Banco Santander Chile Q2 2025 Earnings Report

Banco Santander Chile EPS Results

• Actual EPS: $0.60
• Consensus EPS: $0.62
• Beat/Miss: Missed by -$0.02
• One Year Ago EPS: N/A

Banco Santander Chile Revenue Results

• Actual Revenue: $757.38 million
• Expected Revenue: $758.17 million
• Beat/Miss: Missed by -$794.00 thousand
• YoY Revenue Growth: N/A

Banco Santander Chile Announcement Details

• Quarter: Q2 2025
• Date: 7/31/2025
• Time: Before Market Opens
• Conference Call Date: Tuesday, August 5, 2025
• Conference Call Time: 11:00AM ET

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

Banco Santander Chile Q2 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Banco Santander Chile delivered ROE above 20% for the fifth consecutive quarter, reporting a net income of MXN 273 billion and a 24.5% ROE in Q2’25.
• Positive Sentiment: The bank completed its mainframe-to-cloud migration and rolled out smart POS terminals and local transaction hubs, bolstering its digital strategy and expanding its client footprint.
• Negative Sentiment: Loan book growth guidance was lowered to low single digits for 2025 as election-related uncertainty and global trade tensions temper corporate and consumer lending demand.
• Positive Sentiment: Asset quality is improving, with the commercial NPL ratio down to 3.6%, mortgage delinquencies stabilizing, and the cost of risk expected to decline to around 1.35% by year-end.
• Neutral Sentiment: Chile’s November presidential election, ongoing tariff disputes and potential interchange fee caps may drive near-term volatility, though management expects limited long-term legislative impacts.

Presentation

[Operator]

Ladies and gentlemen, thank you for standing by. I'd like to welcome you to Banco Santander Chile's Second Quarter twenty twenty five Earnings Conference Call on the 08/05/2025. Please note that at this point, all participant lines are in listen only mode. After the call, there will be an opportunity to ask questions. So with this, I would now like to pass the line to Patricia Perez, the Chief Financial Officer.

[Patricia Pérez, CFO at Banco Santander-Chile]

Please go ahead. Good morning, everyone. Welcome to Banco Santander Chile's Second Quarter twenty twenty five Results Webcast and Conference Call. This is Patricia Perez, CFO, and I'm joined today by Cristian Liguena, Head of Strategy and IR and Andres Alcone, our Chief Economist. Thank you, everyone, for joining us today to review of our second quarter performance and results.

[Patricia Pérez, CFO at Banco Santander-Chile]

Today, Andres will start with an overview of the economic environment and then Christian will go through the key strategy points and the results of the bank in the second quarter of the year. After that, we will have a Q and A session where we will be happy to answer your questions. So let me hand over to Andres.

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

Thanks, Patricia.

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

On Slide four, we have our current outlook. Since our last webcast, the tariff agenda has seen several developments. After postponing the implementation of new tariffs from the ninth through August 1, The U. S. Reached trade agreements with multiple economies.

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

This includes tariff of around 20% on several Asian countries and 15% on the Eurozone. For Chile, the 10% rate will remain in place, which corresponds to the minimum threshold established. Although there were initial threats of a 50% tariff on copper prices, the Trump administration ultimately decided not to apply it to include materials such as concentrate, cathodes, anodes and copper scrap, all of which were excluded from the final decision. While market reaction has been relatively new so far, price and geopolitical uncertainty has increased. During the quarter, the peso briefly reached MXN 1,000 per dollar following the announcement of oneration date before returning to the $9.30, $9.40 range.

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

However, renewed trade tensions have led to depreciation of the peso, currently trading around $9.70 per dollar, above our model based estimate of approximately $9.40. Long term interest rates in Chilean peso have declined, narrowing the spread against The U. S. Counterparts. On the activity side, preliminary Imasec figures suggest GDP grew 2.9% year on year in the second quarter or 3% when excluding mining.

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

While we await the full national account report on August 18, which will also include first quarter revisions, the better than expected performance in the first half introduced upward bias to our full year 2025 growth forecast currently at 2.1%. In terms of inflation, the second quarter inflation surprised on the downside due to a drop in food prices and discounts associated with Cyber Day, with the annual exchange reaching 4.1% in June. We expect this inflation process to continue given the softer demand environment, both globally and domestically. Additionally, global trade diversion triggered by tariffs could reduce the prices of imported goods, supporting faster disinflation. We maintain our forecast for The U.

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

S. At 3.6% for the 2025 and three percent by year end in 2026, in line with the Central Bank expectation with the risk due to the bounce. Last week, the Central Bank made its first policy rate cut of the year, reducing the benchmark rate from 5% to 4.75% and signaling openings to another cap later this year. In our base scenario, the policy rate will grow 2025 at 4.5% and reach 4% in 2026, which is close to its neutral level. On Slide five, we present recent developments in the regulatory framework.

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

In the context of the fiscal tax, the government announced the submission of a proposal to amend the income tax with a focus on SMEs. The reform extends most SMEs from the first category tax and also includes benefits for the middle class. The estimated cost of the measure is $1,000,000,000 annually to be offset by higher personal income tax rates for the upper income bracket. The proposal does not include changes to the corporate tax rate for large companies. On the housing front, the mortgage subsidy bill was approved on 05/20/2025.

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

The legislation targets individual purchasing new homes valued at up to $4,000 It includes a 60 basis point subsidy on mortgages rate as well as a state guarantee of up to 60% for half the long term, covering up to 50,000 new homes. On June 19, the first auction was held with 12 financial institutions participating and a total of $10,000,000 awarded. In this initial auction, Santander secured 18.3% of the total, the highest among our peers and just below our national market share in this part. Finally, regarding the political landscape, 2025 is a presidential election year in Chile. Elections will be held on November 16 with a potential runoff on December 14.

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

Primaries took place on June 29 with only the ruling coalition in Ilhao for Chile participating. Their candidate, Janet Scara, was elected. Right wing parties choose not to participate in primaries. According to the latest current poll, right candidate, Jose Antonio Cast, leads the rights with 30% support, followed closely by left wing candidate Dennis Carra and center right candidate Eberly Matteo with 14%. While the presidential rate has gained visibility, we must not overlook the parliamentary elections where the entire lower house and nearly half of the Senate will be renewed.

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

All show that the Chilean remains highly concerned with crime, security and the business environment. Simulation suggests the right wing candidates may gain ground in Congress, driven by local campaigns emphasizing security. This implies that even if the left wing candidate wins the presidency, Congress could meanwhile potentially moderating more radical policy initiatives. As such, while some electoral related volatility is likely in the near term, we believe the longer term market impact will be limited. However, rising political polarization will likely continue to hinder the possibility of reaching meaningful agreements on legislation aimed at boosting long term GDP growth.

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

And with that, I will now hand it over to Christian. Thanks, Andres. During the year, we have continued to make important advances in achievements in 2025 that we are very proud as we can see on Slide seven. As we mentioned in our last call, we completed the milestone of migrating our legacy mainstream service to the cloud in the project that we have named Gravity within Santander. So since the first quarter, we are now operating 100% on the cloud, an important stepping stone for digital part of our strategy to become a digital bandwidth branch or work assets in Cuba.

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

In this line, we have launched some interesting initiatives in recent months. Firstly, we have enhanced the functionality of our smart POS, allowing merchants to carry out banking transactional services such as receiving deposits and cash withdrawals, top ups and payments of utility bills. It is even possible to open a simple digital account through these points of sales. We have also launched Santander to Comuna, a small transaction hub near local district authorities, where we can offer financial services to the community. These efficient service points are expanding our footprint in communities coming even closer to our clients in their day to day life.

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

With a longer term view of expanding our client base, we have enabled a simple savings account for children from birth, looking to compete in this product that up until now has been mainly centralized through the state bank in Chile. Overall, these initiatives aim to increase transactionality and strengthen our funding base going forward. During the first semester of 2025, we have continued to issue debt actively on the local and international market, issuing in Swiss francs, Japanese yen and U. S. Dollar.

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

We have also been highly recognized on several fronts. We continue to be highly ranked in terms of sustainability with an A grade in the MSCI Sustainability Index and 19.2 points in sustainability with low risk. We are proud to have won the best bank in Chile by Euromoney and best private bank. And we also won the top employer certification for the seventh consecutive year. Furthermore, the mutual funds that we broker won over 40 awards in different categories.

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

On Slide eight, we can see that, yet again, the bank produced impressive results, reaching an ROE of 25.1% in the first six months of 2025 with a net income of $550,000,000,000 and an ROE of 24.5% in the second quarter of the year with a net income of MXN $273,000,000,000. This is the fifth consecutive quarter with an ROE above 20%. As we will see on the coming slides, this is a result of sustained strong profitability in our main income lines, good cost control and to our strategy focused on a digital brand with work at us. On Slide nine, we can see how our rapidly expanding client base is leading to higher fee generation. We currently have 4,500,000 clients, of which around 60% actively engaged with us and some 2,300,000 are digital, accessing the online platform on a monthly basis.

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

The number of current accounts is increasing 10% year on year, driving the 78% growth of our active clients and legal clients respectively. With this increase in the client base, we are seeing a 12% yearly increase in credit card transactions and a 19% increase in mutual funds that we broker. Overall, our clients maintained high satisfaction levels with the bank and our product offering. Furthermore, we continue to expand our footprint among companies, where we have increased the number of business current accounts by 25% in the last twelve months. This is explained by the simple business accounts we offer to smaller companies and the integrated payments offered through YESNET.

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

We now have more than 212,000 YESNET clients, representing an annual increase of 21%, and GetNet now have a market share of 20% in terms of numbers of truck pressure. As we don't see in the table on the right, the increase in our client base and product usage is translating into high fees and results from financial transactions, growing 16.3% year on year. Our main products such as account fees, municipal fund fees and GEMET continue to show strong results in the quarter, while card fees followed similar trends to the first quarter this year. On Slide 10, we can see how our net interest margin has been improving over the last twelve months to stabilize in levels of around 4.1%. In the last year, our NIM has improved some 100 basis points.

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

Firstly, when we compare the 2025 to those of 2024, we have a slightly higher U. S. Variation, which, as you know, directly affects our readjusted income. The 2024, our net interest margin was negatively affected by our balance sheet position related to JETTIC, the credit rating given to us by the Central Bank. However, after the final payment of debt in July 2024, we have seen a market improvement, representing 60 basis points of NIM in the period.

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

Our types of loss of our cost of funds has led to a further 50 basis point improvement in our net interest margin. This has been compensated by the contraction of interest earned on our assets related to the decrease in our available for sale portfolio due to the payment of the SKI team and a stable loan book year on year. In the quarter, our earnings net margin remained stable following the solid trends of the first quarter of the year. On Slide 11, we can see how our recovery of income generation and technical control has improved our key performance metrics. Our efficiency ratio reached 35.3, the best in the Chilean industry in 2025 so far, and our reference ratio reached 62%, meaning that over 60% of our expenses were financed by our fee generation.

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

During the 2025, we have seen an increase in our operating expenses related to the integration of our mainframe server to the cloud, leading to an increase in administrative expenses mainly in the first quarter of the year. However, overall, our cost grew below inflation in the year so far. In the quarter, we continued to look for efficiencies in our branch network, closing some traditional branches while we remodeled and refurbished to ensure a more efficient usage of space while upgrading aesthetic appearance in line with our work at. It is thanks to these adjustments to our contact points with clients along with the evolution of our geekboob platforms that we have been able to achieve these impressive levels of operating efficiency performance. On Slide 12, we show an overview of our cost of risk and asset quality.

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

As we have seen in previous quarter, our cost of credit has been higher than our historical levels due to an increase in nonperforming loans in recent quarters. Also, it is important to note that in June 2025, similar to the previous year, we adjusted the valuation of guarantees in the commercial loan portfolio as part of our review of the provisioning mode. This year, we mitigated this impact by using 20,000,000,000 of bonus credit provisions published in previous years. From the graph on the right, you can see that our NPL and impaired portfolio showed a reduction in absolute value and also a ratio in terms of total loans despite stable loan, demonstrating tangible improvements in our asset quality and early signs of asset quality recovery. On Slide 13, we can follow the improvements by chart.

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

Firstly, in our mortgage loan book, we can see that in absolute value, the nonperforming loans have now stabilized while the incurred loans increased marginally as more delinquent clients renegotiated their mortgage. Overall, we have seen clear signs of stabilization of the asset quality of this portfolio. Regarding commercial loans, the bank focused the courts on improving the portfolio with several renegotiation initiatives and writing off some individual clients. With this, we have seen an absolute value of nonperforming loans and impaired loans fall relevantly, and our NPL ratio is now at 3.6%. On the other hand, our consumer loan has remained healthy during this cycle, thanks to our positioning of consumer lending to the mid to high income sectors.

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

On Slide 14, we can see the CET1 ratio reached 10.9% in June 2025, far above from our minimum requirement of 9.08% for December 2025 and demonstrating some 30 basis points of capital creation in the last twelve months. This was driven by our income generation in 2024 and 'twenty five and compensated by the 70% dividend payment of our 2024 profits and the current 60% dividend provision of our 2025 profits accumulated so far. As we mentioned in our last call, we had a '25 basis point Pillar two charge, of which we have fulfilled the 50% required by our regulator in June 2025. Recently, at the July, the CMS published the definitive guidelines for Pillar two in Chile. The regulation adjusts the metrics related to a market risk in the banking group and the definition of when a bank qualifies to be a prioritized bank.

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

According to the C and I report, 10 banks could be classified as priority banks. This is the same number of banks who currently have a pillar to charge. Banks will have to start reporting the new metrics related to the market risk of the banking book in December 2025, and the other assets will be implemented starting with the self assessment of regulatory capital report to be submitted in April 2027. So let's start let's look at our outlook for the rest of 2025 on Slide 16. Firstly, we are considering a macro scenario of GDP growth of around 2.1% with The U.

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

S. Variation of 3.6% and average monetary policy rate of 4.9%. Given the demand dynamics that we have seen this year so far, we are lowering our expectations for loan book growth to low single digits. At the beginning of this year, we were expecting a reactivation of the commercial loan book with stronger trends coming from the consumer loan book too. However, now we are starting August, and we continue to see good demand.

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

And given the upcoming elections and the global uncertainty in the background, we expect our loan book to grow low single digits. On the other hand, our net interest margin should remain within guidance, with the third quarter impacted by the lower expected inflation. We expect our non NII guidance to grow high single digits with further interchange fee regulation not expected until the end of the year. Our efficiency levels should remain around the current levels, so mid-30s. Considering that we now see better current turns in terms of asset quality, but the cost of risk was 1.39% year to date.

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

We expect the cost of risk to improve slightly during the second semester to finish the year around the 1.35% error. Overall, we continue to see solid profitability in what remains of the year. So we are expecting ROEs of 21% to 23% range. With this, I finish the presentation. So now we can start the Q and A session.

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

Thank you very much. We'll now be moving to the Q and A part of this call. 2. And if you're dialed in by the web, you can also request to ask a voice question. We'll wait a few moments for the questions to come in.

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

Okay. So our first question is from Ernesto Gabelondo from Bank of America.

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

Patrice, Andres and Christian, thanks for the opportunity to ask questions. I know a couple of from my side. Third one will be on your cost of risk. So as of the second quarter, consumer loans represent 15% of the total loan book. So what do you see its contribution in the future?

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

And how would you see the sustainable cost of risk for Santander Chile? And then my second question is on your long term sustainable ROE. As you guided, it could be between 21%, 23% for this year. But how should we think about it in the medium term? And what would be the common equity Tier one ratio that you will be assuming under that scenario?

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

Ernesto, thank you for your questions. So regarding the cost of risk on the consumer part of the portfolio, So we are seeing some healthy growth demand from credit cards that will translate into consumer loans in the medium horizon. So we expect that the consumer lending demand continues to be a little bit above our average growth of loans, right? So in with that in mind, we are seeing very healthy metrics from our cost of risk of the consumer lending portfolio. And this is what makes us believe that we will be in the 1.35 range.

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

So a slight improvement in the second half of the year for the portfolio. And we expect to increase slightly the contribution of the consumer portfolio within the total loan. So regarding your long term ROE, so we reviewed our long term ROE recently about a couple of quarters ago from a range of 17% to 19% to about 20%. So what we have seen after the pandemic period and the high interest rate environment is that most of the transformation decisions that we have implemented in terms of our structure and the evolution of our digital stack are allowing us now to deliver very, very efficient levels for our retail universal bank. So we're very having that in mind and allowing us our our our fees and non NII income to grow handsomely as we are expanding our customer base, we're we're confident we are going to be above 20% ROE for for the long term.

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

Excellent. Thank you very much. Just a follow-up in terms of the cost of risk. So, yeah, I understand 1.35 that area for this year, but looking maybe for the next year, I'm expecting inflation to remain relatively at that level considering this slightly higher contribution in consumer loans? Or how should we think about this ratio I

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

As as we mentioned in the call, we are going slightly above our long term average. So we should have a normalization. It's not going to be a fast normalization. I think it's the the issues were coming from the consumer lending portfolio. Those issues tend to slow faster.

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

Issues in the mortgage portfolio tend to digest more slowly. So we are going to gradually go back to levels closer to 1.2% of the risk. So that's that's going to take a couple of periods. I'm I'm the part of your q q one assumption. So that should be closer to 11 area.

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

So where we are now, we are we are where I and we feel, like, comfortable.

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

Okay. Excellent. Super helpful. Thank you very much.

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

Thank you, Neto.

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

Thank you very much.

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

Our next question is from Tito Labakta from Goldman Sachs. Your line is now open. Please go ahead.

[Tito Labarta, Vice President at Goldman Sachs]

Hi. Good morning. Thank you for the call and taking my question. A couple of questions also. I guess, first on your loan growth, as you mentioned, it seems mostly weakness in the commercial book, maybe partly going into the elections as well.

[Tito Labarta, Vice President at Goldman Sachs]

So do I mean, do you think going into next year, once you pass the elections, do you expect the loan growth to potentially accelerate? And if so, how much? And, you know, the consumer, you mentioned, you know, auto credit cards are doing fairly well. But should the rest of the consumer portfolio also accelerate sort of after elections? Just just to think about, you know, what kind of loan growth we could think about for 2026.

[Tito Labarta, Vice President at Goldman Sachs]

And then second question on fees, you know, good performance there, continues to grow at a fairly healthy pace. Yes, also kind of thinking more beyond 2025 since you have your guidance for this year. But is this high single digit growth that you're seeing, do you think that can sustain as well into next year? I know you said that there shouldn't be any impact, I guess, on season to year end, but do you expect some new regulation to potentially impact 'twenty six as well just to think about longer term fee growth?

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

You, Didu. Let me take the key question, and I'll pass the word to Patricia for the loan book expansion. Well, first, it's a little too early for us to start into the 2026 guidance, but let me try to give you some clues of what to expect. So this year, performance have been driven by the increasing fees explained by the expansion of our customer base. So that dynamic should continue, and that's why we are aiming, part of our core strategy, to grow the non NII lines handsomely and above our asset growth.

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

So that's something that should be expected. There are a couple of moving parts that we are seeing for next year. And the first one and maybe the most important one is the impact that can come from further interchange fee limit on prices that we might suffer in the final quarter of this year. Right? So there are some studies being done by Ministry of Finance and the commission that is assigned for this decision, and we expect that to come to our ruling by year end.

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

So if you remember our initial assessment of this two movement interchange fee cap, it was about 50,000,000,000 of total impact, and we only have seen half of that. So that's one thing to consider moving on to 2026. Having said that, we are still expecting that our non NII income grows faster than the loan book. And with that, I'll pass the word to Bastis.

[Patricia Pérez, CFO at Banco Santander-Chile]

Thanks, Tito, for your question. Regarding the loan growth, we are seeing, like, on the retail side of our portfolio, as Christian already mentioned, quite healthy growth on the consumer loan. Consumer lending shows already account size of a pickup with credit card loans growing around 10% year on year, and this should lead to more demand for installment loans. And regarding SMEs, we continue to grow strongly. On the mortgage portfolio, we are seeing that this subsidy bill that was passed on May should help to activate the real estate market and mortgage loans as well going forward.

[Patricia Pérez, CFO at Banco Santander-Chile]

And as you already mentioned, large corporate has been has grown lower than we were expecting at the beginning of the year. And this is our big question mark. We think that it's too early to say something regarding loan growth for next year. But obviously, the political landscape could help to reactivate all the investment project and projects and demand from larger corporates. Corporate.

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

Our next question is from Vietro Nabili Rus from BTG.

[Pietro Nobili Ruz, Asset Management Local Equities Analyst at BTG Pactual Chile]

My question is very related to the last one. But I would like to know, given that the rate on economic situation in the last year, your total loan portfolio changed just for sure and the proportion. But your initiative to change this and, for example, come back to a 17% in the commercial no. Sorry. Consumer portfolio.

[Pietro Nobili Ruz, Asset Management Local Equities Analyst at BTG Pactual Chile]

And how long can take this to come back to the numbers of the years before?

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

Thanks for the questions, Pietro. So organically, we will try to grow our consumer lending book, but without rushing it because nothing good comes from rushing growth in the in those portfolios. I mean, we have to be a very, very smart and conservative lender in that area. So that's what we're trying to do. We are trying to achieve growth with a good deployment of our capital there.

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

There are some other initiatives that we might tap into. Like, we might try to rotate some risk or try to securitize some part of their portfolio if some changes in regulation are implemented that we are currently discussing with the relevant player and regulator in order to reignite the the securitization system within within the country. So that could help, but it's going to take a while. It's not going to be a fast movement that, let's say, they're going to converge in twenty four months to that ratio, something that's going to be gradual. But we're we're taking the the the steps one by one.

[Pietro Nobili Ruz, Asset Management Local Equities Analyst at BTG Pactual Chile]

Okay. Thank you.

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

Our next question is from Neha Agarwala from HSBC.

[Neha Agarwala, SVP at HSBC]

Hi. Congratulations on the results. Very quickly, what are the, main risks that you see around the business, with the upcoming elections? We are definitely seeing muted loan growth. But beyond that, do you see any other risks from the macro side or from any other risks on the asset quality that we should be mindful of for the rest of the year? Thank you so much.

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

Thanks for your question, Maybe, Andre, do you have to add something to say here? Yes. From the macro perspective, the main ways to see this outlook continue to have been from abroad, particularly US China trade dynamics. And in that sense, a sharper than expected global slowdown, especially in The US, will have a meaningful negative impact on Chile's domestic economic momentum. So so as as I've just mentioned, most of our risk, you know, are are currently being assessed by by from abroad.

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

We are seeing a relatively positive scenario for the political elections, given the surveys that we are seeing that suggest a more market friendly environment. But having said that, the results from the primary round of collection actually increased the central scenario, but also increased the tail scenarios, right? So a more extreme probability. So that's also something to to monitor. Our next question is from Daniel Mora Aguila from Credit Corp.

[Daniel Mora Ardila, Equity Research Associate at Credicorp]

Hi. Good morning. Thank you for the presentation. I have just one question regarding to the NPLs. I would like to understand where should the NPL normalizing in the coming quarters or years?

[Daniel Mora Ardila, Equity Research Associate at Credicorp]

Because if you compare to the industry level, Santander's NPL is quite high. And due to this situation, I would like to understand what exactly are the reasons behind having a commercial LPL well above the industry level and also a mortgage NPL well above also the the industry level. I would like to understand if this was related to the bank's the the loan mix. I I would like to clarify that that situation. Thank you so much.

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

Thank you, Daniel. So let's take this part by part. So regarding our NPLs in our consumer lending portfolio, actually, those NPLs are are really above the average of our peers and and show a very healthy performance. This is the most active part of the portfolio. So a deterioration here is what impact the NPL, also the P and L the most.

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

Then regarding why our commercial portfolio showed some structural higher NPLs compared to the peers and industry, this is mostly because we have a higher penetration of SME lending within our total commercial loan book. So about onethree of our total loan book is concentrated on SME lending. And this is something that is very related to our strategy to become a universal bank. We cater to the regional customer. That's our specification, and that's that's expected to continue structurally, right, to having a higher NPL ratio, but that's mostly explained by how we we view ourselves as a more retail oriented operation.

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

And finally, regarding the the situation on the mortgage portfolio, we have explained this in in the past, but we have about a 30% of our mortgage group that reprices on a variable rate, and this is higher than the others of the industry. Right? So the typical lending mortgage will be originated on a twenty, twenty five year fixed US product. And we have about 30% that is lent on a yearly U. S.

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

Rate portfolio. That's the part that suffered the most during 2023 and early twenty twenty four where real rates in The U. S. Were high and not repricing damage the payment capability of some of our customer base. And that's reflecting in the 2.7 NPL that we are seeing as of now.

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

The good news is that, that real rate scenario of U. S. Is now below 2%. So the repricing program is not happening anymore, and we are now focused on providing solutions to our customers so they can renegotiate and start paying again. So what we are seeing now is that, that part of portfolio is going to remain stable at levels of 2.7%.

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

And you can see that in absolute terms, it has remained for the last six months pretty much stable. And that's what we expect to start improving on the next quarters, but that's going to be a very gradual recovery. So all in all, we are still expecting some better improvement of the total NPL for the portfolio in the second half of the year. Most of the improvement will come from the commercial portfolio further improvements that we are expecting. But we we are as a whole, we should still be slightly higher than the average of the industry, especially because of our composition of the commercial loan book and our SME orientation. I don't know if this is.

[Daniel Mora Ardila, Equity Research Associate at Credicorp]

No. Perfect. Very, very, very clear. Just to understand, so the normal level of NPL will be very close to the industry level just to understand how far are we from a normalized level of NPLs?

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

I think it's a little too soon to tell for ourselves where we are seeing the long term, but there are still some improvements to the current levels. We should be below 3% by early twenty twenty six. And then that depends on how the evolution of the mortgage on general macro scenario environment evolves. Right? Our next question is from Andrew Garry from Morgan Stanley.

[Andrew Garry, Associate, Institutional Securities Group - Financial Crimes Risk at Morgan Stanley]

I wanted to drill down on the net interest margin a bit more. And I realize this isn't an easy exercise to do, but can you try to walk us through how you're thinking about the path of NIM at least directionally considering your macro expectations for inflation rates, possible loan mix shifts and then obviously your deposit beta. I know you said during the call 3Q will be impacted again by lower expected inflation. But how are you thinking about 3Q versus 4Q this year and then 2026 in terms of the direction of NIM?

[Tito Labarta, Vice President at Goldman Sachs]

Sure. Andrew, let's

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

first review our general sensitivities of our balance sheet. So we're still carrying a long inflation, 8,500,000,000.0 on our new sensitivity to inflation. And regarding our inflation to so this translates of something about 12 basis points of inflation per 100 percentage points of U. S. Valuation.

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

And we have about four to five basis points of sensitivity per 100 percentage points of average monetary policy rate variations on the sensitivity to interest rates. So with that in mind, we, in the third quarter, saw a negative USD 0.4 CPI news in July, and that's going to impact the July performance within the quarter. The rest of the quarter looks more normal. So in the end, we should be at very high threes of NIM for the quarter. And then we expect to come back to levels of above four point zero percent NIM in the final quarter of the year as the inflation path suggests for the market expectations for year end.

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

So with that, we will be very close to 4.1% for the full year, so around above 4% for the year. And we expect something similar for next year. There are between one to two interest rate cuts to be performed by the Chilean Central Bank in the second half of the year, additional to the one that we saw recently. And we are expecting a monetary policy target reaching 4% by the final part of 2026. So with that and inflation converging to 3%, we should be able to sustain NIMs in the current period.

[Andrew Garry, Associate, Institutional Securities Group - Financial Crimes Risk at Morgan Stanley]

Okay. That's very helpful. Thank you so much.

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

Thank you, Andrew. So we have feedback questions that we will like for you to answer after the final questions. I don't know if, Luis, do

[Patricia Pérez, CFO at Banco Santander-Chile]

you have any other questions?

[Operator]

Yeah. We have no no further questions. So we we just shared the survey on your screen, and your feedback would be greatly appreciated. The question and answer section is still open. So just as a reminder, if you'd like to ask a question, please press 2 on your phone.

[Operator]

And if you're dialed in by the web, you can also request to ask a voice question. We'll wait a few moments for the questions to come in.

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

Okay. It looks like we have no further questions. So I'll now hand it back to the Santander Chile team for the closing remarks.

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

Thank you all very much for taking the time to participate in today's call. We thank you also for the answers you provide to our five question survey, and we look forward to speaking with you soon. Have a great day. That concludes the call for today. Please note that the survey will remain open for a few minutes after the call closes. Thank you, and have a nice day.

Participants

Analysts

• Patricia Pérez, CFO at Banco Santander-Chile
• Andrés Sansone, Chief Economist at Banco Santander-Chile
• Ernesto Gabilondo, Director - LatAm Financials Bank of America at Bank of America Merrill Lynch
• Tito Labarta, Vice President at Goldman Sachs
• Pietro Nobili Ruz, Asset Management Local Equities Analyst at BTG Pactual Chile
• Neha Agarwala, SVP at HSBC
• Daniel Mora Ardila, Equity Research Associate at Credicorp
• Andrew Garry, Associate, Institutional Securities Group - Financial Crimes Risk at Morgan Stanley