SANTIAGO, Chile — Banco Santander Chile (NYSE: BSAC; SSE: Bsantander) announced today its resultsi for the six-month period ended June 30, 2023, and second quarter 2023 (2Q23).
Solid net contribution from business segments that increases 38.8%.
The net contribution of our business segments continues to be very strong, increasing 38.8% YoY1. Specifically, the Retail Banking segment increased 21.0% YoY with total revenues increasing 20.8% YoY. The net contribution of the Middle-market segment increased 38.0% YoY, with an increase in total revenues of 21.6% YoY. Finally, the net contribution of our Corporate and Investment Banking (SCIB) unit grew 84.5% YoY, driven by a 53.0% YoY increase in total revenues.
As of June 30, 2023, net income attributable to reached Ch$262,870 million ($1.39 per share and US$ 0.70 per ADR), decreasing 49.6% compared to the same period last year (and with an ROAE2 of 12.9%. This result was mainly due to the impacts perceived in the NIM3 produced by the deceleration of inflation and higher interest rates that reduced the return on assets in UF and increased the funding costs.
Net income from fees increases 38.5% in 6M234, with the recurrence5 ratio reaching 60.6%.
Net commissions have followed a positive trajectory in recent years, strongly influenced by the increase in customers, both individuals and Small and Medium sized companies (SMEs), which have boosted the cross-selling of our products. During 2Q236, net commissions increased 4.6% QoQ7 and 38.5% YoY, with positive variations in all lines, but to a greater extent in card commissions, insurance brokerage, Getnet and others. Within this last item, commissions for financial advisory services are considered, which have increased in recent months due to good business from SCIB.
Loan growth led by consumer loans
Total loans increased 0.6% QoQ and 1.3% YTD, mainly driven by the retail segment, by mortgage loans and consumer loans. Consumer loans increased 1.3% QoQ and 2.4% from December 31, 2022. This it was driven by a 2.1% QoQ increase in credit cards. Between the end of 2019 and 2021 credit card loans decreased 7.0% as clients reduced large purchases such as travel and hotels which fuels credit card loans. At the same time many clients paid off credit card debt with the liquidity obtained from government transfers and pension fund withdrawals. At the end of 2022, as household liquidity levels returned to normal and holiday travel resumed credit card loans began to grow again.
Origination of new mortgage loans has fallen as inflation and rates remain high, therefore the mortgage portfolio growth of 2.4% QoQ and 4.3% from December 31, 2022 is due to the indexation of this loan book to the UF, growing slightly above the value of the UF.
Total deposits increase 3.8% QoQ as the Bank takes advantage of the inverted yield curve
The Bank’s total deposits increased 0.3% QoQ and 4.1% since December 31, 2022. The increase was driven by time deposits that increased 4.4% QoQ and 14.7% YTD mainly in the CIB segment, due to the fact that the increase in rates led our clients to switch to more attractive deposits explaining the decrease of 3.9% QoQ and 5.8% YTD of demand deposits.
Bonds increased 2.6% QoQ and 5.0% YTD. During 6M23, the Bank has issued bonds for UF1.7 million and Ch$ 383,150 million US$ 30 million and JPY 17,500 million, taking advantage of attractive opportunities in the various fixed income markets locally and abroad.
The Bank’s Liquidity Coverage Ratio (LCR), which measures the percentage of Liquid Assets over Net Cash Outflows as of June 30, 2023 was 153.3%, well above the minimum. At the same date, the Bank’s Net Stable Funding Ratio (NSFR), which measures the percentage of illiquid assets financed through stable funding sources, reached 108.5%, also well above the current legal minimum set for this ratio.
CET1 reaches 11.0% with a BIS ratio of 17.5% in 6M23.
Our core capital increased 5.8% QoQ due to higher results and an improvement in valuation adjustments and decreased 0.8% YTD due to the dividend payment approved at the last annual shareholders’ meeting in April. Risk-weighted assets (RWA) increased 2.0% YTD and 1.0% QoQ. We are actively seeking to lower our market risk through netting and novation of our derivatives portfolio leading to a 0.8% QoQ decline in market risk-weighted assets. As a result, our CET1 is 11.0% and the total BIS III ratio 17.5% at the end of June 2023.
Income from interest and readjustment fall QoQ
Year to date net interest income and readjustments (NII) as of June 2023 decreased by 44.5% compared to the same period in 2022 and in 2Q23, total income net of interest and readjustments decreased by 8.2% compared to 1Q23. This result was mainly due to the lower inflation in the period, higher funding costs due to the higher MPR and a lower carry earned over our financial investments classified as held to collect that are at a fixed rate. This was partially offset by a higher rate earned over average generating assets due to higher inflation and higher spread earned over deposits. Overall the NIM (Net interest income divided by average interest earning assets) reached 2.1% as of June 30, 2023.
Cost of credit of 1.19% YTD and coverage of 165.0% while the asset quality continues to normalize, towards pre pandemic levels
During the Covid-19 pandemic, asset quality benefited from state aid and pension fund withdrawals, resulting in a positive evolution of asset quality during that period. Currently, with an economy that continues to slow down and without the excess liquidity in households that we had during the pandemic, asset quality is returning to pre-pandemic levels. Given the above in 2Q, the non-performing loan ratio (NPL) reached 2.1% in 2Q23 while the impaired portfolio reached 5.4% in 2Q23. Lastly, the expected loss ratio (provisions for credit risk divided by total loans) has remained more stable at2.8% in 2Q23.
In the quarter, the expense for credit losses increased 2.7% QoQ. Expenses for credit risk provisions for banks and loans and accounts receivable from customers increased 9.9% QoQ, which is offset by a 29.5% increase in recoveries in the quarter. With these results, the cost of credit in 2Q23 remained at 1.19%. The non-performing portfolio coverage ratio decreased to 165.0% in 2Q23, which includes the voluntary provisions of Ch$293 billion approved by the Board of Directors between 2020-2022.
Solid client treasury income with net financial results increasing 63.6% in 6M23.
Net financial results recorded a gain of Ch$162,338 million in 6M23, an increase of 63.6% compared to 6M22, mainly due to higher gains from financial assets and liabilities to be traded. In 2Q23, net financial results increased 9.8% compared to 1Q23, mainly due to foreign exchange gains, readjustments, and foreign currency hedge accounting.
Operating expenses decreased 7.5% in 6M23, demonstrating the solid cost control in the first half of 2023.
Operating expenses decreased 7.5% in 6M23 compared to the same period in 2022 demonstrating solid cost control in the quarter as the Bank continues to improve its productivity levels. In 2Q23 operating expenses increased 2.0% QoQ due to higher personnel expenses.
The Bank’s efficiency ratio reached 45.4% as of June 30, 2023, higher than the 37.9% in the same period last year, due to lower growth of our operating income. On the other hand, the ratio of costs to assets improved from 1.5% in 6M22 to 1.3% in 6M22.
The Bank continues to advance in the execution of its investment plan of US$260 million for the years 2023-2025 with a focus on digital initiatives both on the front and back-end.
Our earnings webcast will be held on Friday, August 4, 2023 at 11am ET. For more information please visit our website.
As of June 30, 2023, we had total assets of US$ 85,752 million, outstanding loans (including interbank loans) at amortized cost, net of allowances for loan losses of US$ 47,78 million, total deposits of (US$ 35,164 million) and shareholders’ equity of US$ 5,205 million). The BIS capital ratio as of June 30, 2023, was 17.5%, with a core capital ratio of 11.0%. 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.