Banco Santander-Chile Q1 2025 Earnings Report

Banco Santander-Chile EPS Results

• Actual EPS: $0.61
• Consensus EPS: $0.55
• Beat/Miss: Beat by +$0.06
• One Year Ago EPS: N/A

Banco Santander-Chile Revenue Results

• Actual Revenue: $767.62 million
• Expected Revenue: $717.38 billion
• Beat/Miss: Missed by -$716.62 billion
• YoY Revenue Growth: N/A

Banco Santander-Chile Announcement Details

• Quarter: Q1 2025
• Date: 4/30/2025
• Time: Before Market Opens
• Conference Call Date: N/A
• Conference Call Time: N/A

Banco Santander-Chile (NYSE:BSAC), together with its subsidiaries, provides commercial and retail banking services in Chile. It operates through Retail Banking, Middle-Market, Corporate Investment Banking, and Corporate Activities segments. The company offers debit and credit cards, checking accounts, and savings products; consumer, automobile, commercial, mortgage, and government-guaranteed loans; and Chilean peso and foreign currency-denominated loans to finance various commercial transactions, trade, foreign currency forward contracts, and credit lines, as well as mortgage financing services. It also provides mutual fund management, insurance and securities brokerage, foreign exchange services, financial leasing, financial consulting and advisory, investment management, foreign trade, leasing, factoring, treasury, and transactional services, as well as specialized services to finance residential projects. In addition, the company offers short-term financing and fundraising, and brokerage services, as well as derivatives, securitization, and other products; and manages capital allocations. It serves individuals, small to middle-sized entities, companies, and large corporations, as well as universities, government entities, and local and regional governments. The company was incorporated in 1977 and is headquartered in Santiago, Chile. Banco Santander-Chile operates as a subsidiary of Banco Santander, S.A.

Banco Santander-Chile Q1 2025 Earnings Call Transcript

Key Takeaways

• Banco Santander Chile reported Q1 net profit of CLP 278 bn, a 131% increase year-on-year, with ROAE of 25.6% and a best-in-class efficiency ratio of 35%.
• The bank’s digital transformation accelerated, migrating core systems to the cloud via the Gravity project, serving 2.3 million digital clients, simplifying products by 31%, and earning top customer service rankings and Euromoney’s best private bank award.
• Management outlined a cautious macro outlook, lowering 2025 GDP growth to 2.1%, forecasting Central Bank rate cuts to 4.5% by year end, and noting trade-war risks have limited direct tariff impact but may dampen confidence and investment.
• For 2025 guidance, the bank expects mid-single-digit loan growth, NIM around 4%, non-interest income up high single digits (reflecting delayed fee caps), stable efficiency in the mid-30s, and a cost of risk near 1.3%, aiming for ROAE >21%.
• Asset quality remains stable with NPL ratios flat in Q1, slight mortgage delinquencies expected to plateau in H2, and provisions guiding a higher first-half cost of risk before improvement later in the year.

Presentation

[Operator]

Ladies and gentlemen, thank you for standing by. I would like to welcome you to Banco Santander Chile first quarter twenty twenty five earnings conference call on the 05/08/2025. Please note that at this point, all participant lines are in listen only mode. After the call, there will be an opportunity to ask questions. So with this, I would like now to pass the line to Patricia Perez, the chief financial officer.

[Operator]

Please go ahead.

[Patricia Pérez, CFO at Banco Santander-Chile]

Good morning, everyone. Welcome to Banco Santander Chile's first quarter twenty twenty five results webcast and conference call. This is Patricia Perez, CFO, and I'm joined today by Christian Vicuna, Head of Strategy and IR and Andres Sansone, our Chief Economist. Thank you, everyone, for joining us today to review our first quarter performance and results. Today, Andres will start with an overview of the economic environment, and then Christian will go through the key strategy points and the results of the banks in the first quarter of the year.

[Patricia Pérez, CFO at Banco Santander-Chile]

After that, we will have a Q and A session where we will be happy to answer your questions. So let me hand over to Andres.

[Andrés Sansone, Chief Economist at Banco Santander-Chile]

Thanks, Patricia. On Slide four, we have our current outlook. Since the last webcast, the trade conflict has increased uncertainty in global financial markets. In Chile, the peso briefly reached 1,000 per dollar after the announcement in the liberation day before returning to the $9.30, 9 40 rate, with our model suggesting it should be closer to nine sixty, nine 70. Long term interest rates in Chilean pesos fell by around 30 basis point, and short term rates in both pesos and inflation linked UF also decreased, reflecting lower growth expectations and reduced inflationary pressures.

[Andrés Sansone, Chief Economist at Banco Santander-Chile]

Although the trade war possess a risk to Chile given its high integration to global trade, the direct impact of US tariff is limited. Chile received the basic 10% tariff and the key products like copper and wood were excluded. However, the indirect effects, how it will affect business and consumer confidence, could impact local investment and consumption. Despite this challenging environment, the Chilean economy started the year with strong momentum. The monthly activity index for March exceeded expectations, and the economy grew by 2% in the first quarter compared to last year.

[Andrés Sansone, Chief Economist at Banco Santander-Chile]

Activity remains heterogeneous with export sectors, tourism, and investment in McEnore leading the way while construction still lags. Due to the external shock, we now expect GDP to grow 2.1% in 2025, down from the original forecast of 2.41.7% in 2026, down from 2.1%. On inflation, the first quarter inflation closed in line with expectation, slightly below 5%, with core inflation showing clear signs of moderation. The inflation conversion process should continue and could accelerate due to weaker global and local demand. Additionally, global trade diversion triggered by tariffs could reduce the prices of imported goods, supporting faster disinflation.

[Andrés Sansone, Chief Economist at Banco Santander-Chile]

We downgrade our forecast for the UF of 2.6% for the end of twenty twenty five and three percent by year end in 2026 with risk tilt to the downside. The Central Bank kept the policy rate at 5% during its last meeting and maintained a cautious tone due to external risks. However, with inflation slowing and activity weakening, we expect the Central Bank to resume cuts in June. In our base scenario, the policy rate will close 2025 at 4.5% and reach four percent in 2026, which is close to its neutral level. Finally, the Ministry of Finance published its public financial report of the year, highlighting a delay in reaching the structural deficit target.

[Andrés Sansone, Chief Economist at Banco Santander-Chile]

The original target of a minus 0.5% GDP deficit for next year is now expected to be met only in 2028. According to the 2024 national account, the structural deficit reached 3.3% of GDP exceeding the 1.9% goal set in the fiscal policy decree. For 2025, the new target is 1.6 above the original 1.1%, with convergence now postponed to 2026. While the report reflects an effort to control spending and increase transparency, the overall fiscal situation remains tight. On Slide five, we present recent developments to the regulatory framework.

[Andrés Sansone, Chief Economist at Banco Santander-Chile]

The tax reform proposed by the Ministry of Finance, which sought to reduce the corporate income tax from 27% to 24% and increased personal income taxes has been officially withdrawn from the legislative agenda. Meanwhile, the senate approved a temporary reduction in the SME income tax rate, lowering it from 25% to 12.5% for the year 2027 and to 15% in 2028. Progress has also been been made on the mortgage subsidy bill, which passed its second constitutional stage following the Senate Finance Committee's approval to proceed with the legislation. The initiative seeks to reduce the excess supply of housing, thereby stimulating the real estate and construction sectors and reviving mortgage credit flows. The benefit is aimed at individuals purchasing new homes for sale valued up to 4,000 US and including a 60 basis point interest rate subsidy and a state guarantee covering up to 60% of the loan amount for half of the long term with a cap of 50,000 eligible housing units.

[Andrés Sansone, Chief Economist at Banco Santander-Chile]

Regarding politics, only the ruling coalition, Unidad Por Chile, will hold primary elections on June 29. The right wing parties have opt not to participate. According to the last Lactes current poll, center right candidate Evelyn Mate leads the presidential race with 20 per 22% support, followed by the right wing candidate, Jose Antonio Cast with 13%, and center left candidate Carolina Toa, eleven percent.

[Cristián Vicuña, Chief Strategy Officer and Head of Investor Relations at Banco Santander-Chile]

Thanks, Andres. On Slide seven, we highlight our key messages for the first quarter of this year. During the quarter, the net profits of the bank reached $278,000,000,000, a 131% increase compared to the same quarter last year. And our return on average equity reached 25.6% with a best in class efficiency ratio of 35%. Our fees and financial transactions grew very strongly, 1740% year on year respectively, thanks to the success of our digital strategy, where we have seen a strong demand for our products such as mutual funds, which have grown 20% year over year.

[Cristián Vicuña, Chief Strategy Officer and Head of Investor Relations at Banco Santander-Chile]

With this, our recurrence levels reached 61.9%. Also, our NII increased 42% with a NIM of 4.1%, thanks to our balance sheet structure and relatively high inflation in the quarter. Furthermore, on April 22, our shareholders approved the dividend distribution of 70% of our 2024 profits at MXN3.19 per share and a dividend yield of 5.4. Behind this success is our strategy that we have been implementing over the last few years. Thanks to our digital products, we now have over 2,300,000 digital clients and 4.3 total clients, and we are very well regarded for customer service among peers where we obtained a net promoter score of 57 over the last six months.

[Cristián Vicuña, Chief Strategy Officer and Head of Investor Relations at Banco Santander-Chile]

This quarter, we migrated our core banking systems to the cloud through the Gravity project, and we are now operating a % on the cloud, an important stepping stone for the digital transformation of our bank. Furthermore, we were recognized as the best private bank in Chile by Euromoney. On slide eight, we can see the advances with our strategy of being a digital bank with WorkFS. As you can see, we have continued optimizing our branch network with 34% of our branches without human tellers. Recently, we have been launching Santander in your community, simple branches facilitating access to depository ATMs and other banking services such as daily bill payments and top up phones and metro cards, as well as opening accounts on a coffee area.

[Cristián Vicuña, Chief Strategy Officer and Head of Investor Relations at Banco Santander-Chile]

We continue to simplify our products, reducing the total number of products in our system by 31%. This simplification of our product offering aims to provide simpler products to our clients, but also reduce system complexities and standardize operations. Here in the graphic of the on the bottom, you can see how the digital transformation is leading to strong client acquisition since 2019. We have gained some 900,000 clients while our digital clients have increased by 1,200,000 clients driven of our digital initiatives such as LIFE and Masnucas. 60% of our customers are active users, meaning that they use their account on a monthly basis.

[Cristián Vicuña, Chief Strategy Officer and Head of Investor Relations at Banco Santander-Chile]

These active users and our digital customers are growing 7% year over year while our total clients grew 9%. As of March 2025, we are ranked first for customer service. On slide nine, we can see how our strategy is translating into results through higher fee generation, which grew 17% year over year. Gepnet, our acquiring business, continued to show strong growth, attracting more clients with over 200,000 customers, an increase of 25% in the last twelve months with over 20% market share in numbers of transactions. There is a strong incentive for our Get Me clients to open an account with us, such as having their sales deposited up to five times per day, a differentiating feature in the payment systems in Chile.

[Cristián Vicuña, Chief Strategy Officer and Head of Investor Relations at Banco Santander-Chile]

With this, we have quickly become market leaders in business current accounts, increasing 25% year on year. The larger client base is leading to important increases in other products as well. Our current accounts have been increasing 10% year over year with growth in dollar accounts particularly strong as it is easy to contract through our APP reaching a market share of almost 40%. Where these new clients comply with our risk appetite, they are given credit cards. So this along with a reduction of cash in the Chilean economy is leading to the 10% growth in credit card transactions in the last year.

[Cristián Vicuña, Chief Strategy Officer and Head of Investor Relations at Banco Santander-Chile]

We are first for volume of credit card purchases in the Chilean market. Also, with the lower interest rates and a simple straightforward investment platform available for our all our clients, we have seen a shift from our time deposits to mutual funds that we broker. Here, our mutual funds are best in the industry, and the overall AUMs we broker have increased 20% year over year. Our fees generated from clients represent more than 60% of our core expenses. Compared to the rest of the Chilean banking industry, we are far above the average.

[Cristián Vicuña, Chief Strategy Officer and Head of Investor Relations at Banco Santander-Chile]

Our efficiency was also at first class levels of 35%, best among our peers. Let us review the financial results. On slide 11, we can see the impressive improvement in our results over the last twelve months. Our quarterly ROE reached 25.6%, marking the fourth consecutive quarter and above 20%, and historic high fourth quarterly net income. Our net income attributable to shareholders increased by 131% year on year, mainly due to higher income growth from a lower cost of funding and higher fees on financial transactions.

[Cristián Vicuña, Chief Strategy Officer and Head of Investor Relations at Banco Santander-Chile]

Compared to the fourth quarter, net income grew 0.5% despite lower inflation and higher provisions that were more than offset by higher fees and lower operating expenses, all managing to sustain these impressive levels of profitability. On slide 12, our non our noninterest income is growing 23.4% year over year as a result of continuing expansion of the client base and the usage of digital products and platforms. Our main products continue to do grow very strongly. Of note, our CART fee show an annual growth of 37.6%. The second interchange fee cap is on hold until the commission concludes the review and makes a decision, which we would expect to be later on the year.

[Cristián Vicuña, Chief Strategy Officer and Head of Investor Relations at Banco Santander-Chile]

Here, we can also see the financial impact of KetNet that continues to do very well, attracting more business clients and also larger corporate clients with greater transactional volume. Income from financial transactions increased strongly year on year mainly due to gains from exposure to foreign currency and local and offshore client pressure. On Slide 13, we review the evolution of our net interest margin over the last twelve months. As you can see, the recovery of our NIM has been driven by the improvement in the cost of funding. Compared to the fourth quarter, the slightly lower UF variation affected our income for UF readjustment, leading to the slightly lower margin and NIM in the quarter.

[Cristián Vicuña, Chief Strategy Officer and Head of Investor Relations at Banco Santander-Chile]

Given our current macro expectation, we expect our net interest margin to stay around these levels for the rest of the year. We also display the growth of our funding base. Our total deposits remained stable year on year and decreased quarter on quarter after high liquidity of our corporate clients that then drained on the first week of the year. As interest rates fall, clients are moving to more attractive mutual funds managed by Santander Asset Management. With the growth in customer deposits, we have improved our loan to deposit ratio in the recent years reaching a 30% as of March 2025 and ninety seven percent when adjusted for the portion of our mortgage loan financed through long term bonds.

[Cristián Vicuña, Chief Strategy Officer and Head of Investor Relations at Banco Santander-Chile]

Our liquidity coverage ratio and net stable funding ratio remained well above regulatory limits. On slide 15, we can see our loan book. Our loans contracted slightly in the quarter compared to December 2024. In large part, this is due to the appreciation of the Chilean peso in the quarter, which contributed to a contraction of commercial loans and slower dynamics in the mortgage market. Consumer lending continued to grow well through though affected by the high growth at year end due to the seasonality of credit card loans, which was has now normalized.

[Cristián Vicuña, Chief Strategy Officer and Head of Investor Relations at Banco Santander-Chile]

Our auto loan book continues to grow more robustly with our Santander Consumer Subsidiary benefiting from the growth of alliances with dealerships over the last year. In terms of segment growth, the retail segment growth was led by consumer lending with the slower mortgage growth affecting the total overall growth of this segment. Our wealth management and insurance segment saw an impressive growth over the last twelve months with high wealth clients increasing their demand for credit. Our middle market segment saw a slight pickup in demand, while our corporate investment bank loan book has contracted due to our to less of a demand from the general macro environment. On slide 16, we review our efficiency that has been consistently improving, reaching 35% in the first quarter with recurrence levels of 62%.

[Cristián Vicuña, Chief Strategy Officer and Head of Investor Relations at Banco Santander-Chile]

Total operating expenses are decreasing 1.8% year on year and 3.3% in the quarter. All of this is supported by an increase in other operating expenses as costs incurred last year related to branch restructuring were not repeated in '25, and we had had lower fraud expenses due to the change in the law in May 2024. Core support expenses, salaries, administration, and amortization grew 9% year on year driven by the 5.9 quarterly increase. This pickup was particularly in administrative expenses where we recognized greater costs related to technology as we reach the final stages of our migration of our mainframe to the cloud. All in all, efficiency in the quarter is within our guidance and one of the best in the industry.

[Cristián Vicuña, Chief Strategy Officer and Head of Investor Relations at Banco Santander-Chile]

On slide 17, we show our cost of risk and payment behavior of our clients. In the first graph, we can see the evolution of our carpooling provision expense and cost of risk. As shown in the graphs on the right, our NPLs that are ninety days overdue increased during 2024 mainly in our mortgage and commercial loans, while our consumer loan will remain relatively stable. Our impaired loan portfolio, which includes NPLs plus restructured loans, has also been increased significantly in the same portfolios, especially mortgage. It is important to note that asset quality ratios are affected by weaker loan growth.

[Cristián Vicuña, Chief Strategy Officer and Head of Investor Relations at Banco Santander-Chile]

However, the graphs also indicate that the increase in volumes is starting to slow down. And during the first quarter of twenty twenty four, we started to see early signs of asset quality stabilizing with improvements in our commercial loan. On slide 18, we can see how we maintain strong capital ratios, well above our regulatory minimum. Our capital ratios as of March 2025 include a provision for a dividend payment of 70% of the 2024 earnings and 60% of the 2025 earnings year to date. In April 2025, the CMF announced that we are now required to establish 25 basis points for pillar two requirements.

[Cristián Vicuña, Chief Strategy Officer and Head of Investor Relations at Banco Santander-Chile]

We have to have half of this established by June 25 and the remaining half in the next two years that will be reviewed to the results of the evaluation of the patrimonial adequacy of each year carried out by the CMF. Fifty six point three percent of this charge has to be composed by core equity tier one, and therefore, all our all in fully loaded requirement for December 2024 2025 will be 9.08%. As you can see, we have more than sufficient capital to cover this, and so it has not affected any strategic decisions. In fact, on April 22, our shareholders approved the 70% dividend payout. So our latest dividend payment was MXN3.19 per share, our historic high with dividend yield of 5.4%.

[Cristián Vicuña, Chief Strategy Officer and Head of Investor Relations at Banco Santander-Chile]

So now let's move to our current expectations for the rest of 2025 on Slide 20. Firstly, we are considering a macro scenario of GDP growth of around 2.1% with The US variation of 3.6% and average monetary policy rate of 4.8%. With this, we expect our loan book to grow mid single digits adjusting for the the effects of our generate to distribute model. With our current macro expectations, our NIMs should remain around 4% throughout the year. Given the delay in the interchange fee regulation, we have increased our non NII guidance to growth of high single digits.

[Cristián Vicuña, Chief Strategy Officer and Head of Investor Relations at Banco Santander-Chile]

Our efficiency levels should remain around the current levels to around mid thirties. Considering where we are in the credit cycle and the initial slowdown in the creation of nonpayments, we are guiding a stable cost of risk of around one point three percent with the second semester improving compared to the first semester of this year. With this, we are increasing our guidance for 2025 to returns over average equities of above 21%. With this, I finish my presentation. So now let's start with the q and a session.

[Cristián Vicuña, Chief Strategy Officer and Head of Investor Relations at Banco Santander-Chile]

Thank you.

[Operator]

Thank you. Thank you very much for the presentation. So we'll now move to the question and answer section. If you would like to ask a question, please press 2 on your phone and wait to be prompted. If you are dialed in by the web, you can also request to ask a voice question.

[Operator]

We already have a few questions lined up, so we'll start with Ernesto Gablianda from Bank of America. Please go ahead. Your line is now open. Hello, Ernesto? Please go ahead.

[Operator]

Ernesto, if you can check if your, if your microphone might be muted on your end.

[Ernesto Gabilondo, Director - LatAm Financials Bank of America at Bank of America Merrill Lynch]

Can can you hear me now?

[Operator]

Yes. Yes. We can hear you now.

[Ernesto Gabilondo, Director - LatAm Financials Bank of America at Bank of America Merrill Lynch]

Sorry. Sorry about that.

[Operator]

No worries.

[Ernesto Gabilondo, Director - LatAm Financials Bank of America at Bank of America Merrill Lynch]

Good morning, Patricia and all your team, and thanks for for the opportunity to ask questions. My first question will be on the economic and political outlook. I would like to hear your thoughts on what will be the key topics or the challenges that will need to be addressed by the new administration? And on the other hand, how do you see could be the potential impact for Chile due to the tariffs? And then my second question is on your new NII or your sorry, non NII growth expectation.

[Ernesto Gabilondo, Director - LatAm Financials Bank of America at Bank of America Merrill Lynch]

Can you break it down in terms of fees and financial results? And my last question will be on competition from fintechs or or new entrants. We have seen Tempo, a credit card fintech in Chile already trying to accelerate its process. So I wanted to to to hear your thoughts if you are seeing a tempo as a key competitor or still not a big competitor. And also, if you can share if you are hearing something about Mercado Pago or any other type of competitor.

[Ernesto Gabilondo, Director - LatAm Financials Bank of America at Bank of America Merrill Lynch]

Again, I just want to understand who is really the competition from new fintechs and new entrants in Chile. Thank you.

[Cristián Vicuña, Chief Strategy Officer and Head of Investor Relations at Banco Santander-Chile]

Thanks, Ernesto. So let's start with the economic and tariff question. So I'll pass the line to Andres for this question.

[Andrés Sansone, Chief Economist at Banco Santander-Chile]

Okay. Regarding the impact of the tariff on Chile, the direct impact of the new US tariff on Chile export is more or less limited. We know that key products as copper and wood have been excluded, and Chile remains subject to the base 10% rate. However, the indirect effects are more significant. We know Chile is on a small open economy, so there will be lower external demand so that will affect exports.

[Andrés Sansone, Chief Economist at Banco Santander-Chile]

But more importantly, the key transmission channels is through business and consumer confidence. So that will deteriorate eventually consumption and investment by the end of the year, and that is why we are expecting to grow 2.1% this year, down from the original forecast of 2.4%, and 1.7% next year down from 2.1%. Maybe I can on the political side, the the upcoming presidential election has brought renewed focus on economic growth. There is now broader recognition across much of the political spectrum of the need to improve productivity, accelerate investment, and enhance regulatory certainty. And the recent pension reform achieved through cross party agreement has helped reinforce the the perception of institutional functionality.

[Andrés Sansone, Chief Economist at Banco Santander-Chile]

And in in in term of electoral electoral dynamics, the current point suggests that Matase is likely front runner as center centrist voters appear to have shift in direction but within a framework of stability and gradual reform.

[Cristián Vicuña, Chief Strategy Officer and Head of Investor Relations at Banco Santander-Chile]

Thank you, Andres. I'll I'll take the other two questions, Ernesto. So regarding the non NII growth, so the main driver in the increasing our guidance is the delay from the implementation of the second reduction in the interchange fee of credit cards. So the now we are expecting this to happen if it's going to happen this year by by by final quarters of the year. So with that with that, we we are we are thinking that the the initial impact that we were expecting of around 20 to $25,000,000 in lesson card fees is out of the equation for this year, and thus, we are we are increasing guidance.

[Cristián Vicuña, Chief Strategy Officer and Head of Investor Relations at Banco Santander-Chile]

Regarding our financial results, we are also expecting to sustain the rates we have been seeing in the last two to three quarters. So around something between 60 to $70,000,000 per quarter. So but that that's very dependent on the macro and market scenario. Right? So so you have to take into consideration that.

[Cristián Vicuña, Chief Strategy Officer and Head of Investor Relations at Banco Santander-Chile]

And regarding the the competition, we are we we have seen the TEMPO movement. That's something interesting to watch. TEMPO has applied for a banking license. So they are going to start fulfilling public data by by the next semester, and that's going to provide a clear perspective on how the data operation is is growing now. So the now nowadays, there's little public data.

[Cristián Vicuña, Chief Strategy Officer and Head of Investor Relations at Banco Santander-Chile]

But we have seen some little balance sheets, so not very relevant. So they have a couple of million open accounts, but little balance sheet and several years of investments. We know they they have a good experience and a good platform, but we haven't seen a relevant competition from Tenpo yet. Macau was also something very interesting to to watch. They are a relevant competitor in the acquiring business and on the digital payments through MercadoPago.

[Cristián Vicuña, Chief Strategy Officer and Head of Investor Relations at Banco Santander-Chile]

And in Argentina last year, they applied for a banking license, and that's something very differentiating to what their their strategy has been so far. So they haven't done that in Chile yet, but that that's also something to watch. And and that's really all I can say about the competition.

[Ernesto Gabilondo, Director - LatAm Financials Bank of America at Bank of America Merrill Lynch]

Perfect. No. Super helpful. Thank you very much.

[Operator]

Thank you. Thank you very much. So we'll be now moving to the next question from Patrice Abruh from Goldman Sachs. Please go ahead. Your line is now open.

[Beatriz Abreu, Equity Research Vice President at Goldman Sachs]

Hi. Good morning. Thank you for taking my question. My first question is on asset quality. So your NPL ratio remained stable this quarter, but mortgage NPL still went up a little bit.

[Beatriz Abreu, Equity Research Vice President at Goldman Sachs]

If you could give us a little bit more color on how you're seeing asset quality trends throughout the year and if you have seen any improvements into two q already. And my second question is regarding expenses. We saw that there was an increase in the quarter related to the mainframe migration to the cloud as you explained in the call. Do you have any other tech transformation expenses on pipeline for this year? And what kind of expense growth should we expect for this year and on a more normalized basis going forward?

[Beatriz Abreu, Equity Research Vice President at Goldman Sachs]

Thank you very much.

[Cristián Vicuña, Chief Strategy Officer and Head of Investor Relations at Banco Santander-Chile]

Thanks thanks for the questions, Bea. So regarding asset quality, as you mentioned, what we're seeing is a stable quarter in terms of of NPLs. We have a a a positive perspective on our consumer portfolio, so that's working well. And we also are are seeing initial good trends on the commercial part of our loan book. So that's also something that we think it's going to be showing a better better trends, especially regarding NPLs and impaired ratios.

[Cristián Vicuña, Chief Strategy Officer and Head of Investor Relations at Banco Santander-Chile]

The mortgage part of the of the portfolio, it's still slightly deteriorating. We are seeing a slowdown in the growth trends, so we expect to reach a plateau during the the second or third quarter, so mostly on the second semester. But we are not going to be seeing the turnaround yet in that part of the portfolio. But there's going to be definitely a slowdown in the growth in NPLs in that part of the portfolio. So all in all, for the total portfolio, we we expect to be showing better total news in terms of NPL and NPL ratio for the full year compared to last year.

[Cristián Vicuña, Chief Strategy Officer and Head of Investor Relations at Banco Santander-Chile]

And, also, we are expecting to to show a cost of risk within our guidance. Right? But we are going to be seeing a slightly higher cost of risk in the first half of the year and then a better performance in the second half of the year. This is what how we are we are expecting this part of the portfolio to to perform. And regarding expenses, well, we are in a path of transformation.

[Cristián Vicuña, Chief Strategy Officer and Head of Investor Relations at Banco Santander-Chile]

So there are going to be several other platforms that we are going to be renovating and updating during the next years. But having having said that, none of those platforms is as relevant as the gravity project. So most of those are going to be absorbed through our business as usual capital expense and and investments. Right? So what we're seeing now is just the final stage of the implementation of gravity that this quarter, we were doing two core systems of the time.

[Cristián Vicuña, Chief Strategy Officer and Head of Investor Relations at Banco Santander-Chile]

In April, we turned off the legacy system, so that's going to help improve a little the the administrative figure. So all in all, we're very confident that we're going to be with a cost of income of around 30 35% for for the full year, so around mid thirties.

[Beatriz Abreu, Equity Research Vice President at Goldman Sachs]

That's very helpful. Thank you.

[Operator]

Perfect. Thank you very much. So we are now moving to the next question from Neha Agarwala from HSBC. Nikhav, we we are hearing an echo. Hi.

[Neha Agarwala, Analyst at HSBC]

Can you hear me now?

[Operator]

Yes. Yes. Now it now it's better.

[Neha Agarwala, Analyst at HSBC]

Perfect. Thank you so much for taking my question. Very quickly, what are the main risks that you see for the year? And if you could give us some more color about how should the name evolve through the quarters for this year as well as next year. We expect, I think, inflation to come down a bit more in 2026.

[Neha Agarwala, Analyst at HSBC]

So we believe some of the pressure on NIM is postponed to '26 versus what we expected for this year. So if you can give us some more color on that, that would be very helpful. Thank you so much.

[Cristián Vicuña, Chief Strategy Officer and Head of Investor Relations at Banco Santander-Chile]

Thanks

[Cristián Vicuña, Chief Strategy Officer and Head of Investor Relations at Banco Santander-Chile]

for the question, Neha. Patricia will answer your questions.

[Patricia Pérez, CFO at Banco Santander-Chile]

Thanks, Neha, for for your question. Yes. As Christian showed on our guidance, we are expected and I are expecting a NIM of 4% above 4%. And regarding risk, we are not seeing downside for this year in terms of interest rate. Inflation probably will slow down during the second part of the year, but we are already considered that in our base scenario.

[Patricia Pérez, CFO at Banco Santander-Chile]

So we are confident with that guidance for this year. And and regarding next year, we are expecting less inflation than definitely less inflation than this year. We are expecting around 3%, but but we we as I mentioned, we are confident that we can keep delivering good levels of of of NIM and and more structural levels at at at this point.

[Cristián Vicuña, Chief Strategy Officer and Head of Investor Relations at Banco Santander-Chile]

So regarding your your main risks for the year, what as as complementing what Patricia was mentioning, We are not seeing relevant risks to our guidance from the local macro scenario, but the volatility that has been displayed in in markets due to all the international trade news and the and the tariffs that have been implemented by the North America, It's something to monitor, and most of our risk sources as as we assess internally are coming from the external commercial scenario.

[Neha Agarwala, Analyst at HSBC]

That that's great. If I can just one last question. What do you think is a more normalized ROE level for the bank? Would it be closer to 20% or between 18 to 20 as you have said in the past? Thank you so much.

[Cristián Vicuña, Chief Strategy Officer and Head of Investor Relations at Banco Santander-Chile]

So regarding our ROE, when before the pandemic and during the pandemic, we we sustained a long term ROE of between 17 to 19. So we we recently updated that to above 20%. So we're pretty confident that we are going to be able to sustain let let us all have above 20% in ROE. We are we are not reassessing yet that that medium to long term guidance.

[Neha Agarwala, Analyst at HSBC]

Perfect. Thank you so much.

[Operator]

Thank you. Thank you very much. So now we'll move to the next question from Daniel Mora from Credicorp. Please go ahead, Daniel. Your line is now open.

[Daniel Mora Ardila, Equity Research Associate at Credicorp]

Hi. Good morning, and thank you for the presentation. I have two questions, if I may. The first one is regarding a loan growth. With the reduction in the GDP estimates, what are the expectations for loan growth by segment in this year?

[Daniel Mora Ardila, Equity Research Associate at Credicorp]

And I would like to know if do you expect to see double digit loan growth maybe in 2026? The second question is regarding capital. Do you see any impact on the bank's strategy or dividend payment coming from the new capital requirement related to the pillar two on the potential increase that we might see in the countercyclical buffer? And the third one is, what will be the main reasons behind the normalization of ROE for this year to figures close to 21% after a positive 26% in the first quarter? Considering that you maintain the NIM and you increase the non net interest income guidance and also loan growth, it seems that will remain stable.

[Daniel Mora Ardila, Equity Research Associate at Credicorp]

What what what will be the main drivers for this normalization? Thank you so much.

[Patricia Pérez, CFO at Banco Santander-Chile]

Thanks, Daniel, for for your questions. I will take the first two, and then Christian will will take the the ROE question. So regarding loan growth, we're expecting, as we mentioned, mid single digit Retail part of the loan book is behaving quite well. So in terms of the SME portfolio, consumer lending, we're we're seeing good behavior and good figures for for this year. Consumer, mainly driven by credit card mortgages.

[Patricia Pérez, CFO at Banco Santander-Chile]

We are we are expecting that the second part of the year, we will have, like, a better growth. And the question mark is the corporate loans as we all still we are still seeing weak demand in that part of the of the loan book. Next year, I would say we we we still need to need to see how it evolves the the risk coming from from abroad. And and according our base scenario, like, a moderate growth GDP for for next year. So at this point, it is difficult to think in double digit loan growth for next year.

[Patricia Pérez, CFO at Banco Santander-Chile]

And regarding capital, yes, I mean, we received this 20 basis point chart or requirement from the CMS related to the the market risk in our banking book risk portfolio pillar two. We we have to to comply with this requirement 50% during this year, as Christian mentioned. In in that line, 56.3% must be complied with core capital. So this give us 9.08% of minimum regulatory requirements, and we don't see any any risk or impact in our strategy regarding this this new requirement.

[Cristián Vicuña, Chief Strategy Officer and Head of Investor Relations at Banco Santander-Chile]

So so regarding your your ROE question, what we are actually doing is it's actually increasing our guidance for the year as we have a very clear picture that we will be above the 21% mark. So we we we understand that there there is going to be a slightly lower performance in terms of NIMs, especially in the third quarter as we are seeing the the path of inflation being projected for the year. But out of that out of that, we are not seeing an ROE rationalization. We are, we are expecting an ROE of about 21%. So, yeah, hope this clarifies.

[Operator]

Perfect. Thank you so much. Thank you. Thank you very much. Just before we move to the next question, just a quick reminder.

[Operator]

If you are connected via the phone and want to ask a voice question, please press 2. If you are connected via the web, you may also ask a voice question. Our next question comes from Ewald Stark from Pizza Innversions. Please go ahead. Your line is now open.

[Analyst]

Hello. Good morning, and thanks for taking my question. Could you provide some guidance on how you expect asset density to evolve over the coming quarters?

[Cristián Vicuña, Chief Strategy Officer and Head of Investor Relations at Banco Santander-Chile]

Can you clarify a little what what are you mentioning about asset density?

[Analyst]

Risk weighted assets or total assets. How how do you expect to grow

[Analyst]

in the in the next couple of quarters?

[Cristián Vicuña, Chief Strategy Officer and Head of Investor Relations at Banco Santander-Chile]

We think the ratio of risk weighted asset to total assets going to remain stable. We are are not seeing any any signs of movement. If there were to happen any any movements, it will be probably something that's going to be happening on the derivative part of the assets in our portfolio that have some some movements. But but I I think it's actually no material. So we we expect to have this the asset density staples from what we're displaying now.

[Patricia Pérez, CFO at Banco Santander-Chile]

Yeah. Complementing, Christiane, I would say that the composition of our asset growth and market risk, if you want, should be stable during the rest of the year. The only thing that could change that composition is a regulatory change that we don't foresee in in the coming months, but it's true that the CMS is reviewing some part of the of the rule.

[Analyst]

And do you expect any material change? Maybe, like, a small upward bias on this radio of restricted assets to assets?

[Patricia Pérez, CFO at Banco Santander-Chile]

No. Not not at not at this moment. Not at this moment. It's too too soon to say something. We we don't have any consultation process from the CMS, so so no.

[Patricia Pérez, CFO at Banco Santander-Chile]

Not at this point.

[Analyst]

Okay. Perfect. Thanks.

[Cristián Vicuña, Chief Strategy Officer and Head of Investor Relations at Banco Santander-Chile]

Thank you, Raul.

[Operator]

Thank you. Thank you very much. Ladies and gentlemen, we would like to take this opportunity to share on your screens a very brief survey. Your feedback will be greatly appreciated. The question and ask section is still open.

[Operator]

So please, if you are connected via the phone and you would like to ask a question, please press 2 dash star two on your keypad. If you are connected via the web, you may also ask a voice question. We'll just give a minute or so for the questions to come in.

[Operator]

Okay.

[Operator]

Uh-huh. Looks looks like we we have no further questions from the audience. So I would like to pass the line to Banco Santander Chile team for concluding remarks.

[Cristián Vicuña, Chief Strategy Officer and Head of Investor Relations at Banco Santander-Chile]

Well, thank you very much for joining us today, and we expect to be with you back again for our second quarter results in early July.

[Patricia Pérez, CFO at Banco Santander-Chile]

Thank you very much.

[Operator]

Thank you. Thank you, everyone. This concludes today's call. Thank you, and goodbye.

Participants

Executives

• Patricia Pérez, CFO
• Andrés Sansone, Chief Economist
• Cristián Vicuña, Chief Strategy Officer and Head of Investor Relations

Analysts

• Ernesto Gabilondo, Director - LatAm Financials Bank of America at Bank of America Merrill Lynch
• Beatriz Abreu, Equity Research Vice President at Goldman Sachs
• Neha Agarwala, Analyst at HSBC
• Daniel Mora Ardila, Equity Research Associate at Credicorp
• Analyst