Market Overview

Banco Santander Chile Announces Third Quarter 2012 Earnings

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SANTIAGO, Chile, Oct. 30, 2012 /PRNewswire/ -- Banco Santander Chile (NYSE: BSAC; SSE: Bsantander) announced today its unaudited results for the third quarter and nine-month period ended September 30, 2012. These results are reported on a consolidated basis in accordance with Chilean GAAP.

3Q12: Net income affected by deflation and one-time provision expense

Net income in the nine-month period ended September 30, 2012 totaled Ch$274,565 million (Ch$1.46 per share and US$1.24/ADR[1]). 3Q12 Net income attributable to shareholders totaled Ch$50,563 million (Ch$0.27 per share and US$0.23[1]/ADR). Compared to 2Q12 (from now on QoQ), net income decreased 52.2%. Compared to 3Q12 (from now on YoY), net income decreased 32.7%. This decline was mainly due to the lower inflation rate in the quarter that negatively affected net interest margins and a one-time provision expense.

Positive evolution of client margins offset by deflation in the quarter

In 3Q12, Net interest income decreased 6.4% QoQ and increased 2.9% YoY. The Net interest margin (NIM) in 3Q12 reached 4.7% compared to 5.0% in 2Q12 and 4.6% in 3Q11. In the quarter, the Bank's margins were negatively affected by deflation. The Bank has more assets than liabilities linked to inflation and, consequently, margins have a positive sensitivity to variations in inflation. In 3Q12, the variation of the Unidad de Fomento (an inflation indexed currency unit), was -0.16% compared to inflation of +0.42% in 2Q12 and +0.56% in 3Q11. This reduction signified a QoQ decrease of net interest income of approximately US$40 million or Ch$19,000 million. This was partially offset by higher client spreads and an improved funding mix. In 4Q12 UF inflation is expected to be greater than 1%, which should drive NIMs back to levels greater than 5%.

Provision expense includes a one-time expense of Ch$24.7 billion in the quarter

Net provision for loan losses in the quarter totaled Ch$119,459 million an increase of 52% QoQ and 32.2% YoY. As previously mentioned in the 2Q12 Earnings Report, in the current quarter, the Bank recalibrated the consumer loan-provisioning model. This resulted in an increase in the minimum provision set aside for consumer loans at origination given the higher risks observed in this portfolio. As a result, gross provision expenses in 3Q12 includes a non-recurring provision expense of Ch$24,753 million.

Solid growth of core deposits

Core deposits (demand deposits + time deposits from non-institutional sources), increased 2.1% QoQ and 12.3% YoY. Core deposits as a percentage of total deposits reached 77.2% compared to 73.3% as of June 2012 and 69.7% as of September 2011. This improved the Bank's funding mix, as non-institutional deposits tend to be cheaper and more stable than other sources of funding. Total deposits decreased 3.1% QoQ as the Bank, given its high structural liquidity, proactively reduced relatively more expensive institutional short-term deposits, which are not considered as structural funding by the Bank. YTD (as of August, 31st), the Bank's market share in terms of total deposits has increased 36 basis points.

Selective loan growth

In 3Q12, total loans increased 0.7% QoQ and 4.7% YoY. Loan growth was driven by the favorable evolution of the Chilean economy and was mainly focused in the high-end of the retail market, SMEs and the middle-market. The Bank continued with its prudent approach to loan growth in the lower end of the consumer loan segment. Loans to individuals increased 0.8% QoQ in 3Q12 and 4.6% YoY. Loans to high-income individuals increased 2.0% QoQ in comparison to a decrease of 1.6% in the mass consumer market. Lending to SMEs (defined as companies that sell less than Ch$1,200 million per year) expanded 3.3% QoQ (8.8% YoY), reflecting the Bank's consistent focus on this growing segment. YTD (as of August 31), the Bank's market share in terms of total loans has decreased 19 basis points.

Solid levels of capital: Core capital at 10.6%, BIS at 13.9%

ROAE as of September 2012 reached 18.1%. Core capital reached 10.6% as of September 30, 2012 and the Bank's BIS ratio reached 13.9% at the same date.  Voting common shareholders' equity is the sole component of our Tier I capital. Santander Chile has not issued new shares in more than 10 years.

Cost growth moderates as key project advance

Operating expenses in 3Q12 decreased 1.5% QoQ led by a 3.6% QoQ decrease in personnel expenses. The Bank continued with its projects of investing in a new Client Relationship Management system and the Transformation Initiatives aimed at enhancing productivity in retail banking. The installment of the new CRM and other initiatives should further limit cost growth in coming quarters.

Institutional Background

As per the latest public records published by the Superintendency of Banks of Chile for August 2012, Banco Santander Chile was the largest bank in terms of assets and equity. The Bank has among the highest credit ratings among all Latin American companies, with an A+ rating from Fitch, A from Standard and Poor's and Aa3 by Moody's. The stock is traded on the New York Stock Exchange (NYSE: BSAC) 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 www.santander.cl

[1] Earnings per ADR was calculated using the Observed Exchange Rate Ch$470.48 per US$ as of Sept. 30, 2012. The ratio of ordinary shares per ADR was modified form 1,039 share per ADR to 400 shares per ADR.

CONTACT INFORMATION
Robert Moreno
Manager, Investor Relations Department
Banco Santander Chile
Bandera 140 Piso 19
Santiago, Chile
Tel: (562) 320-8284
Fax: (562) 671-6554
Email: rmorenoh@santander.cl

Website: www.santander.cl

SOURCE Banco Santander Chile

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