SANTIAGO, Chile, Oct. 30, 2020 (GLOBE NEWSWIRE) -- Banco Santander Chile (NYSE: BSAC; SSE: Bsantander) announced today its unaudited results1 for the nine month period ended September 30, 2020 and third quarter 2020 (3Q20).
Net income increases 23.9% QoQ
Net income attributable to shareholders in 3Q20 totaled Ch$105,139 million (Ch$ 0.56 per share and US$ 0.28 per ADR). It is important to point out that 3Q20 results include an additional provision of Ch$30,000 million recognized in order to increase coverage ratios considering the uncertainty surrounding the potential impacts on credit quality of the COVID-19 crisis and Ch$34,133 million in regulatory provisions set aside for FOGAPE loans1 due to a change in the expected loss model of these loans. Even with this impact net income increased 23.9% QoQ due to a lower overall provision expense, higher net interest income and cost control. This was partially offset by lower non-interest income affected by lower economic activity and lower treasury income. The ROE in the quarter reached 11.5% compared to 9.5% in 2Q20. Net income attributable to shareholders in 9M20 decreased 23.3% YoY, totaling Ch$334,012 million (Ch$1.77 per share and US$0.90 per ADR) with the Bank’s ROAE in 9M20 at 12.5%.
47% YoY rise in non-interest bearing demand deposits
The Bank’s total deposits increased 12.3% YoY and decreased 3.3% QoQ in 2Q20. In the quarter, non-interest bearing demand deposits continued to grow strongly, reaching 12.1% QoQ and 47.0% YoY due to high growth of retail checking accounts and continued strength in the Bank’s transactional banking services for companies as clients looked to increase their liquidity to confront the months of quarantine. Moreover, in the quarter, demand deposit growth was also driven by the effect of the withdrawal from the pension funds. This also led to high liquidity ratios with the Bank’s LCR and NSFR reaching 157% and 119%, respectively.
Time deposits decreased 12.1% YoY and 16.7% QoQ due to lower interest rates. In March the Central Bank continued to lower its MPR, which serves as reference rate for most CLP denominated deposits. At the same time the Bank continued to enforce time deposit price discipline, improving our time deposit funding cost in nominal pesos in absolute terms and compared to our main peers.
Life and Superdigital driving digital account openings
Retail demand deposit growth was also driven by Life and Superdigital that thrived in the quarter. The lockdowns have increased the demand for online banking services and our attractive digital product offer drove record demand for these products. Our digital channels have proven vital during the COVID-19 crisis providing clients with an easy access to our transactional products.
Santander Life continues to be the main contributor to new client growth due to the success of this product’s Meritolife Program and Digital On-boarding process for opening a checking account. Total new clients in Life in 2020 increased 110% YTD and in the third quarter Life opened a record 147,925 checking accounts. The lockdowns have increased the demand for online banking services and Santander Life’s attractive product offer has continued to drive demand for this product. Life already has more than 360,000 clients, 75% of which were digitally onboarded. Santander Life received an NPS score of 71.
In April, Superdigital was fully launched to the public and a record amount of debit accounts were opened in the quarter, providing an attractive alternative for unbanked Chileans to manage the money received from government initiatives during the COVID-19 crisis. In April Superdigital had 20,000 clients and this jumped to over 100,000 by September.
The Bank opens 1.3x more current account than the banking system
As a result of these efforts, the Bank’s market share in traditional checking accounts remained strong. According to the latest publicly available information, which is as of July 2020, net account openings at Santander Chile were equivalent to 1.3x the total account opening in the banking system. This figure has yet to reflect the strong jump in account opening in Life in August and September. These figures also do not include Superdigital, since those accounts are categorized as debit cards.
Solid YoY loan growth of 9.3% with COVID related demand normalizing after peak in 2Q
Total loans increased 9.3% YoY and decreased 1.2% QoQ. After strong loan growth in the first semester of 2020, loan growth decelerated in the quarter as the Middle-market and CIB segment reduced their demand for working capital loans for liquidity needs and the demand from SMEs for FOGAPE loans also waned. As of September 30, 2020, approximately Ch$1,985 billion (or US$2.5 billion) loans had been granted under this scheme, representing 11.1% of our total commercial loan book, with the state guarantees covering around 78% on average.
Loans to individuals increased 6.1% YoY and were flat QoQ. Consumer loans continued to contract in the quarter, decreasing 2.8% QoQ as clients have become more restrictive in their consumption behavior and have focused on paying back their loans. Mortgage loans increased 11.0% YoY and 1.4% QoQ. Long-term interest rates have remained at attractive levels, contributing to the sustained growth among high-income earners.
Positive evolution of repayment of reprogrammed loans. Increasing coverage to 198%
At the start of the pandemic in March, the Bank offered grace periods to clients with good payment behavior with consumer loans receiving up to 3 months, commercial loans up to 6 months and mortgage loans initially receiving 3 months with the possibility to extend a further 3 months for clients that were most affected by the lockdowns. As we only gave 3-month grace periods for consumer loans, the payment holiday for most of these clients has finished. So far, the trends seen in August and September are positive with 98% of the reprogrammed clients already resuming payments.
During the quarter provisions increased 14.2% YoY and decreased 30.8% QoQ. The QoQ decrease was mainly due to positive evolution of asset quality, especially in consumer lending. This led to a cost of credit in 3Q20 of 1.5% in the quarter compared to 2.2% 2Q20. In July, the Bank added a further Ch$30,000 million of additional provisions to bolster coverage ratios due to the economic crisis caused by the pandemic. With this provision plus the additional provisions recognized in 2Q20 and in 4Q19, the total amount of additional provisions recognized in our balance sheet totaled Ch$76,000 million. In addition, in 3Q20 the Bank recognized Ch$34,133 million in provisions for FOGAPE loans to comply with a change in the expected loss models for these loans introduced by the CMF.
As a result, the expected loan loss ratio (Loan loss allowance over total loans) rose from 3.0% in 2Q20 to 3.1% in 3Q20. The NPL ratio improved from 2.0% in 3Q19 and 1.9% in 2Q20 to 1.6% in 3Q20 in part due to the payment holiday and the positive evolution of repayment behavior for reprogrammed consumer loans that became due. Impaired loans ratio remained stable at 5.3%. The total Coverage ratio, including additional provisions reached 198.5% in 3Q20.
BIS ratio at 10-year high leads to second payout of 2019 earnings
The Bank’s core capital ratio2 was 10.7% and the total BIS ratio3 was 15.1% as of September 30, 2020, the highest level since 2009. In April, the Bank’ shareholders approved the decision to distribute a dividend payout of 30%, in line with the regulatory minimum and lower than previous years, to ensure healthy capital ratios during the pandemic. Of the remaining 70% of 2019 net income, 40% was assigned to reserves and 30% to retained earnings.
Considering the solid capital ratios achieved as of September, the Board of Directors summoned an extraordinary shareholders’ meeting to be held on November 26 to propose a dividend distribution of the 30% of 2019 earnings which were assigned to retained earnings. This is equivalent to Ch$0.88/share and a 3% dividend yield, using the share price on the day this announcement was made.
NII up 9.7% YoY in 3Q20 driven by lower cost of funds
In 3Q20, Net interest income, NII, increased 9.7% compared to 3Q19 and 0.3% compared to 2Q20. The rise in NII was driven by an increase of 1.9% QoQ and 18.7% YoY of interest earning assets. Moreover, in 3Q20, the 12.1% QoQ and 47.0% YoY increase in non-interest-bearing demand deposits had a positive impact on net interest income growth. Time deposit costs also continued to fall in line with short-term interest rates. These positive effects contributed to partially offset the lower inflation rate recorded in the quarter and growth in lower yielding, but less risky interest earning assets. The overall effect on NIMs was a decrease from 4.0% in 3Q19 and 3.8% in 2Q20 to 3.7% in 3Q20.
Lower results from non-client treasury income
Total non-interest income, which is the sum of fee income and financial transactions, net totaled Ch$99,050 million in 3Q20, a decrease of 29.0% QoQ and 27.4% YoY, mainly due to lower treasury income. Non-client treasury results had a weaker quarter as the Bank realized less gains from available-for-sale instruments. This was compensated by continued strong demand for client treasury services that totaled Ch$38,840 million and increased 2.8% compared to 3Q19 and decreased 14.4% compared to 2Q20, which had been particularly strong given the crisis. This reflects the demand on behalf of clients for treasury products, mainly for their hedging needs and market making.
Fee income decreased 14.1% compared to 3Q19 and 1.1% compared to 2Q20, mainly affected by lower economic activity and the negative effect of the new cyber-fraud legislation on insurance brokerage fees. As lockdowns continue to ease fee income should rebound. Card transactions are already picking up due to greater usage of our card products. For this reason, in 3Q20 debit and credit card fees were up 47.1% QoQ and 53.7% YoY.
Productivity continues to rise. Efficiency ratio of 40.3% YTD
Operating expenses increased 1.7% YoY and decreased 1.1% QoQ with the Bank’s efficiency ratio reaching 41.5% in 3Q20 and 40.3% YTD demonstrating good cost control. Productivity continues to rise with volumes (loans plus deposits) per branch increasing 15.4% YoY and volumes per employee rising 13.1% YoY despite the widespread lockdown for most of the quarter. YTD Operating expenses to total assets improved to 1.3% in 3Q20 compared to 1.8% in in 3Q19.
Banco Santander Chile is the largest bank in the Chilean market in terms of loans and assets. As of September 30, 2020, the Bank had total assets of US$ 72.9 billion, loans net of provisions of US$ 43.2 billion, deposits of US$ 32.7 billion, and total equity of US$ 4.8 billion. The BIS capital ratio as of September 30, 2020 was 15.1%, with a core capital ratio of 10.7%. Banco Santander Chile is one of the companies with the highest risk classifications in Latin America with an A1 rating from Moody's, A- from Fitch, A from Standard and Poor's, and A+ from Japan Credit Rating Agency.
1 FOGAPE or the Fondo de Garantía para Pequeños Empresarios is a state fund that guarantees loans given to SMEs
2 Core Capital ratio = Shareholders’ equity divided by Risk-weighted Assets (RWA) according to CMF BIS I definitions.
3 BIS ratio: Regulatory capital divided by RWA.
1 The information contained in this report is unaudited and is presented in accordance with Chilean Bank GAAP as defined by the Financial Markets Commission (CMF).