Banco Santander Chile Announces Fourth Quarter 2011 Earnings

SANTIAGO, Chile, February 1, 2012 /PRNewswire/ --

Banco Santander Chile (NYSE: SAN; SSE: Bsantander) announced today its unaudited results for the fourth quarter and full year 2011. These results are reported on a consolidated basis in accordance with Chilean GAAP in nominal Chilean pesos.

In 2011, Santander Chile's ROE reached 23.0% with an efficiency ratio of 38.4%

In 2011 (12M11), Net income attributable to shareholders(1) totaled Ch$435,084 million (Ch$2.31 per share and US$4.60/ADR (2) and decreased 8.8% compared to net income achieved in 2010. ROE reached 23.0% in 12M11, among the highest returns in the Chilean financial system. The Efficiency ratio in 12M11 reached 38.4%, one of the best in Chile.

4Q11: Net income up 35.9% QoQ, driven by solid operating trends

In 4Q11, Net income attributable to shareholders totaled Ch$102,121 million (Ch$0.54 per share and US$1.08/ADR). Compared to 3Q11 (from now on QoQ) Net income increased 35.9%. Compared to 4Q10 (from now on YoY) net income increased 8.8%. During the quarter, the Bank saw an important QoQ improvement in margins and profitability. Gross income net of provisions and costs, a good proxy for recurrent earnings growth, increased 27.1% QoQ and 24.6% YoY in 4Q11. ROE in the quarter reached 20.8% compared to 15.8% in 3Q11.

Our outlook for Chile in 2012 continues to be positive, with GDP expected to grow between 3.8 - 4.0% and inflation to be close to 2.8%. Nonetheless, the Bank has been taking actions on 4 main points during the second half of 2011 in order to maintain sustainable levels of high profitability and efficiency in 2012 even if the external situation has a larger impact on this central scenario: (i) selective loan growth and spreads, (ii) prudent risk policies, (iii) high liquidity, and (iv) strong capital.

I. Net interest margin reached 5.3%, increasing 70bp QoQ

The Bank's Net interest margin reached 5.3% in 4Q11, increasing 70 basis points compared to the net interest margin reached in 3Q11. Net interest income increased 13.8% QoQ and 13.9% YoY in 4Q11. The higher quarterly Net interest income and NIM was mainly due to higher inflation rates in the quarter, since the Bank has more assets than liabilities linked to inflation. Inflation, measured as the variation of the Unidad de Fomento (an inflation indexed currency unit), increased 1.28% in 4Q11 compared to 0.56% in 3Q11 and 0.54% in 4Q10. Higher loan spreads (excluding the impacts of mismatches in inflation indexed assets and liabilities) also helped to boost the Bank's NIM in the quarter. Loan spreads in the quarter went up following the stricter pricing policy implemented in 3Q11 by the Bank.

Selective loan growth led by lending to individuals and SMEs

In 4Q11, total loans decreased 1.9% QoQ and increased 10.8% YoY. The Bank has been following a more selective approach to loan growth in recent quarters. In the quarter, the Bank focused on expanding its higher yielding credit card loan portfolio that increased 1.6% QoQ and 15.9% YoY. Lending to SMEs led growth in the loan book and expanded 1.4% QoQ (7.9% YoY), reflecting the Bank's consistent focus on this expanding segment. Relatively low yielding corporate loans decreased 18.5% QoQ.

II. Lower provision expense in the quarter and a stable evolution of the Bank's Risk Index

Provision for loan losses in the quarter decreased 4.2% QoQ and 13.8% YoY. For the full year, net provision expense increased 0% compared to a 10.8% rise in loans. In addition, during the quarter, the Bank upgraded its provisioning model for loans to SMEs (See Annex 1). This signified a one-time charge of Ch$16bn in 4Q11. This concluded the process started in 2010 of overhauling our retail banking credit risk models. This should permit the credit risk areas to increase feedback regarding potential growth opportunities to commercial teams and allow the Bank to allocate capital more efficiently among business segments.

The Risk Index, which measures the percentage of loans for which the Bank must set aside loan loss allowances, based on our internal models and Superintendency of Banks guidelines, remained stable at approximately 3% throughout 2011 (3.02% in 4Q11). The Bank's Non-performing loans ratio (NPL) increased from 2.8% in 3Q10 to 3.0% in 4Q11. This was mainly due to the fall in large corporate loans and higher growth of the Banks' retail activities. The Coverage ratio of total NPLs (loan loss allowances over non-performing loans) reached 102.4% as of December 2011.

III. Solid growth of core deposits in the quarter

Customer funds (deposits + mutual funds) decreased 2.8% QoQ and increased 10.8% in the year. Core deposits (deposits from non-institutional clients) increased 2.8% QoQ and 29.2% YoY. As of December 2011, core deposits represented 74.6% of our total deposits compared to 67.0% as of December 2010. Our strategy of focusing on liquidity and core deposits in 2011 has resulted in an improved funding mix. The Bank's loan to deposit ratio (measured as loans minus marketable securities that fund mortgage portfolio over total deposits) improved to 95.4% as of December 2011 compared to 99.8% as December 2010.  

IV. Core capital at 11.0% in 4Q11, increasing 80bp QoQ

Shareholders' equity totaled Ch$2,001,222 million (US$3.8 billion) as of December 2011. The Bank's BIS ratio reached 14.7% as of December 31, 2011 compared to 13.9% as of September 2011 and 14.5% as of December 2010. The Bank's core capital ratio reached 11.0% as of December 2011 compared to 10.2% at the end of 3Q11 and 10.6% in December 2010. Voting common shareholders' equity is the sole component of our Tier I capital.

Institutional Background

As per the latest public records published by the Superintendency of Banks of Chile for December  2011, Banco Santander Chile was the second largest bank in terms of loans and deposits. The Bank has among the highest credit ratings among all Latin American companies, with an A+ rating from Standard and Poor's and Fitch and Aa3 by Moody's, which are the same ratings assigned to the Republic of Chile. The stock is traded on the New York Stock Exchange (NYSE: SAN) and the Santiago Stock Exchange (SSE: Bsantander). The Bank's main shareholder is Santander, which controls 67% of Banco Santander Chile.  

For more information see http://www.santander.cl

(1) The results in this report are unaudited and are reported according to Chilean Bank GAAP.

(2) Earnings per ADR was calculated using the Observed Exchange Rate of Ch$521.46 per US$ as of December 31, 2011.