to the fourth quarter 2003. Adjusted by the sale of the subsidiary CNR, operating expenses increased 8.8% year on year. Personnel expenses were up 12.1% and administrative expenses rose 14.5%. This rise in operating expenses was mainly due to the investment being carried out to expand the Bank's retail banking business, which has been supporting the Bank's 2004 commercial activity. Next Slide. To finish, you will see a rapid review of our strategic priorities for the year 2005. Next Slide. As we mentioned before, in 2004 we refocused on commercial growth, after successfully concluding the merger in 2003. As the economy picks up its pace the Bank's trends [indiscernible] distribution capabilities and products in order to fully benefit from this improved scenario. In 2005, the focus will continue to be on growth and increasing profitability of our investments business begins to reap the benefits. Next Slide. In order to do this, we have set various strategic priorities, which have been summarized here. The most important being strong loan growth with the focus on retail banking, as seen in 2004, in order to sustain profitability. The Bank will continue to also focus on the funding needs, as interest rates rise. The Bank believes that its effort in 2004 to improve the funding mix will also be key in 2005 to maintain net interest margin despite increased competition and higher deposit costs. As competition intensifies, the Bank will also monitor stress very closely and a key advantage of the Bank is its segmentation strategy. The Bank's segmentation model and customer relationship model systems permit a very active management of spread and profitability on a client by client basis. The income should be another key driver in 2005. In 2004, especially in the first half, the Bank used some fixed assets[ph] in order to increase client base and usage. These strategies focusing on client relationships and increased income will also be an area of focus in 2005. This should also be helped by the investment made in 2004 to increase our distribution capabilities in order to reach more clients efficiently. Finally, the Bank, as always, will continue to focus on strict control of costs and minimizing all risks as much as possible. In 2004 the Bank invested heavily, but the evolution of costs in 2005 should be more subdued. In 2004 the Bank also improved its coverage ratio and provision for operational risk leaving the Bank clear for growing in 2005. Next Slide. For these reasons, we are confident that Bank Santander-Santiago is well positioned for growth in the coming quarter. At this time, we will gladly answer any questions you might have.

[OPERATOR INSTRUCTIONS].

We'll take our first question from Juan Partida with Bear Stearns.

Hello. Good morning. I have 2 questions. The first is related to loan loss provisions in 2005. We calculate that the level of loan loss provisions to average loans was 1.6%, so we would like to know what your expectation is for 2005? My second question has to do with operating expenses, or non-interest expenses, what your expectation for growth year on year should be, what should we expect?

Okay. First of all, we're not giving specific guidance, but just to help you understand the dynamics that we are foreseeing in these 2 lines. Remember that loan loss during the quarter was -- I'm talking to you about net provisions plus or minus loan loss recoveries. This was abnormally high because recoveries of provisions were abnormally low. So there is explaining why it is net [indiscernible] ratio according to our calculations, around 1.2%.

On a more recurring basis -- sometimes on a quarter by quarter basis you have short-term loans because our sustainable target is to have a net [indiscernible] ratio of around 1.15%, 1.10%, 1.15% on average and that should be the case looking forward. There are basically 2 differences that are clashing. One is possibly because the economy is growing faster and that usually helps the liquidity levels and helps the cash flow of the companies. A negative force is that we're growing much rapidly in retail activities. We usually have a higher risk. So that's why, on average, for [indiscernible] bases or moving average bases [indiscernible] operations of around 1.10% or average loans 1.15% should be a good forecast for the year.

Regarding operational expenses, as we mentioned in our press release, during the year 2004, given that we have some extraordinary gains we use the perceived(ph) to do some extraordinary investments, especially expanding our retail capabilities in terms of distribution, in terms of re-launching Santander Banefe(ph) which is having a very positive impact in the loan growth figures, as we saw in the last quarter, and then pushing other products such as mortgages, credit cards etc. where we are seeing the growth coming and positive results.

I would say that, looking forward, cost levels should be relatively stable, increasing in line with inflation, plus or minus 1 or 2 points. We don't expect the major investments to be then in 2005 because they were carried out last year. So, from now on, it should be moving more or less in line with inflation plus 1 or 2 points at most.

Thank you very much.

[OPERATOR INSTRUCTIONS]

Mr. Monge, as there appears to be no other questions at this time, I'd like to turn it back you for any additional or closing remarks.

Okay. Good. Thank you all for very much for taking the time to participate in today's call. We look forward to speaking with you again soon. Have a good day.

Thank you. That does conclude our conference today. We'd like to thank everybody for their participation. Have a nice day.