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FORM 6-K 


SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

Report of Foreign Issuer

 

Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934

 

Commission File Number: 001-14554

Banco Santander Chile
Santander Chile Bank
(Translation of Registrant’s Name into English)
 
Bandera 140
Santiago, Chile
(Address of principal executive office)

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:

    Form 20-F x     Form 40-F ¨  

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):

  Yes ¨   No x  

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):

  Yes ¨   No x  

 

Indicate by check mark whether by furnishing the information contained in this Form, the Registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934:

  Yes ¨   No x  

 

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): N/A

  

 

 

  

 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  BANCO SANTANDER-CHILE  
     
  By: /s/ Cristian Florence  
  Name: Cristian Florence  
  Title: General Counsel  

 

Date: July 28, 2017

 

 

 

 

 

Exhibit 99.1

 

(COVER PAGE) 

 

 

 

 

(GRAPHIC) 

 

 

 

 

(SANTANDER LOGO) 

 

Section 1: Key consolidated data

 

(GRAPHIC) Balance Sheet (Ch$mn)  Jun’17   Jun’16   % Change 
Total assets   34,806,430    36,123,767    (3.6%)
Gross customer loans   27,156,024    26,400,567    2.9%
Customer deposits   19,255,177    20,236,094    (4.8%)
Customer funds   24,818,118    25,117,544    (1.2%)
Total shareholders’ equity   2,895,250    2,704,685    7.0%

 

(GRAPHIC) Income Statement (Ch$mn)  1H17   1H16   % Change 
Net interest income   662,609    641,310    3.3%
Net operating profit before provisions for loan losses   908,475    840,154    8.1%
Provision for loan losses   (150,372)   (161,362)   (6.8%)
Op expenses excluding impairment and other op. exp.   (343,291)   (338,057)   1.5%
Income before tax   362,070    293,578    23.3%
Net income attributable to equity holders of the Bank   292,811    241,739    21.1%

 

(GRAPHIC) Profitability and efficiency  1H17   1H16   Change bp 

Net interest margin (NIM) 1

   4.4%   4.6%   -20 
Efficiency ratio2   40.2%   42.7%   -250 
Return on avg. equity   20.3%   17.7%   +260 
Return on avg. assets   1.6%   1.4%   +20 
Core Capital ratio   10.7%   10.1%   +60 
BIS ratio   13.7%   13.0%   +70 
Return on RWA   2.1%   1.8%   +30 

 

(GRAPHIC) Asset quality ratios (%)  Jun’17   Jun’16   Change bp 
NPL ratio3   2.2%   2.1%   +10 
Coverage of NPLs  ratio 4   136.2%   140.5%   -430 
Cost of credit5   1.1%   1.3%   -20 

 

(GRAPHIC) Structure (#)  Jun’17   Jun’16   Change (%) 
Branches   406    468    (13.2%)
ATMs   1,059    1,484    (28.6%)
Employees   11,068    11,653    (5.0%)

 

(GRAPHIC) Market capitalization  Jun’17   Jun’16   Change (%) 
Net income per share (Ch$)   1.55    1.28    21.1%
Net income per ADR (US$)   0.94    0.77    22.1%
Stock price (Ch$/per share)   42.24    31.92    32.3%
ADR price (US$ per share)   25.41    19.37    31.2%
Market capitalization (US$mn)   11,971    9,126    31.2%
Shares outstanding (millions)   188,446.1    188,446.1    —%
ADRs (1 ADR = 400 shares) (millions)   471.1    471.1    —%

 

1 NIM = Net interest income annualized divided by interest earning assets.

2. Efficiency ratio: Operating expenses excluding impairment and other operating expenses divided by Operating income. Operating income = Net interest income + Net fee and commission income + Total financial transactions, net + Other operating income minus other operating expenses.

3. Capital + future interest of all loans with one installment 90 days or more overdue divided by total loans.

4. Loan loss allowance divided by Capital + future interest of all loans with one installment 90 days or more overdue.

5. Provision expense annualized divided by average loans.

 

1 

 

 

(SANTANDER LOGO) 

 

Section 2: Summary of results1

 

Net income increased 5.7% QoQ and 29.4% YoY in 2Q17. ROAE reached 20.8% in 2Q17

 

Net income attributable to shareholders in 2Q17 totaled Ch$150,436 million (Ch$0.80 per share and US$0.48/ADR), increasing 5.7% QoQ and 29.4% YoY. The Bank’s ROAE2 expanded in the quarter 370bp compared to 2Q16 and 130bp compared to 1Q17, reaching 20.8%, above initial guidance. Net income attributable to shareholders in 1H17 totaled Ch$292,811 million, increasing 21.1%, with a ROAE of 20.3% YTD.

 

The rise in the Bank’s ROAE was driven by a solid growth of client revenues leveraged on a lower cost of credit and improved efficiency. This is reflected in the 31.6% YoY rise in net contribution from our business segments3. This was led by a 47.2% increase in net contribution from our Retail Banking segment4.

 

 (BAR GRAPH)

 

NIM5, net of risk rises 36bp to 3.6%.

 

Total NIM was 4.6% in 2Q17, up 40bp QoQ YoY and 1bp YoY despite lower YoY inflation. This positive evolution of net interest margins in the quarter was mainly driven by our business segments. Net interest income from our business segments (Client NII) increased 3.0% QoQ and 11.4% YoY, with all business segments showing strong NII growth QoQ and YoY, despite average loans from reporting segments decreasing 0.8% QoQ and increasing slightly YoY by 4.1%. Client NIMs (defined as Client NII divided by average loans), which excludes the impact of inflation and the ALCO’s liquidity portfolio, rose to 5.0% in 2Q17 compared to 4.8% in 1Q17 and 4.7% in 2Q16. The Bank has managed to gradually improve client NIMs by selectively growing the loan book and a lower cost of funding in line with lower Central Bank interest rates.

 

Even greater improvement was seen in the NIM net of risk6 for 2Q17, which reached 3.6%, up 36bp from 1Q17 and 16bp from 2Q16. This also led to Client NIM net of risk increasing to the highest level in last five quarters. In general asset quality indicators remained stable in the quarter. Total NPLs fell by 1.3% in 2Q17 to Ch$ 587,107 compared to 1Q17 however the NPL ratio remained stable at 2.2%, in particular, the NPL ratio of consumer loans decreased from 2.4% in 1Q17 to 2.0% in 2Q17 in line with the Bank’s loan growth strategy of steering away from the low end of the consumer market. Similarly, the Bank’s Expected loss ratio or Risk index, measured as Loan Loss Allowances (LLA) over total loans also remained stable at 2.9% as of June 2017. As economic growth remained sluggish in the quarter there was some minor deterioration of the impaired loan ratio from 6.1% as of March 2017 to 6.3% as of June 2017. Provision for loan losses increased 3.6% QoQ due to a slight increase in impaired loans in the quarter, and decreased 8.3% YoY in 2Q17, reflecting the change in the loan mix as part of the de-risking strategy enforced by the Bank which has led to a cost of credit7 of 1.1% in 2Q17, an improvement on the 1.3% in 2Q16.

 

 
1.The information contained in this report is unaudited and is presented in accordance with Chilean Bank GAAP as defined by the Superintendency of Banks of Chile (SBIF).
2.ROAE: Return on average equity: annualized quarterly net income attributable to shareholders divided by average equity attributable to shareholders in the quarter. Averages calculated using monthly figures.
3.Net contribution is defined as Net interest income + Net fee and commission income + Total financial transactions - provision for loan losses – operating expenses.
4.Retail banking = Individuals + Small and Mid-sized companies (SMEs).
5.Annualized Net interest income divided by average interest earning assets.
6.Annualized Net interest income minus annualized provisions divided by average interest earning assets.

7.Annualized provision for loan losses / average total loans. Averages are calculated using monthly figures.

 

2 

 

 

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(LINE GRAPH) 

 

Loan growth slows in the quarter as the Bank remains focused on profitability

 

Total loans decreased 1.1% QoQ and increased 2.9% YoY in 2Q17 as a consequence of the Bank’s focus on profitability and risk coupled with slower economic growth. Loans to individuals continue to lead growth and expanded 0.4% QoQ and 5.2% YoY. Growth in loans to SMES has also been orientated on growing the loan book among larger, less risky SMEs and as with Middle-market companies and GCB, the Bank has continued to focus on generating non-lending revenues.

 

Rate cut and lower loan growth drives shift of time deposits towards fee generating mutual funds

 

In the quarter, the Bank focused on lowering its funding costs and optimizing liquidity levels. Lower demand for loans resulted in a spike in the Bank’s liquidity levels. In order to optimize this and to improve funding costs, the Bank lowered its deposits rates in tandem with the lower Central Bank rates. At the same time, the Bank stimulated a greater flow of customer funds to mutual funds, which in a lower rate environment is a more attractive option for clients and which generates higher fee income. As a result, total deposits decreased 4.2% QoQ and 4.8% YoY. On the other hand, Mutual funds brokered by the Bank increased 1.3% QoQ and 14.0% YoY.

 

Greater customer loyalty & satisfaction fueling solid fee growth

 

In 2Q17 fee income decreased 1.4% QoQ and increased 12.5% YoY. In retail banking, fees increased 1.7% QoQ and 8.1% YoY, mainly driven by rising client loyalty and cross-selling. Loyal individual customers8 in the High-income segment grew 12.1% YoY. By products, the biggest contributors to fee income growth were collection of mortgage related insurance fees and asset management brokerage fees.

 

 

8.Clients with >4 products plus minimum usage and profitability levels.

 

3 

 

 

(SANTANDER LOGO) 

 

Sustained rise in productivity. Efficiency ratio9 40.4%

 

The Bank’s efficiency ratio reached 40.4% in 2Q17 compared to 43.8% in the same period of last year. Operating expenses grew 3.4% QoQ and 1.4% YoY. The relatively low cost growth, below the YoY variation of the CPI Index, despite the fact that the most of our expenses are adjusted by inflation, is a direct consequence of the various initiatives that the Bank has been implementing to improve commercial productivity and efficiency. Personnel expenses increased 0.1% YoY in 2Q17. The slight increase in personnel expenses is mainly due to the rise in salaries as they are adjusted according to CPI inflation. However, this has been offset by a 5.0% decrease in total headcount in the last twelve months. Administrative expenses decreased 1.1% YoY in 2Q17. The Bank’s digital transformation and new branch formats has led to greater efficiencies enabling the Bank to close 13.2% of the branch network and eliminate 28.6% of our ATMs in the past twelve months.

 

Core capital10 ratio reached 10.7% as of June 2017.

 

The Bank’s ROE in 2Q17 reached 20.8% and 20.3% for the first half of the year. The Bank’s Core capital ratio reached 10.7% at the end of 2Q17, 70bp higher than the levels as of June 2016. Compared to 1Q17, core capital levels only descended 20bp, despite the payment of the Bank’s annual dividend in April equivalent to 70% of 2016 earnings. The total BIS ratio11 reached 13.6% as of June 2017. The YoY growth of RWA was 1.0% compared to 2.9% for loans.

 

 

9. Efficiency ratio: Operating expenses excluding impairment and other operating expenses divided by Operating income. Operating income = Net interest income + Net fee and commission income + Total financial transactions, net + Other operating income minus other operating expenses.

10. Core capital ratio = Shareholders’ equity divided by risk-weighted assets according to SBIF BIS I definitions.

11. BIS ratio: Regulatory capital divided by RWA.

 

4 

 

 

(SANTANDER LOGO) 

 

(GRAPHIC) Summary of Quarterly Results

(Ch$ Million)

 

   Quarter   Change% 
   2Q17   1Q17   2Q16   2Q17 / 2Q16   2Q17 / 1Q17 
Net interest income   344,034   318,575   328,437   4.7%  8.0%
Net fee and commission income   71,838    72,823    63,872    12.5%   (1.4%)
Total financial transactions, net   35,405    36,732    27,861    27.1%   (3.6%)
Provision for loan losses   (76,510)   (73,862)   (83,436)   (8.3%)   3.6%
Operating expenses (excluding Impairment and Other operating expenses)   (174,511)   (168,780)   (172,051)   1.4%   3.4%
Impairment, Other operating income and expenses, net   (19,297)   (5,982)   (27,447)   (29.7%)   222.6%
Operating income   180,959    179,506    137,235    31.9%   0.8%
Net income attributable to shareholders of the Bank   150,436    142,375    116,300    29.4%   5.7%
Net income/share (Ch$)   0.80    0.76    0.62    29.4%   5.3%
Net income/ADR (US$)1   0.48    0.46    0.37    29.7%   4.3%
Total loans   27,156,024    27,452,651    26,400,567    2.9%   (1.1%)
Deposits   19,255,177    20,108,828    20,236,094    (4.8%)   (4.2%)
Shareholders’ equity   2,895,250    2,968,491    2,704,685    7.0%   (2.5%)
Net interest margin   4.6%   4.2%   4.6%          
Efficiency ratio2   40.4%   40.0%   43.8%          
Return on equity3   20.8%   19.5%   17.1%          
NPL / Total loans4   2.2%   2.2%   2.1%          
Coverage NPLs   136.2%   135.5%   140.5%          
Cost of credit5   1.1%   1.1%   1.3%          
Core Capital ratio6   10.7%   10.8%   10.1%          
BIS ratio   13.6%   13.7%   13.0%          
Branches   406    415    468           
ATMs   1,059    1,288    1,484           
Employees   11,068    11,229    11,653           

 

1. The change in earnings per ADR may differ from the change in earnings per share due to exchange rate movements. Earnings per ADR was calculated using the Observed Exchange Rate (Exchange rate for the last trading day of the quarter taken from the Central Bank of Chile) for each period.

2. Efficiency ratio: Operating expenses excluding impairment and other operating expenses divided by Operating income. Operating income = Net interest income + Net fee and commission income + Total financial transactions, net + Other operating income minus other operating expenses.

3. Return on average equity: annualized quarterly net income attributable to shareholders divided by Average equity attributable to shareholders in the quarter. Averages calculated using monthly figures.

4. NPLs: Non-performing loans: total outstanding gross amount of loans with at least one installment 90 days or more overdue.

5. Cost of credit: annualized provision for loan losses divided by quarterly average total loans. Averages calculated using monthly figures.

6. Core capital ratio = Shareholders’ equity divided by risk-weighted assets according to SBIF BIS I definitions.

 

5 

 

 

(SANTANDER LOGO) 

 

Section 3: YTD Results by reporting segment

 

Net contribution from business segments rises 31.6% YoY in 6M17

 

(GRAPHIC)  Year to date results

(Ch$ Million)

 

   Retail Banking1   Middle market2   Global corporate
banking3		   Total
segments4		 
Net interest income   485,587    131,741    49,739    667,067 
Change YoY   8.0%   11.6%   10.4%   8.9%
Net fee and commission income   105,262    18,260    16,543    140,065 
Change YoY   11.0%   (4.4%)   23.4%   10.0%
Core revenues   590,849    150,001    66,282    807,132 
Change YoY   8.6%   9.4%   13.4%   9.1%
Total financial transactions, net   9,452    6,748    30,689    46,889 
Change YoY   (7.8%)   (35.4%)   23.1%   2.8%
Provision for loan losses   (144,936)   (4,983)   1,785    (148,134)
Change YoY   (9.1%)   (57.6%)   (17.1%)   (12.4%)
Net operating profit from business segments5   455,365    151,766    98,756    705,887 
Change YoY   15.3%   11.8%   15.4%   14.5%
Operating expenses6   (260,974)   (46,062)   (29,665)   (336,701)
Change YoY   (0.8%)   2.7%   5.9%   0.2%
Net contribution from business segments   194,391    105,704    69,091    369,186 
Change YoY   47.2%   16.2%   20.1%   31.6%

 

1. Retail consists of individuals and SMEs with annual sales below Ch$2,000 million.

2. Middle-market is made up of companies with annual sales exceeding Ch$2,000 million. It also serves institutions such as universities, government entities, local and regional governments and companies engaged in the real estate industry with annual sales exceeding Ch$800 million.

3. Global Corporate Banking, GCB: consists of foreign and domestic multinational companies with sales over Ch$10,000 million.

4. Excludes the results from Corporate Activities.

5. Net op. profit is defined as Net interest income + Net fee and commission income + Total financial transactions - provision for loan losses.

6. Operating expenses = personnel expenses +administrative expenses + depreciation.

 

Net contribution from our business segments rose 31.6% YoY in 6M17 compared to the same period of 2016. These results exclude our Corporate Activities, which include, among other items, the impact of inflation on results, the impact of movements in the exchange rate in our provision expense and the results from our liquidity portfolio.

 

The net contribution from Retail banking increased 47.2% YoY. Core revenues (net interest income + fees) increased 8.6% YoY driven by improvements in customer loyalty that fueled fee income and a positive evolution of NIMs in the segment. This rise in revenues was furthered leveraged on the 9.1% decrease in provision expenses due to the shift in the loan mix towards the middle-high income segments and larger SMEs and a 0.8% cost reduction as productivity continued to rise.

 

Net contribution from the Middle-market increased 16.2% YoY in 6M17. Core revenues in this segment grew 9.4%, led by an 11.6% increase in net interest revenue, and a 57.6% decrease in provision for loan losses. This was achieved despite an environment of low loan growth, reflecting this segments focus on non-lending revenues. This was offset by lower financial transactions.

 

Net contribution from GCB rose 20.1% in 6M17. Core revenues increased 13.4% YoY driven by a 23.4% rise in fees. The Bank’s strength in cash management services and financial advisory fees has driven income in this segment.

 

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(SANTANDER LOGO) 

 

Section 4: Loans, funding and capital

 

Loans

 

Loan growth slows in the quarter as the Bank remains focused on profitability

 

Total loans decreased 1.1% QoQ and increased 2.9% YoY in 2Q17. During the quarter, slower economic growth coupled with the Bank’s focus on profitability and risk, temporarily lowered loan growth. As can be observed in Section 3, results from the majority of our business segments were strong as the subdued loan growth was more than compensated with strong client margins, fee income, a lower cost of credit and cost control. We expect loan growth to gain momentum by year-end as the speed of economic growth should also begin to recover.

 

(GRAPHIC)  Loans by segment

(Ch$ Million)

 

   Quarter   Change% 
   Jun-17   Mar-17   Jun-16   2Q17 / 2Q16   2Q17 / 1Q17 
Total loans to individuals1   15,005,163    14,950,433    14,269,861    5.2%   0.4%
Consumer loans   4,469,821    4,502,447    4,239,461    5.4%   (0.7%)
Residential mortgage loans   8,861,371    8,747,324    8,321,626    6.5%   1.3%
SMEs   3,719,986    3,722,927    3,538,186    5.1%   (0.1%)
Retail banking   18,725,149    18,673,359    17,808,047    5.1%   0.3%
Middle-market   6,470,422    6,534,707    6,205,673    4.3%   (1.0%)
Global Corporate Banking   1,876,105    2,162,457    2,303,472    (18.6%)   (13.2%)
Total loans2   27,156,024    27,452,650    26,400,567    2.9%   (1.1%)

 

1. Includes consumer loans, residential mortgage loans and other commercial loans to individuals.

2. Total loans gross of loan loss allowances. Total loans include other non-segmented loans and includes interbank loans. See Note 3 of the Financial Statements.

 

Retail banking loans increased 0.3% QoQ and 5.1% YoY. Loans to individuals increased 0.4% QoQ and 5.2% YoY. Consumer loans decreased 0.7% QoQ and increased 5.4% YoY. Mortgage loans increased 1.3% QoQ and 6.5% YoY. Loan growth among middle and high-income earners increased 0.7% QoQ and 6.3% YoY. Meanwhile, in the low end of the consumer market loans decreased 7.2% QoQ and 18.4% YoY. The Bank continued to prioritize growth in less riskier segments in order to maintain healthy asset quality levels in a lower growth environment.

 

Loans to SMEs decreased 0.1% QoQ and grew 5.1% YoY.  In this segment, the Bank focused on growing the loan book among larger, less riskier SMEs due to risk considerations and also due to the fact that larger SMEs generate higher non-lending revenues.

 

Loans in the Middle-market decreased 1.0% QoQ and increased 4.3% YoY mainly due to lower demand for loans as the recovery of investment in the Chilean economy has taken longer than expected to rebound. In GCB, loans decreased 13.2% QoQ and 18.6% YoY. Apart from lower demand for loans, the Bank continues to focus on profitability and an efficient allocation of its capital over market share concerns. The results from GCB (See Section 3) were positive in 1H17, despite this lower loan growth. This was due to an increase in non-lending revenues such as cash management, investment banking and treasury services for clients. More than 90% of income in GCB is generated by non-lending sources.

 

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(SANTANDER LOGO) 

 

Funding and Liquidity

 

Rate cut and lower loan growth drives shift of time deposits towards fee generating mutual funds

 

In the quarter, the Bank focused on lowering its funding costs and optimizing liquidity levels. Lower demand for loans resulted in a spike in the Bank’s liquidity levels. In order to optimize this and to improve funding costs, the Bank lowered its deposits rates in tandem with the lower Central Bank rates. At the same time, the Bank stimulated a greater flow of customer funds to mutual funds, which in a lower rate environment is a more attractive option for clients and which generates higher fee income. As a result, total deposits decreased 4.2% QoQ and 4.8% YoY. On the other hand, Mutual funds brokered by the Bank increased 1.3% QoQ and 14.0% YoY.

 

(GRAPHIC)   Funding

(Ch$ Million)

 

   Quarter   Change% 
   Jun-17   Mar-17   Jun-16   2Q17 / 2Q16   2Q17 / 1Q17 
Demand deposits   7,195,893    7,408,618    7,238,303    (0.6%)   (2.9%)
Time deposits   12,059,284    12,700,210    12,997,791    (7.2%)   (5.0%)
Total Deposits   19,255,177    20,108,828    20,236,094    (4.8%)   (4.2%)
Mutual Funds brokered1   5,562,941    5,489,733    4,881,450    14.0%   1.3%
Bonds   7,045,748    7,411,645    6,369,956    10.6%   (4.9%)
Adjusted loans to deposit ratio2   100.3%   95.7%   95.1%          
LCR 3   123.1%   158.3%   135.2%          
NSFR 4   102.9%   106.7%   106.4%          

 

1. Banco Santander Chile is the exclusive broker of mutual funds managed by Santander Asset Management S.A. Administradora General de Fondos, a subsidiary of SAM Investment Holdings Limited.

2. Ratio =(Net Loans - portion of mortgages funded with long-term bonds) / (Time deposits + demand deposits). The Bank’s mortgage loans are mainly fixed-rate long-term loans that we mainly finance with matching long-term funding and not with short-term deposits. For this reason, to calculate this ratio, we subtract residential mortgage loans in the numerator of our ratio.

3. Liquidity Coverage Ratio calculated according to ECB rules. Chilean LCR ratios are still under construction.

4. Net Stable Funding Ratio calculated using internal methodology. Chilean LCR ratios are still under construction.

 

This strategy permitted the Bank to improve margins (See Section 5-Net interest income), while maintaining healthy and more efficient liquidity ratios. Both the LCR and NSFR ratios remained above 100%.

 

(LINE GRAPH) 

 

 

 

12. Corresponds to interest expense paid on time deposits divided by average balance of time deposits

 

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(SANTANDER LOGO) 

 

Shareholders’ equity and regulatory capital

 

ROAE13 surpasses 20% in 1H17. Core Capital ratio at 10.7%.

 

(GRAPHIC)   Equity

  (Ch$ Million)

 

   Quarter   Change% 
   Jun-17   Mar-17   Jun-16   2Q17 / 2Q16   2Q17 / 1Q17 
Capital   891,303    891,303    891,303    —%   —%
Reserves   1,781,817    1,640,112    1,640,112    8.6%   8.6%
Valuation adjustment   17,162    6,763    4,053    323.4%   153.8%
Retained Earnings:                         
Retained earnings prior periods   —    472,351    —    —%   —%
Income for the period   292,811    142,375    241,739    21.1%   105.7%
Provision for mandatory dividend   (87,843)   (184,413)   (72,522)   21.1%   (52.4%)
Equity attributable to equity holders of the Bank   2,895,250    2,968,491    2,704,685    7.0%   (2.5%)
Non-controlling interest   30,058    29,987    31,021    (3.1%)   0.2%
Total Equity   2,925,308    2,998,478    2,735,706    6.9%   (2.4%)
Quarterly ROAE   20.8%   19.5%   17.1%          
YTD ROAE   20.3%   19.5%   17.7%          

 

Shareholders’ equity totaled Ch$2,895,250 million as of June 30, 2017. The Bank’s ROAE in 2Q17 reached 20.8% and 20.3% for the first half of the year. The Bank’s Core capital ratio14 reached 10.7% at the end of 2Q17, 70bp higher than the levels as of June 2016. Compared to 1Q17, core capital levels only descended 20bp, despite the payment of the Bank’s annual dividend in April equivalent to 70% of 2016 earnings. The total BIS ratio15 reached 13.6% as of June 2017. The YoY growth of RWA was 1.0% compared to 2.9% for loans.

 

Another important development in the quarter was the publication of the new Banking Law, which was sent to Congress. In Annex 1 we provide further detail.

 

(GRAPHIC)   Capital Adequacy

  (Ch$ Million)

 

   Quarter   Change% 
   Jun-17   Mar-17   Jun-16   2Q17 / 2Q16   2Q17 / 1Q17 
Tier I (Core Capital)   2,895,250    2,968,491    2,704,685    7.0%   (2.5%)
Tier II   799,032    792,549    781,772    2.2%   0.8%
Regulatory capital   3,694,282    3,761,040    3,486,457    6.0%   (1.8%)
Risk weighted assets   27,133,274    27,492,643    26,876,727    1.0%   (1.3%)
Tier I (Core Capital) ratio   10.7%   10.8%   10.1%          
BIS ratio   13.6%   13.7%   13.0%          

 

 

13 Return on average equity

14. Core Capital ratio = Shareholders’ equity divided by Risk-weighted Assets (RWA) according to SBIF BIS I definitions.

15. BIS ratio: Regulatory capital divided by RWA.

 

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Section 5: Analysis of quarterly income statement

 

Net interest income

 

Total NIM rises to 4.6% in2Q17 driven by a rise in Client NIMs to 5.0%.

 

In 2Q17, Net interest income, NII, increased 8.0% QoQ and 4.7% YoY. The Net interest margin, NIM reached 4.6% compared to 4.2% in 1Q17 and 4.6% in 2Q16. It is important to point out that despite a lower UF inflation in 2Q17 compared to 2Q16 (0.7% compared to 0.9%), the Bank managed to sustain NIMs as a result of strong client NIMs and an effective management of our inflation gap. In order to improve the explanation of margins, we have divided the analysis of Net interest income between Client net interest income and Non-client net interest income16.

 

(GRAPHIC)  Net Interest Income / Margin (Ch$ Million)

 

   Quarter   Change% 
   2Q17   1Q17   2Q16   2Q17 / 2Q16   2Q17 / 1Q17 
Net interest income from business segments   338,393    328,674    303,718    11.4%   3.0%
Non-client net interest income   5,641    (10,099)   24,717    (77.2%)   —%
Net interest income   344,034    318,575    328,437    4.7%   8.0%
Average interest-earning assets   29,917,800    30,381,349    28,628,066    4.5%   (1.5%)
Average loans from reporting segments1   27,036,649    27,246,674    25,980,829    4.1%   (0.8%)
Avg. net gap in inflation indexed (UF) instruments2   4,183,995    4,350,466    4,765,626    (12.2%)   (3.8%)
Interest earning asset yield3   7.4%   6.9%   7.8%          
Cost of funds4   2.8%   2.8%   3.3%          
Client net interest margin5   5.0%   4.8%   4.7%          
Net interest margin (NIM) 6   4.6%   4.2%   4.6%          

Quarterly inflation rate7

   0.7%   0.5%   0.9%          
Central Bank reference rate   2.5%   3.0%   3.5%          

 

1. Average loans from business segments. Excludes loans not assigned to any business segment

2. The average quarterly difference between assets and liabilities indexed to the Unidad de Fomento (UF), an inflation indexed unit.

3. Interest income divided by average interest earning assets.

4. Interest expense divided by sum of average interest bearing liabilities and demand deposits.

5. Annualized Net interest income from business segments divided by average loans.

6. Annualized Net interest income divided by average interest earning assets.

7. Inflation measured as the variation of the Unidad de Fomento in the quarter.

 

Client NII. In 2Q17, Net interest income from our business segments (Client NII) increased 3.0% QoQ and 11.4% YoY. Average loans from reporting segments decreased 0.8% QoQ and increased 4.1% YoY. Client NIMs (defined as Client NII divided by average loans), which excludes the impact of inflation and the ALCO’s liquidity portfolio, rose to 5.0% in 2Q17 compared to 4.8% in 1Q17 and 4.7% in 2Q16. The Bank has managed to gradually improve client NIMs by increasing the retail loan book and specifically in the quarter, lower funding.

 

 

16. Client Net interest income: NII from the Bank’s reporting segments that includes NII from the Retail, Middle-market and GCB segments. Non-client NII: NII from Bank’s inflation gap, the financial cost of hedging, the financial cost of the Bank’s structural liquidity position, NII from the available for sale portfolio and the interest expense to fund the Bank’s trading investment portfolio. The interest from the Bank’s financial investments classified as trading are recognized as Financial transactions net.

 

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Non-client NII. The variation of the Unidad de Fomento (an inflation indexed currency unit or UF) in 2Q17 reached 0.7% compared to 0.5% in 1Q17 and 0.9% in 2Q16. The Bank has more assets than liabilities linked to inflation and, as a result, margins go up when inflation accelerates and vice-versa. Currently our sensitivity to a 100 bp shift in inflation is approximately 15bp of NIM. On a QoQ basis, the rise in non-client net interest income is due to the higher inflation rate in 2Q17 compared to 1Q17. Compared to 2Q16 non-client net interest income decreased 77.2% due to the lower inflation rate between those two periods. It is important to note that despite a lower UF inflation in 2Q17 compared to 2Q16, the Bank managed to sustain total NIMs as a result of: (i) strong client NIMs, as mentioned above driven by the cut in the Central Bank’s reference rate to 2.5% in the quarter. The Bank’s liabilities, mainly time deposits, have a shorter duration than assets, so a 100bp average yearly fall in short-term interest rates should result in an approximately 12bp rise in NIMs. Therefore, deposit costs should continue to fall as the lower rate environment is absorbed and; (iii) normalization of our liquidity levels by lowering the amount of low yielding interest earning assets and positioning the Bank’s balance sheet to benefit from a falling interest rate environment.

 

Going forward, Client NIMs should remain stable at current levels. On the other hand, the UF inflation rate in 3Q17 should be close to 0% and total UF inflation in 2017 should reach approximately 2%, so total NIMs should temporarily come down in 3Q17. This will be partially offset by lower funding costs.

 

(LINE GRAPH) 

 

Asset quality and provision for loan losses

 

Stable asset quality indicators in the quarter. Cost of credit at 1.1%

 

In general asset quality indicators remained stable in the quarter. On the one hand the NPL ratio remained at 2.2% in 2Q17 compared to 2.2% in 1Q17 and 2.1% in 2Q16, in line with the Bank’s loan growth strategy of steering away from the low end of the consumer market. Similarly, the Bank’s Expected loss ratio or Risk index, measured as Loan Loss Allowances (LLA) over total loans also remained stable at 2.9% as of June 2017. As economic growth remained sluggish in the quarter there was some minor deterioration of the impaired loan ratio from 6.1% as of March 2017 to 6.3% as of June 2017.

 

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(GRAPHIC)  Provision for loan losses (Ch$ Million)

 

   Quarter   Change% 
   2Q17   1Q17   2Q16   2Q17 / 2Q16   2Q17 / 1Q17 
Gross provisions   (49,898)   (43,056)   (54,187)   (7.9%)   15.9%
Charge-offs1   (47,379)   (50,124)   (50,535)   (6.2%)   (5.5%)
Gross provisions and charge-offs   (97,277)   (93,180)   (104,722)   (7.1%)   4.4%
Loan loss recoveries   20,767    19,318    21,286    (2.4%)   7.5%
Provision for loan losses   (76,510)   (73,862)   (83,436)   (8.3%)   3.6%
Cost of credit2   1.1%   1.1%   1.3%   -12bp   +4bp
Total loans3   27,156,024    27,452,651    26,400,567    2.9%   (1.1%)
Total Loan loss allowances (LLAs)   (799,442)   (806,005)   (795,405)   0.5%   (0.8%)
Non-performing loans4 (NPLs)   587,107    594,855    566,177    3.7%   (1.3%)
NPLs consumer loans   90,524    106,597    88,991    1.7%   (15.1%)
NPLs commercial loans   338,728    327,342    318,324    6.4%   3.5%
NPLs residential mortgage loans   157,855    160,916    158,862    (0.6%)   (1.9%)
Impaired loans5   1,705,257    1,667,145    1,645,082    3.7%   2.3%
Impaired consumer loans   309,040    299,071    278,756    10.9%   3.3%
Impaired commercial loans   966,085    951,514    953,733    1.3%   1.5%
Impaired residential mortgage loans   430,132    416,560    412,593    4.3%   3.3%
Expected loss ratio6 (LLA / Total loans)   2.9%   2.9%   3.0%          
NPL / Total loans   2.2%   2.2%   2.1%          
NPL / consumer loans   2.0%   2.4%   2.1%          
NPL / commercial loans   2.5%   2.4%   2.3%          
NPL / residential mortgage loans   1.8%   1.8%   1.9%          
Impaired loans / total loans   6.3%   6.1%   6.2%          
Impaired consumer loan ratio   6.9%   6.6%   6.6%          
Impaired commercial loan ratio   7.1%   6.9%   7.0%          
Impaired mortgage loan ratio   4.9%   4.8%   5.0%          
Coverage of NPLs7   136.2%   135.5%   140.5%          
Coverage of NPLs non-mortgage8   172.4%   172.1%   179.2%          
Coverage of consumer NPLs   328.8%   282.0%   306.7%          
Coverage of commercial NPLs   130.6%   136.3%   143.6%          
Coverage of mortgage NPLs   37.5%   36.8%   41.0%          

 

1. Charge-offs corresponds to the direct charge-offs and are net of the reversal of provisions already established on charged-off loans.

2. Annualized provision for loan losses / quarterly average total loans. Averages are calculated using monthly figures.

3. Includes interbank loans.

4. Total outstanding gross amount of loans with at least one installment 90 days or more overdue.

5. Include: (a) for loans individually evaluated for impairment: (i) the carrying amount of all loans to clients that are rated C1 through C6 and, (ii) the carrying amount of all loans to an individual client with at least one NPL (which is not a residential mortgage loan past due less than 90 days), regardless of category; and (b) for loans collectively evaluated for impairment, the carrying amount of all loans to a client, when at least one loan to that client is not performing or has been renegotiated.

6. LLA / Total loans. Measures the percentage of loans that banks must provision for given their internal models and the SBIF’s guidelines.

7. LLA / NPLs.

8. LLA of commercial and consumer loans / NPLs of commercial and consumer loans.

 

Provision for loan losses increased 3.6% QoQ and decreased 8.3% YoY. The cost of credit in the quarter was 1.1% compared to 1.1% in 1Q17 and 1.3% in 2Q16. On a QoQ basis, the slight increase in impaired loans drove the rise in provision for loan losses. On a YoY basis, the change in the loan mix continues to be the main force driving down our cost of credit. As a result of the lower cost of credit and the stable Client spreads, Client NIMs, net of risk increased 50bp in 2Q17 compared to 2Q16.

 

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(GRAPHIC)  Provision for loan losses

(Ch$ Million)

 

By product provision for loan losses was as follows:

 

   Quarter   Change% 
   2Q17   1Q17   2Q16   2Q17 / 2Q16   2Q17 / 1Q17 
Consumer loans   (47,754)   (51,860)   (51,819)   (7.8%)   (7.9%)
Commercial loans1   (26,313)   (21,332)   (35,889)   (26.7%)   23.3%
Residential mortgage loans   (2,443)   (670)   4,272    (157.2%)   264.6%
Provision for loan losses   (76,510)   (73,862)   (83,436)   (8.3%)   3.6%

 

1. Includes provision for loan losses for contingent loans.

 

Provisions for loan losses for consumer loans decreased 7.9% QoQ and 7.8% YoY. As mentioned in previous earnings reports, the Bank has been enforcing a strategy of lowering its exposure to the low-end of the consumer loan market and this continues to be the main driving force in the reduction in provision for loan losses in the consumer loan book. At the same time, the consumer loans entering NPL status already have a high coverage ratio and, therefore, the cost of credit for consumer loans did not rise in the quarter. Consumer NPLs reached 2.0% as of June 2017 compared to 2.4% in 1Q17 and 2.1% as of June 2016. The impaired consumer loan ratio, increased from 6.6% as of March 2017 to 6.9% as of June 2017 as the Bank saw a rise in early impaired loans status in line with a weakening job market. Going forward, this could generate a slight rise in the cost of credit for consumer loans, but still within the ranges of our initial guidance. The coverage ratio of consumer loans reached 328.8% as of June 2017.

 

Provisions for loan losses for commercial loans increased 23.3% QoQ and decreased 26.7% YoY. The QoQ increase was mainly due to high levels of provisions in the SME and Middle-market. Compared to 2Q16, the lower provision expense was due to the abnormally high level of charge-offs recognized in the Middle-market last year. The commercial NPL ratio reached 2.5% in 2Q17 compared to 2.4% in 1Q17 and 2.3% in 2Q16. The Coverage ratio of commercial NPLs reached 130.6% as of June 2017.

 

Provisions for loan losses for residential mortgage loans totaled a loss of Ch$2,443 million in the quarter. The Impaired mortgage loan ratio reached 4.9% in 2Q17, 10bp higher QoQ and 10bp lower on a YoY comparison. The NPL ratio of mortgage loan was stable at 1.8%. The Coverage ratio of mortgage NPLs reached 37.5% as of June 2017. Below we have also included a graph with the evolution of the loan-to-value (LTV) of our mortgage loans of the incoming loans.

 

(LINE GRAPH) 

 

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Net fee and commission income

 

Greater customer loyalty & satisfaction fueling solid fee growth

 

In 2Q17 fee income decreased 1.4% QoQ and increased 12.5% YoY. In retail banking, fees increased 1.7% QoQ and 8.1% YoY, mainly driven by rising client loyalty and cross-selling, as well as greater fees from asset management brokerage. Loyal individual customers (clients with >4 products plus minimum usage and profitability levels) in the High-income segment grew 12.1% YoY. Among Mid-income earners, loyal customers increased 3.4% YoY. By products, the biggest contributors to fee income growth were collection of mortgage related insurance fees and asset management brokerage fees.

 

(GRAPHIC)  Fee Income by client segment

(Ch$ Million)

 

   Quarter   Change% 
   2Q17   1Q17   2Q16   2Q17 / 2Q16   2Q17 / 1Q17 
Retail banking1   53,087    52,175    49,123    8.1%   1.7%
Middle-market   9,117    9,143    9,736    (6.4%)   (0.3%)
Global corporate banking   5,901    10,642    6,321    (6.6%)   (44.5%)
Others   3,733    863    (1,308)   —%   —%
Total   71,838    72,823    63,872    12.5%   (1.4%)

 

Includes fees to individuals and SMEs.

 

Fees in the Middle-market were flat QoQ and decreased 6.4% YoY as this segment is the most sensitive to the lower economic growth. This was compensated by the rise in customer loyalty in this segment. Loyal Middle-market and SME clients grew 10.3% YoY.

 

Fee in GCB fell in the quarter the Bank, but still grew 23.4% in 1H17. Fees in this segment are deal driven and, therefore, tend to be vary significantly from quarter to quarter. The strength of the Bank in providing value added non-lending services, such as cash management and financial advisory services should continue to drive fee income in this segment.

 

(BAR GRAPH) 

 

1. Loyal high income and middle income customers with 4 products plus a minimum profitability level and a minimum usage indicator. all differentiated by segment. SME + Middle-market cross-selling differentiated by client size using a point system that depends on number of products, usage of products and income net of risk.

 

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By products, the evolution of fees was as follows:

 

(GRAPHIC)  Fee Income by product

(Ch$ Million)

 

   Quarter   Change% 
   2Q17   1Q17   2Q16   2Q17 / 2Q16   2Q17 / 1Q17 
Credit, debit & ATM card fees   14,084    14,690    14,428    (2.4%)   (4.1%)
Asset management   10,831    10,081    9,240    17.2%   7.4%
Insurance brokerage   9,209    10,057    9,847    (6.5%)   (8.4%)
Guarantees, pledges and other contingent op.   8,722    9,488    8,696    0.3%   (8.1%)
Collection fees   13,455    8,926    7,836    71.7%   50.7%
Checking accounts   7,802    7,920    7,953    (1.9%)   (1.5%)
Brokerage and custody of securities   2,308    2,200    1,990    16.0%   4.9%
Other   5,427    9,461    3,882    39.8%   (42.6%)
Total fees   71,838    72,823    63,872    12.5%   (1.4%)

 

Total financial transactions, net

 

Results from Total financial transactions, net was a gain of Ch$35,405 million in 2Q17, decreasing 3.6% QoQ and increasing 27.1% YoY. It is important to point out that the Bank does not run a significant foreign currency gap. The Bank’s spot position in foreign currency is hedged with derivatives that are either considered trading derivatives or hedge accounting derivatives. Derivatives that are considered trading are marked-to-market in net income from financial operations. Hedge accounting derivatives are mark-to-market together with the hedged item in net foreign exchange results. This distorts these line items, especially in periods of a strong appreciation or depreciation of the exchange rate.

 

(GRAPHIC)  Total financial transactions, net

(Ch$ Million)

 

   Quarter   Change% 
   2Q17   1Q17   2Q16   2Q17 / 2Q16   2Q17 / 1Q17 
Net income (expense) from financial operations1   3,623    1,276    45,706    (92.1%)   183.9%
Net foreign exchange gain2   31,782    35,456    (17,846)   —%   (10.4%)
Total financial transactions, net   35,405    36,732    27,860    27.1%   (3.6%)

 

1. These results include the realized gains of the Available for sale investment portfolio, realized and unrealized gains and interest revenue generated by Trading investments, gains or losses from the sale of charged-off loans and the realized gains (loss) or mark-to-market of derivatives.

2. The results recorded as Foreign exchange gain mainly include the translation gains or losses of assets and liabilities denominated in foreign currency as well as from our hedge accounting derivatives.

 

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In order to understand more clearly these line items, we present them by business area in the following table:

  

(graphic)   Total financial transactions, net by business

(Ch$ Million)

 

   Quarter   Change% 
   2Q17   1Q17   2Q16   2Q17 / 2Q16   2Q17 / 1Q17 
Client treasury services   21,803    23,569    26,121    (16.5%)   (7.5%)
Non client treasury income1   13,602    13,163    1,739    682.1%   3.3%
Total financ. transactions, net   35,405    36,732    27,860    27.1%   (3.6%)

 

1. Non client treasury income. These results include the income from sale of loans, including charged-off loans, interest income and the mark-to-market of the Bank’s trading portfolio, realized gains from the Bank’s available for sale portfolio and other results from our Financial Management Division.

 

Client treasury services revenues fell 7.5% QoQ and 16.5% YoY. This movement of client treasury revenues, which usually makes up the bulk of our treasuring income, reflects the demand on behalf of clients for treasury products mainly for their hedging needs. Given the lower market volatility in the quarter, demand for treasury products declined. Overall, the Bank has had a good first semester in Debt Capital Markets that has also led to cross-selling of products in our market making business, which is reflected as client treasury income. In the second quarter, the level of activity decreased, which is also reflected in client treasury income.

 

Non-client treasury revenues increased 3.3% QoQ and 682.1% YoY. Falling local interest rates produced positive mark-to-market gains from our liquidity fixed income portfolios in the quarter. As a reminder, 2Q16 results included an abnormally high charge recognized for the credit value adjustment (CVA) of the derivatives portfolio, following the Brexit vote. CVA is an estimation of the market value of counterparty credit risk embedded in derivatives.

 

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Operating expenses and efficiency

 

Efficiency ratio improves to 40.2% in 1H17. Sustained rise in productivity

 

The Bank’s efficiency ratio reached 40.2% in 1H17 compared to 42.7% in the same period of last year. Operating expenses, excluding Impairment and Other operating expenses, increased 3.4% QoQ and 1.4% YoY. The relatively low cost growth, below the YoY variation of the CPI Index despite the fact that the most of our expenses are adjusted by inflation, is a direct consequence of the various initiatives that the Bank has been implementing to improve commercial productivity and efficiency. The success of our on-going digital and branch transformation is resulting in higher labor productivity.

 

(graphic)   Operating expenses

(Ch$ Million)

  

   Quarter   Change% 
   2Q17   1Q17   2Q16   2Q17 / 2Q16   2Q17 / 1Q17 
Personnel salaries and expenses   (101,350)   (92,676)   (101,217)   0.1%   9.4%
Administrative expenses   (54,383)   (58,482)   (54,991)   (1.1%)   (7.0%)
Depreciation & amortization   (18,778)   (17,622)   (15,843)   18.5%   6.6%
Operating expenses1   (174,511)   (168,780)   (172,051)   1.4%   3.4%
Impairment of property, plant and equipment   (165)   (184)   (49)   239.5%   (10.3%)
Branches   406    415    468    (13.2%)   (2.2%)
Standard   264    272    278    (5.0%)   (0.4%)
WorkCafé   7    6    —    —%   16.7%
Middle-market centers   8    8    8    —%   —%
Select   53    53    54    (1.9%)   —%
Banefe & other payment centers   74    83    128    (42.2%)   (10.8%)
ATMs   1,059    1,279    1,484    (28.6%)   (17.2%)
Employees   11,068    11,229    11,653    (5.0%)   (1.4%)
Efficiency ratio2   40.4%   40.0%   43.8%   -342bp   +42bp
YTD Efficiency ratio2   40.2%   40.0%   42.7%   -251bp   +21bp 21 
Volumes per branch (Ch$mn)3   114,313    114,606    99,651    14.7%   (0.3%)
Volumes per employee (Ch$mn)4   4,193    4,236    4,002    4.8%   (1.0%)
YTD Cost / Assets5   1.9%   1.8%   1.9%   -3bp   6bp

 

1. Excluding Impairment and Other operating expenses.

2. Efficiency ratio: Operating expenses excluding impairment and other operating expenses divided by Operating income. Operating income = Net interest income + Net fee and commission income + Total financial transactions, net + Other operating income minus other operating expenses.

3. Loans + deposits over total branches.

4. Loans + deposits over total employees.

5. Operating expenses as defined in footnote 1 above, annualized / Total assets.

 

Personnel expenses increased 0.1% YoY in 2Q17. The slight increase in personnel expenses is mainly due to the rise in salaries as they are adjusted according to CPI inflation. However this has been offset by a 5.0% decrease in total headcount in the last twelve months while total volumes (loans plus deposits) per branch increased 14.7% YoY and total volumes per employee increased 4.8% YoY.

 

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Administrative expenses decreased 1.1% YoY in 2Q17. The Bank’s digital transformation and new branch formats are starting to sustain productivity gains and improved customer satisfaction. Therefore, the Bank has been reducing the branch network, closing 62 branches in the last year, mainly in the Santander Banefe segment. In total, in the last twelve months, 13.2% of the Bank’s branch network was closed and the Bank also continued to remove money losing ATMs eliminating 28.6% of our ATMs. An increase in transactions through channels such as internet, mobile and phone banking have replaced this. We have transformed a total of 7 branches into our new WorkCafé format that is significantly more productive than a traditional branch. At the same time, we continue to re-model the standard branches to a new multi-segment format that is also more efficient in terms of back office and use of space, resulting in a significant reduction of the branch network. The effectiveness of the Bank’s CRM has also increased productivity, as well as the implementation of other digital initiatives.

 

(bar chart) 

 

1 Volumes= Loans+ Deposits

 

Amortization expenses increased 18.5% YoY. This rise was mainly due to the investment in software and digital banking the Bank is carrying out as part of our plan to improve productivity and efficiency.

 

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Other operating income, net & corporate tax

 

Other operating income, net, totaled an expense of Ch$19,132 million in 2Q17, an net loss increase of 230.0% compared to 1Q17 which is mainly explained by the one-time charge of Ch$12 billion related to severance expenses as part of the Bank’s efforts to control costs. A similar charge was recognized in 2Q16. Compared to 2Q16, Other operating income increase by 248% due to the liberation of provisions for contingencies in the period.

 

(graphic)   Other operating income, net and corporate tax

(Ch$ Million)

 

   Quarter   Change% 
   2Q17   1Q17   2Q16   2Q17 / 2Q16   2Q17 / 1Q17 
Other operating income   16,049    13,019    4,611    248.0%   23.3%
Other operating expenses   (35,181)   (18,817)   (32,010)   9.9%   87.0%
Other operating income, net   (19,132)   (5,798)   (27,399)   (30.2%)   230.0%
Income from investments in associates and other companies   885    720    641    38.2%   22.9%
Income tax income (expense)   (31,143)   (37,208)   (21,114)   47.5%   (16.3%)
Effective income tax rate   17.1%   20.6%   15.3%          

 

Income tax expenses in 2Q17 totaled Ch$31,143 million, a decrease of 16.3% compared to 1Q17 and an increase of 47.5% compared to 2Q16. On a QoQ basis, the lower effective tax rate is a seasonal effect mainly due to the deduction of real estate taxes paid on assets for leasing, which usually occurs in 2Q. In 1H17, the Bank paid an effective tax rate of 18.9% compared to 17.3% in 1H16. The rise in the effective tax rate was mainly due to: (i) the higher statutory tax rate. The statutory corporate tax rate in 2017 increased to 25.5% compared to 24.0% in 2016 and; (ii) the lower CPI inflation rate in 1H17 (+1.2%) compared to 1H16 (+1.7%), which results in a lower price level restatement charge to taxable income, since for tax purposes, the Bank must readjust its capital for inflation. The Bank’s effective tax rate should be approximately 20%-21% in 2017. The statutory corporate tax rate will rise again to 27.0% in 2018.

 

(graphic)   YTD income tax1

(Ch$ Million)

 

   Quarter   Change% 
   6M17   6M16   6M17 / 6M16 
Net income before tax   362,062    293,578    23.3%
Price level restatement of capital2   (13,571)   (14,960)   (9.3%)
Net income before tax adjusted for price level restatement   348,491    278,618    25.1%
Statutory Tax rate   25,5%   24,0%     
Income tax expense at Statutory rate   (92,326)   (70,459)   31.0%
Tax benefits3   23,975    19,683    21.8%
Income tax   (68,351)   (50,776)   34.6%
Effective tax rate   18.9%   17.3%     

 

1. This table is for informational purposes only. Please refer to note 12 in our interim financials for more details.

2. For tax purposes, capital is indexed to CPI inflation. The statutory tax rate is applied over net income before tax adjusted for price level restatement.

3. Mainly includes income tax credits from property taxes paid on leased assets as well as the impact from fluctuations in deferred tax assets and liabilities.

 

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Section 6: Credit risk ratings

 

International ratings

 

The Bank has credit ratings from three leading international agencies. Following the reduction in Chile’s sovereign rating from AA- to A+, S6P placed the Bank’s ratings on credit watch negative.

 

Moody’s  Rating
Bank Deposit  Aa3/P-1
Baseline Credit Assessment  a2
Adjusted Baseline Credit Assessment  a2
Senior Unsecured  Aa3
Commercial Paper  P-1
Outlook  Stable

 

Standard and Poor’s  Rating
Long-term Foreign Issuer Credit  A
Long-term Local Issuer Credit  A
Short-term Foreign Issuer Credit  A-1
Short-term Local Issuer Credit  A-1
Outlook  Negative

 

Fitch  Rating
Foreign Currency Long-term Debt  A+
Local Currency Long-term Debt  A+
Foreign Currency Short-term Debt  F1
Local Currency Short-term Debt  F1
Viability rating  a+
Outlook  Negative

 

Local ratings

 

Our local ratings are the following:

 

Local ratings  Fitch Ratings  Feller Rate
Shares  1CN1  1CN1
Short-term deposits  N1+  N1+
Long-term deposits  AAA  AAA
Mortgage finance bonds  AAA  AAA
Senior bonds  AAA  AAA
Subordinated bonds  AA  AA+

 

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Section 7: Share performance

 

As of June 30, 2017

 

Ownership Structure:  

 

(pie chart) 

 

Total Shareholder Return
Santander ADR vs. SP500 (Base 100 = 12/31/2016)

 

(line graph) 

 

ADR price (US$) 1H17

 

6/30/17:   25.41 
Maximum (6M17):   25.52 
Minimum (6M17):   21.36  

 

Market Capitalization: US$11,971 million

 

P/E 12month trailing*:   16.2 
P/BV (3/31/16)**:   2.7 
Dividend yield***:   4.5%

 

* Price as of June 30, 2017 / 12mth. earnings

** Price as of June 30, 2017/Book value as of 6/30/17

***Based on closing price on record date of last dividend payment.

 

Average daily traded volumes 1H17

 

US$ million

 

 (bar chart)

 

Total Shareholder Return
Santander vs IPSA Index (Base 100 = 12/31/2016)

 

 (line graph)

 

Local share price (Ch$) 1H17

6/30/17:   42.24 
Maximum (6M17):   42.38 
Minimum (6M17):   34.65 

 

Dividends:

 

Year paid  Ch$/share   % of previous year’s
earnings		 
2014:   1.41    60%
2015:   1.75    60%
2016:   1.79    75%
2017:   1.75   70%

 

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Annex 1: New Banking Law

 

Banking Law reform bill sent to Congress for discussion in June 2017

 

In June 2017, the government sent to Congress for discussion a bill to reform the current General Banking Law. The bill proposes the following main changes: i) the creation of a new regulatory body for the financial system; ii) new capital regulation for banks in Chile in line with Basel III standards. The bill also proposes changes in the mechanism to intervene and manage banks under stress or that do not comply with regulation adding to existing options such as Capitalization by the Financial System and Preventive Capitalization. It also increases government guarantees for deposits and sets forth greater demands on bank’s board members.

 

New regulatory entity

 

The proposed bill recognizes as the new regulatory entity the newly created Financial Market Commission (FMC), which was approved earlier this year in Law #21,000. The FMC will be the new supervisor for the Chilean financial system overseeing insurance companies, companies with publicly traded securities, credit unions, credit card and prepaid card issuers, and banks. All current SBIF attributions will be transferred to the FMC.

 

The FMC will be ruled by a five member board, one of which act as a Chairman. The board’s responsibilities include regulation, sanctioning and the definition of general supervision policies. In addition there will be a prosecutor in charge of investigations and the Chairman will be responsible for supervision. The FMC will act in coordination with the Chilean Central Bank (BCCh).

 

Capital regulation

 

Minimum capital requirements will increase in terms of amount and quality. Total Regulatory Capital remains at 8% of risk weighted assets (RWA). Minimum Tier 1 capital increases from 4.5% to 6% of RWA, of which up to 1.5% may be Additional Tier 1 (AT1). The latter can be fulfilled with preferred shares or perpetual bonds, both of which may be convertible to common equity. The FMC will establish the conditions and requirements for the issuance of perpetual bonds and preferred equity. Tier 2 capital will be set at 2% of RWA.

 

Additional capital demands are incorporated through a Conservation Buffer of 2.5% of RWA that sets a Total Equity Requirement of 10.5% of RWA. As well, the BCCh may set an additional Counter Cyclical Buffer of up to 2.5% of RWA with agreement from the FMC. Both buffers must be comprised of core capital. The FMC, with agreement from the BCCh, may impose additional capital requirements for Systemically Important Banks (SIB) of between 1-3.5% of RWA. The FMC will have to establish the criteria to assess which banks are considered as SIBs.

 

The proposed bill also incorporates a Pilar II capital requirement created with the objective of assuring an adequate management of risk. The FMC will have the power to impose an additional regulatory capital demand of up to 4% of RWA, either Tier I or Tier II, if it esteems that the previous capital levels and buffers are not enough for a financial institution.

 

The following table sets forth the new proposed capital requirements in comparison to Basel III standards and current Chilean regulation:

 

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(graphic)   Capital requirements: Basel III, current GBL and new proposed requirements

 

(% over risk weighted assets)

Capital categories  Basel III  Current Law  Proposed Bill
(1) Total Tier 1 Capital (2+3)  6  4.5  6
(2) Basic Capital  4.5  4.5  4.5
(3) Additional Tier 1 Capital (AT1)  1.5  —  1.5
(4) Tier 2 Capital  2  3.5  2
(5) Total Regulatory Capital (1+4)  8  8  8
(6) Conservation Buffer  2.5  2% over effective equity in order to be classified in Category A solvency.  2.5
(7) Total Equity Requirement (5+6)  10.5  8  10.5
(8) Counter Cyclical Buffer  up to 2.5  —  up to 2.5
(9) SIB* Requirement  Between 1 - 3.5  Up to 6% in case of a merger  Between 1 - 3.5
 
* Systemically Important Banks

 

The FMC will establish weightings for RWA as a separate regulation based on the implementation of standard models, subject to agreement from the BCCh. The FMC will have until December 31 of the next year in which the bill is passed to establish the weightings. However, banks will be allowed to use internal models to define RWA, subject to approval from the FMC with agreement from the BCCh. In this case, calculated requirements will have to be within the limits set by the FMC.

 

Compliance with the new capital requirements will have a phase-in period with full compliance by 2024 (subject to further discussions in Congress). The following table sets forth an estimated phase-in period calendar, assuming the proposed bill is passed in 2017.

 

(graphic)   Phase-in*: new capital requirements

(% over risk weighted assets, all dates as of December 31)

 

   2017   2018   2019   2020   2021   2022   2023   2024 
(1) Tier 1 (2+3)   4.5    4.5    4.75    5    5.25    5.5    5.75    6 
(2) Basic Capital   4.5    4.5    4.5    4.5    4.5    4.5    4.5    4.5 
(3) AT1   0    0    0.25    0.5    0.75    1    1.25    1.5 
(4) Tier 2   3.5    3.5    3.25    3    2.75    2.5    2.25    2 
(5) Regulatory Capital (1+4)   8    8    8    8    8    8    8    8 
(6) Conservation Buffer   0    0.36    0.71    1.07    1.43    1.79    2.14    2.5 
(7) Total Equity Requirement (5+6)   8    8.36    8.71    9.07    9.43    9.79    10.14    10.5 
(8) Counter Cyclical Buffer   0                   up to 2.5                
(9) SIB* Requirement   0                   Between 1 – 3.5                
(10) Pilar II requirement (FMC)                       up to 4                

 

* Assuming the proposed bill is passed in 2017.

 

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Annex 2: Balance sheet

 

(graphic)   Unaudited Balance Sheet

 

   Jun-17   Jun-17   Dec-16   Jun-16   Jun-17/Dec16     Jun-17/Jun-16 
   US$ Ths1  

Ch$ Million

       % Chg. 
Cash and deposits in banks   2,024,771    1,344,043    2,279,389    2,164,211    (41.0%)   (37.9%)
Cash items in process of collection   646,635    429,236    495,283    773,774    (13.3%)   (44.5%)
Trading investments   1,055,038    700,334    396,987    387,554    76.4%   80.7%
Investments under resale agreements   —    —    6,736    8,168    —%   (100.0%)
Financial derivative contracts   3,337,834    2,215,654    2,500,782    3,001,807    (11.4%)   (26.2%)
Interbank loans, net   354,794    235,512    272,635    236,345    (13.6%)   (0.4%)
Loans and account receivables from customers, net   39,350,813    26,121,070    26,113,485    25,368,817    0.0%   3.0%
Available for sale investments   3,268,823    2,169,845    3,388,906    2,391,465    (36.0%)   (9.3%)
Held-to-maturity investments   —    —    —    —    —%   —%
Investments in associates and other companies   37,932    25,179    23,780    22,254    5.9%   13.1%
Intangible assets   89,399    59,343    58,085    55,564    2.2%   6.8%
Property, plant and equipment   369,236    245,099    257,379    233,066    (4.8%)   5.2%
Current taxes   8,992    5,969    —    —    —%   —%
Deferred taxes   545,253    361,939    372,699    337,915    (2.9%)   7.1%
Other assets   1,345,597    893,207    840,499    1,142,827    6.3%   (21.8%)
Total Assets   52,435,116    34,806,430    37,006,645    36,123,767    (5.9%)   (3.6%)
                               
Deposits and other demand liabilities   10,840,453    7,195,893    7,539,315    7,238,303    (4.6%)   (0.6%)
Cash items in process of being cleared   389,355    258,454    288,473    529,784    (10.4%)   (51.2%)
Obligations under repurchase agreements   219,298    145,570    212,437    31,005    (31.5%)   369.5%
Time deposits and other time liabilities   18,167,044    12,059,284    13,151,709    12,997,791    (8.3%)   (7.2%)
Financial derivatives contracts   3,104,307    2,060,639    2,292,161    2,848,418    (10.1%)   (27.7%)
Interbank borrowings   2,758,144    1,830,856    1,916,368    1,952,761    (4.5%)   (6.2%)
Issued debt instruments   10,614,263    7,045,748    7,326,372    6,369,956    (3.8%)   10.6%
Other financial liabilities   368,518    244,622    240,016    216,741    1.9%   12.9%
Current taxes   —    —    29,294    4,796    —%)   —%)
Deferred taxes   12,510    8,304    7,686    11,136    8.0%   (25.4%)
Provisions   359,696    238,766    308,982    223,799    (22.7%)   6.7%
Other liabilities   1,194,616    792,986    795,785    963,571    (0.4%)   (17.7%)
Total Liabilities   48,028,204    31,881,122    34,108,598    33,388,061    (6.5%)   (4.5%)
                               

Equity 

                              
Capital   1,342,728    891,303    891,303    891,303    —%   —%
Reserves   2,684,269    1,781,817    1,640,112    1,640,112    —%   8.6%
Valuation adjustments   25,853    17,162    6,640    4,053    —%   323.4%
Retained Earnings:                              
Retained earnings from prior years   —    —    —    —    —%   —%
Income for the period   441,113    292,811    472,351    241,739    (38.0%)   21.1%
Minus: Provision for mandatory dividends   (132,334)   (87,843)   (141,700)   (72,522)   (38.0%)   21.1%
Total Shareholders’ Equity   4,361,630    2,895,250    2,868,706    2,704,685    0.9%   7.0%
Non-controlling interest   45,282    30,058    29,341    31,021    2.4%   (3.1%)
Total Equity   4,406,912    2,925,308    2,898,047    2,735,706    0.9%   6.9%
Total Liabilities and Equity   52,435,116    34,806,430    37,006,645    36,123,767    (5.9%)   (3.6%)

 

1. The exchange rate used to calculate the figures in dollars was Ch$663.80 / US$1

 

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Annex 3: YTD income statements

 

(graphic)   Unaudited YTD Income Statement

 

   Jun-17   Jun-17   Jun-16   Jun-17/Jun-16 
   US$ Ths1   Ch$ Million   % Chg. 
Interest income   1,619,227    1,074,843    1,074,937    —%
Interest expense   (621,021)   (412,234)   (433,627)   (4.9%)
Net interest income   998,206    662,609    641,310    3.3%
Fee and commission income   347,788    230,862    210,155    9.9%
Fee and commission expense   (129,860)   (86,201)   (83,292)   3.5%
Net fee and commission income   217,929    144,661    126,863    14.0%
Net income (expense) from financial operations   7,380    4,899    (133,993)   —%
Net foreign exchange gain   101,293    67,238    196,115    (65.7%)
Total financial transactions, net   108,673    72,137    62,122    16.1%
Other operating income   43,790    29,068    9,859    194.8%
Net operating profit before provisions for loan losses   1,368,597    908,475    840,154    8.1%
Provision for loan losses   (226,532)   (150,372)   (161,362)   (6.8%)
Net operating profit   1,142,065    758,103    678,792    11.7%
Personnel salaries and expenses   (292,296)   (194,026)   (194,184)   (0.1%)
Administrative expenses   (170,029)   (112,865)   (113,685)   (0.7%)
Depreciation and amortization   (54,836)   (36,400)   (30,188)   20.6%
Op. expenses excl. Impairment and Other operating expenses   (517,160)   (343,291)   (338,057)   1.5%
Impairment of property, plant and equipment   (526)   (349)   (85)   —%
Other operating expenses   (81,347)   (53,998)   (48,244)   11.9%
Total operating expenses   (599,033)   (397,638)   (386,386)   2.9%
Operating income   543,033    360,465    292,406    23.3%
Income from investments in associates and other companies   2,418    1,605    1,172    36.9%
Income before tax   545,450    362,070    293,578    23.3%
Income tax expense   (102,969)   (68,351)   (50,776)   34.6%
Net income from ordinary activities   442,481    293,719    242,802    21.0%
Net income discontinued operations   —    —    —    —%
Net income attributable to:                    
Non-controlling interest   1,368    908    1,063    (14.6%)
Net income attributable to equity holders of the Bank   441,113    292,811    241,739    21.1%

 

1. The exchange rate used to calculate the figures in dollars was Ch$663.80 / US$1

 

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Annex 4: Quarterly income statements

 

(graphic)   Unaudited Quarterly Income Statement

 

   2Q17   2Q17   1Q17   2Q16   2Q17/2Q16   2Q17/1Q17 
   US$ Ths1  

Ch$ Million

   % Chg. 
Interest income   829,881    550,875    523,968    556,208    (1.0%)   5.1%
Interest expense   (311,601)   (206,841)   (205,393)   (227,771)   (9.2%)   0.7%
Net interest income   518,280    344,034    318,575    328,437    4.7%   8.0%
Fee and commission income   174,099    115,567    115,295    105,647    9.4%   0.2%
Fee and commission expense   (65,877)   (43,729)   (42,472)   (41,775)   4.7%   3.0%
Net fee and commission income   108,222    71,838    72,823    63,872    12.5%   (1.4%)
Net income (expense) from financial operations   5,458    3,623    1,276    45,706    (92.1%)   183.9%
Net foreign exchange gain   47,879    31,782    35,456    (17,846)   —%   (10.4%)
Total financial transactions, net   53,337    35,405    36,732    27,860    27.1%   (3.6%)
Other operating income   24,177    16,049    13,019    4,611    248.0%   23.3%
Net operating profit before provisions for loan losses   704,016    467,326    441,149    424,780    10.0%   5.9%
Provision for loan losses   (115,261)   (76,510)   (73,862)   (83,436)   (8.3%)   3.6%
Net operating profit   588,756    390,816    367,287    341,344    14.5%   6.4%
Personnel salaries and expenses   (152,682)   (101,350)   (92,676)   (101,217)   0.1%   9.4%
Administrative expenses   (81,927)   (54,383)   (58,482)   (54,991)   (1.1%)   (7.0%)
Depreciation and amortization   (28,289)   (18,778)   (17,622)   (15,843)   18.5%   6.6%
Op. expenses excl. Impairment and Other operating expenses   (262,897)   (174,511)   (168,780)   (172,051)   1.4%   3.4%
Impairment of property, plant and equipment   (249)   (165)   (184)   (48)   —%   (10.3%)
Other operating expenses   (52,999)   (35,181)   (18,817)   (32,010)   9.9%   87.0%
Total operating expenses   (316,145)   (209,857)   (187,781)   (204,109)   2.8%   11.8%
Operating income   272,611    180,959    179,506    137,235    31.9%   0.8%
Income from investments in associates and other companies   1,333    885    720    641    38.2%   22.9%
Income before tax   273,944    181,844    180,226    137,876    31.9%   0.9%
Income tax expense   (46,916)   (31,143)   (37,208)   (21,114)   47.5%   (16.3%)
Net income from ordinary activities   227,028    150,701    143,018    116,762    29.1%   5.4%
Net income discontinued operations   —    —    —    —    —%   —%
Net income attributable to:                              
Non-controlling interest   399    265    643    462    (42.6%)   (58.8%)
Net income attributable to equity holders of the Bank   226,629    150,436    142,375    116,300    29.4%   5.7%

 

1. The exchange rate used to calculate the figures in dollars was Ch$663.80 / US$1

 

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Annex 5: Quarterly evolution of main ratios and other information

 

(Ch$ millions)            
  Jun-16   Sep-16   Dec-16   Mar-17   Jun-17 
Loans                    
Consumer loans   4,239,461    4,311,786    4,446,803    4,502,447    4,469,821 
Residential mortgage loans   8,321,626    8,471,975    8,619,356    8,747,324    8,861,371 
Commercial loans   13,602,948    13,807,911    13,867,465    13,850,836    13,589,218 
Interbank loans   236,532    276,703    272,807    352,044    235,614 
Total loans (including interbank)   26,400,567    26,868,375    27,206,431    27,452,650    27,156,024 
Allowance for loan losses   (795,405)   (812,707)   (820,311)   (806,005)   (799,442)
Total loans, net of allowances   25,605,162    26,055,668    26,386,120    26,646,646    26,356,582 
                          
Deposits                         
Demand deposits   7,238,303    6,913,452    7,539,315    7,408,618    7,195,893 
Time deposits   12,997,791    13,126,798    13,151,709    12,700,210    12,059,284 
Total deposits   20,236,094    20,040,250    20,691,024    20,108,828    19,255,177 
Mutual funds (Off balance sheet)   4,881,450    5,269,815    5,026,068    5,489,733    5,562,941 
Total customer funds   25,117,544    25,310,065    25,717,092    25,598,561    24,818,118 
Loans / Deposits1   95.1%   95.6%   92.1%   95.7%   100.3%
                          
Average balances                         
Avg. interest earning assets   28,628,066    28,979,918    29,901,912    30,381,349    29,917,800 
Avg. Loans from reporting segments   25,980,829    26,550,078    26,952,880    27,246,674    27,036,649 
Avg. assets   35,195,160    35,869,635    36,163,077    36,629,695    35,860,060 
Avg. demand deposits   7,280,495    7,132,397    7,094,735    7,370,951    7,195,893 
Avg equity   2,714,063    2,755,631    2,833,913    2,914,173    2,887,236 
Avg. free funds   9,994,558    9,888,028    9,928,649    10,285,124    10,339,020 
                          
Capitalization                         
Risk weighted assets   26,876,727    27,130,807    27,237,835    27,492,643    27.133.274 
Tier I (Shareholders’ equity)   2,704,685    2,794,109    2,868,706    2,968,491    2,895,250 
Tier II   781,772    786,936    789,001    792,549    799,032 
Regulatory capital   3,486,457    3,581,046    3,657,707    3,761,040    3,694,282 
Tier I ratio   10.1%   10.3%   10.5%   10.8%   10.7%
BIS ratio   13.0%   13.2%   13.4%   13.7%   13.6%
                          
Profitability & Efficiency                         
Net interest margin (NIM)2   4.6%   4.5%   4.2%   4.2%   4.6%
Client NIM3   4.7%   4.9%   4.8%   4.8%   5.0%
Efficiency ratio4   43.8%   41.1%   44.3%   40.0%   40.4%
Costs / assets5   1.9%   1.9%   1.9%   1.8%   1.9%
Avg. Demand deposits / interest earning assets   25.4%   24.6%   23.7%   24.3%   24.1%
Return on avg. equity   17.1%   17.7%   15.3%   19.5%   20.8%
Return on avg. assets   1.3%   1.4%   1.2%   1.6%   1.6%
Return on RWA   1.7%   1.8%   1.6%   2.1%   2.2%

 

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(Ch$ millions)

   Jun-16   Sep-16   Dec-16   Mar-17   Jun-17 
Asset quality                         
Impaired loans6   1,645,082    1,594,267    1,615,441    1,667,145    1,705,257 
Non-performing loans (NPLs) 7   566,177    556,965    564,131    594,855    587,107 
Past due loans8   340,761    336,337    324,312    330,207    260,830 
Loan loss reserves   795,405    812,707    820,311    806,005    799,442 
Impaired loans / total loans   6.2%   5.9%   5.9%   6.1%   6.3%
NPLs / total loans   2.1%   2.1%   2.1%   2.2%   2.2%
PDL / total loans   1.3%   1.3%   1.2%   1.2%   0.96%
Coverage of NPLs (Loan loss allowance / NPLs)   140.5%   145.9%   145.4%   135.5%   136.2%
Coverage of PDLs (Loan loss allowance / PDLs)   233.4%   241.6%   252.9%   244.1%   306.5%
Risk index (Loan loss allowances / Loans) 9   3.0%   3.0%   3.0%   2.9%   2.9%
Cost of credit (prov expense annualized / avg. loans)   1.3%   1.4%   1.3%   1.1%   1.1%
                          
Network                         
Branches   468    464    434    415    406 
ATMs   1,484    1,406    1,295    1,288    1,059 
Employees   11,653    11,557    11,354    11,229    11,068 
                          
Market information (period-end)                         
Net income per share (Ch$)   0.62    0.65    0.58    0.76    0.80 
Net income per ADR (US$)   0.37    0.39    0.35    0.46    0.48 
Stock price   31.92    34.04    37.26    41.37    42.24 
ADR price   19.37    20.69    21.87    25.08    25.41 
Market capitalization (US$mn)   9,126    9,747    10,303    11,816    11,971 
Shares outstanding   188,446.1    188,446.1    188,446.1    188,446.1    188,446 
ADRs (1 ADR = 400 shares)   471.1    471.1    471.1    471.1    471 
                          
Other Data                         
Quarterly inflation rate10   0.9%   0.6%   0.5%   0.5%   0.7%
Central Bank monetary policy reference rate (nominal)   3.50%   3.50%   3.50%   3.00%   2.50%
Observed Exchange rate (Ch$/US$) (period-end)   661.49    659.08    660.00    662.66    663.80 

 

1. Ratio =(Net Loans - portion of mortgages funded with long-term bonds) / (Time deposits + demand deposits)

2. NIM = Net interest income annualized divided by interest earning assets

3. Client NIM = Net interest income from reporting segments annualized over average loans

4. Efficiency ratio =(Net interest income+ net fee and commission income +financial transactions net + Other operating income +other operating expenses) divided by (Personnel expenses + administrative expenses + depreciation). Excludes impairment charges

5. Costs / assets = (Personnel expenses + adm. Expenses + depreciation) / Total assets

6. Impaired loans include: (A) for loans individually evaluated for impairment, (i) the carrying amount of all loans to clients that are rated C1 through C6 and (ii) the carrying amount of loans to an individual client with a loan that is non-performing, regardless of category, excluding residential mortgage loans, if the past-due amount on the mortgage loan is less than 90 days; and (B) for loans collectively evaluated for impairment, (i) the carrying amount of total loans to a client, when a loan to that client is non-performing or has been renegotiated, excluding performing residential mortgage loans, and (ii) if the loan that is non-performing or renegotiated is a residential mortgage loan, all loans to that client.

7. Capital + future interest of all loans with one installment 90 days or more overdue.

8. Total installments plus lines of credit more than 90 days overdue.

9. Based on internal credit models and SBIF guidelines. Banks must have a 100% coverage of risk index.

10. Calculated using the variation of the Unidad de Fomento (UF) in the period.

 

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