Banco Santander Chile (BSAC) 2006 Q1 法說會逐字稿

Good day ladies and gentlemen. Thank you for your patience. We would like to welcome you to the Banco Santander first quarter 2006 earnings release conference. As a reminder today’s call is being recorded. If you have not received a copy of today’s release, please call Robert Moreno at 011 562 320 8284. Once again, please call Robert Moreno for a copy of today’s release and you may reach him at 011 562 320 8284.

And now for opening remarks and introductions I’d like to turn the conference over to Raimundo Monge. Please go ahead.

Thank you very much. Good morning ladies and gentlemen, welcome to Banco Santander Santiago’s first quarter 2006 results conference call. I am Raimundo Monge, Director of Strategic Planning. Thank you for joining us to discuss the Bank’s first quarter results and recent operating trends. Afterwards we will be happy to answer your questions.

Next two slides. During the first quarter we saw the combination of growth and profitability the Bank has been searching for. The economy continued to show its strong performance with sound economic fundamentals and a positive outlook. This helped to sustain the solid commercial growth observed in the present period.

At the same time the expansion of our distribution network and client base, as well as improving service levels and cross selling ratios were positive factors driving our net interest income and fee growth.

Costs grew slightly above inflation as anticipated, consolidating our world class efficiency ratio. Asset quality is under control, which is translating into a controlled normalization of provision on surcharge expenses. All these helped the Bank to improve its profitability levels compared to the same period of 2005.

In the first part of this presentation we will review the evolution of our business volumes, then our first Q results and finally, the outlook for the rest of the year. Next slide, studying slide number four.

In the first quarter 2006 the Chilean economy continued to show robust growth. And this was apparent in the evolution of the Bank’s loan portfolio in the quarter. In this quarter total loans increased 5.8% quarter on quarter and 17.8% year on year. All segments show strong loan growth. Retail lending increased 4.7% quarter on quarter and 25.1% year on year, led by the expansion of loans in the high yielding SME segment, which increased 6.6% quarter on quarter and 30.7% year on year.

Higher consumer confidence continues to fuel the demand for consumer and residential mortgage loans in the quarter. Consumer loans expanded 6.3% quarter on quarter and 28% year on year, while residential mortgage lending increased 4.4% Q on Q and 26.5% year on year.

The incentive program designed for commercial teams to avoid the seasonal decline in business activity in corporate lending had a positive effect on growth this quarter. Lending to the middle market segment increased 8.2% Q on Q and 14.5% year on year, while loans in Corporate Banking increased 13.2% quarter on quarter and 4.3% year on year.

Many important sectors of the economy, such as utility, forestry, mining, retail and telecommunications, are also increasing their investment plans, which are fueling growth in the Corporate segment. The spread in this segment has also begun to rise in tandem with medium and long term rates increasing the effectiveness of lending to this segment, especially when taking into account the profitable non lending products also offered to these clients.

Next slide. With this high growth rate market share continues to rise in key products. Total market share in lending to individuals, a key growth area for the Bank, went up 20 basis points since the beginning of the year and 80 basis points year on year. Market share in consumer lending was flat quarter on quarter, and increased 40 basis points year on year.

At the same time, market share in mortgage lending increased 30 basis points since December 2005 and 90 basis points in 12 months.

Next slide. The Bank’s market share in demand deposits volumes has increased 50 basis points since the beginning of the year, while the share in mutual funds was up 10 basis points and 50 basis points up its share in terms of timed deposits.

Next slide. Apart from rising volumes, the quarter also stood out for the continuous rise in our client base and cross selling ratio, especially in Retail Banking. The total number of clients was up 11.9% year on year. The amount of middle upper income individual clients that are cross sold increased 29% year on year. The amount of SME clients that are cross sold increased 16.7%. In Santander Banefe, our unit aimed at the middle to low end of the consumer market, the amount of cross sold clients grew more than 44%.

The higher cross selling and product usage are fueling our current goals, while new clients, which usually take between 24 up to 36 months to breakeven, should be giving further momentum to our core revenue strength in the next two or three years.

Next slide. We also continue to expand our distribution capabilities in order to sustain current commercial growth levels, especially in Retail Banking. Nine branches were opened in the first quarter of 2006 bringing the total to 361 branches, representing a year on year increase of 14.2%. Santander Santiago has the largest client base, branch network and ATM network in Chile.

Next slide. This brings us to the second part of our presentation, our first quarter results.

Next slide, you should be now in slide number 10. In the first quarter of 2006 net income totaled CLP64,434m, that is CLP0.34 per share or $0.67 per ADR, representing an increase of 19.4% year on year. All revenues, that is net financial income and fees, increased 20.4% year on year as the Bank continued to gain market share in key products and services as we already saw.

Next slide. One of the main drivers in net income in the period was net income growth, which increased 19.4% compared to the first quarter of 2005. This rise was mainly driven by the 13.7% increase in average interest earning assets and a 22 basis point year on year rise in net interest margin.

The rise in average earning assets was led by a 17.6% rise in average loans. Loans represented 78.6% of average interest earning assets in the first quarter 2006 compared to 75.9% 12 months ago.

The strength of loan growth, especially in Retail Banking, is positively influencing the net interest margin. This was partially offset by the negative effect of rising short term rates and re-pricing of timed deposits.

Next slide. Fees grew strongly in the quarter led by growth in key retail products. Net fee income increased 24.3%. Greater product usage has boosted fee income. For the quarter, the Bank obtained a record level of fees over costs of 55.6%, positioning us as the market leader in this indicator. Fees from checking accounts increased 24.2% and fees from lines of credit rose 76.5% year on year.

Market share in checking accounts reached 25.6% as of February 2006, the latest available figures, compared to 23.6% as of February 2005. In the last 12 months Santander Santiago has increased its checking account base by 17.4%, twice the rate of growth of the banking system as a whole, which grew 8.3% in the same period.

Credit card fees increased 41.6% year on year. The Bank is also consolidating its leading position in the credit card market. As of March 2006 Santander Santiago credit cards were growing 19.5% year on year. Total purchases with our cards increased 16.2% year on year.

Next slide please. Costs remained under control and the Bank has continued to be a reference in terms of efficiency. In the first quarter of 2006, efficiency ratio reached a record low level of 38.3% compared to 41.8% in the first quarter of 2005. The Bank has the lowest efficiency ratio among the largest banks in Chile and Latin America.

Operating expenses increased 6.9% year on year in the first quarter 2006. A 16% year on year increase in administrative expenses is directly linked to the higher commercial activities and the larger distribution network.

Next slide. As mentioned in the previous conference call, we believe that throughout this year the Bank asset quality will remain sound. But as the Retail Banking portfolio increases, provision expenses should begin to rise. That was the case in the first quarter 2006. Loan provisions net of recoveries increased 49.9% year on year. The ratio of net provision expense over total loans reached 0.95% compared to 0.75% in the first quarter of 2005.

This rise in provision expenses was mainly due to the increase in consumer lending and a [steepening] increase in short term loan performance in the consumer portfolio. Short term loan performance swelled this year more than in previous years as an unusually higher number of clients took their vacations after the second round of the Presidential elections held in January 15.

According to the Superintendency of Banks guidelines, banks must provision 1% of a consumer loan that has at least one installment one to 30 days overdue, and must provision 20% of a consumer loan with one installment that is 31 up to 60 days overdue. This situation began to normalize in March as people returned and paid their first few installments.

Next slide please, you should be now in slide number 15. Despite this mainly transitory effect, asset quality remained sound, in line with the evolution of the economy. The ratio of the required reserves over total loan ratio, which measures the effective loss of the loan portfolio, reached 1.36% as of March 2006 compared to 1.86% in the first quarter 2005. Thus the loans in the first quarter 2006 decreased 5.8% quarter on quarter and 19.9% year on year. The ratio of [part new] loans to total loans reached 0.93% in the first quarter compared to 1.38% in the first quarter 2006.

Next slide please. In summary, with this positive result in the quarter we not only reached various milestones in terms of growth and financial performance, but also outperformed the highly competitive Chilean market. Despite being the most efficient bank in Chile our cost control surpasses the rest of the industry. Our margin also continued to [report] more favorably despite already having the highest margins among the relevant players.

Our fee income is also growing at a faster pace resulting in a larger increase in the ratio of fees over costs compared to our main competitors. Finally, our ROE, measured as net income over return on capital, as published by the Superintendency, increased to 160 basis points, more than the rising ROE in the system and for our peer group.

Next slide. Now some final remarks about the Bank’s 2006/2007 outlook.

Next slide. We believe this growth momentum should continue in the rest of 2006 and probably 2007. We are bullish on the Chilean economy and are expecting GDP growth of greater than 5.5% in the year with a higher rate of expansion of internal demand. This should lead to a 10 to 15% increase in total loans, led by stronger growth in retail sectors. This should boost our net interest income and fees.

Margins should remain stable. The better asset mix will be partially offset through -- by a lower inflation rate. We will continue to invest in our distribution capabilities throughout 2006, but costs are expected to remain under control slightly above inflation.

Finally, we expect assets -- asset quality to remain healthy but, as mentioned, risk premiums and loan loss provisions should increase in line with a rise of Retail Banking activities.

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

Thank you Mr. Monge. The question and answer session will be conducted electronically. [OPERATOR INSTRUCTIONS]. Mr. Monge, we have no questions in our queue at this time. [OPERATOR INSTRUCTIONS].

Okay. Thank you all 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.

That does conclude today’s conference call. Thank you for your participation. Have a great day.